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
Untitled Texas Attorney General Opinion
Combined Opinion