Judges: DAN MORALES, Attorney General of Texas
Filed Date: 12/10/1992
Status: Precedential
Modified Date: 7/6/2016
Honorable Dale W. Elliott Potter County Attorney 303 Courthouse Amarillo, Texas 79101
Re: Tax exemptions for public property leased to private entities (RQ-18)
Dear Mr. Elliott:
On behalf of the Potter-Randall County Appraisal District, you ask whether real property owned by three governmental bodies in Potter County is exempt from ad valorem taxation under the circumstances you describe. Your letter stipulates certain facts, and the governmental entities in separate briefs supply additional facts. We will address your questions in light of all the information provided. However, because the answers to your questions depend on the resolution of fact issues, a function that this office cannot perform in the opinion process, our responses are necessarily subject to the facts in a given case. Before addressing the specific scenarios, we will briefly describe the source, nature, and limits of property tax exemptions for government-owned property.
A. Tax-exempt status of publicly-owned property.
Article
[a]ll real property and tangible personal property in this State, unless exempt as required or permitted by this Constitution, whether owned by natural persons or corporations, other than municipal, shall be taxed in proportion to its value, which shall be ascertained as may be provided by law.
Tex. Const. art.
property of counties, cities, and towns, owned and held only for public purposes, . . . and all other property devoted exclusively to the use and benefit of the public shall be exempt from forced sale and from taxation . . . .
This provision is self-executing and requires no enacting legislation. A M Consol. Indep. Sch. Dist. v. City of Bryan,
Article
(a) Except as provided by Subsections (b) and (c) 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.
Subsections (b) and (c), which provide for the limited taxation of land owned by the Permanent University Fund and counties, are not relevant to your questions. Section 11.11 supplies other qualifications to the general exemption described in subsection (a), which we will address as appropriate in this opinion.
You ask initially whether the phrase "other than municipal" in article
As you note in your brief, the supreme court has held that article VIII, section 1 merely specifies the types of property the legislature is required to tax. City of Beaumont v. Fertitta,
The essential substantive inquiry under the constitutional and statutory provisions cited above is whether the public property in question is being used for a public purpose. The courts instruct that the test for public purpose is whether the public property is used primarily for the health, comfort, and welfare of the public. A M Consolidated Independent School District,
Each of the scenarios you describe involves public property that is leased to private individuals or other political subdivisions. Property of a political subdivision will not lose its tax exemption if a charge is made for the property or a profit is generated thereby, provided the charges are incidental to its use by the public and the proceeds inure to the benefit of the political subdivision. Lower Colorado River Authority,
B. Tax-exempt status of property owned by city of Amarillo.
1. Airport hangar.
You advise that the City of Amarillo is constructing an airport hangar at the city-owned Amarillo International Airport which will be leased to a private entity as a facility for the repair, maintenance, and storage of aircraft. You ask whether this property, owned by the municipality but dedicated to an allegedly private use, is exempt from ad valorem taxation. If it is exempt, you ask whether the leasehold is exempt from taxation to the lessee pursuant to section
In a brief to this office, the City of Amarillo indicates that the airport property is being developed pursuant to the Municipal Airports Act, V.T.C.S. articles 46d-1 through 46d-22. Article 46d-15 in pertinent part broadly declares that the acquisition of any land or interests in land pursuant to the act, and the development, maintenance, construction, equipment, and operation of airports and air navigation facilities are public, governmental, and municipal purposes. Attorney General Opinion
as a matter of law . . . [a] city's airport and airport facilities, including those leased to a private individual, are impressed with a public purpose sufficient to meet Texas constitutional and statutory tests regarding ad valorem taxes.
