Jim Wells County Appraisal District and Jim Wells County Appraisal Review Board v. Cameron Village, Ltd.--Appeal from 79th Judicial District Court of Jim Wells County
JIM WELLS COUNTY APPRAISAL DISTRICT and
Jim Wells County Appraisal Review Board,Appellants
CAMERON VILLAGE, LTD.,
From the 79thth Judicial District Court, Jim Wells County, Texas
Trial Court No. 04-08-42700-CV
Honorable Robert C. Pate, Judge Presiding (1)
Opinion by: Phylis J. Speedlin, Justice
Dissenting opinion by: Rebecca Simmons, Justice
Sitting: Sandee Bryan Marion, Justice
Phylis J. Speedlin, Justice
Rebecca Simmons, Justice
Delivered and Filed: July 18, 2007
Because I believe the plain meaning of the statute supports Cameron Village, Ltd.'s exemption from ad valorem taxes, I respectfully dissent from the majority's construction and interpretation of section 11.182 of the Texas Tax Code. Tex. Tax Code Ann. 11.182 (Vernon 2001).Issue Presented
All parties agree that the crux of this case is the interpretation of section 11.182 of the Texas Tax Code, as amended by the legislature in 2001. (2) Tex. Tax Code Ann. 11.182 (Vernon 2001).
Section 11.182 provides, in pertinent part:
(b) An organization is entitled to an exemption from taxation of improved or unimproved real property it owns if the organization:
(1) is organized as a community housing development organization ("CHDO");
(2) meets the requirements of a charitable organization provided by Sections 11.18(e) and (f);
(3) owns the property for the purpose of building or repairing housing on the property to sell without profit to a low-income or moderate-income individual or family satisfying the organization's eligibility requirements or to rent without profit to such an individual or family; and
(4) engages exclusively in the building, repair, and sale or rental of housing as described by Subdivision (3) and related activities.
. . .
(e) In addition to meeting the applicable requirements of Subsections (b) and (c), to receive an exemption under Subsection (b) for improved real property that includes a housing project constructed after December 31, 2001, and financed with qualified 501(c)(3) bonds issued under Section 145 of the Internal Revenue Code of 1986, tax-exempt private activity bonds subject to volume cap, or low-income housing tax credits, the organization must:
(1) control 100 percent of the interest in the general partner if the project is owned by a limited partnership;
Id. (emphasis added). The conflict in this case arises from subsection (b)'s requirement that a CHDO "own[ ] the property" in order to qualify for the exemption and the language in subsection (e)(1) providing that under certain circumstances a CHDO that controls "100 percent of the interest in the general partner" of a limited partnership can receive the subsection (b) exemption. Thus, the real issue is whether a limited partnership with a CHDO general partner that owns a low-income housing project can qualify for an ad valorem tax exemption under section 11.182.Low-Income Housing Tax Credits
The construction of the Cameron Village project was financed, in part, with federal low-income housing tax credits. In order to place the amendment to section 11.182, which expressly addresses low-income housing tax credits, in context, some background discussion of the evolvement of those credits is helpful.
As part of the Tax Reform Act of 1986, Congress established the low-income housing tax credit (LIHTC) program to encourage private investors to contribute funding for developing housing for low-income households. See I.R.C. 42 (2007); see also Marni M. Hussong, Protecting Exempt Status in Low-Income Housing Tax Credit Partnerships, 31 Real Estate Tax'n 75 (First Quarter 2004). Since its inception, the LIHTC program has become the primary source of funding for low-income housing development. Id. Although both for-profit and tax-exempt developers compete for the credits, preference is given to the tax-exempt developers. Id. Tax-exempt developers, however, generally do not owe taxes and cannot directly use the credits. Id. As a result, in order to take advantage of the tax credits, tax-exempt developers partner with for-profit investors, and the for-profit investors use the credits to reduce their tax liability. Id. The low-income projects, therefore, are generally developed by limited partnerships where the tax-exempt organization serves as the general partner and retains a 1% interest, while the for-profit investors serve as limited partners retaining a 99% interest in the partnership. Id.Statutory Construction
According to the majority's interpretation, Cameron Village is not entitled to an exemption because the owner of the property, Cameron Village, Ltd., is not a CHDO. The majority, however, never ascribes a meaning to section 11.182(e)(1). If section 11.182(e)(1) does not extend the exemption to a limited partnership with a CHDO general partner where the project is financed with LIHTC, why was section 11.182(e)(1) added to the statute? Because of the long standing principle that the "legislature is never presumed to have done a useless act," the majority's review of section 11.182 is incomplete. Cameron v. Terrell & Garrett, Inc., 618 S.W.2d 535, 540 (Tex. 1981) (citing Red River Nat'l Bank v. Ferguson, 109 Tex. 287, 292, 206 S.W. 923, 925 (1918) (holding that all words used and omitted are presumed used and omitted purposefully)).
The most important rule of statutory construction is that the court must give effect to legislative intent. See Crown Life Ins. Co. v. Casteel, 22 S.W.3d 378, 383 (Tex. 2000). The assumption is that the legislature intended to say what it meant and its words are therefore the best insight as to its intent. Fitzgerald v. Advanced Spine Fixation Sys., Inc., 996 S.W.2d 864, 865-66 (Tex. 1999). In short, every word of a statute must be presumed to have been used for a purpose. Marcus Cable Assocs. v. Krohn, 90 S.W.3d 697, 706 (Tex. 2002) (requiring the courts to consider the statute as a whole and make all attempts to "harmonize its various provisions").
