October.17, 1957 

opinion Ho. ww-281 

Re: Taxability of City 

property wider Lease 

to private industry. 

Hon. William J. Gillespie 

County Attorney 

Lubbock County 

Lubbock, Texas 

Dear Mr. Gillespie: 

In connection with your letter requesting our opinion relstive to the captioned CWttQr, you submit the following factuaL 

situation: 

"The City of Lubbock holds title to a certain 

tract of real property in Lubbock County which is 

dedicated to use a8 the LubbockMunicipal Airport, 

Such property, being used for public pmposes is. the 

past has been exempt from taxation under the express 

provisions of B.S. Art. 7150. 

"On Septenber 15, 1955> the City, through its 

director of A?4ation entered into a lease of a pertion of the airport property to the West Texas Compress 

and Ware&we Ccmpauy, a Texas Corporstioa domictled 

io Lubbock, hereir&tey called lessee. 

W!e issaee is to use the laud for mehouse 

purposes, and the Airport Board has detemimd +&a? 

it is in the public intereat that the lessee ilave 

suck privilege. 

"Tke lease is for a term of five yelrs 'beginniag October 1, 1955, a~ud ending Septmber 3C~, l$(I‘, 

with the lessee to pay $l,lOC a year L1s :ie City 

during that period. Tiie lessee Is also to erect five 

metal clad tmrehouse buildings on ti;e site, whim 

buildir.gshall become the uroperty of the City by 

September 30, 1960, the City being conve:wd a l,i60 interest in each of said buildings each month dcrirg 

the first five years of the lease. The lessee is 

further given an option for tbzee consecutive fiveyear extensions, with a different yearly- rental heizg 

due during each of those extensions. 
Eon. William J . Gillespie, page 2 (WW-231) 

"It was further agreed that should the 

contract lease be abandoned or breached before tke 

initial five-year tern was up, the City would h;zve 

an option to purchase lessee's remaining interest 

in the buildings. If the City did not desire to 

exercise its option, then the lessee had tiie,option to purchase the City's accrued interest, and 

upon payment. the lessee could remove tke buildings. 

The further terms of the lease appear in the copy 

of the lease attached hereto." 

Specifically, you submit the following questions: 

"(1) Has the land, by virtue of the chauge 

in the character of its use, lost its tax exemption? 

"(2) Regardless o? the tax consequences 

to the City, does the lessee's leasehold interest 

constitute a separate taxable interest? 

“(3) Does the lessee's dininisking interest in the buildings constitute a taxable interest 

to kin?" 

You s+ate " that tke property in question "is dedicated to use 

a* +he Lubbock %iunicipal Airport." You also state, (I. . .tkQ property ns a whole WRS acqti-ired for the purpose cf serving as an airfield. A great portion of tka t prcperty has been utilized for that 

purpose, but the remaining tract (tZe property in question) has been 

tutned over to private enterprise for *a period of POSSib~ 20 years." 

The operation of an Airport by a cit;r constitutes a public 

purpose. If the land in questicn is being held by the City for a 

future expansion of the .airport, it is tax exempt unless and until 

tne city has abandoned its intention tc use the property in the 

future for a public pwpose. CitT J of Abi1er.e v. State, 113 S.M. 2d 

633 (Tex. Civ. App.); ;tnCt City of Dallas v. State, 25 S.W. 2d 937 

(writ refused). 

sec. 2, Art. TTIII, of the Texas Constitution provides in 

p.SZt: 

"but tke legislature my, by general laws, 

exempt from txation public property used for D~u'clic 

purposes." 

~-~ Sec. 9, Art. XI, of t‘ne Ccnstituticn of TTW~, provibs im 

p:trt: 
Bon. William .J. Gillespie, page 3 @w-281) 

Vhe property of counties, cities and towns, 

owned and held only for public plurposes, siloh as 

public buildings and the sites therefor, fire engines 

and the furniture thereof, and all property used, or 

intended for sxtinquishing fires, public grounds and 

all other property devoted exclusively to the use and 

benefit of the public shall be exempt from forced 

sale and from tsxation, *." 

Article 7150, V.C.S. provides that the following property 

is exempt from taxation: 

n 

. . . 

“Sec. 4. Al.1 property, vhether real ar personal, belonging exclusively to this State, or any 

political subdivision thereof, yy**" 

You will note that Sec. 4, of k-title 7150, supra, purports 

to exempt all propertg, whether real or personal, beiongkg exclnsivelg to this State, or any political subdivision thereof end does 

not contain the restriction that sush property to be exempt must be 

used for public purposes. Counties and cities are political subdivisions of the State. Eowever, Sec. 2 of Art. TIII, supra, of 

the Constitution only gives the Legislature the authori&:o~sxsmpt 

such property when used for public purposes. Therefore Sec. 4 is 

inoperative insofar as it purports to exempt public property regardless of its use in violation of said Sec. 2> Art. TII; of the IX&. 

stitution, but is valid insofar as it exempts p?ubLio property nsed 

for public purposes. City of Abilene v. State, 113 S.W. 2d c 

Sec. &a of said Artfzle 7150 (not listed abovej whioh requires power districts such as the Lower Colorado Siver Authority 

to oav certain amounts In lieu of tsxea is uncoz3t1txt:onala Lower 

Colkc~addo River Authority v. Chemiaal Bar& and Trust Co., 39C ST 

2d $8, 

The Court held power districts to be poEti:nl sub~.ivlsLons 

of the State and as the property~was devoted k.o a public use it was 

exempt from taxation .under Sec. 9 of Art. XI of the Coustitution, 

supra. 

