Honorable JoeGordon County Attorney Grty County Pamp, Texas

Dear Sir: opinion No. o-~205 Re, Constitutionaland statutory tu exemption ofthe gas system .~v,... .a inoorpcrated oi'=y but serving .n Incorporated village 8 miles distant for profit.

4~ your letter of April 9, 1940, you ruladt for the opinion of this Departmentthe following question,xhiohm quote from your letter, together 

### with the l o0O.wpPnying

factual eitu.tionl "lday I ham your opinion as to whether aa inoorporated oitywhich mm its om gas system is subSect to taxationby an independent school distriot aa to that portion of the system extending from its oity limits a distanoe of 

### l ppro&mntely eightmiles to and throughout u lnoorporatedvillageT
"The City of M&an purchased its gag system from a p&vats owner aad lncluded in the systemas a gas line from IboLeantoAlanread,

. distance of eight miles, togetherwith ssrvics lines and meters in Alanread. Part of this line and all servloe lines are in Alanreed IndspendertSchool District. This district has assessedthat portion of the property in lta dlrtriot for taxation.
"The operation of the distribution system in Alanreed IS not cam primarily for the benefit of the people ofAlanreed, but for the p6op>e~ residing in Y&an, as the residents of MOLOU are rolling gas to the re8idents of Alanreed for a profit3 that is, at the mm nte which the resident8 of AImreed p&d for this eervioe at the time this utility 'RI owned by a private oonce~."
Three pmvisiona of the Constitution of Tens are pertinent to thin inquirywhich ne quote aa follows:
'ArticleVIII, Section 1. Taxation shall be equal and uuiform. All proplrty inthis State,whether cmmd by natural persona or ccwporaticms,other
v shallbe taxed in proportion to itsvalus, which shwn asoertaineda8 =y ba provided by law.

. . . "Ark'.iole

VIII, Seotion 2.

. , e tit the LegislaturSmay, by~geaeral laws, exemptfrom bation public property uced for public purpoees. . . .Honorable Joe Gordon - Page 2 (0-2P5)



### RArki~le

XI, Seotion 9. The property of cmntics, oitles and towns, -3d and bald only for pblio purposes, suoh 33 pub110 tiildlngsand the sit33 themfor. nra aginea and the firniture thereof, and all propertyused, or intended for sxtingui&ing fires0 public ground3 ar.d all otherproperty **devoted**exclusiveljj to the u3e rnd benefit of the publio shall b exempt fra forced 3313 and fromtexation, pmvidud, nothing herein ah311 prevent th3 onforcensntof the vendors lien, the meohPnio3 lien or builders lien, or other lines now existing."
Fursu3ntto the fomgoing oon3titutionclprovisions,ths L3gislaturs of TOXWJ, by &-tiol3 7160,Vernon'3 Annotated Civil St3tutts3, enaoted tnto 13~ the following tu sxemption:
'The followjngpmperty shall be exmnpted from taxation, to-dtt

*4. Publio property. All pmperty, whether real or personal, belonging sxolu3iv3ly to this Stat3, or 3ny political subditisionthereof,

. . ."

It is evident frcmr th3 foregoing oonstitutionrland statutoryprov-i3icn3

that axsmption from mtion, la oonneotionwithmuaioipal property 3nd purposes,13 not dependent upon ownership of the pmperty by the munioipality**in** question, but r&her upon the use to which such property is put, th& is, the prop~Q~ must be dwotad to orused for publio purposes. Regarding the us3 of munioipplly omed property *ioh ail1 givs rise to the 3bom ooastitutionalprd statutory exon~ions, it w3s held la the 0333 of Corporation of %n Fslipe de Austin V. State, 229 S.W. 6461 "the teat is not whether the property is used for government31purposes. Th3t is not tho language of the Constitution. Thin oourt h33 n3ver 3do@ed that n3rmw limitation 3nd the weight of authority Is oppossd to it. Muoh property of munioipalitissexempted from taxation has, and C(UI have, no governmental ~33. The test is whether it 13 devoted exolusivsly to I public ~33."

