The opinion
*
RNEY GENERAL
OFI'EXAS
Honorable Michael J. Simmang Opinion No. M-694
County Attorney
Lee County Re: Ad Valorem Tax Exemption
Olddings, Texas Status of Lee Memorial
Hospital of Qlddlngs,
Dear Mr. Simmang: Texas
You have requested an opinion on the tax exemptlon
status of Lee Memorial Hospital located in Olddings, Lee
County, Texas.
Your opinion request reads, in part, as follows:
"Lee Memorial Hospital was first char-
tered as a non-profit corporation on April
10, 194-r* The original article stated that
the hospital was founded for the purpose of
providing a suitable place in the Immediate
locality where members and families of mem-
bers of the corporation may obtain medical,
dental, health, surglcal,~nurslng, hospltalfza,
tfon and related services and benefits. The
articles further stated that there would be
no capital stock and no dividends and any
profit would be used to further the charitable
purposes for which the corporation was created.
The by-laws provided that members of the cor-
poration would be those who paid a membership
fee of $100.00 and would be chosen from
people residing in the territory serviced by
the corporation.
"The charter was amended on January 7,
1957, to show that the services of the hos-
pital would be extended to all residents of
the community regardless of whether or not
they were members in the corporation.
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. .
‘..’ ,,
: ,.
Honorable Michael J. Simmang, page 2 (M- 694) ” : ”
“On August 1, 1969, the Articles were
again amended to show the duration of the
corporation to be perpetual and changing the
registered name of the corporation and
adopting the Texas Non-Profit Corporation
Act. . . . Again, on June 22, 1970, the
Articles were amended to show that upon
dlssolutlon of the corporation any remain-
ing assets would be distributed to a
strictly charitable organization. The by- ,,
laws were also amended to that effect. :
“The ownership of the hospital is
currently vested In the members of the corn-
munity who have taken out membership anr: ‘d?,,.
the Board of Directors Is elected from this
membership. No physician is a member of
the Board of Directors, nor does any physi-
cian derive any benefits from the hospital
other than being able to place his patients
in the hospital.”
Article III of Lee Memorial Hospital’s Articles of In-
corporation provides:
“This corporation does not contemplate
pecuniary gain or prnfft to the members
thereof and Is organized as a charitable
corporation under the Provisions of Article
1302, sub-paragraph 2A, Revised Cfvil Statutes
of Texas, for the purpose of owning and op-
eratfng a non-profit cooperative hospital,
and for the purpose of providing a suitable
place fn the immediate locality where mem-
bers and families of members of this Corpora-
tion and other residents of the community may
obtain medical, dental, health, surgical,
nursfng, hospitalization, and related ser-
vices and benefits.”
By supplemental letter, you also advfsed us:
“1 * There are no restrictions on admission
of patients and patfente are admitted
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Honorable Michael J. Simmang, page 3 (M-694)
regardless of their ability to pay.
If a person comes to the hospital
completely unable to pay, they are
admitted as a c~harity case.
“2. No salaries are paid by the hospital
to any doctors practicing In the
hospital.
“3. No hospital space is rented or leased
to any doctors or to any other in-
dividuals or corporations.
“4. The hospital does not operate a phar-
macy but does operate a cafeteria
which is open only to the patients
and to the employees. The public does
not have access to the cafeteria.”
