                           QBffice of tfy Bttornep Qhnersl
                                     .&ate of PCexae
DAN MORALES
 .ATTORNEY
       GENERAL                              April 18, 1996

     Honorable Thomas Cameron                        Opiion No. DM-383
     WinlderCountyAttorney
     P.O. Box 1015                                   Re: Whether a jail facility is subject to ad
     Kermit, Texas 79745                             valorem taxes when a county occupies it for
                                                     county purposes under a lease-purchase
                                                     contract with a private entity (lZQ-71 I)

     Dear Mr. Cameron:

             You have inquired whether a jail and shetifFs 05ce complex that Winkler County
     (the %ounty”) occupies pursuant to a haas-purchase agreement with a private entity is
     subject to ad valorem taxes. We understand that the county entered into a Lease-Purchase
     Agreement (With Option to Purchase) (the “agreement”) with Municipal Capital Markets
     Corporation (the “Lessor”) under which the lessor wnst~cted     a jail and sheriffs office
     complex (the “project”) on land the lessor owns. The agreement provides that the county
     exchtsively will lease the project, with rental payments due semiannually beginning
     April 1.1994, and continuing through October 1,2013.

              Pursuant to article X of the agreement, on or after April 1,2000, the county may
     purchase the project from the lessor. Furthermore, pursuant to article XIII, the county
     may acquire title to the project upon the payment of the concluding rental payment. In
     either event, the lessor must convey to the county title to the project; the lessor may not,
     in its discretion, refuse to release the title. The county’s purchase of the project, under
     either article X or article XIII, terminates the lease. The county also may terminate the
     lease by failing to appropriate su5cient Smds to pay the rental payments and other
     amounts due under the lease, and the lessor may terminate the lease if the county defaults.
     In the event the lease terminates in either of the latter two situations, the county does not,
     of course, receive title to the project.

              The agreement further provides that, as lessee, the county must maintain the
     project in good repair and in working order, including performing ah necessary repairs,
     replacements, and improvements. The county may remodel, mod@, improve, and make
     additions to the project upon receiving certification from the project architect that the
     changes will not decrease the value of the project. Furthermore, the county must maintain
     liabiity and property insurance on the project and pay ah utility charges incurred in the
     operation, maintenance, use, occupancy, and upkeep of the project. Finally, the county
     must pay all property taxes levied on the project. You state that the project ties within the
     taxing jurisdiction of Winkler County and the Kermit Independent School District.
The Honorable Thomas Cameron - Page 2            (DM-383)




       In Attorney General Opinion JM-697 this office contirmed the authority of a Texas
county to enter into a lease-purchase contract for the construction or acquisition of a jail,
so long as the county complies with all applicable constitutional and statutory provisions.
Attorney General Opinion JM-697 (1987) at 6. That opinion described a lease-purchase
agreement as follows:

          A lease-purchase agreement enables the purchaser to spread the
          purchase price over a number of years, while receiving immediate use
          of the property being purchased. A typical lease-purchase contract
          might require the county to make stated payments over a term of
          years and then transfer ownership of the property to the county upon
          payment in fU or upon payment of an additional stated sum.

Id. at 1. We did not examine in Attorney General Opinion JM-697 whether a jail that a
county is occupying pursuant to a lease-purchase agreement is subject to ad valorem
taxes.

         Whether particular property is exempt from taxation depends upon the facts of a
particular situation. See Texas Turnpike Co. v. Dallas Carnty, 271 S.W.2d 400, 402
(Tex. 1954); Attorney General Opinions DM-78 (1992) at 4, H-1059 (1977) at 1; cf.
Bullock v. Citizens Nat.1 Bank, 663 S.W.2d 923, 924 (Tex. App.-Austin 1984, no writ)
(stating that court must examine all facts to determine whether particular transactions
were sales under Tax Code or merely leases intended as security). Questions of fact are
inappropriate for the opinion process. See, e.g., Attorney Genera) Opinions DM-98
(1992) at 3, H-56 (1973) at 3, M-187 (1968) at 3. Furthermore, the resolution of the
question you ask depends to a certain extent upon an interpretation of the agreement. The
review of contracts is not an appropriate timction for the opinion process. Attorney
General Opinion JM-697 (1987) at 6. Consequently, we cannot detinitively answer your
question. We may, however, provide you with some guidance.

