SLR C.S.H.B. 4 75(R)    BILL ANALYSIS


REVENUE & PUBLIC EDUCATION FUNDING, SELECT
C.S.H.B. 4
By: Sadler, Hilbert, Brimer, Chisum, Craddick, Hernandez, Hochberg,
Junell, Stiles, Williamson, Wilson 
4-17-97
Committee Report (Substituted)



BACKGROUND

The Governor established the Citizen's Committee on Property Tax Relief in
order to gather public input on the impact of school property taxes around
the state.  A proposal was submitted by the Governor to the 75th
Legislature which provided for a 20 cent reduction in property taxes and
created a new business activity tax.  The Select Committee on Revenue and
Public Education Funding was created to evaluate this plan and, as a
result, began an extensive examination of the Texas tax and education
systems. 

The Select Committee found that there were a number of inconsistencies in
the current  tax structure that, when eliminated, could provide a
substantial source of revenue to the state and provide even larger tax
cuts than the original proposal.  In addition, the committee agreed that
the public education system must have a reliable and growing source of
revenue in order to meet Texas' future needs.  

PURPOSE

C.S.H.B. 4 provides significant reductions in property taxes while
ensuring a stable source of revenue for public education funding. This is
accomplished by eliminating loopholes and exemptions in the sales tax,
franchise tax and other various taxes; removing commercial property from
local tax rolls; keeping residential tax rates for maintenance and
operations at the local level and providing mechanisms to prevent tax
increases.   

These changes allow the state to increase its share of the cost of public
education to approximately 80 percent and to eliminate the "Robin Hood"
provision in current law.  In addition, C.S.H.B. 4 provides state matching
funds for local enrichment, old debt service and new school facilities. 
 
RULEMAKING AUTHORITY

ARTICLE 1. SCHOOL FINANCE

SECTION 1.02
 
Section 42.004, Education Code, transfers rulemaking authority from the
State Board of Education to the commissioner of education for the
implementation and administration of the Foundation School Program. 

Section 42.151(c), Education Code, transfers rulemaking authority from the
State Board of Education to the commissioner of education for prescribing
qualifications of special education programs. 

Section 42.151(d), Education Code, transfers rulemaking authority from the
State Board of Education to the commissioner of education for governance
of contracts for the residential placement of special education students. 

Sections 42.151(e), 42.152(b), 42.153(a), 42.154, and 42.155, Education
Code, transfer rulemaking  authority from the State Board of Education to
the commissioner of education relating to funds allocated for special
education, compensatory education, bilingual education, career and
technology education, and gifted and talented student programs. 

Section 42.258(a), Education Code, grants rulemaking authority to the
comptroller of public accounts to determine the amount of maintenance and
operations taxes a school district would have collected for the preceding
year under certain conditions. 

SECTION 1.03
 
Section 46.002(a)-(b), Education Code, grants rulemaking authority to the
commissioner of education to adopt rules relating to funds allocated to
instructional facilities.  

Section 46.003(g), Education Code, grants rulemaking authority to the
commissioner of education relating to funds for school facilities bonds
that will be paid with state assistance. 

Section 46.010(a), Education Code, grants rulemaking authority to the
comptroller of public accounts to determine the amount of taxes a school
district would have collected during the preceding year for eligible debt
service. 

ARTICLE 2. STATE PROPERTY TAX

SECTION 2.01
 
Section 501.005(b), Tax Code, grants rulemaking authority to the
comptroller of public accounts to issue guidelines to be used by the chief
appraiser of each appraisal district to identify property subject to the
state ad valorem tax. 
 
SECTION 2.04
 
Section 6.038(b), Tax Code, grants rulemaking authority to the comptroller
of public accounts to establish guidelines and criteria for generally
accepted appraisal standards and practices and for the withholding of all
or a part of the state's allocated share of the appraisal district budget
if generally accepted practices are not followed. 

ARTICLE 3. FRANCHISE TAX

SECTION 3.10
 
Section 171.103(e), Tax Code, grants rulemaking authority to the
comptroller of public accounts relating to apportionment of taxable
capital of telephone and transportation companies. 

SECTION 3.11

Section 171.1032(e), Tax Code, grants rulemaking authority to the
comptroller of public accounts relating to apportionment of taxable earned
surplus of a telephone or transportation company. 

SECTION 3.21
 
Section 171.113(c), Tax Code, grants rulemaking authority to the
comptroller of public accounts to specify reporting requirements for a
small business entity. 
 
ARTICLE 8. MOTOR FUEL AND AVIATION FUEL TAXES

SECTION 8.13
 
Section 153.2055(h), Tax Code, grants rulemaking authority to the
comptroller of public accounts to promulgate necessary forms and rules
relating to the purchase of certain diesel fuel. 
 
 SECTION 8.30 
 
Section 161.004(c), Tax Code, grants rulemaking authority to the
comptroller of public accounts to prescribe rules of procedure and
evidence for hearings on contested cases of an aviation fuel distributor
permit cancellation. 
 
Section 161.012(b), Tax Code, grants rulemaking authority to the
comptroller of public accounts to provide for the method of claiming a
refund of aviation fuel tax. 
 
Section 161.056, Tax Code, although not an express grant of rulemaking
authority, allows the comptroller of public accounts to promulgate the
application form for an aviation fuel distributor permit. 

Section 161.063(b), Tax Code, although not an express grant of rulemaking
authority, allows the comptroller of public accounts to promulgate
necessary forms and rules relating to the taxation of aviation fuel. 

SECTION 8.33

Grants rulemaking authority to the comptroller of public accounts in
anticipation of the effective date of Chapter 161, Tax Code, as added by
this article, and may prescribe, print, and distribute forms and other
information that will be needed on the effective date of that chapter. 

ARTICLE 13. INTERSTATE MOTOR CARRIER SALES AND USE TAX

SECTION 13.01

Sec. 157.205, Tax Code, grants rulemaking authority to the comptroller of
public accounts to prescribe, adopt, and enforce rules and to promulgate
forms relating to the administration and enforcement of the interstate
motor carrier sales and use tax.  

ARTICLE 21. RENTER'S TAX RELIEF

SECTION 21.01
 
Sections 51.007, 51.008, 51.010 Tax Code, grant rulemaking authority to
the comptroller of public accounts to prescribe rules, procedures, and
forms necessary to administer provisions relating to property tax relief
for renters including proration and collection of fees. 

Section 51.009 Tax Code, although not an express grant of rulemaking
authority, allows the comptroller of public accounts to prescribe
procedures for payment of rebates. 

SECTION BY SECTION ANALYSIS

ARTICLE 1.  SCHOOL FINANCE

SECTION 1.01.  Repeals Chapter 41, Equalized Wealth Level, and Sections
7.055(a)(34), 12.107, 31.021(c), indexed increase in the technology
allotment, and 56.208(d), Texas Education Code. 

SECTION 1.02.  Amends Chapter 42, Foundation School Program, as follows:

Subchapter A.  General Provisions

Section 42.002.  Provides that the FSP consists of a two-tiered yield
system, supplemented by a facilities component as provided by Chapter 46. 

Section 42.004.  Provides that the FSP is administered according to rules
adopted by the commissioner of education. 

 Section 42.005.  Deletes provision that would have allowed attendance in
extended year programs to count in ADA calculations. 

Section 42.007.  (a) Requires the LBB to compute the system's funding
elements for each year of a biennium, as specified. (b) and (c) Delete
provisions relating to the foundation school fund budget committee's
duties in determining funding elements.  (c) Lists funding elements.
Student multipliers replace program weights as program cost differential
element.  (d) Allows the LBB to study the elements, as appropriate. 

Subchapter B.  Basic Program (replaces former Subchapters B and F)

Section 42.101.  (a) Provides that the basic program guarantees districts
a specified yield per student in state and local funds per cent of tax
effort to fund the basic program as determined by the given formula.
Allows funds allocated under the basic program to be used for any legal
purpose, under certain conditions.  Gives formula for the guaranteed yield
amount for each program that employs "student multipliers" and defines its
elements.  Sets the dollar amount guaranteed level of state and local
funds at $53.15 per student per cent of tax effort or a greater amount set
by appropriation. Provides for different types of student counts: ADA,
enrollment, or full-time equivalents. (b) Provides values for various
"student multipliers".  (c) Provides that a district's basic program is
the sum of its guaranteed yield amounts for each educational program.  (d)
Defines "Career and technology education program," "Full-time equivalent
student," and "Special education program." Sec. 42.101 provisions
supersede formulas and formula elements that previously determined Tier 1
and Tier 2 funding.  Superseded provisions are deleted where applicable. 

Section 42.102.  Caps districts' maintenance and operations (M&O) tax rate
for purposes of state assistance at 70 cents per $100 dollar valuation.
Deletes reference to basic allotment (former Tier 1). 

Section 42.103.  Provides that the cost of education adjustment is the
current cost of education adjustment multiplied by 0.58.  Deletes
provision that the cost of education adjustment is determined by the
foundation school fund budget committee.  Deletes obsolete provision
requiring the commissioner to recompute the cost of education index for
1996-1997. 

Section 42.104.  Retains small and mid-sized district adjustments, with
conforming changes. 

Section 42.105.  Retains sparsity adjustment, with conforming changes.

Section 42.106.  Amends and renumbers former Sec. 42.304 to base state aid
for certain statutory districts and a state school on the average M&O tax
rate of school districts in the county. 

Subchapter C.  Conditions Applicable to Funding Based on Special Student
Multipliers 
(replaces former Subchapter C.  Special Allotments)

Section 42.151.  Deletes special education program weights (incorporated
as student multipliers in Sec. 42.101).  Reassigns certain
responsibilities regarding instructional arrangements from the State Board
of Education (SBOE) to the commissioner of education.  Makes changes
conforming to guaranteed yield system of funding.  Deletes provisions
relating to funds set aside for special education programs. 

Section 42.152.  Deletes compensatory education program weights (see
above).  Reassigns SBOE rule-making authority to the commissioner. Makes
changes conforming to guaranteed yield system of funding.  Deletes program
set asides provisions. 

Section 42.153.  Deletes bilingual education program weights (see above).
Reassigns SBOE rulemaking authority to the commissioner. 

Section 42.154.  Deletes career and technology education program weights
(see above).  Reassigns SBOE rule-making authority to the commissioner.
Deletes obsolete cost-benefit comparison. Deletes program set aside
provisions. 
 
Section 42.155.  Deletes gifted and talented education program weights
(see above).  Reassigns SBOE rule-making authority to the commissioner.
Deletes obsolete provisions relating to program funding.  Deletes program
set aside provisions. 

Subchapter D.  Transportation Allotment

Section 42.201-42.210.  No substantive changes.  Former Sec. 42.155 broken
into smaller sections. 

Subchapter E.  Financing the Program

Section 42.251.  Provides that the sum of the adjusted basic program and
the transportation allotment constitutes the total cost of the FSP.
Deletes references to obsolete Tier 1 and Tier 2 allotments. States that
the program is financed by local district tax revenue and state aid. 

Section 42.252.  Provides that each district's local share of the program
costs is equal to its M&O tax rate times its current year taxable property
value.  Deletes obsolete provisions that required a minimum effective tax
rate of 86 cents for FSP Tier 1 purposes, required each district to raise
its local share to receive FSP funds, and addressed appeals by districts
with rapidly declining tax bases. 

Section 42.253.  Requires the commissioner to determine the amounts to
which a district is entitled from the foundation school fund and from the
available school fund, and also the district's local share of the program
costs.  These determinations are based on estimates submitted to the
legislature or on estimates provided in the General Appropriations Act.
Deletes obsolete references to Tier 2 funds and to the foundation school
fund budget committee.  Adds temporary provision limiting the amount of
state assistance to which a district is entitled in the 1997-1998 and
1998-1999 school years to an amount not exceeding the amount to which it
would be entitled at the tax rate necessary for the district to maintain
per-student funding for maintenance and operations. 

