Untitled Texas Attorney General Opinion ( 1967 )

Honorable Robert S. Calvert
Comptroller of Publie Accounts ,!
State of Texas
Austin, Texas
Opinion No. M-109
Rer Uhether oil and gas produced
under an 011 and gas lease
eKeouted by the United States
to a private party leasee and
covering lands over which the
United State8 has ex%2uSive
jurisdiction are subject to
the gae and oil production
taxee levied by Articles 3.01
and 4.02, respectively, Title
122A, Taxation-General, V.C.S.,
~ and the regulation pipeline tax
Dear Mr. Calvert: imposed by Article 6032, P;b.S.
You ask my opinion ai to whether the o%i and-gas btio-
duced from land within the Federal enclave, commonly known
as the Corpus Chrlstf, Texas, Naval ASP Statfon, are subject
to the Texas gas and oil produotion taxes and the regulation
plpellng tax.
The gross production taxes in question are Imposed by
Articles 3.01 and 4.02, respectively, Title 122A, Taxation-
General, Vernon's Civil Statutes; the regulation pipeline tax
In question is imposed by Article 6032,, Vernon's Civil Statutes.
Our opinion Is that the of1 and gas produced, other
than the 16-2/3 per cent thereof whfch is payable as royalty
to the lessor, the United States, .%;s subject to these taxes.
The land in questfon,was.?aequlred by the United States
by condemnation purauant to'APtfsles 5242, 5247 and 5248,
Vernon's Civil Statutes, by judgment dated July 5, P940, in
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Honorable Roberts S’. Calvert, Page’.2 (R-109) .’
the Dietriot Court of the Unlted Statesfor the Southern District
of Texas, Corpus Christ1 Dlvislon. We assume the fee simple title
was acquired.
*
Subsequently g> on December
-”’ 12, 1940, pursuant to Articles
5242, 5247 and 524 Vernon’s Civil Statutes, the Governor of
Texas aeded to the kited States exclusive jurisdiction over said
land for so long as the land should remain the property of the
Uni’J;ed,States,cprovlded however that, the State retained concurrent
jurladlction forexecution of all civil and criminal processes upon
any~pereon upon sa$d land. The deed further provides that,
n The United States of America
@hall be*e&ure in Its possession and enjoy-
lsnt o? all said lands, and said lands and
Jurisdiction dver~ said land was formally accepted on behalf of
the United States.
Thereafter,~ on Decembe; 1, 1962, the ‘United States~of
America executed’ to Humble ,011 6t’Refining Co. ,an:‘.oll?.and gas lease
covering the.land ,under consideration.. The lessee has, informed
us that all of the lands under consideration from ,whlch production
is had are on the mainland, thatnone of them are submerged lands
or tidelands. r’
The pertinent provlslons.of this lease are as follows:
The form used Is styled a ‘Protective Gal and
Gas Leas&.* h ir’
2.
The lease, at its Inception,
‘reads ,a? follows:
n,,;;.
“TRIS L?%ASE,entered into . . . by;and
between the United States of America, . e .
Honorable Robert S. Calvert, Page, 3 (M-W)
hereinafter called the leasoy, and Humble
;Oll and Refining Company, . e O hereinafter
called the lessee, . * .
"WITNESSE!lW:
"Sec. 1. Rights of lessee. In considera-
tion of rents and royalties to be paid, and the
conditions and covenants to be obsdrved as herein
set forth, the lessor does hereby grant to the
lessee the exclusive right and privilege to drill
for, mine, extract, remove, and dispose of all the
oil,and gas deposits owned by the lessor, except
helium gas,, in 6r under the following described
land . . . i
3.
The term of the lease is stated as:
11 for a period of five y&Fs and so
long thdreafter as oil or gas Is $roduced In
paying quantities: . . ."
4.
The lease contains the further graqt:
as otherwise provided and
n
Except
subject to the conditions herein specified,
the lessee shall have the, right to construct
and maintain upop the leased lands all works,
buildings, plant$; waterways, roads, telegraph
or telephone lines, pipe lines, reservofrs,
tanks, pumping stations. or other structures
as ma? be necessary to ihe ~f&l enjoyment of
this lease,"
5.
Section 2, styled "Th& lessee hereby agrees:"
contains the following relevant provisions:
"(d) Rentals and royalties. (1) To pay
annual rentals and royal:ties on production
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Honorable Robert S. Calvert,~Page 4 (M-$09)
under this&ease as provided i';t Attachment
B which is made a part hereof.
