DAN MORALES 

.ATTORNEY GENERAL 

QBffice of tfy Bttornep Qhnersl 

.&ate of PCexae 

April 18, 1996 

Honorable Thomas Cameron 

Winlder County Attorney 

P.O. Box 1015 

Kermit, Texas 79745 

Dear Mr. Cameron: 

Opiion No. DM-383 

Re: Whether a jail facility is subject to ad 

valorem taxes when a county occupies it for 

county purposes under a lease-purchase 

contract with a private entity (lZQ-71 I) 

You have inquired whether a jail and shetifFs 05ce complex that Winkler County 

(the %ounty”) occupies pursuant to a haas-purchase agreement with a private entity is 

subject to ad valorem taxes. We understand that the county entered into a Lease-Purchase 

Agreement (With Option to Purchase) (the “agreement”) with Municipal Capital Markets 

Corporation (the “Lessor”) under which the lessor wnst~cted a jail and sheriffs office 

complex (the “project”) on land the lessor owns. The agreement provides that the county 

exchtsively will lease the project, with rental payments due semiannually beginning 

April 1.1994, and continuing through October 1,2013. 

Pursuant to article X of the agreement, on or after April 1,2000, the county may 

purchase the project from the lessor. Furthermore, pursuant to article XIII, the county 

may acquire title to the project upon the payment of the concluding rental payment. In 

either event, the lessor must convey to the county title to the project; the lessor may not, 

in its discretion, refuse to release the title. The county’s purchase of the project, under 

either article X or article XIII, terminates the lease. The county also may terminate the 

lease by failing to appropriate su5cient Smds to pay the rental payments and other 

amounts due under the lease, and the lessor may terminate the lease if the county defaults. 

In the event the lease terminates in either of the latter two situations, the county does not, 

of course, receive title to the project. 

The agreement further provides that, as lessee, the county must maintain the 

project in good repair and in working order, including performing ah necessary repairs, 

replacements, and improvements. The county may remodel, mod@, improve, and make 

additions to the project upon receiving certification from the project architect that the 

changes will not decrease the value of the project. Furthermore, the county must maintain 

liabiity and property insurance on the project and pay ah utility charges incurred in the 

operation, maintenance, use, occupancy, and upkeep of the project. Finally, the county 

must pay all property taxes levied on the project. You state that the project ties within the 

taxing jurisdiction of Winkler County and the Kermit Independent School District. 
The Honorable Thomas Cameron - Page 2 (DM-383) 

In Attorney General Opinion JM-697 this office contirmed the authority of a Texas 

county to enter into a lease-purchase contract for the construction or acquisition of a jail, 

so long as the county complies with all applicable constitutional and statutory provisions. 

Attorney General Opinion JM-697 (1987) at 6. That opinion described a lease-purchase 

agreement as follows: 

A lease-purchase agreement enables the purchaser to spread the 

purchase price over a number of years, while receiving immediate use 

of the property being purchased. A typical lease-purchase contract 

might require the county to make stated payments over a term of 

years and then transfer ownership of the property to the county upon 

payment in fU or upon payment of an additional stated sum. 

Id. at 1. We did not examine in Attorney General Opinion JM-697 whether a jail that a 

county is occupying pursuant to a lease-purchase agreement is subject to ad valorem 

taxes. 

Whether particular property is exempt from taxation depends upon the facts of a 

particular situation. See Texas Turnpike Co. v. Dallas Carnty, 271 S.W.2d 400, 402 

(Tex. 1954); Attorney General Opinions DM-78 (1992) at 4, H-1059 (1977) at 1; cf. 

Bullock v. Citizens Nat.1 Bank, 663 S.W.2d 923, 924 (Tex. App.-Austin 1984, no writ) 

(stating that court must examine all facts to determine whether particular transactions 

were sales under Tax Code or merely leases intended as security). Questions of fact are 

inappropriate for the opinion process. See, e.g., Attorney Genera) Opinions DM-98 

(1992) at 3, H-56 (1973) at 3, M-187 (1968) at 3. Furthermore, the resolution of the 

question you ask depends to a certain extent upon an interpretation of the agreement. The 

review of contracts is not an appropriate timction for the opinion process. Attorney 

General Opinion JM-697 (1987) at 6. Consequently, we cannot detinitively answer your 

question. We may, however, provide you with some guidance. 

