NHH-Canal Street Apartments, Inc., a Texas Non-Profit Corporation v. Harris County Appraisal District and Harris County Appraisal District Appraisal Review Board

Appellees’ Motion for Rehearing Overruled; Opinion of June 30, 2015
Withdrawn; Reversed and Rendered and Substitute Memorandum Opinion
filed November 19, 2015.

In The

Fourteenth Court of Appeals

NO. 14-14-00251-CV

NHH-CANAL STREET APARTMENTS, INC., A TEXAS NON-PROFIT
CORPORATION, Appellant

V.
HARRIS COUNTY APPRAISAL DISTRICT AND HARRIS COUNTY
APPRAISAL DISTRICT APPRAISAL REVIEW BOARD, Appellees

On Appeal from the 295th District Court
Harris County, Texas
Trial Court Cause No. 2010-68486

SUBSTITUTE MEMORANDUM OPINION
We overrule appellees’ motion for rehearing, withdraw our memorandum
opinion issued June 30, 2015, and issue this substitute memorandum opinion.

Appellant, NHH-Canal Street Apartments, Inc., a Texas Non-Profit
Corporation, (“NHH-Canal Street”) appeals the trial court’s orders denying its
motion for summary judgment in its suit challenging the denial of a property tax
exemption and granting summary judgment in favor of appellees, Harris County
Appraisal District and Harris County Appraisal District Appraisal Review Board
(collectively “HCAD”). We reverse and render judgment in favor of NHH-Canal
Street.

I. BACKGROUND

NHH-Canal Street is a subsidiary of New Hope Housing, Inc., a Texas non-
profit corporation, exempt from federal income taxation under section 501(c)(3) of
the Internal Revenue Code, and organized exclusively for charitable and
educational purposes. The NHH-Canal Street Apartments is a single room
occupancy facility. All residents are low-income individuals, most of whom are
homeless, disabled, or have special needs. In order to qualify for housing, the
applicant for housing must produce documentation that his or her annual gross
income does not exceed the limits set by the Department of Housing and Urban
Development. In addition, an applicant must demonstrate sufficient income to pay
rent; that is, an applicant’s income must be greater than 1.5 times the rental amount
charged in order to be eligible for housing. The residents pay no, or significantly-
reduced, rents. In addition to housing, residents are provided other support,
including assistance with securing employment, managing finances, education
assistance, social programs, nutritional information, health screenings and
counseling.

For tax years 2008-2011, HCAD denied NHH-Canal Street an ad valorem
property tax exemption for charitable organizations under Texas Tax Code
Sections 11.18(d)(2) and (3). See Tex. Tax Code Ann. §§ 11.18(d)(2), (3) (West
2015). HCAD denied the exemption because it believed NHH-Canal Street
generally required its residents to pay some portion of rent for the apartments; thus,
it could not establish it provided support without regard to a tenant’s ability to pay
for an apartment.

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 NHH-Canal Street appealed to the trial court HCAD’s denial of the
exemption. Both HCAD and NHH-Canal Street filed traditional motions for
summary judgment. The trial court granted HCAD’s motion and denied NHH-
Canal Street’s motion.

II. ANALYSIS

In four issues, NHH-Canal Street challenges the trial court’s order granting
HCAD’s motion for summary judgment and denying NHH-Canal Street’s motions
for summary judgment and reconsideration.

A. Standard of Review

When, as in this case, both parties file motions for summary judgment and
the trial court has granted one and denied the other, we may consider the propriety
of the grant, as well as the denial, of the motions, and affirm or reverse
accordingly. See Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (citing
FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000));
Cullins v. Foster, 171 S.W.3d 521, 529 (Tex. App.—Houston [14th Dist.] 2005,
pet. denied) (citing Lidawi v. Progressive County Mut. Ins. Co., 112 S.W.3d 725,
729 (Tex. App.—Houston [14th Dist.] 2003, no pet.)). If the facts are undisputed
and the court considers a question of law, the court will affirm the judgment or
reverse and render. Cullins, 171 S.W.3d at 530. Where statutory construction is
involved, we review de novo, as we do all questions of law. See Texas Dept. of
Transp. v. Needham, 82 S.W.3d 314, 317 (Tex. 2002).

