Honorable Joe Gordon
County Attorney
Grty County
Pamp,   Texas

Dear Sir:                            opinion No. o-~205
                                     Re, Constitutional and statutory
                                     tu exemption ofthe gas system
                                     .~v,... .a inoorpcrated oi'=ybut
                                     serving .n Incorporated village 8
                                     miles distant for profit.

      4~ your letter of April 9, 1940, you ruladt for the opinion of this
Department the following question, xhiohm   quote from your letter, together
with th elo0O.wpPnyingfactual eitu.tionl
"ldayI ham your opinion as to whether aa inoorporated oity which mm    its
om gas system is subSect to taxation by an independent school distriot aa
to that portion of the system extending from its oity limits a distanoe of
lppro&mntely eight miles to and throughout u lnoorporated villageT
"The City of M&an   purchased its gag system from a p&vats owner aad lnclud-
ed in the system as a gas line from IboLeanto Alanread, . distance of eight
miles, together with ssrvics lines and meters in Alanread. Part of this line
and all servloe lines are in Alanreed Indspendert School District. This dis-
trict has assessed that portion of the property in lta dlrtriot for taxation.

"The operation of the distribution system in Alanreed IS not cam primarily
for the benefit of the people of Alanreed, but for the p6op>e~residing in
Y&an,   as the residents of MOLOU are rolling gas to the re8idents  of
Alanreed for a profit3 that is, at the mm   nte which the resident8 of
AImreed p&d for this eervioe at the time this utility 'RI owned by a
private oonce~."

      Three pmvisiona of the Constitution   of   Tens   are pertinent   to thin
inquiry which ne quote aa follows:

'Article VIII, Section 1. Taxation shall be equal and uuiform. All proplr-
ty inthis State, whether cmmd by natural persona or ccwporaticms, other
v               shall be taxed in proportion to its valus, which shwn
asoertained a8 =y ba provided by law. . . .

         VIII, Seotion 2. . , e tit the LegislaturS may, by~geaeral laws,
"Ark'.iole
exempt from bation   public property uced for public purpoees. . . .
Honorable Joe Gordon - Page 2 (0-2P5)



RArki~leXI, Seotion 9. The property of cmntics, oitles and towns, -3d
and bald only for pblio purposes, suoh 33 pub110 tiildlngs and the sit33
themfor.   nra  aginea and the firniture thereof, and all property used,
or intended for sxtingui&ing fires0 public ground3 ar.dall other property
devoted exclusiveljjto the u3e rnd benefit of the publio shall b exempt
fra forced 3313 and fromtexation, pmvidud, nothing herein ah311 prevent
th3 onforcensnt of the vendors lien, the meohPnio3 lien or builders lien,
or other lines now existing."

       Fursu3ntto the fomgoing oon3titutioncl provisions, ths L3gislaturs
of TOXWJ, by &-tiol3 7160, Vernon'3 Annotated Civil St3tutts3,enaoted tnto
13~ the following tu sxemption:

'The followjng pmperty   shall be exmnpted from taxation, to-dtt

*4. Publio property. All pmperty, whether real or personal, belonging
sxolu3iv3ly to this Stat3, or 3ny political subditision thereof, . . ."

       It is evident frcmrth3 foregoing oonstitutionrl and statutory pro-
v-i3icn3that axsmption from mtion,    la oonneotion withmuaioipal property
3nd purposes, 13 not dependent upon ownership of the pmperty by the muni-
oipality in question, but r&her upon the use to which such property is put,
th& is, the prop~Q~ must be dwotad to orused for publio purposes.

       Regarding the us3 of munioipplly omed property *ioh ail1 givs rise
to the 3bom ooastitutional prd statutory exon~ions, it w3s held la the 0333
of Corporation of %n Fslipe de Austin V. State, 229 S.W. 6461 "the teat is
not whether the property is used for government31 purposes. Th3t is not tho
language of the Constitution. Thin oourt h33 n3ver 3do@ed that n3rmw lim-
itation 3nd the weight of authority Is oppossd to it. Muoh property of
munioipalitiss exempted from taxation has, and C(UIhave, no governmental
~33. The test is whether it 13 devoted exolusivsly to I public ~33."

