Untitled Texas Attorney General Opinion ( 1952 )

-. .-.. ._
Hon. William Schneider, Jr. opinion No. V-1399
county Attorney
Gillespie County Re: Taxability of
Fredericksburg, I-Texas leasehold es-
-, tate of tenant
~. of an independ-
‘-~-ent school dis-
Dear Sir: tri.ct .
You have requested the opinion of this
office as to the taxability of the leasehold es-
tate -of a tenant of the Fredericksburg Independent
-------+hool-District., ~The certified copy of the lease
“contract which you enclosed with your’request shows
that the lease is for a primary term of fifty years.
Article 7173, V.C.S., provides:
“Property held under a lease for a
term of ‘three years or more, or held un-
der a contract for the purchase thereof,
belonging to this State, or that is ex-
empt by law from taxation in the hands
of the owner thereof, shall be considered
-for all the purposes of taxation, as the
-, ,_- ------property of the person so holding the
same except as otherwise specially pro-
vide d by law. . . .e
Your specific question is stated as follows:
“In construing Article 7173, is the '\
estate of the tenantacquired under the
lease contract with Fredericksburg Inde: ‘,
pendent School District subject to rendl-
tion and taxation as a leasehold estate?”
While the Legislature could subject lease-
hold Interests in nonexempt property to taxation if It
so chose, under the present scheme of taxation in force
in this State the owner of the freehold of nonexempt
property is liable for taxes on the entire value of the
I
86 Hone William Schneider, Jr., page 2 (v-1399)
property, even though it is under lease.’
T D q 71 Tex. 192 9 S.W. 99 (1888)
r”~x.h$~096 Taxation iec:66
leasehold inEerest in the propeity in question to
be taxable, it must come within the provisions of Ar-
title 7173. If this property is “exemp~t by law from
taxation in the hands of the owner’ thereofe and if
the Legislature has the power to tax a leasehold in-
terest in the property it would follow that the es-
tate of the tenant wouI d be taxable. It may be
noted that the courts construe Article 7173 as author-
izing the assessment of the property against the les-
see not%t the value of the freehold but only at the
-value of the leasehold’ estate. Dauphertv v. Thomuson,
sunra.
The property involved is a block of land
located In the town of Fredericksburg. Originally
designated and dedicated by the German Immigration
.Company as public property for educational purposes,
.this property has been under the control of the ~Fred-
ericksburg Independent School District since its in-
corporation in 1885. The school di.strictls title to
the property was confirmed by a district court judg-
.ment rendered in 1920.
The lease contract shows that the RederL&s-
burg Independent School District has leased the land
to an individual for a primary term of fifty years,
iktyles~see agreeing to erect a building on the prop-
. The lessee is to pay a stipulased monthly
rental for a period of fifty years. hereafter, the
rental is to be determined by a rental committee ap-
pointed in a manner set out in ~the contract, the ten-
ant having the privilege of surrendering the lease
if the rental is not satisfactory to him. You state
in your letter that the lessee has erected an office
building on the premises.
It is evident that the school district is
now using the property In question to produce revenue.
The facts which have been submitted to us .suggest
that the school board has abandoned any plans which
may have been formulated in the past to use the prop-
erty as a school site; however, the present intention
of the board in this regard presents a fact question
w hi c h. this office does not have the authority to
decide. 1us0, we are not here passing on the liability
Hon. William Schneider, Jr., page 3 (V-1399)
8%‘~’
of the lessee for taxes on the improvements which
he has placed on the land, since that question
likewise depends upon the intention and agreement
of the parties respecting title to the improve-
ments. Edwards v. Thannisch, 254 S.W. 523 (Tex. ~.
CIV.’ A p,. 1923); Ropers V. Fort Worth Poultrv % gg
@. , 1i 5 S.W.2d 165 (Tex. Civ. App. 1945). If t?tle
to the building has presently vested’in the school
district, the building would be taxable in the same
way as the land. On the other hand, if it remains
the property of the lessee during the existence of
Fk,“,i;;se,, he’would be liable ‘as owner for taxes
.
Independent school districts are empowered
b y s t atute to receive conveyances of property
“for the benefit of the public schools,” and their
power of ownership Is not limited to property ac-
tually used as school sites. Art. 2756, V.C.S.;
Adams v. Miles, 35 S.W.2d 123 (Tex. Comm. App. 1931);
Hushes v. Gladewater County Line Indenendent School
&g&., 124 Tex. 190, 76 S.W.2d 471 (1934). Cf. Art.
