HBA-NLM, LCA C.S.H.B. 175 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 175 By: Chavez Ways & Means 5/3/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE Chapter 151, Tax Code (Limited Sales, Excise, and Use Tax), was amended in 1997 by the 75th Legislature to require that exempt items under Section 151.318 (Property Used in Manufacturing) make a physical or chemical change to a final product. This modification was intended to apply to manufactured items, but has produced uncertainty in the film industry, leading filmmakers to other states to make their films. C.S.H.B. 175 provides that certain tangible personal property is exempted from the taxes imposed by Chapter 151, Tax Code. In addition, this bill provides that the taxes imposed by this chapter do not apply to a motor vehicle purchased, rented, or used in connection with the production for consideration of a television program, motion picture, or video or audio recording, a copy of which is sold or offered for ultimate sale, licensed, distributed, broadcast, or otherwise exhibited. 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 Subchapter H, Chapter 151, Tax Code, by adding Section 151.333, as follows: Sec. 151.333. CERTAIN SALES TO TELEVISION, MOTION PICTURE, VIDEO, AND AUDIO PRODUCTION COMPANIES. Provides that tangible personal property is exempted from the taxes imposed by this chapter if sold, leased, or rented to, or stored, used, or consumed by a company in connection with the production by the company for consideration of a television program, motion picture, or video or audio recording, a copy of which is sold or offered for ultimate sale, licensed, distributed, broadcast, or otherwise exhibited. SECTION 2. Amends Subchapter E, Chapter 152, Tax Code, by adding Section 152.094, as follows: Sec. 152.094. MOTION VEHICLES USED IN TELEVISION, MOTION PICTURE, VIDEO, OR AUDIO PRODUCTIONS. Provides that the taxes imposed by this chapter do not apply to a motor vehicle purchased, rented, or used in connection with the production for consideration of a television program, motion picture, or video or audio recording, a copy of which is sold or offered for ultimate sale, licensed, distributed, broadcast, or otherwise exhibited. SECTION 3. Repealer: Section 151.318(p) (Property Used in Manufacturing), Tax Code. Subsection (p) provides that a sales tax exemption does not include the production for consideration of a motion picture or video or audio recording, a copy of which is sold or offered for sale, licensed, distributed, broadcast, or otherwise exhibited, considering these activities to be "manufacturing" for the purposes of this section. SECTION 4. Provides that this Act takes effect on the first day of the first calendar quarter beginning on or after the earliest date that it may take effect under Section 39, Article III, Texas Constitution. Makes application of this Act prospective. SECTION 5. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 175 modifies the original in the caption to provide that this Act relates to the application of certain taxes to certain items used in the production of motion pictures and video or audio recordings, rather than to the expansion of the sales tax exemptions for film and video producers and music producers. C.S.H.B. 175 modifies the original by adding a new SECTION 1. This section adds new Section 151.333 (Certain Sales to Television, Motion Picture, Video, and Audio Productions Companies), Tax Code, to provide that certain tangible personal property related to the production of motion pictures, television programming, or audio recordings is exempted from the taxes imposed by this chapter. C.S.H.B. 175 modifies the original by adding a new SECTION 2. This section adds new Section 152.094 (Motor Vehicles Used in Television, Motion Picture, Video, and Audio Productions), Tax Code, to provide that the taxes imposed by this chapter do not apply to a motor vehicle purchased, rented, or used in connection with the production for consideration of a television program, motion picture, or video or audio recording, a copy of which is sold or offered for ultimate sale, licensed, distributed, broadcast, or otherwise exhibited. C.S.H.B. 175 modifies the original by adding a new SECTION 3 to repeal Section 151.318(p) (Property Used in Manufacturing), Tax Code. Subsection (p) provides that a sales tax exemption does not include the production for consideration of a motion picture or video or audio recording, a copy of which is sold or offered for sale, licensed, distributed, broadcast, or otherwise exhibited, considering these activities to be "manufacturing" for the purposes of this section. C.S.H.B. 175 modifies the original by adding a new SECTION 4 to provide that this Act takes effect on the first day of the first calendar quarter beginning on or after the earliest date that it may take effect under Section 39, Article III, Texas Constitution. This substitute makes application of this Act prospective. C.S.H.B. 175 redesignates SECTION 3 (emergency clause) of the original to new SECTION 5 in the substitute. C.S.H.B. 175 modifies the original by removing SECTION 1 and 2 which proposed the following: SECTION 1. Amends Chapter 151, Section 151.318, Tax Code, as follows: Sec. 151.318. PROPERTY USED IN MANUFACTURING. (b) Adds a sales tax exemption for the production for consideration of a motion picture or video or audio recording, a copy of which is sold or offered for sale, licensed, distributed, broadcast, or otherwise exhibited, considering these activities to be "manufacturing" for the purposes of this section. Requires that an exemption applies towards machinery and motor vehicles and equipment rented or purchased for the production. Makes nonsubstantive changes. (c) Creates Subdivision (3) from existing Subdivision (4). Deletes former Subdivision (c)(3) to eliminate "hand tools" as equipment that is not exempted. (Does not indicate a redesignation for Subdivision (5)). Makes a conforming change. (p) Redesignated from existing Subsection (q). Deletes existing Subsection (p) which contained the language added by that Act in Subsection (b)(3).