If a city council member deeds away land but keeps the right to its future sale proceeds, does that pull the land out of tax increment financing?

TX AG Opinion GA-0725: Does keeping a deed's sale proceeds keep land in tax increment financing?

Plain-English summary

In 2004 the City of Huntsville created a tax increment financing (TIF) reinvestment zone under chapter 311 of the Tax Code. A person who was, and still is, a city council member owned about a seven percent undivided interest in real property in the zone. In 2008 the council member deeded his interest to his children but reserved the net proceeds from any future sale of the property, and assigned those proceeds to the City for the renovation, expansion, or construction of the public library in memory of a relative. The Walker County Criminal District Attorney asked whether that reservation excluded the property from TIF under Tax Code section 312.204(d).

The opinion noted that the office does not construe particular contracts, so it answered the underlying legal question generally: whether a valid reservation of the sale proceeds of conveyed real property retains ownership of the property to the grantor under section 312.204(d). That subsection excludes property "owned or leased" by a member of a city's governing body from both tax abatement and tax increment financing.

Chapter 312 does not define "own" or "owner," but Texas courts generally treat an "owner" under the Tax Code as the person holding legal title or an equitable right to obtain legal title, and an earlier letter opinion read "owner" in chapter 312 to require at least some degree of control over the property. Delivering a deed conveys title to the grantee, who is then entitled to the sale proceeds. A reservation of the sale proceeds, by contrast, keeps for the grantor only an interest in the proceeds if and when the property is sold. It does not retain legal or equitable title, nor the right to control or dispose of the property.

On that reasoning, the opinion concluded it is unlikely that a council member who reserves only the future sale proceeds is the "owner" of the property under section 312.204(d) by virtue of the reservation. So a reservation of the proceeds, by itself, does not appear to operate to exclude property from tax increment financing. The opinion acknowledged the reserved proceeds are a valuable interest and give the member a pecuniary stake, but observed that section 312.204(d) does not bar a governing-body member from having any interest related to the property, only from owning or leasing it. Given that conclusion, it did not reach the second question (whether the whole tract or only the member's portion would be excluded).

Currency note

This opinion was issued in 2009. 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.

Chapters 311 and 312 of the Tax Code may have been amended since 2009. Confirm current law before relying on anything below.

Who this opinion affected (as of 2009)

City council members and other governing-body members: The opinion explained that section 312.204(d) excludes property they own or lease from TIF and abatement, but that reserving only the future sale proceeds of conveyed property is unlikely to make them the "owner" for that purpose.

Cities running reinvestment zones: The opinion described the ownership test that determines whether section 312.204(d) pulls a parcel out of TIF, which bears on which parcels a city can include.

Anyone structuring a conveyance near a public official's interest: The opinion distinguished an interest in sale proceeds from ownership of the land itself, while cautioning that other conflict-of-interest rules (which it did not apply) might still be relevant.

Common questions

Did the AG decide the specific Huntsville deed?
No. The opinion said the office does not construe particular contracts, so it answered the general legal question about reservations of sale proceeds rather than ruling on the actual deeds.

Why isn't reserving the sale money the same as owning the land?
The opinion explained that a reservation of sale proceeds keeps only an interest in money if and when the property sells. It does not keep legal or equitable title or the right to control or dispose of the property, which is what ownership under the statute requires.

Does the council member still have a conflict because he benefits?
The opinion recognized the reserved proceeds are valuable and give a pecuniary stake, but noted section 312.204(d) bars only owning or leasing the property, not having any interest, and it flagged (without applying) chapter 171 of the Local Government Code as a separate question.

Background and statutory framework

The Tax Increment Financing Act (chapter 311) lets an eligible city create a reinvestment zone and finance projects there (Tex. Tax Code Ann. §§ 311.003(a), 311.011 (Vernon 2008)), and the Property Redevelopment and Tax Abatement Act (chapter 312) lets a city grant tax abatement in such a zone (id. § 312.204(a)). Section 312.204(d) excludes property "owned or leased by a person who is a member of the governing body of the municipality" from both abatement and TIF (id. § 312.204(d)).

