The Comptroller of Public Accounts adopts amendments to §9.1051, concerning definitions; §9.1052, concerning forms; §9.1053, concerning entity requesting agreement to limit appraised value and tax credit; §9.1054, concerning school district application review and agreement to limit appraised value; §9.1055, concerning comptroller application review and agreement to limit appraised value; §9.1057, concerning reports by comptroller; and §9.1058, concerning miscellaneous provisions; and new §9.1059, concerning annual compliance review for qualifying jobs and penalties. Sections 9.1051, 9.1054, 9.1055, and 9.1059 are adopted with changes to the proposed text as published in the March 7, 2014, issue of the Texas Register (39 TexReg 1665). Sections 9.1052, 9.1053, 9.1057, and 9.1058 are adopted without changes and will not be republished.

The comptroller amends the title of Subchapter F to delete the reference to Tax Credits so that the new title of Subchapter F is "Limitation on Appraised Value on Certain Qualified Properties". This amendment implements provisions of House Bill (HB) 3390, 83rd Legislature, 2013, which repealed the authority to provide tax credits on qualified property as defined by Tax Code, Chapter 313.

The amendments to §9.1052(a), concerning forms, deletes paragraph (2), Application for Tax Credit on Qualified Property; and amends paragraph (3) and adds new paragraphs (4), (5), and (6) to add forms for Job Creation Compliance, Biennial School District Cost Data Request, and a Texas Economic Development Act Agreement. These amendments include forms deemed necessary to implement provisions of House Bill 3390.

The amendments to §9.1053, concerning entity requesting agreement to limit appraised value and tax credit, will change subsections (a), (b), (c), and (f), and delete subsection (g). The amendments delete the reference to tax credits in the title of the section. The amendments to subsections (a), (b), and (c) make changes to the information that is required for an application, an amendment to the application, and an agreement for value limitation. The amendments to subsection (f) make changes to the provisions required to be in an agreement for value limitation. The amendments to subsections (a), (b), and (f) are deemed necessary to clarify existing guidelines and implement provisions of House Bill 3390. The amendment to subsection (c) is for the purpose of providing a mechanism to control the number of application amendments or supplements filed. The deletion of subsection (g) is because House Bill 3390 repealed the provisions of Tax Code, Chapter 313 that authorized tax credits.

The amendments to §9.1054, concerning school district application review and agreement to limit appraised value, will change subsections (a), (b), (c), (f), (h), (i), and (j) and delete subsections (g) and (k). The amendments to subsections (a) and (b) are made to insure compliance with existing statutes. The amendments to subsection (c) make changes to the information that is required for an application for an agreement for value limitation that will be considered by school districts. The amendments to subsection (f) make changes to actions taken by the school district when it has received an application accompanied by a comptroller certificate for a limitation on appraised value. Subsection (g) is deleted and subsequent subsections are re-lettered. Re-lettered subsection (g) is further amended to make changes to the provisions required to be in an agreement for value limitation. The amendments re-designate the provisions of subsection (i) to be the provisions of subsection (h), which is then further amended to identify the school district's actions when the application requests a deferral of the qualifying time period. The amendments re-designate the provisions of subsection (j) to be subsection (i) and further amendments are adopted to include new reporting requirements for agreement holders to the school district. All of these amendments are deemed necessary to clarify existing guidelines and implement provisions of House Bill 3390. Subsection (k) is deleted because House Bill 3390 repealed the provisions of Tax Code, Chapter 313 that authorized tax credits.

Furthermore, the agency makes a change to the proposed text of §9.1054 to correct a grammatical error in subsection (g).

The amendments to §9.1057, concerning reports by comptroller, will delete subsection (c) which relates to the reporting on tax credits. This amendment is deemed necessary to implement provisions of House Bill 3390 which repealed the provisions of Tax Code, Chapter 313 that authorized tax credits.

The amendment to §9.1058 adds new subsections (d) and (e) concerning miscellaneous provisions. New subsection (d) is added to identify the procedures for the comptroller to identify strategic investment areas as required by Tax Code, Chapter 313. New subsection (e) is added to reflect that applications for limitation on appraised value and agreements executed pursuant to the approved application will be governed by the statutes and applicable rules and guidelines in effect at the time the application is filed.

The agency received comments on the proposed amendments from Mr. Dale Craymer, President, Texas Taxpayers and Research Association (TTARA), Mr. Dick Lavine, Center for Public Policy Priorities, and Mr. Matt Larsen of Baker Botts L.L.P. Their comments and the agency's responses are as follows.

Mr. Craymer commented that §9.1051(16) amended the definition of "qualified property" beyond the changes made in HB 3390 by restricting application of the subchapter to only new buildings and equipment placed in new or expanded buildings and therefore the rule exceeds the authority provided in statute. Additionally, the proposed amendment appears to conflict with amendments proposed in other unspecified sections of the proposed rules.

The agency responds that, as noted in the preamble to the proposed rules, the proposed amendments are deemed necessary to both clarify existing guidelines and to implement provisions of HB 3390. The definition allows the broad classes of property as permitted by statute, while adding clarity to existing policy regarding the property that the agency considers to be "qualified property."

