SLR C.S.S.B. 841 75(R) BILL ANALYSIS Revenue and Public Education Funding C.S.S.B. 841 By: Cain (Hilbert) 5-15-97 Committee Report (Substituted) BACKGROUND The appraisal system for residential property is a significant issue with homeowners, cities, counties, and school districts. The issue was discussed in the Governor's Citizens Committee on Tax Relief and several suggestions were identified to improve the appraisal process. PURPOSE C.S.S.B. 841 would change the Property Tax Code to reform the property tax appraisal system. This bill would make several changes to current law affecting frequency of appraisals, placing limits on increases in residential valuations, appraisal district boards of directors, fraudulent property tax exemptions, the appeals process, the portability of senior school tax freeze, and deferred collection of taxes on appreciating residence homesteads, as well as other issues dealing with the appraisal process. RULEMAKING AUTHORITY It is the committee's opinion that this bill expressly grants rulemaking authority to the Comptroller of Public Accounts under SECTION 20 of this bill and to the State Office of Administrative Hearings under SECTION 33 of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 1.12 by adding subsection (d), Tax Code, to allow a cap on increases in the property's market value by using the appraisal ratio of a homestead to which the limitations on appraisal increases apply is the ratio of the property's market value to the market value according to law. The appraisal ratio is not calculated according to the limited appraised value. SECTION 2. Amends Sections 6.03(a), (b), (c), and (l), Tax Code, to provide that the appraisal district is governed by a board of six directors, five of which are appointed by the taxing units that participate in the district as provided by this section. Provides that the county assessorcollector is an ex officio director. Establishes that to be eligible to serve on the board of directors, an individual other than the county assessor-collector must be a resident of the district and must have resided in the district for at least two years immediately preceding the date the individual takes office. Makes conforming changes. SECTION 3. Amends Section 6.034(a), Tax Code, to make conforming change regarding appraisal district board of directors. SECTION 4. Amends Section 6.04(a), Tax Code, to provide that the county assessor-collector is the chairman of the board. Deletes existing text regarding the election of a chairman by the board from among its members. SECTION 5. Amends Section 6.41(c), Tax Code, to provide that in an appraisal district established for a county having a population of more than 300,000, an individual who has served for all or part of three previous terms as a board member or auxiliary board member on the Appraisal Review Board (ARB) or is a former officer or employee of a taxing unit is ineligible to serve on the ARB. SECTION 6. Amends Section 6.411, Tax Code, to authorize the board of directors of an appraisal district to appoint auxiliary members to perform certain functions, rather than appointing auxiliary members to the appraisal review board to perform certain functions. Sets forth the number of auxiliary members that may be appointed for various counties. Makes conforming changes. SECTION 7. Amends Section 11.13(h) and (q), Tax Code, to prohibit a person from receiving an exemption under this section for more than one residence homestead in the same year. Also allows for the surviving spouse of an individual who qualifies for a local option over 65 exemption is entitled to the same exemption to which the deceased spouse qualified. SECTION 8. Amends Section 11.18 (f), Tax Code, to require a charitable organization to use its assets in performing its charitable functions. Also adds the United States as an eligible recipient of a charitable organization's assets upon dissolution of the organization. SECTION 9. Amends Section 11.19(d), Tax Code, to require that youth development associations must use their assets to perform their youth development functions. Also adds the United States as an eligible recipient of an association's assets upon dissolution of the association. SECTION 10. Amends Section 11.20 (c), Tax Code, to require that a religious organization must use it assets to perform its religious functions or that of another religious organization. Also adds the United States as an eligible recipient of a religious organization's assets upon dissolution of the organization. SECTION 11. Amends Section 11.21 (d), Tax Code, to require that educational organizations must use their assets to perform their educational functions. States that schools must be organized and operated to perform educational functions. Also adds the United States as an eligible recipient of an educational organizations assets upon dissolution of the organization. SECTION 12. Amends Section 11.26, Tax Code, by amending Subsection (b), and adds Subsection (g),(h),(i),(j), and (k) to make conforming changes to allow an individual who currently receives a 65 or over exemption who subsequently changes residence to transfer the exemption with certain conditions. Extends portability to surviving spouse if the spouse is 55 or older and maintains same residence. Requires a written certificate to verify exemption amount under portability. SECTION 13. Amends Section 11.41(a), (b) and (c), Tax Code, to set forth a calculation for determining exemptions for partially owned property. The fraction is added, the numerator of which is the value of the property interest the person