2773a, V.C.S. It is clear, therefore, that the own-
ership and use of this property by the school dis-
trict for a purpose other than as a school e..t;$;
authorized by the statutes of this State.
opinion we shall assume that the revenue derived”
from property belonging to a school district becomes
a part of the local funds of the district and must
be used for school purposes in accordance with the
provisions of Article 2827 V.C.S. In any event,
you have informed us that the rent from this property
Is being deposited to the local funds of the district
and is being expended under the provisions of Article
- 28.27.
The Constitution of Texas contains two pro-
visions relating to the exemption of public property
from taxation. Section 9 of Article XI provides: _
“The property of counties, cities
and towns, owned and held only for pub-
lic purposes,, such as public uildings
and the sites therefor. WQ Fire en-
gines and the furniture thereof, and all
property used, or intended for extin-
guishing fires, public grounds and all
other property devoted exclusively to
‘88 Bon. William Schneider, Jr., page 4 (V-1399) ,
the use and benefit of the public
shall be exempt from forced sale and
from taxation, provided, nothing
herein shall prevent the enforcement
of the vendors lien, the mechanics
or'builders lien, or other liens now
stisting."
,This provision of the Constitution is self-
executing and accords an absolute exemption to prop-
erty coming within its terms. A. & M. Consolidateq
v. Citv of Brvan 143 Tex.
In m
& Trust co., 144 Tex. 326,
190 S.W.2d 48 (1945), it was held that the Lower
Colorado River Authority was a governmental agency
serving a public purpose and that its property was
exemut from taxation under Section 9 of Article XI.
On the authority of that case and State v. City of
San Antonio, 147 Tex. 1, 209 S.W.2d 756 (1948) this
.-office held in Att*y Gen. Op. v-1308 (195l)th&llthe
exemption accorded ~by this constitutional~provision
extends to the property of any governmental agency
which is devoted exclusively to the public use" and
that the property of an independent school district
.~..nsed as a public school site was thereby exempt from
all forms of taxation, including spe,cial assessments
for improvements.
In pauffhertv v. Thompson, m, the Supreme
Court held that the Legislature does not have the power
to impose a tax upon a leasehold estate in property
which is exempt under this constitutional provision,
whether imposed on the owner or the lessee. This deci-
--“sion has been followed in Davis v. Rurnett, 77 Tex. 3,
13 S.W. 61 (X390), and & Cattl C
v. hoard, a0 Tex. 489, It n”,ceZI
sarilp follows that if Article XI, Section 9 exempts
the property in question from taxation in the hands of
the school district, the leasehold estate likewise is
exempt. paushertu v. Thomnsog involved county school
lands alloted to co ties under Article VII, Section 6
of the Constitution. 'lp Whilettze &&sin thepresentinquiry
JJ Under a constitutional amendment adopted in 1926,
agricultural and grazing lands which counties own as
school lands are now taxable, except for State purposes
to the same extent as lands privately owned. Tex. Cons c .,
Art. VII, Sec. 6a.
Hon. William Schneider, Jr., page 5 (V-1399).
may appear at first blush to be analogous to those
in the pauehertv case, we have reached the conclu-
sion that the character of county school lands
held under grant from the State .is different from
that of lands held by an independent school dis-
trict for the production of revenue., In that case
the court observed that even in the absence of the
provision in Article XI, Section 9, "looking to the
policy which this state has steadily pursued in
granting lands to counties for educational purposes,
it could not veil be he1 that the legislature in-
tended by Article 4691 2R.S. 1879, now Art. 7173,
R.C.S. 1929 to impose a tax on school lands owned
by counties even when leased; for taxes levied on
such lands, while owned by counties, whether imposed
on the counties or their lessee would but diminish
'the rental value of such lands, which it is not rea-
sonable to suppose was intended when the sole purpose
for which such liberal donations were made was to
furnish the counties with a school fund."
While independent school districts are em-
powered to o+.n land for the purpose of producing in-
come, this method of raising revenue is extraneous to
the established means of support of their schools.
