| TO: | Honorable Steve Ogden, Chair, Senate Committee on Finance |
| FROM: | John S O'Brien, Director, Legislative Budget Board |
| IN RE: | HB2476 by Harless (Relating to the appraisal for ad valorem tax purposes of certain dealer's heavy equipment inventory; providing penalties.), As Engrossed |
The bill would amend the definitions in Section 23.1241 of the Tax Code such that "total annual sales" would mean the total of the sales price for each sale from a dealer's heavy equipment inventory in a 12-month period, and lease and rental payments received for each lease or rental of heavy equipment inventory in a 12 month period. Under current law, total annual sales includes only the heavy equipment inventory sales prices in a 12-month period. In addition, the definition of “subsequent sale” would be amended to provide that the term does not include a rental or lease with an unexercised purchase option or without a purchase option.
For the purpose of the computation of property tax on the market value of the dealer's heavy equipment inventory, the sales price of an item of heavy equipment that is sold during the preceding tax year after being leased or rented for a portion of that same tax year would be considered to be the sum of the sales price of the item plus the total lease and rental payments received for the item in the preceding tax year.
The bill would allow, rather than require, the appropriate district attorney, criminal district attorney, or county attorney to collect the penalty for failure to file or timely file a required declaration. The chief appraiser would be allowed to collect the penalty on his or her own behalf and the chief appraiser or any of the attorneys named above would be permitted to sue to enforce compliance with the filing requirements. The venue for an action for injunctive relief would be in the county in which the violation occurred or in the county in which the owner maintains a principal place of business or residence. The court would be permitted to award attorney's fees to a chief appraiser or any of the attorneys named above who prevails in a suit to collect a penalty or enforce compliance with the filing requirements. The bill would make the same changes regarding who may collect a penalty, who may sue to enforce compliance, venue, and attorney's fees in relation to statements required to be filed regarding prepayment of taxes by heavy equipment dealers under Section 23.1242 of the Tax Code.
The bill would amend Section 23.1242 of the Tax Code to require the owner of heavy equipment to assign a unit property tax to each item of heavy equipment that is leased or rented. If a transaction is a lease or rental, the owner would be required to collect the unit property tax from the lessee or renter at the time the lessee or renter submits payment for the lease or rental. The owner would be required to state the amount of the unit property tax assigned as a separate line item on an invoice. The bill would require a collector to provide a credit or refund to an owner if the owner determines that the owner accidentally paid taxes on a sale that is a fleet transaction under Section 23.1241. “Fleet transaction” currently means the sale of five or more items in which the dealer finances the purchase of the items, is the sole lender, and retains the exclusive right to enforce the terms of the agreement.
The bill would make other conforming changes to the Tax Code.
A recent court decision, Briggs Equip. Trust v. Harris County Appraisal Dist., 294 S.W. 3d 667 (Tex. App. Houston 1st Dist., 2009),ended the practice of treating heavy equipment leases or rentals with options to purchase as subsequent sales under Section 23.1241 of the Tax Code. Because subsequent sales are deducted in the market value calculation, this treatment resulted in reduced taxes. The court decision required that each rental (including multiple rentals during the year) with a purchase option be treated as a normal sale, which added to market value and resulted in a tax increase for the leased or rented heavy equipment in some instances. The changes proposed by the bill would end the possibility of multiple rentals during a year being treated as multiple sales - thus reducing tax revenues and creating a cost in those instances. The bill would also, however, require heavy equipment dealers to pay a unit property tax on every rental of heavy equipment during every year it is in use which would create an offsetting gain to taxing units. No information is available regarding the exact amount of gains or losses under the bill. Consequently, the fiscal impact on units of local government and the state cannot be estimated.
The bill would take effect on January 1, 2012.
| Source Agencies: | 304 Comptroller of Public Accounts
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| LBB Staff: | JOB, KK, SD, SJS
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