The Attorney General of Texas
November 4, 1977
JOHN L. HILL
Attorney General
Honorable Charles R. Holcomb Opinion No. H-1085
County Attorney
Cherokee County Courthouse Re: Whether a foundation
Rusk, Texas which owns a clinic and
leases it to a physicians'
association is exempt from
ad valorem taxes.
Dear Mr. Holcomb:
You have requested our opinion concerning tbe exemption
from ad valorem taxation of the property of the Travis Clinic
Foundation. You have informed us that the Foundation is a
nonprofit corporation which owns the Travis Clinic. The Foun-
dation leases the Clinic to the Travis Clinic Association:
the Association pays rentals sufficient to pay the indebted-
ness of the Foundation as well as any revenues remaining
after payment of operating expenses. The doctors see no
private patients: their salaries are set by the Association
subject to the approval of the Foundation.
Sections 7 and 28 of article 7150, V.T.C.S., provide for
exemption of property of purely public charities. In order to
qualify for an exemption, property must satisfy both the re-
quirements of the statute and the more restrictive reauire-
ments of article 8, section 2 of the Texas Constitution.
City of McAllen v. Evangelical Lutheran Good Samaritan Society,
530 S.W.Zd 806 (Tex. 1975); City of Houston v. Scottish Rite
Benevolent Association, 230 S.W. 978 (Tex. 1921).
The threshold requirement for an exemption is that the
property must be owned by a "purely public charity," an or-'
ganization which satisfies the following criteria:
First, it [makes] no gain or profit,
second, it [accomplishes] ends wholly
benevolent; and, third, it [benefits]
persons, indefinite in numbers and in
personalities, by preventing them,
through absolute gratuity, from be-
coming burdens to society and to the
state.
p, 4457
Honorable Charles R. Holcomb -~Page 2 (H-1085)
City of McAllen v. Evangelical Lutheran Good Samaritan Society,
supra,,at,808-09. Whether an organization satisfies these
criteria is a question of fact. City of McAllen, supra;
Malone-Hogan Hospital Clinic Foundation v. City of Big Spring,
288 S.W.Zd 550 (Tex. Civ. App. -- Eastland 1956, writ ref'd
n.r.e.1. One of the relevant facts is the organization's actual
practice regarding the admission of charity patients. While we
have been furnished with a declaration of policy of the Founda-
tion and Association which would indicate that patients are
accepted without regard to their ability to pay, a mere declara-
tion will not suffice; the question is whether the admission
policy is in fact so administered. City of McAllen, supra;,
Hilltop Village, Inc. v. Kerrville Independent School District,
487 S.W.Zd 167 (Tex. Civ. App. -- San Antonio 1972, writ ref'd
n.r.e.1; see River Oaks Garden Club v. City of Houston, 370 S.W.2d
851 (Tex.1963). In order to reach the legal issue raised by
the facts presented, we will assume that the Clinic admits
patients regardless of their ability to pay and that the Founda-
tion qualifies as a purely public charity.
The most serious question concerning the availability of
the exemption arises from the lease of the property to the
Association. Some courts have apparently believed that the use
of property by anyone other than the charitable owner would
prevent an exemption. See Attorney General Opinion H-342 (1974).
In Attorney General Opinion H-342 (1974) we predicted
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.
Id. at 6.
- Subsequently, the Supreme Court stated:
It has often been held that a charitable
institution is entitled to exemption of
only that property which is used by the
institution exclusively for purely public
charity. By this it is meant that if the
institution rents the premises to someone
who does not qualify for the charitable
exemption, though the revenue is used en-
tirely bv the institution in its work of
pure charity, the premises are not exempt
from taxation. Morris v. Masons, 68 Tex.
p. 4458
Honorable Charles R. Holcomb - Page 3 (E&1085)
698, 703, 5 S.W. 519 (1887). Further, the
owner may not permit its property to be
used by organizations which exist for
purposes which are not charitable. City
of Houston v. Scottish Rite Benevolent
Association, supra. It does not follow
that every use of the property must be
gratuitous. There may be hospital patients,
for example, who fully compensate the in-
stitution for all services received, but
the character of the institution and the
charitable nature of the use of the prop-
erty is not nullified. Santa Rosa Infirmary
v. City of San Antonio, 259 S.W. 926 (Tex.
