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ALERT: H.B. 11, limited the exemption for equipment and consumable items in 151.311 only to exempt contracts with hospitals and schools. 72nd 1st C.S. effective 10/01/1991. Section 151.311 of the Tax Code was subsequently amended to exclude machinery and equipment altogether from the exemption and further identified exempt contracts as those performed for entities exempted under Section 151.309 and 151.310. HB 85, 73rd Leg. Session, effective 10/01/1993.
ALERT: The discussion and analysis relating to Hearing 17,245 (1988) (purchases by a governmental entity for the benefit of a for-profit lessee) have been overruled by Hearing 48,878 (2009).
HEARING NO. 31,770
IN RE: **************
TAXPAYER NO: **************
AUDIT OFFICE: **************
AUDIT PERIOD: 01/01/87 THROUGH 07/31/92
SALES AND USE TAX/RDT
BEFORE THE COMPTROLLER
OF PUBLIC ACCOUNTS
OF THE STATE OF TEXAS
PETER BROOKS
Administrative Law Judge
J. WADE PHILLIPS
Representing Tax Division
**************
Representing Petitioner
COMPTROLLER'S DECISION
PRELIMINARY COMMENTS:
This case was transferred to my docket upon the resignation of former
Administrative Law Judge Ben Sarrett. I have in preparing this Decision
reviewed the transcript of the oral hearing, the pleadings filed by the parties
- including Petitioner's Exceptions, and the Tax Division's Response, and the
exhibits admitted into evidence.
At the oral hearing, Mario Lopez and Mona Shoemate, both of the Comptroller's
Office, testified for the Tax Division. Testifying for the Petitioner were
**************, Legal Counsel to the Board for THE AIRPORT, and **************,
Director of State and Local Taxes for AIRLINE COMPANY.
This case deals with a contractor that constructed an AIRLINE COMPANY
(hereafter AIRLINE COMPANY) hangar at the THE AIRPORT, on a tax-exempt basis.
As a result, the auditor assessed tax on purchases made without paying or
accruing tax. The Tax Division and the Petitioner agreed that they would
proceed as though AIRLINE COMPANY were present and participating. This was
done because of the shared belief that such an approach would forestall the
necessity of a hearing involving AIRLINE COMPANY, and that all parties,
including the Tax Division, would benefit.
A Proposed Comptroller's Decision was issued on May 10, 1995. Petitioner filed
Exceptions to the Proposed Comptroller's Decision on June 26, 1995. The Tax
Division filed its Response to Petitioner's Exceptions on July 10, 1995. This
Decision represents my consideration of Petitioner's Exceptions and the Tax
Division's Response.
PETITIONER'S CONTENTIONS:
1. That its tax-free purchases of materials used in constructing a hangar were
proper under one or more statutory exemptions.
2. That the Petitioner and AIRLINE COMPANY relied to their detriment on advice
from the Comptroller's office.
FINDINGS OF FACT:
These Findings of Fact represent my ruling on the proposed findings of fact
submitted by Petitioner and the Tax Division.
1. Petitioner was audited for sales and use tax compliance for the period
January 1, 1987 through July 31, 1992. As a result of the audit on December
14, 1992, the Comptroller of Public Accounts for the State of Texas issued a
Notice of Tax Due to ************** ("Petitioner") for Sales and Use Tax for
the period of January 1, 1987, through July 31, 1992, in the amount of
$************** consisting of tax and interest. No penalty was assessed.
2. Petitioner filed a petition for redetermination of tax assessed against it
for purchases on which tax was not paid or accrued.
3. Petitioner is a general construction contractor. Petitioner contracted
with AIRLINE COMPANY, a private corporation, on August 1, 1990, to construct
Hangar No. 3, and Warehouse Expansion, at THE AIRPORT, a non-profit
governmental entity organized through the combined action of the city
governments of ************** and **************, Texas, pursuant to the Texas
Municipal Airports Act. THE AIRPORT is a political subdivision of the State of
Texas. (Pet. Ex. I) In March 1991, Petitioner and AIRLINE COMPANY entered into
a similar agreement for Hangar No. 4 Expansion. (Pet. Ex. N).
4. Each contract provided for one lump-sum amount, and the charges for
incorporated materials were not separate from the charges for skill and labor.
Both contracts also included a provision that title passed to AIRLINE COMPANY
"immediately upon delivery of material to the site or the performance of any
part of the Work."
5. On August 31, 1990, **************, the construction manager for the
project, sent a letter to Petitioner stating that AIRLINE COMPANY was
attempting to secure a sales tax exemption certificate for the hangar projects
and that a final ruling was expected within 30 days. Petitioner was advised to
"keep receipts showing the amount of sales tax paid for all materials that have
been purchased." (Tax Div. Ex. 2, p. 2) A completed exemption certificate
dated August 31, 1990, was included with the letter. (Tax Div. Ex. 2, p. 3)
6. AIRLINE COMPANY issued a Texas Sales Tax Exemption certificate dated August
31, 1990, to Petitioner for material, equipment, fabrication, and incidentals
to be expended and/or permanently incorporated into the proposed improvements
owned by THE AIRPORT, i.e., Hangar No. 3.
7. AIRLINE COMPANY issued a Texas Sales Tax Exemption Certificate to
Petitioner dated March 6, 1991, for materials to be used for permanent
improvements to realty, i.e., Hangar No. 4, owned by THE AIRPORT.
8. At the time Petitioner accepted the exemption certificates referenced in
Finding of Fact Nos. 6 and 7 Comptroller's Decision No. 17,245 (1988) had been
issued.
9. Following the auditor's determination that the construction of the THE
AIRPORT hangars was not eligible for exemption and in response to the sixty-day
letter, AIRLINE COMPANY and THE AIRPORT acting through AIRLINE COMPANY issued
additional exemption certificates that set forth more precisely alternative
grounds upon which exemption was claimed. (Petitioner's Exhibit T)
10. Petitioner purchased the materials and consumables scheduled in Exams 40,
45, 50, and 55, and supplemental Exams 40 and 50 of the Audit Report for use in
the construction of the hangars. (Tax Div. Ex. 1) Petitioner did not pay
sales tax on these purchases.
11. (a)AIRLINE COMPANY and THE AIRPORT had a Lease Agreement by which AIRLINE
COMPANY was authorized to secure construction of the hangars. That agreement
provided that the hangars would immediately become the property of THE AIRPORT
"as same or any part thereof may be completed." Pursuant to the agreement, THE
AIRPORT leased the hangars back to AIRLINE COMPANY. (Pet. Ex. H)
(b) The Lease Agreement also provides the following at Section 2, E. Uses:
"Lessee shall use and occupy the Premises for aircraft and ground equipment
maintenance, warehousing, training and business office, as hangar and central
facilities and related activities, and employee parking, and for no other
purposes whatsoever, unless expressly consented to in writing by the Executive
Director."
