82R26428 SMH-F

By: Villarreal H.B. No. 1056

Substitute the following for H.B. No. 1056:

By: Villarreal C.S.H.B. No. 1056

A BILL TO BE ENTITLED

AN ACT

relating to the ad valorem taxation of property used to provide low-income or moderate-income housing.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 11.182(a), Tax Code, is amended by amending Subdivision (2) and adding Subdivisions (3) and (4) to read as follows:

(2) "Community housing development organization" has the meaning assigned by 24 C.F.R. Section 92.2, except that the term also includes an organization that otherwise qualifies as a community housing development organization under that section but that:

(A) does not receive HOME funds as defined by that section; or

(B) is governed by a board all of the members of which are appointed by a state or local government [42 U.S.C. Section 12704].

(3) "Control" includes:

(A) with respect to a limited partnership, the control, directly or through a wholly controlled subsidiary, of 100 percent of the general partner interest; and

(B) with respect to a limited liability company, serving as the sole manager or managing member of the company.

(4) "Department" means the Texas Department of Housing and Community Affairs or its successor agency.

SECTION 2. Section 11.182, Tax Code, is amended by adding Subsections (a-1), (b-1), (b-2), (j-1), (l), (m), (n), (o), (p), (q), (r), and (s) and amending Subsections (e), (g), (h), (i), and (k) to read as follows:

(a-1) An organization is considered to own property for purposes of this section and the provisions of Section 2, Article VIII, Texas Constitution, authorizing the legislature by general law to exempt from taxation property owned by an institution engaged primarily in public charitable functions, if the organization has legal or equitable title to the property. By way of example, an organization has equitable title to property if it has a present right to compel legal title to the property to be conveyed to it in accordance with law, such as by means of an option to acquire the property. For purposes of eligibility for an exemption under this section, property owned by a tax credit partnership or limited liability company is considered to be owned by a community housing development organization if the general partner of the tax credit partnership or the manager of the limited liability company is, or is controlled by, the community housing development organization and the community housing development organization holds equitable title to the property pursuant to an option to acquire the property on terms negotiated between the parties.

(b-1) Notwithstanding Subsection (b), if the legal owner of property is not an organization described by that subsection, the legal owner is entitled to an exemption from taxation of property under this section if the property otherwise qualifies for the exemption and the legal owner is:

(1) an entity 100 percent of the interest in which is owned by an organization that meets the requirements of Subsection (b); or

(2) an entity controlled by an organization that meets the requirements of Subsection (b).

(b-2) A reference in this section to an organization includes an entity described by Subsection (b-1)(1) or (2).

(e) In addition to meeting the other applicable requirements of this section [Subsections (b) and (c)], to receive an exemption under Subsection (b) for improved real property that includes a housing project constructed after December 31, 2001, and financed with qualified 501(c)(3) bonds issued under Section 145 of the Internal Revenue Code of 1986, tax-exempt private activity bonds subject to volume cap, or low-income housing tax credits, the organization must:

(1) [control 100 percent of the interest in the general partner if the project is owned by a limited partnership;

[(2)] comply with all rules of and laws administered by the department [Texas Department of Housing and Community Affairs] applicable to community housing development organizations; and

(2) [(3)] submit annually to the department, if the property is a multifamily rental property consisting of more than four dwelling units, or to the chief appraiser of the appraisal district in which the property subject to the exemption is located, if the property is not such a property, [Texas Department of Housing and Community Affairs and to the governing body of each taxing unit for which the project receives an exemption for the housing project] evidence demonstrating that the organization spent an amount equal to at least 90 percent of the project's cash flow in the preceding fiscal year as determined by the audit required by Subsection (g), for eligible persons in the county in which the property is located, on social, educational, or economic development services, capital improvement projects, or rent reduction.

(g) To receive an exemption under Subsection (b) or (f), an organization must annually have an audit prepared by an independent auditor. The audit must include a detailed report on the organization's sources and uses of funds. A copy of the audit must be delivered to the department, if the property is a multifamily rental property consisting of more than four dwelling units, or [Texas Department of Housing and Community Affairs and] to the chief appraiser of the appraisal district in which the property subject to the exemption is located, if the property is not such a multifamily rental property.