To the 33me effect is Galveston 'i%arfCo. Y. Galveston, 63 Tax. 14, holding that the interest of a city In a publicwharf, rapresentecby stqck in a wh3rf corporation,was not tamble under the Constitution. There is nothing "governmental"in **the** publio ~3.3of 3 wharf.

i faot, the okership and operation bJ 3 munioip3lity of plblio utilities. suoh 33 the 3.8 evatsm involved here. hao been held. in the 0333 of San Gtonio Indepsn&t &hool Mstriot V. i6ater Work3 Boa& of Trustees, et al, 120 S.U. (2d) 861, to be a "proprietaryPunotion" in contradistinctionto 3 'gowrrmsntal funotion," in~that auoh utilitiaa pertain to the business affairs adrcinistered for the speoirl benefit, health cudwelfare of the urban communityambracedwithin the corporate boundaries. But despite this 'nongovernmental"nature of the public utility systans owned and operated by nunicipolitios, in Texas, such pmpertios have been held, by all deoisions of this State, to bb exempt from taxationa3 "publicpromrty used for public purposss,'within the oonatitutional and statutoryprovisions.&norstJe Joe Qordon - Pop 3 (o-2205)



### brewer, the fmt that a portion of the gas system mder oonsideration hem i* looated beyondthe.lI@ts of the city Of&&,m do,+a not, Of itself, militate lgaimt the exemption Of.suah sy&m h t-tIon. fn ++he**e Of City Of Ml.6 V. S1;pte, 28 6.X (26) 227, proparty 1666tsd in 

### Denton County, but omd by th6 city of 

### D.ll.3 rsld wed .I

. mggmir 

### to furnish water to the oitisens of Dallas, naa held tr, bs empt from tmtion, under the pertinent oonrtitutianal gnd statutory mq$giong.

l&r doss the fast th.t rerarme ia dorimd w the City of xoL66n 

### from the OPsratioa of this munioiplly omnedgas syatsmoperate to.rmovr, Or nullify the emmptioa froa tlution, 

### aooordad tplthe Coastitutiom and *tatutes, if it i* ofhsrwise -ailable, under the prinoiplee 

### hereb@ter discussad. Theweight of authority is olserly to the 

### sfPe& th&, 611 pro

### Perti latilly owed andheld by oitiss md towns 

### ibrpublIo purposes, though a 1)ouroeof revenue **or** 

### profIt whiohwas **paid** 

### into the city Treasury andused for 

### munioiprl purposes by the olty, ir rxsmptfrm 

### Sate twtion, .ths dominantPurpOlOIa th6 

### use kvirg direot nferanBa to the purporog for

Butin aroh of the 

### oases oitrd, it apperrr trvn thefrota that tire incasnoor 

### rewnue of tho nualoipallty ia pu*MOn WM dwiwd fiaa the ~40 Of gas, mater, eleotriolty,eta. to ooneun6r6 '6itNa **the** lbIt3 of th6 m=iOiPfi

### ity owningthe pub110utility, or, inoidentally, tocc0surner8 out*Ide *ha oity 1Mts but adjacent thersto. Thequestion prrsentod ha* is whether Ornot the use of. put of 

### the g.6 syetau Owned bythe OlQ’ 0fYoLo.n to *amIoe, for
a profit, the inh6bit6ntsof th6 tm Of 436nH6d 6ight dl6* frlpfh6 lMt3 to the oity of MoLeur removes the Inst6nt 0686 f?CSC th6 o6663 oIf6d, 30 63 to Ed6 

