### E ATT-S 

### NEY GENERAL CD EXAS

Mr. Joe Resweber County Attorney Harris County Houston, Texas Opinion No. C-697 Re: Whether Clareivood House, an elderly persons’ retirement home, is exempt from ad valorem taxes as 

### DearMr.Resweber: an institution of purely public charity. In connection with 

### yourrequest for an opinion on the above captioned matter, ing facts. wehave been advised of the followClarewood ~House,hereinafter referred to as the Home, is ownedby the Sharpstown Tower Corporation, which is incorporated under the Texas Non-Profit Corporation Act for the oharitable or benevolent purposes of providing elderly persons with housing facilities andwere specially designed to meet the physical, social, andpsychological needs of the aged and contribute to their health, security, happiness, and usefulness in longer living. 

### asan F.H.A Loan Project. Thecorporation Is 100s financed TheCommlssloner of Internal Revenue has heretofore granted this corporation a tax exemption as having been organized~and operated exclus%vely for charitable purposes andnopart of the earnings of which inures to the benefit of anyprivate shareholder 

### orlndivldual. See Sec. 501(c ( the Internal Revenue Code of 1954, 26U.S.C. Sec. 501 c also annotations In 69A.L R.2d 871, 878. I 3135);

Thecorporation’s property consists of 8.388 acres. of: land loaated In a metropolitan area of Houston, adjacent to the large Sharpstown Shopping Center. TheHomewaslocated to avoid isolation from the communityanddesigned to meet the needs of elder1 citizens for adequate housing In that community, costing x4,700,OOO.OO. It has eleven stories, containing twohundred eighty-eight apartment residence units, each having Its ownprivate bath with tub or tub-shower combination. There are no ’:ateps in the Home;only elevators and inolines which have handrails are provided,- with someunits having side door ovens andbaths for wheel-chair residents. A specially designed nursing aare unit is connected to the



### -3&a-Mr. Joe Resweber, Page 2 (C-697)

Homeby covered passageways andramps. Included in the unit are rooms for occupational therapeutic activity of several kinds androoms for residents requiring nursing care by resident nurses. Atwenty-four nursing unit is provided at rates which the residents can afford to pay andat a rate well-below the prevailing rates in 'hiouston. Afurnished chapel andvarious recreational areas' are available to all without cost, Much,of the cost of operating the Homeis to be paid for by contributions or donations, which nowexceed $450,000.00. Nofounder's or finder's or admission fee is charged, but those residents whoare financially able to pay for their care are charged a fee ona basis determined by the Board of Directors. Admission.,in each case is determined on its ownmerits andas a matter of mutual agreement. Hotel-type roomandbath, with 288 square feet normally bring a fee of $80.00 monthly; efficiency units of 354 square feet for $100.00 monthly; the one-bedroom, living dining combination, with kitchen, electric range, andmore elaborate facilities for $150.00 monthly; twobedroom, two-bath apartments extensive facilities and containing 780 square feet for $190.00 monthly, ten of which are specially designed for wheel-chair tenants. Additional elaborate facilities include a library, gameroom, beauty shop, restaurant, hobby rooms, auditorium for lectures and cultural events, telephone andmessage service, coin-operated laundry, and sun decks. All apartments are air-conditioned with a picture-window view.. andhave,,tile flooring. Whenit becomes debt-free, the land andbuildings are required to be deeded to the First Methodist Church.

Fifteen units In the Homehave so far been set aside for use by retired persons unable to pay for such facilities, three of which are oocupied by tenants paying norental and six of which are occu nine of the 282;

led by tenants paying only partial rental. Thus apartment units havebeen occupied by tenants whoare unable to pay the normal rental charges, andat this time, anadditional six patrons unable to pay are being added as tenants. TheBoard of Directors assert they are increasing the numberof full andpartial charity tenants just as fast as resources permit! Revenues have not been sufficient to pay the debt charges andall operating expenses and over $450,000.00 In deficits have had to be raised by donations. Although It was a group of Individuals whoorganized the Home,It Is non-sectarian, with most denominations represented by tenants. The average age of the 275 residents Is 77. Sixty per cent of themreceive Social Security benefits,~ sixty-five per cent being under 72; and one-third of the residents would face serious

-3353-Mr. Joe Fiesieber, page 3~(C-697)

difficulty without the social security. All are unemployed but five. TheBoard of Directors have avoided requiring information smacking of a “pauper’s oath” or disclosure of their amount of income; but in all cases it asrrertains that the aged persons are “needy” and it Is satisfied that no recipient of charity Is aproperty owner. Ourrough calculation Indicates that an average apartment unit costs approximately $~~,OOO.OO to ereat.

