TITLE 34. PUBLIC FINANCE

PART 1. COMPTROLLER OF PUBLIC ACCOUNTS

CHAPTER 3. TAX ADMINISTRATION

SUBCHAPTER V. FRANCHISE TAX

34 TAC §3.583

The Comptroller of Public Accounts adopts amendments to §3.583, concerning margin: exemptions. The amendments implement House Bill 500, 83rd Legislature, 2013; House Bill 2358, 84th Legislature, 2015; and Senate Bill 1563, 84th Legislature, 2015, with changes to the proposed text as published in the July 15, 2016, issue of the Texas Register (41 TexReg 5132).

Throughout the section, titles are added to statutory citations.

Subsection (b)(2), regarding application for exemption, is amended to add new subsection (n), related to out-of-state entities performing disaster- or emergency-related work, to the list of subsections providing an exemption that does not require application under subsection (b). Paragraph (2)(B) is amended for clarity and no substantive change is intended.

Subsection (c)(1) is amended to correct a grammatical error. Paragraph (2)(C) is amended to correctly include a jeopardy determination as a reason for which an entity may request a redetermination hearing when an exemption has been denied or revoked.

The title and contents of subsection (d)(1) are amended to the singular form for consistency with the other paragraphs in this section. The information provided in paragraph (1) is reorganized into subparagraphs (A) - (C) and amended to implement House Bill 500. Subparagraph (A), which provides information on the exemption for insurance organizations authorized to do business in this state, is amended to implement House Bill 500 by deleting the reference to Insurance Code, Chapters 221-224, and inserting instead "authorized to engage in insurance business in this state that are required to pay an annual tax measured by their gross premiums receipts" to identify authorized insurance organizations that are exempt from franchise tax. Subparagraph (B), which provides information on the exemption for insurance organizations not authorized to do business in this state (non-admitted insurance organizations), is also amended to implement House Bill 500, which provides an exemption for a non-admitted insurance organization that pays a gross premiums tax in another state or foreign jurisdiction. A title is added to subparagraph (C), which provides information on the period covered by the exemption, previously provided in subsection (d)(1) without changes. Titles are added to paragraphs (2) - (6) and paragraph (2) is amended for clarity with no substantive change intended.

The title and purpose of subsection (g) are amended to be consistent with other subsections in this section by providing the exemption for an entity with business interest in solar energy devices rather than providing only the definition of "solar energy device." The definition of "solar energy device" remains in the subsection for reference.

The title of subsection (h), exemption for recycling operation, is amended to be consistent with other titles in the section. Also, the definition of "sludge" from Health and Safety Code, §361.003 (Definitions), is added without change.

Subsection (i)(2) and (4) are amended to refer to paragraph (6) of the subsection for information on the meaning of "timely manner." Paragraphs (3), (4), (5) and (6)(B) are amended to correct grammatical errors.

Subsection (j)(2)(A) and (B) are amended to add "for example" to clarify that the information provided in the subparagraphs apply also to other periods, not just the periods specified.

Subsection (k) is amended to add a title and also to include a cooperative credit association, previously omitted in error in this subsection but eligible for exemption under Tax Code §171.076 (Exemption--Cooperative Credit Association).

New subsection (m) is added to implement Senate Bill 1563, which exempts from franchise tax nonprofit corporations created by the TexAmericas Center.

New subsection (n) is added to implement House Bill 2358, which provides a franchise tax exemption for out-of-state business entities performing disaster- or emergency-related work in Texas during a disaster response period. The reference to "transaction of business" in Texas from House Bill 2358 is replaced with a form of "doing business in Texas" to be consistent with Tax Code, §171.001 (Tax Imposed), related to the imposition of the franchise tax. Paragraph (1) provides information regarding notification requirements and paragraph (2) provides definitions for "affiliate," "critical infrastructure," "declared state disaster or emergency," "disaster- or emergency-related work," "disaster response period," "in-state business entity," "mutual assistance agreement," and "out-of-state business entity," taken directly from Business & Commerce Code, §112.003 (Definitions), without change and included as subparagraphs (A) - (H), respectively.

We received one comment related to the disaster response exemption for an out-of-state business entity from James LaBas on behalf of the Association of Electric Companies of Texas (AECT). Mr. LaBas requests that the phrase "is the only business the entity does in Texas" be struck from the exemption language as the proposed definition of an out-of-state entity specifically requires certain nexus, presence, timing, and other requirements. Mr. LeBas states that the phrase is redundant, may be contradictory, and is not included or defined in the statute. The comptroller agrees to revise the exemption language to more closely track the exemption provided in Business & Commerce Code, §112.004 (Exemption of Out-of-State Business Entity From Certain Obligations During Disaster Response Period); however, the reference to "business done in this state" rather than the "transaction of business in this state" remains. Use of the phrase "does business in this state" is consistent with Tax Code, §171.001.

The amendments are adopted under Tax Code, §111.002 (Comptroller's Rules; Compliance; Forfeiture), which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of Tax Code, Title 2.

The amendments implement Tax Code, §171.052 (Certain Corporations), and §171.086 (Exemption: Political Subdivision Corporation); Business & Commerce Code, §112 (Facilitating Business Rapid Response to State Declared Disasters Act); Special District Local Laws Code, §3503.111 (Nonprofit Corporations); and Local Government Code, §304.001 (Aggregation by Political Subdivisions).

§3.583.Margin: Exemptions.

(a) Effective date. This section applies to franchise tax reports originally due on or after January 1, 2008, except as otherwise noted.

(b) Application for exemption. An entity that has not previously established an exemption from franchise tax with the comptroller must apply for an exemption. An entity that is not a corporation, but whose activities would qualify it for a specific exemption under Tax Code, Chapter 171, Subchapter B, if it were a corporation, may qualify for the exemption from the tax in the same manner and under the same conditions as a corporation. See Tax Code, §171.088 (Exemption--Noncorporate Entity Eligible for Certain Exemptions). For provisional exemptions for certain entities, see subsection (i) of this section; for trade show exemptions, see subsection (j) of this section.

(1) An entity that believes it is exempt from franchise tax must furnish to the comptroller sufficient evidence to establish its exempt status. The entity claiming the exemption bears the burden to establish its entitlement to exempt status and any doubts will result in a denial of the application for exemption.

(2) Except as otherwise provided in subsections (f), (i), (j), and (n) of this section, each entity must submit to the comptroller:

(A) a request for exemption in writing, which may require using forms developed by the comptroller for requesting exemptions, indicating the particular provision of Tax Code, Chapter 171, under which exemption is claimed;

(B) a detailed statement of both the entity's past and current activities, if any, and its future plan of activities, each in relation to the manner in which the entity proposes to implement the purposes clause in its certificate of formation or application for registration;

(C) an entity formed or created under Texas law whose articles of organization or formation is on file with the Texas Secretary of State need not submit copies of those documents with its request for exemption. A Texas entity that is not required to file organizational documents with the Texas Secretary of State must furnish a signed and dated copy of its organizational documents with its exemption request. If a non-Texas entity is required to file articles of organization or formation with its home jurisdiction Secretary of State, or other designated agency or officer, the entity must provide file-stamped copies of those filed organizational or formation documents. If a non-Texas entity is not required to file its articles of organization with the Secretary of State or other authority of its home jurisdiction, it must furnish a signed and dated copy of its organizational or formation documents with its exemption request; and

(D) any additional information the comptroller may require to make a determination whether the entity is eligible for a franchise tax exemption.

(c) Actions by comptroller. Upon receipt of an application for exemption, the comptroller's representative will review the application and send the applicant a notification either granting the exemption or denying the exemption, or requesting additional information.

(1) If the exemption is granted, the exemption will be effective from the first date the entity was eligible for exemption. If the entity paid any franchise taxes prior to the comptroller's notification granting the exemption for a privilege period after the effective date of the exemption, the entity may request a refund, subject to the applicable statute of limitations. If the effective date of the exemption occurs after the beginning of a privilege period, the entity must pay through the end of such privilege period. An entity that has been subject to the tax and becomes eligible for exemption is liable for the additional tax under Tax Code, §171.0011 (Additional Tax).

(2) If the exemption is denied or revoked, the entity may contest the denial or revocation by filing all reports due as required by the comptroller; and

(A) paying all amounts of tax, penalty, and interest due and requesting a refund hearing pursuant to the provisions of Tax Code, Chapter 111 (Collection Procedures);

(B) paying all amounts of tax, penalty, and interest due, accompanying the payment with a written protest, and filing suit for the recovery of amounts paid pursuant to the provisions of Tax Code, Chapter 112 (Taxpayers' Suits); or

(C) requesting a redetermination hearing pursuant to Tax Code, §111.009 (Redetermination), if the comptroller issues a deficiency or jeopardy determination.

(d) Qualification for exemption.

(1) Entity subject to insurance premium taxes.

(A) Insurance organization authorized to do business in this state. An insurance, surety, guaranty, fidelity or title insurance company, title insurance agent, or other insurance organization authorized to engage in insurance business in this state, that is required to pay an annual tax measured by its gross premium receipts is exempt from payment of the franchise tax, regardless of whether any gross premiums taxes are actually paid in any given year.

(B) Insurance organization not authorized to do business in this state (non-admitted insurance organization). A non-admitted insurance organization required to pay a gross premium receipts tax during a tax year is exempted from the franchise tax for the same tax year. A non-admitted insurance organization that is subject to an occupation tax or any other tax that is imposed for the privilege of doing business in another state or foreign jurisdiction, including a tax on gross premium receipts, is exempted from the franchise tax.

(C) Period covered. The exemption in this paragraph covers the periods upon which the franchise tax is based, provided the gross premium receipts tax is required to be paid on premiums received or written, as applicable, during the same period. For example, an insurance organization's gross premium receipts tax is due and payable on March 1, 2009, for premiums received during calendar year 2008. The entity would be exempt from franchise tax for the 2009 annual report covering the January 1, 2009 - December 31, 2009, privilege period, for margin attributable to calendar year 2008. An entity is subject to the franchise tax, however, for a tax year in any portion of which it is in violation of an order issued by the Texas Department of Insurance under Insurance Code, §2254.003(b) (Refund or Discount Based on Excessive or Unfairly Discriminatory Premium Rates), that is final after appeal or that is no longer subject to appeal.

(2) Nonprofit entity organized to promote county, city, or another area. A nonprofit entity organized for the exclusive purpose of promoting the public interest of any county, city, town, or other area within the state, must show that promotion of the public interest is the exclusive purpose of the entity and not merely an incidental result. An entity will not be considered to be promoting the public interest if it engages in activities to promote or protect the private, business, or professional interests of its members or patronage.

(3) Nonprofit entity organized for religious purposes. A nonprofit entity seeking franchise tax exemption as a religious organization must be an organized group of people regularly meeting for the primary purpose of holding, conducting, and sponsoring religious worship services according to the rites of their sect. The entity must be able to provide evidence of an established congregation showing that there is an organized group of people regularly attending these services. An entity that supports and encourages religion as an incidental part of its overall purpose, or one whose general purpose is furthering religious work or instilling its membership with a religious understanding, will not qualify for exemption under this provision. No part of the net earnings of the organization may inure to the benefit of any private party or individual other than as reasonable compensation for services rendered to the organization. Some examples of entities that do not meet the requirements for exemption under this definition are conventions or associations of churches, evangelistic associations, churches with membership consisting of family members only, missionary organizations, and groups that meet for the purpose of holding prayer meetings, Bible study or revivals. Although these organizations do not qualify for exemption under this category of exemption as religious organizations, they may qualify for the exemption under Tax Code, §171.063 (Exemption-Nonprofit Corporation Exempt from Federal Income Tax), if they obtain an exemption from the Internal Revenue Service (IRS) under Internal Revenue Code (IRC), §501(c).

(4) Nonprofit entity organized for public charity. A nonprofit entity seeking a franchise tax exemption as organized for purely public charity must devote all or substantially all of its activities to the alleviation of poverty, disease, pain, and suffering by providing food, clothing, drugs, treatment, shelter, or psychological counseling directly to indigent or similarly deserving members of society with its funds derived primarily from sources other than fees or charges for its services. If an entity engages in any substantial activity other than the activities that are described in this paragraph, it will not be considered as having been organized for purely public charity, and therefore, will not qualify for exemption under this provision. No part of the net earnings of the organization may inure to the benefit of any private party or individual other than as reasonable compensation for services rendered to the organization. Some examples of organizations that do not meet the requirements for exemption under this definition are fraternal organizations, lodges, fraternities, sororities, service clubs, veterans groups, mutual benefit or social groups, professional groups, trade or business groups, trade associations, medical associations, chambers of commerce, and similar organizations. Even though not organized for profit and performing services that are often charitable in nature, these types of organizations do not meet the requirements for exemption under this provision. Although these organizations do not qualify for exemption under this category of exemption as charitable organizations, they may qualify for the exemption under Tax Code, §171.063, if they obtain an exemption from the IRS under IRC, §501(c).

(5) Nonprofit entity organized for educational purposes. A nonprofit entity seeking a franchise tax exemption as an educational organization must show that its activities are devoted solely to systematic instruction, particularly in the commonly accepted arts, sciences, and vocations, and has a regularly scheduled curriculum, using the commonly accepted methods of teaching, a faculty of qualified instructors, and an enrolled student body or students in attendance at a place where the educational activities are regularly conducted. An entity that has activities consisting solely of presenting public discussion groups, forums, panels, lectures, or other similar programs, may qualify for exemption under this provision, if the presentations provide instruction in the commonly accepted arts, sciences, and vocations. The entity will not be considered for exemption under this provision if the systematic instruction or educational classes are incidental to some other facet of the organization's activities. No part of the net earnings of the organization may inure to the benefit of any private party or individual other than as reasonable compensation for services rendered to the organization. Some examples of organizations that do not meet the requirements for exemption under this definition are professional associations, business leagues, information resource groups, research organizations, support groups, home schools, and organizations that merely disseminate information via tangible or electronic media. Although these organizations do not qualify for exemption under this category of exemption as educational organizations, they may qualify for the exemption under Tax Code, §171.063, if they obtain an exemption from the IRS under IRC, §501(c).

(6) Certain homeowners' associations. A nonprofit entity requesting franchise tax exemption as a homeowners' association must prove that it meets all requirements to qualify for the exemption. The entity must show that it is organized and operated to obtain, manage, construct, and maintain the property in or of a residential condominium or residential real estate development. The entity also must prove that the condominium project, or, for a real estate development, the related property, is legally restricted for use as residences. Furthermore, the entity must establish that the collective resident owners of individual lots, residences or units control at least 51% of the votes of the entity and that voting control, however acquired, is not held by: a single individual or family; one or more developers, declarants, banks, investors, or other similar parties. For example, an association is formed for a residential condominium consisting of 12 units with each unit being entitled to one vote. Each of five individuals separately owns and occupies one unit, a total of five units. A sixth individual owns two units, living in one unit and leasing the other. A seventh individual owns and leases the remaining five units. None of the owners are related. In determining whether the collective resident owners control at least 51% of the votes of the organization, the sixth owner is a resident owner regarding the one unit in which the owner lives and an investor regarding the other. The collective resident owners, therefore, have a total of six votes. Consequently, since the collective resident owners only have 50% of the votes of the entity, the association does not meet the requirement that the resident owners must control at least 51% of the votes of the organization. Accordingly, the entity does not qualify for the franchise tax exemption as a homeowners' association.

(e) Revocation, withdrawal, or loss of exemptions.

(1) An entity that no longer qualifies for the franchise tax exemption is required to notify the comptroller in writing of its change in status. Except as provided in paragraph (2) of this subsection, if at any time the comptroller has reason to believe that an exempt entity no longer qualifies for exemption, the comptroller's representative will notify the entity that its exempt status is under review. The comptroller's representative may request additional information necessary to ascertain the continued validity of the entity's exempt status. If the comptroller determines that an entity is no longer entitled to its exemption, notification to that effect will be sent to the entity. The effective date of revocation is the date the entity no longer qualified for the exemption. The day immediately following the date of withdrawal, loss, or revocation shall be the beginning date for determining the entity's privilege period and for all other purposes related to franchise tax.

(2) For nonprofit entities granted an exemption under Tax Code, §171.063, the revocation, withdrawal, or loss of the federal income tax exemption automatically terminates the franchise tax exemption. A nonprofit entity that no longer qualifies for the federal income tax exemption which was the basis for obtaining the franchise tax exemption must notify the comptroller in writing within 30 days of its change in status and must provide a copy of the notice of such revocation, withdrawal, or loss. The effective date of withdrawal or loss is the date of withdrawal or loss of the federal tax exemption. The effective date of a revocation is the date the IRS serves written notice of the revocation to the non-profit entity or the date the IRS serves written notice of revocation to the comptroller, whichever is earlier. The day immediately following the date of withdrawal, loss, or revocation shall be the entity's beginning date for determining its privilege periods and for all other purposes of the franchise tax.

(3) An electric cooperative entity previously exempted from franchise tax under Tax Code, §171.079 (Exemption--Electric Cooperative Corporation), that subsequently participates in a joint powers agency thereby loses its franchise tax exemption. The commencing date of participation in the joint powers agency shall be considered the entity's beginning date for purposes of determining the entity's privilege periods and for all other purposes of the franchise tax. The electric cooperative must notify the comptroller in writing that it is a participant in a joint powers agency within 30 days after the commencing date of its participation.

(f) Federal exemption. An entity meeting the requirements of any paragraph of this subsection establishes its exempt status by furnishing to the comptroller a copy of a current exemption letter from the IRS.

