TITLE 34.PUBLIC FINANCE

Part 1. COMPTROLLER OF PUBLIC ACCOUNTS

The Comptroller of Public Accounts adopts an amendment to §3.73, concerning the qualification for and determination of fair market value deduction for replaced vehicles, without changes to the proposed text as published in the April 19, 2002 issue of the Texas Register (27 TexReg 3310).

This adoption amendment incorporates legislatives changes made by SB1125, 77th Legislative Session, 2001, and by HB3211, 76th Legislative Session, 1999, allowing lessors and renters to claim fair market value deductions for replaced vehicles that are owned by certain affiliated companies. This adoption amendment also makes clarification changes.

No comments were received regarding adoption of the amendment.

This amendment is adopted 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 amendment implements Tax Code, §152.002.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on June 20, 2002.

TRD-200203875

Martin Cherry

Deputy General Counsel for Taxation

Comptroller of Public Accounts

Effective date: July 10, 2002

Proposal publication date: April 19, 2002

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

Chapter 7. PREPAID HIGHER EDUCATION TUITION PROGRAM

Subchapter A. GENERAL RULES

34 TAC §7.1

The Comptroller of Public Accounts adopts an amendment to §7.1, concerning general statement of purpose, without changes to the proposed text as published in the May 3, 2002, issue of the Texas Register (27 TexReg 3723).

§7.1 is amended to add the board's new responsibilities to develop, implement, and administer the higher education savings plan, as reflected in the Education Code, Chapter 54, Subchapter G.

No comments were received regarding adoption of the §7.1.

The amendment is adopted under Education Code, Chapter 54, Subchapter F, §54.602 which authorizes the board to administer the higher education savings plan, §54.618 which authorizes the board to adopt rules necessary for the implementation of the Prepaid Higher Education Tuition Program, and §54.632 which requires the board to comply with §529 of the Internal Revenue Code of 1986.

The amendment implements Education Code, Chapter 54, Subchapter F and Subchapter G.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on June 24, 2002.

TRD-200203956

Martin Cherry

Deputy General Counsel for Taxation

Comptroller of Public Accounts

Effective date: July 14, 2002

Proposal publication date: May 3, 2002

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

34 TAC §7.2

The Comptroller of Public Accounts adopts an amendment to §7.2 concerning definitions, without changes to the proposed text as published in the May 3, 2002, issue of the Texas Register (27 TexReg 3724).

The amendment deletes the definition of required penalty to reflect changes in federal law applicable to prepaid higher education tuition programs.

No comments were received regarding adoption of the amended rule.

The amendment implements Education Code, Chapter 54, Subchapter F and Subchapter G.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on June 24, 2002.

TRD-200203957

Martin Cherry

Deputy General Counsel for Taxation

Comptroller of Public Accounts

Effective date: July 14, 2002

Proposal publication date: May 3, 2002

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

34 TAC §7.3

The Comptroller of Public Accounts adopts an amendment to §7.3, concerning tax exempt status requirements, without changes to the proposed text as published in the May 3, 2002, issue of the Texas Register (27 TexReg 3725).

The amendment deletes references to a required penalty for refunds made under a prepaid tuition contract to reflect changes in federal law.

No comments were received regarding adoption of the amended rule.

The amendment implements Education Code, Chapter 54, Subchapter F and Subchapter G.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on June 24, 2002.

TRD-200203958

Martin Cherry

Deputy General Counsel for Taxation

Comptroller of Public Accounts

Effective date: July 14, 2002

Proposal publication date: May 3, 2002

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

Subchapter G. BENEFICIARIES

34 TAC §7.63

The Comptroller of Public Accounts adopts an amendment to §7.63, concerning change of beneficiary, without changes to the proposed text as published in the May 3, 2002, issue of the Texas Register (27 TexReg 3725).

The amendment deletes references to a required penalty for refunds made under a prepaid tuition contract to reflect changes in federal law.

No comments were received regarding adoption of the amended rule.

The amendment is adopted under Education Code, Chapter 54, Subchapter F, §54.618, which authorizes the board to adopt rules necessary for the implementation of the Prepaid Higher Education Tuition Program, and §54.632, which requires the board to comply with §529 of the Internal Revenue Code of 1986 in imposing penalties for refunds.

This amendment implements Education Code, Chapter 54, Subchapter F.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on June 24, 2002.

TRD-200203959

Martin Cherry

Deputy General Counsel for Taxation

Comptroller of Public Accounts

Effective date: July 14, 2002

Proposal publication date: May 3, 2002

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

Subchapter H. CONVERSION

34 TAC §7.71

The Comptroller of Public Accounts adopts an amendment to §7.71, concerning conversions, without changes to the proposed text as published in the May 3, 2002, issue of the Texas Register (27 TexReg 3726).

The amendment deletes references to a required penalty for refunds made under a prepaid tuition contract to reflect changes in federal law.

No comments were received regarding adoption of the amended rule.

The amendment to §7.71 is adopted under Education Code, Chapter 54, Subchapter F, §54.618, which authorizes the board to adopt rules necessary for the implementation of the Prepaid Higher Education Tuition Program, and §54.632, which requires the board to comply with Section 529 of the Internal Revenue Code of 1986 in imposing penalties for refunds.

The amendment implements Education Code, Chapter 54, Subchapter F.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on June 24, 2002.

