TheDMAWay

Texas Legislative Update

by DMA Staff | May 08, 2017
DMA-Texas-Legislative-Update-May 8 2017

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

BUDGET
SB 1, the General Appropriations bill, is still in conference committee.

To provide additional funding, the Senate proposes to delay transferring $2.5 billion in sales and use tax revenue to the State Highway Fund to a date after the biennium ends. The House takes the position that the delay would be unconstitutional because Article VIII, subsection 7-c (a) of the Texas Constitution requires the transfer of sales tax revenue in excess of the first $28 billion “in that state fiscal year". However, in response to a request for legal opinion sought by Senator Jane Nelson, the Senate Finance Committee chair and author of SB 1, Texas Attorney General Ken Paxton issued Opinion No. KP-0143 (April 21, 2017) and concluded that “if the Comptroller is unable to calculate the specific amount of the required deposit before the end of the fiscal year, a court likely would conclude that doing so as soon as possible thereafter would result in acceptable, substantial compliance with the constitutional provision.” The opinion is not definitive because factual matters are qualified.

DATES OF INTEREST
The last day of the regular legislative session (sine die) is May 29, 2017. Here are upcoming dates of interest set by the House:

May 8, 2017 Last day for house committees to report house bills and house joint resolutions
May 9, 2017 Deadline for the house to distribute its last House Daily Calendar with house bills and house joint resolutions
May 10, 2017 Deadline for the house to distribute its last House Local & Consent Calendar with consent house bills








All house bills that did not get heard by a house committee, that were left pending after a hearing, or that were voted out by a house committee but not reported are dead. More house bills will die this week.
 
The Senate does not have procedural deadlines but senate bills or senate joint resolutions must meet the following house rules to advance during this legislative session:

 
May 20, 2017 Last day for house committees to report senate bills and senate joint resolutions
May 21, 2017 Deadline for the house to distribute its last House Daily Calendar with senate bills and senate joint resolutions
May 22, 2017 Deadline for the house to distribute its last House Local & Consent Calendar with senate bills








TAX BILLS

Here are tax bills that have advanced since DMA’s last update dated April 21, 2017:
 

Franchise Tax
Numerous bills that would repeal or phase out the franchise tax were introduced this session, but only two bills have advanced to date: SB 17 (Nelson, Jane) and HB 28 (Bonnen, Dennis). Both bills would authorize the adjustment of the franchise tax rates beginning January 1, 2020, but SB 17 would consider future revenue growth (one-half of any future general revenue growth that exceeds 5%) whereas HB 28 would consider available revenue (any ending cash balance in the last quarter of each odd year up to $3.5 billion). SB 17 passed the Senate on March 22, but the House has held it in abeyance since then and chose instead to advance HB 28, which the House passed on April 28. Though both bills have passed their respective chambers, there is doubt whether either bill will make it out of the opposite house. The Senate does not like the House proposal because it would appropriate available money next biennium, which would essentially tie the legislature’s hands next session. Unless some agreement is reached between the Senate and the House, it is possible that neither bill will pass into law.

Other franchise tax bills that have advanced:

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 passed the bill on May 4, 2017.

SB 1031 (Taylor, Larry) would allow taxable margin to be computed by subtracting any costs that are properly allowable under the Federal Acquisition Regulation (48 C.F.R. Chapter 1) for contracts or subcontracts for the sale of goods or services to the federal government by a taxable entity that is a party to at least one contract subject to the requirements of 48 C.F.R. Chapter 2 (Defense Acquisition Regulations). On May 1, 2017, the Senate Finance Committee voted out a committee substitute that changed the effective date of the bill to January 1, 2020.


Sales/Use Tax
After the United States Supreme Court declined to reconsider the legality of Colorado’s use tax notification and reporting requirements in Direct Marketing Association v. Brohl, several states have considered or enacted similar statutes. In Texas, a committee substitute of SB 1713 (Uresti, Carlos), which was voted out of the Senate Finance Committee on April 27, 2017, would require remote sellers that have more than $250,000 in sales receipts from Texas or 500 sales into Texas to send written notices to their Texas customers and to provide information to the Texas Comptroller. SB 1713, as substituted, would also require a marketplace provider, which is a person who facilitates the sale of a taxable item under an agreement with the seller, to collect Texas use tax on the taxable item sold by the seller. A person facilitates the sale of a taxable item if it provides the forum (e.g., Internet website or catalog) in which or by means of which the sale takes place or the offer of sale is accepted and if it or its affiliate collects or is required to collect the amount paid by the purchaser to the seller. SB 1713, as substituted, has been placed on the Senate Intent Calendar for May 8, 2017.
 
Other sales tax bills that have advanced:
 
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 passed the bill on April 27, 2017. [Note: This bill 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 passed the bill on May 3, 2017.
 
SB 1539 (Watson) would make various changes to Chapter 151, Tax Code, including the following: (1) amend Tax Code §151.006(a)(5) to expand the resale allowance for tangible personal property that is allocated and billed as a direct or indirect cost with title transfer to all government entities under Tax Code §151.309 and to all organizations exempt under Tax Code §151.310, rather than just the federal government; (2) amend Tax Code §151.006 to specify that a sale for resale does not include the sale of tangible personal property that will be used, consumed, or expended in, or incorporated into, an oil or gas well by a purchaser who acquires the property to perform an oil well service taxable under Chapter 191; and (3) amend Tax Code §151.338, which currently exempts from sales taxes services to repair, remodel, maintain or restore tangible personal property if such work is required by statute, ordinance, order, rule or regulation of any commission, agency, court, or political, governmental, or quasi-governmental entity in order to protect the environment or to conserve energy, by exempting only the separately stated labor charge for such services. The House Ways & Means Committee voted out the bill on April 27, 2017, and recommended it for the Local & Consent Calendar. [Note: This bill is one of the Comptroller’s legislative proposals. The bill now provides that the changes made by the bill are a “clarification of existing law.”]