Article VIII, section 1(b) of the Texas Constitution deems ail real property and 

tangible personal property taxable in proportion to its value unless the property is exempt 

as the constitution permits or requires. Additionally, article XI, section 9 exempts from 

taxation “[t]he property of counties held only for public purposes.” When considering 

the taxability of real property under article XI, section 9 of the constitution, we must 

consider two issues: first, whether the property is publicly, not privately, owned, and 

second, whether the property is used for public purposes. See Attorney General Opinion 

H-1059 (1977) at 2 (citing Leonder Indep. Sch. Dist, v. Ceabr Park Water Supp& Corp., 

479 S.W.2d 908 (Tex. 1972)). 

Pursuant to article VIII, section 2, the legislature enacted the statutory predecessor 

to section 11.11 (a) of the Tax Code, which exempts, with certain exceptions irrelevant to 

the questions you ask, “property owned. by a political subdivision of this state if the 

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The Honorable Thomas Cameron - Page 3 (~~-383) 

property is used for public purposes.“t Thus, like article XI, section 9 of the Texas 

Constitution, section 11.11(a) of the Tax Code requires that we consider two issues to 

determine the taxability of real property: first, whether the property is owned by a 

political subdivision of the state, and second, whether the property is used for a public 

Purpose. 

For purposes of this opinion, we will assume that the wuntyz uses the project for 

public purposes. See Tm Dep ‘t of Corrections v. Anderson County Appraisal Dist., 

834 S.W.2d 130, 131 (Tex. App.--Tyler 1992, writ denied) (accepting parries’ statement 

that prison is “property used for public purposes”). The question immediately before us is 

whether the project is publicly, not privately, owned. 

The cases we have studied while researching your question appear to distinguish 

between property to which a governmental body holds equitable title, even if the 

governmental body does not hold legal title, and property to which the govermnental body 

holds neither equitable nor legal title. “In Texas, . . an equitable title is a right, 

enforceable in equity, to have the legal title to real estate. . . transferred to the owner of 

the right.” United States v. Davidson, 139 F.2d 908, 910 (5th Cu. 1943) (footnote 

omitted); accord Neeley v. Interci@ Management Corp., 623 S.W.2d 942, 950 (Tex. 

App.-Houston [ 1st Dist.] 1981, no writ) (defining “equitable title” as enforceable right to 

have legal title transferred to holder of equity); Pickle v. U!hi&ker, 224 S.W.2d 741, 745 

(Tex. Civ. App.-El Paso 1949, writ ref d) (stating that “equitable title is the present right 

to the legal title”); Carmichael v. Delta Drilling Co., 243 S.W.2d 458, 460 (Tex. Civ. 

App.-Texarkana 1951, writ refd) (same); Peguea v. Moss, 140 S.W.Zd 461, 471 (fex. 

Civ. App.-El Paso 1940, writ dism’d by agr.) (same). “‘An “equitable title” is not a title, 

but is a mere right in the party to whom it belongs to have the legal title transferred to 

him.‘. . ‘When the equitable title rests upon an executory contract of purchase which has 

IIn 1989 the legislature added to section 11.11 of the Tax Code subs&on (Cl, now s&s&ion 

(g). which provides 85 follows: 

For pqnxes of this se&on, aa improvement is owned by lhe state and is 

used for public purposea ifit is: 

(1) located on land owned by the Texas Department of Corrections; 

(2) 1easedandusedbythedeparuncnt;and 

(3) sohjcct to a lease-purchase agreement providing that legal title to the 

improvement m to the depanment at the end of the lease period. 

la our opinioa, the eoaamcot of this s&ion &es not necmm ‘ly preclude exempbng from taxation a 

facility swh as the project, which is constrwed on land the lessor owns and which the lessor leases to the 

county pomant to a lease-purchase agreement. 

2A county is a political s&division of the state. Chikdrm Ccnu@ Y. State, 92 S.W.Zd 1011, 

1015 (Tex. 1936); see also Tex. Coast. arl. XI, 5 1; 52 TEX. IVR. 3DhfUniCipdities 5 7, al 29 (1987). 

p. 2102 
The Honorable Thomas Cameron - Page 4 C'M-383) 

not been completely performed by the purchaser, his title depends upon his right to 

possession under the wntract.“’ Tanner v. Imle, 253 S.W. 665,668 (Tex Civ. App.-San 

Antonio 1923, writ dism’d) (quoting Z7ggerson v. Whitbeck, 16 P. 403,404 (Utah 1888), 

and unknown source); cfl Missouri er rel. Ci@ of St. Louis v. Baumann, 153 S.W.2d 31, 

35 (MO. 1941) (defining “equitable title” as right in party to whom such title belongs to 

have legal title transferred to him or her upon performance of specitkd conditions). 