Section 42.2531.  Implements a hold harmless provision, effective through
September 1, 1999. Provides that a district with a 70 cent tax rate will
receive enough state aid under the new system to keep its revenue per
student at the level it would have been for the 1997-1998 and 1998-1999
school years under the General Appropriations Act and under the code as it
existed prior to its amendment by this article, including the repealed
equalized wealth provisions but excluding the repealed provision that
would have allowed attendance in extended year programs to count in that
district's ADA calculations.  Requires the commissioner to determine the
amount of additional state aid necessary to hold districts harmless. 


Section  42.2532.  Provides that a district with an average minimum
teacher and librarian salary, based on the minimum salary schedule steps,
that exceeds the state average by more than three percent is entitled to
an additional allotment.  Provides the method for computing the
experienced teacher allotment. 

Section 42.254.  Adds requirement for the Texas Education Agency (TEA) to
submit to the legislature biennial estimates of expected costs of teacher
salaries, based on the minimum salary schedule but not on increases in the
number of teachers resulting from enrollment growth.  Requires districts
to submit to the LBB by September 1 of each year (1) their tax rate for
that fiscal year, (2) their enrollment for that school year, and (3) the
number of teachers at each step of the minimum salary schedule.  Deletes
obsolete references to the foundation school fund budget committee. 

Section 42.256.  Renumbers former Section 42.257 and makes conforming
changes relating to appraisal appeals and reductions in the taxable value
of property for M&O tax purposes. 

Section 42.257.  Renumbers former Section 42.258.  Section not amended.

Section 42.258.  New provision relates to penalties for failure to fully
collect taxes.  Requires the comptroller to determine the amount of M&O
taxes a district would have collected for the preceding year under certain
conditions and to certify to the commissioner any difference between that
amount and the amount of M&O taxes actually collected.  Requires the
commissioner to reduce a district's  state aid by the amount of the
difference, if any, and allows the district to appeal the comptroller's
findings to the comptroller. 

Section 42.259.  Requires payments from the foundation school fund to be
made to all districts on the same 12-month schedule, with the schedule
weighted more heavily toward the beginning of the year.  Deletes
references to the different payment schedules formerly applicable to
different categories of districts. 

Subchapter F.  Administrative Costs

Former Subchapter D is renumbered as Subchapter F.  References to former
Tier 1 allotments are replaced by references to foundation school program
allocations. 

Subchapter G.  Enrichment Guaranteed Yield

New Subchapter G establishes a second tier guaranteed yield component in
the FSP that allows school districts to supplement the basic program
financed in Tier 1, and to use allotments under this subchapter for any
legal purpose, including capital outlay and debt service.  New Tier 2
provides school districts a specified amount per student in local and
state funds for each cent of tax effort above the 70-cent maximum rate
specified for Tier 1, up to a maximum total rate of 80 cents per $100
valuation.  Provides that a district's allotment is based on a formula
similar to the Tier 1 formula, but with a dollar amount guaranteed level
per student per cent of tax effort of $9, or a greater amount provided by
appropriation, and with an ADA adjusted as specified in the formula
element definitions in lieu of student multiplier values.  Provides for a
separate proration procedure if insufficient funds are appropriated. 

Subchapter G also includes a guaranteed yield for school district debt
service on certain bonds authorized before September 1, 1997.   The dollar
amount guaranteed level in this guaranteed yield formula is $21.35.
Limits districts' use of state fund received under this guaranteed yield
to debt service on those bonds.  Provides for commissioner to transfer
funds from foundation school program to existing debt program if
insufficient funds are appropriated.  Requires the commissioner to
distribute state funds as soon as practicable after each September 1.
Provides that the sum of the enrichment tax rate and the debt service tax
rate may not exceed $0.10 per $100 valuation. 

Former Subchapters G and H (relating to school facilities inventory and
standards and to a school facilities assistance program, respectively) are
deleted. 

SECTION 1.03.  Amends Title 2, Education Code, to add a new Chapter 46 on
school facilities as follows: 

Chapter 46.  Instructional Facilities Allotment

New Chapter 46 provides a guaranteed yield funding mechanism that
guarantees school districts a specified amount of state and local funds
per student for each cent of tax effort, up to a predetermined maximum
rate, for debt service on bonds issued to finance the construction,
acquisition, or improvement of district facilities that are used
predominantly for instructional purposes.  Establishes the maximum rate
for this guaranteed yield as the rate necessary for the current year,
using the state and local funds guaranteed by the formula, to pay the
principal of and interest on the bonds if the district's appraised values
were the same as those determined by comptroller's property tax division
and the district had collected all of the debt service taxes levied.
Allows a  district to set a tax rate above this maximum to collect local
funds, without additional state aid, to pay the district's share of the
debt service.  Limits the applicability of this funding formula to bonds
authorized on or after September 1, 1997, that have a weighted maturity of
at least eight years, and that may not be redeemed within 10 years of
their issue.  Provides that a district may use state funds received under
this provision only to pay principal of and interest on the bonds for
which it receives the funds.  Provides that a district also may receive
state assistance with lease-purchase agreements for instructional
facilities; that the part of M&O taxes that go toward a district's
payments on a lease-purchase agreement for which it receives state aid are
considered bond debt service taxes; and that lease-purchase payments are
considered payments of principal of an interest  on bonds.  Establishes a
limit on the guaranteed amount a district may receive in a biennium to the
lesser of (1) the actual debt service payments made in the biennium in
which the bonds are issued, or (2) the greater of $100,000 or the
district's ADA times $250. 

Provides for the allocation of state funds if the total appropriated is
for new projects less than the total amount to which the districts that
apply would be entitled.  Allows the use of state funds for debt service
on refunding bonds.  Requires the commissioner to set standards for school
facilities adequacy, including requirements for space, educational
adequacy, and construction quality, and requires facilities constructed
after September 1, 1998, to meet these standards to qualify for financing
with state and local funds.  Requires the commissioner to determine each
district's entitlement and provides for the transfer of funds from the FSP
to the instructional facilities program and the reduction of a district's
FSP allocation if the amount appropriated for the facilities guaranteed
yield is less than the amount of each district's entitlement.  Establishes
penalties for failure to fully collect debt service taxes, similar to the
penalties imposed under Section 42.258 for failure to fully collect M&O
taxes.  Provides for an increased guaranteed yield for two or more
districts that apply for state assistance with a joint project at a single
location.  Requires districts that sell facilities financed under this
chapter before the bonds are fully paid to send to the comptroller an
amount equal to the net proceeds from the sale multiplied by a percentage
representing the state and local shares of bond payments. 

SECTION 1.04.  Amends Section 7.024(a), Education Code, to allocate money
to the investment capital fund through appropriation rather than through
set asides. 

SECTION 1.05.  Amends Section 12.013(b), Education Code, to make
conforming changes to the provisions governing home-rule school districts,
which are no longer subject to the repealed Chapter 41 equalized wealth
provisions. 

SECTION 1.06.  Amends Section 12.016, Education Code, to make conforming
changes in homerule school district budget provisions reflecting the
substitution of student multipliers program weights for certain
educational programs. 

SECTION 1.07.  Amends Section 12.029(b), Education Code, to make
conforming changes reflecting the repeal of Chapter 41 equalized wealth
provisions that previously affected school district consolidations. 

SECTION 1.08.  Amends Section 12.106, Education Code, to provide for
funding of openenrollment charter schools in the same manner that certain
statutory school districts and a state school are funded.  Provides that
the cost of education adjustment, small or mid-sized district adjustment,
or sparsity adjustment used to determine funding for open-enrollment
charter schools will be the average adjustment for districts in the county
in which the school is located. 

SECTION 1.09. Amends Section 12.108, Education Code, to make conforming
changes in the prohibition against open-enrollment charter schools
charging tuition. 

SECTION 1.10. Amends Section 13.054(f), Education Code, to make conforming
changes in the funding adjustments for districts that annex low-performing
school districts. 

SECTION 1.11.  Amends Section 13.285, Education Code, to make conforming
changes to provisions relating to incentive aid payments to consolidating
districts. 

SECTION 1.12.  Amends Section 19.007(b), Education Code, to make
conforming changes to provisions relating to schools in the Texas
Department of Criminal Justice. 

SECTION 1.13.  Amends Section 21.401, Education Code, to set the minimum
number of days of service for teachers at 185 days for the 1997-1998 and
1998-1999 school years.  Makes the minimum days of service for subsequent
years subject to a formula that factors in the guaranteed level of state
and local funds per student per cent of tax effort in the basic
programming funding. 

SECTION 1.14.  Adds Section 21.4011, Education Code, to set out the
minimum salary schedule  for teachers and librarians in dollar amounts for
the 1997-1998 and 1998-1999 school years.  This section expires September
1, 1999. 

SECTION 1.15.  Amends Section 21.402, Education Code, to index the minimum
salary schedule, beginning with the 1999-2000 school year, to the
guaranteed level of state and local funds per student per cent of tax
effort in the basic program funding.  Revises existing salary step
factors. 

SECTION 1.16.  Amends Section 29.002, Education Code, to make conforming
changes in the definition of "special services" to reflect renumbering of
referenced sections in Chapter 42. 

SECTION 1.17.  Amends Section 29.008(b), Education Code, to make
conforming changes in the funding of district contracts for services for
special education programs. 

SECTION 1.18.  Amends Section 29.014, Education Code, to make conforming
changes in the funding of certain special education programs, reflecting
the replacement of program weights by student multipliers and the
appropriation of funds for programs that formerly received set aside
funding. 

SECTION 1.19.  Amends Section 29.081, Education Code, to make conforming
changes in the funding of compensatory education programs, making program
funding subject to appropriation rather than set asides. 

SECTION 1.20.  Amends Section 29.082(a), Education Code, to make
conforming changes in the funding of extended year programs, making
program funding subject to appropriation rather than set asides. 

SECTION 1.21.  Amends Section 29.085, Education Code, to make conforming
changes in the funding of programs for pregnant and parenting students,
making program funding subject to appropriation rather than set asides. 

SECTION 1.22.  Adds Section 29.124, Education Code,  to make conforming
changes in the funding of programs for gifted and talented students,
making program funding subject to appropriation rather than set asides. 

SECTION 1.23.  Amends Section 29.203(b), Education Code, to make
conforming changes in the make-up of public education grants to reflect
the use of student multipliers in the funding formulas. 

SECTION 1.24.  Amends Section 29.256(c), Education Code, to make
conforming changes in the community education services reimbursements. 

SECTION 1.25.  Amends Section 29.257(a), Education Code, to make
conforming changes in the community education development projects
funding. 

SECTION 1.26.  Amends Section 30.087(b), Education Code, to make
conforming changes in the funding for programs for hearing impaired
students to reflect the use of student multipliers in the funding
formulas. 

SECTION 1.27.  Amends Section 31.021(b), Education Code, to make
conforming changes in technology allotment provisions. 

SECTION 1.28.  Amends Section 33.001, Education Code, to make conforming
changes in the funding of counseling programs, making funding subject to
appropriation rather than set asides. 

SECTION 1.29.  Amends Section 34.002(c), Education Code, to make
conforming changes  in school bus safety standards to reflect renumbered
sections relating to transportation allotments in Chapter 42. 

SECTION 1.30.  Amends Section 39.024(c), Education Code, to make
conforming changes in funding of certain activities related to the TAAS,
funding those activities through appropriated funds  rather than set
asides. 

SECTION 1.31.  Amends Section 39.031, Education Code, to make conforming
changes in funding of administration of the TAAS, funding test
administration through appropriated funds rather than set asides. 

SECTION 1.32.  Amends Section 39.182(a), Education Code, to make
conforming changes relating to a renumbered section of Chapter 42
referenced in this subsection. 

SECTION 1.33.  Amends Section 43.002, Education Code, relating to
transfers from general revenue to the Available School Fund, deleting
obsolete references to district categories that no longer apply. 

SECTION 1.34.  Amends Section 45.002, Education Code, to limit school
districts to imposing taxes for M&O purposes on residential property only.
Defines "residential property" to limit the term to real property used
primarily for residential purposes, including no more than 20 acres of
farm or ranch property, and excluding hotels and motels and agricultural
and timber property.  

