ODYSSEY 2020 ACADEMY, INC., PETITIONER,
No. 19-0962
IN THE SUPREME COURT OF TEXAS
JUNE 11, 2021
ON PETITION FOR REVIEW FROM THE COURT OF APPEALS FOR THE FOURTEENTH DISTRICT OF TEXAS
JUSTICE GUZMAN, joined by CHIEF JUSTICE HECHT and JUSTICE HUDDLE, dissenting.
The Texas Constitution mandates that “[t]axation shall be equal and uniform”1 but expressly provides that property “shall be exempt . . . from taxation” when “devoted exclusively to the use and benefit of the public“.2 At issue here is the availability of an ad valorem tax exemption for real property leased and used by a charter school as a public-school campus. Like traditional public schools, government-funded charter schools are public entities that provide a cost-free public education. And, as all agree, the charter school‘s campus is used exclusively for public purposes.3 The Court nonetheless holds that no tax exemption is available to Odyssey 2020 Academy, Inc. because the charter school
Article 11 does indeed provide a tax еxemption for publicly owned property, but it also exempts property that a governmental entity does not own but nevertheless “devote[s] exclusively to the use and benefit of the public“.6 Such is the case
I. Constitutional Tax Exemption
Article 11 is a “self-operative” tax exemption that applies to municipalities and arms of state government “serv[ing] a public purpose” and “absolutely exempts from taxation” covered property.7 The Court has previously explained that the “automatic” exemption in Article 11 prevents “an idle expenditure of public funds” that would result if government were made to “engage in the senseless process of taxing itself, the net result of which would be [only] to take its own money out of one pocket for the purpose of putting it into another.”8
The constitutional exemption in Article 11 encompasses charter schools like Odyssey because “open-enrollment charter schools act as an arm of the State Government.”9 The Court does not contend otherwise.10 Where we part company is with respect to the nature of the property the Constitution exеmpts from taxation. Our disagreement centers on the proper grammatical construction of Article 11.
In relevant part, Article 11 provides:
The property of counties, cities and towns, owned and held only for public purposes, such as
public buildings and the sites therefor, fire engines and the furniture thereof, and all property used, or intended for extinguishing fires, public grounds and all other property devoted exclusively to the use and benefit of the public shall be exempt . . . from taxation . . . .11
The Court construes Article 11 as exempting only the property of public entities “owned and held only for public purposes“.12 In the Court‘s view, the provision‘s remaining text, introduced by the phrase “such as“, merely supplies a non-exclusive list of property that may be “owned” by public entities “and held only for public purposes“.13 While facially reasonable, the Court‘s construction is inconsistent with the provision‘s grammatical structure, renders constitutional language superfluous, and fails to give effect to the precise language the people adopted.
When applying the Texas Constitution, “we construe its words as generally understood” and “rely heavily on the plain language of [its] literal text.”14 If possible, we do not treat any of the Constitution‘s language as surplusage, and we “avoid constructions that would render any constitutional provision meaningless or nugatory.”15 Applying these standards, Article 11 is more aptly construed as exempting from taxation three separate categories of property. That is,
- “The property of counties, cities and towns, owned and held only for public purposes, such as
- public buildings and the sites therefor,
- fire engines and the furniture thereof, and
- all property used, or intended for extinguishing fires, . . . shall be exempt . . . from taxation“;
- “[P]ublic grounds . . . shall be exempt . . . from taxation“;
- “[A]nd all other property dеvoted exclusively to the use and benefit of the public shall be exempt . . . from taxation“.16
Giving full effect to its syntactic structure, Article 11 exempts property that is either owned by public entities exclusively for public purposes or used by public entities exclusively for public purposes.