Courts generally conclude that a governmental body holds equitable title if the 

governmental body possesses the property to which it does not hold legal title and if the 

governmental body may take legal title upon its performance of certain specified 

wnditions. In such a case, the property is exempt from ad valorem taxation. 

You have cited two cases that ihustrate the distinction the wurts generally make: 

Tmrmrt County Water Supply Corp. v. Hurst-Euless-Bedford Independent School 

District, 391 S.W.Zd 162 (Tex. Civ. App.-Fort Worth 1965, writ ref d n.r.e.), and Ta 

Department of Corrections v. Anderson Coun@ Appraisal District, 834 S.W.Zd 130 (Tat. 

App.-Tyler 1992, writ denied). In T-t Count Water SupprY Corp. the wurt of civil 

appeals considered the tax-exempt status of certain real and personal property to which 

the Tarrant County Water Supply Corporation (the “water supply corporation”) held legal 

title. The court first rejected the water supply corporation’s argument that it was a 

political subdivision. Tarrant Cow@ Water Supp& Corp., 391 S.W.2d at 163. 

In addition to contending that it was a political subdivision for tax exemption 

purposes, the water supply wrporation contended that the municipalities the water supply 

corporation serviced held equitable and benetkial ownership of all of the properties in 

question and that the properties were, therefore, tax exempt. Id. at 162, 163. In support 

of its claim that the municipalities held equitable ownership of the properties, the water 

supply corporation relied specifically upon an agreement in which the water supply 

corporation, in return for a thirty-five-year franchise from each of the municipalities, 

agreed to deed and convey, when the bonded indebtedness of the water supply 

corporation was fully paid, all of its property in each municipality to the municipality in 

which the property was located. Id. at 162. Property within the bounds of the subject 

municiprdities was not at issue in Twant Counv Wbter Supply Corp., however. Rather, 

the court considered the tax-exempt status only of property located wholly outside the 

boundaries of the four municipalities. Id. 

To determine that the water supply corporation held taxable title to the property in 

question and that the property was therefore subject to ad valorem taxation, the court 

examined the facts of the situation, Id. at 164-65. Significantly, the water supply 

corporation had not delivered to a trustee deeds to the property at issue, although the 

water supply corporation had delivered to a trustee deeds to its proper&y lying within the 

boundaries of a municipality. Id. at 164. Additionally, the water supply corporation 

possessed the property at issue. Id. 

p. 2103 
The Honorable Thomas Cameron - Page 5 (DM-383) 

The court noted that, if the water supply corporation declined to convey the 

property at the termination of the agreement to any of the municipalities, the municipalities 

could not compel the water supply corporation to convey the property. Id at 164. The 

court termed the municipalities’ interest in the property at issue an “estate limited upon a 

contingency,” or a “contingent remainder.” Id, at 165. A contingent remainder is not a 

taxable title. Id (citing Texas Turnpike Co. v. Daubs Coun?~, 271 S.W.2d 400, 402 (Tex. 

1954)). 

By contrast, in the second cage you cite, Texas Deparfment of Corrections v. 

Anderson County Appraisal Di.wic& 834 S.W.2d 130 (Tex. App.-Tyler 1992, writ 

denied), the court of appeals considered the taxability of a prison unit (the “Michael TM”) 

that the Texas Department of Corrections (the “TDC”) had contracted to have 

wnstructed on land the TDC owned. Id. at 131. The TDC had devised a “financing 

device” to raise kids for the wnstructidn of the Michael Unit. Id. at 130. 

Under the arrangement, the TDC leased its land to the private, nonprofit 

wrporation, which assigned the lease to a trustee. Id. at 13 1. The TDC also assigned the 

construction contract to the private, nonprofit corporation, which in turn assigned it to a 

trustee. Id. In addition, the TDC and the private, nonprofit corporation executed a leasepurchase agreement under which the TDC would possess and rent or purchase the 

Michael Unit. Id. The private, nonprofit corporation assigned the lease-purchase 

agreement to the trustee.3 Id. 

