LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session May 24, 2001 TO: Honorable James E. "Pete" Laney, Speaker of the House, House of Representatives FROM: John Keel, Director, Legislative Budget Board IN RE: HB1689 by Chisum (Relating to an exemption from ad valorem taxation for certain organizations engaged primarily in performing charitable functions.), As Passed 2nd House ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * HB1689, As Passed 2nd House: positive impact of $0 through the * * biennium ending August 31, 2003. * ************************************************************************** The bill would amend Chapter 11 of the Tax Code to allow a property tax exemption for the real and personal property of organizations engaged primarily in performing charitable functions, if approved by a local taxing unit. To qualify for the exemption, an organization would have to obtain a determination letter from the Comptroller stating that the organization was engaged primarily in charitable functions. The chief appraiser would have to accept the letter as conclusive evidence of eligibility for the exemption. A new determination letter would be required every fifth year after the exemption was granted. Certain real properties consisting of land and incomplete improvements could not be exempted for more than three years. The Comptroller would be required to charge organizations a fee not to exceed the administrative costs of performing the duties necessary to issue a determination under this bill. General Revenue-Related Funds, Five-Year Impact: **************************************************** * Fiscal Year Probable Net Positive/(Negative) * * Impact to General Revenue Related * * Funds * * 2002 $0 * * 2003 0 * * 2004 0 * * 2005 0 * * 2006 0 * **************************************************** All Funds, Five-Year Impact: ************************************************************************** *Fiscal Probable Revenue Probable Change in Number of * * Year Gain/(Loss) to Savings/(Cost) to State Employees from * * General Revenue Fund General Revenue Fund FY 2001 * * 0001 0001 * * 2002 $238,235 $(238,235) 4.0 * * 2003 216,619 (216,619) 4.0 * * 2004 216,619 (216,619) 4.0 * * 2005 216,619 (216,619) 4.0 * * 2006 216,619 (216,619) 4.0 * ************************************************************************** The Comptroller's Office would require four additional research staff to handle the increased workload. The research staff would determine if organizations met specific requirements and performed the required activities to maintain the exemption. It is anticipated that the assessment of fees to applicant organizations would offset the administrative costs of implementing the bill. Fiscal Analysis Passage of the bill could cause a significant loss of taxable value to local appraisal rolls. Non-profit organizations performing some charitable functions, but not exclusively charitable functions, currently pay property taxes on real and personal property. An undetermined number of such organizations could qualify for a total property tax exemption under the provisions of the bill by meeting the new standard of engaging primarily in the performance of charitable functions. Methodology In an effort to illustrate a few of the elements of this issue, in 1992 the U.S. Census Bureau reported that there were 2,576 civic, social, and fraternal organizations in Texas. Several years ago, the Comptroller's Office developed an informal estimate of local property tax revenue loss from such an exemption of approximately $2.6 million annually among all taxing units. After a one-year lag, the state would bear the losses of about $1.4 million per year sustained by school districts. Local Government Impact The amount of revenue loss to local governments would depend on the number of organizations that would apply and qualify under the bill and on the appraised value of the affected real and personal property. Source Agencies: LBB Staff: JK, DB, BR