By: Villarreal H.B. No. 1056
A BILL TO BE ENTITLED
AN ACT
relating to the ad valorem taxation of property used to provide
low-income or moderate-income housing and clarifying legislative
intent.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 11.182, Tax Code, is amended to read as
follows:
Sec. 11.182. COMMUNITY HOUSING DEVELOPMENT ORGANIZATIONS
IMPROVING PROPERTY FOR LOW-INCOME AND MODERATE-INCOME HOUSING:
PROPERTY PREVIOUSLY EXEMPT. (a) In this section:
(1) "Cash flow" means the amount of money generated by
a housing project for a fiscal year less the disbursements for that
fiscal year for operation and maintenance of the project,
including:
(A) standard property maintenance;
(B) debt service;
(C) employee compensation;
(D) fees required by government agencies;
(E) expenses incurred in satisfaction of
requirements of lenders, including reserve requirements;
(F) insurance; and
(G) other justifiable expenses related to the
operation and maintenance of the project.
(2) "Community [housing development organization"]
Housing Development Organization" has the meaning assigned by [42
U.S.C. Section 12704.] 24 CFR 92.2, except for this purpose such
organizations are not required to receive HOME funds, may have
boards appointed wholly by state and local governments and do not
have to comply with the federal standards of accountability to
qualify.
(b) An organization is entitled to an exemption from
taxation of improved or unimproved real property it owns if the
organization:
(1) is organized as a community housing development
organization;
(2) meets the requirements of a charitable
organization provided by Sections 11.18(e) and (f);
(3) owns the property for the purpose of building or
repairing housing on the property to sell without profit to a
low-income or moderate-income individual or family satisfying the
organization's eligibility requirements or to rent without profit
to such an individual or family; and
(4) engages exclusively in the building, repair, and
sale or rental of housing as described by Subdivision (3) and
related activities.
(b-1) Notwithstanding Subsection (b), an owner of property
that is not an organization described by that subsection is
entitled to an exemption from taxation of property under this
section if the property otherwise qualifies for the exemption and
the legal owner is an entity that is 100% owned by an organization
that meets the requirements of Subsection (b).
(b-2) Notwithstanding Subsection (b), an owner of property
that is not an organization described by that subsection is
entitled to an exemption from taxation of property under this
section if the property otherwise qualifies for the exemption and:
(1) the legal owner of the property is an entity that
is controlled by an organization that meets the requirements of
Subsection (b); and
(2) the organization or the legal owner of the
property filed its initial application for the exemption hereunder
between January 1, 2002 and December 31, 2003.
(b-3) For purposes of Subsection (b-2):
(1) "Control" or "controlled" means having the power
to manage, direct, superintend, restrict, regulate, govern,
administer, or oversee. By way of example, if the entity is a
limited partnership, the organization must directly or through a
wholly controlled subsidiary, control 100% of the general partner
interest, and if the entity is a limited liability company, the
organization must be the sole manager or managing member.
(2) An initial application is the first application
filed by the organization or the legal owner for the property
pursuant to Section 11.43 and does not include any subsequent
application that is required to be filed.
(b-4) A reference in this section to an organization
includes an entity described by Subsections (b-1) or (b-2).
Section 25.07 does not apply to an entity described in Subsections
(b-1) or (b-2).
(b-5) "Owns" or "owned" for purposes of this section and
Article 8, Section 2 of the Texas Constitution means having legal or
equitable title. For example, the organization establishes
equitable title if it has a present right to compel legal title to
the property to be conveyed to it in accordance with Texas law,
which includes an option to acquire the property. It is the
legislature's express intent, among others, to exempt qualifying
properties owned by a tax credit partnership or limited liability
company, when the general partner is or is controlled by a Community
Housing Development Organization which holds equitable title to the
property pursuant to an option to acquire the property on terms
negotiated between the parties.
(c) Property owned by the organization may not be exempted
under [Subsection] Subsections (b), (b-1), or (b-2) after the third
anniversary of the date the organization acquires the property
unless the organization is offering to rent or is renting the
property without profit to a low-income or moderate-income
individual or family satisfying the organization's eligibility
requirements.
