Honorable Jane Nelson, Chair, Senate Committee on Finance
FROM:
Ursula Parks, Director, Legislative Budget Board
IN RE:
SB1514 by Estes (relating to the eligibility of land to continue to be appraised for ad valorem tax purposes as qualified open-space land if the land begins to be used for oil and gas operations.), Committee Report 1st House, Substituted
The fiscal implications of this legislation cannot be determined due to ambiguity with respect to the land to which the bill's provisions apply. The bill provides that in order to continue receiving special open space appraisal the land must otherwise continue to qualify for special open space appraisal. It is ambiguous if this applies to the larger tract of which the land under the oil and gas operation is a part, or only to the acreage on which the oil and gas operations are occurring. If the latter, the bill would not create any cost to the state.
The bill would amend Chapter 23 of the Tax Code, regarding property tax appraisal methods and procedures, to provide that the eligibility of land for special open-space appraisal does not end because a lessee under an oil and gas lease begins conducting oil and gas operations over which the Railroad Commission of Texas (RRC) has jurisdiction on the land if the land otherwise continues to qualify for such appraisal.
The bill would not affect an additional tax imposed as a result of a change of use of land that occurred before the effective date.
If this bill's provision that, to continue receiving special open space appraisal, the land must otherwise continue to qualify for special open space appraisal is interpreted to apply only to the acreage on which the oil and gas operations are occurring (for example: land under a pump jack, sump pit, separator, tank battery, and access road) and not to the larger tract of which that land is a part, the acreage on which the oil and gas operations are actually occurring would not qualify for special open space appraisal and the bill would not create any cost.
If this bill's provision that, to continue receiving special open space appraisal, the land must otherwise continue to qualify for special open space appraisal is interpreted to apply to the larger tract of which the land under the oil and gas operation is a part, the bill's provision that continues special open space appraisal eligibility when the use of the land is changed to an oil and gas operation would create a cost to local taxing units, and to the state through the school finance formulas because land under an oil or gas operation that would otherwise become taxable at its market value would continue to receive a significantly lower special appraised value and would avoid the five year rollback provision that would require the payment of additional taxes and interest.
The manner in which the bill's provision requiring that the land must otherwise continue to qualify for special open space appraisal would be interpreted is unknown. Similarly, the amount of open space land underneath oil and gas operations that is appraised at market value under current law but would be appraised at the lower special appraisal value under the bill is unknown; consequently, the bill's cost cannot be estimated.
The bill would take effect on the date voters approve a companion constitutional amendment (SJR 51). If voters do not approve that amendment, this bill would have no effect.
Local Government Impact
The fiscal implications of this legislation cannot be determined due to ambiguity with respect to the land to which the bill's provisions apply. The bill provides that in order to continue receiving special open space appraisal the land must otherwise continue to qualify for special open space appraisal. It is ambiguous if this applies to the larger tract of which the land under the oil and gas operation is a part, or only to the acreage on which the oil and gas operations are occurring. If the latter, the bill would not create any cost to local taxing units.