(c) The Lease Agreement also provides that the THE AIRPORT Board must approve
all preliminary and final plans and specifications, and that AIRLINE COMPANY
must deliver to the Board "as built" transparencies of the improvements
throughout the construction and "as built" drawings of the improvements.
Section 3(B).
(d) Pursuant to the Lease Agreement, until construction plans were submitted
and the approval of the THE AIRPORT Board received, AIRLINE COMPANY was
expressly prohibited from erecting any additional structures, making any other
improvements, or doing other construction work on the premises. Section 3(B).
(e) THE AIRPORT retained significant control over the process of contracting
for the hangars' construction.
(f) The contracts between AIRLINE COMPANY and Petitioner provide for title to
pass to AIRLINE COMPANY immediately upon delivery of materials to the site or
the performance of any part of the construction. THE AIRPORT and AIRLINE
COMPANY contract provide that the hangars immediately become THE AIRPORT'S
property as any part of the hangars is completed. ************** testified
that THE AIRPORT construed these provisions as providing for title to transfer
immediately to it from Petitioner through AIRLINE COMPANY.
12. The hangars are necessary for not only routine overnight storage and
maintenance of airplanes used for public transportation, but also so aircraft
can be taken out of service quickly during daytime operations and repaired if
necessary.
13. The hangars are essential to airport operations at THE AIRPORT to enable
the Airport to remain competitive with other international airports.
14. The hangars benefit the general public. The hangars are essential to safe
operation of common carriers used by the general public. The hangars increase
safety and convenience under Federal Aviation Administration rules imposed on
certificated common carriers, including AIRLINE COMPANY.
15. The hangars, by allowing overnight maintenance for aircraft, permit the
airport to have an immediate bank of morning flights available from the
airport.
16. Airport hangars are necessary for the safe and efficient operations of a
large airport, particularly a hub airport such as THE AIRPORT. These hangars
are available not only for repairs to AIRLINE COMPANY aircraft but also for
repairs to aircraft of other airlines. AIRLINE COMPANY performs repair work
from time to time for other airlines in the hangars. AIRLINE COMPANY receives
some consideration from other airlines for performance of the repair work.
AIRLINE COMPANY does not receive any consideration for the use of the hangars
by the other carriers.
17. In 1973 THE AIRPORT hired consultants, including the engineering firm of
ENGINEERING FIRM, to design an Airport Development Plan. The Master Plan which
was recorded in book form [FOOTNOTE: Although not formally offered into
evidence, *********** did testify regarding the Airport Development Plan and
did identify the specific diagram introduced into evidence as Exhibit F. ]
outlined the anticipated needs and improvements for THE AIRPORT over the next
twenty years. This master plan has been the planning tool for the airport and
was designed for the airport rather than for any specific carriers. Exhibit F
is a diagram (prepared by the engineering firm of ENGINEERING FIRM) taken from
the Master Plan of the Airport contained in the Airport Development Plan. The
diagram shows the area designated for Airport hangars, including the
construction of the hangars at issue in this proceeding.
18. The hangars were financed with tax-free bonds (i.e., "THE AIRPORT Bonds"),
approved by the cities of ************** and **************, for the specific
purpose of constructing hangars. The issuance of THE AIRPORT Bonds was
authorized pursuant to the Texas Municipal Airports Act. TRUST COMPANY, a
trustee of the THE AIRPORT Bonds, paid Petitioner directly for the construction
except that AIRLINE COMPANY made the first six payments on the Hangar No. 3
contract. The balance of the payments on Hangar No. 3 and all the payments on
the Hangar No. 4 contract were made with THE AIRPORT bond funds. AIRLINE
COMPANY was reimbursed from the bond funds for the six payments it made. (Pet.
Ex. G, p.3)
19. In October, 1990, Petitioner and AIRLINE COMPANY executed one change order
to the contract on Hangar No. 3 to effect cost reductions to the contract.
(Pet. Ex. R, pp. 2-6)
20. Petitioner and AIRLINE COMPANY executed three lump-sum change orders to
the contract on Hangar No. 4 dated April 18, 1991, June 11, 1991, and August
28, 1991. (Pet. Ex. R, pp. 1, 7 & 8) Petitioner and AIRLINE COMPANY executed
five separated change orders to the contract on Hangar No. 4 dated January 29,
1992, February 18, 1992, April 8, 1992, June 5, 1992, and September 29, 1992.
(Pet. Ex. R, pp. 9-13) Supplemental Exam 50 of the Audit Report scheduled
purchases of materials for the Hangar No. 4 contract that are dated January 31,
1992, March 31, 1992, May 31, 1992, and June 30, 1992.
21. AIRLINE COMPANY did not purchase the materials and consumables used by
Petitioner in the construction of the hangars pursuant to the lump-sum
contracts, although it did purchase the materials and consumables covered by
the five separated change orders on Hangar No. 4.
22. AIRLINE COMPANY donated the materials and consumables that were covered by
the separated change orders for the construction of Hangar No. 4 to THE
AIRPORT, an exempt entity under 151.309. (Pet. Ex. J, K)
23. The Tax Counsel for AIRLINE COMPANY in a letter dated January 9, 1989,
addressed to the Chief Deputy Comptroller inquired whether AIRLINE COMPANY,
rather than THE AIRPORT, could pay and contract directly with the contractors
for improvements to THE AIRPORT'S public passenger terminals.
24. Willis Whatley, then Deputy Comptroller, stated in a letter dated January
13, 1989, that AIRLINE COMPANY could issue an exemption certificate for
construction and improvement efforts on its public passenger terminals at THE
AIRPORT because the terminals are "used daily by the public at large in
connection with air travel" and THE AIRPORT and the public are "directly
benefited by the presence and operation of the terminals and improvements."
25. Mona Shoemate, in a memo dated May 4, 1992, addressed to Mario Lopez, the
auditor conducting the instant audit, informed the auditor that the Tax Ruling
Committee had determined that the purchases of materials for construction of
the hangars would be exempt if THE AIRPORT contracted for and paid for the
improvements, but not if AIRLINE COMPANY contracted and paid for the
improvements for its own use. (Tax Div. Ex. 3) Mona Shoemate cautioned the
auditor that this position applied to contracts or portions of contracts that
are already completed. The auditor was informed that AIRLINE COMPANY could
issue an exemption certificate under the following circumstances:
" ... The Chairman of the TR (Tax Ruling) Committee has met with AIRLINE
COMPANY to explain that it may issue an exemption certificate to purchase
incorporated materials and consumable supplies tax-free in the future if
certain conditions are met. The contracts between AIRLINE COMPANY and the
contractor performing the new construction work must contain a provision
transferring title to such materials to AIRLINE COMPANY before they are used by
the contractor or incorporated into the realty. The contract must also state
that AIRLINE COMPANY will immediately donate them to the airport authority and
that the airport authority will accept the donation. If these conditions are
met, AIRLINE COMPANY may issue an exemption certificate to the contractor
claiming the exemption for tangible personal property donated to a governmental
entity found in Tax Code Section 151.155(b)."
