Relating to an exemption from ad valorem taxation of a portion of the appraised value of tangible personal property that is held or used for the production of income and a franchise tax credit for the payment of certain related ad valorem taxes.

89(R) SB 32 - Engrossed version - Bill Text

By: Bettencourt, et al.

S.B. No. 32

A BILL TO BE ENTITLED

AN ACT

relating to an exemption from ad valorem taxation of a portion of

the appraised value of tangible personal property that is held or

used for the production of income and a franchise tax credit for the

payment of certain related ad valorem taxes.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

ARTICLE 1. INCOME-PRODUCING TANGIBLE PERSONAL PROPERTY AD VALOREM

TAX EXEMPTION

SECTION 1.01. Section 11.145, Tax Code, is amended to read

as follows:

Sec. 11.145. INCOME-PRODUCING TANGIBLE PERSONAL PROPERTY

[
HAVING VALUE OF LESS THAN $2,500
]. (a)
In this section:

(1)

"Inventory" has the meaning assigned by Section

171.701.

(2)

"Related business entity" means a business entity

that:

(A)

engages in a common business enterprise with

at least one other business entity; and

(B) owns tangible personal property that:

(i)

is held or used for the production of

income as part of the common business enterprise; and

(ii)

is located at the same physical

address that tangible personal property owned by at least one other

business entity engaged in the common business enterprise is

located.

(3)

"Unified business enterprise" means a common

business enterprise composed of more than one related business

entity.

(b)

Subject to Subsection (f) and except as provided by

Subsection (d), a
[
A
] person is entitled to an exemption from

taxation
by a taxing unit
of
$25,000 of
the
appraised value of the

tangible personal property the person owns that is held or used for

the production of income
and has taxable situs at the same location

in the taxing unit
[
if that property has a taxable value of less

than $2,500
].

(c)
[
(b)
] The exemption provided by Subsection
(b)
[
(a)
]

applies to each separate
location in a
taxing unit in which a person

holds or uses tangible personal property for the production of

income, and, for the purposes of Subsection
(b)
[
(a)
], all property

that has taxable situs
in each
separate location in the
taxing unit

is aggregated to determine taxable value.

(d)

A person who leases tangible personal property is

entitled to an exemption from taxation by a taxing unit of $25,000

of the total appraised value of all the tangible personal property

the person owns that is held or used for the production of income

and is subject to a lease, regardless of where the property is

located in the taxing unit.

(e)

The exemption provided by Subsection (d) applies to each

separate taxing unit in which a person holds or uses tangible

personal property for the production of income.

(f)

For the purposes of Subsection (b), if a person is a

related business entity, all property described by that subsection

that has taxable situs at the same location in a taxing unit and

that is owned by the person is aggregated with the property

described by that subsection that has taxable situs at the same

location in the taxing unit and that is owned by each other related

business entity that composes the same unified business enterprise

to determine taxable value for the entity.

(g)

A chief appraiser may investigate a business entity to

determine whether the entity:

(1) is a related business entity; and

(2)

has aggregated tangible personal property as

provided by Subsection (f).

(h)

When calculating an exemption to which the person is

entitled under this section, a taxing unit shall apply the amount of

the exemption to tangible personal property other than inventory

that the person owns and is held or used for the production of

income before applying the exemption to inventory owned by the

person.

SECTION 1.02. Section 22.01, Tax Code, is amended by

amending Subsection (c-1) and adding Subsections (j-1), (j-2),

(j-3), and (n) to read as follows:

(c-1) In this section:

(1)
"Related business entity" and "unified business

enterprise" have the meanings assigned by Section 11.145.

(2)
"Secured party" has the meaning assigned by

Section 9.102, Business & Commerce Code.

(3)
[
(2)
] "Security interest" has the meaning

assigned by Section 1.201, Business & Commerce Code.

