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Election information: Proposition 3

Oct. 12, 2013 at 5:12 a.m.


Editor's Note: The Advocate is offering information about the upcoming constitutional amendment election Nov. 5. This feature, provided by the League of Women Voters, will look at the pros and cons of each of the nine amendments on the ballot. This is a look at Proposition 3.

Official ballot language

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

Explanation

Currently, in order to promote economic development in the state, the Texas Constitution allows local taxing authorities to exempt from ad valorem taxation property that is in Texas temporarily. This tax exemption is commonly referred to as a "freeport exemption." Eligible property includes goods, wares, merchandise, other tangible property and ores other than oil, natural gas and other petroleum products. To be eligible for the exemption, the property must be acquired in or imported into Texas for export; detained for assembly, storage, manufacturing, processing or fabrication; and shipped out of Texas no later than 175 days after acquisition or importation.

Eligible property currently includes aircraft and aircraft parts used for maintenance or repairs by certified air carriers. The proposed amendment and its enabling bill, HB 3121, authorize the governing body of a political subdivision that already grants a freeport exemption to extend, up to 730 days (two years) after acquisition or importation, the date when aircraft parts with an exemption have to be transported outside of the state. The extension would apply only to the political subdivision that grants it.

If passed, the amendment would take effect January 1, 2014, and apply only to a tax year that begins on or after that date.

Arguments for

• The proposed extension of the freeport exemption would provide an economic development tool designed to make Texas competitive in the aerospace industry that contributes billions to the state's economy. Texas is one of only a few states with a tax on inventory. Since aerospace suppliers often require inventory to be on-site for much longer than 175 days, at least one aerospace company has moved its storage or operations to another state because of the inventory tax.

• Granting an extension would be totally at the option of each local government already granting an exemption.

• Loss of tax revenue to a school district that grants a freeport exemption may be offset by additional state aid because the amount of the exemption is subtracted from the market value of inventory or property to determine the taxable value for the taxing authority. Any extra cost to the state could be offset by additional revenues from increased economic development and jobs.

Arguments against

• Singling out one group for special tax exemption status raises issues of uniformity in taxation. If the extension is authorized for aircraft parts, similar industries that make specialized parts and have a high portion of idle inventory may seek similar extensions.

• Granting an extension reduces tax revenues for local governments.

• An increase in exemptions by school districts could result in higher costs to the state.

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