-. .-.. ._ 

Hon. William Schneider, Jr. opinion No. V-1399 

county Attorney 

Gillespie County Re: Taxability of 

Fredericksburg, Texas leasehold es- I- tate of tenant 

-, 

~. of an independ- 

‘-~-ent school disDear Sir: tri.ct . 

You have requested the opinion of this 

office as to the taxability of the leasehold estate -of a tenant of the Fredericksburg Independent 

-------+hool-District., ~The certified copy of the lease 

“contract which you enclosed with your’request shows 

that the lease is for a primary term of fifty years. 

Article 7173, V.C.S., 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 

d 

except as otherwise specially provide by law. . . .e 

Your specific question is stated as follows: 

“In construing Article 7173, is the '\ 

estate of the tenantacquired under the 

lease contract with Fredericksburg Inde: ‘, 

pendent School District subject to rendltion and taxation as a leasehold estate?” 

While the Legislature could subject leasehold Interests in nonexempt property to taxation if It 

in this State the owner of the freehold of nonexempt 

so chose, under the present scheme of taxation in force 

property is liable for taxes on the entire value of the 
I 

86 Hone William Schneider, Jr., page 2 (v-1399) 

property, even though it is under lease.’ 

T 

r”~x.h$~096 Taxation iec:66 

D q 71 Tex. 192 9 S.W. 99 (1888) 

leasehold inEerest in the propeity in question to 

be taxable, it must come within the provisions of Artitle 7173. If this property is “exemp~t by law from 

taxation in the hands of the owner’ thereofe and if 

the Legislature has the power to tax a leasehold interest in the property it would follow that the estate of the tenant wou I d be taxable. It may be 

noted that the courts construe Article 7173 as authorizing the assessment of the property against the lessee not%t the value of the freehold but only at the 

-value of the leasehold’ estate. Dauphertv v. Thomuson, 

sunra. 

The property involved is a block of land 

located In the town of Fredericksburg. Originally 

designated and dedicated by the German Immigration 

.Company as public property for educational purposes, 

.this property has been under the control of the ~Fredericksburg Independent School District since its incorporation in 1885. The school di.strictls title to 

the property was confirmed by a district court judg- 

.ment rendered in 1920. 

The lease contract shows that the RederL&sburg Independent School District has leased the land 

to an individual for a primary term of fifty years, 

iktyles~see agreeing to erect a building on the prop- 

. The lessee is to pay a stipulased monthly 

rental for a period of fifty years. 

rental is to be determined by a rental 

hereafter, the 

committee appointed in a manner set out in ~the contract, the tenant having the privilege of surrendering the lease 

if the rental is not satisfactory to him. You state 

in your letter that the lessee has erected an office 

building on the premises. 

It is evident that the school district is 

now using the property In question to produce revenue. 

The facts which have been submitted to us .suggest 

that the school board has abandoned any plans which 

may have been formulated in the past to use the property as a school site; however, the present intention 

of the board in this regard presents a fact question 

w hi c h. this office does not have the authority to 

decide. 1us0, we are not here passing on the liability 
Hon. William Schneider, Jr., page 3 (V-1399) 

of the lessee for taxes on the improvements which 

he has placed on the land, since that question 

likewise depends upon the intention and agreement 

of the parties respecting title to the improvements. Edwards v. Thannisch, 254 S.W. 523 (Tex. ~. 

CIV.’ A p,. 1923); Ropers V. Fort Worth Poultrv % gg 

@. , 1 i 5 S.W.2d 165 (Tex. Civ. App. 1945). If t?tle 

to the building has presently vested’in the school 

district, the building would be taxable in the same 

way as the land. On the other hand, if it remains 

the property of the lessee during the existence of 

Fk,“,i;;se,, he’would be liable ‘as owner for taxes 

. 

Independent school districts are empowered 

b y s t atute to receive conveyances of property 

“for the benefit of the public schools,” and their 

power of ownership Is not limited to property actually used as school sites. Art. 2756, V.C.S.; 

Adams v. Miles, 35 S.W.2d 123 (Tex. Comm. App. 1931); 

Hushes v. Gladewater County Line Indenendent School 

&g&., 124 Tex. 190, 76 S.W.2d 471 (1934). Cf. Art. 

2773a, V.C.S. It is clear, therefore, that the ownership and use of this property by the school district for a purpose other than as a school e..t;$; 

authorized by the statutes of this State. 

opinion we shall assume that the revenue derived” 

from property belonging to a school district becomes 

a part of the local funds of the district and must 

be used for school purposes in accordance with the 

provisions of Article 2827 V.C.S. In any event, 

you have informed us that the rent from this property 

Is being deposited to the local funds of the district 

and is being expended under the provisions of Article 

- 28.27. 