The Court is correct that Article 11 provides an exemption for publicly owned property used only for public purposes. The Court is also correct that Article 11 supplies a non-exclusive list of property that would qualify for that public-ownership exemption.17 But the Court is wrong about where the exemplar list ends. Rather than concluding with “all other property devoted exclusively to the [public‘s] use and benefit“, as the Court holds, the list of examples initiated by the “such as” phrase grammatically ends with “and all property used, or intended for extinguishing fires“. Syntactically, that phrase closes the “such as” list both by virtue of the “and” that precedes it and by the parenthetical comma that follows it.18 The list‘s terminal point is further confirmed by the absence of a parenthetical comma after “all other property devoted exclusively to the use and benefit of the public“, which would be necessary if the “such as” clause were inclusive of that language, as the Court contends.19 The first phrase, and first exemption, in Article 11 applies to publicly owned property, as the Court says, but it is not the only exemption the provision establishes.20
In contrast, the last exemption applies to “all other property devoted exclusively to the use and benefit of the public“.26 Notably, this phrase is not textually limited to “public” property, nor does it refer to public ownership like the preceding two phrases. Rather, it applies to “other property” and focuses on the property‘s “exclusive[]” “use” by and for the “public“.27 In this way, the context makes clear that “other” means “different” and “not the same” as the preceding two exemption categories.28 The difference relates to the public-ownership requirement. The third category is a clear textual shift from public property to “other property” used for public purposes.29
The Court contends that Article 11 cannot be construed as containing three exemptions without adding language limiting its application to governmental use, which it says would be necessary to avoid the exemption‘s application to private entities covered by certain permissive exemptions in Article VIII, section 2 of the Constitution (Article 8).32 But words do not have to be added to effectuate that limitation because Article 11‘s own text and placement within the Constitution clarifies that only governmental entities are eligible for Article 11‘s exemptions. First, Article 11 is in a portion of the Constitution that pertains only to governmental entities. By title, that portion of the Constitution is applicablе to “Municipal Corporations” and every section that falls within that article is applicable only to counties, cities, towns, and other municipal corporations.33 The specific section at issue here—Article 11, section 9—likewise pertains only to counties, cities, and towns, which we have construed as
Moreover, the Court‘s alternative construction of Article 11 as containing only a single exemption fails because it reads out the exclusive-use phrase and creates surplusage. Under the Court‘s reading, the phrase “property . . . owned and held only for public purposes” has an identical meaning to the subsequent phrase “property devoted exclusively to the use and benefit of the public“.35 “Exclusively” in the exclusive-use provision and “only” in the public-ownership provision both mean “sole“.36 To hold property solely for public purposes means that it cаn only be used for public purposes. Under the Court‘s interpretation, the exclusive-use phrase is therefore redundant of the public-ownership phrase because “only for public purposes” already encompasses “exclusive[] to the use and benefit of the public“.37 The only way to give effect to all of Article 11‘s language is to recognize that property exclusively “use[d]” by the public for the “benefit of the public” is exempt from taxation even if not “owned” by the public.38 Odyssey‘s leased property is used exclusively for public-education purposes and is therefore exempt under Article 11‘s plain language.
In arguing that Article 11 requires public ownership, the Court points to our opinion in Lower Colorado River Authority v. Chemical Bank & Trust Co., in which we stated “the legislature is without power to tax any property publicly owned and held only for public purposes and devoted exclusively to the use and benefit of the public.”39 Focusing on the opinion‘s single-sentence formulation and multiple uses of the conjunction “and,” the Court argues that Chemical Bank effectively declared Article 11 as being composed of a single tax exemption that, in all circumstances, requires the government‘s legal or equitable ownership of property that would otherwise be subject to taxation.
However, nothing about this formulation—read either in isolation or in the opinion‘s broader context—indicates that Chemical Bank was articulating Article 11 as a single exemption. More plausibly, the Court was acknowledging that Article 11 provides multiple grounds for exemption. The first “and” links the two requirements establishing exemption based on public ownership while the second “and” introduces the exclusive-use exemption. If the Court were setting out a single exemption, the proper grammatical choice would be to use a comma instead of the first “and.” Replacing the first “and” with a comma would have clarified that it was listing three requirements for a single exemption. As it did not, a more reasonable interpretation of Chemical Bank is recognition that Article 11 is not composed of only a single exemption.
The other cases the Court points to in support of its single-exemption construction of Article 11 are not on point for similar reasons: the Court did not address the exclusive-use ground for exemption in any of those cases, and none of those casеs involved a public entity using property it possessed, but did not own, only for public purposes.41 Our precedent correctly states the standard for the public-ownership exemptions but is silent as to the exclusive-use exemption. The Court mistakes this silence as affirmation of its non-existence. But in reality, there is no conflict between my construction of Article 11 and the outcomes reflected in our precedent.