SECTION 1.35.  Amends Section 45.003, Education Code, to make conforming
changes in bond and tax elections provisions.  Deletes references to
former cap on district property tax rates. Prohibits certain districts
from adopting a debt service tax rate for a year unless they credit the
amount of state aid received or to be received to the account of the
bonds' I&S fund. 

SECTION 1.36.  Adds Section 45.0031, Education Code, to allow districts to
set a tax rate above 70 cents per $100 valuation for local enrichment
purposes, subject to voter approval at an election to be held after
September 1, 1997, with the tax rate not to exceed 80 cents per $100
valuation.  The voter-approved increase is not subject to rollback
provisions. 

SECTION 1.37.  Amends Section 45.105(c), Education Code, to allow
expenditures of local school funds for other purposes not listed in the
statute but deemed necessary by the board of trustees. 

SECTION 1.38.  Amends Section 74.066, Education Code, to make conforming
changes in provisions for funding the Moody State School. 

SECTION 1.39.  Amends Section 96.707, Education Code, to provide that the
Texas Academy of Leadership in the Humanities is entitled to FSP
allotments for each student enrolled in the academy as if it were a school
district, except that the local share applied is equal to the Beaumont
ISD's local share. 

SECTION 1.40.  Amends Section 105.95(e), Education Code, to make
conforming changes in provisions for funding the Texas Academy of
Mathematics and Science. 

SECTION 1.41.  Amends Section 316.002(a), Government Code, to make
conforming changes. 

SECTION 1.42.  Amends Section 317.005(f), Government Code, to make
conforming changes. 

SECTION 1.43.  Amends Section 322.008(b), Government Code, to make
conforming changes. 

SECTION 1.44.  Amends Section 403.302, Government Code, to require the
comptroller to compute each school district's tax base for M&O purposes
and its tax base for debt service purposes and to make conforming changes. 

SECTION 1.45.  Amends Section 825.405, Government Code, to make conforming
changes. 

SECTION 1.46.   Abolishes the foundation school fund budget committee.

SECTION 1.47.   Makes Article 1 applicable beginning with the 1997-1998
school year. 

SECTION 1.48.   Provides that school district obligations or entitlements
relating to state funding for the 1996-1997 school year or an earlier
school year under Chapters 41 and 42 prior to their by  this article are
not affected and prior law continues in effect for such purposes.  

SECTION 1.49.   Prohibits school districts from (1) adopting an M&O tax
rate for the 1997 tax year before September 1, 1997 or (2) collecting M&O
taxes for the 1997 tax year at a rate adopted before September 1, 1997.
Provides that the validity of a school district tax imposed for the 1996
tax year or an earlier year is not affected. 

ARTICLE 2.  STATE PROPERTY TAX

SECTION 2.01.  Adds Title 4, Chapter 501, Tax Code, as follows:

Section 501.001.  Levies a state ad valorem tax for public school
purposes, at the rate of $1.05 per $100 of taxable property, on
nonresidential property.  Treats the state as a taxing unit under Title 1,
Tax Code, for purposes of the state ad valorem tax, except as otherwise
provided by law. 

Section 501.002.  Assigns property appraisal to the appraisal district in
the county where the property is located. 

Section 501.003.  Assigns assessment and collection to the county tax
assessor-collector or certain county contractors, subject to prescriptions
of the comptroller.  Provides for state reimbursement of actual costs not
to exceed the additional incremental costs of assessing or collecting the
state valorem tax. 

Section 501.004.  Confers on the comptroller the same duties and powers,
for purposes of the tax, as are granted to the governing bodies of taxing
units for other property taxes under Title 1. 

Section 501.005.  Provides for the identification by the chief appraiser
of each appraisal district of properties subject to the tax, under
guidelines of the comptroller. 

Section 501.006.  Provides the deposit to general revenue of state ad
valorem tax receipts to pay the administrative expenses of the comptroller
under the chapter, and any tax refunds. 

Section 501.007.  Clarifies that Title 2 provisions are inapplicable to
the state ad valorem tax. 

SECTION 2.02.  Amends Section 5.05, Tax Code, to delete references to the
comptroller's preparation and issuance of appraisal manuals, and to repeal
provisions relating to the use of appraisal manuals or specified schedules
as evidence in court. 

SECTION 2.03.  Amends Section 6.03, Tax Code, relating to the voting
entitlements of taxing units in the selection of an appraisal district
board of directors.  Allocates state ad valorem taxes to a school district
for purposes of calculating its entitlement. 

SECTION 2.04.  Adds Section 6.038, Tax Code, providing that the
comptroller and state do not participate in appraisal district governance
or management, board member election, or budgetary and fiscal decisions.
Gives the comptroller rulemaking authority such that if the district fails
to follow generally accepted appraisal standards and practices or assigns
invalid appraisal values, the comptroller may withhold all or a part of
the state's allocated share of the appraisal district budget. 

SECTION 2.05.  Amends Section 6.06, Tax Code, to allocate to the state a
proportionate share of each appraisal district budget based on state tax
dollar amounts, but adds a temporary subsection to suspend the state
allocation, and use the preceding budget allocation method, for 1997
budgets.  

SECTION 2.06.  Amends Section 11.13, Tax Code, to remove the local-option
elderly and disabled homestead exemption for school district maintenance
and operations taxes, but to continue the exemption for school district
debt service taxes without need for exemption readoption.  Limits the
applicability of the 20 percent local-option homestead exemption to school
district debt services taxes only and adds a related transitional
subsection for 1997. 

SECTION 2.07.  Amends Section 11.14, Tax Code, to specify that the
comptroller, for purposes of  the state ad valorem tax, has no power to
override the exemption of tangible personal property. 

SECTION 2.08.  Amends Section 11.251(i), Tax Code, to make a clarifying
change and provide also that the exemption for freeport goods does not
apply to the state ad valorem tax. 

SECTION 2.09.  Amends Section 11.26, Tax Code, to establish the new manner
in which the elderly school tax freeze amount for a residential homestead
is calculated, and to allow an individual who qualifies for the freeze to
transfer a proportional amount of the freeze to a different residence
homestead.  Provides for a written certificate with certain tax exemption
and tax information in the case of a freeze transfer. 

SECTION 2.10.  Amends Section 11.28, Tax Code, to establish an exemption
from the state ad valorem tax for property subject to a pre-1997 school
district abatement agreement, for the duration of the agreement.  Allows
an exemption also for certain abatement agreements executed in 1997. 

SECTION 2.11.  Amends Section 21.03(a), Tax Code, to make conforming
changes. 

SECTION 2.12.  Amends Section 21.031(a), Tax Code, to make conforming
changes. 

SECTION 2.13.  Amends Section 23.02, Tax Code (Reappraisal of Property
Damaged in Natural Disaster Area) to make the section inapplicable to the
state ad valorem tax. 

SECTION 2.14.  Amends Section 23.46(d), Tax Code, to attach a tax lien in
favor of the state, for purposes of the state ad valorem tax, to
agricultural-use land that changes use. 

SECTION 2.15.  Amends Section 23.55(b), Tax Code, to attach a tax lien in
favor of the state, for purposes of the state ad valorem tax, to
open-space land that changes use. 

SECTION 2.16.  Amends Section 23.76(b), Tax Code, to attach a tax lien in
favor of the state, for purposes of the state ad valorem tax, to qualified
timber land that changes use. 

SECTION 2.17.  Amends Section 23.86(b), Tax Code, to attach a tax lien in
favor of the state, for purposes of the state ad valorem tax, to qualified
recreational, park, and scenic land that changes use. 

SECTION 2.18.  Amends Section 23.96(b), Tax Code, to attach a tax lien in
favor of the state, for purposes of the state ad valorem tax, to public
access airport property on which a deed restriction expires. 

SECTION 2.19.  Amends Section 24.39, Tax Code, to make conforming changes
and use genderneutral terminology. 

SECTION 2.20.  Amends Section 25.19, Tax Code, to provide for inclusion in
the taxpayer's notice of appraised value of a statement that the property
is subject to the state ad valorem tax, if it is subject, but adds a
temporary subsection to suspend that requirement for the 1997 tax year.
Makes conforming changes. 

SECTION 2.21.  Amends Section 25.24, Tax Code, to provide that a school
district appraisal roll includes, for each property, separate values for
maintenance and operations taxes and debt service taxes. 

SECTION 2.22.  Amends Section 26.01(b), Tax Code, to modify requirements
for certifying a county appraisal roll to the comptroller.  Requires that
the roll identify property subject to the state ad valorem tax and
provides that the property identified on a county appraiser's roll
constitutes the official state appraisal roll. 

SECTION 2.23.  Adds Section 26.011, Tax Code, to make Sections 26.04
(Submission of Roll to Governing Body), 26.041 (Tax Rate of Unit Imposing
Additional Sales and Use Tax), 26.05 (Tax Rate), 26.051 (Evidence of
Unrecorded Tax Rate Adoption), 26.06 (Notice, Hearing, and Vote on Tax
Increase, 26.07 (Election to Repeal Increase), and 26.08 (Election to
Limit School Taxes)  inapplicable to the comptroller and the state ad
valorem tax. 

SECTION 2.24.  Amends Section 26.04, Tax Code, to make conforming and
clarifying genderneutral changes. 

SECTION 2.25.  Adds Section 26.046, Tax Code, to provide for separate
school district effective tax rates for maintenance and operation and debt
service, according to formulas prescribed by the comptroller. 

SECTION 2.26.  Amends Section 26.05(a), Tax Code, to make conforming
changes. 

SECTION 2.27.  Amends Section 26.08, Tax Code, to modify the calculation
of the school district rollback tax rate and to make it purely a
maintenance and operations rollback rate.  Sets the rate at the sum of the
effective maintenance and operations rate and the rate of $0.025 per $100
of taxable value.  Adds temporary subsections making the new calculation
and rollback inapplicable to 1997, and setting a maximum 1997 maintenance
and operations rate at the lower of $0.70 per $100 of taxable value or the
sum of the rate necessary to maintain current per-student spending for
maintenance and operations plus $0.025.  Deletes certain formula
components and provisions relating to the old rollback rate and makes
other clarifying changes. 

SECTION 2.28.  Amends Section 26.09, Tax Code, to make conforming and
gender-neutral changes relating to tax calculation, and to eliminate
obsolete references to assessment ratios. 

SECTION 2.29.  Amends Section 26.12, Tax Code, relating to the creation of
tax units during the tax year, to make the section inapplicable to the
state. 

SECTION 2.30.  Amends Section 26.15(c), Tax Code, to authorize the
comptroller to order state roll changes to correct mathematical errors in
the computation of the state ad valorem tax. 

SECTION 2.31.  Amends Section 31.01, Tax Code, relating to the components
of a taxpayer's bill, to make conforming changes and eliminate obsolete
references to assessed value. 

SECTION 2.32.  Amends Section 31.11(a), Tax Code, to make conforming
changes. 

SECTION 2.33.  Amends Section 32.01, Tax Code, to make conforming changes
relating to tax liens.  Provides for a tax lien in favor of the state to
secure the payment of state ad valorem taxes. 

SECTION 2.34.  Amends Section 33.01(a), Tax Code, to apply existing
delinquent tax penalties to the state ad valorem tax. 

SECTION 2.35.  Adds Section 33.08, Tax Code.  Provides that the attorney
general collects delinquent state ad valorem taxes, and that the attorney
general may delegate delinquent tax collection duties to a county or
district attorney or contract with a private attorney unless the
commissioners court of the county that taxes the property has contracted
with a private attorney for the collection of the county's delinquent
taxes.  If the commissioners court has contracted with a private attorney,
that contract also applies to the collection of delinquent state taxes,
including the compensation to be paid to the private attorney for
collecting the delinquent state taxes.  Provides for additional penalties
on certain delinquent taxes collected contractually by a private attorney.
Provides for the attachment of tax liens to properties.  Clarifies that
this section controls over Sections 6.30 (Attorneys Representing Taxing
Units) and 33.07 (Additional Penalties for Collection Costs). 

