Commercial Sector Gains Edge for HB3 Change

"You've got some significant problems," state Sen. Florence Shapiro, R-District 8 in Plano, told the North Texas NAIOP chapter at yesterday's breakfast meeting in the Dallas Country Club at 4100 Beverly Dr. "Your issue of classification is probably as significant as any. I do believe there will be changes." The specialty panel included Public Strategies Inc.'s managing director Russell T. Kelley and Jones Day Dallas attorney Labry Welty and was moderated by Glenn Callison, chairman and CEO of Munsch Hardt Kopf & Harr in Dallas.

NAIOP's local chapter is a power group of senior executives from all brokerage camps in the region. Kelley has been brought on board to lobby its HB3 case in Austin. "It is law," Kelley said, "but I don't think of it as final law."

The legislation eliminated a tax loophole for Texas limited partnerships, but HB3 "is causing havoc with a lot of real estate firms," Welty said. "It certainly needs some work from a real estate perspective. I would expect a huge number of technical corrections in the bill when the legislature returns in January."

The undercurrent is strong for a constitutional challenge, but to date one hasn't been filed. The general consensus is real estate attorneys are waiting to see what happens in the next session. However, the panel pointed out that all major accounting firms have labeled the HB3 margin tax change as an income tax, a violation of the state constitution.

Shapiro's advice, though, to the real estate sector is to "collectively come to the legislature." She said the compromise tax bill showed that Texas lawmakers can work together even though HB3 garnered votes under duress from a State Supreme Court ruling to enact legislation and state comptroller's threat to withhold funds to the public school system unless a measure was passed. The tax rate was lowered, the tax base expanded and a "wide net" cast with "opportunity" for change by building in one year of breathing space before it takes effect, Shapiro said.

The end result, though, was flawed because lawmakers had to rely on numbers provided by a comptroller with sights on the governor's seat. This time, Kelley vowed legislators "will have a few more tools."