# TITEA~TORNEY GENERAL OF TElxAs Avemiw. 

# TWAS 787ti a0EsN I” EILL A-- CIlmmERJuly 8, 1974

The Honorable Alton R. Griffin Criminal District Attorney Lubbock County Courthouse Lubbock, Texas 79401 Opinion No. H- 342 Re: Whether hospitals will lose their tax exemptions if they make available premises to Blood Services ofTexas Dear Mr. Griffin: Your question asks whether two hospitals will lose their ad valore m tax exemptions if they permit a separately operated blood bank touse a portion oftheir premises for the purposes ofobtaining blood from family members of patients. Article 8, Section 1ofthe Texas Constitution requires that “Taxation shall be equal and uniform:” However, Subsection 2(a) ofArticle 8 authorizes the Legislature to exempt various classes ofproperty including property owned by institutions of “purely public charity. ” In the Constitution of 1876, Section 2ofArticle 8excepted from ad valorem t.axation “all buildings used bxclusively and owned by persons or associations ofpersons for school purposes, and the necessary furn:ture ofall 8mools,
.,.and institutions ofpurely public charity. ” Since t.hattime the Section has been amended ona number ofoccasions and a great deal oflanguage appears between “buildings used exclusively 

### and owned by” and “purely public charity” and aliteral reading would not link the two phrases. Nevertheless they are linked and we believe that, in adopt.ing the various amendments, it was **not** the~intent ofthe people to effect a change insofar as the Section appIies to institutions ofpurely public charity. Acting under that authority, the Legislature has adopted Article

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### 7150,V.T.C.S., exempting certain described properties from taxation. In its Sec. 7it exempts: All buildings and personal property belonging to institutions ofpurely public charity, together with .the lands belonging toand occupied by such institutions, including hospital parking facilities, not leased or otherwise used with aview to profit, unless such rents and profits and all moneys and credits are appropriated by such institutions solely to sustain such institutions and for the benefit ofthe sick and disabled members and their families and the burial ofthe same, or for the maintenance ofpersons when unable to provide for themselves, whether such persons are members of such institutions or not. . . . It goes on to define an institution of “purely public charity” as:

. . . one which dispenses its aid to its members and others in sickness or distress, or at death, without 

### regard topoverty or riches ofthe recipient, al’so when funds, property and assets of such institutions are placed and bound by its law to relieve, aid and administer in any way to the relief ofits members when in want,. sickness,and distress, and provide homes ofits helpless and dependent members and to educate and maintain the orphans ofits deceased members or other persons . . . . The Texas Supreme Court has defined “purely public charity” to depend on the existence ofthree elements:

. . . . First, it made no gain or profit; second, it accomplished ends wholly benevolent; and third, it benefit,ed persons, indefinite in numbers and in personalities, by preventing them, through absolute gratuity, from becoming burdens to society and to the state.

p. 1595The Honorable Alton R. Griffin page 3 (H-342)

City ofHouston v. Scottish Rite Benevolent Ass’n, 230S.W. 978, 981 (Tex. 1921); cited with approval. River Oaks Garden Club v. City ofHouston, 370S.W. td 851(Tex. 1963); and in City ofAmarillo v. Amarillo Lodge No. 731, AF &AM, 488 S.W. 2d 69 (Tex. 1972). We assume the hospitals and the blood bank qualify as institutions ofpurely public charity, but, of course, whether any institution qualifies as one ofpurely public charity will ultimately depend upon whether, in fact, it meets the three point test , above set out; . In Hilltop Village, Inc. v. Kerrville Ind. Sch. Dist., 426 S.W. 2d 943 (Tex. 1968), a case decided under this constitutional provision, the Supreme Court specifically indicated that an institution’s use ofproperty for incidental purposes will not defeat a tax exemption. Hilltop Village, Inc. v. Kerrville I.S.D., supra, at 947. See also, Santa Rosa Infirmary v. City ofSan Antonio, 259 S.W. 926, 932 (Tex. Comm. App. 1924). The operation ofthe incidental facilities in Hilltop Village resulted in a profit which was divided between the outside operations and the institution. Whether the **use** ofhospital facilities by ablood bank is an incidental use ofthose facilities is aquestion offact which we cannot resolve in this opinion. Ifthe use is incidental the tax exemption will probably be preserved under the guidelines set down in Hilltop Village. If**a**full development ofthe facts does not indicate that the use of the hospital facilities by the blood bank meets the incidental use test under the guidelines set down in Hilltop Village , then it arguably can be contended that the tax exemption will be secure if the blood bank operates as an institution ofpurely public charity. All ofthis involves the resolution offact questions which are not before us. Assuming, without deciding, that the blood bank is a charity, it will be necessary to determine whether use ofproperty by more than one institution ofpurely public charity will defeat a charitable tax exemption. In City ofAmarillo v, Amarillo Lodge No. 731, AF &AM, supra, the court said:

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The exemption ofan institution of purely public charity as such is not authorized by the constitutional provision in question, It is only property owned by such an institution and used exclusively for purely public charity that may qualify for the exemption. Morris v. Lone Star Chapter No. 6. R.A. M., 68 Tex. 698, 5S.W. 519. The institution must be one ofpurely public charityiin the purposes for which it is formed and in the means used to~accomplish such purposes, and the property claimed to be exempt must be owned and used exclusively by the institution in furthering its charitable activities. Hilltop Village, Inc. v. Kerrville Ind. Sch. Dist., Tex. Sup., 426 S.W. 2d 943. (488 S.W. 2dat 72) [Emphasis added] Although this statement ofthe court lends itself toa broad interpretation, we believe that,its context and the case authority onwhich it is based suggest a narrower meaning is appropriate. For example, Hilltop Village, as noted above, indicated that incidental use ofproperty for non-chaiitable purposes would not destroy an otherwise valid charitable tax exemption. We have found only one case in which the issue was raised as to whether a charitable exemption is defeated merely because more than one charitable institution used the property. The Court of Civil Appeals held in City ofHouston v. River Oaks Garden Club, 360 S.W. 2d 855 (Tex. Civ. App. --Houston 1962) that multiple **use** by **various** charities was sufficient to di.sallow the exemption. The Supreme Court affirmed on different grounds and specifically declined to reach the question of **use** by multiple charities. River Oaks Garden Club v. Ci,ty ofHouston, 370S.W. 2d 851, 853 (Tex. 1963). However, Justice Norvell, joined by Justices Greenhill, Griffin and Smith, dissented and said:

. . . the mere fact that a charitable **use** is sometimes made ofthe property by some organisation other than the owner, should not affect the tax exemption classification ofthe property so long as no,charge is made for such,use. (370 S.W. 2dat p. 862.)

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We note also that the Court of Civil Appeals opinion and other **courts ’**  broad statement on exclusive use are based on decisions involving use by non-charitable institutions. See, e.g., City ofHouston v. Scottish Rite Benevolent Association, 230S.W. 978 (Tex. 1921) (used by “Masonic organizations, whose activities included other fields than charity”); Morris v. Lone Star Chapter No. 6, Royal Arch Masons, 5S.W. 519(Tex. 1887) (two ofthe building’s three floors rented for profit), **State v.**  **Settegast, 254**  S. W. 2d .925 (Tex. Comm. App. 1923) (property consisted of rent houses, the revenues from which were used for charitable purposes); B.P. 0. E. Lodge No. 151v. City ofHouston, 44S.W. 2d488 (Tex. Civ. App. -- Beaumont 1931, error ref ’d) (‘property used by profit-oriented

“restaurant keeper, barber, gymnasium operators, and electric bath giver”). The leading case in which an exemption was upheld is Santa Rosa Infirmary v. City ofSan Antonio, 259 S.W. 926 (Tex. Comm. App. 1924) where the court said: The constitutional requirement is twofold: the property must be owned by the organization claiming the exemption; it must **be** exclusively used by the organization, as distinguished from a partial use by it, and apartial use **by** others, whether the others pay rent or not. (259 S.W. at 932). The authority cited to support this statement, was City ofHouston v. Scottish Rite Benevolent Association, rupra, where the Court had said:

“The actual, direct **use** must **be** exclusive on the part of such an institution as is favored by the constitutional provision. ” (230 S.W. at 981). But the **Court** was dealing with ause by two Masonic orders whose work was only pa’rtly charitable.

When the Supreme **Court** discussed the Santa Rosa case by adopting the Commission ofAppeals opinion in City of Longview v. Markham-McRee Memorial Hospital, 152S.W. 2d 1112(Tex. 1941)it stressed the landlordtenant relationship ofthe use that destroyed the exemption. In City of

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Longview two doctors rented offices in **a**hospital building. The doctors paid rent and contributed a substantial amount of their services to the hospital’s charity cases. Additionally they also performed an essential service to the hospital by serving as house physicians. Although the fact that other doctors used the hospital facilities to treat private patients did not endanger the tax exemption, the renting 

### ofoffices in the hospital did. **The court**  avoided the dual **use** issue and said:

While it is **true that**  the use ofthese offices **results** in anecessary contribution to the operation ofthe hospital, it seems to usquite obvious that the letting 

### and occupancy of same is dominantly a commercial and private transaction. We therefore conclude that the property in question is not exempt from taxes under our Conatitution. (152S.W. 2dat 1114) Given the failure ofthe Supreme Court to decide definitively any case on the ground property was,used by more than one charitable institution and that the original statements ofthe court concerning exclusive use have arisen in cases in which at least one user ofthe property was not a charitable institution; we feel justified in predicting that our Texas Supreme Court would, at least hold that if anormal landlord-tenant relationship is not present, and no rent is charged, that the use ofaportion ofa charitable hospital bya charitable blood bank will not cause the hospital to lose its tax exempt **status.** SUMMARY A hospital operating as apurely public charity will not lose the tax exempt status ofits property because it is used in part by ablood bank if such additional use is incidental and if the blood bank

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The Honorable Alton R. Griffin page 7 (H-342)

is also apurely public charity and if anormal landlord-tenant relationship in not involved and **no rent**  **is** charged. Very truly yours,

Attorney General ofTexas

DAVID M. KENDALL, Chairman

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