                               ATTORNEY GENERAL OF TEXAS
                                             GREG        ABBOTT




                                                January 29, 2008



The Honorable William J. Stroman, Jr.             Opinion No. GA-0600
Sterling County Attorney
Box 88                                            Re: Whether a county commissioners court is prohibited
Sterling City, Texas 76951                        from executing a tax abatement agreement with a wind
                                                  turbine company for its fixtures and improvements to
                                                  be located on a commissioner's real property; whether
                                                  a commissioner who will receive royalties from a wind
                                                  turbine company must abstain from voting on a tax
                                                  abatement agreement with the company (RQ-0612-GA)

Dear Mr. Stroman:

       Section 312.402(a) ofthe Tax Code authorizes a county to execute tax abatement agreements
with the owners of taxable property located in a reinvestment zone, but subsection (d) expressly
excludes property owned or leased by a member of a commissioners court as subjects of such
agreements. See TEX. TAX CODE ANN. § 312.402(a), (d) (Vernon Supp. 2007). You ask whether
subsection (d)' s exclusion prohibits a county commissioners court from executing a tax abatement
agreement with a wind turbine company for its fixtures and improvements to be located on a
commissioner's real property.! You also ask whether the commissioner, who will receive royalties
and other payments from the wind turbine company, must abstain from voting on a tax abatement
agreement with the company. Stroman Brief, supra note 1, at 2.

        You explain that Sterling County has created reinvestment zones to grant tax abatements to
wind turbine companies. Id. The companies obtain a leasehold from a property owner, construct
wind turbines on the property, and pay the owner a royalty on the electricity generated by the
turbines. Id. One such company has petitioned the commissioners court for a tax abatement
agreement for the fixtures and improvements it plans to construct on real property belonging to a
member ofthe commissioners court. Id You state that the tax abatement agreement would concern
only the fixtures and improvements owned by the wind turbine company but not the underlying real
property owned by the commissioner. Id at 4-5. Because the fixtures and improvements are owned
by the wind turbine company, not by a member of the commissioners court, you reason that the
fixtures and improvements qualify for tax abatement under section 312.402. See ide at 5-6.


         ISee Letter and Brief from Honorable William J. Stroman, Jr., Sterling County Attorney, to Honorable Greg
Abbott, Attorney General of Texas, at 2 (July 31, 2007) (on file with the Opinion Committee, also available at http://
www.oag.state.tx.us) [hereinafter Stroman Briet].
The Honorable William J. Stroman, Jr. - Page 2                       (GA-0600)



I.      Background

        As your question suggests, Texas law generally recognizes separate ownership of
improvements located on leased land. See Travis Cent. Appraisal Dist. v. Signature Flight Support
Corp., 140 S.W.3d 833, 837 (Tex. App.-.Austin 2004, no pet.) (citing Wright v. Macdonell, 30
S.W. 907, 909 (Tex. 1895)).2 The tax treatment of real property, a leasehold interest in the real
property, and improvements on the property depends on specific circumstances, including the taxable
status of the various interests. Ordinarily, "the lessor rather than the lessee is responsible for taxes
on the full value of the property." Cherokee Water Co. v. Gregg County Appraisal Dist., 801
S.W.2d 872, 875 (Tex. 1990); see also TEX. TAX CODE ANN. § 25.06(a) (Vernon Supp. 2007).
Lessors and lessees commonly reallocate the tax burden, but that is a contractual matter between
themselves. A.J. Robbins & Co. v. Roberts, 610 S.W.2d 854,856 (Tex. Civ'. App.-Amarillo 1980,
writ ref d n.r.e.). If, however, tax-exempt real property is encumbered with a nonexempt leasehold
or other possessory interest, the leasehold or possessory interest is generally subject to ad valorem
taxation. See TEX. TAX CODE ANN. § 25.07(a) (Vernon Supp. 2007).

       Similarly, improvements may be listed on the tax rolls in the name of the owner of real
property without regard to actual ownership of the improvements. Id. § 25.08(a).3 But if the real
property is tax exempt, generally the improvements must be listed in the name of the owner of the
improvements. Id. § 25.08(b). And either the owner of the land or the owner of the improvement
may request that the land and the improvement receive separate tax treatment. Id. § 25.08(c).4

       ,The tax abatement statute that you reference, section 312.402, is located in subchapter C of
the Property Redevelopment and Tax Abatement Act. Id. § 312.402; see also § 312.001 (Vernon


          2While you ask about "fixtures and improvements," the Tax Code's defmition of an "improvement" includes
a "fixture." TEX. TAX CODE ANN. § 1.04(3)(A) (Vernon Supp. 2007).

