Can a Texas water district tax Permanent University Fund land that never got water service?

Plain-English summary

The Permanent University Fund (PUF) is a large state endowment, set up in the Texas Constitution, that holds land and investments to support the University of Texas and Texas A&M systems. This opinion dealt with three tracts of PUF land in El Paso County. The El Paso County Water Improvement District No. 1 had been billing those tracts since 1977 for taxes "on the benefit basis," plus penalties and interest, under chapter 55 of the Water Code. The catch: the land was leased out for cattle grazing, neither the University of Texas System nor the grazing lessee had ever asked the district for water, and the land had never received any water service from the district. The University's general counsel asked the Attorney General whether the district could legally charge those tracts.

A water district can raise money two ways. It can levy ordinary ad valorem (property-value) taxes, or it can charge "on the benefit basis," meaning it charges land according to how much the district's irrigation improvements are expected to benefit that specific tract. There was a dispute about which of those the district's charge really was. The University argued that if the charge was a special assessment, the district needed express statutory authority to impose it on state land and had none; and if the charge was a tax, PUF land is constitutionally exempt from everything except county taxes. The district argued the charge was a tax, and that because the land was leased to a private grazer it was not used for a public purpose and so lost its exemption.

The Attorney General concluded it did not have to settle the tax-versus-assessment label, because the district loses either way.

Treated as a tax, PUF land runs into Article VII, section 16 of the Texas Constitution and its statutory twin, Tax Code section 11.11(b), which make PUF land taxable for county purposes only. A 1989 opinion (JM-1049) had already read those provisions to mean PUF land is taxable for county purposes and nothing else. The office rejected the district's "leased to a private business" argument: the general public-property rules in section 11.11, including the subsection (d) and (e) provisions about property leased to private enterprises, do not apply to PUF land at all. PUF land is governed by its own special rule in subsection (b), tied to Article VII, section 16. Reading the general rules into PUF land would contradict the constitution.

Treated as a special assessment, the charge runs into a separate barrier. A Texas appellate court held in Maverick County Water Control & Improvement District No. 1 v. State that, absent clear legislative authorization, a political subdivision has no power to levy a special assessment against state property, at least where the state is neither using nor planning to use the benefited land and has neither received nor requested the assessing agency's services. The office found no clear legislative authority letting this district assess PUF land, and the facts (grazing land, no water service requested or received) fit the Maverick situation. So whether the charge was a tax or an assessment, the district could not impose it on the three PUF tracts.

Currency note

This opinion was issued in 1996. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

This opinion construes the Water Code, the Tax Code, and constitutional provisions as they stood in 1996. Statutes get renumbered and amended, and water-district taxing law in particular has seen revisions since then. Read this page for the office's 1996 reasoning about why Permanent University Fund land could not be charged on the benefit basis, and verify the current versions of Water Code chapter 55, Tax Code section 11.11, and the relevant constitutional provisions before relying on any specific rule here.

What the opinion meant at the time

For water improvement districts and similar taxing districts: The opinion meant a district could not reach Permanent University Fund land with a benefit-basis charge, whether the district called it a tax or a special assessment. For a tax, PUF land was taxable only for county purposes; for a special assessment, the district needed clear legislative authorization it did not have, especially where the state had not used or requested the district's services.

For the University of Texas and Texas A&M systems (Permanent University Fund landholders): The opinion confirmed that PUF land sat in its own constitutional category. The general public-property tax rules, including the rule stripping the exemption from property leased to a private business, did not apply to it. PUF land was taxable for county purposes only under Article VII, section 16 and Tax Code section 11.11(b).

For lawyers handling public-property tax questions: The opinion turned on two independent grounds. First, a special-rule-controls reading: subsection (b) of section 11.11 governs PUF land to the exclusion of the general subsections (a), (d), and (e). Second, the Maverick County rule that a subdivision cannot specially assess state land without clear legislative authorization. The office expressly declined to decide whether the benefit-basis charge was a tax or an assessment, since the answer was the same either way.

Common questions

Can a water district charge property taxes on University of Texas (Permanent University Fund) land?
Under this opinion, not in the way the El Paso district tried. The office concluded that Permanent University Fund land is taxable only for county purposes under Article VII, section 16 of the Texas Constitution and Tax Code section 11.11(b), so a water district's benefit-basis tax did not reach it.