SECTION 2.36.  Amends Section 33.21, Tax Code, to make conforming changes
and use genderneutral terminology. 

SECTION 2.37.  Amends Section 33.23(b), Tax Code, to make conforming
changes. 

SECTION 2.38.  Amends Section 33.44(b), Tax Code, relating to joinder to
foreclose a tax lien on real property, to provide that for purposes of
joining the state, citation is served on the comptroller. 
 
SECTION 2.39.  Amends Section 34.04(b), Tax Code, to provide for
representation of the state by the attorney general at a hearing of a
claim for excess proceeds, unless the attorney general delegates the duty
to a county or district attorney. 

SECTION 2.40.  Amends Section 41.03, Tax Code, to make conforming changes.

SECTION 2.41.  Adds Sections 41.031 and 41.032, Tax Code, to entitle a
school district to challenge exclusions of property from the appraisal
roll for maintenance and operations or debt service taxes. Entitles the
comptroller similarly to challenge exclusions from the appraisal roll for
state ad valorem taxes. 

SECTION 2.42.  Amends Section 41.06(a), Tax Code, to make conforming
changes relating to notice on challenge hearings. 

SECTION 2.43.  Amends Section 41.07(d), Tax Code, to require notice and
delivery to the comptroller of a copy of the appraisal review board order,
for challenge determinations that exclude property from the state
appraisal roll. 

SECTION 2.44.  Amends Section 41.47(d), Tax Code, to require notice and
delivery to the comptroller of a copy of the appraisal review board order,
for protest determinations that exclude property from the state appraisal
roll. 

SECTION 2.45.  Amends Section 41.41, Tax Code, to extend a property
owner's right of protest to appraisal roll inclusions or exclusions
relating to school district maintenance and operations, debt service, or
state ad valorem taxes. 

SECTION 2.46.  Adds Section 42.032, Tax Code, to authorize the comptroller
to appeal an appraisal review board order excluding property from the
state roll.  Provides for attorney general representation of the state in
an appeal, but allows the attorney general to delegate the duty to a
county or district attorney or to contract with a private attorney for
representation. 

SECTION 2.47.  Amends Section 42.06, Tax Code, to make conforming changes.

SECTION 2.48.  Amends Section 42.08, Tax Code, relating to the prepayment
of property taxes by a property owner pending judicial appeal of an order
of the appraisal review board or comptroller. Reduces the prepayment
requirement to the lesser of the amount of taxes due under the order or
the amount on the portion of taxable value that is not in dispute. 

SECTION 2.49.  Amends Section 42.29, Tax Code, relating to an appeal, to
allow the awarding of attorney's fees to a property owner and allows
appraisal districts to get attorney's fees if the courtdetermined tax
amount exceeds the property owner's claimed tax amount by at least $5,000.
Caps awards of attorney's fees at $100,000. 

SECTION 2.50.  Amends Section 42.42, Tax Code, relating to supplemental
bills for additional taxes after court determination of an appeal.
Addresses associated delinquencies, penalties, and interest. 

SECTION 2.51.  Amends Section 42.43, Tax Code, to make conforming changes
pertaining to tax refunds. 

SECTION 2.52.  Amends Sections 43.01 and 43.04, Tax Code, to authorize the
comptroller to sue an appraisal district to compel compliance with legal
requirements or deadlines. 

SECTION 2.53.  Amends Section 23.56, Tax Code, to disqualify for
open-space appraisal certain property of an owner.  Clarifies, however,
that a residence homestead on one of the parcels does not trigger
ineligibility. 

SECTION 2.54.  Requires the comptroller to conduct a two-year study of
local appraisal of property subject to the state ad valorem tax, and to
submit to the 76th Legislature no later than January 15,  1999, a report
with recommendations for the equal and uniform appraisal of such property. 

SECTION 2.55.  Provides that Article 2 of the bill takes effect September
1, 1997, and applies, with certain exceptions, to each tax year beginning
1997.  Saves prior law for ad valorem taxes imposed before 1997. 

ARTICLE 3.  FRANCHISE TAX

SECTION 3.01.  Amends Section 171.001, Tax Code, to define an entity
subject to the franchise tax as not including sole proprietorships.
Redefines "Banking corporation," "Beginning date," "Charter," "Internal
Revenue Code," "Officer" and "director."  Defines "Business trust,"
"Commercial domicile," "Compensation," "Does business in this state,"
"Income or equity partner," "Owner," "Passive income," "Passive income
asset," "Passive income capital," "Passive income ratio," "Small business
entity," and "Taxable entity." 

SECTION 3.02.  Amends Section 171.0011, Tax Code, to make conforming
changes. 

SECTION 3.03.  Amends Section 171.002, Tax Code, to make conforming
changes.  Raises the minimum amount of tax to be paid by a taxable entity
from $100 to $500; if the computed tax on a taxable entity, calculated as
specified, falls below this threshold, the entity is not required to pay
the tax and is not held liable for any tax for the applicable period. 

SECTION 3.04.  Adds Section 171.003 to clarify the treatment of
partnership continuations, terminations, mergers, consolidations, and
divisions.  States the conditions that determine a partnership's status in
such cases. 

SECTION 3.05.   Adds Section 171.0515 to impose the net taxable earned
surplus component of the franchise tax on the unrelated business taxable
income of an otherwise exempt taxable entity. 

SECTION 3.06.   Adds Section 171.054 to grant an exemption to noncorporate
taxable entities engaged in the same activities that are specifically
exemptible for corporations. 

SECTION 3.07.  Amends Section 171.063, Tax Code, to eliminate the tax
exemptions for labor, agricultural, and horticultural organizations;
chambers of commerce, business leagues, and certain nonprofit professional
or business organizations; and certain recreational and social clubs, as
those entities are defined  in 26 U.S.C. Section 501(c). 

SECTION 3.08.  Amends Section 171.101, Tax Code, to specify the method for
calculating the net taxable capital for a taxable entity other than a
corporation, a limited liability company, or a savings and loan company. 

SECTION 3.09.  Amends Section 171.1015, Tax Code, to make conforming
changes. 

SECTION 3.10.  Amends Section 171.103, Tax Code, to include certain types
of receipts (including trademark, franchise, license, oil and gas
royalties, and other similar receipts; and gross receipts from interest,
dividends, and sales of intangibles) in the determination of a taxable
entity's gross receipts from in-state business activity when apportioning
taxable capital.  Establishes conditions for sourcing receipts, relating
to the site of the recipient's commercial domicile and the proportion of
the entity's business activity that is transacted in the U.S., for the
apportionment of gross receipts to Texas.  For apportionment purposes,
clarifies when a U.S. holding company may be deemed not to be transacting
a substantial portion of its activity or maintaining a substantial portion
of its assets in the U.S. Requires the comptroller to adopt rules relating
to apportionment of taxable capital of telephone and transportation
companies. 

SECTION 3.11.  Amends Section 171.1032, Tax Code, to include certain types
of receipts (including trademark, franchise, license, oil and gas
royalties, and other similar receipts; and gross receipts from interest,
dividends, and sales of intangibles) in the determination of a taxable
entity's gross receipts from in-state business activity when apportioning
taxable earned surplus.  Establishes conditions, relating to the site of
the recipient's commercial domicile and the proportion of the entity's
business  activity that is transacted in the U.S., for the apportionment
of gross receipts to Texas.  For apportionment purposes, clarifies when a
U.S. holding company may be deemed not to be transacting a substantial
portion of its activity or maintaining a substantial portion of its assets
in the U.S. Requires the comptroller to adopt rules relating to
apportionment of taxable earned surplus of telephone and transportation
companies. 

SECTION 3.12.  Amends Section 171.105, Tax Code, to make conforming
changes. 

SECTION 3.13.  Amends Section 171.1051, Tax Code, to make conforming
changes and to clarify what constitutes the gross receipts of a taxable
entity from its entire business for the purpose of apportioning the
entity's taxable earned surplus, by deleting language relating to
deductions of dividends received from foreign businesses. 
 
SECTION 3.14.  Amends Section 171.106, Tax Code, to make conforming
changes and to delete provisions relating to the apportionment to Texas of
the taxable capital or earned surplus of regulated investment companies. 

SECTION 3.15.  Amends Section 171.1061, Tax Code, to make conforming
changes. 

SECTION 3.16.  Amends Section 171.109, Tax Code, to make conforming
changes. 

SECTION 3.17.  Amends Section 171.110, Tax Code, to modify the method for
computing net taxable earned surplus for certain types of taxable
entities, including amended provisions relating to adjustments made to a
taxable entity's reportable federal taxable income, after that reportable
federal taxable income has been determined, and the treatment of
compensation of certain officers, directors, and owners. 

SECTION 3.18.  Adds Section 171.1101 to provide the method for computing a
partnership's net taxable earned surplus. 

SECTION 3.181.  Adds Section 171.1102 to provide for an additional
adjustment taxable entities other than relating to the treatment of
passive income in the computation of the net taxable earned surplus of
corporations, including banking corporations; limited liability companies;
savings and loans associations; and lending institutions. 

SECTION 3.19.  Amends Section 171.112, Tax Code, to make conforming
changes. 

SECTION 3.20.  Amends Section 171.1121, Tax Code, to make conforming
changes. 

SECTION 3.21.  Amends Section 171.113, Tax Code, to limit the alternate
method of determining taxable capital and gross receipts to small business
entities only. 

SECTION 3.22.  Amends Section 171.151, Tax Code, to make conforming
changes. 

SECTION 3.23.  Amends Section 171.152, Tax Code, to make conforming
changes. 

SECTION 3.24.  Amends Section 171.153, Tax Code, to make conforming
changes. 

SECTION 3.25.  Amends Section 171.1532, Tax Code, to make conforming
changes and to clarify the accounting period ending date for business that
is taxed on the basis of net taxable earned surplus. 

SECTION 3.26.  Amends Section 171.154, Tax Code,  to make conforming
changes. 

SECTION 3.27.  Amends Section 171.201 Tax Code, to make conforming changes.

SECTION 3.28.  Amends Section 171.202, Tax Code, to make conforming
changes. 

SECTION 3.29.  Amends Sections 171.2022, Tax Code, to make conforming
changes. 
 
SECTION 3.30.  Amends Section 171.204, Tax Code, to make conforming
changes. 

SECTION 3.31.  Amends Section 171.205, Tax Code, to make conforming
changes. 

SECTION 3.32.  Amends Section 171.206, Tax Code, to make conforming
changes. 

SECTION 3.33.  Amends Section 171.208 Tax Code, to make conforming changes.

SECTION 3.34.  Amends Section 171.209, Tax Code, to make conforming
changes relating to the definition of "Owner," added to Section 171.001,
as that section is amended by this article.  Makes provisions previously
applicable to shareholders applicable to owners. 

SECTION 3.35.  Amends Section 171.211, Tax Code, to make conforming
changes. 

SECTION 3.36.  Amends the heading to Subchapter F, Chapter 171, Tax Code,
to make conforming changes. 

SECTION 3.37.  Adds Sections 171.260-171.275 to Subchapter F to provide
for the forfeiture of a limited partnership's right to transact business
for failure to comply with specified filing, tax payment, or inspection
requirements; and to establish procedures and conditions relating to
forfeitures, the liability of partners, and the revival of the right to
transact business.  Provides for the revocation of registration for
limited liability partnerships, for similar compliance failures, and
establishes related procedures, exceptions, liability provisions, and
revival conditions. 

SECTION 3.38.  Add Sections 171.318-171.326 to Subchapter G to establish
grounds for the forfeiture of a limited partnership's certificate or of a
foreign limited partnership's registration pursuant to forfeiture of its
right to transact business as provided for in Subchapter F.  Establishes
related procedures and revival conditions. 

SECTION 3.39.  Amends Section 171.351, Tax Code,  to make conforming
changes. 

