Case Information
*1 The Attorney General of Texas January 21, 1982
HARK WHITE
.Attorney General Honorable Chris Victor Semos Opinion No.MW-430
Supreme Court Building Chairman P. 0. Box 12546 Re: Whether hospital project House Committee on Business and Austin. TX. 76711 is subject to ad valorem tax Industry 5121475.2501 Telex 9101674.1367 Capitol Building Telecopies 5121475-0266 78711 Austin, Texas 1607 Main St.. Suite [1400] Dear Representative Semos:
Oaltas. TX. 75201 2 141742.6944 a hospital authority The Grand Prairie Connnunity Hospital,
organized under article 4437e, V.T.C.S., the Hospital Authority Act, 4624 Alberta 9151533.3464 El Paso. TX. 79905 Ave.. Suite [160] hospital and parking plans to construct facility lot a hospital immediately' and lease project adjacent or consisting sell the presently of an office building existing as
condominiums to doctors practicing therein.
You ask whether project will be subject to ad valorem taxation levied against 1220 Dallas Ave.. Suite 202 hospital authority the revenue which U generates through rental HOUS~O”. TX. 77002 sale agreements is sufficient to show a profit, even such 713/650-0666 profit will either be placed in the general funds of authority or be used the continued improvement, expansion 606 Broadwav. Suite 312 development the office building. We do not understand you to be Lubbock, TX: 79401 asking whether a lessee or a purchaser will be subject to ad valorem 606f747.5236 in the situation you describe. 4309 N. Tenth. Suite B is empowered construct hospital The hospital McNen. TX. 76501 projects defined as follows: 5 12,662-4547 ;i * 200 Main Plaza. suite personal, 'Hospital project' 0 r mixed property, means and includes or any any real, interest San Antonio. TX. 76205 by the governing therein, the... constructing... body of an issuer of which to be required found
or necessary for medical care. research, training, and teaching, any one or all.... Without limiting the generality of the foregoing, and when found by the governing body or an issuer to be so required, necessary. or convenient 'hospital project' shall include the following:
llonornh~r Chris Victor Srrnon - Pngc 2 !Mw-430) . office or building. or building, parking lot !;nfc”ty, or utll,tty Facility. and “ainte”a”cc. related equipment. See also V.T.C.S. art. 4437e. $91, 3, 6.
V.T.C.S. art. 4437e-2 63(g). Clearly a” office building and parking lot such as you describe, when nccesssry, or convenient” by the governing body found to be “required, the authority would fall within the definition of “hospital’ project” as set nut above.
Senate RI11 No. 1067, amending 4437e-1, V.T.C.S.; the governing body of any hospital created authorizes pursuant to the Hospital Authority Act lease or to sell to any person any hospital, or part thereof. owned by the authority. Acts 1981, 67th Leg., ch. 5H3, 55 at 2363. It amends section 14 of the Hospitol Authority Act to provide should not be operated with a view to generating R private profit, but that, in any event, it must be operated to generat.e suffic,ient revenue to pay all expenses and all indebtedness incurred by the facility. Acts 1981, blth l.cg., ch. 583, $4 at 2362. And finally, 16 of artic1.e 4437e. V.T.C.S., provides ::incc owned by authority will be held only and will be devoted to the use and benefit of the public, it shall be exempt from all forms of taxation. You ask whether the authority will be subject ad valorem taxation tf leases or sells above-described space and parking lot as is empowered by statute to do. e
Article XI, Y of the Texas Constitution provides in pertinent part the following:
The property of counties, cities and towns, owned and held only for public purposes. such as public itilildings and the sitcs thert:for, . . .nnd all other devoted cxclunively the use and Q?-OQ‘!rt,' benefit the public shnll be exempt from. . . taxation....