Does leasing the land to a private business (like a grazing lessee) strip its tax exemption?
Not for Permanent University Fund land, according to this opinion. The office held that the general rule about property leased to a private enterprise (Tax Code section 11.11(d) and (e)) does not apply to PUF land at all, because PUF land is governed by the separate subsection (b) tied to Article VII, section 16.

What if the charge is called a special assessment instead of a tax?
The district still could not impose it. The office relied on a Texas appellate decision (Maverick County Water Control & Improvement District No. 1 v. State) holding that, without clear legislative authorization, a political subdivision cannot levy a special assessment against state property, at least where the state is not using the land and did not request the services. The office found no such authorization here.

Did it matter that the land never received water service?
Yes, for the special-assessment analysis. The office emphasized that the state was neither using nor planning to use the land for district purposes and had neither received nor requested the district's services, which placed the case squarely within the Maverick County rule.

Background and statutory framework

The El Paso County Water Improvement District No. 1 was a political subdivision organized under Article XVI, section 59 of the Texas Constitution. Chapter 55 of the Water Code governs water improvement districts; Water Code section 55.651(a) lets such a district ask its voters, when the district is created or before it issues bonds, whether the district will tax on the ad valorem basis or on the benefit basis. Under the benefit basis, appointed commissioners assess the benefit each tract will receive from the district's reclamation improvements (Water Code sections 55.662, .668), and a district may use a "uniform acreage valuation" that fixes benefits as an equal sum per irrigated acre (Water Code sections 55.670, .673).

The University's general counsel framed the question in the alternative: special assessment or tax. The office found it did not need to choose. As a tax, PUF land is reached only by county taxes: Article VII, section 16 and Tax Code section 11.11(b) make PUF land "taxable for county purposes," and Attorney General Opinion JM-1049 (1989) had construed those provisions to mean county purposes only. The office held that the general public-property provisions of section 11.11, subsections (a), (d), and (e), are inapplicable to PUF land, so the district could not use the "leased to a private enterprise" exception in subsections (d) and (e) to tax it. The office also held Article VIII, section 2(a), the general public-property exemption authority, inapplicable to PUF land, citing State v. University of Houston and prior opinions.

As a special assessment, the charge failed under Maverick County Water Control & Improvement District No. 1 v. State, 456 S.W.2d 204 (Tex. Civ. App.—San Antonio 1970, writ ref'd), which held that absent clear legislative authorization a political subdivision has no power to specially assess state property, at least where the sovereign is neither using nor contemplating use of the benefited land and neither received nor requested the assessing agency's services. Finding no clear legislative authorization for this district to assess PUF land, the office concluded the charge failed under either label.

Citations

Constitutional and statutory provisions discussed:

• Texas Constitution article VII, section 16 (Permanent University Fund land taxable for county purposes only); article VIII, section 2(a) (legislature may exempt public property used for public purposes); article XVI, section 59 (water improvement and conservation districts)
• Tax Code section 11.11 (taxation of public property; subsection (b) Permanent University Fund land taxable for county purposes; subsections (a), (d), (e) general public-property rules)
• Water Code chapter 55, subchapter N (water improvement district taxation); sections 55.022, 55.161, 55.651(a), 55.662, 55.668, 55.670, 55.672, 55.673, 55.676

Cases cited:

• City of Wichita Falls v. Williams, 26 S.W.2d 910 (Tex. 1930) (distinguishing taxes from special assessments)
• Conlen Grain & Mercantile, Inc. v. Texas Grain Sorghum Producers Bd., 519 S.W.2d 620 (Tex. 1975) (a tax raises revenue unrelated to special benefit)
• Clegg v. State, 42 Tex. 605 (1875) (nature of a tax)
• State v. University of Houston, 264 S.W.2d 153 (Tex. Civ. App.—Galveston 1954, writ ref'd n.r.e.) (Article VIII, section 2(a) inapplicable to Permanent University Fund land)
• Maverick County Water Control & Improvement District No. 1 v. State, 456 S.W.2d 204 (Tex. Civ. App.—San Antonio 1970, writ ref'd) (no special assessment against state land absent clear legislative authorization)

Attorney General Opinions discussed: JM-1049 (1989), JM-1035 (1989), JM-523 (1986), JM-535 (1986), MW-430 (1982), MW-551 (1982), DM-272 (1993), O-1861 (1940), DM-98 (1992), H-56 (1973), M-187 (1968), O-2911 (1940).