The Constitution of Texas contains two provisions relating to the exemption of public property 

from taxation. Section 9 of Article XI provides: _ 

“The property of counties, cities 

and towns, owned and held only for public purposes,, such as public uildings 

and the sites therefor. WQ Fire engines and the furniture thereof, and all 

property used, or intended for extinguishing fires, public grounds and all 

other property devoted exclusively to 

8%‘~ ’
‘88 Bon. William Schneider, Jr., page 4 (V-1399) , 

the use and benefit of the public 

shall be exempt from forced sale and 

from taxation, provided, nothing 

herein shall prevent the enforcement 

of the vendors lien, the mechanics 

or'builders lien, or other liens now 

stisting." 

,This provision of the Constitution is selfexecuting and accords an absolute exemption to property coming within its terms. A. & M. Consolidateq 

v. Citv of Brvan 143 Tex. 

In m 

& Trust co., 144 Tex. 326, 

190 S.W.2d 48 (1945), it was held that the Lower 

Colorado River Authority was a governmental agency 

serving a public purpose and that its property was 

exemut from taxation under Section 9 of Article XI. 

On the authority of that case and State v. City of 

San Antonio, 147 Tex. 1, 209 S.W.2d 756 (1948) this 

.-office held in Att*y Gen. Op. v-1308 (195l) th&llthe 

exemption accorded ~by this constitutional~provision 

extends to the property of any governmental agency 

which is devoted exclusively to the public use" and 

that the property of an independent school district 

.~..nsed as a public school site was thereby exempt from 

all forms of taxation, including spe,cial assessments 

for improvements. 

Court 

In pauffhertv v. Thompson, m, the Supreme 

held that the Legislature does not have the power 

to impose a tax upon a leasehold estate in property 

which is exempt under this constitutional provision, 

whether imposed on the owner or the lessee. This deci- 

--“sion has been followed in Davis v. 

13 S.W. 61 (X390), and 

Rurnett, 77 Tex. 3, 

& Cattl C 

v. hoard, a 0 Tex. 489, It n”,ceZI 

sarilp follows that if Article XI, Section 9 exempts 

the property in question from taxation in the hands of 

the school district, the leasehold estate likewise is 

exempt. paushertu v. Thomnsog involved county school 

lands alloted to co 'lp ties under Article VII, Section 6 

of the Constitution. Whilettze &&sin thepresentinquiry 

JJ Under a constitutional amendment adopted in 1926, 

agricultural and grazing lands which counties own as 

school lands are now taxable, except for State purposes 

to the same extent as lands privately owned. Tex. Cons c 

Art. VII, Sec. 6a. 

., 
Hon. William Schneider, Jr., page 5 (V-1399). 

may appear at first blush to be analogous to those 

in the pauehertv case, we have reached the conclusion that the character of county school lands 

held under grant from the State .is different from 

that of lands held by an independent school district for the production of revenue., In that case 

the court observed that even in the absence of the 

provision in Article XI, Section 9, "looking to the 

policy which this state has steadily pursued in 

granting lands to counties for educational purposes, 

it could not veil be he1 that the legislature intended by Article 4691 2 R.S. 1879, now Art. 7173, 

R.C.S. 1929 to impose a tax on school lands owned 

by counties even when leased; for taxes levied on 

such lands, while owned by counties, whether imposed 

on the counties or their lessee would but diminish 

'the rental value of such lands, which it is not reasonable to suppose was intended when the sole purpose 

for which such liberal donations were made was to 

furnish the counties with a school fund." 

While independent school districts are empowered to o+.n land for the purpose of producing income, this method of raising revenue is extraneous to 

the established means of support of their schools. 

.Independent school districts in the main derive their 

support from the State Available School Fund ar.4 sther appropriations of State moneys, from the County 

Available School Fund (income from the permanent fund 

created under Article VII, Section 6 of the Conctitu--/ 

tion), and from local taxatioil. It is only in isolated and sporadic instances that school districts derive even a small part of their revenue from income 

on property which they own. The considerations of policy in the exemption of county school lands do not 

support a similar exemption for income-producing pro,-- 

erty of independent school districts. We conclude 

that Daunhertv v. Thomcson is not compelling authority 

for holding that the property in question is exempt 

from taxation. Consequently, we must make an independent determination of whether this property is lldevoted 

exclusively to the use and benefit of the public.1t 

The second constitutional provision relating 

to exemption of public property is Section 2 of Article / 

VIII, Constitution of Texas, which provides, in part: 

