TITLE 34. PUBLIC FINANCE

PART 1. COMPTROLLER OF PUBLIC ACCOUNTS

CHAPTER 3. TAX ADMINISTRATION

SUBCHAPTER O. STATE AND LOCAL SALES AND USE TAXES

34 TAC §3.308

The Comptroller of Public Accounts proposes amendments to §3.308, concerning computers--hardware, software, services, and sales. This section is being amended to implement Senate Bill (SB) 755, 84th Legislature, 2015, which amended Tax Code, §151.006. The bill created a resale exemption for computer programs sold by Internet hosting providers under certain circumstances. This section is also being amended to formalize prior comptroller guidance, to address uncertainties in the application of the law, and to conform more closely to the applicable statutory language.

The title of §3.308 is amended to replace the term "software" with the term "computer program," which is defined by statute and which is proposed to be defined in this section.

New subsection (a) is added to define terms. Subsequent subsections are relettered accordingly.

Paragraph (1) is added to define the term "computer program." The content of this definition is taken from Tax Code, §151.0031. Similar language in subsection (b)(1) of the current section is proposed to be deleted. The statement in current subsection (b)(1) that a computer program includes any modification, installation, or maintenance charges made in connection with the sale of the program is moved to relettered subsection (c)(1)(B).

Paragraph (2) is added to define the term "computer program maintenance." This term is used in current §3.308, but a definition is added to provide guidance. The proposed definition formalizes the comptroller's interpretation of the term, which was subsequently approved and adopted in the holding of Verizon Business Network Services v. Combs, 2013 Tex. App. LEXIS 4338 (Tex. App. -- Amarillo 2013, pet. dism'd). In essence, maintenance is limited to those activities that keep a computer program in original working order, such as providing error correction and technical support. The definition explains that adding new functionality to an existing computer program creates a new computer program and is not computer program maintenance. The statement in current subsection (b)(1), explaining that the combining of several existing program modules into a new program will be considered the sale of a completed program, is retained in this paragraph. In addition, a clarifying statement is added to memorialize longstanding comptroller policy that technical support may include remote assistance (e.g., telephone, on-line). See, for example, Comptroller's Decision No. 32,349 (1995).

Paragraph (3) is added to define the term "contract programming." The content of this definition is taken from subsection (b)(4) of the current section, which is deleted, and from Tax Code, §151.0101(a)(5)(D), which provides that services to repair, maintain, create, or restore a computer program, including its development and modification, are not taxable unless the computer program was sold by the person performing the repair, maintenance, creation, or restoration service. This definition also memorializes previous comptroller guidance that contract programming only occurs when the person performing the programming services did not sell, and does not own, any intellectual rights to the computer program being created, repaired, maintained, or restored. See, for example, STAR Accession No. 200812241L (December 16, 2008) (explaining that "[c]ontract programming occurs when a computer program is created for a specific client and all and exclusive rights to the program are transferred, by contract, to the client."). Subparagraph (B) distinguishes between the retention of rights to the program itself and those a contract programmer may retain that are merely incidental to the programming service, such as rights to materials, tools, methods, and processes used in the performance of the service. The retention of such incidental rights does not change contract programming to either the sale of a computer program or the maintenance thereof.

Paragraph (4) defines the term "Internet hosting" as provided in Tax Code, §151.108(a).

Current subsection (a)(6) is deleted and its content is moved to new subsection (e)(1) to consolidate resale issues into one subsection.

Relettered subsection (b)(2) is amended to replace a colon with a comma and to amended to correct a cross-reference to §3.294 of this title (relating to Rental and Lease of Tangible Personal Property).

Relettered subsection (c) is amended to incorporate additional comptroller guidance. As explained previously, existing subsection (b)(1) is deleted.

