HBA-JRA H.B. 2680 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 2680 By: Sadler Ways & Means 4/23/1999 Introduced BACKGROUND AND PURPOSE One of Texas' important natural resources is the state's timber lands. Today, Texas has more than12 million acres of commercial timber, two-thirds of which is owned by private, non-industrial landowners. The remainder is owned by timber companies and federal and state governments. The timber industry produces billions of feet of lumber and wood products and billions of tons of paper and pulp each year. It employs nearly 75,000 Texans. Timber is the state's fifth most important agricultural product, and it is a major sources of jobs and investment in the eastern part of the state. The rapidly growing demands of the national and state economies may consume the state's timberlands faster than they can be replenished at current rates. According to the Texas Forest Service, the annual reforestation level needed to provide a sustainable level of forest acreage is about 97,500. Today, not quite two-thirds of this acreage is actually reforested. Timber land that is not reforested commonly reverts to pastureland, which is less valuable and therefore represents a loss in tax revenue to local schools and other taxing units. Currently, the state imposes a heavier tax burden on the timber industry than it does on other segments of agriculture. Many of the items that are exempted from sales tax for farmers and ranchers, like equipment, feed, seed, and fertilizer, are taxed if purchased by timber producers. The property tax also weighs heavily on timber producers, who must pay the full productivity tax each year even though they only harvest their crop once every 20 or 30 years. H.B. 2680 exempts various items used in the production of timber from ad valorem taxation and provides that the appraised value of qualified restricted-use timber land is one-half of the appraised value of the land as determined under Section 23.73(a) (Appraisal of Qualified Timber Land). Timber land qualifies for this method of appraisal if the land is in an aesthetic management zone, critical wildlife habitat zone, or streamside management zone or if timber was harvested from the land in a year in which the land was appraised under Subchapter E (Appraisal of Timber Land) and the land has been regenerated for timber production to the degree of intensity generally accepted in the area for commercial timber land and with intent to produce income. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the director of the Texas Forest Service in SECTION 5 (Section 23.9806, Tax Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 6.12(b), Tax Code, to include a landowner of the district whose land qualifies for appraisal under Subchapter H, Chapter 23, and who has been a resident of the district for at least five years among those may serve on the agricultural advisory board. SECTION 2. Amends Section 11.16(c), Tax Code, to redefine "farm products" and "in the hands of the producer" to include timber. SECTION 3. Amends Section 11.161, Tax Code, as follows: Sec. 11.161. New title: IMPLEMENTS OF HUSBANDRY. Exempts implements of husbandry that are used in the production of timber from ad valorem taxation. SECTION 4. Amends Section 23.76(g), Tax Code, to make a conforming change. SECTION 5. Amends Chapter 23, Tax Code, by adding Subchapter H, as follows: SUBCHAPTER H. APPRAISAL OF RESTRICTED-USE TIMBER LAND Sec. 23.9801. DEFINITIONS. Defines "aesthetic management zone," "critical wildlife habitat zone," "management plan," "regenerate," "streamside management zone," and "qualified restricted-use timber land." in this subchapter. Sec. 23.9802. QUALIFICATION FOR APPRAISAL AS RESTRICTED-USE TIMBER LAND. (a) Provides that land qualifies for appraisal as provided by this subchapter if the land is in an aesthetic management zone, critical wildlife habitat zone, or streamside management zone. (b) Provides that land qualifies for appraisal as provided by this subchapter if timber was harvested from the land in a year in which the land was appraised under Subchapter E (Appraisal of Timber Land) and the land has been regenerated for timber production to the degree of intensity generally accepted in the area for commercial timber land and with intent to produce income. (c) Provides that land ceases to qualify for appraisal under Subsection (b) on the 10th anniversary of the date the timber was harvested from the land in a year in which the land was appraised under Subchapter E. Provides that this subsection does not disqualify the land from qualifying for appraisal under this section in a tax year following that anniversary based on the circumstances existing in that subsequent tax year. Sec. 23.9803. APPRAISAL OF QUALIFIED RESTRICTED-USE TIMBER LAND. Provides that the appraised value of qualified restricted-use timber land is one-half of the appraised value of the land as determined under Section 23.73(a) (Appraisal of Qualified Timber Land). Prohibits the appraised value from exceeding the lesser of the market value of the land as determined by other appraisal methods or the appraised value of the land