PRICE   DANIEL
ATTORNEY GENF.RAL




                                           April   0, 1947


           Hon. George H. Sheppard                   Opinion No. V-123
           Comptroller   of Public Accounts
           Austin, Texas                             Re:     Possible  exemptions  from
                                                             ad valorem taxes of prop-
                                                             erties belonging to The ‘.
                                                             Fair Foundation.

           Dear     Sir:

                      You have requested an opinion from this department as
           to whether or not the properties belonging to The Fair Foundatiotf
           are exempt from ad valorem taxes.

                          The copy of the trust indenture which you enclosed       with
           your     request discloses  the following facts.



                       In November,      1937, Robert Walter Fair and wife, Mattie
           Fair, settlers,  desiring to create a charitable       trust and charitable
           foundation, to be known as The Fair Foundation,           “for general char+
           table purposes,    including (1) relief of poverty and distress;      (2) ad-
           vancement of religion;     and (3) advancement      of education and sci-
           ence” conveyed,     assigned,    set over and delivered     to Robert Walter
           Fair and Mattie Fair, Trustees         of “The Fair Foundation,”     their
           successors    and assigns,    all their right, title and interest in and .to
           the property.described      in Schedule A which was made a part of the
           trust indenture, attached thereto, headed “Exhibit A,” and which
           reads as follows:

                         “Prope.rty transferred    by us to The Fair     Foun-
                    dation upon signature:

                             “1.   Cash - Two Thousand       Dollars
                                   ($2,000.00).

                             “2.   One Hundred (100) milligrams
                                   of Radium, now under the super-
                                   vision of Dr. Minnie L. Maffett
                                   and being used at present for
                                   poor and charity patients in
                                   Parkland Hospital at Dallas,
                                   Texas.   Said Radium shall al-
                                   ways be used for the benefit
Hon. George    H. Sheppard,     Page     2                  Opinion No. V-123




                      of charity patients and absolutely
                      without profit to anyc.ne.

                              (Signed)       R. W. Fair.”

            The trustees are to have absolute power of disposal of
this property (both principal    and income), and of such other prop-
erty as might later be added by the settlers or by third parties for
any of the charitable purposes previously        enumerated      subject to
certain limitations,  viz.: no contributions     are to be made to indi-
vidual persons;   “no contributions   or investment      shall be made for
 such purposes fpreviously    enumerated/      or either of them exce’pt
through an accredited    organization   or-institution    existing at the
time of such contribution,   gift or conveyance,      or to one of such in-
stitutions as may be created by the Trustees         for such charitable
purposes or either of them, it being their fihe settlers7           intention
to leave absolutely in the discretion    of the-Trustees      tlie manner,
form and terms of any gift or contributions        so long as same shall
be made through well recognrzed and established           institutions    or
agencies.”   (Emphasis    added)

            Gifts made by third parties are “subject to the terms
and conditions of this trust and also subject to all rules and regula-
tions established  by the Trustees hereunder.”

           The various other details of the trust, which is expressly
declared to be irrevocable,   have no bearing on the question of wheth-
er or not the properties  belonging to The Fair Foundation are ex-
empt from ad valorem taxes.

           So far as appears from “Exhibit A” the only property be-
longing to The Fair Foundation is personal property; however,      in
order to settle all aspects of this question it will be assumed that
The Fair Foundation has acquired real property interests      since the
creation r>f the trust.



            Article VIII, Section 2 of the Constitution of the State of
Texas provides that the Legislature       ma,y exempt certain classes        of
property from taxation.      This constitutional    provision   is the foun-
tainhead of all exemptions,     for it expressly   declares    that “all laws
exempting properties     from taxation other than the property above
mentioned shall be null and void;” but even though these exemptions
“cannot be enlarged * * ‘2 either by the Legislature         or by the Courts,”
(City of Wichita Falls v. Cooper, Civ. App., 170 S. W. (2d) 777, error
refused), It IS the legislatrve    enactment,   Article 7150, R.C.S.,    which
,nctually creates exemptions      from taxation.    The constitutional    provi-
sinn is not self enacting but merely provides the limits of legislative
‘_




     Hon. George   H. Sheppard,     Page   3                  Opinion No. V-123




     exemption.   St. Edwards’ College v. Morris,       17 S. W. 512, 82 T. 1;
     Little Theatre of Dallas,   Inc. v. City of Dallas,   124 S. W. (2d) 863.
     Therefore   whether or not propertles    belonging to The Fair Foun-
     dation are exempt from taxation must be determined          by examining
     the relevant exemptions    stated in parts of Section 1 and in Section
     7 of Art, 7150 as construed by court decisions.       The other sections
     of Art. 7150 are inapplicable.