'1. * . the legislature may, by general 

law's, exempt from taxation public property 

-- 
Iion. IEl.liam Schneid~er, Jr., page ,6 0I-139) 

used for public pnrpose~s; actual plac.es 

or ,@ religious worship, also any property owned by a church or'by a strictly 

religious society for ~th.s exclusive 'use 

as a dwelling'place for th~e ministry of 

such church or religious soc~iety, Andy 

which yields no 'revenue whatever to such 

church or religious society; provided 

that such exemption shall not extend to 

more property than is reasonably necessary for a dwelling place and .in no event 

more thau one acre of laud; places of 

burial not held for private or corporate 

profit; all buildings~used exclusively 

and owned by persons or associations of 

persons for school purposes and the necessary furniture of all schools and property 

used exclusively and reasonably necessary 

In conducting any association engaged in 

promoting the religious, educational and 

-_--~_~-physical development of-~boys, girls,-young 

men or young women operating under a State 

or National organization of like character; 

also the endowment funds of such institn- 

.tions of learning and religion not nsea 

.w~ith a view to profit; and when the same 

are invested in bonds or mortgages, or ?.n 

land or other property which has be-en artd 

shall hereafter be bought in by such institutions under foreclosure sales made to 

satisfy or protect such bonds or mortgages, 

that such exemption of such land and property shall continue only for two years af- 

~.,~,-__~-.t.er~the purchase of the same at such sale 

by such institutions and no longer, and 

institutions of purely public Charity; and 

all laws exempting property from taxation 

other than the property above mentioned 

shall be null and void." 

Thissection of the Constitution does not 

Itself exempt any property from taxation, but authorzL;L; the Legislature to exempt certain types of propActing under this authorization, the Legislature-enacted Article 7150, V.C.S., which contains the 
. 

Bon. William Schneider, Jr., page 7 (V-1399) 

following provision:2 

"The following property shall be 

exempt from taxation, .to-Wit: . . . 

"4. All property, whether real 

or personal, belonging exclusively to 

-. this State, or any political subdivi- . 

sion thereof, or the United States, I, 

. . . 

Article 7150 provides for an exemption of 

'I&, property belonging exclusively to this State, 

'-"or any political subdivision thereof." An independent school district is a political subdivision of 

the State. Kins~s Estate v. School Trustees of Willacv Count :333 S.W.2a 783 (Tex. civ. App. 1930 

error ref. If the exemption in subdivision 2, of 

Article 7150 could be given effect according to its 

terms, the property in question would be exempt from 

-'?e&ation inthe handsof~-the owner. However, the 

property exempt under Section 9 of Article XI is property of counties, cities and towns owned and held 

snf-v for oublic ourooses and other property devoted 

x lusi Iv to the u na benefit of the oubliq and 

"-Ehz proikty which tg ~tegislature may exempt under 

Se;tiF 2 of Article VIII.is public property B ed fez 

pu 1 uuroos es. Although the attempted exemption in 

: 

2J Article 7150 also contains a provision relating to,exemption of property used for school purposes. 

Assuming that this provision includes property of an 

~:~ --------~--independent school district, the property in question 

clearly does not satisfy the conditions for exemption 

set .out in then Constitution and Article 7150. 

2/ While school districts are in a sense State agencies in that they are created for the purpose of carrying out a function of the State government, their status 

in relation to the State government is expressed in the 

following language from Hatcher v. State, 125 Tex. 84, 

81 S.W.2d 499, 500 (1935): llSchool districts, whether 

independent districts or common school districts, are 

not primarily agencies of the state, but they are local 

public cor;oorations of the same general character as 

munlci al 

G 

-~~oorations." 

his opinion is not to be understood as passing on 

the &ability of property owned by the State ItasU 

which is not used for a public purpose. 
. 

92 Hon. William Schnsider, Jr., page 8 (V-1399) 

Article 7150 is broader than authorized, the provision is operative to the extent of the Legislature’s 

power, that is, to exempt such property when used 

for public pur oses. City of Abilene State 113 

S.W.2d 631, 63% (Tex. Civ. App. 1937, &?or di&u.). 

The authority to exempt property under ‘Section 2 of Article VIII is to be exercised by the Legislature, and the Legislature has the power, within 

constitutional restrictions, to prescribe the conditions upon which an exemption is accorded. Since the 

Legislature could either grant or withhold the exemption imthe first place, it might also provide that 

the-.exemption would not extend to property which~ an 

exempt owner has leased to another person. It follows 

that if property is exempt from taxation under Article 

7150, V.C.S., solely by virtue of the authorization in 

Article VIII, Section 2 of the Constitution, the leasehold is properly taxable under Article 7173. 

