Dallas/Fort Worth State Tax Association, 2000 Schedule of Events

July 11, 2001
FOR IMMEDIATE RELEASE:

Review of the 77th Session of the Texas Legislature.

By Mark W. Eidman

The Texas Legislature's 77th session ended May 28, 2001. The Legislature will not reconvene until January 2003. The following is a comprehensive review of the major tax-related bills passed this session. This review, however, does not attempt to analyze the hundreds of tax bills filed. For more information, please contact a Ryan & Company professional.

The major concern for corporate taxpayers will be the 2003 Session where a significant tax bill now seems likely.

1. Senate Bill 1125 - Technical Corrections.

S.B. 1125 has been signed by the Governor and will be effective September 1, 2001.

S.B. 1125, Section 3, amends Texas Local Government Code Section 326.029. The bill sets forth additional contents and filing requirements of an order canvassing the results of the election to confirm a library district.

S.B. 1125, Section 4, amends Texas Local Government Code Chapter 363, Subchapter F by adding Section 363.262. The bill requires the notification of the Comptroller of Public Accounts in writing no later than the 10th day after the referendum returns are canvassed for a continuation or dissolution of a crime control and prevention district election by the board of directors of the district. The bill sets forth provisions regarding the effective date of the abolition of local crime control sales and use tax after a district is dissolved or discontinued by referendum.

S.B. 1125, Section 6, amends Texas Local Government Code Section 383.104 by adding Subsection C. The bill sets forth provisions regarding the discontinuance of the sales and use tax of a county development district if the tax revenue is not collected within the district before the first anniversary of the date the tax took effect, the required notification by the Comptroller to the board of directors of the district and the commissioners court of the county of the discontinuance of the tax, and the authorization of the district to reimpose the tax after discontinuance.

S.B. 1125, Section 10, amends Texas Tax Code Section 111.302. The bill increases the time period from 60 to 90 days within which the Comptroller is required to compute the total amount of a tax refund for certain ad valorem taxes. If an eligible person who enters into tax abatement agreements with the municipality and the county, and the agreements provided to the Comptroller show the agreements exempt different portions of the property value, then the refund amount is required to be computed based on the greater of the portions exempted.

S.B. 1125, Section 12, amends Texas Tax Code Section 151.007(a). The bill provides that the cost of "installation" is included in the sales price of a taxable item.

S.B. 1125, Section 13, amends Texas Tax Code Section 151.010. The bill provides that the sales or use of a taxable item in electronic form instead of on physical media does not alter its tax status, unless otherwise provided.

S.B. 1125, Section 14, amends Texas Tax Code Section 151.057. The bill replaces the sales tax exemption for "temporary help services" with an exemption for a "temporary employment service as defined by Section 93.001, Labor Code."

S.B. 1125, Section 16, amends Texas Tax Code Section 151.257. The bill provides that a surety's obligation under a bond filed is not affected by whether the surety has a record of the receipt of a copy of the Comptroller's determination notice or payment demand.

S.B. 1125, Section 17, amends Texas Tax Code Chapter 151, Subchapter H by adding Section 151.3021. The bill exempts internal and external wrapping, packing, and packaging supplies from the imposition of the limited sales, excise, and use tax if sold to a person who is a laundry or dry cleaner for use in wrapping, packing, or packaging an item that has been pressed and dry cleaned or laundered by the person operating as a laundry or dry cleaner in the regular course of business.

S.B. 1125, Section 19, amends Texas Tax Code Section 151.310(d). The bill provides that if two or more organizations jointly hold a tax-free sale or auction, each organization is authorized to hold one additional tax-free sale or auction during the calendar year in which the joint sale or auction is held.

S.B. 1125, Section 20, amends Texas Tax Code Section 151.313. The bill includes dietary supplements as an item that is exempt from the sales, excise, and use taxation. The bill also sets forth provisions regarding the characteristics of a product for it to be considered a dietary supplement or a drug or medicine.

S.B. 1125, Section 21, amends Texas Tax Code Section 151.317. The bill provides that the gas and electricity used in timber operations, including the pumping for irrigation of timber land is exempt from the limited sales, excise, and use tax.

S.B. 1125, Section 22, amends Texas Tax Code Section 151.318. The bill includes photographic props that are necessary and essential to and used in connection with the printing process in the exemption of sales, excise, and use tax if a person engaged in certain printing or producing operations purchases them.