When both parties move for summary judgment, we must review the
summary-judgment evidence presented by both sides to determine the questions
presented, and render the judgment the trial court should have rendered. Gilbert
Texas Constr., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 124 (Tex.

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2010); Expro Americas LLC v. Sanguine Gas Exploration, LLC, 351 S.W.3d 915,
919 (Tex. App.—Houston [14th Dist.] 2011, pet. denied). In the case of cross-
motions for summary judgment, each party must establish it is entitled to judgment
as a matter of law. City of Garland v. Dallas Morning News, 22 S.W.3d 351, 356
(Tex. 2000).

A plaintiff moving for traditional summary judgment must conclusively
establish all essential elements of its claim. Cullins, 171 S.W.3d at 530 (citing
MMP, Ltd. v. Jones, 710 S.W.2d 59, 60 (Tex. 1986)). If the movant establishes a
right to summary judgment, the nonmovant bears the burden to present evidence
raising an issue of material fact. M.D. Anderson Hosp. & Tumor Inst. v. Willrich,
28 S.W.3d 22, 23 (Tex. 2000).

We review de novo traditional motions for summary judgment. See
Ferguson v. Bldg. Materials Corp. of Am., 295 S.W.3d 642, 644 (Tex. 2009) (per
curiam). When reviewing a summary judgment, we take as true all evidence
favorable to the nonmovant and we indulge every reasonable inference and resolve
any doubts in the nonmovant’s favor. Valence Operating Co. v. Dorsett, 164
S.W.3d 656, 661 (Tex. 2005).

B. Motions for summary judgment

NHH-Canal Street moved for summary judgment contending it is exempt
from taxation as authorized by Texas Constitution Article 8, Section 2(a) and
Texas Tax Code Sections 11.18(d)(2) and (d)(3). See Tex. Const. art. VIII, § 2(a);
Tex. Tax Code Ann. §§ 11.18(d)(2), (3). Sections 11.18(d)(2), (3) provide:

(d) A charitable organization must be organized exclusively to
perform religious, charitable, scientific, literary, or educational
purposes and, except as permitted by Subsections (h) and (l) engage
exclusively in performing one or more of the following charitable
functions: . . .

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 (2) providing support or relief to orphans, delinquent,
dependent, or handicapped children in need of residential care,
abused or battered spouses or children in need of temporary
shelter, the impoverished, or victims of natural disaster without
regard to the beneficiaries’ ability to pay.
(3) providing support without regard to the beneficiaries’
ability to pay to
(A) elderly persons, . . . ; or

(B) the handicapped. . . .

See Tex. Tax Code Ann. §§ 11.18(d)(2), (3).
HCAD also moved for summary judgment, contending that NHH-Canal
Street did not fall under the Tax Code’s requirements for exemption from taxation
because there was no evidence that NHH-Canal Street provided services “without
regard to the beneficiaries’ ability to pay,” as found in Sections 11.18(d)(2), (3).
See id. It did not challenge whether the NHH-Canal Street provided support to the
impoverished.

C. Qualification for exemption

We hold that NHH-Canal Street has conclusively established that it serves
the impoverished “without regard to the beneficiaries’ ability to pay.” See id.

1. Service to the impoverished

In order to qualify for an exemption, NHH-Canal Street must fall within the
statutory and constitutional requirements for exemption. See N. Alamo Water
Supply Corp. v. Willacy Cnty. Appraisal Dist., 804 S.W.2d 894, 899 (Tex. 1991).
The statutory provisions for a charitable organization’s exemption from taxation
are found in Section 11.18 of the Tax Code, as set forth above. The constitutional
requirements found in Article VIII, sections 1 and 2 provide that taxation “shall be
equal and uniform” and “the legislature may, by general laws, exempt from

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taxation . . . institutions of purely public charity; and all laws exempting property
from taxation other than the property mentioned in this Section shall be null and
void. See Tex. Const. art. VIII, §§ 1, 2. Although the constitution does not define
“purely public charity,” we look to certain elements to determine whether an
organization qualifies for a tax exemption:

First, it made no gain or profit; second, it accomplished ends wholly
benevolent; and, third, it benefitted persons, indefinite in numbers and
in personalities, by preventing them, through absolute gratuity, from
becoming burdens to society and to the state. . . . Charity need not be
universal to be public. It is public when it affects all the people of a
community or state, by assuming, to a material extent, that which
might otherwise become the obligation or duty of the community or
the state.
....

