DAN MORALES

.ATTORNEY GENERAL 

## QBffice of tfy Bttornep Qhnersl .&ate of PCexae April 18, 1996

Honorable Thomas Cameron WinlderCounty

Attorney P.O. Box 1015 Kermit, Texas 79745

Dear Mr. Cameron: Opiion No. DM-383

Re: Whether ajail 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-71I)

You have inquired whether ajail 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 ajail,
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.1Bank, 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. CeabrPark WaterSupp& 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

p. 2101The 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 ‘tof Corrections v. Anderson CountyAppraisal 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 1989the legislature

addedto section11.11 of the Tax Codesubs&on (Cl, now s&s&ion (g). whichprovides

85follows:
Forpqnxes of this se&on, aa improvement is ownedby lhe stateand is usedforpublicpurposea

ifit is: (1) located

on landownedbytheTexasDepartment of Corrections; (2) 1easedandusedbythedeparuncnt;and (3) sohjcct

to a lease-purchase

agreement

providing thatlegaltitletothe improvement

m tothedepanment

attheendoftheleaseperiod. la our opinioa, the eoaamcot of this 

### s&ion &es notnecmm‘lyprecludeexempbngfrom taxationa facilityswh astheproject, whichis constrwed on landthe lessorowns andwhich the lessorleasestothe county pomant to a lease-purchase agreement. 2A countyis a political s&division of the state. Chikdrm Ccnu@ Y.State, 92 S.W.Zd1011, 1015(Tex. 1936);see also Tex. Coast.arl.XI, 5 1;52 TEX. IVR. **3DhfUniCipdities 5**  **7, al**  29 (1987).

p. 2102The 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.“’ 

### Tannerv. Imle, 253 S.W. 665,668 (Tex Civ. App.-San Antonio 1923, writ dism’d) (quoting 

### Z7ggersonv. Whitbeck, 16P. 403,404 (Utah 1888), and 

### unknown source);cfl Missouri er rel. Ci@ofSt. 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 Correctionsv.Anderson Coun@ AppraisalDistrict, 834 S.W.Zd 130 (Tat. App.-Tyler 

### 1992,writ denied). In 

### T-t Count WaterSupprYCorp. 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. 

### TarrantCow@ WaterSupp& 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 WbterSupply 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&ylying within the boundaries of a municipality. 

### Id. at 164. Additionally, the water supply corporation possessed the property at issue. Id.

p. 2103The 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 

### TurnpikeCo. v.Daubs Coun?~, 271 S.W.2d 400, 402 (Tex. 1954)).By contrast, in the second 

### cageyou 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 131. 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 dctsilaof the “liaanciagdevice”in the court’s opinionam somewhat

sketchy. ‘IbeTexas Dfpmtmentof Corrections described theimnsacdonas followsin itsbriefto the Texas SupmmeComtin rcsponae to a petition

forwritoferror: [O]nJune 1.1986, theTDCentered intoa constroction

contract forthe wchael UnitlwithDanielConstructionCompany.... Asofthesameday,Jone1,1986, TDC, 

### [thePurchasing

and General

b-vices Commiaaion],

anda non-profit wrporation (the ‘Corporation”)eatcmd into aa agreement called the UtilizationAgreement.
. . Under this agree-t, TDCagreed 10leasethe land wherrtheFIichaelUnjt]wastokbuilttotheCorporalionbymcansoTa GmundLease,[also]&talJune1,1986.... TDCfurtheragreedtoassigothe wnstmction contract

10the Corporation.

After the Wchael Unit]wasbuilt,the Stateof Texas wwld leasebackthe land together with the Mchael Unit] by a lease (StateLease)[,]which was delivered to [a] Tms~ee

to be held in rmstuntil the flvlichacl

Unit]was completed.

. . pn addition, on hoe 1, 198a.l the Corporation assigned to the Tmstee
. . all ofthe Corporation’s intmst in 1. tbcUtilization

Agreanent];] 2. the stateLeas];] 3. the (Michael

unit;] 4. theGnnmdLease[;aad]

p. 2104The 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 CounryAppraisal Dist. v. Texm Dep ‘ Iof CorrecMns,No. D-2930 (Tex. 1992). Thebriefstmsses thatthe nonprofit

corporation

ownedno interest in lhe Michael Unit, and neitherthe nonprofitcorporation nor the tmstee had a right to possess the MichaelUnit. Id. at 9. Onlythe TDChada righttopossesstheMichael Unit. Id. tie AndersonCountyAppraisal Districtattempted

to levytaxes only on the MichaelUnit, oat on the landon which theMichaelUnit is located andtowhichthe TDCclearly heldtitle. Texas Dep’r of COITCC~O~S

Y. Anderson COU~VAppraiser Disl., 834 S.W.Zd 130, 131 (XX. App.-Tyler 1992, writ denied). Curiously,

in 1987the legislahue enacted the statotory

predecessor

to Govemmwt Codesection 4%.005 to exemptfromaxI valoremtaxesland oa which the MichaelUnit was located. See id.; Act of June 1, 1987, 70th Leg., KS., ch. 1049, 5 21, 1987 Tex. Gen. Laws 3517. 3524-25. Section4%.005 exempu fmm taxationduringthe time the institutionaldivision of the Texas Department of Criminal Justice excltiely uses it “pmperry associatedwith a facility” in Anderson County, Gov’t Code $4%.005(a) (emphasis

added)-specifically,

“land. owned by the statefor the use and benefitof the institutionaldivision that is subject to a lease granted

by the boardand a sobleaseenteredinto by the division and the General Services Commission, on which is located the.. Michael Unit,” id. 5 4%.005(b) (emphasisadded).

p. 2105The 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 

### TexasDeportment of 

### Correctionsthan the situation in 

### Twant County WaterSupply 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). forexample,

the Supreme

Court of Texasconcluded

thatthe statedid not hold equitable titleto property that would be conveyedto the stateonly when the grantors had performed

certainconditioas,and the property thexfoxe wasnotexempt fromadvalorem

taxation. Ontheotherhand,the amti ofcivil appeals in San Antonio Independent School District Y. Water Works Board of Trustees, 120 S.W.Zd861, 865 flex. Civ. App.-Beaomont 1938,tit refd), concluded thatthe waterworkssystemof the Cityof San Antoniowas exemptfromtaxa&on becausethe city ownedthe land subject only to a vendor’slien the glamorletRiwdto aworethepm&se price.
6Anexemption

fromtaxationis tobe strictly wnstmed, andthe languageofthe exemption most not be extendedbeyondthe expressrequirements of the languageused. Jones v. Williams. 45 S.W.2d 130, 131 flex. 1931);21 **JAY** D. HOWELL, **JR., PROPER**  **’ IY**  TAXES

5 198, at 126 (TexasPractia 1988). Thus, an individualclaimingan exemption bearsthe burdenof provingthatthe pmlxrty ortransaction falls withintheambit

ofthe exemption. 21 HOWELL, supro.5 198,at 126.

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

To determine whether ajail 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