New subsection (c)(1) contains information provided in current subsection (b)(2) addressing computer programs. Subsection (c)(1)(A) states that a computer program is tangible personal property, and that the sale, lease, or license of a computer program is subject to sales and use tax, without regard to whether the computer program, or a license to use the program, is transferred in an electronic form or on physical media. See Tax Code, §151.0031. Subsection (c)(1)(B) explains that charges for items other than the computer program itself, including charges for installation, are also included in the sales price of the computer program. This is consistent with Tax Code, §151.007. Subsection (c)(1)(C) is added to clarify that the purchase price of a computer program sold or used in Texas may not be allocated between Texas and another state according to a use, or benefit derived, in the other state. See, for example, Comptroller's Decision No. 44,280 (2005) (explaining that sales and use taxes are transaction taxes and there is no legal basis to apportion taxes based on subsequent use of an item). Subsection (c)(1)(D) is added to clarify that the use in Texas of a computer program licensed from an out-of-state vendor and residing only on an out-of-state server is taxable. This memorializes guidance in Comptroller's Decision 44,040 (2005) (explaining that "use [of a computer program] in Texas may occur even though no physical media has entered into the state"). Licenses that are not used in this state are not subject to Texas tax.

Relettered subsection (c)(2) addresses computer program maintenance. This subsection retains the substance of existing subsection (b)(3), but clarifies that computer program maintenance provided by any seller of the computer program is taxable.

New subsection (c)(3) generally restates language in current subsection (b) providing that separately stated charges for instruction on the use of a computer program by the person who sold the computer program are not taxable. The language is amended to make the subsection easier to read.

New subsection (c)(4) revises and restates language in existing subsection (b)(4) providing that charges for contract programming are charges for the sale of a service and are not taxable.

Relettered subsection (d) is revised to correct typographical errors and to improve readability.

New subsection (e) is added to implement SB 755. Paragraph (1) preserves the content of current subsection (a)(6) and the term "computer program" is added to indicate that both computer programs and hardware are subject to resale provisions as tangible personal property. Paragraph (2)(A) establishes a new qualification for resale purchases of computer programs by Internet hosting providers. Clauses (i)-(iv) identify the requirements to qualify for the resale exemption.

Paragraph (2)(B) provides that routine maintenance, recommended or required by the unrelated vendor and performed on the computer program by the Internet hosting provider, will not invalidate the qualification for resale.

Tom Currah, Chief Revenue Estimator, has determined that for the first five-year period the rule will be in effect, there will be no significant revenue impact on the state or units of local government.

Mr. Currah also has determined that for each year of the first five years the rule is in effect, the public benefit anticipated as a result of enforcing the rule will be by conforming the rule to current statutes and agency policy. This rule is proposed under Tax Code, Title 2, and does not require a statement of fiscal implications for small businesses. There is no significant anticipated economic cost to individuals who are required to comply with the proposed rule.

Comments on the proposal may be submitted to Teresa G. Bostick, Director, Tax Policy Division, P.O. Box 13528, Austin, Texas 78711-3528. Comments must be received no later than 30 days from the date of publication of the proposal in the Texas Register.

The amendment is proposed 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, as well as Tax Code, §151.0101(b), which provides the comptroller with exclusive jurisdiction to interpret Tax Code, §151.0101(a).

The amendment implements Tax Code, §§151.0031 ("Computer Program"); 151.005; ("Sale" or "Purchase"); 151.006 ("Sale for Resale"); 151.007 ("Sales Price" or "Receipts"); 151.009 ("Tangible Personal Property"); 151.010 (Taxable Item); and 151.0101 ("Taxable Services").

§3.308.Computers--Hardware, Computer Programs [Software], Services, and Sales.

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

(1) Computer program--A series of instructions that are coded for acceptance or use by a computer system and that are designed to permit the computer system to process data and provide results and information. The series of instructions may be contained in or on magnetic tapes, semiconductor chips, punched cards, printed instructions, or other tangible or electronic media.

(2) Computer program maintenance--Providing error correction, technical fixes or technical support to sustain or support a computer program's efficient and continuous operations, or to keep the computer program in good working order by preventing the decline, failure, lapse, or deterioration of the computer program. The term is limited to changes to a computer program that keep the existing program functioning at its original capacity before the change. Adding new functionality to an existing computer program, such as by altering the original capacity of the program, adding new features, or combining several existing programs into a single computer program, results in the creation of a new computer program and is not computer program maintenance. The term includes technical support provided on-line or over the telephone.

(3) Contract programming--Services to create or develop a new computer program, or to repair, maintain, modify, or restore an existing computer program, when the person performing the services did not sell, and retains no rights in, the computer program being created, developed, repaired, maintained, modified, or restored.

(A) Examples of contract programming include:

(i) writing a new computer program to perform a particular function for the customer where all rights in the program are transferred to the customer;

(ii) customizing a computer program owned by the customer or licensed to the customer by a third party; or

(iii) modifying or performing computer program maintenance on a computer program that the programmer wrote for the customer under a prior contract programming agreement.

