Can a Texas charity keep its property-tax exemption if it leases its land to a partnership to build and only holds equitable title?

Plain-English summary

Representative Rafael Anchia asked the Attorney General about the property-tax exemption that Texas gives charities. The charity in question was the Deaf Action Center, a nonprofit that serves deaf and hard-of-hearing people and owns apartment property it rents to deaf and hard-of-hearing tenants and others receiving housing assistance. That property had carried a total exemption from property taxes under section 11.18 of the Tax Code for years. The Center wanted to expand the number of apartment units, and it proposed an unusual structure: demolish the old buildings, lease the land to a limited partnership the Center controls through a wholly owned general partner, have that partnership build the new apartments, keep legal title to the land in the Center's name, and have the Center hold equitable title to the new buildings. The added rent would help the Center keep providing services. Anchia asked whether the Center would still qualify for the section 11.18 exemption after this restructuring.

The AG did not answer whether the Center's specific property would stay exempt. He explained that whether any particular property is tax exempt depends on the facts, and that the chief appraiser of the local appraisal district, not the Attorney General, is the official who decides in the first instance whether property qualifies. So the AG limited himself to the general legal principles.

The key principle was about ownership. Both the Texas Constitution (article VIII, section 2) and section 11.18 allow the charitable exemption only for property a charity owns and uses. The Center's plan deliberately split legal title (the land, held by the Center) from equitable title (the new improvements, equitably owned by the Center). Equitable title, the AG explained, means a present right to compel transfer of the legal title, not a mere expectation or a contingent interest. The Texas Supreme Court had held that equitable ownership is enough to support an ownership claim for a tax exemption, but those cases arose under a different statute (section 11.182, for community housing development organizations), and courts of appeals had reached the same result under section 11.11 (public property). No Texas case had squarely decided whether equitable ownership supports the charitable exemption under section 11.18.

Even so, the AG concluded it is likely a court would apply equitable-ownership principles to section 11.18. His reasoning: sections 11.11, 11.182, and 11.18 were all enacted under the same constitutional provision, article VIII, section 2, and the Tax Code does not define "owner" in a way that excludes equitable title. So the structure the Center described, in which it holds equitable title to the new improvements, likely would not by itself defeat the exemption, though the actual qualification call remained with the chief appraiser.

Currency note

This opinion was issued in 2014. Subsequent statutory amendments, court decisions, or later Attorney General 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.

What the opinion meant for those who asked

Representative Anchia and the Deaf Action Center (as the opinion described it): The opinion did not certify that the Center's restructured property would remain exempt. It described the qualification determination as the chief appraiser's to make on the facts, while concluding that the equitable-ownership structure the Center proposed likely would be recognized in principle under section 11.18.

Charitable and nonprofit organizations (as the opinion described it): The opinion described the section 11.18 exemption as available only for property the charity owns and uses, and concluded that a court would likely treat equitable ownership, not just legal title, as sufficient ownership for that exemption.

Appraisal districts and chief appraisers (as the opinion described it): The opinion identified the chief appraiser as the authority that initially determines whether property is tax exempt under section 11.45(a), and described the exemption question for the Center's property as outside the opinion process.

Affordable-housing developers using partnership structures (as the opinion described it): The opinion described equitable title as a present right to compel transfer of legal title (not a mere expectation), and noted that Texas courts had accepted equitable ownership for tax exemptions under sections 11.11 and 11.182, the same constitutional family as section 11.18.

Common questions

Who decides whether a charity's property is tax exempt in Texas?
The AG explained that the chief appraiser of the local appraisal district makes that determination in the first instance under section 11.45(a) of the Tax Code, and that it depends on the specific facts. The Attorney General does not decide whether a particular property qualifies.

Does a charity have to hold full legal title to keep the section 11.18 exemption?
Not necessarily. The AG concluded it is likely a court would apply equitable-ownership principles to section 11.18, meaning a charity that holds equitable title (a present right to compel legal title) would likely count as an owner for the exemption.

What is equitable title?
The AG described it as a present right to have legal title transferred to you, not a mere expectation or a purely contingent interest. Courts look beyond the legal title and examine the facts.

