Court Opinion

ID: 4131631
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:17:57.079665+00
Date Added: 2024-06-11T14:32:42.792598
License: Public Domain

The Attorney                    General of Texas
                                                                                 January     21,   1982

          HARK WHITE
         .Attorney General

                                                           Honorable    Chris     Victor    Semos                    Opinion     No.MW-430
         Supreme      Court Building
         P. 0. Box 12546                                   Chairman
         Austin.    TX. 76711                              House Committee        on Business       and              Re:  Whether   hospital            project
         5121475.2501                                          Industry                                              is subject   to ad valorem             tax
         Telex    9101674.1367                             Capitol   Building
         Telecopies     5121475-0266
                                                           Austin,   Texas        78711

         1607   Main      St..     Suite     1400          Dear Representative          Semos:
         Oaltas. TX.       75201
         2 141742.6944
                                                                  The Grand         Prairie       Connnunity      Hospital,        a hospital        authority
                                                           organized      under article         4437e,     V.T.C.S.,      the Hospital        Authority     Act,
         4624   Alberta          Ave..     Suite     160   plans to construct          a hospital       project     consisting      of an office      building
         El Paso. TX.            79905                     and parking          lot    immediately'        adjacent       to   the    presently       existing
         9151533.3464                                      hospital       facility       and     to    lease     or    sell     that     office      space     as
                                                           condominiums         to doctors        practicing        therein.        You ask whether          the
                                                           project     will     be subject        to ad valorem          taxation      levied     against    the
         1220 Dallas  Ave.. Suite                   202
         HOUS~O”. TX. 77002                                hospital    authority       if the revenue which U generates                   through rental       or
         713/650-0666                                      sale    agreements       is    sufficient        to show a profit,             even though       such
                                                           profit    will     either     be placed        in the general          funds     of the hospital
                                                           authority       or be used for            the continued         improvement,        expansion     and
         606 Broadwav.              Suite     312
                                                           development       of the office          building.       We do not understand            you to be
         Lubbock,     TX:         79401
         606f747.5236                                      asking whether a lessee              or a purchaser        will    be subject        to ad valorem
                                                           taxation     in the situation          you describe.

         4309 N. Tenth.     Suite             B                                    authority              is   empowered       to    construct       hospital
                                                                  The  hospital
         McNen.       TX. 76501
-        5 12,662-4547
                                                           projects   defined   as follows:

    ;i                                                                   'Hospital      project'       means and includes           any real,
     * 200 Main Plaza. suite 400                                         personal,       0 r mixed       property,         or   any     interest
       San Antonio.  TX. 76205
                                                                         therein,     the...      constructing...         of which is found
         51212254191
                                                                         by the governing          body of an issuer          to be required
                                                                         or necessary        for medical      care.   research,       training,
                                                                         and teaching,         any one or all....           Without     limiting
                                                                         the generality         of the foregoing,          and when found by
                                                                         the governing        body or an issuer          to be so required,
                                                                         necessary.      or convenient         'hospital      project'      shall
                                                                         include    the following:
llonornh~r     Chris     Victor   Srrnon - Pngc 2           !Mw-430)
                                                                                                   .
                                                                                                       -

               office    building,       parking         lot       or     building.     or
               “ainte”a”cc.      !;nfc”ty,    or        utll,tty         Facility.     and
               related     equipment.

V.T.C.S.      art. 4437e-2     63(g).      See also V.T.C.S.     art. 4437e.  $91, 3, 6.
Clearly      a” office   building      and parking    lot such as you describe,      when
found to      be “required,     nccesssry,      or convenient”    by the governing    body
of   the      authority     would     fall    within   the   definition    of  “hospital’
project”      as set nut above.

       Senate        RI11      No.    1067,     amending       article        4437e-1,      V.T.C.S.;
authorizes        the     governing       body    of     any hospital           authority       created
pursuant      to the Hospital           Authority        Act to lease         or to sell         to any
person    any hospital,            or part thereof.          owned by the authority.                 Acts
1981, 67th Leg.,            ch. 5H3, 55 at 2363.               It amends section           14 of the
Hospitol      Authority         Act to provide          that    the hospital         should      not be
operated     with a view to generating                R private       profit,     but that,       in any
event,    it must be operated              to generat.e       suffic,ient      revenue    to pay all
expenses      and all       indebtedness       incurred       by the facility.            Acts      1981,
blth l.cg.,      ch. 583, $4 at 2362.               And finally,          section      16 of artic1.e
4437e.     V.T.C.S.,          provides      that    ::incc     the     property      owned by         the
authority       will     be held for public            purposes      only and will        be devoted
exclusively        to the use and benefit              of the public,          it shall    be exempt
from all       forms of taxation.              You ask whether            the authority        will    be
subject       to      ad     valorem      taxation        tf     it     leases      or    sells       the
above-described           office     space and parking            lot as it is empowered by
statute     to do.
                                                             e
       Article     XI,  section    Y of           the    Texas          Constitution    provides           in
pertinent      part the following:

               The property        of counties,    cities     and towns, owned
               and held only for public           purposes.       such as public
               itilildings    and the sitcs     thert:for,     . . .nnd all other
               Q?-OQ‘!rt,'     devoted   cxclunively        to      the  use    and
               benefit      of    the public     shnll     be exempt       from. . .
               taxation....

Arti,,!‘.     VTlI.     st.ccion     2 of        the      1’ev.a~ Constitution        provides        in
pert~i~:crtc port       the fol IowIng:            “I ‘I’) hc I.cgisl;lturr      mny, by gener?,l
1ilWS,     ‘xr*nq,t     I ram     taxnt J~“rl i>llbliC            property     used    for    Q"bl:C
pI!rposes....”         Article     VIII,     aectlun       I of the ‘Texas Constitution           sets
forth     the     following       I.” Qertinellt           pnrt:       “All   real   property        and
tangible       personal      property      in this         state,     whether   owned by natural
persons      or corporations,            other      than municipal,           shall   be taxed        in
proportion       to Its value.       which shall be ascertained                as may be provided
by ],a~.”

       Property     of a political     subdivision     which would otherwise     qualify
for exemption         from ad valorem       taxation     under one of the foregoing
constitutional        provisions   will   not lose      its  tax-exempt   status  merely
becnuse     .? charge      is made for     “se    of the property       or a profit      is
generated      thereby provided     the charges      are incident    to its use by the
    Honorable       Chris     Victor     Semos - Page 3            (MW-430)
i

     suhdivlslon.        ~.ower Culornrhr Klvrr           Authority      v. Chrmical         Hank and
     Trust    Company,.‘190      S.W.Z;?---&H. SO (TcFT945);                A h M ~onsolidnted
     Independent     School     District     v. City of Bryan,          184~!.W.Zd       914, 915-16
    (Tex.    1945).     See also tit y of Beaumont v. Fertitta.                    415 S.W.Zd 902,
    915 (Tex.      1967) (Walker,        .I., dissenting);         Galveston    Wharf Company v.
    City of Galveston,         63 Tex. 14 (1884);          Cf. Santa Rosa Infirmary            v. City
    of San Antonio,        259 S.W. 926 (Tex. Coxn                 App. 1933);      City of Dallas
    V.     Smith,    107 S.W.2d 872     (Tex.     1937) ;    tit y    of     Palestine       v.
    Missouri-Pacific        Lines Hospital         Association,      99 S.W.2d 311~ (Tex. Civ.
    ADD. - Amarillo           1936.    writ     ref’dj      (cases    involved       not    oolitical
    subdivisions      but rathe;      institutions.      of.purely     public     charityj.

            Our inquiry,       however,     does    not     end here.         In your      letter
    requesting      our opinion     you state:        “Offices      would be leased        and/or
    office     space   would    be sold      on a ‘condominium            theory’    to doctors
    including     specialists     who would also        be using       the hospital     facility
    for    the care     and treatment       of   their    patients.”         The office      space
    leased    or sold     to doctors    would then be subject              to private    use and
    control.      We must first     address    the issue whether public            property     not
    used for public        purposes   or not used exclusively             for public    purposes
    will be denied tax-exempt         status by virtue         thereof.

          It has been suggested    that Fertitta     is controlling.        This case
    held that property   owned~by the city,    though leased     to private     persons
    for the purpose    of carrying  on a private      commercial    enterprise,      was
    exempt from ad valorem taxation    regardless    of the fact that the use to
    which the property   was put was not public.

