                              ATTORNEY GENERAL OF TEXAS
                                         GREG       ABBOTT


                                            December 8, 2014



The Honorable Rafael Anchia                            Opinion No. GA-1092
Chair, Committee on International Trade &
    Intergovernmental Affairs                          Re: Charitable organization's tax exemption
Texas House of Representatives                         under section 11.18, Tax Code, for property
Post Office Box 2910                                   leased to a limited partnership for the
Austin, Texas 78768-2910                               construction of improvements to be used to
                                                       expand the charitable services (RQ-1205-GA)

Dear Representative Anchia:

       You ask "whether a charitable organization may maintain a total property tax exemption
authorized by Section 11.18 of the Tax Code when it leases property it owns to a limited
partner~hip that would in turn, fund and construct new improvements on the property controlled
by the haritabl organization, equitably owned b( the charitable organization and used to
expand he charitable organizations social services."

        You tell us that the charitable organization, the Deaf Action Center (the "Center"), is a
nonprofit organization that serves deaf and hard-of-hearing people with a comprehensive range
of social services. Request Letter at 1. You state that the Center owns apartment property that it
rents to individuals who are deaf or hard-of-hearing and other individual who receive housing
assistance. See id. at 2. You note that the property has received a total exemption from
ad valorem taxes under section 11.18 for several years. See id at 1-2. You explain that the
Center wants to expand the number of apartment units with the following proposed venture: the
Center will demolish the property's existing improvements and lease the property to a limited
partnership which will construct new improvements to increase the number of units using a
variety of funding me hanisms· the Center will manage and control the limited partnership
through a wholly-owned general partner and retain legal title to the real property; and the Center
will hold equitable title to the newly constructed improvements. See id. at 2. You explain further


        1
         Letter from Hon. Rafael Anchia, Chair, Comm. on Intemat'l Trade & Intergov'tl Affairs, to Hon. Greg
Abbott, Tex. Att'y Gen. at 1 (June 5, 2014), https://www.texasattomeygeneral.gov/opin ("Request Letter").
The Honorable Rafael Anchia - Page 2             (GA-1092)



that the increased rental revenue from the newly constructed improvements will allow the Center
to continue to provide social services to its tenants. See id

        With this background, you ask us to determine that the Center will continue to qualify for
a tax exemption under section 11.18 of the Tax Code after it completes the proposed expansion
of its facilities utilizing the described plan. Id at 4. The question of whether any specific
property is tax exempt depends on particular facts. See, e.g, Tex. Att'y Gen. Op. No. GA-0485
(2006) at 1. "Moreover, the chief appraiser of the appraisal district in which the property is
located is the authority to initially determine whether property is tax exempt." Id. at 1-2; see
also TEX. TAX CODE ANN. § 11.45(a) (West 2008) ("The chief appraiser shall determine ... each
applicant's right to an exemption."). Accordingly, we cannot determine as a matter of law
whether any particular property is exempt from taxation. We can, however, discuss the general
legal principles applicable to your question.

         The charitable tax exemption stems from article VIII, section 2 of the Texas Constitution,
which provides that "the legislature may, by general laws, exempt from taxation ... institutions
engaged primarily in public charitable functions." TEX. CONST. art. VIII, § 2. In the
implementation of this provision, the Legislature enacted section 11.18 of the Tax Code. See
TEX. TAX CODE ANN. § 11.18 (West Supp. 2014); see also N. Alamo Water Supply Corp. v.
Willacy Cnty. Appraisal Dist., 804 S. W.2d 894, 895 (Tex. 1991) (noting that section 11.18 was
enacted under article VIII, section 2). The charitable exemption in section 11.18 reaches
buildings and tangible personal property and real property owned and used exclusively by the
charitable organization. See TEX. TAX CODE ANN.§ ll.18(a)(l)-(2) (West Supp. 2014), see also
id. § 11.18(c)-(g) (identifying the qualifications of a charitable organization); but see id.
§ 11. l 8(b) (allowing some incidental use for activities that benefit the charitable organization's
beneficiaries).

        To qualify for the charitable exemption, an entity must satisfy both the constitutional and
statutory requirements. N. Alamo Water Supply Corp., 804 S.W.2d at 899. Under article VIII,
section 2, the entity seeking the exemption must be engaged primarily in public charitable
functions. TEX. CONST. art. VIII, § 2(a); see Brazos Cnty. Appraisal Dist. v. Bryan-College
Station Reg'!'Ass 'n of Realtors, Inc., 419 S.W.3d 462, 464 (Tex. App.-Waco 2013, pet. denied)
(recognizing that a 1999 constitutional amendment to article VIII, section 2 broadened the
provision by replacing the prior language "purely public charity" with the phrase "engaged
primarily in public charitable functions"). Under section 11.18, the entity must "be organized
exclusively to perform religious, charitable, scientific, literary, or educational purposes and,
except as permitted by Subsections (h) and(!), engage exclusively in performing one or more of
the [specified] charitable functions." TEX. TAX CODE ANN. § ll.18(d) (West Supp. 2014); see
Request Letter at 3 (asserting the Center meets this qualification under section 11.18(d)(3) ).
Both section 11.18 and article VIII, section 2 allow the tax exemption only for property that a
charitable organization owns and uses. TEX. CONST. art. VIII, § 2; TEX. TAX CODE ANN.
§ ll.18(a)(l), (2) (West Supp. 2014).
The Honorable Rafael Anchia - Page 3            (GA-1092)