        Article VIII, section 1(b) of the Texas Constitution deems ail real property and
tangible personal property taxable in proportion to its value unless the property is exempt
as the constitution permits or requires. Additionally, article XI, section 9 exempts from
taxation “[t]he property of counties     held only for public purposes.” When considering
the taxability of real property under article XI, section 9 of the constitution, we must
consider two issues: first, whether the property is publicly, not privately, owned, and
second, whether the property is used for public purposes. See Attorney General Opinion
H-1059 (1977) at 2 (citing Leonder Indep. Sch. Dist, v. Ceabr Park Water Supp& Corp.,
479 S.W.2d 908 (Tex. 1972)).

        Pursuant to article VIII, section 2, the legislature enacted the statutory predecessor
to section 11.11 (a) of the Tax Code, which exempts, with certain exceptions irrelevant to
the questions you ask, “property owned.        by a political subdivision of this state  if the




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The Honorable Thomas Cameron - Page 3                  (~~-383)




property is used for public purposes.“t Thus, like article XI, section 9 of the Texas
Constitution, section 11.11(a) of the Tax Code requires that we consider two issues to
determine the taxability of real property: first, whether the property is owned by a
political subdivision of the state, and second, whether the property is used for a public
Purpose.

        For purposes of this opinion, we will assume that the wuntyz uses the project for
public purposes. See Tm Dep ‘t of Corrections v. Anderson County Appraisal Dist.,
834 S.W.2d 130, 131 (Tex. App.--Tyler 1992, writ denied) (accepting parries’ statement
that prison is “property used for public purposes”). The question immediately before us is
whether the project is publicly, not privately, owned.

        The cases we have studied while researching your question appear to distinguish
between property to which a governmental body holds equitable title, even if the
governmental body does not hold legal title, and property to which the govermnental body
holds neither equitable nor legal title. “In Texas, . . an equitable title is a right,
enforceable in equity, to have the legal title to real estate. . . transferred to the owner of
the right.” United States v. Davidson, 139 F.2d 908, 910 (5th Cu. 1943) (footnote
omitted); accord Neeley v. Interci@ Management Corp., 623 S.W.2d 942, 950 (Tex.
App.-Houston [ 1st Dist.] 1981, no writ) (defining “equitable title” as enforceable right to
have legal title transferred to holder of equity); Pickle v. U!hi&ker,224 S.W.2d 741, 745
(Tex. Civ. App.-El Paso 1949, writ ref d) (stating that “equitable title is the present right
to the legal title”); Carmichael v. Delta Drilling Co., 243 S.W.2d 458, 460 (Tex. Civ.
App.-Texarkana 1951, writ refd) (same); Peguea v. Moss, 140 S.W.Zd 461, 471 (fex.
Civ. App.-El Paso 1940, writ dism’d by agr.) (same). “‘An “equitable title” is not a title,
but is a mere right in the party to whom it belongs to have the legal title transferred to
him.‘. . ‘When the equitable title rests upon an executory contract of purchase which has


         IIn 1989 the legislatureadded to section 11.11 of the Tax Code subs&on (Cl,now s&s&ion
(g). which provides85 follows:

                 For pqnxes of this se&on, aa improvementis owned by lhe state and is
            used for public purposeaifit is:
                 (1) locatedon land ownedby the Texas Departmentof Corrections;
                 (2) 1easedandusedbythedeparuncnt;and
                 (3) sohjcctto a lease-purchaseagreementprovidingthat legal title to the
                 improvementm        to the depanmentat the end of the lease period.
la our opinioa, the eoaamcot of this s&ion &es not necmm‘ly precludeexempbng from taxation a
facility swh as the project,which is constrwed on land the lessorowns and which the lessor leases to the
countypomant to a lease-purchaseagreement.
        2A county is a political s&division of the state. Chikdrm Ccnu@ Y. State, 92 S.W.Zd 1011,
1015 (Tex. 1936);see also Tex. Coast.arl. XI, 5 1; 52 TEX.IVR.3DhfUniCipdities 5 7, al 29 (1987).




