                            October.17,1957


Hon. William J. Gillespie              opinion   Ho. ww-281
County Attorney
Lubbock County                         Re: Taxabilityof City
Lubbock,Texas                              propertywider Lease
                                           to private industry.
Dear Mr. Gillespie:

        In connectionwith your letterrequestingour opinionrels-
tive to the captionedCWttQr, you submit the followingfactuaL
situation:

               "The City of Lubbockholds title to a certain
       tract of real propertyin Lubbock Countywhich is
       dedicatedto use a8 the LubbockMunicipalAirport,
       Such property,being used for public pmposes is.the
       past has been exempt from taxationunder the express
       provisionsof B.S. Art. 7150.

               "On Septenber15, 1955> the City, through its
       directorof A?4ation entered into a lease of a per-
       tion of the airportpropertyto the West Texas Compress
       and Ware&we Ccmpauy,a Texas Corporstioadomictled
       io Lubbock,hereir&tey called lessee.

               W!e issaee is to use the laud for mehouse
       purposes,and the AirportBoard has detemimd +&a?
       it is in the public intereatthat the lesseeilave
       suck privilege.

               "Tke lease is for a term of five yelrs 'begin-
       niag October 1, 1955, a~udending Septmber 3C~,l$(I‘,
       with the lesseeto pay $l,lOC a year L1s:ie City
       during that period. Tiielessee Is also to erect five
       metal clad tmrehousebuildingson ti;esite, whim
       buildir.gsshall become the uropertyof the City by
       September30, 1960, the City being conve:wda l,i60in-
       terest in each of said buildingseach month dcrirg
       the first five years of the lease. The lessee is
       furthergiven an optionfor tbzee consecutivefive-
       year extensions,with a differentyearly-rental heizg
       due during each of those extensions.
Eon. William J . Gillespie,page 2 (WW-231)



                 "It was furtheragreed that should the
         contractlease be abandonedor breachedbefore tke
         initialfive-yeartern was up, the City would h;zve
         an option to purchaselessee'sremaininginterest
         in the buildings. If the City did not desire to
         exercise its option,then the lesseehad tiie,op-
         tion to purchase the City's accrued interest,and
         upon payment.the lessee could remove tke buildings.
         The further terms of the lease appear in the copy
         of the lease attachedhereto."

         Specifically,you submit the followingquestions:

                 "(1) Has the land, by virtue of the chauge
         in the characterof its use, lost its tax exemption?

                 "(2) Regardlesso? the tax consequences
         to the City, does the lessee'sleaseholdinterest
         constitutea separatetaxable interest?

                 “(3) Does the lessee'sdininiskinginter-
         est in the buildingsconstitutea taxable interest
         to kin?"

        You s+ate
             "    that tke property in question"is dedicatedto use
a* +he Lubbock%iunicipal Airport." You also state, (I.. .tkQpro-
perty ns a whole WRS acqti-ired
                              for the purpose cf servingas an air-
field. A great portion of tkat prcpertyhas been utilizedfor that
purpose,but the remainingtract (tZe property in question)has been
tutned over to private enterprisefor *aperiod of POSSib~  20 years."

        The operationof an Airport by a cit;rconstitutesa public
purpose. If the land in questicnis being held by the City for a
future expansionof the .airport, it is tax exempt unless and until
tne city has abandonedits intentiontc use the property in the
future for a public pwpose. CitT J of Abi1er.ev. State, 113 S.M. 2d
633 (Tex. Civ. App.); ;tnCt
                          City of Dallas v. State, 25 S.W. 2d 937
(writ refused).

         sec. 2, Art. TTIII,of the Texas Constitutionprovidesin
p.SZt:

                 "but tke legislaturemy, by general laws,
         exempt from txation public propertyused for D~u'clic
         purposes."

       Sec. 9, Art. XI, of t‘neCcnstituticnof TTW~, provibs im
      ~-~
p:trt:
Bon. William .J.Gillespie,page 3 @w-281)



               Vhe propertyof counties,citiesand towns,
       owned and held only for public plurposes,silohas
       public buildingsand the sites therefor,fire engines
       and the furniturethereof,and all propertyused, or
       intendedfor sxtinquishing  fires, public groundsand
       all other propertydevotedexclusivelyto the use and
       benefit of the public shall be exempt from forced
       sale and from tsxation,*."

       Article 7150, V.C.S. providesthat the followingproperty
is exemptfrom taxation:
               n
                   .   .   .


               “Sec. 4. Al.1property,vhetherreal ar per-
       sonal, belongingexclusivelyto this State, or any
       politicalsubdivisionthereof,yy**"

        You will note that Sec. 4, of k-title 7150, supra,purports
to exempt all propertg,whether real or personal,beiongkg excln-
sivelg to this State, or any politicalsubdivisionthereofend does
not containthe restrictionthat sush propertyto be exemptmust be
used for public purposes. Countiesand citiesare politicalsub-
divisionsof the State. Eowever,Sec. 2 of Art. TIII, supra, of
the Constitutiononly gives the Legislaturethe authori&:o~sxsmpt
such propertywhen used for public purposes. ThereforeSec. 4 is
inoperativeinsofaras it purports to exempt public propertyregard-
less of its use in violationof said Sec. 2> Art. TII; of the IX&.
stitution,but is valid insofaras it exemptsp?ubLiopropertynsed
for public purposes. City of Abilene v. State, 113 S.W. 2d c

        Sec. &a of said Artfzle 7150 (not listedabovejwhioh re-
quires power districtssuch as the Lower ColoradoSiver Authority
to oav certainamounts In lieu of tsxea is uncoz3t1txt:onalaLower
Colkc~addo
         River Authorityv. ChemiaalBar& and Trust Co., 39C ST
2d $8,

        The Court held power districtsto be poEti:nl sub~.ivlsLons
of the State and as the property~wasdevoted k.oa public use it was
exempt from taxation.underSec. 9 of Art. XI of the Coustitution,
supra.