       To the 33me effect is Galveston 'i%arfCo. Y. Galveston, 63 Tax. 14,
holding that the interest of a city In a public wharf, rapresentec by stqck
in a wh3rf corporation, was not tamble under the Constitution. There is
nothing "governmental" in the publio ~3.3of 3 wharf.

       i faot, the okership and operation bJ 3 munioip3lity of plblio util-
ities. suoh 33 the 3.8 evatsm involved here. hao been held. in the 0333 of
San Gtonio Indepsn&t &hool Mstriot V. i6aterWork3 Boa& of Trustees, et al,
120 S.U. (2d) 861, to be a "proprietary Punotion" in contradistinction to 3
'gowrrmsntal funotion," in~that auoh utilitiaa pertain to the business
affairs adrcinisteredfor the speoirl benefit, health cud welfare of the urban
community ambraced within the corporate boundaries. But despite this 'non-
governmental" nature of the public utility systans owned and operated by
nunicipolitios, in Texas, such pmpertios have been held, by all deoisions
of this State, to bb exempt from taxation a3 "public promrty used for
public purposss,' within the oonatitutional and statutory provisions.
&norstJe      Joe Qordon - Pop      3 (o-2205)



        brewer,   the fmt that a portion of the gas system mder oon-
sideration hem i* looated beyond the.lI@ts      of the city Of &&,m do,+a
not, Of itself, militate lgaimt the exemption Of.suah sy&m h         t-tIon.
fn ++he**e Of City Of Ml.6     V. S1;pte, 28 6.X (26) 227, proparty 1666tsd
in Denton County, but omd     by th6 city of D.ll.3  rsldwed .I . mggmir
to furnish water to the oitisens of Dallas, naa held tr, bs empt from
tmtion,    under the pertinent oonrtitutianal gnd statutory mq$giong.

           l&r doss the fast th.t rerarme ia dorimd       w   the City of xoL66n
from the OPsratioa of this munioiplly    omned gas syatsm operate to.rmovr,
 Or nullify the emmptioa froa tlution, aooordad tpl the Coastitutiom and
 *tatutes, if it i* ofhsrwise -ailable,   under the prinoiplee hereb@ter
 discussad. The weight of authority is olserly to the sfPe& th&, 611 pro-
 Perti latilly    owed and held by oitiss md towns ibr publIo purposes,
 though a 1)ouroe of revenue or profIt whioh was paid into the city Treasury
 and used for munioiprl purposes by the olty, ir rxsmpt frm Sate twtion,
.ths dominant PurpOlOIa th6 use kvirg direot nferanBa to the purporog for




        But in aroh of the oases oitrd, it apperrr trvn thefrota    that tire
incasno or rewnue of tho nualoipallty ia pu*MOn WM dwiwd         fiaa the ~40          Of
gas, mater, eleotriolty, eta. to ooneun6r6 '6itNa the lbIt3             of th6 m=iOiPfi-
ity owning the pub110 utility,  or, inoidentally, tocc0surner8 out*Ide *ha oity
1Mts but adjacent thersto.     The question prrsentod ha* is whether Or not
the use of. put of the g.6 syetau Ownedby the OlQ’ 0fYoLo.n to *amIoe, for
a profit, the inh6bit6nts of th6 tm   Of 436nH6d 6ight dl6* frlpfh6 lMt3
to the oity of MoLeur removes the Inst6nt 0686 f?CSCth6 o6663 oIf6d, 30 63
to Ed6 the prOp6rty table*