(h) Subsections (d) and (e)(2) [(e)(3)] do not apply to property owned by an organization if:

(1) the entity that provided the financing for the acquisition or construction of the property:

(A) requires the organization to make payments in lieu of taxes to the school district in which the property is located; or

(B) restricts the amount of rent the organization may charge for dwelling units on the property; or

(2) the organization has entered into an agreement with each taxing unit for which the property receives an exemption to spend in each tax year for the purposes provided by Subsection (d) or (e)(2) [(e)(3)] an amount equal to the total amount of taxes imposed on the property in the tax year preceding the year in which the organization acquired the property.

(i) If any property owned by an organization receiving an exemption under this section has been acquired or sold during the preceding year, the [such] organization shall file by March 31 of the following year with the department, for multifamily rental properties consisting of more than four dwelling units, or with the chief appraiser in the county in which the relevant properties are [property is] located, for properties that are not such multifamily rental properties, on a form promulgated by the comptroller of public accounts, a list of such properties acquired or sold during the preceding year.

(j-1) Notwithstanding Subsection (j), an organization may not receive an exemption under Subsection (b) or (f) for property for the 2012 tax year or a subsequent tax year if:

(1) the organization did not claim an exemption under Subsection (b) or (f) for the property for the 2010 tax year; or

(2) the organization claimed an exemption under Subsection (b) or (f) for the property for the 2010 tax year and the organization is finally determined to be ineligible for the exemption for the property for that tax year.

(k) Notwithstanding Subsection (j) of this section and Sections 11.43(a) and (c), an exemption under Subsection (b) or (f) does not terminate because of a change in the ownership of the property if the property is sold at a foreclosure sale and, not later than the 30th day after the date of the sale, the owner of the property submits to the department, if the property is a multifamily rental property consisting of more than four dwelling units, or the chief appraiser, if the property is not such a multifamily rental property, evidence that the property is owned by an organization that meets the requirements of Subsections (b)(1), (2), and (4). If the owner of the property submits the evidence required by this subsection, the exemption continues to apply to the property for the remainder of the current tax year and for subsequent tax years until the owner ceases to qualify the property for the exemption. This subsection does not prohibit the chief appraiser or the department, as applicable, from requiring the owner to file a new application to confirm the owner's current qualification for the exemption as provided by Section 11.43(c).

(l) This subsection applies only to a multifamily rental property consisting of more than four dwelling units. If the chief appraiser of the appraisal district in which the property is located cancels the exemption or requires the organization that owns the property to file a new application to confirm the organization's current qualification for the exemption, the organization must file a new application for the exemption with the department. The provisions of this code governing the filing of an application under Section 11.43, action on the application, and the effect of the granting of the application by a chief appraiser apply to an application filed with the department under this subsection, except as otherwise provided by this section.

(m) The department shall prescribe the contents of the exemption application form for purposes of Subsection (l). The provisions of Section 11.43 governing the contents of an application form prescribed by the comptroller apply to an exemption application form prescribed by the department to the extent those provisions may be made applicable.

(n) Not later than the 60th day after the date an organization submits a complete application to the department under Subsection (l), the executive director of the department shall determine whether the organization is entitled to an exemption for the property under Subsection (b) or (f). In making a determination, the executive director may rely on the conclusions in any audit or legal opinion provided to the department or any determination letter issued by the United States Internal Revenue Service regarding the organization's status under Section 501, Internal Revenue Code of 1986.

(o) The executive director may request that an organization that files an application under Subsection (l) provide additional information. If the executive director makes such a request, the application is considered to be complete for purposes of Subsection (n) on the date on which all additional information requested by the executive director has been received by the department.

(p) Not later than the fifth day after the date the executive director makes a determination under Subsection (n), the executive director shall issue a letter to the applicant organization stating the executive director's determination. If the executive director determines that the organization is not entitled to an exemption for the property under Subsection (b) or (f), the letter must include the reasons for the determination and a description of the procedure for appealing the determination. The executive director shall send a copy of the letter by regular mail to the chief appraiser of each appraisal district that appraises the property. If the executive director determines that the organization is entitled to an exemption for the property under Subsection (b) or (f), the chief appraiser shall grant the exemption. If the executive director determines that the organization is not entitled to an exemption for the property under Subsection (b) or (f), the chief appraiser shall deny the exemption.