### the prOp6rty 

### table*

w6 h6-m found no 6uthorities lr T6~63 b66ring

### uPOathis qu@stion, md, 96 mo6ggity mu3t m3orf to 

### ths ~rsu6siv6 wthoriti6n 

### of other jurirdiotions~ There are h unoonflioting 1-66 

### of suoh 

### l uthoritiU, 0116holding **that tb**  6~6m@ion from fucatioa of muEiCip611y 

### om*d worka md Utiliti63 13 lrOt lO*t bo6ug6 Of 6a Inoidontil 1166 for 

### a priYd6 

### purpoa6fromwhloh rbwnU6 

### is dorimd, the Oth6r 

### holdi3g that the UOO Of PNFafii*m by a Oily to *em bhab 

### itant bsyondthe oify tilts, rhioh Is n6ither 

### laoldsntal nor IIISignifi~nt~ 

### ig not 6 ~86 for pblio purpe606 iIithia th0 mSUiiSg Of 

### fh6 6%6+iO& 

### rclquirsnentg of th6 Conatltutian

### and StdUt6C, 

### rsp6oitilyti5h r**prOt to oity PmP6r‘l;y out&do the Oity limit6 

### whloh 13 u66d OXOh6iV6ly t0 16l-W rosldents in the Out3ld6 t6rrItOryo 

### Supporting the prinoipls of exenption upon th6 basis of inoidental US6 am th6 a6863 of Comonwoalth v. City of Riohcond, Cccmnomm~lth 0. City of Covinfion,Tom of KorthXavam. Borou& of ’ Vhllingford, ud t’orrm of Ora2Qge 

### V. City of Barrr, 

### supra.Honorable Joe Gordcn - Page 4 (o-2205)

Under the facts befors the court In the ease of Com!onwealthvo City of Richmond, it appeared that the adjacent town of Bprton Eieights petitioned the city council of Bichnond to supply about forty thousand galla ofwater daily on suohtsrms ~8 should teem to the aity reasonable end fair, until such time us artesianwells oould be drilled to supply the town of W-ton Heights with ample watero This requestwa8 granted by ordinancewhiohwe.3 'G&CO rsnwed and extendode In addition, the City of Richmond furnished water to the Richmond LooomotivaHarks, a branoh of the knsrlcan Looomotive i?orka, a luge and extensiveplant located adjacent to the territoriallimits of the City of &bond, and employing several thousand operativeswhose residence is Idthin the aity Umito. The oity, under the same oonditions, finrishedwater to therepair ahopa of the Chesapeake and Ohio Railroad and tha SeabordAir Iins Railmuy,and also to I[.T. C&troll, living on the north side of Broad Street rdjaoent to the oity limits, and a few other parties under like oonditicnsa The aggragnte amount of ravemae derived fran Aunfshing water to industrialplants ad non-resfdentsbeyost+ the oity limits for the year 1911 amounted only'to the sum of $6,456.29.
Under A oonstitutiaPIa1 provision exempting outnin properties, in

### cluding"propox-Qdirectly or indireatly owned ly **the** St&e, however held, and pronsrty 14nhrlly o-d and held by oounttes, oitier, t-s aad sohool districtsused wholly and exolusively for county, oily, topa or publlo school purposes,"the couth denied the contentionof the Ccnnmonwealth that the public utility property of the City of Rlotmondwas tlable beoausa the oity had gone beyond its &&rter rights in fumishlng water and gas to psrsone residing beyond its corporatelimits, and thus was engaged in "competitive Lusines" in tha matter of furnishingwater and gas to consumersfor oompensation..The courtdoolared that the oonstitutionalexemptions fnnn ta+,lon abve quotedwould not be "defeated

### or annulled by the mere faot that rev+ nue or profit aver and above the oost of maintenance, ie realizedfromthe property~ that jP the use made ofthe pzr~p~rty80 held has direct referenos to the purposes for whioh it is by law authorized to be onned andheld,and tends immediatelvand dirsotlyto promote those purposes,then its uee is within the provisionsexempting the property from taxation, althoughrevenue or profit is darivud therefrom as incident to suoh use."
The QIO of Ccmunonwealth VI City of Covington, supra, turns upon A constitutionalexemption from taxationnor0 closelyparallelingthat of our Texas Constitution,and reading: "Thare shall be exempt fromtaxation publia propertyused for publiopurposes.' It WLS sought by the Cowonwealth of Rentuoky to reoover fromthe City of Covington, in Kenton County, tnxes upon lands, mservoirs, water maina, pumpingotations, engines,ato. aituated in Csrmpbell