owns and the denominator of which is the value of the property, rather than requiring the exemption to be limited to the value of the property interest. Deletes existing Subsection (b). Makes conforming changes. SECTION 14. Amends Section 11.42 (b), Tax Code, to allow individuals 65 or over to qualify immediately for the exemption. SECTION 15. Amends Section 11.421 and 11.422, Tax Code, to provide conforming changes for qualifications of religious organizations and schools. SECTION 16. Amends Subchapter C, Chapter 11, Tax Code, by adding Sections 11.423 and 11.424. Sec. 11.423 provides that an organization that would otherwise be an exempt charitable or youth organization, except for certain other requirements, shall be eligible for the exemption for the tax year if the organization satisfies the requirements by a timely filing with the chief appraiser of a new completed application of the exemption and an affidavit stating that the organization has complied with the requirements. Also, states that if the chief appraiser cancels an exemption for an organization that would otherwise be exempt, the organization is eligible for the exemption if the requirements are satisfied on or by the 30th day after the date the chief appraiser notifies the organization of the cancellation, and files an affidavit stating such. Sec. 11.424 states that an organization that has entered into a contract with the United States, and has a conflict between a provision of the contract and its charter, bylaws, or other regulations adopted by the organization, may comply with the provision of the contract and not lose the organization's eligibility as an exempt organization. SECTION 17. Amends Section 11.43, Tax Code, by amending Subsection (d), (f), and adding (j),and (k) to require the application form for each kind of exemption to require an applicant to provide the applicant's name and driver's license number, personal identification certificate number, or social security account number. Defines "driver's license" and "personal identification certificate." Sets forth the requirements for an application for an exemption under Section 11.31. Makes conforming changes. SECTION 18. Amends Section 23.01(b), Tax Code, to require the market value of property to be determined by the application of generally accepted appraisal methods and techniques, including the mass appraisal standards recognized by the Uniform Standards of Professional Appraisal Practice. Makes conforming changes. SECTION 19. Amends Subchapter A, Chapter 23, Tax Code, by adding Sections 23.011-23.013, as follows: Sec. 23.011. COST METHOD OF APPRAISAL. Sets forth requirements for the chief appraiser applicable if the chief appraiser uses the cost method of appraisal to determine the market value of real property. Sec. 23.012. INCOME METHOD OF APPRAISAL. Sets forth requirements for the chief appraiser applicable if the chief appraiser uses the income method of appraisal to determine the market value of real property. Sec. 23.013. MARKET DATA COMPARISON METHOD OF APPRAISAL. Requires the chief appraiser to use comparable sales data if possible, if the chief appraiser uses the market data comparison method of appraisal to determine the market value of real property. SECTION 20. Amends Subchapter B, Chapter 23, Tax Code, adding new sections 23.176, 23.21, and 23.22 Sec. 23.176 applies to property consisting of a separate interest in oil and gas, sets out criteria for chief appraiser to calculate market value for this category of property 23.21 provides for a 5% limitation on the appraised value of residential homesteads. 23.22 limits the frequency of appraisals to once every three years. SECTION 21. Amends Section 23.56, Tax Code, stating that land is not eligible for open-space appraisal if the land consists of a parcel of real property that is contiguous to one or more parcels of real property owned by the same person and all parcels taken together would not be eligible for open-space appraisal. A parcel is not ineligible because one of the contiguous parcels is the residence homestead of the person. SECTION 22. Amends Section 25.19, Tax Code, by amending Subsections (b) and (i) and adding Subsection (j), to require the chief appraiser to separate real from personal property and include in the notice for each a detailed, rather than brief, explanation of the time and procedure for protesting the value. Provides that delivery with a notice required by Subsection (a) or (i) of a copy of the pamphlet published by the comptroller under Section 5.06 is sufficient to comply with the requirement that the notice include the information specified by Subsection (b)(7) or (i)(3), as applicable. Makes conforming changes. SECTION 23. Amends Section 26.10, Tax Code, requires that if the appraisal roll shows that a property is eligible for taxation at its full appraised value for only part of a year because a residence homestead exemption for an individual 65 years of age or older terminated during the year, the tax due against the property is prorated. Provides for calculation of taxes due. SECTION 24. Amends Section 26.112, Tax Code, providing that if an individual qualifies for the exemption for an individual 65 years of age or older after the beginning of a tax year, the amount of the taxes due on the residence homestead for the tax year are prorated. Provides for calculation of taxes due. SECTION 25. Amends Section 33.01, Tax Code, by adding Subsections (d) and (e), to provide that in lieu of the penalty imposed under Subsection (a), a delinquent tax incurs a penalty of 50 percent of the amount of the tax without