### a-185

OFFICE OF 

## TEE ATTORNEY 

# GENERAL

AUSTIN. TEXAS

PRICE DANIEL ATTORNEY

GENERAL July 11, 1947

Hr. Lee Bovlin cciunty Attorney Hale county Plalnvlev , Texas op1n10n Ro. y99 Be: Exemption from ad valorem taxes of buildloss and

Dsar Sir: land belonging t;; Bale County Cooperative Hospital. Youhave as to vhether tal is exempt requested an opinion .Sromthis Department

or not the Bale County Cooperative Hoaplfrom ad valorem taxes. This %ospltalwj as we shell hereafter generally term It, was chartered pursuant to the provisions of SectIon 28 of Article 1302, R. C. S., which reads as Sollovs:

VA. Charitable corporations maybe created’for the purpose, 

### orpurposes, of owning and operating non-profit cooperative hospitals, and for the purpose of provldlag a suitable place in the inrmedlate locality where 

### membersand families of members of such corporat~lons nag obtain medlcal, dental, health, surgical, nursing, hospitalization, and related services and benefits. Acts 1945, 49th Leg., p. 102,

‘.ch. 70, @L

1.’ Article III of the Charter of the “Bospltal’ states that -1s corporation does not contemplate pecuniary gain or profit to the members hereof ’ and sets out the corporate purposes ‘of the “Hospital” In the language ~ubstantlally that of the statute quoted above. +c Article VII of the Cfiarter reads as Sollovs:

“Section 1. This Corporat Ion shall have no capital stock, and consequently no dividends, and any profit shall bs used to further the charitable purposes for vhich it Is created, and said Corporation owns no property of any kind.



### nHr. Lse Novlln, Page 2, v-299

“Se,ctIon 2. Thepersons signing these Articles of Incorporation shall bs deemed membersof the Corporation Immediately upon the completion of the organization and new membersnmybe admitted to membership In this Corporation under the terms and conditions of the By-laws. Membership 1nthis Corpomtloti shall be evidenced by certlf lcate of membership which Shall be provided for In the By-Iaws. Such certificate of membership shall not be assignable or transferrable except 

### as provided lo the By-laws. Wequote the following from a letter from the manager of the “Hospital”

.

“Since the Inception of this organlzatlon, our nrsjor effort has been expended in tha construction of 17-bed hospital with Clinic facilities including X-ray, Laboratory, and doctors’~ offices. Todate the hospital portion Is Incomplete, but the Clinic Is in operation. Themajor portion of the patients treated here pay for services rendered; hovever, charity cases will be taketi care of. The percentage of charity cases that wewill be able to care for has not been determined.

‘As you my know, these cooperative hospital& were started ln answer to a very critical need for medical facilities in r’iral 

### areasIn Texas. Theyare not the complete answer, but they have gone a long waytoward providing facilities and guaranteed Incomes for properly qualified professional people lo our southwestern rural areas. These professional people are the first requirements for good medical care at a price our rum1 people can afford to pay. Bach of these hospitals expects to operate a prepsyment plan which will insure the cost of medical care In the locality of the organlzat Ion. This prepymsnt plan stabllzes the incomes of doctors and prevents extremely high cost of c$tastrophlc lllnesses of the patients. Article VIII, Section 2of the Constitution of the State of Texas has empovered the legislature to exempt from taxation certain enumerated properties, amongwhichH&.Lee Nowlin, Page 3, V-299

are ”

. . . lnst ltut ions of purely public charity”

. In fs ursmnce to this particular constitutional grant the glslature enacted Section 7 of Article 7150, R. C. S., which effect llates exemvtion to the extent 

### ofthe exemDtlve powers conferred by Article VIII, Section 2. Lltiie !Pheatre of Callas Inc. v. City of tillas, 124 9. Wr)- 863; City of Wichita P&Us v. CooDer, 170 S. W. (2) 777, error refused. Section 7 of Article 7150 reads as follovs:

“7. Public charities. - All buildings belonging to Institutions of purely public charity, together with the lands belonging to and occupied by such institutions not leased or otherwise usedwith a view to proSit, unless such rents and profits and all moneysand credits are appropriated by such lnstltitlons solely to sustain such lnstltutlons and for the benefit of the sick and disabled membersand their families and the burial of the same; or for the maintenance of persons vhen umble to provide 

### forthemselves, whether such persons are membersof such lnstlt utlons or not. Anlnstlt ution OSptiely public. charity under this article Is one which dispenses Its aid to its 

### membersand others la sickness or distress, or at death, wlthout regard to poverty or riches of the reclplent, also vhen the Punds, property and as- -sets of such lns~tltutions are placed and bound by its laws to relieve, aid and admlnIster In any wayto the relief of Its members whenIn Want, sickness and distress, and provide homes for Its helpless and dependent membersand to educate and mrlntaln the orw”ns of Its deceased membersor other persons. It is clear that under the above section an lnstltutlon can gain exemption for its “buildings , . . . together with the Lands belonging to gad occupied by such last it utions ” on1 If It Is an “lnstltutlon of purely

4 public cbrlty

. e are faced at the outset with OplnIon O-6792 of this Department which holds that corporations drganleed under Section 2Aof Article 1302are not Institutions of “purely public charity” and are not within the exemption from paymsnt of franchise taxesMr. Lee Nowlln, Page 4, V-299

which Article 7094 accords corporations “organized

.

. . for purely public charity”

. Wewill not reconsld& that question since lt is not before us. Wedo not consider that the opinion precludes the anomalous view that the “8ospltal” Is an ulnstltutlon of purely public charity” within the meaning of that phrase as used in Article VIII Section ,2of the Constitution and la Section 7 of Article 7150 for the reason that a different exemptIon Is nowbeing sought by vlrt ue of a different statute. Weare of the opinion that the question YOUoresent is settled by the decision In Clty,of Paiestine v. Missouri Pacific Lines Hospital Ass’n., 99 9 W (2) 311, writ of error refused. ‘Thecourt there heid &mt the~~MlssourlPacific Lines Hospital Association was an “lnstltutlon of purely public charity” and exempt from taxat*on. TheMissouri-PBclfic Lines Hospital Association 1s the nameborne by the corporation originally chartered in 1915as the Internat,lonal-Great Northern Railway Rmployees IHospital. The second article of the original charter reads 

### as follows:~,

“Second. Thepurpose for which this corporation Is formed Is for the support of a benevolent and charitable undertaking, la this:. to provide medical and surgical treatmentand care for the employees of the International and Great Northern Railway and all persons engaged la the operation of the same and Its properties, whether or not in the hands of Receivers, or however ownedor operated hereafter, whomaybs Injured or disabled byaccident or sickness while in such employment, to such extent only, and under such rules and regulations as nmybe prescribed frcnntime to time by the Trustees and to furnish such other and additional privileges and benefits to said employees as mayfrom time to time be directed by the Hoard of Trustees of this Association; provided that such additional benefits and advantages shall not bs inconsistent with nor interfere with the nmlnobject of said Assoclatlon, as herebefore expressed, and to that end purchase, erect and wmlntaln suitable bulldlngs:~for hospitals or other purposes at suitableMr. Lee Nowlln, Page 5, v-299

po.lnts along the line of aald railway a,nd its branches. ” The sixth article provided that “there shall be no capital stock of this corporation, but the necessary funds therefor shall be raised in tnch nvinneras maybe provided for by the by-laws,

. . . It was urged in International &G. N. Rs. Emp x ees* IiosDltal Ass’n. v. Bell, 224S W. 311, that’% taln facts, I. e., membership In thi assoclatlca being, a cotidltlon of employment with fees therefop withheld from employees salaries, showed that the hospltal’was ,_, not a benevolent and charitable assoclatlon but a mutusl benefit, health, and accident insurance assoclac tion. The’~court rejected this contention and held, that the Bospltal Association vas “a mutual benefit assoclatlon”, and that “Its contracts with its several members cannot. be I’egarded or:construed as contracts of lnsurante

