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)