Untitled Texas Attorney General Opinion ( 1957 )

October.17,1957
Hon. William J. Gillespie opinion Ho. ww-281
County Attorney
Lubbock County Re: Taxabilityof City
Lubbock,Texas propertywider Lease
to private industry.
Dear Mr. Gillespie:
In connectionwith your letterrequestingour opinionrels-
tive to the captionedCWttQr, you submit the followingfactuaL
situation:
"The City of Lubbockholds title to a certain
tract of real propertyin Lubbock Countywhich is
dedicatedto use a8 the LubbockMunicipalAirport,
Such property,being used for public pmposes is.the
past has been exempt from taxationunder the express
provisionsof B.S. Art. 7150.
"On Septenber15, 1955> the City, through its
directorof A?4ation entered into a lease of a per-
tion of the airportpropertyto the West Texas Compress
and Ware&we Ccmpauy,a Texas Corporstioadomictled
io Lubbock,hereir&tey called lessee.
W!e issaee is to use the laud for mehouse
purposes,and the AirportBoard has detemimd +&a?
it is in the public intereatthat the lesseeilave
suck privilege.
"Tke lease is for a term of five yelrs 'begin-
niag October 1, 1955, a~udending Septmber 3C~,l$(I‘,
with the lesseeto pay $l,lOC a year L1s:ie City
during that period. Tiielessee Is also to erect five
metal clad tmrehousebuildingson ti;esite, whim
buildir.gsshall become the uropertyof the City by
September30, 1960, the City being conve:wda l,i60in-
terest in each of said buildingseach month dcrirg
the first five years of the lease. The lessee is
furthergiven an optionfor tbzee consecutivefive-
year extensions,with a differentyearly-rental heizg
due during each of those extensions.
Eon. William J . Gillespie,page 2 (WW-231)
"It was furtheragreed that should the
contractlease be abandonedor breachedbefore tke
initialfive-yeartern was up, the City would h;zve
an option to purchaselessee'sremaininginterest
in the buildings. If the City did not desire to
exercise its option,then the lesseehad tiie,op-
tion to purchase the City's accrued interest,and
upon payment.the lessee could remove tke buildings.
The further terms of the lease appear in the copy
of the lease attachedhereto."
Specifically,you submit the followingquestions:
"(1) Has the land, by virtue of the chauge
in the characterof its use, lost its tax exemption?
"(2) Regardlesso? the tax consequences
to the City, does the lessee'sleaseholdinterest
constitutea separatetaxable interest?
“(3) Does the lessee'sdininiskinginter-
est in the buildingsconstitutea taxable interest
to kin?"
You s+ate
" that tke property in question"is dedicatedto use
a* +he Lubbock%iunicipal Airport." You also state, (I.. .tkQpro-
perty ns a whole WRS acqti-ired
for the purpose cf servingas an air-
field. A great portion of tkat prcpertyhas been utilizedfor that
purpose,but the remainingtract (tZe property in question)has been
tutned over to private enterprisefor *aperiod of POSSib~ 20 years."
The operationof an Airport by a cit;rconstitutesa public
purpose. If the land in questicnis being held by the City for a
future expansionof the .airport, it is tax exempt unless and until
tne city has abandonedits intentiontc use the property in the
future for a public pwpose. CitT J of Abi1er.ev. State, 113 S.M. 2d
633 (Tex. Civ. App.); ;tnCt
City of Dallas v. State, 25 S.W.2d 937
(writ refused).
sec. 2, Art. TTIII,of the Texas Constitutionprovidesin
p.SZt:
"but tke legislaturemy, by general laws,
exempt from txation public propertyused for D~u'clic
purposes."
Sec. 9, Art. XI, of t‘neCcnstituticnof TTW~, provibs im
~-~
p:trt:
Bon. William .J.Gillespie,page 3 @w-281)
Vhe propertyof counties,citiesand towns,
owned and held only for public plurposes,silohas
public buildingsand the sites therefor,fire engines
and the furniturethereof,and all propertyused, or
intendedfor sxtinquishing fires, public groundsand
all other propertydevotedexclusivelyto the use and
benefit of the public shall be exempt from forced
sale and from tsxation,*."
Article 7150, V.C.S. providesthat the followingproperty
is exemptfrom taxation:
n
. . .
“Sec. 4. Al.1property,vhetherreal ar per-
sonal, belongingexclusivelyto this State, or any
politicalsubdivisionthereof,yy**"
You will note that Sec. 4, of k-title 7150, supra,purports
to exempt all propertg,whether real or personal,beiongkg excln-
sivelg to this State, or any politicalsubdivisionthereofend does
not containthe restrictionthat sush propertyto be exemptmust be
used for public purposes. Countiesand citiesare politicalsub-
divisionsof the State. Eowever,Sec. 2 of Art. TIII, supra, of
the Constitutiononly gives the Legislaturethe authori&:o~sxsmpt
such propertywhen used for public purposes. ThereforeSec. 4 is
inoperativeinsofaras it purports to exempt public propertyregard-
less of its use in violationof said Sec. 2> Art. TII; of the IX&.
stitution,but is valid insofaras it exemptsp?ubLiopropertynsed
for public purposes. City of Abilene v. State, 113 S.W.2d c
Sec. &a of said Artfzle 7150 (not listedabovejwhioh re-
quires power districtssuch as the Lower ColoradoSiver Authority
to oav certainamounts In lieu of tsxea is uncoz3t1txt:onalaLower
Colkc~addo
River Authorityv. ChemiaalBar& and Trust Co., 39C ST
2d $8,
The Court held power districtsto be poEti:nl sub~.ivlsLons
of the State and as the property~wasdevoted k.oa public use it was
exempt from taxation.underSec. 9 of Art. XI of the Coustitution,
supra.