.Independent school districts in the main derive their
support from the State Available School Fund ar.4 sth-
er appropriations of State moneys, from the County
Available School Fund (income from the permanent fund
created under Article VII, Section 6 of the Conctitu--/
tion), and from local taxatioil. It is only in iso-
lated and sporadic instances that school districts de-
rive even a small part of their revenue from income
on property which they own. The considerations of pol-
icy in the exemption of county school lands do not
support a similar exemption for income-producing pro,--
erty of independent school districts. We conclude
that Daunhertv v. Thomcson is not compelling authority
for holding that the property in question is exempt
from taxation. Consequently, we must make an independ-
ent determination of whether this property is lldevoted
exclusively to the use and benefit of the public.1t
The second constitutional provision relating
to exemption of public property is Section 2 of Article /
VIII, Constitution of Texas, which provides, in part:
'1. * . the legislature may, by general
law's, exempt from taxation public property
--
Iion. IEl.liam Schneid~er, Jr., page ,6 0I-139)
used for public pnrpose~s; actual plac.es
or ,@ religious worship, also any prop-
erty owned by a church or'by a strictly
religious society for ~th.sexclusive 'use
as a dwelling'place for th~e ministry of
such church or religious soc~iety, Andy
which yields no 'revenue whatever to such
church or religious society; provided
that such exemption shall not extend to
more property than is reasonably neces-
sary for a dwelling place and .in no event
more thau one acre of laud; places of
burial not held for private or corporate
profit; all buildings~used exclusively
and owned by persons or associations of
persons for school purposes and the neces-
sary furniture of all schools and property
used exclusively and reasonably necessary
In conducting any association engaged in
promoting the religious, educational and
-_--~_~-physical development of-~boys, girls,-young
men or young women operating under a State
or National organization of like character;
also the endowment funds of such institn-
.tions of learning and religion not nsea
.w~ith a view to profit; and when the same
are invested in bonds or mortgages, or ?.n
land or other property which has be-en artd
shall hereafter be bought in by such in-
stitutions under foreclosure sales made to
satisfy or protect such bonds or mortgages,
that such exemption of such land and prop-
erty shall continue only for two years af-
~.,~,-__~-.t.er~thepurchase of the same at such sale
by such institutions and no longer, and
institutions of purely public Charity; and
all laws exempting property from taxation
other than the property above mentioned
shall be null and void."
Thissection of the Constitution does not
Itself exempt any property from taxation, but author-
zL;L; the Legislature to exempt certain types of prop-
Acting under this authorization, the Legisla-
ture-enacted Article 7150, V.C.S., which contains the
.
Bon. William Schneider, Jr., page 7 (V-1399)
following provision:2
"The following property shall be
exempt from taxation, .to-Wit: . . .
"4. All property, whether real
or personal, belonging exclusively to
-. this State, or any political subdivi- .
sion thereof, or the United States,
. . . I,
Article 7150 provides for an exemption of
'I&, property belonging exclusively to this State,
'-"or any political subdivision thereof." An independ-
ent school district is a political subdivision of
the State. Kins~s Estate v. School Trustees of Wil-
lacv Count :333 S.W.2a 783 (Tex. civ. App. 1930
error ref. If the exemption in subdivision 2, of
Article 7150 could be given effect according to its
terms, the property in question would be exempt from
-'?e&ation inthe handsof~-the owner. However, the
property exempt under Section 9 of Article XI is prop- :
erty of counties, cities and towns owned and held
snf-v for oublic ourooses and other property devoted
x lusi Iv to the u na benefit of the oubliq and
"-Ehz proikty which tg ~tegislature may exempt under
Se;tiF 2 of Article VIII.is public property B ed fez
pu 1 uuroos es. Although the attempted exemption in
2J Article 7150 also contains a provision relat-
ing to,exemption of property used for school purposes.
Assuming that this provision includes property of an
~:~--------~--independent school district, the property in question
clearly does not satisfy the conditions for exemption
set .out in then Constitution and Article 7150.
2/ While school districts are in a sense State agen-
cies in that they are created for the purpose of carry-
ing out a function of the State government, their status
in relation to the State government is expressed in the
following language from Hatcher v. State, 125 Tex. 84,
81 S.W.2d 499, 500 (1935): llSchool districts, whether
independent districts or common school districts, are
not primarily agencies of the state, but they are local
public cor;oorations of the same general character as
munlci al -``oorations."
Ghis opinion is not to be understood as passing on
the &ability of property owned by the State ItasU
which is not used for a public purpose.
.
Hon. William Schnsider, Jr., page 8 (V-1399)
92
Article 7150 is broader than authorized, the provi-
sion is operative to the extent of the Legislature’s
power, that is, to exempt such property when used
for public pur oses. City of Abilene State 113
S.W.2d 631, 63% (Tex. Civ. App. 1937, &?or di&u.).
