Attorney General Opinions
Tax questions address tax exemptions and board service
Texas Attorney General John Cornyn issues three opinions addressing property tax questions, with two opinions dealing with tax exemptions and one on the appraisal district board.
Hospital exemptionOn November 4, Cornyn issued Opinion No. JC-0571 addressing questions from The Honorable Patricia Gray, Chair of the Texas House Committee on Public Health. Chair Gray asked whether a building owned and operated by a municipal hospital authority, but leased in part to a private business, was subject to the exclusive public use requirement of Texas Constitution Article XI, Section 9.
Gray asked on behalf of the Tomball Hospital Authority (the"Authority"), a municipal hospital authority operating a regional hospital, with an Authority-owned and operated building, leased in part to a private business to operate a "long-term care hospital.”
The opinion concluded that the Authority's building must satisfy the exclusive public use requirement to qualify for tax exemption under Texas Constitution Article VIII, Section 2 and Tax Code Section 11.11(a). That requirement was not satisfied by the statutory tax-exemption language of the Authority's enabling statute, Health and Safety Code Section 262.004. To satisfy the exclusive public use requirement, the Authority must use the leased space exclusively "for the health, comfort, and welfare of the public" served by the Authority. The attorney general could not ultimately determine whether the proposed use of the leased space as a privately operated long-term care hospital satisfied the exclusive public use requirement because such a determination required investigation and resolution of fact questions. The opinion found that if the leased space was not used exclusively for public purposes, the Authority would be liable under the law for taxes assessed against the building.
Constitutional authority. The opinion reviewed the relevant constitutional authority for exemption. While Texas Constitution Article XI, Section 9, speaks specifically only of "property of counties, cities, public purposes," this provision authorizes the legislature to exempt only publicly owned property used for public purposes. Pursuant to this provision, the legislature enacted Tax Code Section 11.11(a), which provides in part that "[e]xcept as provided by Subsections (b) and (c) (2) of this section, property owned by this state or a political subdivision of this state is exempt from taxation if the property is used for public purposes."
Significantly, however, the attorney general found that the only appellate decisions considering claims for exemptions under Section 11.11 for leases of hospital authority-owned buildings had not made that distinction. Rather, the cases articulated a single standard derived from the language of Article XI, Section 9 and Texas Supreme Court decisions construing that provision -- to be tax exempt, property must be held only for public purposes and be devoted exclusively to the use and benefit of the public. The cases included Grand Prairie Hosp. Auth. v. Dallas County Appraisal Dist., 730 S.W.2d 849, 851 (Tex. App.-Dallas 1987, writ ref'd n.r.e.) and Grand Prairie Hosp. Auth. v. Tarrant Appraisal Dist., 707 S.W.2d 281, 284 (Tex. App.-Fort Worth 1986, writ ref'd n.r.e.).
Previous opinions. In Attorney General Opinion MW-430 in 1982, the attorney general concluded that an office building and parking lot to be constructed by a hospital authority and leased to doctors would not be tax exempt even though the lease revenues generated would be placed in the hospital authority's general funds or be used for the office building. The opinion considered whether the building was tax exempt under Article VIII, Section 2 and Article XI, Section 9. Relying on the test enunciated by the Texas Supreme Court in Satterlee — that property must be devoted exclusively to the use and benefit of the public to be tax exempt under Article XI, Section 9 — the opinion concluded that "by the [lease] arrangement here contemplated, the property would lose its tax exempt status because it is not used exclusively for the benefit of the public."
Thus, Attorney General Opinion MW-430 suggested that property must be used exclusively for the benefit of the public to be tax exempt under either Article VIII, Section 2 or Article XI, Section 9.
Background. The Tomball Hospital Authority operates its hospital as a "licensed general hospital," is constructing a new ten-floor, patient tower adjacent to its existing hospital building. It wishes to make "readily available for the convenience of its patients" long-term hospital care, but wants to avoid the appearance of "pay source conflict of interest."
The opinion noted that a long-term hospital cannot be operated as a general hospital; it must be operated as a "specialty" hospital. While it might be possible for the Authority to construct and obtain a separate license for the operation of a long-term care hospital, the Authority's dual ownership of a general hospital and a specialty hospital would pose an additional problem: "In the past, ownership of both facilities by a single entity has resulted in allegations by the Department of Justice that the owner was attempting to maximize its Medicare reimbursement."