These two constitutional provisions, as well 

as the decisions construing them, make it clear that 

there are some types of publicly owned property which 

are not and cannot be exempt from taxation. 

We therefore have three possible situations 

in respect to the property under consideration: (1) 

if it is exempt by virtue of Article XI, Section 9 of 

&/ Article VIII, Section 1, Constitution of Texas, 

t 

rovides that “all property in this State, whether owned 

y natural.. persons or corporations, other than municiphi, shall be taxed in proportion to its va1ue.l’ In 

Daugherty vD Thomusou, m, the court stated that 

Section 1 of Article VIII l’does not require property 

belonging to municipal corporations to be taxed.” However, Section 2 of.Article VIII, after setting out the 

types of property which may be exempt, provides that 

“all laws exempting property from taxation other than 

the property above mentioned shall be null and void.” 

It would appear that only such property as is exempt 

by the Constitution itself or as may be exempt by the 

Legislature under .Section 2 of Article VIII can be relieved from taxation. This is the only construction 

under which we can explain the numerous cases Involving 

municipally owned property where the court found it 

necessary to decide whether the property was being used 

for a public purpose. 
. 

.~, 

Hon. William Schneider, Jr., page 9 (V-1399) 93 

the Constitution, the leasehold estate is also ex" 

empt; (2) if the property is exempt in the hands of 

the school district by virtue of Article 7150, V.C.S., 

enacted purmant to the authorization contained in' 

Section 2 of Article VIII, the leasehold is taxable 

under Article 71733 (3) if the property is not being 

"devoted exclusively to the use and benefit of the 

public" or is not being "used for public purposes," 

it is not exempt in the hands of the school district 

and Article, 7173 has no application. 

We have not found where the courts of this 

State have ever,been called upon'to consider the precise question here involved. Indeed, not often has 

it been necessary for the courts to decide whether 

public property which has been held to be exempt came 

under Article XI, Section 9 of the Constitution or unthe Constitution and 

example, A. & M. ConDist. v. Citv of BrYan 

suma.> We may state some generalizations, however: 

which are pertinent to a solution of this question. 

In the first place, the exemption under either of 

these provisions is not limited to property which is 

used for governmental purposes. A. & M. Consolidateg 

Independent School Dist. v. C itY of ~BrYau, Suora. 

Secondly, the fact that the property produces revenue 

does not of.itself prevent its being exempt, if the 

use to which the DroDertY is DUt meets the reauired 

test of being a public use. 8. & 14. Consolidated mdooendent School Dist. v. Citv of Brvaq, suura: Lower 

Colorado River Authoritv v. Chemical Bank & Trust Co., 

SUDraj Citv of Abilene v. State, suDra* State V. City 

of Houstoq, 140,S.W.2d 277 (Tex. Civ. App. 1940, error ref.). 

y In Lower Colorado River Authority v. Ch mi Cal 

B&.Trust.,suDra, the court repeated,d&um in 

Daunhertv v. Thomosog to the effect that Article VIII, 

Section 2 applied to "property held in private ownership but used for purposes which give to it a public 

character." Under this view the Legislature would be 

powerless to tax the leasehold estate in any publicly 

owned property which is exempt in the hands of the 

owner. The property involved in that case was actually 

being used in the performance of the functions for 

._ 

which the public agency was created and accordingly 

came within the exemption of property "devoted exclusively to the use and benefit of the public" under Section 9 of Article XI. 
94‘ 

I 

Hon. William Schneider, Jr., page 10 (V-1399) 

Upon reviewing all the cases which have 

been decided under the Constituti6n and statutes of 

this State, we find that publicly owned property 

which has been held to be exempt from taxation may 

be classified as ~follows: 

1. Property used by the public or actually being put to use exclusive,ly in carrying out a 

public function performed under the powers of a governmental agency, whether the function b,e governmental or proprietary. In this category we find such 

cases as Lower Colorado River Authority v. Chemical 

Citv of Brvaq, B. 

such a use, although used in part for other purposes, 

w~ould also be exempt. 

'Butma. 

See City of Abilene v. State,. 

Conceivably, this latter exemption might in 

some situations come under Section 9, of Article XI 

and in others under Section 2 of Article VIII, but it 

is not necessary here to consider the exact ~boundaries of the exemption under each of the constitutional 

provisions in such instances. 