                 The relevant   parts   of Section   1 are as follows:

                 “* * * and all endowment funds of institutions       of
           learning and religion not used with a view to profit,
           and when the same are invested in bonds or mort-
           gages, and all such buildings used exclusively         and
           owned by persons or associations          of persons for school
           purposes;    provided that when the land or ofber prop-
           erty has been, or shall hereafter be, bought in by such
           institutions   under foreclosure     sales made to satisfy or
           protect bonds or mortgages        in which said endowment
           funds are invested, that such exemption of such land
           and property shall continue for two years after the
           purchase of the same at such sale by such institutions
           and no longer.      This provision   shall not extend to the
           leasehold    estates of real property held under authority
           of any college or university      of learning.”

                Section   7 reads   as follows:

                 “Public charities.    - All buildings belonging to in-
           stitutions of purely public charity, together with the
           lands belonging to and occupied by such institutions
           not leased or otherwise      used with a view to profit, un-
           less 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 un-
           able to provide for themselves,       whether such persons
           are members     of such institutions    or not. An institu-
           tion of purely public charity under this article is 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,      also when the funds,
           property and assets of such institutions        are placed and
           bound by its laws to relieve,      aid and administer    in any
           way to the relief of its members       when in want, sick-
           ness and distress,     and provide homes for its helpless
           and dependent members         and to educate and maintain
           the orphans of its deceased members          or other persons.”
.   ,




        Hon. George     H. Sheppard,     Page 4                      Opinion No. V-123




                       It is noteworthy that although the trust is termed a
          “charitable”     trust and the various purposes for which it was cre-
         ated are referred to as “general charitable purposes,”                 two of
         these purposes,       advancement     of religion and advancement         of edu-
         cation and/or science, might well be covered by the quoted por-
         tion of Section 1 particularly       in view of the fact that the trustees
         are expressly       given authority to establish institutions        for any of
         the purposes for which the trust was created.              If such a&ion has
         been taken by the trustees,        it is true that the personal property
         which constitutes       the endowment fund of institutions of learning
         and religion and which is not used for “profit” in the sense of I, ‘.
         private gain is exempt from taxation; and such exemption is dc-
         corded to all per sonalty so held -- not just to “bonds and mort-
         gages.”    Harris,     et al v. City of Fort Worth, et al, 180 S.W. (2d)
         131: but where such nronertv merelv mav be used for endowment
         purposes clearly the statutory exe&p*                is not gained.     Obvious-
         ly the fact that the trustees might make a gift (see underlined
         portion quoted as to trustees         powers to make contributions,          etc.)
         from the trust estate to established          institutions   of learnjng’and
         religion could not result in gaining an exemption until such gifts
         were actually made.         It is noteworthy in connection with possible
         exemptions      under this Section that the Harris Case, supra, con-
         strued the clause in Section 1 of Article 7150 which limits to two
         years exemption of land bought in under fore,closure sale to nega-
         tive the exemption of real estate generally even ‘though a part of
         an endowment fund. Of course it is well settled that the buildings
         and lands which are owned by persons or associations                 of persons
         for school purposes and which are used exclusively                for school
        purposes,     i.e. in the actual operation of the school, such as yard6
         and recreational       grounds, are exempt from taxation.           Red. v. John-
         son, 53 Tex. 284; Cassiano v. Ursuline Academy,                64 Tex. t173; St.
        ‘Ehward’s College v. Morris,          supra; Little Theatre of Dallas,~ E
        v. City of Dallas,       supra.