(q) The applicant organization or a taxing unit in which the property to which the application applies is located may appeal the executive director's determination under Subsection (p) to the governing board of the department in the manner provided by department rule. The organization may be represented in an appeal by an agent in accordance with Section 1.111. The organization or taxing unit may appeal under Chapter 42 a final determination by the governing board of the department in the same manner as provided by law for the appeal of a determination by an appraisal review board, except that the petition for review must be brought against the department rather than the appraisal district.

(r) The department shall employ sufficient personnel to process any applications received under Subsection (l) and may charge an organization filing an application a reasonable fee not to exceed the lesser of:

(1) $2,500; or

(2) the direct and indirect administrative costs of processing the application and issuing a determination under Subsection (n).

(s) The department shall adopt rules to implement its duties under this section. The rules must:

(1) establish procedures for considering exemption applications; and

(2) be sufficiently specific to ensure that determinations are equal and uniform.

SECTION 3. Section 11.1825, Tax Code, is amended by amending Subsections (a), (c), (d), (i), (j), (l), (s), (t), (u), (v), and (y) and adding Subsections (a-1), (a-2), (e-1), (z), (aa), (bb), (cc), (dd), (ee), (ff), and (gg) to read as follows:

(a) In this section:

(1) "Control" includes:

(A) with respect to a limited partnership, the control, directly or through a wholly controlled subsidiary, of 100 percent of the general partner interest; and

(B) with respect to a limited liability company, serving as the sole manager or managing member of the company.

(2) "Department" means the Texas Department of Housing and Community Affairs or its successor agency.

(a-1) An organization is considered to own property for purposes of this section and the provisions of Section 2, Article VIII, Texas Constitution, authorizing the legislature by general law to exempt from taxation property owned by an institution engaged primarily in public charitable functions, if the organization has legal or equitable title to the property. By way of example, an organization has equitable title to property if it has a present right to compel legal title to the property to be conveyed to it in accordance with law, such as by means of an option to acquire the property. For purposes of eligibility for an exemption under this section, property owned by a tax credit partnership or limited liability company is considered to be owned by an organization if the general partner of the tax credit partnership or the manager of the limited liability company is, or is controlled by, the organization and the organization holds equitable title to the property pursuant to an option to acquire the property on terms negotiated between the parties.

(a-2) 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.

(c) Notwithstanding Subsection (b), if the legal [an] owner of real property [that] is not an organization described by that subsection, the legal owner is entitled to an exemption from taxation of property under this section if the property otherwise qualifies for the exemption and the legal owner is:

(1) an entity 100 percent of the interest in which is owned by [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 controlled by [the parent of which is] an organization that meets the requirements of Subsection (b).

(d) If the legal owner of the property is an entity described by Subsection (c)[, the entity must]:

(1) the legal owner must be organized under the laws of this state[;] and

[(2)] have its principal place of business in this state; and

(2) the organization that owns 100 percent of the interest in or controls the legal owner as described by Subsection (c) must have equitable title to the property.

(e-1) An application for an exemption under this section for a multifamily rental housing project consisting of more than four dwelling units may be filed with the chief appraiser or the department, except that if the legal owner of the property is an entity described by Subsection (c)(2), the application must be filed with the department.

(i) Property owned for the purpose of constructing or rehabilitating 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) and the housing project was under active construction or rehabilitation at the time the organization initially filed an application for the exemption; or

(2) the housing project is under active construction or rehabilitation or other physical preparation.

(j) For purposes of Subsection (i)(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 or rehabilitation of the project or has conducted an environmental or land use study relating to the construction or rehabilitation of the project.

(l) 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, unless the organization acquired the project from a person that acquired the project by foreclosing on the project or receiving a deed or other instrument in lieu of foreclosure that conveyed the project to the person;

(3) the organization must provide to the department or the chief appraiser, as applicable, 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.

(s) Unless otherwise provided by the governing body of a taxing unit any part of which is located in a county with a population of at least 1.8 [1.4] million under Subsection (x), for property described by Subsection (f)(1), the amount of the exemption under this section from taxation is 50 percent of the appraised value of the property.

(t) 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 department or the chief appraiser, as applicable, 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 owns 100 percent of the interest in or 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 department or the chief appraiser, as applicable, that the organization has been succeeded in that capacity by another organization that meets the requirements of Subsection (b).

(u) The department or the chief appraiser, as applicable, may extend the deadline provided by Subsection (t)(1) or (2), as applicable, for good cause shown.

