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2011 Legislative Summaries

The following are brief summaries of the 2011 legislative changes to statutes administered by or affecting the Tennessee Department of Revenue.  The language used is not quoted from the law and should not be used as a substitute for the formal text.  For a complete copy of a particular public chapter, please visit the Secretary of State’s Web site at www.tn.gov/sos/acts. For upcoming notices and other information regarding these changes, please visit the Department’s website at www.tn.gov/revenue.

These summaries are organized by subject matter.  Some public chapters cover more than one subject and, therefore, appear in more than one section of the summary.  Only the portions of a public chapter that are relevant to a particular section of the summary are included in that section.

Sales and Use Tax

Franchise and Excise Tax

Individual Income Tax (aka Hall Tax)

Business Tax

Alcoholic Beverages

Other Taxes

Tax Administration

Title and Registration

 

 

Streamlined Effective Date
Public Chapter 72 delays the effective date of statutory changes to bring Tennessee into compliance with the Streamlined Sales and Use Tax Agreement from July 1, 2011, to July 1, 2013.

Effective Date: April 13, 2011.

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Flood Relief Refund
Public Chapter 133 extends the time limitation on sales and use tax refunds for items purchased in response to the May 2010 flood to cover items purchased through April 30, 2011, and extends the deadline for filing such claims to June 30, 2011.  It also allows a claimant who has already filed such a claim to file an additional claim for purchases not included on the first claim.

Effective date: May 2, 2011.

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Disaster Relief Refund
Public Chapter 508, Section 33, authorizes a refund of sales tax paid on eligible items purchased between March 23, 2011, and December 31, 2011, to any natural person receiving disaster assistance through the Federal Emergency Management Agency (FEMA) as a result of a disaster occurring between March 23, 2011, and May 12, 2011.  A claimant must submit a refund application and receipts for qualifying purchases to the Department of Revenue prior to February 29, 2012.  Only one refund claim is allowed per claimant.  Eligible items are: major appliances and residential furniture with a purchase price of $3,200 or less per item, and residential building supplies with a purchase price of $500 or less per item.  Eligible items are defined by the statute.  An otherwise eligible person is also entitled to a refund of sales tax paid by a contractor to a dealer on an eligible item that the contractor installs on behalf of that person if the contractor itemizes on a receipt the charge for the item and the sales tax paid.  The total amount refunded in connection with any one residence may not exceed $2,500.

Effective date: June 16, 2011.

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Storm Shelter Refund
Public Chapter 398 allows for a refund of sales tax paid by individuals purchasing building supplies for the construction or improvement of a storm or tornado shelter in their primary residence with a purchase price of $3,200 or less per item.  Individuals may also claim the tax paid by a contractor when purchasing eligible items for construction or improvement to a storm or tornado shelter.  The contractor must provide an invoice listing the items purchased and the amount of Tennessee sales tax paid.  Purchases of qualifying building supplies must be made between July 1, 2011, and December 31, 2011.  Individuals may file one claim for refund with the Department of Revenue by February 1, 2012.  The maximum amount of refund available to any one residence is $2,500.

Effective date: June 6, 2011.

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Headquarters Facility Credit: Existing Headquarters Facilities
Public Chapter 508, Sections 1 - 8, revises the sales tax headquarters facility credit to allow an existing headquarters facility to qualify for the credit, provided the taxpayer makes a capital investment of at least $10,000,000 and creates at least 100 new full-time headquarters staff employee jobs that pay at least 150% of the state's average occupational wage.  Also removes the provision allowing a taxpayer to qualify for the credit by making a $50,000,000 capital investment without the creation of any jobs.

Effective date: July 1, 2011, but allows application of prior law to pending projects evidenced by a written departmental proposal.

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Headquarters Facility Credit: Qualified Tangible Personal Property
Public Chapter 508, Section 9, amends the headquarters facility credit definition of “qualified tangible personal property” to specify that such property only includes property that is directly related to the creation of the required new full-time employee jobs.

Effective date: July 1, 2011, but allows application of prior law to pending projects evidenced by a written departmental proposal.

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Headquarters Facility Credit: Certification
Public Chapter 508, Sections 10 and 11, amends the headquarters facility credit to require the taxpayer to certify the number of new full-time employee jobs created and that the purchases of qualified tangible personal property for which the credit is claimed are directly related to the creation of such new full-time employee jobs.

