Looking Ahead to the 2019 Legislative Session: Tax Code Chapter 312 - - PowerPoint PPT Presentation

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Looking Ahead to the 2019 Legislative Session: Tax Code Chapter 312 - - PowerPoint PPT Presentation

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Looking Ahead to the 2019 Legislative Session: Tax Code Chapter 312 Property Tax Abatements Texas Municipal League Economic Development Conference November 15, 2018 400 West 15 th Street, Suite 400 Austin, Texas 78701 512.472.8838

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Texas Taxpayers and Research Association (TTARA) www.ttara.org

400 West 15th Street, Suite 400 Austin, Texas 78701 512.472.8838 www.ttara.org

Looking Ahead to the 2019 Legislative Session: Tax Code Chapter 312 Property Tax Abatements

Texas Municipal League Economic Development Conference November 15, 2018

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How Do Texas Taxes Compare?

Per Capita State and Local Taxes by Type of Tax, 2015

$0 $500 $1,000 $1,500 $2,000 $2,500 General & Selective Sales Property Income Based Other US Average Texas

$1,698 $308 $340 $170 $1,325 $1,734 $1,521 $2,085

Source: US Bureau of the Census, 2015 State and Local Taxes.

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Texas Tax Incidence Compared

Texas’ reliance on sales & property taxes means:

  • 61 % of our state & local

taxes are paid by business; compared to 44 % for the average state; and

  • 39% of our state & local

taxes are paid by individuals, versus 56% for the average state.

Source: Council on State Taxation, FY16 State and Local Business Tax Burden Study.

0% 20% 40% 60% 80% 100% Texas 50 State Average Business Business Individuals Individuals

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State & Local Taxes on Individuals

State & Local Tax Burden as a Percent of Personal Income, 2016

Source: Council on State Taxation, FY2016 State and Local Business Tax Burden Study.

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

NewYork Hawaii Connecticut Maryland Minnesota RhodeIsland NewJersey California Oregon Wisconsin Massachusetts Michigan Maine Ohio Pennsylvania Illinois NorthCarolina Iowa Arkansas Vermont Utah Kentucky Kansas Indiana Idaho WestVirginia Missouri Nebraska Virginia Georgia Mississippi Colorado Nevada NewMexico SouthCarolina NewHampshire Montana Louisiana Alabama Arizona Delaware Washington Oklahoma Florida Tennessee NorthDakota SouthDakota Texas Alaska Wyoming

Texas = 3.3 % U.S. Average = 5.7 %

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State & Local Taxes on Businesses

State & Local Tax Burden as a Percent of Gross State Product, 2016

Source: Council on State Taxation, FY2016 State and Local Business Tax Burden Study.

0% 1% 2% 3% 4% 5% 6% 7% 8%

Vermont NorthDakota Maine NewMexico Mississippi WestVirginia NewYork Hawaii Washington NewJersey Nevada RhodeIsland Montana Kansas Arizona Texas Illinois SouthCarolina SouthDakota Kentucky Florida Nebraska Alaska Wyoming Arkansas Pennsylvania NewHampshire Minnesota Delaware Tennessee Colorado Wisconsin Idaho Iowa Alabama Oklahoma California Louisiana Massachusetts Virginia Maryland Ohio Georgia Oregon Indiana Utah NorthCarolina Connecticut Missouri Michigan

50 State Average = 4.4 % Texas = 4.8 % %

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The Taxes Texas Business Pays

Property Taxes, $31.4 Sales Taxes, $18.6 Excise & Industry Taxes, $8.2 General Business Tax, $3.9 Other Taxes, $6.4

  • Texas businesses in

2016 paid $68.5 billion in state and local taxes

  • The single largest tax

business paid was property tax

  • 54 percent of all

property taxes on average are paid to schools

  • 46 % of all property

taxes on average are paid to cities, counties, and special districts

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The Property Tax Barrier

25 Year Property Tax Burden on an Industrial Facility

Based on 50 State Property Tax Comparison Study by the Lincoln Land Institute, $0 $100 $200 $300 $400 $500 $600 $700 $800

