HomeMy WebLinkAboutItem 04 - Tax on Goods in TransitTax on goods in transit per House Bill 621
Super Freeport tax exemption
Should the City decide it wishes to opt -out of the exemption in 2008, and opt -in at a future
date, we may do so. If the Council wishes to allow the exemption, no action is necessary
and the exemption will go into effect.
TARRANT APPRAISAL DISTRICT
2500 Handle-Ederville Road • Fort Worth, Texas 76118-6909. 817 284-0024 John R. Marshall
Y t ) executive Director
Chief Appreiaer
July 24, 2007
Mr. William D. Tate
Mayor
City of Grapevine
P. O. Box 95104
Grapevine, Texas 76099
Dear Mr. Tate:
The 801h 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
SJR 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 goods 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 exemption 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 in" 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 goods -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 bili 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.
JUL 2 6 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.
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,
o . Marshal
Executive Director
Chief Appraiser
Encl.: Text of HB 621
Estimate of current and potential losses HB 621
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
Total
2,960,999,867
3,559,347,884
6,520,347,751
Cities
Arlington
300,990,670
324,045,679
625,036,349
Azle
1,835,180
2,754,807
4,589,987
Bedford*
2,917,353
349,595
3,266,948
Benbrook*
28,526,098
19,727,882
48,253,980
Blue Mound*
819,297
947,097
1,766,394
Colleyville*
840,818
453,628
1,294,446
Crowley`
5,911,312
18,660,283
24,571,596
Dalworthington Gardens
1,563,980
1,141,684
2,705,664
Edgecliff Village*
0
0
0
Euless
20,979,886
4,824,669
25,804,555
Everman*
311,810
0
311,810
Forest Hill*
4,819,113
1,295,285
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
Haltom City
39,333,323
21,931,100
61,264,423
Haslet
68,981,428
71,278,083
140,259,511
Hurst*
11,405,296
5,297,123
16,702,419
Keifer*
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
Pelican Say
0
0
0
Richland Hills
14,484,231
13,287,185
27,771,417
River Oaks`
0
0
0
Saginaw
94,674,333
38,342,776
133,017,109
Sansom Park
55,667
0
55,667
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
Arlington
714,377,687
630,074,987
1,344,452,675
Azle*
3,368,717
6,233,303
9,602,020
Birdville
91,031,997
110,779,022
201,811,018
Carroll*
24,736,653
1,201,229
25,937,882
Castleberry*
4,981,776
14,513,570
19,495,346
Crowley
8,013,324
24,915,241
32,928,564
Eagle Mountain - Saginaw
274,567,199
353,204,217
627,771,416
Everman
46,168,635
52,923,134
99,091,769
Fort Worth
585,882,943
786,105,213
1,371,988,157
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
Lake Worth*
1,706,884
0
1,706,884
Mansfield
87,107,303
151,915,382
239,022,685
White Settlement*
27,251,023
19,950,373
47,201,396
Total
2,461,183,393
3,247,635,349
5,708,818,742
Special Districts
Emergency Services District
11,301,267
7,675,006
18,976,273
Fresh Water District
807,532
0
807,532
Regional Water District
1,536,183,152
1,942,471,536
3,478,654,689
Total
1,548,291,951
1,950,146,542
3,498,438,494
* The freeport exemption is not currently recognized by this taxing entity.
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PerdueBrandonFielderCollins&Mott LLP
ATTORNEYS AT LAW'
.
4025 WOODLAND PARK BLVD., SURE 300
P.O. BOX 13430
ARLINGTON, TEXAS 76094-0430
METRO 817-461-3344
FAX 817-860-6509
www.obfcm.com
Clients ofthe 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
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?
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?
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.
AMARILLO ARLINGTON AUSTIN HOUSTON LUBBOCK MIDLAND TYLER WICHITA FALLS
What Can You Do`.'
The governing body of each taking 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
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.
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,
Robert Mott
ORDINANCE NO.