TRD-200203960

Martin Cherry

Deputy General Counsel for Taxation

Comptroller of Public Accounts

Effective date: July 14, 2002

Proposal publication date: May 3, 2002

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

34 TAC §7.72

The Comptroller of Public Accounts adopts the repeal of §7.72, concerning required penalties on certain payments, without changes to the proposed repeal as published in the May 3, 2002, issue of the Texas Register (27 TexReg 3727).

The rule is repealed to reflect changes in federal law which no longer requires the penalties.

No comments were received regarding adoption of the repeal.

This repeal is adopted under Education Code, Chapter 54, Subchapter F, §54.618, which authorizes the board to adopt rules necessary for the implementation of the Prepaid Higher Education Tuition Program, and §54.632, which requires the board to comply with §529 of the Internal Revenue Code of 1986 in imposing penalties for refunds.

This repeal implements Education Code, Chapter 54, Subchapter F.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on June 24, 2002.

TRD-200203961

Martin Cherry

Deputy General Counsel for Taxation

Comptroller of Public Accounts

Effective date: July 14, 2002

Proposal publication date: May 3, 2002

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

Subchapter I. REFUNDS, TERMINATION

34 TAC §7.81

The Comptroller of Public Accounts adopts an amendment to §7.81, concerning refunds, with changes to the proposed text as published in the May 3, 2002, issue of the Texas Register (27 TexReg 3727).

The amendment deletes references to a required penalty for refunds made under a prepaid tuition contract to reflect changes in federal law.

Agency staff commented that the reference to Internal Revenue Code, §529(b)(3) contained in proposed §7.81(d)(3) and (d)(4) should be deleted because of amendments to §529 which make the reference no longer accurate. The comptroller agrees with these comments and has revised §7.81 accordingly. No other comments were received regarding adoption of the amended rule.

The amendment to §7.81 is adopted under Education Code, Chapter 54, Subchapter F, §54.618, which authorizes the board to adopt rules necessary for the implementation of the Prepaid Higher Education Tuition Program, and §54.632, which requires the board to comply with §529 of the Internal Revenue Code of 1986 in imposing penalties for refunds.

This amendment implements Education Code, Chapter 54, Subchapter F.

§7.81.Refunds.

(a) Refunds shall be made in accordance with provisions of these rules and the prepaid tuition contract, in a manner that will not adversely affect the tax status of the program under applicable provisions of the Internal Revenue Code, as amended from time to time. Refunds shall be governed by these rules as amended and as in effect on the date the request for refund is submitted to the board. In general, it is the board's intent that the amount of any refund shall be the sum of all payments made under the contract for tuition and required fees, less fees due and payable to the program under the board's fee schedule and less any amounts paid by the program pursuant to the prepaid tuition contract prior to the refund.

(b) Refunds shall be made to the purchaser of the prepaid tuition contract unless otherwise designated by the purchaser in writing to the board in the event of the purchaser's death.

(c) Should a beneficiary terminate his/her student status on or after the date on which the institution denies refunds to students withdrawing for a particular semester, no refund shall be paid under the prepaid tuition contract for amounts relating to such semester.

(d) Examples of circumstances under these rules in which refunds may be made include, but are not limited to, the following.

(1) Under any plan if the beneficiary receives a full scholarship for tuition and required fees, the amount of tuition and required fees that would have been paid under the plan selected may be refunded. Under a junior college plan, junior/senior college plan, or a senior college plan, the amount of such refund shall not exceed the tuition scholarship amount. Refund payments may be issued each academic term as long as the scholarship is effective. The purchaser of the prepaid tuition contract shall be entitled to such refund. Proof of scholarship must be submitted in a form acceptable to the board.

(2) Under the junior college plan, junior/senior college plan or senior college plan, if a beneficiary receives a partial scholarship for tuition and required fees, the tuition scholarship amount may be refunded. Under the private college plan, if a beneficiary receives a partial scholarship, a refund may be made in an amount equal to the excess of the estimated average private tuition and required fee amounts, over the actual tuition and required fee amounts less the scholarship amount. Refund payments up to the amount determined in accordance with this paragraph may be issued each academic term as long as the scholarship is effective. The purchaser of the prepaid tuition contract shall be entitled to such refund. Proof of scholarship must be submitted in a form acceptable to the board.

(3) If the beneficiary dies or becomes disabled while attending an institution of higher education or a private or independent institution of higher education, the amount of benefits remaining available under the prepaid tuition contract, less any applicable fees, may be refunded. A lump sum refund may be made within 60 days of the date the program is notified of the death or disability to the purchaser of the prepaid tuition contract, provided proof of death or disability is submitted in a form acceptable to the board.

(4) If the beneficiary dies or becomes disabled after having graduated from high school but prior to attending an institution of higher education or a private or independent institution of higher education, a refund may be issued or the benefits under such contract may be transferred to another qualified beneficiary. If a change of beneficiary is not requested, a lump sum refund may be made within 60 days of the date the program is notified of the death or disability to the purchaser of the prepaid tuition contract, provided proof of death or disability is submitted in a form acceptable to the board. Under the junior college plan, junior/senior college plan, or senior college plan, the refund will equal the average amount of tuition and required fees in effect at the time the refund is requested. Under the private college plan, the refund will equal the estimated average of private tuition and required fees as determined annually by the board.