Cnthe basis of the information furnished to us in a letter of the Vice President andGeneral Manager, wecompute the following data relevant to apartments which have been in use on a charitable or part-paid basis, as follows:

Total of the usual monthly rental Total monthly rental charged and oollected ‘Lpg

. Anount commutedper monthas charity 7m.00 Whenwemultiply this $785.00 per monthby 12’, wearrive at ths awnof $9,420.00 which represents part of the charity contributed by Clarewood House during ayear’a period of time. Under conditions at the date 

### ofthis writing, it is anticipated that .morethan $18,000.00 will be ,-presented as charity for this tax year.

In **addition,** it~ia fair to atate that charity is also preaent not only from the Homepaying the entire or partial oosts for someof the residents but also charity,is present with respect to all of the aged residents whoare furnished services and facilities at a rate substantially less than cost. Wehave not attempted to convert this charity into dollars, but it appears that the charity to the public resulting from the operation of the Homeis substantial andnot merely nominal, aa the revenues have not been anffioient to pay debt charges and operating expenses and over $450,000,00 in deficits have had to be raised by donations.

TheHomeclaims exemption from ad valorem taxes under Article VIII, zection 2 of the Constitution of Texas, which provides that

. . . the legislature may, by general laws, exempt from taxation

. . . instltutlons~ of purely public oharlty; andall laws exempting property from taxation otffer than the property above mentioned shall be null andvoid.

The Legislature, in Article 7150, Section 7, V.C.S. of Texas, provided:

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,”Public charities. All buildings andpersonal'property belonging to Institutions of purely public charity, together with the lands belonging to and occupied by such institutions not leased or otherwise used with a view to prof%t, unless such rents andprofits andall moneys and credits are appropriated by such institutions solely to sustain such institutions and for the benefit of the sick and disabled members and their families and the burial of the same, or for the maintenance of persons whenunable to provide for themselves, whether such persons are membersof such institution or not. AnInstitution of purely public charity under this article Is one which dispenses Its aid to Its membersand others in sickness or distress, or at death, without regard to poverty or riches of the recipient, also whenthe funds, property andassets of such institutions are placed andboundby its law to relieve, aid and administer in anywayto the relief of its memberswhenin want, sickness and distress, andprovide homes for its helpless anddependent membersand to educate and ~maintaln the orph$ns of its-deceased members or other persons. ‘/ In Interpreting the phrase “purely public charity” in our Constitution, Article VIII, Section 2, the word "purely" in the Constitutional provision above quoted modifies the word

“charity” andnot the word “public” so as to require an lnstltution to ha'vea wholly altruistic quality and exclude from It every private or selfish interest or profit or corporate gain. Benevolent dcProtective Order of Elks v. City of Houston, 44

. . 4uu, 4 (Tex.Civ.App. 1931, error ref.). Theproperty of the institution must be used wholly and exclusively for charitable purposes and such use of the property must be actual, direct, and exclusive. City of Houston v. Soottlsh Rite Benevolent Assn., 111 Tex. 191 230 SW

. . n cannot be used to engage In.a c~ommerclal&siness. gk!;:?' v. Woodmenof the World Life Ins. Society 280 S.W.2d 3r7TTex

