                                     June 3, 1974



The Honorable   Joe Resweber                         Opinion    No.   H-   316
County Attorney
Harris   County Courthouse                           Re: Whether property      used by
Houston,   Texas 77002                               Gulf Waste Disposal    Authority
                                                     for a water pollution   control
                                                     facility is subject to ad valorem
Dear   Mr.   Resweber:                               taxation

       Your letter advises   that the Tax Assessor-Collector        for Harris
County has been requested     to exempt from ad valorem        taxation a tract
of land on which there is located a control facility     designed     to manage
the disposal  of aquatic   wastes from plants of five corporations        constructed
according   to an agreement     between the Gulf Coast Waste Disposal    Author-
i ty and the five corporations.       Our opinion has been solicited as to
whether   such action would be proper.

       YOU have provided     us documents       which reflect    the agreement,includ-
ing a “Special   Warranty    Deed ” from Champion International             Corporation
to the Gulf Waste Disposal      Authority,     and a “Facilities     Agreement”      between
Champion and the Authority.         The Deed was expressly          “delivered    and accepted
pursuant to, and subject to, the terms and provisions              of” the Facilities     Agree-
ment.     The Authority   is a state agency and body politic         created    by the Legis-
lature  pursuant to Article    16, § 59 of the Texas Constitution.            Champion is
one of the five mentioned     industrial    corporations.       The other four industrial
corporations   are also signatory      parties   to the Facilities    Agreement,       but not
to the Deed.

       The   essentials   of the Deed    read:

              ” . . . Champion   . . . for and in consideration    . . , of
              the agreement   by the . . . Authority  . . . to treat indus-
              trial waste . . . and for other good and valuable     considera-




                                         p.   1461
The Honorable        Joe Resweber,        page   2   (H-316)




                tion . . . has granted . . . and does hereby grant,
                bargain,     sell and convey unto Grantee         [the Authority]
                . s . 35.633 acres        of land. . . described       as follows:
                [Description      follows   here]      Grantor  [Champion].        . .
                excepts    and reserves      all of the oil, gas and other
                minerals     . . ., . however     . . . Grantor    releases    all
                Grantor’s     . . . rights to use . . . the surface.           . . in
                connection     with the exploration       . . . or development
                of.  . . oil, gas or other minerals.

                       “This   conveyance    is delivered     and accepted   sub-
                ject to.   . . all matters    recited   in all deeds.   . . or
                 other instruments    listed . . . in Exhibit A . . . . ”

                       “This Special   Warranty   Deed is delivered    and
                accepted   pursuant to, and subject to the terms and pro-
                vions of, that certain Facilities   Agreement     . . . between
                Jthe Authority   and the five Corporations].

                         “TO HAVE AND TO HOLD.                    . . the . . . Prop-
                erty,    subject to the foregoing          restrictions,       exceptions
                and reservations,         unto Grantee       . . . so long as the . . .
                Property      is used as a facility        for the treatment         of ‘Indus-
                trial Waste’ . . ., and upon cessation                 of such use, the
                . . . Property        together    with all improvements            now or
                hereafter      located thereon,        shall automatically         revert   to
                the Grantor.         . . without the necessity           of re-entry     or any
                other action on the part of the Grantor                 . . . ; and Grantor
                does hereby bind itself.             . . to WARRANT          and ‘FOREVER
                DEFEND        . . . the. . . Property,           subject to t.he foregoing
                restrictions,       exceptions      and reservat~ions,        and subject to
                the foregoing       special    limitation,     unto Grantee       . . . against
                every person.          . . claiming      . . . the same . . . through
                or under Grantor,          but not ot:herwise        . . . . ” (emphasis
                added)

          The use of the words “pursuant    to and subject to the terms and pro-
visions     of that Certain Facilities Agreement”    incorporated  the Facilities




                                            pe 1,462
The Honorable       Joe Resweber,         page    3   (H-316)




Agreement   into the Deed, definirg, the estate conveyed,                  and the nature,
extent and character   of such estate.   Cockrell     v. Texas             Gulf Sulohur CO.,
299 S. W. 2d 672 (Tex.    1957); City of Stamford      v. King,              144 S. W. 2d
923 (Tex.  Civ. App.,   Eastland,    1940, err.   ref’d).

          The facilities    agreement      expressly    reserves      to the five corporations
“the prior right to all present and future capacity               of the Facilities,       ” and
binds the Authority      to restrict     the use of the land to the use of the five
companies     unless they agree otherwise.            It prohibits     the Authority      from
transferring    control    or operation     of the facilities    (even to another govern-
mental agency)      without the written       consent of the five corporations.              It
binds the Authority      to purchase,      construct    and install waste disposal            facili-
ties for each of the five corporations            and to operate     them at its expense.
The agreement       provides    for termination,       as to its own participation,            by
any of the five companies         with or without reason by giving notice,               and in
such event the companies          can take over the operation           of the facilities      them-
selves.     The Authority     is prohibited      from entering      contracts    with any other
governmental     agency,     corporation,      firm or person for the treatment               of
their wastes in the facilities        except with the approval          of each of the five
companies.

         From this partial     review        of the provisions     of the Facilities Agree-
ment to which the Deed is made              subject,   it can be seen that the purported
“conveyance”     is extraordinarily         burdened with restrictions       on the use and
enjoyment    of the property    by the       “grantee”    Authority.

