TITLE 34.PUBLIC FINANCE

Part 1. COMPTROLLER OF PUBLIC ACCOUNTS

The Comptroller of Public Accounts proposes new §3.79, concerning standard presumptive value. This new section implements House Bill 4, 79th Legislature, 3rd Called Session, 2006, which adds Tax Code §152.0412 and changes the tax base for calculating sales and use tax due on the sale of a used motor vehicle in a private-party transaction. As of October 1, 2006, the sales price of a used motor vehicle, for purposes of determining the tax due, is no less than 80% of the used motor vehicle's standard presumptive value, or an appraised value as established by a certified appraisal. If a used motor vehicle is purchased from a dealer, the sales price on the title application or dealer's invoice shall be used to calculate the tax due.

Subsection (a) defines relevant terms. Subsection (b) defines how tax due is calculated. Subsection (c) defines the sales price of a used motor vehicle to calculate the tax due. Subsection (d) defines requirements for certified appraisals. Subsection (e) identifies used motor vehicles that are excluded from this section. Subsection (f) addresses payments under protest and refunds.

John Heleman, Chief Revenue Estimator, has determined that for the first five-year period the rule will be in effect, there will be no significant revenue impact on the state or units of local government.

Mr. Heleman also has determined that for each year of the first five years the rule is in effect, the public benefit anticipated as a result of enforcing the new rule will be in providing additional information regarding their motor vehicle sales tax responsibilities. This rule is adopted under Tax Code, Title 2, and does not require a statement of fiscal implications for small businesses. There is no significant anticipated economic cost to individuals who are required to comply with the proposed rule.

Comments on the new section may be submitted to Bryant K. Lomax, Manager, Tax Policy Division, P.O. Box 13528, Austin, Texas 78711.

This new section is proposed under Tax Code, §111.002, which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of Tax Code, Title 2.

The new section implements Tax Code, §152.0412.

§3.79.Standard Presumptive Value.

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Appraised value. The retail value of a used motor vehicle for the purpose of calculating motor vehicle sales tax due on the date of a certified appraisal.

(2) County working day. A day in which a county tax office is open for business to the public.

(3) Date of purchase. Same as date of sale; the day the motor vehicle is delivered to the purchaser unless otherwise specified by written agreement.

(4) Dealer. A person who holds a license issued pursuant to Transportation Code, Chapter 503, Subchapter B, or under similar regulatory requirements of another state. The term includes:

(A) a dealer authorized by law and by franchise agreement to offer for sale a new motor vehicle;

(B) an independent dealer authorized by law to offer for sale a motor vehicle other than a new motor vehicle;

(D) a wholesale auction dealer;

(E) a motorcycle dealer;

(F) a house trailer dealer;

(G) a trailer or semitrailer dealer;

(H) any other dealer as provided by Transportation Code, Chapter 503, Subchapter B, but not a drive-a-way operator.

(5) Insurance adjuster. A person licensed under Insurance Code, Chapter 4101, or licensed or operating under similar regulatory requirements of another state.

(6) Motor vehicle. A self-propelled vehicle designed to transport persons or property upon the public highways and a vehicle designed to be towed by a self-propelled vehicle while carrying property. The term includes trucks, automobiles, trailers, trailers sold unassembled in a kit, semitrailers, house trailers, dollies, jeeps, stingers, auxiliary axles, converter gears, truck cab/chassis, and motorcycles. A unit that meets the definition of a "motor vehicle" does not lose its identity as a motor vehicle if tangible personal property is added to the vehicle allowing the unit to perform a specialized function but prohibiting the vehicle from transporting separate property or persons other than the driver. An example of such a vehicle would be a flatbed truck upon which oil well servicing equipment is attached.

(7) Private-party transaction. A retail sale of a motor vehicle in which no party is a dealer.