Mississippi Michigan Tennessee Texas New York South Carolina Illinois Arizona Missouri Louisiana Connecticut Illinois Indiana Oregon Rhode Island Iowa Colorado Minnesota Nebraska West Virginia Vermont New Jersey Wisconsin Alaska Georgia Kansas Oklahoma Arkansas Maryland Florida Ohio Pennsylvania Montana Idaho New Mexico Alabama New Hampshire Maine Utah Massachusetts California Nevada North Carolina South Dakota Kentucky Washington Wyoming Delaware Hawaii North Dakota Virginia

50 State Average = $382 million Texas = $632 million (65% higher)

$ millions

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Texas Property Tax Economic Development Incentive Programs

Tax Code Chapter 312 Tax Code Chapter 313 Taxing Units Counties, Cities, and Special Districts School Districts Taxpayer Benefit Up to 10 year property tax exemptions at an amount up to 100% Partial property tax exemptions, limiting appraised values, up to 10 years State Fiscal Impact None No state funding reduction to school districts based on non- taxed value Expiration September 1, 2019 December 31, 2022

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What is Chapter 312?

Chapter 312 of the Tax Code is the Property Redevelopment and Tax Abatement Act, which authorizes local taxing units, other than school districts, at their discretion to

  • ffer temporary property tax exemptions for

improvements to existing property.

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History of Chapter 312

  • Enacted in 1987 as SB 888 and applicable to all

local taxing units (prior law was V.A.C.S. 1066f)

  • Re-authorized and amended in 1991, 2001, and

2009

  • School districts effectively excluded in 1993 and

statutorily prohibited in 2001

  • Chapter 313 enacted in 2001 as HB 1200 (Texas

Economic Development Act) to allow school districts to offer appraised value limitations for certain projects

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Constitutional Authorization

Article VIII, Section 1-g (a) The Legislature by general law may authorize cities, towns,

and other taxing units to grant exemptions or other relief from ad valorem taxes on property located in a reinvestment zone for the purpose of encouraging development or redevelopment and improvement of the property. (b) The Legislature by general law may authorize an incorporated city or town to issue bonds or notes to finance the development or redevelopment of an unproductive, underdeveloped, or blighted area within the city or town and to pledge for repayment of those bonds or notes increases in ad valorem tax revenues imposed on property in the area by the city or town and other political subdivisions.

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Fiscal Impact of Chapter 312

  • No State impact
  • No school district impact
  • Local option for other local taxing units

(cities, counties, and special districts)

  • No more than 10 years
  • Any percentage exemption amount over the

abatement period (cannot exceed 100%)

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A Project Must Provide:

  • Specific improvements or repairs to real

property, including residential, commercial, industrial, and outdoor advertising property;

  • New facilities or expansion or modernization
  • f existing facilities; and
  • A benefit to existing property that would

contribute to the economic development of the area

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Chapter 312 Basic Steps

  • 1. Designation of reinvestment zones by cities or

counties

  • 2. Adoption of guidelines and criteria for abatement

eligibility by participating taxing units

  • 3. Agreement in writing between any taxing unit, except

for a school district, and property owner to exempt from property taxation all or part of the value of real

  • r personal property for a period not to exceed 10

years, if specific improvements or repairs are made to the property

  • 4. Application for exemption submitted to and

approved by the appraisal district

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Step 1:

REINVESTMENT ZONE DESIGNATION

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Reinvestment Zone Creation

  • By city ordinance or county order only
  • Must be created before other steps are taken
  • Specific boundaries described
  • Notice published 7 days before required public hearing

and delivered to presiding officer of governing body of each taxing unit in the zone