(d) A multifamily rental property consisting of 36 or more
dwelling units owned by the organization that is exempted under
[Subsection] Subsections (b), (b-1), or (b-2) may not be exempted
in a subsequent tax year unless in the preceding tax year the
organization spent, for eligible persons in the county in which the
property is located, an amount equal to at least 40 percent of the
total amount of taxes that would have been imposed on the property
in that year without the exemption on social, educational, or
economic development services, capital improvement projects, or
rent reduction. This subsection does not apply to property
acquired by the organization using tax-exempt bond financing after
January 1, 1997, and before December 31, 2001.
(e) [In addition to meeting the applicable requirements of
Subsections (b) and (c), to] To receive an exemption [under
Subsection (b)] for improved real property that includes a housing
project constructed after December 31, 2001, and financed with
qualified 501(c)(3) bonds issued under Section 145 of the Internal
Revenue Code of 1986, tax-exempt private activity bonds subject to
volume cap, or low-income housing tax credits, the organization
must:
(1) [control 100 percent of the interest in the
general partner if the project is owned by a limited partnership;]
[(2)] comply with all rules of and laws administered
by the Texas Department of Housing and Community Affairs (the
"Department") applicable to community housing development
organizations; and
[(3)] (2) submit annually to the [Texas Department of
Housing and Community Affairs and to the governing body of each
taxing unit for which the project receives an exemption for the
housing project] entity that it would file an exemption application
with (the "Reviewing Entity"), evidence demonstrating that the
organization spent an amount equal to at least 90 percent of the
project's cash flow in the preceding fiscal year as determined by
the audit required by Subsection (g), for eligible persons in the
county in which the property is located, on social, educational, or
economic development services, capital improvement projects, or
rent reduction.
(f) An organization entitled to an exemption under
[Subsection] Subsections (b), (b-1) or (b-2) is also entitled to an
exemption from taxation of any building or tangible personal
property the organization owns and uses in the administration of
its acquisition, building, repair, sale, or rental of property. To
qualify for an exemption under this subsection, property must be
used exclusively by the organization, except that another person
may use the property for activities incidental to the
organization's use that benefit the beneficiaries of the
organization.
(g) To receive an exemption under [Subsection] Subsections
(b), (b-1), (b-2) or (f), an organization must annually have an
audit prepared by an independent auditor. The audit must include a
detailed report on the organization's sources and uses of funds. A
copy of the audit must be delivered to the [Texas Department of
Housing and Community Affairs and to the chief appraiser of the
appraisal district in which the property subject to the exemption
is located] Reviewing Entity.
(h) Subsections (d) and (e)[(3)](2) do not apply to property
owned by an organization if:
(1) the entity that provided the financing for the
acquisition or construction of the property:
(A) requires the organization to make payments in
lieu of taxes to the school district in which the property is
located; or
(B) restricts the amount of rent the organization
may charge for dwelling units on the property; or
(2) the organization has entered into an agreement
with each taxing unit for which the property receives an exemption
to spend in each tax year for the purposes provided by Subsection
(d) or (e)[(3)](2) an amount equal to the total amount of taxes
imposed on the property in the tax year preceding the year in which
the organization acquired the property.
(i) If any property owned by an organization receiving an
exemption under this section has been acquired or sold during the
preceding year, such organization shall file by March 31 of the
following year with the [chief appraiser in the county in which the
relevant property is located] Reviewing Entity, on a form
promulgated by the comptroller of public accounts, a list of such
properties acquired or sold during the preceding year.
(j) An organization may not receive an exemption under
[Subsection] Subsections (b), (b-1), (b-2) or (f) for property for
a tax year unless the organization received an exemption under that
subsection for the property for any part of the 2003 tax year.
(k) Notwithstanding Subsection (j) of this section and
Sections 11.43(a) and (c), an exemption under [Subsection]
Subsections (b), (b-1), (b-2) or (f) does not terminate because of a
change in the ownership of the property if the property is sold at a
foreclosure sale and, not later than the 30th day after the date of
the sale, the owner of the property submits to the [chief appraiser]
Reviewing Entity evidence that the property is owned by an
organization that meets the requirements of Subsections (b)(1),
(2), and (4). If the owner of the property submits the evidence
required by this subsection, the exemption continues to apply to
the property for the remainder of the current tax year and for
subsequent tax years until the owner ceases to qualify the property
for the exemption. [This subsection does not prohibit the chief
appraiser from requiring the owner to file a new application to
confirm the owner's current qualification for the exemption as
provided by Section 11.43(c).]