2. Property which is a part of or stands in 

the place of a public fund. Cases illustr&tive of 

this classification include Dauahertv v. T mm 

Sh mard 144 Tex. %l ?$& =' 

,"i other caies holding tdt prop- 

'delinquent tax foreclosures is exempt . Cf. State v. Cl y ous 

man v. William, 8:~ T~kH421~of$ ~b0~). 

%;s;xemption likewise results from Section 9 of Arti- 

. 

3. Property which is intended for actual 

use in carrying out a public function where there has 

not been an abandonment of the intended use, although 

iz act,ual use for that purpose is temporarily suspendCases of this nature include Citv of Abilene V. 

Stite, suura; State v. City of Beaumont, 161 S.W.2d 

WTex. Civ. App. 1942). This exemption is by virtue 

of Article VIII, Section 2 of the Constitution and AI?- 

title 7150 of the Revised Civil Statutes. 
-... 

Bon. William Schneider, Jr., page 11 (V-1399) 

It is obvious that the property leased'by 

the Fredericksburg Independent School District for '. 

commercial development does not come within,the first 

class of exempt property. Nor do we think it comes 

within the second class. All the cases in this class 

which have held such property to be exempt involve 

funds raised by taxes or other public money or, as in 

the ~case of Daugherty v. Thomnson, property which is 

itself made a part of a fund created by law. The 

fact that the income from a school district's propertyheld under a permissive ownership becomes a part 

of a fund used for the support of the public schools 

after~it is ctillected is not sufficient to make the 

'property itself a part of the fund or to make it represent any part of the fund. 

As noted above, the courts of this State 

'have never been'called upbn to decide the precise question presented in your r,equest. Opinions of.the Attorney General's Office have reached apparently conflict- -~-'-----'--..ing results. .-Opinion O-4459 (1942) .held that property 

devised to a county, the income from which was to be 

used for the supqort of a county hospital, was exempt 

.while Opinion o-4285 (1942) held that property devise B 

_ --,,,to a city, .the income from which was to be used for the 

support and improvement of the city's public parks, was 

not exempt. In Opinion V-447 (1947), rendered during 

the present administration , it was held that land originally acquired by a county- for use as a poor farm rnfas 

not exempt whare the intended use had been abandoned., 

although the income from~the property went into the 

county's charity fund. 

--~~~---The prevailing view in other jurisdictions 

is that prdperty which is being held and used solely for 

the production of income is not exempt from taxation under constitutional and statutory provisions similar to 

those in force in this State, even though the income is 

See Notes, 3 A. L. R. 

787; 129 A.L.R. 480. 

1439; iq49; 101 A.L.B. 

After considering all the authorities herein 

discussed, we have reached the conclusion that property 

95 
, . . .* 

/ 

94% 

, / 

which an independent school dist2ict mms mily&r 

the purpose of producing ~income *i:s not ?be%frrgused 

for a public purpose within the:maaning :ofthe COP 

stitution and is notexempt from -taxation in-the 

hands of the owner, Consequently, the Leasehold 

interest under a lease :for a t:ermmf thre-e :yaars ror 

more would not be taxable to zthe lessee.. :fIowever, 

if the property is ~h&ld for the eventu&l :purpose -of 

being used as a part,of the school-facilities, {even 

though it is being leased te@porar'ily, :it.Ts exempt 

from taxation in the .hands of the school district 

under the provisions ofArticle VIII, Section2 -of 

the Consti,tution and Article 7130 of the.Revised 

Civil Statutes, but it is not exemptunder Article 

XI, Section 9 of the Constitution. Ihthis -event, 

the value of the .leasehold interest ,zhder :a:lease 

for a term of three years or.more :is taxable :to;the 

lessee under Article 7173. ,.y -4, 

..- -.~-:.--~-- ---++operty which ah 'inde~peniient school 

district owns and holds only for the :pu.rpose of producing income is :not :exempt 

from taxation in the hands .of the .owner., 

and the 'leasehold interest under .a lease 

~~~-. ~--for a term of three years :or .more is :not ., 

caxable to the Ylessee. Property~whichis 

held for the eventual pur,pose of being 

used as a part of the school:facilities~, 

though leased temporarily 

taxation in the hands of 4 

is exempt from 

he owner; and 

the value of the leasehold estate .mder a 

lease for a term of three years or more 

_ . . ..-$L7ex.bteSto the lessee under .Article 

9 * . . 

APPROVEO: %ur.s xe~y *LiUIy, 

W. V. Geppert 

Taxation Division 

E. Jacobson 

Reviewing Assistaut 

Charles D. i<athews 

First Assistant Assistant 

MIQI:wb