Attachment B provides for a~royalty of 16-2/3
per cent of the produ6tion to the lessor:
"(k) ~Taxes and wages, freedom of'purchase.
To pay when due, all taxes lawfully assessed
and levied under the laws of the State or the
United States upon improvements, oil, and gas
produced from the lands hereunder or other
right:, property, or assets of the Lessee;
. . .
Articles 3.01 and 4.02 impose an occupation tax.on the
business of producing;gas and oil, respectively, within this
State. Article 6032,:commonly known as the Regulation Pipeline
Tax, imposes a tax,,upon each~ barrel,of crude petroleum produced
within this State which shall be in addition to and col-
lected in the same r&&r as the, present gross, receipts produc-
tion tax on crude petroleum. 1( These taxes are occupation
taxes. Group No. 1,0&l Corpo~ab& v. Sheppard, 89 S.W.2d 1021
A 1935 error ref )* St ate v. Humphrey, 159 S.W.2d
:::X&%:::App. i942). ; '
The 011 and gas lease 'conveyed to Humble, the lessee,
a present determinable fee estate an all of the 011 and gas
(except helium gas) In and under the lands covered by It. The
above quoted provisions of the lease, and Its other relevant
orovlslons. are analonous in law to the provisions of the oil
and gas lease considered in v. Rid-Kansas 011
& Gas Co., 113 Tex. 160, 254 29 A . L . R . bob
This case and the unbroken 1 &ent decisions*of
our Texas courts following It are unequivocal to the effect that
this type of oil an8. gas lease 1s a present sale or conveyance
of real property and operates to.transfer thetoll and gas in
place In the premises described therein and to sever those minerals
from the surface. 42 Tex.Jur.24 368, Oil and Gas, Sec. 175, and
the pages and sections following*and;particularly the cases cited
at page 369, note.1.
Decisions of our State Supreme Court have established that
an Interest in minerals In place,,and an interest in royalty are
separate and distinct estates in land. Pith v. Lankford, 157 Tex..
335, 302 S.W.2d 645 (1957).
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Honorable Robert S. Calve&, Rage 5 (n-%09)'
Under both the relevant constitutional provisions land
the three tax statutes underconsideration the royalty payable
to the United States Is exemnt from the taxes under consldera-
1 Oil Corporation v. Sh , supra; Thelson
T 4m 6 S W 2d b4b ; Group No. 1 Oil
a::*283 6.s. 275 (1931).
It 1s the conclusion of this office that the oil and gas
produced which is allocable to the lessee la subject to the taxes
under consideration. Under the cession deed by the State of Texas,
the lands~remalned tax exempt only "so.long a.8 the same are held,
owned, used, and occupied by the United States of America." It
is clear from the lease by the Federal government to Humble the
mineral lands are not in legal'contemplation of law either 'held"
or 'owned" or "used" or 'occupied" by the government, whose m
interestis in theroyalty aforesaid. When the mineral Iands
are no longer used for a,~federal purpose or there has been an
occurrence of the circumstances specified In the state cession,
exclusive jurisdiction is terminated.
In S.R.A. Inc. v. Minnesota, 327 U.S. 558 (lg46), the Supreme
Court held that when a purchaser entered Into possession of real
estate under Its contract of purchase of the fee title that the
property became subject to the terrltorlal jurlsdlction of the state
wherein it was located and was subject to a direct tax by the state
on the realty. Under the contract of sale, legal title was retained
In the United States until payment of the balance of the purchase
price in InstalIments. The contract contained no express provision
re,taining sovereignty in the United States; there was no express
retrocesslon by Congress to the atate ; and the original act of ces-
sion of sovereignty over the property to the United States contained
no requirement for return of sovereignty to the state when the prop-
erty was no longer used for federal purposes. This case cites and
follows New Brunswick v. United States, 276 U.S. 547 (1928). In
both cases, the Court held that the equity situation was one wherein
the United States had conveyed title to the purchasers, as,owners,
and they had mortgaged the real estate to.,~the United States to r
secure the unpaid purchase money.
