Untitled Texas Attorney General Opinion ( 1974 )


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  •                                   TITEA~TORNEY       GENERAL
    OF TElxAs
    Avemiw. TWAS 787ti
    a0EsN     I”     EILL
    A--                  CIlmmER-
    July   8, 1974
    The Honorable    Alton R. Griffin                             Opinion   No.   H-   342
    Criminal  District   Attorney
    Lubbock County Courthouse                                     Re:   Whether hospitals    will lose
    Lubbock,  Texas     79401                                     their tax exemptions    if they make
    available  premises   to Blood
    Services   of Texas
    Dear      Mr.     Griffin:
    Your question    asks whether   two hospitals   will lose their ad valore m
    tax exemptions    if they permit a separately    operated   blood bank to use a
    portion of their premises     for the purposes   of obtaining   blood from family
    members    of patients.
    Article   8, Section 1 of the Texas Constitution       requires   that “Taxation
    shall be equal and uniform:”        However,    Subsection    2(a) of Article   8
    authorizes     the Legislature   to exempt various     classes    of property  including
    property     owned by institutions   of “purely   public charity. ”
    In the Constitution      of 1876, Section 2 of Article       8 excepted   from ad
    valorem     t.axation “all buildings       used bxclusively   and owned by persons         or
    associations      of persons    for school purposes,        and the necessary      furn:ture
    of all 8mools, . , .and institutions       of purely public charity. ” Since t.hat time
    the Section has been amended             on a number of occasions       and a great deal
    of language appears         between    “buildings   used exclusively     and owned by”
    and “purely      public charity”      and a literal  reading would not link the two
    phrases.       Nevertheless     they are linked and we believe         that, in adopt.ing
    the various     amendments,        it was not the ~intent of the people to effect a
    change insofar       as the Section appIies to institutions       of purely public charity.
    Acting     under   that authority,     the Legislature       has adopted   Article
    p.    1594
    The   Honorable        Alton     R.   Griffin      page     2     (H-342)
    7150, V.T.C.S.,     exempting                certain     described      properties       from   taxation.
    In its Sec. 7 it exempts:
    All buildings    and personal     property     belonging    to
    institutions    of purely public charity,         together   with .the
    lands belonging       to and occupied     by such institutions,
    including    hospital    parking facilities,      not leased or
    otherwise     used with a view to profit,          unless such
    rents and profits       and all moneys and credits          are
    appropriated      by such institutions       solely to sustain
    such institutions       and for the benefit of the sick and
    disabled     members      and their families       and the burial
    of the same,      or for the maintenance          of persons
    when unable to provide         for themselves,        whether    such
    persons     are members       of such institutions       or not. . . .
    It goes   on to define           an institution     of “purely     public   charity”      as:
    . . . one which dispenses      its aid to its members       and
    others in sickness    or distress,    or at death,    without
    regard to poverty or riches of the recipient,         al’so when
    funds, property    and assets    of such institutions    are
    placed and bound by its law to relieve,        aid and administer
    in any way to the relief    of its members     when in want,.
    sickness,and   distress,   and provide    homes of its help-
    less and dependent     members     and to educate and maintain
    the orphans of its deceased       members    or other persons     . . . .
    The Texas Supreme    Court                has defined        “purely   public    charity”       to
    depend    on the existence of three                elements:
    .   .   .   . First,
    it made no gain or profit;    second,   it
    accomplished     ends wholly benevolent;    and third, it
    benefit,ed persons,     indefinite in numbers   and in person-
    alities,  by preventing     them, through absolute   gratuity,
    from becoming      burdens to society   and to the state.
    p.     1595
    The   Honorable     Alton   R.   Griffin   page   3        (H-342)
    City of Houston v. Scottish   Rite Benevolent  Ass’n,   
    230 S.W. 978
    , 981
    (Tex.  1921); cited with approval.   River Oaks Garden Club v. City of Houston,
    370 S. W. td 851 (Tex.   1963); and in City of Amarillo  v. Amarillo  Lodge No.
    731, AF     & AM,   
    488 S.W. 2d
    69 (Tex.    1972).
    We    assume   the hospitals and the blood bank qualify as institutions
    of purely    public charity,  but, of course,   whether   any institution qualifies
    as one of    purely public charity  will ultimately   depend upon whether,      in fact,
    it meets    the three point test , above set out;      .