The long-term care provider would operate the long-term care hospital as a "hospital-within-a-hospital" on two floors of the new building. The opinion stated that the "current tax-exempt status of the Authority's property is not in dispute."
Questions. The opinion stated that the Authority did not explicitly indicate under which state constitutional provision the Authority's property was exempt. The question suggested that Article XI, Section 9 did not apply to the Authority because it was not a county, city, or town; and that, therefore, the exclusive public use requirement did not apply to the Authority's property. The attorney general concluded that the Authority's property must satisfy the exclusive public use requirement, derived from the language of Article XI, Section 9, to qualify for tax exemption under Article VIII, Section 2 and Tax Code Section 11.11(a).
The opinion stated that Article VIII, Section 2 and Section 11.11(a) did not expressly require exclusive public use. It found that the Grand Prairie Hospital Authority v. Dallas County Appraisal District and Grand Prairie Hospital Authority v. Tarrant Appraisal District may not have applied the correct standard to determine whether an entity's property is entitled to a tax exemption under these provisions. However, those two long-standing authorities have not been overruled or questioned by a court. Based on these cases, Cornyn concluded that the Authority's property must satisfy the "exclusive public use" requirement to qualify for tax exemption under Article VIII, Section 2 and Section 11.11(a).
The Authority next asked whether, if it is subject to the exclusive public use requirement, the requirement was "deemed satisfied" by the automatic tax-exemption language of Section 262.004 of the Health and Safety Code or based on the use of the leased property for the public purpose of providing long-term health care. The opinion concluded that the exclusive public use requirement is not satisfied by the statutory tax-exemption language of Section 262.004.
Section 262.004 provides that: "The [hospital] authority's property is exempt from taxation because it is held for public purposes only and devoted exclusively to the use and benefit of the public." The opinion stated that it was unclear what purpose this provision serves. It noted that Section 262.004 was a nonsubstantive codification of former Article 4437e of the Revised Civil Statutes. The opinion noted that the validity of Section 262.004 is questionable. It said: “But, more importantly, publicly owned property is not, as a matter of law, used for public purposes merely because a statute so provides: whether a particular property is used for public purposes is a question of fact to be determined on a case-by-case basis.”
To satisfy the exclusive public use requirement, the opinion said that the leased premises must be used exclusively "for the health, comfort, and welfare of the public" served by the Authority's hospital. It stated:
“For tax-exemption purposes, the Texas Supreme Court has said that public property is used for public purposes if it is used primarily ‘for the health, comfort, and welfare of the public.’ A. & M. Consol. Indep. Sch. Dist., 184 S.W.2d at 916. ‘It is not essential that it be used for governmental purposes . . . . It is sufficient if it be property which all of the public has a right to use under proper regulations . . . .’ ... Furthermore, ‘[t]he fact that charges are made or compensation is received for its use does not withdraw it from its public character, provided such charges are an incident to its use by the public and the proceeds received for its use inure to the benefit of the political subdivision.’ ... If the Authority's leased premises will be used primarily ‘for the health, comfort, and welfare of the public’ served by the Authority's hospital, they will be used for public purposes. It follows that, to satisfy the exclusive public use requirement, the leased premises must be used exclusively ‘for the health, comfort, and welfare’ of that population.”
The opinion noted, according to prior attorney general opinions, that use of public property which produces income or profit for a private entity is not necessarily fatal to a claim for exemption. However, Attorney General Opinion DM-188 advises, "public property put to a private use will remain tax exempt where the private use can either be characterized as a public purpose or is in direct support of a public purpose of the political subdivision."
The Authority also asked whether the specific proposed use of the leased premises would satisfy the exclusive public use requirement. The opinion held that such a determination can only be made based on a consideration of particular facts. Since the attorney general’s office did not have all the information that a court or a trier of facts would need to make such a determination, the opinion could not determine the exclusive public use requirement with respect to the Authority's new building.
Finally, the Authority asked whether it retained any tax liability or risk losing the tax-exempt status of its new building or any other property when it leases space to a third-party, for-profit business enterprise and the use of the leased premises does not satisfy the exclusive public purpose requirement.