Chapter 312 does not define "own" or "owner." Texas courts treat a Tax Code "owner" as the holder of legal title or an equitable right to obtain it (Childress County v. State, 92 S.W.2d 1011, 1015 (Tex. 1936); Travis Cent. Appraisal Dist. v. Signature Flight Support Corp., 140 S.W.3d 833, 839-40 (Tex. App.-Austin 2004, no pet.); Comerica Acceptance Corp. v. Dallas Cent. Appraisal Dist., 52 S.W.3d 495, 497 (Tex. App.-Dallas 2001, pet. denied); The Peoples Gas, Light, & Coke Co. v. Harrison Cent. Appraisal Dist., 270 S.W.3d 208, 212 (Tex. App.-Texarkana 2008, no pet.)), and an earlier letter opinion required some control over the property. Delivery of a deed conveys title to the grantee (Stephens County Museum, Inc. v. Swenson, 517 S.W.2d 257, 261 (Tex. 1975)), while a reservation operates for the grantor's benefit and retains only the interest provided (York v. Kenilworth Oil Co., 614 S.W.2d 468, 471 (Tex. Civ. App.-Waco 1981, writ ref'd n.r.e.); Cooper v. United States, 322 F. Supp. 2d 733, 737 (E.D. Tex. 2004)). Because a reservation of sale proceeds keeps neither title nor the right to control or dispose of the property (Mann v. Risinger, 423 S.W.2d 626, 632 (Tex. Civ. App.-Beaumont 1968, writ ref'd n.r.e.); Baldwin v. Peet, Sims & Co., 22 Tex. 708, 718 (1859)), the opinion concluded the member is unlikely to be the "owner" under section 312.204(d). It flagged but did not apply chapter 171 of the Local Government Code (Tex. Loc. Gov't Code Ann. § 171.004(a)(2) (Vernon 2008)).

Citations

Statutes:

• Tex. Tax Code Ann. §§ 311.003(a), 311.011, 312.204(a), 312.204(d) (Vernon 2008)
• Tex. Loc. Gov't Code Ann. § 171.004(a)(2) (Vernon 2008)

Cases:

• Childress County v. State, 92 S.W.2d 1011 (Tex. 1936)
• Travis Cent. Appraisal Dist. v. Signature Flight Support Corp., 140 S.W.3d 833 (Tex. App.-Austin 2004, no pet.)
• Comerica Acceptance Corp. v. Dallas Cent. Appraisal Dist., 52 S.W.3d 495 (Tex. App.-Dallas 2001, pet. denied)
• Stephens County Museum, Inc. v. Swenson, 517 S.W.2d 257 (Tex. 1975)
• York v. Kenilworth Oil Co., 614 S.W.2d 468 (Tex. Civ. App.-Waco 1981, writ ref'd n.r.e.)
• Cooper v. United States, 322 F. Supp. 2d 733 (E.D. Tex. 2004)
• The Peoples Gas, Light, & Coke Co. v. Harrison Cent. Appraisal Dist., 270 S.W.3d 208 (Tex. App.-Texarkana 2008, no pet.)
• Mann v. Risinger, 423 S.W.2d 626 (Tex. Civ. App.-Beaumont 1968, writ ref'd n.r.e.)
• Baldwin v. Peet, Sims & Co., 22 Tex. 708 (1859)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-0725
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2009/ga0725.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative.

