Jack Cnty. Appraisal Dist. v. Jack Cnty. Hosp. Dist., 484 S.W.3d 228 (Tex. App.—Fort Worth 2016, no pet.)
The Jack County Hospital District (“Hospital District”), a political subdivision of the State of Texas, leased a CT scanner for use at a hospital in Jacksboro, Texas. Under the lease agreement, the Hospital District had the right to purchase the CT scanner for fair market value at the end of the lease term. After being notified that the Jack County Appraisal District (“Appraisal District”) had assessed taxes on the CT scanner, the Hospital District filed a protest with the Appraisal District on the basis that the CT scanner was exempt from taxation under Texas Property Tax Code § 11.11(a), (h). The Appraisal District and Appraisal Review Board denied the Hospital District’s protest, and the Hospital District appealed to district court. On cross motions for summary judgment, the trial court granted the Hospital District’s motion, denied the Appraisal District’s motion, and ordered the appraisal district to remove the CT scanner from its appraisal rolls. The Appraisal District appealed.
On appeal, it was undisputed that the Hospital District was a political subdivision of the state and that the CT scanner was leased for public use. At issue was whether the Hospital District owned the CT scanner rendering it tax exempt property. Texas Property Tax Code § 11.11(a) provides that property owned by a political subdivision of the state is exempt from taxation. Texas Property Tax Code § 11.11(h) further provides that property is owned by a political subdivision of the state “if it is subject to a lease-purchase agreement providing that the state or political subdivision . . . is entitled to compel delivery of the legal title to the property . . . at the end of the lease term. The property ceases to be owned by the . . . political subdivision . . . if, not later than the 30th day after the date the lease terminates, the . . . political subdivision . . . does not exercise its right to acquire legal title to the property.” On appeal, the Appraisal District claimed that the CT scanner was not exempt because it was not owned by the Hospital District. Specifically, the Appraisal District argued that the Hospital District’s lease agreement did not give it the right to compel delivery of legal title at the end of the lease period but only an opportunity to purchase the CT scanner for an undetermined amount without credit for lease payments made.
The court of appeals noted that exemptions are construed against the taxpayer and doubts are resolved in favor of the taxing authority. However, the court of appeals determined that, by its plain language, Section 11.11(h) did not require a fixed sale price with the credit of lease payments as the Appraisal District claimed. The court of appeals stated that the Appraisal District’s interpretation requiring automatic transfer of title at the end of the lease period would render meaningless the remainder of Section 11.11(h) which requires a political subdivision to exercise its right to purchase property in order to maintain the exemption. The court of appeals also rejected the Appraisal District’s argument that the lease agreement created only a contingent remainder because the Hospital District was the only party with a right to purchase the CT scanner. Having held that the Hospital District established its ownership of the CT scanner under Section 11.11(h) as a matter of law, the court of appeals affirmed the trial court’s judgment.