‘The dctsila of the “liaanciag device” in the court’s opinion am somewhat sketchy. ‘Ibe Texas 

Dfpmtment of Corrections described the imnsacdon as follows in its brief to the Texas Supmme Comt in 

rcsponae to a petition for writ of error: 

[O]n June 1.1986, the TDC entered into a constroction contract for the wchael 

UnitlwithDanielConstructionCompany.... Asofthesameday,Jone1,1986, 

TDC, [the Purchasing and General b-vices Commiaaion], and a non-profit 

wrporation (the ‘Corporation”) eatcmd into aa agreement called the 

Utilization Agreement. . . Under this agree-t, TDC agreed 10 lease the land 

wherrtheFIichaelUnjt]wastokbuilttotheCorporalionbymcansoTa 

GmundLease,[also]&talJune1,1986.... TDCfurtheragreedtoassigothe 

wnstmction contract 10 the Corporation. After the Wchael Unit] was built, the 

State of Texas wwld lease back the land together with the Mchael Unit] by a 

lease (State Lease)[,] which was delivered to [a] Tms~ee to be held in rmst until 

the flvlichacl Unit] was completed. . . 

pn addition, on hoe 1, 198a.l the Corporation assigned to 

the Tmstee . . all of the Corporation’intmst s in 

1. tbc Utilization Agreanent];] 

2. the state Leas];] 

3. the (Michael unit;] 

4. theGnnmdLease[;aad] 

p. 2104 
The Honorable Thomas Cameron - Page 6 (DM-383) 

When, upon the completion of the h4ichael Unit, the Anderson County Appraisal 

District attempted to levy taxes on itf the TDC protested. See id. The court stated that, 

although the t~stee held legal title to the Michael Unit, the burden of taxabiity is 

determined by the identity of the equitable title holder. Id. (citing Texas Turnpike Co. v. 

Lk&s County, 271 S.W.2d 400, 402 (Tex. 1954)). Here, the court concluded, the state 

held equitable title to the Michael Unit. Id. The court stated: 

It is undisputed that the state, which is in possession of the property, 

will acquire 111 legal title to the Michael Unit when all the payments 

are made. If this condition of “lease” payments is met, the state can 

compel delivery of the legal title. Id. Therefore, the improvements, 

in equity, are owned by the state “no diierent[ly] from that of any 

private owner who holds property against which there is an 

outstanding lien.” San Anianio ISD v. Water Works Board of 

Trusiees, 120 S.W.2d 861,865 (Tar. Civ. App.-Beaumont 1938, no 

writ); also compare Bullock v. Citizens Nat? Bank of Waco, 663 

S.W.2d 923 (Tex. App.-Austin 1984, no writ). 

Id 

Thus, the courts of appeals in Tammt Count Water Supply Colp. and Texas 

Department of Corrections appear to distinguish between arrangements in which the state 

or a political subdivision of the state may take legal title to property only upon the 

performance of certain actions by the legal title holder and arrangements in which the state 

or a political subdivision may take legal title to property when it has performed certain 

(footnote continued) 

5. the Construction Conuactl.] 

Br. Rcsp’t Texas Department of Cmtections at l-8, Anderson Counry Appraisal Dist. v. Texm Dep ‘I of 

CorrecMns, No. D-2930 (Tex. 1992). The brief stmsses that the nonprofit corporation owned no interest 

in lhe Michael Unit, and neither the nonprofit corporation nor the tmstee had a right to possess the 

Michael Unit. Id. at 9. Only the TDC had a right to possess the Michael Unit. Id. 

tie Anderson County Appraisal District attempted to levy taxes only on the Michael Unit, oat 

on the land on which the Michael Unit is located and to which the TDC clearly held title. Texas Dep’r of 

COITCC~O~S Y. Anderson COU~V Appraiser Disl., 834 S.W.Zd 130, 131 (XX. App.-Tyler 1992, writ 

denied). Curiously, in 1987 the legislahue enacted the statotory predecessor to Govemmwt Code section 

4%.005 to exempt from axI valorem taxes land oa which the Michael Unit was located. See id.; Act of 

June 1, 1987, 70th Leg., KS., ch. 1049, 5 21, 1987 Tex. Gen. Laws 3517. 3524-25. Section 4%.005 

exempu fmm taxation during the time the institutional division of the Texas Department of Criminal 

Justice excltiely uses it “pmperry associated with a facility” in Anderson County, Gov’t Code 

$4%.005(a) (emphasis added)-specifically, “land. owned by the state for the use and benefit of the 

institutional division that is subject to a lease granted by the board and a soblease entered into by the 

division and the General Services Commission, on which is located the.. Michael Unit,” id. 

