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Texas Legislative Update | April 15, 2019

by DMA Staff | Apr 15, 2019
Texas Legislative Update April 16, 2019

Sales Tax | Cigarette Tax and Other Tobacco Tax | Franchise Tax | Miscellaneous Tax
Mixed Beverage Tax | Motor Fuel Tax | Motor Vehicle Sales Tax | Property Tax
Property Tax Abatement | Severance Tax | Texas Emission Reduction Plan (TERP)
Unclaimed Property

DMA - DuCharme, McMillen & Associates, Inc. provides this Texas Legislative Update relating to the 86th Texas Legislature Regular Session.

The Senate passed its budget on April 9, 2019, and the differences between HB 1 as passed by the House and HB 1 as passed by the Senate will have to be resolved in a conference committee. Both budget versions provide for an additional $9 billion for public education, but they differ on the makeup. The House’s budget would lower school district tax rates, but it is contingent on legislation on school finance reform and property tax relief. The Senate’s budget would provide teacher pay raises and would set aside $2.7 billion for property tax relief that is contingent on legislation.

HB 2 (Burrows, Dustin) and SB 2 (Bettencourt, Paul) are the two primary bills that provide for property tax relief by constraining property tax increases. When introduced, the bills were identical and were titled the Texas Property Tax Reform and Relief Act of 2019. SB 2 was voted out of the Senate Property Tax Committee on February 11, 2019, but Senator Bettencourt has faced obstacles in getting the bill onto the Senate Calendar. HB 2, as substituted by the House Ways & Means Committee, is now titled the Taxpayer Transparency Act of 2019 and contains different rollback provisions.

SB 2 proposes to reduce the rollback rate from 8% to 2.5% for all taxing units with more than $15 million in combined property tax and sales tax revenue and would require small taxing units that fall below the $15 million threshold to hold an election to allow voters in those taxing units to decide to reduce their rollback tax rate from 8% to 2.5%. HB 2, as substituted, would allow school districts, taxing units with maintenance and operations (M&O) rates of 2.5 cents, junior college districts, hospital districts, and emergency service districts to use the current rollback rate of 8%. Taxing units that would see the rollback rate reduced from 8% to 2.5% would be allowed to increase 2.5% by revenue enrichment rate and unused increment rate. HB 2 would define “revenue enrichment” as $250,000 for the 2020 tax year, with adjustment each subsequent year based on the inflation rate, and would define “unused increment” as the rate equal to the positive difference between the aggregate rate by which the rollback rate exceeded the adopted rate in the preceding five years and the aggregate rate by which the adopted rate exceeded the rollback tax rate in the preceding five years. HB 2, as substituted, was scheduled on the House Calendar for April 10, 2019, but it was postponed until April 15, 2019, to allow time for the House to work with the Senate.

SB 2 or HB 2 may also determine whether the legislature will increase the state sales tax rate. On April 10, 2019, Governor Abbott, Lieutenant Governor Patrick and Speaker Bonnen issued a joint statement announcing the following:

"Texans are fed up with skyrocketing property taxes. At the beginning of the legislative session, the Governor, Lt. Governor and Speaker laid out an agenda for property tax relief through the passage of Senate Bill 2 and House Bill 2 to limit property tax growth. In addition to that effort, today we are introducing a sales tax proposal to buy down property tax rates for all Texas homeowners and businesses, once Senate Bill 2 or House Bill 2 is agreed to and passed by both Chambers. If the one-cent increase in the sales tax passes, it will result in billions of dollars in revenue to help drive down property taxes in the short and long term."

We will provide updates on HB 2 or SB 2 in the next DMA legislative update. 

MOVEMENT OF TAX BILLS

Below are tax bills that have been voted out of a committee or that have had other legislative action since DMA’s last update dated April 2, 2019. If you wish to review any of the bills that DMA has summarized, you can retrieve and access bills on Texas Legislature Online at https://capitol.texas.gov/ and review previous DMA blogs.

Sales Tax

HB 1525 (Burrows, Dustin) would require a marketplace provider to collect taxes on taxable items sold through the marketplace provider’s platform. The House engrossed the bill on April 10, 2019. [Note: This is one of the Comptroller’s legislative proposals.]