26. By letter dated April 17, 1992, AIRLINE COMPANY requested confirmation
from the Comptroller that property purchased for use in the performance of its
contracts for construction of hangars are exempt from sales tax. AIRLINE
COMPANY disclosed that it had entered into contracts for the construction of
hangars for THE AIRPORT. AIRLINE COMPANY specifically requested a ruling
confirming that:
The purchase and sale of materials and consumables incorporated into realty or
otherwise used on the hangar construction in performance of prior contracts
(i.e., lump-sum contracts entered into between AIRLINE COMPANY and Petitioner
prior to August 14, 1991), to the extent the scope of the prior contracts has
not been extended by lump-sum change orders executed after August 14, 1992 are
not subject to tax.
The request for ruling specifically disclosed that the contracts at issue were
for construction of THE AIRPORT hangars, were lump-sum contracts, and were
between AIRLINE COMPANY and its contractors.
27. By letter dated May 7, 1992, Wade Anderson stated to the attorney for
AIRLINE COMPANY that, "[t]he "purchase and sale of Materials and Consumables
incorporated into realty or otherwise used on Airport Projects [which was
defined to include the new hangars] in the performance of the Prior Contracts
(lump-sum), to the extent the scope of the Prior Contracts has not been
extended by lump-sum change orders executed after August 14, 1991 (not 1992, as
written in your letter), are not subject to tax." However, the letter also
stated that a change order executed after August 14, 1991 "appended to an
underlying lump-sum contract is lump-sum for tax purposes, and the contractor
owes tax on all TPP used to perform the work under the change order." (Pet.
Ex. D-1)
28. By letter dated September 10, 1992, Wade Anderson stated to the attorney
for AIRLINE COMPANY that prior to July 23, 1992, "if the original contract was
lump sum but the change order was separated, the change order would be treated
on a stand alone basis as a separated contract." After that date, the date the
amendment to Rule 3.291 became effective, "change orders will take on the same
character as the original contract regardless of the form of the change order."
(Pet. Ex. L)
29. Mona Shoemate testified that the Comptroller's Tax Policy Committee
considered the issue regarding the application of the Texas Municipal Airport
Act, Article 46d-15, to the disputed hangars. The Tax Policy Committee did not
find Petitioner's argument persuasive. Mona Shoemate testified that the
Comptroller's Tax Policy Committee determined that the appropriate applicable
test was whether the primary use and benefit vested in the exempt entity or the
private party. See Hearing Transcript, pp. T-85 and T-87.
30. Certificates of Occupancy were issued by THE AIRPORT to AIRLINE COMPANY.
These Certificates of Occupancy state (1) with respect to Hangar No. 3 that a
final inspection of construction was completed on December 13, 1992, and the
work was found to be satisfactory and in compliance with the codes and
standards adopted under THE AIRPORT Construction and Fire Prevention Standards
Resolution and that the space (Hangar No. 3) was acceptable for Occupancy/Use
and (2) with respect to Hangar No. 4 that a final inspection of construction
was completed on July 8, 1992, and the work was found to be satisfactory and in
compliance with the codes and standards adopted under THE AIRPORT Construction
and Fire Prevention Standards Resolution and that the space (Hangar No. 4) was
acceptable for Occupancy/Use. The Certificate of Occupancy was issued on
November 16, 1992, for Hangar No. 4. The Certificate of Occupancy was dated
December 1, 1992, for Hangar No. 3, although the final inspection was not
completed until December 13, 1992.
31. The Lease Agreement between THE AIRPORT and AIRLINE COMPANY provided that
upon satisfaction that the hangar construction has been completed in compliance
with THE AIRPORT Construction and Fire Prevention Standards the Director of THE
AIRPORT shall deliver a Certificate of Occupancy to Lessee (AIRLINE COMPANY).
32. Both Petitioner and AIRLINE COMPANY were aware of the correspondence with
the Comptroller regarding the tax-exempt status of the hangars. The
Comptroller was aware that the advice dispensed to AIRLINE COMPANY was shared
with Petitioner.
DISCUSSION AND CONCLUSIONS OF LAW:
CONTENTION NO. ONE:
Petitioner's Contention No. One should be affirmed.
PETITIONER'S ARGUMENTS:
Section 151.311 provided during most of the audit period that tangible personal
property purchased by a contractor "for use in the performance of a contract
for the improvement of realty" for an organization exempted from sales taxes by
Section 151.309(4) or (5) or Section 151.310 is exempt to the extent of the
value of tangible personal property "used or consumed or both in the
performance in the contract." Since THE AIRPORT is jointly owned by the
municipalities of **************, Texas, and **************, Texas, Petitioner
argues that taxable items used or consumed in the performance of a contract for
the improvement of realty for THE AIRPORT are exempt from tax under Section
151.311. Petitioner rejects the Tax Division's objections to the claimed
exemption, i.e., that the hangars were for the primary use and benefit of
AIRLINE COMPANY. Petitioner retorts in the following arguments that none of
these objections is valid.
A. ************** accepted Exemption Certificates in good faith and owes no
sales tax.
Petitioner argues that, because it accepted in good faith properly completed
exemption certificates prior to the audit, it does not owe sales tax on any of
the items at issue. Petitioner also argues that because the items qualify for
exemption under specific statutory authority, it was proper for AIRLINE COMPANY
to provide exemption certificates and no tax is due on these materials.
B. The taxable items at issue qualify for exemption under Section 151.311
which, during most of the audit period, provided an exemption for property used
for improvement of realty of an exempt organization. [FOOTNOTE: Petitioner
asserts that the Tax Division originally raised two objections to the Section
151.311 exemption and conceded one of these objections at the oral hearing.
Petitioner explains that the Tax Division originally argued in its Position
Letter that the materials at issue were taxable because they were purchased
pursuant to a contract between ************** and AIRLINE COMPANY rather than
pursuant to a contract between ************** and THE AIRPORT. However, the
Tax Division conceded at the hearing that this objection is invalid.
Petitioner cites to the testimony of Ms. Mona Shoemate at page 88 of the
Transcript.]
Petitioner rejects the Tax Division's argument that the primary use and benefit
of the hangars was for AIRLINE COMPANY and not for serving the public.
Petitioner advances two reasons for rejecting the Tax Division's arguments.