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/dan-morales/dm-0374
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1996/dm0374.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain (including footnote numbering) — the linked PDF is authoritative.

Office of the Attorney General
State of Texas

DAN MORALES
ATTORNEY GENERAL

January 25, 1996

Mr. Ray Farabee
Office of General Counsel
The University of Texas System
201 West Seventh Street
Austin, Texas 78701-3981

Opinion No. DM-374

Re: Whether the El Paso County Water Improvement District No. 1 may, pursuant to chapter 55, subchapter N of the Water Code, assess a tax on the benefit basis against land belonging to the Permanent University Fund (RQ-715)

Dear Mr. Farabee:

You have requested our opinion as to whether land belonging to the Permanent University Fund is subject to taxation on a benefit basis under chapter 55, subchapter N of the Water Code. You state that, since 1977, the El Paso County Water Improvement District No. 1 (the "district") has been levying assessments, penalties, and interest on three tracts of land belonging to the Permanent University Fund and located in El Paso County. You further inform us that the three tracts of land are leased out for grazing purposes, but that neither the board of regents of The University of Texas System (the "university") nor the lessee has requested water from the district. Furthermore, you state that the land never has received water service from the district.

We understand that the district is a political subdivision of the state, organized and existing pursuant to article XVI, section 59 of the Texas Constitution. Chapter 55 of the Water Code pertains to water improvement districts. Section 55.022 authorizes the commissioners court of a county to create one or more water improvement districts in the county. A water improvement district operating under article XVI, section 59 of the Texas Constitution, such as the district, may be created for three purposes:

1. To provide for irrigation of land within the district's boundaries.
2. To furnish water for domestic, power, and commercial purposes.
3. To cooperate with the United States under the federal reclamation laws for the purpose of (a) constructing irrigation and drainage facilities necessary to maintain the irrigability of the land, (b) purchasing, extending, operating, or maintaining the constructed facilities, or (c) assuming indebtedness to the United States on account of district lands.

Water Code § 55.161.

Section 55.651(a) of the Water Code authorizes a water improvement district that operates under the provisions of article XVI, section 59 of the constitution to ask, at the time the district is created or before it issues bonds, the district's voters whether the district will levy, assess, and collect taxes on the ad valorem or on the benefit basis. Upon the electorate's approval of taxation on the benefit basis, and as soon as practicable after the district has adopted the plan for improvements to be constructed, the board of directors of a water improvement district must appoint three disinterested commissioners to "view the land in the district which will be affected by the district's reclamation plans . . . and [to] assess the amount of the benefit and damages that will accrue to the land . . . from the construction of the improvements." Id. § 55.662. Following a hearing, the commissioners must issue a final order stating the amount of benefits or damages assessed on each tract of land. Id. § 55.668.

If the voters of the district previously have approved it, the benefits for tax purposes will be fixed "as an equal sum on each acre of land that is irrigated or to be irrigated by gravity flow from the canal system of the district" (the "uniform acreage valuation"). Id. § 55.670. A district using the uniform acreage valuation for taxation need not ascertain the value of an improvement to a particular tract of land. Id. §§ 55.670, .673. In addition, an owner of nonirrigable land may have his or her land excluded from the district. Id. § 55.672.

We understand from the district's brief that the district derives most of its revenue from taxes assessed on the benefit basis and that it has adopted the uniform acreage valuation for taxation. You believe that the district may not levy taxes on the benefit basis against the land belonging to the Permanent University Fund. You argue first that, if taxation on the benefit basis is in fact a special or local assessment, the district, you believe, must have express authority to levy the assessment against the lands of the Permanent University Fund. Because the district lacks such specific authority, you assert that the district may not collect the benefit assessment against the Permanent University Fund's land. If, on the other hand, the benefit assessment is a tax, we understand you to contend that, under article VII, section 16 of the Texas Constitution as well as section 11.11(b) of the Tax Code, the land is exempt from all taxes except county taxes.