HB 1729 (Murphy, Jim) would modify the prepayment discount from 1.25% to the lesser of 1.25% or an annually adjusted percentage of the amount of the prepayment that yields an annualized rate of return equal to the prime rate published in The Wall Street Journal on the first business day of each calendar year, plus 4%. The Comptroller would compute the percentage and publish it by January 5 of each year. The House Ways & Means Committee voted out the bill on April 3, 2019.

HB 1965 (Thompson, Senfronia) would provide that amusement services provided by certain nonprofit organizations continue to qualify as exempt amusement services if a nonprofit organization enters a contract with a nonqualifying entity to provide a touring Broadway production under certain circumstances. The House engrossed the bill on April 11, 2019.

HB 2153 (Burrows, Dustin) would permit remote sellers that do not have physical presence in Texas but that are engaged in doing business in the state to collect use tax based on a single local use tax rate in lieu of the current combined local use tax rates. The Comptroller would determine the single local use tax rate effective in a calendar year by computing the estimated average rate of local sales and use taxes imposed in Texas during the preceding state fiscal year. The House engrossed the bill on April 11, 2019. [Note: This is one of the Comptroller’s legislative proposals.]

HB 2684 (Metcalf, Will) would exempt taxable items sold by a nonprofit organization that is exempt from federal income tax under IRC §501(c)(3) at a county fair if the purchaser is a person attending or participating in the fair. The House Ways & Means Committee voted out the bill on April 3, 2019.

HB 3086 (Cole, Sheryl) would amend Tax Code §151.3185 to require an audio recording be an audio master recording to qualify for the exemption and would require the exhibition required by the statute be for consideration. The House engrossed the bill on April 10, 2019. [Note: This bill is one of the Comptroller's legislative proposals.]

SB 1214 (Schwertner, Charles) would amend Tax Code §151.328(a)(5), which currently identifies exempt agricultural uses of an aircraft, by specifying that an aircraft is considered to be for use exclusively in connection with an agricultural use if 95% of the use of the aircraft is for a purpose described as an agricultural use in Subsections (a)(5)(A)-(F). Intrastate travel to a location to perform a service described by Subsections (a)(5)(A)-(F) would not disqualify an aircraft from the exemption. The Senate engrossed the bill on April 10, 2019.
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Cigarette Tax and Other Tobacco Tax

HB 3475 (Guillen, Ryan) would modify the first sale tax imposition provided by Chapter 154 (Cigarette Tax) and Chapter 155 (Cigars and Other Tobacco Products Tax), Tax Code, from first sale in intrastate commerce to first intrastate or interstate sale with certain exclusions. The House Ways & Means Committee voted out a committee substitute on April 10, 2019. [Note: This is one of the Comptroller’s legislative proposals.] On the same day, the House Ways & Means Committee also voted out a committee substitute of HB 4614 (Guillen, Ryan), which is similar, but the proposed changes are limited to cigarette tax only. 
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Franchise Tax

HB 1089 (Darby, Drew) would treat taxable entities that rent industrial uniforms, industrial garments, and industrial linen supplies and that are classified as Industry 7213 or 7218 of the 1987 Standard Industrial Classification Manual as retailers eligible to use the reduced tax rate. The House Ways & Means Committee voted out the bill on April 10, 2019.

HB 1937 (Goldman, Craig) would add a new subchapter to Chapter 171, to allow a taxable entity to claim a franchise tax credit if the taxable entity owns an interest in a qualified low-income housing development. The House Ways & Means Committee voted out the bill on April 3, 2019.

HB 2545 (Guillen, Ryan) would allow a taxable entity that operates a desalination facility to deduct from total revenue any amount received by the entity from the sale of minerals or materials extracted from water by the desalination facility during the desalination process and would allow the taxable entity to claim a franchise tax credit for the production of fresh water of usable quality at the desalination facility. The House Ways & Means Committee voted out a committee substitute on April 10, 2019.

HB 2611 (Morrison, Geanie) would permit a limited liability company to qualify as a passive entity. The House Ways & Means Committee voted out a committee substitute on April 10, 2019.

