LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 76th Regular Session May 6, 1999 TO: Honorable Rene Oliveira, Chair, House Committee on Ways & Means FROM: John Keel, Director, Legislative Budget Board IN RE: HJR39 by Craddick (proposing a constitutional amendment to exempt from ad valorem taxation certain tangible personal property held temporarily at certain locations for assembling, manufacturing, processing, or other commercial purposes), Committee Report 1st House, Substituted ************************************************************************** * No significant fiscal implication to the State is anticipated, * * other than the cost of publication. The cost to the state for * * publication of the resolution is $76,352. * * * * Passage of this constitutional amendment could cause a decrease in * * school district taxable values, resulting in an increase in state * * public education cost. * ************************************************************************** Fiscal Analysis The resolution would propose a constitutional amendment to provide for a new exemption for "goods in transit." The exemption would be granted by all taxing units unless, before April 1, 2000, the governing body of a county, school district, junior college district, or city proposes by official action to tax goods in transit. The voters of the county, school district, junior college district, or city would then have to approve the taxation of goods in transit at an election held on November 7, 2000. A taxing unit voting to tax goods in transit could subsequently exempt the property through the same governing body and voter approval process. The proposed constitutional amendment would be submitted to voters at an election to be held November 2, 1999. Methodology Currently, Article VIII, Section 1-j of the Texas Constitution and Section 11.251 of the Tax Code provide for a "freeport exemption." This exemption, which can be granted at the option of each city, county, school district, or junior college district, exempts goods, wares, ores, raw materials, and other types of inventory that are brought into or acquired in the state and transported out of the state within 180 days of acquisition. The amendment would provide a similar exemption for property acquired or imported into Texas, stored at a location in the state not owned or under the control of the property owner, and transported to another location within 270 days of acquisition. There would a local option procedure to continue taxing the property. The proposed new exemption could cause revenue loss to cities, counties, school districts, and junior college districts exempting goods in transit. Section 403.302 of the Government Code requires the Comptroller to conduct a property value study to determine the total taxable value for each school district. Total taxable value is an element in the state's school funding formula. The state could reimburse school districts for their levy losses for this exemption, after a one-year lag. Any difference in property value studies would have a fiscal consequence to the state in terms of the cost of the Foundation School Program. As a general rule, a decrease of $1 billion in property valuation would change state aid requirements by about $14 million each year. Source Agencies: 304 Comptroller of Public Accounts LBB Staff: JK, BB, BR