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National Church Residences of Alief v. Harris County Appraisal District

Court of Appeals of Texas, First District

December 12, 2017


         On Appeal from the 269th District Court Harris County, Texas Trial Court Case No. 2014-35858

          Panel consists of Justices Higley, Bland, and Massengale.



         National Church Residences of Alief, TX ("NCR") and the Harris County Appraisal District ("HCAD") each moved for rehearing of our August 9, 2016 opinion. We granted rehearing and withdrew our August 9, 2016 opinion and judgment. We now issue this opinion and a new judgment in their stead.

         NCR owns an apartment complex providing federally-subsidized housing to low-income elderly persons. For tax years 2012 and 2013, NCR requested that it be exempt, as a charitable organization under Texas Tax Code section 11.18(d)(13), from paying ad valorem taxes. See Tex. Tax Code Ann. § 11.18(d)(13) (West 2015). NCR asserted that it was entitled to the exemption because it provided permanent housing and related support services to the elderly residents of its property without regard to the residents' ability to pay for the housing.

         HCAD denied the requested exemption on the basis that NCR was not providing housing without regard to the residents' ability to pay. NCR filed suit, seeking judicial review of the denial. After the parties filed cross-motions for summary judgment, the trial court granted HCAD's motion and denied that of NCR. On appeal, NCR raises one issue, asserting that the trial court erred in ruling on the motions for summary judgment. NCR maintains that it was entitled to a property tax exemption under Tax Code section 11.18(d)(13) for tax years 2012 and 2013. Because we agree that NCR met its summary-judgment burden to show that it was entitled to a property-tax exemption for 2012 and 2013, we reverse and render judgment, granting NCR's motion.


         NCR is an Ohio nonprofit corporation, organized exclusively for charitable and educational purposes; it is exempt from federal income taxation pursuant to Section 501(c)(3) of the Internal Revenue Code. NCR's articles of incorporation provide that it "shall have the power to provide elderly persons and handicapped persons with housing facilities and services specially designed to meet their physical, social, and psychological needs, and to promote their health, security, happiness, and usefulness in longer living" on a nonprofit basis.

         Since 1995, NCR has owned a 62-unit apartment complex in Houston, known as the Evening Star Villa ("the Property"). That same year, NCR obtained financing from the Department of Housing and Urban Development ("HUD") to develop the Property into low-income rental housing for the elderly. In conjunction with the financing, NCR entered into a Project Rental Assistance Contract with HUD. The contract indicated that NCR agreed to provide housing for low-income elderly persons at the Property, and HUD agreed to provide monthly subsidies to NCR "[to] cover the difference between [NCR's] Operating Expenses and tenant payments as determined in accordance with the HUD-established schedules and criteria." In other words, pursuant to the agreement, a tenant would pay a portion of the monthly rent, calculated under HUD's formulas depending on the tenant's income, and HUD would pay the remaining portion of the rent to NCR as a subsidy.

         In return for receiving HUD's financial assistance, NCR was obliged to comply with various federal statutory and regulatory requirements regarding the management of the Property. HUD regulations also governed the application process for renting an apartment, establishing who was eligible to be a tenant at the Property. NCR summarized many of the eligibility requirements in its published "Tenant Selection Plan."

         As stated in the Tenant Selection Plan, to be eligible for tenancy, a person must be at least 62 years old with an annual income that does not exceed certain income limits. Specifically, to be eligible for housing, a tenant must be in either the "very low" or "extremely low" income range as defined by HUD. To be in the "very low" income category, yearly income must not exceed $23, 200 for one person or $26, 500 for two people. To be in the "extremely low" income category, yearly income must not exceed $13, 900 for one person or $15, 900 for two people. There is no minimum income requirement to qualify.

         A prospective tenant must "[a]gree to pay the rent required by the program . . . ." A tenant is further required to pay at move-in "the full security deposit, " equal to the tenant's portion of the monthly rent or $50, whichever is greater. A tenant must pay the security deposit from his "own resources and any other public or private resources."

         NCR also had a published eviction policy, providing that, if a tenant fails to pay his non-subsidized portion of the rent by the third day of the month, the tenant will receive a 10-day notice. If the rent balance is still owed after the thirteenth day of the month, a three-day notice to vacate "will be issued to evict."

         In addition to housing, residents of the Property have health, social, and educational services available to them. Some, but not all, of the services are provided through a federally-funded service coordination program and are staffed by a federally-funded service coordinator.