regard to the number of months the tax has been delinquent if the tax is delinquent because the property owner received an exemption under certain sections. Provides that a penalty imposed under Subsection (d) does not apply if, at any time before the date the tax becomes delinquent, the property owner gives to the chief appraiser of the appraisal district in which the property is located written notice of circumstances that would disqualify the owner for the exemption. SECTION 26. Amends Section 33.06, Tax Code, to amend the heading as follows: Sec. 33.06. DEFERRED COLLECTION OF TAXES ON RESIDENCE HOMESTEAD OF ELDERLY PERSON. SECTION 27. Amends Subchapter A, Chapter 33 Tax Code, by adding Section 33.065, as follows: Sec. 33.065. DEFERRED COLLECTION OF TAXES ON APPRECIATING RESIDENCE HOMESTEAD. Sets forth the terms under which an individual is entitled to defer or abate a suit to collect a delinquent tax imposed on the portion of the appraised value of property the individual owns and occupies as the individual's residence homestead that exceeds a certain sum. Prohibits an individual from obtaining a deferral or abatement if certain conditions exist. Sets forth the procedure by which an individual obtains a deferral and an abatement. Establishes the conditions under which a deferral or abatement applies only to certain ad valorem taxes. Sets forth the terms by which a tax lien remains on the property and interest continues to accrue during the period collection of delinquent taxes is deferred, and by which a penalty may and may not be imposed. Requires the chief appraiser for each appraisal district to publicize certain information each year. Defines "new improvement" and "residence homestead." SECTION 28. Conforms heading for Chapter 41, Tax Code to read "ADMINISTRATIVE REVIEW". SECTION 29. Amends Section 41.12 by adding Subsection (c), Tax Code, providing for protests under Subchapter E to not be considered an undetermined protest under Subsection (b). SECTION 30. Amends Section 41.43, Tax Code, to allow for a protest of the appraised value of property, the appraisal district has the burden of establishing the value of the property by a preponderance of the evidence. If the appraisal district fails to present evidence, the protest shall be determined in favor of the property owner. A protest on the ground of unequal appraisal of property shall be determined in favor of the protesting party unless the appraisal district establishes that the appraisal ratio of the property is not greater than the median level of appraisal. SECTION 31. Amends Section 41.46(a), Tax Code, to require the appraisal review board to deliver a written notice to the property owner initiating a protest of the date, time, and place fixed for the hearing on the protest 15 days in advance of the hearing, unless the property owner waives in writing notice of the hearing. SECTION 32. Amends Subchapter D, Chapter 41, Tax Code, by adding Section 41.71, as follows: Sec. 41.71. EVENING AND WEEKEND HEARINGS. Requires an appraisal review board, at the request of a property owner, to schedule a hearing on a protest at a certain time. SECTION 33. Amends Chapter 41, Tax Code, by adding Subchapter E to provide for a property owner to have the State Office of Administrative Hearings (SOAH) conduct a hearing and determine a protest if the property has an appraised value of at least $1 million and the property owner meets other procedural requirements. A property owner who requests a SOAH hearing waives the right to a hearing and determination by the appraisal review board. A property owner forfeits the right to a determination by SOAH if the property owner does not pay each taxing unit the amount of taxes the property owner would be required to pay to preserve the right to judicial review. SECTION 34. Amends Section 403.302 (d), Government Code, by adding conforming language to require the comptroller to include market value of a residence homestead where it exceeds the appraised value of the property as calculated in the study under sections 23.21 or 23.22. SECTION 35. Repeals Section 26.052, Tax Code. SECTION 36. Effective date: January 1, 1998, except as otherwise provided by this section. SECTION 37. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE Section 1 of the bill is new and Amends Section 1.12 by adding subsection (d), Tax Code, to allow a cap on increases in the property's market value by using the appraisal ratio of a homestead to which the limitations on appraisal increases apply is the ratio of the property's market value to the market value according to law. The appraisal ratio is not calculated according to the limited appraised value. Section 2 of the bill deletes a provision contained in the original bill which allowed the county assessor-collector to either serve as an ex officio nonvoting member of the board or an appointed member of the board. It also deletes language which would disqualify an assessor-collector from serving on the board. Section 4 is new and requires the assessor-collector to serve as chair of the board of directors. Section 7 is substantially similar but clarifies surviving spouse benefits. Section 8 is new and requires a charitable organization to use its assets in performing its charitable functions. Section 9 is new and requires youth development associations to use their assets to perform their youth development functions. Section 10 is new and requires a religious organization to use its assets to perform its religious functions or that of another religious organization. Section 11 is new and requires that educational organizations