(l) If there is a protest outstanding or an exemption has
been denied by an appraisal district on or after the effective date
of this Section with respect to a multifamily residential rental
housing project consisting of more than four units, then the
organization will file a new application in accordance with the
following provisions:
(1) The procedure to apply for and otherwise
administer the exemption shall be in accordance with Sections
11.42, 11.43, 11.436, 11.44(a) and 11.45, except that the
Department shall be substituted for the chief appraiser. Once
allowed, an exemption need not be applied for in subsequent years,
unless contested by a taxing unit or the Department determines that
the organization has failed to comply with another provision of
this statute.
(2) The Department shall promulgate the application
form in accordance with Section 11.43(f) and other applicable
provisions of this code.
(3) Not later than the 60th day after the date the
Department receives a complete application, it will either:
(A) certify that the owner and the property meet
the requirements for the exemption; or
(B) certify that the owner and the property do
not meet the requirements for the exemption. An application is
complete on the later of the date it is filed or the date on which
all additional information requested by the Department has been
received by the Department.
(4) Not later than the fifth day after making the
determination under Subsection (1)(3), the Department shall issue a
letter to the organization, stating its determination. The
Department shall send a copy of the letter by regular mail to the
chief appraiser of each appraisal district that appraises the
property. If the exemption is granted, the chief appraiser shall
exempt the property. If the exemption is denied, the letter will
include the reasons for such denial and a description of the
procedure for appealing the determination.
(5) The organization and the taxing units shall have
the right to appeal the Department's determination to its Board
with respect to any exemption determination in accordance with the
rules for appeals promulgated by the Department. The organization
may be represented in such appeal by an agent in accordance with
Section 1.111. The final determination by the Department of any
protest in accordance with its rules for appeals shall be
equivalent to and in place of an appraisal review board decision
under Chapter 41 of this code. A property owner or taxing unit may
appeal such determination in accordance with Chapter 42 of this
code.
(6) The Department shall hire sufficient personnel to
process any applications and may charge the organization a
reasonable fee not to exceed the lesser of $2,500 per application or
the direct or indirect administrative costs of processing the
exemption application and issuing the determination required by
this subsection.
(7) The Department shall adopt rules to implement its
duties hereunder. Rules adopted under this section must:
(A) establish procedures for considering
predetermination letters and exemption applications;
(B) be sufficiently specific to ensure that
determinations are equal and uniform; and
(C) provide that the Department can conclusively
rely upon the conclusions in any audit or legal opinion provided it
or any determination letter from the Internal Revenue Service
regarding an entity's status under Section 501 of the Internal
Revenue Code.
(8) Notwithstanding any other provision of this
section, Section (l) does not apply to an organization that has been
debarred from participation in the Department's programs.
SECTION 2. Sections 11.1825, Tax Code, is amended to read as
follows:
Sec. 11.1825. ORGANIZATIONS CONSTRUCTING OR REHABILITATING
LOW-INCOME HOUSING: PROPERTY NOT PREVIOUSLY EXEMPT. (a) An
organization is entitled to an exemption from taxation of real
property owned by the organization that the organization constructs
or rehabilitates and uses to provide housing to individuals or
families meeting the income eligibility requirements of this
section. "Owns" or "owned" for purposes of this section and Article
8, Section 2 of the Texas Constitution means having legal or
equitable title. For example, the organization establishes
equitable title if it has a present right to compel legal title to
the property to be conveyed to it in accordance with Texas law,
which includes an option to acquire the property. It is the
legislature's express intent, among others, to exempt qualifying
properties owned by a tax credit partnership or limited liability
company, when the general partner is or is controlled by an entity
described in (b) below which holds equitable title to the property
pursuant to an option to acquire the property on terms negotiated
between the parties.