Arti,,!‘. st.ccion the 1’ev.a~ Constitution provides in VTlI. pert~i~:crtc port fol IowIng: “I ‘I’) hc I.cgisl;lturr mny, by gener?,l 1 ilWS, ‘xr*nq,t I ram taxnt J~“rl i>llbliC property used Q"bl:C pI!rposes....” Article VIII, aectlun I of the ‘Texas Constitution sets forth following I.” Qertinellt pnrt: “All real tangible personal in this state, whether owned by natural persons corporations, other than municipal, shall taxed in proportion to Its value. which shall be ascertained as may be provided by ],a~.” of a political which would otherwise qualify
for exemption under one of foregoing provisions will not lose its status merely becnuse .? charge is made for “se of or a profit generated thereby provided the charges are incident to its use by the i v. Chrmical Hank and
suhdivlslon. ~.ower Culornrhr Klvrr Authority Trust Company,.‘190 S.W.Z;?---&H. SO (TcFT945); A h M ~onsolidnted Independent School District v. City of Bryan, 184~!.W.Zd 914, 915-16 tit y of Beaumont v. Fertitta. 415 S.W.Zd 902, (Tex. 1945). See also Galveston Wharf Company v. 915 (Tex. 1967) (Walker, .I., dissenting); City of Galveston, 63 Tex. 14 (1884); Cf. Santa Rosa Infirmary v. City of San Antonio, 259 S.W. 926 (Tex. Coxn App. 1933); City of Dallas y Palestine v. V. Smith, 107 S.W.2d (Tex. 1937) ; tit Missouri-Pacific Lines Hospital Association, 99 S.W.2d 311~ (Tex. Civ. ADD. - Amarillo 1936. writ ref’dj (cases involved not oolitical subdivisions but rathe; institutions. of.purely public charityj.
Our inquiry, however, does not end here. In your letter “Offices would be leased and/or requesting our opinion you state: space would be sold on a ‘condominium theory’ to doctors including specialists who would also be using facility care and treatment their patients.” The office leased or sold to doctors would then be subject to private use and control. We must first address issue whether public property not used or not used exclusively for public purposes will be denied status by virtue thereof.
It has been suggested that Fertitta is controlling. This case held that property owned~by the city, to private persons of carrying on a private commercial enterprise, was exempt of the fact that the use to which the property was put was not public. The court In Fertitta departed the method of constitutional from
analysis which courts had traditionally invoked when the issue was whether property was entitled receive City of Beaumont v Fertitta, supra (see dissenting opinion). Prior to Fertitta, courts had always looked whether the property was owned by a political and whether it was used or held for a public purpose, while assuming that, ir were not so used, it would be taxab1.e under article
and 2 of the Texas Constitution. See A 8 M Consolidated Independent -- School District 1:. Citv of Bryan SUE; Daoghertv v. Thompson, 9 S.W. -_._-’ --.-- 99 (Tex. 18R8); (.ity tof Abilenc v. State 11’) S.W.2d 631 (?cx. Civ. APP . - Eastland 1937, writ dism’d) (holding disapproved of on other grounds in Fertittnj. The court In _Fcrtitta departed from traditional mode of constitutional analysis in declaring constitution does not require that property owned by a municipality but not used for a public purpose be taxed. It only requires private held by untural persons or private corporations taxed. Therefore, since the constitution does not require municipal to be taxed, legislature needs no to exempt it. It chose to do I:(, in the now-repealed 7145, V.T.C.S. This stdtute required that ally property, except which is expressly exempted, he taxed. The now-repealed 7150, VA.C.S., exempted “lall~l property, whether rcnl personal, belonging this State, or any political
Honorable Chris Victor Semos - Page 4 ‘i or the United States. . ..‘I Public owneiship was enough, no thereof, public use was required.
The dissent in Fertitta readily pointed out that this constitutional statutory argument is novel; indeed, earlier decisions which went to great length discussing the holding and using requirements of public property make sense only if one accepts claim that the constitution requires all property to be taxed unless it is specifically exempted pursuant= a constitutional provision, that public property, in order that it be deemed tax-exempt. must fall within the limitations set forth in article VIII,
XI. section 9 of the Texas Constitution. No other case has explicitly emuloved such an analysis. Moreover, the Texas Supreme Court clearlv na;ro;ed the reach of.Fertitta in Learider Independint School Distric; v. Cedar Park Water Supply Corporatioa. 479 S.W.2d 908. 911 (Tex. 1972) and in Satterlee v. Gu,lf Coast Waste Disposal Authority, S.W.2d 773 (Tex. 1978).
