LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE
75th Regular Session
May 17, 1997
TO: Honorable James E. "Pete" Laney IN RE: House Bill No. 1855,
As Passed 2nd House
Speaker of the House Eiland
House of Representatives
Austin, Texas
FROM: John Keel, Director
In response to your request for a Fiscal Note on HB1855 ( relating
to sales tax exemption for items used in manufacturing tangible
personal property for ultimate sale) this office has detemined
the following:
Biennial Net Impact to General Revenue Funds by HB1855-As Passed 2nd House
Implementing the provisions of the bill would result in a net
positive impact of $128,234,000 to General Revenue Related Funds
through the biennium ending August 31, 1999.
Fiscal Analysis
The bill would amend Section 151.318 of the Tax Code, relating
to the sales tax exemption for certain property used in manufacturing.
The bill would limit the exemption in Subsection (a)(2) by
specifying that, to qualify for exemption, tangible personal
property must be directly used or consumed in the actual manufacturing
process and must directly make or cause a chemical or physical
change to the product being manufactured for ultimate sale.
Certain items of tangible personal property used in the generation
of electricity, chilled water, or steam, or to power equipment
would be eligible for exemption. In addition, the bill would
clarify that certain provisions of Section 151.318 would not
apply to semiconductor fabrication cleanrooms and equipment.
The
bill would specify that intraplant transportation equipment
(already excluded from the exemption under current law) would
be defined to include those items of intraplant transportation
equipment used to move a product or raw material in connection
with the manufacturing process. Piping and conveyor systems
would be identified specifically as intraplant transportation
equipment that would not qualify for the exemption. Piping,
however, which is a component part of an exempt item of machinery,
would not be taxable. Machinery and equipment, or supplies
used to maintain or store tangible personal property would not
be eligible for exemption.
The bill would specify that
any taxpayer claiming an exemption under this section of the
Tax Code would have the burden of proof that the exemption claimed
was applicable. No exclusion under Section 151.318(c) of the
Tax Code would be applicable.
Portions of Section 151.318
relating to the phase-in of the manufacturing machinery and
equipment exemption (completed in 1994) would be repealed, as
they are no longer necessary.
The bill would take effect
October 1, 1997.
Methodolgy
The bill would effectively reverse two recent court decisions,
Tyler Pipe v. Sharp and Chevron Chemical v. Sharp, that resulted
in an expansion of the sales tax exemption for manufacturing
equipment, and it would codify Comptroller policy as it existed
before those decisions. The fiscal impact on state and local
revenues would consist only of the prospective gain to the tax
base; the State of Texas would still be liable for refunds of
taxes previously paid on the types of items addressed by the
Tyler Pipe and Chevron cases for the periods preceding the effective
date of the bill.
The probable fiscal implications of implementing the provisions
of the bill during each of the first five years following passage
is estimated as follows:
Five Year Impact:
Fiscal Year Probable Revenue Probable Revenue Probable Revenue Probable Revenue
Gain/(Loss) to Gain/(Loss) to Gain/(Loss) to Gain/(Loss) to
General Revenue Cities Transit Counties and
Fund Authorities Special Districts
0001 LCL-CITY LCL-TRANSIT LCL-COUNTY
1998 $56,361,000 $8,627,000 $3,512,000 $1,010,000
1998 71,873,000 12,223,000 4,976,000 1,432,000
2000 83,493,000 14,200,000 5,781,000 1,663,000
2001 86,289,000 14,675,000 5,975,000 1,719,000
2002 89,179,000 15,167,000 6,175,000 1,776,000
Net Impact on General Revenue Related Funds:
The probable fiscal implication to General Revenue related funds
during each of the first five years is estimated as follows:
Fiscal Year Probable Net Postive/(Negative)
General Revenue Related Funds
Funds
1998 $56,361,000
1999 71,873,000
2000 83,493,000
2001 86,289,000
2002 89,179,000
Similar annual fiscal implications would continue as long as
the provisions of the bill are in effect.
Source: Agencies: 304 Comptroller of Public Accounts
LBB Staff: JK ,RR ,SM