Effective date: July 1, 2011, but allows application of prior law to pending projects evidenced by a written departmental proposal.

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Headquarters Facility Credit: Job Requirement Reduction
Public Chapter 508, Section 12, amends the headquarters facility credit to specify that if determined to be in the best interests of the state, the Commissioner of Revenue and the Commissioner of Economic and Community Development may lower the number of jobs that must be created in order to qualify for the credit, except that the amount of the credit will also be reduced in direct proportion to the reduction in the job creation requirement. Under no circumstances, however, may the job creation requirement be lowered by more than 50 percent.

Effective date: July 1, 2011, but allows application of prior law to pending projects evidenced by a written departmental proposal.

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Warehouse or Distribution Facilities
Public Chapter 508, Section 32, extends the industrial machinery exemption to the purchase and renovation or expansion of an existing building, if there is an investment of $10,000,000 in such purchase and renovation or expansion, over a period not exceeding 3 years.

Effective date: July 1, 2011, but allows application of prior law to pending projects evidenced by a written departmental proposal.

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Definitions: "Best Interests of the State" and "Good Cause"
Public Chapter 508, Sections 30 and 31, amends the definition of “best interests of the state” and "good cause" to mean that a company would not make the investment in Tennessee if not for the offered tax incentive.

Effective date: July 1, 2011, but allows application of prior law to pending projects evidenced by a written departmental proposal.

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Use Tax on Computer Software and Maintenance Contracts
Public Chapter 467, Section 6, allows a credit for sales tax paid to another state on the purchase of computer software and computer software maintenance contracts when they are purchased outside Tennessee and are subject to sales tax in another state prior to becoming subject to use tax in Tennessee.

Effective date: June 10, 2011.

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Aviation Fuel Filing
Public Chapter 194 authorizes the Commissioner of Revenue to require aviation fuel dealers to file a sales report monthly, rather than quarterly, for purposes of distributing revenue to the transportation equity trust fund, and imposes a civil penalty of $500 if such report is not filed.

Effective date: July 1, 2011.

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Urban Brownfield Redevelopment Project
Public Chapter 384 authorizes an Industrial Development Corporation in a municipality where an urban brownfield redevelopment project is located to prepare and submit to the municipality for approval an economic impact plan with respect to an urban brownfield redevelopment project.  Property taxes and certain sales taxes collected within the area subject to the plan will be distributed for the furtherance of the economic development objectives of the corporation and the municipality.

Effective date: June 1, 2011.

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Tennessee River Resort District Status
Public Chapter 407 authorizes a jurisdiction to repeal its Tennessee River resort district status.

Effective date: June 6, 2011.

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Border Region Retail Tourism Development District Act
Public Chapter 420 authorizes the creation of a Border Region Retail Tourism Development District by a municipality and certified by the Commissioner of Revenue.  The local government may receive sales tax revenues in the amount of the incremental increase in the state sales tax resulting from the Development District, if the Commissioner of Revenue and the Commissioner of Economic and Community Development determine such allocation is in the best interests of the state.

Effective date: July 1, 2011.

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Local Option Rate on Industrial and Farm Machinery
Public Chapter 467, Section 5, deletes obsolete language concerning reduced rates of sales tax on industrial machinery and farm equipment.  The language is obsolete because those items were subsequently exempted from tax.

Effective date: June 10, 2011.

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Headquarters Relocation Expense Credit: Unfilled Positions
Public Chapter 72, Section 16, requires a taxpayer to repay any headquarters relocation expense credit taken relating to a position that is not filled during the investment period.

Effective date: April 13, 2011.

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Headquarters Relocation Expense Credit: Eligibility
Public Chapter 508, Section 13, amends the headquarters relocation expense credit by extending eligibility for the credit to existing headquarters facilities.

Effective date: July 1, 2011, but allows application of prior law to pending projects evidenced by a written departmental proposal.

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Headquarters Relocation Expense Credit: Required Use of Facility
Public Chapter 508, Section 14, amends the headquarters relocation expense credit to require that the facility be used as a headquarters facility for 10 years from the end of the investment period, instead of beginning from the date of substantial completion.

Effective date: July 1, 2011, but allows application of prior law to pending projects evidenced by a written departmental proposal.