(5) If the beneficiary dies or becomes disabled before the contract is paid in full, a refund may be issued or the benefits under such contract may be transferred to another qualified beneficiary. If a change of beneficiary is not requested, a lump sum refund may be made within 60 days of the date the program is notified of the death or disability to the purchaser of the prepaid tuition contract, provided proof of death or disability is submitted in a form acceptable to the board. For junior college plans, junior/senior college plans, or senior college plans, the refund amount will be equal to a pro rata amount of the average amount of tuition and required fees in effect at the time the refund is requested, such pro rata amount determined by the number of payments made under the contract by the purchaser to the number of payments required to pay the contract in full. For private college plans, the refund amount will be equal to a pro rata amount of the estimated amount of private tuition and required fees set forth in the prepaid tuition contract, such pro rata amount determined by the number of payments made under the contract by the purchaser to the number of payments required to pay the contract in full.

(6) If a prepaid tuition contract is terminated under §7.82(c) of this title (relating to Termination of Prepaid Tuition Contract), such contract may be refunded in an amount equal to the present lump sum actuarial value, as of the date of termination, of the average amount of tuition or the estimated amount of private tuition and required fees of junior college plans, junior/senior college plans or the estimated amount of private tuition and required fees for the private college plan, less a cancellation fee; and any other applicable fee. In no case shall a refund be made in an amount less than the total amount paid by the purchaser under the contract less any applicable administrative fees or amounts previously distributed.

(7) If the purchaser who selected the junior college plan, junior/senior college plan, or senior college plan dies or becomes disabled and payments cease before the contract is paid in full, and unless otherwise directed by the purchaser in writing, a refund may be made. The refund amount will be equal to a percentage of the average amount of tuition and required fees in effect at the time the refund is requested, determined by reference to the percentage of payments made under the contract by the purchaser. If the purchaser who selected the private college plan dies or becomes disabled and payments cease before the contract is paid in full, a refund may be made. The refund amount will be equal to a percentage of the estimated amount of private tuition and required fees set forth in the prepaid tuition contract, determined by reference to the percentage of payments made under the contract by the purchaser. A lump sum refund may be made within 60 days to the purchaser of the prepaid tuition contract unless otherwise specified in writing by the purchaser as described in this paragraph. In the alternative, contract benefits may be converted to a plan with reduced benefits. Proof of death or disability shall be in a form acceptable to the board. Notwithstanding any other provision of this paragraph, the purchaser, in a writing to the board, and providing such other information as the board may request, may designate a person who shall have a right of survivorship with respect to purchaser's rights and obligations pursuant to a prepaid tuition contract; provided that such designation shall in no way affect the purchaser's ability to modify or terminate the contract and receive a refund without the consent or authorization of the designee.

(8) Refunds may be made for other reasons as approved by the board. By way of example, such refunds may be made in an amount equal to the lowest amount of tuition and required fees of all institutions under the plan selected, less a cancellation fee. Refund payments may be made in semiannual installments to the purchaser of the prepaid tuition contract.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on June 24, 2002.

TRD-200203962

Martin Cherry

Deputy General Counsel for Taxation

Comptroller of Public Accounts

Effective date: July 14, 2002

Proposal publication date: May 3, 2002

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

Subchapter K. HIGHER EDUCATION SAVINGS PLAN

34 TAC §§7.101 - 7.111

The Comptroller of Public Accounts adopts new §§7.101-7.111, concerning the Higher Education Savings Plan. New §7.103 and §7.111 are adopted with changes to the proposed text as published in the May 3, 2002, issue of the Texas Register (27 TexReg 3729). New §§7.101, 7.102, 7.104, 7.105, 7.106, 7.107, 7.108, 7.109, and 7.110 are adopted without changes to the proposed text as published in the May 3, 2002 issue of the Texas Register (27 TexReg 3729).

These rules establish administrative and procedural guidelines for a new Higher Education Savings Plan which will allow individuals to make contributions to a higher education savings account, while taking advantage of federal income tax benefits under Internal Revenue Code of 1986, §529, as amended. The new rules will reside under Texas Administrative Code, Title 34, Part 1, Chapter 7, new Subchapter K: Higher Education Savings Plan. These rules implement Senate Bill 555, enacted by the 77th Legislature, 2001.

Comments were received from Clark, Thomas & Winters P.C. and agency staff regarding adoption of the new rules. Clark Thomas suggested revisions to §7.103(c)(1) relating to the timing of the calculation of the market value of a savings trust account for the purpose of ensuring no excess contributions. Clark Thomas suggested changing the date of calculation of market value of the savings trust account from the end of the preceding year to the date of the contribution, to ensure the rule is consistent with Internal Revenue Code §529 prohibition against excess contributions. The comptroller agrees with this comment and has revised §7.103(c)(1) accordingly.

Agency staff have suggested revisions to §7.111 subsections (a)(2) and (c)(2) to make the rule consistent with Internal Revenue Code §529. Staff suggested revising §7.111(a)(2) to require the owner of a savings account to certify the amount of a withdrawal that constitutes a nonqualified withdrawal if requested by the plan manager, instead of requiring the certification each time a withdrawal is requested, to make the rule consistent with Internal Revenue Code §529. The comptroller agrees with this comment, and has revised §7.111(a)(2) accordingly. Staff also suggested a revision to §7.111(c)(2) to delete the reference to Internal Revenue Code §529(b)(3)(B), because this subsection of the Code no longer exists. The comptroller agrees with this comment and has revised §7.111(c)(2) accordingly.

