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Texas Legislative Update

by DMA Staff | Dec 03, 2018
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Sales Tax     General or Multiple Taxes     Franchise Tax     Property Tax     Severance Tax

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

The end of 2018 is near, and the New Year will mean that the 140-day Texas legislative session will be upon us. The Texas Legislature meets in regular session commencing on the second Tuesday in January of each odd-numbered year. The 86th legislative regular session begins January 8, 2019 and ends May 27, 2019. Special sessions thereafter may be called by the Governor.

The pre-filing of bills for the upcoming session started on November 12, 2018, and this update provides information on tax bills filed to date. Many of the tax bills that have been filed so far are proposals that we have seen in prior sessions, and the authors simply dusted them off their shelves for introduction and consideration by the incoming legislature. However, there are two new tax bills of interest which have been introduced in response to the United States Supreme Court’s overturning of the physical presence nexus standard in South Dakota v. Wayfair Inc., and they are as follows:

SB 70 (Nelson, Jane) embodies the Comptroller’s proposal to Wayfair. Remote sellers that do not have physical presence in Texas but that are engaged in doing business in the state would be authorized to collect local use taxes based on a single local use tax rate as an alternative to combined local use tax rates. The purpose is to alleviate the administrative burden on remote sellers. The Comptroller would be required to publish 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. Remote sellers would have to notify the Comptroller of their election to use the single local use tax rate, and the Comptroller would allocate a proportionate percentage to each eligible taxing jurisdiction.

SB 119 (West, Royce) would provide that an out-of-seller is doing business in Texas if, in the previous calendar year or the current calendar year, the seller has either total receipts of more than $100,000 from taxable items delivered into Texas or has at least 200 sales of taxable items delivered into Texas. The bill would allocate revenue attributed to this provision to the Property Tax Relief Fund.

Here are other tax bills that have been filed during the pre-filing period to date:

Sales Tax

HB 21 (Canales, Terry) would exempt text books when purchased by college students during a seven-day exemption period in January and in August, which would be designated by the Comptroller.

HB 203 (Reynolds, Ron) would provide that in determining the combined tax rate for sales and use tax imposed by a county assistance district, the following territory of the proposed district or the area proposed to be added to the district would not be considered: (1) rights-of-way; and (2) any county-owned property that is being used for a public purpose and in which no person has a place of business to which a sales tax permit has been issued.

HB 279 (Craddick, Tom) would permit the Midland County Hospital District of Midland County, Texas, to impose sales and use taxes.

HB 311 (Howard, Donna) and SB 146 (Rodriguez, Jose) would exempt feminine hygiene products.

HB 313 (Howard, Donna) and HB 315 (Howard, Donna) would expand the exemption for health care supplies to include diapers and condoms, respectively.

HB 385 (Bohac, Dwayne) would increase the sales price of clothing, footwear and school supplies that are eligible for exemption during the sales tax holiday weekend in August from $100 to $200 and would exempt e-readers, personal computers or tablet computers that are purchased during the sales tax holiday if the sales price of the item is less than $750 and the item is not purchased over the Internet.

HB 390 (Blanco, Cesar) would permit a city or county to be designated as a defense economic readjustment zone and would allow a qualifying defense economic readjustment project to claim a tax refund on all taxable items purchased for use at a qualifying business site subject to a maximum limitation that would be set by capital investment threshold amounts.

SB 61 (Zaffirini, Judith) would exempt firearm safety supplies, and SB 203 (Huffman, Joan) would exempt firearm safety equipment.

SB 184 (Miles, Borris) would exempt school supplies purchased by public school teachers for use in their classrooms if the purchases are made during the third weekend of July. The bill would use the definition of “school supply” in the Streamlined Sales and Use Tax Agreement. 
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General or Multiple Taxes

HB 150 (Raymond, Richard) would provide that the legislature or legislative council is prohibited from identifying a state tax, including a regulatory tax, as another type of charge such as a "fee," "levy," "surcharge," "assessment," or "penalty" and would prohibit state agencies from misidentifying tax, including a regulatory tax, in a rule or proposed rule. HJR 16 by the same author proposes a constitutional amendment to permit the prohibition.

HB 297 (Murr, Andrew) would eliminate, effective January 1, 2021, school districts from having maintenance and operations property taxes and would limit school boards to levying property taxes only for enrichment and debt service. The bill proposes to provide public education funding by increasing the (1) state sales tax rate from 6.25% to 12%; (2) motor vehicle sales tax rate from 6.25% to 12%; (3) state motor vehicle rental receipts tax from 10% to 19% for 30 days or less; and (4) state motor vehicle rental receipts tax from 6.25% to 12% for rentals of more than 30 days.  Any revenue attributable to the increases in the tax rates would be deposited to the Foundation School Fund. 
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Franchise Tax

HB 52 (Hinojosa, Gina) would allow a taxable entity that has more than 500 employees to claim a franchise tax credit for contributions made to the dependent care flexible spending account of each employee of the taxable entity who receives from the taxable entity an annual salary or wage of not more than $65,000. The credit amount for each employee is the lesser of: (1) 50% of the contributions made by the taxable entity to the employee’s dependent care flexible spending account; or (2) $2,500.

