Untitled Texas Attorney General Opinion

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT

December 6, 2010

The Honorable Robert F. Deuell, M.D. Opinion No. GA-0827
Chair, Committee on Nominations
Texas State Senate Re: Taxable status of real property owned by the
Post Office Box 12068 City of Greenville and leased to a private
Austin, Texas 78711-2068 company (RQ-0897-GA)

Dear Senator Deuell:

You seek an opinion on several questions relating to the ad valorem taxation of certain
property.! You tell us that the City of Greenville (the "City") holds legal title to the land and
improvements on two tracts at the Greenville Municipal Airport. See Request Letter at 1 (describing
the Base Facilities and the Maintenance Facilities).' You tell us the Maintenance Facilities are
leased from the City by L-3 Communications ("L-3"), a private for-profit business, for operations
involving "aircraft modification, fmish-out and servicing for U.S. and foreign government military
and other government agency aircraft." Id. You inform us that L-3 has possession and control of
the Maintenance Facilities, which consists ofland and improvements that are not open to the public.
See id. With respect to these Maintenance Facilities, you pose the following questions:

1. In light of Texas Tax Code Section 11.11, are the [Maintenance
Facilities] exempt from property taxation [as] 'public property used
for public purposes'?

2. Assuming that the City holds legal and equitable title to the
[Maintenance Facilities] and assuming the [Maintenance Facilities]
are not 'public property used for public purposes' under Texas Tax
Code Section 11.11, is the fee simple interest in the [Maintenance
Facilities] taxable to the City?

lSee Request Letter at 2-4 (available at www.texasattomeygeneral.gov). We note that you submitted this
request when serving as Chair of the Interim Connnittee on Dyslexia and Related Disorders.

2you infonn us that different parties have supplied infonnation related to your request and that "there are some
minor differences in tenninology and presentation" ofyour request. Request Letter at I. For consistency in this opinion,
we will refer to the tract about which you inquire as the "Maintenance Facilities."
The Honorable Robert Deuell, M.D. - Page 2 (GA-OS27)

3. Does the City, as a matter of law, have equitable title in the
[Maintenance Facilities] for purposes of ad valorem taxes on the real
property in light of various restrictions, a right of reversion, and the
ability to compel transfer of legal title held by the federal
government?

4. Assuming that the City has legal and equitable title to the
[Maintenance Facilities], is the facility public property used for public
purposes?

5. Assuming that the City has legal and equitable title to the
[Maintenance Facilities] and that [they] are used for a public purpose,
do the [Maintenance Facilities] meet the statutory requirements for
exemption of the leasehold interest, namely, is it a public
transportation facility and are the buildings used for aircraft
maintenance and services?

6. Assuming that the City has legal and equitable title to the
[Maintenance Facilities], do U.S. Constitutional principles limit ad
valorem taxation of the fee interest?

7. Would taxation ofthe fee simple interest or the leasehold interest
in the [Maintenance Facilities] violate the Texas Constitutional
requirement that taxation be equal and uniform?

Request Letter at 2-4.

The question whether a particular property is exempt from taxation depends on the facts of
the particular situation. See Tex. Att'y Gen. Op. No. GA-0522 (2007) at 2 (citing Tex. Tpk. Co. v.
Dallas Cnty., 271 S.W.2d 400, 402 (Tex. 1954)). This office does not determine questions offact
in an attorney general opinion, and we therefore cannot ultimately determine whether a tax
exemption applies. See Tex. Att'y Gen. Op. Nos. GA-0106 (2003) at 7 ("This office cannot find
facts or resolve fact questions in an attorney' general opinion."); JC-0571 (2002) at 1 (declining to
determine whether public use requirement is satisfied). Moreover, the chief appraiser of the
appraisal district in which the property is located is statutorily charged in the first instance with
determining whether property is tax exempt. See TEX. TAX CODE ANN. § 11.45 (a) (West 200S)
("The chief appraiser shall determine ... each applicant's right to an exemption."); see also St.
Joseph Orthodox Christian Church v. Spring Branch Indep. Sch. Dist., 110 S.W.3d 477, 479 n.6
(Tex. App.-Houston [14th Dist.] 2003, no pet.) (recognizing that chief appraiser initially
determines right to a tax exemption). In one manner or another, each of your questions asks us to
opine on whether a particular fee or leasehold interest in the Maintenance Facilities is taxable and,
if so, on whom the tax burden falls. See generally Request Letter. And with respect to each
question, we believe the ultimate determination about the tax status would be resolved on the fact
issue of whether the property is used for public purposes. For these reasons, we cannot determine
the status of a tax exemption, and therefore, we cannot answer any of your questions.
The Honorable Robert Deuell, M.D. - Page 3 (GA-0827)

There is, however, one aspect of your request on which we can offer some general advice.
Arguments made in your request letter and in briefing submitted to this office suggest the
Maintenance Facilities are used for public purposes, and thus are tax exempt, ifthey constitute a
building used primarily for maintenance of aircraft or other specified aircraft services and if they are
part of a public transportation facility within the scope of section 25.07(b)(3) of the Tax Code. See
Request Letter at 3 (discussing authorities relevant to section 25 .07 to support argument that property
is used for a public purpose); Letter from Garry M. Miles, Locke Lord Bissell & Liddell, to Brent
South, Hunt County AppraisalDistrict, at 8-13 (Apr. 26, 2010) (attached to Request Letter) (arguing
that definition of "airport" in Texas statutes and opinions is broad enough to include the
Maintenance Facilities); see also TEX. TAX CODE ANN. § 25.07(b)(3) (WestSupp. 2010) (exempting
taxable leasehold interest from listing requirement if the property is part of a "public transportation
facility" and meets other specified requirements). Section 25.07, however, pertains to the taxation
ofleasehold interests and is not relevant to a determination of whether property is used for a public
purpose and tax exempt. See TEx. TAX CODE ANN. § 25.07(a) (West Supp. 2010) ("[A] leasehold
or other possessory interest in real property that is exempt from taxation to the owner ... shall be
listed in the name of the owner of the possessory interest.").

