Was the Blue Bird Circle's office and resale-shop property exempt from Texas property taxes as charitable property?

Texas AG Opinion JM-269: Blue Bird Circle Tax Exemption

Plain-English summary

Harris County asked whether the Blue Bird Circle's real and personal property qualified for the charitable-organization exemption in Property Tax Code section 11.18. The nonprofit owned land containing an office building and two resale shops, and used its activity profits to support a pediatric neurology clinic located several miles away. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0269.pdf

JM-269 concluded that the property was not exempt on the submitted facts. The organization seeking an exemption bore the burden of satisfying the statutory requirements, and tax exemptions received narrow construction with doubts resolved against exemption. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0269.pdf

The decisive defect was in the Circle's governing documents. Section 11.18(c)(3)(B) required a direction that, when the organization ended, its assets would transfer to Texas or to another qualifying educational, religious, charitable, or similar organization. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0269.pdf

The Circle's bylaws said its property could not be used for the private gain of an officer, director, or member. JM-269 held that this private-benefit restriction did not substitute for the required dissolution transfer clause, so the Circle failed the statutory definition as of January 1, 1984. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0269.pdf

Currency note

This opinion was issued in 1984. 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.

Common questions

Did using all profits for a pediatric clinic make the property exempt?

No. The opinion said the Circle itself had to satisfy section 11.18's definition and governing-document requirements. Charitable use of profits did not cure the missing dissolution clause. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0269.pdf

What governing-document provision was missing?

The charter, bylaws, or regulations needed to direct transfer of the organization's assets, upon discontinuance, to Texas or to another qualifying charitable or similar organization. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0269.pdf

Was a ban on private gain enough?

No. JM-269 distinguished a provision barring private gain during the corporation's operation from a provision directing where assets would go when the corporation dissolved or otherwise ended. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0269.pdf

Who had to prove entitlement to the exemption?

The organization claiming the exemption. The opinion said the requirements had to be established in a manner leaving no doubt. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0269.pdf

What date controlled the Circle's tax status for 1984?

January 1, 1984, under Property Tax Code section 11.42 as cited in the opinion. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0269.pdf

Background and statutory framework

Section 11.18 exempted certain buildings and tangible property owned by qualifying charitable organizations. Section 11.18(c)(1) required exclusive organization and operation for listed charitable functions, including providing medical care without regard to ability to pay. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0269.pdf

Hilltop Village and City of Waco supported the proposition that property associated with a charitable purpose still had to meet the controlling statutory definition. JM-269 therefore examined the Circle's own qualifications rather than treating the clinic's work as automatically dispositive. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0269.pdf

Hedgecroft v. City of Houston and Hilltop Village supplied the strict-construction rule for tax exemptions. The opinion also referred to an unpublished 1984 appellate decision for the claimant's burden of proof but did not rely on that unresolved citation in the research fields above. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0269.pdf

Citations and references

• Property Tax Code sections 11.18, 11.18(c), 11.18(c)(3)(B), and 11.42
• Section 501(c)(3), Internal Revenue Code of 1954
• Hilltop Village, Inc. v. Kerrville Independent School District, 426 S.W.2d 943 (Tex. 1968)
• City of Waco v. Texas Retired Teacher Residence Corporation, 464 S.W.2d 346 (Tex. 1971)
• Hedgecroft v. City of Houston, 244 S.W.2d 632 (Tex. 1951)
• Attorney General Opinions MW-288 (1980)

Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0269.pdf

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-0269
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0269.pdf

Original opinion text

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

The Attorney General of Texas

December 27, 1984

Honorable Mike Driscoll
Harris County Attorney
1001 Preston, Suite 634
Houston, Texas 77002

Opinion No. JM-269

Re: Whether the real and personal property of the Blue Bird Circle is exempt from ad valorem taxes

Dear Mr. Driscoll:

You have asked this office to determine whether section 11.18 of the state Property Tax Code exempts from ad valorem taxation the real and personal property of the Blue Bird Circle. Section 11.18 exempts charitable organizations from taxation of their buildings and tangible property, provided that the organization can meet certain stated requirements. We conclude that the Blue Bird Circle does not meet these statutory requirements for exemption under section 11.18. We limit our answer to the particular facts which you have given us.