       w6 h6-m found no 6uthorities lr T6~63 b66ring uPOa this qu@stion, md,
96 mo6ggity mu3t m3orf to ths ~rsu6siv6 wthoriti6n of other jurirdiotions~
There are h unoonflioting 1-66 of suoh l   uthoritiU,  0116 holding that tb
6~6m@ion     from   fucatioa   of muEiCip611y    om*d worka md   Utiliti63   13   lrOt lO*t
bo6ug6 Of 6a Inoidontil 1166 for a priYd6    purpoa6 fromwhloh rbwnU6     is
dorimd, the Oth6r holdi3g that the UOO Of PNFafii*m      by a Oily to *em    bhab
itant bsyond the oify tilts,    rhioh Is n6ither laoldsntal nor IIISignifi~nt~
ig not 6 ~86 for pblio purpe606   iIithia th0 mSUiiSg  Of fh6 6%6+iO&   rclquirs-
nentg of th6 Conatltutian and StdUt6C, rsp6oitilyti5h      r**prOt to oity PmP-
     out&do the Oity limit6 whloh 13 u66d OXOh6iV6ly
6r‘l;y                                                    t0 16l-W rosldents in
the Out3ld6 t6rrItOryo

       Supporting the prinoipls of exenption upon th6 basis of inoidental US6
am th6 a6863 of Comonwoalth v. City of Riohcond, Cccmnomm~lth 0. City of
Covinfion, Tom of Korth Xavam. Borou& of’ Vhllingford,   ud t’orrmof Ora2Qge
V. City of Barrr, supra.
Honorable Joe Gordcn - Page 4 (o-2205)



         Under the facts befors the court In the ease of Com!onwealth vo City
of Richmond, it appeared that the adjacent town of Bprton Eieightspetitioned
the city council of Bichnond to supply about forty thousand galla of water
daily on suohtsrms ~8 should teem to the aity reasonable end fair, until
such time us artesian wells oould be drilled to supply the town of W-ton
Heights with ample watero This request wa8 granted by ordinance whioh we.3
'G&CO rsnwed and extendode In addition, the City of Richmond furnished
water to the Richmond Looomotiva Harks, a branoh of the knsrlcan Looomotive
i?orka,a luge and extensive plant located adjacent to the territorial limits
of the City of &bond,      and employing several thousand operatives whose
residence   is Idthin the aity Umito.   The oity, under the same oonditions,
finrished water to the repair ahopa of the Chesapeake and Ohio Railroad and
tha Seabord Air Iins Railmuy, and also to I[. T. C&troll, living on the
north side of Broad Street rdjaoent to the oity limits, and a few other
parties under like oonditicnsa The aggragnte amount of ravemae derived
fran Aunfshing water to industrial plants ad non-resfdents beyost+the
oity limits for the year 1911 amounted only'to the sum of $6,456.29.

       Under A oonstitutiaPIa1provision exempting outnin   properties, in-
cluding"propox-Q directly or indireatly owned ly the St&e, however held,
and pronsrty 14nhrlly o-d   and held by oounttes, oitier, t-s   aad sohool
districts used wholly and exolusively for county, oily, topa or publlo school
purposes," the couth denied the contention of the Ccnnmonwealththat the pub-
lic utility property of the City of Rlotmond was tlable beoausa the oity
had gone beyond its &&rter rights in fumishlng water and gas to psrsone
residing beyond its corporate limits, and thus was engaged in "competitive
Lusines" in tha matter of furnishingwater and gas to consumers for oompen-
sation.. The court doolared that the oonstitutional exemptions fnnn ta+,lon
abve quoted would not be "defeated or annulled by the mere faot that rev+
nue or profit aver and above the oost of maintenance, ie realized fromthe
property~ that jP the use made ofthe  pzr~p~rty80 held has direct referenos
to the purposes for whioh it is by law authorized to be onned andheld, and
tends immediatelv and dirsotlyto promote those purposes, then its uee is
within the provisions exempting the property from taxation, although revenue
or profit is darivud therefrom as incident to suoh use."