The authority to exempt property under ‘Sec-
tion 2 of Article VIII is to be exercised by the Leg-
islature, and the Legislature has the power, within
constitutional restrictions, to prescribe the condi-
tions upon which an exemption is accorded. Since the
Legislature could either grant or withhold the exemp-
tion imthe first place, it might also provide that
the-.exemption would not extend to property which~ an
exempt owner has leased to another person. It follows
that if property is exempt from taxation under Article
7150, V.C.S., solely by virtue of the authorization in
Article VIII, Section 2 of the Constitution, the lease-
hold is properly taxable under Article 7173.
These two constitutional provisions, as well
as the decisions construing them, make it clear that
there are some types of publicly owned property which
are not and cannot be exempt from taxation.
We therefore have three possible situations
in respect to the property under consideration: (1)
if it is exempt by virtue of Article XI, Section 9 of
&/ Article VIII, Section 1, Constitution of Texas,
rovides that “all property in this State, whether owned
t y natural.. persons or corporations, other than muni-
ciphi, shall be taxed in proportion to its va1ue.l’ In
Daugherty vD Thomusou, m, the court stated that
Section 1 of Article VIII l’does not require property
belonging to municipal corporations to be taxed.” How-
ever, Section 2 of.Article VIII, after setting out the
types of property which may be exempt, provides that
“all laws exempting property from taxation other than
the property above mentioned shall be null and void.”
It would appear that only such property as is exempt
by the Constitution itself or as may be exempt by the
Legislature under .Section 2 of Article VIII can be re-
lieved from taxation. This is the only construction
under which we can explain the numerous cases Involving
municipally owned property where the court found it
necessary to decide whether the property was being used
for a public purpose.
.
.~,
Hon. William Schneider, Jr., page 9 (V-1399) 93
the Constitution, the leasehold estate is also ex"
empt; (2) if the property is exempt in the hands of
the school district by virtue of Article 7150, V.C.S.,
enacted purmant to the authorization contained in'
Section 2 of Article VIII, the leasehold is taxable
under Article 71733 (3) if the property is not being
"devoted exclusively to the use and benefit of the
public" or is not being "used for public purposes,"
it is not exempt in the hands of the school district
and Article, 7173 has no application.
We have not found where the courts of this
State have ever,been called upon'to consider the pre-
cise question here involved. Indeed, not often has
it been necessary for the courts to decide whether
public property which has been held to be exempt came
under Article XI, Section 9 of the Constitution or un-
the Constitution and
example, A. & M. Con-
Dist. v. Citv of BrYan
suma.> We may state some generalizations, however:
which are pertinent to a solution of this question.
In the first place, the exemption under either of
these provisions is not limited to property which is
used for governmental purposes. A. & M. Consolidateg
Independent School Dist. v. CitY of ~BrYau, Suora.
Secondly, the fact that the property produces revenue
does not of.itself prevent its being exempt, if the
use to which the DroDertY is DUt meets the reauired
test of being a public use. 8. & 14. Consolidated m-
dooendent School Dist. v. Citv of Brvaq, suura: Lower
Colorado River Authoritv v. Chemical Bank & Trust Co.,
SUDraj Citv of Abilene v. State, suDra* State V. City
of Houstoq, 140,S.W.2d 277 (Tex. Civ. App. 1940, er-
ror ref.).
y In Lower Colorado River Authority v. Ch mi Cal
B&.Trust.,suDra, the court repeated,d&um in
Daunhertv v. Thomosog to the effect that Article VIII,
Section 2 applied to "property held in private owner-
ship but used for purposes which give to it a public
character." Under this view the Legislature would be
powerless to tax the leasehold estate in any publicly
owned property which is exempt in the hands of the
owner. The property involved in that case was actually ._
being used in the performance of the functions for
which the public agency was created and accordingly
came within the exemption of property "devoted exclu-
sively to the use and benefit of the public" under Sec-
tion 9 of Article XI.
94‘ Hon. William Schneider, Jr., page 10 (V-1399)
Upon reviewing all the cases which have
been decided under the Constituti6n and statutes of
this State, we find that publicly owned property
which has been held to be exempt from taxation may
be classified as ~follows:
1. Property used by the public or actual-
ly being put to use exclusive,ly in carrying out a
public function performed under the powers of a gov-
ernmental agency, whether the function b,e govern-
mental or proprietary. In this category we find such
I
cases as Lower Colorado River Authority v. Chemical
Citv of Brvaq, B.
such a use, although used in part for other purposes,
w~ould also be exempt. See City of Abilene v. State,.
'Butma. Conceivably, this latter exemption might in
some situations come under Section 9,of Article XI
and in others under Section 2 of Article VIII, but it
is not necessary here to consider the exact ~bounda-
ries of the exemption under each of the constitutional
provisions in such instances.
