06 Exemption of Goods-In-Transit
Draft
f:attorneylordworklcurrentlSuper Freeport property tax exemption.
November 2, 2007
ORDINANCE NO.
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF PARIS,
TEXAS, OPTING OUT OF THE TERMS OF HB 621, CREATING A SUPER
FREEPORT T AX EXEMPTION ALLOWING THE CITY OF PARIS TO TAX
TANGIBLE PERSONAL PROPERTY TEMPORARIL Y WAREHOUSED IN
THE CITY AWAITING SHIPMENT TO OTHER LOCATIONS WITHIN OR
WITHOUT THE STATE OF TEXAS; MAKING OTHER FINDINGS AND
PROVISIONS RELATED TO THE SUBJECT; PROVIDING A
SEVERABILITY CLAUSE, AND PROVIDING AN EFFECTIVE DATE.
WHEREAS, the 80th Texas Legislature in Regular Session enacted House Bill 621 to take
effect on January 1, 2008, which added Texas Tax Code ~11.253 to exempt from taxation certain
tangible personal property held temporarily at a location in this state for assembling, storing
manufacturing, processing or fabricating purposes (goods-in-transit) which property has been subject
to taxation in the past; and,
WHEREAS, Texas Tax Code ~ 11.2530) as amended allows the governing body of a taxing
unit, after conducting a public hearing, to provide for the continued taxation of such goods-in-transit;
and,
WHEREAS, the City Council of the City of Paris, having conducted a public hearing as
required by Texas Tax Code ~ 11.2530), is of the opinion that it is in the best interests of the City of
Paris to continue to tax such goods-in-transit; and,
NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF PARIS,
TEXAS:
Section 1. That the findings set out in the preamble to this ordinance are hereby in all things
approved.
Section 2. That the City Council did, on November 12,2007 hold and conduct a public
hearing on the subject of taxation of goods-in-transit.
Section 3. That the goods-in-transit, as defined in Texas Tax Code ~ 11.253(a)(2), as
amended by House Bill 621 , enacted by the 80th Texas Legislature in Regular Session, shall remain
subject to taxation by the City of Paris.
Section 4. That goods-in-transit shall continue to be subject to ad valorem taxes up to and
until such time as a future governing body of this municipality may choose otherwise.
Section 5. That it is the intention of the City Council of the City of Paris that this ordinance,
. . T r" . ....'...
and every provision hereof, shall be considered severable, and the invalidity or partial invalidity of
any section, clause, or provisions of this ordinance shall not affect the validity of any other portion
of this ordinance.
Section 6. That this ordinance shall become effective from and after its passage and
publication as required by law.
PASSED AND APPROVED, this 12th day of November, 2007
Jesse James Freelen, Mayor
ATTEST:
Janice Ellis, City Clerk
APPROVED AS TO FORM:
W. Kent McIlyar, City Attorney
LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE, 80TH LEGISLATIVE REGULAR SESSION
May 21, 2007
TO: Honorable Tom Craddick, Speaker of the House, House of Representatives
FROM: John S. O'Brien, Director, Legislative Budget Board
IN RE: HB621 by Chavez (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.), As Passed 2nd House
Estimated Two-year Nct Impact to General Revenuc Relatcd Funds for HB621. As Passed 2nd House: a
negative impact of ($25215.000) through the biennium ending August 31. 2009.
The bill would make no appropriation but could provide the legal basis for an appropriation of funds to
implement the provisions of the bill.