SECTION 3.40.  Amends Section 171.353, Tax Code,  to make conforming
changes. 

SECTION 3.41.  Amends Section 171.354, Tax Code,  to make conforming
changes. 

SECTION 3.42.  Amends Section 171.362, Tax Code,  to make conforming
changes. 

SECTION 3.43.  Amends Section 171.363, Tax Code,  to make conforming
changes. 

SECTION 3.44.  Amends Section 171.401, Tax Code,  to make conforming
changes. 

SECTION 3.45.  Amends Section 171.501, Tax Code,  to make conforming
changes. 

SECTION 3.46.  Amends Section 171.652, Tax Code,  to make conforming
changes. 

SECTION 3.47.  Amends Section 171.653, Tax Code,  to make conforming
changes. 

SECTION 3.48.  Amends Section 171.654, Tax Code,  to make conforming
changes. 

SECTION 3.49.  Amends Section 171.656, Tax Code,  to make conforming
changes. 

SECTION 3.50.  Amends Section 171.657, Tax Code,  to make conforming
changes. 

SECTION 3.51.  Amends Section 171.682, Tax Code,  to make conforming
changes. 

SECTION 3.52.  Amends Section 171.683, Tax Code,  to make conforming
changes. 

SECTION 3.53.  Amends Section 171.684, Tax Code,  to make conforming
changes. 

 SECTION 3.54.  Amends Section 171.686, Tax Code,  to make conforming
changes. 

SECTION 3.55.  Amends Section 171.687, Tax Code,  to make conforming
changes. 

SECTION 3.56.  Amends Section 3.03(a), Texas Revised Limited Partnership
Act (Article 6132a-1, V.T.C.S.), to make conforming changes, referencing
the Tax Code as that code is amended by this article. 

SECTION 3.57.  Amends Section 9.01(a), Texas Revised Limited Partnership
Act (Article 6132a-1, V.T.C.S.), to provide that foreign limited
partnerships, and the liability of individual partners, are governed by
the laws of the state under which they are formed, except as provided by
Texas franchise tax law and Texas gross receipts tax law that are amended
by this article. 

SECTION 3.58.  Adds Section 13.10 to Chapter 13, Texas Revised Limited
Partnership Act (Article 6132a-1, V.T.C.S.), to make conforming changes
relating to a limited partnership's forfeiture of its right to transact
business or the cancellation of its certificate or registration. 

SECTION 3.59.  Amends Section 15(2), Texas Uniform Partnership Act
(Article 6132b, V.T.C.S.), to make conforming changes relating to the
liability of an individual partner in a registered limited liability
partnership that forfeits its right to do business in this state. 

SECTION 3.60.  Amends Section 45-A, Texas Uniform Partnership Act (Article
6132b, V.T.C.S.), to make conforming changes relating to the revocation of
a registered limited liability partnership's registration by the secretary
of state for noncompliance with the provisions of Tax Code Subchapter F,
as that subchapter is amended by this article. 

SECTION 3.61.  Amends Section 3.08(a)(1), Texas Revised Partnership Act
(Article 6132b-3.08, V.T.C.S.), to make conforming changes relating to the
liability of an individual partner in a registered limited liability
partnership that forfeits its right to do business in this state. 

SECTION 3.62.  Amends Section 3.08(b), Texas Revised Partnership Act
(Article 6132b-3.08, V.T.C.S.), to make conforming changes relating to the
revocation of a registered limited liability partnership's registration by
the secretary of state for noncompliance with the provisions of Tax Code
Subchapter F, as that subchapter is amended by this article. 

SECTION 3.63.  Repeals Sections 171.056 (Exemption-Corporation With
Business Interest in Solar Energy Devices), 171.074 (Exemption-Development
Corporation), 171.079 (Exemption-Electric Cooperative Corporation),
171.080 (Exemption-Telephone Cooperative Corporations), 171.085
(Exemption; Recycling Operation), 171.104 (Gross Receipts from Business
Done in Texas: Deduction for Food and Medicine Receipts), 171.107
(Deduction of Costs of Solar Energy Device from Taxable Capital
Apportioned to the State), and 171.111 (Temporary Credit on Net Taxable
Earned Surplus), Tax Code.  

SECTION 3.64.  Provides a conditional effective date that imposes
different deadlines for the initial or annual reports by business entities
regarding certain aspects of their business operations, which deadlines
are dependent on the organizational structure of those entities, for
franchise tax purposes, as of January 1, 1997.  Clarifies the conditions
under which a partnership is deemed to be a continuing or terminated
partnership and which partnerships are deemed to be continuing or
terminated. 

ARTICLE 4.  SALES TAX

SECTION 4.01.  Amends Section 151.0028, Tax Code, to broaden the
definition of "Amusement services." 

SECTION 4.02.  Adds Section 151.0029, Tax Code, to define "Appraisal
services." 

SECTION 4.03.  Adds Section 151.00295, Tax Code, to define "Boat dock
services." 

 SECTION 4.04.  Amends Section 151.0031, Tax Code, to revise and clarify
the definition of "Computer program." 

SECTION 4.05.  Adds Sections 151.00335, Tax Code, to define "Commercial
research, development, or testing services." 

SECTION 4.06.  Adds Section 151.00365, Tax Code, to define "Diving
services." 

SECTION 4.07.  Adds Section 151.0037, Tax Code, to define "Employment
agency services." 

SECTION 4.08.  Amends Section 151.0038(a), Tax Code, to broaden the
definition of "Information service." 

SECTION 4.09.  Adds Sections 151.0041, 151.0042, 151.0043, 151.0044,
151.00441, 151.00442, and 151.00443, Tax Code.  Defines:  "Low-level
radioactive waste disposal services"; "Management, consulting, or public
relations services"; "Motor vehicle repair services"; "Motor vehicle wash
or detail services"; "Notary services"; "Oil well service"; and "Patent
brokerage." 

SECTION 4.10.  Amends Section 151.0045, Tax Code, to broaden the
definition of "Personal services." 

SECTION 4.11.  Amends Section 151.0048(a), Tax Code, to broaden the
definition of "Real property service." 

SECTION 4.12.  Amends Sections 151.005 and 151.006, Tax Code.  Broadens
the terms "Sale" or "Purchase" to include contracting to perform a taxable
service or make it available, or the license and distribution of films,
videotapes, or disks for theatrical or other public exhibition or
broadcast. Modifies the definition of "sale for resale" to clarify its
inapplicability to certain transportation, warehouse or storage, or
appraisal services. 

SECTION 4.13.  Adds Sections 151.0073 and 151.0074, Tax Code, to define
"Sanitizing, sterilizing, or disinfection services" and "Secretarial or
mailing services." 

SECTION 4.14.  Adds Section 151.0082, Tax Code, to define "Sludge disposal
services." 

SECTION 4.15.  Amends Section 151.0101(a), Tax Code, to modify the
definition of "Taxable services."  Adds to the definition various newly
defined services from elsewhere in Article 4, and implicitly incorporates
broadened definitions from elsewhere in the article.  Deletes old language
relating to repair, maintenance, and restoration of motor vehicles and
computer programs. 

SECTION 4.16.  Adds Section 151.01034, Tax Code, to define "Traffic or
crowd control services." 

SECTION 4.17.  Adds Section 151.0106, Tax Code, to define "Transportation
services." 

SECTION 4.18.  Adds Section 151.014, Tax Code, to define "Warehouse or
storage services." 

SECTION 4.19.  Amends Section 151.051(b), Tax Code, to make a change
conforming to the immediately following section of the bill. 

SECTION 4.20.  Adds Section 151.0511, Tax Code, to establish a state sales
tax rate of 3.25 on gas and electricity sold for use in exploring for,
producing, or transporting a mined material. 

SECTION 4.21.  Amends Section 151.101(b), Tax Code, to make a conforming
change. 

SECTION 4.22.  Amends Section 151.301, Tax Code, to make conforming
changes. 

SECTION 4.23.  Amends Section 151.302, Tax Code, to clarify a sale for
resale as it applies to an appraisal service, a transportation service, or
a warehouse or storage service. 

 SECTION 4.24.  Amends Section 151.304, Tax Code, to remove the occasional
sales exemption for the sales, storage, use, or consumption of an
aircraft. 

SECTION 4.25.  Amends Section 151.307, Tax Code.  Limits the exemption for
tangible personal property exported from the U.S. and requires certain
documentation.  Subjects U.S. customs brokers to certain restrictions and
liabilities.  Provides that a purchaser who takes possession of taxable
items in this state is liable for the tax. 

SECTION 4.26.  Amends Section 151.308(a), Tax Code, to make conforming and
corrective changes including the exemption of aviation fuel and coal from
the sales and use tax in lieu of new taxes on each. 

SECTION 4.27.  Amends Section 151.3101, Tax Code, to eliminate exemptions
for certain athletic and sports events, and noneducational concerts and
amusements, involving institutions of higher education.   

SECTION 4.28.  Amends Section 151.3111, Tax Code, to make conforming
changes. 

SECTION 4.29.  Amends Section 151.316, Tax Code, to exempt certain types
of agricultural transportation services.  Removes the exemption for ice
used by commercial fishing boats. 

SECTION 4.30.  Amends Section 151.317, Tax Code, to make corrective and
conforming changes. Clarifies also that gas and electricity for mining,
which are taxed by the state under SECTION 4.20, are not subject to any
local sales and use taxes. 

SECTION 4.31.  Amends Section 151.318, Tax Code, to modify exemptions
relating to property used in manufacturing and make conforming changes.
Sets requirements for proof of such exemptions. 

SECTION 4.32.  Amends Section 151.319, Tax Code.  Limits the exemption for
handbills, circulars, flyers, and advertising supplements to items printed
or purchased by a newspaper and distributed as part of the newspaper. 

SECTION 4.33.  Amends Section 151.328, Tax Code.  Removes the exemption
for certain aircraft. 

SECTION 4.34.  Amends Section 151.330, Tax Code, to specify the locations
at which the benefits of various taxable services derive. 

SECTION 4.35.  Amends Section 151.338, Tax Code, to render an exemption
relating to certain environment and conservation services inapplicable to
a service that was not subject to the state sales and use tax on September
30, 1997. 

SECTION 4.36.  Amends Section 151.346(c), Tax Code, to render an exemption
relating to certain intercorporate services inapplicable to a service that
was not subject to the state sales and use tax on September 30, 1997. 

SECTION 4.37.  Amends Section 151.410, Tax Code, to make clarifying
changes relating to sales tax computation by a seller. 

SECTION 4.38.  Amends Section 151.416, Tax Code, to make clarifying
changes relating to the tax treatment by a seller of commingled receipts. 

SECTION 4.39.  Amends Section 151.712, Tax Code, to make conforming
changes. 

SECTION 4.40.  Amends Section 321.002(a), Tax Code, to define "Expanded
tax base" relating to the Article 4 broadening of the sales and use tax. 

SECTION 4.41.  Adds Sections 321.211 and 321.2111, Tax Code.  Requires
each city with a sales and use tax to hold an election on November 4,
1997, to address the use of revenue from the  expanded tax base.  Requires
two ballot proposition alternatives, (1) reducing municipal property
taxes, or (2) allowing the use of the additional revenue for any general
purpose.  Authorizes the city's governing body to offer additional
proposition alternatives including (3) the provision of funding for
specific projects or types of projects or (4) some combination of (1),
(2), and (3), with percentages for each described on the ballot.  Allows a
voter to vote in favor of only one proposition and requires an electoral
majority to approve a proposition.  Provides for a subsequent runoff
election if no proposition receives s majority in the first election.
Limits use of revenue from the expanded tax base to purposes specified in
the successful proposition.  Provides for a similar election and, if
necessary, a subsequent election, for each city with a sales tax predating
September 1, 1997, levied for the benefit of another entity such as an
industrial development corporation.  Provides in such cases for additional
ballot proposition alternatives involving rebates to the city. 