HB 276 (Miller, Rick) would allow a taxable entity to deduct from taxable margin any costs not already subtracted that are properly allowable under the Federal Acquisition Regulation (48 C.F.R. Chapter 1) for the sale of goods or services to the federal government when the taxable entity is a party to at least one contract subject to the requirements of defense acquisition regulations.

SB 66 (Nelson, Jane) would reduce the franchise tax rates based on one half of any future biennial revenue estimate growth above 5%, effective with reports due on or after January 1, 2022.  The Comptroller would be required to calculate and publish the reduced franchise tax rates. The franchise tax would expire in the year in which the rates reach zero.

HB 263 (Thompson, Ed) would exempt the sale of a motor vehicle that occurs upon lease termination if the purchaser was the lessee under the lease and the seller was the lessor under the lease and the seller originally purchased the motor vehicle for the purpose of leasing it and paid the tax due on the purchase.

SB 50 (Zaffirini, Judith) would exempt a motor vehicle purchased by an active duty member of the United States armed forces for the member's own private use if the member: (1) is a Texas resident; and (2) is deployed outside the United States. 
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Property Tax (Excludes numerous bills that have been filed relating to residence homestead)

HB 54 (Zerwas, John) and SB 67 (Nelson, Jane) are similar and propose changes to the administration of the appraisal review board (ARB) process. They include the following proposals: (1) create a property tax administration advisory board with the Comptroller’s office; (2) set minimum training hours for ARB members and arbitrators; (3) require surveys of the ARB; (4) prohibit ARBs from increasing the value; and (5) require ARBs to schedule consecutive hearings for a single tax agent and notices; and (6) require ARBs to schedule hearings on Saturdays and after 5 p.m. on a weekday but prohibit Sunday hearings.

HB 164 (Raymond, Richard) would provide that the market value of real property shall exclude the value of any improvement, or any feature incorporated in an improvement, made to the property if the primary purpose of the improvement or feature is compliance with the requirements of the Americans with Disabilities Act of 1990. HJR 20 by the same author proposes a constitutional amendment to permit the exclusion by the legislature.

HB 185 (Bernal, Diego) would require the Comptroller to conduct a study of the impact, feasibility, and advisability of adopting a property tax system in which the disclosure of the sales price of real property is required by law. The Comptroller would be required to submit a report to the legislature by December 1, 2020, and to establish an advisory committee to assist in conducting the study.

HB 360 (Murphy, Jim) and SB 118 (West, Royce) would extend the expiration date of the Property Redevelopment and Tax Abatement Act (Chapter 312, Tax Code) from September 1, 2019 to September 1, 2029.

HB 380 (Geren, Charlie) would permit a property owner to appeal an ARB order that it lacks jurisdiction to determine a protest or motion. If the court determines that the ARB had jurisdiction, the court could make a final determination on the merits of the case on any ground of protest authorized by law, regardless of whether the property owner included the ground in the notice of protest. If an appraisal district brings a jurisdictional plea that the property owner has not exhausted administrative remedies, the court would be authorized to remand the matter to the ARB to cure the administrative problem.

HB 388 (Murphy, Jim) would provide an exemption for a portion of the real property that a person owns and leases to an open-enrollment charter school, subject to certain conditions. HJR 31 by the same author proposes a constitutional amendment to permit the exemption.

HB 97 (Rodriguez, Eddie) would require the chief appraiser with respect to “qualified open-space land” to distinguish between the degree of intensity required for various agricultural production methods, including organic, sustainable, pastured poultry, rotational grazing, and other uncommon production methods or systems. The bill also would include “producing fruits and vegetables” within the definition of agricultural use and would require the Comptroller to develop guidelines for small-scale producers and multiple agricultural uses of land.

HB 163 (Canales, Terry) would provide that an additional tax for a change of use of a land appraised for agricultural use (i.e., rollback tax penalty) is reduced from five years to three years preceding the year in which the change of use occurs.

SB 135 (Nichols, Robert) would amend the definition of “qualified open-space land” to include land that is used principally as an ecological laboratory by a public or private college or university subject to the requirement that the requisite principal use was for five of the preceding seven years.

SB 202 (Huffman, Joan) would require the reappraisal of a property that is located partly or entirely in an area declared to be disaster area by the governor if the Federal Emergency Management Agency (FEMA) estimates the property to have sustained five percent or greater damage. The bill would allow a property owner to refuse reappraisal. 
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Severance Taxes

HB 42 (White, James) would deposit 2% of severance tax revenue to a newly created trust fund and would require the Comptroller to distribute the money to counties based on their shares of the revenue in the trust fund, which is equal to the proportion that the gas production and oil production in a county bears to the total gas production and oil production in Texas.

We look forward to providing you information during the 86th Texas legislature session that will assist you in your work. Please do not hesitate to contact one of our DMA professionals below should you have any specific questions or requests. We will respond as promptly as possible.
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Eleanor Kim, Tax Counsel
800-309-2110, ext. 1323
email: ehkim@dmainc.com

Mona Shoemate, Director, Tax Advisory Services

800-309-2110, ext. 1313
email: mshoemate@dmainc.com

Timothy Mashburn, General Tax Counsel

800-309-2110, ext. 1330
email: tmashburn@dmainc.com

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