(B) Contract programming only occurs when the person performing the programming services transfers all rights, including intellectual property rights such as those rights arising from copyrights, patents, and trade secret laws, to the computer program being created, developed, modified, maintained, repaired, or restored to the purchaser of the contract programming services. Notwithstanding other provisions of this paragraph, a person performing contract programming services may retain rights to property including materials, tools, methods, and processes used in the performance of the service. A person performing contract programming services may also retain rights to an incidental program or incidental component of a program included under an agreement to provide contract programming services. Examples of incidental programs and incidental components of a program are installers, drivers, macros, and subroutines.

(4) Internet hosting--Providing to an unrelated user access over the Internet to computer services using property that is owned or leased and managed by the provider and on which the user may store or process the user's own data or use software that is owned, licensed, or leased by the user or provider. The term does not include telecommunications services.

(b) [(a)] Hardware.

(1) The sale, lease, or rental of computer hardware, including central processing units and all peripheral equipment, parts, and supplies, is subject to the sales and use tax.

(2) A taxable rental or lease can occur without the right to move the hardware if the lessee has total operational control of the hardware. For example,[:] a lessee may contract to use a computer on the owner's premises for an exact period of time weekly. The lessee provides the operator and all materials. During the time of use by the lessee, no one else may use the hardware. This transaction constitutes a transfer of the total operational control of the hardware, which is a lease or rental of tangible personal property. However, if the owner provides and directs the operator, operational control has not been transferred to the lessee. The transaction will not be considered the rental or lease of the hardware. Note: if the only supervision provided by the owner is for maintenance or training on proper use, this is not providing an operator. See §3.294 of this title (relating to Rental and Lease of Tangible Personal Property [Rentals and Leases of Taxable Items]).

(3) Sales tax is due on charges for labor or services rendered in installing or applying computer hardware.

(4) Sales tax is due on charges for labor or services rendered in remodeling, repairing, maintaining, or restoring computer hardware. See §3.292 of this title (relating to Repair, Remodeling, Maintenance, and Restoration of Tangible Personal Property).

(5) Installation charges for remote terminals are taxable whether or not separately stated. Charges for telephone lines are taxable.

[(6) A resale certificate may be issued by a purchaser only if the hardware is purchased for the exclusive purpose of resale. If the purchaser makes a taxable use of the hardware while holding it for resale, the purchaser is liable for sales tax. See §3.285 of this title (relating to Resale Certificate; Sales for Resale).]

(c) [(b)] Computer programs and related services. [Software.]

(1) Computer programs. ["Computer program" means a series of instructions sold as a completed program which are coded for acceptance or use by a computer system and which are designed to permit the computer system to process data and provide results and information. The series of instructions may be contained in or on magnetic tapes, semiconductor chips, punched cards, printed instructions, or other tangible or electronic media. This definition includes computer game cartridges which allow certain games to be played on a television set through interaction with a computer or on home computers. The combining of several existing program modules into a new program will be considered the sale of a completed program. A completed program includes any modification, installation, or maintenance charges made in connection with the sale of the program.]

(A) The sale, lease, or license of a computer program is a sale of tangible personal property. Sales or use tax is due when the computer program, or a license to use the computer program, is transferred for consideration in Texas, or stored, used, or consumed in Texas, in electronic form or on physical media.

(B) Sales price. The sales price of a computer program includes all charges made in connection with the sale of the program, which may include charges for installation, modification, or maintenance, whether or not separately stated.

(C) The sales price of a computer program, or a single license for a computer program, that is sold or used in Texas may not be allocated to other states based on the purchaser making copies of the program for use in another state; installing the program on hardware located in another state; or accessing the program in another state.

(D) When a purchaser acquires multiple licenses for the use of a computer program, and does not install the computer program on hardware located in this state or take possession of the computer program in this state, use tax is due only on the individual licenses that are subsequently used in Texas.

(2) Computer program maintenance. [Sales tax is due on the sale, lease or license of a computer program. Charges for the installation of the program are taxable whether or not separately stated.]

[(3)] Charges for computer program maintenance by a [the] person who sold the computer program are taxable. [Maintenance means providing error correction, improvements, or technical support. Separately stated charges for instruction on the software's use will not be taxable.]