With respect to Article 11‘s text, the Court contends that reading exclusive use as being an independent ground for exemption would make the public-ownership еxemptions surplusage.42 Viewing exclusive-use as an independent exemption would, the Court says, reduce the controlling inquiry to whether the property is being exclusively used for public purposes, owned or not, because the public-ownership exemptions have their own exclusive-use component.43 For that reason, the Court asserts that construing Article 11 as having an independent exclusive-use exemption would render the public-ownership exemptions meaningless.44
It is true that exclusive use is a component of both the public-ownership and exclusive-use exеmptions, so in some cases the inquiries will overlap. But these exemptions address different situations and are not identical. That is, the public-ownership
But because the public-ownership exemptions do nоt apply absent such ownership, they do not encompass the obverse scenario: property privately owned but used by public entities exclusively for public purposes. That is the situation presented in this case. Under my view of Article 11, the public-ownership exemptions are not surplusage because they apply to scenarios that are not covered by the exclusive-use exemption. Stated differently, Article 11 recognizes that property used exclusively for the public may be owned but not possessed by a public entity and, conversely, that such рroperty may be possessed but not so owned.
The public-ownership exemptions cover the most obvious circumstances in which property would be devoted “exclusively” to public purposes while the exclusive-use exemption functions as a “catch all” that encompasses less common circumstances in which privately owned property is nonetheless being used by the government exclusively for the public. Article 11‘s specification of exemptions for (1) property owned and held by the government only for public purposes, such as improved property and chattels, and for (2) public grounds highlights those circumstances in particular without negating an exemption for (3) “all other property” that is “devoted exclusively to the use and benefit of the public“.46 Rather, through this contrast, Article 11 emphasizes that the phrase “all other property” means exactly what it says.
Additionally, the public-ownership language is not meaningless because the word “only” further clarifies that, when public ownership is involved, the property must also be exclusively used for public purposes.47 “Only” dispels the notion that a different standard applies when public ownership is involved than when it is not. Repetition of the exclusive-use requirement through “only” and “all other property devoted exclusively to the use and benefit of the public” in Article 11 clarifies that, regardless of ownership status, exclusive use by and for the public is necessary for an Article 11 exemption.48 Under the Court‘s single-exemption construction, this repetition serves no purpose.
Ultimately, the three-exemption construction of Article 11 is more reasonable than the Court‘s single-exemption construction. Interpreting Article 11 as providing threе separate exemptions not only comports with and gives effect to the Constitution‘s plain language and grammatical structure, but also avoids taxing governmental entities that are using property exclusively to benefit the public. Whether a lessee is charged directly with paying the tax bill, as in this case, or whether tax costs are passed on indirectly through the cost of leasing, the economic reality of the Court‘s construction would result in “an idle expenditure of public funds” with the
II. Preservation
The Court and the parties dispute whether Odyssey properly preserved its claim to an automatic exemption under Article 11. The Court and the Galveston Central Appraisal District argue that Odyssey failed to preserve the constitutional claim by raising it for the first time in its briefing to this Court. Odyssey concedes Article 11 was first briefed here, but it contends the argument is properly before the Court because Odyssey‘s statutory- and constitutional-exemption arguments under section 11.11 of the Tax Code and Article 8 of the Constitution rest on the same premise: that the charter-school campus is tax exempt because it is usеd exclusively for public purposes. I agree with Odyssey.
To preserve a complaint for appellate review, “a party must present to the trial court a timely request, motion, or objection, state the specific grounds therefor, and obtain a ruling.”50 The stated grounds for the ruling must be made “with sufficient specificity to make the trial court aware of the complaint.”51 The rationale behind the preservation rules is that “[p]reservation of error reflects important prudential considerations recognizing that the judicial process benefits greatly when trial courts have the opportunity to first consider and rule on error.”52 In essence, “the trial court should have the chance to rule on issues that become the subject of the appeal.”53 Even so, rules of error preservation “should not be applied so strictly as to unduly restrain appellate courts from reaching the merits of a case.”54 More to the point, a party is always “free to construct new arguments in support of issues properly before the Court.”55
Section 11.11(a) of the Tax Code provides a tax exemption for property “owned by this state” and “used for public purposes.”56 Article 8 of the Constitution authorizes the Legislature to pass laws “exempt[ing] from taxatiоn public property used for public purposes“.57 In the trial court, Odyssey raised claims under section 11.11 and Article 8 but not Article 11. Nevertheless, I conclude Odyssey‘s Article 11 argument is fairly subsumed in these preserved claims because all three have “public purpose” as an essential element. Because those issues were preserved in the courts below, Odyssey‘s argument under Article 11 is essentially a new argument in support of issues properly before the Court, not a new issue that was not preserved.58
Accordingly, I would hold that Odyssey‘s Article 11 exemption claim was preservеd.
Justice Eva M. Guzman
OPINION DELIVERED: June 11, 2021