S.B. 1125, Section 23, amends Texas Tax Code Chapter 151, Subchapter H, by adding Section 151.3181. The bill provides that the divergent use of exempted manufacturing property will not result in sales and use tax being due on the property if the divergent use occurs after the fourth anniversary of the date the property was purchased. The bill sets forth provisions regarding the calculation of the sales and use tax due on certain exempt manufacturing properties, the amount of divergent use, the total use of property, and the percentage of divergent use.

S.B. 1125, Section 24, amends Texas Tax Code Section 151.3185. The bill provides that the sale of a motion picture, video, or audio master by the producer of the master and the sale of tangible personal property to certain entities is also exempt from the limited sales, excise, and use tax.

S.B. 1125, Section 26, amends Texas Tax Code Section 152.052. The bill authorizes a person who is a motor vehicle owner, who is in the business of renting motor vehicles, and holds a permit to deduct the fair market value of a replaced motor vehicle that is titled to another person, if the replaced motor vehicle is offered for sale, and either person holds a beneficial ownership interest in the other person for at least 80 percent or acquires all of its vehicles exclusively from franchised dealers whose franchisor shares common ownership with the other person.

S.B. 1125, Section 27, amends Texas Tax Code Section 152.041. The bill provides that for motor vehicles designed for commercial use, the imposition of retail sales tax and tax on motor vehicles purchased outside this state is due on the 20th working day after the date the motor vehicle is equipped with a body or other equipment that enables it to be registered under the Transportation Code.

S.B. 1125, Section 30, amends Texas Tax Code Section 153.001, Subdivision (25). The bill includes dyed diesel fuel bonded users, agricultural bonded users, and bulk users in provisions regarding motor fuel taxation.

S.B. 1125, Section 31, amends Texas Tax Code Section 151.018. The bill requires a bulk plant to post notices regarding certain duties of importers and exporters in a conspicuous location proximate to the point of receipt of shipping papers.

S.B. 1125, Section 35, amends Texas Tax Code Section 153.122. The bill removes the filing fee for a gasoline tax refund payment. S.B. 1125, Section 36, amends Texas Tax Code Section 153.203. Provisions imposing a diesel fuel tax do not apply to the volume of water that is blended together with taxable diesel fuel when the finished product sold or used is clearly identified on the retail pump, storage tank, and sales invoice as a combination of diesel fuel and water.

S.B. 1125, Section 37, amends Texas Tax Code Section 153.205. The bill modifies provisions regarding the use of a signed statement to purchase dyed diesel fuel or undyed diesel fuel and prohibits a supplier from making a tax-free sale of any diesel fuel to a purchaser using a signed statement unless the purchaser has an end user number or agricultural exemption number issued by the Comptroller. The bill modifies the taxation of the sale of dyed diesel fuel and undyed diesel fuel provided a purchaser furnishes a signed statement with certain stipulations and modifies the tax-free sale of dyed and undyed diesel fuel for an agricultural nonhighway use provided the purchaser furnishes a signed statement with certain stipulations. The bill sets forth provisions regarding the relief of a permitted supplier from the burden of proof for nontaxable dyed or undyed diesel fuel, and the criminal penalty and forfeiture of rights for certain offenses related to the taxation of dyed or undyed diesel fuel.

S.B. 1125, Section 41, amends Texas Tax Code Section 153.221. The bill deletes the provision that a common or contract carrier is required to file a report regarding diesel fuel transactions.

S.B. 1125, Section 43, amends Texas Tax Code Section 153.225. The bill deletes provisions regarding the filing fee for diesel fuel tax refund payments.

S.B. 1125, Sections 46 to 53 and Section 55, amend Texas Tax Code Sections 154.001, 154.101, 154.102, 154.110, 154.501, 155.001, 155.041, 155.048 and 155.201 respectively. The bill provides for taxation purposes, that the permit requirements of and the penalties applicable to cigarette, cigar, or tobacco of cigarette, cigar, and tobacco product distributors, wholesalers, bonded agents, and retailers also apply to manufacturers and importers of these products.

S.B. 1125, Section 54, amends Texas Tax Code Section 155.111. The bill requires a distributor of tobacco products to include in the required report regarding the sale, distribution, exchange, or use of tobacco products only tobacco products that are sold in this state if more than fifty percent of all untaxed tobacco products received by the distributor in this state are actually sold outside of this state.