(8) Retail sale. A sale of a motor vehicle other than:

(A) a sale of a new motor vehicle in which the purchaser is a franchised dealer who is authorized by law and by franchise agreement to offer the vehicle for sale as a new motor vehicle and who acquires the vehicle to sell in a manner provided by law or for purposes allowed under Transportation Code, Chapter 503;

(B) a sale of a vehicle other than a new motor vehicle in which the purchaser is a dealer who holds a dealer's license issued under Transportation Code, Chapter 503, and who acquires the vehicle either for the exclusive purpose of resale in the manner provided by law or for purposes allowed under Transportation Code, Chapter 503; or

(C) a sale to a franchised dealer of a new motor vehicle removed from the franchised dealer's inventory for the purpose of entering into a contract to lease the vehicle to another person if, immediately after executing the lease contract, the franchised dealer transfers title of the vehicle and assigns the lease contract to the lessor of the vehicle.

(9) Standard presumptive value. The private-party transaction value of a motor vehicle, as determined by the Texas Department of Transportation based on an appropriate regional guidebook of a nationally recognized motor vehicle value guide service, or based on another motor vehicle guide publication that the department determines is appropriate if a private-party transaction value for the motor vehicle is not available from a regional guidebook.

(10) Used motor vehicle. A motor vehicle that previously has been the subject of a retail sale.

(b) Calculating tax due on a used motor vehicle. Tax is due on the sales price as defined in subsection (c) of this section, less any deductions as provided by Tax Code, §152.002(b).

(1) Subject to the exceptions in subsections (c)(2), (c)(3), and (e) of this section, the sales price of a used motor vehicle is the greater of:

(A) the amount paid or to be paid for the motor vehicle, or

(B) 80% of the motor vehicle's standard presumptive value.

(2) If the amount paid or to be paid is less than 80% of the motor vehicle's standard presumptive value, the purchaser may establish the sales price of the motor vehicle for the purpose of calculating motor vehicle sales tax due by obtaining a certified appraisal, as provided for in subsection (d) of this section.

(3) The sales price of a used motor vehicle may be established by:

(A) a properly completed Application for Texas Certificate of Title, Form 130-U, signed by both purchaser and seller when the seller is a Texas dealer; or

(B) documentation, including a receipt or invoice, provided by the seller to the purchaser of the vehicle when the seller is licensed by or under similar regulatory requirements of another state.

(d) Certified appraisal to establish the sales price of a used motor vehicle.

(1) Time limit. A purchaser must obtain and present to the county tax assessor-collector a certified appraisal within 20 county working days after the date of purchase or, if purchased out of state, within 20 county working days after bringing the motor vehicle into Texas.

(2) Appraisal form. A certified appraisal must be on a form prescribed by the comptroller.

(3) Appraisal standards. Upon request by a purchaser of a used motor vehicle, a dealer must provide a certified appraisal. However, a dealer may only provide appraisals for the categories of motor vehicles which the dealer is licensed to sell under Transportation Code, Chapter 503, Subchapter B. An insurance adjuster may appraise any type of used motor vehicle. The dealer or insurance adjuster must view the motor vehicle in person and provide all the information requested on the appraisal form prescribed by the comptroller for the appraisal to be valid, including the appraised value of the used motor vehicle.

(4) Appraisal fee.

(A) Except as provided by clause (i) and (ii) of this subparagraph, a dealer may charge no less than $100 and no more than $300 for a certified appraisal:

(i) a licensed motorcycle dealer may charge no less than $40 and no more than $300 for a certified appraisal of a motorcycle; and

(ii) a dealer may charge no less than $100 and no more than $500 for a certified appraisal of a house trailer, travel trailer, or motor home.

(B) An insurance adjuster is not limited to the amount charged for a certified appraisal under this section

(C) The fee for a certified appraisal is not subject to limited sales and use tax under Tax Code, Chapter 151, and is not subject to motor vehicle sales and use tax under Tax Code, Chapter 152.

(5) Retention of certified appraisals. A county tax assessor-collector shall retain a certified appraisal for four years from the end of the current fiscal year in which it is presented and accepted.

(6) Questioning a certified appraisal. A county tax assessor-collector may question a certified appraisal in the manner as provided in Tax Code, §152.062(e).

(e) Excluded vehicles. This section does not apply to:

(1) vehicles involved in an even exchange or trade, as provided by Tax Code, §152.024;

(2) vehicles received as a gift, as provided by Tax Code, §152.025;

(3) vehicles acquired through a mechanic's lien, as provided in Property Code, Chapter 70;

(4) vehicles acquired through a storage lien, as provided by Occupations Code, Chapter 2303;

(5) abandoned or abandoned nuisance vehicles acquired under Transportation Code, Chapter 683; and

(6) vehicles eligible for a specialty license plate as a classic motor vehicle, as provided in Transportation Code, §504.501.

