Within the omnibus bill, H.B. 2019, passed by the Texas legislature in the 2017 session were specific clarifications related to the definition and treatment of MH inventory tax.
The reason for the legal changes came from certain large counties in Texas disregarding the previous law and requiring higher personal property taxes be levied on some Texas retailers for what should have been lower inventory taxes.
If a manufactured home is in a retailer’s inventory on January 1, the correct applicable taxes should be an inventory tax. However, prior to the September 1, 2017 law change, some counties were confronting retailers who asserted homes where in their inventory. The counites would dismiss that the homes were in inventory and assess the homes as being personal property.
The result of this treatment was a tax assessment that was at least ten times the amount it should have been if the homes were treated as inventory.
TMHA advocated for the passage of H.B. 2019, which strengthened the language and added clarification so that this improper treatment would be overtly contrary to law.
What did H.B. 2019 Change?
The definition of “inventory” was changed in several areas of Texas law to clarify that if a home is titled as retailer inventory through the titling records of the MH Division of TDHCA, then the home must be treated as inventory for taxing purposes.
The previous law defined inventory with a reference to the general definition of inventory in the Business and Commerce Code. The applicable portions of the previous definition of inventory said: “’Inventory means goods…that: are held by a person for sale or lease or to be furnished under a contract of service.”
While this previous definition was clear that manufactured homes held by a retailer offered for sale should clearly be interpreted as inventory, some of Texas’ largest counites refused to adopt this definition when it involved MH.
Granted the legal arguments existed to contest this treatment in court. However, TMHA was asked by many of its retailer members to try and change the law to leave no doubt or ambiguity rather than the retailers having to incur the large legal expense and timeline of contesting the improper interpretation in court. H.B. 2019 changed the definition of inventory to: “Inventory" means new and used manufactured homes that:
- a retailer has designated as the retailer's inventory for sale pursuant to the process implemented by the department; and
- are not used as residential dwellings when so designated.
If a retailer submits the title application to move a home into inventory with TDHCA, as they are required to do within 60 days of acquiring a home, then once the state’s database says the home is in inventory it must be treated as inventory for all purposes, including tax purposes.
Additional changes were made within Chapter 23, Tax Code, to marry the treatment of MH in inventory to the new definition in Chapter 1201, Occupations Code.
What was not changed?
All the prior requirements for both annual and monthly inventory tax declarations and filings using the Comptrollers forms remain. Retailers should continue to report and pay into monthly escrows their inventory tax liabilities.
For more on this read the Comptroller’s Manufactured Housing Retailer's Special Inventory Manual.
What does this mean?
The result of these changes is the elimination of any other interpretation or “wiggle room” whereby a county can choose to classify homes that are in inventory as being personal property to assess a higher tax liability.
The new law prevents any ambiguity and imposes a state actor and records, the MH Division of TDHCA, in the process to create clear evidence.
Now it is simple. If a retailer has titled their homes with TDHCA as inventory prior to January 1 of every year, when the January 1 tax accrual occurs the county must appraise those homes at the lower inventory appraisal amount. They cannot impose personal property assessments on homes if they are in TDHCA’s records as inventory.
What is the result?
For all retailers with inventories prior to January 1, be sure to title all those homes with TDHCA as inventory through the title process by December 31. This will ensure the proper tax treatment and prevent them from having to pay or contest, or both, the 10 to 12 times higher tax liability that would be imposed if the homes were assessed as personal property.