The word ‘purely’ was meant ‘to describe the quality of the charity,
rather than the means by which it is administered, that it should be
wholly altruistic in the end to be attained, and that no private or selfish
interest should be fostered under the guise of charity . . . .’
N. Alamo Water, 804 S.W.3d at 897 (citing City of Houston v. Scottish Rite
Benevolent Ass’n, 111 Tex. 191, 198–99, 230 S.W. 978, 981 (1921)) (quoting
Widows’ & Orphans’ Home v. Commonwealth, 126 Ky. 386, 103 S.W. 354, 358
(1907)); see also City of McAllen v. Evangelical Lutheran Good Samaritan Soc’y,
530 S.W.2d 806, 809 (Tex. 1975); River Oaks Garden Club v. City of Houston,
370 S.W.2d 851, 853 (Tex. 1963) (holding article VIII, Section 2 exempts from
taxation an institution of purely public charity where property “was owned and
used exclusively by them for purely public charity.”); Dallas Cnty. Appraisal
District v. The Leaves, Inc., 742 S.W.2d 424, 429 (Tex. App.—Dallas 1987, writ
denied) (approving the interpretation that the word “purely” was meant “to
describe the quality of the charity, rather than the means by which it is
administered.”).
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 The evidence shows that many residents of NHH-Canal Street are disabled,
have special needs, and/or are formerly homeless. NHH-Canal Street provides
residents with various activities, offered at no charge, including counseling,
educational programs, health screening, and other services. The residents have
incomes which are near the figures set forth in the HHS Poverty Guidelines.1
Throughout the tax years at issue, the average annual gross income ranged from
$11,055 for 2009 to $12,268 for 2012. The record reflects that tenants’ income
sources include social security and social security disability, retirement and
pension, unemployment and employment. While Section 11.18(d)(2) does not
define the term “impoverished,” we “apply the term’s ordinary meaning” and look
at the “generally accepted common and legal definitions of the words.” Martin v.
Harris County Appraisal Dist., 44 S.W.3d 190, 194 (Tex. App.—Houston [14th
Dist.] 2001, pet. denied). “Impoverished” means “poor enough to need help from
others.” http;://www.webster-dictionary.org/definition/impoverished (accessed
November 5, 2015). Our review of the types of residents NHH-Canal Street
serves, as well as their gross annual incomes, compels our conclusion that NHH-
Canal Street conclusively established it serves the impoverished.

The tenants at NHH-Canal Street are screened to ensure that each resident
has income which is at least 1.5 times the rental amounts charged by NHH-Canal
Street and all tenants pay some amount of below-market rent.2 The record also

1
For example, in 2009, the income figure in the HHS Poverty Guidelines was $10,830.
The 2009 average annual gross income for a resident at NHH-Canal Street was $11,055. In
2010, the poverty guideline was $10,830, and average gross annual income for the NHH-Canal
Street resident was $13,973. In 2011, the poverty guideline was $10,890; the NHH-Canal Street
resident had a gross annual income of $13,817. Finally, for 2012, the income figure for 2012
was $11,170, and the average annual gross income for a resident at NHH-Canal Street was
$12,268.
2
At oral argument, HCAD conceded that the issue which supports its position is NHH-
Canal Street’s requirement that the residents have income of at least 1.5 times the rent charged.
HCAD did not focus on whether the residents were at or near any poverty guideline or whether
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reflects that the total amount of income for the “1.5 times the rental amount” fell
below the income figures in the HHS Poverty Guidelines for all years at issue.3
Rent levels at NHH-Canal Street are determined each year and are set at levels that
cover operating costs and include a maintenance/replacement reserve. The rent
levels are substantially below-market rental rates due to large contributions which
eliminated debt for the construction and operation of the apartments. The rents do
not fund all of the resident services provided at NHH-Canal. As a result, NHH-
Canal operates at a loss on an annual basis. Additionally, because the rents do not
cover the total cost of operating expenses (rent and other services provided), New
Hope Housing subsidizes the operations at NHH-Canal-Street. Finally, the
evidence reflects that NHH-Canal Street was constructed entirely through
charitable contributions, rendering the operation debt-free. When taken as a whole
(below-market rent, costs of resident services programs and debt-free
construction), for the tax years at issue, 65-75% of NHH-Canal Street’s costs are
charitable.

