BILL ANALYSIS

 

 

 

C.S.H.B. 831

By: Taylor

Ways & Means

Committee Report (Substituted)

 

 

 

BACKGROUND AND PURPOSE

 

The federal government currently recognizes nonprofit community business organizations that are tax exempt under Section 501(c)(6), Internal Revenue Code, including business leagues and chambers of commerce, by not requiring such organizations to pay federal income tax. Unless an item is being resold by the organization, Texas exempts such an organization from paying the sales and use tax. 

 

Unlike charitable organizations that are tax exempt under Section 501(c)(3), Internal Revenue Code, the programs of a 501(c)(6) organization stimulate economic activity in the local communities they serve. The work of these organizations is financed primarily through membership dues. However, in many cases, nonprofit community business organizations who own their own office buildings must dedicate a significant portion of their income to property taxes. This is money that otherwise could be used for initiatives and activities promoting the economic well-being and business interests of the organization's members and local community.

 

C.S.H.B. 831 exempts nonprofit community business organizations as defined by the bill from property taxation on property owned by the organization.

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

 

C.S.H.B. 831 amends the Tax Code to entitle an association that qualifies as a nonprofit community business organization to a tax exemption for the buildings and tangible personal property the organization owns and uses exclusively to perform its primary functions, with certain exceptions. The bill entitles such an organization to a tax exemption, for no more than three years, for the real property owned by the organization consisting of an incomplete improvement that is under active construction or other physical preparation and is designed and intended to be used exclusively by qualified nonprofit community business organizations, and for the land on which the incomplete improvement is located that will be reasonably necessary for the use of the improvement.  The bill specifies that, for purposes of eligibility for the tax exemption, an incomplete improvement is under physical preparation if the nonprofit community business organization has engaged in architectural or engineering work, soil testing, land clearing activities, or site improvement work necessary for the construction of the improvement, or has conducted an environmental or land use study relating to the construction of the improvement. 

 

C.S.H.B. 831 provides that, for a nonprofit community business organization to qualify for a tax exemption, it must be engaged primarily in performing one or more of the following functions in the local community: promoting the common economic interests of commercial enterprises, improving the business conditions of one or more types of business, or otherwise providing services to aid in economic development.  The bill provides that the use of exempt property by persons who are not considered qualified nonprofit community business organizations under the bill's provisions does not result in the loss of a tax exemption if the use is incidental to use by the qualified nonprofit community business organization and limited to activities that benefit the beneficiaries of the nonprofit community business organization that owns or uses the property. 

 

C.S.H.B. 831 defines "nonprofit community business organization" for purposes of the bill's provisions to mean an organization that:

  • has been in existence for at least the preceding five years;
  • is a nonprofit corporation organized under the Texas Non-Profit Corporation Act (Article 1396-1.01 et seq., Vernon's Texas Civil Statutes) or a nonprofit corporation formed under the Texas Nonprofit Corporation Law, as described by Section 1.008, Business Organizations Code; described by Section 501(c)(6), Internal Revenue Code of 1986; and is not a statewide organization;
  • for at least the preceding three years, has maintained a dues-paying membership of at least 50 members;  and
  • has a board of directors elected by the members; does not compensate members of the board of directors for service on the board with respect to its activities in this state, is engaged primarily in performing certain functions; is primarily supported by membership dues and other income from activities substantially related to its primary functions; and is not, has not formed, and does not financially support a political committee as defined by Section 251.001, Election Code.

 

C.S.H.B. 831 makes general Tax Code provisions relating to a proportional tax exemption for property acquired after January 1 of a tax year and relating to the continuation of the exemption until the property changes ownership or the entity's qualification changes applicable to an exemption under the bill's provisions in the same manner as those provisions apply to the exemptions they describe. The bill defines "building."  The bill establishes that its provisions expire on December 31, 2011.

 

EFFECTIVE DATE

 

January 1, 2010.

COMPARISON OF ORIGINAL AND SUBSTITUTE

 

C.S.H.B. 831 adds a provision making the bill's provisions expire on December 31, 2011, and makes related conforming changes.