         Beginning in 1997, NCR received an exemption from paying ad valorem taxes on the Property. NCR received tax exemptions from HCAD for the next 15 years. Then, on October 29, 2012, HCAD sent a letter to NCR, requesting it "to file a new application to confirm current qualification for the exemption." NCR filed an "Application for Charitable Organization Property Tax Exemption." With regard to its function, NCR checked the box on the form that stated, "Provides permanent housing and related social, health care and educational facilities for persons 62 years of age or older without regard to ability to pay." When asked to describe the use of the Property, NCR responded, "This property is used to provide housing for low income elderly without regard to ability to pay."

         HCAD denied NCR's property-tax-exemption request for tax years 2012 and 2013. HCAD took the position that NCR was not providing its residents with housing or other services without regard to the residents' ability to pay. For that reason, HCAD asserted that NCR was not entitled to a property tax exemption under Tax Code section 11.18(d), as implied by NCR's s application.

         NCR filed suit in district court, seeking judicial review of HCAD's denial of its request for a property-tax exemption. NCR claimed that it was entitled to an exemption under the Texas Tax Code. HCAD filed a motion for summary judgment regarding NCR's claim, asserting that NCR did not provide housing to its elderly residents without regard to their ability to pay, as required to receive the tax exemption.

         In support of its motion, HCAD offered NCR's Tenant Selection Plan, which indicated that tenants must pay a security deposit at move-in, and tenants must agree to pay the rent required by the program under which they are receiving assistance. HCAD also pointed to NCR's eviction policy, which provided the procedure by which a tenant would be evicted for non-payment of rent.

         In addition to filing a response to HCAD's motion, NCR filed a cross-motion for summary judgment. NCR claimed that it was entitled to a property-tax exemption under section 11.18(d)(13) for tax years 2012 and 2013 because it "provid[ed] permanent housing and related social, health care, and educational facilities for persons who are 62 years of age or older without regard to the residents' ability to pay."[1] Id. § 11.18(d)(13).

         Included in NCR's summary-judgment evidence were the affidavits of its president and vice president, certain of its business and financial records, and documents detailing HUD regulations and requirements relevant to the Property's management and occupancy, such as the HUD Policy Handbook. NCR acknowledged that prospective tenants must agree to pay the rent required by the program providing assistance, and tenants must pay a security deposit before moving into to NCR's property. NCR asserted, however, that these requirements did not show that it provided housing and services to its elderly residents based on the residents' ability to pay.

         NCR asserted that it treated all rental applicants the same, regardless of their ability to pay. NCR offered evidence showing that, although the market value of each apartment is $389, no resident pays the full $389 out of his or her own funds. Instead, the amount that each resident pays is determined by a HUD formula. Pursuant to the formula, the amount of rent each tenant must pay is the highest of (1) 30% of the person's adjustment monthly income; (2) 10% of the person's monthly income; or (3) the portion of welfare payments specifically designated for housing costs. NCR's president, Steve Bodkin, explained in his affidavit as follows:

[W]hile the market rate for all units at the Evening Star property was $389.00 per month in 2012, no tenants actually paid the market rate to rent a unit. Subsidies from the federal government are paid to NCR to cover the difference between the market rent and rent charged to each tenant.

         NCR also offered a list indicating, as of October 12, 2012, what each resident had paid in monthly rent and what HUD had paid each month for each apartment. The list indicated that most of the tenants paid between $100 and $200 per month in rent with HUD paying the remainder of the $389. A few of the residents were responsible for payments as low as $13 per month in rent. In those cases, the remaining $376 was paid to NCR by HUD.

         NCR further offered evidence showing that it had a corporate policy "to maintain in residence any senior citizen resident who becomes unable to pay the regular charges if, after investigation, the Board of Trustees determines that said resident is without financial ability to pay." Relatedly, NCR's vice president, Steven A. Van Camp, testified in his affidavit as follows:

If a resident cannot pay his or her rent in a timely manner, NCR staff (including a federally funded service coordinator) will assist the resident in obtaining additional assistance. The assistance can be obtained through governmental agencies or non-profit organizations such as churches. If assistance cannot be obtained, NCR staff will work with the resident to formulate a reasonable payment plan. NCR does not and did not in 2012 or in 2013 charge any residents late fees if rent payments were late. Likewise, NCR did not evict any residents in 2012 or in 2013 for non-payment of rent.

         In his affidavit, Bodkin also stated,

NCR also provides its tenants with an allowance to assist in meeting their electric utility obligations. If, in any given month, the allowance is more than the amount charged to a tenant for rent and electricity actually used, which occasionally happens, NCR tenders payment to the tenant for the difference that month. In other words, during some months, some NCR residents are actually paid to live in an air conditioned unit and take advantage of the free services that NCR has to offer to its residents.

         Ultimately, the trial court granted HCAD's motion for summary judgment, and denied that of NCR. This appeal followed. In one issue, NCR challenges the trial court's summary-judgment rulings, contending that it is entitled to a property-tax exemption under Tax Code section 11.18(d)(13) for tax years 2012 and 2013.