.Since this decision was rendered (1920) and before the decision in the City OSPalestine case, supra, the orlgloal charter of the Internatlooal and G-t Rorthern Railway Employees 1Hospital Association wasamended. The dotiporate clamswas changed to Mlssourl Pacific Lines Hospital Assoclationtand article “Second” wasamended’by Inserting the word noSflcersW before “and employees” and the word ‘halntalnance” before “opsratlon”, and varlolie minor changes In vordlng were mpde. In addition the I&- ternatlom1 Great Horthern Rallrcad” was deplned for the purpose of showing what officers and employees vere entItled to the privileges of the association, andthe folloving proviso vas added:

‘Provided, hovever, that the properties nowownedby this Association

. . . having been accumulated by means of contributions nade by present and former employees of the InternatIons Great Northern Railway Company and its predecessor compXnles, the employees of that companyand its successors, ISany, fihall be entltleg7 to a preferential right of use of such propert lea

. . . . ; and If ” and whenthe employees of other lines nay bs admitted to the privileges and benefits of this Association, they shall be so admitted uponcondition that by enjoying such Prlvlleges and benefits and paying therefor theybir. Lee Howlin, Page 6, V-299

shall not acquire or. claim any property rights, legal or equitable, In or to the physical properties or assets of this Association which shall not be completely terminated and obliterated bya vlthdrawal of such privileges and benefits by the Board of Trustees of this Association.’ Thus there had been no change in the corporate purpose or the corporate method of operation from the time of the Bell case, supra, which would ake the Aseociatlon any less “anassobiation for mutual benefit” or any morean “lnstltutlon of purely public charity”

. In the City of Rilestine case, supra, the court simply recites the facts of incorporation and operation vlthout designating the corporation as ‘an association for mutm1 benefit “

. Thecourt there,fore does not spsclflcally deal with the possible effect of the benefit inuring to the membersof the association as being destructive of the “charitable” nature of the association; however, It disposes of the netter by implication la the follovlng paragraphs :

“(4) In Santa Rosa Infirmary v. City of SanAntonio, supra, the court said: ‘While it Is stated in City of Houston v. Scottish Rite, etc., Ass’n, supra, that, ln order to maintain Its status as a purely charitable lnstltutlon, an organlzatloa clalmlng to be such, and asserting an exemption from taxation, mhst mskeno private gala or corporate profit, nothing morewas Intended than that no private individual should reap a profit, or vhere a corporation was the owner that no distributable earnlnGs In the shape of dividends must accrue. 1

“(5) In the case of Benevolent &P. 0. of E. Lodge v. Clt of Houston (Tex. Clv. App.) 44 9. W. (267 488, 493, In construing the expression ‘purely public charity,’ the court said: ‘The word ‘purely” Is intended to modify the vord “charity” and not the word *public, Itso as to require the lnstltutlon $0 have a wholly altruistic quality and exclu~de‘from It every private or selfish iaterest or profit or corporate gain l * * In law, the word ‘purely” Is used In the senseMr. Lee Novlln, Page 7, v-299

of and equivalent to “only, a “vholly, ” “exclusively,” “co~~$ely,.’ uentlrely,” and ‘unquslifledly. These paragraphs and a qubtatlon from’ Clt of Houston v. Scottish Rite Benevolent Aas’n., TihX. 191, 230S W 978 981, to the effect that “Charity need not bi &lver&l to b@public” likewise dlSpose,d of the contention that the limitation of. the pr,lrmry purpose of the charity to a class, i.e.; lallrcad em-~ ployees and their families, preve,tited the instltut,lon .,:

. from being one of “purely public charlty.~” ’ .,

It must be emphasized, however, that la polnt. of. fact the Mlssourl Pacific Lines Hospital did do sOms charitable work. It Is true that “the rendition. of services to non-members has always been lncld~ntal to the nmlnpurposes of said dssoclatlon