The district avers that taxation on the benefit basis is indeed a tax, not a special assessment. Furthermore, the district believes that because the university leases the land for grazing purposes, the land is not used for a public purpose and, pursuant to section 11.11(e) of the Tax Code, is not exempt from the tax. See also Water Code § 55.676 (providing that "[i]n a district that levies taxes on a benefit basis, the rate of taxation and the assessment and collection of taxes shall be governed by the law relating to ad valorem taxes to the extent applicable").

As a preliminary matter, we will examine the distinction between a tax and a special assessment. Broadly speaking, the terms "tax" and "taxes" encompass every burden, including a special assessment, that a governmental body, by virtue of the taxing power, lawfully may impose upon the citizen. 84 C.J.S. Taxation § 1, at 32 (1954); accord Annot., 90 A.L.R. 1137, 1137 (1934). In a narrower sense, however, taxes and special assessments are distinguishable. Annot., 90 A.L.R. at 1137; see also Attorney General Opinions JM-1035 (1989) at 3 (citing City of Wichita Falls v. Williams, 26 S.W.2d 910, 911 (Tex. 1930)), JM-523 (1986) at 1.

Taxes, as the term is generally used, are public burdens imposed generally on the inhabitants of the whole state, or some civil division thereof, for governmental purposes, without reference to peculiar benefits to particular individuals or property. Assessments have reference to impositions for improvements which are specially beneficial to particular individuals or property and which are imposed in proportion to the particular benefits supposed to be conferred.

Annot., 90 A.L.R. at 1137. Thus, a tax is collected for the purpose of raising revenue, to be used for public or governmental purposes, and is unrelated to any special benefit the taxpayer may receive from the expenditure of the funds. See Conlen Grain & Mercantile, Inc. v. Texas Grain Sorghum Producers Bd., 519 S.W.2d 620, 623 (Tex. 1975); Attorney General Opinions JM-1035 (1989) at 3 (and cases cited therein), O-1861 (1940) at 4 (citing Clegg v. State, 42 Tex. 605, 608 (1875)); 84 C.J.S. Taxation § 1, at 33 (1954). A special assessment, on the other hand, is imposed upon property that will benefit from a proposed improvement, levied upon an individual property owner in proportion to the benefit the property is expected to derive from the improvement, and designed to cover the costs of the improvement. Attorney General Opinion JM-1035 (1989) at 2 (quoting City of Wichita Falls v. Williams, 26 S.W.2d at 911); see also 6A C.J.S. Assessment 571-72 (1975).

We believe that we need not determine here whether taxation on the benefit basis under section 55.651(a) of the Water Code is a tax or a special assessment because we conclude that the district may not impose either a tax or a special assessment on the land. If the benefit assessment is a tax, we look to article VII, section 16 of the constitution and its statutory counterpart, section 11.11(b) of the Tax Code. Both provide that land of the Permanent University Fund is taxable for county purposes. This office determined in Attorney General Opinion JM-1049 that land comprising the state permanent university fund is taxable for county purposes only. Attorney General Opinion JM-1049 (1989) at 7.

Article VIII, section 2(a) of the Texas Constitution authorizes the legislature to, "by general laws, exempt from taxation public property used for public purposes." Under article VIII, section 2(a), public property leased to a private individual to carry on a business is not used for public purposes. Article VIII, section 2(a) is not applicable to land of the Permanent University Fund, however. See State v. University of Houston, 264 S.W.2d 153, 154-55 (Tex. Civ. App.—Galveston 1954, writ ref'd n.r.e.); Attorney General Opinion MW-430 (1982) at 2-3; see also Attorney General Opinions JM-1049 (1989) at 7, O-1861 (1940) at 5.

The legislature enacted section 11.11 of the Tax Code pursuant to the authority article VIII, section 2(a) grants it. Attorney General Opinion DM-272 (1993) at 3. Section 11.11 provides for the taxation of public property, and it states in pertinent part as follows:

(a) Except as provided by Subsections (b) and (c) of this section, property owned by this state or a political subdivision of this state is exempt from taxation if the property is used for public purposes.

