December 31, 1986

EonosableRay Farabee Chairman Committeeon StateAffairs Texas State Senate P. 0. Box 12068 Austin,Texas 78711 OpinionNo. JM-612

Re: Whether cooperativehousing is entitled to the residencehomestead tax exemption under article VIII, section l-b,of theTexas Constitutionand related questions

Dear SenatorParabee:

You ask the following two questions:

1. Are the homes (and stock) of persons who live in cooperative housing entitled to the residence homestead tax exemption provided by articleVIII, section l-b,of the Texas Constiution? In a cooperative housing arrangement, the homeowqers purchase stock in a nonprofit corporationwhich is organized to provide housing to its members. Title to the real estate, however, is held in the corporate name, and the homeowners obtain long-term leases from the corporation,but do not have title toany realproperty.
2. Are these same home and stock in cooperative housing eligible for protection from forced sale under article XVI, section 50, of the Texas Constitution. and section 41.002 of the Property Code? Assume forboth of thesequestions that the stockholder lives in the home as his primary residence and does hot claim a different home as au exempthomestead.

We answer both your questions in the negative. We will answer each in turn. For purposes of this opinion, we assume that the nonprofit corporationproviding the cooperativehousing was organized pursuant to article 1396-50.01,V.T.C.S., the CooperativeAssociation Act. Section 44 of the act exempts each association organized under the act from the franchise tax, see also Tax Code 1171.075. and from license fees imposed by the state or by any political subdivision. There is, however, no provision in the act which purports to exempt, eitherpartiallyor totally, thepropertyof suchassociations fromad valorem taxation.

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Article VIII, section l-b, of the Texas Constitution permits in
some instances and requires in other instances the granting by taxing units of residence homestead exemptions from ad valorem taxation. Section l-b itself does not define "residencehomestead;" rather, it provides that "[tlhe legislatureby general law may define residence homestead for,purposes of this section." Tex. Const. art. VIII, 51-b(c). The legislature defined the phrase in section 11.13 of the Tax Code and set forth the following iu subsection (3):

For purposes of this section, 'residencehomestead'
means a structbre (including a mobile home) **or** a separately secured and occupied portion of a structure (togetherwith the land,not to exceed 20
acres. and improvements used in the residential occupancy of the structure, if the structure and land and improvements have identical ownership) that:
(1) is ownedby one ormore individuals;
(2) is designed or adapted forhuman residence;
(3) isused a5 a residence;and
(4) is occupied as his principal residence by
an owner who qualifies for the exemption. (Emphasis added). Essentially,you firstaskwhether a person, otherwise qualified, may receive a residence homestead exemption in an instance In which the individual seeking the exemption does not own the structure upon . which the exemption is sought; rather, the individual owns stock in a nonprofit corporationwhose assets consist of the structureuponwhich the exemption is sought.

For two reasons, ke conclude that ownership of stock in a corporationwhose assets consist of a structure upon which the owner of the stock seeks aa exemption is not an omership interest sufficient to entitle the owner of the stock to claim an exemption on the corporation's assets. First. stock in corporation5 is not taxed inTexas. ArticleVIII, section 1.of theTexas Constitutionprovides in pertinentpart that

[a]11realproperty and tangiblepersonalproperty in this State,whether ownedby naturalpersons or corporations,other thanxuuicipal, shallbe taxed in proportion to itsvalue, which shall be ascertained a5 may be provided by law. The Lagislature may provide for the taxation of intangible property.

. . .

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Section 11.02(a)of.theTax Codeprovides inpertinentpart, exceptas provided in a subsectionnot relevant here, that "intatigible personal property is not taxable." Quite obviously, no ad valorem tax exemption can attach to property which is not taxed in the first place. Accordingly, no residence homestead ad valorem tax exemption
can attach to stock in a corporation.
Second, irrespectiveof whether stock in a corporation is taxed, stock owuersare not liable for taxes on the assets of a corporation. An ownership interest less than ownership in fee simple absolutemay be sufficient to confer a tax liability. For example, conveyance of an interestinminerals conveysan interest in realtywhich is taxable in the hands of the grantee seoarately from the grantor's interest. Basharav. Saratoea I~debendent'School~District,163 S.W.Zd 631 (Tex. rk, 231 S.W.2d 981 (Tex. Itin aoasossionof a life 1942);Watkins v. Certain-Teed Products CoCiv.App. - Amarillo 1950,no writ). A tena-- --~=-. estatepossessesan interestwhich is taxable. Triwblev. Farmer, 305 S.W.2d 157 (Tex. 1957); State v. Vaughan, 319 S.W.2d 349 (Tex. Civ. ADD. An oil lease constitutes "real SI - Austin 1958. no writ). propertyw and is subject to taxation. Eager v. Stakes, 294 S.W. 835 (Tex. 1927);Big Lake Oil Co. v. Reagan County, 217 S.W.2d 171 (Tex. Civ.App: - El Paso 1948,writ ref'd). A vendee of land is considered the owner for purposes of taxation even though a vendor's lien is retained for the price. Rarve v. Provident Insurance Co.. 156 S.W. 1127 (Tex.Civ.App. - Austin 1913.nowrit).