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Headquarters Relocation Expense Credit: Job Requirement Reduction
Public Chapter 508, Section 15, removes the Commissioner of Revenue’s authority to lower the wage requirement in the headquarters relocation expense credit and substitutes instead the authority to lower the number of jobs that must be created in order to qualify for the credit, except that the amount of the credit will also be reduced in direct proportion to the reduction in the job creation requirement. Under no circumstances, however, may the job creation requirement be lowered by more than 50 percent.

Effective date: July 1, 2011, but allows application of prior law to pending projects evidenced by a written departmental proposal.

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Job Tax Credit: Investment and Job Creation Requirements
Public Chapter 508, Section 16, amends the job tax credit to allow the qualified business enterprise the entire investment period of up to 3 years to make the required capital investment and create at least 25 qualified jobs, instead of 12 months.  Section 16 of Public Chapter 508 also clarifies that the credit will first apply in the tax year in which the qualified business enterprise has met all of the requirements for the credit.

Effective date: July 1, 2011, but allows application of prior law to pending projects evidenced by a written departmental proposal.

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Job Tax Credit: Application of Additional Annual Credit
Public Chapter 508, Sections 17 and 18, amends the additional annual job tax credit to specify that the qualified business enterprise may first apply the additional credit in any tax year after the qualified business enterprise has met all of the requirements for the credit, except that the qualified business enterprise must begin to apply the credit no later than the first tax year following the end of the investment period.  Section 18 also clarifies that a taxpayer is not entitled to both the additional annual credit for the tier 2 and 3 enhancement counties and the additional annual credit for the enhanced capital investment and job creation thresholds.

Effective date: July 1, 2011, but allows application of prior law to pending projects evidenced by a written departmental proposal.

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Job Tax Credit: Utilization of Credit Carry-forward
Public Chapter 508, Section 19, repeals, for any future project, the authority of the Commissioner of Revenue and the Commissioner of Economic and Community Development to allow unused job tax credit to be carried-forward beyond the standard 15-year period.

Effective date: July 1, 2011, but allows application of prior law to pending projects evidenced by a written departmental proposal.

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Job Tax Credit: Permissible Offset
Public Chapter 508, Section 20, clarifies that a taxpayer that has earned job tax credit after June 1, 2006, may be granted permission to offset up to 100% of its franchise and excise tax liability by job tax credits, or any carry-forward of the job tax credits, if the Commissioner of Revenue and the Commissioner of Economic and Community Development determine that increasing the percentage of offset permitted to the taxpayer is in the best interests of the state.

Effective date: July 1, 2011, but allows application of prior law to pending projects evidenced by a written departmental proposal.

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Job Tax Credit: Job Requirement Reduction
Public Chapter 508, Section 21, repeals the authority of the Commissioner of Revenue and the Commissioner of Economic and Community Development to lower the wage and investment criteria applicable to the additional job tax credit.  Public Chapter 508, Section 21 substitutes instead the authority to lower the number of jobs required to be created in order to receive the additional job tax credit, except that the amount of the credit will also be reduced in direct proportion to the reduction in the job creation requirement. Under no circumstances, however, may the job creation requirement be lowered by more than 50 percent.

Effective date: July 1, 2011, but allows application of prior law to pending projects evidenced by a written departmental proposal.

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Net Operating Loss (NOL): Utilization of NOL Carry-forward
Public Chapter 508, Sections 22 and 23, repeals, for any future project, the authority of the Commissioner of Revenue and the Commissioner of Economic and Community Development to allow an NOL to be carried-forward beyond the standard 15-year period.

Effective date: July 1, 2011, but allows application of prior law to pending projects evidenced by a written departmental proposal.

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Industrial Machinery Credit: Utilization of Carry-forward
Public Chapter 508, Section 24, repeals, for any future project, the authority of the Commissioner of Revenue and the Commissioner of Economic and Community Development to allow unused industrial machinery credit to be carried-forward beyond the standard 15-year period.

Effective date: July 1, 2011, but allows application of prior law to pending projects evidenced by a written departmental proposal.

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Definitions: "Best Interests of the State" and "Good Cause"
Public Chapter 508, Sections 25 – 29, amends the definition of "best interests of the state" and "good cause" to mean that a company would not make the investment in Tennessee if not for the offered tax incentive.