Attorney General Opinion
At issue in Attorney General Opinion
Under the facts presented in the opinion, it is apparent that the use of the airport property by the fueling facility lessee and the federal government was in direct support of the city's operation of the airport. In contrast, the private use of the surrounding airport property extinguished the city's tax exemption precisely because the use bore no relationship to the city's operation of the airport. We thus construe Attorney General Opinion
The City of Amarillo contends that the airport hangar in question will be used to support the city's safe and efficient operation of the airport. If this is the case, then we agree that the private commercial use of the facility will not jeopardize the property's tax-exempt status. However, you contend that most of the aircraft stored and serviced at the city-owned hangar will be brought there solely for purposes of maintenance and storage and will not be engaged in the transport of passengers and cargo to and from the airport. If this representation is correct, the facility would not be used exclusively in support of the city's operation of the airport, but would instead be used to serve the private commercial interests of the lessee. The property under these circumstances would not be entitled to a tax exemption because it is not used exclusively for public purposes and therefore does not satisfy constitutional and statutory criteria. See Grand Prairie Hospital Authority,
As noted, this office cannot resolve disputed questions of fact in the opinion process. Because the city offers facts that conflict with the information supplied by your office, we cannot resolve your first question as a matter of law. Rather, the resolution of this issue must await the development of facts in an appropriate administrative or judicial forum.
The same must be said with respect to your next question — whether the leasehold interest in the hangar is exempted from taxation to the lessee. Leasehold interests generally are not taxable to a lessee. See Cherokee Water Co. v. Gregg County Appraisal Dist.,
Section
Section 25.07 excepts certain leasehold and possessory interests from its listing requirements. A leasehold interest that is excepted from the listing requirement of section 25.07 is itself exempt from taxation to the lessee. Delta Airlines,
an airport passenger terminal building or a building used primarily for maintenance of aircraft or other aircraft services, for aircraft equipment storage, or for air cargo.
Tax Code §
Aircraft maintenance facilities, including maintenance hangars, which are intended for use in the safe and efficient operation of a municipal airport are public transportation facilities for purposes of section 25.07. Delta Airlines,
2. Buildings leased to private businesses.
You also state that the City of Amarillo owns several buildings which currently are not used by the city but are instead leased to private businesses. You do not describe the conditions under which the city holds and leases such property or the particular uses put to the property. The city does not contest your representation of the facts. You ask whether these buildings are exempt from ad valorem taxation; you conclude they are not.
Prior opinions of this office conclude that 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. See Attorney General Opinions
C. Office complex owned by a school district.
You state that the Amarillo Independent School District (AISD) recently purchased an office complex consisting of six separate buildings — five office buildings and a restaurant facility. One of the office buildings serves as the administrative office of the district and is the sole structure used or occupied by the district at this time. Portions of the other office structures are leased to private and governmental entities. The remaining office space and the restaurant facility are vacant.
The school district in its brief states that the office complex, known as Security Park, was purchased in its entirety for economic reasons. It asserts that the school board's intention at the time of purchase was to sell all of the complex except the district's administrative office, and it describes some of the steps it has taken to sell the property. As of the date of its brief, the surplus property had not been sold, and the AISD resorted to leasing some of the property and depositing the rentals in its treasury. The AISD concedes that at the time the property was acquired it did not anticipate using all of the facility itself, but it reserves the option of retaining any of the property that may be required for the district's operations.
The AISD argues that the Security Park complex is exempt from ad valorem taxation because it was acquired in the pursuit of the school district's legitimate functions and is held for the purpose of resale. It directs us to cases which conclude that a political subdivision's ownership of land under such circumstances is a public purpose for purposes of the constitution and section
The single exception among the cited cases is State v. City of Houston,
The AISD states that its acquisition of the Security Park complex was motivated by economic interests similar to those of the city in City of Houston,
Once again, we emphasize that we cannot resolve the fact issues that are at the center of your inquiry. However, the facts portrayed by the AISD tend to support a tax exemption for the Security Park complex under section
You also inform us that the Amarillo Junior College District has purchased real property adjoining the campus of Amarillo College for purposes of future expansion. It has leased some of the property to private individuals pending the expansion. The district explains that it acquired 29 parcels of property, many with improvements, pursuant to a long-range expansion plan adopted by its board of regents in 1983. Four residences on the properties are currently leased to students or employees of Amarillo College; eleven others evidently are leased to persons who are not students or employees of the college. Two units of an eight-unit storage garage facility are rented to persons who are not students or employees of the junior college. The remaining 20 structures were razed or moved or are currently used by the district. The district deposits rental income in its building fund.