           The court In Fertitta              departed       from      the method of constitutional
    analysis      which courts          had traditionally               invoked      when the issue            was
    whether     property       owned by a political                   subdivision         was entitled           to
    receive     tax-exempt        status.       City of Beaumont vFertitta,                        supra      (see
    dissenting       opinion).        Prior     to Fertitta,           courts       had always       looked      to
    whether the property            was owned by a political                   subdivision        and whether
    it was used or held for a public                     purpose,        while assuming that,               if ir
    were not so used,            it would be taxab1.e under article                       VIII,     sections       1
    and 2 of the Texas Constitution.                       See
                                                          --      A   8   M  Consolidated         Independent
    School District         1:. Citv of -_._-’Bryan -SUE;            Daoghertv
                                                                            --.--     v. Thompson, 9 S.W.
99 (Tex.      18R8); (.ity        tof Abilenc       v. State           11’) S.W.2d 631 (?cx.              Civ.
    APP.    -  Eastland       1937,     writ    dism’ d)      (holding       disapproved         of    on   other
    grounds      in    Fertittnj.           The court          In _Fcrtitta           departed        from      the
    traditional        mode of constitutional                  analysis         in declaring           that    the
    constitution        does not require            that property            owned by a municipality
    but not used for a public                  purpose       be taxed.            It only requires            that
    private     property       held by untural            persons        or private        corporations          be
    taxed.      Therefore,        since     the constitution             does not require            municipal
    property       to    be     taxed,       the     legislature           needs       no    constitutional
    authority      to exempt it.           It chose to do I:(, in the now-repealed                       article
    7145, V.T.C.S.          This stdtute          required        that ally property,            except       that
    which is expressly           exempted,       he taxed.         The now-repealed           article       7150,
    VA.C.S.,         exempted        “lall~l      property,          whether         rcnl     or     personal,
    belonging       exclusively         to this        State,       or any political              subdivision
Honorable      Chris    Victor    Semos - Page 4           (MW-430)
                                                                                                            ‘i

thereof,    or the United           States.    . ..‘I   Public     owneiship      was    enough,     no
public   use was required.

       The     dissent     in     Fertitta        readily      pointed       out     that     this
constitutional         and statutory          argument     is    novel;      indeed,      earlier
decisions     which went to great          length discussing         the holding       and using
requirements       of public      property      make sense only         if one accepts          the
claim that the constitution             requires      all property       to be taxed unless
it is specifically          exempted pursuant=             a constitutional           provision,
that public      property,     in order that it be deemed tax-exempt.                  must fall
within    the limitations       set forth      in article     VIII,    section     2 or article
XI. section      9 of the Texas Constitution.              No other case has explicitly
emuloved such an analysis.             Moreover,       the Texas Supreme Court clearlv
na;ro;ed     the reach of.Fertitta           in Learider Independint          School     Distric;
v. Cedar Park Water Supply Corporatioa.                      479 S.W.2d 908.    911 (Tex.
1972) and in Satterlee            v. Gu,lf Coast Waste Disposal                 Authority,      576
S.W.2d 773 (Tex.        1978).

       Leander did not concern         property    owned by a political         subdivision
leased     to a private        person  for the purpose       of a private        commercial
enterprise;      rather,     it concerned     property    owned by a private          person
but used for pubiic          purposes.     In overturning      a lower court judgment
sustaining      the      tax-exempt     status     of   such     property,       the    court
specifically      held that property,       to be exempt, must be used for public
purposes.      The court        in Leander did not.      however,     explicitly      reject
the    mode    of    constitutional       analysis     employed      in    Fertitta.        In
Setterlee,    the court reaffirmed         the requirement      that there be a public
use before       property-      owned by a political         subdivision       be declared
tax-exempt.

       If the traditional            method of analysis          were applied        to the instant
situation,      a court would find that since the property                         of the political
subdivision        is    used      for    private      purposes,       it    should     not    receive
tax-exempt       status.        If the method of analysis                   employed     in Fertitta
were employed          instead,        a court      woul,d also       find     that    the property
should not rccetvc            tax-exempt       status.      In fertitta,          the court      looked
to the now-repealed            article     7150, V.T.C.S.,         which did not require            that
property     owned by a political              subdivision       be used for public           purposes
in order       that     it be tax-exempt;            mere public          ownership     was enough.              .
However,      the    statute      which     replaced     article      7150,      V.T.C.S.,     section
11.11(a)     of the Property            Tax Code does require             that property       owned by
:I political      subdivision         he exempt from ad valorem               taxation     only if it
Is used for public           purposes.        Therefore,      regardless        of which method of
analysis     a court would employ,              it is clear       that a requirement          that the
property      be used for           public     purposes     would be imposed.               The final
issue     is whether        that      public      use must be exclusive               or whether        a
private     person may permissibly              be incidentally        benefitted.