(j-1)

Notwithstanding Subsections (a) and (b), a person is

required to render tangible personal property the person owns that

is held or used for the production of income only if, in the

person's opinion and as applicable:

(1)

the aggregate market value of the property that

has taxable situs in the same location in at least one taxing unit

that participates in the appraisal district is greater than the

amount exempted under Section 11.145(b); or

(2)

the aggregate market value of the property in at

least one taxing unit that participates in the appraisal district

is greater than the amount exempted under Section 11.145(d).

(j-2)

A person required to render property for taxation

under Subsection (j-1) must render all tangible personal property

the person owns that is held or used for the production of income

and has taxable situs in the appraisal district. This subsection

does not apply to property exempt from taxation under a provision of

law other than Section 11.145.

(j-3)

A person who elects not to render property for

taxation as authorized by Subsection (j-1) must file a rendition

statement or property report that includes a certification that the

person reasonably believes that the value of the property is not

more than the amount exempted under Section 11.145(b) or (d), as

applicable. The election takes effect beginning with the tax year

following the tax year in which the rendition statement or property

report is filed and continues in effect until the ownership of the

person changes. Notwithstanding Subsection (j-1), a person

described by that subsection must render property for taxation if

required by the chief appraiser.

(n)

A rendition statement of a related business entity must

contain the information required by Subsection (a) or (f), as

applicable, stated for each related business entity that composes

the unified business enterprise of which the related business

entity that is the subject of the rendition is a part.

SECTION 1.03. Section 22.24(c), Tax Code, is amended to

read as follows:

(c) The comptroller may prescribe or approve different

forms for different kinds of property but shall ensure that each

form requires a property owner to furnish the information necessary

to identify the property and to determine its ownership,

taxability, and situs. Each form must include a box that the

property owner may check to permit the property owner to affirm that

the information contained in the most recent rendition statement

filed by the property owner in a prior tax year is accurate with

respect to the current tax year in accordance with Section

22.01(l).
Each form must include a box that a property owner that

is a related business entity, as defined by Section 11.145, must

check to identify the owner as a related business entity.

Each form

must include a box that a property owner who elects not to render

the property for taxation as authorized by Section 22.01(j-1) must

check to certify that the owner reasonably believes that the value

of the property is not more than the amount exempted under Section

11.145(b) or (d), as applicable.
A form may not require but may

permit a property owner to furnish information not specifically

required by this chapter to be reported. In addition, a form

prescribed or approved under this subsection must contain the

following statement in bold type: "If you make a false statement on

this form, you could be found guilty of a Class A misdemeanor or a

state jail felony under Section 37.10, Penal Code."

SECTION 1.04. Chapter 25, Tax Code, is amended by adding

Section 25.14 to read as follows:

Sec.

25.14.

INVENTORY AND TANGIBLE PERSONAL PROPERTY. (a)

In this section, "inventory" means:

(1)

a finished good held for sale, resale, lease, or

rental;

(2)

a raw or finished material held to be incorporated

into or attached to tangible personal property to create a finished

good; or

(3)

a material or supply, including fuel or a spare

part, being held for future use.

(b)

For purposes of this section, the term "inventory" does

not include:

(1)

a dealer's motor vehicle inventory, as defined by

Section 23.121;

(2)

a dealer's vessel and outboard motor inventory, as

defined by Section 23.124;

(3)

a dealer's heavy equipment inventory, as defined

by Section 23.1241; or

(4)

retail manufactured housing inventory, as defined

by Section 23.127.

(c)

Except as provided by Subsection (d), a person's

inventory shall be listed separately from any other tangible

personal property the person holds or uses for the production of

income.

(d)

This section does not apply to tangible personal

property for which a person is required to file a rendition

statement under Section 22.01(j-3) but that the person is not

required to render for taxation under any other provision of that

section.