S.B. 1125, Section 56, amends Texas Tax Code Section 171.076. The bill specifies that the exemption of an incorporated cooperative credit association from the franchise tax includes an organization under a federal charter for a production credit association or an agricultural credit association regulated by the Farm Credit Administration.

S.B. 1125, Sections 57 and 58, amend Texas Tax Code Sections 171.1032 and 171.051 respectively. The sections provide, in apportioning taxable earned surplus, that a corporation is required to include in the gross receipts from its business done in this state and its entire business, the corporation's share of certain gross receipts of each partnership and joint venture.

S.B. 1125, Section 59, amends Texas Tax Code Section 171.176. A banking corporation, in order to determine the taxable income and taxable earned surplus, is required to exclude from the numerator of its apportionment factor interest earned on federal funds and interest earned on securities sold under agreement to repurchase that are held in this state in a correspondent bank that is domiciled in this state.

S.B. 1125, Section 60, amends Texas Tax Code Section 171.109. The bill provides that for the determination of taxable income and taxable earned surplus, a corporation must use the equity method of accounting when reporting an investment in a partnership or joint venture.

S.B. 1125, Section 61, amends Texas Tax Code Section 171.1121. The bill sets forth provisions regarding a corporation's share of a partnership's gross receipts that is included in its federal taxable income that must be used in calculating the corporation's gross receipts for earned surplus purposes. The gross receipts must be apportioned as though the corporation directly earned them.

S.B. 1125, Sections 63 to 65 and Section 71, amend Texas Tax Code Sections 171.501, 171.655, 171.685 and 171.834 respectively. The bill modifies provisions regarding a refund for job creation in an enterprise zone, tax credit for wages paid to the participants or former participants of the Texas Department of Criminal Justice work program, tax credit for wages paid to certain children committed to the Texas Youth Commission, and tax credit for before and after programs for children.

S.B. 1125, Section 66, amends Texas Tax Code Section 171.705. The bill provides that for a tax credit for establishing a day-care center or purchasing child-care services, a corporation is prohibited from claiming as a tax credit an amount before any other applicable credits that exceeds 90 percent of the amount of tax due for the report for tax credit.

S.B. 1125, Section 67, amends Texas Tax Code Section 171.753. The bill decreases, from 25 percent to 5 percent of the total wages and salaries paid by a corporation for qualifying jobs during the period upon which the tax is based, to receive a tax credit for the specified creation of jobs by a corporation.

S.B. 1125, Section 68, amends Texas Tax Code Section 171.754. The bill deletes provisions that require the credit to be claimed in five equal installments of one-fifth the credit amount.

S.B. 1125, Section 72, amends Texas Tax Code Chapter 171 by adding Subchapter S. The bill prohibits the total credits for franchise taxes in the tax credit report by a corporation, including the amount of any carryforward credits, from exceeding the amount of franchise tax due for the report.

S.B. 1125, Section 73, amends Texas Tax Code Section 211.055. The bill deletes provisions regarding the maximum inheritance tax imposed and requires that the amount of inheritance taxes is not to exceed the amount of tax calculated under certain federal provisions.

S.B. 1125, Section 74, amends Texas Tax Code Section 321.102. The bill provides that the two percent limit on the combined rate of all sales and use tax imposed by municipality and a local governmental entity on an area do not apply to a local governmental entity that has outstanding indebtedness or obligations that are payable wholly or partly from the sales and use tax revenue of the entity. The bill prohibits the combined rate of all sales and use tax imposed by a municipality, local governmental entity, and any other political subdivisions, except library districts, having territory in the district from exceeding two percent at any location in the municipality.

S.B. 1125, Sections 75 to 77, amend Texas Tax Code Subchapter D, Chapters 321 to 323 respectively. The bill sets forth provisions regarding the issuance, imposition, retainment, and remittance of the sales and use tax of a municipality, a special purpose district, and a county.

S.B. 1125, Section 78, amends Texas Health and Safety Code Section 311.045. The bill deletes the Comptroller's office from the entities with whom a nonprofit hospital or hospital system is required to file a statement concerning the satisfying of hospital standards no later than the 120th day after the end of the fiscal year of a hospital or hospital system.

S.B. 1125, Section 80, amends Texas Property Code Section 74.402. The bill adds Travis County to the areas that the Comptroller's office is required to publish notice of a public sale in a newspaper in general circulation before the 21st day preceding the day on which the public sale is held. The bill authorizes the Comptroller to post on the Comptroller's own website the notice of a public sale to be held on the Internet or by an online auction before the seventh day preceding the date of the sale or auction is held.

