October.17, 1957
**opinion Ho.**  **ww-281**
Re: Taxability

of City property

wider Lease to private industry. Hon. William J. Gillespie CountyAttorney Lubbock County Lubbock,Texas
Dear Mr. Gillespie:

In connection

with your letterrequesting 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 propertyin Lubbock Countywhich is dedicated

to use a8 the LubbockMunicipal Airport, Such property,

being used for publicpmposes 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 directorof A?4ation entered into a lease of a pertion of the airport propertyto 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 AirportBoard has detemimd +&a? it is in the public intereat that the lesseeilave suck privilege.

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

hall become the uropertyof the City by September

30, 1960, the City being conve:wd a l,i60interest in each of said buildingseach month dcrirg the first five years of the lease. The lessee is furthergiven an option for tbzee consecutivefiveyear extensions,

with a different

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

"It was furtheragreed that should the contractlease be abandoned or breached

before tke initialfive-year

tern was up, the City would h;zve an option to purchaselessee's remaininginterest in the buildings. If the City did not desire to exercise its option,then the lesseehad 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'sleaseholdinterest constitute

a separate

taxable interest? “(3) Does the lessee's dininisking

interest in the buildingsconstitute 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.
. .tkQproperty ns a whole WRS acqti-ired for the purpose cf servingas an airfield. A great portion of tka t prcperty

has been utilizedfor that purpose,

but the remainingtract (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 questicnis being held by the City for a future expansion

of the .airport,

it is tax exempt unless and until tne city has abandonedits 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 (writrefused).

sec. 2, Art. TTIII, of the Texas Constitution providesin p.SZt: "but tke legislature my, by general laws, exempt from txation public propertyused 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 propertyof counties, citiesand towns, owned and held only for publicplurposes, siloh as public buildings

and the sites therefor, fire engines and the furniture

thereof,

and all property

used, or intended

for sxtinquishing

fires,public groundsand all otherpropertydevotedexclusively to the use and benefit of the public shall be exempt from forced sale and from tsxation, *." Article 7150, V.C.S. providesthat the following property is exempt from taxation:

n

. . . “Sec. 4. Al.1

property,

vhetherreal ar personal,belongingexclusively to this State, or any politicalsubdivision 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 politicalsubdivision thereof

end does not containthe restriction that sush propertyto be exempt must be used for publicpurposes. Counties and citiesare politicalsubdivisions

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 publicpurposes. Therefore Sec. 4 is inoperative

insofar

as it purports to exemptpublicpropertyregardless 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 publicpurposes. City of Abilene v. State, 113 S.W. 2d c

Sec. &a of said Artfzle 7150 (not listedabovej whioh requirespower districtssuch as the Lower Colorado Siver Authority to oav certainamounts 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 publicuse it was exempt from taxation .under Sec. 9 of Art. XI of the Coustitution, supra. County and city property B' actually held for a futurepublic use is exempt although temporarily rented or ieased. state v. city o? Eoustoc, 140 S-W. 2d 277* County and sity propertyLT 'use d or held for publicpurposes is exempt,although no% owned or held exclusively for such p:urpose. Stats v. City of Beaumont, I.61 S.W. 2d 344..,

hon. WilliamJ. 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, comfortor welfsre of the nublic. To be used for publicpurpoae6 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 propertydoes not withdraw it from its public character,

if‘suchchargesiare an incident

to its use by the public and the proceeds inure to the benefit of the politicalsubdivisions. Id.

Land acquired

by a city for a publicpurpose, such as a site for a water reservoir,is tax exewt, althoughthe city temporarily leases same for agricultcal or older purposes,if the city has not abandonedits intention to build such reservoir. City of Dallas v. State, 28 S.W. 2d 937.

You are therefore

advisedthat if the City is holding tine property in questionfor a future expansion of the airport,or for other public purpose that it is tax exempt to the City.

Article 7173, Vernon'sCivil Statutues provides: "Property

held under a lease for a term of three years or more, or held under a contract for the purchase thereof, belongingto this State, or that is exemptby law from taxationin the hands of the owner thereof,shall be considered for all the purposes of taxation, as the propertyof the person so holding the same, except as otherwise soecir^ically provided

by law.' Article 7174, Vernon'sCivil Statutues provides: "Tlzableleasehold

estates shallbe valued at such a price as t‘ney would bring at a fair volmtaq sale for cash." The SupremeCourt of Texas in Tramwell v. Faught, Tnx Collector, 74 Tex. 557, I.2 S.W. 317, held that the taxablevalue 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 answeryour second question in the affirmative.

In referenceto your third questionit appearstha.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 premisesand tine

value of same shouldbe considered in'jsriving

at the assessable

value of ,t.he

leasehold

estate. On each succeeding January lst, the City will owu E/50 .additional interestin the premiwa ,-na the assess~?-l~ value of the leasehold estatewillHon. WilliamJo Gillespie, page 5 @V-281)

increasein value accordingly.

Article 7174, Vernon'sCivil Statutes provides: '!Personal

property,

for the purposes of taxation, shallbe construed to include e . .a11 improvements made by personsupon landsheld 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 taxationfor the benefit of any railroad company, or any other corporation whose property is not subject to the same mode and rule of taxationaa other propee."
It follows that on January 1, 298, 57/&l of the value of the improvements

shouldbe assessedagainst the lesaee as personal property ownedby him. Each year thereafter he will own l2/60 less interest in the improvements and should

be assessedacCordingly. 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 otherpublicp~nrpose is tax exempt to the city, A leasehold estate covering tax exemptpropertyof a city if held under .alease for a term of threeyears or sore iB taxable t0 the lessee and shouldhe valued at such price as it would bring at a voluntarysale for cash. Tke interest of the lessee in improvements placed on the leasedpremisesshouldbe assessedfor taxation as the personal

property of t'oe

lessee.
Yours very truly,
WILL **wIL;jON** AttorneyGeneral of Texas

wvG/Yk AP~?RomD: OPIRIORCOMKrTrER 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