The Comptroller of Public Accounts adopts amendments to §9.1052, concerning forms, and §9.1059, concerning annual compliance review, without changes to the proposed text as published in the July 3, 2015, issue of the Texas Register (40 TexReg 4315). The comptroller adopts amendments to §9.1051, concerning definitions; §9.1053, concerning entity requesting agreement to limit appraised value; §9.1054, concerning school district application review and agreement to limit appraised value; and new §9.1060, concerning agreement for limitation on appraised value, with changes to the proposed text as published in the July 3, 2015, issue of the Texas Register (40 TexReg 4315).

The amendment to §9.1051, concerning definitions, paragraph (1) changes the definition of agreement to include an explicit reference to the form adopt by reference in §9.1052 of this title for the purpose of clarity. Paragraph (14) changes the definition of "non-qualifying job" to include the requirement that it be a permanent job, corrects a statutory reference and includes a reference to the new qualifying job definition. This definition is also changed to delete the requirement that the job did not exist prior to the application review start date. The Form Agreement requires that non-qualifying jobs meet these requirements after the application approval date so that it conforms to the manner in which the qualifying jobs requirement is implemented. The amendment to the definition of "average weekly wage for manufacturing jobs" in paragraph (21) provides that in the event that the wage authorized by subparagraph (A) is not available, then the wage authorized by subparagraph (B) is the wage. A missing word ("available") is added to the definition of "average weekly wage for non-qualifying jobs" in paragraph (22). Additionally, new paragraph (30) is added to define "qualifying job" that consolidates the requirements of a qualifying job from Tax Code, Chapter 313 into a single definition.

The amendment to §9.1052, concerning forms, identifies forms by the updated form numbers. The form adopted by reference in subsection (a)(5) is being changed in order to correct a prior numbering error. No changes are made to the form. The form adopted by reference in subsection (a)(6), the Texas Economic Development Act Agreement, is being changed to reflect the new form number, update certain statutory references, and provide greater flexibility to the parties to the agreement. The amendment in subsection (b) updates the form website address. The amendment to subsection (c) clarifies that this subsection applies to the Form Agreement adopted pursuant to this section as well as the application forms adopted pursuant to this section.

The amendments to §9.1053(f), concerning entity requesting agreement to limit appraised value, reduces the number of days for a draft agreement to be submitted to the school district and the comptroller prior to the school board meeting at which an application is considered. This amendment is intended to facilitate prompt application review. Subsection (f) is also amended to delete the provisions in the subsection that identify the terms of the agreement to reduce redundancy and avoid creating conflicts between the provisions of the rules and the Form Agreement.

Amendments are also adopted to §9.1054, concerning school district application review and agreement to limit appraised value. The amendments to subsection (g) delete the provisions that identify the required terms of a value limitation agreement to reduce redundancy and avoid creating conflicts between the provisions of the rules and the Form Agreement. The amendments to subsection (h) are to clarify the requirements for the school district review of a value limitation agreement prior to the start of a deferred qualifying time period in those instances when the school district has approved an agreement that permits the qualifying time period to start more than one year after the date that the application is approved.

The amendments to §9.1059(c), concerning annual compliance review for qualifying jobs and penalties, amend the wage determination for new qualifying jobs to be based on the site where the job is located rather than the location of the school district's administrative office. This amendment is intended to provide more accurate data regarding the job creation requirement.

New §9.1060, concerning agreement for limitation on appraised value, requires the school district and the applicant to implement a limitation on appraised value when the application is approved by executing a Texas Economic Development Agreement, utilizing the Form Agreement.

Seven comments were received regarding adoption of the amendments and the new section.

