HBA-LJP H.B. 1689 77(R)BILL ANALYSIS Office of House Bill AnalysisH.B. 1689 By: Chisum Ways & Means 8/8/2001 Enrolled BACKGROUND AND PURPOSE Under the Texas Constitution, property used by institutions that are engaged primarily in public charitable functions, including conducting functions on the property to support those functions are exempt from property taxation. In Texas, different types of real property receive different tax treatments. For example, business property generates revenue as a capital investment, and is taxed at a higher rate that a residential property that is not income producing. As property values and property taxes increase, charitable organizations may use a larger portion of their limited financial resources for property tax payments and may be discouraged from performing additional charitable activities if they are levied with a property tax. To encourage charitable organizations to perform more charitable activities, a property tax exemption for properties not held for profit by organizations primarily engaged in public charity may assist in the continuing efforts of the charity. House Bill 1689 exempts certain charitable organizations from ad valorem taxes. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the comptroller of public accounts of the State of Texas in SECTION 1 (Section 11.184, Tax Code) of this bill. ANALYSIS House Bill 1689 amends the Tax Code to provide that a qualified charitable organization is entitled to an exemption from taxation of property that includes certain buildings and other real property and tangible personal property that are used primarily for charitable functions, and real property owned by certain organizations that have incomplete improvements. The bill prohibits the granting of the exemption unless the exemption is adopted by the governing body of the taxing unit or by majority voter approval by the qualified voters of the taxing unit in an election called by the governing body based on a petition of at least 20 percent of the number of qualified voters who voted in the preceding election of the taxing unit. The bill provides that before submitting an application for a charitable organization tax exemption, a charitable organization must apply to the comptroller of public accounts of the State of Texas (comptroller) to determine whether the organization is engaged primarily in performing certain charitable functions to be eligible for the charitable organization tax exemption. The bill also sets forth provisions regarding the procedures and requirements the comptroller follows in making such a determination. When an organization applies for a charitable organization tax exemption, the bill requires the organization to submit the application with a copy of a letter of determination from the comptroller. The bill requires the chief appraiser to accept the copy of the letter as conclusive evidence as to whether the organization engages primarily in charitable functions and is eligible for a charitable organization tax exemption. The bill provides that if a person who is not of an exempted charitable organization uses exempt property incidental to use by an exempt charitable organization and limited the use to benefit the charitable organization that owns or uses the exempt property, then the use by the person does not result in the loss of the charitable organization tax exemption. The bill authorizes the comptroller to adopt rules to implement provisions related to tax exemptions of organizations that engage primarily in performing charitable functions. The bill also authorizes the comptroller to prescribe the form of an application for a determination letter, make a determination and issue a determination letter, and charge an organization a fee not to exceed the administrative cost of processing a request. The bill provides that a charitable organization tax exemption expires at the end of the fifth tax year after the year in which the exemption is granted and an organization must reapply for the exemption with a new determination letter. EFFECTIVE DATE September 1, 2001 and applies to the tax year beginning January 1, 2002.