Had any Texas court decided this exact question under section 11.18?
No. The AG said he was unaware of a case directly holding that equitable ownership supports the charitable exemption under section 11.18. He predicted the outcome by analogy to sections 11.11 and 11.182, where courts had accepted equitable ownership, all enacted under article VIII, section 2.

Can a charity lease its land to a partnership and still keep the exemption?
The opinion suggested the structure would not automatically defeat the exemption, because equitable ownership likely counts, but it stressed that the actual qualification of the Center's property was a fact question for the chief appraiser, not something the AG could decide.

Background and statutory framework

The charitable property-tax exemption comes from article VIII, section 2 of the Texas Constitution, which lets the Legislature "by general laws, exempt from taxation ... institutions engaged primarily in public charitable functions" (Tex. Const. art. VIII, § 2). The Legislature implemented that provision by enacting section 11.18 of the Tax Code (N. Alamo Water Supply Corp. v. Willacy Cnty. Appraisal Dist., 804 S.W.2d 894 (Tex. 1991)). Section 11.18 exempts buildings, tangible personal property, and real property owned and used exclusively by the charitable organization (Tex. Tax Code Ann. § 11.18(a)(1)-(2) (West Supp. 2014)), and section 11.18(d) requires the organization to be organized and engage exclusively in qualifying charitable functions. A 1999 constitutional amendment broadened the standard from "purely public charity" to "engaged primarily in public charitable functions" (Brazos Cnty. Appraisal Dist. v. Bryan-College Station Reg'l Ass'n of Realtors, Inc., 419 S.W.3d 462 (Tex. App.-Waco 2013, pet. denied)).

Because whether any specific property qualifies depends on facts, the chief appraiser determines an applicant's right to an exemption in the first instance (Tex. Tax Code Ann. § 11.45(a) (West 2008); Tex. Att'y Gen. Op. No. GA-0485 (2006)). The AG therefore addressed only the legal principles.

On ownership, the AG explained that equitable title is "the present right to compel legal title" and does not follow a mere expectation or contingent interest (TRQ Captain's Landing, L.P. v. Galveston Cent. Appraisal Dist., 212 S.W.3d 726 (Tex. App.-Houston [1st Dist.] 2006), aff'd, 423 S.W.3d 374 (Tex. 2014); Tex. Tpk. Co. v. Dallas Cnty., 271 S.W.2d 400 (Tex. 1954); Tanner v. Imle, 253 S.W. 665 (Tex. Civ. App.-San Antonio 1923, writ dism'd)). The Texas Supreme Court has held equitable ownership sufficient for a tax exemption, but in the context of section 11.182 (Galveston Cent. Appraisal Dist. v. TRQ Captain's Landing, 423 S.W.3d 374 (Tex. 2014); AHF-Arbors at Huntsville I, LLC v. Walker Cnty. Appraisal Dist., 410 S.W.3d 831 (Tex. 2012)), and courts of appeals have done the same under section 11.11 (Travis Cent. Appraisal Dist. v. Signature Flight Support Corp., 140 S.W.3d 833 (Tex. App.-Austin 2004, no pet.); Sweetwater Indep. Sch. Dist. v. ReCOR, Inc., 955 S.W.2d 703 (Tex. App.-Eastland 1997, pet. denied)).

The AG found no case deciding the point under section 11.18, but reasoned that because sections 11.11, 11.182, and 11.18 were all adopted under article VIII, section 2, and the Tax Code does not define "owner" to exclude equitable title, a court would likely apply equitable-ownership principles to the section 11.18 charitable exemption (Harris Cnty. Appraisal Dist. v. Primrose Houston 7 Housing L.P., 238 S.W.3d 782 (Tex. App.-Houston [1st Dist.] 2007, pet. denied); Tex. Dep't of Corrs. v. Anderson Cnty. Appraisal Dist., 834 S.W.2d 130 (Tex. App.-Tyler 1992, writ denied); Comerica Acceptance Corp. v. Dallas Cent. Appraisal Dist., 52 S.W.3d 495 (Tex. App.-Dallas 2001, pet. denied)).