The new rules are adopted under Education Code, Chapter 54, Subchapter F, §54.618, which authorizes the board to adopt rules to implement Subchapter F, and Education Code, Chapter 54, Subchapter G, §§54.702, 54.708, and 54.710, which authorize the board to adopt rules governing the Higher Education Savings Plan.

The new rules implement Education Code, Chapter 54, Subchapter G.

§7.103.Tax Benefits and Securities Laws Exemptions.

(a) Intent to satisfy tax exempt requirements. This subchapter, the savings plan, each savings trust agreement, and each savings trust account hereunder are intended to satisfy all requirements of:

(1) Internal Revenue Code of 1986, §529, as amended, and regulations thereunder; and

(2) federal securities laws.

(b) Media for making payments to savings trust accounts. Any payment of an amount due to a savings trust account under a savings trust agreement must be made in cash or by electronic funds transfer.

(1) The owner of a savings trust account may not contribute to the account any sum that would cause the balance of the account to exceed the amount that is required to pay the qualified higher education expenses of the beneficiary of the account. Contributions to a savings trust account may not be made if, as a result thereof, the balance of the savings trust account would exceed the sum of four times the cost of one year of undergraduate tuition, fees, books, supplies, and room and board at the most expensive educational institution that is eligible for the savings plan, and three times the cost of one year of graduate school tuition, fees, books, supplies, and room and board at the most expensive graduate school that is eligible for the savings plan, which amount will be determined and published annually by the board. Contributions to a savings trust account shall be limited to the amount, if any, by which the foregoing sum exceeds the balance of that savings trust account (together with the balance of all other savings trust accounts that are maintained under the savings plan for the beneficiary of that savings trust account). Any contribution that exceeds that limit will be promptly refunded, without interest or earnings, to the account's owner.

(2) A plan manager shall monitor contributions to each savings trust account that is in the manager's custody, to ensure compliance with any applicable limits on contributions.

(3) In application of these rules, the plan manager must determine whether the beneficiary of a savings trust account is the beneficiary of any other qualified tuition program under Internal Revenue Code of 1986, §529, as amended, that is maintained by the state, and must enforce the foregoing limitation on contributions by incorporating all other such accounts into calculations of allowed contributions.

(d) Separate accountings. A plan manager shall maintain a separate accounting for each savings trust account in the manager's custody.

(e) Investment and earnings control prohibited. Except as provided in §7.106(f) of this title (relating to investment alternatives), neither the owner of a savings trust account nor the beneficiary of that account may control or direct the investment of:

(1) the principal of the account; or

(2) any earnings of the account.

(f) Pledge of interest as security prohibited. Neither the owner of a savings trust account nor the beneficiary of that account may:

(1) assign any interest in the account for the benefit of a creditor;

(2) use any interest in the account as security or collateral for a loan or other obligation; or

(3) otherwise alienate, sell, transfer, assign, pledge, encumber, or charge any interest in the account.

(g) Reports. A plan manager shall make reports that are required by:

(1) Internal Revenue Code of 1986, §529, as amended; and

(2) any other applicable tax law.

(h) Policies and procedures. Except where in conflict with Education Code, Chapter 54, Subchapter G, or this subchapter, the board may adopt any policy or procedure, and such policy or procedure automatically amends each outstanding savings trust agreement as necessary for:

(1) the savings plan to obtain or maintain qualification as a qualified tuition program under Internal Revenue Code of 1986, §529, as amended;

(2) owners and beneficiaries to obtain or maintain the federal income tax benefits or favorable treatment that is provided by Internal Revenue Code of 1986, §529, as amended; or

(3) the savings plan to obtain or maintain exemption from registration under federal securities laws.

§7.111.Withdrawals.

(a) General provisions. The owner of a savings trust account may withdraw any amount from that account if:

(1) the withdrawal is made in accordance with Education Code, Chapter 54, Subchapter G; this subchapter; and the applicable savings trust agreement;

(2) the owner certifies to the appropriate plan manager the portion, if any, of the withdrawal that constitutes a nonqualified withdrawal if requested by the plan manager; and

(3) the withdrawal would not adversely affect the tax status of the savings plan under applicable provisions of Internal Revenue Code of 1986, as amended. Notwithstanding the owner's certifications that are described in clause (2) above, the board may independently determine the extent to which any withdrawal constitutes a nonqualified withdrawal.

(b) Responsibility of plan managers. A plan manager shall monitor withdrawals from each savings trust account in the manager's custody to ensure compliance with any applicable limitations on withdrawals.

(c) Examples of particular types of withdrawals. The circumstances under which a withdrawal is authorized include the following.

(1) If the beneficiary of a savings trust agreement receives a full or partial scholarship for tuition and required fees, the owner of the agreement may withdraw the amount of the scholarship from the savings trust account. A withdrawal under this paragraph may occur:

(A) only as each academic term occurs; and

(B) only if proof of the scholarship is submitted to the plan manager that has custody of the account, in a form that is acceptable to the plan manager.

(2) If the beneficiary of a savings trust agreement dies or becomes disabled:

(A) The owner of the agreement may withdraw the entire balance of the savings trust account or replace the deceased or disabled beneficiary with a qualified replacement beneficiary as provided in §7.110 of this title (relating to Replacement of Beneficiary).