County and used AS a water plant or system for nupplyingwater to the inhabitantsof the City of CovIngton and certain citizens of Campbell County residingneou its reservoir andwater maina. In holding the ooastltutional exemptionfromtoJation to be applicabletothis property,the court said:
('The faot that appellee'sreaervolr, pumping station, and some of it3 mains lie outnide oftha muniaipatity -ind in another county, or that It may incidentally dsriva 50~1) revenue from the use of t&water by persons livingIion. Joe Gordon - Pnga 5 (O-2205)

ntxr itsmains and outside the oily limits, ocmnotAffect the question. Very fen oiticsham such proparty situatedwithin their ux-porate limits, And in many instances it haa'been foundnaosssary to locate itmilos a?my. The test 108 Is the propertg used for pub110 p'urp~ses~ that in, prinmrlly for the health, comfort,And welfArs of the inhabitantsof the olty? If so, it is exempt frcm tsration. We do notmean that a oitymay s+cer upon, the lmsineas ofmaintaini::,
a waterworks Aystem for other oities or towns, but Only thnt the fAOt thAt it incidentAllyfurnishesWAter to a OonsidareblenUnbet of peraon6 in proximity to the 

### oiqy,

without injury to the rights of the inhAbitAnts of the oity, does not Alter the publio OhArAuter or UBO of tkB property, ormeke it subject to taxation."

In the 018e of Tow 

### ofOr~np;s v* City of Eu'ra, AuprA, the public use Ofthe lratersvstom of the munioipality in questionwar srteblished EOaa to bring it with& +&a **provisions** of-the &Atuts Felating to eXAq'tions of property used for publio purposee,dEEpitA the hct that 'atCertAin 8eaoons of the year, more wAter ie supplied $r the defendurtwater syr ten than is required for its mtiicipal purposes,which is sold by the defendant for meohmioal uses."

Opposed to theprinciples oftu exanption amounted in the foregoing ~ASIM,bao~uae of a differenoe in the fACta,W!Oftid the OABOS of Mayor And Aldermen of City of Woxrll10 v. PArk City, 172 6.W. 286: Rtileffiv. Xemrt, 66 Atl. 662, Snd IMviok Countyv. City of l-or? Nans,.161 8.2. 417, oaoh And AX illustretiveof the prinoiple of 1Aw thet A u8e ofmunioipally ownedworks end utilities to serve itiIdtantr.beyond the oily limits, whioh la neither inoidentml nor insi~ifioant, is not **A** US0 for pub110 pWpOsW Within the meaning of tax 0xaPaption

requirmoents.
The oontentionsAnd feats involvud in the OAee of Meyor AndAlderman of City of Knotille v. Parks City, supra,mAy be stated fnu %he opinion in that OASdAS follcw.?:
"The bill of canplaillt prOoeeds upon the theory that the property attemptedto be taxed is exempt because owned by A municipal oorpcration;while it is the contentionof defendsst oity thet ruchportion of the plant of ocanplelnent which IS situatedwithin the bOUIdAries of Park City is not used exolus?vely for pub110 or corponrtionpIEpose Of the OCWkplAinABt munioipAlity, but is used in serv$ng PAI% City for profit.

"It Ap&i,ArS thAt the rest boundvy line of Park City is almost oontiguousto the east boundPry line of the city of &~oxvllle for A dlStAnce of Abxt one mile. Them interveneswhet is deeoribad As a nsutrrl strip,About 300 feat wide, onwhich fnctoriesw 1OoAtAd.
"Prior to 1909, both of the oities ware served by A privAtsWAter corporation, the I;notillsWater Company, the plant of which was looetsd partially in the territory of oath of them. Under 1egiSlAtiOn later noted, the oity of Knoxville IXI 1909 acqu&redthe plant of this o~lpary, including thet PAX-t Situated in Purk City, a&i ASSUWXI the coutrrct tl:anlz **existancs** betwoe:the ccnpamyEon. Joe Gordon - page 6 (O-2205)

and Park City, and has since operated Its plant thers.
'The pmof establishesthat the plant of oomplainant aity lying within the tarritorlal limits of Fapk City la, aa to uQ0, independent **of** and not neoesaasy to that part ofthe systmsahioh is In Xn0xcUls and there in use for that oi@ and its inhabitants. I&mains for the Enoxrllle supply are laid in Park City.

