HBA-KDB H.B. 1694 77(R)BILL ANALYSIS Office of House Bill AnalysisH.B. 1694 By: Hamric Ways & Means 4/22/2001 Committee Report (Amended) BACKGROUND AND PURPOSE Under current law, a leased motor vehicle is subject to ad valorem property taxes. This taxation may have been intended solely for businesses leasing fleets of vehicles. However, many such leases are now used by individuals who wish to pay a lower price for a new vehicle. The Texas Constitution was amended last year to exempt leased motor vehicles from ad valorem property taxes if the vehicles are not used by the lessee for the production of income. However, without enabling legislation, the constitutional amendment has no effect. House Bill 1694 exempts leased motor vehicles from ad valorem property taxes if such vehicles are not used by the lessee for the production of income. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the comptroller of public accounts in SECTION 1 (Section 11.252, Tax Code) of this bill. ANALYSIS House Bill 1694 amends the Tax Code to entitle a lessor of a motor vehicle to an exemption from ad valorem taxation of a leased vehicle if the lessee does not hold the leased vehicle for the production of income and the leased vehicle is used only for activities that do not involve the production of income, other than the income to the lessor under the lease. The bill requires the comptroller of public accounts (comptroller) by rule to establish exemption application requirements and appropriate procedures to determine whether a leased vehicle qualifies for an exemption from taxation. The bill requires the chief appraiser to publicize these provisions and the requirements and procedures established by the comptroller. The bill requires the comptroller by rule to prescribe a declaration form (form) to be completed by a lessee for a motor vehicle for which the lessor is authorized to apply an exemption from taxation. The bill sets forth provisions regarding the requirements of the form and the provision of the form to the lessee. The bill requires the lessor to maintain a completed form received from the lessee until the fifth anniversary of the date the lease expires and to make the form available for inspection and copying by the chief appraiser of the applicable appraisal district at all reasonable times. If the lessor does not maintain such a form, in each applicable tax year the lessor must render the leased vehicle for taxation in the applicable rendition statement or property report filed by the lessor and is prohibited from filing an application for an exemption from taxation for the leased vehicle. Such an exemption application must be filed not later than the 30th day after the date the lease is entered into or December 31 of the year in which the lease is entered into, whichever is later. If the chief appraiser approves the application, the exemption for that year applies only to that portion of the year in which the leased vehicle qualifies for the exemption. In that event, the amount of taxes due on the vehicle is calculated by multiplying the amount of taxes that would be imposed for the year without the exemption by a fraction, the numerator of which is the number of days in the year before the date the vehicle qualifies for the exemption and the denominator of which is 365. The bill requires the chief appraiser, if the application is approved after approval of the appraisal records by the appraisal review board, to notify the collector for each taxing unit that imposes taxes on the vehicle. The bill requires the collector to calculate the amount of tax due on the vehicle in that year and to refund any amount paid in excess of that amount. The bill prohibits a lessor, if in any tax year ad valorem taxes are imposed on a leased vehicle because of the lessor's failure to comply with the provisions, from directly or indirectly charging the lessee for those taxes or any penalty or interest on those taxes. Such a violation is a deceptive trade practice. If in any year such an exemption is canceled because the lessee holds the leased vehicle for the production of income, the lessor is authorized to charge the lessee for any taxes subsequently imposed on the vehicle in that year and for any penalty or interest on those taxes. EFFECTIVE DATE January 1, 2002. EXPLANATION OF AMENDMENTS Committee Amendment No. 1 deletes the provision that a violation by a lessor that directly or indirectly charges a lessee ad valorem taxes or any penalty or interest on such taxes on a motor vehicle leased for personal use is a deceptive trade practice. Committee Amendment No. 2 requires the comptroller of public accounts (comptroller) by rule to prescribe a property report form (form) to be completed by the lessor describing the leased motor vehicles which the lessor owns. The amendment requires the form to require the lessor to list each leased vehicle the lessor owns on January 1; to provide the year, make, model, and vehicle identification number of each leased vehicle; and to provide the name of the lessee, the address at which the vehicle is kept, and an indication of whether the lessee has designated the vehicle as not held for the production and not used for the production of income. The amendment requires the lessor to provide the chief appraiser with the completed report form adopted by the comptroller.