(B) If the owner of the agreement requests a withdrawal, the appropriate plan manager shall pay the withdrawal to the owner not later than the 60th day after the date on which the plan manager receives proof of the death or disability in a form that is acceptable to the plan manage.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on June 24, 2002.

TRD-200203963

Martin Cherry

Deputy General Counsel for Taxation

Comptroller of Public Accounts

Effective date: July 14, 2002

Proposal publication date: May 3, 2002

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

Chapter 9. PROPERTY TAX ADMINISTRATION

Subchapter C. APPRAISAL DISTRICT ADMINISTRATION

34 TAC §9.402

The Comptroller of Public Accounts adopts an amendment to §9.402, concerning special use application forms, without changes to the proposed text as published in the March 29, 2002, issue of the Texas Register (27 TexReg 2421).

This rule is amended to add wildlife management to the model application form for 1-d-1 agricultural land appraisal, required by House Bill 3123, 77th Legislature, 2001.

The comptroller has changed the wording of a question in the model form to conform with a change in the adopted version of 34 TAC §9.4003 concerning the qualification of land for special appraisal based on wildlife management use. A change in subsection (b)(6)(D) removed a requirement that tracts within a wildlife management association be subject to deed restrictions, covenants, or easements that legally obligate the owner of each tract to perform activities necessary to qualify for wildlife management use. The subsection was amended to require only that tracts in a wildlife management association be subject to a written agreement legally obligating the owner to perform the activities necessary to qualify for wildlife management.

No comments were received regarding adoption of the amendment.

This amendment is adopted under Tax Code, §5.03, which requires the comptroller to adopt rules establishing the minimum standards for the administration and operation of an appraisal district, Tax Code, §5.07, which requires the comptroller to prescribe the contents and form for the administration of the property tax system, and Tax Code, §11.43(f), which requires the comptroller to prescribe the contents and form for each kind of property tax exemption.

The amendment implements Tax Code, §23.521.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on June 24, 2002.

TRD-200203936

Martin Cherry

Deputy General Counsel for Taxation

Comptroller of Public Accounts

Effective date: July 14, 2002

Proposal publication date: March 29, 2002

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

Subchapter I. VALIDATION PROCEDURES

34 TAC §9.4003

The Comptroller of Public Accounts adopts a new §9.4003, concerning wildlife management use, with changes to the proposed text as published in the March 29, 2001, issue of the Texas Register (27 TexReg 2421).

The new section implements House Bill 3123, 77th Legislature, 2001, effective September 1, 2001.

The comptroller received numerous comments and held a public hearing to receive additional comments from interested parties, pursuant to Government Code, §2001.029. The comptroller made several changes based on some of these comments.

A professional wildlife management consultant submitted a comment requesting that the definition of "human use" in subsection (b)(1) should be amended to delete the term "wildlife" and insert the term "medicine." The comptroller has made the change to be consistent with the wording of §23.51(7) of the Tax Code.

Several persons, including a chief appraiser and a wildlife management consultant, submitted comments requesting the comptroller to include specific language requiring otherwise qualified tracts within a wildlife management property association to be contiguous. The parties suggested requiring that all tracts within an association to be contiguous would mitigate, to some extent, the detrimental effects of habitat fragmentation in developed areas. The comptroller made the suggested change by adding a new subsection (b)(6)(A), requiring tracts within a wildlife management association to be contiguous, provided that tracts may be separated by public roads or bodies of water.

Several persons, including an attorney and a wildlife management consultant, requesting the comptroller to delete the requirement that an owner of a tract in a wildlife management association formally deed-restrict the use of his or her tract relative to future land uses. The parties noted that there are other types of "group" agricultural uses, such as blanket grazing leases, wherein participating landowners may qualify for open-space appraisal, that do not require each landowner to conduct agricultural activities in the future. The comptroller made the suggested change by deleting the requirement in subsection (b)(6)(D) that tracts within a wildlife management association be subject to deed restrictions, covenants, or conservation easements as defined by Natural Resources Code, Chapter 183, that legally obligates the owner of each tract to perform necessary activities to qualify for wildlife management use appraisal. The amended language requires tract owners to execute a written agreement legally obligating them to perform the necessary activities to qualify for wildlife management use appraisal. The amendment addresses the fact that open-space appraisal qualifications are to be based on current use of the land, and not future intentions or plans.

Several persons submitted comments requesting the comptroller to define the term "tract" as it applies to qualification for wildlife management. Parties stated a concern that the term tract is used throughout the proposed rule without being clearly and specifically defined. The comptroller has added a definition of tract in subsection (b)(10) to clarify that the term can include multiple parcels of land under common ownership. Since the term "tract" is now defined, the comptroller has removed references to "properties" and "property" in subsection (d)(2) and replaced the terms with the more appropriate term "tract."

A professional wildlife management consultant submitted a comment requesting that the comptroller add a comma following the term "migrating." The comptroller made the change in subsection (e)(1)(B), since that is how the phrase appears in the statute.

The co-authors of House Bill 3123, Representatives Clyde Alexander and Bob Turner, submitted a comment requesting the comptroller to include language clarifying that a change of ownership of qualified wildlife management land does not trigger application of the percentage requirements in the rule. The comptroller agreed and amended subsection (e)(4)(B) to provide that only a smaller tract transferred as part of a previously qualified tract would be subject to the percentage requirements in subsection (f).