(3) Instruction. Separately stated charges for instruction on the use of the computer program by a person who sold the computer program are not taxable.

(4) Contract programming services. Contract programming may result in the creation of tangible personal property, but it does not constitute the sale thereof. Charges for contract programming are charges for a service and are not taxable. [Charges to create a program or modify an existing program not sold by the person doing the modification are not taxable.]

(d) [(c)] Sales. The following are examples of transactions which involve the sale of taxable items and are taxable.

(1) A separate charge for additional copies of the result of services is taxable.

(2) The charge for processing, printing, or producing tangible personal property by a computer is taxable unless the processing, printing, or producing is performed as an incidental part of a nontaxable service. Examples of taxable processing, printing, or producing include [:] standardized amortization or depreciation tables [table], newsletters, and [or] advertising.

(e) Sales for resale.

(1) A resale certificate may be issued by a purchaser only if hardware or a computer program is purchased for the exclusive purpose of resale. If the purchaser makes a taxable use of the hardware or computer program while holding it for resale, the purchaser is liable for sales tax. See §3.285 of this title (relating to Resale Certificate; Sales for Resale).

(2) Internet hosting providers.

(A) A sale for resale includes the sale of a computer program to an Internet hosting provider in a transaction that meets all criteria in this subparagraph, regardless of whether care, custody, and control of the computer program is transferred to the user of the Internet hosting service.

(i) The Internet hosting provider acquires the program from an unrelated vendor for the purpose of selling the right to use the program to an unrelated user of the provider's Internet hosting services in the normal course of business and in the form or condition in which the provider acquired the program;

(ii) the Internet hosting provider offers the unrelated user a selection of computer programs that are available to the public for purchase directly from an unrelated vendor;

(iii) the Internet hosting provider executes a written contract with the unrelated user that specifies the name of the computer program sold to the unrelated user and includes a charge to the unrelated user for computing hardware;

(iv) the unrelated user purchases the right to use the computer program from the Internet hosting provider through the acquisition of a license; and

(v) the Internet hosting provider does not retain the right to use the computer program under that license.

(B) The performance by the Internet service provider of routine maintenance of the computer program that is recommended or required by the unrelated vendor of the computer program does not affect the application of subparagraph (A) of this paragraph.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on June 19, 2017.

TRD-201702364

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Earliest possible date of adoption: July 30, 2017

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


PART 11. TEXAS EMERGENCY SERVICES RETIREMENT SYSTEM

CHAPTER 306. CREDITABLE SERVICE FOR MEMBERS OF THE TEXAS EMERGENCY SERVICES RETIREMENT SYSTEM

34 TAC §306.3

The State Board of Trustees of the Texas Emergency Services Retirement System (System) proposes new §306.3, concerning Qualified Service Credit for Eligible Active Military Duty under the Uniformed Services Employment and Re-Employment Rights Act (38 U.S.C. §4301 et seq.) (USERRA).

The new §306.3 will not affect Active Military Service Members' benefits. The new §306.3 updates System policy to conform with provisions in USERRA. The proposed rule requires local boards, as that term is defined in Title 8, Texas Government Code, Subtitle H, Texas Emergency Services Retirement System, §865.012, to verify military service by submitting a letter and the member's commencement date of active military service to the System. The proposed rule sets the maximum years of qualified service credit that a member in active military service may receive, specifies the time frame requirements by which the member must return to the same department to receive such service credit, describes the date upon which a member will be considered to have returned to the department from military service, and sets forth the contributions that local boards are required to make upon a member's return to the department from military service as contemplated by USERRA.

Kevin Deiters, Executive Director, has determined that for each year of the first five-year period that the rule is in effect the public benefit is that the System will conform to the provisions outlined in USERRA, along with statute listed in Title 8, Texas Government Code, Subtitle H, Texas Emergency Services Retirement System, §863.002 and §865.006, which allow the System to grant credit for qualified military duty in accordance with federal law and to adopt rules necessary for the administration of the fund.

The adoption of the new rule will not affect small businesses or individuals. Administration of new §306.3 does not have foreseeable implications relating to the cost or revenues of the state and does not have such implication on local governments above what is currently required under USERRA.

Comments on the new rule must be submitted in writing to Kevin Deiters, Executive Director, Texas Emergency Services Retirement System, P.O. Box 12577, Austin, Texas 78711-2577, submitted electronically to outreach@tesrs.texas.gov, or faxed to (512) 936-3480 no later than July 31, 2017.