ATTORNEY GENERAL OF TEXAS

GREG ABBOTT

July 9, 2009

The Honorable David P. Weeks
Walker County Criminal District Attorney
1036 11th Street
Huntsville, Texas 77340

Opinion No. GA-0725

Re: Whether certain reservations and assignments in deeds executed by a member of a city council operate to exclude particular property from tax increment financing under Tax Code section 312.204(d) (RQ-0777-GA)

Dear Mr. Weeks:

You inform us that in 2004, the City of Huntsville (the "City") created a tax increment financing reinvestment zone pursuant to the Tax Increment Financing Act, chapter 311 of the Tax Code.[1] You relate that an individual who was then and who is now a city council member owned approximately a seven percent undivided interest in certain real property located in the zone. See Brief at 1, 4. In 2008, you tell us, the council member "deeded" his interest to his children, but "reserved the net proceeds from any future sale of the property and transferred and assigned those proceeds to the City ... to be used for the renovation, expansion and/or construction of the Public Library in memory" of a relative of the council member. Id. at 1. You first ask whether the reservation "operate[s] to exclude the property from tax increment financing under Tax Code section 312.204(d)," a provision in the Property Redevelopment and Tax Abatement Act. Id. at 2. This office does not construe particular contracts or contract provisions. See, e.g., Tex. Att'y Gen. Op. No. GA-0302 (2005) at 2. However, your question can be answered by addressing the legal issue of whether a valid reservation of sale proceeds of real property conveyed retains to the grantor ownership of the property under Tax Code section 312.204(d). Thus, we answer your question generally without expressing an opinion with respect to the particular deeds or transactions about which you ask. See id.

The Tax Increment Financing Act, chapter 311 of the Tax Code, authorizes an eligible city to establish a qualifying area as a reinvestment zone and finance authorized projects in the zone to promote its development or redevelopment. See TEX. TAX CODE ANN. §§ 311.003(a), .011 (Vernon 2008). The Property Redevelopment and Tax Abatement Act, chapter 312 of the Tax Code, authorizes an eligible city to enter into a tax abatement agreement with an owner of taxable real property, or lessee of tax-exempt real property, in a reinvestment zone to exempt from taxation a portion of the value of the real property, tangible personal property located on the real property, or both. See id. § 312.204(a). A provision in the Property Redevelopment and Tax Abatement Act, section 312.204(d), excludes all real property that is owned by a member of a city's governing body not only from tax abatement under chapter 312, but also tax increment financing under the Tax Increment Financing Act, chapter 311: "[P]roperty that is in a reinvestment zone and that is owned or leased by a person who is a member of the governing body of the municipality ... is excluded from property tax abatement or tax increment financing." Id. § 312.204(d); see also id. (excepting property subject to tax abatement or tax increment financing before the property owner becomes a member of the governing body).

Chapter 312 does not define the terms "own" and "owner" or indicate the Legislature's intent in enacting section 312.204(d). Texas courts have generally defined "owner" under the Tax Code as the person holding legal title to the property or holding an equitable right to obtain legal title to the property. See Childress County v. State, 92 S.W.2d 1011, 1015 (Tex. 1936); Travis Cent. Appraisal Dist. v. Signature Flight Support Corp., 140 S.W.3d 833, 839-40 (Tex. App.-Austin 2004, no pet.); Comerica Acceptance Corp. v. Dallas Cent. Appraisal Dist., 52 S.W.3d 495, 497 (Tex. App.-Dallas 2001, pet. denied). Attorney General Letter Opinion 98-001 specifically construed the terms "own" and "owner" in chapter 312 to "refer to a property interest that includes at least some degree of control over the property" but not to "embrace a mere beneficial or equitable interest in property completely lacking such control." Tex. Att'y Gen. LO-98-001, at 3.