(1) A nonprofit entity that has been exempted from federal income tax under the provisions of IRC, §501(c)(3) - (8), (10), (19); or

(2) any entity that has been exempted from federal income tax under the provisions of IRC, §501(c)(2) or (25), if the entity or entities for which it holds title to property are either exempt from or not subject to the franchise tax; and

(3) any entity that has been exempted from federal income tax under IRC, §501(c)(16).

(g) Solar energy devices exemption. An entity engaged solely in the business of manufacturing, selling, or installing solar energy devices is exempted from the franchise tax. For purposes of this section, the term "solar energy device" includes, but is not limited to:

(1) devices used in the conversion of solar thermal energy into electrical or mechanical power;

(2) devices used in the photovoltaic (solar cell) generation of electricity;

(3) systems used in the heating of water and the heating and cooling of structures by use of solar collectors to gather the sun's energy; and

(4) heat pumps used as an integral part of a system designed to make the best combined use of solar energy and conventional heating.

(h) Recycling operation exemption. An entity engaged solely in the business of recycling sludge is exempt from franchise tax. For purposes of this subsection, "sludge" means solid, semisolid, or liquid waste generated from a municipal, commercial, or industrial wastewater treatment plant, water supply treatment plant, or air pollution control facility, excluding the treated effluent from a wastewater treatment plant, as provided under Health and Safety Code, Chapter 361 (Solid Waste Disposal Act), §361.003 (Definitions).

(i) Provisional exemptions.

(1) If established with the comptroller, the following entities may be granted a temporary exemption from franchise tax:

(A) a nonprofit entity that has applied for exemption from federal income tax under IRC, §501(c)(3) - (8), (10), (19); or

(B) an entity that has applied for exemption from federal income tax under IRC, §501(c)(2) or (25), if the entity or entities for which it holds title to property is either exempt from or not subject to the franchise tax; and

(C) an entity that has applied for exemption from federal income tax under IRC, §501(c)(16).

(2) To obtain a temporary franchise tax exemption with the comptroller, an entity that has applied for but has not yet received a letter of exemption from the IRS must timely file, as provided in paragraph (6) of this subsection, with the comptroller:

(A) a copy of the application for recognition of exemption that has been filed with the IRS; and

(B) a copy of:

(i) a written notice from the IRS stating that the application for recognition of exemption has been received; or

(ii) a receipt as proof that the application has been sent to the IRS by means of the United States Postal Service, other carrier, or hand delivery to the IRS.

(3) Paragraph (2)(A) and (B)(ii) of this subsection, applies only if the organization has filed its application for recognition of exemption during the 14th or 15th month after its beginning date. Beginning date means:

(A) for an entity organized under the laws of this state, the date on which the entity's certificate of formation or other similar document takes effect; and

(B) for a foreign entity, the date on which the entity begins doing business in this state.

(4) If the information required in paragraph (2)(A) and (B)(i) of this subsection is provided in a timely manner, as provided in paragraph (6) of this subsection, a 90-day provisional franchise tax exemption will be granted.

(5) An entity qualifying under paragraph (2)(A) and (B)(ii) of this subsection, will be granted a 90-day provisional exemption with the condition that a copy of the notice required in paragraph (2)(B)(i) of this subsection be provided to the comptroller within 30 days from the date of the letter notifying the entity of the provisional exemption. If the IRS notification is not provided within the 30-day period, the provisional exemption will be canceled. An entity whose provisional exemption is canceled will be subject to all tax, penalty, and interest that has accrued since the entity's beginning date.

(6) The information necessary for obtaining a temporary franchise tax exemption will be considered to be provided to the comptroller in a timely manner if:

(A) the application for recognition of exemption is provided to the IRS within their timely filing guidelines; and

(B) the information required in paragraph (2)(A) and (B)(i) or (B)(ii) of this subsection, is postmarked within 15 months after the day that is the last day of a calendar month and that is nearest to the entity's beginning date.

(7) Before the expiration of the 90-day provisional exemption, the entity must provide the comptroller a copy of the letter from the IRS showing that the decision on the federal exemption is still pending or stating that the federal exemption is either granted or denied.

(8) If the comptroller is notified as required in paragraph (7) of this subsection, that the decision on the federal exemption is still pending, an extension of the provisional exemption may be considered.

(9) If the information in paragraph (7) of this subsection, is not provided as required, the provisional exemption may be canceled. If the provisional exemption is canceled, the entity will be responsible for all franchise tax reports and payments that have become due since its beginning date, and penalty and interest will be based on the original due date of each report.

(10) An entity that provides the comptroller a copy of the letter from the IRS stating that the federal exemption has been granted will be considered for franchise tax exemption under subsection (f) of this section.

(11) If the federal exemption is denied by the IRS, the entity is responsible for all franchise tax reports and payments that have become due since its beginning date and interest will be based on the original due date of each report. Late filing and payment penalties will be waived for any reports and payments postmarked within 90 days after the date of the final denial of the federal exemption. The penalty waiver process will begin when the entity submits a written request for penalty waiver and a copy of the letter denying the federal exemption when filing reports and payment.

(j) Trade show exemption. See Tax Code, §171.084 (Exemption--Certain Trade Show Participants), for the requirements for exemption for certain foreign entities that participate in trade shows in Texas.

(1) Notification to comptroller. Entities need not apply for an exemption under Tax Code, §171.084.

(A) If a foreign entity has obtained a registration or has already notified the comptroller that it is doing business in Texas, the entity must notify the comptroller in writing by the due date of the first report for which the entity is exempt that the report and payment are not due because the entity is exempt under Tax Code, §171.084. After such notification, the entity must notify the comptroller in writing only when the organization no longer qualifies for exemption.

(B) If a foreign entity has not obtained a registration or otherwise qualified to do business in the state, if applicable, and if the entity has not notified the comptroller that it is doing business in Texas, the entity must notify the comptroller in writing only when the entity no longer qualifies for exemption under Tax Code, §171.084. There is no need to apply for exemption as long as the entity qualifies for the exemption.

(2) Solicitation periods. If the solicitation of orders is conducted during more than five periods during the business period upon which tax is based as set out in Tax Code, §171.1532 (Business on Which Tax on Net Taxable Margin is Based), the entity does not qualify for exemption.

(A) For example, an entity with its fiscal year ending December 31, 2008, that filed a 2008 annual report, will not have to file and pay a 2009 annual report if it did not solicit orders for more than five periods during 2008.

(B) For example, assume a foreign entity participated in its first trade show in Texas on April 1, 2008. It also participated in trade shows in 2009 on January 1, March 1, May 1, June 1, August 1, and October 1. The entity's fiscal year ends are December 31, 2008, and 2009. The entity would be exempt for its initial report and payment (covering the privilege periods from April 1, 2008 - December 31, 2009) because it only solicited for one period from April 1, 2008 - December 31, 2008 (i.e., the business upon which the initial report is based). The entity would be required to file a 2010 annual report and pay tax, however, because it solicited for six periods from January 1, 2009 - December 31, 2009 (i.e., the period upon which the 2010 annual report is based).

(3) One hundred twenty hours. A solicitation period may not exceed 120 consecutive hours. If the solicitation of orders is conducted during a single period of more than 120 consecutive hours, the entity does not qualify for exemption. For example, an entity that meets the other requirements of Tax Code, §171.084, will meet the 120 hours requirement if the solicitation occurs Monday - Friday, but will not meet the 120 hours requirement if the solicitation occurs Monday - Saturday. If none of the solicitation limits prescribed in this subsection are exceeded, an entity may qualify for the exemption even if it leases space at a wholesale center for the entire period upon which the tax is based.

(k) Credit association exemption. A cooperative credit association incorporated under Agriculture Code, Chapter 55 (Cooperative Credit Associations), an entity organized under 12 U.S.C. §2071, or an agricultural credit association regulated by the Farm Credit Administration is exempt from franchise tax.

(l) Bingo unit exemption. For reports originally due on or after October 1, 2009, a bingo unit formed under Occupations Code, Chapter 2001, Subchapter I-1 (Unit Accounting), is exempt from franchise tax. "Unit" means two or more licensed authorized organizations that conduct bingo at the same location joining together to share revenues, authorized expenses, and inventory related to bingo operation.

(m) TexAmericas Center nonprofit corporation exemption. Effective June 16, 2015, a nonprofit entity created by the TexAmericas Center under Special District Local Laws Code, §3503.111 (Nonprofit Corporations), is exempt from franchise tax.

(n) Disaster response exemption for an out-of-state business entity. Effective June 16, 2015, an out-of-state business entity, as defined in this subsection, is not required to file a franchise tax report with or pay franchise tax to this state if the business done in this state is limited to the performance of disaster- and emergency-related work during a disaster response period. An out-of-state business entity that remains in Texas after a disaster response period is not entitled to this exemption.

(1) Notification to comptroller. An entity need not apply for an exemption from franchise tax under Business & Commerce Code, §112.004 (Exemption of Out-of-State Business Entity From Certain Obligations During Disaster Response Period). An entity must notify the comptroller in writing only when the entity no longer qualifies for the exemption.

(2) Definitions. For the purpose of this subsection, the terms defined in subparagraphs (B) - (H) of this paragraph have the meanings given in Business & Commerce Code, §112.003 (Definitions).

(A) Affiliate--A member of a combined group as that term is described by Tax Code §171.1014 (Combined Reporting; Affiliated Group Engaged in Unitary Business).

(B) Critical infrastructure--Equipment and property that is owned or used by a telecommunications provider or cable operator or for communications networks, electric generation, electric transmission and distribution systems, natural gas and natural gas liquids gathering, processing, and storage, transmission and distributions systems, and water pipelines and related support facilities, equipment, and property that serve multiple persons, including buildings, offices, structures, lines, poles, and pipes.

(C) Declared state disaster or emergency--A disaster or emergency event that occurs in this state and:

(i) in response to which the governor issues an executive order or proclamation declaring a state of disaster or a state of emergency; or

(ii) that the president of the United States declares a major disaster or emergency.

(D) Disaster- or emergency-related work--Repairing, renovating, installing, building, rendering services, or performing other business activities relating to the repair or replacement of critical infrastructure that has been damaged, impaired, or destroyed by a declared state disaster or emergency.

(E) Disaster response period--

(i) the period that:

(I) begins on the 10th day before the date of the earliest event establishing a declared state disaster or emergency by the issuance of an executive order or proclamation by the governor or a declaration of the president of the United States; and

(II) ends on the earlier of the 120th day after the start date or the 60th day after the ending date of the disaster or emergency period established by the executive order or proclamation or declaration, or on a later date as determined by an executive order or proclamation by the governor; or

(ii) the period that, with respect to an out-of-state business entity:

(I) begins on the date that the out-of-state business entity enters this state in good faith under a mutual assistance agreement and in anticipation of a state disaster or emergency, regardless of whether a state disaster or emergency is actually declared; and

(II) ends on the earlier of the date that the work is concluded or the seventh day after the out-of-state business entity enters this state.

(F) In-state business entity--A domestic entity or foreign entity that is authorized to transact business in this state immediately before a disaster response period.

(G) Mutual assistance agreement--An agreement to which one or more business entities are parties and under which a public utility, municipally owned utility, or joint agency owning, operating, or owning and operating critical infrastructure used for electric generation, transmission, or distribution in this state may request that an out-of-state business entity perform work in this state in anticipation of a state disaster or emergency.

(H) Out-of-state business entity--A foreign entity that enters this state at the request of an in-state business entity under a mutual assistance agreement or is an affiliate of an in-state business entity and;

(i) that:

(I) except with respect to the performance of a disaster- or emergency-related work:

(-a-) has no physical presence in this state and is not authorized to transact business in this state immediately before a disaster response period; and

(-b-) is not registered with the secretary of state to transact business in this state, does not file a tax report with this state or a political subdivision of this state, and does not have nexus with this state for the purpose of taxation during the year immediately preceding the disaster response period; and

(II) enters this state at the request of an in-state business entity, the state, or a political subdivision of this state to perform disaster- or emergency-related work in this state during the disaster response period; or

(ii) that performs work in this state under a mutual assistance agreement.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 9, 2017.

TRD-201700091

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 29, 2017

Proposal publication date: July 15, 2016

For further information, please call: (512) 475-0387


SUBCHAPTER CC. SEXUALLY ORIENTED BUSINESS FEE

34 TAC §3.722

The Comptroller of Public Accounts adopts amendments to §3.722, concerning sexually oriented business fee, to include a definition of clothing that conforms to the commonly understood meaning of the term, to memorialize the comptroller's existing interpretation of what constitutes clothing, and to provide examples of evidence that the comptroller will consider in determining whether a business is a sexually oriented business, with changes to the proposed text as published in the October 28, 2016, issue of the Texas Register (41 TexReg 8511). The amendments will facilitate uniform enforcement of the Sexually Oriented Business Fee statute.

Subsection (a) is amended to define a term. New paragraph (1) is added to define the term "clothing," which appears in Business and Commerce Code, §102.051 (Definitions), but is not defined therein. The term is given its commonly-understood meaning. The definition also includes examples of items that are not clothing. Subsequent paragraphs are renumbered accordingly.

New subsection (b) is added to describe the clothing that is required for entertainers and performers to be considered non-nude.

Subsequent subsections are relettered.

Relettered subsection (c) is revised to correct the citation to the Business and Commerce Code.

Relettered subsection (d)(3) is amended to state the rebuttable presumption that the comptroller will use to determine whether a business is subject to the sexually oriented business fee. Existing language in paragraph (3) is deleted.

Relettered subsection (i)(4) is amended to implement Senate Bill 1, 82nd Legislature, First Called Session, 2011 which amended Tax Code, §111.0041 (Records; Burden to Produce and Substantiate Claims) to require taxpayers to keep records for a minimum of four years and throughout any period in which any tax, penalty, or interest may be assessed, collected, or refunded by the comptroller, or in which an administrative hearing or judicial proceeding is pending.

Relettered subsection (j) is amended to add a reference that the comptroller may obtain business information from franchise tax reports.

The comptroller received written comments from the Texas Entertainment Association opposing the proposed amendment. The Association contends that the proposed definition of "clothing" is contrary to the plain meaning of the term and that the proposed rebuttable presumption is unprecedented. The Association also opposes any changes to the current record retention requirements. Lastly, the Association requested a Public Hearing under Government Code, §2001.029.

The comptroller received written comments from Curtis Osterloh opposing the proposed amendment. Mr. Osterloh contends that the proposed amendment is unreasonable and inconsistent with the plain meaning of the statute, and that the proposed amendment would violate the First Amendment of the United States Constitution. Mr. Osterloh also requested a Public Hearing under Government Code, §2001.029.

