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Texas Political Subdivision for Aircraft Tax Exemption Amendment, Proposition 3 (2013)

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Proposition 3
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Type:Constitutional amendment
Constitution:Texas Constitution
Referred by:Texas State Legislature
Topic:Taxes
Status:Approved Approveda
The Texas Political Subdivision for Aircraft Tax Exemption Amendment, Proposition 3 was on the November 5, 2013 ballot in Texas as a legislatively-referred constitutional amendment. It was approved.

The measure granted authority to politically subdivide the state to increase the number of days that property tax-exempt aircraft parts may be located in the state for the purpose of qualifying these parts for the exemption. The measure was sponsored in the legislature by Rep. Linda Harper-Brown (R-105) as House Joint Resolution 133.[1]

Election results

See also: 2013 ballot measure election results

Below are the official election results:

Texas Proposition 3
ResultVotesPercentage
Approveda Yes 626,602 57.73%
No458,76742.26%
These results are from the Texas Secretary of State.

Background

In 1989, voters approved a constitutional amendment which added Section 1-j to Article VIII of the Texas Constitution. The goal of this addition was to encourage manufacturing and other commercial work in the state. The amendment created a "freeport exemption," which exempted goods, wares, merchandise, other tangible personal property (including aircraft parts) and ores (besides oil, natural gas and other petroleum products) if certain conditions were met. These conditions included: "The property must be acquired in or imported into the state for export; detained in the state to be assembled, stored manufactured, processed or fabricated; and transported outside of the state within 175 days after the date of importation or acquisition." Proposal 3 extended the number of days by which aircraft parts must be removed from the state in order to keep their tax-exempt status. The number of days was extended from 175 days to 730 days. The changes set forth in the amendment will be effective as of January 1, 2014.[2]

Texas Secretary of State, John Steen selected the order of the nine ballot measures for 2013 at random. The nine approved amendments were added to the Texas Constitution, the longest state constitution in the country. As of 2011, the state legislature had put 653 amendments before voters since 1876, of which 474 were passed.[3] LWV-Texas Education Fund Chair Linda Krefting, had this to say about the nine constitutional amendments: "The issues at stake affect all Texans now and in the future, from property tax exemptions to funding the water state plan. Given the significance of the issues and relative permanence of constitutional amendments, voters need to understand each of the propositions to cast an informed vote."[4]

Text of measure

The ballot was printed to permit voting for or against the proposition:[5]

The constitutional amendment to authorize a political subdivision of this state to extend the number of days that aircraft parts that are exempt from ad valorem taxation due to their location in this state for a temporary period may be located in this state for purposes of qualifying for the tax exemption.

[6]

Constitutional changes

Proposition 3 amended Article VIII, Section 1-j of the Texas Constitution to read:

HJR 133, Proposed Section 1-j of Article VIII

Section 1: Text of Section 1-j: Certain Tangible Personal Property Exempt from Ad Valorem Taxation

(a) To promote economic development in the State, goods, wares, merchandise, other tangible personal property, and ores, other than oil, natural gas, and other petroleum products, are exempt from ad valorem taxation if:

(1) the property is acquired in or imported into this State to be forwarded outside this State, whether or not the intention to forward the property outside this State is formed or the destination to which the property is forwarded is specified when the property is acquired in or imported into this State;
(2) the property is detained in this State for assembling, storing, manufacturing, processing, or fabricating purposes by the person who acquired or imported the property; and
(3) the property is transported outside of this State not later than 175 days after the date the person acquired or imported the property in this State.
(A) 175 days after the date the person acquired or imported the property in this State; or
(B) if applicable, a later date established by the governing body of the political subdivision under Subsection (d) of this section.

(b) The governing body of a county, common, or independent school district, junior college district, or municipality that, acting under previous constitutional authority, taxes property otherwise exempt by Subsection (a) of this section may subsequently exempt the property from taxation by rescinding its action to tax the property. The exemption applies to each tax year that begins after the date the action is taken and applies to the tax year in which the action is taken if the governing body so provides. A governing body that rescinds its action to tax the property may not take action to tax such property after the rescission.