You inform us that the Blue Bird Circle [hereinafter Circle] is a non-profit Texas corporation which owns a tract of land on which it maintains an office building and two resale shops. The Circle uses the office building for its various programs and meetings; the resale shops sell merchandise which has been donated to the Circle. The Circle uses all profits from its various activities to support the Blue Bird Clinic for Pediatric Neurology, which is located in the Texas Medical Center, several miles away from the property in question.

Section 11.18(c) of the Texas Tax Code lists the requirements which an organization must meet to qualify as a charitable organization under the statute:

(c) To qualify as a charitable organization for the purposes of this section, an organization (whether operated by an individual, as a corporation, or as an association) must:

(1) be organized exclusively to perform religious, charitable, scientific, literary, or educational purposes and, except as permitted by subsection (d) of this section, engage exclusively in performing one or more of the following charitable functions:

(A) providing medical care without regard to the beneficiaries' ability to pay;

. . . .

As this office noted in Attorney General Opinion MW-288 (1980), the court in Hilltop Village, Inc. v. Kerrville Independent School District, 426 S.W.2d 943 (Tex. 1968), indicated that the activity of providing facilities which meet special residential requirements of the aged might qualify as an institution for tax exemption as one of purely public charity, but only where it also qualified under the statutory definition of such institutions for tax exemption purposes. Because the controlling statute (former article 7150, section 7, V.T.C.S.) at that time restricted exemptions to property of institutions dispensing aid “without regard to [the] poverty or riches of the recipient,” a requirement which the claimant failed to meet, the exemption was denied. 426 S.W.2d at 948. See also City of Waco v. Texas Retired Teacher Residence Corporation, 464 S.W.2d 346 (Tex. 1971). Accordingly, if the property of the Circle is to be accorded a charitable exemption, the Circle itself must be exempt under section 11.18.

We must conclude that the Circle does not qualify for a section 11.18 tax exemption. We note that the burden of establishing the requirements for exemption from taxation is on the institution claiming the exemption, and the exemption must be proved in such a manner as to leave no doubt. Willacy County Appraisal District v. North Alamo Water Supply Corporation, No. 13-83-318-C (Tex. App. - Corpus Christi, June 28, 1984). Further, in such cases, exemptions from taxation are never favored, and, in construing laws exempting an organization, all doubts must be resolved against the institution claiming the exemption. Hedgecroft v. City of Houston, 244 S.W.2d 632 (Tex. 1951). Both statutory and constitutional provisions purporting to grant exemption from taxation will be given a narrow and strict construction, and all doubts must be resolved against the granting of the tax exemption. Hilltop Village v. Kerrville Independent School District, supra.

Section 11.18(c)(3)(B) of the Tax Code requires that charter, bylaws, or regulations adopted by the organization to govern its affairs must

direct that on discontinuance of the organization by dissolution or otherwise the assets are to be transferred to this state or to an educational, religious, charitable, or other similar organization that is qualified as a charitable organization under Section 501(c)(3), Internal Revenue Code of 1954, as amended.

Article I, section 3 of the Circle's bylaws reads:

Section 3. No part of the property of this Corporation shall ever be utilized for the private gain or profit of any officer, director, or member, as such, of the Corporation.

In its brief, the Circle refers to section 3 as ensuring that its assets are “perpetually dedicated to use in performing the organization's charitable function.” The Circle asserts that this provision satisfies the statutory requirements of section 11.18(c)(3). We disagree. There is no provision in the documents submitted to us that directs the Circle's assets to be transferred in the required manner in the event of its discontinuance.

The tax status of the corporation for this year is determined by its qualifications on January 1, 1984. Prop. Tax Code §11.42. Because the Circle does not meet the section 11.18(c) statutory requirements of a charitable organization, we conclude that its property is not exempt from ad valorem taxation.

SUMMARY

The Blue Bird Circle does not meet the statutory requirements to qualify as a charitable organization and, therefore, is not exempted from ad valorem taxation by section 11.18 of the state Property Tax Code.

Very truly yours,

JIM MATTOX
Attorney General of Texas

TOM GREEN
First Assistant Attorney General

DAVID R. RICHARDS
Executive Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Rick Gilpin
Assistant Attorney General

APPROVED:
OPINION COMMITTEE

Rick Gilpin, Chairman
Colin Carl
Susan Garrison
Tony Guillory
Jim Moellinger
Jennifer Riggs