TheDMAWay

Texas Legislative Update

by DMA Staff | May 02, 2017
DMA-Texas-Legislative-Update-April 21 2017

DuCharme, McMillen & Associates, Inc. (DMA) provides this update relating to the 85th Texas Legislature Regular Session.

BUDGET

SB 1, the General Appropriations bill, was returned from the House with amendments, and the Senate refused to concur. The conference committee to be composed of five members from each chamber will be charged with resolving the differences.

In the Senate budget that went to the House on March 28, the Senate appropriated $106.3 billion in state general revenue for the 2018-2019 biennium, which is $1.4 billion above the pay-as-you-go limit, but the Senate balanced the budget by deferring the required transfer of $2.5 billion in sales tax to the State Highway Fund to a date after the biennium ends. The budget that the House passed on April 7, appropriates $104.4 billion in state general revenue for the 2018-2019 biennium, but the House also passed a supplemental appropriations bill (HB 2) for the current fiscal year, ending August 31, 2017. The combined amount of the general and supplemental appropriations pushes the House budget over the pay-as-you-go limit, and the House balances the budget by using $2.5 billion from the Rainy Day Fund, deferring the state’s August payment to the school foundation to a date after the biennium ends, and including revenue contingent on future actions by the Comptroller and the General Land Office.

The House budget includes more funding for public education, higher education and financial aid than the Senate budget, and political priorities will come into play in resolving those differences. Each chamber’s approach to balancing the budget (e.g., delaying certain payments and using the Rainy Day Fund) may cause more conflict. Lieutenant Governor Dan Patrick, who is the presiding officer of the Senate, has publicly stated that the Rainy Day Fund should not be used this session. He and other senators who are known to be fiscally conservative believe the Rainy Day Fund should be preserved for use only when the state faces a real budget crisis.

The Rainy Day Fund is currently at $10.2 billion and expected to grow to $12 billion by 2019 if left intact this session. Because the Rainy Day Fund was created to help the state during economic downturns, supporters of the House budget argue that this use of the Rainy Day Fund fits the very purpose for which the fund was created. The fund would still contain over $9 billion by 2019 if $2.5 billion is used as the House proposes.

Comptroller Glenn Hegar has now thrown in another issue for discussion. He is urging the Texas legislature to overhaul the Rainy Day Fund by creating two tiers within it. The state “would be required to maintain a balance equal to 8% of general revenue spending” in the first tier, which would be invested in a low-risk, low-return saving accounts. The second tier would consist of money in excess of the required reserve which would be invested in higher-risk, higher-yielding options. Whether the suggested overhaul of the Rainy Day Fund by the Comptroller will shift view points as to its use this session remains to be seen.

TAX BILLS
As expected, tax bills that have a fiscal note are languishing in the House Ways & Means Committee. The Comptroller’s legislative proposals are moving as you will see below by the summaries of tax bills that have advanced since DMA’s update dated April 6, 2017.
 
Cigarette Tax
SB 1390 (Hinojosa) would change the return filing date for cigarette taxes filed by distributors from the last day of each month to the 25th day of each month and would exempt cigarettes that are labeled for experimental use purposes in compliance with 27 C.F.R. Section 40.232 and that are sold directly by a manufacturer to a research facility in this state. The Senate passed the bill on April 10, 2017, and the House has referred the bill to the House Ways & Means Committee.
 
Franchise Tax
HB 28 (Bonnen, Dennis) would reduce the franchise tax rates using any ending cash balance of general revenue-related funds certified by the Comptroller in the last quarter of each odd-year. The amount reserved for the tax reduction is the lesser of the available funds or $3.5 billion. When the adjusted tax rates are less than 15% of the tax rates in effect on September 1, 2017, the franchise tax would expire on December 31 of that year. The House Ways & Means Committee voted out a substitute on April 12, 2017. The substitute modifies the effective date of the bill to apply to reports due on or after January 1, 2020. [Note: The Senate passed SB 17 (Nelson, Jane), which would phase out the franchise tax using one-half of any future general revenue growth that exceeds 5%, on March 21, 2017, but the House has yet to refer the bill to a House committee.]
 
HB 423 (Wray, John) would allow a taxable entity that transports ready-mixed concrete to include distribution costs in the computation of the Cost of Goods Sold (COGS) deduction regardless of whether the taxable entity owns the ready-mixed concrete. The House Ways & Means Committee voted out the bill on April 19, 2017.
 
HB 2126 (Button, Angie) would amend Tax Code §171.002 to clarify that the provision of telecommunications services, which excludes a taxable entity from being eligible for the lower franchise tax rate as a wholesaler or retailer, does not include the selling of telephone prepaid calling cards. The House passed the bill on April 20, 2017. [Note: This bill is one of the Comptroller’s legislative proposals.]
 