A professional wildlife management consultant submitted a comment requesting that the comptroller delete the term "minimum," as applied to the phrase "wildlife use percentage." The comptroller has made the change, since the term may be confusing and is not necessary, and because the definition of wildlife use percentage in subsection (b)(8) clearly provides that a tract must meet the appraisal district board of directors' adopted percentage.

Based on a staff recommendation, the comptroller added the term "management" to the phrase "wildlife management association," to conform to a definition in an earlier subsection.

A property tax attorney submitted a comment requesting language allowing a property owner to show the chief appraiser, by "clear and convincing" evidence that he or she owns a "unique" tract that merits a lower percentage ratio than required by this rule and the local appraisal district board of directors. The comptroller agreed with the requested change and included language in subsection (g) allowing an exception to the percentage requirements in subsection (f) if a property owner demonstrates, by clear and convincing evidence, that the unique characteristics of the habitat and/or managed species makes it possible to effectively manage for wildlife at a lower percentage level. If granted the exception, the owner would be required to meet all other wildlife management use qualification requirements. The exception is required to address legal concerns that the rule must follow constitutional and statutory requirements that open-space appraisal qualification must be based on the land's use.

Numerous persons submitted comments requesting the comptroller to delete the term "may" in subsection (h) and replace it with the term "shall." The comptroller agreed with the suggested change, since the word "may" implies that continued open-space appraisal of a particular parcel of qualified wildlife management land would be up to the chief appraiser's discretion.

Numerous persons submitted comments requesting the comptroller to delete the term "intact" in subsection (h) and include language clarifying that tracts qualified for wildlife management use before the 2002 tax year would continue to qualify. The comptroller agreed, and has included language that will provide for the continued qualification of tracts containing an equal or greater amount of qualifying acreage than the acreage contained in the tract prior to January 1, 2002. Previously qualified tracts must continue to satisfy all requirements for qualification established by this Section.

Summary of additional comments:

Several persons submitted comments suggesting that the formula for determining wildlife use percentage in subsection (b)(8) is either inappropriate and/or does not reflect the actual use of the land. The comptroller respectfully disagreed with these assertions. The Texas Department of Parks and Wildlife developed the wildlife use percentage components in the rule in a process that included input from their team of professional wildlife biologists with extensive knowledge of wildlife habitats, species, and effective management practices throughout the state. The comptroller made no changes to the subsection because to do so would be inconsistent with the cumulative expert advise of the agency charged in House Bill 3123 with establishing wildlife use qualification standards. Also, the addition of the "clear and convincing evidence" standard, as discussed in response to an earlier comment, allows an owner the opportunity to establish that a particular tract can be effectively used for wildlife management purpose.

Several persons, including an attorney, a wildlife management consultant and a chief appraiser, submitted comments questioning the role of the appraisal district board of directors in subsection (f) in determining wildlife use percentages for each county in the state. The comments generally stated that the appraisal district board should have no authority over determining matters involving appraisal of property for property tax purposes. The comptroller respectfully disagreed with this analysis and submits that the appraisal district board is an appropriate entity to determine the county wildlife use percentage. The board does have some authority over appraisals through its duties to contract and budget. Through its contracting authority, the board determines how appraisals are performed-through in-house appraisal, use of a private appraisal firm, or both. The district's operating budget reflects the board's decisions on handling appraisals. The board also exercises its influence when it works with the chief appraiser to establish a plan for reappraising real property at least once every three years. The chief appraiser must have written approval from the board to appeal an appraisal review board order, settle lawsuits and direct litigation. Through its policy-making power, the board may adopt policies outlining the chief appraiser's authority.

Several persons, including landowners and an attorney, submitted comments urging the comptroller to postpone adoption of the rule until the 2003 tax year, leaving current law in effect for the 2002 tax year. The comptroller made no change based on these comments because House Bill 3123 requires that the rules "apply to tax years beginning on or after January 1, 2002." The bill also requires the comptroller to adopt the qualification standards within the rule and to distribute them to each appraisal district--"as soon as practicable after the effective date of this Act." The Act took effect September 1, 2001. Postponing adoption of the rule until 2003 would be contrary to a clear legislative mandate.

Several persons submitted comments suggesting alternative language for inclusion in subsection (h), that were not included in the comptroller's amendments to that subsection. Subsection (h) requires the continued qualification of wildlife management land that was appraised as qualified open space land based on wildlife management use prior to tax year January 1, 2002. The comptroller made appropriate changes to subsection (h) to accomplish legislative intent, consistent with current law.

Several appraisal districts, wildlife management consultants, landowners and attorneys submitted comments concerning provisions in the rule applicable to: 1) wildlife management associations; 2) multi-county tracts; 3) qualifications for wildlife management experts; 4) applications for traditional ag-use qualification following failure to meet the rule's percentage requirements; 5) inter-family real property transactions; 6) rollback taxes; 7) re-application by new owners; 8) alternative definitions of terms such as "contiguous" and "tract;" and 9) the Parks and Wildlife Department management plan format. The comptroller made no additional changes, deferring to chief appraisers' existing authority to approve, deny or request additional information on applications for special appraisal and the Texas Department of Parks and Wildlife's continuing expertise and jurisdiction over wildlife management plan content and format.