HCAD argues that a requirement that tenants have incomes greater than 1.5
times the rental amount equates to NHH-Canal Street’s consideration of the
beneficiaries’ (tenants) “ability to pay,” which runs contrary to Section
11.18(d)(2). On that basis, HCAD asserts NHH-Canal Street must be denied the
exemption from taxation. We hold the “ultimate consideration” should turn on the
totality of the services NHH-Canal Street provided at or below cost, or in the case

their incomes could be considered “low” or “very low.” Rather, HCAD contended that NHH-
Canal Street’s income requirement operated as a bar to NHH-Canal Street’s receipt of the
exemption. In fact, HCAD responded at oral argument that if NHH-Canal Street charged even
just $1.00 for rent, it was not entitled to the exemption.
3
For example, for the rent-roll year 2009, the HHS Poverty Guideline was $10,830; the
1.5 times annual rental amount was $7,290. For the rent-roll year 2012, the HHS Poverty
Guideline was $11,170; the 1.5 times annual rental amount was $7,830.

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of programs and services, at no cost. See Dallas Cnty. Appraisal Dist., 742 S.W.2d
at 427 (granting exemption where 14% of revenue was from charity) (citing City of
McAllen, 530 S.W.2d at 809–10, which concluded an exemption is appropriate
when there are no patients who cannot pay something toward their care and where
the hospital operated at a loss). The City of McAllen court’s rationale is instructive
and controls the outcome here. Key to that holding is not that services were
provided free of charge or that certain patients contributed toward the cost of their
care and certain patients paid little or nothing. See City of McAllen, 530 S.W.2d at
809–10. Rather, the “ultimate consideration” is based on an evaluation of the total
operation and whether the charitable organization demonstrated that beneficiaries
were not required to pay the full cost of services received. Id.

We disagree with HCAD’s contention that NHH-Canal Street is not entitled
to the tax exemption because it screens tenants’ incomes to ensure they are at least
1.5 times the rental amounts charged. We also disagree with HCAD’s argument
that, if the residents pay any amount toward rent, even $1.00, then NHH-Canal
Street is not entitled to the tax exemption. Under the facts before us, NHH-Canal
Street provides housing and other services to low-income individuals. Ensuring
that tenants have a minimum income, we conclude, does not change the fact that
NHH-Canal Street provides support to the impoverished “without regard to the
beneficiaries’ ability to pay.”

In sum, after evaluating the totality of the operations of NHH-Canal Street,
we conclude the evidence conclusively established that NHH-Canal Street is a
charitable organization which engages exclusively in serving the “impoverished”4
without regard to their ability to pay, and it should not be denied the tax exemption