Mr. Larsen commented that the purpose of the amendment to §9.1051(16)(B) was not clear and that the rule is unnecessary to implement statutory requirements.

The agency responds that the statutory definition has not been sufficient to describe the agency's application of the statute for applications that propose the installation of new equipment or other tangible personal property near or within existing facilities. With these amendments the agency has attempted to provide clarity to its intended implementation of the statutory language. The intent of paragraph (16)(B) is to require that any newly installed personal property must be sufficiently distinguishable so as to be readily identified from existing tangible personal property and that, for paragraph (16)(C), the property must also be sufficiently separate so that it does not comprise a part of the existing enterprise activity. The agency's experience confirms instances in which there is tangible personal property that is readily identifiable as distinct from existing property but is not sufficiently separate from the existing property to meet the purpose of the statute. The agency intends to continue to apply this interpretation of the statute and the amendment is intended to clarify the agency's interpretation of the statute.

Mr. Larsen commented on §9.1051(22) that the wage requirement for non-qualifying jobs should be determined by using the most recent four quarters for which data is available at the time an application is filed rather than the four quarters prior to the year for which the wages are being reported as required by the proposed rule. The comment notes that defining non-qualifying wage by using the four most recent quarters for which data is available would be consistent with the data used in determining the applicable wage for qualifying jobs and, further, fixing the non-qualifying wage to the time of the application is filed would prevent it from rising throughout the term of the agreement which might result in the non-qualifying wage rate exceeding the qualifying wage rate in later years of the agreement. Alternatively, the measurement period should be far enough in advance of the compliance period that taxpayers will have an opportunity to calculate and react to changing wage requirements.

The agency acknowledges the validity of the comment and amends §9.1051(22) to define average weekly rate for non-qualifying wage rate to be for the four most recent quarters for which data is available at the time the application is deemed complete.

Mr. Craymer commented that the amended definition §9.1051(23) increases uncertainty rather than clarifying the phrase "first placed in service". The comment recommends that defining it as the "first productive use of the property" would improve the definition.

The agency responds that to modify the definition as proposed could result in significantly altering "qualified investment" since qualified investment is defined using the term "first placed in service." Property that is not "productively" used until after the qualified time period would not be eligible to be qualified investment.

Mr. Craymer commented that §9.1051(24) does not clarify the definition of qualified property which was the purpose of the statutory amendment made by HB 3390, but rather contradicts the intent of the statute.

The agency responds that, as noted in the preamble to the proposed amendment, the amendments are deemed necessary to both clarify existing guidelines and to implement provisions of HB 3390. Neither the previous version of the statute nor the current version would permit qualified property to be property housed in a vacant warehouse if the warehouse was not expanded as a part the project. The agency acknowledges, however, that the proposed amendment did not fulfill its purpose of improving clarity, and consequently the adopted amendment to §9.1051(24)(A) will include that the new improvement must be a discrete unit of property.

Mr. Craymer commented that §9.1051(25) differs slightly from some of the other economic data references.

The agency responds that the proposed amendment is intended to provide a method for identifying per capita income that is simple and clear by closely following the language used by the U.S. Census Bureau on the web site provided in the definition.

Mr. Craymer commented that §9.1051(28) requires that the new statutorily created category "Texas Priority Project" should not be subject to separate thresholds in each school district should the project span multiple school districts because the use of the term "project" was intended to attract large scale projects without reference to the number of school districts in which the project may be built.

The agency responds that both prior to and after HB 3390, the statute uses the word "project" in many places. Tax Code, §313.024(b)(9) and (e)(7) address the Texas Priority Project eligibility and makes no mention of multiple district projects. Notably, Tax Code, §313.024(d-2), also added in HB 3390, explicitly discusses the creation of qualifying jobs across multiple districts, and is the only reference to using agreements with more than one district to meet eligibility criteria. The agency concludes that a single project that depends on activities in multiple districts for eligibility could expose one district to contractual defaults due to activities in another district. Additionally, allowing a "Texas Priority Project" to aggregate qualified investment from multiple districts would potentially permit an applicant to simultaneously receive tax benefits from multiple districts (even non-contiguous districts) around the state by asserting the investments comprise a single "project."

Furthermore, the agency makes an amendment to §9.1051 to correct a form number in paragraph (19).

Mr. Craymer commented that §9.1053(a)(1)(A)(viii) should not require all projects to apply the average weekly wage for non-qualifying jobs because HB 3390 created a new wage standard for non-qualifying jobs only for projects eligible under Tax Code, Chapter 313, Subchapter B. Mr. Craymer states that this comment applies also to proposed amendments in §9.1053(f)(2)(H)(iv) and §9.1054(g)(8)(D). Without identifying a particular rule, Mr. Larsen similarly makes a general comment that the minimum salary requirement for non-qualifying jobs applies only to Tax Code, Chapter 313, Subchapter B school districts.