SECTION 4.42.  Adds Section 321.2112, Tax Code, to establish special
election requirements for cities with a population of more than 1.5
million.  Establishes prerequisites, for such cities, for the use of
revenue from the expanded sales tax base for sports facilities. 

SECTION 4.43.  Adds Section 321.508, Tax Code, to provide that if city
voters elect to use all or part of the expanded tax base for property tax
reduction, the revenue is treated the same as revenue from an additional
sales and use tax.  Applies to the expanded tax base revenue the legal
provisions of Section 321.507 and Title I (Chapter 26), relating to
additional sales and use tax revenue and its use for property tax
reduction. 

SECTION 4.44.  Adds Subchapter E, Chapter 322, Tax Code, comprising
Sections 322.401-322.405, requiring the comptroller to compute and
establish an expanded tax base index for each transportation authority
having a sales and use tax on January 1, 1997.  Establishes a formula for
the index and requires a reduction of the authority's sales and use tax
rate, and of its maximum sales and use tax rate, based on application of
the index to the existing rate and maximum rate.  Requires a recomputation
of the index by the comptroller in 1999.  Allows voters to exempt the
authority from the index reduction by the authorization of a tax rate
increase, and sets the effective date for such an increase if approved. 

Provides for the earliest constitutionally allowable effective date for
SECTION 4.44.  Prohibits an exemption election before September 1, 1997,
but authorizes ordering of an election before that date. 

SECTION 4.45.  Amends Section 323.002, Tax Code, to define "Expanded tax
base." 

SECTION 4.46.  Adds Sections 323.210 and 323.2101, Tax Code, addressing
county sales and use taxes and alternative uses of county revenue from the
expanded tax base.  Applies election, ballot proposition, and other
requirements similar to those for city sales and use taxes.  Sets similar
requirements where a county's sales and use tax has been levied for a
special purpose such as funding of health services or operation of a
county landfill and criminal detention center. 

SECTION 4.47.  Adds Section 323.506, Tax Code, to limit use of county
revenue from the expanded tax base to purposes approved by county voters.
Provides that if county voters elect to use all or part of the additional
revenue from the expanded tax base to reduce property taxes, the legal
provisions of Section 323.505 and Title 1 apply. 

SECTION 4.48.  Adds Chapter 326, Tax Code.  Addresses alternative uses of
expanded tax base revenue for certain political subdivisions, including a
crime control and prevention district, hospital district, and municipal
management or improvement district.  Applies election, ballot proposition,
and other requirements similar to those for cities for political
subdivisions that impose an ad valorem tax.  Also addresses alternative
uses of expanded tax base revenue for certain political subdivisions that
do not impose an ad valorem tax, Requires the comptroller to compute and
establish an expanded tax base index for each such political subdivision,
and to do a recomputation not later than August 1, 1999.  Requires the
political subdivision, using the index, to reduce its tax rate and maximum
tax rate.  Allows voters to exempt the political subdivision from the
index reduction by the authorization of a tax rate increase in a manner
similar to that for transportation authorities. 

Provides for the earliest constitutionally allowable effective date for
SECTION 4.48.  Prohibits an  exemption election before September 1, 1997,
but allows the ordering of an election before that date. 

SECTION 4.49.  Repeals Sections 151.007(d) (vending machine sales),
151.157(g) (customs broker contractors), 151.158 (Export Stamps), 151.159
(Refunds; Identification Cards), 151.3071 (Installation of Certain
Equipment for Export), 151.328(f) and (g) (exemption certificates for
aircraft destined for use and registration outside Texas), and 151.320
(Magazines), Tax Code.  Repeals Subchapter E, Chapter 191 (Oil Well
Service), Tax Code. 

SECTION 4.51.  Exempts from sales and use taxes certain receipts involving
a written contract or bid entered into on or before March 1, 1997.
Provides for an expiration of the exemption on January 1, 2000. 

SECTION 4.52.  Establishes an Article 4 effective date of October 1, 1997,
except as otherwise provided in the article. 

ARTICLE 5.  INSURANCE PREMIUM TAXES

SECTION 5.01.  Amends Section 11(a), Article 1.14-1, Insurance Code, to
raise the premium receipts tax rate on unauthorized insurers from 4.85
percent to 5.85 percent. 

SECTION 5.02.  Amends Section 12(a), Article 1.14-1, Insurance Code, to
raise the premium tax rate on independently procured insurance from 4.85
percent to 5.85 percent. 

SECTION 5.03.  Amends Section 12(a), Article 1.14-2, Insurance Code, to
raise the premium tax rate for surplus lines insurance from 4.85 percent
to 5.85 percent. 

SECTION 5.04.  Amends Section (b), Article 1.16, Insurance Code, to delete
references to the State Board of Insurance and substitute references to
the Texas Department of Insurance and to remove the credit on premium
taxes currently extended for payment of certain examination expenses. 

SECTION 5.05.  Amends Section 2, Article 1.28, Insurance Code, to remove
the credit on premium taxes currently expended for payment of certain
expenses incurred by a representative of the  State Board of Insurance. 

SECTION 5.06.  Amends Section 1, Article 4.10, Insurance Code, to clarify
that the premium receipts tax applies to reciprocal or interinsurance
exchanges.  

SECTION 5.07.  Amends Section 6(b), Article 4.10, Insurance Code, to
delete the word "minimum" in reference to the statutory tax rate and make
conforming changes.  

SECTION 5.08.  Adds Section 6A, Article 4.10, Insurance Code, to require
certain insurers with certain net tax liability to make a higher
prepayment of premium tax during the 1998 tax year. Provides that this
section expires September 1, 1999.  Amends Section 10 of same article to
establish that premium receipts are taxed at a rate of 2.25 percent with
no reduced rate for investments. 

SECTION 5.09.  Amends Section 2(c), Article 4.11, Insurance Code, to
include premiums received from the state or federal government related to
certain welfare benefits.  Provides that gross premiums include any
contributions made by the carrier to an employee benefit plan.  

SECTION 5.10.  Amends Section 5F, Article 4.11, Insurance Code, to
prescribe the tax rate for the 1997 tax year.  Adds a new Section 5I to
impose a tax of 2.25 percent of gross premiums on each insurance carrier
and health maintenance organization without the present discounted rate
for the first $450,000 of gross premiums. 

SECTION 5.11.  Amends Section 13(a), Article 4.11, Insurance Code, to
delete the word "minimum" in reference to the statutory tax and make
conforming changes. 

SECTION 5.12.  Adds Section 13A, Article 4.11, Insurance Code, to require
life, health, and accident insurers with certain net tax liability to make
a higher prepayment of premium tax during  the 1998 tax year.  Provides
that this section expires September 1, 1999. 

SECTION 5.13.  Amends Section 3(b), Article 9.59, Insurance Code, to
delete the word "minimum" in reference to the statutory tax and make
conforming changes. 

SECTION 5.14.  Adds Section 3A, Article 9.59, Insurance Code, to require
title insurance companies with certain net tax liability to make a higher
prepayment of premium tax during the 1998 tax year. Provides that this
section expires September 1, 1999.  Section 4. changes the annual tax on
title insurance premiums to two percent and eliminates reduced rates for
title insurance companies. 

SECTION 5.15.  Amends Sections 32(b)(3)-(5), Texas Health Maintenance
Organization Act (Article 20A.32, Insurance Code), to remove the credit
against premium taxes for certain examination expenses paid by health
maintenance organizations.  

SECTION 5.16.  Repeals Sections 7, 8, 9, and 13, Article 4.10; Section 8,
Article 4.11; Article 4.11B; Article 4.11C; and Sections 7, 13, and 14,
Article 9.59.  Repealed sections relate to the credit for examinations and
reduced rates for investments. 

SECTION 5.17.   Provides that this article takes effect January 1, 1998.

ARTICLE 6.  LOTTERY REVENUE

SECTION 6.01.  Amends Section 466.015, Government Code, to cap the total
amount of prizes awarded in a fiscal year so as not to exceed an amount
equal to the gross revenue from ticket sales in that fiscal year
multiplied by the percentage amount of lottery prizes awarded for all
lottery games in fiscal year 1997, minus an amount equal to 5.0 percent of
gross lottery revenue for the fiscal year in which the prizes are being
awarded. 

SECTION 6.02.  Amends Section 466.355, Government Code, to allocate to the
foundation school fund the portion of lottery proceeds that formerly went
to general revenue. 

SECTION 6.03.  Provides that this article takes effect September 1, 1997.

SECTION 6.04.  Provides that the change in law capping the total amount of
prizes awarded applies to tickets sold on or after this article's
effective date.  Adjusts the formula established in Section 6.01, for
purposes of fiscal year 1998, to reduce the 5.0 percent deduction to 4.5
percent. 

SECTION 6.05.  Provides that the change in law allocating lottery proceeds
to the foundation school fund applies only to transfers from the state
lottery account made on or after this article's effective date. 

ARTICLE 7.  ALCOHOLIC BEVERAGE TAXES

SECTION 7.01.  Amends Sections 201.03 and 201.04, Alcoholic Beverage Code,
to increase by 10 percent the excise tax on distilled spirits and wine.
Amends Section 201.09 (Refund Due on Disposition Outside of State) to
clarify that it does not apply to the holder of an airline beverage permit
or passenger train permit. 

SECTION 7.02.  Amends Section 201.42, Alcoholic Beverage Code, to increase
by 10 percent the excise tax on ale and malt liquor. 

SECTION 7.03.  Amends Section 203.01, Alcoholic Beverage Code, to increase
by 10 percent the excise tax on beer. 

SECTION 7.04.  Provides that this article takes effect September 1, 1997,
and provides that this article also applies to the holder of a food and
beverage certificate. 
ARTICLE 8.  MOTOR FUEL AND AVIATION FUEL TAXES

SECTION 8.01.  Amends Section 153.001, Tax Code, to separate "Commercial
vessel" from the definition of "Motorboat," and to define such vessels to
include those used for commercial purposes other than entertainment and
gambling.  Redefines "Dealer," "Diesel tax prepaid user," "Liquefied gas",
"Motor fuel," "Supplier," and "User."   Newly defines "Agricultural use,"
and "Bonded limited tax-paid user." 

SECTION 8.02.  Adds Section 153.013(c), Tax Code, to provide for the
presumptive identification of gasoline, diesel fuel, or other propellant
product as motor fuel unless certain conditions apply, in which cases the
product is presumed to be aviation fuel. 

SECTION 8.03.  Adds Section 153.102(c), Tax Code, to establish a gasoline
tax rate of four cents per gross or volumetric gallon, or a fractional
part of a gallon, on the nonhighway use of gasoline. The tax does not
apply to commercial vessels or agricultural use, or to other excepted
uses. 

SECTION 8.04.  Amends Section 153.104, Tax Code, to exempt from the motor
fuels tax gasoline brought into the state in the fuel tank of a motor or
engine used for nonhighway purposes if the tank's capacity is 60 gallons
or less.  Provides that aviation fuel is taxed under provisions of Chapter
161. 

SECTION 8.05.  Amends Section 153.114, Tax Code, to make conforming
changes. 

SECTION 8.06.  Amends Section 153.117(f), Tax Code, to make conforming
changes, exempting aviation fuel dealers from certain recordkeeping
requirements applicable to persons liable for the motor fuels tax. 

SECTION 8.07.  Amends Section 153.119, Tax Code, relating to the refund of
gasoline taxes paid at the 20-cent rate.  Applies the standard refund to
commercial vessels and agricultural use.  Reduces by four cents the refund
for railway engines, stationary engines, motorboats as previously
redefined, and other nonhighway uses.  Makes other clarifying changes and
corrections to statutory citations. 

SECTION 8.08.  Amends Section 153.1195(d), Tax Code, to exempt the sale of
gasoline delivered into the fuel tank of a commercial vessel from
provisions relating to tax refunds or tax credits that distributors are
allowed to take for bad debts when gasoline is purchased with a credit
card. 

SECTION 8.09.  Amends Section 153.120(a), Tax Code, to make conforming
changes. 

