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HomeMy WebLinkAboutWS Item 02 - Super Freeport Tax Exemption iT M MEMO TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: BRUNO RUMBELOW CITY MANAGER MEETING DATE: NOVEMBER 6, 2007 SUBJECT: A BREWING ON A TAX ON GOODS IN TRANSIT PER HOUSE BILL 621, SUPER FREEPORT,TAX EXEMPTION RECOMM NDATIUN: Staff respectfully;recommends City Council not approve the Super Freepprt tax exemption designed by House Bill 621. The present and future impact to the general,fund revenue would be substantially impacted if the exemption were granted, Staff is unaware of any city in the area that is adopting the exemption. 13ACK RQQND: The existing freeport exemption for goads in transit has been in effect since 1990. This exemption allows freeport goods that leave the state within 175 days to be exempt from property taxation. Grapevine has adopted this exemption. HB 621, a bill to expand the Freeport exemption for goods in transit, was approved during the 2007 session of the Legislature, pursuant to approval by Texas voters in 2001. This new exemption allows goods to be exempt,if they are shipped to another location either Inside or outside the State of Texas within 175 days. The bill provides that a taxing entity can opt out of the exemption by taking positive action prior to December 31, 2007 to tax the applicable goods. In order to consider the opt out ordinance, the taxing entity must hold a public hearing prior to adoption of the ordinance. if no action is taken prior to January 1, 2008, the additional exemption designated;by HB 621 gees into effect. Action on HB 621 does not affect existing freepork exemptions authorized by Grapevine. Attached is a letter and report from Tarrant County Appraisal District advising the City of the particulars of HB 621 and a report estimating the additional taxable value loss to the City if HB 621 exemptions go into effect. Grapevine is estimated to lose$168,839,602 of taxable value which results in a tax revenue loss of$612,0 4 at current property tax rates. The FY 2008 budgeted tax revenues have not'allowed for this loss of taxable value. Should the City, decide it wishes to opt out of the exemption in 2008, and opt in the following year, we may do so. Following the public hearing, if it meets with Council's approval,,an ordinance opting out of the HB 621 exemption will be placed on a future agenda. If the Council wishes to allow the'exemption, no action needs to be and the exemption will go into effect. t� TARRANT APPRAISAL DISTRICT 2500 Handle -Ederville'Road•Fort Worth,Texas 76118-6909. 817 284-0024 John'R. Marshalt Y Execurirve DkWoa Chrer A*eiw July 24, 2007 Mr. William D. Tate Mayor City of Grapevine P. ©. Box 95104 Grapevine,Texas 76099 Dear Mr. Tate: The 8e Session of the Texas Legislature adjourned on May 28, 2007. Among the bills passed by the Legislature was'House Bill 621 (Enrolled'copy attached.). The bill was captioned as follows: "relating to the exemption from ad valorem taxation of tangible personal property held temporarily at a location in this state for assembling, storing, manufacturing, processing,or fabricating purposes." This bill allows for a new type of"Freeport exemption"and is the enacting legislation for SJK 6 that was passed by the 77th Legislature and placed on the ballot and approved by the voters in-2001. The existing Freeport legislation that has been authorized by the Texas Constitution and Section 11.251 of the Property Tax Code allows'Freeport goads that leave the state within 175 days to be exempt from taxation. This law has been in effect since 1990 HB 621 adds a new exemption that allows goods to be exempt if they are shipped to another location either inside or outside the State of Texas within 175 days. The goods eligible for the exemptions must be held in a location in this state that was not owned by, or under the control of, the owner of the goods. An '"ownership interest iW' does not include a lease, but rather was intended to include partnerships,joint ventures, or affiliate ownership of a facility. With that in mind, the meaning of"direct or indirect ownership interest" in the location where the goads-in-transit'are detained'is unclear as to whether a location that is leased, or subject to a lease purchase option, would qualify. it is quite possible that many large retailers who maintain inventory in a warehouse that they currently own could opt to sell the facility, lease it from the new owner, and apply for the new exemption. The bill requires that a taxing;unit can opt out of the exemption by taking positive action to tax the goods before January 1 of the first tax year that the governing body proposes to tax goods-in-transit. This must be done by official action of the governing body of the taxing unit. RECEI%,"� JUL. ZOO? Letter to Taxing Entities July 24, 2007 Page 2 Before that can happen, the governing body of the taxing unit must conduct a public hearing. If the governing body