HB 3345 (Springer, Drew) would provide that interest income earned by a person in the business of making loans to the general public is not considered passive income for purposes of meeting the definition of a passive entity. The bill provides that it is a clarification of existing law. The House Ways & Means Committee voted out the bill on April 19, 2017. [Note: This bill is one of the Comptroller’s legislative proposals.]
 
HB 4002 (Bonnen, Dennis) would modify the definition of “production” for COGS purposes by eliminating “installation” from it. The bill provides that it is a clarification of existing law. The House Ways & Means Committee voted out the bill on April 19, 2017, and recommended it be sent to the Local & Consent Calendar. [Note: This bill is one of the Comptroller’s legislative proposals.]
 
SB 550 (Campbell, Donna) would allow a franchise tax credit established for eligible costs and expenses incurred in the certified rehabilitation of certified historic structures, which are currently authorized to be sold or assigned, to be applied to offset a premium tax imposed under Chapter 221, 222, 223, or 224, Insurance Code. The House passed the bill on April 20, 2017, and once enrolled, it will be sent to the Governor.

General
HB 2669 (Shine, Hugh) would prohibit a court from awarding attorney's fees in a suit against the state that seeks relief relating to the applicability, assessment, collection, constitutionality, or amount of a tax or fee imposed under the Texas Tax Code or collected by the Comptroller under any other law. The House Ways & Means Committee voted out the bill on April 12, 2017, and recommended the bill for the Local & Consent Calendar. On April 20, 2017, the House withdrew the bill from the Local & Consent Calendar. [Note: This bill is one of the Comptroller’s legislative proposals.]
 
HB 2756 (Cook, Byron) would extend the deadline to file a petition for redetermination or a request for a refund hearing from 30 days to 60 days and would conform the deadline to file a motion for rehearing to the deadline provided by the Texas Administrative Procedure Act. The House Ways & Means Committee voted out the bill on April 19, 2017, and recommended it be sent to the Local & Consent Calendar. [Note: This bill is one of the Comptroller’s legislative proposals.]
 
Motor Fuel Taxes
HB 2925 (Shine, Hugh) would make various changes to Chapter 162, Tax Code, that would make a person liable for any gasoline or diesel fuel purchased tax free under the claim of export but sold in Texas. The House Ways & Means Committee voted out a committee substitute on April 12, 2017, and recommended the bill for the Local & Consent Calendar. SB 1557 (Kolkhorst), which is identical to HB 2925, was passed by the Senate on April 3, 2017. [Note: This is one of the Comptroller’s legislative proposals.]
 
SB 1120 (Zaffirini) would amend Tax Code §162.014 to add “compressed natural gas” and “liquefied natural gas” to the list of fuels that are prohibited from being taxed by a political subdivision. The Senate passed the bill on April 6, 2017, and the House Ways & Means Committee voted out the bill on April 20, 2017. [Note: This bill is one of the Comptroller’s legislative proposals.]
 
Sales/Use Tax
HB 2475 (Davis, Sarah) would exempt the sale of tickets to a touring Broadway show when provided by an entity that has contracted with certain nonprofit organizations if other requirements are met. The House Ways & Means Committee voted out the bill on April 12, 2017, and recommended it for the Local & Consent Calendar.
 
HB 2562 (Shine, Hugh) would amend Tax Code §151.3185, which currently exempts tangible personal property that will become an ingredient or component part of or that is necessary or essential to and used during the production of a motion picture, video, or audio recording, a copy of which is sold or offered for ultimate sale, licensed, distributed, broadcast, or otherwise exhibited, by adding that the recording must be a master recording and that the exhibition must be “for consideration” and would amend Tax Code §151.3101 to exempt an admission to a National Football League championship game. The House Ways & Means Committee voted out the bill on April 12, 2017, and recommended the bill for the Local & Consent Calendar. [Note: This bill is one of the Comptroller’s legislative proposals.]
 
HB 4038 (Bohac, Dwayne) would amend Tax Code §151.359(a)(5) relating to qualifying data centers to provide that the term “qualifying job” includes a new employment position staffed by a third-party employer if a written contract exists between the third-party employer and a qualifying owner, qualifying operator, or qualifying occupant that provides that the employment position is permanently assigned to an associated qualifying data center. The change applies to all certified data centers, regardless of when the certification occurred. The House passed the bill on April 20, 2017.
 