This new section is adopted under Tax Code, §5.03, which requires the comptroller to adopt rules establishing the minimum standards for the administration and operation of an appraisal district, Tax Code, §5.07, which requires the comptroller to prescribe the contents of forms for the administration of the property tax system, and Tax Code, §23.54(b), which requires the comptroller to prescribe the contents and form of for applications for the appraisal of agricultural land.

The new section implements Tax Code, Chapter 23, Subchapter D, §23.521.

§9.4003.Wildlife Management Use.

(a) Purpose. The purpose of this section is to implement the legislative intent of House Bill 3123, 77th Legislature, 2001, as follows:

(1) to encourage the preservation of open space for wildlife management and conservation of the state's natural heritage in all areas of the state;

(2) to create definitive standards for tax appraisers to follow in determining the qualification of property for appraisal on the basis of wildlife management use;

(3) to create a mechanism in addition to traditional agricultural use to allow ranchers, farmers, and land managers to conserve open space;

(4) to affirm local control of property taxation;

(5) to preserve revenue neutrality for all concerned parties; and

(6) to allow each property currently qualified in wildlife management use to continue appraised as open space land.

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

(1) Human use--The use of indigenous wildlife or habitat for food, medicine, or recreation by humans.

(2) Indigenous wildlife--All native animals that originated in or naturally migrated or migrate through an area and that are capable of living naturally in that area. The term does not include exotic livestock as defined by Agriculture Code, §142.001.

(3) Migrating population--Indigenous wildlife that moves between seasonal ranges.

(4) Sustained breeding population--A group or population of indigenous wildlife that is capable of perpetuating itself through natural breeding.

(5) Recreation--An active or passive activity for pleasure or sport.

(6) Wildlife management property association--A group of landowners whose tracts of land:

(A) are contiguous, provided that the presence of public roads and bodies of water does not affect the contiguity of the tracts;

(B) are subject to provisions of subsection (f)(2) of this section;

(D) are subject to a written agreement, that legally obligates the owner of each tract of land to perform the activities necessary to qualify for wildlife management use appraisal under this section.

(7) Wildlife use appraisal regions designated by the Texas Parks and Wildlife Department--

(A) Region 1--Brewster, Crane, Culberson, El Paso, Hudspeth, Jeff Davis, Loving, Pecos, Presidio, Reeves, Ward, and Winkler counties.

(B) Region 2--Andrews, Aransas, Archer, Armstrong, Atascosa, Bailey, Baylor, Bee, Borden, Briscoe, Brooks, Callahan, Cameron, Carson, Castro, Childress, Cochran, Coke, Coleman, Collingsworth, Concho, Cottle, Crockett, Crosby, Dallam, Dawson, Deaf Smith, Dickens, Dimmit, Donley, Duval, Ector, Edwards, Fisher, Floyd, Foard, Frio, Gaines, Garza, Glasscock, Gray, Hale, Hall, Hansford, Hardeman, Hartley, Haskell, Hemphill, Hidalgo, Hockley, Howard, Hutchinson, Irion, Jim Hogg, Jim Wells, Jones, Kenedy, Kent, Kimble, King, Kinney, Kleberg, Knox, Lamb, La Salle, Lipscomb, Live Oak, Lubbock, Lynn, McMullen, Martin, Maverick, Medina, Menard, Midland, Mitchell, Moore, Motley, Nolan, Nueces, Ochiltree, Oldham, Parmer, Potter, Randall, Reagan, Real, Refugio, Roberts, Runnels, San Patricio, Schleicher, Scurry, Shackelford, Sherman, Starr, Sterling, Stonewall, Sutton, Swisher, Taylor, Terrell, Terry, Throckmorton, Tom Green, Upton, Uvalde, Val Verde, Webb, Wheeler, Wichita, Wilbarger, Willacy, Yoakum, Zavala, and Zapata counties.

(C) Region 3--Bandera, Bell, Bexar, Blanco, Bosque, Brown, Burnet, Clay, Comal, Comanche, Cooke, Coryell, Denton, Eastland, Erath, Gillespie, Hamilton, Hays, Hood, Jack, Johnson, Kendall, Kerr, Lampasas, Llano, McCulloch, Mason, Mills, Montague, Palo Pinto, Parker, San Saba, Somervell, Stephens, Tarrant, Travis, Williamson, Wise, and Young counties.

(D) Region 4--Anderson, Angelina, Austin, Bastrop, Bowie, Brazoria, Brazos, Burleson, Caldwell, Calhoun, Camp, Cass, Chambers, Cherokee, Collin, Colorado, Dallas, Delta, DeWitt, Ellis, Falls, Fannin, Fayette, Fort Bend, Franklin, Freestone, Galveston, Goliad, Gonzales, Grayson, Gregg, Grimes, Guadalupe, Hardin, Harris, Harrison, Henderson, Hill, Hopkins, Houston, Hunt, Jackson, Jasper, Jefferson, Karnes, Kaufman, Lamar, Lavaca, Lee, Leon, Liberty, Limestone, McLennan, Madison, Marion, Matagorda, Milam, Montgomery, Morris, Nacogdoches, Navarro, Newton, Orange, Panola, Polk, Rains, Red River, Robertson, Rockwall, Rusk, Sabine, San Augustine, San Jacinto, Shelby, Smith, Titus, Trinity, Tyler, Upshur, Van Zandt, Victoria, Walker, Waller, Washington, Wharton, Wilson, and Wood counties.