HB 4198 (Murphy, Jim) would allow a taxable entity that is a performing rights society that licenses the public performance of nondramatic musical works on behalf of a copyright owner to exclude from total revenue payments made to the public performance rights holder and copyright owner for whom the taxable entity licenses the public performance. The House Ways & Means Committee voted out the bill on April 10, 2019.
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Miscellaneous Tax

HB 226 (Krause, Matt) would amend, transfer, repeal and redesignate various criminal offense statutes that are outside the Penal Code and would amend provisions in Chapters 154 and 155, Tax Code, to revise penalties associated with certain offenses such as selling, using, possessing, or buying previously used stamps or old design stamps; transporting untaxed tobacco products; and refusing to permit an inspection of a motor vehicle operated to transport tobacco products. The House engrossed the bill on April 9, 2019.

HB 1543 (Springer, Drew) would require manufacturers of off-highway vehicles to report warranties provided to vehicles sold by non-Texas retailers to Texas residents to the Texas Department of Motor Vehicles and would require the Comptroller to review the reports for use tax assessment purposes. The House Ways & Means Committee voted out a committee substitute on April 3, 2019.

HB 2263 (Paddie, Chris) would amend Tax Code §182.022 to provide that tax may not be imposed on the gross receipts from the sale of electricity to a public school district customer. The House engrossed the bill on April 10, 2019.

HB 3118 (Schaefer, Matt) would add Transportation Code §501.0301 to provide that a county tax assessor may not issue a title receipt for an all-terrain vehicle or recreational off-highway vehicle purchased from an out-of-state retailer unless the applicant certifies that Texas use tax has been paid to the Comptroller. The House Ways & Means Committee voted out the bill on April 10, 2019.

HB 3754 (Burrows, Dustin) would amend Alcoholic Beverage Code §11.38 to allow a city, town or county to enter into a contract with third parties for the collection of an unpaid permit fee and would allow a third-party vendor to assess a collection charge. The House Ways & Means Committee voted out the bill on April 10, 2019.
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Mixed Beverage Tax

HB 2806 (Morrison, Geanie) would require the Comptroller to allocate mixed beverage gross receipts taxes and sales tax receipts attributable to the sale of beer and wine remitted annually by venues and promoters to the Texas music incubator program. The House Culture Recreation & Tourism Committee voted out the bill on April 2, 2019.

HB 3006 (Burrows, Dustin) would add Tax Code §182.0421 to provide that a permittee is required to file a mixed beverage sales tax return no later than 20th day of each month and would provide that if tax is due for a business day that falls in two different months, then the tax should be allocated to the month in which the business day begins. The House Ways & Means Committee voted out a committee substitute on April 10, 2019. [Note: This bill is one of the Comptroller’s legislative proposals.]
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Motor Fuel Tax

HB 791 (Huberty, Dan) would add a definition of "volunteer fire department" to apply to the current exemption for fuel sold to a volunteer fire department for the department’s exclusive use. The House Ways & Means Committee voted out the bill on April 3, 2019.

HB 916 (Guillen, Ryan) would allow an exemption for fuel purchased by a rural transit district. The House Ways & Means Committee voted out the bill on April 10, 2019.

HB 3954 (Burrows, Dustin) would impose tax on gasoline or diesel fuel sold from a marine vessel in Texas to a person who does not hold certain licenses and would require the seller to collect and remit the tax on the fuel. The House Ways & Means Committee voted out the bill on April 3, 2019.
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Motor Vehicle Sales Tax

HB 2338 (Noble, Candy) would modify the definition of "motor vehicle used for religious purpose" so that any motor vehicle, including a passenger vehicle, may qualify for the exemption. The House engrossed the bill on April 9, 2019.

HB 2872 (Burrows, Dustin) would amend Chapter 152, Tax Code, to require a marketplace rental provider to collect motor vehicle rental receipts tax. The House Ways & Means Committee voted out a committee substitute on April 3, 2019. [Note: This bill is one of the Comptroller’s legislative proposals.]
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Property Tax

HB 492 (Shine, Hugh) would add Tax Code §11.35 to provide for a local option exemption for a portion of the appraised value of qualified property that is damaged by a disaster. The House Ways & Means Committee voted out the bill and resolution on April 3, 2019.