Article VIII, Section 2 of the Texas Constitution gave
the Legislature the following authority:
“All occupation taxes shall be equal
and uniform upon the same class of subjects
within the limits of the authority levying
the tax; but the legislature may, by general
laws, exempt from taxation D e a lnstltu-
tfons of purely public charity; and all
‘laws exempting property from taxation other
than the property above mentioned shall be
null and void.” (Emphasis Added)
Pursuant to this authority, the Legislature enacted
Article 7150 (7) Vernon’s Civil Statutes, which as last
amended In 1969, exempts the following property:
“7 0 Public Charltfes. All buildings
and personal property belonging to lnstitu-
tlons of purely publfc charity, together
with the lands belonging to and oacupied
by such fnstftutions, includfng hospital
parking facflitfes, not leased or otherwise
used with a view to profit, unless such
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Honorable Michael J. Slmmang, page 4 (M-694)
rents and profits and all moneys and
credits are appropriated by such lnstltu-
tlons solely to sustain such Institutions
and for the benefit of the sick and dis-
abled members and their famllles and the
burial of the same, or for the maintenance
of persons when unable to provide for them-
selves, whether such persons are members
of such lnstitutlons or not. An institu-
tion of purely public charity under this
article is one which dispenses its aid to
its members and others in sickness or
distress, or at death, without regard to
poverty or riches of the recipient, also
when funds, property and assets of such in-
stitutions are placed and bound by its law
to relieve, aid and admlnister in any way
to the relief of its members when In want,
sickness and distress, . . .'
Section 7 was found to apply to a hospital situation in
the case of Santa Rosa Infirmary v. City of San Antonio, 259
SW 926 (Tex. Comm. APP., J
In the case of San Antonio Conservation Society, Inc.
v. City of San Antonlo, 455 SW 2d '143 (Tex. Sup., 1970)
th e ourt ruled on the ixemption status of'a
corporatfon chartered for the purpose of preserving his;,
torlcal bulldlngs and sites. In determining whether this
Section 7 of Article 7150 provides the exclusive definition
and meaning of the term "lnstltutlon of purely public charity,"
the Court held,
"Section 7 concerns and defines charity
in the sense of almsgfvlng and the three
cases cited above (i.e. City of Houston v.
Scottish Rite Benev. Assin., 111 Tex. 131
230 SW 978 (1921) Santa Rosa Infirmary v:
City of San Antonio, supra, and Hlllt
Village, Inc. v. Kerrville Ind. SchooyPDls-
i t 42b SW 2d 943 (T 8 lgb6)J state
i%%whlch an fnstltutT:n ml% meet to
qualify for that kind of charity. Those
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Honorable Michael J. Slmmang, page 5 (M-694)
cases arose by reason of claims that the
institutions In question provided relief
to the needy, the sick, and the distressed;
and in doing so relieved the government
of burdens it would otherwise be charged
with solving." (at p. 745)
Thus, inasmuch as Lee Memorial Hospital is an lnstitu-
tion dispensing aid to persons in sickness or distress, its
exemption status should be governed by the line of cases
above cited and Article 7150 (7).
To qualify as an almsgfving charity, the Institution
must meet the tests set forth in City
Rite Benev. Ass'n., supra, to wit:
'In our opinion, the Legislature might
reasonably conclude that an institution was
one of 'purely public charlty' where: First,
it made no gain or profit; second, It ac-
complished ends wholly benevolent; ana,
hirci, it benefited ersons, Indefinite in
numbers and in personaltles, by preventing
them, through absolute gratuity, from be-
coming burdens to society and to the StaFe.
Charity need not be universal
0
0 0 *
to be public. It is public when It affects
all the people of a community or state,
by assuming, to a meterial extent, that
which otherwise might become the obligation
or duty of the community or the state.
The care of those unable to provide for
themselves certainly may devolve on those
of the same community or state. D o .I' (Rm-
phasls Added).lat pa 981).
The rule with regard to tax exemptfon is well stated in
McCallum v, Associated Retail Credit Men of Austin, 41 SW 2d
45 (Tex. Comm. APP., 311 I' 0 e . where a tax is levied by a
general law and one claims an exemptfon therefrom by reason
of some exemption statute, he must bring himself clearly
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Honorable Michael J. Slmmang, page 6 (M-694)’
within the exemption. . . .” See also, B. & P.O.E. v. Cit
of Houston, 44 SW 2d 486 (Tex. Civ. App., 1931, error ret’.
Therefore we must determine from the material submitted
whether Lee Memorial Hospital meets the statutory and case
law requirements heretofore enumerated.
