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City introduces goods in-transit ordinance

November 8, 2011

The Borger City Council has introduced an ordinance that will provide for the continued taxation of “goods-in-transit.” The council took the action during its regular meeting last Tuesday.
Eddie Edwards, Borger City Manager, said in 2001, Texas voters approved an amendment to the Constitution which would allow a property tax exemption on “goods-in-transit” once enabling legislation was passed.
During the legislative sessions of 2003 and 2005, no such legislation was passed. However, in 2007, H.B. 621 was passed as the enabling statute for the goods-in-transit exemption approved by the voters in 2001.
There is a section in the tax code that provides that a city council may provide for the continued taxation of goods-in-transit by taking official action before Jan. 1 of the year in which the goods-in-transit are to be taxed.
In 2007, the council adopted an ordinance providing for the continued taxation of goods-in-transit which would have otherwise been exempted from taxation.
Edwards said that legislation passed during last June’s special session, which modified the law relating to property taxes on certain types of goods-in-transit.
A property tax exemption, commonly referred to as the “Super Freeport” exemption, allows a local option exemption for goods traveling elsewhere in Texas and can be claimed when the goods are at certain warehouses not owned by the owner of the goods.
Senate Bill 1 requires cities to adopt an ordinance or resolution by Dec. 31, 2011, to provide for the taxation of goods-in-transit in 2012. The city must hold a public hearing prior to doing so. The new requirements apply regardless of any action taken by a city in the past to tax Super Freeport goods.
Edwards said that in other words, any city that wishes to collect property taxes on Super Freeport goods in 2012 must now conduct a public hearing and adopt a new ordinance or resolution in the specific timeframe.
The failure to take official action within the timeframe means that goods-in-transit will be exemption from taxation in 2012. In addition, some cities were concerned about the previous statutory language, which they believed would impermissibly allow some retailers to claim the exemption by “spinning off” ownership of goods-in-transit.
Senate Bill 1 also clarified that the Super Freeport property tax exemption is not available for goods stored at a warehouse that is in any way owned or controlled by the owner of the goods.
Edwards said that city staff is not aware of any significant storage of goods-in-transit within the corporate limits. He said if the council chose not to continue taxing goods-in-transit, any loss of ad valorem tax revenue would not be that significant.
However, he did say there are alternative reasons which support the continued taxation of goods-in-transit.
“In 2007, virtually all taxing entities in our area opted to continue taxation of goods-in-transit,” Edwards said. “Presently, there have been several entities already reaffirming their local option and several more are considering the same.”
He said if the City of Borger didn’t opt to continue taxing goods-in-transit, the possibility exists that the city could become a magnet for the storage of goods-in-transit within its boundaries.
“Also, there are several large structures being used for this purpose located in the Magic Plains Industrial Park which could be annexed at the expiration of the current Industrial District Contract or at some other future time,” Edwards said.

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