S.B. 1125, Section 81, amends the Texas Racing Act (Article 179(e), Vernon's Texas Civil Statutes) Section 11.011. The bill amends the Texas Racing Act to remove provisions regarding the responsibility of a track where a race originates for the state's share of the pari-mutuel pool if intrastate wagering pools are combined between tracks. The bill provides that the racetrack where the wager is made is responsible for reporting and remitting the state's share of the pari-mutuel pool.

S.B. 1125, Section 83, amends Revised Statutes Article 6550c-1, Section 9. The bill amends law to require the imposition of a sales and use tax by an intermunicipal commuter rail district and provides that the rate of imposition is the highest combination of local sales and use taxes imposed at the time of its creation in any local governmental jurisdiction that is a member of a district. The bill provides that all other local sales and use taxes which would otherwise be imposed on the district property are preempted by the imposition of this tax. The bill requires the Comptroller to administer, collect, and enforce any sales and use taxes and provides that the computation, administration, governance and use of the taxes are governed under the Municipal Sales and Use Tax Act. The bill sets forth provisions regarding the requirement of an intermunicipal commuter rail district to provide certain notification to the Comptroller and affected local jurisdictions of the creation of the district or acquisition of additional property by the district and the district's intent to impose a sales and use tax. The bill also sets forth provisions regarding the requirement of the Comptroller to notify the district no later than the 30th day after the date of the receipt of such notification by the district whether the Comptroller is prepared to administer the tax and provides for the effective date of the imposition of these taxes.

S.B. 1125, Section 84, repeals Texas Tax Code Sections 151.319, Subsections (d) and (e); 171.757, Subsections (c) and (d); and 201.052, Subsection (b). The bill repeals the sales, excise, and use tax exemption on certain tangible personal property and chemicals, catalyst, and other materials relating to the publication of newspapers. The bill repeals provisions regarding the expiration of tax credit for certain job creation activities when the number of a corporation's full-time employees falls below the number of those employees the corporation had in the year in which the corporation qualified for the credit, the credit expires and the corporation is prohibited from taking any remaining installment. The bill also repeals provisions regarding the minimum tax rate on sweet and sour gas produced and saved in this state.

S.B. 1125, Section 87, authorizes the Comptroller, before October 1, 2001, to adopt rules and take other actions as the Comptroller deems necessary or advisable to prepare for this Act to take effect.

2.	Senate Bill 1123 - Relates to the enforcement and collection of taxes, fees, and other revenue and also provides for criminal penalties.

S.B. 1123 has been signed by the Governor and will be effective September 1, 2001.

S.B. 1123, Section 2, amends Texas Government Code Section 411.109. It entitles the Comptroller to obtain from the Department of Public Safety of the State of Texas criminal history record information maintained by the Department that the Comptroller believes is necessary for the enforcement or administration of Chapter 159 (Controlled Substances Tax) of the Texas Tax Code.

S.B. 1123, Section 6, amends Texas Tax Code Chapter 111, Subchapter A by adding Section 111.024. It provides that a person who acquires a business or the assets of a business from a taxpayer through a fraudulent transfer or a sham transaction is liable for any tax, penalty, and interest owed by the taxpayer. A transfer of a business or the assets of a business is considered to be a fraudulent transfer or a sham transaction if the taxpayer made the transfer or undertook the transaction (1) with intent to evade, hinder, delay, or prevent the collection of any tax, penalty, or interest owed under this title or (2) without receiving a reasonably equivalent value in exchange for the business or business assets subject to the transfer or transaction. The bill also lists some factors to be considered in determining the intent of the taxpayer. Additionally it provides that this section does not apply to a transfer of a business or the assets of a business through a court order on dissolution of a marriage or by descent or distribution or testate succession on the death of a taxpayer.

S.B. 1123, Section 3, amends Texas Tax Code Section 111.020 by adding Subsection (f). It provides that compliance with Subsection (a) is not a defense to an assessment of tax liability under Section 111.024 if: (1) the amount withheld from the purchase price is not sufficient to fully satisfy the liability of the seller of the business or stock of goods and (2) the purchase price paid to the seller for the business or stock of goods is not reasonably equivalent to the value of the business or stock of goods.

S.B. 1123, Section 7, amends Texas Tax Code Section 113.009 by adding Subsection (c). It prohibits a state tax lien filed under this chapter from being released fully until the taxpayer pays all other taxes, penalties, interest, fees, or sums that the taxpayer owes the state and that are administered or collected by the Comptroller.

