HBA-JRA S.B. 1435 76(R) BILL ANALYSIS Office of House Bill AnalysisS.B. 1435 By: Duncan Ways & Means 5/10/1999 Engrossed BACKGROUND AND PURPOSE The 75th Texas Legislature enacted a new system of heavy equipment property tax appraisal. There are two main problems with the new system. First, heavy equipment dealers who lease equipment in a lease-purchase agreement are taxed on this equipment under the old January 1 inventory system, and then taxed again under the new system when the sale is finalized. Second, heavy equipment dealers who have fewer sales in the current year than in the previous year may end up with an escrow account that is short by a large amount because they are held accountable for the previous year's appraised value. This may cause a severe problem for certain dealers, such as farm equipment dealers whose incomes depend on factors such as drought and commodity prices. S.B. 1435 redefines "dealer's heavy equipment inventory" to include items of heavy equipment that are held for sale subject to a lease purchase agreement, rental option, or lease purchase option. In addition, this bill allows market value to be computed based on the previous year's sales or the current year's sales, whichever is lower. Thus, only those dealers who have current year sales lower than previous year sales would be taxed on current year value. 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. SECTION BY SECTION ANALYSIS SECTION 1. Amends Sections 23.1241(a)(2) and (a)(6), Tax Code, to redefine "dealer's heavy equipment inventory" and "sales price." SECTION 2. Amends Sections 23.1241(b) and (f), as follows: (b) Provides that, for the purposes of the computation of property tax, the market value of a dealer's heavy equipment inventory on January 1 is the total annual sales, less sales to dealers, and subsequent sales, for the 12-month period corresponding to the preceding tax year, divided by 12, or for the 12-month period corresponding to the current tax year, divided by 12, whichever is lesser. Previously it was for the 12-month period corresponding to the preceding tax year. Provides that a sale is considered to occur when ownership of an item of heavy equipment is transferred from the dealer to the purchaser. (f) Makes a conforming change. SECTION 3. Amends Section 23.1242(h), Tax Code, to require the collector to apply the money in the owner's escrow account to the taxes imposed and to deliver a tax receipt to the owner immediately on receiving the notice required in Section 25.25(n). SECTION 4. Amends Section 25.25, Tax Code, by adding Subsections (n) and (o), as follows: (n) Requires the chief appraiser, before January 20, to change the appraisal roll to correct the market value of a heavy equipment dealer who has filed heavy equipment inventory tax statements for the 12-month period corresponding to the current tax year and whose market value is determined using the 12-month period corresponding to the current tax year and to notify the collector required to administer the provision of Section 23.1242 and affected units of the corrected accounts. Requires the chief appraiser, before the 10th day after the end of each calendar quarter, to submit to the appraisal review board and to the board of directors of the appraisal district a written report of each change made under this subsection. Provides that the report must include a description and the name of the owner of each property. (o) Requires the chief appraiser to change the appraisal roll to reflect the corrected market value if the chief appraiser has examined the books and records of a heavy equipment dealer whose appraised value is determined using the 12-month period corresponding to the current tax year and has determined that the dealer's market value should be corrected. SECTION 5. Effective date: September 1, 1999. Makes application of this Act prospective from a tax year that begins on or after January 1, 1999. SECTION 6. Emergency clause.