The opinion
OFFICE OF THE ATTORNEY GENERAL . STATE OF TEXAS
JOHN CORNYN
April 27,200l
Mr. Robert J. Huston Opinion No. JC-0372
Chair, Texas Natural Resource
Conservation Commission Re: Whether certain types of property at new
P.O. Box 13087 facilities qualify for a tax exemption as
Austin, Texas 7871 l-3087 pollution-control property under section
11.31 of the Tax Code (RQ-330-JC)
Dear Mr. Huston:
Section 11.3 1 of the Tax Code provides that a person is entitled to a tax exemption for all or
part of real or personal property “used wholly or partly as a facility, device, or method for the control
of air, water, or land pollution.” TEX. TAX CODE ANN. 8 11.3 l(a) (Vernon Supp. 2001). YOU ask
whether pollution-control devices and methods of production that limit pollution at new facilities
qualify for a tax exemption under this provision.’ We conclude that they do, but that the Texas
Natural Resource Conservation Commission (“TNRCC”) must administer the tax exemption to grant
exemptions to only that portion of property that actually controls pollution.
Before addressing your specific questions, we briefly review the legal framework. In 1993,
the legislature proposed an amendment to the Texas Constitution, which the voters approved,
providing for an exemption from ad valorem taxation for real and personal property used to control
pollution.2 That constitutional provision, article VIII, section l-Z, provides as follows:
(a) The legislature by general law may exempt from ad
valorem taxation all or part of real and personal property used,
constructed, acquired, or installed wholly or partly to meet or exceed
rules or regulations adopted by any environmental protection agency
of the United States, this state, or a political subdivision of this state
for the prevention, monitoring, control, or reduction of air, water, or
land pollution.
‘See Letter fr 0 m Robert J. Huston, Chair, Texas Natural Resource Conservation Commission, to Honorable
John Cornyn, Texas Attorney General (Dec. 22,200O) (on file with Opinion Committee) [hereinafter Request Letter].
‘See Tex. H.J. Res. 86,73d Leg., R.S., 1993 Tex. Gen. Laws 5576 (adopted Nov. 2, 1993).
Mr. Robert J. Huston - Page 2 JC-0372
(b) This section applies to real and personal property used as
a facility, device, or method for the control of air, water, or land
pollution that would otherwise be taxable for the first time on or after
January 1,1994.
(c) This section does not authorize the exemption from ad
valorem taxation of real or personal property that was subject to a tax
abatement agreement executed before January 1, 1994.
Tex. Const. art. VIII, 8 1-Z (emphasis added). This constitutional provision uses the word “may”
with respect to the legislature’s authority to adopt a statute, rather than “shall” or “must.” Thus, it
permits but does not require the legislature to provide a tax exemption for pollution-control property.
See Rooms With A View, Inc. v. Private Nat ‘I Mortgage Ass ‘n Inc., 7 S.W.3d 840, 844 (Tex.
App.-Austin 1999, pet. denied) (“We use the same guidelines in interpreting constitutional
provisions as we do interpreting statutes.“); TEX. GO?T CODE ANN. 8 3 11.016( 1) (Vernon 1998)
(unless context requires a different construction the word “‘[mlay’ creates discretionary authority
or grants permission or a power”).
At the same time the legislature proposed this constitutional amendment, it also enacted
section 11.31 of the Tax Code as implementing legislation, which became effective on
January 1, 1994.3 Section 11.3 1 defines the property eligible for the tax exemption, see TEX. TAX
CODEANN. tj 11.3 1(a), (b), (g) (V emon Supp. 2001), and establishes a procedure whereby taxpayers
seeking the exemption submit information to your agency, the TNRCC, for a determination as to
whether the property at issue is a pollution-control facility, device, or method, see id. 9 11.3 1(c)-(f).
With respect to defining property eligible for the tax exemption, section 11.3 1 provides in
pertinent part:
(a) A person is entitled to an exemption from taxation of all
or part of real and personal property that the person owns and that is
used wholly or partly as a facility, device, or method for the control
of air, water, or land pollution. A person is not entitled to an
exemption from taxation under this section solely on the basis that the
person manufactures or produces a product or provides a service that
prevents, monitors, controls, or reducei air, water, or land pollution.
Property used for residential purposes, or for recreational, park, or
scenic uses as defined by Section 23.8 1, is ineligible for an exemption
under this section.