The new section is proposed under the statutory authority of Title 8, Subsection H, Texas Emergency Services Retirement System, §863.003.

No other statutes, articles, or codes are affected by this proposal. New §306.3 has been reviewed by legal counsel and is within the System's authority to adopt.

§306.3.Qualified Service Credit for Eligible Active Military Duty under the Uniformed Services Employment and Re-Employment Rights Act.

(a) A member may obtain qualified service credit for active military duty if the military duty constitutes qualified military service in uniformed services, as provided under the Uniformed Services Employment and Re-Employment Rights Act, 38 United States Code §4301 et seq. (USERRA), and the member is otherwise eligible to obtain such service credit under USERRA.

(b) Under this section and in accordance with USERRA, a member whose active military duty is entitled to coverage under USERRA may be awarded qualified service credit for up to five (5) years of active military duty, subject to any additional period of time as provided in USERRA.

(c) A member who is no longer available to perform as a volunteer or auxiliary employee with a participating department due to active military duty, whether such duty is performed on a voluntary or involuntary basis, will be designated as on military leave by the pension system if the participating department substantiates such active military duty by submitting a letter to the pension system verifying the member's active military status, including the commencement date of active military service, and by providing any relevant documentation that may be requested by the pension system.

(d) Upon return as a volunteer or auxiliary employee to the participating department for which the member was performing services prior to active military duty, the member is eligible to be awarded qualified service credit for the period while on active military duty under this section, not to exceed five (5) years, and in accordance with USERRA if the member:

(1) is discharged or released from active military duty under honorable conditions or as otherwise provided by USERRA; and

(2) returns as a volunteer or as an auxiliary employee to the participating department for which the member was performing services prior to active military duty within ninety (90) days of discharge or release from active military duty or longer period of time as may be required by USERRA, provided that the participating department substantiates such return from active military duty by submitting a letter to the pension system verifying the member's return from military service, including the last date of active military service and date of return to the participating department, and by providing any relevant documentation that may be requested by the pension system. The pension system shall consider the provisions of USERRA or regulations adopted pursuant to USERRA in determining eligibility for qualified service credit of members who return as a volunteer or as an auxiliary employee for a participating department later than 90 days due to illness or injury incurred in, or aggravated during, uniformed service.

(e) In accordance with USERRA, if a member returns as a volunteer or as an auxiliary employee for the participating department for which the member was performing services prior to active military duty within the period of time required by USERRA, the participating department shall make the contributions (including the Part One and Part Two contributions) that would have been made if the member had been a volunteer or auxiliary employee with the participating department during the period of active military duty. Such contributions are due no later than ninety (90) days after the member's date of return as a volunteer or auxiliary employee with the participating department.

(f) Notwithstanding subsection (e) of this section, if a participating department has not previously made the required contributions for periods of active military duty that are reflected as military leave in the records of the pension system and occurred prior to the effective date of this section, the participating department will have ninety (90) days following the receipt of notice from the pension system to make the contributions required under subsection (d) of this section. The notice from the pension system will include identification of the eligible members, the periods of service for which the member is eligible to receive qualified service credit, not to exceed five (5) years, and the amount that the participating department is required to contribute. The period of time to make the contributions under this subsection may be extended at the discretion of the executive director.

(g) For purposes of this section, the member's date of return as a volunteer or auxiliary employee with the participating department for which the member was performing services prior to active military duty is the date the member (1) attends at least one hour of annual training, (2) participates in one of the participating department's emergencies, (3) performs one hour as an auxiliary employee in accordance with §861.001(2), Government Code, or (4) provides support services for one of the participating department's emergencies if the governing body of the participating department includes all persons who provide support services for the department as members of the pension system in accordance with §862.0025, Government Code.

(h) Notwithstanding any provisions of this section to the contrary, contributions, benefits, and qualified service credit with respect to active military duty shall be provided in accordance with the Internal Revenue Code §414(u) and as required by USERRA.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on June 14, 2017.

TRD-201702328

Kevin Deiters

Executive Director

Texas Emergency Services Retirement System

Earliest possible date of adoption: July 30, 2017

For further information, please call: (512) 936-3474


CHAPTER 310. ADMINISTRATION OF THE TEXAS EMERGENCY SERVICES RETIREMENT SYSTEM

34 TAC §310.6

The State Board of Trustees for Texas Emergency Services Retirement System (System) proposes amendments to 34 TAC §310.6 concerning the clarification of language regarding contributions of participating departments, including "Part One" and "Part Two" contributions.