(f) Payments under protest and refunds.

(1) Persons seeking the recovery of payments under protest and refunds relating to this section must follow the provisions set forth in §3.75 of this title (relating to Refunds, Payments Under Protest, Payment Instruments and Dishonored Payments).

(2) If the purchaser of a used motor vehicle paid less than 80% of standard presumptive value and paid tax on a sales price as determined by subsection (c)(1)(B) of this section, the purchaser may request a refund from the comptroller if the purchaser obtains a valid certified appraisal within 20 county working days of the motor vehicle's purchase or use in Texas.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 14, 2006.

TRD-200603745

Martin Cherry

Chief Deputy General Counsel

Comptroller of Public Accounts

Earliest possible date of adoption: August 27, 2006

For further information, please call: (512) 475-0387

Part 3. TEACHER RETIREMENT SYSTEM OF TEXAS

Chapter 25. MEMBERSHIP CREDIT

Subchapter A. SERVICE ELIGIBLE FOR MEMBERSHIP

34 TAC §25.1

The Board of Trustees (Board) of the Teacher Retirement System of Texas (TRS or the system) proposes amendments to §25.1 concerning requirements for employment qualifying for membership in TRS. The proposed amendments would ensure fair and consistent application of membership eligibility requirements.

Section 25.1 establishes the requirements for employment qualifying for membership in TRS. Employment for one-half or more of the standard workload is one of the eligibility requirements. Supplemental information provided to TRS covered employers has for years included hourly minimums for positions that have no equivalent full-time position. A crossing guard is an example of a typical part-time position for which there is usually no equivalent full-time employment. The proposed amendments incorporate this long-standing interpretation to ensure fair and consistent application of the membership eligibility requirements. The proposal provides that if there is no equivalent full-time employment for a non-certified position, the minimum number of hours per week that will qualify the position for TRS membership is 15 hours. If there is no equivalent full-time employment for a certified position, the minimum number of hours per week that will qualify the position for TRS membership is 20 hours. These additions incorporate longstanding interpretations of the rule and ensure fair and consistent application of membership eligibility requirements.

Further, the current rule does not expressly state how positions with varied work schedules should be evaluated for membership eligibility. The proposed language requires the number of hours worked in a calendar month to be averaged to determine if the position is eligible for membership, clarifying how positions with varied work schedules are treated for membership eligibility purposes and ensuring that all persons eligible for membership are reported to TRS. Under the proposal, if the average number of hours worked equals or exceeds one-half of the hours required for a similar full-time position, then the position is eligible for membership in TRS. For instance, if, during half the month, a counselor is required to work 8 1/2 hours per day for three days every other week but only for two days a week during the remaining weeks of the month, the counselor is not working a 20-hour week every week. Under the proposed amended rule, however, the counselor would be working an average of 21.25 hours per week and, therefore, the counseling position would be eligible for TRS membership and the employer must report it as such.

Tony C. Galaviz, TRS Chief Financial Officer, has determined that, for each year of the first five years the proposed amended rule would be in effect, enforcing or administering the rule will have no foreseeable implications relating to cost or revenues of state or local governments.

