NONPROFIT WATER SUPPLY OR WASTEWATER SERVICE CORPORATION.

(a) A corporation organized under Chapter 67, Water Code, that provides in the bylaws of the corporation that on dissolution of the corporation the assets of the corporation remaining after discharge of the corporation's indebtedness shall be transferred to an entity that provides a water supply or wastewater service, or both, that is exempt from ad valorem taxation is entitled to an exemption from taxation of:

(1) property that the corporation owns and that is reasonably necessary for and used in the operation of the corporation:

(A) to acquire, treat, store, transport, sell, or distribute water; or

(B) to provide wastewater service; and

(2) the real property owned by the corporation consisting of:

(A) an incomplete improvement that:

(i) is under active construction or other physical preparation; and

(ii) is designed and intended to be used in the operation of the corporation for a purpose described by Subdivision (1) when complete; and

(B) the land on which the incomplete improvement is located that will be reasonably necessary for the use of the improvement in the operation of the corporation for a purpose described by Subdivision (1).

(b) A property may not be exempted under Subsection (a)(2) for more than three years.

(c) For purposes of Subsection (a)(2), an incomplete improvement is under physical preparation if the corporation has:

(1) engaged in architectural or engineering work, soil testing, land clearing activities, or site improvement work necessary for the construction of the improvement; or

(2) conducted an environmental or land use study relating to the construction of the improvement.