S.B. 1123, Section 9, amends Texas Tax Code Section 151.023. To determine the amount of tax collected and payable to the state, the amount of tax accruing and due, and whether a tax liability has been incurred under this chapter, the bill authorizes the Comptroller or a person authorized by the Comptroller to (1) inspect at any time during business hours any business premises where a taxable event has occurred and examine, copy, and photograph the books, returns, records, papers, and equipment relating to the conduct in question and (2) require by delivery of written notice to the taxpayer or to an employee, representative, or agent of the taxpayer that, not later than the 10th working day after the date the notice is delivered, the taxpayer produce to an agent or designated representative of the Comptroller for inspection the books, records, papers, and returns relating to the taxable activity stated in the notice.

S.B. 1123, Section 10, amends Texas Tax Code Section 151.025, Subsection (a). It requires all sellers and all other persons storing, using, or consuming in this state a taxable item purchased from a retailer to keep: (1) records of gross receipts, including documentation in the form of receipts, shipping manifests, invoices, and other pertinent papers, from each rental, lease, taxable service, and taxable labor transaction occurring during each reporting period; (2) records in the form of receipts, shipping manifests, invoices, and other pertinent papers of all purchases of taxable items from every source made during each reporting period; and (3) records in the form of receipts, shipping manifests, invoices, and other pertinent papers that substantiate each claimed deduction or exclusion authorized by law. It also deletes language regarding receipts invoices and other pertinent papers.

Other sections of the bill define, provide penalties for, and establish venue for various crimes under this Act.

3.	Senate Bill 1689 - Redefines which insurance entities qualify for the franchise tax and clarifies who may claim a business loss after a merger.

S.B. 1689 has been signed by the Governor and will be effective September 1, 2001.

S.B. 1689, Section 1, amends Texas Tax Code Section 171.052 as described below.

A.

Without this amendment, "a corporation that is an insurance company, surety, guaranty, or fidelity company" is eligible for a franchise tax exemption. If this bill passes, an insurance organization, title insurance company, or title insurance agent authorized to engage in insurance business in this state, now required to pay an annual tax measured by its gross premium receipts, will be exempt from the franchise tax.

B. Also, an insurance organization performing management or accounting activities in this state on fidelity company" is eligible for a franchise tax exemption. If this bill passes, an insurance organization, title insurance company, or title insurance agent authorized to engage in insurance business in this state, now required to pay an annual tax measured by its gross premium receipts, will be exempt from the franchise tax.

C. Farm mutuals, local mutual aid associations, and burial associations are not subject to the franchise tax.

S.B. 1689, section 2, amends Texas Tax Code Section 171.110 to provide that a business loss can be carried forward only by the corporation that incurred the loss and cannot be transferred to or claimed by any other entity, including the survivor of a merger, if the loss was incurred by the corporation that did not survive the merger.

4.	Senate Bill 1690 - Modifies provisions relating to the taxation of insurance companies and certain insurance agents.

S.B. 1690 has been signed by the Governor and will be effective September 1, 2001.

S.B. 1690 amends the Insurance Code to exempt insurance organizations that are authorized to do insurance business in this state (other than surplus lines insurers), title insurance companies, and title insurance agents from paying a tax levied in proportion to the gross premium receipts levied by this state or any county or municipality, except as otherwise provided by the Tax or Labor Code. The bill prohibits this exemption from being construed to limit the applicability of other taxes, fees, and assessments or to prohibit the levy and collection of certain taxes. Additionally, the bill deletes certain provisions relating to the levy of an occupational tax on insurance organizations, title insurance companies, title insurance agents, and insurance carriers or related companies. The bill also deletes the prohibition on requiring domestic insurance companies to pay occupation or gross receipts taxes.

5.House Bill 1200 - Creates Tax Incentives Tied to Job Development.

H.B. 1200 was not signed by the Governor, but was automatically passed and will be effective January 1, 2002, except Section 312.006 of the Texas Tax Code, as amended by this Act, which will become effective September 1, 2001.

H.B. 1200 amends Texas Tax Code, Subtitle B, Title 3 by adding Chapter 313 as described below.