The comptroller received form letters from individuals who identified themselves as entertainers at various unidentified clubs and who opposed the proposed amendment. The form letters stated that the proposed amendment would negatively affect their ability to convey the art of their performances and attract clients. The commenters were: Lisa M. Brown, Ashley Murray, Destiny "Blaze" Hodges, Kristeena "Phoenix" Damson, Madeline Jimenez, Vianca Hernandez, Danay Morales, April Hutcherson, Christina M Arrizola, Lacy "Italy/Haly" Stall, Samantha "JoJo" Welborn, Dayara Cobas Palaez, Arianna Rodriguez del Toro, Nirvana Scholl, Megan Runnels, Nacona Christan, Beth McMullin, Claudia Dominguez, Mayvis Lopez, Brittanie Rodriguez, Apryl Ceja, Shaka "Jamaica" Spagnoletti, Natali Monteya, Rebecca "Rachel" Wallace, Michelle Martinez, Adalqisa "Gipsy" Rodriguez Cruz, Yenis Fernandez Dominguez, Juana "Valentina" Rodriguez, Rosa "Ally" Dismukes, Melanie "Selene" Gonzales, Janis "Pocahontas" Ruiz, Aylin "Victoria" Garcia, Yenisly "Patricia" Pando Pineda, Ashley "Estelle" Rosas, Maria "Ruby" Gamez, Misty Gutierrez, Morgan "Hunny" Talley, Jessica "Blanca" Yosenia Lozano, Christina "Lexus" Loreno, Kallina "Ashtynn" Fletcher, Beatriz "Bunny" Pirez, Margarita "Amy" Hernandez, Maria "Melissa" de Lourdes, Abigail "Diamond" Tarango, Carmen Rondero Pequero, Sarah "Kianne" Sandoval, Yuly Wendy, "Nina" Name Illegible, Hilda "Diana" Sangrouiz, Yurainys "Honey" Ruiz, Yanelys Garcia Balenzuela, Maribel Esponda Marquez, "Oxsana" Yergemye, "Annelys", Krystal "Gianna" Beaujal, Bellres Gofs, Rodrigus Eticedo, Allysiea "Allie" Betris, Alexur Dawn "Dawn" Alexander, Christina "Sierra" Franco, Dailin "Mia" LaRosa Castellano, Veronica "Lena" Calderon, Ronna "Jaguar" Brandon, Patricia "Lovely" Salazar, Niesa "Lexxi" Andrade, Paola "Devine" Morel Smith, Maria "Brooklyn" Chavez, Natalie "Nadia" Mendez, Karen "Nina" Wallick, Lilianna "Deanna" Repo Ibarrez, Jasmine "Zoey" Hernandez, Dora "Kourtney" Martinez, Angelica "Jade" Fuentes, Melissa "Angel" Lopez, Elizabeth "Jasmin" Box, Brianna "Samya" Ball, Pearl "Roxy" Donnell, Yesika "Carolina" Paz Rodriguez, Erika "Lilly" Gonzalez, Katherine "Abcde" Jamfar, Natalia "Yvannia" Alvarez, Eva "Emily" Rebellaz, Leah "Peach" Bailey, Melissa "Desire" Rodriguez, Asheleigh "Nikki" Gillespie, Rachelle "Destiny" Cavanaugh, Krystal "Entice" Barrientes, Stephanie Janel Chavez, Viktoria Frias, Liliana Hernandez, Stephanie Sinclair, Elizabeth Delacruz, Monique Reyes, Krystal Childers, Destiny Marquez, Brianna Luna, Melissa Ralston, Jolene P Silva, Brandie Hurd, Stephanie Castillo, Victoria Flores, Alexandra Defries, Leslie Mares, Icalena Wichert, Ashley Ann Baggs, Samantha Gonzalez, Ashley Garcia, Elise Sin, Julie Banda, Brianna K., Tequoiya Timarky, Lizete Cerda, Sabina Scott, Jordan Danaho, Kasey Robinson, Jolene Garcia, Alexxa Hollay, Chloe Kimble, Jakaylyn Danielle Stewart, Melissa Behymer, Alexandria Mares, Xandrea Muniz, Elizabeth Gongora, Amanda Ibanez Landreth, Flor Garcia, Miriam Castilleja, Alexandria Johnson, Emily Gonzalez, Skylar Dorsey, Georgia Barrera, Danielle Blake, Brittanie LaRose, Maritza Benavides, Alexis Rodriguez, Alexandra Pache, Melina Miranda, Natividad Martinez, Alyssa Benavides, Katie Gomez, Milena Mechler, Tiffany Teves, Madisol Benavidez, Elizabeth Melendez, Sara Ramirez, Montana Johnson, Jaime Ray, Rebekah Reyes, Hope McCracken, Sandra Diaz, Denise "DD", Juanita Saenz, Cinthia Sandoval, Araceli Ramirez, Rachel Darby, Vanesa Castro, Naeneana Reyes, Yadira Lopez, Cassandra Rodriguez, Beatrice Valdez, Julia Austin, Haylie Whitt, Haven Garza, Cordelia Flores, Kristy Bowman, Jessica Guerra, Celeste Delgado, Arley Nevar, Ashley Duran, Ampano Listonbae, Brittany Carrizales, Gabriella Esqivel, "Junior", Flor Portillo, Martha Garza, Darla Dilley, Kristin Schmidt, Kimberly Bell, Alyssa Scalf, Patricia Zamarripa, Rasta Bracken, Elizabeth Tovar, Siboney "April" Mitchell, Amanda Aragon Montez, Kasey Croy, Melissa McCloy, CrisAnne Rodriguez, Crystal Coner, Latasia Harrison, Anna Salas, Brandy Anderson, Sarah McCarrell, Angelita Burtran, Yolanda L. Carrcon Hndz, Erica Perez, Courtney Whitney, Dana Keck, Dominique Loftis, Mercedes Porras, Deanna Mimbela, Jaclyn Fernandez, Claudia Scott, Brianna Jackson, Maya Flores, Davincie Slater, Hailey Dean, Brooke Umfleet, Julia Hong, Irma Valdez, Hannah Gutierrez, Brittany Davila, Raven Espinoza, Racy Williams, Roseann Garcia, Miranda Gonzalez, Jaclyn Cadle, Julia Marks, Laura Lopez, Aimee Aguilar, Ally Marie Paez, Aubrini Thompkins, Michelle Vasquez, Cassie Wilson, Teresa, Alexandria Dallmann, Yanelis Lobaina, Sara Garcia, Jessica Murillo, Caitlin Taylor, Alisa Lebedeva, Alianys Saerrio, Brittney Love Esparza, Shelby Stiegler, Lauren Mitchell, Ariel Gaderra, Amanda Torres, Kassandra Guedes, Alicia Rabera, Virgin Romero, Christa J., Cristina Tovar, Juliet Zepeda, Janis Castillo, Adriana Castillo, Sheria Appling, Amanda McCales, Lacee Cruz, Misty Tellez, Dasha Patterson, Kalah Burnham, Osylett Marcos, Clarissa Medina, Satena Guerrero, Angel Puffer, Serena Dobbs, Dominique Neff, Berenice Alaquines, Alexandria Valverde, Merang Escalante, Mairany Cantu, Rachel Y. Ledezina, Jamie Casteneda, Victoria Ortega, Anedelia Villarreal, Anette Garza, Tiffany Lozano, Biance Alemah, Alicia Spaustat, Krystal Herrera, Gloria Hinojosa, Alex Cormeno, Maria Segovia, Vanessa Ruiz, Courtney Gonzales, Karra Vaught, Kristine Reynosa, China Mendez, Paige Cooper, Claudia Acerdo, Laura Garcia, Ashlyn Turner, Summer Vasquez, Giovanna Milian, Kelley Kirksey, Amber Garcia, Sarah Padilla, Clarissa Gutierrez, Ashley Ramirez, Diana Alaniz, Antonia Garza, Crystal Saldana, Destiny Rodriguez, Jessica Finney, Roxanne Ruiz, Arlette Garza, Linda Mendiola, Angela Ayala, Mary Alice Galagos, Amanda Brady, Quintessa King, Angela Christopher, Candace Rodriguez, Mei-Ling Ortiz, Aurora Junco, Carrie Villarreal, Cassandra Flores, Bridget McDonald, Sarah Cantu, Kimberly Vega, Saine Rodriguez Zayas, Kimberly Fuentes, Ashlee Thomley, Ashlee Eldrige, Kathryn Bayly, Eiliesha Lambright, Venezia Garcia, Lisa Soto, Gabrielle Flores, Alysia Gomez, Tiffany Ramos, Abigail Garza, Genesis Aviles, Maria Cortez, Ashley Willson, Gina Muniz, Alfredo Muniz, Crystal Castaneda, Marina Gomez, Samantha Acuna, Bernadette Belturra, Candice Morin, Anna Sparks, Melissa Adansworth, Danika Jefferson, Matica Jackson, Whitney Nicolson, Nathaly Ortega, Kate Barbie, Jorgina Medina, Lesly Esquivez, Trini Abrego, Andrea Padilla, Karina Valdivia, Jessica Maldonado, Elizabeth Rodriguez, Veronica Bell, Joselena Hernandez, Bianca Vallejo, Alejandra Avila, Bianca Morin, Ashley Guera, Candice Najarro, Susana Coronado, Elexis Salinas, Tara Trigo, Jessica Mendez Casades, Tiffany Lopez, Jessica Alvarez, Priscilla Gonzalez, Haleigh Owens, Anne R. Turner, Pamela Cortez, Teresa Mendoza, Olivia Mitchell, Jennifer Reynolds, Adrian McDonald, Nadia Rico, Gina Anderson, Amy Vargas, Valerie Cepeda, Monique Florez, Liza Amicon, Nicole Rodriguez, Desiree Flores, Natalia Gallardo, Sylvia Rubio, Sharonne McAllister, Erika Cureiton, Parys Liscano, Bianca Luna, Martha Velasquez, Marisela Rodriguez, Victoria Navarro, Leena Ramirez, Vivianna Porter, Cassandra Pena, Angelica Lopez, Onye Kendall, Samantha Rosdale, Shametha Baldwin, Endrina Palma, Kayla Sigler, Indra Kaley, Florence Lobato, Clarissa Zelaya, Candy Zapata, Alexis Licon, Sarah Gonzalez, Alejandra Galvan, Cynthia Rodriguez, and Hazel Alvarado.

The comptroller received form letters from individuals concerned about the loss of revenue to their businesses. The commenters were: Justin Hernandez, Dominique Suarez, Rebecca Suarez, Suzanne Christopher, and Angela Christopher.

The comptroller received form letters from individuals inquiring whether the State was going to collect the fee at their swimming pools. The commenters were: Gina Anderson, Angela Christopher, Justin DeHoyos, Carlos Longoria, and Olivia Mitchell.

The comptroller received form letters from individuals stating the proposed amendment is unfair, would create an undue burden on them, and would infringe on their First Amendment rights. The commenters were: Marisal Maldonado, Francis Janelle Obregon, Jeff Goetoch, Elizabeth Cervantes, Amanda Guerra, Zoe Cunningham, Erika Urias, Chasity Trevino, Brittney Rodriguez, Victoria Merced, Gina Walker, Christina Valero, Jasmine Wimberly, Esmeralda Marquez, Phimonlada Nanthithan, Henry Avelar Jr., Miguel Maldonado, Ernest Celestino-Seal, Britney Casavez, Gabriella Miranda, Calvin Wong, Robert Calvillo, and Gabriel Cardenas.

On December 12, 2016, the comptroller held a Public Hearing. At the Public Hearing the Comptroller received oral comments from individuals opposed to the proposed amendments. Curtis Osterloh testified that if the comptroller adopts the proposed amendments, the comptroller should not apply the amendments retroactively. Eric Hagenswold testified that the proposed amendments violated the rule of strict construction, that the proposed amendments were unconstitutional, and that the presumption was inappropriate and unnecessary. Teresa Thompson testified that the proposed amendments would destroy her business.

The comptroller has considered the comments and concluded that the comments do not justify the deletion or alteration of the proposed amendments. For clarification, the comptroller is making a change to the text of the proposed amendments. The change will be discussed in a subsequent paragraph.

Minor revisions were also made to the text of the proposed section to correct grammar, add a missing title to subsection (b) and add titles to statute references throughout the section.

In general, the proposed amendments do three things: clarify the clothing requirement; articulate the presumption that the comptroller applies in identifying sexually oriented businesses; and expand the period for keeping records. The following discussion addresses these items, discusses the constitutional issues, and addresses the retroactive application of the amendments.

The clothing requirement. Several commenters contended that the proposed definition of "clothing" was unreasonable, inconsistent with the plain and ordinary meaning of the term, and violated the rule of statutory construction that taxing statutes must be strictly construed against the taxing authority. Although no comment proposed an alternative definition, the general tenor of the comments was that any "covering" should constitute clothing and specifically, that opaque latex applied to the body in a liquid or semi-liquid state should be considered clothing.

The comptroller rejects the comments suggesting that any covering constitutes "clothing" as that term is commonly used. Establishments that permit entertainers to apply liquid or semi-liquid latex are commonly referred to as topless clubs. So the assertion that these substances are within the plain and ordinary usage of "clothing" is disingenuous. Typically, "clothing" does not include foams, liquids, gels, or similar substances, whether edible or inedible.

The rule of strict construction applies only if a statute is susceptible to more than one reasonable interpretation. Davis-Kemp Tool Co., Inc. v. Bullock, 584 S.W.2d 579, 581 (Tex. App. - Austin), writ ref'd n.r.e., 590 S.W.2d 708 (Tex. 1979). And, as the Texas Supreme Court has recently opined: "If an undefined term has multiple common meanings, it is not necessarily ambiguous; rather, we will apply the definition most consistent with the context of the statutory scheme." Southwest Royalties, Inc. v. Hegar, No. 14-0743, 2016 Tex. LEXIS 508; 59 Tex. Sup. J. 1316, March 8, 2016. In other words, strict construction "does not require that the words of a statute be given the narrowest meaning of which they are susceptible." Coastal States Gas Producing Co. v. Pate, 309 S.W.2d 828, 831 (Tex. 1958). Rather, the "language used by the Legislature may be accorded a full meaning that will carry out its manifest purpose and intention in enacting the statute." Id.

In this case, if the Legislature had intended that the body parts be merely "covered," the Legislature could have easily said so, and with far fewer words. See, Hilco Elec. Co-Op. v. Midlothian Butane Gas, 111 S.W.3d 75, 81 (Tex. 2003) ("could have easily said so"); compare Texas Penal Code, §43.21(a)(1)(B)(ii) ("covered") with Texas Penal Code, §43.251(a)(4)(B) ("clothed").

But instead of simply requiring that the performers be "covered," the Legislature adopted a longer requirement stating the manner in which the performers must be "clothed." The manner in which a performer must be "clothed" appears in the statutory definition of "nude." The Legislature previously used this definition of "nude" in Texas Penal Code, §43.251. The use of identical language indicates that the Legislature intended identical interpretations. Penal Code, §43.251 prohibits the employment of minors in a place of business permitting, requesting, or requiring a child to work "nude." Under the interpretation advanced by the commenters, businesses could legally employ children under conditions in which the children would only be "covered" with latex applied to the body in a liquid or semi-liquid state. The comptroller rejects that interpretation. Rather, the comptroller believes that its proposed amendment, which requires "clothing," carries out the Legislature's manifest purpose and intention in enacting these statutes.

The presumption. One commenter suggested that the creation of a rebuttable presumption was unprecedented. However, a simple word search of the Texas Administrative Code produces over 60 instances in which the comptroller rules use presumptions. For example, "repainting is presumed to be a taxable activity unless the taxpayer affirmatively shows that the repainting meets the specific requisites of maintenance as set out in the rule." GATX Terminals Corp. v. Rylander, 78 S.W.3d 630, 635 (Tex. App. - Austin 2002, no pet.); 34 Tex. Admin. Code §3.357(b)(8) (West 2015).

One commenter objected that the presumption adds "factors" not mentioned in the statute. However, this objection misconstrues the nature of a presumption. "If a presumption exists, proof by a party of a fact or set of facts (the 'basic fact') requires the factfinder to find the existence of another fact (the 'presumed fact') unless the opponent overcomes the presumption." 1 Steven Goode et al., Texas Practice Series: Guide to the Texas Rules of Evidence §301.1 at n. 5 (3d ed. 2002). In this case, the presumed fact -- that the business is operating as a sexually oriented business -- may be presumed from the basic fact -- that the business holds itself out as a sexually oriented business. The presumption is rebutted with proof that the presumed fact is incorrect. Id. §301.2 at n. 4. The taxpayer is not required to disprove the basic fact, so the presumption is not adding an additional "factor."

One commenter requested the agency to address specifically how the agency would apply the presumption. The agency has the discretion to proceed by ad hoc adjudication and the agency cannot reasonably be expected to explain how the presumption will be applied in every conceivable circumstance. See State Board of Insurance v. Deffebach, 631 S.W.2d 794, 799 (Tex. App. - Austin 1982, writ ref'd n.r.e.) ("the choice by an agency to proceed by general rule or by ad hoc adjudication is one that lies primarily in the informed discretion of the agency"). However, to assist taxpayers, the comptroller will generally describe the operation of the presumption.

In making a deficiency determination or a jeopardy determination, the comptroller may consider any relevant evidence and is not bound by the rules of evidence. See, Tex. Tax Code §111.004 (West 2015) (Power to Examine Records and Persons); id. §111.008 (Deficiency Determinations); and id. §111.022 (Jeopardy Determinations). In contested case redetermination and refund proceedings, the rules of evidence apply, subject to the additional admissibility rules specified by the Texas Administrative Procedure Act. See, Tex. Gov't Code §2001.081 (West 2016) (Rules of Evidence).

The Tax Code places the burden of production and the burden of persuasion on the taxpayer, and this burden extends through any "administrative or judicial proceeding." See Tax Code, §111.0041 (West 2015) (Records; Burden to Produce and Substantiate Claims). The Comptroller rules follow the statute, with exceptions in which the Comptroller has taken on the burden of proof in certain contested cases not at issue here. See, 34 Tex. Admin. Code §1.40 (West 2015) (Burden of Proof). In assessment redetermination hearings, the burden of production and the burden of persuasion are always on the taxpayer by statute and by rule. See, e.g., Comptroller Hearing No. 111,311 (2016).

Nevertheless, the comptroller will assume the initial burden of production in sexually oriented business cases to make a prima facie showing that a business is subject to the fee. Some decisions have stated that a prima facie showing is required by the rule of statutory construction that taxing statutes must be strictly construed against the taxing authority. E.g., Comptroller Hearing No. 30,461 (1994). However, while a rule of statutory construction may increase the burden of proof required to prevail, it cannot shift the burden of production.

The justification, if any, for placing the initial burden of production on the comptroller is based on the due process notion that a naked assessment without any foundation would be arbitrary and erroneous. See, United States. v. Janis, 428 U.S. 433, 441-42 (1976) ("assessment shown to be naked and without any foundation" is "arbitrary and erroneous"); Continental Casualty Insurance Co. v. Functional Restoration Associates, 964 S.W.2d 776, 782 (Tex. App. - Austin 1998), rev'd on other grounds, 19 S.W.3d 393 (Tex. 2000) ("Substantive due process demands that government action not be arbitrary, unreasonable, or capricious...").

Section 3.722 articulates some of the evidence and a presumption that the comptroller has and will use to establish a prima facie case. In making deficiency determinations, jeopardy determinations, and redeterminations, the comptroller must determine whether or not and the extent to which a taxpayer has operated as a sexually oriented business so as to be subject to the fee. The comptroller cannot possibly inspect the operations of each taxpayer on a daily basis. So the comptroller has and will use presumptions. A presumption is appropriate when one party has "greater access to the proof than the other." 1 Steven Goode et al., Texas Practice Series: Guide to the Texas Rules of Evidence §301.2 at n. 8 (3d ed. 2002). That circumstance is applicable here. The taxpayer has superior and more constant access to information regarding the taxpayer's business operations.

One presumption that the comptroller has and will use is the common law presumption of the continued existence of a status for a reasonable time in the absence of evidence to the contrary. Mayhew v. McFarland, 153 S.W.2d 428, 431 (Tex. 1941). This presumption may be applied retroactively. Ross v. Green, 139 S.W.2d 565, 570 (Tex. 1940); see, W. Jeremy Counseller & Charles D. Brown, Handbook of Texas Evidence: Civil Practice §301.01 at n. 124 (2005) ("Continuation of status quo"). If the agency has evidence that an establishment has been operating as a sexually oriented business, the agency may presume that the establishment operated in that fashion for a reasonable time in the absence of evidence to the contrary.