Matt Larsen with BakerBotts, LLP; John Kennedy with the Texas Taxpayers and Research Association; and the Tax Section of the State Bar of Texas express concern that duplicating the requirements for the Agreement for Limitation on Appraised Value in both §9.1060 and the Form Agreement will create conflict between the terms of the rule and the Form Agreement. The comptroller agrees with this comment and adopts the changes recommended by Mr. Kennedy. Specifically, the list of minimum terms required to be included in an agreement are deleted in §9.1060 and therefore the references in §9.1053(f)(2) and §9.1054(g) to the minimum terms listed in §9.1060 are deleted and replaced by references to §9.1052(a)(6) (the Form Agreement).

The Tax Section of the State Bar of Texas suggests adding links and references to all forms listed in the rules on the comptroller's website to make it easier to find the current version of the forms. The comptroller agrees with this comment and plans to link the forms to the relevant rules on its website.

Mr. Larsen comments that §9.1054(h) does not contain a deadline for the submission of an amendment to the application and the Agreement for Limitation on Appraised Value, but the Form Agreement contains such a deadline. The comptroller responds that the rule includes a deadline of 180 days, but moving the deadline to the beginning of subsection (h) will improve clarity. The comptroller adopts the addition of timeframe language to match the language used within §10.2.F of the Form Agreement.

Kevin O'Hanlon suggests changing "Exhibit 2" to "Exhibit 3" in the definition of "Applicant's Qualified Investment" in §1.1 of the Form Agreement because Exhibit 3 has been used in previous forms for qualified investments that do not involve land. The comptroller agrees with this comment and adopts this change. The comptroller also adopts a conforming change by renumbering the exhibits.

James W. Wester and Fred A. Stormer with Underwood, Attorneys at Law recommend adding definitions of "Applicable School Finance Law," "Maintenance and Operations Revenue," "Net Tax Savings," and "Revenue Protection Amount" to §1.1 of the Form Agreement. The comptroller responds that §1.1 does not include terms used in Articles IV, V and VI, as the definitions of the terms included in those articles are best addressed by the school district and the applicant in §1.2. The comptroller may provide additional guidance on typically used terms through program guidelines. No additional changes are being made as a result of this comment.

Mr. O'Hanlon suggests changing "Exhibit 3" to "Exhibit 2" in the definition of "Land" in §1.1 of the Form Agreement because Exhibit 2 has been used in previous forms for qualified investments that involve land. The comptroller agrees with this comment and adopts this change. The comptroller also adopts a conforming change by renumbering the exhibits. The comptroller also substitutes "are" for "is" in this definition to correct a grammatical error.

Mr. O'Hanlon recommends inserting language into the definition of "Maintain Viable Presence" in §1.1 of the Form Agreement that indicates that the applicant's retention of the required number of qualifying jobs is "subject to the provisions of §313.0276 of the TEXAS TAX CODE" to clarify that there is a possibility of a statutory job cure. The comptroller responds that the provisions of Tax Code, §313.0276 are solely related to the verification of, and penalty for, failure to create and maintain new qualifying jobs as required by the Act and does not address new qualifying jobs committed on Schedule C or wage requirements for new non-qualifying jobs. Additionally, any potential breaches and remedies are set forth in Article 9 of the Form Agreement. But, the comptroller recognizes that the definition of this term may be too broad. So, instead of adding the reference proposed by Mr. O'Hanlon, the comptroller adopts the following alternative definition that narrows the definition of the term: 'Maintain Viable Presence' means (i) the operation during the term of this Agreement of the facility or facilities for which the tax limitation is granted; and (ii) the Applicant's maintenance of jobs and wages as required by the Act and as set forth in this Agreement."

Mr. Larsen and Wes Jackson with Cummings Westlake, LLC, comment that the definitions of "New Qualifying Jobs" and "New Non-Qualifying Jobs" in §1.1 of the Form Agreement should not indicate that they are created during the qualifying time period. Instead, the words "after the Application Approval Date" should be included in the definitions to comply with the applicable provisions of the Tax Code. The comptroller agrees with this comment and adopts this change.

