HBA-SEP C.S.H.B. 2306 77(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 2306 By: Chisum Financial Institutions 4/2/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE Current law does not extend residence homestead ad valorem tax exemptions to a homestead owned by a family-owned business or protect these businesses from forced sale. Exempting principal residences that are converted to family-owned businesses from this tax and protecting them from forced sale may encourage family business entrepreneurship. C.S.H.B. 2306 provides this exemption and protection. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. ANALYSIS C.S.H.B. 2306 amends the Tax and Property codes relating to the extension of residence homestead ad valorem tax exemptions and protection from forced sale to a homestead owned by a family-owned business. The bill modifies the definition of "residence homestead" to include a residence that is owned through an interest in a family-owned business and is occupied by an owner of the interest. As long as the owner or the owner's spouse continues to reside in such a residence, the limitation of school tax on homesteads of the elderly does not expire. Conveyance of a residence homestead by its owner to a familyowned business in which the owner owns an interest, as long as the owner or the owner's spouse continues to reside in the property, does not cause the limitation on the appraised value of a residence homestead to expire, nor does the conveyance constitute a change of ownership of the homestead, thus the homestead exemption, once allowed, need not be reclaimed. The homestead rights of the individual are subject and subordinate to the rights of creditors of and purchasers of property from the family-owned business and do not affect the validity or enforceability of any conveyance, mortgage, or encumbrance of the property by the family-owned business. If a homestead claimant conveys the homestead to a family-owned business in which the claimant owns an interest, the claimant may continue to claim homestead rights in the homestead. EFFECTIVE DATE This Act takes effect on the date on which the constitutional amendment proposed relating to the extension of homestead ad valorem tax exemptions and protection from forced sale to a homestead owned by a family-owned business is approved by the voters. If the amendment is not approved, this Act has no effect. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 2306 modifies the original by providing that the homestead rights of the individual are subject and subordinate to the rights of creditors of and purchasers of property from the family-owned business and do not affect the validity or enforceability of any conveyance, mortgage, or encumbrance of the property by the family-owned business.