Citations

Constitutional and statutory provisions:

• Tex. Const. art. VIII, § 2 (charitable tax exemption)
• Tex. Tax Code Ann. § 11.18 (West Supp. 2014) (charitable organizations exemption)
• Tex. Tax Code Ann. § 11.18(a)(1)-(2) (West Supp. 2014) (property owned and used by the charity)
• Tex. Tax Code Ann. § 11.18(d) (West Supp. 2014) (organizational and exclusive-function requirements)
• Tex. Tax Code Ann. § 11.45(a) (West 2008) (chief appraiser determines exemption)
• Tex. Tax Code Ann. § 11.182 (community housing development organizations)
• Tex. Tax Code Ann. § 11.11 (public property)

Cases:

• N. Alamo Water Supply Corp. v. Willacy Cnty. Appraisal Dist., 804 S.W.2d 894, 895 (Tex. 1991)
• Brazos Cnty. Appraisal Dist. v. Bryan-College Station Reg'l Ass'n of Realtors, Inc., 419 S.W.3d 462, 464 (Tex. App.-Waco 2013, pet. denied)
• TRQ Captain's Landing, L.P. v. Galveston Cent. Appraisal Dist., 212 S.W.3d 726, 732 (Tex. App.-Houston [1st Dist.] 2006), aff'd, 423 S.W.3d 374 (Tex. 2014)
• Tex. Tpk. Co. v. Dallas Cnty., 271 S.W.2d 400, 402 (Tex. 1954)
• Tanner v. Imle, 253 S.W. 665, 668 (Tex. Civ. App.-San Antonio 1923, writ dism'd)
• Travis Cent. Appraisal Dist. v. Signature Flight Support Corp., 140 S.W.3d 833, 840-41 (Tex. App.-Austin 2004, no pet.)
• Galveston Cent. Appraisal Dist. v. TRQ Captain's Landing, 423 S.W.3d 374 (Tex. 2014)
• AHF-Arbors at Huntsville I, LLC v. Walker Cnty. Appraisal Dist., 410 S.W.3d 831 (Tex. 2012)
• Sweetwater Indep. Sch. Dist. v. ReCOR, Inc., 955 S.W.2d 703, 704 (Tex. App.-Eastland 1997, pet. denied)
• Harris Cnty. Appraisal Dist. v. Primrose Houston 7 Housing L.P., 238 S.W.3d 782, 785 (Tex. App.-Houston [1st Dist.] 2007, pet. denied)
• Tex. Dep't of Corrs. v. Anderson Cnty. Appraisal Dist., 834 S.W.2d 130, 131 (Tex. App.-Tyler 1992, writ denied)
• Comerica Acceptance Corp. v. Dallas Cent. Appraisal Dist., 52 S.W.3d 495, 497 (Tex. App.-Dallas 2001, pet. denied)

Prior Attorney General opinion referenced:

• Tex. Att'y Gen. Op. No. GA-0485 (2006)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-1092
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2014/ga1092.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts were corrected; the linked PDF is authoritative.

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT

December 8, 2014

The Honorable Rafael Anchia Opinion No. GA-1092
Chair, Committee on International Trade &
Intergovernmental Affairs Re: Charitable organization's tax exemption
Texas House of Representatives under section 11.18, Tax Code, for property
Post Office Box 2910 leased to a limited partnership for the
Austin, Texas 78768-2910 construction of improvements to be used to
expand the charitable services (RQ-1205-GA)

Dear Representative Anchia:

You ask "whether a charitable organization may maintain a total property tax exemption authorized by Section 11.18 of the Tax Code when it leases property it owns to a limited partnership that would in turn, fund and construct new improvements on the property controlled by the charitable organization, equitably owned by the charitable organization and used to expand the charitable organization's social services."