The first is that there is no primary use and benefit requirement in Section
151.311. Petitioner argues that Section 151.311 as in effect during the audit
period in question had no purpose standard at all. Petitioner assumes that the
Tax Division is relying on Attorney General's Opinion MW-94 as the source for
this test. Petitioner objects to the Tax Division's reliance on MW-94. The
opinion, Petitioner asserts, is based on facts very different from those at
issue in the instant case. For example, unlike the instant hearing, MW-94 does
not address hangars used by a common carrier and does not address the Texas
Municipal Airports Act, which provides that such improvements, by law,
constitute "public and governmental functions, exercises for a public purpose,
and matters of public necessity." Tex. Rev. Civ. Stat. Ann. art. 46d-15.
Petitioner's primary objection to the Tax Division's argument, " ... is that
the hangars' primary use and benefit is serving [the] public interest."
Petitioner in its Trial Notebook included the following Chart of the
authorities addressing the question whether municipal airport hangars serve a
public purpose.
MUNICIPAL AIRPORT HANGARS: PUBLIC PURPOSE
AUTHORITY: art. 46-15, art. 46-2(a)(1)(B) Texas Municipal Airports Act
HOLDING: Yes
EXPLANATION: "[T]he planning, acquisition, establishment, development,
maintenance ... of airports and air navigation facilities... are hereby
declared to be public and governmental functions, exercised for a public
purpose, and matters of public necessity." Municipalities are specifically
authorized to plan and construct buildings and other facilities for the
servicing of aircraft.
AUTHORITY: Op. Tex. Atty Gen. No. MW-94 (Dec. 1979)
HOLDING: No
EXPLANATION: Private party leased real property at ************** 'for the
exclusive use' of private party; property was `apparently not related in any
way to providing public transportation. (Perhaps because the property was not
related to public transportation, the opinion failed to discuss art. 46d-15)
AUTHORITY: Op. Tex.. Att'y Gen. JM-464 (March 1986)
HOLDING: Yes
EXPLANATION: "[A]s a matter of law ... the No.city's airport and airport
facilities, including those leased to a private individual, are impressed with
a public purpose. . ." (citing, inter alia, art. 46d-1 et seq.).
AUTHORITY: Op. Tex. Att'y Gen. No. DM-188 (Dec. 1992)
HOLDING: Yes
EXPLANATION: ************** International Airport maintenance hangar owned by
the city and leased to a private party is exempt if the hangar is "used to
support the city's safe and efficient operation of the airport."
AUTHORITY: Comptroller's Decision No. 17,245 (1988)
HOLDING: Yes
EXPLANATION: "[T]he **************] airport terminal, runways, hangars and
other support buildings serve the general public purpose of operating an air
transportation system."
AUTHORITY: Corsicana v. Wren, 317 S.W.2d 516 (Tex. 1958)
HOLDING: Yes
EXPLANATION: Art. 462-15 is a valid exercise of legislative AUTHORITY;
legislature is entitled to determine that municipal airport operation is a
public and governmental function exercised for a public purpose.
AUTHORITY: Irving ISD v. Delta Airlines, 534 S.W.2d 365 (Tex. Civ. App. -
Texarkana writ reefed n.r.e.)
HOLDING: Yes
EXPLANATION: A maintenance hangar is necessary to the operation of an airport
pursuant to the 1976, Municipal Airports Act: "facilities other than runways
and terminals are legislatively recognized as necessary to airport operation."
(Maintenance hangars are clearly within legislative definition which refers to
"airport buildings or other airport facilities or right-of-ways, together with
all airport buildings and facilities located thereon.")
AUTHORITY: Wright v. Del E. Webb Corp, 786 F. 2d 1275
HOLDING: Yes
EXPLANATION: Under Texas statutory law THE AIRPORT was performing a
governmental function with respect to construction of AIRLINE COMPANY at THE
AIRPORT.
AUTHORITY: Tex. Tax Code Section 25.07(b)(3)
HOLDING: Yes
EXPLANATION: Buildings used primarily for maintenance of aircraft or other
aircraft services are part of exempt "public transportation facility."
Petitioner relies heavily on the Texas Municipal Airports Act which it
construes as providing that municipal airport construction is for a public
purpose: "It [the Legislature] has unequivocally declared such improvements
[to THE AIRPORT] to be for a public purpose." Article 46d-15 of the Texas
Municipal Airports Act expressly provides that:
The acquisition of any land or interest therein pursuant to this Act, the
planning, acquisition, establishment, development, construction, improvement,
maintenance, equipment, operation, regulation, protection and policing of
airports and air navigation facilities . . . are hereby declared to be public
and governmental functions, exercised for a public purpose, and matters of
public necessity.
Petitioner construes the statute as declaring explicitly that construction of
airport facilities, as a matter of law, serves a public purpose. Petitioner
also notes that the Legislature has expressed the intent to make tax exemptions
available for airport development in the area of property taxation as well.
Petitioner finds it instructive that Section 25.07(b)(3) (which describes
exempt airport facilities) defines a "public transportation facility" to
include hangars ("building[s] used primarily for maintenance of aircraft or
other aircraft services"). According to Petitioner, there is no support for
arguing that the Legislature would view a public transportation facility as
including hangars for property tax purposes but excluding them for sales tax
purposes - - particularly when the Texas Municipal Airports Act and other Texas
law establish that hangars are necessary to airport operations.
Petitioner also construes both Texas caselaw and administrative decisions as
confirming its contention that the construction of THE AIRPORT hangars is for
the primary benefit of the tax-exempt entity rather than the primary benefit of
airlines.
Petitioner cites the appellate court's decision in Irving Indep. School
District v. Delta Airlines, 534 S. W.2d 365 (Tex. Civ. App. -- Texarkana, 1976,
writ ref'd n.r.e.), in which the court specifically considered THE AIRPORT
hangars and found that they serve a public purpose. The court, noting that
hangars are used for aircraft maintenance and that "facilities other than
runways and terminals are legislatively recognized as necessary to airport
operation," cited Art. 46d-15 in holding that maintenance hangars are clearly
within the legislative scope of "airport buildings or other airport facilities
or right-of-ways, together with all airport buildings and facilities located
thereon." 534 S.W.2d at 367-68.
Petitioner repeatedly draws attention to Comptroller Decision No. 17,245 (1988)
which specifically addressed AIRLINE COMPANY improvements at THE AIRPORT.
Decision No. 17,245, Petitioner asserts, establishes that the construction of
hangars at THE AIRPORT serves a public purpose and qualifies for exemption.
This Decision noted that THE AIRPORT was created under the Texas Municipal
Airports Act and is a political subdivision entitled to exemption from sales
tax in constructing a public airport, and that "the airport terminal, runways
and hangars and other support buildings serve the general public purpose of
operating an air transportation system." The Tax Division conceded that the
hangars served such a public purpose.