4
HCAD did not challenge that NHH-Canal Street was a “charitable organization.” See
Tex. Tax Code Ann. § 11.18(d).

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of Section 11.18(d)(2). See id., 530 S.W.2d at 809–10; Lamb County Appraisal
Dist. v. South Plains Hospital-Clinic, Inc., 688 S.W.2d 896, 904–905 (Tex. App.—
Amarillo 1985, writ ref’d n.r.e.) (allowing exemption where 8-15% of patients
received charity, hospital’s source of income was derived from other patients who
paid for care and no patient was denied care); El Paso Cent. Appraisal Dist. v.
Evangelical Lutheran Good Samaritan Soc’y, Inc., 762 S.W.2d 207, 208 (Tex.
App.—El Paso 1988, no writ) (holding exemption was proper where charity
engaged in benevolent work beyond that of charitable and religious nature); cf.
Hilltop Village, Inc. v. Kerrville Ind. School Dist., 426 S.W.2d 943, 949 (Tex.
1968) overruled by City of McAllen, 530 S.W.2d at 811 (denying exemption where
charity not “bound to assume charitable obligations” or to dispense relief to the
needy and “no assurance that society is being or will be relieved of the care and
expense of those in need.”); Baptist Memorials Geriatric Ctr. v. Tom Green Cnty.
Appraisal Dist., 851 S.W.2d 938, 944 (Tex. App.—Austin 1993, writ denied)
(denying exemption where charity did not use property for charitable purposes).

2. As a matter of statutory interpretation, NHH-Canal Street was
not required to show that it served the impoverished without
regard to beneficiaries’ ability to pay
NHH-Canal Street argues that the word “impoverished” is not modified by
the words “without regard to the beneficiaries’ ability to pay. Section 11.18(d)(2)
provides in pertinent part that the charitable organization is entitled to the tax
exemption where it provides support to “. . . the impoverished, or victims of
natural disaster without regard to the beneficiaries’ ability to pay.” See Tex. Tax
Code Ann. § 11.18(d)(2). On the other hand, Section 11.18(d)(3) provides that the
charitable organization is exempt where it is “‘providing support without regard to
the beneficiaries’ ability to pay’ to: (A) elderly persons, . . . (B) the handicapped . .
. .” See id. NHH-Canal Street argues that under a plain reading of the statute,

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“without regard to beneficiaries’ ability to pay” modifies only “victims of natural
disaster” and not the word “impoverished.” NHH-Canal Street further argues that,
if the Legislature had intended such a modification, it could have written Section
(d)(2) just as it wrote (d)(3).

HCAD argues that “without regard to beneficiaries’ ability to pay” modifies
“the impoverished,” and because NHH-Canal Street requires a tenant to have a
minimum income, it is considering the beneficiaries’ ability to pay. HCAD
contended that NHH-Canal Street’s “Tenant Selection Plan and Procedure
Manual” (the “Manual”) of New Hope Housing, Inc. (“NHHI”)5 is evidence that
NHH-Canal Street considers ability to pay:

An applicant must demonstrate sufficient income to pay full rent. To
be considered eligible for residency, the applicant’s income must be
greater than 1.5 times the rental amount. NHHI will have rental rates
affordable to individuals with low-incomes not exceeding the
applicable program rent limits set by the HOME Investment
Partnership Program, FHLB-Atlanta Affordable Housing Program,
Housing Tax Credit Program and HUD.
In the “Tenant Qualifying Criteria” section of the Manual is a “General
Occupancy Standard,” which provides:

An applicant must provide proof of annual gross income that does not
exceed the annual income limits set by U.S. Department of Housing &
Urban Development (“HUD”). An Applicant must demonstrate
sufficient income to pay full rent. The Applicant’s income must be
greater than 1.5 times the rental amount to be considered eligible.
New Hope reserves the right to give first priority to applicants who
are Veterans and Persons with Special Needs. “Persons with Special
Needs,” as defined by HUD, includes persons with disabilities,
persons with HIV/AIDS, elderly persons, frail elderly persons,

5
NHHI is a Texas nonprofit corporation which provides property management to its
communities, including the NHH-Canal Street Apartments.

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 persons with alcohol and/or drug addictions, victim of domestic
violence, persons who are homeless and public housing residents.
HCAD cites other sections in the Manual stating that “rent is not
subsidized,” “All eligible applicants will be screened to determine their ability to
pay rent on time and meet the requirements of the lease,” and the screening is be
applied to all applicants.