(b) To receive an exemption under this section, an
organization must meet the following requirements:
(1) for at least the preceding three years, the
organization:
(A) has been exempt from federal income taxation
under Section 501(a), Internal Revenue Code of 1986, as amended, by
being listed as an exempt entity under Section 501(c)(3) of that
code;
(B) has met the requirements of a charitable
organization provided by Sections 11.18(e) and (f); and
(C) has had as one of its purposes providing
low-income housing;
(2) a majority of the members of the board of directors
of the organization have their principal place of residence in this
state;
(3) at least two of the positions on the board of
directors of the organization must be reserved for and held by:
(A) an individual of low income as defined by
Section 2306.004, Government Code, whose principal place of
residence is located in this state;
(B) an individual whose residence is located in
an economically disadvantaged census tract as defined by Section
783.009(b), Government Code, in this state; or
(C) a representative appointed by a neighborhood
organization in this state that represents low-income households;
and
(4) the organization must have a formal policy
containing procedures for giving notice to and receiving advice
from low-income households residing in the county in which a
housing project is located regarding the design, siting,
development, and management of affordable housing projects.
(c) Notwithstanding Subsection (b), an owner of real
property that is not an organization described by that subsection
is entitled to an exemption from taxation of property under this
section if the property otherwise qualifies for the exemption and
the legal owner is:
(1) [a limited partnership of which] an entity that is
100% owned by an organization that meets the requirements of
Subsection (b) [controls 100 percent of the general partner
interest]; or
(2) an entity [the parent of which is] that is
controlled by an organization that meets the requirements of
Subsection (b).
For purposes of this Subsection (c), "control" or
"controlled" means having the power to manage, direct, superintend,
restrict, regulate, govern, administer, or oversee. By way of
example, if the entity is a limited partnership, the organization
must directly or through a wholly controlled subsidiary, control
100% of the general partner interest, and if the entity is a limited
liability company, the organization must be the sole manager or
managing member.
(d) If the legal owner of the property is an entity
described by Subsection (c)[, the entity must]:
(1) the legal owner must be organized under the laws of
this state; [and]
(2) the legal owner must have its principal place of
business in this state; and
(3) the organization must have equitable title to the
property.
For purposes of this Subsection (d), the organization
establishes equitable title if it has a present right to compel
title to the property in accordance with Texas law, which includes
an option to acquire the property.
(e) A reference in this section to an organization includes
an entity described by Subsection (c). Section 25.07 does not apply
to an entity described in Subsection (c).
(e-1) An organization submitting an application for
exemption under Subsection (b) or (c)(1) for a project that is not a
multifamily residential rental housing project containing more
than four units, may submit its application to the chief appraiser.
An organization submitting an application for exemption for a
multifamily residential rental housing project containing more
than four units, under Subsection (b) or (c)(1) may, and an
organization submitting an application under Subsection (c)(2)
will, submit its application to the Texas Department of Housing and
Community Affairs (the "Department"). In its capacity as the party
reviewing an application for exemption, the chief appraiser and the
Department will be referred to as the "Reviewing Entity" hereunder.
(f) For property to be exempt under this section, the
organization must own the property for the purpose of constructing
or rehabilitating a housing project on the property and:
(1) renting the housing to individuals or families
whose median income is not more than 60 percent of the greater of:
(A) the area median family income for the
household's place of residence, as adjusted for family size and as
established by the United States Department of Housing and Urban
Development; or
(B) the statewide area median family income, as
adjusted for family size and as established by the United States
Department of Housing and Urban Development; or
(2) selling single-family dwellings to individuals or
families whose median income is not more than the greater of:
(A) the area median family income for the
household's place of residence, as adjusted for family size and as
established by the United States Department of Housing and Urban
Development; or
(B) the statewide area median family income, as
adjusted for family size and as established by the United States
Department of Housing and Urban Development.
(g) Property may not receive an exemption under this section
unless at least 50 percent of the total square footage of the
dwelling units in the housing project is reserved for individuals
or families described by Subsection (f).
(h) The annual total of the monthly rent charged or to be
charged for each dwelling unit in the project reserved for an
individual or family described by Subsection (f) may not exceed 30
percent of the area median family income for the household's place
of residence, as adjusted for family size and as established by the
United States Department of Housing and Urban Development.
(i) Property owned for the purpose of constructing a housing
project on the property is exempt under this section only if:
(1) the property is used to provide housing to
individuals or families described by Subsection (f); [or] and
(2) the housing project is under active construction
or other physical preparation at the time of initial application
for an exemption.