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 House passed the bill on May 4, 2017. The enrolled bill will be sent to the Governor for approval.
 
General
HB 2756 (Cook, Bryon) and SB 1095 (Taylor, Larry) 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. On May 4, 2017, the House passed HB 2756, and the Senate passed SB 1095.
 
Hotel Tax
SB 1086 (Seliger, Kel) would add a new statute to Chapter 156, Tax Code (State Hotel Occupancy Tax), that prohibits a state agency from posting on a public Internet website information that identifies the taxable receipts of an individual business that is contained in or derived from a record, report, or other document required to be provided under the chapter. The bill provides that the same type of information is public under the Texas Public Information Act and is not subject to any exceptions therein. The House passed the bill on May 4, 2017. The enrolled bill will be sent to the Governor for approval.

Miscellaneous Gross Receipts Tax
SB 559 (Hancock, Kelly) would modify provisions in Chapter 181, Tax Code, to specify that the miscellaneous gross receipts tax is imposed on each utility company that “makes a sale to an ultimate consumer” in an incorporated city or town having a population of more than 1,000. The House Ways & Means Committee voted out a committee substitute on May 3, 2017, and recommended it for the Local & Consent Calendar. [Note: This is one of the Comptroller’s legislative proposals.]

Motor Fuel Taxes
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 House passed the bill on April 28, 2017. The enrolled bill was sent to the Governor on May 3, 2017. [Note: This bill is one of the Comptroller’s legislative proposals.]
 
Motor Vehicle Sales/Use Tax
HB 2067 (Oliveira, Rene) would amend Tax Code §152.0475(c) to change the registration of a related finance company from an annual registration to a one-time registration that remains in effect until revocation by the holder or the Comptroller. The House passed the bill on May 4, 2017.
 

Property Tax
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 Senate Finance Committee voted out the bill on May 1, 2017, and recommended it for the Local & Uncontested Calendar.
 
HB 513 (Davis, Sarah) would require the reappraisal of property for ad valorem tax purposes if it is damaged after January 1 and if the Federal Emergency Management Agency estimates the damage sustained by the property to be 5% or greater. The House passed the bill on April 27, 2017. 
 
HB 1346 (Button, Angie) would change the date on which a lessor of heavy-duty equipment must remit the unit property tax from the 10th day to the 20th day of each month. The Senate Finance Committee voted out the bill on May 1, 2017, and the bill is on the intent calendar for May 8, 2017.
 
HB 2228 (Murphy, Jim) would set a new late application deadline of June 15 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 passed the bill on May 4, 2017.
 
HB 3103 (Darby, Drew) would amend Tax Code §11.01 to provide that tangible personal property is considered to be used continually, whether regularly or irregularly, in Texas for purposes of property tax jurisdiction if the property is used in Texas three or more times on regular routes or for three or more completed assignments occurring in close succession throughout the year. The bill is on the House Calendar for May 5, 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 passed the bill on April 27, 2017.
 
SB 594 (Creighton, Brandon) 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 passed the bill on May 4, 2017. The enrolled bill will be sent to the Governor. [Note: This bill is one of the Comptroller’s legislative proposals.]
 
SB 1426 (Hancock, Kelly) would (1) require a taxing unit to calculate an adjusted effective tax rate and an adjusted rollback tax rate; (2) define the adjusted rates to include new property value in the calculation (new value is excluded from the current effective and rollback rate calculations); and (3) require the adjusted rates to be included in the public notice of the taxing unit’s proposed tax rates. The Senate passed the bill on May 4, 2017.
 
SB 1848 (Bettencourt, Paul) would raise the cap on the attorney’s fee that a property owner who prevails may be awarded from $15,000 to the greater of $27,000 or 20% of the total amount by which the property owner's tax liability is reduced as a result of the appeal, but not to exceed $153,000. The Senate passed the bill on May 1, 2017.
 
SB 1906 (Bettencourt, Paul) would eliminate a taxing unit’s right to challenge the level of property appraisals by category. The Senate passed the bill on May 4, 2016.
 
SB 1979 (Schwertner, Charles) would provide that if additional taxes are due because the land has been diverted to a nonagricultural use as a result of a condemnation, the additional taxes and interest imposed are the personal obligation of the condemning entity and not the property owner from whom the property was taken. The Senate passed the bill on May 4, 2017.


Economic Development relating to Property Tax
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 passed the bill on May 3, 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 passed the bill on April 26, 2017.

 
Severance Taxes
HB 3201
(Darby, Drew) would amend Tax Code §202.056 to eliminate all references to a three-year inactive well and to delete dates for hydrocarbons produced from a well designated as a two-year inactive well, which would reinstate the two-year inactive well for eligibility for a 10-year severance tax exemption. The House Ways & Means Committee voted out a committee substitute on May 3, 2017.



Please do not hesitate to contact your local DMA office should you have specific questions or requests.