Two other cases by the Supreme Court of the United States
have directly held that the estates granted by 011 and gas leases
were subject to taxation by.the states. The first, Oklahoma Tax
Commission v. Texas Company 336 U.S. 342 (1949). considered
whether a lessee of minerar'rlghts ln,certaln Indian lands in the
Honorable Robert S. Calvert, Page 6 (M-%09)
State of Oklahoma was subject to %he payment of nondiscriminatory
state gross production taxes and state excise taxes on petroleum
produced from such lands. The excise tax was very similar to the
Texas gross production taxes under consideration. It was at the
rate of one mill per barrel on every barrel of petroleum produced
In Oklahoma. The Oklahoma Supreme Court construed it as an excise
tax on the prodtiction~ of oil. The Court held that under Oklahoma
law the lessees became the owners of all the right, title and in-
terest in the minerals in theireases, subJect only to the royalty
interest reserved to the Indian lessors and that they were liable
for the taxes. The Court said:
II it is well established that proper-
ty p&h&ed by a private person from the
Federal Government becomes a; part of the gener-
al mass of property in the state and must bear
its ,falr share of the expenses of local govern-
ment. . . ." (at page 353).
In the second case, Group No. 1 Oil Corporation v. &SB,
supra, the Court had under consideration oil and gas leases grant-
ed by the State of Texas to a private corporation for a term of
years, with the right to enter on the lands of the state public
domain for the purpose of drilling and operating for oil and gas
and to erect and maintain all necessary structures for the pro-
duction, transportation and storage of these products, and which
required the lessee or owner of these rights conveyed to pay the
State the value of a certain percentage of the oil and gas pro-
duced and,sold, The Supreme Court reoognlzed and followed the
construction of the Texas Supreme Court bo~:Che;effe~t that such
leases had effected present sales to the lessee of the oil and
gas in place. The Court held:
"This Court has consistently held that
where property or any interest lnit has
completely passed from the gcvemment to Y:
the purchaser, he can claim no immunity from
taxation with respect to it, merely because
it was once government-owned or becan$e the
sale of it effected some g@ernment purpose.
New Brunswick v, ,Unfted Shkes, supraj Forbes
v. Gracey, supra; Tucker v* Fergnson, supra,?
see Gromer v. Standard Dredging Co., 224 U.S.
362, 3718.. Choctaw, 0. & G, R, Co, v. Maokeg,
256 U.S. 531, 537; Central Pacific R. Co. v.
California, 162 U,S, 91, 125; Railroad Co.
v. Peniston, 3.8 Wall. .5 35-37; Weston v.
Charleston, sipra. p. 46s.
d
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.
Honorable Robert S. Calvert, Page 7 (M-109)
"Property which has thus passed
from either the national or a state:.
government to private owner&&p becomes
a part of the common mass of property.
and subject to its common burdens.
Denial to either government of the
power to tax it, or income derived
from it, in order to insure some remote
and indirect antecedent benefit to :the .'
other, would be an encroachment of:'the
sovereign power to tax, not justified
by the implied constitutional restric-
tion. See Weston v. Charleston, supra.,
Q. 468. The interest which passed to::'.
petitioner here, as defined by the J.aws
of the State, is not distinguishable :
from the mining claims, acquired in
lands of the United States under its
statutes, which, together with minerals
and ores derived from them, were held
subject to sta;e taxation in Forbes v.
Gracey, supra. (at pages 2.82-283)
Humble, as lessee, has accepted from the Federal govern-
ment the conveyance of a present determinable fee in the oil and
gas and mineral estate in the lands. Under the foregoing cases,
the sovereign power of the State of Texas to impose the taxes
under consideration seems to be established.
The case of Oklahoma Tax Commission v. Texas Company
supra, fs conclusive agalnst any immunity of the lessee. in
that case, the Court said,
I,
a The taxes here are nondfs-
e .
criminatory. The respondents are 'private
persons' who seek immunfty 'for their prop-
erty or gains because they are engaged in
operatfona under a government contract or
lease.' The functions they perform in
operating the leases are hardly more govern-
mental fin character than those performed
by lessees of school lands or, indeed, by
many contractors with the Government. n *' *'
(at page 363)
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. . ,
Honorable Robert S. Calvert:,Page 8 (?&lo?)
11
. * . . .
”
But, so far aa concern8 private
person8 claiming immunity for their ordinary
business operations (even though in connec-
tion with governmental activities), no implied
constitutional immunity can rest on the merely
hypothetical interferences with governmental
functfons here asserted to sustain~exemption.
. . . (at page 365)
It is also pertinent that the Court .could find no statutory
immunity to imposition of the taxes.