For purposes of this section, an initial application is the
first application filed by the organization for the property
pursuant to Section 11.43 and does not include any subsequent
application that is required to be filed on an annual basis.
(j) For purposes of [Subsection] Subsections (i)(2) and
(l)(2), a housing project is under physical preparation if the
organization has engaged in architectural or engineering work, soil
testing, land clearing activities, or site improvement work
necessary for the construction or rehabilitation of the project or
has conducted an environmental or land use study relating to the
construction or rehabilitation of the project.
(k) An organization may not receive an exemption for
property owned for the purpose of constructing a housing project
[constructed by the organization if the] if construction of the
project was completed before January 1, 2004.
(l) Property owned for the purpose of rehabilitating a
housing project on the property is exempt under this Section only
if:
(1) the property is used to provide housing to
individuals or families described by Subsection (f); and
(2) the housing project is under active rehabilitation
or other physical preparation at the time of initial application
for an exemption.
[(l)] (m) If the property is owned for the purpose of
rehabilitating a housing project on the property:
(1) the original construction of the housing project
must have been completed at least 10 years before the date the
organization began actual rehabilitation of the project;
(2) the person from whom the organization acquired the
project must have owned the project for at least five years, if the
organization is not the original owner of the project, unless the
organization is acquiring the housing project from a person that
acquired the housing project by foreclosing upon it (or receiving
an instrument in lieu of foreclosure);
(3) the organization must provide to the [chief
appraiser] Reviewing Entity and, if the project was financed with
bonds, the issuer of the bonds a written statement prepared by a
certified public accountant stating that the organization has spent
on rehabilitation costs at least the greater of $5,000 or the amount
required by the financial lender for each dwelling unit in the
project; and
(4) the organization must maintain a reserve fund for
replacements:
(A) in the amount required by the financial
lender; or
(B) if the financial lender does not require a
reserve fund for replacements, in an amount equal to $300 per unit
per year.
[(m)] (n) Beginning with the 2005 tax year, the amount of
the reserve required by Subsection [(l)](o)(4)(B) is increased by
an annual cost-of-living adjustment determined in the manner
provided by Section 1(f)(3), Internal Revenue Code of 1986, as
amended, substituting "calendar year 2004" for the calendar year
specified in Section 1(f)(3)(B) of that code.
[(n)] (o) A reserve must be established for each dwelling
unit in the property, regardless of whether the unit is reserved for
an individual or family described by Subsection (f). The reserve
must be maintained on a continuing basis, with withdrawals
permitted:
(1) only as authorized by the financial lender; or
(2) if the financial lender does not require a reserve
fund for replacements, only to pay the cost of capital improvements
needed for the property to maintain habitability under the Minimum
Property Standards of the United States Department of Housing and
Urban Development or the code of a municipality or county
applicable to the property, whichever is more restrictive.
[(o)] (p) For purposes of Subsection [(n)](o)(2), "capital
improvement" means a property improvement that has a depreciable
life of at least five years under generally accepted accounting
principles, excluding typical "make ready" expenses such as
expenses for plasterboard repair, interior painting, or floor
coverings.
[(p)] (q) If the organization acquires the property for the
purpose of constructing or rehabilitating a housing project on the
property, the organization must be renting or offering to rent the
applicable square footage of dwelling units in the property to
individuals or families described by Subsection (f) not later than
the third anniversary of the date the organization acquires the
property.
[(q)] (r) If property qualifies for an exemption under this
section, the chief appraiser shall use the income method of
appraisal as provided by [Section] Sections 23.012 and 21.215 to
determine the appraised value of the property. In appraising the
property, the chief appraiser shall:
(1) consider the restrictions provided by this section
on the income of the individuals or families to whom the dwelling
units of the housing project may be rented and the amount of rent
that may be charged for purposes of computing the actual rental
income from the property or projecting future rental income; and
(2) use the same capitalization rate that the chief
appraiser uses to appraise other rent-restricted properties.
[(r)] (s) Not later than January 31 of each year, the
appraisal district shall give public notice in the manner
determined by the district, including posting on the district's
website if applicable, of the capitalization rate to be used in that
year to appraise property receiving an exemption under this
section.