'%nw the purchase of the plant of the Eno~lle Water Ccsspany, the City of ~oxville has charged the lnhabdtanta**of** Park City for water at rateswhich are 20 per cent higirer than lfr rates to its osn inhabdbtanta~ and a profit is made fs-0~1

the Park City plant. **A** portion of these pmflts hss been used to extsndwater llnss into and to 86~~ a third incorporatedtowa, Lonsdals,which lo 

### notadjacent to ths City of &oxville.s

The m-mntitutionalmd statutory exempt&one involved in this 

### caseare qupted rospe&Aygly, PI folloro~
s&l property real, 

### parrrenalor mixed, shallbe taxed, but the Legislaturemay exoept rush a.s

may bo held by the atate, hy wuntieam olties or.torma, Pnd used ox~l~si~slyfor 

### publio or 

### oorpratiorr purposea.
"That all props-, real, prsonal aadmixed ahall b arrerred forixxatlon for State, oowntyand munloipal purpo8011, exoapt auohar ir drolrmd exempt lnt he next seotion~
n8e~. S. That the property herein enlrmerated and nome 0th~ #hall M exempt framtaxation~ Al1 property of

. . . 

### aw lnoorporated alty, tom, or taxing dlstriotin the rtate that 10 wed exoluaivrly for publio

### or muniolpal oorp oration purposea."

The ookt held th$t the physlorlprop rtlw of thewater system of Xnoxp~lle looatodwlthinthe bundarlea of Park Citymuld not be exempt from taxation 00 far as they r6rved tha muulolpal purposae of 

### the latter

### munioiprllty, because :baydid not meet the oonstlt~ti0naland statutorytosto of being em.- ployod exoluslrely

### for publio purpore8*

Tn the 

### oaae of Warwick County -?aCity of bwport hwa, 

### it mm held that where olty aoquired a rotorwork8 rystaPI operating in olty and in territory oontiguouato olty, purruant

### to oertaln 

### l uthorlaing rtatutia, androoairad moro than 

### onethird of total ro11enuo frOn arls ofrater to peraonl outeldo of city, the saidmtor systemwan liable to taxatioa 

### baoauarnot used 

### either wholly or ox~lusl~elyfor pub110 purp0ro8 of oity, under portlreat tax oxmsptionprooiaiono of the Conrtltution, Tho ooti rooopalss(l~ tho dirtinotioapointed out in tho two Umor of authorit am dlrcun8eddth the follonIng lraguaget
II

. . . Iftho outsldaULW be incidental or the rvrw~uo thorefrem 60 muall as to bs nogliglblo,the nmwrty is rtill oxmspt from taxation, but if the outeido wo is osssntial (I.e., Lnpoaod aa an inherent duty of ths oityas the omor of the propsrty) and la addition tho rwonuo derived is substantial,then the property io not oxsmpt fr0mtaxation.

. . .. -

lion. JoeGordon - Page 7 (0.4205)

”

. . .% do not meen to intjmata thst, as the ounsr of the xstsrxofis, a mucicipalitymay not as a mere incidentto Its business supply relatively limited quantities of water to personsoutside of its territorial limits without subjectingIts property to taxation. RS domean to say that, under tho factsof this oass, the supplying of water by tho city of Newport lievr; to a largenombsr of ooncumersin ikrwioh County and Xlisabeth City County, at reasonable rates,with the right to extend itsmains to supply lrptsr to tiln citieensof York and &ass City oounties, cannot bs held to be a mere inoidont to supPlyin,gwatarto its ovm citizsn8,without disregardingthe manifest import of the Constitution.E 153."