A.
H.B. 1200 allows Texas school sistricts to cap property taxes for businesses that expand facilities and create new jobs in their area. Specifically, it authorizes the school districts to place an appraised value of a company's qualified property for school district maintenance and operations ad valorem tax purposes. To qualify for the cap, a business must:

(1) be a corporation or limited liability company,

(2) use the property in connection with manufacturing, research and development, or renewable energy electric generation,

(3) create at least 25 new jobs (for urban areas) or 10 new jobs (for rural areas), and

(4) make a minimum property investment. In addition, the property must be located in a

designated reinvestment or enterprise zone. The minimum amount of investment required and the minimum amount of value limitation allowed are determined based on a sliding scale tied to the taxable value of property in the particular school district

B. The bill requires businesses seeking to take advantage of the tax break to apply to the governing body of the school district in which the property is located. The governing body has complete discretion as to whether or not to consider an application. If it elects to consider an application, it is required to seek a recommendation from the state Comptroller and to engage a third party to conduct an economic impact evaluation. Subject to the minimum amounts imposed in the bill, the amount of the value limitation is to be negotiated and agreed to between the applicant and the governing body.

C. The bill's drafters were careful to ensure that it does not overlap with tax abatements provided under the Property Redevelopment and Tax Abatement Act (Tax Code Chapter 312) by restricting qualified property to property that is not subject to a tax abatement agreement. In a related provision, the bill also extends the Property Redevelopment and Tax Abatement Act through September 1, 2005.

6.House Bill 1845 - Simplified Sales and Use Tax Administration Act.

H.B. 1845 has been signed by the Governor and will be effective September 1, 2001.

H.B. 1845, Section 1, amends Texas Tax Code Title 2, Subtitle D by adding Chapter 142 as described below.

A. Requires this state to enter into multistate discussions for the purposes of reviewing or amending the agreement embodying the simplification requirements prescribed by Section 142.007. It also prohibits this state from being represented by more than four delegates for purposes of those discussions.

B. Provides that the Comptroller is authorized and directed to participate in the development of the Streamlined Sales and Use Tax Agreement with one or more states to simplify and modernize sales and use tax administration in order to substantially reduce the burden of tax compliance for all sellers and for all types of commerce. It also authorizes the Comptroller, in the development of the agreement, to act jointly with other states that are members of the agreement to establish standards for certification of a certified service provider and certified automated system and establish performance standards for multistate sellers. In addition, it authorizes the Comptroller or the Comptroller's designee to represent this state before the other states that are signatories to the agreement.

C. Provides that the agreement authorized by this chapter does not, in whole or part, invalidate or amend a law of this state and adoption of the agreement by this state does not amend or modify a law of this state. It requires implementation of a condition of the agreement in this state, whether adopted before, at, or after membership of this state in the agreement, to be by the action of this state.

D. Prohibits the Comptroller from entering into the agreement authorized by this chapter unless the agreement requires each state to comply with the requirements prescribed by this section.

The bill requires the agreement to:

1. set restrictions to limit over time the number of state rates.

2. establish uniform standards for the sourcing of transactions to taxing jurisdictions, the administration of exempt sales, and sales and use tax returns and remittances.

3. provide a central, electronic registration system that allows a seller to register to collect and remit sales and use taxes for all signatory states.

4. provide that registration with the central registration system and the collection of sales and use taxes in the signatory states will not be used a s a factor in determining whether the seller has nexus with a state for any tax.

5. set restrictions to limit over time the number of state rates.

a. restricting variances between the state and local tax bases;

b. requiring states to administer any sales and use taxes levied by local jurisdictions within the state so that sellers collecting and remitting these taxes will not have to register or file returns with, remit funds to, or be subject to independent audits from local taxing jurisdictions;

c. restricting the frequency of changes in the local sales and use tax rates and setting effective dates for the application of local jurisdictional boundary changes to local sales and use taxes; and

d.
providing notice of changes in local sales and use tax rates and of changes in the boundaries of local taxing jurisdictions.

6.
outline any monetary allowances that are to be provided by the states to sellers or certified service providers.

7. allow for a joint public and private sector study of the compliance cost on sellers and certified service providers to collect sales and use taxes for state and local governments under various levels of complexity to be completed by July 1, 2002.

8. require each state to certify compliance with the terms of the agreement before joining and to maintain compliance, under the laws of the member state, with all provisions of the agreement while a member.

9. require each state to adopt a uniform policy for certified service providers that protects the privacy of consumers and maintains the confidentiality of tax information.

10. provide for the appointment of an advisory council of private sector representatives and an advisory council of nonmember state representatives to consult with in the administration of the agreement.

