TITEA~TORNEY GENERAL
OF TElxAs
Avemiw. TWAS 787ti
a0EsN I” EILL
A-- CIlmmER-
July 8, 1974
The Honorable Alton R. Griffin Opinion No. H- 342
Criminal District Attorney
Lubbock County Courthouse Re: Whether hospitals will lose
Lubbock, Texas 79401 their tax exemptions if they make
available premises to Blood
Services of Texas
Dear Mr. Griffin:
Your question asks whether two hospitals will lose their ad valore m
tax exemptions if they permit a separately operated blood bank to use a
portion of their premises for the purposes of obtaining blood from family
members of patients.
Article 8, Section 1 of the Texas Constitution requires that “Taxation
shall be equal and uniform:” However, Subsection 2(a) of Article 8
authorizes the Legislature to exempt various classes of property including
property owned by institutions of “purely public charity. ”
In the Constitution of 1876, Section 2 of Article 8 excepted from ad
valorem t.axation “all buildings used bxclusively and owned by persons or
associations of persons for school purposes, and the necessary furn:ture
of all 8mools, . , .and institutions of purely public charity. ” Since t.hat time
the Section has been amended on a number of occasions and a great deal
of language appears between “buildings used exclusively and owned by”
and “purely public charity” and a literal reading would not link the two
phrases. Nevertheless they are linked and we believe that, in adopt.ing
the various amendments, it was not the ~intent of the people to effect a
change insofar as the Section appIies to institutions of purely public charity.
Acting under that authority, the Legislature has adopted Article
p. 1594
The Honorable Alton R. Griffin page 2 (H-342)
7150, V.T.C.S., exempting certain described properties from taxation.
In its Sec. 7 it exempts:
All buildings and personal property belonging to
institutions of purely public charity, together with .the
lands belonging to and occupied by such institutions,
including hospital parking facilities, not leased or
otherwise used with a view to profit, unless such
rents and profits and all moneys and credits are
appropriated by such institutions solely to sustain
such institutions and for the benefit of the sick and
disabled members and their families and the burial
of the same, or for the maintenance of persons
when unable to provide for themselves, whether such
persons are members of such institutions or not. . . .
It goes on to define an institution of “purely public charity” as:
. . . one which dispenses its aid to its members and
others in sickness or distress, or at death, without
regard to poverty or riches of the recipient, al’so when
funds, property and assets of such institutions are
placed and bound by its law to relieve, aid and administer
in any way to the relief of its members when in want,.
sickness,and distress, and provide homes of its help-
less and dependent members and to educate and maintain
the orphans of its deceased members or other persons . . . .
The Texas Supreme Court has defined “purely public charity” to
depend on the existence of three elements:
. . . . First,
it made no gain or profit; second, it
accomplished ends wholly benevolent; and third, it
benefit,ed persons, indefinite in numbers and in person-
alities, by preventing them, through absolute gratuity,
from becoming burdens to society and to the state.
p. 1595
The Honorable Alton R. Griffin page 3 (H-342)
City of Houston v. Scottish Rite Benevolent Ass’n, 230 S. W. 978, 981
(Tex. 1921); cited with approval. River Oaks Garden Club v. City of Houston,
370 S. W. td 851 (Tex. 1963); and in City of Amarillo v. Amarillo Lodge No.
731, AF & AM, 488 S. W. 2d 69 (Tex. 1972).
We assume the hospitals and the blood bank qualify as institutions
of purely public charity, but, of course, whether any institution qualifies
as one of purely public charity will ultimately depend upon whether, in fact,
it meets the three point test , above set out; .
In Hilltop Village, Inc. v. Kerrville Ind. Sch. Dist., 426 S. W. 2d
943 (Tex. 1968), a case decided under this constitutional provision, the
Supreme Court specifically indicated that an institution’s use of property
for incidental purposes will not defeat a tax exemption. Hilltop Village,
Inc. v. Kerrville I. S. D., supra, at 947. See also, Santa Rosa Infirmary v.
City of San Antonio, 259 S. W. 926, 932 (Tex. Comm. App. 1924).
The operation of the incidental facilities in Hilltop Village resulted
in a profit which was divided between the outside operations and the institu-
tion. Whether the use of hospital facilities by a blood bank is an incidental
use of those facilities is a question of fact which we cannot resolve in this
opinion. If the use is incidental the tax exemption will probably be pre-
served under the guidelines set down in Hilltop Village.
If a full development of the facts does not indicate that the use of
the hospital facilities by the blood bank meets the incidental use test
under the guidelines set down in Hilltop Village , then it arguably can be
contended that the tax exemption will be secure if the blood bank operates
as an institution of purely public charity. All of this involves the resolu-
tion of fact questions which are not before us. Assuming, without deciding,
that the blood bank is a charity, it will be necessary to determine whether
use of property by more than one institution of purely public charity will
defeat a charitable tax exemption.
In City of Amarillo v, Amarillo Lodge No. 731, AF & AM, supra,
the court said:
ps 1596
The Honorable Alton R. Gritfin page 4 (H-342)
The exemption of an institution of purely public
charity as such is not authorized by the constitutional
provision in question, It is only property owned by
such an institution and used exclusively for purely
public charity that may qualify for the exemption.
