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2012 Safe D 11th Annual Conference   Annexation Attacks On Your Tax Base
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2012 Safe D 11th Annual Conference Annexation Attacks On Your Tax Base

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Presentation regarding impact of annexation and other issues on Emergency Services District tax base at SAFE-D Annual Conference in February 2012

Presentation regarding impact of annexation and other issues on Emergency Services District tax base at SAFE-D Annual Conference in February 2012

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2012 Safe D 11th Annual Conference Annexation Attacks On Your Tax Base Presentation Transcript

  • 1. Annexation: Attacks on Your Tax BaseSAFE-D 11th Annual Conference February 23, 2012 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 2. City Annexation into ESD• Cities may annex into and remove the annexed territory from an ESD• Certain procedures apply to annexation process• ESD entitled to compensation under certain circumstances 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 3. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 4. Removal of Territory by Municipality• Municipality is required to send written notice to the board if it – completes all other procedures necessary to annex territory in an ESD, and – intends to provide emergency services to the territory by the use of municipal personnel or by some method other than by use of the district.• Notice must be sent to the secretary of the board by certified mail, return receipt requested.• The territory remains part of the district and does not become part of the municipality until the secretary of the board receives the notice.• On receipt of the notice, the board shall immediately change its records to show that the territory has been disannexed from the district and shall cease to provide further services to the residents of that territory.H&S Code §775.022. REMOVAL OF TERRITORY BY MUNICIPALITY 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 5. Removal of Territory by Municipality• Holders of any outstanding and unpaid bonds, warrants, or other obligations of the district including loans and lease- purchase agreements are not impacted by annexation, BUT• The municipality is required to compensate the district immediately after disannexation of the territory in an amount equal to the annexed territorys pro rata share of the districts bonded and other indebtedness as computed according to a formula.• The district is required to apply compensation received from a municipality exclusively to the payment of the annexed territorys pro rata share of the districts bonded and other indebtedness.H&S Code §775.022. REMOVAL OF TERRITORY BY MUNICIPALITY 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 6. Compensation for Removal• The amount of compensation is determined by – District’s Debt x ( AV of Annexed Area ÷ AV of District) • Districts Debt determined at time of annexation • AV determined based on the most recent certified county property tax rolls at the time of annexation.• Total indebtedness includes loans and lease- purchase agreements, but does not include: – a loan or lease-purchase agreement the district enters into after the district receives notice of the municipalitys intent to annex district territory; or – any indebtedness attributed to any real or personal property that the district requires a municipality to purchase.H&S Code §775.022. REMOVAL OF TERRITORY BY MUNICIPALITY 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 7. Purchase of Property• On the districts request, a municipality is required to purchase from the district at fair market value any real or personal property used to provide emergency services in the disannexed territory.H&S Code §775.022. REMOVAL OF TERRITORY BY MUNICIPALITY 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 8. The Result 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 9. City Annexation within ESD• If City inside an ESD wants to annex territory within the ESD• Same Procedures and Requirements Apply• City could remove annexed territory from ESD• City may not remove existing city limits from ESD under current law 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 10. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 11. City Annexation within ESD• City not likely to remove area from ESD if ESD is providing services within City• City property tax rates apply within annexed area and must be consistent with rest of City• City sales tax expands with City 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 12. Sales Tax Complications• What if City within ESD wants to annex for sales tax revenue?• What if remaining 2% local sales tax is already committed to ESD?• Scenario is created by ESD ability to have non-uniform sales tax (carve out)Health & Safety Code §775.0751(c-1) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 13. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 14. Sales Tax Complications• Annexation results in reduction of ESD (or other political subdivision) sales tax to amount required for total local sales tax to equal 2%,• BUT 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 15. Sales Tax Complications• Comptroller must withhold from the municipalitys monthly sales and use tax allocation – an amount equal to the amount that would have been collected by the entity had the municipality not imposed or increased its sales and use tax or annexed the area in the entity – less amounts that the entity collects following the municipalitys levy of or increase in its sales and use tax or annexation of the area in the entity.Tax Code §321.102(e)-(g) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 16. Sales Tax Complications• Comptroller must withhold and pay the amount withheld to the ESD under policies or procedures that the Comptroller considers reasonable.• This results in City not receiving any additional sales tax from annexed areaTax Code §321.102(e)-(g) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 17. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 18. Sales Tax Complications• This process does not apply if and during any period in which an ESD has outstanding indebtedness or obligations that are payable wholly or partly from the sales and use tax revenue of the entity.• For Example: – Pledges of Sales Tax for Loans, Bonds or other agreements 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 19. Sales Tax Complications• A municipality may not implement the imposition or increase of the sales and use tax if the combined rate of all sales and use taxes imposed by the municipality, the ESD, and any other political subdivisions having territory in the district would exceed two percent at any location in the municipality.• Possibly preventing annexation by City 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 20. Sales Tax Complications• Law creates conflicts between Cities and ESDs – ESD needs revenue to operate, especially given $0.10 ad valorem tax cap – City wants to promote economic development through sales tax abatements and other agreements – City wants additional tax revenue to keep ad valorem tax low 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 21. Sales Tax Complications• Potential Resolutions: – Sales Tax Sharing Agreement – Economic Development Agreements – Legislative Changes • City authority to remove itself from ESD? • Mandated sharing of sales tax revenues? • Additional interlocal agreement authority? 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 22. City Withdrawal from ESD• No current authority under the law• Formerly available to Cities under RFPD statute (Chapter 794) and Chapter 776• Cities in conflict with ESD may seek legislative change – Several known conflicts currently 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 23. City Withdrawal from ESD• Reasons against unilateral withdrawal: – City Council consented to creation and inclusion – City Voters approved creation of ESD within City – Ad valorem tax base of remaining ESD territory may not be sufficient to continue operations – Equipment and property may no longer be 2705 Bee Cave Road, Suite 110 required, but may still need to be funded Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 24. City Withdrawal from ESD• Possible Solutions: – Require County finding that withdrawal will not impair ESD ability to provide services to remaining territory – Require approval by majority of voters in City and of the voters in remaining ESD territory for withdrawal to be effective – Require City to provide equivalent or better services effective on date of withdrawal – Require City to compensate ESD for debt and property, including that of service providers (VFDs) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 25. Questions? 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012
  • 26. Annexation: Attacks on Your Tax Base John J. Carlton The Carlton Law Firm, PLLC2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 john@carltonlawaustin.com 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2012