The proposed amendment clarifies language regarding contributions to the System, including the establishment or modification of the "Part Two" contribution. A new subsection created by the proposed amendments clarifies how the contributions apply to members under the Family Medical Leave Act of 1993 (29 U.S.C. §2601 et seq.) and during periods of temporary disability. The proposed amendments also add a new subsection which addresses how contributions affect members under the newly proposed §306.3 and the Uniformed Services Employment and Re-Employment Rights Act (38 U.S.C §4301 et seq.) (USERRA).

Kevin Deiters, Executive Director, has determined that the public benefit in the first five years this amended rule takes effect is the clarification of the purpose and scope of the "Part Two" contribution by Participating Departments and the Governing Entities in the System. Administration of the proposed amendment does not have foreseeable implications relating to cost or revenues of the state or local governments as the proposed amendment merely clarifies the existing contribution charges to the participating departments.

The adoption of the proposed amendments will not affect small businesses or individuals.

Comments on the proposed amendments must be submitted in writing to Kevin Deiters, Executive Director, Texas Emergency Services Retirement System, P.O. Box 12577, Austin, Texas 78711-2577, submitted electronically to outreach@tesrs.texas.gov, or faxed to (512) 936-3480 no later than July 31, 2017.

The amended section is proposed under the statutory authority of Title 8, Subsection H, Texas Emergency Services Retirement System, §865.014, which allows the System to adopt rules relating to contributions of local boards.

No other statutes, articles, or codes are affected by this proposal.

§310.6.Local Contributions.

(a) Except as otherwise provided by this section, each participating department shall make a contribution for each month [or a portion of a month a member performs emergency services for] in which a volunteer or auxiliary employee of the participating department is a member of the pension system. The monthly contribution is composed of two parts, as outlined in subsections (b) and (c) of this section [follows. Part One is the legacy portion of the contribution that directly impacts future retiree annuities, that includes a minimum contribution amount set by the state board. A participating department may elect to make contributions at a greater rate by notifying the Executive Director in writing of the rate. Part Two is the portion of the local contribution that does not impact annuities. Part Two may be adjusted near the end of every even numbered calendar year by the state board based on the most recent actuarial valuation to be effective for the next two state fiscal years, beginning September 1. The Part Two portion of the contribution may be adjusted up or down. The purpose of Part Two is to assist the system in achieving an adequate contribution rate for system obligations. In no case shall the Part Two portion of the contribution, exceed 15 percent of the Part One portion of the contribution]. Contributions are payable for each month [or portion of a month] of service regardless of whether the member receives a year of qualified service. Contributions are payable as provided by §865.014, Government Code, and §310.8 of this title. Contributions required under this section are not considered compensation to the members for whom they are made.

(b) The Part One contribution is the portion of the participating department's contribution that is used for purposes of calculating the benefit of a member as provided in §308.2 of this title. The Part One contribution will be no less than the minimum contribution amount provided in subsection (d) of this section. [The minimum contribution rate for each participating department is $36 per member. After August 31, 2015, the minimum contribution rate for each participating department is $36 per member plus any Part Two rate that might be charged by the system, as outlined in subsection (a) of this section.]

(c) The Part Two contribution is the portion of the participating department's contribution that is applied to reduce the unfunded actuarial accrued liability of the pension system as contemplated under §861.001(1) and §864.002(a)(1), Government Code. The Part Two contribution is not used for purposes of calculating the benefit of a member as provided in §308.2 of this title. The state board may establish or modify the Part Two contribution based on the pension system's most recent actuarial valuation approved by the state board, but in no case shall the Part Two contribution exceed 15 percent of the participating department's Part One contribution. Any Part Two contribution established or modified by the state board will be effective beginning on September 1 following the state board's approval of such Part Two contribution. A participating department shall make the Part Two contribution for each month as provided in subsection (a) of this section. [Contributions are payable during a period of temporary disability or when leave is taken under the Family and Medical Leave Act of 1993 (29 U.S.C. §2601 et seq.), but are not payable when a member is performing active military duty, although the member receives credit for qualified service when performing active military duty.]