(8) Wildlife use percentage--The percentage of a tract of land that the Texas Parks and Wildlife Department has determined must be in wildlife management use for the land to be qualified for appraisal based on wildlife management use. This percentage is calculated using the total acreage of the tract minus one as the numerator, and the total acreage as the denominator.

(9) Wintering population--Indigenous wildlife that occupies an area during the winter as a consequence of natural migratory behavior.

(10) Tract--The entire area of a parcel or contiguous parcels of land, as reflected in appraisal district records, under common ownership.

(c) The Guidelines for Qualification of Agricultural Land in Wildlife Management Use shall be the reference used by the chief appraiser in each county to determine the qualification of property for appraisal based on wildlife management use. These guidelines may be obtained by contacting the Comptroller of Public Accounts, Property Tax Division, P.O. Box 13528, Austin, Texas 78711-3528.

Figure: 34 TAC §9.4003(c)

(d) Wildlife Management Plan.

(1) A Wildlife Management Plan shall be completed on a form supplied by the Texas Parks and Wildlife Department for each tract of land for which appraisal based on wildlife management use is sought. The form and regional management plans may be obtained by contacting Texas Parks and Wildlife Department, 4200 Smith School Road, Austin, Texas 78744-3291. The activities and practices contained in the plan shall be consistent with the activities and practices recommended in the appropriate Texas Parks and Wildlife Department regional management plan for the region in which the property is located, and shall include:

(A) information on ownership and the property's history and current use;

(B) specific species targeted for wildlife management activities and practices;

(D) specific qualifying wildlife and habitat management activities and practices that support the species being managed.

(2) A wildlife property association may prepare a single Wildlife Management Plan, provided the information required by paragraph (1)(A) - (D) of this subsection is included for each tract in the wildlife management association.

(e) Qualifications for appraisal based on wildlife management use.

(1) Land qualifies for appraisal based on wildlife management use if:

(A) it is appraised as qualified open space land under Tax Code, §23.51(1);

(B) it is instrumental in supporting a sustaining breeding, migrating, or wintering population of indigenous wildlife;

(D) the wildlife management plan required by this subsection is being implemented; and

(E) no fewer than three of the activities and practices described in Guidelines for Qualification of Agricultural Land in Wildlife Management are performed on the land in any given year.

(2) A tract of land that is appraised as qualified open space land under the provisions of Tax Code, Chapter 23, Subchapter D, shall be eligible for appraisal based on wildlife management use at the request of the owner of the tract of land, provided the request is made prior to May 1.

(3) The provisions of subsection (f) of this section apply to any application for appraisal based on wildlife management use if:

(A) in the previous tax year the tract was part of a larger tract which was appraised under any provision of Tax Code, Chapter 23, Subchapter D; and

(B) ownership of the tract is different from the ownership that existed on January 1 of the previous tax year.

(4) The provisions of subsection (f) of this section apply to any application for appraisal based on wildlife management use if:

(A) in the previous tax year the tract was appraised based on wildlife management use; and

(B) ownership of the tract is different from the ownership that existed on January 1 of the previous tax year and the resulting tract contains less acreage than the tract contained prior to the change in ownership.

(f) Percentage of acreage to be dedicated to wildlife management. The Appraisal District Board of Directors in each county shall designate a wildlife use percentage that shall apply to each tract of land for which a wildlife use qualification is sought.

(1) The wildlife use percentage shall be selected from the percentage ranges specified for the county by the following, as applicable:

(A) Region 1--not less than 97% or more than 99%;

(B) Region 2--not less than 96% or more than 98%;

(D) Region 4--not less than 92% or more than 94%.

(2) The wildlife use percentage for properties within a wildlife management property association shall be as follows:

(A) Region 1--either 95% or 96%;

(B) Region 2--either 94% or 95%;

(D) Region 4--either 90% or 91%.

(3) The wildlife use percentage for a property in an area designated by the Texas Parks and Wildlife Department as habitat for an endangered species, a threatened species, or a candidate species for listing as threatened or endangered shall be as set forth in this subsection; however, the wildlife and habitat management plan for such a property must address specific practices and activities intended to benefit specific species.

(A) Region 1--either 95% or 96%;

(B) Region 2--either 94% or 95%;

(D) Region 4--either 90% or 91%.

(g) Effective date. Effective tax year beginning January 1, 2002, except as otherwise provided by subsection (h) of this section, to qualify for appraisal based on wildlife management use, a property must meet the standards established by this section. Provided however, that a property owner who demonstrates, by clear and convincing evidence, that the unique characteristics of their habitat and/or managed species makes it possible to effectively manage for wildlife at a ratio less than that otherwise required under subsection (f) of this section, the property shall qualify for appraisal based on wildlife management, as long as the property meets all other standards established by this section.

(h) Exception. Notwithstanding any other provision of this section, a property that was appraised as qualified open space land based on wildlife management use prior to tax year January 1, 2002, shall continue to be appraised as open space land as provided by Tax Code, Chapter 23, Subchapter D, as long as the entire tract subject to the qualification contains an equal or greater amount of qualifying acreage than the acreage contained in that tract prior to January 1, 2002, and except for subsection (f) of this section, continues to satisfy all requirements for qualification established by this section.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on June 24, 2002.

TRD-200203935

Martin Cherry

Deputy General Counsel for Taxation

Comptroller of Public Accounts

Effective date: July 14, 2002

Proposal publication date: March 29, 2002

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