E. Provides that the agreement authorized by this chapter is an accord among individual cooperating sovereigns in furtherance of their governmental functions. Further, it provides that the agreement provides a mechanism among the member states to establish and maintain a cooperative, simplified system for the application and administration of sales and use taxes under the duly adopted law of each member state.

F. Provides that the agreement authorized by this chapter binds and inures only to the benefit of this state and the other member states. Also it provides that a person, other than a member state, is not an intended beneficiary of the agreement. A benefit to a person other than a state is established by the law of this state and the other member states and not by the terms of the agreement. A person does not have a cause of action or defense under the agreement or by virtue of this state's approval of the agreement. The bill prohibits a person from challenging, in any action brought under any law, an action or inaction by any department, agency, or other instrumentality of this state, or any political subdivision of this state, on the ground that the action or inaction is inconsistent with the agreement. Prohibits a law of this state, or the application of the law, from being declared invalid as to any person or circumstance on the ground that the provision or application is inconsistent with the agreement

G. Provides that a certified service provider is the agent of a seller, with whom the certified service provider has contracted, for the collection and remittance of sales and use taxes. As the seller's agent, the certified service provider is liable for sales and use tax due each member state on all sales transactions the provider processes for the seller except as provided by this section.

H. The bill provides that a seller that contracts with a certified service provider is not liable to this state for sales or use tax due on transactions processed by the certified service provider unless the seller misrepresented the type of items it sells or committed fraud. In the absence of probable cause to believe that the seller has committed fraud or made a material misrepresentation, the seller is not subject to audit on the transactions processed by the certified service provider. A seller is subject to audit for transactions not processed by the certified service provider. Authorizes the member states acting jointly to perform a system check of the seller and review the seller's procedures to determine if the certified service provider's system is functioning properly and the extent to which the seller's transactions are being processed by the certified service provider.

I. Provides that a person that provides a certified automated system is responsible for the proper functioning of that system and is liable to this state for underpayments of tax attributable to errors in the functioning of the certified automated system. A seller that uses a certified automated system remains responsible and is liable to this state for reporting and remitting tax.

J. Provides that a seller that has a proprietary system for determining the amount of tax due on transactions and has signed an agreement establishing a performance standard for that system is liable for the failure of the system to meet the performance standard.

7.	House Bill 1098 - Modifies the procedure for the collection of taxes on printed materials distributed by mail.

H.B. 1098 has been signed by the Governor and will be effective September 1, 2001.

H.B. 1098, Section 1, amends Texas Tax Code Section 151.052 by adding Subsection (d) as described below.

A. The bill establishes a presumption for the purposes of the printer's tax collection duty. It is presumed that printed materials distributed by the U.S. Postal Service (either singly or in sets), addressed to individual recipients (other than the purchaser), and that are either produced at a printer's facility in this state or purchased in this state are for use in Texas. Under this presumption, the printer must collect the tax imposed under this chapter.

B. The bill also establishes the requirements to overcome the above presumption. The purchaser is required to issue an exemption certificate to the printer if the materials are for distribution to both in-state and out-of-state recipients. The certificate must state that the printed materials are for multi-state use and that the purchaser agrees to pay this state all taxes that are or may become due to this state on the taxable items purchased under the certificate.

"Printed materials" is defined under this subsection as "materials that are produced by web offset or rotogravure printing processes."

D. A printer that is relieved of the obligation to collect the taxes imposed by this chapter on the foregoing materials is required to file a report as provided by Section 151.407. H.B. 1098, Section 3, allows the Comptroller to adopt rules and forms to implement the collection requirements provided by Subsection (d) of the Texas Tax Code Section 151.052 added by this Act.

8.	Senate Bill 1497 - Establishes uniform nationwide sourcing rules for state and local
	taxation of mobiletelecommunications services.

S.B. 1497 has been signed by the Governor and will be effective August 1, 2002.

S.B. 1497, Section 1, amends Texas Tax Code Chapter151, Subchapter C by adding Section 151.061 as described below.

A. Defines "home service provider," "place of primary use," and "electronic database."

B. Provides that this section applies to state and local sales and use taxes.

C. Provides that the Mobile Communications Sourcing Act (4 U.S.C. Sections 116-126) governs the sourcing of charges for mobile communications services. In accordance with that act, the following requirements have to be met:

(1) Mobile telecommunications services provided to a customer in a taxing jurisdiction shall be deemed to be provided by the customer's home service provider if the charges are billed by or for the customer's home service provider.