(v) Notwithstanding any other provision of this section, an organization may not receive an exemption from taxation of property described by Subsection (f)(1) by a taxing unit any part of which is located in a county with a population of at least 1.8 [1.4] million unless the exemption is approved by the governing body of the taxing unit in the manner provided by law for official action.

(y) Not later than the fifth day after the date the governing body of the taxing unit takes action under Subsection (x), the taxing unit shall issue a letter to the organization stating the governing body's action and, if the governing body denied the exemption, stating whether the denial was based on a determination under Subsection (x)(3)(A) or (B) and the basis for the determination. The taxing unit 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 and to the department, if applicable. The governing body may charge the organization a fee not to exceed the administrative costs of processing the request of the organization, approving or denying the exemption, and issuing the letter required by this subsection. If the chief appraiser or the department, as applicable, 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 or the department, as applicable, shall grant the exemption in the amount approved by the governing body.

(z) This subsection applies only to an application for an exemption under this section filed with the department as authorized or required by Subsection (e-1). The provisions of this code governing the filing of an application under Section 11.43, action on the application, and the effect of the granting of the application by a chief appraiser apply to an application filed with the department, except as otherwise provided by this section.

(aa) The department shall prescribe the contents of the exemption application form for purposes of Subsection (z). The provisions of Section 11.43 governing the contents of an application form prescribed by the comptroller apply to an exemption application form prescribed by the department to the extent those provisions may be made applicable.

(bb) Not later than the 60th day after the date an organization submits a complete application to the department under Subsection (z), the executive director of the department shall determine whether the organization is entitled to an exemption for the property under this section. In making a determination, the executive director may rely on the conclusions in any audit or legal opinion provided to the department or any determination letter issued by the United States Internal Revenue Service regarding the organization's status under Section 501, Internal Revenue Code of 1986.

(cc) The executive director may request that an organization that files an application under Subsection (z) provide additional information. If the executive director makes such a request, the application is considered to be complete for purposes of Subsection (bb) on the date on which all additional information requested by the executive director has been received by the department.

(dd) Not later than the fifth day after the date the executive director makes a determination under Subsection (bb), the executive director shall issue a letter to the applicant organization stating the executive director's determination. If the executive director determines that the organization is not entitled to an exemption for the property under this section, the letter must include the reasons for the determination and a description of the procedure for appealing the determination. The executive director shall send a copy of the letter by regular mail to the chief appraiser of each appraisal district that appraises the property. If the executive director determines that the organization is entitled to an exemption for the property under this section, the chief appraiser shall grant the exemption. If the executive director determines that the organization is not entitled to an exemption for the property under this section, the chief appraiser shall deny the exemption.

(ee) The applicant organization or a taxing unit in which the property to which the application applies is located may appeal the executive director's determination under Subsection (dd) to the governing board of the department in the manner provided by department rule. The organization may be represented in an appeal by an agent in accordance with Section 1.111. The organization or taxing unit may appeal under Chapter 42 a final determination by the governing board of the department in the same manner as provided by law for the appeal of a determination by an appraisal review board.

(ff) The department shall employ sufficient personnel to process any applications received by the department under Subsection (e-1) and may charge an organization filing an application a reasonable fee not to exceed the lesser of:

(1) $2,500; or

(2) the direct and indirect administrative costs of processing the application and issuing a determination under Subsection (bb).

(gg) The department shall adopt rules to implement its duties under this section. The rules must:

(1) establish procedures for issuing preliminary determination letters and considering applications for exemptions; and

(2) be sufficiently specific to ensure that determinations are equal and uniform.

SECTION 4. Section 11.1826, Tax Code, is amended by amending Subsections (c) and (d) and adding Subsection (e-1) to read as follows:

(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 or [and] the chief appraiser of the appraisal district in which the property is located, whichever determines whether the property qualifies in the current tax year for the exemption for which the audit is conducted.

(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 or [and] the chief appraiser, as applicable, a detailed report and certification as an alternative to an audit.