Morris v. Lone Star Chapter No. 6. R.A. M., 68
Tex. 698, 5 S. W. 519. The institution must be one
of purely public charityiin the purposes for which it
is formed and in the means used to~accomplish such
purposes, and the property claimed to be exempt
must be owned and used exclusively by the institution
in furthering its charitable activities. Hilltop Village,
Inc. v. Kerrville Ind. Sch. Dist., Tex. Sup., 426 S. W.
2d 943. (488 S. W. 2d at 72) [Emphasis added]
Although this statement of the court lends itself to a broad interpreta-
tion, we believe that,its context and the case authority on which it is based
suggest a narrower meaning is appropriate. For example, Hilltop Village,
as noted above, indicated that incidental use of property for non-chaiitable
purposes would not destroy an otherwise valid charitable tax exemption.
We have found only one case in which the issue was raised as to
whether a charitable exemption is defeated merely because more than
one charitable institution used the property. The Court of Civil Appeals
held in City of Houston v. River Oaks Garden Club, 360 S. W. 2d 855
(Tex. Civ. App. --Houston 1962) that multiple use by various charities
was sufficient to di.sallow the exemption. The Supreme Court affirmed on
different grounds and specifically declined to reach the question of use by
multiple charities. River Oaks Garden Club v. Ci,ty of Houston, 370 S. W.
2d 851, 853 (Tex. 1963). However, Justice Norvell, joined by Justices
Greenhill, Griffin and Smith, dissented and said:
. . . the mere fact that a charitable use is
sometimes made of the property by some
organisation other than the owner, should not
affect the tax exemption classification of the
property so long as no,charge is made for
such,use. (370 S. W. 2d at p. 862.)
p* 1597
I
.
The Honorable Alton R. Griffin page 5 (H-342)
We note also that the Court of Civil Appeals opinion and other courts’
broad statement on exclusive use are based on decisions involving use by
non-charitable institutions. See, e.g., City of Houston v. Scottish Rite
Benevolent Association, 230 S. W. 978 (Tex. 1921) (used by “Masonic
organizations, whose activities included other fields than charity”); Morris
v. Lone Star Chapter No. 6, Royal Arch Masons, 5 S. W. 519 (Tex. 1887)
(two of the building’s three floors rented for profit), State v. Settegast,
254 S. W. 2d .9 2 5 (Tex. Comm. App. 1923) (property consisted of
rent houses, the revenues from which were used for charitable purposes);
B. P. 0. E. Lodge No. 151 v. City of Houston, 44 S. W. 2d 488 (Tex. Civ.
App. -- Beaumont 1931, error ref’d) (‘property used by profit-oriented
“restaurant keeper, barber, gymnasium operators, and electric bath
giver”).
The leading case in which an exemption was upheld is Santa Rosa
Infirmary v. City of San Antonio, 259 S. W. 926 (Tex. Comm. App. 1924)
where the court said:
The constitutional requirement is twofold: the
property must be owned by the organization claiming
the exemption; it must be exclusively used by the organ-
ization, as distinguished from a partial use by it, and
a partial use by others, whether the others pay rent or
not. (259 S. W. at 932).
The authority cited to support this statement, was City of Houston v.
Scottish Rite Benevolent Association, rupra, where the Court had said:
“The actual, direct use must be exclusive on the part of such an institu-
tion as is favored by the constitutional provision. ” (230 S. W. at 981). But
the Court was dealing with a use by two Masonic orders whose work was
only pa’rtly charitable.
When the Supreme Court discussed the Santa Rosa case by adopting
the Commission of Appeals opinion in City of Longview v. Markham-McRee
Memorial Hospital, 152 S. W. 2d 1112 (Tex. 1941) it stressed the landlord-
tenant relationship of the use that destroyed the exemption. In City of
p. 1598
The Honorable Alton R. Griffin page 6 (H-342)
Longview two doctors rented offices in a hospital building. The doctors
paid rent and contributed a substantial amount of their services to the
hospital’s charity cases. Additionally they also performed an essential
service to the hospital by serving as house physicians. Although the
fact that other doctors used the hospital facilities to treat private patients
did not endanger the tax exemption, the renting of offices in the hospital
did. The court avoided the dual use issue and said:
While it is true that the use of these offices results
in a necessary contribution to the operation of the
hospital, it seems to us quite obvious that the letting
and occupancy of same is dominantly a commercial
and private transaction. We therefore conclude that
the property in question is not exempt from taxes
under our Conatitution. (152 S. W. 2d at 1114)
Given the failure of the Supreme Court to decide definitively any
case on the ground property was,used by more than one charitable
institution and that the original statements of the court concerning
exclusive use have arisen in cases in which at least one user of the
property was not a charitable institution; we feel justified in predicting
that our Texas Supreme Court would, at least hold that if a normal
landlord-tenant relationship is not present, and no rent is charged, that
the use of a portion of a charitable hospital by a charitable blood bank
will not cause the hospital to lose its tax exempt status.
SUMMARY
A hospital operating as a purely public charity
will not lose the tax exempt status of its property
because it is used in part by a blood bank if such
additional use is incidental and if the blood bank
p. 1599
I
‘
The Honorable Alton R. Griffin page 7 (H-342)
is also a purely public charity and if a normal
landlord-tenant relationship in not involved
and no rent is charged.
Very truly yours,
Attorney General of Texas
DAVID M. KENDALL, Chairman
‘1
p. 1600