Mr. Wester and Mr. Stormer recommend changing the definition of "Tax Limitation Amount" in §1.1 of the Form Agreement to indicate that it is a "minimum" amount, not a "maximum" amount. The comptroller responds that "Tax Limitation Amount" is the value limitation for which the qualified property will be valued during the limitation period. As such, this amount is the maximum amount for the appraised value. No additional changes are being made as a result of this comment.

Mr. Wester and Mr. Stormer recommend adding a Tax Year Chart as an exhibit to the Form Agreement and adding a definition of "Tax Year" to §1.1 to support the recommended addition of the chart. The comptroller responds that all key dates related to the project are included in §2.3 and a separate Tax Year Chart is not required. However, if a school district and an applicant agree to include a Tax Year Chart, it may be included in new optional Exhibit 5 and the term "Tax Year" may then be defined in §1.2. The comptroller may choose to provide guidance on typically used terms through program guidelines. An optional Exhibit 5 is being added as a result of this comment.

Mr. O'Hanlon comments that if an applicant chooses the option described in §2.3.D.1.c (now §2.3.D.i.c) of the Form Agreement, a definition of "commencement of business operation" would need to be included in §1.2. In response to this comment, the comptroller changes "business operation" to "Commercial Operation" to mirror the statutory language found in Tax Code, §313.027. The comptroller notes that an applicant and a school district shall include a definition of "Commercial Operation" in §1.1 if the applicant chooses the option described in §2.3.D.i.c.

Mr. Wester and Mr. Stormer suggest revising §2.4.B of the Form Agreement to clarify the ability of a school district to select a limitation amount above the limitation listed in statute. The Comptroller agrees with this comment. As a result, the comptroller removes the reference to Tax Code, §313.027(b) in §2.4.B and instead references Tax Code, §313.027 and §313.054, both of which allow a school district to select a limitation amount greater than the limitation listed in statute.

Mr. O'Hanlon proposes adding a reference to Tax Code, §313.0276 in §§2.5.B, 2.5.C, and 2.5.D of the Form Agreement to address the ability to remedy a failure to create new qualifying jobs as required by statute. The language in Tax Code, §313.0276 relates only to the verification of, and penalty for, failure to create and maintain new qualifying jobs as required by the Act. To reduce redundancy, the comptroller deletes the language of §2.5.C because it is already included as an obligation in the provisions of §2.6.D. Section §2.5.D is therefore renumbered as §2.5.C. The comptroller adds the recommended reference to §2.5.B because it relates to new qualifying jobs. This recommended reference is not being added to the newly renumbered §2.5.C because it does not relate to new qualifying jobs.

Mr. O'Hanlon comments that the exhibit numbers listed in §3.2 and §3.3 of the Form Agreement are inconsistent with the definitions of "Applicant's Qualified Investment" and "Land" in §1.1 of the Form Agreement. The comptroller corrected the exhibit numbers in §1.1, so the exhibit numbers listed in §3.2 and §3.3 are correct. No additional changes are being made as a result of this comment.

Mr. Wester and Mr. Stormer recommend adding template language in Articles IV and V of the Form Agreement. The comptroller responds that the Form Agreement does not include provisions for use in Articles IV, V and VI, as those articles are best addressed by the school district and the applicant. If a school district or an applicant needs sample language for Articles IV and V, the comptroller may choose to provide assistance through program guidelines. No additional changes are being made as a result of this comment.

Mr. Wester and Mr. Stormer suggest changing the word "amount" to "limit" in §6.2.D of the Form Agreement. The comptroller agrees with this comment and adopts this change.

Mr. O'Hanlon recommends adding an option to allow the Average Daily Attendance (ADA) to float during the length of the agreement instead of being locked in at the time of agreement in §6.2.D of the Form Agreement. The comptroller agrees that the decision regarding whether to lock in the ADA at the time of agreement or allow the ADA to float during the length of the agreement is a decision best made between the school district and the applicant. The comptroller adopts optional language in §6.2.D that will allow the parties to choose between the school district's ADA at the time of agreement or the school district's ADA for the previous school year.