(d) The minimum contribution rate for each participating department is $36 per member. After August 31, 2015, the minimum contribution rate for each participating department is $36 per member plus any Part Two contribution that might be charged by the pension system, as provided in subsection (c) of this section. A participating department may elect to make Part One contributions at a rate greater than the minimum contribution amount by notifying the Executive Director in writing of the rate. [Contributions required under this section are not considered compensation to the members for whom they are made.]

(e) Contributions are payable during a period of temporary disability or when leave is taken under the Family and Medical Leave Act of 1993 (29 U.S.C. §2601 et seq.) Contributions are not payable during a period of temporary disability.

(f) Contributions are not immediately payable during a period of military leave while on active military duty if (1) the military duty constitutes qualified military service in uniformed services, as provided under the Uniformed Services Employment and Re-Employment Rights Act, 38 United States Code §4301 et seq. (USERRA) and (2) the member is designated as on military leave by the pension system upon receiving documentation from the participating department that substantiates such active military duty under procedures developed by the pension system pursuant to Rule §306.3(c). Contributions for the period of active military duty shall be paid by the participating department upon the member's return to the participating department in accordance with Rule §306.3(e) and as required by USERRA.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on June 14, 2017.

TRD-201702330

Kevin Deiters

Executive Director

Texas Emergency Services Retirement System

Earliest possible date of adoption: July 30, 2017

For further information, please call: (512) 936-3474


34 TAC §310.8

The State Board of Trustees of the Texas Emergency Services Retirement System (System) proposes amendments to 34 TAC §310.8, concerning a change from quarterly billings to semi-annual billings.

The proposed amendments to §310.8 simplify the billing process by modifying the billing cycle to a semi-annual process from the current quarterly process and change the deadlines of required material to reflect this change. The proposed amendments to §310.8 state that the Local Board of each Participating Department must certify System roster reports provided semi-annually, and that it is the duty of the Local Board to enroll all eligible members of the Participating Department into the System.

Kevin Deiters, Executive Director, has determined that for the first five years after these proposed amendments take effect the public benefit will be to reduce administrative time and paperwork, and therefore the costs of the billing process for the Participating Departments and the System. This will decrease the cost of the billing process for local governments. Administration of the proposed amendments does not have foreseeable implications relating to the cost or revenues of the state.

The adoption of the amended rules will not affect small businesses or individuals.

Comments on the proposed amendments must be submitted in writing to Kevin Deiters, Executive Director, Texas Emergency Services Retirement System, P.O. Box 12577, Austin, Texas 78711-2577, submitted electronically to outreach@tesrs.texas.gov, or faxed to (512) 936-3480 no later than July 31, 2017.

The amendments are proposed under the statutory authority of Title 8, Government Code, Subtitle H, Texas Emergency Services Retirement System, §§863.004, 864.0135, 865.014, and 865.016, which allow the System to collect contributions from Participating Departments for the administration of the fund.

No other statutes, articles, or codes are affected by the proposal.

§310.8.Billing.

(a) The Executive Director shall bill governing bodies of participating departments semi-annually [and governing bodies of municipalities for which the Executive Director is administering pensions under the Texas Local Fire Fighters Retirement Act quarterly] on the last business day of [November,] February[, May,] and August.

(b) Each billing shall include, as appropriate, charges for:

(1) monthly contributions for participating members and any corresponding Part Two contributions, if applicable;

(2) optional annuity increases or supplemental payments;

(3) annuity payments funded by the governing entity or by department contributions;

(4) [(2)] prior service contributions;

(5) [3] late-payment interest charges; and

(6) [(4)] unpaid administrative penalties.

(c) At least 30 days before the last business day of February and of August [each quarter], the Executive Director shall send to the chair of the local board of each participating department a semi-annual pension roster report (Roster)that includes the name of each person who performs emergency services for the department and is identified as a member of the pension system, and the name of each person who is receiving pension payments under a funding arrangement with the plan.

(d) The [chair of the] local board [or the administrative head of the department] shall verify the accuracy of the Roster report, and shall enroll each person who performs service as a volunteer or auxiliary employee as a member of the system as required by Government Code Section 862.002. [make needed changes in the roster, and return the report to the Executive Director not later than the fifth day before the last day of the quarter.]

(e) Upon request by the local board chair, the Executive Director will provide the local board chair with an updated roster for certification.