for the year preceding the first year of appraisal under this subchapter. Requires the chief appraiser to determine the market value of qualified restricted-use timber land and to record both the market value and the appraised value in the appraisal records. Sec. 23.9804. APPLICATION. (a) Provides that a person claiming that the person's land is eligible for appraisal as provided by this subchapter must file a valid application with the chief appraiser. (b) Sets forth the requirements for a valid application under Section 23.9802(a). (c) Sets forth the requirements for a valid application under Section 23.9802(b). (d) Requires the comptroller of public accounts (comptroller) to include on the form a notice of the penalties prescribed by Section 37.10 (Tampering With Governmental Record), Penal Code, for making or filing an application containing a false statement. Requires the comptroller, in prescribing the contents of the application form, to require that the form permit a claimant who has previously been allowed appraisal under this subchapter to indicate that the previously reported information has not changed and to supply only the eligibility information not previously reported. (e) Provides that the form must be filed before May 1. Authorizes the chief appraiser to extend the filing deadline for not more than 15 days for good cause. (f) Provides that, if a person fails to file a valid application on time, the land is ineligible for appraisal as provided by this subchapter for that year. Provides that once an application is filed and appraisal under this subchapter is allowed, the land is eligible for appraisal under the applicable provision of this subchapter in subsequent years without a new application unless the ownership of the land changes, the standing timber is harvested, or the land's eligibility under this subchapter ends. Authorizes the chief appraiser, if the chief appraiser has good cause to believe the land's eligibility under this subchapter has ended, to require a person allowed appraisal under this subchapter in a previous year to file a new application to confirm that the land is currently eligible under this subchapter by delivering a written notice that a new application is required, accompanied by the application form, to the person who filed the application that was previously allowed. (g) Requires the appraisal office to make a sufficient number of printed application forms readily available at no charge. (h) Requires the chief appraiser for each appraisal district to publicize, in a manner reasonably designed to notify all residents of the district, the requirements of this section and the availability of application forms each year. (i) Requires a person whose land is allowed appraisal under this subchapter to notify the appraisal office in writing before May 1 after eligibility of the land under this subchapter ends. Provides that, if a person fails to notify the appraisal office as required by this subsection, a penalty is imposed on the property equal to 10 percent of the difference between the taxes imposed on the property in each year it is erroneously allowed appraisal under this subchapter and the taxes that would otherwise have been imposed. (j) Requires the chief appraiser to make an entry in the appraisal records for the property against which the penalty is imposed indicating liability for the penalty and to deliver a written notice of imposition of the penalty to the person who owns the property. Requires the notice to include a brief explanation of the procedures for protesting the imposition of the penalty. Requires the assessor for each taxing unit that imposed taxes on the property on the basis of appraisal under this subchapter to add the amount of the penalty to the unit's tax bill for taxes on the property against which the penalty is imposed. Requires the penalty to be collected at the same time and in the same manner as the taxes on the property against which the penalty is imposed. Provides that the amount of the penalty constitutes a lien on the property against which the penalty is imposed and on delinquency accrues penalty and interest in the same manner as a delinquent tax. (k) Requires the chief appraiser to add the difference between the appraised value of the land under this subchapter and the market value of the land for any year in which the land was ineligible for appraisal under this subchapter to the appraisal records as provided by Section 25.21(Omitted Property) for other property that escapes taxation if the chief appraiser discovers that appraisal under this subchapter has been erroneously allowed in any of the 10 preceding years because of failure of the person whose land was allowed appraisal under this subchapter to give notice that the land's eligibility had ended. Sec. 23.9805. ACTION ON APPLICATION. (a) Requires the chief appraiser to determine separately each applicant's right to have the applicant's land appraised under this subchapter. Requires the chief appraiser, after considering the application and all relevant information, to approve the application and allow appraisal under this subchapter, disapprove the