County and city property B' actually held for a future public 

use is exempt although temporarily rented or ieased. state v. city 

o? Eoustoc, 140 S-W. 2d 277* County and sity property LT 'use d or 

held for public purposes is exempt, although no% owned or held exclusively for such p:urpose. Stats v. City of Beaumont, I.61 S.W. 2d 344. 
., 

hon. William J. Gillespie, page 4 (-W-281) 

The Test for determiniug whether "public propert‘J" is tex 

exempt is whether it is used primarily for the health, comfort or 

welfsre of the nublic. To be used for public purpoae6 it is not 

essential that it be used for governmental purposes. A. & 14. Consol. 

Ind. Sch. Dist. v. City of Bryan, 184 S.W. 2d 914. That charges 

are made for useof public property does not withdraw it from its 

public character, if‘such charges iare an incident to its use by the 

public and the proceeds inure to the benefit of the political subdivisions. Id. 

Land acquired by a city for a public purpose, such as a site 

for a water reservoir, is tax exewt, although the city temporarily 

leases same for agricultcal or older purposes, if the city has not 

abandoned its intention to build such reservoir. City of Dallas v. 

State, 28 S.W. 2d 937. 

You are therefore advised that if the City is holding tine 

property in question for a future expansion of the airport, or for 

other public purpose that it is tax exempt to the City. 

Article 7173, Vernon's Civil Statutues provides: 

"Property held under a lease for a term of 

three years or more, or held under a contract for 

the purchase thereof, belonging to this State, or 

that is exempt by law from taxation in the hands of 

the owner thereof, shall be considered for all the 

purposes of taxation, as the property of the person 

so holding the same, except as otherwise soecir^ically 

provided by law.' 

Article 7174, Vernon's Civil Statutues provides: 

"Tlzable leasehold estates shall be valued 

at such a price as t‘ney would bring at a fair volmtaq sale for cash." 

The Supreme Court of Texas in Tramwell v. Faught, Tnx Collector, 74 Tex. 557, I.2 S.W. 317, held that the taxable value of real 

arooertv. ta&le b7 virtue of Article 7173, supra, was the value of 

the leasehold estate and not the value of the fee. We answer your 

second question in the affirmative. 

In reference to your third question it appears tha.t on 

January 1, 1958, the City will own an undivided 3/6!l of the improvements. This 3/60 interest will constitute a part of the leased 

premises and tine value of same should be considered in'jsriving at 

the assessable value of ,t.he leasehold estate. On each succeeding 

January lst, the City will owu E/50 .additional interest in the 

premiwa ,-na the assess~?-l~ value of the leasehold estate will 
Hon. William Jo Gillespie, page 5 @V-281) 

increase in value accordingly. 

Article 7174, Vernon's Civil Statutes provides: 

'!Personal property, for the purposes of taxation, shall be construed to include e . .a11 improvements made by persons upon lands held by them, the 

title to which is still vested in the State of Texas, 

or in any railroad company, or which have heen exempted 

from taxation for the benefit of any railroad company, 

or any other corporation whose property is not subject 

to the same mode and rule of taxation aa other propee." 

It follows that on January 1, 298, 57/&l of the value of 

the improvements should be assessed against the lesaee as personal 

property owned by him. Each year thereafter he will own l2/60 less 

interest in the improvements and should be assessed acCordingly. 

We appreciate the able brief which accompanied your request. 

SUMMARY 

Property held by a city fcr the purpose of f%nre 

expansion of an airport or other public p~nrpose is 

tax exempt to the city, A leasehold estate covering 

tax exempt property of a city if held under .a lease 

for a term of three years or sore iB taxable t0 the 

lessee and should he valued at such price as it 

would bring at a voluntary sale for cash. Tke interest of the lessee in improvements placed on the 

leased premises should be assessed for taxation as 

the personal property of t'oe lessee. 

Yours very truly, 

WILL wIL;jON 

Attorney General of Texas 

wvG/Yk 

AP~?RomD: 

OPIRIOR COMKrTrER 

George P. Blackburn, Chairman 

John B. Webster 

W. V. Gsppert 

Assistan;, 

13. H. T immins 

R?Zm FOR THE ATTORRRY GENERAL 

3y: James N. Ludlum