Another presumption is articulated in this section. Even in the absence of first hand observation by comptroller personnel, the comptroller may presume that a business is a sexually oriented business if the business holds itself out as a sexually oriented business. It is reasonable to infer that a business holding itself out as a sexually oriented business is operated as such.

Relevant evidence includes signage, advertising, social media, publication of images, inspections, investigations, and the reputation of the business. Commenters objected to the consideration of hearsay statements or images published by others, including reputational evidence. However, comptroller audits are not limited by the rules of evidence. See Tax Code, §111.004 (West 2015) (Comptroller is authorized to examine whatever items are "necessary for conducting a complete examination"). Third party evidence may be considered in audits.

In contested case proceedings, evidence is admissible if it is "of a type on which a reasonably prudent person commonly relies in the conduct of the person's affairs." Tex. Govt. Code §2001.081 (West 2016). Furthermore, exceptions to the hearsay rule include "lists, directories, or other compilations that are generally relied on by the public or by persons in particular occupations." Tex. R. Evid. 803(17). Third party reports, such as reputational websites, are commonly relied upon by the public to select restaurants, plumbers, strip clubs, and other enterprises. So the comptroller may consider third party statements in determining whether businesses are holding themselves out to be, and are operating as sexually oriented businesses.

The comptroller rejects the notion that businesses with scantily clad performers will become the helpless victims of third party reviewers that falsely describe the performers as being topless or nude. If businesses are concerned that their reputations are being falsely impugned, businesses can reply to third party reviewers or post their own signage, advertising, social media, or images disavowing topless or nude activities.

Inferences based on reputational evidence and the manner in which parties hold themselves out to the public are not unprecedented. For example, evidence of the general reputation of a place is admissible to show the existence of a nuisance at that place. Tex. Civ. Prac. & Rem Code §125.004 (West 2011). In fact, the comptroller already has a rule based on the manner in which the parties hold themselves out to the public - Rule 3.80. For purposes of determining the gift tax on motor vehicles, comptroller §3.80 recognizes that persons are spouses if they "hold themselves out to the public in Texas as being husband and wife." 34 Tex. Admin. Code §3.80(a)(5) (West 2015). And "reputation is a factor to be weighed" in determining a common-law marriage. Estate of Giessel, 734 S.W.2d 27, 31 (Tex. App.- Houston [1st Dist.] 1987, writ ref'd n.r.e.).

If the evidence is sufficient to create a presumption that the taxpayer is operating as a sexually oriented business, the burden of production shifts to and remains with the taxpayer to rebut the presumption with enough evidence that a reasonable fact-finder could find the nonexistence of the presumed fact. See, 1 Steven Goode et al., Texas Practice Series: Guide to the Texas Rules of Evidence §301.2 (3d ed. 2002). If the taxpayer meets that evidentiary standard, the presumption disappears, but the evidence giving rise to the presumption is still considered and appropriate inferences may be drawn from that evidence. Id. at §301.1 at n. 6; Southland Life Ins. Co. v. Greenwade, 159 S.W.2d 854, 857-58 (Tex. 1942). Furthermore, after the Comptroller establishes a prima facie case through presumption or otherwise, the burden of production and persuasion always rests with the taxpayer to prove by a preponderance of the evidence that it was not operating as a sexually oriented business. See, Tex. Tax Code §111.0041 (West 2015) (Records; Burden to Produce and Substantiate Claims); 34 Tex. Admin. Code §1.40 (West 2015) (Burden of Proof); Comptroller Hearing No. 111,311 (2016). The proposed text of subsection (d)(3) is revised to add the preponderance of the evidence requirement.

Record-retention requirement. The Texas Entertainment Association opposed changes to the record retention requirement but did not state a reason. The comptroller adopts the proposed changes because they track the requirements of Tax Code, §111.0041 (West 2015) (Records; Burden to Produce and Substantiate Claims).

Constitutional issues. Commenters complained that the amendment introduces new First Amendment issues. However, for the reasons stated, the comptroller is adopting this amendment on the belief that it carries out the Legislature's manifest purpose and intention in enacting the statute. The comptroller is not free to disregard the statute for constitutional reasons. Cent. Power & Light Co. v. Sharp, 960 S.W.2d 617, 618 (Tex. 1997).

Retroactive application. One commenter requested clarification on whether the Comptroller will apply the amendment retroactively. The comptroller will apply the revised section to all pending and future cases. The presumption in the section can be applied in this manner because it is procedural in nature. See, Ex Parte: John M. Abell, 613 S.W.2d 255, 260 (Tex. 1981) ("no litigant has a vested right in a statute or rule which affects remedy or is procedural in nature"); Sergeant Enters., Inc. v. Strayhorn, 112 S.W.3d 241, 250 (Tex. App. - Austin 2003, no pet.) ("rule as a procedural tool" may be applied retroactively). The definition of clothing in the section amendment is a proper construction of the statute and articulates what has always been the law. See, Sharp v. Park 'N Fly of Tex., 969 S.W.2d 572, 578 (Tex. App. - Austin 1998, pet. denied) ("proper construction"). Similarly, the record-keeping requirement is a proper construction of the statute and articulates what has always been the law since 2011, when the Legislature amended Tax Code, §111.0041.

One commenter suggested that the exclusion of latex applied in a liquid or semi-liquid state from the definition of "clothing" could not possibly be a reasonable interpretation of the statute and the Comptroller could not possibly apply this interpretation retroactively because an enforcement officer testified that a garment is not required and that opaque latex covering is sufficient. But a statement by an employee cannot stop the comptroller from correctly interpreting the law. S & H Mktg. Grp., Inc. v. Sharp, 951 S.W.2d 265, 266 (Tex. App. - Austin 1997, no writ). And if any taxpayers changed or failed to change their business operations based on this testimony, they may seek relief under the Comptroller's detrimental reliance policy. 34 Tex. Admin. Code §3.10(c) (West 2015).

The section is adopted under Business and Commerce Code, §102.056 (Administration, Collection, and Enforcement), and Tax Code, §111.002 (Comptroller's Rules; Compliance; Forfeiture), which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of Business and Commerce Code, Chapter 102, Subchapter B (Fee Imposed on Certain Sexually Oriented Businesses).

The section implements Business and Commerce Code, Chapter 102, Subchapter B.

§3.722.Sexually Oriented Business Fee.

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Clothing--A garment used to cover the body, or a part of the body, typically consisting of cloth or a cloth-like material. Paint, latex, wax, gel, foam, film, coatings, and other substances applied to the body in a liquid or semi-liquid state are not clothing.

(2) Customer--Any person on the premises of a sexually oriented business except:

(A) an owner, operator, independent contractor of the business or an employee of that sexually oriented business; or

(B) a person who is on the premises exclusively for repair or maintenance of the premises or for the delivery of goods to the premises.

(3) Nude--To be entirely unclothed, or clothed in a manner that leaves uncovered or visible through less than fully opaque clothing any portion of the breasts below the top of the areola of the breasts, if the person is female, or any portion of the genitals or buttocks.

(4) Sexually oriented business--A nightclub, bar, restaurant, or similar commercial enterprise that:

(A) provides for an audience of two or more individuals live nude entertainment or live nude performances; and

(B) authorizes on-premises consumption of alcoholic beverages, regardless of whether the consumption of alcoholic beverages is under a license or permit issued under the Alcoholic Beverage Code.

(b) Clothing requirements. An entertainer or performer will be considered "nude" for purposes of this section unless the entertainer or performer wears fully opaque clothing that covers all portions of the genitals and buttocks, and if the entertainer or performer is a female, the entertainer or performer must also wear fully opaque clothing that covers the portions of the breasts below the top of the areola of the breasts.

(c) Questionnaire. A sexually oriented business, as defined in this section, is required to complete and submit a Texas Sexually Oriented Business Fee Questionnaire, Form AP-225 or a subsequent form prescribed by the comptroller to file the report and remit the fee imposed under Business and Commerce Code, Chapter 102 (Sexually Oriented Businesses).

(d) Imposition and Calculation of Fee.

(1) A $5.00 fee is imposed on a sexually oriented business for each entry by each customer admitted to the business. In determining the amount of fee due by a sexually oriented business for more than one entry by the same customer on the same business day at the same location, it shall be presumed to have been one entry by the customer and the fee amount due from the business for the entry is $5.00. A business day begins when the business opens and continues until the close of business.

(2) A sexually oriented business has the discretion to determine how it will derive the money to pay the fee. All door and cover charges, including reimbursement of the sexually oriented business fee from its customers, are subject to sales tax as provided by Tax Code, Chapter 151 (Limited Sales, Excise and Use Tax). A sexually oriented business that chooses to recover the fee from its customer by including a separately stated charge for the fee on the customer check or invoice must clearly identify the charge as a reimbursement. A charge not clearly identified as reimbursement of the fee is considered a tax collected from the customer and these amounts must be remitted to the comptroller in addition to the $5.00 entry fee.

(3) The comptroller will presume that a business is a sexually oriented business if the business holds itself out as a sexually oriented business. Evidence that the comptroller may consider includes signage, advertising, social media, publication of images, inspections, investigations, and the reputation of the business. To rebut the presumption, a business may prove by a preponderance of the evidence the instances in which the business did not operate as a sexually oriented business.

(e) Report forms. The sexually oriented business fee must be reported on a form as prescribed by the comptroller. The fact that the sexually oriented business does not receive the form or does not receive the correct form from the comptroller for the filing of the return does not relieve the business of the responsibility of filing a return and remitting the fee.

(f) Due date of report and payment.

(1) The sexually oriented business fee report and payment are due no later than the 20th day of the month following the calendar quarter month in which the liability for the fee is incurred.

(2) A sexually oriented business must file a quarterly report even if there is no fee to report.

(g) Penalty. Penalties due on delinquent fees and reports shall be imposed as provided by Tax Code, §111.061 (Penalty on Delinquent Tax or Tax Reports).

(h) Interest. Interest due on delinquent fees shall be imposed as provided by Tax Code, §111.060 (Interest on Delinquent Tax).

(i) Records required.

(1) A sexually oriented business is required to maintain records, statements, books, or accounts necessary to determine the amount of fee for which the business is liable to pay.

(2) A sexually oriented business shall record daily the number of customers admitted to the business. The manner in which a sexually oriented business maintains records of the number of customers admitted to the business may be written, stored on data processing equipment, or may be in any form that the comptroller may readily examine.

(3) The comptroller or an authorized representative has the right to examine any records or equipment of any person liable for the fee in order to verify the accuracy of any report made or to determine the fee liability in the event no return is filed.

(4) Records required by the comptroller must be kept for at least four years after the date on which the records are prepared, and throughout any period in which any tax, fee, penalty, or interest may be assessed, collected, or refunded by the comptroller or in which an administrative hearing or judicial proceedings is pending, unless the comptroller authorizes in writing a shorter retention period. A business must make records available for inspection and audit on request by the comptroller.

(j) Failure to keep accurate records. If a sexually oriented business fails to keep accurate records of the number of customers admitted to the business, the comptroller may estimate the amount of fee liability based on any available information that includes, but is not limited to, any reports required to be filed per Tax Code, Chapter 151, Chapter 171 (Franchise Tax), or Chapter 183 (Mixed Beverage Taxes).

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 9, 2017.

TRD-201700094

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 29, 2017

Proposal publication date: October 28, 2016

For further information, please call: (512) 475-0387


CHAPTER 5. FUNDS MANAGEMENT (FISCAL AFFAIRS)

SUBCHAPTER P. ENTERPRISE RESOURCE PLANNING

34 TAC §5.302

The Comptroller of Public Accounts adopts new §5.302 regarding state agency reporting of contracting information, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8739). This new section will be under Chapter 5, Funds Management (Fiscal Affairs), Subchapter P, Enterprise Resource Planning.

New §5.302 sets forth the contracting information that state agencies must provide using the centralized accounting payroll and personnel system, or any successor system used to implement the enterprise resource planning component of the uniform statewide accounting project, developed under Government Code, §2101.035 and §2101.036.

No comments were received regarding adoption of the section.

This section is adopted under Government Code, §2101.041, which requires the comptroller by rule to determine the contracting information that state agencies must provide using the centralized accounting payroll and personnel system, or any successor system used to implement the enterprise resource planning component of the uniform statewide accounting project, developed under Government Code, §2101.035 and §2101.036.

This section implements Government Code, §2101.041.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700057

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


CHAPTER 20. TEXAS PROCUREMENT AND SUPPORT SERVICES

SUBCHAPTER A. GENERAL PROVISIONS

34 TAC §20.1, §20.2

The Comptroller of Public Accounts adopts the repeal of §20.1, concerning purpose of Texas procurement and support services, and §20.2, concerning Texas procurement and support services business location and mailing address, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8740).

The comptroller repeals the sections as part of the reorganization of the entire chapter regarding statewide procurement and support services. Along with the repeal of the rules, the comptroller has proposed new sections in Subchapter A which will be organized in new Division 1, Administration and Division 2, Definitions.

No comments were received regarding adoption of the repeals.

The repeals are adopted under Government Code, §2155.0012 and §2156.0012.

The repeals affect Government Code, Title 10, Subtitle D, §§2151.004, 2155.0012, and 2156.0012.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700021

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


SUBCHAPTER B. HISTORICALLY UNDERUTILIZED BUSINESS PROGRAM

34 TAC §§20.10 - 20.28

The Comptroller of Public Accounts adopts the repeal of §§20.10, concerning policy and purpose; 20.11, concerning definition; 20.12, concerning evaluation of active participation in the control, operation, and management of entities; 20.13, concerning statewide annual HUB utilization goals; 20.14, concerning subcontracts; 20.15, concerning agency planning responsibilities; 20.16, concerning state agency reporting requirements; 20.17, concerning certification process; 20.18 concerning protests; 20.19, concerning recertification; 20.20, concerning revocation; 20.21, concerning certification and compliance reviews; 20.22, concerning Texas historically underutilized business certification directory; 20.23, concerning graduation procedures; 20.24, concerning program review; 20.25, concerning memorandum of understanding between the governor's division of economic development and tourism and the comptroller; 20.26, concerning HUB coordinator responsibilities; 20.27, concerning HUB forum programs for state agencies; and 20.28, concerning mentor-protégé program, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8740).

The comptroller repeals these sections as part of the reorganization of the entire chapter regarding statewide procurement and support services. Along with the repeal of the rules, the comptroller has proposed new sections in Subchapter B, renamed Public Procurement Authority and Organization, which will be organized into Division 1. Primary and Delegated Procurement Authority, Division 2. Publicizing Procurement: CMBL, ESBD, and VPTS, Division 3. Contract Management Guide and Training, and Division 4. Improper Business Practices and Personal Conflicts of Interest.

No comments were received regarding adoption of the repeals.

The repeals are adopted under Government Code, §2161.0012 and §2161.002(c).

The repeals affect Government Code, Chapter 2161, §§2161.0011, 2161.002, 2161.0015, 2161.004, 2161.061, 2161.062, 2161.065, 2161.181, and 2161.252.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700022

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


SUBCHAPTER C. PROCUREMENT

34 TAC §§20.31 - 20.41, 20.43, 20.46 - 20.52, 20.55, 20.63, 20.64, 20.71, 20.72, 20.74 - 20.76, 20.81, 20.85, 20.87, 20.101 - 20.108, 20.125, 20.126, 20.135, 20.148, 20.201 - 20.217

The Comptroller of Public Accounts adopts the repeal of §§20.31, concerning general purchasing provisions; 20.32, concerning definitions; 20.33, concerning requisitions and specifications; proprietary purchases; lease purchases; 20.34 centralized master bidders list; 20.35, concerning bid submission, bid opening, and tabulation; 20.36, concerning bid evaluation and award; 20.37, concerning competitive sealed proposals; 20.38, concerning preferences; 20.39, concerning contract administration; 20.40, concerning term contracts; 20.41, concerning delegated purchases; 20.43, concerning Texas department of criminal justice purchases; 20.46, concerning multiple award contract procedure; 20.47, concerning multiple award schedule; 20.48, concerning auditing of purchase related documentation; 20.49, concerning catalog information systems vendor; 20.50, concerning group purchasing programs; 20.51, concerning reverse auction; 20.52, concerning advisory committees; 20.55, concerning purchase of motor vehicles; 20.63, concerning selection of items for development of Texas uniform standards and specifications; 20.64, concerning development of Texas uniform standards and specifications; 20.71, concerning general; 20.72, concerning inspection and/or testing; 20.74, concerning testing facilities and/or laboratories; 20.75, concerning cost of testing; 20.76, concerning assessing and collecting damages and testing costs; 20.81, concerning general; 20.85, concerning participation in cooperative purchasing; 20.87, concerning responsibilities of qualified ordering entities; 20.101, concerning purpose and applicability; 20.102, concerning definitions; 20.103, concerning protecting the state's interest: failure to meet specifications; 20.104, concerning protecting the state's interest: failure to meet contract requirements; 20.105, concerning debarment; 20.106, concerning procedures for investigations and debarment; 20.107, concerning request for review; 20.108, vendor performance tracking system; 20.125, concerning buying under contract established by an agency other than commission; 20.126, concerning purchasing from interstate compacts and cooperative agreements; 20.135, concerning state agency procurements of recycled, remanufactured or environmentally sensitive commodities or services; 20.148, concerning purchase price of commemorative items; 20.201, concerning authority; 20.202, concerning purpose; 20.203, concerning definitions; 20.204, concerning notice and information posting requirements; 20.205, concerning internet access; 20.206, concerning fees; 20.207, concerning posting time requirements; 20.208, concerning emergency procurements; 20.209, concerning internal repair procurements; 20.210, concerning multiple award schedule contract purchases exceeding $25,000; 20.211, concerning registered agent requirements; 20.212, concerning procurement opportunity posting procedures; 20.213, concerning posting follow-up and record keeping; 20.214, concerning contract award; 20.215, concerning award notification; 20.216, concerning verification of compliance; and 20.217, concerning exceptions and exclusions, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8741).