A leasehold interest is subject to tax<ttion only when the underlying property is tax exempt.
See Gables Realty Ltd P'ship v. Travis Cent. Appraisal Dist., 81 S.W.3d 869, 875 (Tex.
App.-Austin 2002, pet. denied) (citing Cnty. ofDallas Tax Collector v. Roman Catholic Diocese,
41 S.W.3d 739, 744 (Tex. App.-Dallas 2001, no pet.) (recognizing that "if the property is leased
and the fee remains exempt, the non-exempt leasehold becomes the taxable estate"). Thus, a
property's tax-exempt status must be determined prior to any consideration of section 25.07's
applicability. See Gables Realty, 81 S.W.3d at 875-76; Tex. Att'y Gen. Op. No. JC-0571 (2002)
at 11. Because the question whether the property is used for a public purpose is part of the tax-
exempt determination, it precedes any consideration of the applicability of section 25.07. And it is
the use made by the lessee, not the property owner, that determines whether the property is used for
a public purpose. See Gables Realty, 81 S.W.3d at 875-76 (considering tax-exempt status of state
property and holding that whether the property is "exempt in the hands of its owner under section
25.07 must be determined by applying section 11.11, takingfoll account of the lessee's use of the
property") (emphasis added); see also Tex. Att'y Gen. Op. No. DM-188 (1992) at 4-7 (separating
analysis of tax-exempt status of city-owned airport property from analysis concerning tax-exempt
status ofleasehold in property under subsection 25.07(b)(3)). An initial inquiry then is not whether
the Maintenance Facilities fall within the scope of section 25.07 but whether L-3's use of the
Maintenance Facilities as lessee are for a public purpose. C/, City of Beaumont v. Fertitta, 415
S. W.2d 902, 908 (Tex. 1967) ("It appears that the use to which the property itselfis put is of primary
importance in making the [public purpose] determination. '').

As we noted above, only after the tax-exempt status of property is established is
consideration of a leasehold exemption under subsection 25.07(b)(3)(A) appropriate. The subsection
exempts a leasehold of property that is'

a part of a public transportation facility owned by a municipality or
county and:
The Honorable Robert Deuell, M.D. - Page 4 (GA-0827)

(A) is an airport passenger terminal building or a building used
primarily for maintenance of aircraft or other aircraft services, for
aircraft equipment storage, or for air cargo;

TEx. TAX CODE ANN. § 25.07(b)(3)(A) (West Supp. 201 0). You question whether the Maintenance
Facilities leased by L-3 fall within the scope of subsection 25.07(b)(3) if the subsection limits a
public transportation facility to airports engaged primarily or exclusively in air passenger operations.
See Request Letter at 3-4.

In Attorney General OpinionDM-188, relying on Irving Independent School Districtv. Delta
Airlines, Inc., this office concluded that aircraft maintenance facilities intended for use in the safe
and efficient operation of a municipal airport constitute a public transportation facility within
subsection 25.07(b)(3). See Tex. Att'y Gen. Op. No. DM-188 (1992) at 7 (relying on Irving Indep .
. Sch. Dist. v. Delta Airlines, Inc., 534 S.W.2d 365, 368 (Tex. Civ. App.-Texarkana 1976, writ refd
n.r.e.) (observing that the facilities were used in operational support of air passenger service of a
municipal airport but basing holding on premise that facilities were used and designed for use in
the safe and efficient operation of the municipal airport). Under this authority, we can advise you
only that a maintenance hangar that is intended for the safe and efficient operation of a municipal
airport constitutes a public transportation facility within subsection 25.07(b)(3).3 However, the
determination whether the Maintenance Facilities leased by L-3 are intended for the safe and
efficient operation of a municipal airport involves considerations of facts and cannot be resolved in
an attorney general opinion.

'Whether a leasehold interest in a maintenance hanger is tax exempt under subsection 25.07(b)(3) depends on
whether the maintenance hangar is also a "building used primarily for maintenance of aircraft or other aircraft services,
for aircraft equipment storage, or for air cargo." TEX. TAX CODE ANN. § 25.07(b)(3)(A) (West Supp. 2010). This
inquiry is also a fact inquiry.
The Honorable Robert Deuell, M.D. - Page 5 (GA-0827)

SUMMARY

To the extent all of your questions seek a determination about
the tax status of various interests in a parcel of property in the City of
Greenville, they all involve fact issues that are inappropriate to the
attorney general opinion process. Moreover, the initial determination
about eligibility of tax exemptions rests with the chief appraiser. We
thus cannot address your specific questions.

We can advise you generally with respect to the tax exemption
of a leasehold interest under section 25.07, Tax Code, that a
maintenance hangar intended for the safe and efficient operation of
a municipal airport constitutes a public transportation facility.

Very truly yours,

DANIEL T. HODGE
First Assistant Attorney General

DAVID J. SCHENCK
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Charlotte M. Harper
Assistant Attorney General, Opinion Committee