For each year of the first five years that the proposed amended rule would be in effect, Mr. Galaviz has determined that the public benefit would be to clarify TRS membership eligibility requirements related to full-time service in positions that have no equivalent full-time employment or that have varied work schedules. For each year of the first five years the section will be in effect, it is possible that there would be an economic cost to persons required to comply with rule, including TRS-qualified employers reporting employment for purposes of TRS membership eligibility and employees in positions affected by the proposal. The proposed amendments to the rule regarding the minimum number of hours of employment that will qualify the employment for membership are not anticipated to result in an economic cost to employers or employees. These amendments simply adopt the administrative interpretations used for years in administering the membership eligibility requirements. However, to the extent the proposal authorizes employers to average the number of hours worked in a month and thereby results in employees working a varied work schedule to now be eligible for membership, there may be an economic cost to the employer and the employee. The economic cost to the employer for active employees includes employer contributions equal to the state contribution rate for the first 90 days of employment as well as any employer contributions for amounts paid over the state minimum salary for the position. For active employees, the economic cost is the membership contribution in the amount of 6.4% of eligible compensation. However, the economic benefit of membership, including the future retirement benefits associated with the membership eligible employment, outweigh the economic cost to the employee of the contributions owed. There may also be an economic cost associated with the amendments authorizing the averaging of hours to the employer for retired employees. If averaging the number of hours worked results in the employment now being eligible for membership, the employer will owe the pension surcharge in the amount of 12.4% of the compensation paid to the retiree unless the retiree was reported as working for that employer in January, 2005. Similarly, if the retiree is also enrolled in TRS-Care, the health benefit surcharge will also be owed unless the retiree was reported as working for that employer in January, 2005. To the extent that any portion of the pension surcharge and the health benefit surcharge are passed on to the employee by the employer by agreement between the parties, the amendments authorizing averaging may result in an economic cost to retired employees.

Mr. Galaviz has also determined that, for each year of the first five years the proposed section is in effect, there will be no effect on a local economy, and therefore no local employment impact statement is required under §2001.022, Government Code. Moreover, there will be no adverse economic effect on small businesses or micro-businesses under §2006.002, Government Code as a result of enforcing the proposed section.

Comments may be submitted in writing to Ronnie Jung, Executive Director, 1000 Red River, Austin, Texas 78701. To be fully considered, written comments must be received by TRS within 30 days of the publication of this notice of proposed rulemaking.

Statutory Authority: §825.102, Government Code, which authorizes the TRS Board to adopt rules for eligibility for membership. Cross-reference to Statute: §821.001, Government Code, concerning definitions, including those for "employee" and "membership service," and §822.001, Government Code, concerning TRS membership requirement.

§25.1.Full-time Service.

Employment of a person [ ~~Persons employed~~ ] by a TRS covered employer for one-half or more of the standard full-time work load at a rate comparable to the rate of compensation for other persons employed in similar positions is defined as regular, full-time service eligible for membership. Any employee of a public state-supported educational institution in Texas shall be considered to meet the requirements of the preceding sentence if his or her customary employment is for 20 hours or more for each week and for four and one-half months or more in one school year. Membership eligibility for positions requiring a varied work schedule is based on the average of the number of hours worked in a calendar month and the average number of hours worked must equal or exceed one-half of the hours required for a similar full-time position. If there is no full-time equivalent of a given non-certified position, the minimum number of hours required per week that will qualify the position for TRS membership is 15. If there is no full-time equivalent of a given certified position, the minimum number of hours required per week that will qualify the position for TRS membership is 20.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 14, 2006.

TRD-200603753

Ronnie G. Jung

Executive Director

Teacher Retirement System of Texas

Earliest possible date of adoption: August 27, 2006

For further information, please call: (512) 542-6438

Subchapter B. COMPENSATION

34 TAC §25.21

The Board of Trustees (Board) of the Teacher Retirement System of Texas (TRS or the system) proposes amendments to §25.21, concerning compensation subject to deposit and credit. The amended section provides guidance to public school employers regarding the appropriate reporting of compensation and the appropriate application of contribution rates to compensation. The amendments are proposed in accordance with §2001.006 of the Government Code, which allows TRS to adopt rules and take other administrative action in preparation for the implementation of legislation that has become law but has not taken effect in application. The proposed amendments have also been adopted on an emergency basis and are published in the July 7, 2006, of the Texas Register (31 TexReg 5431).

The proposed amendments to the rule allow TRS to implement, in a manner consistent with plan qualification requirements, House Bill 1, 79th Legislature, Third Called Session (2006) (House Bill 1), which amends §822.201, Government Code. House Bill 1 became law immediately, to be applied beginning with the 2006 - 2007 school year. The proposed amendments will enable TRS to continue to operate as a qualified retirement plan and to provide communications that are necessary and appropriate to ensure proper compensation reporting as TRS members report for work in the 2006 - 2007 school year, with some employees reporting to work as early as July 2006. Further, the amended rule as proposed will provide employers and members affected by House Bill 1 necessary, appropriate, and timely guidance to use in making informed budget, programming, and other decisions for the 2006 - 2007 school year, which is imminent.