                                                p. 2102
The Honorable Thomas Cameron - Page 4            C'M-383)




not been completely performed by the purchaser, his title depends upon his right to
possession under the wntract.“’ Tanner v. Imle, 253 S.W. 665,668 (Tex Civ. App.-San
Antonio 1923, writ dism’d) (quoting Z7ggerson v. Whitbeck, 16 P. 403,404 (Utah 1888),
and unknown source); cfl Missouri er rel. Ci@of St. Louis v. Baumann, 153 S.W.2d 31,
35 (MO. 1941) (defining “equitable title” as right in party to whom such title belongs to
have legal title transferred to him or her upon performance of specitkd conditions).
Courts generally conclude that a governmental body holds equitable title if the
governmental body possesses the property to which it does not hold legal title and if the
governmental body may take legal title upon its performance of certain specified
wnditions. In such a case, the property is exempt from ad valorem taxation.

       You have cited two cases that ihustrate the distinction the wurts generally make:
Tmrmrt County Water Supply Corp. v. Hurst-Euless-Bedford Independent School
District, 391 S.W.Zd 162 (Tex. Civ. App.-Fort Worth 1965, writ ref d n.r.e.), and Ta
Department of Corrections v. Anderson Coun@Appraisal District, 834 S.W.Zd 130 (Tat.
App.-Tyler 1992, writ denied). In T-t     Count Water SupprY Corp. the wurt of civil
appeals considered the tax-exempt status of certain real and personal property to which
the Tarrant County Water Supply Corporation (the “water supply corporation”) held legal
title. The court first rejected the water supply corporation’s argument that it was a
political subdivision. Tarrant Cow@ Water Supp& Corp., 391 S.W.2d at 163.

        In addition to contending that it was a political subdivision for tax exemption
purposes, the water supply wrporation contended that the municipalities the water supply
corporation serviced held equitable and benetkial ownership of all of the properties in
question and that the properties were, therefore, tax exempt. Id. at 162, 163. In support
of its claim that the municipalities held equitable ownership of the properties, the water
supply corporation relied specifically upon an agreement in which the water supply
corporation, in return for a thirty-five-year franchise from each of the municipalities,
agreed to deed and convey, when the bonded indebtedness of the water supply
corporation was fully paid, all of its property in each municipality to the municipality in
which the property was located. Id. at 162. Property within the bounds of the subject
municiprdities was not at issue in Twant Counv Wbter Supply Corp., however. Rather,
the court considered the tax-exempt status only of property located wholly outside the
boundaries of the four municipalities. Id.

        To determine that the water supply corporation held taxable title to the property in
question and that the property was therefore subject to ad valorem taxation, the court
examined the facts of the situation, Id. at 164-65. Significantly, the water supply
corporation had not delivered to a trustee deeds to the property at issue, although the
water supply corporation had delivered to a trustee deeds to its proper&y lying within the
boundaries of a municipality. Id. at 164. Additionally, the water supply corporation
possessed the property at issue. Id.




                                           p.   2103
The Honorable Thomas Cameron - Page 5                 (DM-383)




        The court noted that, if the water supply corporation declined to convey the
property at the termination of the agreement to any of the municipalities, the municipalities
could not compel the water supply corporation to convey the property. Id at 164. The
court termed the municipalities’ interest in the property at issue an “estate limited upon a
contingency,” or a “contingent remainder.” Id, at 165. A contingent remainder is not a
taxable title. Id (citing Texas Turnpike Co. v. Daubs Coun?~,271 S.W.2d 400, 402 (Tex.
1954)).

        By contrast, in the second cage you cite, Texas Deparfment of Corrections v.
Anderson County Appraisal Di.wic& 834 S.W.2d 130 (Tex. App.-Tyler 1992, writ
denied), the court of appeals considered the taxability of a prison unit (the “Michael TM”)
that the Texas Department of Corrections (the “TDC”) had contracted to have
wnstructed on land the TDC owned. Id. at 131. The TDC had devised a “financing
device” to raise kids for the wnstructidn of the Michael Unit. Id. at 130.

        Under the arrangement, the TDC leased its land to the private, nonprofit
wrporation, which assigned the lease to a trustee. Id. at 13 1. The TDC also assigned the
construction contract to the private, nonprofit corporation, which in turn assigned it to a
trustee. Id. In addition, the TDC and the private, nonprofit corporation executed a lease-
purchase agreement under which the TDC would possess and rent or purchase the
Michael Unit. Id. The private, nonprofit corporation assigned the lease-purchase
agreement to the trustee.3 Id.