County and city property B' actuallyheld for a future public
use is exempt althoughtemporarilyrented or ieased. state v. city
o? Eoustoc,140 S-W. 2d 277* County and sity propertyLT 'used or
held for public purposes is exempt,althoughno% owned or held exclu-
sivelyfor such p:urpose.Stats v. City of Beaumont,I.61S.W. 2d 344.
.,
hon. WilliamJ. Gillespie,page 4 (-W-281)
The Test for determiniugwhether "publicpropert‘J" is tex
exempt is whether it is used primarilyfor the health, comfortor
welfsre of the nublic. To be used for public purpoae6it is not
essentialthat it be used for governmentalpurposes. A. & 14.Consol.
Ind. Sch. Dist. v. City of Bryan, 184 S.W.2d 914. That charges
are made for useof public propertydoes not withdraw it from its
public character,if‘suchchargesiarean incidentto its use by the
public and the proceeds inure to the benefit of the politicalsub-
divisions. Id.
Land acquiredby a city for a public purpose,such as a site
for a water reservoir,is tax exewt, althoughthe city temporarily
leases same for agricultcal or older purposes,if the city has not
abandonedits intentionto build such reservoir. City of Dallas v.
State, 28 S.W.2d 937.
You are thereforeadvisedthat if the City is holding tine
property in questionfor a future expansionof the airport,or for
other public purpose that it is tax exempt to the City.
Article 7173, Vernon's Civil Statutuesprovides:
"Propertyheld under a lease for a term of
three years or more, or held under a contractfor
the purchase thereof,belongingto this State, or
that is exempt by law from taxationin the hands of
the owner thereof,shall be consideredfor all the
purposes of taxation,as the propertyof the person
so holding the same, except as otherwisesoecir^ically
providedby law.'
Article 7174, Vernon'sCivil Statutuesprovides:
"Tlzableleaseholdestates shall be valued
at such a price as t‘neywould bring at a fair vol-
mtaq sale for cash."
The Supreme Court of Texas in Tramwellv. Faught, Tnx Col-
lector,74 Tex. 557, I.2S.W. 317, held that the taxablevalue of real
arooertv.ta&le b7 virtue of Article 7173, supra,was the value of
the leaseholdestate and not the value of the fee. We answer your
second questionin the affirmative.
In referenceto your third questionit appearstha.ton
January 1, 1958, the City willown an undivided3/6!lof the improve-
ments. This 3/60 interestwill constitutea part of the leased
premisesand tinevalue of same shouldbe consideredin'jsrivingat
the assessablevalue of ,t.he leaseholdestate. On each succeeding
January lst, the City will owu E/50 .additional interestin the
premiwa ,-na the assess~?-l~ value of the leaseholdestatewill
Hon. WilliamJo Gillespie,page 5 @V-281)
increasein value accordingly.
Article 7174, Vernon's Civil Statutesprovides:
'!Personalproperty,for the purposes of taxa-
tion, shall be construedto include e . .a11 improve-
ments made by persons upon lands held by them, the
title to which is still vested in the State of Texas,
or in any railroad company,or which have heen exempted
from taxationfor the benefit of any railroad company,
or any other corporationwhose property is not subject
to the same mode and rule of taxationaa other propee."
It follows that on January 1, 298, 57/&l of the value of
the improvementsshouldbe assessedagainst the lesaee as personal
property owned by him. Each year thereafterhe will own l2/60 less
interest in the improvementsand shouldbe assessed acCordingly.
We appreciatethe able brief which accompaniedyour request.
SUMMARY
Propertyheld by a city fcr the purpose of f%nre
expansionof an airport or other public p~nrposeis
tax exempt to the city, A leaseholdestate covering
tax exemptpropertyof a city if held under .alease
for a term of three years or sore iB taxable t0 the
lessee and shouldhe valued at such price as it
would bring at a voluntarysale for cash. Tke inter-
est of the lessee in improvementsplaced on the
leased premisesshould be assessedfor taxation as
the personalproperty of t'oelessee.
Yours very truly,
WILL wIL;jON
AttorneyGeneral of Texas
W. V. Gsppert
wvG/Yk Assistan;,
AP~?RomD:
OPIRIOR COMKrTrER
George P. Blackburn,Chairman
John B. Webster
13. H. T immins
R?Zm FOR THE ATTORRRYGENERAL
3y: James N. Ludlum