     In Satterlee.      the court     declared    to be taxable        real     property
which was conveyed      to a political      subdivision.        The court     held that
the instruments    did not convey interest        in the property       sufficient      to
make the ownership     “public”   for purposes       of article    VIII,    sections      1
and 2.    On motion   for rehearing.       the waste disposal       authority       urged
Honorable      Chris     Victor     Semos - Page 5             (MW-430)

that the property          still     be held    tax-exempt        under that      provision   of
article    XI, section       9 which purports          to exempt “...a11        other property
devoted     exclusively       to the use and benefit              of the puhljc..       ..‘I The
court     disagreed       and,     citing   Lower        Colorado       River   Authority    and
Daugherty.       declared     that the property            must be held only         for public
purposes      and devoted     exclusively     to the use and benefit            of the public.
On   the basis      of this      language,   we conclude         that,     by the arrangement
here    contemplated,        the property        would      lose    its     tax exempt status
because     it is not used exclusively            for the benefit         of the public.

        With respect         to office      space which the authority                  proposes      to sell
“On a ‘condominium                theory”’      to doctors,          the foregoing            argument       is
relevant.          There    is,    moreover,       an   additional        argument.          Both    article
VIII,      section      2 and article          XI section         9 of the Texas Constitution
speak of property             owned by a political               subdivision.            Even if office
space which was sold as condominiums                           were to meet the “public                  use”
test,     it   is   highly    unlikely      that     it  would     meet    the    ownership      test.       In
Calvert      v. Harris        County Water Control               and Improvement            District        No.
2.    368 S.W.Zd 833 (Tex. Civ. App. - Austin 1963, writ ref’d                                     n.r.e.),
the court held that a special                   district       ~was not. within          the meaning of
article      VIII,     sections      1 and 2 of the Texas Constitution,                      the owner of
what had been n privately-owned                         water     supply       system.        The special
district       was not empowered to exercise                   any control        over disposition           of
the property         of the system,          though legal. title             to the property          vested
in the district;               the control          was vested         in a trustee            created       by
private       individuals,         and for their          benefit.        In Satterlee,          the Texas
Supreme Court held that a state                      conservation        and reclamation           district
did not acquire           exclusive      ownership        of property        on which an industrial
waste treatment           center was constructed               where thp special           warranty deed
conveyed         the property         to the district              only     for     “so    long     as” the
property        was used for industrial                 waste treatment            and restricted           the
ability       of the district            to subsequently            convey       such property.             The
supreme court he~ld that such a conveyance                          created       a determinable          fee,
 that exclusive         ownership       and control         of the property          had not vested          in
 the district,          and that the property                 was not exempt from ad valorem
 tnxntion.          Though no Texas            court       hns yet       expli.citly         so held,        we
conclude       that a court would probably                  declare     that,     in the event that a
political.         subdivision         sold     office        space      as     a condominium,              the
political         subdivision       would no l~onger “own” the property                      in the sense
 required       by article        VTII.    section       2 or article          X~C, section        9 of the
Texas Constitution,              regardless      of tlw use 01~ such office                 space.

                                              SUMMARY

                       The mere fact    that a charge       is made for the
                use of property      owned by a political          subdivision
                or a profit     is generated       thereby   will     not cause
                such property     to be denied       ad valorem      tax-exempt
                status.       Property      owned       by     :I     political
                subdivl:;ion,    but leased     to ~1 privxtc       person      for
                the purpose     of engaging      in il private       cummercial
                enterprise.    wou1.d not be enLitl,ed           to exemption
                from    :~d vnlorom    1:lxation      under   article       VIII,
.”

     Honorable    Chris   Victor   Semos - Page 6            (MW-430)

                  section     2 or article       XI, section       9 of the Texas
                  Constitutio".         Property       owned     by   a political
                  subdivision,       but    sold    as     a condominium        to  a
                  private    person,    would not be entitled          to exemption
                  from ad valorem taxation.            regardless    of the use of
                  such property,        because     it    is not "owned"        by a
                  political      subdivision        within      the     meaning    of
                  article    VIII,    section    2 or article       XI, section     9
                  of the Texas Constitution.

                                                         Attorney       General   of   Texas

     JOHN W. FAINTER, JR.
     First Assistant Attorney         General

     RICHARD E. GRAY III
     Executive Assistant       Attorney    General

     Prepared    by Jim Moellinger
     Assistant    Attorney General

     APPROVED:
     OPINION COMMITTEE

     Susan L. Garrison.       Chairman
     Rick Gilpin
     Jim Moellinger

                                                p.   1.474