Ou the other hand, a contingent remainder in property does not constitute a taxable title to real property. Tarrant County Water Supply Corp. v. Hurst-Euless-BedfordIndependent SchoolDistrict. 391 S.W.2d 162 (Tex. Civ. APP. - Fort Worth 1965, writ ref'd n.r.e.). Except as provided by section 25.07 of the Tax Code, a leasehold interest in real property is not subject to taxation. See Tax Code - $523.13, 25.06; Irving Independent SchoolDistrict v. Delta Airlines, Inc., 534 S.W.2d 365 (Tex. Civ. App. - Texarkana 1976. writ ref'd n.t.e.). See also Tax Code 525.02; Underwood v. Pigwan, 32 S.W.2d 1102 holding approved (Tex.Comm'n App. 1932); Connell v. State, 55 S.W. 980 (Tex.Civ.App. 1900,no writ).

The corporation is liable for any ad valorem taxes imposed upon the assets of the corporation; an owner of stock in that corporation is not so liable. Thus, no tax exemption cau be claimed by such an owner. Accordingly, no residencehomestead ad valorem tax exemption
can attach to stock in a nonprofit corporation,even if the assets of that corporation consist of cooperative housing. We next turn to whether a corporationway qualify as a residence homestead exemption claimant or whether only natural persons may qualify. We conclude thatonlynaturalparsonsmay qualify.
First, it is clear froma readingof the relevantportions of the Tax Code that the legislature intended only natural persons and not corporations to be entitled to claim a residencehomestead exemption.

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The shove-underscored portions of section 11.13(j) clearly evince legislative intent that only natural persons receive the exemption: subsection (j) requires that the structurebe "owned by one or more individuals" and "is occupied as his principal residence by an owner who qualifies for the examption." (Emphasis added). Subsection 11.13(b) confers an exemption from taxation by a school district to "an adult.', Subsection5 (c) and (d) of section 11.13 confer a mandatory and a so-called "local option,'exemption to lranindividual who is disabled or is 64 or older.', Subsection (h) prohibits "joint
or community owners” from receiving the same exemption for the same residence homestead in the same year. See also Tax Code 911.41 (concerning the administration of exemptions where a person who qualifies for axamption is not the sole owner of the exemptproperty).

In contrast, it is instructive to examine the language employed by the legislature in setting forth ownership requirements for other exemption5 from ad valorem taxation. Section5 11.18 and 11.20 employ the term "an organization." Sections 11.21 and 11.27 use "a person.,' Section 11.19 refers to a qualifying "association' of a very particular kind. And section 11.23 purports to confer exemption5 to specified "organi5ation5," "associatlon5," "persons,',and "corporations." Manifestly, the legislature chose such term5 with care; if the legislature intended that corporations be entitled to residence homestead cxamptions. it is reasonable to assume that the term "person,,would have been used in defining "residence homestead' in section 11.13rather than the term 'individual.'

There is a second, more compelling, reason to conclude that the legislature intended "individual,' in section 11.13 of the Tax Code to reach only natural persons and not corporations. The con5titution limits the homestead exemption to natural persons. The legislature may **not** broadenby statute the scope of an exemption beyond thatwhich is conferred by the con5titution and any attempt to do so is void. Tex. Coast. art. VIII, '52; Dickison v. Woodmen of the World Life Insurance Society, 280 S.W.Zd 315 (Tex.Civ. App. - SanAntonio 1955, writ ref'd)

. If nronerdv comes within a statutory tax exemption, it
can be exempt only because it clearly falls within the ambit of the constitution. State v. ,AmericanLegion Post No. 58, 611 S.W.2d 720 (Tex. Civ. App. - El Paso 1981, no writ). We could not constitutionallycon5true section 11.13 to reach corporations.
Article VIII, section l-b, of the Texas Constitution, the constitutional provision pursuant to which section 11.13 of the Tax Code was passed, unquestionably envinces legislative intent that only natural persons, and not corporations,be entitled to residence homesteadadvalorem tax exemptions. Subsection (b)of section l-b,which authorizes political subdivisions to grant the so-called 'local option' residence homestead exemption codified in section 11.13(d)of the Tax Code imposes ownership requirements on "persons, married or unmarried, including those living alone

. . .,'and "married or unmarried persons sixty-five (65)years of age or older, includingthose

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livingalone.