         Summary Judgment

         A. Standard of Review & Rules of Construction

         A party moving for traditional summary judgment has the burden to prove that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Tex.R.Civ.P. 166a(c); SeaBright Ins. Co. v. Lopez, 465 S.W.3d 637, 641 (Tex. 2015). When a plaintiff moves for summary judgment on its claim, it must establish its right to summary judgment by conclusively proving all the elements of its cause of action as a matter of law. Rhone Poulenc, Inc. v. Steel, 997 S.W.2d 217, 223 (Tex. 1999); Anglo-Dutch Petroleum Int'l, Inc. v. Haskell, 193 S.W.3d 87, 95 (Tex. App.-Houston [1st Dist.] 2006, pet. denied). A matter is conclusively established if reasonable people could not differ as to the conclusion to be drawn from the evidence. See City of Keller v. Wilson, 168 S.W.3d 802, 823 (Tex. 2005). Conversely, a defendant is entitled to summary judgment if it disproves at least one element of the plaintiff's cause of action as a matter of law. Doe v. Boys Clubs of Greater Dall., Inc., 907 S.W.2d 472, 476-77 (Tex. 1995).

         If a summary-judgment movant meets its burden, the burden then shifts to the nonmovant to raise a genuine issue of material fact precluding summary judgment. See Centeq Realty, Inc. v. Siegler, 899 S.W.2d 195, 197 (Tex. 1995); Goodyear Tire & Rubber Co. v. Mayes, 236 S.W.3d 754, 755 (Tex. 2007) (stating that summary-judgment evidence raises fact issue if reasonable and fair-minded jurors could differ in their conclusions in light of all evidence presented). We review summary-judgment evidence in the light most favorable to the party against whom the summary judgment was rendered, crediting evidence favorable to that party if reasonable jurors could, and disregarding contrary evidence unless reasonable jurors could not. SeaBright Ins. Co., 465 S.W.3d at 641.

         When, as here, both sides move for summary judgment, and the trial court grants one motion and denies the other, we review the summary-judgment evidence presented by both sides, determine all questions presented, and render the judgment the trial court should have rendered. Id. at 641-42. We may consider evidence presented by both parties in determining whether to grant either motion. Expro Ams. LLC v. Sanguine Gas Exploration, LLC, 351 S.W.3d 915, 919 (Tex. App.-Houston [14th Dist.] 2011, pet. denied) (citing Knighton v. Int'l Bus. Machs. Corp., 856 S.W.2d 206, 208-09 (Tex. App.-Houston [1st Dist.] 1993, writ denied); River Oaks Shopping Ctr. v. Pagan, 712 S.W.2d 190, 193 (Tex. App.-Houston [14th Dist.] 1986, writ ref'd n.r.e.)).

         "When both parties move for summary judgment, each party must carry its own burden, and neither can prevail because of the failure of the other to discharge its burden." BP Auto., L.P. v. RML Waxahachie Dodge, L.L.C., 448 S.W.3d 562, 569 (Tex. App.-Houston [1st Dist.] 2014, no pet.) (citing Guynes v. Galveston Cty., 861 S.W.2d 861, 862 (Tex. 1993)).

         At issue in the summary-judgment proceedings was whether NCR was entitled to a property-tax exemption under Tax Code section 11.18(d). Issues involving statutory construction are questions of law, which we review de novo. See R.R. Comm'n v. Tex. Citizens for a Safe Future & Clean Water, 336 S.W.3d 619, 624 (Tex. 2011). When construing a statute, "our primary objective is to give effect to the Legislature's intent as expressed in the statute's language." Galbraith Eng'g Consultants, Inc. v. Pochucha, 290 S.W.3d 863, 867 (Tex. 2009). Words that are not defined are given their ordinary meaning unless a different meaning "is apparent from the context" or unless the ordinary meaning "leads to absurd results." Marks v. St. Luke's Episcopal Hosp., 319 S.W.3d 658, 663 (Tex. 2010); see also Galbraith, 290 S.W.3d at 867 (stating that if "the words of a statute are clear and unambiguous, we apply them according to their plain and common meaning"). Courts "generally avoid construing individual provisions of a statute in isolation from the statute as a whole." Tex. Citizens, 336 S.W.3d at 628.

         "Taxing statutes are construed strictly against the taxing authority and liberally for the taxpayer." Morris v. Hous. Indep. Sch. Dist., 388 S.W.3d 310, 313 (Tex. 2012). In contrast, tax exemptions are strictly construed against the claimant. See Bullock v. Nat'l Bancshares Corp., 584 S.W.2d 268, 271-72 (Tex. 1979). The claimant seeking an exemption "bears the burden of 'clearly showing' that it falls within the statutory exemption." Tex. Student Hous. Auth. v. Brazos Cty. Appraisal Dist., 460 S.W.3d 137, 140-41 (Tex. 2015) (quoting N. Alamo Water Supply Corp. v. Willacy Cty. Appraisal Dist., 804 S.W.2d 894, 899 (Tex. 1991)).

