Gables Realty Limited Partnership V. Travis Central Appraisal District

The question presented by this appeal is whether, under section 25.07 of the Texas Tax Code, state-owned property remains tax exempt after it is leased "for compensation to a private business enterprise . . . for a purpose not related to the performance of" state duties and functions. See Tex. Tax Code Ann. §§ 11.11(d), 25.07(a) (West 2002). Gables Realty sued the Travis Central Appraisal District seeking a reduction of the ad valorem taxes assessed on two tracts of land it leased from the State. Appealing from an adverse ruling, Gables Realty asserts that, even though it uses the properties for non-public purposes, the properties are tax exempt in the hands of their owners; therefore, pursuant to section 25.07, Gables Realty should properly be taxed only on the value of the leasehold estate, not the fee simple estate. We hold that Gables Realty's private commercial use of the property vitiates the state owner's prior tax exempt status; therefore, section 25.07 does not provide Gables Realty the relief it seeks. We affirm the district court's judgment.