General Revenue-Related Funds, Five- Year Impact:
Fiscal Year
Probable Net Positive/(Negat;ve)
Impact to General Revenue Related
Funds
200X
2009
2010
2011
2012
$0
($25.215,000)
($31,184,000)
($32.429,000)
($33,723,000)
All Funds, Five-Year Impact:
Fiscal Year
Probable Savings/
(Cost) from
FOUNDA TlON
SCHOOL FUND
193
Probable Revenue
Gain/(Loss) from
Cities
Probable Revenue
Gain/(Loss) from
School Districts - Initial
Impact
Probable Revenue
Gain/(Loss) from
Coullties
200X
2009
2010
2011
2012
$0
($25,215,000)
($31,184,000)
($32,429,000)
($33,723,000)
$0
($30,221,000)
($31,430,000)
($32,687,000)
($33,994,000)
$0
($9,419,000)
($9,796,000)
($10,188,000)
($10,596,000)
$0
($6,552,000)
($6,814,000)
($7,087,000)
($7,370,000)
Fiscal Analysis
The bill would add a new section to Chapter 11 of the Tax Code to provide a new exemption from ad
valorem taxation for "goods in transit."
To qualify for the exemption, personal property would have to be acquired in Texas or imported into
Texas and stored at a Texas location in which the owner of the goods did not have a direct or indirect
ownership interest.
Oil and gas and their immediate derivatives, aircraft, and dealer's special inventories would not qualify
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for the exemption. In addition, the inventory would have to be transported or distributed to another
location no later than 175 days after the property was acquired in or imported into the state.
The exemption would have to be granted by all taxing units unless the governing body of a taxing unit
proposed by official action to tax goods in transit. Before acting to tax goods in transit, the governing
body of a taxing unit would have to conduct a public hearing where the public would be allowed to
speak for or against the action to tax the property.
The bill would take effect January 1,2008.
Methodology
Currently, Article VIII, Section I-j of the Texas Constitution and Section 11.251 of the Tax Code
provide for a "freeport exemption." This exemption, which can be granted at the option of each city,
county, school district, or junior college district, exempts goods, wares, ores, raw materials, and other
types of inventory that are brought into or acquired in the state and transported out of the state within
175 days of acquisition.
In November 2001, Texas voters approved of the amendment proposed in SJR 6, adding Article VIII,
Section I-n to the Texas Constitution. This amendment authorized the Legislature to exempt from ad
valorem taxation "goods in transit."
The enabling legislation proposed in the bill would provide an exemption for property acquired in
Texas or imported into Texas if the property is stored at a location in which the owner of the goods
does not have a direct or indirect ownership interest and is transported to another location either inside
or outside of the state within 175 days. The bill would provide a local option procedure to continue
taxing the property.
The proposed exemption could cause an undetermined revenue loss to cities, counties, school districts,
and junior college districts exempting goods in transit.
Because the state is constitutionally prohibited from imposing a state property tax, there would be no
direct fiscal impact on the state. However, Section 403.302 of the Government Code requires the
Comptroller to conduct a property value study to determine the total taxable value for each school
district. Total taxable value is an element in the state's school funding formula. Depending on the
number of school districts allowing the exemption, the state would reimburse school districts an
undetermined amount of funding for this exemption, after a one-year lag.
The bill is estimated to have an impact on the state aid districts receive based on the enrichment tier as
tied to the yield of the Austin Independent School District (ISD). To the extent that the bill has the
effect of lessening Austin lSD's revenue per weighted student per penny of tax effort, as determined
by the Commissioner of Education, the equalized yield on those enrichment pennies would decrease,
resulting in a decrease in state aid.
Local Government Impact
Because it is not known how many taxing unit governing bodies might vote to continue taxing the
covered items, the fiscal impact cannot be determined. The fiscal impact table provides an illustrative
example only. Appraisal district information about the potential value loss to the proposed bill was
trended over the projection period to estimate the value loss in each year. The appropriate taxing unit
rates were applied to estimate the levy loss. Information was not available to estimate special district
losses.
In addition, with respect to school districts, the mechanics of the school finance system would likely
transfer the initial fiscal impacts to the state, resulting in a zero or negligible fiscal impact to the
school districts. Initial school district losses are shown, even though the operation of the "hold
harmless" feature ofHB 1, 79th Legislature, Third Called Session (2006), would likely transfer the
losses to the state causing a net school district loss of zero.
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