5 4%.005(b) (emphasis added). 

p. 2105 
The Honorable Thomas Cameron - Page 7 (DM-383) 

actions, compelling the legal title holder to relinquish tit1e.s The presence or absence of a 

trustee in a particular transaction appears to carry some weight. In Tcrrrrmt County Water 

Suppl Cotp., for example, the court stated that the water supply corporation had not 

delivered the deed in question to a trustee, although it had delivered deeds to the 

properties lying within the municipalities’ boundaries. 391 S.W.2d at 164. In Texus 

Depurtment of Corrections the court stated that the private, nonprofit corporation 

“assigned all of its leases, agreements, and the construction contract” to the trustee. 834 

S.W.2d at 131. 

Ostensibly, the situation you present is more akin to the facts in Texas Deportment 

of Corrections than the situation in Twant County Water Supply Corp. We camtot say 

as a matter of law, however, that the project in your county is exempt from ad valorem 

taxation because the facts you present differ from those in Texas Lkpnrtment of 

Correcttom For instance, while the county is in possession of the project and 

responsible for its operation and maintenance, the county does not own the real property 

underlying the project. Upon the payment of all lease payments or, following 

April 1,2000, upon the payment of the purchase price, the county may compel the lessor 

to convey legal title to the property, but the agreement also may be terminated upon the 

county’s failure to appropriate sutIicient fbnds to accomplish its obligations under the 

agreement. We do not know whether the lessor has assigned its interest in the agreement 

to a trustee, nor whether the lessor has any right to possess the project, see supm note 3. 

We wulnot predict the weight a court would assign to each of these various facts; 

in addition, we camtot predict other facts a court might find significant in this case. In any 

event, as we have indicated, whether, under the agreement, the county holds equitable title 

to the project and the project consequently is exempt from ad valorem taxation is a 

question involving the resolution of fact questions and the construction of a contract, both 

of which are not amenable to the opinion process. 

?his distinction is further supported by examining other cases the Taos Department of 

Comvctiom emrt cites. In Te.xrx Turnpike Co. Y. Dallas County, 271 S.W.Zd 400,402,403 (Tex. 1954). 

for example, the Supreme Court of Texas concluded that the state did not hold equitable title to property 

that would be conveyed to the state only when the grantors had performed certain conditioas, and the 

property thexfoxe was not exempt from ad valorem taxation. On the other hand, the amti ofcivil appeals 

in San Antonio Independent School District Y. Water Works Board of Trustees, 120 S.W.Zd 861, 865 

flex. Civ. App.-Beaomont 1938, tit refd), concluded that the water works system of the City of San 

Antonio was exempt from taxa&on because the city owned the land subject only to a vendor’s lien the 

glamor letRiwd to awore the pm&se price. 

6An exemption from taxation is to be strictly wnstmed, and the language of the exemption most 

not be extended beyond the express requirements of the language used. Jones v. Williams. 45 S.W.2d 

130, 131 flex. 1931); 21 JAY D. HOWELL, JR., PROPER’IY TAXES 5 198, at 126 (Texas Practia 1988). 

Thus, an individual claiming an exemption bears the burden of proving that the pmlxrty or transaction 

falls within the ambit ofthe exemption. 21 HOWELL, supro. 5 198, at 126. 

p. 2106 
The Honorable Thomas Cameron - Page 8 W-383) 

To determine whether a jail facility that a county leases under a 

lease-purchase agreement is subject to ad valorem taxation, a wurt 

must examine the facts and construe relevant contracts. To make 

such a determination, a court likely would consider whether the 

county holds equitable title to the jail facility, that is, whether the 

county is in possession of the facility and whether the wunty may 

compel the Jessor to wnvey legal title to the property if the county 

tklly performs the conditions specified in the wntract. 

DAN MORALES 

Attorney General of Texas 

JORGE VEGA 

First Assistant Attorney General 

SARAH J. SHIRLEY 

Chair, Opiion Committee 

Prepared by Kymberly K. Oltrogge 

Assistant Attorney General 

p. 2107