Honorable Tommy Williams, Chair, Senate Committee on Finance
FROM:
Ursula Parks, Director, Legislative Budget Board
IN RE:
HB2387 by Menéndez (Relating to the ad valorem taxation of certain tangible personal property located inside a defense base development authority.), As Engrossed
Estimated Two-year Net Impact to General Revenue Related Funds for HB2387, As Engrossed: The 2012 taxable values of commercial products that could be exempted by the bill were provided by Bexar County Appraisal District. It is not currently known whether the businesses manufacturing these commercial products meet the property tax abatement guidelines established by Bexar County or whether they might meet the guidelines in the future. Consequently, the fiscal impact of the bill cannot be estimated. The tables below are an illustrative example of the fiscal impact if the guidelines were to be met. If the guidelines were met, the bill would have a negative impact of ($1,074,000) through the biennium ending August 31, 2015.
The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill.
Fiscal Year
Probable Net Positive/(Negative) Impact to General Revenue Related Funds
2014
$0
2015
($1,074,000)
2016
($2,456,000)
2017
($2,635,000)
2018
($2,826,000)
Fiscal Year
Probable Savings/(Cost) from Foundation School Fund 193
Probable Revenue Gain/(Loss) from San Antonio ISD
Probable Revenue Gain/(Loss) from South San Antonio ISD
Probable Revenue Gain/(Loss) from Edgewood ISD
2014
$0
$0
$0
$0
2015
($1,074,000)
($510,000)
($979,000)
($488,000)
2016
($2,456,000)
($217,000)
($417,000)
($208,000)
2017
($2,635,000)
($240,000)
($460,000)
($229,000)
2018
($2,826,000)
($264,000)
($508,000)
($253,000)
Fiscal Year
Probable Revenue Gain/(Loss) from Bexar County
Probable Revenue Gain/(Loss) from City of San Antonio
2014
$0
$0
2015
($639,000)
($1,220,000)
2016
($690,000)
($1,319,000)
2017
($746,000)
($1,425,000)
2018
($806,000)
($1,540,000)
Fiscal Analysis
This bill would amend Chapter 379B of the Local Government Code, regarding defense base development authorities.
The bill would add new Subsections 379B.011(c) and (d) to require a presumption that a commercial product that is being manufactured, assembled or produced, inside a defense base development authority is in interstate, international, or foreign commerce and not located in this state for longer than a temporary period for purposes of Sections 11.01 (real and tangible personal property) and 21.02 (tangible personal property generally) of the Tax Code. The entity manufacturing the applicable commercial product would be required to be in engaged in a business activity described by sectors 31 through 33 of the 2012 North American Industry Classification System (these sectors list all varieties of manufacturing). The commercial product would be required to be eligible under the guidelines and criteria established by the commissioners court of the county in which the authority is located under Section 312.002 of the Tax Code, regarding the eligibility of a taxing unit to participate in tax abatement.
A presumption that the property is in interstate, international, or foreign commerce and not located in this state for longer than a temporary period would also be required for personal property located inside the authority if the owner demonstrates to the chief appraiser for the appraisal district in which the authority is located that the owner intends to incorporate the property into, or attach the property to, a commercial product.
The bill would take effect on January 1, 2014.
Methodology
There are three Defense Base Development Authorities in Texas: The Port Authority of San Antonio, the Brooks Development Authority in San Antonio, and the Bee Development Authority in Beeville. The Port Authority of San Antonio and the Brooks Development Authority are the site of several commercial operations. Both of these sites are in Bexar County in the City of San Antonio. Currently no commercial products are made at the Bee Development Authority site. The bill's provision that would require a presumption that certain commercial products and other personal property to be incorporated into the products is in interstate commerce and not located in this state for more than a temporary period would cause the property to lose taxable situs; the property would be exempt. This would cause a property tax revenue loss to local taxing units and to the state through the operation of the school funding formula.
The 2012 taxable values of commercial products that could be exempted by the bill were provided by Bexar County Appraisal District. It is not currently known whether the businesses manufacturing these commercial products meet the property tax abatement guidelines established by Bexar County or whether they might meet the guidelines in the future. Consequently, the fiscal impact of the bill cannot be estimated. The table above is an illustrative example of the fiscal impact if the guidelines were to be met.
The applicable projected tax rates were applied to estimate the levy loss to the City of San Antonio and Bexar County, and to estimate the initial school district loss. Because of the operation of the hold harmless provisions of the Education Code, about 60 percent of the school district cost related to the compressed rate would be transferred to the state in the first year of a taxable property value loss and 100 percent in later years. Because lagged-year property values are used in the enrichment formula, school districts lose enrichment funding (state savings) in the first year of a taxable property value reduction. In the second and successive years the enrichment cost and a portion of the school district debt (facilities) cost are transferred to the state through the relevant funding formulas. All costs were estimated over the five year projection period.
Note: There is no constitutional authorization for an exemption of commercial products as proposed by the bill.
Local Government Impact
An example of the fiscal impact to units of local government is illustrated in the tables above assuming the businesses manufacturing the commercial products exempted in the bill meet the property tax abatement guidelines established by Bexar County and assuming constitutional authorization for an exemption of commercial products as proposed by the bill.