of a taxing unit provides for the taxation of the goods-in-transit as provided by this bill, the exemption prescribed does not apply to that unit. The goods-in-transit remain subject to taxation by the taxing unit until the governing body of the taxing unit, in the manner required for official action, rescinds or repeals its previous action to tax goods-in-transit, or otherwise determines that the exemption will apply to that taxing unit. Based on the aforementioned, if your taxing unit does not act to tax these goods, they will become eligible for this exemption on January 1, 2008. In order to assist you in making this decision, our office has prepared an estimate of the amount of value potentially lost in all jurisdictions if you allow the goods to receive the exemption. This estimate is based on 2007 values and a conservative interpretation of how this new law may impact inventories not now subject to the current "Freeport" requirements. I have also included a summary of how much value was lost in your jurisdiction to the existing Freeport law in 2007. Remember, if you choose to tax these goods, you must act before January 1, 2008. This includes allotting enough time to conduct the required public hearing. I am providing this letter to help your agency make an informed decision on this exemption. The Tarrant Appraisal District has no position on this issue and will administer the exemption according to your wishes. i Please review the information we have provided. Please inform Tarrant Appraisal District of any action taken. If you have any questions feel free to contact me. ;Sin ely, Marshal Executive Director Chief Appraiser JRM:mm Encl.: Text of HB 621 Estimate of current and potential losses HB 621 i Goods in Transit Estimates Entity Estimated Goods in Transit 2007 Freeport Exemption Total Estimated Loss Loss Loss Counties Tarrant 2,960,999,867 3,559,347,884 6,520,347,751 3,559,347,884 6,520,347,751 Total 2,960,999,867 Cities 324,045,679 625,036,349 Arlington 300,990,670 4,589,987 Azle 1,835,180 2,754,807 Bedford' 2,917,353 349,595 3,266,948 28,526,098 19,727,882 48,253,980 Benbrook` � Blue Mound' 819,297 947,09, 1,766,394 840,818 453,628 1,294,446 Crowley* 5,91 1,312 Cowle ille' 18,660,283 24,571,596 Dalworthington Gardens 1,563,980 1,141,684 2,705,664 Ed ecliff Village* 0 0 g g Euless 20,979,886 4,824,669 25,804,555 311,810 Everman' 311,810 0 Forest Hill" 4,819,113 11295,285 6,114,398 Fort Worth 1,616,837,557 2,319,177,803 3,936,015,361 Grapevine 168,839,602 552,828,162 721,667,764 100 61,264,423931 Haltom City 39,333,323 21 i40,259,511 Haslet 68,981,428 71,278,083 Hurst` 11,405,296 5,297,123 16,702,419 Keller' 3,091,543 116,977 3,208,520 Kennedale 5,278,247 8,926,110 14,204,357 Lake Worth' 735,729 0 735,729 Lakeside 34,931 0 34,931 Mansfield 55,304,580 115,038,923 170,343,504 North Richland Hills 5,060,214 383,911 5,444,125 Pantego' 1,762,901 720,557 2,483,458 0 0 Pelican Bay 0 13,287,185 27,77i,417 Richland Hills 14,484,231 0 0 0 River Oaks` 38,342,776 133,017,109 Saginaw 94,674,333 55,667 Sansom Park 55,667 0 Southlake 28,621,086 5,849,126 34,470,212 Watauga' 128,538 0 128,538 Westover Hills 0 0 0 Westworth Village` 0 0 0 White Settlement' 22,719,496 19,950,373 42,669,869 Total 2,506,864,219 3,547,328,818 6,054,193,041 School Districts 1,344,452,675 Arlington 714,377,687 636,233,303 9,602,020 Azle" 3,368,717 0,779,022 91,031,997 110,779,022 201,811,018 Birdville 25,937,882 Carroll` 24,736,653 1, , 4,981,776 14,513,570 70 19,495,346 Castleberry' 24,915,241 32,928,564 Crowley 8,013,324 217 627,771,416 Eagle Mountain-Saginaw 274,567,199 352,923,134 Everman 46,168,635 52,923,134 71,98 ,157 Fort Worth 585,882,943 786,105,213 i,371,988,157 Grapevine-Colleyville 344,557,265 976,682,135 1,321,239,400 Hurst-Euless-Bedford 207,998,193 94,496,105 302,494,297 Keller` 35,694,859 18,269,991 53,964,851 Kennedale" 3,738,935 6,371,447 10,110,382 1,706,884 Lake Worth' 1,706,884 0 Mansfield 87,107,303 151,915,382 239,022,685 27,251,023 19,950,373 47,201,396 White Settlement`Total 2,461,183,393 3,247,635,349 5,708,818,742 Special Districts 7,675,006 18,976,273 Emergency Services District 11,301,267 0 807,532 Fresh Water District 807,532 1,536,183,152 1942,471,536 3,478,654,689 , Regional Water District 3,498,438,494 Total 1,548,291,951 1,950,146,542 "The freeport exemption is not currently recognized by this taxing entity. t-ea vverner-LUUIUyJZU-144ZU241U.pa, rage J PerdueBrandonFielderColhs&Mott LLP 4; ATTORNEYS AT LAW 4025 WOODLAND PARK BLVD,,SUITE 300 P.O.BOX 13430 ARLINGTON,TEXAS 76094-0430 METRO 817-461-3344 FAX 817-860-6509 www.pbfcm.com Clients of the Firm RE: New Exemption of"Goods in Transit"—Local Option to Tax Dear Client: In the 2007 session,the Texas Legislature passed HB 621. This bill was the implementing legislation for a constitutional amendment that was passed several years ago. The bill is very similar to the Freeport exemption passed many years ago,but it has a potentially larger impact