BILL ANALYSIS S.B. 345 By: Brown (Uher) May 16, 1995 Committee Report (Amended) BACKGROUND Chapter 312, Tax Code, which authorizes tax abatements in a reinvestment zone, expires September 1, 1995. If allowed to expire, cities, counties, and other local units of government will no longer be able to offer tax abatements as incentives to attract investments. Additionally, there has been a reduction in the growth of school district abatements since the enactment of SB 7 (73rd Regular Session). SB 7 contained a provision prohibiting the Comptroller from deducting abated value from market value if the abatement was granted after May 31, 1993. PURPOSE S.B. 345 entitles an eligible person to a refund of state taxes for school taxes paid on property that is subject to a tax abatement agreement with a city or county under Chapter 312, Tax Code. The bill also extends the sunset date for the Property Redevelopment and Tax Abatement Act to 2001. RULEMAKING AUTHORITY It is the committee's opinion that rulemaking authority is expressly granted to the Comptroller of Public Accounts in SECTION 1 of the bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Chapter 111, Tax Code, by adding Subchapter F, as follows: SUBCHAPTER F. TAX REFUND FOR ECONOMIC DEVELOPMENT Section 111.301. REFUND OF STATE TAXES; APPLICATION FOR REFUND. (a) Entitles an eligible person to a refund of state sales and use taxes and state franchise taxes paid in a calendar year for which the person paid ad valorem taxes to a school district for property in that year that meets certain criteria. (b) Provides that no refund will be made if the person makes a payment in lieu of taxes to a municipality or county during the period of a tax abatement agreement between the person and the municipality or county. (c) Prohibits the amount of a refund from exceeding the amount of net state sales and state franchise taxes paid by the person, after any applicable tax credit. Entitles a person to a refund for five years or the duration of the tax abatement agreement whichever is less. Prohibits a person from applying for a refund after the date of the cancellation of the agreement or the date of relocation of the person's business outside the zone. (d) Sets forth requirements for a person or business to be eligible for the tax refund. (e) Provides that application for the refund is to the comptroller. Sets forth information that must be included in the application. (f) Provides that a refund does not earn interest. (g) Requires a person applying for a refund to certify to the comptroller that the person complies with each term of the agreement entered into with a municipality or county. (h) Prohibits the comptroller from acting on an application until the relevant agreement is on file with the comptroller and the Texas Department of Commerce. (i) Prohibits the comptroller from acting on the refund application until the person comes into compliance if the comptroller determines that the person applying for the refund is not in compliance with the agreement. Requires the comptroller to notify the municipality or county of the person's noncompliance. (j) Authorizes the comptroller to grant a person not in compliance a temporary waiver if the comptroller determines that the person's noncompliance is the result of a natural disaster. (k) Authorizes the comptroller to conduct any audit determined necessary for enforcement or administration of this subchapter. Section 111.302. ISSUANCE OF TAX REFUND; AMOUNT OF REFUND. (a) Requires the comptroller to issue a refund for a tax year in which the applicant has paid the ad valorem taxes imposed by a school district on the person's property. (b) Requires the refund, if the person qualifies for the refund, to be issued before the 120th day after the date the application is filed with the comptroller. (c) Provides that the amount of the refund is equal to 80% of the portion of the ad valorem taxes paid to a school district by the person for the applicable tax year on the property that the person would not have been required to pay if the school district had entered into an agreement covering the property that included the same terms as the applicable municipal or county agreement. Section 111.303. RULES AND FORMS. (a) Requires the comptroller, by rule, to adopt rules and forms for the administration of this subchapter. Requires the rules to include a schedule of the state taxes to which this subchapter applies. (b) Requires the comptroller to provide without charge one copy of the rules and forms to each person applying for the refund. Section 111.304. EVALUATION; ANNUAL REPORT. Requires the comptroller to submit an annual report to the legislature by December 1, 1999, and December 1 of each subsequent year. Sets forth information to be included in the report. SECTION 2. Amends Section 312.005 (State Administration), Subsection (a), Tax Code, to require a taxing unit that designates a reinvestment zone or executes an agreement to deliver to the department and to the comptroller before a certain date a report providing, among other information: the guidelines and criteria established for the zone, including subsequent amendments; a copy of each agreement to which the taxing unit is a party; and any other information required by the comptroller. Deletes language requiring information about the agreement to be included in the report. SECTION 3. Amends Section 312.202 (Criteria for Reinvestment Zone), Tax Code, regarding criteria for a reinvestment zone, to delete specific criteria and allow the governing body to adopt any criteria it deems reasonable. SECTION 4. Amends Section 312.205 (Specific Terms of Tax Abatement Agreement), Subsection (a), Tax Code, to require an agreement under Section 312.204 to contain, among other criteria: each term agreed to by the owner of the property; require the owner of the property to certify annually to the governing body of each taxing unit that the owner is in compliance with each applicable term of the agreement; and authorize the governing body of the municipality to cancel or modify the agreement if the property owner fails to comply with the agreement. SECTION 5. Amends Section 312.006 (Expiration Date), Tax Code, to provide that this chapter expires September 1, 2001, rather than 1995, if not continued in effect. SECTION 6. (a) Effective date: September 1, 1995 [except as provided by Subsection (b)]. Makes application of this Act prospective beginning September 1, 1995. (b) Effective date of Section 5: August 31, 1995. SECTION 7. Emergency clause. EXPLANATION OF AMENDMENTS COMMITTEE AMENDMENT #1 would reduce the eligibility threshold regarding capitol improvements from $10,000,000 to $5,000,000 in order to qualify for a tax refund from the state. COMMITTEE AMENDMENT #2 strikes Section 3 from the bill. Section 3 deleted specific criteria designating a reinvestment zone and would have instead allowed a governing body to adopt the criteria it deemed reasonable. COMMITTEE AMENDMENT #3 clarifies that the prohibition of a payment or donation in lieu of taxes to the city or county found in Section 111.301(b) does not apply to payments pursuant to a contract with an industrial district under Chapter 42, Local Government Code, or to payments that do not in the aggregate exceed $5,000 in any year of the abatement agreement. SUMMARY OF COMMITTEE ACTION Public notice was posted in accordance with the rules, and a public hearing was held on May 9, 1995. The committee considered S.B. 345, and Representative Uher explained the bill. Without objection, S.B. 345 was left pending before the committee. On May 12, 1995, the committee convened in a formal meeting and considered S.B. 345 on pending business. The committee considered 3 amendments to the bill by Representative Finnell. All 3 of the amendments were adopted without objection. By a record vote of 6 ayes, 0 nays, 0 present not voting and 5 absent, the committee voted to report S.B. 345 to the House with amendments with the recommendation that it do pass. Testimony received in favor of the bill (5/9/95): Kris Nielsen, representing herself Ravi K. Singhania, representing himself Phyllis Schneider, representing herself and the Tyler Economic Development Council, Inc. Dale Cummings, representing himself and the Texas Assn. of Taxpayers Bill Allaway, representing the Texas Assn. of Taxpayers Rob Looney, representing the Texas Mid Continent Oil & Gas Assn. Ron Dipprey, representing Dow Chemical North America Gary Pearson, representing BASF Corporation Phil Ritter, representing himself and Texas Instruments Incorporated Joe Newman, representing himself and the Texas Economic Development Council Wendell Westlake, representing himself and Dow Chemical Company Kathryn K. Hillhouse, representing herself Michael White, representing the Greater Houston Partnership Dane Harris, representing the Texas Assn. of Business & Chambers of Commerce Chris Shields, representing the Corpus Christi Business Alliance and Alliance for Quality Education Karin Richmond, representing herself