By: Hamric, Davis of Dallas, Luna, Gutierrez, H.B. No. 3546
Mowery, et al.
A BILL TO BE ENTITLED
AN ACT
relating to the exemption from ad valorem taxation of certain
property used to provide low-income or moderate-income housing.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. The heading to Section 11.182, Tax Code, is
amended to read as follows:
Sec. 11.182. COMMUNITY HOUSING DEVELOPMENT ORGANIZATIONS
IMPROVING PROPERTY FOR LOW-INCOME AND MODERATE-INCOME HOUSING:
PROPERTY PREVIOUSLY EXEMPT.
SECTION 2. Section 11.182, Tax Code, is amended by adding
Subsection (j) to read as follows:
(j) An organization may not receive an exemption under
Subsection (b) or under Subsection (f), as added by Chapter 1191,
Acts of the 77th Legislature, Regular Session, 2001, for property
for a tax year beginning on or after January 1, 2004, unless the
organization received an exemption under that subsection for that
property for the 2003 tax year.
SECTION 3. Subchapter B, Chapter 11, Tax Code, is amended by
adding Sections 11.1825 and 11.1826 to read as follows:
Sec. 11.1825. ORGANIZATIONS CONSTRUCTING OR REHABILITATING
LOW-INCOME HOUSING: PROPERTY NOT PREVIOUSLY EXEMPT. (a) An
organization is entitled to an exemption from taxation of real
property owned by the organization that the organization constructs
or rehabilitates and uses to provide housing to individuals or
families meeting the income eligibility requirements of this
section.
(b) To receive an exemption under this section, an
organization must meet the following requirements:
(1) for at least the preceding three years, the
organization:
(A) has been exempt from federal income taxation
under Section 501(a), Internal Revenue Code of 1986, as amended, by
being listed as an exempt entity under Section 501(c)(3) of that
code;
(B) has met the requirements of a charitable
organization provided by Sections 11.18(e) and (f); and
(C) has had as one of its purposes providing
low-income housing;
(2) a majority of the members of the board of directors
of the organization have their principal place of residence in this
state; and
(3) the organization must have a formal policy
containing procedures for giving notice to and receiving advice
from low-income households residing in the county in which a
housing project is located regarding the design, siting,
development, and management of affordable housing projects.
(c) Notwithstanding Subsection (b), an owner of real
property that is not an organization described by that subsection
is entitled to an exemption from taxation of property under this
section if the property otherwise qualifies for the exemption and
the owner is:
(1) a limited partnership of which an organization
that meets the requirements of Subsection (b) controls 100 percent
of the general partner interest; or
(2) an entity the parent of which is an organization
that meets the requirements of Subsection (b).
(d) If the owner of the property is an entity described by
Subsection (c), the entity must:
(1) be organized under the laws of this state; and
(2) have its principal place of business in this
state.
(e) A reference in this section to an organization includes
an entity described by Subsection (c).
(f) For property to be exempt under this section, the
organization must own the property for the purpose of constructing
or rehabilitating a housing project on the property and:
(1) renting the housing to individuals or families
whose median income is not more than 60 percent of the greater of:
(A) the area median family income for the
household's place of residence, as adjusted for family size and as
established by the United States Department of Housing and Urban
Development; or
(B) the statewide area median family income, as
adjusted for family size and as established by the United States
Department of Housing and Urban Development; or
(2) selling single-family dwellings to individuals or
families whose median income is not more than the greater of:
(A) the area median family income for the
household's place of residence, as adjusted for family size and as
established by the United States Department of Housing and Urban
Development; or
(B) the statewide area median family income, as
adjusted for family size and as established by the United States
Department of Housing and Urban Development.
(g) Property may not receive an exemption under this section
unless at least 50 percent of the total square footage of the
dwelling units in the housing project is reserved for individuals
or families described by Subsection (f).
(h) The annual total of the monthly rent charged or to be
charged for each dwelling unit in the project reserved for an
individual or family described by Subsection (f) may not exceed 30
percent of the area median family income for the household's place
of residence, as adjusted for family size and as established by the
United States Department of Housing and Urban Development.
(i) For each dwelling unit rented to a public school
employee, a peace officer of a county or municipality, a person
serving on active duty as a member of the armed forces of the United
States, an honorably discharged veteran of the armed forces of the
United States, or a person 65 years of age or older, a dwelling unit
of equal square footage is considered to have been reserved for an
individual or family described by Subsection (f) for purposes of
determining:
(1) the qualification of the property for an exemption
under this section; and
(2) the amount of the exemption.
(j) Property owned for the purpose of constructing a housing
project on the property is exempt under this section only if:
(1) the property is used to provide housing to
individuals or families described by Subsection (f); or
(2) the housing project is under active construction
or other physical preparation.
(k) For purposes of Subsection (j)(2), a housing project is
under physical preparation if the organization has engaged in
architectural or engineering work, soil testing, land clearing
activities, or site improvement work necessary for the construction
of the project or has conducted an environmental or land use study
relating to the construction of the project.
(l) An organization may not receive an exemption for a
housing project constructed by the organization if the construction
of the project was completed before the effective date of this
section.