House Bill 1 amends Chapter 22, Subchapter D, Education Code to create a new "health care supplementation" election. House Bill 1 allows eligible active employees to elect in writing, each school year, whether to designate a portion of the employee's compensation to be used as health care supplementation. House Bill 1 amends the TRS plan provision of §822.201(c)(10), Government Code to provide that any compensation designated as health care supplementation is excluded from salary and wages for TRS purposes, subject to an annual limit of $1,000. It is the policy of the State of Texas, as expressed in §825.506, Government Code that the provisions of the TRS retirement benefit plan be construed and administered in a manner that the retirement system's benefit plan will be considered a qualified plan under Section 401(a) of the Internal Revenue Code of 1986 (26 U.S.C. §401). Section 825.506, Government Code authorizes the Board to adopt rules that modify the retirement plan to the extent necessary for the retirement system to be a qualified plan and provides that the rules adopted by the Board are to be considered part of the plan.

In enacting House Bill 1, the legislature expressed its intent that TRS take whatever action necessary under §825.506 so that the TRS retirement benefit plan remains a qualified plan under the Internal Revenue Service Code. H.J. OF TEX., 79th Leg., 3d C.S. 331 (2006) (statement of legislative intent by Representative Chisum and Representative Eiland).

The proposed amendments to §25.21 are reasonable modifications to the extent necessary for the plan to be a qualified plan. The amendments also protect the employer pickup of TRS member contributions as established under §825.409, Government Code, which provides, in conformity with the Internal Revenue Code, that employees do not have the option of choosing to receive the contributed amounts directly instead of having them paid by the employer to the retirement system.

In addition, the rule amendments conform §25.21 to the language House Bill 1 uses in amending §822.201(c)(11), Government Code to distinguish the superseded compensation supplementation program from the new health care supplementation program created under House Bill 1.

Tony C. Galaviz, TRS Chief Financial Officer, has determined that, for each year of the first five years the proposed amendments will be in effect to implement House Bill 1, enforcing or administering the amended rule will have foreseeable implications relating to cost or revenues of state or local governments. Implementation of the proposed amendments will increase contributions to the TRS pension fund while saving local public education employers the cost of converting or modifying their payroll systems to account for compensation designated as health care supplementation that would not be TRS-creditable if taken as a cash payment by the employee. Under the proposed amended rule, compensation designated as health care supplementation by employee election under House Bill 1 would be TRS-creditable and subject to state and member contributions to the TRS plan fund. The estimated amount of increased contributions to TRS is as much as $64 annually from an employee eligible to designate up to $1,000 and as much as $60 annually for the state contribution for such an employee. Because local public education employers are required to pay the TRS plan an amount equal to the state contribution for the first 90 days of employment of a new employee, there will be an increased contribution from employers as well. For example, for a new employee who would designate the full $1,000, the local employer would be responsible for approximately $15 in contributions to the TRS plan during that employee's first 90 days of employment. However, because an employee could elect to designate no amount at all or an amount less than $1,000, the total amount of increased contributions to TRS cannot be reasonably estimated. The estimated amount of savings for local public education employers depends on the size and resources of local employers and so cannot be reasonably estimated.

