C.S.H.B. 1460 78(R)    BILL ANALYSIS


C.S.H.B. 1460
By: Eiland
Local Government Ways and Means
Committee Report (Substituted)



BACKGROUND AND PURPOSE 

Under current law, a chief appraiser is required to place a market value
on a wide array of income-producing properties and is authorized to use
the income method of appraisal on these properties for tax purposes.  The
chief appraiser may use the cost method, the market data comparison
method, or the income method of appraisal or a combination of the three
appraisal methods to determine the market value of real property.  The
income method of appraisal requires the chief appraiser to use rental
income to make such a determination; however, rental income does not cover
other types of real property which generates "non-rental" income.  The
Texas Constitution requires that taxation be equal and uniform, but with
the rental income method rental income producing properties might be
valuated and taxed differently than non-rental producing property.
CSHB1460 serves to amend the current income method of appraisal of real
property by conforming the language to match that of the Uniform Standards
of Professional Appraisal Practice 2003 Edition. 


RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly grant any
additional rulemaking authority to a state officer, department, agency, or
institution. 

ANALYSIS

Section 1. Section 23.012, Tax Code, is amended as follows:

Section 23.012 (a) - When the income method is most appropriate the chief
appraiser shall: 
(1) analyze comparable rental data and/or the potential earnings capacity
of the property to estimate the income potential of the property . 
(2) analyze available and comparable operating expenses and estimate the
operating expenses. 
(3) analyze available and comparable rates of capitalization  and rates of
discount and; 
(4) base future rent, income potential, and expenses on reasonably clear
and appropriate evidence. 

(b) The chief appraiser shall consider both historical information and
trends including supply and demand and anticipated events from similar
properties under construction when developing income, expense and cash
flow projections. 

Section 2.  Amends Subchapter A, Chapter 23 of the Tax Code by adding
23.014 
 
 Section 23.014 - when determining the market value of real property, the
chief appraiser shall analyze the effect on that value of and exclude from
that value the value of, any: 
  (1) tangible personal property including trade fixtures
  (2) intangible personal property; or
  (3) other property that is not subject to the appraisal as real property

 
Section 3.  This Act takes affect January 1, 2004. 

 EFFECTIVE DATE

This Act takes affect January 1, 2004. 


COMPARISON OF ORIGINAL TO SUBSTITUTE

Where HB1460 removed the word "rental" from the statute, CSHB1460
effectively replaces the current language with that found in the Uniform
Standards of Professional Appraisal Practice 2003 Edition, Standards Rule
4-1 (c).  The U.S.P.A.P. language is the nationally accepted language that
the current statute was originally based upon.  CSHB1460 also amends
Subchapter A, Chapter 23, of the Tax Code by adding the language found in
the Uniform Standards of Professional Appraisal Practice 2003 Edition,
Standards Rule 4-1 (g), which addresses the exclusion of property
considered in all appraisal methods and further clarifies the role of
intangible property.