The comptroller repeals these sections as part of the reorganization of the entire chapter regarding statewide procurement and support services. Along with the repeal of the rules, the comptroller has proposed new provisions in Subchapter C, renamed Procurement Methods and Contract Formation, which will be organized in Division 1, Procurement Planning, Division 2, Procurement Methods, and Division 3, Special Contracting Methods.

No comments were received regarding adoption of the repeals.

The repeals are adopted under Education Code, §34.001, Government Code, §§2155.0012, 2155.083, 2115.087, 2155.503, 2156.0012, 2156.005, 2158.0012, and 2172.0012, and Local Government Code, §271.082.

The repeals affect Government Code Chapters 2155, 2156, and 2161, Education Code Chapter 34, Subchapter A, Health and Safety Code §361.609 and §386.001, and Government Code §§2152.003, 2155.070, 2155.074, 2155.075, 2155.077, 2155.079, 2155.132, 2155.449, 2155.502, 2156.007, 2157.003, 2157.125, 2172.003, and 2172.006.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700025

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


SUBCHAPTER D. PAYMENTS

34 TAC §§20.221, 20.223, 20.225, 20.227, 20.229, 20.230

The Comptroller of Public Accounts adopts the repeal of §§20.221, concerning definitions; 20.223, concerning exceptions to prompt pay process; 20.225, concerning invoicing standards; 20.227, concerning payments; 20.229, concerning disputed payments; and 20.230, concerning collection of debts, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8743).

The comptroller repeals these sections as part of the reorganization of the entire chapter regarding statewide procurement and support services. Along with the repeal of the rules, the comptroller has proposed new sections in Subchapter D, renamed Socio-Economic Program, which will be organized in Division 1, Historically Underutilized Businesses and Division 2, Environment, Energy and Water Efficiency, and Renewable Energy Technologies.

No comments were received regarding adoption of the repeals.

The repeals are adopted under Government Code, §2251.003.

The repeals affect Government Code, Title 10, Subtitle F, Chapter 2251.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700027

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


SUBCHAPTER E. STATE SUPPORT SERVICES--MAIL AND PRINTING

34 TAC §20.231, §20.261

The Comptroller of Public Accounts adopts the repeal of §20.231, concerning mail and messenger services and §20.261, concerning printing, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8743).

The comptroller repeals these sections as part of the reorganization of the entire chapter regarding statewide procurement and support services. Along with the repeal of the rules, the comptroller has proposed new sections in Subchapter E, renamed Special Categories of Contracting, and which will be organized in Division 1, State Support Services - Mail and Printing, Division 2, State Support Services - Travel And Vehicles, Division 3, State Support Services - Vehicle Fleet Management, Division 4, Uniform Grant And Contract Standards, and Division 5, Commemorative Items.

No comments were received regarding adoption of the repeals.

The repeals are adopted under Government Code, §§2113.103, 2155.0012, 2156.0012, 2171.002, 2171.055, 2172.0012, and 2176.110.

The repeals affect Government Code, Chapters 2155, 2156, 2171, 2172, and 2176 and Government Code, §2113.103.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700029

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


SUBCHAPTER F. STATE SUPPORT SERVICES--TRAVEL AND VEHICLES

34 TAC §§20.301 - 20.308, 20.340 - 20.343, 20.345, 20.349, 20.363, 20.365, 20.367, 20.369

The Comptroller of Public Accounts adopts the repeal of §§20.301, concerning purpose and applicability; 20.302, concerning definitions; 20.303, concerning exceptions to the use of contract travel services; 20.304, concerning state agency contracts and requests for exceptions; 20.305, concerning state agency travel coordinators; 20.306, concerning state agency reimbursement and reporting; 20.307, concerning procuring travel agency and other travel related services; 20.308, concerning state travel credit cards; 20.340, concerning definitions; 20.341, concerning office of vehicle fleet management; 20.342, concerning state vehicle fleet management plan; 20.343, concerning assignment and use of pooled vehicles; 20.345, concerning vehicle fleet management system; 20.349, concerning vehicle use report; 20.363, concerning assistance to state agencies and school districts; 20.365, concerning waiver of vehicles to meet required fleet percentages; 20.367, concerning effect of waiver; and 20.369, concerning alternative fuel usage, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8744).

The comptroller repeals these sections as part of the reorganization of the entire chapter regarding statewide procurement and support services. Along with the repeal of the rules, the comptroller has proposed new sections in Subchapter F, renamed Contract Management, and which will be organized in Division 1 Contract Administration, Division 2, Reports and Audits, Division 3, Protests and Appeals, and Division 4, Contract Disputes.

No comments were received regarding adoption of the repeals.

The repeals are adopted under Government Code, §§403.023, 2155.0012, 2156.0012, and 2171.002.

The repeals affect Government Code, §§2171.002, 2171.054, 2171.056, 2171.104, and 2171.1045.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700030

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


SUBCHAPTER G. CONTRACT PROCEDURES

34 TAC §§20.381 - 20.386

The Comptroller of Public Accounts adopts the repeal of §20.381, concerning purpose; §20.382, concerning application; §20.383, concerning open meetings for certain contract awards; §20.384, concerning protests; §20.385, concerning negotiation and mediation of contract disputes; and §20.386, concerning statewide procurement advisory council, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8744).

The comptroller repeals these sections as part of the reorganization of the entire chapter regarding statewide procurement and support services. Along with the repeal of the rules, the comptroller has proposed new sections in Subchapter G, renamed Debarment.

No comments were received regarding adoption of the repeals.

The repeals are adopted under Government Code, §§2155.0012, 2155.076, 2155.087, 2156.0012, 2170.0012, and 2260.052(c).

The repeals affect Government Code, §§2110.005, 2155.003, 2155.004, 2155.0011, 2155.0012, 2155.086, 2155.087, 2170.0011, 2260.051, 2260.052, 2260.053, 2260.054, 2260.055, and 2260.056.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700032

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


SUBCHAPTER I. UNIFORM GRANT MANAGEMENT STANDARDS

34 TAC §§20.421 - 20.432

The Comptroller of Public Accounts adopts the repeal of §§20.421, concerning introduction; 20.422, concerning purpose, applicability, and scope; 20.423, concerning effective date; 20.424, concerning adoption by reference; 20.425, concerning grants and contracts; 20.426, concerning standard assurances; 20.427, concerning variance from standards; 20.428, concerning obtaining copies of standards; 20.429, concerning recommendations for change; §20.430, concerning uniform cost principles and cost allocation plans; 20.431, concerning uniform administrative, accounting, reporting, and auditing standards; and 20.432, concerning state of Texas single audit circular, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8745).

The comptroller repeals these sections as part of the reorganization of the entire chapter regarding statewide procurement and support services.

No comments were received regarding adoption of the repeals.

The repeals are adopted under Government Code, §783.004 and §2155.0012.

The repeals affect Government Code, Title 7, Chapter 783.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700033

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


CHAPTER 20. STATEWIDE PROCUREMENT AND SUPPORT SERVICES

SUBCHAPTER A. GENERAL PROVISIONS

DIVISION 1. ADMINISTRATION

34 TAC §§20.1 - 20.3

The Comptroller of Public Accounts adopts new §§20.1, concerning interpretation; 20.2, concerning purposes and policies; and 20.3, concerning signed or executed documents, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8746).

The comptroller renames Chapter 20 Statewide Procurement and Support Services. New §§20.1 - 20.3 will be part of Subchapter A, under new Division 1, Administration.

New §20.1 identifies the methodology for the interpretation of the sections in the chapter.

New §20.2 identifies the goals of the chapter.

New §20.3 identifies the policy for accepting hand, electronic, or digital signatures for documents submitted as required in the chapter.

No comments were received regarding adoption of the new sections.

The new sections are adopted under Government Code, §§2155.0012, 2155.381, 2155.503, 2156.0012, 2156.010, 2156.124, 2156.126, 2161.0012, 2161.002, 2171.002, 2171.055, 2172.0012, 2176.110, 2251.003, and 783.003; Local Government Code, §271.082; and Education Code, §34.001.

The following statutes are affected by the new sections: Government Code, Chapters 2151, 2155, 2156, 2157, 2161, 2171, 2172, 2176, 2251, and 783; Local Government Code, §271.082; and Education Code, §34.001.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700034

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


DIVISION 2. DEFINITIONS

34 TAC §20.25

The Comptroller of Public Accounts adopts new §20.25, concerning definitions, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8748).

The comptroller renames Chapter 20 Statewide Procurement and Support Services. New §20.25 will be part of Subchapter A, under new Division 2, Definitions.

New §20.25 defines commonly used terms in the chapter.

No comments were received regarding adoption of the new section.

The new section is adopted under Government Code, §§2155.0012, 2155.381, 2155.503, 2156.0012, 2156.010, 2156.124, 2156.126, 2161.0012, 2161.002, 2171.002, 2171.055, 2172.0012, 2176.110, 2251.003, and 783.003; Local Government Code, §271.082; and Education Code, §34.001.

The following statutes are affected by the new section: Government Code, Chapters 2151, 2155, 2156, 2157, 2161, 2171, 2172, 2176, 2251, and 783; Local Government Code, §271.082; and Education Code, §34.001.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700035

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


SUBCHAPTER B. PUBLIC PROCUREMENT AUTHORITY AND ORGANIZATION

DIVISION 1. PRIMARY AND DELEGATED PROCUREMENT AUTHORITY

34 TAC §§20.81 - 20.84

The Comptroller of Public Accounts adopts new §§20.81, concerning general purchasing provisions; 20.82, concerning delegated purchases; 20.83, concerning assistance with delegated purchasing; and 20.84, concerning advisory committees, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8751).

The comptroller renames Chapter 20 Statewide Procurement and Support Services and renames Subchapter B Public Procurement Authority and Organization. New §§20.81 - 20.84 will be part of Subchapter B, under new Division 1, Primary and Delegated Procurement Authority.

New §20.81 makes new Chapter 20 rules applicable to all purchases of goods or services made under the State Purchasing and General Services Act, Government Code, Title 10, Subtitle D, Chapter 2151, et seq.

New §20.82 incorporates former §20.41 in Chapter 20, revises it to clarify the types and conditions associated with delegated purchases, and increases the dollar amount of delegated one time purchases to $50,000.

New §20.83 incorporates former §20.31(g) in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

New §20.84 incorporates former §20.52 in the reorganization of Chapter 20.

This agency received a comment regarding proposed new §20.84 from Jordan Kroll of IT Alliance for Public Sector (ITAPS). Ms. Kroll commented that ITAPS is supportive of advisory committees like the vendor advisory committee. This agency responds that the adopted rule will continue the past agency practice with regard to advisory committees.

The new sections are adopted under Government Code, §§2155.0012, 2155.267, 2155.503, 2156.0012, 2156.010, 2156.124, 2156.126, 2161.0012, 2161.002, 2171.002, 2171.055, 2172.0012, and 2176.110; Local Government, §271.082; and Education Code, §34.001.

The following statutes are affected by the new sections: Government Code, §§572.069, 2155.061, 2155.075, 2155.0755, 2155.78, 2155.080, 2155.081, 2155.083, 2155.131, 2155.261, 2155.262, 2155.263, 2155.264, 2155.265, 2155.266, 2155.269, 2156.003, 2261.251, 2261.252, 2261.256, 2262.053, 2262.055, 2261.256; Local Government Code, §271.082; and Education Code, §34.001.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700037

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


DIVISION 2. PUBLICIZING PROCUREMENT: CMBL, ESBD, AND VPTS

34 TAC §§20.106 - 20.115

The Comptroller of Public Accounts adopts new §§20.106, concerning electronic purchasing system; 20.107, concerning centralized master bidders list; 20.108, concerning authority; 20.109, concerning purpose; 20.110, concerning notice and information posting requirements; 20.111, concerning internet access; 20.112, concerning fees; 20.113, concerning registered agent requirements; and 20.114, concerning solicitation posting procedures, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8753). The comptroller adopts new §20.115, concerning vendor performance tracking system, with changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8753).

The comptroller renames Chapter 20 Statewide Procurement and Support Services and renames Subchapter B Public Procurement Authority and Organization. New §§20.106 - 20.115 will be part of Subchapter B, under new Division 2, Publicizing Procurement: CMBL, ESBD, and VPTS.

New §20.106 incorporates former §20.31(e) in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

New §20.107 incorporates former §20.34 in the reorganization of Chapter 20 and revises it to generally apply solicitation methods and deletes references to bids or proposals.

New §20.108 incorporates former §20.201 in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

New §20.109 incorporates former §20.202 in the reorganization of Chapter 20 except that former §20.202(d) remains repealed as inconsistent with the phrase contract value as defined by proposed §20.25.

New §20.110 incorporates the provisions of former §20.204 for the statewide electronic business daily posting requirements and revises it to refer to the comptroller instead of the Texas Building and Procurement Commission.

New §20.111 incorporates the provisions of former §20.205 in the reorganization of Chapter 20.

New §20.112 incorporates the provisions of former §20.206 in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

New §20.113 incorporates the provisions of former §20.211 in the reorganization of Chapter 20.

New §20.114 incorporates the provisions of former §20.212 in the reorganization of Chapter 20.

New §20.115 incorporates the provisions of former §20.108 in the reorganization of Chapter 20 and revises it to require state agencies to enter reports on contractor performance within 30 days after the completion of a contract or order, includes an A, B, C, D, or F grading system as required by recent legislation, and explains how the new grades will integrate the existing reports that lack letter grades.

This agency received comments regarding proposed new §20.115 from Caroline Joiner, Executive Director of TechNet, Dave Morris of SHI Government Solutions, Jennifer Saha of CompTIA, Meg Hare of Accenture Health and Public Services, and Jordan Kroll of IT Alliance for Public Sector. Ms. Kroll commented generally on the proposed section stating that in order to get a complete assessment of contract performance the rule should include not only the comments of the state agency rating the performance of the vendor but should also include the comments of the vendor regarding the performance of the state agency. This agency acknowledges that this may be a limitation of the existing system and will continue to evaluate the ability to add this element prospectively.

Ms. Joiner, Mr. Morris, Ms. Saha, and Ms. Hare commented that the rule should require interim state agency contract performance reviews for long term projects, particularly technology contracts, which have various milestones which may change throughout the life of the project. This agency responds that it is amenable to looking at ways to improve the collection of contractor performance information and will analyze the potential changes to this agency's reporting system necessary to implement the requested requirement. If the system can accommodate the requested change, this agency will amend these rules at the time the changes to the system are implemented.

Ms. Joiner, Mr. Morris, Ms. Saha, and Ms. Hare commented that due to variations between contracts for the different goods and services provided by vendors, the rule should not assign a single A-F grade to each vendor. This agency responds that it is amenable to looking at ways to improve contractor scoring and categorization of procurements and will analyze the potential changes to this agency's reporting system necessary to implement the requested requirement. If the system can accommodate the requested change, this agency will amend these rules at the time the changes to the system are implemented. This agency notes that SB 20, 84th Legislature, amended Government Code 2262.055 to require an A-F vendor rating scale.

Ms. Joiner, Mr. Morris, Ms. Saha, and Ms. Hare commented that vendor performance reports should be based on a comprehensive assessment from all applicable stakeholders, including project managers, contract managers, information technology managers, program managers, agency executives, and end users of the product or service. This agency responds that these rules require the reporting state agency to determine its process for submitting these reports.

Ms. Saha and Ms. Kroll commented that the vendor performance tracking system should only include the past two years of vendor performance reports. This agency responds that it remains amenable to consider additional report maintenance parameters but will not include predetermined time related restrictions in these rules.

Ms. Joiner and Ms. Hare commented that vendors should have 30 days to review ratings, submit comments, and/or provide additional supporting information on any posted negative rating in the system. This agency responds that it had intended to follow its current informal process that allows a contractor 14 days to respond to reports that rate the contractor lower than "C." Based on these and other comments to proposed §20.509, §20.115 is revised to incorporate the informal process in these rules to provide the vendor community greater assurance that this agency will continue to implement a process that allows contractors to respond to state agency contract reports within 30 days before the report is posted to the vendor performance tracking system. This agency also revises §20.115 to correct scoring numbers to conform with agency practice and intent and to improve clarity.

The new sections are adopted under Government Code, §§2155.0012, 2155.267, 2155.503, 2156.0012, 2156.010, 2156.124, 2156.126, 2161.0012, 2161.002, 2171.002, 2171.055, 2172.0012, and 2176.110; Local Government, §271.082; and Education Code, §34.001.

The following statutes are affected by the new sections: Government Code, §§572.069, 2155.061, 2155.075, 2155.0755, 2155.78, 2155.080, 2155.081, 2155.083, 2155.131, 2155.261, 2155.262, 2155.263, 2155.264, 2155.265, 2155.266, 2155.269, 2156.003, 2261.251, 2261.252, 2261.256, 2262.053, 2262.055, 2261.256; Local Government Code, §271.082; and Education Code, §34.001.

§20.115.Vendor Performance Tracking System.