         3Section 25.08 provides in part:

                  (a) Except as provided by Subsections (b) through (t), an improvement may be
                  listed in the name of the owner of the land on which the improvement is located.

                  (b) If a person who is not entitled to exemption owns an improvement on exempt
                  land, the improvement shall be listed in the name ofthe owner ofthe improvement.

                  (c) When a person other than the owner of an improvement owns the land on
                  which the improvement is located, the land and the improvement shall be listed
                  separately in the name of the owner of each if either owner files with the chief
                  appraiser before May 1 a written request for separate taxation on a form furnished
                  for that purpose together with proof of separate ownership....

TEX. TAX CODE ANN. § 25.08(a)-(c) (Vernon Supp. 2007).

        4See also id. § 25.04 (Vernon 2001) (stating the general rule that "when different persons own land and
improvements in separate estates or interests, each separately owned estate or interest shall be listed separately in the
name of the owner of each if the estate or interest is described in a duly executed and recorded instrument of title").
The Honorable William J. Stroman, Jr. - Page 3           (GA-0600)




2002) (short title ofthe act). Under section 312.401 ofthe subchapter, a county commissioners court
may "designate as a reinvestment zone an area ofthe county that does not include area in the taxing
jurisdiction ofamunicipality." Id. § 312.401(a). Section 312.402 authorizes a commissioners court
to execute tax abatement agreements with owners of taxable real property and with owners of
leasehold interests in or improvements on tax-exempt real property in the designated zone:

               (a) The commissioners court may execute a tax abatement
               agreement with the owner of taxable real property located in a
               reinvestment zone designated under this subchapter [i.e., subchapter
               C]. The court may execute a tax abatement agreement with the owner
               of a leasehold interest in tax-exempt real property or leasehold
               interests or improvements on tax-exempt real property that is located
               in a reinvestment zone designated under this subchapter to exempt a
               portion of the value of tangible personal property or leasehold
               interests or improvements on tax-exempt real property located on the
               real property....

Id. § 312.402(a) (Vernon Supp. 2007) (emphasis added).

       Generally, a commissioners court may not enter into a tax abatement agreement with one of
its members:

               Except as otherwise provided by this subsection, property that is
               located in a reinvestment zone designated by a county under this
               subchapter and that is owned or leased by a person who is a member
               of the commissioners court may not be subject to a tax abatement
               agreement made under this section.

Id. § 312.402(d). Thus, a member of a commissioners court is generally disqualified from the tax
abatement agreements that owners oftaxable real property and owners of leaseholds may otherwise
receive under subsection (a). See ide The exception is for property subject to a tax abatement
agreement in effect when the property owner becomes a member of the commissioners
court-membership on the court does not cause such property to lose its eligibility. Id

II.    Analy~is


       You ask specifically whether section 312.402(d) prohibits a county from executing a tax
abatement agreement with a wind turbine company for its fixtures and improvements located on
a commissioner's real property. Stroman Brief, supra note 1, at 2; see also TEX. TAX CODE ANN.
§ 312.402(d) (Vernon Supp. 2007). Before we may address the applicability of subsection (d),
however, we must consider your assumption that "[w]ithin the reinvestment zone the commissioners
court may enter into a tax abatement agreement with any landowner or leaseholder." Stroman Brief,
supra note 1, at 4 (emphasis added). Determining whether property of a particular landowner or
The Honorable William J. Stroman, Jr. - Page 4                        (GA-0600)




leaseholder may be the subject of a tax abatement agreement requires a construction of the
commissioners court's statutory authority to execute such an agreement.

        The primary objective of statutory construction is to effectuate the Legislature's intent, to be
discerned, if possible, from the language chosen. State v. Shumake, 199 S.W.3d 279,284 (Tex.
2006). We must presume that every word of a statute was used for a purpose. Cameron v. Terrell
& Garrett, Inc., 618 S.W.2d 535,540 (Tex. 1981). Likewise, we must presume that words excluded
from a statute were excluded for a purpose. Id. Here, we are construing the commissioners court's
authority to exempt a portion of the value of a leaseholder's property or interests by tax abatement
agreement. See TEX. TAX CODE ANN. § 312.402(a) (Vernon Supp. 2007). Statutory tax exemptions
must be strictly construed "because they undermine equality and uniformity by placing. a greater
burden on some taxpaying businesses and individuals rather than placing the burden on all taxpayers
equally." NorthAlamo Water Supply Corp. v. Willacy County Appraisal Dist., 804 S.W.2d 894, 899
(Tex. 1991).