       The QIO of CcmunonwealthVI City of Covington, supra, turns upon A
constitutional exemption from taxation nor0 closely paralleling that of our
Texas Constitution, and reading: "Thare shall be exempt fromtaxation pub-
lia property used for publio purposes.' It WLS sought by the Cowonwealth
of Rentuoky to reoover fromthe City of Covington, in Kenton County, tnxes
upon lands, mservoirs, water maina, pumpingotations, engines, ato. aituat-
ed in CsrmpbellCounty and used AS a water plant or system for nupplying water
to the inhabitants of the City of CovIngton and certain citizens of Campbell
County residing neou its reservoir andwater maina. In holding the ooastl-
tutional exemption fromtoJation to be applicable to this property, the court
said:

('Thefaot that appellee's reaervolr, pumping station, and some of it3 mains
lie outnide oftha muniaipatity -indin another county, or that It may inci-
dentally dsriva 50~1)revenue from the use of t&water   by persons living
Iion.Joe Gordon - Pnga 5 (O-2205)



ntxr its mains and outside the oily limits, ocmnot Affect the question. Very
fen oitics ham such proparty situated within their ux-porate limits, And in
many instances it haa'beenfound naosssary to locate itmilos a?my. The test 108
Is the propertg used for pub110 p'urp~ses~that in, prinmrlly for the health,
comfort, And welfArs of the inhabitants of the olty? If so, it is exempt frcm
tsration. We do not mean that a oity may s+cer upon,the lmsineas of maintaini::,
a waterworks Aystem for other oities or towns, but Only thnt the fAOt thAt it
incidentAlly furnishes WAter to a Oonsidareble nUnbet of peraon6 in proximity
to the oiqy,without injury to the rights of the inhAbitAnts of the oity, does
not Alter the publio OhArAuter or UBO of tkB property, or meke it subject to
taxation."

           In the 018e of Tow of Or~np;sv* City of Eu'ra, AuprA, the public use
Ofthe lratersvstom of the munioipality in question war srteblished EO aa to
bring it with& +&a provisions of-the &Atuts   Felating to eXAq'tions of property
used for publio purposee, dEEpitA the hct that 'at CertAin 8eaoons of the year,
more wAter ie supplied $r the defendurt water syr ten than is required for its
mtiicipal purposes, which is sold by the defendant for meohmioal uses."

            Opposed to the principles oftu  exanption amounted in the foregoing
~ASIM, bao~uae of a differenoe in the fACta, W!O ftid the OABOS of Mayor And
Aldermen of City of Woxrll10 v. PArk City, 172 6.W. 286: Rtileffiv.Xemrt,     66
Atl. 662, Snd IMviok County v. City of l-or?    Nans,.161 8.2. 417, oaoh And AX
illustretive of the prinoiple of 1Aw thet A u8e of munioipally owned works end
utilities to serve itiIdtantr.beyond the oily limits, whioh la neither inoident-
ml nor insi~ifioant, is not A US0 for pub110 pWpOsW     Within the meaning of tax
0xaPaptionrequirmoents.

           The oontentions And feats involvud in the OAee of Meyor And Alderman
of City of Knotille v. Parks City, supra, mAy be stated fnu %he opinion in
that OASd AS follcw.?:

"The bill of canplailltprOoeeds upon the theory that the property attempted to
be taxed is exempt because owned by A municipal oorpcration; while it is the
contention of defendsst oity thet ruch portion of the plant of ocanplelnent
which IS situated within the bOUIdAries of Park City is not used exolus?vely
for pub110 or corponrtion pIEpose Of the OCWkplAinABt munioipAlity, but is
used in serv$ng PAI% City for profit.

"It Ap&i,ArS thAt the rest boundvy line of Park City is almost oontiguous to
the east boundPry line of the city of &~oxvllle for A dlStAnce of Abxt one
mile. Them intervenes whet is deeoribad As a nsutrrl strip, About 300 feat
wide, onwhich fnctories w 1OoAtAd.

"Prior to 1909, both of the oities ware served by A privAts WAter corporation,
the I;notills Water Company, the plant of which was looetsd partially in the
territory of oath of them. Under 1egiSlAtiOn later noted, the oity of Knoxville
IXI1909 acqu&red the plant of this o~lpary, including thet PAX-t Situated in
Purk City, a&i ASSUWXI the coutrrct tl:anlz existancs betwoe: the ccnpamy
Eon. Joe Gordon - page 6 (O-2205)



and Park City, and has since operated Its plant thers.