                    To summarize:     It would appear that no personal prop-
        erty belonging to The Fair Foundation is entitled to exemption
        from ad valorem    taxes under the provisions     of Section 1, Article
        7150, Revised Civil Statutes, which exempts from taxation the en-
        dowment funds of institutions of learning and religion not used
        with a view to profit, for the reason that it does not appear that
        The Fair Foundation has yet established      any such institution of
        learning and religion.   If in fact such an institution has been es-
        tablished by The Fair Foundation, then, under the holding of the
        Harris case, supra, all the personal property which constitutes
        the endowment of the institution and which is not used for “profit”
        in the sense of private gain is exempt from taxation; however,          no
        real property comprising ~a part of the endowment fund is exempt.
        from taxation save such as is bought in to protect bonds, mort-            .
        gages, etc. and that’only for’~a period of two years.      The buildings
.   .




        Hon. George   H. Sheppard,   Page   5                  Opinion MO. V-123




        and lands which are owned by an institution of learning and which
        are used exclusively for school purposes are &xempt frbm taxa-
        tion.

                    Turning next to a consideration     of the exemption which
        is granted by Section 7 of Article 7150, it is noteworthy that it may
        be claimed by “institutions   of purely public charity.”     Justice Green-
        wood in the case of City of Houston v. Scottish Rite Benev. Ass’n.,
        111 Tex. 191, 230 S. W. 978, said that ‘an institution was one of pure-
        ly public charity’ where:    First, it made no gain or profit; second, ~’
        it accomplished   end,s wholly benevolent;    and third, it benefited per-.
        sons, indefinite in numbers and in personalities,      by preventfrig
        them, through absolute gratuity, from becoming burdens to society
        and to the state. ” The purposes of The Fair Foundation are in ac-
        cord with these requirements,      and it will be assumed that there
        has been in fact no departure from these purposes.

                    Having decided that The Fair Foundation is an “institu-
        tion of purely public charity,’ the remaining question as to the scope
        of the exemption accorded it by virtue of Section 7 is excellently
        dis&ussed in the early case of Morris    v. bone Star Chapter, No; 6,
        Roval Arch Masons.    68 Tex. 69/. 5 S. W. m.     in whichJudae Gaines
        construed the then existing constitutional   provisions  in’the-fOllOWing
        way:

                    “The word ‘institution’ properly means an asso-
              ciation organized or established      for some specific
              purpose, (see the word in Webster’s        dictionary)though
              it is sometimes    used in statutes and in common par-
              lance in the sense of the building or establishment         in
              which the business of such a society is carried on***.
              Hence that part of the section under considerationwhich
              contains this word may have been intended to read, ei-
              ther ‘all buildings used exclusively      andowned by per-        . :
              sons or associetions     of persons for school purposes,
              * * * and all institutions /meaning      establishments    with
              houses, grounds, etc.lofpurely        public charity,’ or
              ‘all buildings used ezclusively     and owned by persons
              or associations   of persons for school purposes,        * * *
              and all buildings used exclusively      and owned by insti-
              tutions of purely public charity.‘.”     * * We are of the
              opinion that the latter reading gives the more reason-
              able construction    of the language as used in the consti-
              tution of our state.    This * * * is in accord with the
              spirit of the other provisions     contained in the section.
              The legislature   is empowered to exempt only ‘actual
              places’ of religious worship, and actual burial grounds
              not held for profit, and, for school purposes,       merely
              the buildings (including the grounds on which they are
Hon. George    H. Sheppard,    Page   6                Opinion No. V-123



     situate) and the necessary   furniture.    In neither
     case is property which is not actually used,as a
     place of worship or burial, or for a school house,
     exempt, although it may be used for the support
     of religion or education, or to secure the decent
     burial of the dead. If it had been intended to ex-
     empt all the property of charitable institutions,     it
     would seem that more general terms would have
     been used.   Besides,  the omission    of the word ‘all’
     before the word ‘institutions’  would indicate that
     the former construction    was not intended, it was
     used before the word ‘buildings’ and the word
     ‘schools’ in the same sentence, when the mean-
     ing in both instances would have been clear with-
     out it. It would seem, therefore,    to have been
     omitted before the word ‘institutions’ because its
     insertion there would have changed the meaning
     which was intended to be conveyed.”

