BILL ANALYSIS



C.S.H.B. 2608
By: Rusling
May 2, 1995
Committee Report (Substituted)


BACKGROUND

Section 11.251, Tax Code, and Article VIII, Section 1-j, Texas
Constitution, provide for a freeport exemption.  Goods, wares, ores
and merchandise qualify for an exemption from ad valorem taxation
if they leave Texas within 175 days of the date they were brought
into or acquired in the state.  This is a local option exemption,
and the exemption does not apply to oil, gas and petroleum
products.

Oklahoma has a 270 day exemption on inventory, and some states do
not tax warehouse inventories at all.  This may place some states
at an advantage in attracting warehouse distribution centers.

PURPOSE

This bill would extend the exemption from ad valorem taxation to
certain goods held in transit for distribution.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly
grant any additional rulemaking authority to a state officer,
department, agency or institution.

SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Section 11.251 (Tangible Personal Property
Exempt), Subsections (a), (e)-(g), and (i)-(k), Tax Code, as
follows:

     (a) Specifies that "freeport goods" means property under
Section 1-m (as added by H.J.R.    107), Article VIII, Texas
Constitution, is not taxable.

     (e)-(g) Extends the exemption to goods held for distribution
to another location within    Texas or out of this state before the
expiration of 270 days.

     (i) Provides that the exemption granted under Subsection (b)
does not apply to a school    district.  Also, allows a taxing unit
to take action to tax the property under Section 1-m(d),    Article
VIII, Texas Constitution.

     (j) Provides for a definition of petroleum products.

     (k) Provides that property that meet requirements of Section
1-m(a), Article VIII, Texas   Constitution, is "freeport goods"
regardless of whether the owner on January 1 is the    person who
transports it interstate or intrastate.

SECTION 2.  Amends Section 11.436 (Exemption for Cotton Stored in
Warehouse), Subsection (a), Tax Code, to extend the exemption under
this section to include the transportation of cotton to other
locations in this state.  Adds language to include the time limit
of 270 days as stated in Section 1-m, Article VIII, Texas
Constitution.

SECTION 3.  Amends Section 22.01 (Rendition Generally), Subsection
(e), Tax Code, to add language to include the transportation of
cotton to other locations in this state and to include the time
limit of 270 days as stated in Section 1-m, Article VIII, Texas
Constitution.

SECTION 4.  Amends Section 26.04 (Submission of Roll to Governing
Body), Tax Code, by adding Subsection (m) to provide an exception
to the calculation of the rollback tax rate for the 1996 tax year.

SECTION 5.  Establishes effective date of January 1, 1996;
contingent upon passage of constitutional amendment.

SECTION 6.  Emergency clause

COMPARISON OF ORIGINAL TO SUBSTITUTE

The original bill created a new exemption for "inventory held for
distribution" which is an expansion of the current "freeport
exemption."  The committee substitute expands the application of
the current "freeport exemption" but does not do so by adding a new
exemption for "inventory held for distribution."

The committee substitute eliminates school districts from the
expanded inventory exemption; creates a local option to tax the
inventory otherwise exempt; takes effect immediately next year; and
allows local elected officials the option to restore the exemption
beginning in a subsequent year.

SUMMARY OF COMMITTEE ACTION

Public notice was posted in accordance with the rules, and a public
hearing was held on April 11, 1995.  Representative Rusling
explained the bill.  Without objection, the bill was left pending
before the committee.

On April 27, 1995, the committee met in a formal meeting and
considered H.B. 2608 on pending business.  The committee considered
a committee substitute by Representative Craddick.  Without
objection, C.S.H.B. 2608 was adopted.  By a record vote of 8 ayes,
0 nays, 0 present not voting, and 3 absent, the committee voted to
report H.B. 2608 to the House as substituted with the
recommendation that it do pass.

     For purposes of testimony, the committee considered H.B. 2608
and H.J.R. 107 together.      
     The following persons testified in favor of one or more of the
bills (4/11/95):
           
           Jon W. Spelman, representing the Texas Assn. of Realtors
(HB 2608)
           Curtis Cleveland, representing himself and the Texas
Economic Development                      Council (HB 2608)
           Phyllis Coffin, representing MCI Telecommunications
Corp. (HB 2608, HJR 107)
           Bob Vetters, representing himself (HB 2608)
           Thomas A. Leiser, representing himself and Trammell Crow
Co., Texas            Warehousman's Assn. (HB 2608)

     The following persons testified against one or more of the
bills (4/11/95):

           Maxie L. Paterson, representing himself and the City of
Houston (HB 2608)
           Wally Hatch, representing the Texas Municipal League (HB
2608, HJR 107)