Not a Lexis+ subscriber? Try it out for free.

Tax Law

State Net Capitol Journal – February 8, 2016; Costly Legal Cases Pending in Texas

Budget & Taxes

Costly Legal Cases Pending in TX

A pair of legal cases could have a big impact on budget decisions in Texas next year, when lawmakers meet again in regular session.

One of the cases, set to go before the Texas Supreme Court in March, revolves around the issue of whether metal pipes and other equipment used in oil and gas production should be exempt from state sales taxes. Midland-based Southwest Royalties argues that the equipment fits the definition of goods used in the “actual manufacturing, processing, or fabrication of tangible personal property” for which the state grants an exemption. The state contends the equipment doesn’t qualify for the exemption in part because underground minerals aren’t “tangible personal property.” Texas Controller Glenn Hegar and the state’s attorneys in the case have also warned that a ruling in Southwest Royalties’ favor could spur other energy producers across the state to seek the same exemption, potentially costing taxpayers as much as $4.4 billion.

“It is hardly likely that the Legislature intended such an expansive and costly interpretation of the manufacturing exemption,” the attorneys wrote in court filings.

Dale Craymer, president of the Texas Taxpayers and Research Association and a former state revenue estimator, said that although judges ideally decide cases solely on their own merits, the state’s fiscal warnings could make a difference.

“Typically, when a judge is informed that the comptroller thinks that the ramification of these things is huge, they approach them much more cautiously," he said.

The state happens to have plenty of money on hand, with a $4.2 billion surplus projected for the current two-year budget cycle and its Rainy Day Fund expected to top $10 billion next year. But plunging oil prices and a slowdown in oil production have already forced Hegar to revise his revenue estimate for the state downward by $2.6 billion. And as he said of the $4.4 billion at stake in the Southwest Royalties case, “This is very serious, real money.”

More serious, real money is at stake in a case before Texas’ 3rd Court of Appeals. In April, the court ruled that the parent company of AMC theaters could deduct more of its costs from its franchise taxes because movies met the definition of “tangible personal property” under the state’s administrative code: “personal property that can be seen, weighed, measured, felt or touched, or that is perceptible to the senses in any other manner.” The state has asked the court to reconsider its decision, and pledged to appeal it to the Supreme Court, if necessary. Hegar has told lawmakers the state stands to lose $6 billion up front and up to $1.5 billion a year after that if the ruling is allowed to stand. (TEXAS TRIBUNE [AUSTIN])

ND Gov Orders Budget Cuts

This month North Dakota Gov. Jack Dalrymple (R) ordered most state agencies to cut their budgets by more than 4 percent, the highest dollar amount in state history, according to Office of Management and Budget Director Pam Sharp. The governor’s action was prompted by a new budget forecast predicting that due to slumping oil and farm commodity prices, general fund revenues would be about $1 billion short of what a March forecast had projected - the estimate upon which lawmakers had based the state’s current $6 billion general fund budget.

When Dalrymple gave state agency heads the bleak news, he said that after years of favorable revenue forecasts, “it seems strange to hear that things have gone in the other direction.”

“Fortunately, we took into account in the last session the possibility that commodity prices could fall without warning,” he added. “As a result, the Legislative Assembly wisely set aside cash reserves to deal with this very situation.”

Those reserves include $497.6 million from the state’s Budget Stabilization Fund - leaving about $75 million for what Dalrymple said was the “unlikely event” the state’s revenue outlook gets worse - and a $211 million ending fund balance lawmakers built into the state’s current budget.

Agencies will have until Feb. 17 to decide what to cut. (FORUM NEWS SERVICE [FARGO])

D.C. Considers Paying Residents Not to Commit Crime

The Washington, D.C. Council gave preliminary approval last week for an anti-crime bill that would, among other things, pay as many as 200 residents of the District who are at risk of committing or being a victim of violent crime up to $9,000 a year for undergoing behavioral therapy and remaining crime-free.

The idea is based on a program in Richmond, California, which that city’s website describes as “a relational, non-enforcement based strategy dedicated to assisting and connecting these individuals and their families to culturally competent human, social and economic service opportunities.”

“Punishment might get you to stop a practice, but that doesn’t persist,” said Barry Krisberg, a University of California, Berkeley criminologist who helped develop Richmond’s program. “If you want behavior to persist over time, rewards are the way to do it.”

The D.C. anti-crime bill, called the Neighborhood Engagement Achieves Results Amendment Act (NEAR), was introduced by Council member Kenyan McDuffie as an alternative to a proposal last year from D.C. Mayor Muriel Bowser focusing more on enforcement-based initiatives, such as stiffer sentencing standards. It could receive a final vote this month.

But funding for the bill is likely to be an issue.

“Funds are not sufficient in the fiscal year 2016 through fiscal year 2019 budget and financial plan to implement the bill,” Jeffrey DeWitt, D.C.’s chief financial officer, informed the council in a financial impact statement last month. DeWitt has estimated that NEAR would necessitate changes to the District’s criminal justice and public health and safety programs costing $25.6 million over four years. (WASHINGTON TIMES)

Budgets In Brief - February 8 2016

TX Planning $1.3B in Transportation Projects: The TEXAS Transportation Commission unveiled a plan last month calling for $1.3 billion in roadway projects to reduce traffic congestion around the state's five largest cities: Austin, Dallas, Fort Worth, Houston and San Antonio. (TEXAS TRIBUNE [AUSTIN]) * UT May Grant Refineries Big Breaks for Producing Cleaner Fuels: UTAH’s Senate Transportation Committee voted last week to advance SB 102, which would provide oil refineries tax credits of up to 50 percent of the cost of upgrading their facilities to produce cleaner Tier 3 fuels (SALT LAKE TRIBUNE).

- Compiled by KOREY CLARK

The above article is provided by the State Net Capitol Journal. State Net is the nation's leading source of state legislative and regulatory content for all states within the United States. State Net daily monitors every bill in all 50 states, the District of Columbia and the United States Congress - as well as every state agency regulation. Virtually all of the information about individual bills and their progress through legislatures is online within 24 hours of public availability.

If you are a lexis.com subscriber, you can access State Net Bill Tracking, State Net Full Text of Bills, or State Net Regulatory Text. If you are interested in learning more about State Net, contact us.

For insightful analysis and practical guidance on state and local taxation, explore Bender's State Taxation: Principles and Practice

For quality Tax & Accounting research resources, visit the LexisNexis® Store.

To subscribe to the Capitol Journal and access archived issues go to the State Net Capitol Journal.

For more information about LexisNexis products and solutions connect with us through our corporate site