use their assets to perform their educational functions. States that schools must be organized an operated to perform school functions. Section 12 is substantially similar to the original bill and provides for the portability of senior citizen school tax freezes. Sections (h), (i), (j), and (k) are new. Section (h) requires the chief appraiser to certify whether or not an individual qualifies for the limitation; section (i), (j), and (k) provide for the extension of benefits to a surviving spouse. Section 14 is new and amends Section 11.42 (b), Tax Code, to allow individuals 65 or over to qualify immediately for the exemption. Section 15 is new and amends Section 11.421 and 11.422, Tax Code. to provide conforming changes for qualifications of religious organizations and schools. Section 16 is new and amends Subchapter C, Chapter 11, Tax Code, by adding Sections 11.423 and 11.424. Sec. 11.423 provides that an organization that would otherwise be an exempt charitable or youth organization, except for certain other requirements, shall be eligible for the exemption for the tax year if the organization satisfies the requirements by a timely filing with the chief appraiser of a new completed application of the exemption and an affidavit stating that the organization has complied with the requirements. Also, states that if the chief appraiser cancels an exemption for an organization that would otherwise be exempt, the organization is eligible for the exemption if the requirements are satisfied on or by the 30th day after the date the chief appraiser notifies the organization of the canellation, and files an affidavit stating such. Sec. 11.424 states that an organization that has entered into a contract with the United States, and has a conflict between a provision of the contract and its charter, bylaws, or other regulations adopted by the organization, may comply with the provision of the contract and not lose the organization's eligibility as an exempt organization. Section 20 is new and amends Subchapter B, Chapter 23, Tax Code, adding new sections 23.176, 23.21, and 23.22 Sec. 23.176 applies to property consisiting of a seperate interest in oil and gas, sets out criteria for chief appraiser to calculate market value for this category of property 23.21 provides for a 5% limitation on the appraised value of residential homesteads. 23.22 limits the frequency of appraisals to once every three years. Section 21 is new and amends Section 23.56, Tax Code, stating that land is not eligible for openspace appraisal if the land consists of a parcel of real property that is contiguous to one or more parcels of real property owned by the same person and all parcels taken together would not be eligible for open-space appraisal. A parcel is not ineligible because one of the contiguous parcels is the residence homestead of the person. Section 22 is substantially similar to the provisions in the original bill. The substitute omits a provision regarding types of notifications that would satisfy the requirements of this section. Section 23 is new and amends Section 26.10, Tax Code, provides that if the appraisal roll shows that a property is eligible for taxation at its full appraised value for only part of a year because a residence homestead exemption for an individual 65 years of age or older terminated during the year, the tax due against the property is prorated. Section 24 is new and amends Section 26.112, Tax Code, providing that if an individual qualifies for the exemption for an individual 65 years of age or older after the beginning of a tax year, the amount of the taxes due on the residence homestead for the tax year are prorated. Section 26 is new and amends Section 33.06, Tax Code, to amend the heading as follows: Sec. 33.06. DEFERRED COLLECTION OF TAXES ON RESIDENCE HOMESTEAD OF ELDERLY PERSON. Section 29 is new and amends Section 41.12 (c), Tax Code, providing for protests under Subchapter E to not be considered an undetermined protest under Subsection (b). Section 30 is new and amends Section 41.43, Tax Code, to allow for a protest of the appraised value of property, the appraisal district has the burden of establishing the value of the property by a preponderance of the evidence. If the appraisal district fails to present evidence, the protest shall be determined in favor of the property owner. A protest on the ground of unequal appraisal of property shall be determined in favor of the protesting party unless the appraisal district extablishes that the appraisal ratio of the property is not greater than the median level of appraisal. Section 32 is substantially similar to the original bill. The original bill required the appraisal district to establish procedures for evening and weekend hearings. The substitute requires the appraisal district hold an evening or weekend hearing at the request of the property owner. Section 33 is new and amends Chapter 41, Tax Code, by adding Subchapter E to provide for a property owner to have the State Office of Administrative Hearings (SOAH) conduct a hearing and determine a protest if the property has an appraised value of at least $1 million and the property owner meets other procedural requirements. A property owner who requests a SOAH hearing waives the right to a hearing and determination by the appraisal review board. A property owner forfeits the right to a determination by SOAH if the property owner does not pay each taxing unit the amount of taxes the property owner would be required to pay to preserve the right to judicial review. Section 35 is new and repeals Section 26.052 of the Tax Code.