Given the generality of the question, Cornyn addressed only the application of Tax Code Section 25.07. The Authority suggested that if the use of the leased premises did not satisfy the exclusive public purpose requirement, the leasehold interest would be listed in the lessee's name pursuant to Section 25.07 and the lessee would be legally responsible for taxes imposed on the leased property, but otherwise the lease would not affect the tax-exempt status of the Authority's property. Cornyn disagreed and concluded that if the leased space was not used exclusively for public purposes, the Authority, as the owner of the property, would then be liable under the law for taxes assessed against the building.
The opinion held that the Section 25.07 exception to the general rule applies only when the leased property is used for the public purposes of its public owner. Section 25.07 by its terms applies only when the real property encumbered by the leasehold interest is "exempt from taxation to the owner of the estate." The owner must establish that the property after it is leased is tax exempt. If the leased floors in the Authority's building are not used exclusively for public purposes, Section 25.07 does not apply.
Summary. The opinion found that a building owned and operated by a hospital authority, but leased in part to a private business for operation as a "long-term care hospital," must satisfy the exclusive public use requirement to qualify for property tax exemption under Texas Constitution Article VIII, Section 2. To satisfy the exclusive public use requirement, the leased space must be used exclusively "for the health, comfort, and welfare of the public" served by the authority's hospital. Whether the proposed use of the leased space as a privately operated long-term care hospital satisfies the exclusive public use requirement necessitates investigation and resolution of facts. If the leased space is not used exclusively for public purposes, the authority would be liable under the law for taxes against the building.
Community housing exemption
Opinion No. JC-0576 on November 19 answered questions from Senator Frank Madla, State Intergovernmental Relations Committee Chair. Senator Madla asked whether a particular community housing development organization was entitled to a property tax exemption under Tax Code Section 11.182. The organization was 100 percent owner of the general partner in a limited partnership that owned improved real estate for the direct purpose of renting low income housing units within the county.
To qualify for an exemption from taxation of its real property under Section 11.182, an organization must first satisfy the requirements of Texas Constitution Article VIII, Section 2(a). Then it must satisfy all the requirements of Section 11.182. The organization must qualify as a community housing development organization under Section 11.182 (b), control 100 percent of the interest in the general partner if the project is owned by a limited partnership, and must satisfy the other requirements of Section 11.182 that apply to the organization and its property.
The attorney general held that he could not and did not determine whether the organization was in fact entitled to an exemption from taxation of real property under Article VIII, Section 2(a) and Section 11.182. He said that the chief appraiser for the appraisal district in which the particular organization's property is located was authorized to determine in the first instance whether the property was tax exempt. He noted that the burden was on the organization seeking an exemption to show that it was entitled to the exemption.
The opinion noted that the attorney general was not provided with any information regarding the particular organization or property at issue other than that the organization was a qualified community housing development corporation and "is 100% owner of the general partner in a limited partnership that owns [the] improved real estate [.]" Rhe opinion noted that as "100% owner of the general partner in a limited partnership that owns [the] improved real estate," whether the particular organization seeking the tax exemption was the exclusive user and owner of the property as required by Article VIII, Section 2(a).
Summary. The opinion held that to qualify for an exemption from taxation of its real property under Tax Code Section 11.182, a particular community housing development organization must first satisfy the requirements of Texas Constitution Article VIII, Section 2(a). Then it must satisfy all the requirements of Tax Code Section 11.182. Whether a particular organization is entitled to an exemption is a question of fact that cannot be determined in an attorney general opinion. The chief appraiser for the appraisal district in which the particular organization's property is located is authorized to determine in the first instance whether the property is exempt. The burden is on the organization seeking an exemption to show that it is entitled to the exemption.
CAD board
On November 20, the Attorney General issued Opinion No. JC-0580 to respond to questions from Midland County Attorney Russell W. Malm. Malm asked three questions relating to the authority of a nonvoting member of an appraisal district board.
For Tax Code Sections 6.03 and 6.04, the opinion concluded that a nonvoting director should be counted in determining whether a quorum exists for a meeting of the board. If an appraisal district board consists of six members, the number of directors necessary to constitute a quorum is four. Further, the opinion found that a tax assessor-collector who serves as a nonvoting member is eligible to serve as a board officer. Finally, it said that an appraisal district board may itself determine whether a nonvoting member has the authority to make or second motions.