HB 639 (Springer, Drew) would modify “qualified open-space land” to require land that is used principally as an ecological laboratory by a public or private college or university to have been used principally in that manner for five of the preceding seven years. The House Ways & Means Committee voted out the bill on April 3, 2019.

HB 861 (Anchia, Rafael) would require a tax assessor to provide in the supplemental tax bill that is sent to a property owner after the final determination of appeals that penalty and interest will be due “if the additional tax is not paid by the delinquency date for the additional tax”. The House Ways & Means Committee voted out the bill on April 1, 2019.

HB 994 (Guillen, Ryan) would specify that the chief appraiser is entitled to a copy of the property owner’s affidavit rather than the current right to inspect it and would require the ARB and the chief appraiser to review the property owner’s evidence and arguments before the protest hearing. The House Ways & Means Committee voted out the bill on April 10, 2019.

HB 1188 (Hefner, Cole) would allow land to be appraised as agricultural land even when a new owner fails to timely file an application if the new owner is related to the prior owner within the second degree by affinity or third degree by consanguinity. The House engrossed the bill on April 10, 2019.

HB 1254 (Murphy, Jim) would repeal Tax Code §23.42(a-1), which currently provides that “on or after January 1, 2008, an individual is not entitled to have land designated for agricultural use if the land secures a home equity loan described by §50(a)(6), Article XVI, Texas Constitution.” The House engrossed the bill on April 3, 2019, and sent the bill to the Senate. [Note: This bill would repeal a provision that conflicts with a constitutional provision adopted in 2017.]

HB 1409 (Ashby, Trent) would amend provisions relating to timber land or restricted-use timber land to provide that land could continue to qualify as timber land or restricted-use timber land even if a portion of the land is used for certain specified activities as long the remainder of the land meets the eligibility requirement. The House engrossed the bill on April 9, 2019.

HB 1743 (King, Tracy) would change the additional tax imposed for changes diverting land from agricultural use and timber land from five years to three years and would change the annual interest rate imposed from 7% to 5%. The House Ways & Means Committee voted out the bill on April 10, 2019.

HB 1745 (Geren, Charlie) would add a new subchapter to Chapter 41, which would allow a property owner or the owner's agent who has filed a notice of protest to bring a lawsuit against an appraisal district, chief appraiser, or appraisal review board (ARB) to compel compliance with a procedural requirement imposed by the chapter or under a rule established by the ARB that is applicable to the protest. The House Ways & Means Committee voted out the bill on April 3, 2019.

HB 1802 (Bohac, Dwayne) would change the deadline to appeal an appraisal review board’s order from 45 days to 60 days. The House Ways & Means Committee voted out the bill on April 3, 2019.

HB 1815 (Sanford, Scott) would change the deadline to file the allocation application from April 1 to May 1. The House Ways & Means Committee voted out the bill on April 3, 2019.

HB 1885 (Bonnen, Greg) would provide that the governing body of a taxing unit may waive penalties and interest on a delinquent tax if the tax bill was delivered to a mortgagee of a property for which the mortgage does not require the owner to fund an escrow account, and the mortgagee failed to mail a copy of the bill, and the taxpayer paid the tax no later than the 21st day after the date the taxpayer knew or should have known of the delinquency. The House Ways & Means Committee voted out the bill on April 10, 2019.

HB 2179 (Wray, John) would amend Tax Code §6.41(f)(3) to change the burden of proof for the removal of a member of an appraisal review board from clear and convincing evidence to evidence of repeated bias or misconduct. The House engrossed the bill on April 3, 2019.

HB 3348 (Guillen, Ryan) would provide that an appraisal of land as agricultural land continues even if there is a temporary cessation of agricultural use because of a temporary quarantine imposed by the Texas Animal Health Commission in its regulation of handling livestock and eradicating ticks or exposure to ticks. The House Ways & Means Committee voted out the bill on April 3, 2019.