Under the general law, execution and delivery of a deed conveys to the grantee title to the transferred property. See Stephens County Museum, Inc. v. Swenson, 517 S.W.2d 257, 261 (Tex. 1975). Thus, upon such execution and delivery, the grantee is vested in the property and entitled to the proceeds upon a sale of that property. See id. A "reservation" in a deed operates for the benefit of the grantor and generally retains in the grantor his interest to the extent provided. See York v. Kenilworth Oil Co., 614 S.W.2d 468, 471 (Tex. Civ. App.-Waco 1981, writ ref'd n.r.e.); see also Cooper v. United States, 322 F. Supp. 2d 733, 737 (E.D. Tex. 2004) ("An estate in the land less than the fee simple as well as an interest in land not amounting to an estate known to the law may be reserved.") (citing Woodmen of the World Camp No. 1772 v. Goodman, 193 S.W.2d 739 (Tex. Civ. App.-Dallas 1945, no writ)). We find no Texas case that addresses specifically a reservation of sale proceeds by the grantor or the validity of such an arrangement.

Assuming the validity of a reservation of the sale proceeds of the property conveyed, the issue here is whether such a reservation retains to the grantor ownership of the property for the purposes of section 312.204(d).[2] By definition, a reservation of the sale proceeds retains to the grantor only an ownership interest in the proceeds if and when the property is sold. Such a reservation does not by its terms retain to the grantor legal or equitable title to the property itself. See The Peoples Gas, Light, & Coke Co. v. Harrison Cent. Appraisal Dist., 270 S.W.3d 208, 212 (Tex. App.-Texarkana 2008, no pet.) (discussing the several Texas decisions to date defining "owner" under the Tax Code as the person holding legal or equitable title to the property). Nor does such a reservation retain to the grantor other elements of property ownership recognized under the common law — the right to control and dispose of the property. See Mann v. Risinger, 423 S.W.2d 626, 632 (Tex. Civ. App.-Beaumont 1968, writ ref'd n.r.e.) ("'Property in a thing consists not merely in its ownership and possession, but in the unrestricted right of use, enjoyment and disposal.'") (citation omitted); Tex. Att'y Gen. LO-98-001, at 3 (indicating that "owner" under chapter 312 might include a person with control over the disposition of property). Finally, we find no Texas authority indicating that a reservation in a deed of the sale proceeds retains to the grantor title or ownership of the property conveyed or that such a reservation constitutes a recognized interest or estate in the property. Cf. Cooper, 322 F. Supp. 2d at 737 ("[I]f the reservation does not reserve to the grantor a definite estate in the land, the deed may be construed as a grant of the fee simple, subject to a mere contractual right.") (citing Emerson v. Pate, 165 S.W. 469 (Tex. Crim. App. 1914)). Thus, while there is no Texas authority directly on point, because a reservation of the sale proceeds does not retain to the grantor legal or equitable title to the property or the right to control or dispose of the property, we conclude that such a reservation does not as a matter of law retain to the grantor ownership of the property. Cf. Lowe v. Mich. Fire & Marine Ins. Co., 236 S.W.2d 168, 170 (Tex. Civ. App.-Beaumont 1950, writ ref'd) (holding that a reservation of a vendor's lien in a deed did not preclude change in ownership); Woodmen, 193 S.W.2d at 741 (holding that building conveyed by grantor "became property of [the grantee county] subject to reservations of deed" of the second floor for plaintiffs' use).

We recognize that an ownership interest in the sale proceeds of the property conveyed is a valuable interest, and a reservation of such an interest by the grantor appears "inconsistent with the terms and ostensible object" of a conveyance. Baldwin v. Peet, Sims & Co., 22 Tex. 708, 718 (1859) (discussing fraudulent conveyances to avoid payment to creditors and indicating that deed reservations are "sustained only when they are consistent with the objects of the deed"). Additionally, a grantor who retains such an interest retains a direct pecuniary interest in transactions relating to the property, including tax increment financing.[3] However, Tax Code section 312.204(d) does not prohibit a member of a city's governing body from having any "interests" related to the property subject to tax increment financing. If the Legislature had intended to broadly prohibit any interests, it would have made that intent plain as it has done in other statutes.[4] See Tex. Att'y Gen. LO-98-001, at 3.