. . ."Subsection (b)permitsby petition and referendum the grantingof residencehomestead exemptionsof "disabledpersons or of persons sixty-five (65) years of age or over. . . ." Subsection (c)of articleVIII, section l-b confers a residencehomestead exemption for public school purposes to a "married or unmarried adult, including one living alone.

. . ." It further authorizes the legislature to exempt a specified value of the residence homestead exemption of "a person who is disabled as defined in Subsection (b) of this section and of a person sixty-five (65) years of age or older.

. . ." Throughout subsection (c), language such as "eligible disabled person" and "eligible disabled or elderly person" is employed. Other subsections also refer to natural persons. See. s, Tex. Const.art.VIII, II-b, cd), (e).

It has been suggested that our answer to your first question implicitly overrules Attorney General Opinion M-632 (1970) which concluded that certain agricultural products in the physical possc5sion of a cooperativemarketing associationwere exempt from ad valorem taxation under article VIII, section 19. of the Texas Constitutionwhich exempts, inter alla, "[flarm products, livestock, and poultry in thehands of the producer." See alsoAttorneyGeneral opinion E-938 (1977). The issue in Attorney General Opinion M-632 turned upon ownership of the property claimed to be exempt. Legal title to thepropertyremainedwith the farmers;at no point did title pass to the marketing association itself. See Agriculture Code 0052.001- 52.151 (successorstatutestonow-repealedarticles 5737 to 5764,V.T.C.S.). In the factsyou submit,you claim that legal title to theproperty remainswith the associationand at no time passed to those owning stock in the association. In both Attorney General OpinionM-632 and in the instant case, tax exempt statusdepends upon ownership. In the instances of the above-mentioned farming cooperatives, title to property remainedwith the farmers. Ownership of the. housing cooperative remains with a corporation. The conclusion we reach here in no way undermines the correctness of the earlier opinions. Additionally,it is suggestedthat the conclusionwe have reached would have the effect of denying to an owner of a condominium the right to receivea residencehomestead exemption. Again,we disagree. An even cursory perusal of chapter 81 of the Property Code indicates that ownership of a condominium combines separate ownership of an individualapartmentwith commonownershipof other elaments.Property Code 1581.002. 81.104; see Dutcher v. Owens, 647 S.W.2d 948 (Tex. 1983). In the instant Guest, an owner of the stock possesses no estate in the property sought to be deemed exempt. It is clear that the framers of article VIII, section l-b' intended that natural personsand not corporationsbe permitted to claim residencehomestead exemptionsfromadvalorem taxation.

The law does not favor tax exemptions, since they are the antithesis of equality and uniformity. Hilltop Village, Inc. v.

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Kerrville Independent School District, 426 S.W.2d 943 (Tex. 1968). Constitutional and statutorv nrovisions creatinn them are to be construed narrowly with all doubts resolved against granting the exemption. City of Longview v. Markham-McKeeMunicipal Hospital, 152 S.W.2d 1112 (Tex. 1941). Accordingly, we conclude that neither the homas nor the stock of persons who live in cooperative housing is entitled to the residencehomestead tax examptionprovided by section 11.13 of the Tax Code and article VIII, section l-b, of the Texas Constitutionwhen title to the real estate isheld in thename of the corporation and the owners of the stock obtain only long-term leases from the corporation but do not possess title to the real property upon which the exemption is sought.
With your second question, you ask whether these same homes and stock are eligible for protection from forced sale under section 41.002 of the Property Code and articleXVI, section 50, of the Texas Constitution. For essen ially 1 the same reasons thatwe answered your first question in the ne ative,we answer your second question in the negative.

Article XVI, section 50, of the Texas Constitution provides the following:

550. Homestead; protection fqrm forced.sale;

mortgages, trustdeeds and liens

Sec. 50. The homestead of a family, or of a single adult person, shall be, and is hereby protected from forced sale, for thepayment of all debts except for the purchasemoney thereof, or a part of such purchase.money, the taxes due thereon, or for work and material used in constructing improvements thereon, and in this last' case only when the work and material are contracted for in writing, with the consent of both spouses, in the case of a familyhomestead, given in the samemanner as is required inmaking a sale and conveyancelofthehomestead:normay the owner or claimant &the property claimed as homestead, ifmarried, sail or abandon the homesteadwithout the consent of the other spouse, given in such manner asmay be prescribedby law. No mortgage, trust deed, or other lien on the homestead shall
ever be valid, except for the purchase money therefor,or improvementsmade thereon,as hereinbefore provided, whether such mortgage, or trust deed, or other lien, shall have been created by the owner alone, or together with his or her spouse, in case the owner is married. All pretended sales of the homestead involving any condition of defeaaance shall be void. This

