HBA-RBT H.B. 1801 76(R)    BILL ANALYSIS


Office of House Bill AnalysisH.B. 1801
By: Eiland
Ways & Means
4/13/1999
Introduced



BACKGROUND AND PURPOSE 

Section 151.101, Tax Code, establishes the state's use tax on taxable items
that are stored, used, or consumed in the state.  The purpose of the use
tax is to remove the incentive to purchase goods out of state where they
might be taxed at a lower rate or not at all. 

In 1998, the state lost an appeal of Sharp v. Morton Buildings.  Morton
Buildings, a maker of modular buildings, bought wood and glass that the
company would then use to build windows that were shipped to Texas and
assembled into modular buildings.  If Morton had purchased the materials
out of state but performed the assembly in Texas, there would have been no
questions regarding taxability.  Morton's purchase of materials out of
state and assembly out of state followed by shipment to Texas for inclusion
in the final product, however, created complications.  The court ruled that
Morton was importing windows rather than materials and since there was no
purchase price for windows, no tax was due.  This ruling creates a loophole
that could cause significant loss to the state in the future.   

The bill codifies the comptroller's position prior to the case and makes
certain that all purchases of taxable materials remain subject to the use
tax, regardless of whether they are assembled in Texas or not. 

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 Section 151.101, Tax Code, to clarify that a tax is
imposed on the storage, use, or other consumption in this state of a
taxable item purchased from a retailer for storage, use, or other
consumption in this state, either in the form or condition in which it is
acquired or as an attachment to or integral part of other tangible personal
property. 

SECTION 2.  Amends Section 151.007, Tax Code, by adding Subsection (f), to
define "sales price" or "purchase price" of tangible personal property used
by a person in Texas who processed, fabricated, manufactured, remodeled, or
otherwise modified the property outside of Texas as the amount paid for the
taxable items that became an attachment to or an integral part of the
property used in Texas. 

SECTION 3.  Effective date: October 1, 1999.

SECTION 4.  Emergency clause.