SECTION 8.10.  Adds Section 153.202, Tax Code, to establish a diesel fuel
tax rate of four cents per gross or volumetric gallon, or a fractional
part of a gallon, on diesel fuel  sold or used for nonhighway use.
Provides that the tax does not apply to commercial vessels or agricultural
use, or to other excepted uses.  Adds temporary subsections to impose the
four-cent tax also on certain taxfree diesel fuel purchased before 1998
and held in specified amounts at the end of 1997 and beginning of 1998. 

SECTION 8.11.  Amends Section 153.203, Tax Code, to modify exceptions to
the imposition of the diesel fuel tax.  Provides exceptions for commercial
vessels, users of aviation diesel fuel, agricultural uses including
refrigerator units, and diesel fuel brought into the state in certain fuel
tanks of a specified size for nonhighway uses.  Revises the exceptions
also to include bonded tax-free users but not deliveries to the bulk
storage facility of a diesel tax prepaid user.  Modifies the applicability
of the kerosene exception and makes other corrective changes. 

SECTION 8.12.  Amends Section 153.205(a), Tax Code, to provide for
tax-free purchases of diesel fuel to operators of commercial vessels and
agricultural users.  Makes other changes relating to the required contents
of required signed statements. 

SECTION 8.13.  Adds Section 153.2055, Tax Code, to set statement
requirements and purchase limitations for qualifying for the four-cent
nonhighway diesel fuel tax rate rather than the 20-cent rate.  Establishes
burden of proof presumptions for suppliers.  Provides for one-year
forfeiture of certain tax rights, and for specified repayments, for
prohibited uses of fuel taxed at the lower rate. 
 
SECTION 8.14.  Amends Section 153.206, Tax Code, to require a supplier who
sells diesel fuel to a diesel tax prepaid user permit holder, or to a
bonded tax-paid user, or who sells diesel fuel under a statement that says
the purchaser qualifies for the four-cent nonhighway diesel fuel tax rate,
to collect the tax at that rate rather than the 20-cent rate.  Entitles
bonded limited tax-paid users, as compensation for expenses, to deduct 0.5
percent of the taxable gallons of diesel fuel on payment of taxes to the
state. 

SECTION 8.15.  Amends Section 153.207(a), Tax Code, to make conforming
changes relating to permit applications. 

SECTION 8.16.  Amends Section 153.208, Tax Code, to make conforming
changes relating to sales of tax-free diesel fuel made under a supplier's
permit.  Establishes the buyers to whom a supplier may sell tax-free fuel
or supply fuel at the four-cent tax rate. 

SECTION 8.17.  Amends Section 153.209, Tax Code, to convert the diesel
fuel tax bonded user permits to a bonded tax-free user permit, applicable
exclusively to diesel fuel purchases for commercial vessels and
agricultural use. 

SECTION 8.18.  Adds Section 153.2095 and 153.2096, Tax Code, to provide
for bonded limited taxpaid user permits applicable to users who purchase
diesel fuel predominantly for nonhighway use other than agricultural use
or commercial vessels.  Provides also for agricultural operator's permits
and allows tax payment directly to the comptroller on diesel fuel for the
motor vehicles of an agricultural user. 

SECTION 8.19.  Amends Section 153.210, Tax Code, to decrease the annual
tax amounts for tax prepaid users by 20 percent each and make other
conforming changes. 

SECTION 8.20.  Amends Section 153.214, Tax Code, to make a conforming
change removing aviation fuel dealer functions from activities permissible
under a diesel fuel supplier's permit. 

SECTION 8.21.  Amends Section 153.215(a), Tax Code, to make conforming
changes relating to agricultural operator's, bonded tax-free user's, and
bonded limited tax-paid user's permits. 

SECTION 8.22.  Amends Section 153.217, Tax Code, to make conforming
changes relating to listings of suppliers, bonded tax-free users, bonded
limited tax-paid users, diesel fuel jobbers, and agricultural operators.
Establishes who may buy diesel fuel on which the four-cent tax has been
paid. 

SECTION 8.23.  Amends Section 153.218, Tax Code, to make conforming
changes relating to security requirements. 

SECTION 8.24.  Amends Section 153.219, Tax Code, to make conforming
changes including the deletion of aviation fuel dealer provisions from
diesel fuel tax recordkeeping requirements.  Requires all other
recordkeepers to record in each entry relating to diesel fuel whether the
fuel involved was tax-free, subject to the four-cent rate, or subject to
the 20-cent rate. 

SECTION 8.25.  Amends Section 153.220, Tax Code, to make conforming
changes relating to invoices or logs of a diesel fuel dealer, an
agricultural operator, or a bonded limited tax-paid users. Requires that
invoices and logs reflect the tax rate paid. 

SECTION 8.26.  Amends Section 153.221, Tax Code, to make conforming
changes relating to tax reporting and payment requirements of agricultural
operators, bonded tax-free users, bonded limited tax-paid users, and
interstate truckers. 

SECTION 8.27.  Amends Section 153.222, Tax Code, relating to the refund of
diesel fuel taxes paid at the 20-cent rate.  Applies the standard refund
to agricultural use and commercial vessels.  Reduces by four cents the
refund of taxes paid on the purchase of diesel fuel for other nonhighway
use. Makes other conforming changes. 

 
SECTION 8.28.  Amends Section 153.403, Tax Code, to make conforming
changes in the delineation of motor fuel-related criminal offenses. 

SECTION 8.29.  Amends Section 153.5025, Tax Code, to allocate to the
general revenue fund the revenue from the four-cent gasoline and diesel
fuel taxes. 

SECTION 8.30.  Adds Chapter 161, Tax Code, effective January 1, 1998, to
impose an aviation fuels tax of four cents per gallon, or fractional part
of a gallon, applicable to sales or deliveries of aviation gasoline and
aviation diesel fuel, and to dealer inventories as of that date.  Provides
exceptions for certain cargo exports, sales to the federal government,
sales or deliveries between permitted distributors, and crop dusters.
Authorizes refunds, if the tax has been paid, for cargo exports or fire
losses of 100 gallons or more, federal-government sales in any volume, or
aviation fuel used in crop dusting.  Authorizes certain credits for bad
debts uncollectible by a distributor.  Establishes definitions.  Sets
various permitting, bond posting, recordkeeping, inspection, and other
requirements.  Provides for impoundments, seizures, civil penalties, and
criminal offenses and penalties.  Authorizes one percent allocations for
distributors and the comptroller to cover administrative expenses.
Directs tax revenue to the general revenue fund and prohibits political
subdivisions from imposing taxes, other than property taxes, on aviation
fuel. 

SECTION 8.31.  Repeals Sections 153.110 (Aviation Fuel Dealer's Permit),
153.111 (Distributor May Perform Other Functions), 153.112(b) (valid
period of aviation fuel dealer permits),  153.117(d) and (e) (aviation
fuel dealer recordkeeping requirements), 153.118(d) (aviation fuel dealer
reporting requirements),  153.213 (Aviation Fuel Dealer's Permit), and
153.215(b) (valid period of aviation fuel dealer permits). 

SECTION 8.32.  Provides that this article does not affect rights,
privileges, duties, obligations, or powers that matured, penalties
incurred, or proceedings begun before its effective date.  Provides that
the amended provisions of Chapter 153, as they existed before the
article's effective date, remain in effect only for collecting,
administering, and allocating the taxes imposed before this article's
effective date. 

SECTION 8.33.  Provides that this article takes effect January 1, 1998.
Allows the comptroller, effective September 1, 1997, to adopt rules in
anticipation of the Chapter 161's effective date and to prescribe, print,
and distribute pertinent forms and information that will be required on
the chapter's effective date. 

ARTICLE 9.  HOTEL OCCUPANCY TAX

SECTION 9.01.  Amends Sections 156.052 and 156.101, Tax Code, to increase
the state hotel occupancy tax from 6.0 percent to 6.25 percent.  Clarifies
the exemption for permanent hotel residents. 

SECTION 9.02.  Provides that section takes effect September 1, 1997.

ARTICLE 10.  CIGARETTE AND TOBACCO PRODUCTS TAX

SECTION 10.01.  Amends Section 154.021(b), Tax Code, to increase the basic
tax rate on cigarettes from $20.50 to $30.50 per thousand (from 41 cents
to 61 cents per pack). 

SECTION 10.02.  Amends Section 155.021(b), Tax Code, to increase the
several tax rates on cigars by 50 percent. 

SECTION 10.03.  Amends Section 155.0211(b), Tax Code, to increase the tax
rate for tobacco products other than cigars from 35.213 percent to 52.820
percent of the manufacturer's list price, exclusive of any trade discount,
special discount, or deal. 

SECTION 10.04.   Provides that Article 10 takes effect September 1, 1997.
ARTICLE 11.  MANUFACTURED HOUSING SALES AND USE TAX

SECTION 11.01.  Amends Section 158.051, Tax Code, effective October 1,
1997, to increase the tax rate on the sale of new manufactured homes from
5.0 percent to 6.25 percent. 

ARTICLE 12.  GAS, ELECTRIC, AND WATER SERVICE TAX

SECTION 12.01. Amends the heading to Subchapter B, Chapter 182, Tax Code,
to read "SUBCHAPTER B.  GAS, ELECTRIC, AND WATER SERVICE COMPANIES." 

SECTION 12.02.  Amends Section 182.021, Tax Code, to define "Service
company," in lieu of "Utility company," to include cooperatives, nonprofit
corporations, and political subdivisions that conduct business in this
state.  Redefines "Business" to mean either selling or transporting gas,
electric light, electric power, or water to another person for any use
other than for resale  

SECTION 12.03.  Amends Section 182.022, Tax Code, to delete the population
bracket for incorporated cities or towns subject to a utility tax and to
provide that a tax is imposed on each service company doing business in
this state.  Eliminates existing variable tax rates based on population
and imposes a flat tax rate of 2.25 percent on the gross receipts from
business done in this state.    

SECTION 12.04.  Amends Section 182.024, Tax Code, to make conforming
changes. 

SECTION 12.05.  Amends Section 182.026, Tax Code, to exclude from the
subchapter's applicability the retail sale of bottled water in bottles or
containers of five gallons or less and the retail sale of natural gas to
an electric utility company. 

SECTION 12.06. Repeals Section 182.023, Tax Code, which prohibited more
than one utility company from paying the tax on a commodity. 

SECTION 12.07.  Provides that the article takes effect January 1, 1998,
and applies to gross receipts received from business done in this state on
or after that date. 

ARTICLE 13.  INTERSTATE MOTOR CARRIER SALES AND USE TAX

SECTION 13.01.  Amends Subtitle E, Title 2, Tax Code, to readopt Chapter
157, Interstate Motor Carrier Sales and Use Tax, to impose a sales and use
tax on interstate motor vehicles, trailers, and semitrailers.  Sets the
tax rate and provides that the payment of the tax is the responsibility of
the motor carrier operating the motor vehicle.  Establishes enforcement
and collection guidelines including permit, report, and record
requirements.  Imposes penalties and interest for delinquent payment of
taxes and provides for enforcement by the comptroller. 

SECTION 13.02.  Provides that the article reinstates the motor carrier
sales and use tax that was repealed by the 74th Legislature, Regular
Session, 1995, to continue without interruption as it exists on August 31,
1997.   

SECTION 13.03.  Provides that the article takes effect September 1, 1997.

ARTICLE 14.  CEMENT PRODUCTION TAX

SECTION 14.01.  Amends Section 181.002, Tax Code, to increase the tax rate
imposed on the production of cement from 2.75 cents per 100 pounds to 5.0
cents per 100 pounds. 

SECTION 14.02.  Provides that the article takes effect September 1, 1997,
and applies to cement distributed, sold, or used on or after that date. 