(c) For purposes of this section:

(1) tangible personal property shall include aircraft and aircraft parts;
(2) property imported into this State shall include property brought into this State;
(3) property forwarded outside this State shall include property transported outside this State or to be affixed to an aircraft to be transported outside this State; and
(4) property detained in this State for assembling, storing, manufacturing, processing, or fabricating purposes shall include property, aircraft, or aircraft parts brought into this State or acquired in this State and used by the person who acquired the property, aircraft, or aircraft parts in or who brought the property, aircraft, or aircraft parts into this State for the purpose of repair or maintenance of aircraft operated by a certificated air carrier.

(d) The governing body of a political subdivision, in the manner provided by law for official action, may extend the date by which aircraft parts exempted from ad valorem taxation under this section must be transported outside the State to a date not later than the 730th day after the date the person acquired or imported the aircraft parts in this State. An extension adopted by official action under this subsection applies only to the exemption from ad valorem taxation by the political subdivision adopting the extension. The legislature by general law may provide the manner by which the governing body may extend the period of time as authorized by this subsection.

Section 2: The following temporary provision is added to the Texas Constitution: Temporary Provision (a) This temporary provision applies to the constitutional amendment proposed by the 83red Legislature, Regular Session, 2013 to authorize a political subdivision of this state to extend the number of days that aircraft parts that are exempt from ad valorem taxation due to their location in this state for a temporary period may be located in this state for purposes of qualifying for the tax exemption.

(b) The amendment to Section 1-j(a), Article VIII, of this constitution and the additon of Section 1-J(d), Article VIII, to this constitution take effect January 1, 2014, and apply only to a tax year that begins on or after that date. (c) This temporary provision expires January 1, 2015.


Fiscal impact statement

State impact:

According to the Fiscal Impact Statement for HJR 133, which was released on April 18, 2013: "The proposed amendment to Section 1-j, Article VIII, of the Texas Constitution, to authorize the governing body of certain political subdivisions to extend by official action the number of days that qualifying personal property may remain in this state (currently 175 days) before losing eligibility for a property tax exemption is self-enabling and, to the extent that taxing units choose to make the extension, would create a cost to the state through the operation of the school finance formula.

The table below is an illustrative example of the cost if ten percent of the taxing units currently granting the freeport exemption chose to extend the number of days that qualifying personal property may remain in this state from 175 to 730 under the resolution.

In addition, the table below includes the cost to the state for publication of the resolution which totals $108,921."[7]

TXProp3fiscalimpact.png

Local impact:

The fiscal note said the following about how Prop 3 would affect local governments: "The proposed amendment to Section 1-j, Article VIII, of the Texas Constitution, to authorize the governing body of certain political subdivisions to extend by official action the number of days that qualifying personal property may remain in this state (currently 175 days) before losing eligibility for a property tax exemption is self-enabling and, to the extent that taxing units choose to make the extension, would create a cost to units of local government.

The table [below] is an example of the cost of the amendment to Section 1-j, Article VIII, of the Texas Constitution if ten percent of the taxing units currently granting the freeport exemption chose to extend the number of days that qualifying personal property may remain in this state from 175 to 730 under the resolution."[7]

Txprop12013local.png

Support

The measure was sponsored by Reps. Linda Harper-Brown, Harvey Hilderbran (R-53), Dan Flynn (R-2) and Bob Deuell (R-2).[1]

Supporters

  • Texas Association of Manufacturers[8]
  • San Antonio Hispanic Chamber of Commerce[9]

Arguments

The arguments presented in favor of Prop 3 in the state's official voter guide were constructed by the Texas Legislative Council. The arguments featured were based on comments made about the amendment during the legislative process and generally summarized the main arguments supporting the amendment. They read as follows:[2]