Accordingly, we think it unlikely that a member of a governing body who in a deed conveying property reserves to himself the sale proceeds of the property, if and when the property is sold, is the owner of the property under section 312.204(d) by virtue of the reservation. Thus, a reservation of the proceeds, by itself, does not appear to operate to exclude property from tax increment financing under section 312.204(d). Given this conclusion, it is unnecessary to address your second question as to whether the entire tract or only the council member's "portion of the tract" is excluded by operation of the reservation and assignment.[5] See Brief at 2.

SUMMARY

Tax Code section 312.204(d) excludes real property owned by a member of a city's governing body from tax increment financing. It is unlikely that a city council member who in a deed conveying real property reserves to himself the sale proceeds of the property, if and when the property is sold, is the owner of the property under section 312.204(d) by virtue of the reservation. Thus, such a reservation does not by itself appear to operate to exclude property from tax increment financing under section 312.204(d).

Attorney General of Texas

ANDREW WEBER
First Assistant Attorney General

JONATHAN K. FRELS
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Sheela Rai
Assistant Attorney General, Opinion Committee

[Footnote 1: See Brief attached to Request Letter at 1 (available at http://www.texasattorneygeneral.gov).]

[Footnote 2: We do not believe the assignment of the proceeds is dispositive of the issues raised by your request for the reasons explained in note 3. See infra note 3.]

[Footnote 3: You appear to argue that the irrevocable assignment of the sale proceeds to the City for the improvement of a public library terminates any or all of the council member's interests. See Brief at 4. First, until the property is sold, the grantor arguably retains legal title to the anticipated proceeds and, thus, his interest. Cf. Univ. of Tex. Med. Branch v. Allan, 777 S.W.2d 450, 453, 454 (Tex. App.-Houston [14th Dist.] 1989, no writ) (holding that an individual who had assigned her insurance benefits retained legal title to the proceeds of the insurance contract until the proceeds were paid). Second, even though the assigned proceeds are to be used for a public rather than a private purpose, arguably the council member still enjoys the benefits of his ownership of the proceeds by directing how they are used, i.e., improvement of a library in memory of a relative. "[W]here the taxpayer diverts the payment from himself to others as a means of procuring satisfaction of his economic desires, he has in effect enjoyed the fruits of his investment as though he had collected the proceeds himself." Floyd v. Scofield, 193 F.2d 594, 596 (5th Cir. 1952) (considering whether a corporation by assignment to its stockholders can escape taxation on the proceeds of the sale of corporate assets). Of course, once the property is sold and the proceeds paid to the City, the question of the effect of the assignment, as well as of the reservation, becomes moot.]

[Footnote 4: See, e.g., TEX. ALCO. BEV. CODE ANN. § 5.05(a)(3) (Vernon Supp. 2008) (prohibiting Alcoholic Beverage Commission member from having a "pecuniary interest in an alcoholic beverage business"); TEX. ELEC. CODE ANN. §§ 121.002, 122.035(d), 122.092(d) (Vernon 2003) (prohibiting Secretary of State and voting system examiners from having "a pecuniary interest in the manufacturing or marketing" of a voting system); TEX. LOC. GOV'T CODE ANN. §§ 321.027(a), 322.026(a) (Vernon 2005) (prohibiting member of a county or joint county board of park commissioners from acquiring "a direct or indirect pecuniary interest" in any park "improvements, concessions, equipment, or business"); TEX. TRANSP. CODE ANN. §§ 453.055, 457.054 (Vernon 2007) (prohibiting employees of municipal and county transit departments from having a pecuniary interest in, or receiving benefits from, agreements to which the transit departments are a party).]

[Footnote 5: You do not ask and we do not address the application of chapter 171 of the Local Government Code, which requires a public official having a "substantial interest ... in real property" to abstain from participating in a vote or decision on the matter if it "will have a special economic effect on the value of the property, distinguishable from its effect on the public." See TEX. LOC. GOV'T CODE ANN. § 171.004(a)(2) (Vernon 2008).]