The district advises that the lease of these properties is temporary, pending implementation of the long-range expansion plan. It advances arguments and authorities similar to the AISD. In particular, it cites City of Abilene v. State,
The junior college district stipulates facts which, if true, would conform to the uses of public property approved in City of Abilene,
As previously noted section
It is provided, however, that property that is held or dedicated for the support, maintenance, or benefit of an institution of higher education as defined in Chapter 61, Texas Education Code, but is not rented or leased for compensation to a private business enterprise to be used by it for a purpose not related to the performance of the duties and functions of the state or institution or is not rented or leased to provide private residential housing to members of the public other than students and employees of the state or institution is not taxable. . . .
The language of subsection (e) plainly implies that property of an institution of higher education dedicated to the support, maintenance, or benefit of the institution that is leased or rented to employees or students of the institution for private residential housing is tax-exempt. Chapter 61 of the Education Code defines "institution of higher education" to include, inter alia, a public junior college. Educ. Code §
Very truly yours,
DAN MORALES Attorney General of Texas
WILL PRYOR First Assistant Attorney General
MARY KELLER Deputy Assistant Attorney General
RENEA HICKS Special Assistant Attorney General
MADELEINE B. JOHNSON Chair, Opinion Committee
Prepared by Steve Aragon Assistant Attorney General
[1] Section 25.07 is derived from V.T.C.S. article 7173. It will be discussed in greater detail below.
[2] Under the lease agreement, the operation of the fueling facility, though admittedly for private commercial gain, was subject to the direction and control of the city. The weather station and air traffic control facility were obviously necessary to the operation of the airport.
[3] Parties to a lease typically take into account the lessor's property tax liability when negotiating the terms of the lease, either by contractually providing for a pass through of taxes to the lessee or setting rentals in an amount that reflects the estimated tax liability. Cherokee Water Company,
[4] We assume for purposes of this opinion that the lease of the city's airport hangar is for a term of at least one year.
[5] The city alludes to other leasehold interests at the airport, e.g., restaurant, lounge, and airline leases, and argues that these interests are also exempted from taxation to the lessees because they support the general public purpose of air transportation at the airport. A recent case indicates that the mere operation of a facility in support of airline operations may not be sufficient to confer tax-exempt status on a leasehold interest in airport property. Tarrant Appraisal Dist. v. American Airlines,
[6] The board of trustees of an independent school district is vested with the exclusive power to "manage and govern the public free schools of the district" and may, in the name of the school district, acquire and hold real and personal property. Educ. Code § 23.26(a), (b). The board of trustees of a school district may sell real property of the district if the proceeds of the sale are used for the purchase of "more convenient and more desirable school property," the construction or repair of school buildings, or are deposited in the local maintenance fund of the district. Id. § 23.30(a), (c). In addition, the property must no longer be needed for school purposes. Attorney General Opinions
[7] The funds used to purchase the tract were bond funds dedicated to road improvements. It is not clear whether the court would have required deposit of rentals to the credit of the original funding source if the bond funds had not been so dedicated. We are not advised as to the source of the funds used by AISD to purchase the Security Park complex.
[8] The City of Abilene case was disapproved in City of Beaumont v. Fertitta,
City of Beaumont v. Fertitta , 415 S.W.2d 902 ( 1967 )
Leander Independent School District v. Cedar Park Water ... , 479 S.W.2d 908 ( 1972 )
Satterlee v. Gulf Coast Waste Disposal Authority , 576 S.W.2d 773 ( 1978 )
State of Texas v. City of San Antonio , 147 Tex. 1 ( 1948 )
City of Austin v. Sheppard, Comptroller , 144 Tex. 291 ( 1945 )
A. M. Con. Ind. School v. City of Bryan , 143 Tex. 348 ( 1945 )
Eason v. David , 232 S.W.2d 427 ( 1950 )
State v. Houston Lighting & Power Co. , 609 S.W.2d 263 ( 1980 )
Irving Independent School District v. Delta Airlines, Inc. , 534 S.W.2d 365 ( 1976 )
Tarrant Appraisal District v. American Airlines, Inc. , 826 S.W.2d 767 ( 1992 )
Grand Prairie Hospital Authority v. Tarrant Appraisal ... , 707 S.W.2d 281 ( 1986 )
Lubbock Indep. School Dist. v. Owens , 217 S.W.2d 186 ( 1948 )