        County and city property B' actuallyheld for a future public
use is exempt althoughtemporarilyrented or ieased. state v. city
o? Eoustoc,140 S-W. 2d 277* County and sity propertyLT 'used or
held for public purposes is exempt,althoughno% owned or held exclu-
sivelyfor such p:urpose.Stats v. City of Beaumont,I.61S.W. 2d 344.
                                                                       .,



hon. WilliamJ. Gillespie,page 4 (-W-281)



        The Test for determiniugwhether "publicpropert‘J" is tex
exempt is whether it is used primarilyfor the health, comfortor
welfsre of the nublic. To be used for public purpoae6it is not
essentialthat it be used for governmentalpurposes. A. & 14.Consol.
Ind. Sch. Dist. v. City of Bryan, 184 S.W. 2d 914. That charges
are made for useof public propertydoes not withdraw it from its
public character,if‘suchchargesiarean incidentto its use by the
public and the proceeds inure to the benefit of the politicalsub-
divisions. Id.

        Land acquiredby a city for a public purpose,such as a site
for a water reservoir,is tax exewt, althoughthe city temporarily
leases same for agricultcal or older purposes,if the city has not
abandonedits intentionto build such reservoir. City of Dallas v.
State, 28 S.W. 2d 937.

        You are thereforeadvisedthat if the City is holding tine
property in questionfor a future expansionof the airport,or for
other public purpose that it is tax exempt to the City.

       Article 7173, Vernon's Civil Statutuesprovides:

                "Propertyheld under a lease for a term of
        three years or more, or held under a contractfor
        the purchase thereof,belongingto this State, or
        that is exempt by law from taxationin the hands of
        the owner thereof,shall be consideredfor all the
        purposes of taxation,as the propertyof the person
        so holding the same, except as otherwisesoecir^ically
        providedby law.'

       Article 7174, Vernon'sCivil Statutuesprovides:

                "Tlzableleaseholdestates shall be valued
        at such a price as t‘neywould bring at a fair vol-
        mtaq sale for cash."

        The Supreme Court of Texas in Tramwellv. Faught, Tnx Col-
lector,74 Tex. 557, I.2S.W. 317, held that the taxablevalue of real
arooertv.ta&le b7 virtue of Article 7173, supra,was the value of
the leaseholdestate and not the value of the fee. We answer your
second questionin the affirmative.

        In referenceto your third questionit appearstha.ton
January 1, 1958, the City willown   an undivided3/6!lof the improve-
ments. This 3/60 interestwill constitutea part of the leased
premisesand tinevalue of same shouldbe consideredin'jsrivingat
the assessablevalue of ,t.he leaseholdestate. On each succeeding
January lst, the City will owu E/50 .additional interestin the
premiwa ,-na the assess~?-l~ value of the leaseholdestatewill
Hon. WilliamJo Gillespie,page 5 @V-281)



increasein value accordingly.

        Article 7174, Vernon's Civil Statutesprovides:

               '!Personalproperty,for the purposes of taxa-
        tion, shall be construedto include e . .a11 improve-
        ments made by persons upon lands held by them, the
        title to which is still vested in the State of Texas,
        or in any railroad company,or which have heen exempted
        from taxationfor the benefit of any railroad company,
        or any other corporationwhose property is not subject
        to the same mode and rule of taxationaa other propee."

       It follows that on January 1, 298, 57/&l of the value of
the improvementsshouldbe assessedagainst the lesaee as personal
property owned by him. Each year thereafterhe will own l2/60 less
interest in the improvementsand shouldbe assessed acCordingly.
We appreciatethe able brief which accompaniedyour request.

                            SUMMARY

        Propertyheld by a city fcr the purpose of f%nre
        expansionof an airport or other public p~nrposeis
        tax exempt to the city, A leaseholdestate covering
        tax exemptpropertyof a city if held under .alease
        for a term of three years or sore iB taxable t0 the
        lessee and shouldhe valued at such price as it
        would bring at a voluntarysale for cash. Tke inter-
        est of the lessee in improvementsplaced on the
        leased premisesshould be assessedfor taxation as
        the personalproperty of t'oelessee.

                               Yours very truly,

                               WILL wIL;jON
                               AttorneyGeneral of Texas


                                   W. V. Gsppert
wvG/Yk                             Assistan;,
AP~?RomD:

OPIRIOR COMKrTrER
George P. Blackburn,Chairman

John B. Webster

13. H. T immins
R?Zm   FOR THE ATTORRRYGENERAL
3y: James N. Ludlum