HB 4052 (Murphy, Jim) would repeal Tax Code §151.057 (Services by Employees) and add the provisions therein to Tax Code §151.3502 to make the current tax exclusions into a tax exemption, which would shift the burden of proof to taxpayers. The bill would add these additional requirements to the provision on temporary help services: (1) the host employer may not rent, lease, purchase or otherwise acquire or use the necessary supplies and equipment from the temporary employment service or from an entity that is part of the affiliated group of which the temporary employment service is also a member; and (2) the host employer has the sole right of direction and control over the temporary employee as necessary to conduct the host employer’s business or comply with any licensure, statutory, or regulatory requirements. The House Ways & Means Committee voted out a committee substitute on April 19, 2017. SB 745 (Kolkhorst), which is identical to this bill, was passed by the Senate on April 3, 2017. [Note: This is one of the Comptroller’s legislative proposals.]
 
HB 4054 (Murphy, Jim) would specify that the exemption for bakery items applies “regardless of whether the item is heated by the consumer or seller” and would delete the requirement that, to qualify for exemption, bakery items must be sold without plates or other eating utensils. The House Ways & Means Committee voted out the bill on April 19, 2017.
 
SB 1083 (Perry) would provide that a taxable insurance service does not include a service performed by a certified public accountancy firm (as defined by Occupations Code §901.002) or on behalf of the firm by an owner of the firm or a member of the firm’s affiliated group (as defined in Tax Code §171.001), if less than 1% of the owner’s or member’s total revenue in the prior calendar year is from services in Texas that would otherwise constitute a taxable insurance service as defined by the sales tax statute. The Senate passed the bill on April 12, 2017. [Note: HB 2381 (Frullo, John) is identical and was voted out by the House Ways & Means Committee on April 20, 2017.]
 
Severance Taxes
HB 2277 (Darby, Drew) would make various changes to Tax Code §201.057 (relating to the temporary exemption or tax reduction of certain high cost gas) which include providing that the median drilling and completion cost is fixed as of the date of the Comptroller's determination for computation of the reduced tax and prohibiting the drilling and completion costs reported on the application to be amended after March 1 of the year following the state fiscal year in which the required application was made. The House Ways & Means Committee voted out a substitute bill on April 12, 2017, but withdrew it and voted out a resubstituted bill on April 19, 2017. [Note: This bill is one of the Comptroller’s legislative proposals.]
 
HB 3232 (Darby, Drew) would amend Tax Code §201.351 (gas production tax) and Tax Code §202.301 (oil production tax) to allow taxpayers to amend tax returns without incurring a penalty if the original report was timely filed, the additional tax due on the amended report does not exceed a certain percentage of the original report and the amended report is filed within a certain time period. The House Ways & Means Committee voted out a substitute on April 19, 2017.
 
HB 4231 (White, James) would amend Tax Code §201.404 and §202.353 to reallocate severance tax revenue to the counties from which the oil and gas originated. The House Ways & Means Committee voted out a substitute on April 19, 2017.
 
Property Tax (not an exhaustive list)
HB 27 (Springer, Drew) would provide that a property must have the same highest and best use as the subject property to be considered a comparable property. The House Ways & Means Committee voted out a substitute on April 20, 2017. [Note: This bill is one of the Comptroller’s legislative proposals and addresses the “dark store” theory. The substitute limits the applicability to property that is used for retail purposes.]
 
HB 455 (Metcalf, Will) would allow a property owner to appear by telephone conference call at an appraisal review board (ARB) protest hearing, but the property owner would still be required to offer any evidence by affidavit. The House passed the bill on April 13, 2017, and the bill was received by the Senate.
 
HB 804 (Dale, Tony) would require a property owner to provide a lessee with a copy of any notice of appraised value of the property within 10 days of the property owner’s receipt. The House Ways & Means Committee voted out the bill on April 12, 2017 and recommended it for the Local & Consent Calendar.
 
HB 1299 (Springer, Drew) would modify who must approve the Comptroller’s rule that provides the procedures for the appraisal districts to determine whether the requirements are met for open-space land and timber land for ad valorem tax purposes. The House Ways and Means Committee voted out the bill on April 12, 2017, and recommended the bill for the Local & Consent Calendar. [Note: SB 594 (Creighton) is identical and was passed by the Senate on March 27, 2017.]
 
HB 1346 (Button, Angie) would change the date when a lessor of heavy-duty equipment must remit the unit property tax from the 10th day to the 20th day of each month. The House passed the bill on April 13, 2017, and the Senate has referred the bill to the Senate Finance Committee.
 
HB 1830 (Anchia, Rafael) would allow the parties that have reached a settlement on appeal to include in the agreement the waiver of penalties and interest. The House Ways & Means Committee voted out the bill on April 19, 2017.
 
HB 2043 (Springer, Drew) would prohibit an employee of an appraisal district from testifying as to the value of a real property that is more than $1 million in a protest appeal unless the employee is licensed as a real estate appraiser. The House Ways & Means Committee voted out the bill on April 19, 2017.
 