as time goes on. This j letter is to inform you of your options to tax the goods subject to the new exemption and to provide you with the forms and procedure to tax these goods if you choose. Our firm takes no position on the policy question of whether or not to continue to tax the property that is subject to this new exemption. We simply believe that the governing body of each of our clients should have the tools to make an informed decision on behalf of the taxpayers they represent. This new law passed without much scrutiny because it was a bracket bill that only affected one county in Texas until the closing days of the legislative session. Then an amendment made the exemption applicable statewide, What is Exempted:? I I This bill exempts goods,principally inventory,that are stored in a location that is not owned by the owner of the goods and are transferred from that location to another location within 175 days. The goods may be in the location for the purposes of assembling,storing,manufacturing,processing,or fabricating purposes by the person who acquired or imported the property. Certain specific types of goods are presently excluded from this exemption: oil,natural gas,petroleum products,aircraft,dealer's motor vehicle inventory,dealer's vessel and outboard motor inventory,dealer's heavy equipment inventory,or retail manufactured housing inventory. Petroleum products are defined to be only the immediate derivatives of oil and natural gas,so some goods that you might think of as petroleum products may actually be exempted from taxation by this new law. What is the Impact on Your Tax Base? i At present,this new law will probably have a limited impact because most goods are kept in facilities that are owned by the owners of the goods themselves. However,this may change rapidly. In order to take advantage of this new law,many property owners may seek to transfer ownership of either the goods or the facilities in which the goods are stored,manufactured,processed, etc.to legal entities with different ownership. These types of paper changes could make the property exempt. i AMARILLO ARLINGTON AUSTIN NOUSTON LUBBOCK MIDLAND TYLER WICHITA FALLS I 3 rrea vverner-zuutuyzo i44zuz4 iu.par rage z What Can You Do? The governing body of each taxing unit in the state may act to tax these goods in the year following the year in which the governing body takes action. These goods will first become exempt in 2008. So if you wish to continue to tax these types of goods in 2008,you must act to tax the goods before the end of 2007. You must inform all the appraisal districts in which your local government is located that you have acted to tax these goods. A copy of the resolution,order,or ordinance is the best way to document your decision to your appraisal district. Before you act to tax these goods,you must hold a public hearing on the question of whether to tax them or whether to let them become exempt. The legislature has prescribed no special procedures for this hearing,so it may be held at a meeting of the governing body called for other purposes. The item must be listed on the agenda for that meeting as an action item in compliance with the Open Meetings Act,but there is no additional public notice required. The legislature required that each taxing unit act in the manner required for official action by the j governing body of the taxing unit. For counties,this means that action must be taken by an order of the commissioner's court. For cities,this means that action must be taken by an ordinance. For school districts and other taxing units,this means that action should be taken by resolution. A sample order, _ ordinance and resolution are attached to this letter. i Special Note for School Districts The wealth lost to this exemption will be deducted from the taxable wealth of the school district as determined by the Comptroller for purposes of calculating state aid. Until the hold harmless provisions of House Bill 1 are removed,this will have little impact on the amount of state aid your school district receives. At present,the Comptroller's wealth estimate affects only the additional four cents that a school district may impose and the amount of certain types of facilities aid the district receives from the state (existing debt allotment and instructional facilities allotment). So as the law exists today,a school district will lose taxable wealth due to this exemption without an offsetting increase in state aid. Even if the legislature restores the Comptroller's finding of taxable wealth to its previous role in state aid to school districts,the effect of the additional state aid is not a dollar for dollar offset. We hope that this letter and the attached forms will help you make an informed decision on behalf of the taxpayers that you represent. If you should have any questions concerning this matter,please feel free to call your attorney at your local office or call me in Houston. Sincerely, i i Robert Mott ' s