1‘
Tsm A!ETVNRNEY GIECMEIRAL
OF TE:XAS
AUSTIN. TESXAS 78711
The Honorable Ted Butler Opinion No. H- 315
Criminal District Attorney
San Antonio, Texas 78204 Re: The constitutionality of
Article 7150, $ 28, V. T. C. S.,
providing a tax exemption for
certain organizations which
hold land for donation to medi-
cal uses
Dear Mr. Butler:
You have asked our opinion on two questions which are:
“(1) IS Section 28 of Article 7150 of the Revised Civil
Statutes of Texas as enacted and added by the 63rd
Legislature, constitutional?
“(2) Assuming that the answer to question (1) above is
Yes, then under the facts presented, will the San
Gnio Medical Foundation qualify as Tax Exempt
pursuant to Article 7150, Section 28, of the Revised
Civil Statutes of Texas? ”
The 63rd Legislature added two sections 28 to Article 7150, V. T. C. S.
For the purpose of this opinion we are interested in the one which provides:
“The following property shall be exempt from taxation,
to-wit:
‘Sec. 28. Nonprofit corporations hdding property for
medical center development. --All rea1 and personal pro-
perty owned by a nonprofit corporation, as defined in the
p. 1456
The Honorable Ted,Butler page 2 (H-315)
Texas Nonprofit Corporation Act, and held for use
in the development of a med,ical center area or areas
in which the nonprofit corporation has donated land
for a state medical, dental, or nursing school, or for
other hospital, medical, and educational uses and uses
reasonably related thereto, during the time remaining
property is held for the development to completion of
such medical center and not leased or otherwise used
with a view to profit, shall be exempt from all ad valorem
taxation as though such property were, &ring such time,
owned and held by the State of Texas for such health and
educational purposes. ”
Article 7150 was enacted under the authority of and is limited by Article
8. § 5 1 and 2 of the Texas Constitution which provide in part:
“Section 1. Taxation shall be equal and uniform.
All property in this State, whether owned by natural
persons’or corporations, other than municipal, shall
be taxed in proportion to its value, which ehall be
ascertained as may be provided by law. . , ,
“Section 2. All occupation, taxes shall be equal and
uniform upon the same class of subjects within the limits
of the authority levying the tax; but the legislature may,
by general laws, exempt from taxation. . . institutions
of purely public charity; and all laws exempting property
from taxation other than the property above mentioned shall
be null and void. ”
According to the information you supplied us the San Antonio Medical
Foundation acquireslarge areas of land and donates it to various hospitals
and other medical institutions. Perhaps the largest beneficiary of the
foundation’s largess is the University of Texas which is operating or is
constructing a medical school, a dental school andanursing school on land
donated by the foundation and is affiliated with at least two teaching hospitals
located on land furnished by the foundation.
p. 1457
The Honorable Ted Butler page 3 (H-315)
The traditional test used to determine if an institution is one of
purely public charity within the meaning of our constitutional exemption
is whether first, it makes no gain or profit; second it accomplishes ends
wholly benevolent; and third, it benefits “persons, indefinite in numbers
and personalities, by preventing them, through absolute gratuity, from
becoming burdens to society and to the state. ” City of Amarillo v.
Amarillo Lodge No. 731, A. F. & A.M., 488 S. W. 2d 69 (Tex. 1972);
City of Houston v. Scottish Rite Benevolent Association, 230 S. W. 978
(Tex. 1921). See also San Antonio Conservation Society, Inc. v. City of
San Antonio, 455 S. W. 2d 743 (Tex. 1970) where it was held that the
preservation of an historic house qualified as a charitable activity entitled
to a tax exemption since the definition of charity cannot be limited to
almsgiving. Therefore the third requirement of the test is met if an activity
affects the people of the community by assuming to a material extent that
which might otherwise become the duty or obligation of the community.
San Antonio Conservation Society, supra, at 746. Once an institution has
met the test, then its property can constitutionally be exempted from taxa-
tion so long as that property is itself used exclusively for charitable purpo-
ses. City of Amarillo, supra.
It is a cardinal rule of statutory construction that an act will be
construed so as to sustain its constitutionality. McKinney v. Blanken-
ship, 282 S. W. 2d 691 (Tex. 1955). Therefore, we believe section 28
should be interpreted as intended to exempt only those institutions who~se
activities meet the three part test employed in City of Houston v. Scottish.
Rite, supra, City of Amarillo v. Amarillo Lodge, supra. Any broader
interpretation would result in a finding that the exemption falls outside the
definition of “purely public charity” and thus is constitutionally invalid.
In addition to passing “public charity” muster, a public charity’s
property, to be exempted, must be used exclusively for charitable purpo-
ses. The use permitted in 5 28 and here.urder consideration is not a use
encompassed in the normal concept of that word but consists of being
“held for use” for future donation for purely charitable purposes.
It is suggested that, in this instance, the act of the medical foundation
in donating the land to an appropriate medical organization is the foundation’s
p. 1458
. . -
The Honorable Ted Butler page 4 (H-315)
“use”of the land for charitable purposes. If we take this view of the matter,
support for the exemption is found in the decision of the Supreme Court oft
Texas, written by Justice Smedley, in Hedgecroft v. City of Houston, 244
S. W. 2d 632 (Tex. 1951). Hedgecroft was a corporation organized to operate
a hospital for the treatment of poliomyelitis and similar diseases and recog-
nized as an institution of public charity. Hedgecroft had been denied a tax
exemption for the period of time during which its property was being remodel-
ed preparatory to the property’s conversion to a hospital. The Supreme Court
reversed and held that Hedgecroft was entitled to an exemption since the
remodeling of the premises was appropriate and necessary to its operation
for charitable purposes. By way of limitation, however, the Court ind,icated
that intentions, plans and hopes alone are insufficient to confer the exemption.
So long, then, as $ 28 is limited to institutions meeting the three part
definition of a public ,&rity we believe that holding property prior to actual
donation for a medical, dental or nursing school or for other hospital,
medical and educational uses can be considered appropriate and necessary
to its use for purely public charitable purposes.
We believe that the Hedgecroft exception however must be applied
narrowly and that each case where the Hedgecroft exception is involved must
be examined on its own facts. Here the foundation has the heavy burden of
demonstrating that its holding of the property is necessary as well as
appropriate to its ultimate use. The ultimate use for purely charitable
purposes must be certain and not based merely on intentions and plans.
Evidence that the premises are being r.eadled for such use should be shown.
We are unable to answer your second question squarely since, even
if we assume, as we have, the accuracy of all the facts you have provided,
we do not have sufficient information to determine if the foundation’s
property is entitled to an exemption under the Hedgecroft exception. For
example, we have not been informed of the length of time property is held
prior to donation and the reason for which it is held rather than being
immediately donated. Therefore, we are unable to determine whether
the foundation’s holding of the property is appropriate and necessary to
its ultimate purely public charitable use.
p. 1459
. . . -
The Honorable Ted Butler page 5 (H-315)
SUMMARY
Article 7150, $ 28, V. T. C. S., as interpreted
and limited (relating to land held for donation to
medical organizations) is constitutional. Whether
a particular foundation’s property qualifies for a
tax exemption depends upon the facts which must
be such as to bring the foundation’s holding for
uses within the guidelines laid down in Hedgecroft
v. City of Houston.
Very truly yours,
Attorney General of Texas
Opinion Committee
I
p. 1460