       ‘The dctsila of the “liaanciag device”in the court’sopinion am somewhatsketchy. ‘Ibe Texas
Dfpmtmentof Correctionsdescribedthe imnsacdonas follows in its brief to the Texas SupmmeComt in
rcsponaeto a petitionfor writ of error:

           [O]n June 1.1986, the TDC enteredinto a constroctioncontractfor the wchael
           UnitlwithDanielConstructionCompany.... Asofthesameday,Jone1,1986,
           TDC, [the Purchasing     and Generalb-vices Commiaaion],   and a non-profit
           wrporation (the ‘Corporation”) eatcmd into aa agreement called the
           Utilization Agreement. . . Underthis agree-t, TDC agreed10lease the land
           wherrtheFIichaelUnjt]wastokbuilttotheCorporalionbymcansoTa
           GmundLease,[also]&talJune1,1986....          TDCfurtheragreedtoassigothe
           wnstmction contract10the Corporation.Afterthe Wchael Unit] was built, the
           State of Texas wwld lease back the land togetherwith the Mchael Unit] by a
           lease (StateLease)[,]which was deliveredto [a] Tms~eeto be held in rmst until
           the flvlichaclUnit] was completed.. .
                 pn addition, on hoe 1, 198a.l the Corporation assigned to
           the     Tmstee . . all of the Corporation’intmst
                                                     s      in
                     1. tbc UtilizationAgreanent];]
                     2. the state Leas];]
                     3. the (Michaelunit;]
                     4. theGnnmdLease[;aad]




                                             p. 2104
The Honorable Thomas Cameron - Page 6                   (DM-383)




        When, upon the completion of the h4ichael Unit, the Anderson County Appraisal
District attempted to levy taxes on itf the TDC protested. See id. The court stated that,
although the t~stee held legal title to the Michael Unit, the burden of taxabiity is
determined by the identity of the equitable title holder. Id. (citing Texas Turnpike Co. v.
Lk&s County, 271 S.W.2d 400, 402 (Tex. 1954)). Here, the court concluded, the state
held equitable title to the Michael Unit. Id. The court stated:

           It is undisputed that the state, which is in possession of the property,
           will acquire 111 legal title to the Michael Unit when all the payments
           are made. If this condition of “lease” payments is met, the state can
           compel delivery of the legal title. Id. Therefore, the improvements,
           in equity, are owned by the state “no diierent[ly] from that of any
           private owner who holds property against which there is an
           outstanding lien.” San Anianio ISD v. Water Works Board of
           Trusiees, 120 S.W.2d 861,865 (Tar. Civ. App.-Beaumont 1938, no
           writ); also compare Bullock v. Citizens Nat? Bank of Waco, 663
           S.W.2d 923 (Tex. App.-Austin 1984, no writ).
Id

      Thus, the courts of appeals in Tammt Count Water Supply Colp. and Texas
Department of Corrections appear to distinguish between arrangements in which the state
or a political subdivision of the state may take legal title to property only upon the
performance of certain actions by the legal title holder and arrangements in which the state
or a political subdivision may take legal title to property when it has performed certain



(footnotecontinued)
                      5.   the ConstructionConuactl.]
Br. Rcsp’t Texas Departmentof Cmtections at l-8, Anderson Counry Appraisal Dist. v. Texm Dep ‘I of
CorrecMns,No. D-2930 (Tex. 1992). The brief stmssesthat the nonprofitcorporationowned no interest
in lhe Michael Unit, and neither the nonprofitcorporationnor the tmstee had a right to possess the
Michael Unit. Id. at 9. Only the TDC had a rightto possessthe MichaelUnit. Id.
         tie AndersonCountyAppraisalDistrictattemptedto levy taxes only on the Michael Unit, oat
on the land on which the MichaelUnit is locatedand to which the TDC clearlyheld title. Texas Dep’r of
COITCC~O~S   Y. Anderson COU~V Appraiser Disl., 834 S.W.Zd 130, 131 (XX. App.-Tyler 1992, writ
denied). Curiously,in 1987 the legislahue enactedthe statotorypredecessorto Govemmwt Code section
4%.005 to exempt from axIvaloremtaxes land oa which the Michael Unit was located. See id.; Act of
June 1, 1987, 70th Leg., KS., ch. 1049, 5 21, 1987 Tex. Gen. Laws 3517. 3524-25. Section 4%.005
exempu fmm taxation during the time the institutionaldivision of the Texas Departmentof Criminal
Justice excltiely uses it “pmperry associated with a facility” in Anderson County, Gov’t Code
$4%.005(a) (emphasisadded)-specifically,“land. owned by the state for the use and benefit of the
institutionaldivision that is subjectto a lease grantedby the board and a soblease enteredinto by the
division and the General Services Commission, on which is located the.. Michael Unit,” id.
5 4%.005(b) (emphasisadded).