(b) Land owned by the Permanent University Fund is taxable for county purposes. . . .

...

(d) Property owned by the state that is not used for public purposes is taxable. Property owned by a state agency or institution is not used for public purposes if the property is rented or leased for compensation to a private business enterprise to be used by it for a purpose not related to the performance of the duties and functions of the state agency or institution. . . .

(e) It is provided, however, that property that is held or dedicated for the support, maintenance, or benefit of an institution of higher education as defined in Chapter 61, Texas Education Code, but is not rented or leased for compensation to a private business enterprise to be used by it for a purpose not related to the performance of the duties and functions of the state or institution . . . is not taxable. . . .

This office determined that section 11.11(b) is an exception to the general principles set out in section 11.11(a), (d). Attorney General Opinion JM-1049 (1989) at 7-8. We do not believe that subsection (e) applies to land owned by the Permanent University Fund.[*] Article VII, section 16 of the Texas Constitution makes taxable for county purposes only land belonging to the Permanent University Fund. In our opinion, section 11.11(b) of the Tax Code corresponds to article VII, section 16 of the constitution. Land owned by the Permanent University Fund is taxable only in accordance with subsection (b); subsections (e), as well as subsections (a) and (d), are inapplicable. To construe subsection (b) as complementary of subsections (a), (d), and (e), so that all Permanent University Fund land is subject to all county taxes and, if the land is not used for a public purpose, to all other taxes, would contravene article VII, section 16 of the constitution. Furthermore, as we have stated above, article VIII, section 2 is inapplicable to lands of the Permanent University Fund.

Additionally, as we have stated above, the land is not subject to taxation on the benefit basis if the tax is in fact a special assessment. In Maverick County Water Control & Improvement District No. 1 v. State, 456 S.W.2d 204 (Tex. Civ. App.—San Antonio 1970, writ ref'd), the court of civil appeals considered whether the sovereign is liable to pay special assessments levied against state land:

It is generally held that, in the absence of clear legislative authorization, a political subdivision of the State has no power to levy a special assessment against State property. We adopt this view at least in a case where, as here, the sovereign is neither making nor contemplating any use of the allegedly benefited land and has neither received nor requested the services rendered by the assessing agency.

Id. at 207 (footnote added); see also Attorney General Opinions JM-1035 (1989) at 8-9 (discussing Maverick County Water Control & Improvement District No. 1), JM-535 (1986) at 2-3 (same), MW-551 (1982) at 2-3 (same). In this case, we find no clear legislative statement authorizing the district to exact a benefit assessment against lands held by the Permanent University Fund. Cf. Attorney General Opinion JM-1035 (1989) at 10-13 (concluding that Water Code section 26.176(b) clearly authorizes local government to impose capital recovery fee on land Texas A&M University owned). Furthermore, we do not understand that the state is making or contemplating any use of the land and has received or requested district services.[12]

We therefore conclude that, whether taxation on the benefit basis under section 55.651(a) of the Water Code is considered a tax or a special assessment, the district may not levy a "tax . . . on the benefit basis," see Water Code § 55.651(a), against the three tracts of land owned by the Permanent University Fund.

[*] Although Attorney General Opinion JM-1049 quoted section 11.11(e) of the Tax Code, the opinion did not discuss the section.

[12] In any event, whether the state is using any portion of the land within the district or whether the lessee received or requested district services is a fact question inappropriate for the opinion process. See, e.g., Attorney General Opinions DM-98 (1992) at 3, H-56 (1973) at 3, M-187 (1968) at 3, O-2911 (1940) at 2.

SUMMARY

Whether the "tax . . . on the benefit basis" authorized by chapter 55, subchapter N of the Water Code is a tax or a special assessment, the El Paso County Water Improvement District No. 1 may not levy such a tax against land owned by the Permanent University Fund.

DAN MORALES
Attorney General of Texas

JORGE VEGA
First Assistant Attorney General

SARAH J. SHIRLEY
Chair, Opinion Committee

Prepared by Kymberly K. Oltrogge
Assistant Attorney General