The agency responds that Tax Code, §313.051(d) states that "Except as otherwise provided by this subchapter" the terms of Tax Code, Chapter 313, Subchapter B apply in Tax Code, Chapter 313, Subchapter C. The agency interprets the plain language of this section to mean that unless stated otherwise in Subchapter C, all the requirements of Subchapter B apply to Subchapter C. To eliminate the requirement as to the non-qualified wage standard, the statute would have to directly state that it is eliminating the non-qualifying wage standard or create another non-qualifying wage standard. Tax Code, §313.051(b) references Tax Code, §313.021(3), which defines qualified jobs only and Tax Code, §313.051(b) makes no mention of non-qualifying jobs. Inasmuch as Tax Code, Chapter 313, Subchapter C neither provides that the non-qualifying job wage standard in Tax Code, Subchapter B is not applicable in Tax Code Chapter 313, Subchapter C nor provides a different wage standard for non-qualifying jobs, the agency concludes that the non-qualifying job wage requirement under §313.024(d) applies to projects eligible under Tax Code, Chapter 313, Subchapter C.

Mr. Craymer commented that §9.1053(f)(2)(H)(i) could prove problematic because it requires that the qualifying jobs be created during the qualifying time period and recommends that this rule amend the deadline so that the creation of new qualifying jobs is required by the end of the first year of the limitation period.

The agency responds that Tax Code, §313.0276(a) requires the agency to conduct "an annual review and issue a determination as to whether a person with whom a school district has entered into an agreement with under this chapter satisfied in the preceding year the requirements of this chapter regarding the creation of the required number of qualifying jobs." This statute does not permit the rule amendment suggested by the comment.

Mr. Larsen commented that §9.1053(f)(2)(L)(i) should not impose contractual penalties for failure to create the required number of qualifying jobs because Tax Code, §313.0276 is the exclusive remedy under Tax Code, Chapter 313 for an agreement holder's failure to create the required number of qualifying jobs.

The agency responds that HB 3390 amended the statute to include new Tax Code, §313.0276 which requires the agency to impose statutory penalties in the event an agreement holder fails to comply with the requirement to create the specified number of qualifying jobs. HB 3390 did not amend or otherwise change the existing statutory provisions for school districts to contractually enforce compliance with the terms of the agreements for limitation of appraised value. To accept the commenter's suggestion could impair the district's independent ability to enforce the qualified job provisions of the agreement.

Mr. Craymer commented that §9.1053(f)(2)(R) should not trigger an application amendment review by the agency and school district when an agreement holder assigns its interest in an agreement for limitation on appraised value to a new business owner because such a review is unnecessary.

The agency responds that the statute places restrictions on the type of entity that may enter into an agreement under the chapter. This rule is necessary for a school district and the agency to determine that the entity that is proposed to receive tax benefits is eligible for those benefits under the statute.

Mr. Lavine commented that §9.1054(i)(3) requires school districts to enforce the terms and conditions of the agreements for limitation on appraised value but that the Legislative Budget Board had reported that school districts have little incentive to enforce the agreements. Therefore Mr. Lavine recommends that the agency should exercise the authority to adopt rules and at a minimum comprehensively audit the Annual Eligibility Reports submitted by agreement holders.

The agency responds that the substance of the language in §9.1054(i)(3) previously existed as §9.1054(j). The only proposed change, other than numbering, is the elimination of the phrase "with particular reference to §313.0275." Section 313.0275 pertains to "recapture of ad valorem tax revenue lost," and was removed due to the addition of §313.0276 which has a similar purpose.

Mr. Lavine commented that §9.1055(d)(3)(A) creates a standard of review of an application by the agency that is weaker than necessary to ensure only qualified projects are approved and that the agency should conduct a full due diligence examination to determine the truth and accuracy of the information presented in an application.

The agency responds that the rule as amended is sufficient for the agency to insure compliance with the statute. Applications are submitted to the agency by units of government that are authorized by the state to perform the application review function. Further, state law imposes penalties for knowingly providing incorrect or false information.

Mr. Craymer commented that §9.1055(e), which extends the agency's agreement review period from seven to 20 days, does not seem justified because of the difficulties attendant to completing all the steps in the process and the addition of a standard agreement form.

The agency acknowledges the importance of prompt and speedy review of these agreements and also responds that an increase in the number of projects under consideration by the agency and the increased responsibility that the agency has for insuring compliance with the statute warrants additional flexibility in managing the flow of documents under this program. The agency also acknowledges that the use of a standardized agreement form will, to some degree, streamline agreement review. Therefore, the agency changes this proposed amendment to require the agency to review draft agreements within 10 business days.

Mr. Lavine referenced §9.1059 and commented that the Legislative Budget Board has reported that school districts have little incentive to enforce the provisions of Tax Code, Chapter 313. Therefore Mr. Lavine recommends that the agency should exercise the authority to adopt rules and at a minimum comprehensively audit the Annual Eligibility Reports submitted by agreement holders.

The agency responds that HB 3390 requires that the agency verify certain information provided under the subchapter, but that the statute largely leaves ongoing compliance of the agreements under school district control. The rules provide for verification by the agency where required by the legislature, but provides for local control where the legislature did not explicitly remove that control.