Untitled Texas Attorney General Opinion ( 1981 )

. .
The Attorney General of Texas
December 3, 1981
MARK WHITE
Attorney General
Honorable Stephen Davidchik Opinion No. m-402
Supreme Court Building
Grayson County Attorney
P. 0. BOX 12546
Austin, TX. 76711 Third Floor, Courthouse Re: Taxation of mineral
5121475-2501 Sherman, Texas 75090 interests
Telex 9101674-1367
Telecopier 5121475.0266 Dear Mr. Davidchik:
1607 Main St., Suite 1400 The Choctaw Watershed Improvement District was created by an act
Dallas, TX. 75201 of the legislature and empowered to levy and collect an ad valorem tax
2141742-6944 pursuant to article XVI, section 59 of the Texas Constitution. See
Acts 1959, 56th Leg., ch. 33, at 67. You write:
4624 Alberta Ave., Suite 160
El Paso. TX. 79905 In 1960, the Choctaw Watershed Improvement
9151533-3484 District was formed in Grayson County by the
enactment of . .. Acts 1959, 56th Leg., p. 67, ch.
33. An ad valorem tax has been charged on the
1220 Dallas Ave.. Suite 202
surface land that is within this designated
Houston. TX. 77002
7 131650-0666 district; but in the past twenty years there has
been no tax applied to the producing mineral
interests involved within this district. An
606 Broadway, Suite 312 opinion is desired on whether the watershed tax is
Lubbock, TX. 79401
6061747-5236
due on the producing mineral interest for present
and past years.
4309 N. Tenth. Suite 6 A "producing mineral interest," as we understand the use of the
McAllen, TX. 76501
term in your letter, means a mineral interest such as an oil or gas
5121682-4547
lease, a royalty interest therein, or a mineral estate in fee, from
which mineral production is obtained -- all representing minerals in
200 Main Plaza. Suite 400 place. Minerals in place (and interests therein) are real property.
San Antonio, TX. 76205 See State v. Quintana Petroleum Company, 133 S.W.Zd 112 (Tex. 1939).
512/225-4191 The term does not include oil or other minerals after they have been
extracted from the soil and reduced to possession. Property of the
An Equal Opportunity/ latter type is tangible personalty, not realty. _See Sabine
Affirmative Action Employer Production Company V. Frost National Bank, 596 S.W.2d 271 (Tex. Civ.
APP. - Corpus Christi 1980, no writ); 38 Tex. Jur. 2d Mines and
Minerals 92, at 704; 42 Tex. Jur. 2d Oil and Gas 57, at 29.
In 1979, the legislature enacted the first title of a new tax
code, but until the new code takes full effect next year, a number of
older tax laws remain applicable. Generally, the code is to take
effect January 1, 1982, but some parts have already become effective.
p. 1363
Honorable Stephen Davidchik - Page 2 (MW-402)
See Acts 1979, 66th Leg., R.S., ch. 841, §3, at 2313. Among the
provisions which have already taken effect are section 11.01 and (to
the extent necessary to apply section 11.01) section 1.04 of the 1979
Property Tax Code. Section 11.01 declares that all real and tangible
personal property that this state has jurisdiction to tax is taxable
unless exempt by law. See also Tex. Const. VIII, §l ("All real
property and tangible personal property... shall be taxed....").
Section 1.04 declares "real property" to mean, among other things, "a
mineral in place."
Inasmuch as all mineral interests, producing or non-producing,
are real property, and inasmuch as all real property and tangible
personal property must be taxed unless it has been legally exempted
under the constitution, the fact that a mineral interest is
"producing" is not determinative of its status as taxable property,
although it will ordinarily have some bearing on the ease with which
its taxable value can be determined. See Property Tax Code 523.17
(appraisals of mineral interests not being produced). Similarly, the
value of a mineral interest is subject to tax whether the interest has
been severed from the surface estate or is still owned by the owner of
the surface. As noted in Erskine, Ad Valorem Taxation of Mineral
Property, 21 Baylor Law Review 46, 52 (1969):
Ordinarily realty in Texas is taxed as a unit
and the owner of both mineral and surface estates
pays but a single tax based upon the aggregate
value of both, but where the owner severs the
minerals from the remainder of the land by
conveyance, exception, or reservation, two
distinct estates are created, and each is subject
to separate taxation. Where there have been
severances of estates by conveyance, exception, or
reservation, so that one portion of the realty
belongs to one person and other portions to
others, each owner should pay taxes under proper
assessment against him on the portion owned by
him; the fact that a portion may consist of a
fractional interest in the minerals makes no
difference.