55 error ref.). Normayit bi used to enter into a landlord ani tenant relationshlp'which creates a commercial transaction or lease, particularly where rent is paid. David 371~2d
rent is not paid such ion-charitable ere actual use destroys the exemptlon. -3355-Mr. Joe Reaweber, page 5 (C- 697)

of Longview v. Markham- McReeMemorial Hospital, 152 S.W.2d (T C A 1941j. santa R osa Infirmary v. City of San Antonioex&?:W~P&6 (T&E.Sup. Ct. 1924). H owever, our courts inthese cases have clearlv indicated that charitable institutions might derive, as anincident of the administration-of the charities, rents andprofits where they were devoted directly and solely to those very charities. In the Santa Rosa Infirmary case, Moreover, as pointed out supra, where all facilities are exCluslvely operated by membersof the institution, tax exemption Is not lost by the needy patron capable of paying, doing so, for maintenance or for services rendered therein by others not wholly engaged in a charitable work. Nordid the operation of a small drug store in the building destroy the tax exempt structure. Therequirement Is merely that the buildings be used and occupied by the charitable Institution andnone other.

It Is pertinent to observe that such a charitable lnstltution aa an Infirmary need not be supported exclusively by gratuities or donations to be exempt from taxation, since it washeld in the Santa Rosa Infirmary case, supra, that it does not loae ita exempt status **by**paying for its plant from incidental earnings or expending its funds realized therefrom in training nurses, being within the proper upkeep andmaintenance needs for which profits maybe appropriated. Rev. 494, 497. 7Baylor Law

Fromthe above authorities, it is also seen that ownership as well as exclusive use by the charitable Institution is required tn the sense of a perpetual dedication of the property and the miscellaneous mutations of profits derived to charitable uaea or purposes. Noprivate individual mayobtain any profit or gain, or If a corporate owner is involved, nodistributable earnings, such as dividends, mayresult. In addition, the institution must benefit persons indefinite in numbers and oersonalitles. to the end that they will be prevented from becoming burdens to society or to the State.‘ v. Missouri-Pacific Lines Hospital Ass.!n., 99 Civ.App. 1930Berror ref.)

Cnthe other hand, the authorities above cited hold that the chatity is not required to be universal to be public and the institution is not reauired to search out the needy persons on the highways andbyways. Raymondvllle Memorial Hospital v. State 253 S.W.2d 1012 (Tex.C?v.App. 1952, error ref., n.r.e.f; eylor LawRev. 133, 138. Thecharity is deemedpublic if It affects all of the people of a state or community through

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its assumption, to amaterial extent,‘that whidh otherwise YF t become the obligation or duty ,of the state or community. awme charity Is not necessarily rendered “private” as distinguished from “public’ because limited In sect, class or fraternal order, etc. 11 Baylor LawRev. 137. It is said

‘oharlty need not be universal to be public.” -City of Palestine v. Missouri-Pacific Lines Hospital Ass’n., supra; B.P.O.E. Lodg V. ty of houston, 44 S**W**264oti

. . (Tex.Clv.App’ 193, error ref.

. e, Thelatest definition and test of charity, as interpreted by the SupremeCourt of Texas. Is set out in River Oaks barden Club v. City of Houston, 370S.W.2d 851 (1963’). I fl t four decision th Court applied the so-called “q%i pr?qui” idea earlier’exp~essed In City of Houston v. Scottish Rite Benevolent AssIn., supra, wherein It wassaid that a charitable Institution mustmeet three criteria to warrant tax exemption: (1) It mustmakenogain or profit, (2) must accomplish ends wholly benevolent, and (3) must benefit persons indefinite in numberby preventing themfrom becoming burdens on the community or state. 707-708. 18 Southwestern LawJournal 703,

It affirmatively appears from the River OaksQarden Club case, supra, that first; In order to justly a charitable tax exemption, the institution’s activity Itself must be **one**in which the state or community could have an obligation to support; and secondly, the institution must substantially tend to lessen that obligation so that the.benefits therefrom run to a relatively, large segment of the public. Further, It cautions us that a charter declaration of the purpose and obligations Is not conclusive, andwemust look further to the actual operations of the institution and the effect andresult thereof. Noguidelines are provided as to just whatactlv%fles are to be deemed to be government obligations or just whatdegree, or percentage or extent of charitable benefits must be provided to warrant anexemption. Institutions, though plainly altruistic, will apparently’ not be held to be purely charitable which do not provide provable benefits covering a substantial numberof people in those areas falling within the traditional definition of public welfare. Examples are institutions devoted to the promotion of the fine arts of gardening, dramatics, interior decorating, maintenance of historical landmarks, or those arts characterized as “aesthetio ”, as evidenced in the River Oaks Carden Club case, supra. It is left to the function of our courts to determine where the line will be drawnand to provide other examples.