Comm'n App. 1924 jdgmt adopted).
City of McAllen, s at 810 (Emphasis added). The clear
implication of the underlined portion is that a charitable
organization may "rent" the exempt property to "someone who
does . . . qualify for the charitable exemption." In our view
this authorization constitutes a rational exception to the
doctrine expressed in the older cases that the creation of a
landlord-tenant relationship would void an exemption. Of
course we are aware that the relationship of the Foundation
and the Clinic is not merely that of landlord-tenant, but in
any event the issue is whether the Travis Clinic Association
would qualify for the exemption, that is, whether the Associa-
tion is a purely public charity.
As noted above, this is a question of fact. For the
Association to constitute a purely public charity, its operations
must give rise to no personal profit or private benefit. '
",&M;;i:en, supra; City of Longview v. Markham-McRee Memors
P 152 S.W.2d 1112 (Tex. 1941); Malone-Hogan Hospital
Clinic Foundation, su ra. Raym ondville Memorial Hospital v.
State, 253 S.W.2d 1012
+‘ Tex. Civ. App. -- San Antonio 1952, writ
ref'd n.r.e.1. You have informed us that all revenues of the
Association remaining after the payment of operating expenses
are transferred to the Foundation: therefore, the Association
itself does not show a profit. However, the cases indicate that
an exemption may be lost due to private gain on the part of
individual doctors. In this regard you have informed us that
the doctors who work at the clinic have no private patients and
are compensated only by salary from the Association, which salary
is not dependent upon the number of patients treated. Thus,
the operation of the Travis Clinic is apparently distinguishable
from that of the hospitals in City of Longview and Raymondville
Memorial Hospital where the exemptions were denied because the
staff doctors obtained a private benefit throuah the admission
of private paying patients.
P. 4459
Honorable Charles R. Holcomb - Page 4 (H-1085)
In Malone-Hogan Hospital Clinic Foundation v. City of Big
Spring, supra, an exemption was denied because
the amount of salary paid to doctors
depend[ed] on the income of the hospi-
tal. . . . An applicable rule is stated
in Volume 2, Restatement of the Law of
Trusts, page 1167, Section 376, as
follows:
'The mere fact that persons who
are not objects of charity inciden-
tally benefit from the maintenance
of a charitable institution does not
prevent the institution from being
charitable although salaries are paid
to its managers, officers and em-
ployees. If, however, the fixing of
a salary is merely a device for
securing the profits of the institu-
tion and not merely compensation for
services rendered, the institution
is not a charitable institution.'
Cleveland Osteopathic Hospital v.
Zangerle, 153 Ohio St. 222, 91 N.E.2d
261, 264.
Id. at 553. Of course the nature of the salaries of the doctors
(members of the Travis Clinic Association) on the Clinic Staff iS
a question of fact which we cannot resolve.
If the facts establish that the Travis Clinic Foundation
and the Travis Clinic Association operate as purely public char-
ities, then the property would be exempt from taxation notwith-
standing its lease from the Foundation to the Association. We
do not determine whether the Association and Foundation are in
fact purely public charities.
SUMMARY
If the Travis Clinic Foundation and the
Travis Clinic Association operate as
purely public charities, a question we
cannot here determine, then property
belonging to the Foundation which is SO
operated would be exempt from taxation
notwithstanding the lease of such prop-
erty to the Association.
p. 4460
Bonorable Charles R. Iioleomb - Page:5 (H-1085)
Texas
APPROVED:
DAVID M. KENDALL, First Ass!ktant
C. ROBERT HEATH, Chairman
Opinion Committee
jst
p. 4461
Untitled Texas Attorney General Opinion
Combined Opinion