           Judge Gaines next decided that the property in contro-
versy was embraced within that designation, or kithin the de-
scription contain&d in subdivision 6, Article 4673, Revised
Statutes, which section he construed and applied to the facts
of that case.    He then concluded:     “the building in question is
not ‘used exclusively’     by appellee in the sense given to these
words in the Constitution;     the exclusive use meant being the
actual and direct use for the purposes of the association,           and
not a use by others for revenue, although that revenue may be
exclusively    appropriated   for the objects of the charity.    The
legislature   in exercising   the power conferred by the constitu-
tion seems to follow the construction       we have adopted and~ex-
empt ‘all buildings belonging to institutions of purely public
charity, together with the lands belonging to and occupied by
such institutions,   not leased or otherwise used with a view to
profit, and all moneys and credits appropriated         solely to sus-
taining such institutions.’     This means that a building leased
for profit is not exempt although such profit may be appropri-
ated solely for the purposes of the charity, and not to the pri-
vate gain of its promoters      or stockholders.    The other provi-
sions in the same article show this; * * *. This position is
also sustained by the analogy of the section, which exempts
the property of counties, cities, and towns.        The exemption is
limited to their property owned and held only for public pur-
poses, such as public buildings and sites therefor.          Const.
Art. XI, e 8 * * *. Many of the states have statutes of simi-
lar import to our constitutional      and statutory provisions      upon
this subject; and so far as our investigation       has gone, it is
generally held that the renting of even a part of the building
for profit, though the proceeds be devoted exclusively         to the
 Hon. George    H. Sheppard,   Page   7                      Opinion No. V-123



 charity, subjects such part,    at least,   to taxation.”     A long list of
 authorities is then given.

             Although the constitution has been amended and the stat-
 ute changed since the time of the Morris case, the substance of
 the opinion, as set out in the above excerpt, has been expressly
 approved by the Supreme Court in City of Houston v. Scottish Rite
 Benevolent Association,        supra, and by the Commission    of Appeals
 in State v. Settegast,     254 S. W. 925. It has been followed by a long
 line of subsequent decisions       (not all ofwhich expressly   cite the
 Morris    case as authority for the later holding) which clearly es’
 tablished the rule that the property exemption granted to “public
 charities”    covers    only real property and the improvements      there-
 on with a further requisite that the charity must make an actual,
 direct and exclusive       use of the property for charitable purposes.
                   iew, v. Markham - McRee Memorial       Hospital,  137
                   S W (2d) In2 Santa Rosa Infirmary v. C ity of San
                    Co,.   App., 2$ S. W. 926; B enevolent and Protec-
 tive Order of Elks v. City of Houston, Tex. Civ. App., 44 S W
           ;    ar    am Hospital v. City of Longview, 191 S. W. i2dj
 695.

            To summarize:     The only real property on which The
  Fair Foundation could claim,exemption     by virtue of Section 7 of
  Article  7150 would be ,such buildings and lands as belong to and
  are exclusively  used by The Fair Foundation for charitable pur-
  poses; the fact that income from real property is devoted to the
  charitable purposes of the trust is not enough to gain the exemp-
i tion; nor does any exemption exist for the personal property
  owned by public charities.

                                SUMMARY

            If the trustees of The. Fair Foundation, a charitable
      trust, have established     an institution of learning and re-
      ligion and have established     an endowment fund for said
      institution,   then by virtue of Section 1 of Article 7150, R.
      C.S., the personal property which constitutes the fund or
      any part thereof and which is not used with a view to
      “profit” in the sense of private gain is exempt from ad
      valorem taxes; however, no real property comprising
      part of such endowment fund is exempt fr.om taxation
      save such as is bought in to protect bonds, mortgages,
      etc.‘and that only for a period of two years.        The,build-
      ings and lands which are owned by an institution of learn-
      ing and which are used exclusively        for school purposes
      are exempt from taxation.       If no such institutions have
     .been established,     the only real property on which The
      Fair Foundation could claim exemption by virtue of Sec-
      tion 7 of Article 7150 would be such buildings and lands
.   .I.




          Hon. George   H. Sheppard,   Page 8                 Opinion No. V-123



                as belong to and are exclusively used by The Fair
                Foundation for charitable purposes.   Section 7 of
                Article 7150 does not grant any exemption for the
                personal property owned by public charities.

                                                      Very   truly yours,

                                                ATTORNEY      GENERAL         OF TEXAS




                                                ByBl$$fGG-p
                                                         Assistant


          .:MP/lh
                                                APPROVED      APR    8.1947



                                                ATTORNEYGENERALOFTEXAS