(m) If the property is owned for the purpose of
rehabilitating a housing project on the property:
(1) the original construction of the housing project
must have been completed at least 10 years before the date the
organization began actual rehabilitation of the project;
(2) the person from whom the organization acquired the
project must have owned the project for at least five years, if the
organization is not the original owner of the project;
(3) the organization must provide to the chief
appraiser and, if the project was financed with bonds, the issuer of
the bonds a written statement prepared by a certified public
accountant stating that the organization has spent on
rehabilitation costs at least the greater of $5,000 or the amount
required by the financial lender for each dwelling unit in the
project; and
(4) the organization must maintain a reserve fund for
replacements:
(A) in the amount required by the financial
lender; or
(B) if the financial lender does not require a
reserve fund for replacements, in an amount equal to $300 per unit
per year.
(n) Beginning with the 2005 tax year, the amount of the
reserve required by Subsection (m)(4)(B) is increased by an annual
cost-of-living adjustment determined in the manner provided by
Section 1(f)(3), Internal Revenue Code of 1986, as amended,
substituting "calendar year 2004" for the calendar year specified
in Section 1(f)(3)(B) of that code.
(o) A reserve must be established for each dwelling unit in
the property, regardless of whether the unit is reserved for an
individual or family described by Subsection (f). The reserve must
be maintained on a continuing basis, with withdrawals permitted:
(1) only as authorized by the financial lender; or
(2) if the financial lender does not require a reserve
fund for replacements, only to pay the cost of capital improvements
needed for the property to maintain habitability under the Minimum
Property Standards of the United States Department of Housing and
Urban Development or the code of a municipality or county
applicable to the property, whichever is more restrictive.
(p) For purposes of Subsection (o)(2), "capital
improvement" means a property improvement that has a depreciable
life of at least five years under generally accepted accounting
principles, excluding typical "make ready" expenses such as
expenses for plasterboard repair, interior painting, or floor
coverings.
(q) If the organization acquires the property for the
purpose of constructing or rehabilitating a housing project on the
property, the organization must be renting or offering to rent the
applicable square footage of dwelling units in the property to
individuals or families described by Subsection (f) not later than
the third anniversary of the date the organization acquires the
property.
(r) If property qualifies for an exemption under this
section, the chief appraiser shall use the income method of
appraisal as provided by Section 23.012 to determine the appraised
value of the property. In appraising the property, the chief
appraiser shall:
(1) consider the restrictions provided by this section
on the income of the individuals or families to whom the dwelling
units of the housing project may be rented and the amount of rent
that may be charged for purposes of computing the actual rental
income from the property or projecting future rental income; and
(2) use the same capitalization rate that the chief
appraiser uses to appraise other rent-restricted properties.
(s) Not later than January 31 of each year, the appraisal
district shall give public notice in the manner determined by the
district, including posting on the district's website if
applicable, of the capitalization rate to be used in that year to
appraise property receiving an exemption under this section.
(t) The amount of the exemption under this section from
taxation is:
(1) for a school district, 50 percent of the appraised
value of the property multiplied by a fraction the numerator of
which is the square footage of the dwelling units in the housing
project that are reserved for individuals or families described by
Subsection (f) and the denominator of which is the total square
footage of the dwelling units in the project; and
(2) for a taxing unit other than a school district:
(A) 75 percent of the appraised value of the
property multiplied by a fraction the numerator of which is the
square footage of the dwelling units in the housing project that are
reserved for individuals or families described by Subsection (f)
and the denominator of which is the total square footage of the
dwelling units in the project, if at least 75 percent of the total
square footage of the dwelling units in the project is reserved for
individuals or families described by Subsection (f); and
(B) 65 percent of the appraised value of the
property multiplied by a fraction the numerator of which is the
square footage of the dwelling units in the housing project that are
reserved for individuals or families described by Subsection (f)
and the denominator of which is the total square footage of the
dwelling units in the project, if Paragraph (A) does not apply.
(u) Notwithstanding Section 11.43(c), an exemption under
this section does not terminate because of a change in ownership of
the property if:
(1) the property is foreclosed on for any reason and,
not later than the 30th day after the date of the foreclosure sale,
the owner of the property submits to the chief appraiser evidence
that the property is owned by:
(A) an organization that meets the requirements
of Subsection (b); or
(B) an entity that meets the requirements of
Subsections (c) and (d); or
(2) in the case of property owned by an entity
described by Subsections (c) and (d), the organization meeting the
requirements of Subsection (b) that controls the general partner
interest of or is the parent of the entity as described by
Subsection (c) ceases to serve in that capacity and, not later than
the 30th day after the date the cessation occurs, the owner of the
property submits evidence to the chief appraiser that the
organization has been succeeded in that capacity by another
organization that meets the requirements of Subsection (b).
(v) The chief appraiser may extend the deadline provided by
Subsection (u)(1) or (2), as applicable, for good cause shown.