HB 2228 (Murphy, Jim) would set a new late application deadline of June 1 for Freeport applications and would change the filing deadline for completed interstate allocation application from May 1 to April 1, with provisions for extensions but would make an exception for property regulated by the Public Utility Commission, the Railroad Commission, the federal Surface Transportation Board, or the Federal Energy Regulatory Commission. The House Ways & Means Committee voted out the bill on April 19, 2017.
 
HB 2253 (Darby, Drew) would grant discretionary authority to the court that makes the final determination of appeal to determine the amount of ad valorem tax on which interest is calculated, but the amount may not be greater than the amount refunded and cannot be less than the difference between the minimum amount the taxpayer was required to pay to preserve the right to appeal under Section 42.08(b) and the amount of taxes for which the property owner is liable. The House passed the bill on April 18, 2017.
 
HB 2989 (Bonnen, Dennis) would amend Tax Code §26.15(f), which currently authorizes a refund if a correction decreases the tax liability of a property after tax payment, by specifying that the refund must be given to the property owner who paid the tax. The House passed the bill on April 20, 2017.
 
HB 3557 (Murphy, Jim) would require the Comptroller to prescribe by rule the manner and form in which a person must provide a copy of materials to be offered or submitted to the ARB and would require the Comptroller to set out qualifications that must be met by arbitrators for binding arbitration and authorize the removal of an arbitrator from the registry of eligible arbitrators for good cause. The House Ways & Means Committee voted out the bill on April 12, 2017, and recommended the bill for the Local & Consent Calendar. On April 20, 2017, the bill was withdrawn from the Local & Consent Calendar. [Note: SB 1286 (Bettencourt) is similar and was passed by the Senate on April 19, 2017.]
 
SB 669 (Nelson, Jane) would increase the education requirements for ARB members, would provide property owners with the opportunity to provide feedback to the ARB, and would set out hearing procedures favorable to taxpayers. The Senate passed the bill on April 10, 2017, and the House has referred the bill to the House Ways & Means Committee.
 
SB 929 (Hughes) would require county tax assessor-collectors to successfully complete at least 40 hours of continuing education courses on the assessment and collection of property taxes within one year of taking office. The Senate passed the bill on April 6, 2017, and the House has referred the bill to the House Ways & Means Committee.
 
SB 1767 (Buckingham, Dawn) would give the property owner the election to present the owner’s evidence and arguments before, after, or between the cases presented by the chief appraiser at the hearing held on the parties’ disagreement on the correction of the appraisal roll, or in an ARB protest hearing. The Senate passed the bill on April 12, 2017.
 
SB 1847 (Bettencourt) would amend Tax Code §25.25 to allow the correction of the appraisal roll if the ARB, upon the property owner’s motion, issues a written order changes in the appraisal roll or related appraisal records for the current tax year and for either of the two preceding tax years to correct an inaccuracy in the appraised value of the owner's tangible personal property that is the result of an error or omission in a rendition statement or property report filed under Chapter 22 for the applicable tax year. The Senate passed the bill on April 19, 2017.
 
SB 2242 (Hinojosa) would allow a property owner to file a suit with the Texas Supreme Court if multiple taxes are imposed as a result of disputed, overlapping or erroneously applied geographic boundaries of like taxing units. The Senate passed the bill on April 20, 2017.. [Note: The bill addresses the dispute of property taxes imposed by Nueces and San Patricio Counties, and the substitute sets out certain procedures for filing of a suit.]
 
Economic Development relating to Property Tax
HB 1626 (Gutierrez, Roland) would amend Tax Code §311.0125, to make an exception to the current requirement that a property tax abatement agreement in a reinvestment zone must be approved by the board of directors of the reinvestment zone and be accompanied by a deposit or an agreement to deposit the tax increment into the tax increment fund. The House Ways & Means Committee voted out the bill on April 19, 2017.
 
HB 3360 (Button, Angie) would require the Economic Incentive Oversight Board to examine the effectiveness, efficiency, and financial impact of the ad valorem tax incentive program established by the Texas Economic Development Act (Chapter 313, Tax Code). The board would be required to include its review findings in a biennial report that is submitted to the legislature before each session. The House Economic and Small Business Development Committee voted out the bill on April 18, 2017.
 
SB 400 (Kolkhorst, Lois) would require the recipient or former recipient of a limitation on appraised value under Chapter 313, Tax Code, to contract with an independent certified public accountant to verify the data certified to the Comptroller. The Senate Natural Resources and Economic Development Committee voted out a substitute on April 11, 2017, and recommended the bill for the Local and Uncontested Calendar. [Note: The introduced bill would have required the Comptroller to verify the data.]


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