         Property    may be exempted      from taxation only if it is made SO, or
allowed   to be so, by the Constitution.       Otherwise     Article     8, 8 1 requires
taxation to be uniform and equal.         Exemptions      from taxation are subject
to strict construction     because   they are the antitheses         of equality and uni-
formity.    Hilltop  Village   Inc. v. Kerrville    Lnd. Sch. Dist.,          426 S. W. 2d
943 (Tex.    1968); City of Amarillo     v. Amarillo     Lodge No. 731, A. F. &A. M.,
488  S. W. 2d 69 (Tex.      1972). And see Article       7145. V. T. C. S., declaring
that all property,    except   that expressly    exempted,      is subject to taxation.




                                            pe 1463
.   .




        The Honorable      Joe Resweber,        page 4    (H-316)




                  The exemptions       from taxation are found in Article         7150, V. T. C. S.,
        which,, in. this $4, exempts        “All property,     whether    real or personal,
        belonging    exclusiwly    to this State, or any subdivision        thereof.  . . . ” The
        same a,rticle,    in §4a, exempts        “All property    real or personal     belonging
        exclusively    to Districts     and Authorities    created   directly   by Acts of the
        Legislature     pursuant to Article      XVI, Section 59, of the Constitution         as
        agencies    of the State of Texas.      . . ”

                  In our opinion the property   of~the Authority    does not belong “ex-
        clusively”    to it within the meaning of Article   7150. While the instruments
        are not without ambiguity,      there are several   pertinent   indications.

                 One of the facts to be considered     is the effect which the parties
        themselves    have assigned   to the arrangement.        All five of the companies
        here involved   made application    to the federal    Internal   Revenue Service
        to have the transaction   treated as merely    a financing     arrangement    on the
        theory   that the actual beneficial   ownership    of the “deeded”     property   remained
        in their hands.   And the Internal    Revenue    Service    agreed with that analysis.

                 We, of course,    are not bound by IRS determination,         but, to say the
        least,  the position  of the corporations    reflected   by this IRS ruling,    which
        they sought, is inconsistent     with the idea that thedeeded property       belongs
        excksively  to the Authority.    The Authority     was aware of the application
        for the IRS ruling and apparently      has acquiesced     in it. Here,   the “deter-
        minable fee” of the Authority      can be terminated     at any time at the option
        of the companies.     See smes     and Smith,    The Law of Future Interests,
        (2d Ed.) 285.     We are dealing with a retained       power of revocation.

                 As   the brief   of Champion     explains:

                         “Subsections      (a) and (b) of Section 25. 1 [of the Facilities
                         Agreement].       . . could,   under certain   circumstances,
                         operate    to cause   a reversion    of the Property.     In the event
                         (i) all five of the present Participants       terminated    the
                         Facilities    Agreement.     . . , (ii) all of the present Par-
                         ticipants    stopped delivering    industrial  waste to the




                                                po 1464
.   .
        .   .




            The Honorable         Joe Resweber,      page    5     (H-316)




                               Property    for treatment   by the Authority,     and (iii) the
                               Authority    were not using the Property      to treat the industrial
                               waste of any party other than the Participants,           then, upon
                               the occurrence     of all such events,  the Property       would
                               revert.   . . .‘I

                    The occurrence        or non-occurrence         of the three events that Champion
            admits will activate    the “automatic        reverter”     provision    of the Deed are all
            within the discretionary       control    of the five corporations.         The Facilities
            Agreement     provides   that each of them may terminate              it (as to themselves)
            at any time “with or without reason. ”              There is no requirement        that any
            of them use the facilities,        even while the Facilities        Agreement    is in effect,
            though the Authority     is obligated      to receive    all wastes they choose to send
            it.  And the Authority      cannot treat the industrial         wastes of any other corpo-
            ration,  governmental      entity,    firm or person without the consent of the five.

                        A “cessation    of use”   for waste treatment      purposes     would happen,
                even within the duration    of the Facilities    Agreement,     if the companies     simply
                stopped sending their wastes to the Authority         and refused     to allow it to
                re.ceive wastes from other sources.          Compare    Lawyers     Trust CO. v. City
                of Houston,    359 S. W. 2d 887 (Tex.       1962).

                      In our opinion,   the property    interest  of the public body here is not
            “exclusive.    ” Its rights are contingent      upon matters    within the control   of the
            five corporations.       The property    does not, therefore,     belong exclusively   to
            the Authority    within the meaning of Article       7150, V. T. C. S. The cases of
            City of, Beaumont     v. Fertitta,    415 S. W. 2d 902 (Tex.     1967) and Childress
            County v. State,        92 S. W. 2d 1011 (Tex.     1936) relied  upon by counsel for
            Champion     and the Authority     do not speak to the exclusive      ownership   ques-
            tion.

                          In our opinion,   based on the facts as we understand        them, neither
                the land, the facilities,     nor any other property  involved     in the transaction
                escapes    Article   7145, V. T. C. S., and, because no statute or constitutional
                provision    does so, the Harris     County Tax Assessor-Collector         has no author-
                 i ty to accord    tax exemption   to any part of it.




                                                      p.    1465
The Honorable      Joe Resweber         page    6     (H-316)




       This     conclusion   disposes     of all the questions      you asked.

                                    SUMMARY

                     Where property     purportedly   conveyed   to a municipal
                corporation   is 80 burdened with restrictions       on the use
                and enjoyment     of the property   by the grantee   that the prop-
                erty does not belong exclusively      to the municipal    corpora-
                tion, the property    is not exempt from taxation by $4 or
                § 4s of the Article   7150, V. T. C. S.

                                                          Very   truly   yours,




                                                           OHN L HILL
                                                          Attorney General        of Texas




                               C.&p
DAVID M. KENDALL,            Chairman
Opinion Committee




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