application and request additional information from the applicant in support of the claim, or deny the application. (b) Provides that, if the chief appraiser requests additional information from an applicant, the applicant must furnish it within 30 days of the request or the chief appraiser is required to deny the application. Authorizes the chief appraiser to extend the deadline for furnishing the information by written order for a single period not to exceed 15 days for good cause. (c) Requires the chief appraiser to determine the validity of each application for appraisal under this subchapter filed with the chief appraiser before the chief appraiser submits the appraisal records for review and determination of protests as provided by Chapter 41 (Local Review). (d) Requires the chief appraiser to deliver a written notice of the denial, including a brief explanation of the procedures for protesting the denial, to the applicant within five days after the date the chief appraiser makes the determination if the chief appraiser denies an application. Sec. 23.9806. APPLICATION DENIAL BASED ON ZONE LOCATION. (a) Provides that, before a chief appraiser is authorized to deny an application under Section 23.9805 on the ground that the land is not located in an aesthetic management zone, critical wildlife habitat zone, or streamside management zone, the chief appraiser must first request a determination letter from the director of the Texas Forest Service as to the type, location, and size of the zone, if any, in which the land is located. (b) Requires the chief appraiser to notify the landowner and each taxing unit in which the land is located that a determination letter has been requested. (c) Provides that the director's letter is conclusive as to the type, size, and location of the zone for purposes of appraisal of the land under this subchapter. (d) Requires the chief appraiser, if the land is located in a zone described in the determination letter, to approve the application and allow appraisal under this subchapter if the applicant is otherwise entitled to have the applicant's land appraised under this subchapter. (e) Requires the director of the Texas Forest Service, by rule, to adopt procedures under this section, which must allow the chief appraiser, the landowner, and a representative of each taxing unit in which the land is located to present information to the director before the director issues the determination letter. (f) Provides that Chapters 41 and 42 (Judicial Review) do not apply to a determination under this section by the director of the Texas Forest Service of the type, size, and location of a zone. Sec. 23.9807. CHANGE OF USE OF LAND. (a) Provides that, if the use of land that has been appraised as provided by this subchapter changes to a use that qualifies the land for appraisal under Subchapter E, an additional tax is imposed on the land equal to the sum of the difference between the taxes imposed on the land for each of the five years preceding the year in which the change of use occurs that the land was appraised as provided by this subchapter and the taxes that would have been imposed had the land been appraised under Subchapter E in each of those years; and interest at an annual rate of seven percent calculated from the dates on which the differences would have become due. (b) Provides that, if the use of land that has been appraised as provided by this subchapter changes to a use that does not qualify the land for appraisal under Subchapter E or under this subchapter, an additional tax is imposed on the land equal to the sum of the difference between the taxes imposed on the land for each of the five years preceding the year in which the change of use occurs that the land was appraised as provided by this subchapter and the taxes that would have been imposed had the land been taxed on the basis of market value in each of those years; and interest at an annual rate of seven percent calculated from the dates on which the differences would have become due. (c) Provides that a tax lien attaches to the land on the date the change of use occurs to secure payment of the additional tax and interest imposed by this section and any penalties incurred. Provides that the lien exists in favor of all taxing units for which the additional tax is imposed. (d) Provides that the additional tax imposed by this section does not apply to a year for which the tax has already been imposed. (e) Provides that, if the change of use applies to only part of a parcel that has been appraised as provided by this subchapter, the additional tax applies only to that part of the parcel. (f) Provides that a determination that a change in use of the land has occurred is made by the chief appraiser. Requires the chief appraiser to deliver a notice of the determination to the owner of the land as soon as possible after making the determination and to include in the notice an explanation of the owner's right to protest the determination. Requires the assessor for each taxing unit to prepare and deliver a bill for the additional taxes and interest as soon as practicable after the change of use occurs if