'The pmof establishes that the plant of oomplainant aity lying within the tar-
ritorlal limits of Fapk City la, aa to uQ0, independent of and not neoesaasy to
that part of the systms ahioh is In Xn0xcUls and there in use for that oi@ and
its inhabitants. I& mains for the Enoxrllle supply are laid in Park City.

'%nw   the purchase of the plant of the Eno~lle   Water Ccsspany,the City of
~oxville has charged the lnhabdtanta of Park City for water at rates which
are 20 per cent higirerthan lfr rates to its osn inhabdbtanta~and a profit is
          the Park City plant. A portion of these pmflts hss been used to
made fs-0~1
extsndwater llnss into and to 86~~ a third incorporated towa, Lonsdals, which
lo not adjacent to ths City of &oxville.s

           The m-mntitutional md statutory exempt&one involved in this caseare
qupted rospe&Aygly, PI folloro~

s&l property real, parrrenal or mixed, shall be taxed, but the Legislature may
exoept rush a.smay bo held by the atate, hy wuntieam olties or.torma, Pnd used
ox~l~si~sly for publio or oorpratiorr purposea.

"That all props-,   real, prsonal aad mixed ahall b arrerred forixxatlon for
State, oownty and munloipal purpo8011,exoapt auohar ir drolrmd exempt lnt he
next seotion~

n8e~. S. That the property herein enlrmeratedand nome 0th~ #hall M exempt
framtaxation~ Al1 property of . . . aw lnoorporated alty, tom, or taxing
dlstriot in the rtate that 10 wed exoluaivrly for publio or muniolpal oorp
oration purposea."

           The ookt held th$t  the physlorl prop rtlw of thewater system of
Xnoxp~lle looatod wlthinthe bundarlea of Park City muld not be exempt from
taxation 00 far as they r6rved tha muulolpal purposae of the latter munioiprllty,
because :bay did not meet the oonstlt~ti0nal and statutory tosto of being em.-
ployod exoluslrely for publio purpore8*

           Tn the oaae of Warwick County -?aCity of bwport hwa, it mm held
that where olty aoquired a rotor work8 rystaPIoperating in olty and in territory
oontiguoua to olty, purruant to oertaln l  uthorlaing rtatutia, and rooairad moro
than one third of total ro11enuofrOn arls ofrater to peraonl outeldo of city,
the said mtor system wan liable to taxatioa baoauar not used either wholly or
ox~lusl~ely for pub110 purp0ro8 of oity, under portlreat tax oxmsption prooiaiono
of the Conrtltution, Tho ooti rooopalss(l~   tho dirtinotioa pointed out in tho
two Umor of authorit     am    dlrcun8ed dth the follonIng lraguaget

II
 . . . If tho outslda ULW be incidental or the rvrw~uo thorefrem 60 muall as to
bs nogliglblo, the nmwrty   is rtill oxmspt from taxation, but if the outeido
wo is osssntial (I.e., Lnpoaod aa an inherent duty of ths oityas the omor of
the propsrty) and la addition tho rwonuo derived is substantial, then the
property io not oxsmpt fr0mtaxation.   . . .
.      -




    lion.Joe Gordon - Page 7 (0.4205)



    ”. . . %  do not meen to intjmata thst, as the ounsr of the xstsrxofis, a
    mucicipality may not as a mere incident to Its business supply relatively
    limited quantities of water to persons outside of its territorial limits
    without subjecting Its property to taxation. RS do mean to say that, under
    tho facts of this oass, the supplying of water by tho city of Newport lievr;
    to a large nombsr of ooncumers in ikrwioh County and Xlisabeth City County,
    at reasonable rates, with the right to extend its mains to supply lrptsrto tiln
    citieens of York and &ass City oounties, cannot bs held to be a mere inoidont
    to supPlyin,gwatar to its ovm citizsn8, without disregarding the manifest
    import of the Constitution. E 153."