-3357- $,nr. Joe Resueber, Page 7 (C-697)

Theproblem of applying the rule of River Oaks, to the facts of this or other situations is accurately in 18 Southwestern LawJournal 703, 711 (1964): supra, described

‘Even If the courts interpret the uid ro E %iTi- standard liberally, the uncertainty wlc pervades the criteria-for charitable exemptions in Texas will work a hardship’onlnstitutione in the..fringe area. In most cases one should be able to look to the constitution and the exempting statutes to determine whether a narticular oraanisatlon auallfles for exemotion.

It is our considered opinion that, assuming an absence of controverey,as to the particular facts submitted, the Home maynot **be**said to fall within the “fringe area.” While the courts have failed to state what they regard as sufficient charitable benefit running to the public, they have said that if It wasshownto be “substantial,” the charitable exemption could be established. Based upon the facts submitted to us, it Is our opinion that the substantial benefit test has been met. Whatis ade,quate housing for the needy aged? According to our governmental current standards of society by 1961, adequate housing !‘meanshousing which the aged can afford, which meets the special physical needs of the aged, andwhich is designed to avoid isolation from the rest of the community or an lnstitutlonallsed feeling.” (White House Conference onAging Policy Statement on Housing, January 11, 1961). According to the Polioy Statements andRecommendations of the White House Conferenoe onAging, February, 1961, the average person can now expect to live longer than before - past seventy and into the eighty bracket - and will have longer periods of retirement. Wenowhave five times more people over sixty-five than wehad In 1900; the numberwill double in the next forty years, while the number over seventy-five will triple. In Harris County, Texas, the problem is the sameandwithin the next four years, there will be 108,600 people over sixty-five. Theharsh social

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andeconomic facts revealed in the Conference Report showthat suoh a “retired citizen Is one whoby reason of age has ceased to work his customary intensity of employment. He*y Or2: not engage in other types of part-time occupation. regular normal earned Income, however, hae in fact ceased.”

Theproblem, of adequate housing andcare for the aged 18being undertaken as an obligation by all echelons of government. Drugs andmedical care have extended life; the industrial revolution andpopulation explosionhave combined to bring an ever increasing higher standard and quality into the lives of even the poor andneedy. What18now“decent” and “reaeuaable” houelng and care for the aged was, indeed, luxury whenthe framers wrote our State Constitution over one hundred years Since the introduction of the commonlaw Into this %,“;e in 1840 the Texas Constitutions have been framed with reference to it. and our Constitution 1s reoulred to be lnterQreted in the light of the development of Uie commonlaw as declared by the courts of the

The Supreme Court of Texas will apply words in the Constitution to present-day conditions andmayfind words ‘to have been therein used In a eenee broad enouah to include things not then within humane2 erience or knowledge. ” Royv. Schneider, 110Tex. 369, 221 S.W. 8 0, 918 (1920). Since the SupremeCourt in River OaksGarden Club v. City of Houston, BuQra, has said that the framers of our Constitutions Intended the meaning of the charitable exemption to cover “that which otherwise might become the obligation or duty of the community or the state” (370 S.W.2d 854,
~‘s;,c..I,, it **Is** therefore necessary to observe what obligations the government has undertaken andhowthe courts of the country have interpreted purely Qubllti charity in the light of the commonlaw. In addltlon, our Constitution, Art. III, Sec. 51a, authorizes certain expenditures for needy aged persons, and the Le through 1524k, 1528a, tlslature, In Articles 6%c, 6753, 1524b 12 9khas provided extensively for the care andhousing of the aged. Wedo not read Into these governmental obligations anIntent to exclude tax exemQtlon for charitable activities to be undertaken by the citizens themselves. Thestate government claims nomonopoly on charity.