ARTICLE 15.  COAL AND LIGNITE USE TAX

SECTION 15.01.  Amends Subtitle E, Title 2, Tax Code, to add a new Chapter
162, Coal Tax,  imposing a tax on the purchase and use of coal, defined to
include lignite, in the state.  Defines "Use" to exclude use by a coal
producer who owns the coal in place and who produces the coal for the
producer's own use.  Also excludes from the term "use" the storage of coal
for use or shipment outside the state.  Imposes a 7.5 percent tax on the
total purchase price paid for coal delivered at the site where the coal
will be used, including costs of transportation to the site, without
regard to where the purchase occurs.  Provides that a person who purchases
and uses coal will not be taxed twice for the same coal.  Sets out
payment, reporting, and recording requirements.  Establishes penalties and
offenses for failure to report or to pay taxes.  Provides that all the
revenue from the tax imposed by this chapter shall be deposited into the
general revenue fund.     

SECTION 15.02.  Provides that the article takes effect December 1, 1997,
and applies to coal purchased on or after that date. 

ARTICLE 16.  PARI-MUTUEL WAGERING

SECTION 16.01.  Amends Section 6.08(c), Texas Racing Act (Article 179e,
V.T.C.S.), to increase to 3.25 percent, in all cases, the state's share of
pari-mutuel wagering pools on horse races. 

SECTION 16.02.  Amends Section 6.09(b), Texas Racing Act (Article 179e,
V.T.C.S.), to set at 3.25 percent, in all cases, the state's share of
pari-mutuel wagering pools on greyhound races. 

SECTION 16.03.  Amends Section 6.091(a), Texas Racing Act (Article 179e,
V.T.C.S.), to increase to 3.25 percent the state's share of simulcast
pari-mutuel wagering pools. 

SECTION 16.04.  Provides for an Article 16 effective date of September 1,
1997. 

ARTICLE 17.  GAS TARIFFS

SECTION 17.01.  Amends Article IV, Gas Utility Regulatory Act (Article
1446e, V.T.C.S.) by adding Section 4.065 to require a tax adjustment
provision be added to each gas utility's rates and tariffs.  The provision
requires the utility to track changes in costs incurred for property taxes
and gross receipts payments since 1996, and, if the tariffs in effect on
September 1, 1997, allow it to recover some or all of those costs, the
utility's tax adjustment provision must factor in that recovery. 

SECTION 17.02.  Provides for an Article 17 effective date of January 1,
1998. 


ARTICLE 18.  INTERIOR DESIGN PROFESSIONAL FEE

SECTION 18.01.  Adds Section 6A, Article 249e, Revised Statutes, to
increase the statutory registration application, annual registration
renewal, and reciprocal registration fees for professional interior
designers by $200 each.  Allocates $50 of the $200 fee increase to the
foundation school fund and the other $150 to general revenue. 

SECTION 18.02.  Provides that Article 18 takes effect September 1, 1997,
and applies to fees imposed on or after that date.  Continues prior law
for fees imposed before this article's effective date. 

ARTICLE 19.  TAXICAB PERMITS

SECTION 19.01.  Adds Chapter 161, Title 2, to impose an annual  $100 tax
on taxicab operations. Excludes limousine services from the taxicab
operations tax.  Requires taxicab operators to pay the full amount of the
annual tax for a cab that begins operating before July 1, and to pay a $50
tax on a cab that begins operating after July 1.  Provides that the full
amount of annual tax is owed for a cab that goes out of service at any
time of the year during which it was in service and that the operator is
not entitled to any credit or rebate of the tax paid.  Requires payment of
the tax before the start of the tax year or before the cab goes in
service.  Requires cab operators to apply for a taxicab operation permit
at the time the tax is paid.  Requires the comptroller to issue a taxicab
operation permit insignia to a permitted operator, which the operator must
affix to the cab.  Makes the failure display  an insignia, an improper
display,  and the display of a false insignia misdemeanor offenses and
establishes penalties.  Allocates 25 percent of the tax revenue to the
foundation school fund and 75 percent to general revenue. 

SECTION 19.02.  Adds Section 548.1055, Tax Code, to make the display of a
taxicab operation permit insignia a prerequisite to issuance of a taxicab
vehicle inspection certificate. 

SECTION 19.03.  Provides for an Article 19 effective date of September 1,
1997, but provides that a taxicab permit is not required before January 1,
1998 and that the requirement of a taxicab operation permit insignia for a
vehicle inspection certificate does not take effect until then. 

ARTICLE 20.  COIN-OPERATED MACHINES

SECTION 20.01.  Amends Article 8801, Revised Statutes, to include "service
coin-operated machines" and "cash-dispensing machines" in the definition
of "coin-operated machines."  Redefines "service coin-operated machines"
to exclude pay toilets and pay telephones.  Newly defines "cashdispensing
machines" to include automated teller machines but to exclude certain
machines used in the retail purchase of tangible goods. 

SECTION 20.02.  Amends Article 8802(1), Revised Statutes, to impose an
annual occupation tax of $100 on owners of "cash-dispensing machines." 

SECTION 20.03. Amends Article 8803, Revised Statutes, to exempt newspaper
vending machines; pay toilets; machines whose sales are exempted from the
sales, excise, and use tax; free changemaking machines; pressurized air
dispensers; coin-operated laundromat machines; and machines dispensing
items or providing services subject to sales and use taxes, cigarette
taxes, cigar and tobacco products taxes, or any other state tax, other
than a property or franchise tax. 

SECTION 20.04.  Provides for an Article 20 effective date of October 1,
1997. 

ARTICLE 21.  RENTER'S TAX RELIEF

SECTION 21.01.  Adds Chapter 51, Tax Code.  Entitles a tenant to a rebate
of a portion of the landlord's school district ad valorem tax savings for
the 1997, 1998, and 1999 tax years, to the extent that the landlord does
not reduce rents in the amounts of those savings.  Defines terms and
clarifies the properties and dwelling units to which the chapter applies.
Requires an owner of property with four or more lease or rental dwelling
units to register with the comptroller by a specified deadline. Sets forth
registration information requirements.  Imposes a yearly fee on the
landlord equal to the amount of school district ad valorem tax reduction
for the year.  Establishes how the fee is calculated.  Entitles a landlord
to a yearly credit against the fee equal to the amount of rent reduction
provided to tenants, and establishes how the credit is calculated.
Provides for fee prorationing if a landlord does not own a property the
entire year.  Provides for fee payment, collection, enforcement, and
delinquency measures.  Channels collected fees, after a deduction for
costs of administration, to the state treasury in trust for the payment of
proportional rebates to renters.  Channels penalties and interest on
delinquent fees to the general revenue fund.  Gives the comptroller
associated rulemaking powers. 

SECTION 21.02.  Provides for the expiration of Chapter 51, Tax Code, on
January 1, 2005. 


ARTICLE 22.  EFFECTIVE DATE; CONTINGENCY; EMERGENCY 

SECTION 22.01.  Effective September 1, 1997, or as otherwise provided, but
only if the constitutional amendment proposed by House Joint Resolution 4
is approved by voters.  Savings clause. 

SECTION 22.02.  Emergency clause.


 COMPARISON OF ORIGINAL TO SUBSTITUTE

 Both the original bill and substitute reduce property taxes for public
school purposes and provide replacement revenue from other taxes.  H.B. 4
leaves property subject to local taxation for public school funding
purposes.  C.S.H.B. 4 transfers nonresidential property for public school
funding purposes to state taxation.  Both retain appraisal, assessment,
and collection at the local level, but in C.S.H.B. 4, for purposes of the
state property tax, the state assumes a portion of appraisal district
budgets and compensates local entities for actual assessment and
collection costs. 

 H.B. 4 provides for an across-the-board reduction, for school district
maintenance and operation taxes, of $0.20 per $100.  It increases the
residential homestead exemption by $20,000 for M&O and exempts business
inventories from M&O taxes.  H.B. 4 and C.S.H.B. 4  both include
provisions to limit increases in school district tax rates.  C.S.H.B. 4
caps school district M&O taxes on residential property at $0.70 per $100,
with 10 cents of local enrichment with voter approval, and extends
property tax relief to benefit renters.  It modifies the tax freeze
applicable to residence homesteads of the elderly, allows portability of
that freeze to a new residence homestead, and limits the local-option
elderly and disabled exemption to school district debt service taxes only.
Nonresidential property is subject to a state property tax at a
constitutionally fixed rate of $1.05 per $100 of taxable value.  

 H.B. 4 increases, by a half cent, state sales and use taxes and motor
vehicle sales, use, and rental taxes.  It imposes a 1.25 percent business
activity tax, with a $500,000 standard deduction. The business activity
tax replaces the corporate franchise tax, which is repealed.  H.B. 4
creates a Texas School Trust Fund that receives:  (1) all revenue from the
business activity tax; (2) lottery revenue other than prize payment and
administrative costs; (3) the extra proceeds from the half cent sales and
use tax increase; and (4) 7.4 percent of motor vehicle sales, use, and
rental taxes at the new rate.  C.S.H.B. 4 leaves the state sales and use
tax rate unchanged but expands the tax base.  Rather than replace the
franchise tax, it expands the applicability of the tax to include all
business entities other than sole proprietorships.  C.S.H.B. 4 increases
the amount of lottery receipts that go to the state.  It increases tax
rates for insurance premium taxes, alcoholic beverage taxes, hotel
occupancy taxes, cigarette and tobacco products taxes, manufactured
housing sales and use taxes, and cement production taxes.  It adopts a new
coal and lignite tax, adopts a new aviation fuels tax, adopts a new motor
fuel tax for most nonhighway uses, and readopts the previously repealed
motor carrier sales and use tax.  C.S.H.B. 4 increases gas, electric, and
water utility taxes and expands their applicability to include political
subdivisions, cooperatives, and nonprofit corporations that operate
utilities.  It also requires adjustments of gas tariffs to reflect changes
in utilities' costs as a result of changes in property tax rates.
C.S.H.B. 4 increases  interior designers' registration fees, imposes an
annual tax on taxicab operations in the form of a required permit, and
imposes an annual occupation tax on automated teller machines but provides
a tax exemption for a variety of coin-operated machines. It allocates to
the foundation school fund the portion of lottery proceeds that go to
general revenue under current law. 

 H.B. 4 uses the Texas School Trust Fund to reimburse revenue lost by
school districts because of its property tax reductions. H.B. 4 does not
make any changes relating to school funding equalization, except to treat
revenue from the trust fund as part of the affected districts' total
property tax revenue.  C.S.H.B. 4 repeals Chapter 41, Education Code, with
its equalized wealth provisions.  C.S.H.B. 4 provides for four components
of school financing.  The first is the basic program which guarantees
school districts a yield of $53.15 per WADA up to $.70 of tax effort
applied to the residential tax base.  The basic program does not require a
minimum tax effort.  The second component is local enrichment of $9 per
WADA for up to $.10 of local enrichment with voter approval applied to the
residential tax base.  In addition, to retire old debt service, a state
match of $21.35 per ADA is provided which is applied to the current tax
base.  Lastly, a facilities program is established which guarantees state
matching funds as applied to current tax base.  C.S.H.B. 4 also provides
that all districts will be guaranteed the current projected revenue per
student for the next biennium.  

 C.S.H.B. 4 includes a minimum teacher and librarian salary schedule that
provides dollar amounts for each step for the 1997-1998 and 1998-1999
school years.  It indexes the minimum teacher salary schedule to the
guaranteed yield level in subsequent years.  It also establishes an
experienced teacher allotment for certain districts. 

 C.S.H.B. 4 also eliminates provisions under which funding could be set
aside from allotments for special programs and provides that the programs
previously funded by set-asides will be funded by direct appropriation.
C.S.H.B. 4 abolishes the foundation school fund budget committee.  H.B. 4
did not address either issue. 

 H.B. 4 does not address cities, counties, and special districts, or their
taxes.  C.S.H.B. 4 expands their sales and use tax bases in the course of
expanding the state sales and use tax base.  For jurisdictions with both
sales and use and property taxes, it offers voters an opportunity for a
revenueneutral, offsetting decrease in property tax rates.  For those with
sales and use but not property taxes, it offers a revenue-neutral indexed
reduction of the tax rate to offset the tax base expansion.