Petitioner also cites Mr. **************'s letter of January 13, 1989
(Petitioner's Exhibit C-1) as supporting its argument that the hangars serve a
public purpose. Petitioner finds that Mr. **************, writing in his
capacity as a Comptroller employee, concluded that terminals at THE AIRPORT
benefit the public and qualify for exemption. Petitioner insists that,
contrary to the Tax Division's strained analysis, Mr. **************'s letter
does not require that facilities must be open to the public to be exempt.
According to Petitioner, the letter indicates that airport facilities are
exempt if "the Airport and the public are directly benefited by the presence
and operation" of the facilities, and concluded that, since the public's use of
terminals shows that the terminals meet this "directly benefited" test, the
terminals are therefore exempt. Petitioner, in turn, concludes that the
extensive facts and testimony presented in the current hearing clearly show
that the hangars "directly benefit" the Airport and the public, and are
therefore exempt. Petitioner reminds the ALJ again that the Comptroller has
already held that the hangars are exempt. In Decision No. 17,245 the ALJ held
and the Tax Division conceded that hangars "serve the general public purpose of
operating an air transportation system." Petitioner insists that affirming the
taxpayer's position does not require a change of Comptroller policy. To the
contrary, Petitioner construes Decision No. 17,245 as representing existing
Comptroller's policy.
C. AIRLINE COMPANY' contracting for the hangars does not impact the exemption
under Section 151.311.
Petitioner concedes that AIRLINE COMPANY did contract for the hangars, but
stresses that AIRLINE COMPANY did not pay for the facility. Petitioner insists
that the fact that AIRLINE COMPANY has contracted for the improvements neither
diminishes the public purpose of THE AIRPORT owned improvements nor makes the
sales tax exemption inapplicable.
Petitioner reminds us that the hangars were financed with tax-free bonds which
were approved by the cities of ************** and ************** for the
specific purpose of constructing the hangars.
Petitioner underscores that the Tax Division conceded at the oral hearing that
the materials purchased pursuant to a contract between ************** and
AIRLINE COMPANY (rather than pursuant to a contract between ************** and
THE AIRPORT) qualify for the sales tax exemption and that AIRLINE COMPANY'S
contracting for the construction (rather than **************) has no bearing on
the exemption. Petitioner cites to the testimony of Mona Shoemate who
acknowledged that it does not matter under Section 151.311 who paid or
contracted for construction. Petitioner reiterates that it is clear from the
facts presented at the oral hearing that THE AIRPORT paid for the hangars,
owned them, and leased them to AIRLINE COMPANY.
Petitioner argues that the Comptroller has previously expressly held in other
cases in which a private entity was the contracting party that improvements are
exempt under Section 151.311. For example, Comptroller's Decision No. 21,622
(1990) addressed improvements made by a private party to a city-owned facility.
The Administrative Law Judge held that as to real property improvements for
which title was transferred to the city, "any materials purchased by Petitioner
that were affixed to the facility in such a fashion as to be considered
improvements to realty are exempt under Tax Code Section 151.311."
Petitioner also refers to correspondence from Willis Whatley of the
Comptroller's office, dated January 13, 1989, in which it was concluded that,
since THE AIRPORT is a tax-exempt entity and will be the ultimate beneficiary
of airport construction improvements, terminal construction and improvements
performed by AIRLINE COMPANY contractors are eligible for tax exemption,
notwithstanding the fact that the construction contracts were between AIRLINE
COMPANY and its contractors rather than between THE AIRPORT and the
contractors. Petitioner also asserts that even after the 1991 legislative
changes to Section 151.311 [narrowing the Section 151.311 exemption to school
districts and certain non-profit hospitals, effective October 1, 1991] the
Comptroller, through correspondence from Wade Anderson of the Comptroller's
office dated May 7, 1992, confirmed that taxable items purchased for use in
construction of airport hangars, pursuant to contracts between AIRLINE COMPANY
and contractors, would continue to be exempt.
D.The taxable items at issue qualify for exemption under Section 151.309 which
provides an exemption for property sold to, or used or consumed by, an exempt
entity.
Section 151.309(5) provides that "[a] taxable item sold, leased, or rented to,
or stored, used or consumed by, any of the following governmental entities is
exempted from the taxes imposed by this chapter: ... a county, city, special
district, or other political subdivision of this state." Petitioner contends
that Section 151.309 serves as an adequate and independent basis to exempt the
sales at issue from taxation. First, Petitioner asserts that it was
established at the hearing that title to the materials used in the construction
of the hangars was transferred from ************** to AIRLINE COMPANY and from
AIRLINE COMPANY to THE AIRPORT. Petitioner further asserts that each
construction contract specifically provided that title to material delivered to
the work site vests in AIRLINE COMPANY upon delivery, and the contract between
AIRLINE COMPANY and THE AIRPORT provided that all improvements immediately
became the property of THE AIRPORT as "any part" of such improvement was
completed. Petitioner cites for support the testimony of **************, the
General Counsel for THE AIRPORT Board, who testified that the contracts
transferred title "brick by brick." Petitioner argues that even the Tax
Division at its proposed Finding of Fact Nos. 4 and 8 conceded that the
contracts provided for such title transfer.
Petitioner finds support for its interpretation of Section 151.309 in
Comptroller's Decisions confirming that sales of materials to a private party
for the benefit of an exempt entity result in the taxable items being used or
consumed by the exempt entity and therefore are exempt from taxation.
Petitioner, for example, refers to Comptroller's Decision No. 23,130 (1989), in
which a taxpayer purchased a brochure which described candies, cookies, etc.,
for sale, and allowed schools to use the brochures in fund-raising activities.
The Decision held that the brochures were "used or consumed by an exempt
organization" under Section 151.309 and 151.310, and were exempt.
E. The taxable items at issue are exempt from tax under Section 151.155(b).
Petitioner contends that, in addition to qualifying for exemption under
Sections 151.311 and 151.309, the materials donated by AIRLINE COMPANY to THE
AIRPORT qualify for exemption under Section 151.155(b). Petitioner draws on
the following explanation of Section 151.155(b) in Comptroller's Decision No.
11,964 (1992). the purpose of this section, according to Decision No. 11,964,
is to:
" ... put a person who buys property and donates it to a tax exempt entity,
without any beneficial use of the property prior to its donation, on an equal
footing sales taxwise with a tax exempt entity making its own purchases - in
both instances the acquisition of property by a tax exempt entity is subsidized
by having no sales tax imposed on its purchase, thereby encouraging and
fostering the growth of entities considered worthy of tax exemption."
As argued above by Petitioner, title to the materials used in constructing
improvements at THE AIRPORT immediately vested in the airport. Petitioner
contends that this immediate transfer of title to the airport, without any
intervening use of the property, constituted a donation to the airport.
Petitioner points out that following the 1991 changes to Section 151.311,
AIRLINE COMPANY, following the Comptroller's advice, formalized the donations
in writing to the Airport with the approval of the Comptroller.
F. Rule 3.291 confirms that the materials used to construct improvements at
THE AIRPORT are exempt.
