LEGISLATIVE BUDGET BOARD
                              Austin, Texas
                                     
                    FISCAL NOTE, 77th Regular Session
  
                               May 10, 2001
  
  
          TO:  Honorable Rene Oliveira, Chair, House Committee on Ways &
               Means
  
        FROM:  John Keel, Director, Legislative Budget Board
  
       IN RE:  SJR6  by Duncan (Proposing a constitutional amendment
               authorizing the legislature to exempt from ad valorem
               taxation tangible personal property held at certain
               locations only temporarily for assembling,
               manufacturing, processing, or other commercial
               purposes.), As Engrossed
  
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*  The proposed exemption could cause an increase in state cost of       *
*  public school financing due to the reimbursement of local school      *
*  districts revenue losses, in districts exempting goods in transit.    *
*  The cost to the state for publication of the resolution is            *
*  $80,000.                                                              *
**************************************************************************
  
The resolution would propose a constitutional amendment to provide for a
new exemption for "goods in transit."  To qualify for the exemption,
personal property would have to be acquired or imported into Texas and
stored at a location in Texas not owned or under the control of the owner
of the goods.  Oil and gas and their immediate derivatives would not
qualify for the exemption.  In addition, the inventory would have to be
transported or distributed to another location no later than 270 days
after the property was acquired in or imported into the state.

The exemption would take effect on January 1, 2002 and apply to taxes
imposed in 2002 and beyond.

The exemption would have to be granted by all taxing units unless the
governing body of a taxing unit proposed by official action to tax goods
in transit.  Before acting to tax goods in transit, the governing body of
a taxing unit would have to conduct a public hearing where the public
would be allowed to speak for or against the action to tax the property.


Methodology Summary

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 175 days of
acquisition.

The proposed 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 either inside or outside of the state within 270 days.
The proposed amendment would provide a local option procedure to continue
taxing the property.

It is not known how many jurisdictions might hold an election and vote to
continue taxing the covered items.  For illustrative purposes, however,
if all taxing jurisdictions provided the exemption, the estimated loss to
the state in fiscal 2004 from reimbursements to school districts for
their fiscal 2003 losses would be $35.9 million; and the fiscal 2003
losses to cities and counties would be $7.8 million and $11.2 million,
respectively. (While the exemption would be for the 2002 tax year, the
local levy loss would be in fiscal 2003, and the state reimbursement to
school districts would be in fiscal 2004.)  Losses would continue to
escalate though 2006 and beyond, based on data from the U.S Bureau of the
Census, historic trends and industry estimates.

Note:  No taxpayer behavior relating to intra-corporate restructuring to
avoid taxation was assumed in the preparation of this analysis.  If any
such behavior were to materialize, additional revenue reductions would
occur.

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.  Depending on language in accompanying enabling
legislation, the state could reimburse school districts for their total
levy losses, including losses for this exemption, after a one-year lag.
  
Local Government Impact
  
The proposed exemption could cause revenue losses to cities, counties,
school districts, and special districts exempting goods in transit.
  
  
Source Agencies:   304   Comptroller of Public Accounts
LBB Staff:         JK, SD, WP, BR