(a) The comptroller's statewide procurement division shall create, maintain, and use the vendor performance tracking system on the comptroller's web page to measures vendor performance for purchases over $25,000, and is used by the comptroller to score vendor performance in the areas of commodity delivery and service delivery and performance.

(b) No later than 30 days after the completion or termination of a purchase order or contract, each state agency shall submit a performance review to the vendor performance tracking system on the comptroller's web page and according to the provisions of Subchapter F, Division 2 of this chapter.

(c) When an agency contractor performance report is received by the comptroller:

(1) the comptroller shall provide a copy of the review to the contractor identified in the agency review;

(2) if the agency review submits a proposed grade for the contractor lower than C, the contractor may provide to the comptroller a response to the agency review;

(3) if the comptroller receives a response from the contractor within 30 days after receiving the agency review, the comptroller:

(A) shall consider the response provided by the contractor;

(B) shall contact the agency regarding the review and response;

(C) may review any other information available to the comptroller; and

(D) may edit the report or grade as necessary to insure as accurate and responsible contract report as possible; and

(4) after considering the report, any response, and any other relevant information the comptroller shall process the report on the contractor performance into the vendor performance tracking system.

(d) Based on performance reviews of contractors provided by state agencies, the system will generate one overall vendor performance letter score for each contractor in the system in the following manner.

(1) For a contractor that has received one or more performance reports in the system prior to the implementation of this section, the system will add all the numerical values assigned to each such report for the contractor and divide the sum by the total number of such reports in the system which shall be the single historic average score for the contractor.

(2) With the implementation of the system described in this section, each performance review letter score rating assigned to a contractor by a state agency will be assigned a numerical value based on the following scale: A=100, B=85, C=70, D=65, F=50.

(3) A system numerical score for the contractor will be determined by the sum of all numerical values for each review letter score rating assigned to a contractor on and after the implementation date of the system described in this section plus the single historic average score, if any.

(4) The system numerical score will be divided by either:

(A) the number of letter rating scores provided for the contractor; or

(B) if there is a historical average score, one (1) plus the number of letter rating scores provided for the contractor; and

(5) Using the number determined under paragraph (4) of this subsection, the system will assign a single letter grade for the contractor based on the following scale: 90-100=A, 80-89=B, 70-79=C, 60-69=D, 59 or below=F.

(6) Example: Vendor A has a score of 88 in the old system. In the new system, vendor A gets assessed a score of A by one state agency purchaser and C by another state agency purchaser. The formula applied by the system is as follows: 88+100+70/3= 86. The vendor has a numeric score of 86, so the displayed score would be a "B".

(e) The comptroller shall include the performance reviews in a vendor performance tracking system.

(f) Contractors that have an overall grade lower than a C posted to the vendor performance tracking system web site may file a protest to the classification according the protest procedures in Subchapter F, Division 2 of this chapter.

(g) The comptroller shall make the vendor performance tracking system accessible to the public on the comptroller's Internet website.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700038

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


DIVISION 3. CONTRACT MANAGEMENT GUIDE AND TRAINING

34 TAC §§20.131 - 20.133

The Comptroller of Public Accounts adopts new §§20.131; concerning procurement manual and contract management guide; 20.132, concerning compliance; and 20.133, concerning training program, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8756).

The comptroller renames Chapter 20 Statewide Procurement and Support Services and renames Subchapter B Public Procurement Authority and Organization. New §§20.131 - 20.133 will be part of Subchapter B, under new Division 3, Contract Management Guide and Training.

New §20.131 implements the statutory requirement to promulgate a state procurement manual and contract management guide, identifies the guide's essential elements, and identifies consultation requirements prior to promulgation.

New §20.132 implements the statutory requirement that each state agency comply with the state contract management guide and either adopt the comptroller's guide or create its own guide consistent with the state guide.

New §20.133 incorporates the provisions of former §20.31(g) in the reorganization of Chapter 20 and revises it to add a fee to cover the comptroller's costs and implements statutory requirements for training members of state agency governing bodies.

This agency received a comment regarding proposed new §20.84 from Jordan Kroll of IT Alliance for Public Sector (ITAPS). Ms. Kroll commented that an appendix to the state contract management guide and procurement manual includes essential and recommended contract terms and conditions that adversely affect procurement flexibility, competition, and system deliverables. Ms. Kroll comments that, although not addressed in these rules, the terms and conditions be modernized. This agency agrees that the terms and conditions are not addressed in these rules and will consider these comments when it reviews the contract management guide.

The new sections are adopted under Government Code, §§2155.0012, 2155.267, 2155.503, 2156.0012, 2156.010, 2156.124, 2156.126, 2161.0012, 2161.002, 2171.002, 2171.055, 2172.0012, and 2176.110; Local Government, §271.082; and Education Code, §34.001.

The following statutes are affected by the new sections: Government Code, §§572.069, 2155.061, 2155.075, 2155.0755, 2155.78, 2155.080, 2155.081, 2155.083, 2155.131, 2155.261, 2155.262, 2155.263, 2155.264, 2155.265, 2155.266, 2155.269, 2156.003, 2261.251, 2261.252, 2261.256, 2262.053, 2262.055, 2261.256; Local Government Code, §271.082; and Education Code, §34.001.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700039

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


DIVISION 4. IMPROPER BUSINESS PRACTICES AND PERSONAL CONFLICTS OF INTEREST

34 TAC §§20.156 - 20.158

The Comptroller of Public Accounts adopts new §§20.156, concerning certain employment for former state officer or employee restricted; 20.157, concerning adherence to ethical standards; and 20.158, concerning disclosure of potential conflicts of interest; certain contracts prohibited, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8757).

The comptroller renames Chapter 20 Statewide Procurement and Support Services and renames Subchapter B Public Procurement Authority and Organization. New §§20.156 - 20.158 will be part of Subchapter B, under new Division 4, Improper Business Practices And Personal Conflicts Of Interest.

New §20.156 implements new legislative restrictions on the employment or former state officer of employees.

New §20.157 incorporates the provisions of former §20.41(b) in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

New §20.158 defines financial interest, implements new legislative financial interest disclosure requirements for state officials or employees involved in contract decisions, and prohibits contract actions where identified agency officials or employees have a financial interest.

No comments were received regarding adoption of the new sections.

The new sections are adopted under Government Code, §§2155.0012, 2155.267, 2155.503, 2156.0012, 2156.010, 2156.124, 2156.126, 2161.0012, 2161.002, 2171.002, 2171.055, 2172.0012, and 2176.110; Local Government, §271.082; and Education Code, §34.001.

The following statutes are affected by the new sections: Government Code, §§572.069, 2155.061, 2155.075, 2155.0755, 2155.78, 2155.080, 2155.081, 2155.083, 2155.131, 2155.261, 2155.262, 2155.263, 2155.264, 2155.265, 2155.266, 2155.269, 2156.003, 2261.251, 2261.252, 2261.256, 2262.053, 2262.055, 2261.256; Local Government Code, §271.082; and Education Code, §34.001.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700040

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


SUBCHAPTER C. PROCUREMENT METHODS AND CONTRACT FORMATION

DIVISION 1. PROCUREMENT PLANNING

34 TAC §§20.181 - 20.184

The Comptroller of Public Accounts adopts new §§20.181, concerning state agency compliance and documentation responsibilities; 20.182, concerning selection of items for development of Texas uniform standards and specifications; 20.183, concerning development of Texas uniform standards and specifications; and 20.184, concerning requisitions and specifications, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8758).

The comptroller renames Chapter 20 Statewide Procurement and Support Services and renames Subchapter C Procurement Methods and Contract Formation. New §§20.181 - 20.184 will be part of Subchapter C, under new Division 1, Procurement Planning.

New §20.181 requires state agencies to plan and document procurement transactions consistent with the contract management guide and in a manner that ensures compliance with record retention requirements, and to document the basis for any necessary variation from the guide.

New §20.182 incorporates former §20.63 in the reorganization of Chapter 20 except that former §20.63(4) remains repealed as historically unused and unnecessary since a vendor request may already be evaluated and adopted at the discretion of the division.

New §20.183 incorporates former §20.64 in the reorganization of Chapter 20 and is revised to ensure that all comments regarding revised specifications are reviewed and analyzed.

New §20.184 incorporates former §20.33(a) and (b) in the reorganization of Chapter 20, revises them to refer to the comptroller instead of the commission, revises former subsection (a) to identify the time the comptroller needs to procure a requested good or service, and adds a new paragraph to former subsection (a) to require state agencies to evaluate previously procured goods or services when requesting a re-procurement of the same good or service.

This agency received comments regarding proposed new §20.181 from Caroline Joiner, Executive Director of TechNet, Dave Morris of SHI Government Solutions, Jennifer Saha of CompTIA, Meg Hare of Accenture Health and Public Services, and Jordan Kroll of IT Alliance for Public Sector. All comments stated that numerous state agencies have interpreted the provisions of Senate Bill 20, 84th Legislative Session, to limit otherwise appropriate communications between agency officials and the vendor community and recommended that the rule include a new subsection that expressly provides that nothing in these rules are intended to suppress or negatively impact ethical communication between state agencies and vendors. This agency agrees that appropriate and ethical communications between state agencies and vendors can facilitate open and fair competition but that the statutory authority for these rules does not include this issue.

The new sections are adopted under Government Code, §§2155.0012, 2155.267, 2155.503, 2156.0012, 2156.010, 2156.124, 2156.126, and 2158.0031; Local Government Code, §271.082; and Education Code, §34.001.

The following statutes are affected by the new sections: Government Code, §§2155.061, 2155.062, 2155.063, 2155.064, 2155.065, 2155.067, 2155.074, 2155.0755, 2155.075, 2155.079, 2155.085, 2155.086, 2155.088, 2155.132, 2155.137, 2155.453, 2155.501, 2155.502, 2155.503, 2155.504, 2155.505, 2155.506, 2155.508, 2155.509, 2155.510, 2156.002, 2156.004, 2156.005, 2156.006, 2156.007, 2156.008, 2156.010, 2156.011, 2156.063, 2156.064, 2156.121, 2156.122, 2156.123, 2156.124, 2156.125, 2156.181, 2157.003, 2157.125, 2261.253, 2261.254, and 2261.255; and Local Government Code, §271.082; and Education Code, §34.001.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700041

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


DIVISION 2. PROCUREMENT METHODS

34 TAC §§20.206 - 20.221

The Comptroller of Public Accounts adopts new §§20.207, concerning competitive sealed bidding; 20.208, concerning competitive sealed proposals; 20.209, concerning proprietary purchases; 20.210, concerning emergency procurements; 20.211, concerning small purchases; 20.212, concerning reverse auction; 20.213, concerning internal repair procurements; 20.214, concerning notice and information posting requirements; 20.215, concerning posting time requirements; 20.216, concerning posting follow-up and record keeping; 20.217, concerning verification of use of best value standard; 20.218, concerning contract with value exceeding $5 million; 20.219, concerning award notification; 20.220, concerning term contracts; and 20.221, concerning special rules for contract awards requiring an open meeting, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8761). The Comptroller of Public Accounts adopts new §20.206, concerning procurement methods, with changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8761).

The comptroller renames Chapter 20 Statewide Procurement and Support Services and renames Subchapter C Procurement Methods and Contract Formation. New §§20.206 - 221 will be part of Subchapter C, under new Division 2, Procurement Methods.

New §20.206 identifies the procurement methods available for the solicitation and procurement of goods and services under the State Purchasing and General Services Act, Government Code, Title 10, Subtitle D, et seq, and incorporates former §20.31(b) and (c) in the reorganization of Chapter 20.

New §20.207 incorporates former §20.35 and §20.36 in the reorganization of Chapter 20 and revises them to identify the current minimum requirements for bid submission, bid evaluation, and contract award.

New §20.208 incorporates former §20.37 in the reorganization of Chapter 20 and revises it to identify the current minimum requirements for using, soliciting, opening, negotiating and awarding contracts under a competitive sealed proposals procurement.

New §20.209 incorporates former §20.33(c) in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

New §20.210 incorporates former §20.208 in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

New §20.211 identifies requirements for purchases under $5,000.

New §20.212 incorporates former §20.51 in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

New §20.213 incorporates former §20.209 in the reorganization of Chapter 20.

New §20.214 incorporates former §20.204(b) and (c) in the reorganization of Chapter 20, revises them to refer to the comptroller instead of the commission, and identifies requirements for posting a solicitation for goods or services in excess of $25,000.

New §20.215 incorporates former §20.207 in the reorganization of Chapter 20 and revises it for clarity.

New §20.216 incorporates former §20.213 in the reorganization of Chapter 20 and revises a reference to procurement contract opportunity to be solicitation, which is a defined term in the chapter.

New §20.217 identifies requirements to comply with recently enacted legislation for contract awards.

New §20.218 identifies requirements to comply with recently enacted legislation for contract awards exceeding $5 million.

New §20.219 incorporates former §20.215 in the reorganization of Chapter 20.

New §20.220 incorporates former §20.40, paragraphs (1) and (3) in the reorganization of Chapter 20 and revises them to refer to the comptroller instead of the commission.

New §20.221 incorporates former §§20.381, 20.382, and 20.383 in the reorganization of Chapter 20 revises them to refer to the division instead of Texas Procurement and Support Services.

This agency received a comment regarding proposed new §20.206 from Mike Powers, Director, Administrative Operations Division - Procurement and General Services Office, Texas Department of Insurance. Mr. Powers comments that as proposed, §20.206 appears to prohibit negotiations between a vendor who has submitted an offer and the procuring agency that is using a request for offer procurement method under this rule. This agency responds it agrees with this comment, did not intend to exclude negotiations in this circumstance, and will revise this rule as adopted to expressly authorize negotiation when using the request for offer procurement method. Mr. Powers also commented that the proposed rule refers to requests for offers but does not include the provisions of §20.391 that contains specific provisions regarding the use of requests for offers for purchasing automated information systems that are not available under the department of information resources IT commodity purchasing program. Mr. Powers commented that the repealed provisions should be addressed. This agency responds that, in addition to the reasons cited in the comment, Government Code, §2157.006 requires some of the current provisions of §20.391, and therefore the repeal of §20.391 will be withdrawn.

The new sections are adopted under Government Code, §§2155.0012, 2155.267, 2155.503, 2156.0012, 2156.010, 2156.124, 2156.126, and 2158.0031; Local Government Code, §271.082; and Education Code, §34.001.

The following statutes are affected by the new sections: Government Code, §§2155.061, 2155.062, 2155.063, 2155.064, 2155.065, 2155.067, 2155.074, 2155.0755, 2155.075, 2155.079, 2155.085, 2155.086, 2155.088, 2155.132, 2155.137, 2155.453, 2155.501, 2155.502, 2155.503, 2155.504, 2155.505, 2155.506, 2155.508, 2155.509, 2155.510, 2156.002, 2156.004, 2156.005, 2156.006, 2156.007, 2156.008, 2156.010, 2156.011, 2156.063, 2156.064, 2156.121, 2156.122, 2156.123, 2156.124, 2156.125, 2156.181, 2157.003, 2157.125, 2261.253, 2261.254, and 2261.255; and Local Government Code, §271.082; and Education Code, §34.001.

§20.206.Procurement Methods.

(a) To procure goods or services, a state agency may use the following procurement methods as further prescribed by this subchapter:

(1) competitive sealed bidding;

(2) competitive sealed proposals;

(3) proprietary purchases;

(4) emergency procurements;

(5) small purchases;

(6) requests for offers; or

(7) purchases by means of special contracting methods as otherwise specified in this subchapter.

(b) In addition to the methods described in subsection (a) of this section, a state agency may use any other method of procurement authorized by statute.

(c) Whenever possible, purchases are based on competitive bids.

(d) Negotiation of contracts, including price, is permitted for:

(1) purchases by means of competitive sealed proposals;

(2) proprietary purchases or purchases of items for which there is only one source of supply;

(3) emergency purchases when there is insufficient time to solicit bids;

(4) purchases by means of requests for offers; and

(5) proposed purchases in circumstances where the competitive solicitation has been advertised but the state agency has received only one acceptable bid, or no acceptable bids; provided, however, such negotiation may not result in a material change to the advertised specifications.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700042

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


DIVISION 3. SPECIAL CONTRACTING METHODS

34 TAC §§20.231 - 20.238

The Comptroller of Public Accounts adopts new §§20.231, concerning multiple award contract procedure; 20.232, concerning multiple award schedule; 20.233, concerning multiple award schedule contract purchases exceeding $25,000; 20.234, concerning lease-purchase contracts; 20.235, concerning purchase of motor vehicles; 20.236, concerning buying under contract established by an agency other than comptroller; 20.237, concerning purchasing from interstate compacts and cooperative agreements; and 20.238, concerning Texas department of criminal justice purchases, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8766).

The comptroller renames Chapter 20 Statewide Procurement and Support Services and renames Subchapter C Procurement Methods and Contract Formation. New §§20.231 - 20.238 will be part of Subchapter C, under new Division 3, Special Contracting Methods.

New §20.231 incorporates former §20.46 in the reorganization of Chapter 20, revises it for clarity and to refer to the comptroller instead of the commission.

New §20.232 incorporates former §20.47 in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

New §20.233 incorporates former §20.210 in the reorganization of Chapter 20.

New §20.234 incorporates former §20.33(d) in the reorganization of Chapter 20 and revises it to refer to the division instead of the commission.

New §20.235 incorporates former §20.55 in the reorganization of Chapter 20, revises it to refer to the division instead of the commission, and includes a new subsection (e) to include a statutory requirement.