  • Must include a finding that improvements sought in

the zone are feasible and practical and would benefit the land and the city or county after the expiration of an abatement agreement

  • Expires after 5 years and may be renewed for periods

not to exceed 5 years

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Step 2:

GUIDELINES AND CRITERIA

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Guideline Requirements

  • Created and approved by each participating taxing

unit before entering abatement agreements, but after reinvestment zone designation by a city or county

  • Generally, must allow new facilities and structures

and expansion or modernization of existing facilities and structures

  • Effective for 2 years from adoption
  • May only be amended or repealed by a ¾ vote of

the members of the taxing unit governing body

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Step 3:

ABATEMENT AGREEMENTS

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Agreement Requirements

  • Must be in writing with the owner of taxable real property
  • r leasehold located in the reinvestment zone and approved

by a majority vote of governing body of any taxing unit, except a school district

  • May not be an improvement project financed by tax

increment bonds

  • May include tangible personal property that was not located
  • n the real property before an agreement with a

municipality; may include more in county agreements

  • Term of no more than 10 years
  • Any percentage exemption amount authorized (up to 100%)
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Agreement Requirements

  • Specify improvements or repairs
  • Must conform to comprehensive zoning ordinances
  • Identical terms for the amount of value and duration of

the exemption for agreements with property owners in a reinvestment zone

  • Different terms permitted for each taxing unit
  • May include property located in a city’s extraterritorial

jurisdiction

  • Prohibition against agreements with owners who are

members of governing body of a municipality, zoning/planning board, or county (with exception for existing agreements)

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Modification or Termination of Agreement

  • May be modified to include other provisions or

delete provisions that were not necessary to the agreement

  • Same procedure as approval and execution of the
  • riginal agreement required
  • May not be modified to extend beyond 10 years

from the date of the original agreement

  • Termination by mutual consent of the parties in the

same manner of the agreement’s approval and execution

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Notice of Abatement Agreement to Other Taxing Units

  • Not later than 7 days before the date on which a

city or county enters an agreement

  • Delivery to presiding officer of other taxing units in

the reinvestment zone

  • Notice of intent to enter an agreement
  • Copy of agreement attached
  • Failure to deliver notice does not affect the validity
  • f the agreement.
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Step 4:

APPLICATION FOR EXEMPTION

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Exemption Application

  • Exemption authorization (Tax Code Section 11.28)
  • Annual application with appraisal district (Tax Code

Section 11.43(a) and (c))

  • Application required before May 1 each year (Tax

Code Section 11.43(d))

  • Model Comptroller Form 50-116 application
  • Appraisal district approval of application each year

required for agreement to be effective

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Application Provisions

  • Property description
  • List of each taxing unit granting the abatement
  • Duration of agreement
  • Amount of exemption provided in agreement
  • Copies of abatement agreements required
  • Statement describing exemption amount if not a

lump sum or percentage

  • Explanation of noncompliance with agreement, if

applicable

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Reporting

  • Information provided to appraisal district by

property owner in annual exemption application prescribed by Comptroller

  • Chief appraiser reporting to Comptroller before July

1 of each year concerning reinvestment zones created, copies of abatement agreements, and

  • ther information required by the Comptroller
  • Comptroller submission of report to Legislature by

December 31 of even-numbered years summarizing information provided by chief appraisers

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The Politics of Chapter 312

Political Left Political Right Incentives are a valid economic development tool Incentives distort the free market Incentives are corporate welfare

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If you have any questions or comments, please feel free to contact TTARA staff.

Franchise Tax & State Budget: Dale Craymer dcraymer@ttara.org Property Tax: Debbie Cartwright dcartwright@ttara.org Sales & Property Tax: John Kennedy jkennedy@ttara.org School Finance: Sheryl Pace space@ttara.org Communications: Ryan Ash ryan@ttara.org Office Manager: Betty Wranischar bwranischar@ttara.org Membership: Cindy Ferguson cferguson@ttara.org