Leander did not concern property owned by a political subdivision to a private person of a private commercial enterprise; rather, it concerned property owned by a private person but used for pubiic purposes. In overturning a lower court judgment sustaining tax-exempt status such property, court specifically held that property, to be exempt, must be used for public purposes. The court in Leander did not. however, explicitly reject the mode of analysis employed in Fertitta. In Setterlee, the court reaffirmed the requirement that there be a public use before property- subdivision be declared tax-exempt.
If the traditional method of analysis were applied to the instant situation, a court would find that since of the political is used for private purposes, it should not receive If the method of analysis employed in Fertitta status. a court woul,d also find that were employed instead, should not rccetvc the court looked In fertitta, to the now-repealed article 7150, V.T.C.S., which did not require owned by a political be used for public purposes in order it tax-exempt; mere public ownership was enough. . However, the statute which replaced 7150, V.T.C.S., 11.11(a) of the Property Tax Code does require that property owned by :I political he exempt only Is used for public purposes. Therefore, of which method of analysis a court would employ, is clear that a requirement that the be used purposes would be imposed. The final issue is whether that public use must be exclusive or whether a private person may permissibly be incidentally benefitted.
In Satterlee. the court declared to be taxable real property which was conveyed to a political subdivision. The court held instruments did not convey interest in the property sufficient make the ownership “public” for of
and 2. On motion rehearing. the waste disposal urged the property still be held under that provision of XI, section 9 which purports to exempt “...a11 other property to the use and benefit of the puhljc.. ..‘I The devoted court disagreed and, citing Lower Colorado River Authority Daugherty. declared the property must be held only purposes and devoted exclusively to the use and benefit of the public. the basis of this language, we conclude that, by the arrangement
On the property would lose its tax exempt status here contemplated, because is not used exclusively for the benefit of the public.
With respect to office space which the authority proposes to sell “On a ‘condominium theory”’ to doctors, the foregoing argument There is, moreover, an additional argument. relevant. Both article VIII, 2 and article XI section 9 of the Texas Constitution Even if office speak of property owned by a political subdivision.
space which was sold as condominiums were to meet the “public use” test, is highly unlikely it would meet the ownership test. In v. Harris County Water Control and Improvement District No. Calvert 2. 368 S.W.Zd 833 (Tex. Civ. App. - Austin 1963, writ ref’d n.r.e.), the court held that a special district ~was not. within the meaning of article VIII, 1 and 2 of the Texas Constitution, the owner of what had been n privately-owned water supply system. The special district was not empowered to exercise any control over disposition of the system, legal. title to the property vested in the district; the control was vested in a trustee created by private individuals, and for their benefit. In Satterlee, the Texas Supreme Court held that a state conservation and reclamation district did not acquire exclusive ownership of property on which an industrial waste treatment center was constructed where thp special warranty deed conveyed the district only for “so long as” property was used industrial waste treatment and restricted ability the district to subsequently convey such property. The supreme court he~ld that such a conveyance created a determinable fee, that exclusive ownership and control of the property had not vested in the district, and that the property was not exempt tnxntion. Though no Texas hns yet expli.citly so held, we court
conclude that a court would probably declare that, in the event that a political. sold condominium, as a political would no l~onger “own” the property in the sense required by article VTII. X~C, section Texas Constitution, of tlw use 01~ such office space.
SUMMARY The mere fact that a charge is made for use of property
or a profit is generated thereby will not cause such property to be denied ad valorem owned by :I political
subdivl:;ion, but to ~1 privxtc person of engaging in il private cummercial enterprise. wou1.d not be enLitl,ed to exemption from :~d vnlorom 1:lxation under
.” 2 or article XI, section the Texas
Constitutio".
subdivision, but sold as a condominium to a private person, would not be entitled to exemption taxation. of the use of such property, because is not "owned" by a political within the meaning XI, section of the Texas Constitution.
Attorney General of Texas JOHN W. FAINTER, JR.
First Assistant Attorney General
RICHARD E. GRAY III
Executive Assistant Attorney General
Prepared by Jim Moellinger
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
Susan L. Garrison. Chairman
Rick Gilpin
Jim Moellinger
p. 1.474