New §20.236 incorporates former §20.125 in the reorganization of Chapter 20, revises to remove references to the Texas Building and Procurement Commission and replaces them with references to the comptroller or division as appropriate.

New §20.237 incorporates former §20.126 in the reorganization of Chapter 20, revises it to refer to the comptroller instead of the TBPC, and includes a process for the submission, review, and approval of a compact or cooperative purchasing agreement.

New §20.238 incorporates former §20.43 in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

This agency received a comment regarding proposed new §20.237 from Sarah Vavra of National IPA. Ms. Vavra commented that product price for cooperative agreements should be considered in whole, rather than considering product price and fees as separate criteria, since some cooperative contracts include fees in the total price of the item while others charge fees separately. This agency responds that the adopted rule will continue the past agency practice of considering cooperative agreements on a case-by-case basis.

The new sections are adopted under Government Code, §§2155.0012, 2155.267, 2155.503, 2156.0012, 2156.010, 2156.124, 2156.126, and 2158.0031; Local Government Code, §271.082; and Education Code, §34.001.

The following statutes are affected by the new sections: Government Code, §§2155.061, 2155.062, 2155.063, 2155.064, 2155.065, 2155.067, 2155.074, 2155.0755, 2155.075, 2155.079, 2155.085, 2155.086, 2155.088, 2155.132, 2155.137, 2155.453, 2155.501, 2155.502, 2155.503, 2155.504, 2155.505, 2155.506, 2155.508, 2155.509, 2155.510, 2156.002, 2156.004, 2156.005, 2156.006, 2156.007, 2156.008, 2156.010, 2156.011, 2156.063, 2156.064, 2156.121, 2156.122, 2156.123, 2156.124, 2156.125, 2156.181, 2157.003, 2157.125, 2261.253, 2261.254, and 2261.255; and Local Government Code, §271.082; and Education Code, §34.001.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700044

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


SUBCHAPTER D. SOCIO-ECONOMIC PROGRAM

DIVISION 1. HISTORICALLY UNDERUTILIZED BUSINESSES

34 TAC §§20.281 - 20.298

The Comptroller of Public Accounts adopts new §§20.281, concerning policy and purpose; 20.282, concerning definitions; 20.283, concerning evaluation of active participation in the control, operation, and management of entities; 20.284, concerning statewide annual HUB utilization goals; 20.285, concerning subcontracts; 20.286, concerning state agency planning responsibilities; 20.287, concerning state agency reporting requirements; 20.288, concerning certification process; 20.289, concerning protests; 20.290, concerning recertification; 20.291, concerning revocation; 20.292, concerning certification and compliance reviews; 20.293; concerning Texas historically underutilized business certification directory; 20.294, concerning graduation procedures; 20.295, concerning program review; 20.296, concerning HUB coordinator responsibilities; 20.297, concerning HUB forum programs for state agencies; and 20.298, concerning mentor-protégé program, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8769).

The comptroller renames Chapter 20 Statewide Procurement and Support Services and renames Subchapter D Socioeconomic Program. New §§20.281 - 20.298 will be part of Subchapter D, under new Division 1, Historically Underutilized Businesses.

New §20.281 incorporates the provisions of former §20.10 in the reorganization of Chapter 20.

New §20.282 incorporates the provisions of former §20.11 in the reorganization of Chapter 20 and revises it to clarify state agency instead of agency.

New §20.283 incorporates the provisions of former §20.12 in the reorganization of Chapter 20.

New §20.284 incorporates the provisions of former §20.13 in the reorganization of Chapter 20 and revises it to clarify state agency instead of agency.

New §20.285 incorporates the provisions of former §20.14 in the reorganization of Chapter 20 and revises it to clarify state agency instead of agency.

New §20.286 incorporates the provisions of former §20.15 in the reorganization of Chapter 20 and revises it to clarify state agency instead of agency.

New §20.287 incorporates the provisions of former §20.16 in the reorganization of Chapter 20 and revises it to clarify state agency instead of agency.

New §20.288 incorporates the provisions of former §20.17 in the reorganization of Chapter 20 and revises it to clarify state agency instead of agency.

New §20.289 incorporates the provisions of former §20.18 in the reorganization of Chapter 20.

New §20.290 incorporates the provisions of former §20.19 in the reorganization of Chapter 20.

New §20.291 incorporates the provisions of former §20.20 in the reorganization of Chapter 20.

New §20.292 incorporates the provisions of former §20.21 in the reorganization of Chapter 20.

New §20.293 incorporates the provisions of former §20.22 in the reorganization of Chapter 20.

New §20.294 incorporates the provisions of former §20.23 in the reorganization of Chapter 20 and revises it to clarify state agency instead of agency.

New §20.295 incorporates the provisions of former §20.24 in the reorganization of Chapter 20.

New §20.296 incorporates the provisions of former §20.26 in the reorganization of Chapter 20 and revises it to clarify state agency instead of agency.

New §20.297 incorporates the provisions of former §20.27 in the reorganization of Chapter 20 and revises it to clarify state agency instead of agency

New §20.298 incorporates the provisions of former §20.28 in the reorganization of Chapter 20 and revises it to clarify state agency instead of agency.

No comments were received regarding adoption of the new sections.

The new sections are adopted under Government Code, §2161.0012 and §2161.002(c).

The following statutes are affected by the new sections: Government Code, Chapter 2161, §§2161.0011, 2161.002, 2161.0015, 2161.004, 2161.061, 2161.062, 2161.065, 2161.181, and 2161.252.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700045

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


DIVISION 2. ENVIRONMENT, ENERGY AND WATER EFFICIENCY, AND RENEWABLE ENERGY TECHNOLOGIES

34 TAC §20.306, §20.307

The Comptroller of Public Accounts adopts new §20.306, concerning preferences without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8780). The comptroller adopts new §20.307, concerning state agency procurements of recycled, remanufactured, or environmentally sensitive commodities or services, with changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8780).

The comptroller renames Chapter 20 Statewide Procurement and Support Services and renames Subchapter D Socioeconomic Program. New §20.306 and §20.307 will be part of Subchapter D, under new Division 2, Environment, Energy and Water Efficiency, and Renewable Energy Technologies.

New §20.306 incorporates the provisions of former §20.38(b)(1)(A) and (b)(2) in the reorganization of Chapter 20, revises it to refer to the comptroller instead of the commission, and adds the requirements under Health & Safety Code, §361.991 for a preference for certain television manufacturers based on recovery and recycling efforts.

New §20.307 incorporates the provisions of former §20.135 in the reorganization of Chapter 20, revises it to clarify state agency instead of agency, and revises it to refer to the comptroller instead of the commission.

This agency revises §20.307 to change a reference to the TBPC to the comptroller.

No comments were received regarding adoption of the new sections.

The new sections are adopted under Government Code, §2155.0012.

The following statutes are affected by the new sections: Government Code, Chapter 2155, §§2155.441, 2155.442, 2155.443, 2155.444, 2155.4441, 2155.445, 2155.446, 2155.447, 2155.448, 2155.44, 2155.450, and 2155.451.

§20.307.State Agency Procurements of Recycled, Remanufactured or Environmentally Sensitive Commodities or Services.

(a) The comptroller may designate as "First Choice" certain recycled, remanufactured or environmentally sensitive commodities or services.

(b) First Choice items are designated recycled, remanufactured, and environmentally sensitive commodities or services that state agencies shall give a preference for when purchasing. These items include, but are not limited to:

(1) re-refined oils and lubricants;

(2) recycled content toilet paper;

(3) recycled content toilet seat covers and paper towels;

(4) recycled content printing, computer and copier paper, and business envelopes;

(5) recycled content plastic trash bags;

(6) recycled content plastic covered binders;

(7) recycled content recycling containers; and

(8) Energy Star labeled photocopiers.

(c) Commodities or services that are designated as First Choice items will be reflected in the State Procurement Manual. The State Procurement Manual will be revised as new commodities or services are designated as First Choice items.

(d) A state agency that intends to purchase a commodity or service that accomplishes the same purpose as a commodity or service identified in Government Code, §2155.448(a) that does not meet the definition of a recycled product or that is not remanufactured or environmentally sensitive shall include with the procurement file a written justification signed by the executive head of the state agency stating the reasons for the determination that the commodity or service identified by the comptroller will not meet the requirements of the state agency.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700046

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


SUBCHAPTER E. SPECIAL CATEGORIES OF CONTRACTING

DIVISION 1. STATE SUPPORT SERVICES - MAIL AND PRINTING

34 TAC §20.381, §20.382

The Comptroller of Public Accounts adopts new §20.381, concerning mail and messenger services and §20.382, concerning printing, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8782).

The comptroller renames Chapter 20 Statewide Procurement and Support Services and renames Subchapter E Special Categories of Contracting. New §20.381 and §20.382 will be part of Subchapter E, under new Division 1, State Support Services - Mail and Printing.

New §20.381 incorporates the provisions of former §20.231 in the reorganization of Chapter 20, revises it to refer to the comptroller instead of the commission, and revises it to clarify state agency instead of agency.

New §20.382 incorporates the provisions of former §20.261 in the reorganization of Chapter 20, revises it to refer to the comptroller instead of the commission, and clarifies the enabling statutory reference.

No comments were received regarding adoption of the new sections.

The new sections are adopted under Government Code, §§403.023, 783.004, 2113.103, 2155.0012, 2156.0012, 2171.002, 2172.0012, 2172.006, and 2176.110.

The following statutes are affected by the new sections: Government Code, Title 7, Chapter 783, Government Code Title 10, Subtitle D, Chapter 2176, and Government Code §§2113.103, 2171.002, 2171.054, 2171.056, 2171.104, 2171.1045, and 2172.006.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700047

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


DIVISION 2. STATE SUPPORT SERVICES - TRAVEL AND VEHICLES

34 TAC §§20.406 - 20.413

The Comptroller of Public Accounts adopts new §§20.406, concerning purpose and applicability; 20.407, concerning definitions; 20.408, concerning exceptions to the use of contract travel services; 20.409, concerning state agency contracts and requests for exceptions; 20.410, concerning state agency travel coordinators; 20.411, concerning state agency reimbursement and reporting; 20.412, concerning procuring travel agency and other travel related services; and 20.413, concerning state travel credit cards, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8784).

The comptroller renames Chapter 20 Statewide Procurement and Support Services and renames Subchapter E Special Categories of Contracting. New §§20.406 - 20.413 will be part of Subchapter E, under new Division 2, State Support Services - Travel and Vehicles.

New §20.406 incorporates the provisions of former §20.301 in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

New §20.407 incorporates the provisions of former §20.302 in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

New §20.408 incorporates the provisions of former §20.303 in the reorganization of Chapter 20.

New §20.409 incorporates the provisions of former §20.304 in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

New §20.410 incorporates the provisions of former §20.305 in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

New §20.411 incorporates the provisions of former §20.306 in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

New §20.412 incorporates the provisions of former §20.307 in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

New §20.413 incorporates the provisions of former §20.308 in the reorganization of Chapter 20 and revises it to clarify that travel services, whether contracted or not, shall be charged to state travel credit cards when feasible.

No comments were received regarding adoption of the new sections.

The new sections are adopted under Government Code, §§403.023, 783.004, 2113.103, 2155.0012, 2156.0012, 2171.002, 2172.0012, 2172.006, and 2176.110.

The following statutes are affected by the new sections: Government Code, Title 7, Chapter 783, Government Code, Title 10, Subtitle D, Chapter 2176, and Government Code, §§2113.103, 2171.002, 2171.054, 2171.056, 2171.104, 2171.1045, and 2172.006.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700048

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


DIVISION 3. STATE SUPPORT SERVICES - VEHICLE FLEET MANAGEMENT

34 TAC §§20.431 - 20.439

The Comptroller of Public Accounts adopts new §§20.431, concerning definitions; 20.432, concerning office of vehicle fleet management; 20.433; concerning state vehicle fleet management plan; 20.434, concerning assignment and use of pooled vehicles; 20.435, concerning vehicle fleet management system; 20.436, concerning assistance to state agencies and school districts; 20.437, concerning waiver of vehicles to meet required fleet percentages; and 20.438, concerning effect of waiver, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8787). The comptroller adopts new §20.439, concerning alternative fuel usage, with changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8787).

The comptroller renames Chapter 20 Statewide Procurement and Support Services and renames Subchapter E Special Categories of Contracting. New §§20.431- 20.439 will be part of Subchapter E, under new Division 3, State Support Services- Vehicle Fleet Management.

New §20.431 incorporates the provisions of former §20.340 in the reorganization of Chapter 20.

New §20.432 incorporates the provisions of former §20.341 in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

New §20.433 incorporates the provisions of former §20.342 in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

New §20.434 incorporates the provisions of former §20.343 in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

New §20.435 incorporates the provisions of former §20.345 in the reorganization of Chapter 20, revises it to refer to the comptroller instead of the commission, and revises it to clarify state agency instead of agency.

New §20.436 incorporates the provisions of former §20.363 in the reorganization of Chapter 20, revises it to refer to the comptroller instead of the commission, and revises it to refer to the Texas Commission on Environmental Quality instead of the Texas Natural Resource Conservation Commission.

New §20.437 incorporates the provisions of former §20.365 in the reorganization of Chapter 20, revises it to refer to the comptroller instead of the commission, and revises it to clarify state agency instead of agency.

New §20.438 incorporates the provisions of former §20.367 in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

New §20.439 incorporates the provisions of former §20.369 in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

This agency revises §20.439 to correct a grammatical error.

No comments were received regarding adoption of the new sections.

The new sections are adopted under Government Code, §§403.023, 783.004, 2113.103, 2155.0012, 2156.0012, 2171.002, 2172.0012, 2172.006, and 2176.110.

The following statutes are affected by the new sections: Government Code, Title 7, Chapter 783, Government Code Title 10, Subtitle D, Chapter 2176, and Government Code §§2113.103, 2171.002, 2171.054, 2171.056, 2171.104, 2171.1045, and 2172.006.

§20.439.Alternative Fuel Usage.

Pursuant to Government Code, §2171.103, the comptroller shall take all steps necessary to encourage the use of alternative fuels.

(1) Each state vehicle equipped from the manufacturer or modified by a conversion facility to be capable of operating on an alternative fuel shall operate exclusively on the alternative fuel except in cases:

(A) where and when the alternative fuel is not available;

(B) the range of the alternative fuel is insufficient to complete a round trip, in which case the alternative fuel shall be used until exhausted, with conventional gasoline or diesel fuel used only as a last resort to complete the trip when the alternative fuel is unavailable;

(C) when the alternative fuel costs more than conventional gasoline or diesel;

(D) when the conversion equipment is not in working order or is deemed unsafe to operate, in which case timely repairs or inspections shall be made so that the vehicle may continue to operate on the alternative fuel; or

(E) when operating exclusively on an alternative fuel is contrary to the vehicle manufacturer's or alternative fuel conversion equipment vendor's recommendations.

(2) Each state agency will be required to provide fuel usage data semi-annually in accordance with §20.435(b)(2) of this title (relating to Vehicle Fleet Management System) on every vehicle capable of using alternative fuels through the Vehicle Fleet Management System.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700049

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


DIVISION 4. UNIFORM GRANT AND CONTRACT STANDARDS

34 TAC §§20.456 - 20.467

The Comptroller of Public Accounts adopts new §§20.456, concerning introduction; 20.457, concerning purpose, applicability, and scope; 20.458, concerning effective date; 20.459, concerning adoption by reference; 20.460, concerning grants and contracts; 20.461, concerning standard assurances; 20.462, concerning variance from standards; 20.463, concerning obtaining copies of standards; 20.464, concerning recommendations for change; 20.465, concerning uniform cost principles and cost allocation plans; 20.466, concerning uniform administrative, accounting, reporting, and auditing standards; and 20.467, concerning state of Texas single audit circular, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8791).

The comptroller renames Chapter 20 Statewide Procurement and Support Services and renames Subchapter E Special Categories of Contracting. New §§20.456 - 20.467 will be part of Subchapter E, under new Division 4, Uniform Grant and Contract Standards.

New §20.456 incorporates the provisions of former §20.421 in the reorganization of Chapter 20, revises it to exclude outdated internal and past rule and guidance references, and revises it to clarify that these rules were transferred from the governor's office to the comptroller.

New §20.457 incorporates the provisions of former §20.422 in the reorganization of Chapter 20.

New §20.458 incorporates the provisions of former §20.423 in the reorganization of Chapter 20.

New §20.459 incorporates the provisions of former §20.424 in the reorganization of Chapter 20 and clarifies that the governor's office adopted rules in the past.

New §20.460 incorporates the provisions of former §20.425 in the reorganization of Chapter 20.

New §20.461 incorporates the provisions of former §20.426 in the reorganization of Chapter 20.

New §20.462 incorporates the provisions of former §20.427 in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the governor's budget and planning office.

New §20.463 incorporates the provisions of former §20.428 in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the governor's budget and planning office.

New §20.464 incorporates the provisions of former §20.429 in the reorganization of Chapter 20 and revises it to refer to the statewide procurement division of the comptroller instead of the governor's budget and planning office.

New §20.465 incorporates the provisions of former §20.430 in the reorganization of Chapter 20.

New §20.466 incorporates the provisions of former §20.431 in the reorganization of Chapter 20.

New §20.467 incorporates the provisions of former §20.432 in the reorganization of Chapter 20.

This agency received a comment regarding proposed new §20.467 from Amanda Landry, Accounting Management Section Director, Texas Department of Transportation. Ms. Landry commented that §20.467 refers to OMB Circular A-133 the terms of which are now found in Subpart F of the new Uniform Grant Guidance or "Super Circular." This agency agrees with this comment but will not make the change to this rule at this time as it intends to address this comment as well as other appropriate changes to this division in the near future.