(f) The local board shall meet and certify, by signature of the chairman, the accuracy of the Roster report and return the signed report to the Executive Director no later than the fifth day before the last day of the billing period.

(g) [(e)] Based on the certified roster, on the last day of the month of the billing period, an invoice shall be generated by the system and provided to the governing entity. Payments are [under a billing issued under this section become] due within 30 days of the invoice date. Late payments accrue interest at the current actuarially assumed rate of investment return on fund assets.

(h) [(f)] In this section:

(1) The term "ACH" (Automated Clearing House) means the legal framework of rules and operational procedures adopted by financial institutions for the electronic transfer of funds.

(2) The term "ACH Credit" means an ACH transaction initiated by the governing body of a participating department for the electronic transfer of funds from the account of the governing body to the account of the pension system.

(3) The term "ACH Debit" means an ACH transaction initiated by the pension system for the electronic transfer of funds from the account of the governing body of a participating department to the account of the pension system.

(4) The term "electronic funds transfer [transfer of funds]" means the transfer of funds, other than by check, draft or similar paper instrument, that is initiated electronically to order, instruct, or authorize a financial institution to debit or to credit an account.

(5) The term "pre-authorized direct debit" means the method available to the governing body of a participating department for electronically paying required contributions by granting a continuing authorization to the pension system to initiate an ACH Debit [each quarter] for the electronic transfer of funds from the designated bank account of the governing body to the account of the pension system in an amount equal to the contributions required to be paid [based on the quarterly report as filed].

(6) The term "wire transfer" generally means a single transaction, initiated by the governing body of a participating department, in which funds are electronically transferred to the account of the pension system using the Federal Reserve Banking System rather than the ACH.

(i) [(g)] Amounts required to be contributed to the pension system in accordance with Chapter 865 of the Texas Government Code may be made by preauthorized direct debits (ACH Debits), electronic funds transfer, or by wire transfer. [ACH Credits and wire transfers may not be used to transfer funds to the pension system except as authorized under subsection (j) of this section.]

(j) [(h)] The governing body of a participating department may elect to use the preauthorized direct debit method of payment by filing a signed authorization agreement with the pension system in which the governing body has designated a single bank account from which all transfers will be made.

(k) [(i)] The authorization agreement entered into for this purpose constitutes continuing authority for the pension system to initiate a direct debit of the governing body's designated bank account [each quarter and is effective with respect to each quarterly report of the governing body, whether filed by mail or by electronic transmission].

(l) [(j)] An authorization agreement remains in effect until the pension system receives either a written revocation of the agreement, or a subsequent written agreement, which automatically revokes the existing authorization. A new authorization agreement must be filed if there is any change in the designated bank account. The pension system, in its sole discretion, may terminate the authorization agreement by mailing written notice to the governing body. Thereafter, the governing body must remit all contributions by check, electronic funds transfer, wire transfer, or other monetary means approved by the Executive Director. The alternative method of payment may include a fee to recover the cost of administering this subsection.

(m) On the 30th day after the invoice date, the pension system will initiate an ACH Debit in the amount of the invoice. The actual transfer of funds from the ACH designated account will not occur before the due date of the invoice.

[(k) Following receipt of a roster report filed under an unrevoked authorization agreement, the pension system will initiate an ACH Debit in the amount required to be contributed for that period based on the report; however the actual transfer of funds from the governing body's designated account will not occur before the due date of the report invoice.]

(n) [(l)] [The receipt of a quarterly roster report filed under an unrevoked authorization agreement is considered to be receipt by the pension system of the amount required to be contributed for the period based on that report if there are sufficient funds available for transfer from the governing body's designated account on the later of the due date of the report or the date the report is received.] An ACH Debit that is reversed by a governing body or that fails because sufficient funds are not available for transfer constitutes nonpayment of the required contributions [with respect to that report] and, thereafter, the required contributions will not be considered to have been received until the day the funds are actually transferred to the account of the pension system. Such unpaid funds may be subject to interest charges. [A governing body failing to timely file the required information or remit the required contributions by the due date of the report is subject to a penalty for late reporting in accordance with §310.9 of this title.]

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on June 14, 2017.

TRD-201702323

Kevin Deiters

Executive Director

Texas Emergency Services Retirement System

Earliest possible date of adoption: July 30, 2017

For further information, please call: (512) 936-3474