Petitioner argues that Comptroller's Rule 3.291 supports its contention that
the materials used to construct improvements at THE AIRPORT are exempt.
Petitioner refers to Comptroller's Rule 3.291(c)(4) quoting the provision that
"[t]he purchase by a contractor of . . . tangible personal property
incorporated into the property being improved for the exempt customer" is
exempt from tax. Since it purchased the tangible personal property
incorporated into THE AIRPORT being improved for THE AIRPORT, Petitioner
concludes that its purchases of the property at issue should be exempt.
Following the 1991 legislative changes to Section 151.311, Petitioner explains
that Comptroller's Rule 3.291 was amended to reflect the narrowing of the
exemption and to expressly allow exempt organizations, such as THE AIRPORT
Board, to continue to acquire materials tax free pursuant to Rule 3.291(e)(3)
and 3.291(c)(2).
Petitioner further explains that " ... amended Rule 3.291(f) (July 1992)
provides that a contractor may purchase tax-free tangible personal property
used to improve real property that will be ultimately dedicated to a
governmental entity if (i) the contract between the contractor and the private
party is a separated contract, (ii) the contract provides that title to the
materials passes to the private party when the materials are delivered to the
jobsite and before they are incorporated into the realty or used by the
contractor or the private party, and (iii) the contract provides that the
private party intends to donate the property to the governmental entity before
it is incorporated into the realty or used by the contractor." Petitioner
asserts AIRLINE COMPANY'S subsequent purchases met each of these requirements.
Petitioner elaborates that THE AIRPORT Board and AIRLINE COMPANY, out of an
abundance of caution, sought to confirm that purchases would continue to be
exempt under the post 1991 law. THE AIRPORT Board and AIRLINE COMPANY in
correspondence with the Comptroller's office reiterated that all materials used
on the airport improvements were immediately donated to the Board prior to
incorporation into realty or other use. Petitioner further explained that it
sought and received confirmation from the Comptroller through its
correspondence with Wade Anderson that the purchases continued to be exempt.
Petitioner ends this line of argument by noting that the Tax Division's
assertion that Petitioner's purchases are taxable is contradicted not only by
the statutory exemption provisions but also by the Comptroller's own advice.
TAX DIVISION'S ARGUMENTS:
The Tax Division rejects Petitioner's argument that the hangars were for a
public purpose because the hangars are necessary to operational support of the
airport. The Tax Division relies on the Court's holding in Irving Independent
School District v. Delta Airlines, 534 S.W. 2d 365 (Tex. Civ. App. --
Texarkana, 1976, writ ref'd n.r.e.), regarding the ad valorem status of a
maintenance hangar at THE AIRPORT:
"The nature of the use of the leasehold interest determines whether the land
and improvements are a 'public transportation facility' and its taxable status.
Use of the leasehold is subject to change and tax liability is not irrevocably
fixed by use at the time of the suit."
The Tax Division asserts that as in Irving I.S.D., supra, the nature of AIRLINE
COMPANY'S use of the leasehold interest in the hangars should be looked at to
determine if the particular leasehold is for a tax-exempt public purpose.
This, according to the Tax Division, is the test applied in Attorney General's
Opinion MW-94 (1979) in which the Attorney General ruled that the primary and
substantial benefit must reasonably inure to the exempt entity and not to the
lessee. As interpreted by the Tax Division, the Opinion states that the
inquiry turns on whether the dominant purpose is to make the improvements for
the exempt entity or the private lessee. The Opinion concluded that since the
dominant purpose was for the private lessee the Section 151.311 exemption was
not available. The test, according to the Tax Division, was incorporated into
Rule 3.291(c)(2). [FOOTNOTE: Rule 3.291(c)(2) provides: A prime contract with
a private party or an exempt entity to improve real property belonging to an
exempt entity for the primary use and benefit of the private party is not a
contract exempt from sales or use tax. Materials may be purchased tax free
only when the prime contractor has a contract with an exempt entity to improve
realty for the direct use of the exempt entity and any required exemption
certificate has been obtained.]
The Tax Division dismisses as misguided Petitioner's reliance on Attorney
General's Opinion JM-464 (1986). The Tax Division, although it acknowledges
that the Attorney General held that the land acquired by a city for an airport
but leased to an individual for the commercial activity of selling fuel to
airplanes was exempt from ad valorem taxation, underscores that the Attorney
General also held that other land surrounding the airport not directly involved
in central airport activities leased for commercial purposes was taxable. The
Tax Division similarly disposes of Attorney General Opinion DM-188 (1992) in
which it was held that an airport hangar used exclusively in support of the
city's operation of an airport would be exempt from ad valorem taxation under
Section 25.07 of the Tax Code. The Attorney General, however, at the same time
held that a hangar used to serve private commercial interests of the lessee
would not be exempt.
The Tax Division argues that Attorney General's Opinion MW-94 is the
controlling opinion. In contrast with Petitioner's position, the Tax Division
depreciates Opinions DM-188 and JM-464 as involving ad valorem tax exemptions
and not sales tax exemptions.
The Tax Division similarly urges that the holding in Wright v. Del E. Webb
Corp, 786 F. 2d 1275 (5th Cir.,1986) be disregarded. Petitioner cited the
holding for the proposition that under Texas law THE AIRPORT was performing a
governmental function in contracting for the construction of the AIRLINE
COMPANY corporate headquarters. The Tax Division distinguishes the holding in
Wright v. Del E. Webb from the instant case, noting that the Fifth Circuit did
not declare the sales tax status of the materials used in performing that
contract and could not have done so because federal courts are required to look
to the decisions of the highest state court, or if none, to decisions of lower
state courts, or, if none, to opinions of the attorney general. Thus,
according to the Tax Division's reasoning, Opinion MW-94 is the only binding
precedent in the instant case.
The Tax Division also distinguishes two Comptroller's Decisions, Nos. 17,245
(1988) and 21,622 (1990). The Tax Division interprets Decision No. 17,245 as
dealing with the purchase of tangible personal property by THE AIRPORT, not
lump sum contracts for the improvement of realty between a private airline and
the contractor. The Tax Division also did not find any indication in the
Motion to Dismiss as to why the Tax Division changed the position it had
previously maintained throughout the proceedings treating the hangars as not
public improvements. The Tax Division also distinguishes Decision No. 21,622,
which concerned the exemption of items used by a private entity in the
operation and management of a municipally-owned sports facility. The Tax
Division concedes that the Decision held that materials purchased and affixed
to the facilities so as to be considered improvements to realty were exempt
under Sec. 151.311. The Tax Division draws the distinction that the items at
issue were scoreboards and viewing screens purchased by the operating entity
and affixed to the sports arena at which time title transferred to the city.