  • "The current 175-day limit on how long certain tangible personal property may be held in a Texas business's inventory to qualify for a freeport tax exemption unfairly disqualifies aircraft parts, which generally are held in inventory for longer periods. Aircraft parts may not be needed by a customer for many months, so an inventory does not turn over very quickly. In additions, the raw materials for the parts may be in limited production, requiring Texas aircraft parts suppliers to purchase in bulk and maintain large inventories for long periods to have parts on hand when needed. If the parts are detained in Texas for more than 175 days after the date the suppliers acquire or import the parts, the parts do not qualify for the current exemption. This tax burden places Texas aircraft parts suppliers at a competitive disadvantage with suppliers located in other states where goods destined for out-of-state shipment are exempt from property taxation. Although the freeport exemption was authorized as a business incentive, the current time frame for turning around inventory is too short to meet the needs of the Texas aviation industry and may be a deterrent to business relocations to Texas or expansion of operations already in Texas."[2]

According to the League of Women Voters of Texas, which offered both support and opposition arguments for the measure, arguments in support of the measure included:[10]

  • "The proposed extension of the freeport exemption would provide an economic development tool designed to make Texas competitive in the aerospace industry that contributes billions to the state's economy. Texas is one of only a few states with a tax on inventory. Since aerospace suppliers often require inventory to be onsite for much longer than 175 days, at least one aerospace company has moved its storage or operations to another state because of the inventory tax."[10]
  • "Granting an extension would be totally at the option of each local government already granting an exemption."[10]
  • "Loss of tax revenue to a school district that grants a freeport exemption may be offset by additional state aid, since the amount of the exemption is subtracted from the market value of inventory or property to determine the taxable value of inventory or property to determine the taxable value for the taxing authority. Any extra cost to the state could be offset by additional revenues from increased economic development and jobs."[10]

Other arguments included:

  • Empower Texans supported Proposition 3. They said, "Texas’ oppressive property tax rates forces very poor choices. While carving out exemptions makes for patchwork public policy, the burden of property taxes is even worse on the economy."[11]

Opposition

Texas Constitution
Seal of Texas.svg.png
Preamble
Articles
12
3 (1-43)3 (44-49)3 (50-67)
4567891011121314151617

According to the Texas Legislative Council's Official Voter Guide, which was compiled by the Texas Legislative Council:[2]

  • "No comments opposing the proposed amendment were made during the House and Senate committee hearings or during debate on the amendment in the House and Senate champers. However, questions raised in the House floor debate about the cost of the amendment to local governments, as well as costs to the state when offsetting lost school district tax revenue through the school finance system, remain unanswered because the number of taxing units that would extend the freeport exemption period under the amendment and the taxable value of the parts that would become subject to the exemption cannot be predicted."[2]

According to the League of Women Voters of Texas, which offered both support and opposition arguments for the measure, arguments in opposition to the measure included:[10]

  • "Singling out one group for special tax exemption status raises issues of uniformity in taxation. If the extension is authorized for aircraft parts, similar industries that make specialized parts and have a high portion of idle inventory may seek similar extensions."[10]
  • "Granting an extension reduces tax revenues for local governments."[10]
  • "An increase in exemptions by school districts could result in higher costs to the state."[10]

Media editorial positions

See also: Endorsements of Texas ballot measures, 2013

Support

  • The Dallas Morning News said, "Texas is among a small number of states that levies an arcane inventory tax on goods stored in the state. Sometimes this puts the state and businesses at a competitive disadvantage... Voters should approve Proposition 3 to extend the tax exemption on aviation parts stored in Texas warehouses from 175 days to 730 days."[12]
  • Houston Chronicle said, "The amendment is particularly important to the Houston area as a fledgling private-sector space industry begins to get off the ground. Texas is one of only a few states with a tax on inventory; aerospace suppliers often require inventory to be on site for much longer than the 175 days under current law."[13]
  • San Antonio Express-News said, "Since local governing entities would decide whether they want to grant the extensions, the amendment provides local control. It would also boost economic development because it makes it easier for an important industry to operate in the state of Texas. Voters should cast ballots for Proposition 3."[14]
  • Fort Worth Star-Telegram said, "Local governments may approve “freeport” areas where certain goods are exempt from inventory taxes if they are held for no longer than 175 days. Proposition 3 would allow that period to be stretched to 730 days (two years) for aircraft parts only... The Star-Telegram Editorial Board recommends votes for propositions 3, 7 and 9."[15]

