BILL ANALYSIS C.S.H.B. 2624 By: Craddick 03-24-95 Committee Report (Substituted) BACKGROUND With the passage of S.B. 878 (by Montford/Oliveira) in the 73rd Regular Session, the Legislature added two new Sections to the Tax Code (§§23.12A and 23.12B) that effectively created a new system for the appraisal and property taxation of motor vehicle inventories held for sale. The property tax system created by S.B. 878 affects the property taxation of motor vehicle inventories in two ways: appraisal and tax administration. With respect to appraisal of a motor vehicle inventory, the current law provides a uniform, sales-based appraisal formula. With respect to tax administration in the context of motor vehicle inventories, the current law does two things. First, it provides a mechanism by which the taxpayer attaches a property tax to each vehicle at the time of sale. Second, it requires that the taxpayer accumulate that tax money and remit it monthly to the county tax assessor-collector who is then responsible for the payment of the motor vehicle inventory taxes to all local taxing units when due at year's end. PURPOSE This bill amends the appraisal and taxation system for motor vehicle inventories. 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 §23.12(f), Tax Code, to change the term "applicable inventory" to "dealer's motor vehicle inventory". SECTION 2. Amends §23.12A, Tax Code. The title is changed from "SPECIAL INVENTORY; VALUE" to "DEALER'S MOTOR VEHICLE INVENTORY; VALUE." (a) Definitions: "chief appraiser," "collector," "dealer," "dealer's motor vehicle inventory," "dealer-financed sale," "declaration," "fleet transaction," "motor vehicle," "owner," "person," "sales price," "subsequent sale," and "total annual sales." Deletes definitions of "applicable inventory," "excluded inventory," and "special inventory." (b) Establishes the computation of market value of a dealer's motor vehicle inventory for property tax purposes. (c) Substitutes "dealer's motor vehicle inventory" for "special inventory." Also requires the chief appraiser to estimate the dealer's motor vehicle inventory by using sales from the dealer's motor vehicle inventory. (d) Establishes that a dealer's personal property (motor vehicle inventory excluded) is appraised as provided by other sections of the Tax Code. In the case of a dealer whose sales are primarily to dealers, the chief appraiser shall appraise the dealer's motor vehicle inventory as provided by §23.12, Tax Code. (e) Establishes that a dealer is presumed to own a dealer's motor vehicle inventory on January 1, if the dealer sold a vehicle to a person other than a dealer in the preceding 12 months, regardless of whether or not the dealer has any vehicles physically on hand for sale. (f) Requires the comptroller to promulgate a form entitled "Dealer's Motor Vehicle Inventory Declaration." With the exception of §23.12B, dealers are required to file a declaration with the chief appraiser and the collector containing: (1) the name and the address of each location which the dealer conducts business; (2) each of the dealer's general distinguishing numbers issued by TxDoT; (3) a statement that the dealer owner is the owner of a dealer's motor vehicle inventory; and (4) the market value of the dealer's motor vehicle inventory for the current tax year as computed under §23.12A(b). (g) Authorizes the chief appraiser, upon written and delivered request, to inspect the books and records of a holder of a general distinguishing number from TxDoT. Provides a 15 day response period, and must state that the person to whom the request is made, has the right to seek judicial relief. The chief appraiser may examine: (1) the document from TxDoT showing the person's general distinguishing number; (2) documentation appropriate to allow the chief appraiser to ascertain the applicability of this Section and §23.12B of this code to the person; and (3) documentation necessary to substantiate information set forth in the dealer's declaration filed by the person. (h) Establishes that if a dealer fails to file a declaration, or if on the declaration, a dealer reports the sale of fewer than five motor vehicles in the prior year, the chief appraiser shall report that to TxDoT. (i) Establishes that a dealer who fails to file a declaration as required by this Section, commits an offense. The crime is a misdemeanor punishable by a fine not to exceed $500. Each day a dealer fails to comply is a separate violation. (j) Establishes that a person who violates Subsection (h) commits an offense. The crime is a misdemeanor punishable by a fine not to exceed $500. Each day a person fails to comply is a separate violation. (k) Provides additional penalties for failing to file a declaration. A tax lien attaches to the dealer's business personal property to secure payment of the penalty. The appropriate district attorney, criminal district attorney, or county attorney shall collect the penalty established by this Section in the name of the chief appraiser or collector. Venue of an action brought under this Subsection is the county in which the owner maintains his principal place of business or residence. A penalty forfeited under this Subsection is $1,000 for each month or part of a month in which a declaration is not filed after it is due. SECTION 3. Amends §23.12B, Tax Code. (a) Defines "aggregate tax rate," "chief appraiser," "collector," "dealer's motor vehicle inventory," "declaration," "owner," "relevant taxing unit," "sales price," "statement," "subsequent sale," "total annual sales," and "unit property tax factor." (b) Establishes that an owner or the person paying the owner's tax, shall assign a unit property tax to each motor vehicle sold from a dealer's inventory. Exceptions being vehicles sold to a dealer, included in a fleet transaction, or a vehicle that is the subject of a subsequent sale. The unit property tax is determined by multiplying the sales price by the unit property tax factor. On or before the 10th day of each month, the owner shall deposit the statement and the property tax assigned to all motor vehicles sold from the dealer's motor vehicle inventory in the prior month. The collector shall credit the owner's escrow account to pay taxes against the dealer's motor vehicle inventory. (c) Provides that interest generated by an escrow account may not be used to reduce or otherwise affect the annual appropriation to the collector that would otherwise be made. (d) Provides that an owner may not withdraw funds in an escrow account created pursuant to this Section. (e) Requires the Comptroller to promulgate a form entitled "Dealers Motor Vehicle Inventory Tax Statement," which shall be completed