Equipment leased by District does not need to automatically vest at end of term to qualify as tax exempt says Fort Worth Court of Appeals

Jack County Appraisal District v. Jack County Hospital District 02-14-00188-CV (Tex. App. – Fort Worth, January 14, 2016).

This is an interesting case of when a governmental entity can be charged for taxes paid by a third-party vender to another governmental entity.

The Hospital District leased a very expensive scanner from Provident Equipment Leasing (“Provident”).  The lease agreement provided that title to the CT scanner would remain in Provident and that the Hospital District was required to pay all property taxes on the CT.  The lease had a right to purchase by the Hospital District. The Appraisal District listed the value of the scanner and taxes due on the scanner under Tex. Tax. Code §22.01. Provident paid the taxes and billed the Hospital. The Hospital District appealed the decision of the Appraisal District that the property was taxable. On cross-motions for summary judgment, the trial court ruled for the Hospital District and the Appraisal District appealed.

It was undisputed the CT scanner was used for a public purpose. The main issue for statutory construction was whether the Hospital District had any ownership in it, thereby exempting it from taxation under Tex. Tax. Code §11.11. The Appraisal District asserted the lease was merely an option to purchase with no vested interest. The Hospital District raised several explanations, one being a vested remainder under the lease. After a lengthy analysis of §11.11 the court held the ownership status under the lease is not required to automatically vest (as asserted by the Appraisal District).  In this case, the Hospital District, alone, has the right under the lease to elect to purchase and Provident has no say in that election. As a result, for §11.11(h) purposes, the Hospital District was the owner of the scanner which was tax exempt.

The dissent mainly focused on which statutory construction principles the majority used.  Justice Gabriel reasoned that the plain language of the lease was a finance lease, not a lease-purchase agreement.  Nothing in the contract allows any lease payments made by the Hospital District to be credited toward any possible, future purchase. Further no security interest is created.  Since it was not a lease-purchase agreement, the plain language of §11.11 would not apply.

If you would like to read this opinion click here.  If  you would like to read the dissent by Justice Gabriel click here. Panel: Justice Gardner, Justice Walker, and Justice Gabriel. Opinion by Justice Gardner. The attorneys listed for the Hospital District are Robert J. Myers and John Shaw.  The attorney listed for the Appraisal District is James Robert Evans Jr.