HBA-LJP C.S.S.B. 1125 77(R) BILL ANALYSIS Office of House Bill AnalysisC.S.S.B. 1125 By: Armbrister Ways & Means 5/9/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE Each legislative session, the office of the comptroller of public accounts (comptroller) studies provisions regarding the imposition of taxes and fees by the comptroller for technical errors, ambiguous language, or outdated section references and provides suggestions that would correct, clarify, or conform those provisions. C.S.S.B. 1125 incorporates these suggestions in provisions regarding the general collection and enforcement procedures and the application and administration of certain taxes by the comptroller. 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 in SECTION 87 of this bill. ANALYSIS C.S.S.B. 1125 amends the Local Government Code to replace the retail sales tax that a municipality that has annexed all or part of a water control and improvement district or a municipality utility district for limited purposes is authorized to impose with a sales and use tax, and provide that the Municipal Sales and Use Tax Act governs the imposition, computation, administration, governance, and abolition of the sales and use tax, except as inconsistent with provisions relating to the strategic partnerships for the continuation of certain districts (SECTION 1). The bill sets forth additional contents and filing requirements of an order canvassing the results of the election to confirm a library district (SECTION 3). The bill requires the notification of the comptroller of public accounts (comptroller) in writing no later than the 10th day after the referendum returns are canvassed for a continuation or dissolution of a crime control and prevention district election by the board of directors of the district. The bill sets forth provisions regarding the effective date of the abolition of local crime control sales and use tax after a district is dissolved or discontinued by referendum (SECTION 4). The bill sets forth provisions regarding the discontinuance of the sales and use tax of a county development district if the tax revenue is not collected within the district before the first anniversary of the date the tax took effect, the required notification by the comptroller to the board of directors of the district and the commissioners court of the county of the discontinuance of the tax, and the authorization of the district to reimpose the tax after discontinuance (SECTION 6). The bill amends the Tax Code to increase the time period from 60 to 90 days within which the comptroller is required to compute the total amount of a tax refund for certain ad valorem taxes after receipt of an application for the refund. If an eligible person who enters into tax abatement agreements with the municipality and the county, and the agreements provided to the comptroller show the agreements exempt different portions of the property value, then the refund amount is required to be computed based on the greater of the portions exempted (SECTION 10). The bill provides that the sales or use of a taxable item in electronic form instead of on physical media does not alter its tax status, unless otherwise provided (SECTION 13). A surety's obligation under a bond filed is not affected by whether the surety has a record of the receipt of a copy of the comptroller's determination notice or payment demand (SECTION 16). The bill exempts internal and external wrapping, packing, and packaging supplies from the imposition of the limited sales, excise, and use tax if sold to a person who is a laundry or dry cleaner for use in wrapping, packing, or packaging an item that has been pressed and dry cleaned or laundered by the person operating as a laundry or dry cleaner in the regular course of business (SECTION 17). The bill provides that if two or more organizations jointly hold a tax-free sale or auction, each organization is authorized to hold one additional tax-free sale or auction during the calendar year in which the joint sale or auction is held (SECTION 19). The bill includes dietary supplements as an item that is exempt from the sales, excise, and use taxation. The bill also sets forth provisions regarding the characteristics of a product for it to be considered a dietary supplement or a drug or medicine (SECTION 20). The bill provides that the gas and electricity used in timber operations, including the pumping for irrigation of timber land is exempt from the limited sales, excise, and use tax. Gas and electricity used in the production of motion pictures or video or audio recordings and broadcasts are also exempt. The bill provides that the sale of a motion picture, video, or audio master by the producer of the master and the sale of tangible personal property to certain entities is also exempt from the limited sales, excise, and use tax. The bill includes photographic props that are necessary and essential to and used in connection with the printing process in the exemption of sales, excise, and use tax if they are purchased by a person engaged in certain printing or producing operations (SECTIONS 21, 22, and 24). The bill provides that the divergent use of exempted manufacturing property will not result in sales and use tax being due on the property if the divergent use occurs after the fourth anniversary of the date the property was purchased. The bill sets forth provisions regarding the calculation of the sales and use tax due on certain exempt manufacturing properties, the amount of divergent use, the total use of property, and the percentage of divergent use (SECTION 23). The bill authorizes a person who is a motor vehicle owner, who is in the business of renting motor vehicles, and holds a permit to deduct the fair market value of a replaced motor vehicle that is titled to another person, if the replaced motor vehicle is offered for sale, or either person holds a beneficial ownership interest in the other person for at least 80 percent or acquires all of its vehicles exclusively from franchised dealers whose franchisor shares common