ATTORNEY GENERAL OF TEXAS
GREG ABBOTT
November 21,2006
The HonorableRobertE. Talton OpinionNo. GA-0485
Chair, Committee on Urban Affairs
Texas House of Representatives Re: Tax status of property owned by limited
Post Office Box 2910 partnerships created by political subdivisions
Austin, Texas 78768-2910 (RQ-0489-GA)
Dear Representative Talton:
You inquire about the tax exempt status of property that is the subject of a public-private
partnership.’ Specifically, you ask whether “property used for public purposes, but not otherwise
exempt, and owned by a limited partnership [composed] of a political subdivision 100% general
partner and private for-profit or non-profit entities in the role of limited partners [is] exempt” from
ad valorem taxes. See Request Letter, supva note 1, at 1.
You note that the Texas Tax Code exempts from taxation property owned by the state or
political subdivisions and used for public purposes: See id. You inform us that when property is
“owned by limited partnerships created by political subdivisions to engage in activities that further
public purposes,” Texas statutes are not helpfnl. Id. But while you inform us that “public-private
partnerships by cities and other political subdivisions have become more prolific,” you do not
provide any context for your question or inquire about a particular type of public-private
partnership? Id. Thus, we can answer your question only in general terms.
As an initial matter, the question of whether~ any specific property is exempt from taxation
depends on the facts of a particular situation. See Tex. Tpk. Co. v. Dallas County, 271 S.W.2d 400,
402 (Tex. 1954). Moreover, the chief appraiser of the appraisal district in which the property is
‘See Letter f?om Honorable Robert E. T&on, Chair, Committee on Urban Affairs, Texas House of
Representatives, to Honorable Greg Abbott, Attorney General of Texas (May 15, 2006) (on file with the Opinion
Committee, also available at http://www.oag.state.tx.us) hereinafter Request Letter].
2Briefs submittedto this of& discuss public-private partnerships that involve affordable housing projects. See
gennerally Brief from Cynthia L. Bast, Locke Liddell & Sapp L.L.P., to Honorable Greg Abbott, Attorney General of
Texas (June 26, 2006); Brief from William D. Walter, Jr., Coats Rose Yale Ryman & Lee, PC., to Honorable Greg
Abbott, Attorney General of Texas (June 26,2006); Brief from James P. Plummer, Fulbright & Jaworski, L.L.P., to
Honorable Greg Abbott, Attorney General ofTexas (June 26,2006); Brieffrom Elizabeth P. Rippy, Glen A. Rosenbaum,
and VictoriaN. Ozimek, Vinson & Elkins L.L.P., to Honorable Greg Abbott, Attorney General ofTexas (June 26,2006)
(all briefs on tile with the Opinion Committee).
The Honorable Robert E. Talton - Page 2 (GA-0485)
located is the authority to initially determine whether property is tax exempt. See TEX. TAX CODE
ANN. 5 11.45(a) (Vernon 2002) (“The chief appraiser shall determine each applicant’s right to
an exemption.“); see also St. Joseph Orthodox Christian Church 1~Spring Branch Indep. Sch. Dist.,
110 S.W.3d 477,479 n.6 (Tex. App.-Houston [14th Dist.] 2003, no pet.) (chief appraiser initially
determines right to a tax exemption). Accordingly, We cannOt determine as a matter of law whether
any particular partnership property is exempt from taxation. We can, however, discuss the legal
issues raised by your request.
The Texas Constitution, in article VIII, section 1, mandates that all real and tangible personal
property, unless exempt as required or permitted by the constitution, be taxed in proportion to its
value. See TEX. CONT. art. VIII, 5 l(b). Article VIII, section 2(a) authorizes the legislature to
“by general laws, exempt from taxation public property used for public purposes.” Id. 5 2(a).
Additionally, article Xl, section 9 exempts from taxation “property of counties, cities and towns,
owned and held only for public purposes.“’ Id. art. XI, 5 9. Under these constitutional provisions,
the legislature enacted section 11.11 (a) of the Tax Code, which exempts from taxation “property
owned by this state or a political subdivision of this state . . if the property is used for public
purposes.” TEX. TAX CODEM. 5 11.11 (a) (Vernon Supp. 2006). Tax exemptions under the Texas
Constitution and section 11.11 (a), Tax Code, are recognized only when the property is both publicly
owned and used for public purposes. See Leander Indep. Sch. Dist. v. Cedar Park Water Supply
Corp., 479 S.W.2d 908,91&12 (Tex. 1972).