For each year of the first five years that the amended rule will be in effect, Mr. Galaviz has determined that the public benefit will be to maintain the qualified status of the retirement benefit plan under the federal Internal Revenue Code and to provide employers and members affected by House Bill 1 necessary, appropriate, and timely guidance to use in making informed budget, programming, and other decisions for the 2006 - 2007 school year. For each year of the first five years the amended section will be in effect, there may be a short-term economic cost to TRS members in the amount of their member contribution to TRS, less federal income tax on such cash payment. The estimated amount of this short-term cost to an individual employee is estimated to be no greater than 6.4% of the amount designated, or a maximum of $64 per year, before federal income taxes. The net economic cost to an individual employee cannot be reasonably calculated because it depends on highly variable factors such as income tax bracket and personal choice about elections that might be made if the proposed amendments were not implemented. It is unlikely that all eligible employees would have designated a portion of their salary as health care supplementation because, in the absence of the proposed amendments, doing so would make the salary amount ineligible to be included in the calculation of TRS benefits, thus reducing the employee's salary average used to calculate the amount of a service retirement standard annuity benefit. Employees nearing retirement are estimated to incur no additional economic cost as a result of this rule since they would be unlikely to reduce their TRS-creditable salary by designating a portion of the salary as health care supplementation. Any economic cost to TRS members are offset by the long-term benefits accruing from implementation of the proposed amendments. Without implementation of the proposed amended rule, TRS plan qualification and the employer pick-up of member contributions would be at risk, creating risk that the 6.4% of all salary (not just the salary amount designated as health care supplementation), which represents member contributions to the plan, would be fully and immediately taxed as income when earned. Under the TRS plan, member contributions currently are treated as "picked up" by the employer, permitting employees to defer any federal income taxation on those contributions until they are distributed to the employee by the plan in the form of a refund of accumulated contributions or retirement benefits. The estimated economic benefit to an individual employee cannot be reasonably calculated because it depends on highly variable factors such as individual federal income tax brackets and individual amounts of member contributions made to the plan each year. In any event, any costs to persons required to comply with rule result from implementation of House Bill 1 and the requirements of §825.506, Government Code that the provisions of the TRS retirement benefit plan be construed and administered in a manner that the retirement system's benefit plan will be considered a qualified plan under Section 401(a) of the Internal Revenue Code of 1986 (26 U.S.C. §401).

Mr. Galaviz has also determined that, for each year of the first five years the proposed amendments are in effect, there will be no effect on a local economy, and therefore no local employment impact statement is required under §2001.022, Government Code. Moreover, there will be no adverse economic effect on small businesses or micro-businesses as a result of enforcing the amended section.

Statutory Authority: The amended section is proposed under the following: §825.102, Government Code, which authorizes the Board to adopt rules for the administration of the funds of the retirement system; §825.506(a), Government Code, which authorizes the Board to adopt rules that modify the TRS's retirement benefit plan to the extent necessary for the retirement system to be a qualified plan and states that the rules adopted by the Board are to be considered part of the plan.

Cross-reference to Statute: House Bill 1, 79th Legislature, Third Called Session (2006), which amends Chapter 22, Subchapter D, Education Code, relating to compensation supplementation for school district employees, and §822.201, Government Code, relating to TRS member compensation; and §825.506(a), Government Code, which requires that the provisions of the TRS retirement plan be construed and administered in a manner that the retirement system's benefit plan will be considered a qualified plan under §401(a) of the Internal Revenue Code of 1986 (26 U.S.C. §401).

§25.21.Compensation Subject to Deposit and Credit.

(a) - (b) (No change.)

(1) - (6) (No change.)

(7) a merit salary increase made under Education Code, §51.962; [ ~~and~~ ]

(8) amounts deducted from regular pay for a qualified transportation benefit under Government Code §659.202 ; and [ . ]

(9) compensation designated as health care supplementation by an employee under Subchapter D, Chapter 22, Education Code, as amended by House Bill 1, 79th Legislature, Third Called Session. This paragraph modifies the provision of the retirement plan described in §822.201, Government Code, as amended by House Bill 1, 79th Legislature, Third Called Session, to the extent necessary for the retirement system to be a qualified plan.

(d) The following are excluded from annual compensation:

(1) - (9) (No change.)

(10) active employee health coverage or compensation supplementation or any other amount received by an employee under former Article 3.50-8, Insurance Code ; former Chapter 1580, Insurance Code; Subchapter D, Chapter 22, Education Code, as that subchapter existed on January 1, 2006; or Rider 9, page III-39, Chapter 1330, Acts of the 78th Legislature, Regular Session, 2003 (the General Appropriations Act) , regardless of whether the employee receives the amount in cash, uses it for payment of health care coverage, or uses it for any other option available by law;

(11) - (12) (No change.)

(e) - (f) (No change.)

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 13, 2006.

TRD-200603731

Ronnie G. Jung

Executive Director

Teacher Retirement System of Texas

Earliest possible date of adoption: August 27, 2006

For further information, please call: (512) 542-6438