3See Act of May 10, 1993,73d Leg., R.S., ch. 285, $ 5, 1993 Tex. Gen. Laws 1322, 1324 (act to take effect
only upon voters’ approval of constitutional amendment proposed by House Joint Resolution 86).
Mr. Robert J. Huston - Page 3 JC-0372
(b) In this section, “facility, device, or method for the control
of air, water, or land pollution” means land that is acquired after
January 1, 1994, or any structure, building, installation, excavation,
machinery, equipment, or device, and any attachment or addition to
or reconstruction, replacement, or improvement of that property, that
is used, constructed, acquired, or installed wholly or partly to meet or
exceed rules or regulations adopted by any environmental protection
agency of the United States, this state, or a political subdivision of
this state for the prevention, monitoring, control, or reduction of air,
water, or land pollution. This section does not apply to a motor
vehicle.
Id. 6 11.31(a), (b). C onsistent with the constitutional provision, the statute provides that the tax
exemption may not apply to a facility, device, or method for the control of air, water, or land
pollution that was subject to a tax abatement agreement executed before January 1, 1994. See id.
5 11.3 l(g). In addition, the legislation enacting section 11.3 1 provided that this tax exemption
applies only to pollution control property that is constructed, acquired, or installed after
January 1, 1994. See Act of May 10, 1993,73d Leg., R.S., ch. 285, 0 5(b), 1993 Tex. Gen. Laws
1322,1325.
The TNRCC is charged with administering the statute by determining whether property
qualifies for the pollution-control tax exemption. Specifically, the TNRCC is charged with
determining “if the facility, device, or method is used wholly or partly as a facility, device, or
method for the control of air, water, or land pollution.” TEX. TAX CODE ANN. 9 11.3 l(d) (Vernon
Supp. 2001). In addition to determining whether the property controls pollution, the TNRCC must
also determine the proportion of the property devoted to that purpose. The statute provides that “[i]f
the installation includes property that is not used wholly for the control of air, water, or land
pollution, the person seeking the exemption shall also present such financial or other data as the
executive director requires by rule for the determination of the proportion of the installation that is
pollution control property.” Id. 8 11.3 1(c). In the event a facility, device, or method is used only
partly to control pollution, the TNRCC must provide a letter stating what portion of the property is
a facility, device, or method for the control of pollution. See id. 8 11.3 1(d) (“If the executive director
determines that the facility, device, or method is used wholly or partly to control pollution, the
director shall issue a letter to the person stating that determination and the proportion of the
installation that is pollution control property.“).
You ask whether certain types of property at new facilities qualify for a tax exemption as
pollution-control property under section 11.3 1 of the Tax Code. Your question is limited to
equipment new to a location: “equipment for a process or product that has never been produced at
that location; that is, a new facility.” Request Letter, supra note 1, at 2. You ask about two types
of equipment. You are concerned about that equipment that is added on to production equipment
to control pollution, which you refer to as “add-on control equipment.” See Request Letter, supra
note 1, at 2. You are also concerned about equipment used to make a product that limits pollution
Mr. Robert J. Huston - Page 4 JC-0372
by its design, which we will refer to as pollution-reducing production equipment. The following
example provided in your letter contrasts the two types of equipment:
The owner of a new [electricity-generating] boiler elects to
construct the facility so that it will emit less NOx [emissions] than is
required to meet best achievable control technology or the
requirements of 30 TAC Chapter 117. . . . [T]he emissions level
could be achieved by adding controls to the end of the process.
Alternatively, the same emissions level could be reached by a unit
that is designed to achieve more complete combustion.
Request Letter, supra note 1, at 3. You ask us to assume that the equipment would meet or exceed
environmental requirements.
Your question is as follows:
Is equipment, of a type new to a location, that is used to make
a product and by its design limits pollution, or add-on control
equipment installed on new equipment, within the category of
property used for pollution control under 5 11.3 1 of the Texas Tax
Code?
Request Letter, supra note 1, at 2. We gather your concern is whether a distinction should be made
between measures taken to address pollution that is already being generated by an existing facility
as opposed to pollution that will be generated in the future by a new facility. You also want to know
whether pollution-reducing production equipment and add-on control equipment should be treated
differently.