    In Hilltop   Village,    Inc. v. Kerrville    Ind. Sch. Dist.,      
    426 S.W.2d 943
    (Tex.    1968), a case decided under this constitutional           provision,   the
    Supreme    Court specifically       indicated  that an institution’s   use of property
    for incidental    purposes     will not defeat a tax exemption.       Hilltop Village,
    Inc. v. Kerrville      I. S. 
    D., supra, at 947
    .     See also, Santa Rosa Infirmary               v.
    City of San Antonio,         
    259 S.W. 926
    , 932 (Tex.      Comm.     App. 1924).
    The operation    of the incidental     facilities    in Hilltop  Village   resulted
    in a profit which was divided between the outside operations                  and the institu-
    tion.    Whether   the use of hospital    facilities      by a blood bank is an incidental
    use of those facilities    is a question    of fact which we cannot resolve           in this
    opinion.      If the use is incidental    the tax exemption         will probably   be pre-
    served    under the guidelines    set down in Hilltop Village.
    If a full development       of the facts does not indicate      that the use of
    the hospital   facilities    by the blood bank meets the incidental         use test
    under the guidelines        set down in Hilltop   Village    , then it arguably   can be
    contended    that the tax exemption       will be secure if the blood bank operates
    as an institution      of purely public charity.      All of this involves    the resolu-
    tion of fact questions       which are not before     us. Assuming,       without deciding,
    that the blood bank is a charity,        it will be necessary      to determine    whether
    use of property      by more than one institution        of purely public charity will
    defeat a charitable       tax exemption.
    In City of Amarillo        v, Amarillo     Lodge     No.      731, AF   & 
    AM, supra
    ,
    the court said:
    ps 1596
    The   Honorable     Alton   R.   Gritfin    page   4     (H-342)
    The exemption        of an institution      of purely public
    charity as such is not authorized             by the constitutional
    provision    in question,      It is only property         owned by
    such an institution       and used exclusively         for purely
    public charity      that may qualify for the exemption.
    Morris    v. Lone Star Chapter No. 6. R.A. M., 
    68 Tex. 698
    , 
    5 S.W. 519
    . The institution             must be one
    of purely public charityiin         the purposes       for which it
    is formed     and in the means used to~accomplish                such
    purposes,     and the property        claimed      to be exempt
    must be owned and used exclusively                 by the institution
    in furthering    its charitable      activities.      Hilltop   Village,
    Inc. v. Kerrville       Ind. Sch. Dist.,         Tex. Sup., 
    426 S.W. 2d
    943.     (
    488 S.W. 2d
    at 72) [Emphasis             added]
    Although   this statement    of the court lends itself to a broad interpreta-
    tion, we believe    that,its context and the case authority      on which it is based
    suggest a narrower      meaning is appropriate.      For example,     Hilltop Village,
    as noted above,    indicated   that incidental  use of property    for non-chaiitable
    purposes    would not destroy    an otherwise   valid charitable    tax exemption.
    We have found only one case in which the issue was raised as to
    whether     a charitable        exemption    is defeated   merely  because more than
    one charitable        institution   used the property.       The Court of Civil Appeals
    held in City of Houston v. River              Oaks Garden Club, 
    360 S.W.2d 855
    (Tex.     Civ. App. --Houston           1962) that multiple    use by various  charities
    was sufficient       to di.sallow the exemption.         The Supreme     Court affirmed   on
    different     grounds and specifically          declined  to reach the question    of use by
    multiple     charities.       River   Oaks Garden Club v. Ci,ty of Houston, 
    370 S.W. 2d
    851, 853 (Tex.          1963).   However,      Justice Norvell,   joined by Justices
    Greenhill,      Griffin     and Smith,    dissented    and said:
    . . . the mere fact that a charitable        use is
    sometimes     made of the property       by some
    organisation    other than the owner,      should not
    affect the tax exemption    classification     of the
    property    so long as no,charge     is made for
    such,use. (
    370 S.W. 2d
    at p. 862.)
    p* 1597
    I
    .