You tell us that the charitable organization, the Deaf Action Center (the "Center"), is a nonprofit organization that serves deaf and hard-of-hearing people with a comprehensive range of social services. Request Letter at 1. You state that the Center owns apartment property that it rents to individuals who are deaf or hard-of-hearing and other individuals who receive housing assistance. See id. at 2. You note that the property has received a total exemption from ad valorem taxes under section 11.18 for several years. See id. at 1-2. You explain that the Center wants to expand the number of apartment units with the following proposed venture: the Center will demolish the property's existing improvements and lease the property to a limited partnership which will construct new improvements to increase the number of units using a variety of funding mechanisms; the Center will manage and control the limited partnership through a wholly-owned general partner and retain legal title to the real property; and the Center will hold equitable title to the newly constructed improvements. See id. at 2. You explain further that the increased rental revenue from the newly constructed improvements will allow the Center to continue to provide social services to its tenants. See id.

With this background, you ask us to determine that the Center will continue to qualify for a tax exemption under section 11.18 of the Tax Code after it completes the proposed expansion of its facilities utilizing the described plan. Id. at 4. The question of whether any specific property is tax exempt depends on particular facts. See, e.g., Tex. Att'y Gen. Op. No. GA-0485 (2006) at 1. "Moreover, the chief appraiser of the appraisal district in which the property is located is the authority to initially determine whether property is tax exempt." Id. at 1-2; see also TEX. TAX CODE ANN. § 11.45(a) (West 2008) ("The chief appraiser shall determine ... each applicant's right to an exemption."). Accordingly, we cannot determine as a matter of law whether any particular property is exempt from taxation. We can, however, discuss the general legal principles applicable to your question.

The charitable tax exemption stems from article VIII, section 2 of the Texas Constitution, which provides that "the legislature may, by general laws, exempt from taxation ... institutions engaged primarily in public charitable functions." TEX. CONST. art. VIII, § 2. In the implementation of this provision, the Legislature enacted section 11.18 of the Tax Code. See TEX. TAX CODE ANN. § 11.18 (West Supp. 2014); see also N. Alamo Water Supply Corp. v. Willacy Cnty. Appraisal Dist., 804 S.W.2d 894, 895 (Tex. 1991) (noting that section 11.18 was enacted under article VIII, section 2). The charitable exemption in section 11.18 reaches buildings and tangible personal property and real property owned and used exclusively by the charitable organization. See TEX. TAX CODE ANN. § 11.18(a)(1)-(2) (West Supp. 2014); see also id. § 11.18(c)-(g) (identifying the qualifications of a charitable organization); but see id. § 11.18(b) (allowing some incidental use for activities that benefit the charitable organization's beneficiaries).

To qualify for the charitable exemption, an entity must satisfy both the constitutional and statutory requirements. N. Alamo Water Supply Corp., 804 S.W.2d at 899. Under article VIII, section 2, the entity seeking the exemption must be engaged primarily in public charitable functions. TEX. CONST. art. VIII, § 2(a); see Brazos Cnty. Appraisal Dist. v. Bryan-College Station Reg'l Ass'n of Realtors, Inc., 419 S.W.3d 462, 464 (Tex. App.-Waco 2013, pet. denied) (recognizing that a 1999 constitutional amendment to article VIII, section 2 broadened the provision by replacing the prior language "purely public charity" with the phrase "engaged primarily in public charitable functions"). Under section 11.18, the entity must "be organized exclusively to perform religious, charitable, scientific, literary, or educational purposes and, except as permitted by Subsections (h) and (l), engage exclusively in performing one or more of the [specified] charitable functions." TEX. TAX CODE ANN. § 11.18(d) (West Supp. 2014); see Request Letter at 3 (asserting the Center meets this qualification under section 11.18(d)(3)). Both section 11.18 and article VIII, section 2 allow the tax exemption only for property that a charitable organization owns and uses. TEX. CONST. art. VIII, § 2; TEX. TAX CODE ANN. § 11.18(a)(1), (2) (West Supp. 2014).