In StilesV. Rawport, supra, it was held that whore the municipal corporationof Newporthad oonstruoteda branoh lino in anothermunicipsllD~, West Derby,whioh was devotedwholly to the needs of the latter, and fur&shed its sater supply, that systemwas taxable byWest Derby. Tho Court, in langusge hip>ly applicable to the instant situation, saldr
"Thomunicipal duty of the vil&;e of Newport as regards ths maintenanoe ofmains and herdrants

is confinedto its territorial limits. The munioipal rslationwhich cntors into the question of dcmestin supply is oonflnod to its own inhabitants. The furnishingof arter to the inhabitantsof the defendantvillage is held to be a publicuse upon the groundthat themaking of such a povision, ahile not strictlya municipal duty, is protootiveof the publio health, and thereforea publicuse within the meaning of t&o laws relating to taxation. But this reasoning fails when the furnishing of water to tho village of West Dsrbjr Is In quuostion. He see no ground upon which the West Derby branch of this systsm oan be held to be devoted to D puhlia use, aither as mgards fire protoctioa or dcssestio needs. ?hs village of K8wpor-t 0~0s no municipal duty to the village of West Kcr3J or its inhsbitants,and has

### nomunicipal interestthere. Its sale of xator to that village and Its inhabitants is for the rsvsnuo obtainable thersby, independent of any connectionwith municipal duty or interest*

. . .
sgsre, the tillago of &sport has built and installed a branch outside its oorporate limits,which Is devotedwholly to the needs of another tillago, and can never ba made available for its own munioipal sorvios~ and the question is whether the property so orentod and cirsumstsnoed shall be treated a8 soroiag an incidentaland tharefore a public usa. It might not b3 ocq to frsme a sar’:, and ancsptablsdefinition of an incidental ~30, 3A ns think it may cafslybe said tk,atthe supplyingof themunioipal and domestic needs of anothermunioipolity through a complete system of distributionpipes and hydrants onatod for that purpose is not sooh a usor The plaintiffhas assessed the hydrants located in Derby, andus hold that they are taxabla."

From a careful snalysis and considerationof the authorities cited and disouscod in support of the two lines of dooisions regarding tgx exsmption ofmunicipally owned utilities,wo am constrainedto hold that tha gas system owned b<r

the City of &&san but located outside tho city limits to a distanoe of eightmiles and saticing the Css noeds of the inoorporatedvillagsot'Alanreed, is not exempt from ad valoram taxes levied w hllnreed IndependentSchoolSnorablp Joe Gordon - Page 8 (O-2205)

District,under pertinent c~stitutianai and statutory tax exampkionprovisions, because suoh property is not 'publio property used for publio purposes,"nithin their intsndmcnt. The City of&Wan has no publio or oorporatepurposes to some within the corporatellnits-ofAlanrced. The furnishing of **gas**end **other** utilitiesto the Inhabitant.8 of Alanmod I.8

the munloipal purpose and duty sf Alanmod and not MoLeax. It Is not enough that the gas systam in question iz wined byM&an, hit suchproperties, to be entitled to tho t~,axanptica afforisd bythe Constitutionand statutes,must be "public propwty'used for publio purposea.' AndthIs tax ex&nption test is not met by the faots **of** the instaut o&sewhere it nppe ars th8t the City of **k&em8** undertakes to oontinuously supply g&s to the inhabitantsof mother incorporatedmunioiplity eightmiles distant. This is not the inoidcntaly supplying of *tar, gas, oleotricity,eto. to persons aad industrialoorporationsolose to the oily limits, **or** the salr of a temporary over-supply.ofsuch cczmnodity, witbAn the rule of law annouaoed in these dsoisiona holding that nn incidentalor insigaifloantuse of suoh propertywill not defeat theta% o%emptione

Trustingthat the foregoing fully uamerb your inquiry,wa are

Yours very truly **ATTORBEY**

GENEiU OFTEXAS
By /o/ **Pat** Id.&ff, Jr.

Pat 16.Gaff, Jr. Asslrtant

APmovED JUNE 10, 1940 /s/Gwld C. XAXZI ATTORNEY GENEFAL OF TEKbs APPROVED Opinion committee ayawl Chairma