(2) All charges deemed to be provided by the customer's home service provider are authorized to be subjected to tax, charge or fee by the taxing jurisdictions whose territorial limits encompass the customer's place of primary use. This is regardless of where the mobile telecommunications services originate, terminate, or pass through. Also, no other taxing jurisdiction may impose a tax, charge or fee on charges for such services.

D. Provides for the procedure and requirements for notifying the home service provider if the customer believes that the amount of tax or assignment of place of primary use or taxing jurisdiction included on a billing is erroneous.

E. Requires the home service provider, not later than the 60th day after the date it receives a request under Subsection (d), to review its records and the electronic database or enhanced zip code to determine the correct amount of the tax imposed of the assignment or the customer's place of primary use or taxing jurisdiction, as appropriate. If the home service provider determines that the amount of tax imposed or the assignment of place of primary use or taxing jurisdiction is incorrect, the bill requires it to correct the error and refund or credit any amount of tax erroneously collected from the customer for a period of up to four years. If the home service provider determines that the amount of tax imposed or the assignment of place of primary use or taxing jurisdiction is correct, the bill requires it to provide a written explanation to the customer.

F. Provides that the procedures prescribed by Subsections (E) and (F) are the first course of remedy available to a customer requesting a correction of assignment of place of primary use or of taxing jurisdiction or a refund of or other compensation for taxes erroneously collected by the home service provider.

G. Authorizes the state, or designated database provider, to provide an electronic database to a home service provider.

H. Requires the state or the designated database provider that provides or maintains an electronic database to provide notice of the availability of the then current electronic database, and any subsequent revisions thereof, by publication in the manner normally employed by the state.

I. Provides that a home service provider using the data contained in an electronic database is exempt from any tax, charge, or fee liability that otherwise would be due solely as a result of any error or omission in such database provided by the state or designated database provider. It also requires the home service provider to reflect changes made to such database during a calendar quarter not later than 30 days after the end of such calendar quarter.

J. Provides that if neither the state nor the designated database provider provides an of flood control taxes or the use of funds generated by flood control taxes.electronic database, a home service provider is to be exempt from any tax, charge, or fee liability in the state that otherwise would be due solely as a result of an assignment of a street address to an incorrect taxing jurisdiction. But only if, subject to Subsection (N), the home service provider employs an enhanced zip code to assign each street address to a specific taxing jurisdiction for each level of taxing jurisdiction and exercises due diligence at each level of taxing jurisdiction to ensure that each such street address is assigned to the correct taxing jurisdiction. The bill requires that if an enhanced zip code overlaps boundaries of taxing jurisdictions of the same level, the home service provider is to designate one specific jurisdiction within such enhanced zip code for use in taxing the activity for such enhanced zip code for each level of taxing jurisdiction. It also provides that any enhanced zip code assignment changed in accordance with Subsection (N) is deemed to be in compliance with this section. For purposes of this section, there is a rebuttable presumption that a home service provider has exercised due diligence if such home service provider demonstrates that it has undertaken certain requirements.

K. Provides that Subsection (J) applies to a home service provider that is in compliance with the requirements of that subsection if an electronic database is not provided until the later of: (1) 18 months after the nationwide standard numeric code has been approved by the Federation of Tax Administrators and the Multistate Tax Commission or (2) 6 months after the state or a designated database provider in the state provides such database.

L. Requires a home service provider to be responsible for obtaining and maintaining the customer's place of primary use. Subject to Subsection (N), and if the home service provider's reliance on information provided by its customer is in good faith, the bill requires the taxing jurisdiction to (1) allow a home service provider to rely on the applicable residential or business street address supplied by the home service provider's customer and (2) not hold a home service provider liable for any additional taxes, charges, or fees based on a different determination of the place of primary use for taxes, charges, or fees that are customarily passed on to the customer as a separate itemized charge.

M. Requires a taxing jurisdiction, except as provided in Subsection (n), to allow a home service provider to treat the address used by the home service provider for tax purposes for any customer under a service contract or agreement in effect two years after the date of the enactment of the Mobile Telecommunications Sourcing Act (4 U.S.C. Sections 116-126) as that customer's place of primary use for the remaining term of such service contract or agreement, for purposes of determining the taxing jurisdiction to which taxes, charges, or fees on charges for mobile telecommunications services are remitted.