ownership with the other person (SECTION 26). The bill provides that for motor vehicles designed for commercial use, the imposition of retail sales tax and tax on motor vehicles purchased outside this state is due on the 20th working day after the date the motor vehicle is equipped with a body or other equipment that enables it to be registered under the Transportation Code (SECTION 27). The bill requires a bulk plant to post notices regarding certain duties of importers and exporters in a conspicuous location proximate to the point of receipt of shipping papers (SECTION 31). The bill removes the filing fee for a gasoline tax refund payment (SECTION 35). The bill includes dyed diesel fuel bonded users, agricultural bonded users, and bulk users in provisions regarding motor fuel taxation (SECTION 30). Provisions imposing a diesel fuel tax do not apply to the volume of water that is blended together with taxable diesel fuel when the finished product sold or used is clearly identified on the retail pump, storage tank, and sales invoice as a combination of diesel fuel and water (SECTION 36). The bill modifies provisions regarding the use of a signed statement to purchase dyed diesel fuel or undyed diesel fuel and prohibits a supplier from making a tax-free sale of any diesel fuel to a purchaser using a signed statement unless the purchaser has an end user number or agricultural exemption number issued by the comptroller. The bill modifies the taxation of the sale of dyed diesel fuel and undyed diesel fuel provided a purchaser furnishes a signed statement with certain stipulations and modifies the tax-free sale of dyed and undyed diesel fuel for an agricultural nonhighway use provided the purchaser furnishes a signed statement with certain stipulations. The bill sets forth provisions regarding the relief of a permitted supplier from the burden of proof for nontaxable dyed or undyed diesel fuel, and the criminal penalty and forfeiture of rights for certain offenses related to the taxation of dyed or undyed diesel fuel (SECTION 37). The bill deletes the provision that a common or contract carrier is required to file a report regarding diesel fuel transactions (SECTION 41). The bill deletes provisions regarding the filing fee for diesel fuel tax refund payments (SECTION 43). The bill provides for taxation purposes, that the permit requirements of and the penalties applicable to cigarette, cigar, or tobacco of cigarette, cigar, and tobacco product distributors, wholesalers, bonded agents, and retailers also apply to manufacturers and importers of these products (SECTIONS 46-53, and 55). The bill requires a distributor of tobacco products to include in the required report regarding the sale, distribution, exchange, or use of tobacco products only tobacco products that are sold in this state if more than fifty percent of all untaxed tobacco products received by the distributor in this state are actually sold outside of this state (SECTION 54). The bill specifies that the exemption of an incorporated cooperative credit association from the franchise tax, includes an organization under a federal charter for a production credit association or an agricultural credit association regulated by the Farm Credit Administration (SECTION 56). In apportioning taxable earned surplus, a corporation is required to include in the gross receipts from its business done in this state and its entire business, the corporation's share of certain gross receipts of each partnership and joint venture (SECTIONS 57 and 58). The bill sets forth provisions regarding a corporation's share of a partnership's gross receipts that is included in its federal taxable income that must be used in calculating the corporation's gross receipts for earned surplus purposes (SECTION 61). A banking corporation, in order to determine the taxable income and taxable earned surplus, is required to exclude from the numerator of its apportionment factor interest earned on federal funds and interest earned on securities sold under agreement to repurchase that are held in this state in a correspondent bank that is domiciled in this state. The bill provides that for the determination of taxable income and taxable earned surplus, a corporation must use the equity method of accounting when reporting an investment in a partnership or joint venture (SECTIONS 59 and 60). The bill prohibits the total credits for franchise taxes in the tax credit report by a corporation, including the amount of any carryforward credits, from exceeding the amount of franchise tax due for the report (SECTION 72). The bill modifies provisions regarding a refund for job creation in an enterprise zone, tax credit for wages paid to the participants or former participants of the Texas Department of Criminal Justice work program, tax credit for wages paid to certain children committed to the Texas Youth Commission, and tax credit for before and after programs for children (SECTIONS 63-65, and 71). The bill provides that for a tax credit for establishing a day-care center or purchasing child-care services, a corporation is prohibited from claiming as a tax credit an amount before any other applicable credits that exceeds 90 percent of the amount of tax due for the report for tax credit (SECTION 66). The bill decreases, from 25 percent to 5 percent of the total wages and salaries paid by a corporation for qualifying jobs during the period upon which the tax is based, to receive a tax credit for the specified creation of jobs by a corporation. The bill deletes provisions that require the credit to be claimed in five equal installments of one-fifth the credit amount (SECTIONS 67 and 68). The bill deletes provisions regarding the maximum inheritance tax imposed and requires that the amount of inheritance taxes is not to exceed the amount of tax calculated under certain federal provisions (SECTION 73). The bill sets forth provisions regarding the issuance, imposition, retainment, and remittance of the sales and use tax of a special purpose district, a county, and a municipality (SECTIONS 75-77). The bill provides that the two percent limit on the combined rate of all sales and use tax imposed by municipality and a local governmental entity on an area do not apply to a local governmental entity that has outstanding indebtedness or obligations that are payable wholly or partly from the sales and use tax revenue of the entity. The bill prohibits the combined rate of all sales and use tax imposed by a municipality, local governmental entity, and any other political subdivisions, except library districts, having territory in the district from exceeding two percent at any location in the municipality (SECTION 74). The bill amends the Texas Racing Act to remove provisions regarding the responsibility of a track where a race originates for the state's share of the pari-mutuel pool if intrastate wagering pools are combined between tracks. The bill provides that the racetrack where the wager is made is responsible for reporting and remitting the state's share of the pari-mutuel pool (SECTION 81). The bill amends the Health and Safety Code to delete the comptroller's office from the entities with whom a nonprofit hospital or hospital system is required to file a statement concerning the satisfying of hospital standards no later than the 120th day after the end of the fiscal year of a hospital or hospital system (SECTION 78). The bill amends the Property Code to add Travis County to the areas that the comptroller's office is required to publish notice of a public sale in a newspaper in general circulation before the 21st day preceding the day on which the public sale is held. The bill authorizes the comptroller to post on the comptroller's own website the notice of a public sale to be held on the Internet or by an online auction before the seventh day preceding the date of the sale or auction is held (SECTION 80). The bill amends law to require the imposition of a sales and use tax by an intermunicipal commuter rail district and provides that the rate of imposition is the highest combination of local sales and use taxes imposed at the time of its creation in any local governmental jurisdiction that is a member of a district. The bill provides that all other local sales and use taxes which would otherwise be imposed on the district property are preempted by the imposition of this tax. The bill requires the comptroller to administer, collect, and enforce any sales and use taxes and provides that the computation, administration, governance and use of the taxes are governed under the Municipal Sales and Use Tax Act. The bill sets forth provisions regarding the requirement of an intermunicipal commuter rail district to provide certain notification to the comptroller and affected local jurisdictions of the creation of the district or acquisition of additional property by the district and the district's intent to impose a sales and use tax. The bill also sets forth provisions regarding the requirement of the comptroller to notify the district no later than the 30th day after the date of the receipt of such notification by the district whether the comptroller is prepared to administer the tax and provides for the effective date of the imposition of these taxes (SECTION 83). The bill repeals provisions regarding the imposition of sales, excise, and use tax on certain tangible personal property and chemicals, catalyst, and other materials relating to the publication of newspapers. The bill repeals provisions regarding the expiration of tax credit for certain job creation activities when the number of a corporation's full-time employees falls below the number of those employees the corporation had in the year in which the corporation qualified for the credit, the credit expires and the corporation is prohibited from taking any remaining installment. The bill also repeals provisions regarding the minimum tax rate on sweet and sour gas produced and saved in this state (SECTION 84). Before October 1, 2001, the comptroller is authorized to adopt rules and take other actions as the comptroller deems necessary or advisable to prepare for this Act to take effect (SECTION 87). EFFECTIVE DATE September 1, 2001, except for SECTIONS 12-15, 17-26, 29-55, 75-77, 81, and 84(1) and (3) which take effect October 1, 2001 and SECTIONS 57-72, and 84(2) which take effect January 1, 2002. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.S.B. 1125 amends the original to remove the provision that a petition for a proposed library district must include a listing of all known businesses identified in the proposed boundaries of the library district. The substitute removes the provisions that an order issued by a commissioners court canvassing the results of an election to confirm a library district must be mailed or delivered to the comptroller of public accounts not later than the 30th day after the date the order is issued (SECTIONS 2 and 3). The substitute removes provisions regarding the entitlement of a joint venture or partnership formed between a qualified nonprofit hospital or hospital system and a nonprofit entity to an exemption from the sales, excise, and use tax imposed on its purchases (SECTION 19). The substitute provides that the imposition of a diesel fuel tax does not apply to the volume of water that is blended together with taxable diesel fuel that is clearly identified (SECTION 36). The substitute provides that the two percent limit on the combined rate of all sales and use tax imposed by municipality and a local governmental entity on an area do not apply to a local governmental entity that has outstanding indebtedness or obligations that are payable wholly or partly from the sales and use tax revenue of the entity. The substitute prohibits the combined rate of all sales and use tax imposed by a municipality, local governmental entity, and any other political subdivisions, except library districts, having territory in the district from exceeding two percent at any location in the municipality (SECTION 74). The substitute modifies the definition of "coin-operated machine" (SECTION 79).