[(s)] (t) Unless otherwise provided by the governing body
of a taxing unit any part of which is located in a county with a
population of at least 1.4 million under Subsection [(x)] (w), for
property described by Subsection (f)(1), the amount of the
exemption under this section from taxation is 50 percent of the
appraised value of the property.
[(s-1)] (t-1) For property described by Subsection (f)(2),
the amount of the exemption under this section from taxation is 100
percent of the appraised value of the property.
[(t)] (u) Notwithstanding Section 11.43(c), an exemption
under this section does not terminate because of a change in
ownership of the property if:
(1) the property is foreclosed on for any reason and,
not later than the 30th day after the date of the foreclosure sale,
the owner of the property submits to the [chief appraiser]
Reviewing Entity evidence that the property is owned by:
(A) an organization that meets the requirements
of Subsection (b); or
(B) an entity that meets the requirements of
Subsections (c) and (d); or
(2) in the case of property owned by an entity
described by Subsections (c)(2) and (d), the organization meeting
the requirements of Subsection (b) that controls the [general
partner interest of or is the parent of the entity as described by
Subsection (c)] entity ceases to serve in that capacity and, not
later than the 30th day after the date the cessation occurs, the
owner of the property submits evidence to the [chief appraiser]
Reviewing Entity that the organization has been succeeded in that
capacity by another organization that meets the requirements of
Subsection (b).
[(u)] (v) The [chief appraiser] Reviewing Entity may extend
the deadline provided by Subsection (tu)(1) or (2), as applicable,
for good cause shown.
[(v)] (w) Notwithstanding any other provision of this
section, an organization may not receive an exemption from taxation
of property described by Subsection (f)(1) by a taxing unit any part
of which is located in a county with a population of at least 1.4
million at the time of the initial application unless the exemption
is approved by the governing body of the taxing unit in the manner
provided by law for official action.
[(w)] (x) To receive an exemption under this section from
taxation by a taxing unit for which the approval of the governing
body of the taxing unit is required by Subsection [(v)](w), an
organization must submit to the governing body of the taxing unit a
written request for approval of the exemption from taxation of the
property described in the request.
Not later than the 60th day after the date the governing body
of the taxing unit receives a written request under Subsection
[(w)](x) for an exemption under this section, the governing body
shall:
(1) approve the exemption in the amount provided by
Subsection [(s)](u);
(2) approve the exemption in a reasonable amount other
than the amount provided by Subsection [(s)](t); or
(3) deny the exemption if the governing body
determines that:
(A) the taxing unit cannot afford the loss of ad
valorem tax revenue that would result from approving the exemption;
or
(B) additional housing for individuals or
families meeting the income eligibility requirements of this
section is not needed in the territory of the taxing unit.
[(y)] (z) Not later than the fifth day after the date the
governing body of the taxing unit takes action under Subsection
[(x)](y), the taxing unit shall issue a letter to the organization
stating the governing body's action and, if the governing body
denied the exemption, stating whether the denial was based on a
determination under Subsection [(x)](y)(3)(A) or (B) and the basis
for the determination. The taxing unit shall send a copy of the
letter by regular mail to the Reviewing Entity and the chief
appraiser of each appraisal district that appraises the property
for the taxing unit, if different. The governing body may charge
the organization a fee not to exceed the administrative costs of
processing the request of the organization, approving or denying
the exemption, and issuing the letter required by this subsection.
If the [chief appraiser] Reviewing Entity determines that the
property qualifies for an exemption under this section and the
governing body of the taxing unit approves the exemption, the chief
appraiser shall grant the exemption in the amount approved by the
governing body.
(aa) When the Department is the Reviewing Entity hereunder,
the following provisions apply:
(1) The procedure to apply for and otherwise
administer, the exemption shall be in accordance with Sections
11.42, 11.43, 11.436, 11.44(a) and 11.45, except that the
Department shall be substituted for the chief appraiser.
(2) The Department shall promulgate the application
form in accordance with Section 11.43(f) and other applicable
provisions of this code.
(3) not later than the 60th day after the date the
Department receives a complete application, it will either:
(A) certify that the owner and the property meet
the requirements for the exemption; or
(B) certify that the owner and the property do
not meet the requirements for the exemption. An application is
complete on the later of the date it is filed or the date on which
all additional information requested by the Department has been
received by the Department.