Because the nature of the proposed venture you describe involves the separation of the legal and equitable title of the property and improvements, you raise the issue of equitable title. See Request Letter at 3. Equitable title is "'the present right to [compel] legal title.'" TRQ Captain's Landing, L.P. v. Galveston Cent. Appraisal Dist., 212 S.W.3d 726, 732 (Tex. App.-Houston [1st Dist.] 2006), aff'd, 423 S.W.3d 374 (Tex. 2014) (citations omitted). Equitable title does not follow a mere expectation or a purely contingent interest. See Tex. Tpk. Co. v. Dallas Cnty., 271 S.W.2d 400, 402 (Tex. 1954) (discussing equitable title). Rather, it is a current "right in the party to whom it belongs to have the legal title transferred to him." Tanner v. Imle, 253 S.W. 665, 668 (Tex. Civ. App.-San Antonio 1923, writ dism'd); see also Travis Cent. Appraisal Dist. v. Signature Flight Support Corp., 140 S.W.3d 833, 840-41 (Tex. App.-Austin 2004, no pet.); Tex. Att'y Gen. Op. No. GA-0485 (2006) at 3-4 (discussing types of conditions under which a public entity can compel the transfer of legal title). In considering questions of equitable title, "courts look beyond the legal title and examine the facts of a given situation." Tex. Att'y Gen. Op. No. GA-0485 (2006) at 3.

As you point out, the Texas Supreme Court has held, on multiple occasions, that an equitable ownership interest is sufficient to support an entity's claim of property ownership for purposes of a tax exemption. See Request Letter at 3 (citing Galveston Cent. Appraisal Dist. v. TRQ Captain's Landing, 423 S.W.3d 374 (Tex. 2014); AHF-Arbors at Huntsville I, LLC v. Walker Cnty. Appraisal Dist., 410 S.W.3d 831 (Tex. 2012)). The cases to which you refer, however, do not consider equitable ownership in the particular context of section 11.18. Instead, both cases consider equitable ownership in support of a tax exemption for a community housing development organization under section 11.182. See Galveston Cent. Appraisal Dist., 423 S.W.3d at 376; AHF-Arbors at Huntsville I, LLC, 410 S.W.3d at 836. Texas courts of appeals have also recognized the sufficiency of equitable title in the context of a tax exemption for public property under section 11.11. See Travis Cent. Appraisal Dist., 140 S.W.3d at 837; Sweetwater Indep. Sch. Dist. v. ReCOR, Inc., 955 S.W.2d 703, 704 (Tex. App.-Eastland 1997, pet. denied). We are unaware of a case in which a Texas court has directly held that equitable ownership supports a claim of property ownership for a charitable tax exemption under section 11.18. Yet, sections 11.11 and 11.182 were both adopted under the authority of article VIII, section 2, which is the same constitutional provision under which the Legislature enacted section 11.18. See Harris Cnty. Appraisal Dist. v. Primrose Houston 7 Housing L.P., 238 S.W.3d 782, 785 (Tex. App.-Houston [1st Dist.] 2007, pet. denied) (noting that section 11.182 is enabling legislation for article VIII, section 2); Tex. Dep't of Corrs. v. Anderson Cnty. Appraisal Dist., 834 S.W.2d 130, 131 (Tex. App.-Tyler 1992, writ denied) (noting Legislature's adoption of section 11.11 under article VIII, section 2); see also Comerica Acceptance Corp. v. Dallas Cent. Appraisal Dist., 52 S.W.3d 495, 497 (Tex. App.-Dallas 2001, pet. denied) (noting that the Tax Code does not define "owner" and utilizing definition of "owner" that incorporated equitable title). For this reason, it is likely that a court would determine the principles of equitable ownership are applicable to an entity seeking a charitable tax exemption under section 11.18.

SUMMARY

It is likely a court would determine that the principles of equitable ownership are applicable to an entity seeking a charitable tax exemption under section 11.18 of the Tax Code.

The determination of whether a property qualifies for a tax exemption under section 11.18 is for the chief tax appraiser and outside the purview of an attorney general opinion.

GREG ABBOTT
Attorney General of Texas

DANIEL T. HODGE
First Assistant Attorney General

JAMES D. BLACKLOCK
Deputy Attorney General for Legal Counsel

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

Charlotte M. Harper
Assistant Attorney General, Opinion Committee

[1] Letter from Hon. Rafael Anchia, Chair, Comm. on Internat'l Trade & Intergov'tl Affairs, to Hon. Greg Abbott, Tex. Att'y Gen. at 1 (June 5, 2014), https://www.texasattorneygeneral.gov/opin ("Request Letter").