         Because the nature of the proposed venture you describe involves the separation of the
legal and equitable title of the property and improvements, you raise the issue of equitable title.
See Request Letter at 3. Equitable title is '"the present right to [compel] legal title."' TRQ
Captain's Landing, L.P v. Galveston Cent. Appraisal Dist., 212 S.W.3d 726, 732 (Tex. App.-
Houston [1st Dist.] 2006) aff'd, 423 S.W.3d 374 (Tex. 2014) (citations omitted). Equitable title
does not follow a mere expectation or a purely contingent interest. See Tex. Tpk. Co. v. Dallas
Cnty., 271 S.W.2d 400, 402 (Tex. 1954) (discussing equitable title). Rather, it is a current "right
in the party to whom it belongs to have the legal title transferred to him." Tanner v. Imle, 253
S.W. 665, 668 (Tex. Civ. App.-SanAntonio 1923, writ dism'd); see also Travis Cent. Appraisal
Dist. v. Signature Flight Support Corp., 140 S.W.3d 833, 840-41 (Tex. App.-Austin 2004, no
pet.), Tex. Att'y Gen. Op. No. GA-0485 (2006) at 3-4 (discussing types of conditions under
which a public entity can compel the transfer of legal title). In considering questions of equitable
title, "courts look beyond the legal title and examine the facts of a given situation." Tex. Att'y
Gen. Op. No. GA-0485 (2006) at 3.

        As you point out, the Texas Supreme Court has held, on multiple occasions, that an
equitable ownership interest is sufficient to support an entity's claim of property ownership for
purposes of a tax exemption. See Request Letter at 3 (citing Galveston Cent. Appraisal Dist. v.
TRQ Captain's Landing, 423 S.W.3d 374 (Tex. 2014), AHF-Arbors at Huntsville I, LLC v.
Walker Cnty. Appraisal Dist., 410 S.W.3d 831 (Tex. 2012)). The cases to which you refer,
however, do µot consider equitable ownership in the particular context of section 11.18. Instead,
both cases consider equitable ownership in support of a tax exemption for a community housing
development organization under section 11.182. See Galveston Cent. Appraisal Dist., 423
S.W.3d at 376, AHF-Arbors at Huntsville I, LLC, 410 S.W.3d at 836. Texas courts of appeals
have also recognized the sufficiency of equitable title in the context of a tax exemption for public
property under section 11.11. See Travis Cent. Appraisal Dist., 140 S. W.3d at 83 7; Sweetwater
Indep. Sch. Dist. v. ReCOR, Inc., 955 S.W.2d 703, 704 (Tex. App.-Eastland 1997, pet. denied).
We are unaware of a case in which a Texas court has directly held that equitable ownership
supports a claim of property ownership for a charitable tax exemption under section 11.18. Yet,
sections 11.11 and 11.182 were both adopted under the authority of article VIII, section 2, which
is the same constitutional provision under which the Legislature enacted section 11.18. See
Harris Cnty. Appraisal Dist. v. Primrose Houston 7 Housing L.P, 238 S.W.3d 782, 785 (Tex.
App.-Houston [1st Dist.] 2007, pet. denied) (noting that section 11.182 is enabling legislation
for article VIII, section 2), Tex. Dep 't of Corrs. v. Anderson Cnty. Appraisal Dist., 834 S.W.2d
130, 131 (Tex. App.-Tyler 1992, writ denied) (noting Legislature's adoption of section 11.11
under article VIII, section 2); see also Comerica Acceptance Corp. v. Dallas Cent. Appraisal
Dist., 52 S.W.3d 495, 497 (Tex. App.-Dallas 2001, pet. denied) (noting that the Tax Code does
not define "owner" and utilizing definition of "owner" that incorporated equitable title). For this
reason, it is likely that a court would determine the principles of equitable ownership are
applicable to an entity seeking a charitable tax exemption under section 11.18.
The Honorable Rafael Anchia - Page 4           (GA-1092)



                                      SUMMARY

                      It is likely a court would determine that the principles of
               equitable ownership are applicable to an entity seeking a charitable
               tax exemption under section 11.18 of the Tax Code.

                       The determination of whether a property qualifies for a tax
               exemption under section 11.18 is for the chief tax appraiser and
             , outside the purview of an attorney general opinion.




                                                 EG ABBOTT
                                             Attorney General of Texas


DANIEL T. HODGE
First Assistant Attorney General

JAMES D. BLACKLOCK
Deputy Attorney General for Legal Counsel

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

Charlotte M. Harper
Assistant Attorney General, Opinion Committee