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY
OF GRAPEVINE, TEXAS, AMENDING THE CODE OF
ORDINANCES BY AMENDING CHAPTER 21, TAXATION,
BY ADDING SECTION 21-10 IMPOSING A TAX ON
GOODS IN TRANSIT; PROVIDING A SEVERABILITY
CLAUSE; DECLARING AN EMERGENCY AND
PROVIDING AN EFFECTIVE DATE
WHEREAS, in November 2001, the Texas voters approved an amendment to the
Texas Constitution adding Article VIII, Section 1-n, authorizing the Texas Legislature to
exempt form ad valorem taxation "goods in transit"; and
WHEREAS, the Texas Constitution, Article; VIII, Section 1-n(d), allows a
municipality to tax "goods in transit" if the Texas Legislature authorizes an exemption;
and
WHEREAS, the 80th Texas Legislature enacted House Bill 621, to be codified at
Texas Tax Code § 11.253, exempting "goods in transit" from taxation but authorizing
municipalities to impose a tax on such goods following a public hearing; and
WHEREAS, the City Council has held a public hearing at which members of the
public were permitted to speak for or against the taxation of "goods in transit"; and
WHEREAS, the City has complied with all necessary laws and other conditions
precedent prior to enacting this ordinance; and
WHEREAS, the City Council wishes to amend Chapter 21, and deems such
amendments to be in the best interests of and necessary to protect the health, safety,
and welfare of the public.
NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY
OF GRAPEVINE, TEXAS:
Section 1. That all matters stated herein above are found to be true and
correct and are incorporated herein by reference as if copied in their entirety.
Section 2. That Chapter 21 Taxation of the Grapevine Code of Ordinances is
hereby amended by the addition of a new Subsection 21-10 to read as follows:
"Sec. 21-10. Tax imposed on goods in transit
(a) Definitions:
(1) "Dealer's motor vehicle inventory," "dealer's vessel and outboard
motor inventory," "dealer's heavy equipment inventory," and "retail
manufactured housing inventory" have the meanings assigned by
Subchapter B, Chapter 23 of the Texas Tax Code.
(2) "Goods in transit" means tangible personal property that:
(A) is acquired in or imported into this state to be forwarded to
another location in this state or outside this state;
(B) is detained at a location in this state in which the owner of the
property does not have a direct or indirect ownership interest for
assembling, storing, manufacturing, processing, or fabricating
purposes by the person who acquired or imported the property;
(C) is transported to another location in this state or outside this
state not later than 175 days after the date the person acquired
the property in or imported the property into this state; and
(D) does not include 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.
(3) "Location" means a physical address.
(4) "Petroleum product" means a liquid or gaseous material that is an
immediate derivative of the refining of oil or natural gas.
(b) Tax Imposed. The -City hereby imposes a tax on "goods in transit", as
provided by Texas Tax Code § 11.2530), and not exempt from taxation by
any other law."
Section 3. The effective date for these amendments shall be the date of passage
by the City Council, and all customers shall be billed under the new rates for usage
commencing said date.
Section 4. If any section, article, paragraph, sentence, clause, phrase or word
in this ordinance, or application thereto to any person or circumstance is held invalid or
unconstitutional by a court of competent jurisdiction, such holding shall not affect the
validity of the remaining portions of this ordinance; and the City Council hereby declares
it would have passed such remaining portions of the ordinance despite such invalidity,
which remaining portions shall remain in full force and effect.
4
Section 5. The fact that the present ordinances and regulations of the City of
Grapevine, Texas, are inadequate to properly safeguard the health, safety, morals,
peace, and general welfare of the public creates an emergency which requires that this
ordinance become effective from and after the date of its passage, and it is accordingly
so ordained.
PASSED AND APPROVED BY THE CITY COUNCIL OF THE CITY OF
GRAPEVINE, TEXAS, on this the 20th day of November, 2007.
ATTEST:
APPROVED AS TO FORM:
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