Consequently, we advise you that the watershed improvement
district tax is due for the current year on the value of all producing
mineral interests (as well as all non-producing mineral interests) in
lands not excluded from the boundaries of the district. See Sheffield
v. Hogg, 77 S.W.2d 1021 (Tex. 1934); State v. Downman,m S.W. 787
(Tex. Civ. App. - 1911, writ ref'd), aff'd 231 U.S. 353 (1913).
Whether producing or not, and whether severed from the surface
or not, mineral interests have been taxable as real property for all
p. 1364
.
Honorable Stephen Davidchik - Page 3 (MW-402)
the years the Choctaw Watershed Improvement District has been in
existence. See V.T.C.S. arts. 7145, 7146 (repealed by the 1979
Property TaxCode, Acts 1979, 66th Leg., R.S., chSta8t446,v§§6(a)(l),
6(d), at 2329, 2330); Sheffield v. Hog&, supra; . Downman,
supra. Until the new tax code takes effect January 1, 1982, any real
property discovered to have "not been assessed or rendered for
taxation for any year since 1870" should be listed and assessed for
those years by the assessor of taxes. V.T.C.S. art. 7207. See also
V.T.C.S. arts. 7208, 7346. When the new code becomes effective, the
period for which back taxes on real property may be assessed will he
statutorily limited to ten years. Property Tax Code 525.21. But see
Tex. Const. art. III, 555. Cf. Republic Insurance Company v. Highland
Park Independent School District, 171 S.W.2d 342 (Tex. 1943) (personal
property hack assessments).
In the absence of fraud or illegality hack taxes against real
property can he assessed 3 against property that was not assessed
or rendered in a prior year. See Property Tax Code 825.21; V.T.C.S.
art. 7207 (repealed by the 1979xoperty Tax Code); Yamani v. Gentle,
488 S.W.2d 839 (Tex. Civ. App. - Dallas 1972, writ ref'd n.r.e.);
Attorney General Opinion C-781 (1966). If property has been assessed
or rendered for taxation in prior years, it cannot be back-taxed for
those years even if the assessment or rendition failed to take into
account all factors that should have contributed to the valuation of
the land (such as minerals in place). Back taxes cannot he assessed
for those years because the assessment of the land necessarily
included an assessment of the mineral estate unless the mineral estate
and the surface had been previously severed. Humble Oil & Refining
Company v. State, 3 S.F!.2d 559 (Tex. Civ. App. - Waco 1927, writ
ref'd). S:ee Victory v. Hinson, 102 S.W.2d 194 (Tex. 1937). Cf.
Property Tax Code $24.12 (omitted intangible value of transportation
operations). See also Erskine, supra.
We therefore advise you that the watershed improvement district
tax is to be assessed and collected for prior years on the value of
producing or non-producing mineral interests that escaped taxation in
those years. A mineral interest will not be considered as having
escaped taxation for the year, however, if (1) it had not been severed
from the surface estate prior to January 1 of that year, and (2) the
surface estate was rendered or assessed for that year. -
SUMMARY
The Choctaw Watershed Improvement District
tax is to be assessed and collected for the
current year on the value of producing and
non-producing mineral estates, whether severed
from the surface or not, located within the
district. Back taxes are to he assessed and
p. 1365
.
Honorable Stephen Davidchik - Page 4 (MW-402)
collected for prior years on the value of all
producing and non-producing mineral estates that
escaped taxation in prior years. A mineral
interest will not be considered as having escaped
taxation for the year, however, if (1) it had not
been severed from the surface estate prior to
January 1 of that year, and (2) the surface estate
was rendered or assessed for that year.
%a
M A R.K WHITE
Attorney General of Texas
JOHN W. FAINTER, JR.
First Assistant Attorney General
RICHARD E. GRAY III
Executive Assistant Attorney General
Prepared by Bruce Youngblood
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
Susan L. Garrison, Chairman
Jon Bible
Jim Moellinger
Bruce Youngblood
p. 1366