                                                p. 2105
The Honorable Thomas Cameron - Page 7                (DM-383)




actions, compelling the legal title holder to relinquish tit1e.s The presence or absence of a
trustee in a particular transaction appears to carry some weight. In TcrrrrmtCounty Water
Suppl Cotp., for example, the court stated that the water supply corporation had not
delivered the deed in question to a trustee, although it had delivered deeds to the
properties lying within the municipalities’ boundaries. 391 S.W.2d at 164. In Texus
Depurtment of Corrections the court stated that the private, nonprofit corporation
“assigned all of its leases, agreements, and the construction contract” to the trustee. 834
S.W.2d at 131.

         Ostensibly, the situation you present is more akin to the facts in Texas Deportment
of Corrections than the situation in Twant County Water Supply Corp. We camtot say
as a matter of law, however, that the project in your county is exempt from ad valorem
taxation because the facts you present differ from those in Texas Lkpnrtment of
Correcttom        For instance, while the county is in possession of the project and
responsible for its operation and maintenance, the county does not own the real property
underlying the project.        Upon the payment of all lease payments or, following
April 1,2000, upon the payment of the purchase price, the county may compel the lessor
to convey legal title to the property, but the agreement also may be terminated upon the
county’s failure to appropriate sutIicient fbnds to accomplish its obligations under the
agreement. We do not know whether the lessor has assigned its interest in the agreement
to a trustee, nor whether the lessor has any right to possess the project, see supm note 3.

         We wulnot predict the weight a court would assign to each of these various facts;
in addition, we camtot predict other facts a court might find significant in this case. In any
event, as we have indicated, whether, under the agreement, the county holds equitable title
to the project and the project consequently is exempt from ad valorem taxation is a
question involving the resolution of fact questions and the construction of a contract, both
of which are not amenable to the opinion process.



        ?his distinction is further supportedby examining other cases the Taos Department of
Comvctiom emrt cites. In Te.xrxTurnpike Co. Y. Dallas County, 271 S.W.Zd400,402,403 (Tex. 1954).
for example,the SupremeCourtof Texas concludedthat the statedid not hold equitabletitle to property
that would be conveyed to the state only when the grantorshad performedcertain conditioas, and the
propertythexfoxe was not exemptfrom ad valoremtaxation. On the otherhand, the amti ofcivil appeals
in San Antonio Independent School District Y. Water Works Board of Trustees, 120 S.W.Zd861, 865
flex. Civ. App.-Beaomont 1938, tit refd), concludedthat the waterworks system of the City of San
Antonio was exempt from taxa&onbecause the city owned the land subjectonly to a vendor’s lien the
glamor letRiwd to awore the pm&se price.

         6An exemptionfromtaxationis to be strictlywnstmed, and the languageof the exemptionmost
not be extended beyond the express requirementsof the language used. Jones v. Williams.45 S.W.2d
130, 131 flex. 1931); 21 JAY D. HOWELL,    JR., PROPER’IY TAXES   5 198, at 126 (Texas Practia 1988).
Thus, an individual claiming an exemptionbears the burdenof provingthat the pmlxrty or transaction
falls within the ambitofthe exemption. 21 HOWELL,  supro. 5 198, at 126.




                                              p. 2106
The Honorable Thomas Cameron - Page 8           W-383)




               To determine whether a jail facility that a county leases under a
          lease-purchase agreement is subject to ad valorem taxation, a wurt
          must examine the facts and construe relevant contracts. To make
          such a determination, a court likely would consider whether the
          county holds equitable title to the jail facility, that is, whether the
          county is in possession of the facility and whether the wunty may
          compel the Jessor to wnvey legal title to the property if the county
          tklly performs the conditions specified in the wntract.




                                                       DAN     MORALES
                                                       Attorney General of Texas

JORGE VEGA
First Assistant Attorney General

SARAH J. SHIRLEY
Chair, Opiion Committee

Prepared by Kymberly K. Oltrogge
Assistant Attorney General




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