               In Stiles V. Rawport, supra, it was held that whore the municipal
    corporation of Newport had oonstruoted a branoh lino in another municipsllD~,
    West Derby, whioh was devoted wholly to the needs of the latter, and fur&shed
    its sater supply, that system was taxable by West Derby. Tho Court, in lan-
    gusge hip>ly applicable to the instant situation, saldr

    "Tho municipal duty of the vil&;e of Newport as regards ths maintenanoe of mains
    and herdrantsis confined to its territorial limits. The munioipal rslation which
    cntors into the question of dcmestin supply is oonflnod to its own inhabitants.
    The furnishing of arter to the inhabitants of the defendant village is held to be
    a public use upon the ground that the making of such a povision, ahile not
    strictly a municipal duty, is protootive of the publio health, and therefore a
    public use within the meaning of t&o laws relating to taxation. But this reason-
    ing fails when the furnishing of water to tho village of West DsrbjrIs In quuos-
    tion. He see no ground upon which the West Derby branch of this systsm oan be
    held to be devoted to D puhlia use, aither as mgards fire protoctioa or dcssestio
    needs. ?hs village of K8wpor-t0~0s no municipal duty to the village of West
    Kcr3J or its inhsbitants, and has no municipal interest there. Its sale of xator
    to that village and Its inhabitants is for the rsvsnuo obtainable thersby, inde-
    pendent of any connection with municipal duty or interest* . . .

    sgsre, the tillago of &sport has built and installed a branch outside its oorp-
    orate limits, which Is devoted wholly to the needs of another tillago, and can
    never ba made available for its own munioipal sorvios~ and the question is
    whether the property so orentod and cirsumstsnoed shall be treated a8 soroiag
    an incidental and tharefore a public usa. It might not b3 ocq to frsme a sar’:,
    and ancsptabls definition of an incidental ~30, 3A ns think it may cafsly be
    said tk,atthe supplying of the munioipal and domestic needs of another munioi-
    polity through a complete system of distribution pipes and hydrants onatod for
    that purpose is not sooh a usor The plaintiff has assessed the hydrants located
    in Derby, and us hold that they are taxabla."

               From a careful snalysis and consideration of the authorities cited
    and disouscod in support of the two lines of dooisions regarding tgx exsmption
    of municipally owned utilities, wo am constrained to hold that tha gas system
    owned b<rthe City of &&san but located outside tho city limits to a distanoe
    of eight miles and saticing the Css noeds of the inoorporated villagsot'Alan-
    reed, is not exempt from ad valoram taxes levied w hllnreed Independent School
Snorablp   Joe Gordon - Page 8 (O-2205)



District, under pertinent c~stitutianai and statutory tax exampkion provisions,
because suoh property is not 'publio property used for publio purposes," nithin
their intsndmcnt. The City of&Wan     has no publio or oorporate purposes to
some within the corporate llnits-of Alanrced. The furnishing of gas end other
utilities to the Inhabitant.8of Alanmod I.8the munloipal purpose and duty sf
Alanmod and not MoLeax. It Is not enough that the gas systam in question iz
wined by M&an,   hit such properties, to be entitled to tho t~,axanptica affori-
sd bythe Constitution and statutes, must be "public propwty'used for publio
purposea.' AndthIs tax ex&nption test is not met by the faots of the instaut
o&se where it nppe ars th8t the City of k&em8 undertakes to oontinuously supply
g&s to the inhabitants of mother incorporated munioiplity eight miles distant.
This is not the inoidcntaly supplying of *tar, gas, oleotricity, eto. to persons
aad industrial oorporations olose to the oily limits, or the salr of a temporary
over-supply.of such cczmnodity,witbAn the rule of law annouaoed in these dsoi-
siona holding that nn incidental or insigaifloant use of suoh property will not
defeat theta% o%emptione

            Trusting that the foregoing fully uamerb your inquiry, wa are

                                                   Yours very truly

                                                  ATTORBEY
                                                         GENEiU    OF TEXAS

                                                  By /o/ Pat Id. &ff,   Jr.


                                                          Pat 16.Gaff, Jr.
                                                               Asslrtant


APmovED JUNE 10, 1940
/s/Gwld    C. XAXZI
ATTORNEY GENEFAL OF TEKbs                                APPROVED
                                                     Opinion committee
                                                         ayawl
                                                         Chairma