You tell us the property is used for public purposes. See Request Letter, supra note 1, at 1.
Under these circumstances, the determinative query then is whether the property is’publicly owned.
You tell us that the property is owned not by a public entity but by “limited partnerships created by
political subdivisions to engage in activities that further public purposes.” Id. Under the partnership
statutes, the property of a limited partnership belongs to the limited partnership, not to the partners
that compose the limited partnership. See TEX. REV. CIV. STAT. ANN. art. 6132a-1, § 7.01 (Vernon
Supp. 2006) (providing that partners in a limited partnership have “no interest in specific limited
partnership property”); TEX. Bus. ORG. CODE ANN. 3 154.001(c) Vernon 2006) (providing that a
“partner is not a co-owner of partnership property”); see also TEX. BUS. ORG. CODE ANN. §
402.001(a)(l) (providing that Business Organization Code is applicable to domestic entities formed
after January 1,2006); see also Travis Cent. Appraisal Dist. v. Signature Flight Support Corp., 140
S.W.3d 833, 840 (Tex. App.-Austin 2004, no pet.) (citing Ckildress County v. State, 92 S.W.2d
1011,1015 (Tex. 1936)) (recognizing general rule that “the person who has legal title is the ‘owner’
for taxation purposes”). And as a partner of a limited partnership, a public entity has only a personal
property interest in the limited partnership and does not have any ownership interest in the property
of the limited partnership. See TEX. REV. CIV. STAT. ANN. art. 6132a-1, 5 7.01 (Vernon Supp.
2006). There are, however, circumstances where a public entity does not hold legal title to property
but courts nonetheless find that the public entity owns property through equitable title. See Travis
Cent. Appraisal Dist., 140 S.W.3d at 840 (person that does not hold legal title “may still be
‘The language of article XI, section 9 applies expressly only to “counties, cities and towns.” TEX. CONST.
art. XI, $9. The Texas Supreme Court, however, has held that this exemption extends to property owned by any
governmental entity. See Lower Cob. River Auth. v. Chem. Bank & Trust Co., 190 S.W.2d 4X,50-5 1 (Tex. 1945).
The Honorable Robert E. Talton - Page 3 (G&0485)
considered the taxable owner of property ‘[i]f he is the record owner, or is vested with the apparent
legal title, or is in possession thereof, coupled with such claims and evidences of ownership as will
justify the assumption that he is the owner”‘) (quoting Childress County, 92 S.W.2d at 1015); see
also Harris CountyAppraisal Dist. v. Se. Tex. HousingFin. Corp., 991 S.W.2d l&20-21,23 (Tex.
App.-Amarillo 1998, no pet.); Hays County Appraisal Dist. v. SW. Tex. State Univ., 973 S.W.2d
419,422 (Tex. App.-Austin 1998, no pet.); Tex. Dep ‘t of Corrs. v. Anderson County Appraisal
Dist., 834 S.W.2d 130,131 (Tex. App.-Tyler 1992, writ denied).
Property used for public purposes and equitably owned by a public entity is tax exempt under
the constitution and section 11.1 l(a) of the Tax Code. See Harris County Appraisal Dist., 991
S.W.2d at 23 (“Where a tax exempt entity holds equitable title to property, the property is tax
exempt.“); Tex. Dep~‘[ofcorrs., 834 S.W.2d at 13 1 (declaring property in question public property
under equitable title and exempt from taxation). Equitable title is the “present right to compel legal
title.” Travis Cent. Appraisal Dist., 140 S.W.3d at 840. Equitable title .does ,not follow a mere
expectation or a purely contingent interest. See Tex. Tpk Co., 271 S.W.2d at 402. Rather, it is a
“right in the party to whom it belongs to have the legal title transferred to him.” Tanner v. Me, 253
S.W. 665,668 (Tex. Civ. App.-San Antonio 1923, writ dism’d). The issue of equitable title often
arises where a public entity and a private entity are involved in a complex financial transaction
designed to achieve a public purpose. In considering questions involving equitable title, courts look
beyond the legal title and examine the facts of a given situation.