Mr. O'Hanlon comments that §8.6.C of the Form Agreement should not allow comptroller to amend an agreement to ensure the agreement complies with rules and procedures of the State Auditor. It would be better to make the agreement subject to future rules than to allow the comptroller, a non-signatory, to unilaterally amend the agreement. The comptroller agrees with this comment and adopts language that requires the parties to be "subject to all rules and procedures of the State Auditor acting under the direction of the legislative audit committee."

Mr. O'Hanlon suggests adding "during the Qualifying Time Period," to 9.1.B of the Form Agreement. The comptroller agrees with this comment and adopts this change.

Mr. O'Hanlon recommends making the provisions of §9.1.B of the Form Agreement subject to the cure provisions of Tax Code, §313.0275 by adding references in §9.1.B to Tax Code, §313.0275 and §9.6. The comptroller responds that references to Tax Code, §313.0275 are not necessary because the statute only provides for a penalty if the qualified investment is not made during the qualifying time period. This is not a cure. Failure to make the minimum qualified investment during the qualifying time period, as defined in Tax Code, §313.021 cannot be cured after the end of that period. As such, this material breach cannot be cured through the payment of a penalty as described in Tax Code, §313.0275. Likewise, the reference to §9.6 is not necessary because it relates to a penalty.

Mr. O'Hanlon recommends adding a reference to Tax Code, §313.0276 and §9.7 in §9.1.C of the Form Agreement. The comptroller responds that the provisions of Tax Code, §313.0276 are solely related to the verification of, and penalty for, failure to create and maintain new qualifying jobs as required by the Act and does not address new qualifying jobs committed on Schedule C or wage requirements for new non-qualifying jobs. This failure to create and maintain the number of new qualifying jobs required by the Act is a material breach, regardless of Tax Code, §313.0276; therefore, the reference does not need to be added. Multiple commenters requested the addition of a new §9.7 to allow for a remedy of the material breach in §9.1.C and the comptroller agrees to include an optional provision that will allow the parties to provide for a remedy in the agreement. The new optional §9.7 does not need to be referenced in §9.1.C as this serves only as a listing of events constituting a material breach of agreement. Other provisions in Article 9 address the process to determine if a breach has occurred, notify the applicant of a potential breach, and cure a breach.

Mr. O'Hanlon suggests adding references to Tax Code §313.0276 and §9.7 in §9.1.D and §9.1.E of the Form Agreement. The comptroller responds that references to Tax Code, §313.0276 and new optional §9.7 are not necessary because they are not related to the number of new qualifying jobs committed to in the application nor the wage requirements for non-qualifying jobs. However, the comptroller adds a new optional §9.8 to address concerns raised about the ability to remedy non-compliance with failure to create and maintain new qualifying jobs committed to in Schedule C of the application.

Mr. Larsen suggests deleting §9.1.O because it is "superfluous" and violates Tax Code, §313.0276. The comptroller agrees the provision is superfluous in that the requirements in §9.1.O would not take effect until the applicant is already in material breach of the agreement under §9.1.C. The comptroller adopts this change.

Mr. Larsen comments that the length of time to complete mediation listed in §9.3.A of the Formal Agreement should be increased from 90 days to 180 day after a decision is made to initiate mediation because "90 days is insufficient and such an unreasonable deadline would likely undermine the parties' good-faith attempts to avoid judicial proceedings." The comptroller responds that the time frame for either tendering payment, providing evidence of efforts to cure, or initiating mediation is adequately set forth in the Form Agreement. However, additional time to resolve mediation is necessary if mediation is the selected course. The comptroller revises the language of §9.3 to allow up to 90 days "after the Applicant initiates mediation," rather than 90 days "after receipt of notice of the Board of Trustee's determination of breach."

Mr. Larsen suggests that the time to resolve a dispute in §9.3.B of the Form Agreement should be extended from 90 days to 180 days. In response to this comment, the comptroller adds a reference to the 90 day time period provided in §9.3.A.