SECTION 1.05. Section 31.01, Tax Code, is amended by

amending Subsection (c) and adding Subsection (c-3) to read as

follows:

(c) The tax bill or a separate statement accompanying the

tax bill shall:

(1) identify the property subject to the tax;

(2) state the appraised value, assessed value, and

taxable value of the property;

(3) if the property is land appraised as provided by

Subchapter C, D, E, or H, Chapter 23, state the market value and the

taxable value for purposes of deferred or additional taxation as

provided by Section 23.46, 23.55, 23.76, or 23.9807, as applicable;

(4) state the assessment ratio for the
taxing
unit;

(5) state the type and amount of any partial exemption

applicable to the property, indicating whether it applies to

appraised or assessed value;

(6) state the total tax rate for the
taxing
unit;

(7) state the amount of tax due, the due date, and the

delinquency date;

(8) explain the payment option and discounts provided

by Sections 31.03 and 31.05, if available to the
taxing
unit's

taxpayers, and state the date on which each of the discount periods

provided by Section 31.05 concludes, if the discounts are

available;

(9) state the rates of penalty and interest imposed

for delinquent payment of the tax;

(10) include the name and telephone number of the

assessor for the
taxing
unit and, if different, of the collector for

the
taxing
unit;

(11) for real property, state for the current tax year

and each of the preceding five tax years:

(A) the appraised value and taxable value of the

property;

(B) the total tax rate for the
taxing
unit;

(C) the amount of taxes imposed on the property

by the
taxing
unit; and

(D) the difference, expressed as a percent

increase or decrease, as applicable, in the amount of taxes imposed

on the property by the
taxing
unit compared to the amount imposed

for the preceding tax year; [
and
]

(12) for real property, state the differences,

expressed as a percent increase or decrease, as applicable, in the

following for the current tax year as compared to the fifth tax year

before that tax year:

(A) the appraised value and taxable value of the

property;

(B) the total tax rate for the
taxing
unit; and

(C) the amount of taxes imposed on the property

by the
taxing
unit
; and

(13)

for tangible personal property, state separately

the amount of taxes imposed on a person's inventory from the amount

of taxes imposed on any other tangible personal property the person

held or used for the production of income
.

(c-3)

For purposes of Subsection (c), "inventory" has the

meaning assigned by Section 25.14.

SECTION 1.06. This article applies only to ad valorem taxes

imposed for a tax year that begins on or after the effective date of

this article.

SECTION 1.07. This article takes effect January 1, 2026,

but only if the constitutional amendment proposed by the 89th

Legislature, Regular Session, 2025, to authorize the legislature to

exempt from ad valorem taxation a portion of the market value of

tangible personal property a person owns that is held or used for

the production of income is approved by the voters. If that

amendment is not approved by the voters, this article has no effect.

ARTICLE 2. FRANCHISE TAX CREDIT FOR INVENTORY AD VALOREM TAX

LIABILITY

SECTION 2.01. Chapter 171, Tax Code, is amended by adding

Subchapter N to read as follows:

SUBCHAPTER N. TAX CREDIT FOR INVENTORY TAX LIABILITY

Sec.

171.701.

DEFINITION. (a) In this subchapter,

"inventory" means:

(1)

a finished good held for sale, resale, lease, or

rental, including:

(A)

a dealer's vessel and outboard motor

inventory, as defined by Section 23.124;

(B)

a dealer's heavy equipment inventory, as

defined by Section 23.1241; or

(C)

retail manufactured housing inventory, as

defined by Section 23.127;

(2)

a raw or finished material held to be incorporated

into or attached to tangible personal property to create a finished

good; or

(3)

a material or supply, including fuel or a spare

part, being held for future use.

(b)

Notwithstanding Subsection (a) and for purposes of this

subchapter, the term "inventory" does not include a dealer's motor

vehicle inventory, as defined by Section 23.121.

Sec.

171.702.

ELIGIBILITY FOR CREDIT. A taxable entity is

entitled to apply for a credit against the tax imposed under this

chapter in the amount and under the conditions provided by this

subchapter.

Sec.

171.703.

AMOUNT OF CREDIT; LIMITATIONS.

(a)

Subject

to Subsections (b) and (c), the amount of a taxable entity's credit

for a report is equal to the lesser of:

(1)

the total franchise tax due for the report after

applying all other applicable credits; or

(2)

20 percent of the aggregate amount of ad valorem

taxes imposed by each taxing unit during the ad valorem tax year

preceding the year in which the report is originally due on property

owned by the taxable entity that were derived from the taxable value

of inventory owned by the taxable entity and located in this state.

