| TO: | Honorable Rene Oliveira, Chair, House Committee on Ways & Means |
| FROM: | John S. O'Brien, Director, Legislative Budget Board |
| IN RE: | SB475 by Wentworth (Relating to the exemption from ad valorem taxation of property owned by certain organizations engaged primarily in performing charitable functions or in providing services to aid in economic development.), Committee Report 2nd House, As Amended |
| Fiscal Year | Probable Net Positive/(Negative) Impact to General Revenue Related Funds |
|---|---|
| 2010 | ($10,661,000) |
| 2011 | ($15,103,000) |
| 2012 | ($16,950,000) |
| 2013 | ($18,838,000) |
| 2014 | ($20,944,000) |
| Fiscal Year | Probable Savings/(Cost) from Foundation School Fund 193 |
Probable Revenue Gain/(Loss) from School Districts - Net Impact |
Probable Revenue Gain/(Loss) from Counties |
Probable Revenue Gain/(Loss) from Cities |
|---|---|---|---|---|
| 2010 | ($10,661,000) | ($3,334,000) | ($4,137,000) | ($4,736,000) |
| 2011 | ($15,103,000) | ($3,563,000) | ($5,524,000) | ($6,051,000) |
| 2012 | ($16,950,000) | ($3,843,000) | ($6,105,000) | ($6,678,000) |
| 2013 | ($18,838,000) | ($4,439,000) | ($6,781,000) | ($7,405,000) |
| 2014 | ($20,944,000) | ($5,120,000) | ($7,533,000) | ($8,213,000) |
The bill would amend Chapter 11 of the Tax Code, regarding taxable property and exemptions.
The bill would make an ad valorem taxation exemption for qualified charitable organizations mandatory if certain conditions are met. Section 11.184(b), which currently makes this exemption optional, would be repealed.
The bill would extend an exemption from ad valorem taxation to property owned by a corporation that is not a qualified charitable organization if certain conditions were met. The required conditions include (1) qualifying as a 501(c)(2) organization under federal tax law; (2) holding title to the property, collecting income from the property, and turning the income less expenses over to a qualified charitable organization; and (3) the property would be exempt from ad valorem taxation if it was owned by the qualified charitable organization. The qualified charitable organization would be required to get a determination letter from the Comptroller's Office.
The bill would exempt from ad valorem taxation property used by certain nonprofit community business organizations providing services to support the economic development of local communities. The bill would require organizations receiving this exemption to have been in existence for at least five years, maintained a dues-paying membership of at least 50 members for at least the past three years, been organized and registered as a nonprofit corporation, not been a statewide organization, and other factors indicating public support and purpose. The bill would make the exemption effective for the applicable portion of the tax year if the owner qualified after January 1 of that tax year.
The bill would exempt from ad valorem taxation the buildings and other real property and tangible personal property that are owned by a community housing development organization and used in the administration of its property. The exemption would also apply to political subdivisions of the state eligible for exemption under this chapter and Section 115 of the Internal Revenue Code.
The bill would amend Section 11.18(d) to specify that providing to the handicapped training and employment in producing commodities or services under 41 U.S.C. Sections 46-48c is an eligible charitable function in qualifying for the exemption of property owned by certain charitable organizations. 41 U.S.C. Sections 46-48c sets up a federal committee that helps blind and severely handicapped individuals sell services or commodities. Current law lists providing support to the handicapped as an eligible charitable function but does not elaborate further.
The bill would implement the provisions of Section 1-b(i), Article VIII of Texas Constitution, to authorize a totally disabled veteran to receive an exemption of 100 percent of the appraised value of the veteran's residence homestead. In addition, the bill would conform the bracket limit points for veterans with disability ratings to the limit points provided in Section 2(b), Article VIII of the Texas Constitution.
The bill would amend Chapter 403 of the Government Code to make conforming amendments requiring the deduction of the value lost to the new exemption in the Comptroller's property value study.
The provisions relating to totally disabled veterans would apply to a tax year beginning on or after January 1, 2009. Other provisions of this bill would take effect immediately upon enactment, assuming that it received the requisite two-thirds majority votes in both houses of the Legislature. Otherwise, they would take effect September 1, 2009.
The bill's requirement of mandatory exemptions for qualifying charitable organizations would create a cost to cities, counties, school districts, and the state through the operation of the school finance formulas. Currently, some taxing units grant the exemption and some do not. The cost was estimated based on a survey of large appraisal districts to determine the value of currently nonexempt property that would be exempted under the bill. The appropriate tax rates were applied to the value losses to estimate the tax revenue losses. Because of the operation of the hold harmless provisions of HB 1, 79th Legislature, Third Called Session (2006), the school district cost related to the compressed rate would be transferred to the state. Portions of the enrichment cost and the school district debt (facilities) cost would also be transferred to the state after a one-year lag because of the operation of the enrichment and facilities funding formulas. All costs were estimated over the five year projection period.
The bill's requirement for mandatory exemptions for qualifying nonprofit community business organization property would create a cost to cities, counties, school districts, and the state through the operation of the school finance formulas. The number of qualifying nonprofit community business organizations that own eligible property was estimated and multiplied by the estimated average value of the property to estimate potential value losses under the proposed bill. The appropriate trended tax rates were applied to the trended value losses to estimate the tax revenue losses. Because of the operation of the hold harmless provisions of HB 1, 79th Legislature, Third Called Session (2006), the school district cost related to the compressed rate would be transferred to the state. Portions of the enrichment cost and the school district debt (facilities) cost would also be transferred to the state after a one-year lag because of the operation of the enrichment and facilities funding formulas.
Note: The exemption for certain nonprofit community business organizations that would be provided by creating a new Section 11.231 of the Tax Code does not appear to be authorized by the Texas Constitution, and the bill is not accompanied by a joint resolution for a constitutional amendment that would authorize the exemption.
The bill's provision exempting certain administrative property of community housing development organizations would create a cost to cities, counties, school districts, and the state through the operation of the school finance formulas. Since there is no information available on the number of units or values of such property, the fiscal impact cannot be estimated.
The bill's provision relating to handicapped training and employment would have no significant impact to taxing units or to the state because providing support to the handicapped is already an eligible charitable function in qualifying for the exemption of property owned by certain charitable organizations.
The bill's provision relating to disabled veterans would create a cost to cities, counties, school districts, and the state through the operation of the school finance formulas. The number of 100 percent disabled veterans that own homesteads was estimated based on information from appraisal districts and trended through the five year projection period. The number of disabled veterans in each year was multiplied by the projected average taxable value of veterans' homesteads to develop an annual taxable value loss in each year of the projection period. The applicable projected tax rates were applied to estimate the levy loss to cities and counties, and to estimate the initial school district loss. Because of the operation of the hold harmless provisions of HB 1, 79th Legislature, Third Called Session (2006), the school district cost related to the compressed rate would be transferred to the state. Portions of the enrichment cost and the school district debt (facilities) cost would also be transferred to the state after a one-year lag because of the operation of the enrichment and facilities funding formulas. All costs were estimated over the five year projection period.
There would be no significant cost to conforming the disabled veteran bracket point limits to the limit points provided in Section 2(b), Article VIII of the Texas Constitution.
Note: The above table shows the fiscal effect of both of the proposed requirements of mandatory exemptions for qualifying charitable organizations, the cost of the proposed new exemption for qualifying nonprofit community business organizations, and the cost of the disabled veterans exemption.
| Source Agencies: | 304 Comptroller of Public Accounts
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| LBB Staff: | JOB, MN, SD, SJS
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