From your Information, Lee Memorial Hospital devotes any
gain or profit made by it for the sole purpose of sustaining
its operation, admits any person requesting admission to it
without regard to their ability to pay and allows none of
its property to be used for the purpose of benefiting any
prlvate Individual.
The case of Santa Rosa Infirmary v, City of San Antonio,,
supra, dealt with the right of the Santa Rosa Hospital to be
exempt from the ad valorem tax as a “purely public charity”
within Subdivision 6, Article 7507, Vernon’s Civil Statutes,
which is now Article 7150 (7). The Court therein defined
what Is meant by gain or profit, as these words appear In test
number one, by stating,
I,
. . . nothing more was intended than
that no private Individual should reap a
profit, or where a corporation was the owner
that no distributable earnings in the shape
of dividends must accrue.” (at p” 935)
Since Lee Memorial Hospital is usi,ng its profits, if any,
to perpetuate Its operation, and allows no person to benefit,
from the use of its property, it would qualify under the first
test.
. The Santa _ Rosa
_ Case further. held that the fact that pay
patients preaominate over cnarlty patients does not disqualify
an Institution from being a “purely public charity.” (See
ppO 934 and 935). The Court concluded by stating,
“The theory upon which Institutions
of this character are exempted from taxa-
tion is that they serve the government by
relieving it to some extent of what would
otherwise be a public duty or governmental
function to care for the Indigent sick and
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. .
Honorable Michael J, Simmang, page 7 (M-694)
afflicted, and it Is the assumption by such
lnstltutlons of this burden which compensates
the government for the exemption granted'
them from the general obligation resting upon
all citizens to pay taxes. v . .'
Since the operation of Lee Memorial Hospital Is similar
to the conduct of the Santa Rosa Infirmary, Lee Memorlalls
operations should likewise be considered benevolent in nature.
If such an institution restricts admission to its facili-
ties, there ir; no assurance that society is or will be relieved
of a burden It owes to its populace and, thus, the Institution
would not meet the third test to qualify it as a "purely
public charity" (See Hilltop Village, Inc. v. Kerrville Ind.
School District, supra). However, Lee Memorial HosDltal has
placed no restriction on its admission requirements and ac-
cepts applicants without regard to their financial circum-
stances, thereby meeting the third requirement to be a "purely
public charity.
The remaining problem Is whether the lncldental use of the
hospital properties for the operation of a cafeteria defeats
the exemption to which Lee Memorial Hospital Is otherwise en-
titled. This precise question was answered In Hflltop Village,
Inc. v. Kerrville Ind. School District, supra, when the Court
held,
II . . Nor will the incidental uses
e
of the properties for the operation of
guest facilities, a canteen, ,a beauty shop
and vfnding machines defeat the exemption
. . *
Thus, this incidental use,of its properties by Lee Memorial
would not defeat Its exemption.
Under the well established rules enumerated by case law,
it Is our opinion that Lee Memorial Hospital makes no gain or
profit, accomplishes ends wholly benevolent, and benefits per-
sons, indefinite In number and in personalities, by preventing
them, through absolute gratuity, from becoming burdens to
society and to the state, and is thus entitled to exemption
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. .
Honorable Michael J. Simmang, page 8 (M-694)
under Article VIII, Section 2, Texas Constitution and Article
7150 (7), Vernon's Civil Statutes, as a "purely public chari-
ty."
SUMMARY
Under the facts submitted end law
cited, Lee Memorial Hospital is a "purely. ':
public charity" and IS 'exempt from the .,
ad valorem tax. '.
Youwvery truly,
General of Texas
Prepared by Harriet D. Burke
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
Kerns Tayl~or, Chairman
W. E. Allen, Co-Chairman
.’
Gordon Cass
Arthur Sandlin
William J. Craig
John B. Reese
MEADEF. GRIFFIN
Staff Legal Assistant
ALFRED WALKER
Executive Assistant
NOLA WHITE
First Assistant
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