We are aware of that line of! decisione.represented by
the case of Humble Pipeline Co. v.lWaggoner,:-376 U.S. 369 ~(1964),
which would denv imoosltion of the taxes because of the continu-
ing;exclusive jurisdiction of the United States over the lands
covered by this oil and gas lease. This last mentioned case con-
sidered an oil and gas lease on lands in Louisiana. It denied
authority to the State of Louisiana to levy ad valorem taxes upon
pipelines and other pers.onal property equipment used by a private
person who was lessee under an oil and gas lease covering lands
on which Barksdale Air Force Base was located and on which lands
the State of Louisiana had:ceded to the United States exclusive
jurisdiction, except for right to execute certain civil'and crimi-
nal processes. The deed to ,the United States was for a fee simple
estate in the lands. This ease and our holding in this opinion
are distinguished on the basis of the nature of th& estate granted
to a mineral lessee under an oil and gas lease in Louisiana and in
Texas.
In Louisiana, a mineral lease is held to be merely a con-'
tract which permits theme lessee to ~explore for minerals on the
land of the lessor in consideration of the payment of a rental
and/or bonuses. It is well settled that it is not in essence a
real rimht: it does not create substantive real ri8ht8 in the land
leased.- Tinsley v. Seismic Fxploratidns', Inc., 117 So. 2d 897, (La,
Sup. 1960 ; see also Summers, Oil' d G Permanent Edition Vol.
lo, p. 470-485, set, 167, also at p"tgesa286g-303, sec. 132-136.
The distinction between the eases relied upon to support
our opd.ntnl'onand the ease of Humble Pipeline Co, v. Waggoner, supra,
is well stated in Kingwood Oil Company v. Henderson County &ard
of Supervisors, 367 S.W,2d 129 (Ky. Ct. of App. -- Court of last
. .
Honorable Robert S. Calve&,' Page 9 (M-109)
resort -: 1963), wherein the Court in'~oonsiderlng S.R.A., Inc.
v. Minnesota, supra, sald:,~
'We think there is sound, reason for saying
that if the United States conveys away a por-
tion of the territor over which it has juris-:,
diction therd e no'~reason for the juris-
diction to continue over that portion. But
the same is not true where the United States
conveys some right less than a fee. In that
case valid reason may exist for a continued
exercise of federal jurisdiction overthe
territory," (Emphasis by the court.) (at p.
132)
In that case, the mineral lease under the law of Kentucky is
held not to convey the equivalent of a fee to the minerals with a
complete severance as in Texas. See lA, Summers,011 and Gas,410,
Sec. 160. The distinction above drawn seems to be the basis on
which the United States Supreme Court distlngulshed its holding
In S:R;.A:,:.,Incl,~'~v: Minnesota; 'supr$,'and, ite``holdtn$~:in Humble
Pipeline Co. v. Waggoner; supra, made Inthe latter case-pages
2 d 373 h i the court distinguished between a sale of
landa&er whi~he``enUnited States had exclusive jurisdiction and
the lease of that property fo,r commercial purposes, or for farm-
ing, or for the conveyance of a mere right of way.
The recent case of Adams v. Calvert, 396 S.W.28 948 (Tex.
SUD. 1965)
- -. is also distinguishable in that the government had in
no-way terminated its jur?sdlct~ion over the reai estate, and under
the terms of the cession deed by the State, the State remained
powerless to impose the taxes there involved.
SUMMARY
The oil and gas lease executed by the United
States covering lands over which it had exclus-
ive jurisdiction, except, forthe right of Texas
to execute civil and criminal process,toa pri-
vate party lessee, subjected the oil and gas
produced, other than the royalty payable to the
United States as lessor, to the oil and $as pro-
duction taxes Imposed by Articles 3.01 and 4.02,
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,,;~.. . *
(_ !
Honorable Robert S. Calvert, Page 10 (M-109) *'
respectively, Title 122A, Taxation-Qeneral,
Vernon's Civil Statutes, and the regulation
pipeline tax Imposed by Article 6032 of said
statutes.
-'~:The royalty interest payable to the United
States is exempt from these taxes.
,:' ey General of Texas
Prepared .by W. E. Allen
Assistant Attorney General
APPROVED:
O~IMIOH CCMHIT'TBE
Hawthorne Phillips, Chairman
Kern&B. Taylor, Co-chairman .I
Houghton Brownlee
Linward Shivers
Jack Goodman
Lewis Berry
STAFF LEGALASSISTART
A. J. Carubbi, Jr.
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