(b)

The total amount of credits that may be awarded under

this subchapter for all reports originally due in a year may not

exceed $500 million.

(c)

The comptroller by rule shall prescribe procedures by

which the comptroller will allocate credits under this subchapter.

The procedures must provide that if the total amount of credits for

which taxable entities apply under Subsection (a) exceeds the limit

under Subsection (b) for a calendar year, the comptroller shall:

(1)

for each taxable entity that applied for the

credit, reduce the amount under Subsection (a)(2) to a pro rata

share of $500 million based on the amount of ad valorem taxes

described by Subsection (a)(2) imposed on property of the taxable

entity and on property of all taxable entities that applied for the

credit;

(2)

after making the reductions under Subdivision (1),

determine the amount by which each taxable entity's pro rata share

under Subdivision (1) exceeds the amount provided by Subsection

(a)(1) for the taxable entity, if any, and the sum of those amounts

for all taxable entities; and

(3)

allocate the sum determined under Subdivision (2)

to other taxable entities that applied for the credit on a pro rata

basis to partly or wholly restore the amount reduced under

Subdivision (1).

(d)

For purposes of Subsection (a)(2), the aggregate amount

of ad valorem taxes imposed on property owned by the taxable entity

that were derived from the taxable value of inventory does not

include, and a taxable entity is not entitled to a credit for any

taxes imposed on, the taxable value of any inventory for which the

taxable entity was exempt from taxation under Section 11.145.

(e)

For purposes of calculating the amount of the credit

under this subchapter in connection with the 2025 ad valorem tax

year, a taxable entity may make a good faith estimate of the portion

of the ad valorem taxes imposed on the taxable entity's property

that were derived from inventory owned by the taxable entity and

located in this state. For purposes of this subsection, "good

faith" means honesty in fact and intention and requires the absence

of an intent to mislead or deceive.

This subsection expires January

1, 2028.

Sec.

171.704.

APPLICATION FOR CREDIT. (a)

A taxable entity

must apply for the credit under this subchapter on or with the

originally filed report for the period for which the credit is

claimed.

(b)

The comptroller shall prescribe the form and method for

applying for a credit under this subchapter.

A taxable entity must

use the form in applying for the credit and submit the form

electronically with the report for the period for which the credit

is claimed.

(c)

The comptroller may require the taxable entity to

include any other information the comptroller determines is

necessary to demonstrate:

(1) whether the entity is eligible for the credit; and

(2) the amount of the credit.

(d)

The burden of establishing eligibility for and the

amount of the credit is on the taxable entity.

(e)

The comptroller may request permission to examine the

books and records of a taxable entity as necessary to determine

whether the entity is entitled to a credit under this subchapter and

the amount of the credit.

The comptroller may disallow the credit

if the taxable entity refuses to allow the comptroller to examine

the books and records.

Sec.

171.705.

ADMINISTRATION OF CREDIT; REFUND. (a)

The

comptroller may require a taxable entity that applies for a credit

under this subchapter to submit with the report a payment for all or

part of the taxes to which the credit applies.

As soon as

practicable after determining the amount of the credit under

Section 171.703, the comptroller shall issue a warrant for any

portion of the credit for which payment was made.

(b)

The amount of a warrant issued by the comptroller under

Subsection (a) does not accrue interest under Section 111.064.

Sec.

171.706.

SALE, ASSIGNMENT, OR CARRYFORWARD

PROHIBITED. A taxable entity that receives a credit under this

subchapter may not sell, assign, or carry forward any part of the

credit.

Sec.

171.707.

RULES. The comptroller shall adopt rules as

necessary to implement and administer this subchapter.

SECTION 2.02. Subchapter N, Chapter 171, Tax Code, as added

by this article, applies only to a report originally due on or after

the effective date of this article.

SECTION 2.03. This article takes effect January 1, 2026.