In contrast, in the instant case, the materials were purchased by Petitioner
which used them in the construction of the hangars. The Tax Division
underscores that the hangars, not the materials, were purchased by AIRLINE
COMPANY, and "the title to the hangars, not the materials, was what was
subsequently transferred to THE AIRPORT."
The Tax Division also rejects Petitioner's alternative arguments that its
purchases of the materials used in the construction of the hangars were exempt
under Section 151.309 because they were taxable items used by an exempt entity
or they were exempt under Section 151.155 because they were tangible personal
property donated by the purchaser to an exempt entity.
The Tax Division excepts to Petitioner's claim under Section 151.309 that the
materials it purchased for the construction of the hangars falls within this
exemption because title to the materials was transferred by contract to AIRLINE
COMPANY upon delivery to the construction site, and because all improvements
became the property of THE AIRPORT as parts of the hangar were completed. The
transfer of title provisions are not binding according to the Tax Division
because Petitioner was the purchaser of the materials used to perform lump-sum
contracts. AIRLINE COMPANY wasn't purchasing individual materials, therefore,
the Tax Division, argues that title to those materials couldn't transfer from
AIRLINE COMPANY to THE AIRPORT. What passed was title to the hangars. The
lump-sum contracts cannot override the provisions of Section 151.056(a) and
Comptroller's Rule 3.291(b)(3)(A). The Tax Division argues that under Section
151.056(a), Petitioner, as a contractor, is the consumer of tangible personal
property it furnishes and incorporates into the property of the customer if the
contract contains a lump-sum price covering both the performance of the service
and the furnishing of the necessary incidental material. Rule 3.291(b)(3)(A)
in turn provides that the lump sum contractor must pay tax to suppliers at the
time the materials are purchased and will not collect tax from a customer on a
lump-sum charge or on any portion of the charge.
The Tax Division rejects Petitioner's argument that the purchase of the
materials used in the construction of the hangars is exempt under Section
151.155(b) because the hangars were donated to a political subdivision of this
state, i.e., THE AIRPORT. The Tax Division, however, counters that Petitioner
did not donate the materials to anyone. Under its lump-sum contracts,
Petitioner built the hangars which AIRLINE COMPANY in turn donated to THE
AIRPORT. According to the Tax Division, Petitioner's claim fails on two counts.
First it was real property not tangible personal property that was donated by
AIRLINE COMPANY. Secondly, AIRLINE COMPANY was not the purchaser of tangible
personable property but rather the purchaser of nontaxable real property.
The Tax Division also rejects Petitioner's claim that it accepted in good faith
the exemption certificates provided by AIRLINE COMPANY at the time of the
transactions. Petitioner's claim doesn't make sense, according to the Tax
Division, since Petitioner was specifically directed to keep receipts showing
the amount of sales tax paid for all materials that have been purchased while
AIRLINE COMPANY sought to determine the exact status of the exemption for the
hangar projects. According to the Tax Division, AIRLINE COMPANY was warning
Petitioner that the exemption issue was unsettled, and under Comptroller's Rule
3.291(c)(1) Petitioner cannot accept an exemption certificate in good faith if
the validity of the exemption is not clear.
DISCUSSION:
It is not necessary to accept Petitioner's argument that there is no primary
use and benefit requirement in Section 151.311 in order to conclude that the
taxable items at issue qualify for exemption under Section 151.311. The Texas
Municipal Airports Act and the facts of this case clearly establish that the
hangars in question pass the primary use and benefit test expressly stated in
Comptroller's Rule 3.291(c)(2).
There is no dispute that AIRLINE COMPANY uses the hangars for its benefit, but
it cannot be denied that THE AIRPORT also benefits. The determination as to
which party benefits primarily is not an easy one to make. The findings of
fact, however, establish that the hangars at issue are necessary for the safe
and efficient operation of THE AIRPORT. See Finding of Fact Nos. 12-16. The
hangars are available not only for repairs to AIRLINE COMPANY aircraft but also
for repairs to aircraft of other airlines. Although AIRLINE COMPANY may
receive some consideration from other airlines for the repair work, AIRLINE
COMPANY does not receive any consideration for the use of the hangars by other
carriers. See Finding of Fact No. 16. By permitting overnight maintenance,
routine storage, and quick daytime repairs for both AIRLINE COMPANY airplanes
as well as other carriers' airplanes, the benefits of the hangars extend beyond
AIRLINE COMPANY to the general public. These facts, coupled with the clear
legislative recognition in the Texas Municipal Airports Act that the
construction of the hangars represents, as a matter of law, a public,
governmental function exercised for a public purpose, lend support to the
conclusion that the hangars inure primarily and substantially to the benefit of
THE AIRPORT.
Although AG Opinion MW-94 prompted the promulgation of Rule 3.291(c)(2), the
Tax Division errs in its strict reading of the Opinion. Unlike the pending
matter, Opinion MW-94 does not address the effect of Article 46d-15 of the
Texas Municipal Airports Act on the conclusion reached. No explanation for the
failure to refer to the Act is offered. Opinion MW-94 does not, unfortunately,
describe what were the facts that led to the conclusion that the dominant
purpose for the lease contracts was not to make the improvements for the exempt
entities.
It is significant to note that the Texas Municipal Airports Act [FOOTNOTE: The
Texas Municipal Airports Act was repealed effective October 1, 1995, well
beyond the end of the instant audit period. The relevant provisions of the Act
regarding the public purpose of municipal airport improvements were added to
the Transportation Code, effective October 1, 1995. See Section 22.002 of the
Texas Transportation Code] previously has been relied on to determine the
public purpose and function of an airport improvement. The Administrative Law
Judge in Comptroller's Decision No. 17,245 [FOOTNOTE: The holdings discussed
above were set forth in the Comptroller's Decision issued on June 20, 1988.
Subsequently, a Comptroller's Decision Upon Rehearing was issued on September
28, 1988. The Motion for Rehearing filed by Petitioner was granted for the
purpose of reducing and amending the audit liability pursuant to the Tax
Division's Response to Petitioner's Motion for Rehearing and Motion to Dismiss.
The Comptroller's Decision Upon Rehearing reflects a determination by the Tax
Division that the remaining audit adjustments, involving the taxability of
purchases of furnishings and equipment for use on the AIRLINE COMPANY
Headquarters Buildings, the AIRLINE COMPANY Southern Reservations Office, and
the ************** Facility. The Tax Division admits that it doesn't know why
the Tax Division agreed to the concessions.] (1988), which was written five
years after Opinion MW-94 was issued (i.e., 1979), relied on the Texas
Municipal Airports Act in reaching his conclusion that the furnishing of
AIRLINE COMPANY'S headquarters and regional reservations office did not serve
the general purpose of an air transportation system, while holding that hangars
do.