Recent cases provide some insight into the facts that are important in resolving equitable title
issues. In one case, a court of appeals determined that a lease arrangement in which, through lease
payments to a private entity, a public entity essentially paid the mortgage on property over which the
public entity also had control did not operate to bestow equitable ownership on the public entity.
See Hays County Appraisal Dist., 973 S. W.2d at 420,422. Though the parties to the lease intended
the property to revert to the public entity upon the full payment of the mortgage, the lease terms did
not require the transfer and thus did not create a legal obligation on the private entity to transfer title
to the public entity. See id. at 422. Similarly, the court determined that a resolution adopted by the
trustees of the private entity that indicated an intent to transfer ownership to the public entity was
not a legally enforceable obligation on the private entity. See id.
By contra& in a case concerning a financing arrangement between a private entity and a
public entity that involved a ground lease and construction agreement, another court ofappeals found
equitable ownership in the public entity. See Tex. Dep’t ofcorrs., 834 S.W.2d at 131. The public
entity leased land to a private corporation, See id. The public entity assigned a contract for then
construction of improvements on the land to the private corporation. See id. The public entity and
private corporation executed a lease-purchase agreement by which the public entity would possess
and rent or purchase the improvements. See id. All three documents were then assigned to a third-
party trustee. See id. The court observed that though the trustee had legal.title, the public entity held
equitable title because the public entity possessed the property and could compel legal title from the
trustee upon payment of all “lease” payments by virtue of the legal obligations in the documents.
See id.
The Honorable Robert E. Talton - Page 4 (GA-0485)
Yet another court of appeals found equitable title in a similar fmancing arrangement. See
Harris CountyAppraisalDist., 991 S.W.2dat23. To finance low-income housing projects, apublic
entity would purchase land and then transfer title to the land to a private subsidiary corporation
created solely to manage the property. See id. at 20. The subsidiary corporation issued a note and
deed of,trust to the public entity which in turn assigned the note and deed to a third-party trustee as
security for financing. See id. The subsidiary collected rents from the tenants to service the debt.
See id. The subsidiary corporation’s charter expressly provided that the property would revert to the
public entity on 111 payment of the debt. See id. In addition, the charter provided the property
would vest in the public entity in the event of the subsidiary corporation’s dissolution-the
dissolution being entirely in the public entity’s control. See id. The court determined the public
entity held equitable title because the public entity controlled the subsidiary corporation, including
its dissolution, so that legal title would revert to the public entity under conditions that the public
entity had the sole power to fulfill. See id. at 23.
These cases demonstrate that when a public entity, through fultillment of conditions entirely
within its control, can compel the transfer of legal title to itself, courts usually fmd the public entity
has equitable title. By contrast, when no legal obligation to transfer title follows the fultillment of
conditions or when the conditions under whichtitle will be transferred to the public entity are under
the private entity’s control, courts usually do not find equitable title in the public entity. These cases
also indicate that the involvement of a trustee and the fact that the public entity possesses the
property are important factors in the determination of equitable ownership. We cannot however
predict the weight a court would assign to the specific facts involved in any particular public-private
partnership. Neither can we predict the significance a court would assign to other facts particular
to any given public-private partnership.
In sum, we can advise you only that property legally owned by a limited partnership might
be equitably owned by the public entity that is the general partner. But, as we have already indicated,
the question of whether specific property is exempt from taxation is to be answered initially by the
chief tax appraiser and involves the resolution of facts. Thus, it is outside the purview of the opinion
process. See Tex. Att’y Gen. Op. No. GA-0156 (2004) at 10 (stating that fact questions cannot be
answered in the opinion process).
The Honorable Robert E. Talton - Page 5 (GA-0485)
S U M M,A R Y
To qualify for a tax exemption under the Texas Constitution
and section 11.11(a), Tax Code, property must be both publicly
owned and used for public ~purposes. Property legally owned by a
public-private limited partnership might nevertheless be equitably
owned by the public entity, and thus tax exempt, when the public
entity has the legal right to compel the transfer of title to itself.
Whether ~property is equitably owned by a public entity depends on
the facts of a particular situation and cannot be determined in an
attorney general opinion.
KENT C. SULLIVAN
First Assistant Attorney General
ELLEN L. WITT
Deputy Attorney General for Legal Counsel
NANCY S. FULLER
Chair, Opinion Committee
Charlotte M. Harper
Assistant Attorney General, Opinion Committee