(w) Notwithstanding any other provision of this section,
the governing body of a taxing unit any part of which is located in a
county with a population of at least 1.4 million, by official action
of the governing body adopted with the approval of at least
two-thirds of its members in the manner required by law, may require
an organization to obtain the approval of the governing body to
receive an exemption under this section from taxation by the taxing
unit. The governing body of a taxing unit that takes action under
this subsection may:
(1) approve an exemption in the amount provided by
Subsection (t);
(2) approve an exemption in a reasonable amount other
than the amount provided by Subsection (t); or
(3) deny an exemption if the governing body determines
that:
(A) the taxing unit cannot afford the loss in
revenue that would result from approving the exemption; or
(B) additional housing for individuals or
families meeting the income eligibility requirements of this
section is not needed in the territory of the taxing unit.
(x) To receive an exemption under this section from taxation
by a taxing unit for which the approval of the governing body of the
taxing unit is required under Subsection (w), an organization must
submit to the taxing unit a written request for approval by the
governing body of the exemption from taxation of the property
described in the request.
(y) Following submission of a written request under
Subsection (x), the governing body of the taxing unit shall
determine whether to approve the exemption of the property from
taxation and the amount of the exemption. The governing body shall
issue a letter to the organization stating the governing body's
determination and shall send a copy of the letter by regular mail to
the chief appraiser of each appraisal district that appraises the
property for the taxing unit. The governing body may charge the
organization a fee not to exceed the administrative costs of
processing the request of the organization, making the
determination, and issuing the letter required by this subsection.
If the chief appraiser determines that the property qualifies for
an exemption under this section and the governing body of the taxing
unit approves the exemption, the chief appraiser shall grant the
exemption in the amount approved by the governing body.
Sec. 11.1826. MONITORING OF COMPLIANCE WITH LOW-INCOME AND
MODERATE-INCOME HOUSING EXEMPTIONS. (a) In this section,
"department" means the Texas Department of Housing and Community
Affairs.
(b) Property may not be exempted under Section 11.1825 for a
tax year unless the organization owning or controlling the owner of
the property has an audit prepared by an independent auditor
covering the organization's most recent fiscal year. The audit
must be conducted in accordance with generally accepted accounting
principles. The audit must include an opinion on whether:
(1) the financial statements of the organization
present fairly, in all material respects and in conformity with
generally accepted accounting principles, the financial position,
changes in net assets, and cash flows of the organization; and
(2) the organization has complied with all of the
terms and conditions of the exemption under Section 11.1825.
(c) Not later than the 180th day after the last day of the
organization's most recent fiscal year, the organization must
deliver a copy of the audit to the department and the chief
appraiser of the appraisal district in which the property is
located.
(d) Notwithstanding any other provision of this section, if
the property contains not more than 36 dwelling units, the
organization may deliver to the department and the chief appraiser
a detailed report and certification as an alternative to an audit.
(e) Property may not be exempted under Section 11.182 for a
tax year unless the organization owning or controlling the owner of
the property complies with this section, except that the audit
required by this section must address compliance with the
requirements of Section 11.182.
(f) All information submitted to the department or the chief
appraiser under this section is subject to required disclosure, is
excepted from required disclosure, or is confidential in accordance
with Chapter 552, Government Code, or other law.
SECTION 4. Sections 11.436(a) and (c), Tax Code, are
amended to read as follows:
(a) An organization that acquires property that qualifies
for an exemption under Section 11.181(a) or 11.1825 [11.182(a)] may
apply for the exemption for the year of acquisition not later than
the 30th day after the date the organization acquires the property,
and the deadline provided by Section 11.43(d) does not apply to the
application for that year.
(c) To facilitate the financing associated with the
acquisition of a property, an organization, before acquiring the
property, may request from the chief appraiser of the appraisal
district established for the county in which the property is
located a preliminary determination of whether the property would
qualify for an exemption under Section 11.1825 [11.182] if acquired
by the organization. The request must include the information that
would be included in an application for an exemption for the
property under Section 11.1825 [11.182]. Not later than the 45th
[21st] day after the date a request is submitted under this
subsection, the chief appraiser shall issue a written preliminary
determination for the property included in the request. A
preliminary determination does not affect the granting of an
exemption under Section 11.1825 [11.182].
SECTION 5. Subchapter B, Chapter 23, Tax Code, is amended by
adding Section 23.215 to read as follows:
Sec. 23.215. APPRAISAL OF CERTAIN NONEXEMPT PROPERTY USED
FOR LOW-INCOME OR MODERATE-INCOME HOUSING. (a) This section
applies only to real property owned by an organization:
(1) that on the effective date of this section was
rented to a low-income or moderate-income individual or family
satisfying the organization's income eligibility requirements and
that continues to be used for that purpose;
(2) that was financed under the low income housing tax
credit program under Subchapter DD, Chapter 2306, Government Code;
(3) that does not receive an exemption under Section
11.182 or 11.1825; and
(4) the owner of which has not entered into an
agreement with any taxing unit to make payments to the taxing unit
instead of taxes on the property.
(b) The chief appraiser shall appraise the property in the
manner provided by Section 11.1825(r).
SECTION 6. This Act takes effect immediately if it receives
a vote of two-thirds of all the members elected to each house, as
provided by Section 39, Article III, Texas Constitution. If this
Act does not receive the vote necessary for immediate effect, this
Act takes effect September 1, 2003.