        With these rules of construction in mind, we tum to the authority granted in section
312.402(a). The first sentence of section 312.402(a) authorizes a county to "execute a tax
abatement agreement with the owner of taxable real property." TEX. TAX CODE ANN. § 312.402(a)
(Vernon Supp. 2007). The Tax Code's definition of taxable "real property" includes fixtures and
improvements. See ide § 1.04 (2)(B) (defining "real property" to include "an improvement"), (3)(A)
(defining "improvement" as including "a building, structure, fixture, or fence erected on or affixed
to land"). Fixtures and improvements owned by the owner of real property are also real property,
but ordinarily improvements owned by the lessee are personalty. See Travis Cent. Appraisal Dist,
140 S.W.3d at 838 (observing that parties may agree that improvements are to remain the personal
property of lessee); Tex. Att'y Gen. Ope No. JC-0150(1999) at 3-4 (opining that improvement that
remains the property of a lessee is taxable as personalty).5 Thus, fixtures and improvements owned
by the wind turbine company as personal property would not be "real property" that may be the
subject of a tax abatement agreement under the first sentence of section 312.402(a). See TEX. TAX
CODE ANN. § 312.402(a) (Vernon Supp. 2007).

        The second sentence of section 312.402(a) authorizes a tax abatement agreement for
leasehold interests in or improvements on real property that is tax exempt. See ide By expressly
authorizing a tax abatement agreement for property located on tax-exempt real property, we must
assume the Legislature did not intend to authorize such an agreement for property located on taxable
real property. See State V. Mauritz-Wells Co., 175 S.W.2d 238, 241 (Tex. 1943) (holding that "the
express mention or enumeration of one person, thing, consequence, or class is equivalent to an



            SAlso cf Norris v. Thomas, 215 S.W.3d 851,855 (Tex. 2007) (holding that an object cannot be an improvement
to real property entitled to homestead protection unless. it is annexed to the real property with the intent that it be a
permanent addition to the realty); Sharkeyv. Hollums, 400 S.W.2d353, 355 (Tex. Civ. App.-Amarillo 1966, writrefd
n. r. e.) (holding in landlord-tenant dispute that improvements remained property oftenant pursuant to agreement). But
cf Tex. Att'y Gen. Ope No. JC-0282 (2000) at 5 (concluding that "[s]ection 1.04(3)(B) of the Tax Code does not
foreclose as a matter of law the possibility that a travel trailer attached to someone else's property is an improvement
within the meaning of section 1.04(3)(A)").
The Honorable William J. Stroman, Jr. - Page 5                       (GA-0600)



express exclusion ofall others.").6 Neither section 312.402(a), nor any other statute ofwhich we are
aware, authorizes a commissioners court to execute a tax abatement agreement for leasehold interests
in or improvements on taxable real property.

        You do not intimate that the commissioner's property is tax exempt for any reason. Stroman
Brief, supra note 1, at 2, 4-5. Ifthe commissioner's property is not tax exempt, the second sentence
ofsection 312.402(a) would not authorize a tax abatement agreement for the wind turbine company's
fixtures or improvements to be located on the commissioner's property. Thus, it seems unlikely that
the fixtures or improvements you describe would qualify for a tax abatement agreement under either
sentence of section 312.402(a). But because we cannot conclude as a matter oflaw that the property
would not qualify under any possible facts and circumstances, we will address your question
concerning the disqualification in section 312.402(d).

        If the wind turbine company's "fixtures and improvements" constitute "improvements on
tax-exempt real property that is located in a reinvestment zone" under section 312.402(a), then
subsection (d) would not prohibit a tax abatement agreement for such property merely because the
commissioner owns the underlying real property. The disqualification of subsection (d) expressly
applies to "property ... owned or leased by a person who is a member ofthe commissioners court."
See TEX. TAX CODE ANN. § 312.402(d) (Vernon Supp. 2007). As you describe the facts, the fixtures
and improvements owned by the wind turbine company are not "property . . . owned or leased by a
person who is a member ofthe commissioners court," and thus the plain terms ofthe disqualification
in subsection (d) would not apply. See id.; see also Stroman Brief, supra note 1, at 5-6.

