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

Annexation: Attacks
on Your Tax Base
SAFE-D 11th Annual Conference
February 23, 2012

2705 Bee Cave Road, Suite 110
Austin, Texas 78746
(512) 614-0901
www.carltonlawaustin.com
©2012

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

Austin, Texas 78746
(512) 614-0901
©2012

Austin, Texas 78746
(512) 614-0901
©2012

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
Austin, Texas 78746
(512) 614-0901
©2012

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 territory's pro rata share of the
district's 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
territory's pro rata share of the district's bonded and other
indebtedness.

Austin, Texas 78746
(512) 614-0901
©2012

Compensation for Removal
• The amount of compensation is determined by
– District’s Debt x ( AV of Annexed Area ÷ AV of District)
• District's 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 municipality's intent
to annex district territory; or
– any indebtedness attributed to any real or personal
property that the district requires a municipality to
purchase.

Austin, Texas 78746
(512) 614-0901
©2012

Purchase of Property

• On the district's 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.


Austin, Texas 78746
(512) 614-0901
©2012

The Result

Austin, Texas 78746
(512) 614-0901
©2012

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
Austin, Texas 78746
(512) 614-0901
©2012

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

Austin, Texas 78746
(512) 614-0901
©2012

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)

Austin, Texas 78746
(512) 614-0901
©2012

• Annexation results in reduction of ESD
(or other political subdivision) sales tax to
amount required for total local sales tax
to equal 2%,

• BUT

Austin, Texas 78746
(512) 614-0901
©2012

• Comptroller must withhold from the
municipality's 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
municipality's levy of or increase in its sales and
use tax or annexation of the area in the entity.
Tax Code §321.102(e)-(g)

Austin, Texas 78746
(512) 614-0901
©2012

• 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 area
Tax Code §321.102(e)-(g)

Austin, Texas 78746
(512) 614-0901
©2012

• 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
Austin, Texas 78746
(512) 614-0901
©2012

• 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
Austin, Texas 78746
(512) 614-0901
©2012

• 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
Austin, Texas 78746
(512) 614-0901
©2012

• 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?

Austin, Texas 78746
(512) 614-0901
©2012

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

Austin, Texas 78746
(512) 614-0901
©2012

• 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
required, but may still need to be funded Austin, Texas 78746
(512) 614-0901
©2012

• 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)
Austin, Texas 78746
(512) 614-0901
©2012

Annexation: Attacks
on Your Tax Base

John J. Carlton
The Carlton Law Firm, PLLC
Austin, Texas 78746
(512) 614-0901
john@carltonlawaustin.com

Austin, Texas 78746
(512) 614-0901
©2012

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

Recomendados

Recomendados

Más contenido relacionado

Más de John Carlton

Más de John Carlton (20)

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