. . ~...“; but the Hospital had at till times during the period for which taxes were sought given first aid td the members of the City of Palestine police and fire depart=nt and cared for the charity patients of the county. %egardless of race, creed or Slnanclal condition or any other ground of distinction, tio~such case @ssr- -- gencn7 ha&ever been turned sy from salss its1

~’(Bmphssls a8ded)- Thereasome __f_ va ue of i&s; dli treatmsnts so rendered to the policemen and firemen and county charity pstlents would average approxlxmtely $350 a year. Theaggregate amounts received

. . . for the hospitalization

. . . of the Soregoing classes of patients not membersof the assoclatlon’were vholly lnadequste to mplnta,ln ‘the hospital and other services rendered, and such services could not have been rendered except through the monthly assessments paid by Said Embers as aforesaid

. . . . ” Thecourt nowhere considers the value of these charitable services in relation to the value of services rendered to membersof the as&clatlon. It seems safe to say that thenpercents& of charitable cases was smpll In colaparlson with-the numberof ppy patients or members of the assocleQ9.n; yet the exemption was still accorded the assoclatlon. The fact that the members of ihe &le,.County COOPerative Hospital have voluntarily assoclat+d themselves together for the purposes of establishing and mslntaialng a hospital In nowaymilitates against an exemptionF2:=3 Hr. Iae Nowlln, Page 8, P-299

OSthe %oepltal” property. OScourse, until such:tLme as charitable cases are being treated there can be no exemption as it Is vell settled that a msre prospective use for charitable purposes Is not sufficient. 2A.L.R. 545. Likewise It is only by exclusive use of the property that the charitable orgbnl&atlon maygain exemption from taxation. It has been held that exemption was lost where a hosDlta1 rented offices ln the hosDltal building to physicians for use in their generalpractice. ,’City of Lonnvlew v. Eknrkbam - McReeMemorial &spit&l, 152 S. W. (2d) 1112. Moreover vhere a laboratory technician used a part of the hospital laboratory l in doing a small buslnese of his ovn the exemption was‘ lost notwlthstandlnu the fact that he mid no rent and that the hospital dyd not share la his-prlkte profits. Markham

Hospital v. City of Lonuvlew, et al,’ I91 S. W. 12dl 695.. error refused. These two cases involve use by a thtid uerson for private ~purposesand in noway c&Ullct with .the holding ‘In &ti Rbsa Inflmnsry v: ,Clty -of SanAntonio, Comm.App., 2595. W.926 to the effect that the fact that the major portion of ’ths rooms In a hospital are used by pay patients does not result :’ In the loss of the exemptIon accorded lnstltut Ions of purely public charity provided the other requisites of exemption are met. Assuming, then, that the Bale County Cooperative Hospltal~‘can meet the threefold requlremsnts of owner- ” u of the property, bonaflde charitable ‘purpose as. evidenced ba actual charitable m, and exclusive use of the proper-the charitable instltut Ion Itself;- it Is the opinion of this Department that ,the buildlags bf the Hale County Cooperative Hospital and the grounds onwhich said buildings are located are exempt ” from ad valorem taxes.SUMMARY

The buildings belonging to the Hale County Cooperative Hospital and the grounds onwhich said buildings are located are exempt f~romad valorem taxes IS said buildings

. and grounds are ownedand exclusively used by the Hale County Cooperative Hospital for a bona fide charitable purpose as evidenced by actual charitable work. Art. VIII, sec. 2 oflb. lee Novlin, Page 9, V-299

the Texas Constitntlorr; Sec. 7, AI%, 7150, R. C. 5.; City 0s Palestine v. Hissouri Psclflc LlneS Homltal A ' ss n., s. w. 126) 311.
Yours very truly, ATTORNHY

GHRHRAL~OFTEAS ”

.

MC:mrj BY Assistsat

iTTORNRY

GHNRRU

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