         B. Analysis

         1. Texas Constitution Article VIII, Section 2(a)

         NCR claims it is exempt from paying ad valorem taxes for tax years 2012 and 2013 under Texas Tax Code section 11.18(d)(13). See Tex. Tax Code Ann. § 11.18(d)(13). However, before it can be considered for tax exempt status under Tax Code section 11.18, an organization must first meet the applicable state constitutional requirements entitling it to seek the exemption. N. Alamo Water Supply Corp., 804 S.W.2d at 899. Here, the applicable state constitutional provision is Article 8, section 2(a), which provides that the legislature "may, by general laws, exempt from taxation . . . institutions engaged primarily in public charitable functions, which may conduct auxiliary activities to support those charitable functions. . . ." Tex. Const. art. VIII, § 2(a). Thus, before considering whether NCR meets the statutory provisions of Tax Code section 11.18(d), we must determine whether NCR demonstrated that it qualifies as an institution "engaged primarily in public charitable functions." See N. Alamo Water Supply Corp., 804 S.W.2d at 899; see also Tex. Const. art. VIII, § 2(a).

         Before 1999, section 2(a) provided that "the legislature may, by general laws, exempt from taxation . . . institutions of purely public charity[.]" N. Alamo Water Supply Corp., 804 S.W.2d at 895 (citing former Tex. Const. art. VIII, § 2(a)). In 1999, section 2(a) was amended, and the phrase an institution "engaged primarily in public charitable functions" replaced the phrase institutions "of purely public charity."[2] See Brazos Cty. Appraisal Dist. v. Bryan-College Station Reg'l Ass'n of Realtors, Inc., 419 S.W.3d 462, 464 (Tex. App.-Waco 2013, pet. denied).

         The 1999 analysis provided by the Texas Legislative Council indicated that section 2(a) needed to be amended because the Supreme Court of Texas had construed the legislature's authority under the purely-public-charity language to grant exemptions from ad valorem taxation very narrowly. See Tex. Leg. Council, Analysis of Proposed Constitutional Amendments, November 2, 1999, Election, 109-110 (September 1999). The council noted that the supreme court had held "that the legislature may grant an exemption to a charitable organization only if the organization is organized and operated exclusively for charitable purposes and the property in question is used exclusively for those purposes." Id. The council explained that the amendment to section 2(a) "substantially broadens the authority of the legislature to exempt from ad valorem taxation the property of charitable institutions." Id. at 110. "Under the proposed amendment, the legislature could exempt organizations that engage 'primarily, ' rather than exclusively, in public charitable functions, even if those organizations conduct non-charitable auxiliary activities to support their charitable functions." Id.

         The 1999 amendment did not change the essence of what constitutes a public charity or a public charitable function but instead provided the legislature with the ability to grant a tax exemption to a charity engaged in non-charitable auxiliary activities to support its public charitable function. Thus, to determine whether NCR's activity of providing housing to the elderly poor constitutes a public charitable function, we utilize the standard developed under former section 2(a). This standard requires an organization to meet a three part test: (1) the organization must make no gain or profit; (2) it must be "organized to accomplish ends wholly benevolent by engaging in humanitarian services maintained to care for the physical or mental well-being of its recipients"; and (3) "[t]he total operation of the charity must affect all the people of a community or state by assuming, to a material extent, services which otherwise might devolve to and become the obligations of the community or state." N. Alamo Water Supply Corp., 804 S.W.2d at 899 (citing City of McAllen v. Evangelical Lutheran Good Samaritan Soc'y, 530 S.W.2d 806, 810 (Tex. 1975); San Antonio Conservation Soc'y, Inc. v. City of San Antonio, 455 S.W.2d 743, 746 (Tex. 1970); City of Houston v. Scottish Rite Benevolent Ass'n, 230 S.W. 978, 981 (Tex. 1921)).

         Applying the first factor, "[t]he law is well settled that the proscription against an institution's realization of 'gain or profit' refers to gain or profit by private individuals or the accrual of distributable profits." City of McAllen, 530 S.W.2d at 809. Here, the evidence showed that NCR is a section 501(c)(3) not-for-profit corporation. NCR's financial records, offered in support of summary judgment, indicate that NCR used its revenue to maintain and support the operation of the Property. See id. ("[T]he fact that the net result of the Society's endeavors was the acquisition of profit, would not subject the organization to taxation because the profits were used for the permissible purposes of ...

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