BILL ANALYSIS C.S.H.J.R. 107 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 resolution would amend the Texas Constitution to provide for a property tax exemption for certain goods held for transit at a location for 270 days or less. 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 Article VIII, Texas Constitution, by adding Section 1-m as follows: (a) Exempts certain goods from ad valorem taxation if the property is acquired in or imported into this state to be detained for assembling, storing, manufacturing, processing or fabricating purposes, and then forwarded to another location in 270 days or less. (b) Provides that Subsection (a) does not apply to a school district. (c) Provides for clarification of the meanings of property references used in this section regarding aircraft and aircraft parts. (d) Allows local election to impose ad valorem tax on property otherwise exempt under Subsection (a). Allows subsequent action by local governing entity to adopt the exemption for following years. SECTION 2. Repeals Section 1-j (Certain Tangible Personal Property Exempt from Ad Valorem Taxation), Article VIII, Texas Constitution. SECTION 3. Amends Article VIII, Texas Constitution, by adding Section 1-m-1 to establish an effective date of January 1, 1996. This section expires January 1, 1997. SECTION 4. Establishes election date on November, 7, 1995, and specifies ballot language. COMPARISON OF ORIGINAL TO SUBSTITUTE The committee substitute eliminates school districts from the expanded exemption; creates a local option to tax the inventory otherwise exempt; and allows local elected officials the option to restore the exemption beginning in a subsequent year. The original joint resolution did not contain such provisions. The committee substitute also repeals Section 1-j (Certain Tangible Personal Property Exempt from Ad Valorem Taxation), Article VIII, Texas Constitution. H.J.R. 107 did not repeal this section. 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 resolution was left pending before the committee. On April 27, 1995, the committee met in a formal meeting and considered H.J.R. 107 on pending business. The committee considered a committee substitute by Representative Craddick. Without objection, C.S.H.J.R. 107 was adopted. By a record vote of 8 ayes, 0 nays, 0 present not voting, and 3 absent, the committee voted to report H.J.R. 107 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)