Theobligation or duty of government under ItB general welfare powers is aa narrow or broad a8 the customs, mores, ethics, standards, and eoolal conscience of it8 people at a

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rMr. Joe Retiweber, Page 9 (C-697)

particular time. There could therefore be no fixed, unchanging, and inflexible meaning of what constitutes "charity," nor dowethink the constitutional framers intended to write Into the Constitution a particular standard or social concept ai':tbelr time. Theconcepts of "general welfare" and "charity" are not etatlc. Needs that were narrow or parochial a century ago are interwoven in our day with the well-being of the communityand etate.

The'White House Conference of 1961 established the Qrinciple and objective that "All aging people

. should be adequately housed,in a suitable neighborhood of their choice and supplied with community facilities and services at rents they can afford. There Is, andwill continue to be, a need for an lhcreaee in all types of housing

. . . . Theaged have special needa as to both their housing and their total environment. Integral parts of their problem on the planning anddeveloping of 'facilities for the aged - such as transportation, shopping, medical andhospital facilities, outletcl and congenial neighbors." utilities, churches, cultured All of these things the Home in this case sought to provide in a purported charitable way.

Wehave heretofore rendered 0inion NumbersWW-771(1960), WW-1277(1962) ww-1318 (1 and Opinion No: C-357 (196 w&24 (1962) C-209 (1964) ), in which werecognized that hohes for the aged, under the facts submitted, were Institutions of purely public charity and involved that which otherwise might beoome the obligation or duty of the community or state within the legal concepte set out In River OaksCarden Club v. City of Houston, supra. This is in accordance with the commonlaw meanlna of nurelv DubliC charits in other Surisdlctlons andwe

‘,

Theauthorities throughout the nation are generally In accord In upholding this legal concept, as so clearly set out in Flfleld Manorv. County of Los Angeles, sups, 10Cal.Rptr. at Q. 249:

-3360-Mr. Joe Resweber, Page 10 (C-697)

II

. . . Relief of poverty 1s not a condition of charitable asalstance: If the benefit conferred has a sufficiently widespread social value, a charitable purpose exibts. It is a matter of commonknowledge that aged people ': require care andattention apart from financial assistance, and the supply of this care and attention Is as mucha charitable andbenevolent purpose as the relief of their financial wants. Every clvlllz~ed communitymust provide facilities, either public or private, for the care of old people regardless of financial condition.

. . .

..:..
. 'The concept of charity Is not confined to the relief of the needy anddestitute, for "aged people require care and attention apart from financial asslBtance, and the BUQQ~Y of this care and attention 1s as mucha charltable andbenevolent purpose as the relief df their financial wants!,' Sothe 'charge of fees by such an institution aBa homefor the aged will not necessarily prevent its classification as charitable If such Bums"go to pay the expenses of operations andnot to the profit of the founders or shareholders," for all persons~ may"'under certain conditions be proper subjects of charity." In short, as the word "charity" Is commonlyunaeistood in modern usage, It does not refer only to aid, to the poor anddestitute and exclude all humanitarian activities, though rendered at cost or less, which are maintained to care for the physical andmental well-being of the recipients, andwhich makeit less likely that such recipients will. become burdens on society." 1st Homes, Inc. v. Horn, 226 Ore. 298,

) the court also recognized the o;e authorities, and that such homes for the aged could,.be anexerapt charitable lnatltutlon, 1:' likening themin analogg to the charitable teats applied to hospitals, but denied the exemption upon the ground ,that the facts revealed the lack of any charter provlslon for a contlnuatlon of charitable works aen, the assets were disposed of in the event of corporate dissolution. Other determlnlng factors considered to be relevant in the determination, besides the charter purposes andby-law **QroViSion8,** Were the aQQllOatlOn L -3361-Mr. Joe Resweber, Page 11 (C-697)

or use of receipts; whether patrons received the same,treatment irrespective of ability to pay; whether the doors of the home were open to the poor as well as the rich andwithout other discrimination; whether charges were madeto all patrons and whether any charges were madeto the Indigent; whether a charltable trust fund was created; andwhether If the homehadno operational gains, there were offsetting advantages.

