Untitled Texas Attorney General Opinion

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