SB 449 (Creighton, Brandon) would repeal Tax Code §42.23(i), which was added last session to be effective January 1, 2020. The repealed subsection provides that a court may give preference to an employee of an appraisal district who testifies as to the value of real property in an appeal of excessive value or unequal value if the employee has a license for real estate appraisal under Texas Occupation Code §1103.201. The House Ways & Means Committee voted out the bill on April 10, 2019.

SB 555 (Schwertner, Charles) would amend Tax Code §23.46 to provide that, if additional taxes are due because the land has been diverted to a nonagricultural use as a result of a condemnation, the condemning entity will be responsible for the additional tax and not the property owner from whom the property was taken. The Senate engrossed the bill on April 4, 2019.

SB 1006 (Bettencourt, Paul) would increase the threshold for exempting tangible personal property that is held or used for producing income from $500 to $2,500. The Senate engrossed the bill on April 10, 2019.

SB 1013 (Hughes, Bryan) would provide that, if the late filing of an application for an exemption for freeport goods is approved, the property owner is liable to each taxing unit allowing the exemption for a penalty in an amount equal to 10% of the difference between the tax amount imposed on the inventory or property, a portion of which consists of freeport goods, and the amount that would otherwise have been imposed up to a maximum penalty of 10% of the tax imposed with the exemption. The bill would also provide that, if the late-filing of an application for a certain allocation is approved, the property owner is liable to each taxing unit for a penalty in an amount equal to 10% of the difference between the tax amount imposed by the taxing unit on the property without the allocation and the tax amount imposed on the property with the allocation up to a maximum penalty of 10% of the tax imposed with the allocation. The Senate Property Committee voted out the bill on April 2, 2019.
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Property Tax Abatement

HB 360 (Murphy, Jim) would extend the expiration date of Chapter 312, Tax Code, (the Property Redevelopment and Tax Abatement Act) from September 1, 2019 to September 1, 2029. The House engrossed the bill on April 9, 2019.

HB 2129 (Murphy, Jim) would amend the expiration date of Chapter 313, Tax Code, (the Texas Economic Development Act), from December 31, 2022 to December 31, 2032. The House engrossed the bill on April 9, 2019.

HB 3143 (Murphy, Jim) would require a taxing unit to hold a public hearing to adopt, amend, repeal or reauthorize guidelines and criteria for Chapter 312 agreements and would require the chief appraiser to deliver the appraised value of the property that was the subject of the abatement agreement to the Comptroller for three years following the expiration of the abatement. The House Ways & Means Committee voted out the bill on April 3, 2019.
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Severance Tax

SB 533 (Birdwell, Brian) would reinstate the exemption for two-year inactive wells by allowing the application for exemption to be filed prospectively and would reduce the exemption for hydrocarbons produced from a well from 10 years to 5 years. The House Ways & Means Committee voted out the bill on April 10, 2019.

SB 925 (Flores, Pete) would amend Tax Code §§201.059 and 202.058 to provide that, for purposes of qualifying a gas well, the production per well is determined by computing the average daily production from the well at the greater of the monthly production from the well reported to the Railroad Commission or the monthly production reported to the Comptroller on the producer's report. The Senate engrossed the bill on April 4, 2019. [Note: This bill is one of the Comptroller’s legislative proposals.] 
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Texas Emission Reduction Plan (TERP)

SB 531 (Birdwell, Brian) would amend Tax Code §151.0515 (Sales/Use Tax) and Tax Code §152.0215 (Motor Vehicle Sales/Use Tax) to extend the expiration date of the TERP surcharge from August 31, 2019 to August 31, 2021. The Senate engrossed the bill on April 10, 2019.
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Unclaimed Property

HB 3598 (Martinez Fischer, Trey) proposes, among others, the following: (1) require records be kept for 10 years from the later of the date on which the property is reportable or the date the report is filed; (2) require an affiliated group to file a combined report; and (3) provide that the Comptroller or the Attorney General may not examine records, reports, or delivery of property after the seventh anniversary of the date a person filed a property report unless the person filed a false or fraudulent property report with the intent to avoid delivery of property, failed to file a report, or a court grants a petition to compel the person to submit for an audit. The House Business and Industry Committee voted out the bill on April 9, 2019. [Note: This bill is one of the Comptroller’s legislative proposals.]
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