by the dealer for each motor vehicle sold. The form must at least include: (1) a description of the motor vehicle sold; (2) the sales price of the motor vehicle; (3) the unit property tax of the motor vehicle if any; and (4) the reason for any lack of assigned unit property tax. (f) Establishes that a dealer shall file monthly with the collector and the chief appraiser, the statement of all motor vehicles sold by the dealer in the prior month. (g) Establishes that all dealers shall file under Subsection (f). Also establishes that for new dealers, they may neither assign a unit property tax to a motor vehicle, nor remit money with the statement unless pursuant to terms of a contract as provided by Subsection (l). (h) A collector may establish procedures by which the unit property tax of a vehicle is paid and deposited into an owner's escrow account at the time of processing the transfer of title to the motor vehicle. (i) Substitutes "dealer's motor vehicle inventory" for "special inventory." (j) Establishes that the collector shall bill the owner for the amount of tax deficiency caused by shortages of the escrow account (k) Establishes deadlines for remitting taxes to the collector. Also establishes deadlines for the collector to distribute all funds to the taxing units. No duty of collection shall be imposed on the collector that is not otherwise obligated by law or contract. Language in current Subsections (j) and (k) are deleted. (l) Establishes that a person who acquires the business or assets of an owner may, by contract, agree to pay the current year vehicle inventory taxes owed by the owner. The owner and the buyer of the business shall jointly notify the chief appraiser and the collector of the terms of the agreement. A person who agrees to pay current year vehicle inventory taxes as provided by this Subsection is not required to file a declaration until the year following the acquisition. This Subsection does not relieve the selling owner of the tax liability. (m) A dealer who fails to file a statement as required by this Section commits an offense. An offense under this Subsection is a misdemeanor punishable by a fine not to exceed $100 per day. (n) Provides additional penalties for failing to file a statement. A tax lien attaches to the owner's business personal property to secure payment of the penalty. The appropriate district attorney, criminal district attorney, or county attorney shall collect the penalty established by this Section in the name of the chief appraiser or collector. Venue of an action brought under this Subsection is the county in which the violation occurred or in which the owner maintains his principal place of business or residence. A penalty forfeited under this Subsection is $500 for each month or part of a month in which a statement is not filed after it is due. (o) Establishes that an owner who fails to remit unit property taxes due as required by this Section shall pay a penalty of five percent of the amount due. Unit property taxes paid on or before January 31, of the year following the date on which they are due are not delinquent. The collector, the collector's designated agent or the county or district attorney shall enforce this Subsection. (p) Fines and penalties collected pursuant to the authority of this Section shall be deposited in the county depository to the credit of the general fund. SECTION 4. Amends Chapter 23, Subchapter, B, Tax Code, by adding §23.12C DECLARATIONS AND STATEMENTS CONFIDENTIAL. (a) Defines "collector," "chief appraiser," "dealer," "declaration," "owner," and "statement." (b) Establishes that declarations or statements filed with a chief appraiser or collector are confidential and not open to public inspection. (c) The confidential information in this Section may be disclosed: (1) pursuant to a lawful subpoena; (2) to the person who filed the declaration or statement; (3) to the comptroller or his employees at his discretion; (4) to a collector or chief appraiser; (5) to a district attorney, criminal district attorney, or county attorney in the enforcement of a penalty imposed pursuant to §23.12A or §23.12B; (6) for statistical purposes in a form that does not identify specific property or a specific property owner; or (7) if and to the extent that the information is required for inclusion in a public document or record that the appraisal or collection office is required by law to prepare or maintain. (d) Establishes that a person who knowingly permits inspection of a confidential document, or discloses confidential information commits an offense. An offense under this Subsection is a Class B misdemeanor. SECTION 5. Effective date: January 1, 1996. SECTION 6. Emergency Clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The substitute clarifies the intent of the bill, and corrects drafting errors in the bill as filed. Substantive differences of C.S.H.B. 2624 from the bill: The definition of "comptroller" is deleted throughout the substitute because of redundancy elsewhere in the Tax Code. In case of a dealer who's sales from dealer's motor vehicle inventory are made predominately to dealers, the chief appraiser shall appraise the dealer's motor vehicle inventory as provided by §23.12 of the code. The original bill is permissive and allows the chief appraiser to decide whether to use §23.12 or not. The computation of a dealer's motor vehicle inventory is changed to subtract sales made to dealer's, fleet sales, and subsequent sales from the dealer's total annual sales from the dealer's motor vehicle inventory instead of subtracting from the dealer's total sales. The remaining amount is then divided by 12. This change complies with the "unit property tax" in §23.12B. A dealer's personal property (motor vehicle inventory excluded) is appraised as provided by other sections of the Tax Code. The original bill stipulates that a dealer's personal property is appraised according to §23.12(a), which may not be broad enough to accomplish that objective. SUMMARY OF COMMITTEE ACTION Public notice was posted in accordance with the rules, and a public hearing was held on March 21, 1995. Representative Craddick explained the bill. Without objection, the committee adopted C.S.H.B. 2624 by Craddick. By a record vote of 7 ayes, 0 nays, 0 present not voting and 4 absent, the committee voted to report H.B. 2624 to the House as substituted with the recommendation that it be sent to the Local & Consent Calendar, and that it do pass. Testimony received in favor of the bill: Gene Fondren, representing the Texas Automobile Dealers Assn. Jim Robinson, representing himself John Ramsey, representing himself and the Tax Assessor Collectors Assn. of TX