    The   Honorable    Alton    R.   Griffin      page    5      (H-342)
    We note also that the Court of Civil Appeals               opinion and other courts’
    broad statement       on exclusive      use are based on decisions         involving    use by
    non-charitable     institutions.       See, e.g.,      City of Houston v. Scottish Rite
    Benevolent     Association,       
    230 S.W. 978
    (Tex.        1921) (used by “Masonic
    organizations,     whose activities        included other fields than charity”);         Morris
    v. Lone Star Chapter No. 6, Royal Arch Masons,                     
    5 S.W. 519
    (Tex.      1887)
    (two of the building’s       three floors     rented for profit),     State v. Settegast,
    254      S. W. 2d       .9 2 5 (Tex.     Comm.      App. 1923) (property      consisted     of
    rent houses,     the revenues       from which were used for charitable             purposes);
    B. P. 0. E. Lodge No. 151 v. City of Houston,                
    44 S.W.2d 488
    (Tex.       Civ.
    App. -- Beaumont         1931, error     ref’d)   (‘property    used by profit-oriented
    “restaurant     keeper,     barber,    gymnasium        operators,    and electric    bath
    giver”).
    The leading case in which           an exemption  was upheld is Santa Rosa
    Infirmary    v. City of San Antonio,           
    259 S.W. 926
    (Tex. Comm.   App. 1924)
    where the court said:
    The constitutional    requirement    is twofold:    the
    property   must be owned by the organization           claiming
    the exemption;      it must be exclusively     used by the organ-
    ization,  as distinguished      from a partial   use by it, and
    a partial  use by others,      whether  the others pay rent or
    not.     (259 S. W.      at 932).
    The authority   cited to support this statement,      was City of Houston v.
    Scottish  Rite Benevolent   Association,   rupra,    where the Court had said:
    “The actual,   direct use must be exclusive      on the part of such an institu-
    tion as is favored   by the constitutional  provision.   ” (230 S. W. at 981). But
    the Court was dealing with a use by two Masonic          orders whose work was
    only pa’rtly charitable.
    When the Supreme      Court discussed   the Santa Rosa case by adopting
    the Commission      of Appeals  opinion in City of Longview      v. Markham-McRee
    Memorial    Hospital,   
    152 S.W.2d 1112
    (Tex.   1941) it stressed  the landlord-
    tenant relationship    of the use that destroyed   the exemption.     In City of
    p.     1598
    The   Honorable     Alton   R.   Griffin   page   6    (H-342)
    Longview      two doctors    rented offices     in a hospital  building.    The doctors
    paid rent and contributed        a substantial    amount of their services      to the
    hospital’s    charity  cases.     Additionally    they also performed      an essential
    service    to the hospital    by serving    as house physicians.       Although   the
    fact that other doctors       used the hospital     facilities to treat private    patients
    did not endanger      the tax exemption,       the renting of offices    in the hospital
    did.    The court avoided      the dual use issue and said:
    While it is true that the use of these offices          results
    in a necessary      contribution    to the operation    of the
    hospital,   it seems to us quite obvious that the letting
    and occupancy      of same is dominantly       a commercial
    and private    transaction.       We therefore    conclude    that
    the property     in question    is not exempt from taxes
    under our Conatitution.          (152 S. W. 2d at 1114)
    Given the failure    of the Supreme        Court to decide definitively    any
    case on the ground property         was,used       by more than one charitable
    institution    and that the original      statements     of the court concerning
    exclusive     use have arisen in cases in which at least one user of the
    property     was not a charitable     institution;    we feel justified  in predicting
    that our Texas Supreme         Court would, at least hold that if a normal
    landlord-tenant     relationship    is not present,      and no rent is charged,       that
    the use of a portion      of a charitable     hospital   by a charitable   blood bank
    will not cause the hospital       to lose its tax exempt status.
    SUMMARY
    A hospital  operating    as a purely public charity
    will not lose the tax exempt status of its property
    because it is used in part by a blood bank if such
    additional   use is incidental   and if the blood bank
    p.   1599
    I
    ‘
    The   Honorable    Alton   R.   Griffin         page   7    (H-342)
    is also a purely public charity and if a normal
    landlord-tenant  relationship  in not involved
    and no rent is charged.
    Very     truly   yours,
    Attorney      General      of Texas
    DAVID    M.   KENDALL,          Chairman
    ‘1
    p.   1600