As there are no Texas judicial opinions addressing the contours of the section 11.3 1 tax
exemption, the issues you raise are questions of first impression. When construing a statute, “our
primary objective is to give effect to the Legislature’s intent.” Mitchell Energy Corp. v. Ashworth,
943 S.W.2d 436, 438 (Tex. 1997). To give effect to legislative intent, we construe a statute
according to its plain language. See RepublicBankDallas v. Interkal, Inc., 691 S.W.2d 605,607-08
(Tex. 1985); Bouldin v. Bexar County She@3 Civil Serv. Comm ‘n, 12 S.W.3d 527, 529 (Tex.
App.-San Antonio 1999, no pet.). Statutory words and phrases must be “read in context and
construed according to the rules of grammar and cornmon usage.” TEX. GOV’T CODE ANN.
8 311.011(a) (V emon 1998). Finally, exemptions from taxation are not favored by the law and “are
subject to strict construction because they undermine equality and uniformity by placing a greater
burden on some taxpayers rather than all.” Baptist Mem ‘IS Geriatric Ctr. v. Tom Green County
Appraisal Dist., 85 1 S.W.2d 938,942 (Tex. App.-Austin 1993, writ denied) (citing N. Alamo Water
Supply Corp. v. Willacy County Appraisal Dist., 804 S.W.2d 894,899 (Tex. 1991)). The latter rule
of construction guides us when a statute providing a tax exemption is ambiguous. It should not be
employed to construe a tax exemption provision contrary to its plain meaning.
Mr. Robert J. Huston - Page 5 JC-0372
First, we consider whether the statute should apply differently to new versus old facilities.
Section 11.3 1 is broadly written, and we believe its plain meaning is clear. It embraces any property,
real or personal, “that is used wholly orpartly as a facility, device, or method for the control of air,
water, or land pollution.” TEX. TAX CODEANN. 5 11.3 l(a) (Vernon Supp. 2001) (emphasis added).
“[Flacility, device, or method for the control of air, water, or land pollution” is specifically defined
to mean:
land that is acquired after January 1,1994, or any structure, building,
installation, excavation, machinery, equipment, or device, and any
attachment or addition to or reconstruction, replacement, or
improvement of that property, that is used, constructed, acquired, or
installed wholly or partly to meet or exceed rules or regulations
adopted by any environmental protection agency of the United States,
this state, or a political subdivision of this state for the prevention,
monitoring, control, or reduction of air, water, or land pollution.
Id. 8 11.3 1(b). This broad definition is not inconsistent with the constitutional provision authorizing
the tax exemption. See TEX. CONST. art. VIII, 0 l-l(a) (“real and personal property used,
constructed, acquired, or installed wholly orpartly to meet or exceed rules or regulations adopted
by any environmental protection agency of the United States, this state, or a political subdivision of
this state for the prevention, monitoring, control, or reduction of air, water, or land pollution”), (b)
(“This section applies to real and personal property used as a facility, device, or method for the
control of air, water, or land pollution that would otherwise be taxable for the first time on or after
January 1, 1994.“) (emphasis added).
Section 11.3 1 makes no distinction between property controlling pollution generated by
an existing facility and property controlling pollution generated by a new facility. The statute
contains only one temporal limitation. In order for land to be exempt, it must be acquired after
January 1, 1994, the statute’s effective date. See TEX. TAX CODEANN. fj 11.31(b) (Vernon Supp.
2001). In addition, the legislation enacting section 11.3 1 provided that the tax exemption applies
only to pollution control property that is constructed, acquired, or installed after January 1, 1994.
See Act of May 10, 1993, 73d Leg., R.S., ch. 285, 8 5(b), 1993 Tex. Gen. Laws 1322, 1325.
Furthermore, in defining ‘“facility, device, or method for the control of air, water, or land pollution,”
subsection (b) of section 11.3 1 uses words that embrace new facilities as well as changes to existing
facilities: “any structure, building, installation, excavation, machinery, equipment, or device, and
any attachment or addition to or reconstruction, replacement, or improvement of that property, that
is used, constructed, acquired, or installed.” TEX.TAX CODEANN. 0 11.3 1(b) (Vernon Supp. 2001).
In sum, on its face section 11.3 1 applies to pollution-control property added to any facility after
January 1, 1994. There is no basis in the statute for limiting the tax exemption only to pollution-
control property added to an existing facility.