The new sections are adopted under Government Code, §§403.023, 783.004, 2113.103, 2155.0012, 2156.0012, 2171.002, 2172.0012, 2172.006, and 2176.110.

The following statutes are affected by the new sections: Government Code, Title 7, Chapter 783, Government Code, Title 10, Subtitle D, Chapter 2176, and Government Code, §§2113.103, 2171.002, 2171.054, 2171.056, 2171.104, 2171.1045, and 2172.006.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700050

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


DIVISION 5. COMMEMORATIVE ITEMS

34 TAC §20.475

The Comptroller of Public Accounts adopts new §20.475, concerning purchase price of commemorative items, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8794).

The comptroller renames Chapter 20 Statewide Procurement and Support Services and renames Subchapter E Special Categories of Contracting. New §20.475 will be part of Subchapter E, under new Division 5, Commemorative Items.

New §20.475 incorporates the provisions of former §20.148 in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

No comments were received regarding adoption of the new section.

The new section is adopted under Government Code, §§403.023, 783.004, 2113.103, 2155.0012, 2156.0012, 2171.002, 2172.0012, 2172.006, and 2176.110.

The following statutes are affected by the new section: Government Code, Title 7, Chapter 783, Government Code Title 10, Subtitle D, Chapter 2176, and Government Code, §§2113.103, 2171.002, 2171.054, 2171.056, 2171.104, 2171.1045, and 2172.006.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700051

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


SUBCHAPTER F. CONTRACT MANAGEMENT

DIVISION 1. CONTRACT ADMINISTRATION

34 TAC §§20.481 - 20.488

The Comptroller of Public Accounts adopts new §§20.481, concerning definitions; 20.482, concerning quality assurance; general; 20.483, concerning inspection and/or testing; 20.484, concerning testing facilities and/or laboratories; 20.485, concerning cost of testing; 20.486, concerning contract administration; 20.487, concerning invoicing standards; and 20.488, concerning payments, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8795).

The comptroller renames Chapter 20 Statewide Procurement and Support Services and renames Subchapter F Contract Management. New §§20.481 - 20.488 will be part of Subchapter F, under new Division 1, Contract Administration.

New §20.481 incorporates former §20.221 in the reorganization of Chapter 20 and revises it to define terms used exclusively in Subchapter F.

New §20.482 incorporates former §20.71 in the reorganization of Chapter 20, revises it to refer to the comptroller instead of the General Services Commission, and to reflect the discretionary authority authorized by statute.

New §20.483 incorporates former §20.72 in the reorganization of Chapter 20, revises it to refer to the division instead of the central procurement division or vendor relation program, the comptroller instead of the GSC, and to contractor instead of vendor.

New §20.484 incorporates former §20.74 in the reorganization of Chapter 20.

New §20.485 incorporates former §20.75 in the reorganization of Chapter 20.

New §20.486 incorporates former §20.39 in the reorganization of Chapter 20 and revises it to delete references to TBPC or the commission and instead refer to the comptroller or director, as appropriate.

New §20.487 incorporates former §20.225 in the reorganization of Chapter 20 and revises the contract payment request process to reflect current comptroller procedures for a contractor submitting an invoice to a state agency and the state agency requesting payment from the comptroller.

New §20.488 incorporates former §20.227 in the reorganization of Chapter 20 revises the payment process to reflect current procedures for contract payments to be made by the comptroller to a state agency, the state agency to pay the contractor, and methods for addressing disputed invoices and payments.

This agency received a comment regarding proposed new §20.486 from Jordan Kroll of IT Alliance for Public Sector. Ms. Kroll commented that the State should not be given the unilateral authority to cancel a contract due to unsatisfactory performance or nonperformance without the consent of the vendor. The agency retains this authority in order to preserve the necessary flexibility to address legislative or executive required changes.

The new sections are adopted under Government Code, §§2155.0012, 2156.0012, 2251.003, and Local Government Code, §271.082.

The following statutes are affected by the new sections: Government Code, §§481.1855, 2101.035, 2101.041, 2155.069, 2155.070, 2155.075, 2155.0755, 2155.076, 2155.077, 2155.088, 2155.089, 2155.324, 2155.325, 2155.381, 2155.382, 2251.001, 2251.021, 2251.022, 2251.023, 2251.024, 2251.025, 2251.026, 2251.042, 2261.257, 2262.055, 2262.253, and Local Government Code, §271.082.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700052

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


DIVISION 2. REPORTS AND AUDITS

34 TAC §§20.506 - 20.512

The Comptroller of Public Accounts adopts new §§20.506, concerning state agency reporting of contracting information; 20.507, concerning required posting of certain contracts; enhanced contract and performance monitoring; 20.508, concerning retention of contract and related documents by state agencies; 20.510, concerning auditing of purchase related documentation; 20.511, concerning contracts with value exceeding $1 million; and 20.512, concerning applicability; exclusions, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8797). The comptroller adopts new §20.509, concerning performance reporting, with changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8797).

The comptroller renames Chapter 20 Statewide Procurement and Support Services and renames Subchapter F Contract Management. New §§20.506 - 20.512 will be part of Subchapter F, under new Division 2, Reports and Audits.

New §20.506 requires state agencies to report contract activity according to §5.302 of this title as required by recently enacted legislation.

New §20.507 requires state agencies to post contract information to their web site and develop procedures to identify and monitor contracts as required by recently enacted legislation.

New §20.508 incorporates former §20.216 in the reorganization of Chapter 20 and requires state agencies to retain contract documentation and specifies document retention time periods.

New §20.509 incorporates former §20.108 in the reorganization of Chapter 20, revises it to refer to the comptroller instead of the commission, identifies the requirements for rating a contractor's performance, and implements new contractor performance grading as required by recently enacted legislation.

New §20.510 incorporates former §20.48 in the reorganization of Chapter 20.

New §20.511 identifies the requirements to report on contracts over $1 million in compliance with recently enacted legislation.

New §20.512 implements the statutory exception to the application of the vendor reporting requirements as authorized by recently enacted legislation.

This agency received comments regarding proposed new §20.509 from Caroline Joiner, Executive Director of TechNet, Dave Morris of SHI Government Solutions, Jennifer Saha of CompTIA, Meg Hare of Accenture Health and Public Services, and Jordan Kroll of IT Alliance for Public Sector. All comments stated that vendors should have the opportunity to review ratings, submit comments, and/or provide additional supporting information on any posted negative rating in the system. This agency responds that it had intended to follow its current informal process that allows a contractor 14 days to respond to reports that rate the contractor lower than "C". Based on these comments, this agency revises §20.115 to clarify the process for submitting a report and also revises §20.115 to incorporate this agency's informal process into its rules to provide the vendor community greater assurance that this agency will continue to implement a process that allows contractors to respond to state agency contract reports within 30 days before the report is posted to the vendor performance tracking system.

All comments stated that state agencies should be required to include the criteria on which a vendor will be evaluated in the contract. This agency agrees with these comments and interprets new §20.181, which requires state agencies to document evaluation criteria that necessarily are included as part of any solicitation document, in conjunction with the §20.509, which requires contract performance evaluation based on the specifications and solicitation response evaluation criteria, to implement these comments. This agency is amenable to consider further revisions to address these comments in the near future, if necessary, as part of its continued review and revision to update the division's procurement rules and guidance.

The new sections are adopted under Government Code, §§2155.0012, 2156.0012, 2251.003, and Local Government Code, §271.082.

The following statutes are affected by the new sections: Government Code, §§481.1855, 2101.035, 2101.041, 2155.069, 2155.070, 2155.075, 2155.0755, 2155.076, 2155.077, 2155.088, 2155.089, 2155.324, 2155.325, 2155.381, 2155.382, 2251.001, 2251.021, 2251.022, 2251.023, 2251.024, 2251.025, 2251.026, 2251.042, 2261.257, 2262.055, 2262.253, and Local Government Code, §271.082.

§20.509.Performance Reporting.

(a) No later than 30 days after the completion or termination of a purchase order or contract, the purchasing state agency shall review the contractor's performance of the purchase order or contract as provided in this section. State agencies shall submit a report on a contractor's performance to the vendor performance tracking system for any purchase of goods or services:

(1) of $25,000 or more from contracts administered by the comptroller;

(2) made through an agency's delegated authority;

(3) made pursuant to the authority in Government Code, Title 10, Subtitle D; or

(4) for which a state agency is required to use the best value standard.

(b) A state agency shall:

(1) evaluate the contractor's performance based on:

(A) information prepared by the agency in planning the procurement that assessed the need for the purchase together with the specifications for the good or service and the criteria to evaluate the responses resulting in an award and contract;

(B) compliance with the material terms of the contract;

(C) ability to correct instances of contractual non-compliance; and

(D) other evaluation criteria presented in the on-line vendor performance tracking system; and

(2) based on the evaluation provided in the system, assign the contractor the letter grade:

(A) "A" if the contractor that delivered the good or service:

(i) that is the best value for the good or service because it complied with all the specifications and evaluation criteria identified in the solicitation documents;

(ii) in full compliance of all material terms of the contract; and

(iii) with complete or substantial customer satisfaction:

(B) "B" if the contractor delivered the good or service:

(i) that is the best value for the good or service because it complied with all specifications and evaluation criteria identified in the solicitation documents;

(ii) in substantial compliance of all material terms of the contract or promptly remedied any instance of non-compliance with the material terms of the contract; and

(iii) with substantial or adequate customer satisfaction:

(C) "C" if the contractor delivered the good or service:

(i) that is the best value for the good or service because it complied with all specifications and evaluation criteria identified in the solicitation documents;

(ii) substantially remedied a majority of the instances of non-compliance with the material terms of the contract; and

(iii) with adequate customer satisfaction:

(D) "D" if the contractor delivered the good or service:

(i) that was not the best value for the good or service because it did not comply with substantially all specifications and evaluation criteria identified in the solicitation documents; or

(ii) in substantial non-compliance of material terms of the contract and failed to remedy a majority of instances of non-compliance with the material terms of the contract:

(E) "F" if the contractor delivered the good or service:

(i) that was not the best value for the good or service because it did not comply with all specifications and evaluation criteria identified in the solicitation documents;

(ii) in substantial non-compliance of material terms of the contract and failed to remedy a majority of instances of non-compliance with the material terms of the contract; or

(iii) in a manner that subjects the contractor to debarment pursuant to Subchapter G of these rules.

(c) This section does not apply to:

(1) an enrollment contract described by 1 TAC §391.205(b)(5); or

(2) a contract of the Employees Retirement System of Texas or the Teacher Retirement System of Texas except for a contract with a nongovernmental entity for claims administration of a group health benefit plan under Insurance Code, Title 8, Subtitle H.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700053

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


DIVISION 3. PROTESTS AND APPEALS

34 TAC §§20.531 - 20.538

The Comptroller of Public Accounts adopts new §§20.531, concerning purpose; 20.532, concerning protest procedures; 20.533, concerning definitions; 20.534, concerning protests; 20.535, concerning filing requirements; 20.536, concerning delay of solicitation or award; 20.537, concerning action by director; and 20.538, concerning appeal, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8800).

The comptroller renames Chapter 20 Statewide Procurement and Support Services and renames Subchapter F Contract Management. New §§20.531 - 20.538 will be part of Subchapter F, under new Division 3, Protests and Appeals.

New §20.531 identifies the purpose for the protest procedures in this division.

New §20.532 incorporates former §20.41(g) in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of the commission.

New §20.533 incorporates former §20.384(a) in the reorganization of Chapter 20 and revises it to define terms used exclusively in Subchapter F.

New §20.534 identifies the protests that may be filed.

New §20.535 incorporates former §20.384(d) in the reorganization of Chapter 20 and identifies the elements necessary to file a protest and the time periods for filing a protest.

New §20.536 incorporates former §20.384(d) in the reorganization of Chapter 20 and authorizes the director to determine if the solicitation award may proceed after the filing of a protest.

New §20.537 incorporates former §20.384(e) and (f) in the reorganization of Chapter 20 and identifies actions that the director may take on a protest.

New §20.538 incorporates former §20.384(g), (h), and (i) in the reorganization of Chapter 20 and identifies the process to appeal the director's action on a protest.

This agency received comments regarding proposed new §20.534 from Dave Morris of SHI Government Solutions and Jennifer Saha of CompTIA. Theses commentators stated the current rule allows potential responding vendors, as well as actual responding vendors, to protest certain comptroller procurement actions. These comments note that the proposed rule removes the ability of potential responders from filing protests and this change will diminish competition. This agency is amenable to consider this comment in the future as part of its continued review and revision to update the division's procurement rules and guidance.

The new sections are adopted under Government Code, §§2155.0012, 2156.0012, 2251.003, and Local Government Code, §271.082.

The following statutes are affected by the new sections: Government Code, §§481.1855, 2101.035, 2101.041, 2155.069, 2155.070, 2155.075, 2155.0755, 2155.076, 2155.077, 2155.088, 2155.089, 2155.324, 2155.325, 2155.381, 2155.382, 2251.001, 2251.021, 2251.022, 2251.023, 2251.024, 2251.025, 2251.026, 2251.042, 2261.257, 2262.055, 2262.253, and Local Government Code, §271.082.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700054

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


DIVISION 4. CONTRACT DISPUTES

34 TAC §§20.556 - 20.558

The Comptroller of Public Accounts adopts new §§20.556, concerning assessing and collecting damages and testing costs; 20.557, concerning negotiation and mediation of contract disputes; and 20.558, concerning collection of debts, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8802).

The comptroller renames Chapter 20 Statewide Procurement and Support Services and renames Subchapter F Contract Management. New §§20.556 - 20.558 will be part of Subchapter F, under new Division 4, Contract Disputes.

New §20.556 incorporates former §20.76 in the reorganization of Chapter 20 and revises it to refer to the division instead of the central procurement division or vendor relation program.

New §20.557 incorporates former §20.385 in the reorganization of Chapter 20 and revises it to refer to the comptroller instead of Texas Procurement and Support Services.

New §20.558 incorporates former §20.230 in the reorganization of Chapter 20 and revises it to update external document references.

No comments were received regarding adoption of the new sections.

The new sections are adopted under Government Code, §§2155.0012, 2156.0012, 2251.003, and Local Government Code, §271.082.

The following statutes are affected by the new sections: Government Code, §§481.1855, 2101.035, 2101.041, 2155.069, 2155.070, 2155.075, 2155.0755, 2155.076, 2155.077, 2155.088, 2155.089, 2155.324, 2155.325, 2155.381, 2155.382, 2251.001, 2251.021, 2251.022, 2251.023, 2251.024, 2251.025, 2251.026, 2251.042, 2261.257, 2262.055, 2262.253, and Local Government Code, §271.082.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700055

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387


SUBCHAPTER G. DEBARMENT

34 TAC §§20.581 - 20.587

The Comptroller of Public Accounts adopts new sections §20.581, concerning purpose and applicability; §20.582, concerning definitions; §20.583, concerning protecting the state's interest: failure to meet specifications; §20.584, concerning protecting the state's interest: failure to meet contract requirements; §20.585, concerning debarment; §20.586, concerning procedures for investigations and debarment; and §20.587, concerning request for review, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8803).

The comptroller renames Chapter 20 Statewide Procurement and Support Services and renames Subchapter G, Debarment. New §§20.581 - 20.587 will be Subchapter G.

New §20.581 incorporates former §20.101 in the reorganization of Chapter 20, and revises it to refer to the comptroller instead of the commission.

New §20.582 incorporates former §20.102 in the reorganization of Chapter 20, and revises it to define only terms used exclusively in Subchapter G.

New §20.583 incorporates former §20.103 in the reorganization of Chapter 20, updates cross-references, and revises it to refer to the contractor instead of the vendor, and to refer to the comptroller instead of the commission.

New §20.584 incorporates former §20.104 in the reorganization of Chapter 20, and revises it to refer to the contractor instead of the vendor, and to refer to the comptroller instead of the commission.

New §20.585 incorporates former §20.105 in the reorganization of Chapter 20, and revises it to refer to the contractor instead of the vendor, and to refer to the director instead of the commission or TBPC.

New §20.586 incorporates former §20.106 in the reorganization of Chapter 20, and revises it to refer to the contractor instead of the vendor, and to refer to the director instead of the commission or TBPC.

New §20.587 incorporates former §20.107 in the reorganization of Chapter 20, and revises it to refer to the contractor instead of the vendor, to refer to the Associate Deputy Comptroller of the comptroller instead of the Executive Director, and to refer to the comptroller or division instead of the commission or TBPC, as appropriate, and to restate the requirement to provide a written decision.

This agency received comments regarding proposed new §§20.585, 20.586, and 20.587 from Dave Morris of SHI Government Solutions, Jennifer Saha of CompTIA, and Jordan Kroll of IT Alliance for Public Sector. All comments stated that these sections taken together provide the division director unilateral authority to cancel a contract upon receiving the allegations made in a complaint. These comments state that this process affords little due process to a state contractor before contract cancellation. This agency responds that the proposed rules are only intended to continue the current process which has not been used in the manner described.

The new sections are adopted under Government Code, §§2155.0012, 2155.077, 2156.0012, and 2157.0012.

The following statutes are affected by the new sections: Government Code, Title 10, Subtitle D, Chapters 2155, 2156, and 2157; and Government Code, §2155.077.

This agency hereby certifies that the rules as adopted have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 4, 2017.

TRD-201700056

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: January 24, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-0387