Untitled Texas Attorney General Opinion ( 1979 )

The Attorney General of Texas
December 5, 1979
MARK WHITE
Attorney General
Honorable Bob Bullock Opinion No. MW-94
Comptroller of Public Accounts
LBJ State Office Building Re: Imposition of sales tax on
Austin, Texas 78744 improvement of realty belonging
to an exempt entity.
Dear Mr. Bullock:
You have asked whether a lessee of realty belonging to an entity
exempt under article 20.04(H), Taxation-General, may avail itself of the
exemption in article 20.04(Y) in making improvements to the leasehold in a
private commercial venture.
You cited the following fact situations:
L The City of Fort Worth has leased a portion of
its municipally owned airport, Meacham Field,
to a private party for the purpose of operating a
commercial aviation center. One of the
covenants in the longterm lease (30 years plus
options for additional periods) is that the
private party will construct, at its own expense,
on the leased property, two airplane hangars
and various support facilities. The agreement
provides that upon completion of construction,
title to the improvements will vest in the City.
During the period that the lease is in effect, the
hangars and other facilities will be for the
exclusive use of the private party.
2. A church in the City of Houston owns a tract of
land and the improvements thereon ( a building).
The church has leased the property on a long
term lease to a private concern. The church
has granted the lessee permission to remodel
the building to suit its business needs.
3. A city has leased a tract of land to a private
utilitycompany. The longterm lease contains
p. 288
Honorable Bob Bullock - Page Two (m- 9 4 1
a purchase option available on expiration. The utility company has
constructed and is constructing facilities to suit its business needs
upon the leased property.
In each fact situation the private party wishes to purchase
all of its construction materials tax-free.
The exemption statute involved is article 20.04(Y) which was added by the 1969 Act.
It appears as follows:
(Yl Contracts with Exempt Organizations. There are exempted
from the computation of the amount of taxes imposed by this
Chapter, the receipts from the sale, lease or rental of any tangible
personal property to, or the storage, use or other consumption of
tangible personal property by, any contractor for the performance
of a contract for the improvement of realty for an exempt
organization as defined in Section 20.04(H) of this Chapter or
otherwise exempt from the taxes imposed by this Chapter to the
extent of the value of the tangible personal property so used or
consumed or both in the performance of such contract.
The key words in article 20.04(Y) are “the improvement of realty for an exempt
organization.” The reasonable legislative intent would seem to be to furnish the tax
exemption to a contractor only in cases where the realty was improved for the exempt
entity, i.e., at the behest of the exempt entity and to inure to its substantgbenefit. Of
course, in all such cases some degree of benefit will accrue to the private contractors, if
nothing more than the contract price for his services, but the primary and substantial
benefit must reasonably be the improvement of realty for the exempt entity’s benefit, not
for the lessee’s use and benefit, as appears to be the case in the three fact situations
submitted. The inquiry turns on whether the dominant purpose of the lease contracts was
to make such improvements for the exempt entities ce for the private lessees. Under the
doctrine of strict construction of tax exemptions we conclude that the lessees in question
are not entitled to the tax exemption allowed by article 20.04(Y) in the situations inquired
about. -See Davies v. Meyer, 541 S.W.2d 627 (Tex. 1976).
SUMMARY
Contracts with tax exempt entities for improvements by non-
exempt persons or organizations of realty for the primary use and
benefit of such nonexempt persons or organizations do not afford
such contractors the exemption provided in article 20.04(Y),
Taxation-General.
&erYt;@
Attorney General of Texas
P. 289
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Honorable Bob Bullock - Page Three (NW-94)
JOHN W. FAINTER, JR.
First Assistant Attorney General
TED L. HARTLEY
Executive Assistant Attorney General
Prepared by Bob Lattimore
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
C. Robert Heath, Chairman
David B. Brooks
Bob Gammage
Susan Garrison
Rick Gilpin
Bob Lattimore
Myra McDaniel
William G Reid
Bruce Youngblood
p. 290