"The Comptroller recognizes that an airport authority created under the Texas
Municipal Airports Act is entitled to exemption from tax in constructing and
operating a public airport. And, certainly the airport terminal, runways,
hangars and other support buildings serve the general public purpose of
operating an air transportation system. But, the furnishing of AIRLINE
COMPANY' headquarters building and regional reservations office tax free is
another matter."
Because Petitioner has established that the primary use and benefit was for THE
AIRPORT, the purchases of materials are exempt under Section 151.311 and
Comptroller's Rule 3.291(c)(2).
CONTENTION NO. TWO:
Petitioner's claim of detrimental reliance is rendered moot by the
determination reached with respect to Contention Number Two.
RECOMMENDATION:
The audit should be amended to take into account that Petitioner prevailed in
Contention No. 1, thus the purchase of materials for the construction of THE
AIRPORT Hangars are exempt under Section 151.311.
SIGNED December 17, 1999.
PETER BROOKS
Administrative Law Judge
HEARING NO.: 31,770
ORDER OF THE COMPTROLLER
The above decision of the Administrative Law Judge, resulting in Taxpayer's
liability as set out in Attachment "A" which is incorporated by reference, is
approved and adopted in all respects. This decision becomes final on January
18, 2000, and the total sum of the tax and interest amount is due and payable
no later than February 7, 2000. If such sum is not paid within such time, a
penalty of ten percent of the taxes due will accrue, and interest will continue
to accrue.
If a rehearing is desired, a Motion for Rehearing must be filed with the
Administrative Law Judge no later than January 18, 2000, and must state the
grounds upon which the motion is based.
RENDERED and ISSUED December 17, 1999.
CAROLE KEETON RYLANDER
Comptroller of Public Accounts
of the State of Texas
APPENDIX A
The following is the text of the Texas Municipal Airports Act
Texas Municipal Airports Act, Art. 46d, 1-15 (V.A.T.S.). Subsection 2, reads
as follows, in relevant part:
General Powers of Municipalities in the Establishment, Acquisition, Operation
and Maintenance of Airports and Air Navigation Facilities
(a) Establishment, Operation, Land Acquisition. Every municipality is
authorized out of any appropriations or other moneys made available for such
purposes, to plan, establish, develop, construct, enlarge, improve, maintain,
equip, operate, regulate, protect and police airports and air navigation
facilities, either within or without the territorial limits of such
municipality and within or without the territorial boundaries of this State,
including the construction, installation, equipment, maintenance and operation
at such airports of buildings and other facilities for the servicing of
aircraft or for the comfort and accommodation of air travelers, and the
purchase and sale of supplies, goods, and commodities as an incident to the
operation of its airport properties. For such purposes the municipalities may
use any available property that it may now or hereafter own or control and may,
by purchase, gift, devise, lease, eminent domain proceedings or otherwise,
acquire property, real or personal, or any interest therein including easements
in airport hazards or land outside the boundaries of an airport or airport
site, as are necessary to permit safe and efficient operation of the airport or
to permit the removal, elimination, obstruction--marking of
obstruction--lighting of airport hazards or to prevent the establishment of
airport hazards.
Art. 46d - 15. Public Purpose, County & Municipal
The acquisition of any land or interest therein pursuant to this Act, the
planning, acquisition, establishment, development, construction, improvement,
maintenance, equipment, operation, regulation, protection and policing of
airports and air navigation facilities, including the acquisition or
elimination of airport hazards, and the exercise of any other powers herein
granted to municipalities and other public agencies, to be severally or jointly
exercised, are hereby declared to be public and governmental functions,
exercised for a public purpose, and matters of public necessity.... (Emphasis
added.)
The Texas Municipal Airports Act was repealed by Acts 1995, 74th Leg., ch.
165, Sec. 24(a), eff. September 1, 1995. Section 1 of Acts 1995, 74th Leg. ch.
165 repealing these articles adopts the Transportation Code. The following
provisions were added to the Transportation Code paralleling the repealed
provisions of the Texas Municipal Airports Act:
Sec. 22.002. Public Purpose; County or Municipal Purpose.
(a) Subject to Chapter 101, Civil Practice and Remedies Code, the following
functions are public and governmental functions, exercised for a public
purpose, and matters of public necessity:
(1) the acquisition of an interest in real property under this chapter;
(2) the planning, acquisition, establishment, construction, improvement,
equipping, maintenance, operation, regulation, protection, and policing of an
airport or air navigation facility under this chapter, including the
acquisition or elimination of an airport hazard;
(3) the exercise of any other power granted by this chapter to local
governments and other public agencies, to be severally or jointly exercised;
and
(4) the acquisition and use of property and privileges by or on behalf of a
local government or other public agency in the manner and for the purposes
described by this chapter.
(b) In the case of a county, a function described by Subsection
(a) is a county function and purpose. In the case of a municipality, a
function described by Subsection (a) is a municipal function and purpose.
Acts 1995, 74th Leg., ch. 165, Sec. 1, eff. Sept. 1, 1995.
Sec. 22.003. Interpretation and Construction.
This chapter shall be interpreted to make uniform as far as possible the laws
and regulations of this state, other states, and the United States relating to
local governmental airports.
Acts 1995, 74th Leg., ch. 165, Sec. 1, eff. Sept. 1, 1995. SUBCHAPTER B.
ESTABLISHMENT, ACQUISITION, OPERATION, MAINTENANCE, AND DISPOSAL OF AIRPORTS
AND AIR NAVIGATION FACILITIES
Sec. 22.011. General Powers Regarding Airports and Air Navigation Facilities.
(a) A local government may plan, establish, construct, improve, equip,
maintain, operate, regulate, protect, and police an airport or air navigation
facility in or outside:
(1) the territory of the local government; or
(2) the territory of this state.
(b) The power granted under Subsection (a) includes:
(1) constructing, installing, equipping, maintaining, and operating at an
airport a building or other facility, including a building or other facility
for:
(A) the landing and takeoff of aircraft;
(B) cargo, freight, and mail handling, storage, and processing;
(C) the servicing or retrofitting of aircraft, aerospace aircraft, and other
equipment and vehicles related to air transportation or aerospace flight; and
(D) the comfort and accommodation of air travelers, including a facility
commonly found and provided at an airport; and
(2) buying and selling goods as an incident to the operation of the local
government's airport.
(c) A local government, by eminent domain or any other method, may acquire an
interest in property, including an easement in an airport hazard or land
outside the boundaries of an airport or airport site:
(1) for a purpose described by Subsection (a); and
(2) as necessary to permit the safe and efficient operation of the airport or
to prevent, eliminate, or mark an airport
hazard.
(d) A local government may acquire an existing airport or air navigation
facility but may not acquire or take over an airport or air navigation facility
owned or controlled by another local government or public agency of this state
or another state without the consent of the other local government or the
public agency.
Acts 1995, 74th Leg., ch. 165, Sec. 1, eff. Sept. 1, 1995.