(e-1) If an application for an exemption under Section 11.182 or 11.1825 has been filed with the department, the executive director of the department shall monitor eligibility for the exemption. If the executive director learns of any reason indicating that an exemption previously allowed should be canceled, the executive director shall investigate. If the executive director determines that the property is not eligible for the exemption, the executive director shall notify the chief appraiser and the chief appraiser shall cancel the exemption and deliver written notice of the cancellation within five days after the date the chief appraiser makes the cancellation. If the executive director discovers that an exemption has been erroneously allowed by the department in any one of the five preceding years, the executive director shall notify the chief appraiser and the chief appraiser shall add the property or appraised value that was erroneously exempted for each year to the appraisal roll as provided by Section 25.21 for other property that escapes taxation. If an exemption that was erroneously allowed did not apply to all taxing units in which the property was located, the chief appraiser shall note on the appraisal records, for each prior year, the taxing units to which the exemption applied and that are entitled to impose taxes on the property or appraised value that escaped taxation.

SECTION 5. Section 303.042, Local Government Code, is amended by adding Subsections (f), (g), (h), (i), (j), and (k) to read as follows:

(f) A corporation that owns multifamily rental property used to provide housing for low-income individuals or families is engaged exclusively in the performance of governmental functions, and the corporation and the property are exempt from taxation by this state or a municipality or other political subdivision of this state.

(g) Notwithstanding Subsection (f), if the legal owner of property described by that subsection is not a corporation, the legal owner is entitled to an exemption from taxation of the property under this section if the property otherwise qualifies for the exemption and the legal owner is:

(1) an entity 100 percent of the interest in which is owned by a corporation; or

(2) an entity controlled by a corporation.

(h) If the legal owner of property described by Subsection (f) is an entity described by Subsection (g)(1) or (2):

(1) the legal owner must be organized under the laws of this state and have its principal place of business in this state; and

(2) the corporation that owns 100 percent of the interest in or exclusively controls the legal owner as described by Subsection (g) must have equitable title to the property.

(i) A person is considered to own property described by Subsection (f) for purposes of this section and the provisions of Section 2, Article VIII, Texas Constitution, authorizing the legislature by general law to exempt from taxation public property used for public purposes, if the person has legal or equitable title to the property. By way of example, a person has equitable title to property described by Subsection (f) if the person has a present right to compel legal title to the property to be conveyed to the person in accordance with law, such as by means of an option to acquire the property. For purposes of eligibility of property described by Subsection (f) for an exemption under this section, property owned by a tax credit partnership or limited liability company is considered to be owned by a corporation if the general partner of the tax credit partnership or the manager of the limited liability company is, or is controlled by, the corporation and the corporation holds equitable title to the property pursuant to an option to acquire the property on terms negotiated between the parties.

(j) For purposes of Subsections (g), (h), and (i), "control" means having the power to manage, direct, superintend, restrict, regulate, govern, administer, or oversee. For purposes of those subsections, "control" includes:

(1) with respect to a limited partnership, the control, directly or through a wholly controlled subsidiary, of 100 percent of the general partner interest; and

(2) with respect to a limited liability company, serving as the sole manager or managing member of the company.

(k) A corporation or other person claiming an exemption under this section for property described by Subsection (f) may file an application for the exemption with the chief appraiser of the appraisal district in which the property is located or the Texas Department of Housing and Community Affairs or its successor agency. Sections 11.1825(z)-(gg), Tax Code, apply to an application filed under this subsection with the Texas Department of Housing and Community Affairs or its successor agency to the extent those provisions can be made applicable.

SECTION 6. (a) Except as provided by Subsection (b) of this section, this Act applies only to ad valorem taxes imposed for a tax year beginning on or after the effective date of this Act.

(b) This Act applies to ad valorem taxes imposed on property for a tax year beginning before the effective date of this Act if on the effective date of this Act the property is the subject of a protest under Chapter 41, Tax Code, or an appeal under Chapter 42 of that code, the protest or appeal relates to the exemption of the property under Section 11.182 or 11.1825, Tax Code, or under Section 303.042, Local Government Code, the protest or appeal is pending on the effective date, and before the protest or appeal is finally determined the owner of the property notifies the appraisal review board or court in which the protest or appeal is pending that the owner elects to have this Act apply to the determination of the protest or appeal.

(c) If a property owner elects to have this Act apply to the determination of a protest or appeal regarding ad valorem taxes imposed on the property for a tax year beginning before the effective date of this Act as authorized by Subsection (b) of this section and the owner has paid all or part of the taxes imposed on the property for that tax year, the owner is not entitled to a refund of the amount of taxes paid if the property is finally determined to have been eligible for the exemption for that tax year.

SECTION 7. This Act takes effect January 1, 2012.