Effective date: July 1, 2011, but allows application of prior law to pending projects evidenced by a written departmental proposal.

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Apportionment of Goodwill
Public Chapter 467, Sections 2 and 3, provides that gain on the sale of an asset that is classified for federal income tax purposes as goodwill shall be excluded from both the numerator and the denominator of the receipts factor of the apportionment formula. As a result, the taxpayer’s Tennessee apportionment ratio is calculated without reference to the sourcing of goodwill.

Effective date: June 10, 2011.

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Reasonable Rent
Public Chapter 467, Section 11, specifies that any amount in excess of reasonable rent that is received or accrued for the rental, leasing, or comparable use of industrial and commercial property rented, leased, or otherwise provided to an affiliate will be subtracted from the taxpayer’s net earnings. However, this provision applies only to the extent that the corresponding expense has been added to the net earnings or net losses of the affiliate.

Effective date: June 10, 2011, and shall apply to tax years ending on or after June 10, 2011.

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Property Tax Repeal and Allocation of Excise Taxes
Public Chapter 438 repeals the property tax on stock held by shareholders of loan companies, investment companies, and cemetery companies. To compensate for the resulting decrease in revenue to local governments, a portion of the excise taxes collected from such entities will be allocated to local governments. The allocation equals 3% of the net earnings of the entity (or financial institution unitary group, in the case of a loan company), less 7% of the ad valorem taxes paid by the company (or unitary group) on its real and tangible personal property for the second fiscal year preceding the year in which the distribution is made. Such allocations shall not exceed $1 million for 2011. If a company has offices or branches in more than one local jurisdiction, the distribution of excise taxes paid by that company will be apportioned between the local governments.

Effective date: June 10, 2011, and shall apply to assessments and collections on and after January 1, 2011.

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Facilities Owned by the Armed Forces
Public Chapter 382 creates an exemption from the franchise and excise taxes for any entity owned directly, in whole or in part, by a branch of the United States Armed Forces. The entity must derive more than 50% of its gross income from the operation of facilities that are located on property owned or leased by the federal government and operated primarily for the benefit of member of the United States Armed Forces.

Effective date: June 1, 2011, and shall apply to tax periods ending on or after June 30, 2011.

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Exemption for Private Cemetery Trusts
Public Chapter 490 amends the individual income tax exemption for a trust created for the perpetual care of a private cemetery pursuant to the provisions of Title 46, Chapter 7.  The exemption was previously limited to trusts with a corpus not in excess of $50,000. The amendment removes the $50,000 limitation.

Effective date: July 1, 2011.

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Exemption for Individuals Age 65 and Older
Public Chapter 396 increases the individual income tax exemption for persons aged 65 years or older.  For tax years beginning January 1, 2012, persons aged 65 years or older having a total annual income derived from any and all sources of $26,200 or less, or any persons who file a joint return and either spouse is 65 years of age or older having a total annual joint income derived from any and all sources of not more than $37,000, will be exempt from the income tax.  Under current law, the income levels are $16,200 or less, for single filers 65 years of age or older and $27,000 for joint filers when either spouse is 65 years of age or older.

Effective date: June 6, 2011.

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Business Tax: Filing Returns and Making Payments Electronically
Public Chapter 467, Sections 7 and 8, requires all persons with a business tax liability of $1,000 or more to file their business tax return electronically and to make their payment in funds that are immediately available to the state on the date of payment. Taxpayers that fail to file their return electronically in accordance with this provision are subject to a civil penalty of $500 for each instance of filing a return by any other means. The Commissioner is authorized to waive the penalty in certain circumstances.

Effective date: June 10, 2011.

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Alcohol Sales in Unincorporated Areas
Public Chapter 447 authorizes the sale of alcoholic beverages in an unincorporated area of a county by local option election held in the portion of the county located just outside a large municipality.  It also amends several other alcoholic beverage statutes to allow the sale of alcoholic beverages in more locations.

Effective date: June 10, 2011.

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Winemaking on Premises Facility License
Public Chapter 451 creates the new “winemaking on premises facility” license for facilities that allow customers to rent such facilities to make wine for their own personal use.

Effective date: For the purpose of promulgating rules and regulations and determining the amount of fees, June 10, 2011; for all other purposes, January 1, 2012.