The Midland County Tax Assessor-Collector was not appointed to the Midland Central Appraisal District Board (the "Board"). Consequently, under the terms of Tax Code Section 6.03(a), the Midland County Tax Assessor-Collector serves as a nonvoting director.
The opinion said that it follows from the "plain and common meaning" of the statutory language that the assessor-collector is a member of the board for purposes of determining the presence of a quorum.
In so ruling, the opinion addressed a prior opinion that would appear to require a contrary result. Attorney General Opinion DM-160 (1992) considered a request from the Board of Licensure for Nursing Home Administrators as to whether three ex officio, nonvoting members should be counted in determining the presence of a quorum. That opinion concluded that "the ex officio, nonvoting members on the board should not be counted in determining whether a quorum is present." The principal authority cited for that opinion was a 1957 middle-level appellate case from Tennessee, which relied solely on a quotation from a legal encyclopedia.
This newer opinion stated a later and better reasoned case to support the contrary view. A New Mexico statute provided for a "county valuation protests board" to be created in every county. Each board consisted of three appointed voting members and three county commissioners as ex officio nonvoting members. The particular board at issue in the New Mexico case argued that only the voting members could be counted in determining the presence of a quorum. The court disagreed and held that had the legislature intended that the non-voting members of the board be considered as mere supernumeraries, they would have so stated. Or, had the legislature intended that the presence of two of the voting members would constitute a quorum, they would have so specified. Absent any such statutory provisions the common-law rule applies, i.e., a majority of all of the members of a board or commission shall constitute a quorum. The opinion stated that although there was admittedly little in the jurisprudence of other jurisdictions for guidance, the attorney general believed that this case reliably states the common law rule — that a nonvoting member of a board or commission should be counted in determining the presence of a quorum. As a result, this opinion overruled any statement to the contrary in Attorney General Opinion DM-160 (1992).
On the question of serving as an appraisal district officer, the opinion noted that Section 6.03(a) clearly states that an assessor-collector who is not appointed to the board of an appraisal district "serves as a nonvoting director." As a "member" of the Board, the assessor-collector is eligible, under the terms of Section 6.04(a), to serve as the Board's chairman or secretary.
For the question on making and seconding motions, the opinion found that whether an assessor-collector may do so is an internal matter of an appraisal board. The Board may opt to allow or disallow the assessor-collector's authority to make and second motions. It stated:
Although there appears to be no relevant law on this matter, we may infer an answer from several sources. In the first place, section 6.04(b) of the Tax Code states that "[t]he board may meet at any time at the call of the chairman or as provided by board rule." This clause implies that a board is authorized to adopt rules governing its own internal procedures. In Attorney General Opinion DM-228 (1993), this office considered whether a commissioners court was permitted to use Robert's Rules of Order for the purpose of governing discussion in its meetings, and whether a treatise might be used to regulate the conduct of meetings. The opinion concluded that "[i]f the commissioners court wishes its meetings to be conducted according to Robert's Rules of Order or of those provisions of a treatise that are consistent with law, and to require compliance with those provisions from all members of the court, the court must formally vote to adopt the provisions." .... An appraisal district board, like a commissioners court, is a creature of statute, and, as such, may adopt only those rules that are consistent with statutory law. .... Nevertheless, as in Attorney General Opinion DM-228, we see no impediment to an appraisal district board adopting a rule to determine whether its nonvoting member is entitled to make and second motions. .... We conclude therefore that, although a nonvoting director of an appraisal district board is not entitled by statute to make and second motions, neither is he statutorily prohibited from doing so. An appraisal board may determine by rule whether to permit that member to make and second motions.
Summary. The opinion held that under the provisions of Tax Code Sections 6.03(a) and 6.04(a), an assessor-collector who is a nonvoting member of an appraisal district board is counted in determining the presence of a quorum. Such individual may in turn serve as chairman or secretary of the board. An appraisal district board may determine by rule whether to permit the assessor-collector to make and second motions. Attorney General Opinion DM-160 (1992) is overruled to the extent that it conflicts with this conclusion.