Our analysis must, however, look to the statute as a whole and not to its isolated provisions. Morrison v. Chan, 699 S.W.2d 205, 208 (Tex. 1985) (emphasis added). See also Meritor Auto., Inc. v. Ruan Leasing Co., 44 S.W.3d 86, 90 (Tex. 2001) (determining a court cannot confine its review to isolated statutory words, phrases, or clauses, but must instead examine the entire act). Although tax exemption statutes are to be narrowly or strictly construed in favor of the taxing authority, N. Alamo Water Supply Corp. v. Willacy County Appraisal Dist., 804 S.W.2d 894, 899 (Tex. 1991), the rule is subject to the requirement that the court give effect to the legislative intent and the general rule of interpreting statutes in a reasonable manner. Strayhorn v. Raytheon E-Sys., Inc., 101 S.W.3d 558, 565 (Tex. App.--Austin 2003, pet. denied). Thus, although we are required to construe tax exemptions strictly, "the rule of strict construction cannot be used as an excuse to stray from reasonableness." Sharp v. Tyler Pipe Indus., Inc., 919 S.W.2d 157, 161 (Tex. App.--Austin 1996, writ denied).
The majority interprets the introductory language of subsection (e), which provides: "[I]n addition to meeting the applicable requirements of Subsections (b) and (c)," as incorporating all the requirements of (b) and (c). Applicable is defined, however, as "[t]hat can be applied; relevant or appropriate: a rule not applicable in all cases." The American Heritage Dictionary of the English Language (4th ed. 2006). "Applicable" cannot be equated with "all" or the word has no meaning. Thus, we must examine which requirements in subsection (b) "can be applied" to an organization meeting the requirements of subsection (e).
Section 11.182(e) expressly envisions an organization receiving an exemption where: (1) the organization is the general partner of a limited partnership; (2) the limited partnership owns the housing project; and (3) the housing project was financed with LIHTCs. Tex. Tax Code Ann. 11.182(e) (Vernon 2001); see also Op. Tex. Att'y Gen. No. JC-0576 (2002) (stating "to qualify for an exemption . . . [t]he organization must qualify as a community housing development organization under section 11.182(b) of the Tax Code and 'control 100 percent of the interest in the general partner if the project is owned by a limited partnership'"). As previously noted, the structure used for obtaining LIHTCs is typically a limited partnership. (3) Thus, using strict construction, we can interpret section 11.182 to mean that when the low-income housing project is financed by LIHTCs and owned by a limited partnership, the requirement in subsection (b) that the CHDO own the property is not an "applicable" requirement. Under this construction, no part of the statute is rendered meaningless.
Having determined that the plain meaning of section 11.182(e) was to extend the ad valorem exemption to qualified limited partnerships, I now turn to the majority's argument that the Texas Constitution prohibits extending an ad valorem exemption to the Cameron Village project. The majority contends that Cameron Village, Ltd. is not entitled to the exemption because it is not an institution engaged primarily in public charitable functions as required by the Texas Constitution. I disagree.
Laws exempting property from taxation are presumed to be constitutional. See Tex. Gov't Code Ann. 311.021(1) (Vernon 2005). To satisfy the requirements of the Texas Constitution, the building must be owned by an institution engaged primarily in public charitable functions. Tex. Const. art. VIII 2(a). Public charitable functions include the provision of affordable housing for low-income and moderate-income families. See Tex. Tax Code Ann. 11.18(d)(18) (Vernon 2001).
Cameron Village, Ltd. was formed with the sole purpose "to develop, own, hold for investment, finance, operate, manage and lease" the Cameron Village low-income housing project "consistent with the charitable purposes of [Community Action Corporation of South Texas ]." In order for Community Action Corporation of South Texas to retain its tax exempt status under 501(c)(3) of the Internal Revenue Code, it must maintain control of the day to day activities of Cameron Village and demonstrate that it is furthering its exempt purpose. Marni Hussong, Protecting the Tax-exempt Status of Housing Developers Participating in Low-income Housing Tax Credit Partnerships, 76 Wash. L. Rev. 243, 244 (2001).
The majority concludes that a limited partnership which is not a CHDO could not be an institution engaged primarily in public charitable functions. The record refutes this contention. Cameron Village, Ltd. was structured to comply with the LIHTC program requirements for low-income housing. Its general partner is a 501(c)(3) non-profit that must pursue its charitable purpose or lose its tax exempt status. The record shows that Cameron Village residents also receive a variety of social services including counseling, job training, and medical screening from Cameron Village, Ltd. There is no explanation offered by the majority for its conclusion that Cameron Village, Ltd. could not be an institution engaged primarily in a public charitable function and thus qualify for the tax exemption. The majority's conclusion, therefore, is not supported by the evidence or the law.
Because 11.182(e) clearly anticipates ownership of a low-income property by a limited partnership, the most logical reading of the statute is that the legislature intended what it said: under specific circumstances a limited partnership can receive an exemption. Accordingly, I believe the judgment of the trial court should be affirmed.
Rebecca Simmons, Justice
1. Sitting by assignment
2. Act of Jun. 15, 2001, 77th Leg., R.S., ch. 1191 1, 2001 Tex. Gen. Laws 2694.
3. The LIHTC only requires that a non-profit organization "own an interest in the project (directly or through a partnership) and materially participate . . . in the development and operation of the project." 26 U.S.C. 42(h)(5)(B) (2007) (emphasis added).