As quoted above, Section 11.18(d)(2) provides that the charitable
organization is entitled to the tax exemption where it provides support to “the
impoverished, or victims of natural disaster without regard to the beneficiaries’
ability to pay.” See Tex. Tax Code Ann. § 11.18(d)(2). Section 11.18(d)(3)
provides that the charitable organization is exempt where it is “‘providing support
without regard to the beneficiaries’ ability to pay to: (A) elderly persons, . . . (B)
the handicapped . . . .” See id.

HCAD argues that NHH-Canal Street is entitled to the tax exemption only if
it shows that it serves the “impoverished without regard to the beneficiaries’ [the
impoverished’s] ability to pay.” HCAD’s interpretation “strains the sentence’s
grammar and apparent meaning.” City of Dallas v. Stewart, 361 S.W.3d 562, 571
n.14 (Tex. 2012) (citing Spradlin v. Jim Walter Homes, Inc., 34 S.W.3d 578, 580
(Tex. 2000)) (giving effect to all words of a constitutional provision and
concluding that the last antecedent “canon of construction” requires that the
qualifying phrase “must be confined to the words or phrases immediately
preceding it to which it may, without impairing the meaning of the sentence, be
applied.”) The interpretation advanced by NHH-Canal Street “comports with the
doctrine of last antecedent, which suggests that in most cases, a qualifying phrase
should be applied only to the portion of the sentence ‘immediately preceding it.”
See id. Accordingly, under the rules of interpretation, the qualifying phrase—

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“without regard to the beneficiaries’ ability to pay”—applies only to the portion of
the sentence immediately preceding it; specifically “victims of natural disaster.”

Under HCAD’s interpretation, “without regard to the beneficiaries’ ability to
pay” would apply and modify each term in Section 11.18(d)(2). Had the
Legislature intended this result, it could have written the section as it did in Section
11.18(d)(3), which allows an exemption when the charitable organization provides
support “without regard to the beneficiaries ability to pay” to elderly persons and
the handicapped. See Tex. Tax Code § 11.18 (d)(3); Texas West Oaks Hosp., LP v.
Williams, 371 S.W.3d 171, 185 (Tex. 2012) (holding the phrase “directly related to
health care” modifies the terms immediate before it and rejecting the notion that it
relates to each term in the definition of a health care liability claim); 8100 N.
Freeway Ltd. v. City of Houston, 329 S.W.3d 858, 862 (Tex. App.—Houston [14th
Dist.] 2010, no pet.) (concluding where Legislature did not insert a comma to set
apart a phrase, both rules of punctuation and last antecedent mandate the phrase
modifies only the last noun in a list).

In considering the undisputed evidence, we conclude that NHH-Canal Street
conclusively established it is organized exclusively as a charitable organization,
that it provides services to the impoverished, and that NHH-Canal Street did not
have to prove that it provided services to the impoverished without regard to their
ability to pay; therefore, it is entitled to the ad valorem property tax exemption
under Section 11.18(d)(2).6 See Tex. Tax Code Ann. § 11.18(d)(2).

6
HCAD argued that the Harris County Appraisal Review Board was not a proper party,
relying on Texas Tax Code Section 42.21. See Tex. Tax Code Ann. § 42.21 (West 2015). NHH-
Canal Street responded that the statute as it existed in 2010 (when it filed suit) was permissive;
that is, the appraisal review board could be sued, if appropriate. Section 42.21 was amended in
2011, and the legislation contained no effective date. See Tex. Tax Code Ann. § 42.21. In the
absence of an effective date, under Texas Government Code Section 311.022, the presumption is
that the law applies prospectively. See Tex. Gov’t Code Ann. § 311.022 (West 2015). Thus,
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 Accordingly, we sustain appellant’s four issues, reverse the trial court’s
order denying NHH-Canal Street’s motion for summary judgment and granting
HCAD’s motion, and render judgment that NHH-Canal Street is entitled to an ad
valorem tax exemption.

/s/ John Donovan
Justice

Panel consists of Justices Christopher, Donovan, and Wise.

there was no statutory provision applicable to NHH-Canal Street’s suit against the Appraisal
Review Board at the time it filed suit and HCAD failed to demonstrate how whether the board is
a proper party effects NHH-Canal Street’s entitlement to the tax exemption.

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