Court Opinion

ID: 4137847
Source: CourtListenerOpinion
Date Created: 2017-02-18 02:29:37.33328+00
Date Added: 2024-06-11T14:36:26.594283
License: Public Domain

Hon. Stewart W. Hellman      Opinion No. V-925
CH.mlnal District Attorney   SW  The effect upon the tax exempt
Terrent County                    status OS e charitable hospital
Fort Worth, Texas                 of compensatingthe doctor in
                                  charge of enestheologg,path-
                                  ology or radiology on e See or
                                  profit-sharingbasis.
Deer Mr. Hellman
         Your letter requesting our 0pFnLon reletlve to the cap-
tioned matter reads as follows:
        "Request Is made for en opinion from your De-
   partment es to whether the compensationon a See
   basis or e profit-sharingbasis of doctors in
   specializedfields of hospital service when paid
   by charitable hospitals woulU forfeit the ad velor-
   em tax exemption for such institution.
        "By we of back grounU we refer to'section 2
   of Article 8 of the Constltutlonof Texas author- "
   izlng the Legislatureby general law to exempt Srom
   taxation all buildings used exclusivelyand owned
   by institutionsof purely plbltc ch&rity; Article
   7150(7), R.C.S., wherein the Legislature has exer-
   cised such authority; and the cases cited in your
   Opinion No. V-374 to the effect that in order to
   qualify Sor such tax exemptlon,theproperty must
   be owned by the organizationclaiming the exemp-
   tion end must be used exclusivelyby such organi-
   zation.
        "Larger hospitals have divlsl6ns of hospital
   service',usually composed of a Department OS Anesthe-
   ology, a Department of Pathology, end sometimes 8
   Department OS Radiology. These hospital services
   are Surnlshed by the hospital under the direction
   of the doctor Fn charge of the respective department
   at the request of or on order of the attending
   physician. The hospitals make the charge for the
   anesthesia,the pathology end/or the radiology end
   the net proceeds therefrom go to the Surtherance of
   the charlteblework of the hospltel, the doctors In
.    -

    Hon. Stewart W. Hellmsn, page 2         v-925

         charge of such departmentsbeing on salaries paid
         bg,the hospitals In most cases.
              "However,these three fields of hospltel ser-
          vice are specializedfields, and to obtain the
          finest doctors for this purpose and Improve the
         hospital service, It is usually necessary to employ
         doctors who have certatn hdgh standings in certain
         medical societies In their field. These societies
         for the Improvement of servfce and the maintenance
         of high ethics sometimes require, end always prefer,
         that its doctor members not serve on salaries but
         be compensatedby Sees.
              "Attorne General's Opinion No. O-3572, approved
         August 18, 1911, would cover the point that thi,em-
         ploym$nt of such doctors, either on a See or salary
         basis, would nbt violate the Medical Practice Act.
         Attorney General's Opinion No. V-374; det6d Septem-
         ber 12, 1947, covers the point that such a physician
         may use his own equipment and leave it in unused
         space in the hospital; without forfeiting the ad
         velorem tax exemption. But neither of the Opinions
         referred to covers the point as to whether the em-
         ployment of such doct0r on a See or profit-sharing
         basis vould forfeit the ad velorem tax exemption
         otherwiseenjoyed by charitable hospitals.
              "Therefore,the question on vhtch we would
         like to have your opinion fs whether charitable
         hospitals,otherwise entitled to ad velorenitax
         exem@lon under the Constitutionand Laws of Texas,
         would SorSelt such ad valorem tax exemptionby re-
         mneratlng the doctor heads of their departments
         of hospital service on (1) a See baais, or (2) a
         net profit-sharingbasis r- instead of on e-salary
         basis. The See basis mentioned would mean that
         the hospitalwould agree with the pathologistthat
         Insteadof his receiving .ssalary* he would receive
         a See of a certain amou,ntof money for each case
         ha&led, or each service rendered, whether or not
         the hoapltalwas successf'ul in collecting such See
         Srcm its patient. The profit-sharingbasis vould
         mean thet from the gross Sees collected by the hos-
         pital Srom work performed by the particular de-
         partmclot,the hospital would peg the expenses
         attribatebleto such department,end the net pro-
         ceeds or balance, vould be divided.on e percent-
         age basis with the Uoctor head of such department.
 .   .

Hon. Stewart W. Hellman, page 3             v-925

              "In view of the fact that a specific portion
         of the hospital is customarilyassigned for the
         work of theqe hospital service departments,end in
         view of the fact that the doctor heeds of such de-
         partments usually have personal demand end dlrec-
         tlon over such departments,the local hospitals
         are hesitant to accede to the wishes of the doctors
         in changing their remunerationfrom that of e
         salaried employee, lest in doing so the hospital
         subject Itself to ad velorem taxes, whlchti turn
         would cause a substantialcurtailment in charity
         services provided."
         Section 2 of Article VIII of the Texas Constitutionau-
thorizes the Legislature to exempt from taxation Institutionsof
purely public charity. In pursuance to such authority the Legis-
lature exempted the real,propertyof Institutionsof purely pub-
lic charity. This 1egIslatlon'hesbeen codified as Section 7,
Article 7150, V.C.S., end reeds ea follows:
              "All buildings belonging to institutionsof
         purely public charity, together with the lands be-
         longing to end occUpled by such Institutionsnot
         leased or otherwise used with e view to profit, un-
         less such rents and profits end all moneys end
         credits are appropriatedby tiuchInstitutions
         solely to sustain such institutionsend for the
         benefit of the sick and disabled members end their
         Semllles end the burial of the same, or for the
         maintenance of persons when unable to provide for
         themselves,whether such persons ere members of such
         instltiitlonsor not. An institution of purely plb-
         llc charity under this article Is one which dls-
         penses its aid to Its members end others in slck-
         ness or distress, or et death, without regard to
         poverty or riches of the recipient, also when the
         funds, property and assets bf such institutions
         %re placed end bound by Its laws to relieve, aid
         end administer In any way to the relief of Its
         members when In want, sickness end distress, end
         provide homes for Its helpless end dependent mem-
         bers end to educate end maintain the orphans of
         its deceased members or other personsO"
        In Sante Rose InSlrmary v. Clts of San Antonio, 259 S.W.
926 (Tex.~Comm.
           0 Ohio App. 2
              "The constitutionalrequlrement'lstwofold; the
         property must be owned by the organizationclaiming
         the exemption; it llklst
                                be exclusivelyused by the or-
Hon. Stewart W. Hellman, page 4         v-925