the owner does not file a timely protest or if the final determination of the protest is that the additional taxes are due. Provides that the taxes and interest are due and become delinquent and incur penalties and interest as provided by law for ad valorem taxes imposed by the taxing unit if not paid before the next February 1 that is at least 20 days after the date the bill is delivered to the owner of the land. (g) Provides that the harvesting of timber from the land before the expiration of the period provided by Section 23.9802(c) constitutes a change of use of the land for purposes of this section. (h) Provides that the sanction provided by Subsection (a) or (b) does not apply if the change of use occurs as a result of a sale for right-of-way, condemnation, or change in law. SECTION 6. Amends Section 25.02(a), Tax Code, to make a conforming change. SECTION 7. Section 25.22(a), Tax Code, to include the notice required by Section 23.9085(d) among the notices which must be delivered before the chief appraiser is authorized to submit the completed appraisal records to the appraisal review board for review and determination of protests. SECTION 8. Amends Sections 31.01(c) and (d), Tax Code, to make conforming changes. SECTION 9. Amends Section 41.01(a), Tax Code, to make conforming changes. SECTION 10. Amends Section 41.03, Tax Code, to provide that if a taxing unit challenges a determination that land qualifies for appraisal under Subchapter H, Chapter 23, on the ground that the land is not located in an aesthetic management zone, critical wildlife habitat zone, or streamside management zone, the taxing unit must first seek a determination letter from the director of the Texas Forest Service. Requires the appraisal review board to accept the letter as conclusive proof of the type, size, and location of the zone. SECTION 11. Amends Section 41.41(a), Tax Code, to make conforming changes. SECTION 12. Amends Section 41.44(a), Tax Code, to make conforming changes. SECTION 13. Amends Section 151.3111(b), Tax Code, to delete the provision that Subsection (a), which exempts certain services performed on tangible property from sales tax, does not apply to the performance of a service on machinery and equipment with a purchase price greater than $50,000 used exclusively in a commercial timber operation as described by Section 151.3161(a) (Timber Operations). SECTION 14. Amends Section 151.316, Tax Code, as follows: Sec. 151.316. New title: AGRICULTURAL AND TIMBER ITEMS. (a) Exempts from sales tax seedlings of trees commonly grown for commercial timber; fertilizers, fungicides, insecticides, herbicides, defoliants, and desiccants exclusively used or employed on a farm or ranch in the production of timber to be sold in the regular course of business; and machinery and equipment exclusively used in, and pollution control equipment required as a result of, the processing, packing, or marketing of timber products by an original producer at a location operated by the original producer for processing, packing, or marketing the producers own products if 50 percent or more of the products processed, packed, or marketed at or from the location are produced by the original producer and not purchased or acquired from others and the producer does not process, pack, or market for consideration any timber products that belong to other persons in an amount greater than five percent of the total agricultural or timber products processed, packed, or marketed by the producer. (b) Exempts from sales tax tangible personal property sold or used to be installed as a component of an underground irrigation system if the system is exclusively used or employed on a farm or ranch in the production of timber to be sold in the regular course of business. (c) Redefines "farm or ranch" and "original producer" in this section. (d) Authorizes an individual's spouse and the individual's children to qualify as an original producer for the purposes of Subsection (a)(8) if two or more corporations that operate timber activities on the same tract or adjacent tracts of land and that are entirely owned by an individual or a combination of the individual. SECTION 15. Amends Section 151.317(c)(2), Tax Code, to redefine "commercial use." SECTION 16. Amends Section 152.091, Tax Code, is amended to read as follows: Sec. 152.091. New title: FARM OR TIMBER USE. Exempts the purchase, sale or use of a machine, trailer, or semitrailer that is to be leased for use primarily for timber operations from the taxes on sale, rental, and use of motor vehicles imposed by this chapter. Makes conforming changes. SECTION 17. Repealer: Section 151.3161 (Timber Operations), Tax Code, is repealed. SECTION 18. (a) Effective date: September 1, 1999, except as provided by Subsections (b) and (c) of this section. (b) Provides that Sections 11.16(c) and 11.161, Tax Code, as amended by this Act, and Subchapter H, Chapter 23, Tax Code, as added by this Act, take effect January 1, 2000. (c) Provides that Sections 13, 14, and 15 of this Act, amending Sections 151.3111(b), 151.316, and 151.317(c)(2), Tax Code, take effect October 1, 1999. SECTION 19. Emergency clause.