2. Property which is a part of or stands in
the place of a public fund. Cases illustr&tive of
this classification include Dauahertv v. T mm
Sh mard 144 Tex. %l ?$& ='
,"i other caies holding tdt prop-
'delinquent tax foreclosures is ex-
empt . Cf. State v. Cl y ous
man v. William, 8:~ T~kH421~of$ ~b0~).
%;s;xemption likewise results from Section 9 of Arti-
.
3. Property which is intended for actual
use in carrying out a public function where there has
not been an abandonment of the intended use, although
iz act,ual use for that purpose is temporarily suspend-
Cases of this nature include Citv of Abilene V.
Stite, suura; State v. City of Beaumont, 161 S.W.2d
WTex. Civ. App. 1942). This exemption is by virtue
of Article VIII, Section 2 of the Constitution and AI?-
title 7150 of the Revised Civil Statutes.
-...
Bon. William Schneider, Jr., page 11 (V-1399)
95
It is obvious that the property leased'by
the Fredericksburg Independent School District for '.
commercial development does not come within,the first
class of exempt property. Nor do we think it comes
within the second class. All the cases in this class
which have held such property to be exempt involve
funds raised by taxes or other public money or, as in
the ~case of Daugherty v. Thomnson, property which is
itself made a part of a fund created by law. The
fact that the income from a school district's proper-
tyheld under a permissive ownership becomes a part
of a fund used for the support of the public schools
after~it is ctillected is not sufficient to make the
'property itself a part of the fund or to make it rep-
resent any part of the fund.
As noted above, the courts of this State
'have never been'called upbn to decide the precise ques-
tion presented in your r,equest. Opinions of.the Attor-
-~-'-----'--..ingney General's
results. Office have reached apparently conflict-
.-Opinion O-4459 (1942) .held that property
devised to a county, the income from which was to be
used for the supqort of a county hospital, was exempt
.while Opinion o-4285 (1942) held that property devise B
_ --,,,to a city, .the income from which was to be used for the
support and improvement of the city's public parks, was
not exempt. In Opinion V-447 (1947), rendered during
the present administration , it was held that land orig-
inally acquired by a county- for use as a poor farm rnfas
not exempt whare the intended use had been abandoned.,
although the income from~the property went into the
county's charity fund.
--``~---The
prevailing view in other jurisdictions
is that prdperty which is being held and used solely for
the production of income is not exempt from taxation un-
der constitutional and statutory provisions similar to
those in force in this State, even though the income is
See Notes, 3 A. L. R. 1439; iq49; 101 A.L.B.
787; 129 A.L.R. 480.
After considering all the authorities herein
discussed, we have reached the conclusion that property
, . . .*
/
94%
,/
which an independent school dist2ictmms mily&r
the purpose of producing~income*i:s not ?be%frrgused
for a public purpose within the:maaning:ofthe COP
stitution and is notexempt from -taxationin-the
hands of the owner, Consequently,the Leasehold
interest under a lease :fora t:ermmf thre-e:yaarsror
more would not be taxable to zthelessee.. :fIowever,
if the property is ~h&ldfor the eventu&l :purpose-of
being used as a part,of the school-facilities, {even
though it is being leased te@porar'ily, :it.Tsexempt
from taxation in the .handsof the school district
under the provisions ofArticle VIII, Section2 -of
the Consti,tution and Article 7130 of the.Revised
Civil Statutes, but it is not exemptunder Article
XI, Section 9 of the Constitution. Ihthis -event,
the value of the .leaseholdinterest,zhder:a:lease
for a term of three years or.more:istaxable :to;the
,.y
lessee under Article 7173. -4,
..--.~-:.--~--
---++operty which ah 'inde~peniient
school
district owns and holds only for the :pu.r-
pose of producing income is :not:exempt
from taxation in the hands .ofthe .owner.,
and the 'leaseholdinterestunder .alease
``~-.~--for a term of three years :or.moreis :not .,
caxable to the Ylessee. Property~whichis
held for the eventual pur,poseof being
used as a part of the school:facilities~,
though leased temporarily is exempt from
taxation in the hands of 4he owner; and
the value of the leasehold estate .mder a
lease for a term of three years or more
_ ....-$L7ex.bteSto the lessee under .Article
9 * . .
APPROVEO: %ur.s xe~y *LiUIy,
W. V. Geppert
Taxation Division
E. Jacobson
ReviewingAssistaut
Charles D. i