Mr. Robert J. Huston - Page 6 JC-0372
Next, we consider whether section 11.31 excludes from its scope pollution-reducing
production equipment. Significantly, the statute applies to property used “wholly or partly” for
pollution control. See id. 0 11.3 1(a). To qualify for the exemption, property must be used “wholly
or partly” to meet or exceed environmental rules. See id. 0 11.3 l(b). The term “wholly” clearly
refers to property that is used only for pollution control, such as an add-on device. See MERRIAM
WEBSTER’SCOLLEGIATEDICTIONARY135 1 (10th ed. 1993) (defining “wholly” to mean “to the full
or entire extent: . . . to the exclusion of other things”). The term “partly,” however, embraces
property that has only some pollution-control use. See id. at 848 (defining “partly” to mean “in some
measure or degree”). This broad formulation clearly embraces more than just add-on devices.
Furthermore, that statute clearly embraces not only “facilities” and “devices” but also “methods” that
prevent, monitor, control, or reduce pollution. “Methods” is an extremely broad term that clearly
embraces means of production designed, at least in part, to reduce pollution. See id. at 732 (defining
“method” to include “a way, technique, or process of or for doing something”).
Based on its plain language and the common meaning of the terms “wholly,” “partly,” and
“method,” we conclude that section 11.3 1 clearly extends to, in your words, “equipment . . . that is
used to make a product and by its design limits pollution.” Request Letter, supra note 1, at 2. We
stress, however, that under section 11.3 1 the owner of pollution-reducing production equipment,
property that serves both a production and a pollution-reduction purpose, is not entitled to a tax
exemption on the total value of the property. Rather, pollution-reducing production equipment may
receive only a partial tax exemption. The TNRCC has been charged by the legislature with
determining what portion of such property is a “facility, device, or method for the control” of
pollution. See TEX. TAX CODE ANN. 8 11.3 1(d) (Vernon Supp. 2001) (“If the executive director
determines that the facility, device, or method is used wholly or partly to control pollution, the
director shall issue a letter to the person stating that determination and the proportion of the
installation that is pollution control property.“). The person seeking the exemption must “present
such financial or other data as the [TNRCC] executive director requires by rule for the determination
of the proportion of the installation that is pollution control property.” Id. 6 11.3 1(c). Given that
tax exemptions are not favored by the law, see N. Alamo Water Supply Corp., 804 S.W.2d at 899,
the TNRCC must adopt rules and administer the statute to limit tax exemptions to only that portion
of property that serves a pollution-control, as opposed to a production, purpose.
We have received several briefs that argue that pollution-reducing production equipment
should not receive a tax exemption because production equipment is a source of pollution and is
designed to produce rather than reduce pollution. This argument ignores the broad scope of section
11.3 1. Again, section 11.3 1 exempts not only those facilities, devices and methods what are wholly
used to control pollution, but also those that are used only partly to control pollution. Furthermore,
if the TNRCC grants tax exemptions only to that portion of property that reduces pollution, the
portion of the property that produces pollution will not fall within the scope of the exemption and
will be taxed.
In sum, in answer to your question whether “equipment, of a type new to a location, that is
used to make a product and by its design limits pollution, or add-on control equipment installed on
Mr. Robert J. Huston - Page 7 JC-0372
new equipment” falls within the scope of section 11.31, we conclude that both add-on control
equipment installed in a new facility and pollution-reducing production equipment installed in a new
facility qualify for a tax exemption under that provision. However, the TNRCC must administer the
tax exemption to grant exemptions to only that portion of property that actually controls pollution.
The legislature may want to provide the TNRCC with additional guidance regarding the proper
criteria for assessing what portion of property actually controls pollution.4 In addition, the
constitution permits the legislature to narrow or eliminate this tax exemption for pollution-control
property if it determines that the exemption is burdensome to taxing units or unfair to other
taxpayers. See discussion supra pp. l-2.
4A bill is currently pending before the legislature that would, among other things, require the TNRCC to enact
rules that would “allow for determinations that distinguish the proportion of property that is used to control, monitor,
prevent, or reduce pollution from the proportion of property that is used to produce goods or services.” Tex. H.B. 3 12 1,
77th Leg., R.S. (2001).
Mr. Robert J. Huston - Page 8 JC-0372
SUMMARY
Add-on pollution-control devices and methods of production
that limit pollution at new facilities are entitled to a tax exemption
under section 11.3 1 of the Tax Code. The Texas Natural Resource
Conservation Commission must administer the tax exemption to
grant exemptions to only that portion of property that actually
controls pollution.
Attorney General of Texas
ANDY TAYLOR
First Assistant Attorney General
SUSAN D. GUSKY
Chair, Opinion Committee
Mary R. Crouter
Assistant Attorney General - Opinion Committee