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amendment shall become effective upon its adoption. (Emphasisadded).
Article KVI, section 51, of the Texas Constitution defines residence homestead forpurposesof protection from forced sale:

551. Amount ofhomestead;uses

Sec. 51. The homestead,not in a town or city, shall consist of not more than two hundred acres of land.whichmay be in one ormore parcels,with the improvementsthereon; thehomestead in a city, town or village, shall consist of lot or lots amounting to not more than one acre of land, together with any improvements on the land; provided, that the same shall be used for the purposes of a home, or as a place to exercise the calling or business of the homestead claimant, whether a single adult person, or the head of a family; provided also, that any temporaryrenting of thehomesteadshallnot channe the characterof the same, when no other h&stead has been acquired. (Emphasisadded).
Section 41.001 of the Property Code essentially tracks article XVI, section 51, while section 41.002 essentially tracks the language of articleXVI, section 50.
Again, it is clear from even a cursoryreading of theabove-cited provisions that only natural persons as opposed to corporationsmay qualify for residence homestead protection ,fromforced sale. See Shepler v. Kubena. 563 S.W.2d 382 (Tex.Civ. App. - Austin 1978.10 writ). The public policy reasons for such a construction are clear. Exemptions from forced sale were unknown to the common law and are purely statutory creations. Pickens v. Pickens, 83 S.W.Zd 951 (Tex. 1935). Under the c-on law. a debtor was deprived of all of his propertyand then, frequently,imprisoned. Smithv. McBryde, 173 S.W. 234 (Tex. Civ. App. - San Antonio 1915, no writ). The purpose of exemptionlaws is to affordprotection to a person in thepursuit of a lawful occupation and to assure to the family of the debtor the shelter of a home, the means of securina a livelihood. and the earningsof thehead of thehousehold. See. ;.g.,Rodgersv.-Ferguson, 32 Tex. 533 (1870). Exemption laws were passed not merely for the purpose of protecting the poor from creditors who would deprive the debtor and his family of their means of subsistence, but also to protectpersons in thepursuit of legitimateoccupationsin order that they do not become charges on thepublic. Gaddy v. First 'National Bank, 283 S.W. 277 (Tex.Civ.App. - Beaumont 1923.nowrit).

We are well.aware that constitutional and statutory 'provisions regardinghomesteadexemptionsfrom forced sale for debt traditionally

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have been liberally construed in order to effectuate theirbeneficent purposes. Andrews v. Security National Bank of Wichita Falls, 50 S.W.2d 253 (Tex. 1932); City of San Antonio V. Toeppewein, 133 S.W. 416 (Tex. 1911). We are unwilling, however, to do violence to the clear language of the provisions at issue. The language of the constitutionaland statutoryprovisions appears to us to be plain and unambiguous and its meaning clear and obvious. We must, therefore, "enforce the statute aswritten and have no right to create or to find
an ambiguity where none exists in order to call into play generally recognized rules which are used as aids to the construction of ambiguous statutes.,, Col-Tex Refining Co. V. Railroad Commission of

-, 240 S.W.Zd 747, 750 (Tex. 1951) (citations omitted). Our intrepretationmust express

only thewill of themakers of the law,not forced nor strained,but simply such as thewords of the law in their plain sense fairly sanction and will clearly sustain.
Railroad Commission of Texas V. Miller, 434 S.W.2d 670, 672 (Tex. 1968) (citation omitted). in the instancewhich you describe,Accordingly, we conclude that, the own& of the stock may not receive the benefit of article XVI. sections 50 and 51, of the Texas Constitution and sections 41.001 and 41.002 of the Property Code to claim on the homes which they lease the status of homesteads exempt from forced sale fordebt.

SUMMARY

Neither the residence owned by the corporation
nor the corporate stock ownedby personswho live in cooperative housing is entitled to the residence homestead tax exemptionprovided by section 11.13 of the Tax Code and article VIII, section l-b, of the Texas Constitution or to the protection afforded homesteads exempt from forced sale for debt. ~

JACK EIGRTOWBR First AssistantAttorney General

MARY KELLER ExecutiveAssistantAttorney General

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RICK GILPIN Chairman,OpinionCommittee
Preparedby JimMoellinger AssistantAttorneyGeneral

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