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Direct Shippers
Public Chapter 213 authorizes direct shippers to ship wine to any location in the state.

Effective date: May 20, 2011.

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Recordation Tax: Collection Duty
Public Chapter 321 amends the recordation tax to require every holder of an indebtedness, including an individual, business entity of any organizational structure, or governmental entity, to collect and remit the tax.

Effective date: May 27, 2011.

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Tobacco Tax: Licensed Distributor Reports
Public Chapter 264 authorizes the admission of a licensed distributor report filed by a licensed agent as a non-hearsay document in all judicial and administrative proceedings.

Effective date: May 23, 2011.

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Unauthorized Substances Tax: Definition of "Merchant"
Public Chapter 103 amends the definition of “merchant” to include a person who is actually engaged in the act of selling, bartering, trading, or distributing for consideration any quantity of an unauthorized substance.

Effective date: April 21, 2011.

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Privilege Tax on Gas, Water and Utility Companies
Public Chapter 404 amends the privilege tax to exempt non-profit entities that own and operate water companies.

Effective date: July 1, 2011.

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Letter and Revenue Rulings
Public Chapter 449 allows a party to request an expedited letter ruling or revenue ruling. The Commissioner shall either issue the expedited ruling within 60 days of the date of the submission of the request, or deny the request and return the fee within 7 days of such date.  The Commissioner may prescribe the fee for the issuance of letter and revenue rulings; the fee shall not exceed $10,000 in the case of an expedited ruling, and $500 in the case of all other rulings.

Effective date: June 10, 2011.

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Statute of Limitations
Public Chapter 343 authorizes the Department and a taxpayer to enter into a written agreement extending the one-year statute of limitations for filing a suit challenging the denial or deemed denial of a refund claim provided such agreement is entered in writingwithin a year from the date the taxpayer filed a claim for refund.

Effective date: May 30, 2011.

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Penalty Waivers
Public Chapter 467, Section 9, removes the limitation on the Commissioner’s ability to delegate the responsibility of reviewing and approving penalty waiver applications. Prior to this amendment, such responsibility could be delegated only to the deputy commissioner or the assistant commissioner for tax administration.

Effective date: June 10, 2011.

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Due Dates of Returns
Public Chapter 72, Section 17, authorizes the Commissioner of Revenue to extend the filing due date for Income, Gift, and Franchise & Excise taxes if the original filing date falls on an Internal Revenue Service legal holiday.

Effective date: April 13, 2011.

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Due Dates of Returns
Public Chapter 467, Section 10, amends Public Chapter 72, which permits the Commissioner to extend the due date of an individual income tax, franchise and excise tax, or gift tax return when such due date falls on an Internal Revenue Service legal holiday. This amendment clarifies that a “return” includes any remittance or other tax document, including quarterly estimated payments and extension requests.

Effective date: June 10, 2011, and shall apply to any return, remittance, or other tax document due on or after April 15, 2011.

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Omnibus Plate Bill
Public Chapter 491 authorizes the creation of fourteen new special license plates and extends the time to meet the minimum order requirements an additional year for seven special license plates.  It also authorizes the spouse of a deceased recipient of a Purple Heart registration plate to receive two such registration plates at no cost.

Effective date: July 1, 2011.

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Antique Motor Vehicle
Public Chapter 127 exempts antique motor vehicles being registered as such from the motor vehicle emissions testing requirements.

Effective date: July 1, 2011.

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Abandoned Vehicles - Owner Verification
Public Chapter 30 requires whoever takes possession of an abandoned motor vehicle to verify ownership within 3 days of taking possession and to send notification to the registered owner and any lienholders within 3 days of receiving verification.

Effective date: March 31, 2011.

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Methamphetamine Vehicles
Public Chapter 397 requires a law enforcement agency that impounds a motor vehicle due to the manufacture of methamphetamine on or within the motor vehicle to give notice to the Department, and requires the Department to issue a new certificate of title to the vehicle with “Methamphetamine Vehicle” written across the front.

Effective date: July 1, 2011.

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Abandoned Vehicles - Towing
Public Chapter 244 requires any person, prior to towing an abandoned motor vehicle, to give the vehicle information to the local law enforcement. It also requires the local law enforcement to keep a record of such vehicle information.

Effective date: July 1, 2011.

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