TheCourt In Traineev. St. Petereburg Methodist Rome, Inc., 173 So.26 176 (Fla. Igbb}, recognized that providing homesfor the aged wa8a proper charitable Qurpoae, but denied the exemption upon a showing that the facllltlea were not available to the general public, manyapplicants were not accepted unless they are able to pay, and,the charter failed to disclose what would happen to its assets in the event of corporate dissolution.

In the oaae of Clarewood House, weassume the facts to be true that rufflclent applicants not able to pay are accepted by the Boerd of Directors under the circumstances.

The Ohio Supreme Court, in ThePhllada HomePundv. Board 31 (19bb) and the Nebraska Supreme as v. O.E.A.'Senior Citizens, Inc 7l9 725 m denied a chktable whos; purpose war;merely “the furnlahlng of low cost housing at Its real cost.’ This activity the courta said did not In itself fall within the meaning of “charity,’ declaring that “the reason for exemption Is present benefit to the general public sufficient to justify the loss of tax revenue.” TheInstitutions were unable to showclearly sufficient facts to satisfy this test. In the County of Douglas case, supra, although it wasshownthat the Internal Revenue Service and the Treasury Department had ruled that the institution **Van** ownedand operated exclusively for charltable’purposes, the Court nevertheless held to the contrary, saying:

“The design andpurpoees of the building on the land wasto furnish housing to selected people at low cost. There is nothing to Indicate that it was to be below the cost of the service furnished.

. . . In fact no right to remain In occupancy other than at the will of the defendant waBa declared purpo:e except as to a limited olass of occupants.

. . . (111 N.W.2d 725).

-336,sHr. Joe Resweber, Page 12 (C-697)

In the case of Clarewood House, weare advised by the facts submitted that the malti”purQoBe anduse Is not the mere fUI?liBhing **of** relatively low-cost housing to selected people but that charity Is the purpose, and the right to remain in occupancy Is not at the will of the Board. Themere lack of a church sponsor does not prevent the Homefrom having a chllrltable exemption. Apparently the cederal government Is satisfied with Its exclusive charitable purpose and use and sawfit to finance it one hundred per cent andgive it an exemption from taxes on the ground that it wasorganized and operated as excluslvely charitable.

Wefind no substantial or material distinctions to be madeon the facts herein related as to Clarewood House as compared to those related in our previous opinions. In Opinion C-357, suppa, for exampl&, Lnvolving &you l%Xio%?, sponsored by the Brazes Presbyterian Church, there was‘I)o::more charitable benefit running to the public for Its operation than Is shown in the Clarewood case,

In writing this opinion, wehave attempted to set out such legal guidelines as exist on the question presented for the benefit of any other Interested parties faced with a similar question. Wehasten to point lout, however, that we have assumed that no factual controversy exists between the taxing authority and the party seeking the exemption. In issuing official opinions, this office 1s not authorized to resolve disputed factual Issues. Curopiniona are based solely upon the application of legal principles to the facts submitted to us. If a taxing authority and aparty seeking a tax exemption are not in agreement aa to the evidential facta upon which a claim for exemption 1s based, the Qartles must resolve their dlaoute in a oourt of law that Is authorized to resolve dlwuted

l.a‘QaG.oulirly true, as stated by the-cited authorities, because the burden of clear proof ls.~.onthe 

### onetilalming exemption; exePlptlons from taxation are $5ver favored; and all doubts are resolved against the exemption and in favor of the taxing power. SUMMARY TheAttorney General’s office 1s not authorized to pas0 on fact questlone. However, under the facts submitted, which weassume as true and unoontrover&lal,
-3363-Mr. Joe Resweber, Page 13 (C-697)

Clarewood House is deemedto be an institution of purely public charity which would be entitled to exemption from advalorem taxes under Article VIII, Section 2of the Texas Constitution. Yours very truly, WAGGONER

CARR Attorney General of Texas

APPROVED: OPINIONCOMMITTEE W.V. Geppert, Chairman Pat Bailey Robert Flowers RJoy gYY;

. . APPROVED

FORTIiEATTORNEY

GENERAL BY: T. B. Wright

-3364-