(4) Not later than the fifth day after making the
determination under Subsection (aa) or (3), the Department shall
issue a letter to the organization, stating its determination. The
Department shall send a copy of the letter by regular mail to the
chief appraiser of each appraisal district that appraises the
property. If the extension is granted, the chief appraiser shall
exempt the property. If the exemption is denied, the letter will
include the reasons for such denial and a description of the
procedure for appealing the determination.
(5) The organization and the taxing units shall have
the right to appeal the Department's determination to its Board
with respect to any exemption determination in accordance with the
rules for appeals promulgated by the Department. The organization
may be represented in such appeal by an agent in accordance with
Section 1.111. The final determination by the Department of any
protest in accordance with its rules for appeals shall be
equivalent to and in place of an appraisal review board decision
under Chapter 41 of this code. A property owner or taxing unit may
appeal such determination in accordance with Chapter 42 of this
code.
(6) The Department shall hire sufficient personnel to
process any applications and may charge the organization a
reasonable fee not to exceed the lesser of $2,500 or the direct or
indirect administrative costs of processing the exemption
application and issuing the determination required by this
subsection.
(7) The Department shall adopt rules to implement its
duties hereunder. Rules adopted under this section must:
(A) establish procedures for considering
predetermination letters and exemption applications;
(B) be sufficiently specific to ensure that
determinations are equal and uniform; and
(C) provide that the Department can conclusively
rely upon the conclusions in any audit or legal opinion provided it
or any determination letter from the Internal Revenue Service
regarding an entities' status under Section 501 of the Internal
Revenue Code.
(8) Notwithstanding any other provision of this
section, Section (aa) does not apply to an organization that has
been debarred from participation in the Department's programs.
SECTION 3. Section 11.1826, Tax Code, is amended by adding
Subsection (g) to read as follows:
(g) The department and the chief appraiser shall rely
exclusively on the auditor's opinion in the audit hereunder in
making its determination on the annual renewal of any exemption
that must be claimed annually pursuant to Section 11.43.
SECTION 4. Section 303.042, Local Government Code, is
amended by amending Subsection (c) and adding Subsections (c-1),
(c-2), and (f) to read as follows:
(c) A corporation and the property it owns is engaged
exclusively in the performance of governmental and charitable
functions and is exempt from taxation by this state or a
municipality or other political subdivision of this state. Bonds
issued by a corporation under this chapter, a transfer of the bonds,
interest on the bonds, and a profit from the sale or exchange of the
bonds are exempt from taxation by this state or a municipality or
other political subdivision of this state. "Owns" or "owned" for
purposes of this section and Article 8, Section 2 of the Texas
Constitution means having legal or equitable title. For example,
the organization establishes equitable title if it has a present
right to compel legal title to the property to be conveyed to it in
accordance with Texas law, which includes an option to acquire the
property. It is the legislature's express intent, among others, to
exempt qualifying properties owned by a tax credit partnership or
limited liability company, when the general partner is or is
controlled by a public facility corporation which holds equitable
title to the property pursuant to an option to acquire the property
on terms negotiated between the parties.
(c-1) Notwithstanding Subsection (c), when a corporation
created under this chapter is not the legal owner of property, the
legal owner is entitled to an exemption from taxation of property
under this section if the legal owner is:
(1) an entity that is 100% owned by the corporation; or
(2) an entity that is exclusively controlled by the
corporation.
For purposes of this Subsection (c-1), "control" or
"controlled" means having the power to manage, direct, superintend,
restrict, regulate, govern, administer, or oversee. By way of
example, if the entity is a limited partnership, the corporation
must directly or through a wholly controlled subsidiary, control
100% of the general partner interest, and if the entity is a limited
liability company, the corporation must be the sole manager or
managing member. Section 25.07 does not apply to an entity
described in Subsection (c) or (c-1).
(c-2) If the legal owner of the property is an entity
described by Subsection (c-1)(2):
(1) the legal owner must be organized under the laws of
this state;
(2) the legal owner must have its principal place of
business in this state; and
(3) the corporation must have equitable title to the
property.
For purposes of this Subsection (c-2), the corporation
establishes equitable title if it has a present right to compel
title to the property in accordance with Texas law, which includes
an option to acquire the property.
SECTION 5. This Act takes effect September 1, 2011.