    genlzatlon, es distinguishedfrom a partial use by
    It, and a partial use by others, whether the others
    pay rent or not."
Other cases applying this same rule are Cltr of Houston v. Scot-
f$sh:;;;
 .       96
          Asso;:;tlon
                 a 696,111
                        5 S.W.
                           Tex.519
                                19111887):
                                     230 S W~* g78 !191
                                                      2 )' -
         As stated by the Court of Civil A peals In Harkham
HosDltal v. Clts of Lonuvlew, 191 S.W. 26 %95 (Tex. s~pp.
 945, error ref,):
        "It appears from the holding by 'theSupreme
   Courtin the City of Houston v. Scottish Rite Assn.,
   supre, Red V. Johnson,,53 Tex. 284, 288, end Benev-~
   oIent & Protective Order of Elks v.iCity of Houston,
   Tex. Clv:~App., 44 S.W. 26 488, that the relation-'
   ship of landlord and tenant or the paymbnt of rents,
   either or both are necessarilyrequisites to destroy
   the exemption granted a purely charitable lnstltu-
   tlon from taxes, . a . .
         The Baurt,in City of Corms Christ1 v. FredRoberts
Wemorlal Hospital, 195 3.X. 2d 429 (Tex. Civ. App. 19%6 error
ref. n.ti.e;),held that .ahospital vas not being opera&d or
u&d exclusivelyfor public charity vhere the hospital entered
Into a contract by the terms of which a man end his wife agreed
t6 operate the hospital, taking such earnings of the hospital
over and above $300 each month es a salary. The court based Its
holding on the ground that the contract created the relationship
of landlord efidtenant with ~theresult that the charitable cor-
poration Itself was not actually operstlng the hospital.
         In Cltr of Lonuvlev'v.Markham-HcReeMetiorialHoirtittil,
137 Tex. 178 152 S.W. 26 1112 (1941) th S 11 I      Saots’-vex-@
before the c&t.    Two doctors paid tie h&pTte?$%O   per month
rent es part payment for office space. The doctors acted as house
physiciansto tske care of emergency ca8ea and gave free treet-
*@It to charity patlente. Despite the fact that the presence of
a do&or at all times was necessary to the proper operation OS :
the hoapltal,the court held that the renting of office spaoe vas
a comme+cle&end prloate transactionwhich resulted In a losa oS
the tax exenptlon.
         In prkham HosDltal v. City of Lonuvlew, supre, the
caurt held t&at the hospital was~deprlvedof Its exemption irom
taxationby reason of the fact that-the hos$ltal emplbyed a leb-
oratory technicianwho performed laboratory  teeta for patients.
In the hospital es requested by the ph$slclens,but who also we8
pzE;e;zto    carry on e private business using the hospital
          .

                .
Hon. Stewart W. HeLlmen, page 5          v-925

         We are assuming that the reel property Is owned by the
charitable institution or lnstltutlonein questfon. In addition
to being owned by the charitable lnstltutton,the ~propertymet
be exclusivelyused by it. IS by compensating the doctors for
their services by Sees or by,contractlngto pay them by a per-
centage of the income creates a landlord and tenant~rel.atlon-
ship or constitutes a renting or leasing of the premises, then
the exemption would be lost. On the other hand, i$ the relatlon-
ship of employer and employee still exists, then the use of the
property by the doctors will constitute the use by the,lnstltu-
tlon. It Is a rather common practice In these modern times to
recompense employees by eLther a Sired salary, Sees, or on en ln-
come-sharingbasis, or by two or all of said methods.
         It is therefore our opinion that the mere payment by e
charitable hospital of a doctor in charge of anestheology;peth-
ologg, or radiology by Sees.or on an Income-sherlngbeels, in-
stead of e fixed salary, does not destroy the re&etlonshlp of
employer end employee end the institutionwould not by reason
thereof lose Its tax exempt character.

         A charitable hospital will not lose Its tsx
    exempt status by compensatingIts doctors in charge
    of anestheology,pathology, or radiology on a See
    or Income-sharingbasis instead of a fixed salary9
    es the relationship of employer and employee will
    not th6reby be destroyed. Tex. Con&. Art. VIII,
    Sec. 2; Art. 7150, Sec. 7, V.C.S.
                                  Yours very truly,
                       ATTORNEYGENERAL OF TEXAS
                       By's/ W.V. Geppkt
                             W.V. Geppert
WVG/mwb/vc

APPRovgD
s/Joe R. Greenhill
FIRST ASS@TANT
ATTORNEy GENE&AL