SRC-HRD S.B. 736 75(R)   BILL ANALYSIS


Senate Research Center   S.B. 736
By: West
Finance
3-2-97
As Filed


DIGEST 

Currently, Texas law defining "tangible personal property" for tax
purposes was adopted  in 1979. At that time the legislature did not
foresee the development and mass commercialization of computers and their
associated software.  While computers are clearly tangible personal
property in the form of fixed assets, the issue of software is more
ambiguous.  Software is owned by persons who have bought it for the
commercial uses it provides, by those who have developed it themselves for
business applications, and is also held for resale by wholesalers and
retailers.  The courts have recently ruled that all software is intangible
and exempt from ad valorem taxation including software held in inventory.
The court concluded that in the case of sales tax, software was intangible
property and as such not subject to sales tax.  In response to this
ruling, the legislature amended the definition of tangible personal
property for sales tax purposes to include software.  However, at that
time the legislature failed to amend an almost identical definition in the
Property Tax Code.  This bill would correct the oversight and change the
definition of tangible personal property for ad valorem taxes to include
software held as inventory.  

PURPOSE

As proposed, S.B. 736 redefines "tangible personal property" and defines
"computer program" and "computer software" to make software held as
inventory subject to taxation. 

RULEMAKING AUTHORITY

This bill does not grant any additional rulemaking authority to a state
officer, institution, or agency. 

SECTION BY SECTION ANALYSIS

SECTION 1. Amends Section 1.04, Tax Code, by amending Subdivision (3) and
adding Subdivisions (20) and (21), to provide that the term "tangible
personal property" includes an inventory of computer software held for
sale at wholesale or retail by a person who is in the business of selling
property of that kind.  Defines "computer program" and "computer
software." 

SECTION 2. Effective date: September 1, 1997.

SECTION 3. Emergency clause.