        You also ask if the commissioner must abstain from voting on the proposition to execute a
tax abatement agreement with the wind turbine company for its fixtures and improvements located



          60 ur understanding that section 312.402 of the Tax Code authorizes a tax abatement agreement with a
leaseholder for improvements located on tax-exempt property but not on taxable real property is further supported by
legislative history ofthe statute. The second sentence of subsection (a) ofthe statute was added by the Seventy-seventh
Legislature. See Act of May 23,2001, 77th Leg., R.S., ch. 640, § 3,2001 Tex. Gen. Laws 1205,1206. The analysis
ofthe bill as enrolled explained that the purpose was to allow tax abatement agreements with the lessee ofcity or county
owned land and buildings:

                  For some time now, it has been the practice for cities and counties throughout the
                  state of Texas to allow companies to lease city-owned or county-owned land and
                  buildings, and provide these companies with tax abatements for equipment and
                  other tangible personal property located on the property. However, a recent
                  attorney general opinion determined that cities and counties did. not have the
                  authority to abate taxes for companies holding leasehold interests, which may
                  compromise city and county tax abatement agreements. House Bill 1448 clarifies
                  state law by authorizing the governing body of a municipality to provide a tax
                  abatement agreement, for a period not to exceed 10 years, to an owner of a
                  leasehold interest in specified tax-exempt real property that is located in a
                  reinvestment zone.

HOUSE COMM. ON WAYS & MEANS, BILL ANALYSIS, TEX. H.B. 1448, 77th Leg., R.S. (2001).
The Honorable William J. Stroman, Jr. - Page 6              (GA-0600)



on the commissioner's real property. Stroman Brief, supra note 1, at 2. Under section 171.004 of
the Local Government Code, a member of a commissioners court generally may not participate in
a vote on a matter involving the commissioner's real property "ifit is reasonably foreseeable that an
action on the matter will have a special economic effect on the value ofthe property, distinguishable
from its effect on the public." TEX. Lac. GOV'T CODE ANN. § 171.004(a)(2), (c) (Vernon 1999);
see also ide § 171.001(1) (defining "local public official" to include a member of a county
commissioners court). You state that the commissioner is to receive royalties on electricity
generated by the turbines on his property and will receive payment for damages to his surface estate
from the wind turbine company. Stroman Brief, supra note 1, at 5. While it seems likely that the
tax abatement agreement will have a "special economic effect" on the value of the commissioner's
real property, that is a fact issue that an attorney general opinion cannot resolve. See Tex. Att'y Gen.
Opt No. GA-0337 (2005) at 5 (stating that "[o]rdinarily, the attorney general cannot decide in the
opinion process whether a governmental entity's action will have a special economic effect on a
business entity or the value ofreal property distinguishable from its effect on the public, because this
decision requires the investigation and resolution of fact questions."); see ide at 6 (noting that local
official must determine, in the first in~tance, whether the official is required to file an affidavit of
interest and abstain from voting on particular matter).
The Honorable William J. Stroman, Jr. - Page ·7         (GA-0600)



                                      SUMMARY

                      A county may enter into a tax abatement agreement with
              the owner of taxable real property located in a reinvestment zone,
              and with the owner of a leasehold interest in or improvements on
              tax-exempt property located in a reinvestment zone. Assuming that
              the "fixtures and improvements" owned by a wind turbine company
              constitute "improvements on tax-e,xempt real property that is located
              in a reinvestment zone" under section 312.402 of the Tax Code, the
              mere fact that a member of a commissioners court owns the real
              property on which the fixtures and improvements will be located does
              not prohibit fixtures and improvements from being the subject of a
              tax abatement agreement.

                      A member of a commissioners court generally must abstain
              from a vote on a matter if it is reasonably foreseeable that an action
              on the matter will have a special economic effect on the value of the
              prop~rty distinguishable from its effect on the public. Whether a vote
              on a particular tax abatement agreement will have such a special
              economic effect is generally a question offact that cannot be resolved
              in an attorney general opinion.




                                                           BBOTT
                                                       '. eneralofTexas


KENT C. SULLIVAN
First Assistant Attorney General

ANDREW WEBER
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

William A. Hill
Assistant Attorney General, Opinion Committee