Opposition

  • The Austin Chronicle said, "Would authorize a political subdivision of this state to extend the number of days that aircraft parts are exempt from ad valorem (property) taxation due to their location in this state for a temporary period (aka the "freeport exemption") before shipping out of state. This is a giveaway for aircraft manufacturers; if they hold inventory, they should pay taxes on it."[16]
  • The Burnt Orange Report opposed Prop 3, saying, "Our state is desperate for money to maintain basic services. We're turning paved roads into gravel because the state can't maintain them, and the Legislature wants us to give airplane part manufacturers an even bigger tax break?! We say no. We unanimously endorse a vote AGAINST Proposition 3 in the November 2013 constitutional amendment elections."[17]

Path to the ballot

See also: Amending the Texas Constitution

A 2/3rds vote in both chambers of the Texas State Legislature is required to refer an amendment to the ballot. Texas is one of sixteen states that requires this. Since the bill is a joint resolution, it does not require the governor's signature before being placed on the ballot.

The Texas House of Representatives passed the amendment on May 6, 2013, with a vote of 142 to 0. The Texas State Senate then passed the amendment on May 21, 2013, with a vote of 31 to 0.[18]

Texas Disabled Veteran Residence Tax Exemption Amendment, HJR 133 House Vote
ResultVotesPercentage
Approveda Yes 142 100%
No00%
Texas Disabled Veteran Residence Tax Exemption Amendment, HJR 133 Senate Vote
ResultVotesPercentage
Approveda Yes 31 100%
No00%

See also

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External links

References

  1. 1.0 1.1 OpenStates.org, "HJR 133: Texas House Joint Resolution - Proposing a constitutional amendment to authorize a political subdivision of this state to extend the number of days that aircraft parts that are exempt from ad valorem taxation due to their location in this state for a temporary period may be located in this state for purposes of qualifying for the tax exemption," accessed May 30, 2013
  2. 2.0 2.1 2.2 2.3 2.4 Texas Legislative Council's Official Voter Guide, "Amendment No. 3, HJR 133," accessed October 17, 2013
  3. Legislative Reference Library of Texas, "Constitutional Amendments," accessed September 26, 2013
  4. The Gilmer Mirror Online, "Texas Voters Will Decide: Whether to Approve Property Tax Exemptions Related to Military Service," September 5, 2013
  5. Texas State Legislature, "H.J.R. No. 133," accessed May 30, 2013
  6. Note: This text is quoted verbatim from the original source. Any inconsistencies are attributed to the original source.
  7. 7.0 7.1 Texas Legislature Online, "FISCAL NOTE, 83RD LEGISLATIVE REGULAR SESSION," April 18, 2013
  8. Texas Association of Manufacturers, "Learn More About Prop 3 - Keep Aerospace In Texas Strong!," accessed October 25, 2013
  9. San Antonio Hispanic Chamber of Commerce, "Every Vote Counts! Support Propositions 3 and 6," October 28, 2013
  10. 10.0 10.1 10.2 10.3 10.4 10.5 10.6 10.7 The League of Women Voters of Texas, "Voter Information," accessed October 7, 2013
  11. Empower Texans, "Recommendations: Texas Constitutional Amendments," October 17, 2013
  12. The Dallas Morning News, "Editorial: Prop 3 is good for economic growth," October 2, 2013
  13. Houston Chronicle, "Our take on the proposed constitutional amendments," October 15, 2013
  14. San Antonio Express-News, "Vote for Proposition 3," October 14, 2013
  15. Fort Worth Star-Telegram, "Constitutional changes can be open to argument," October 16, 2013
  16. The Austin Chronicle, "'Chronicle' Endorsements," October 18, 2013
  17. Burnt Orange Report, "Burnt Orange Report Endorses A Vote AGAINST Statewide Proposition 3," October 17, 2013
  18. Texas House of Representatives, "History of House Joint Resolution 133," accessed August 21, 2013