Untitled Texas Attorney General Opinion

March 10, 1954
Hon. Tom Moore, Jr. .Opinion No. S-124
District Attorney
McLennan County Re: Ad valorem taxation of
Waco, Texas military housing units
constructed and main-
tained on James Conally
Air Force Base by pri-
Dear Sir: vate corporation.
In your letter you request the opinion of this office
as to State and local ad valorem taxation of a military housing
project constructed on James Connally Air Force Base in accord-
ance with the provisions of the Act of August 5, 1947 (10 U.S.C.
1270) and Title VIII of National Housing Act as amended (12 U.S.
C. 1748-1748h), by the Cavu Village Homes, Inc., a private corpo-
ration, the lessee.
We have a photostatic copy of the lease executed by
the Government and the lessee.
The lease provides that the Government will lease
the described land for 75 years to the lessee to be used for erect-
ing, maintaining and operating the housing project. Lessee is to
pay the Government an annual rental of $100.00. Provision is
made for obtaining mortgage insurance under Title VIII of the
National Housing Act. The lessee is required to lease all units
of the housing project to such military and civilian personnel of
the Army, Navy, Marine Corps or Air Force (including Govern-
ment contractors’ employees) assigned to duty at the military in-
stallation or in the area where the installation is located as are
designated by the Commanding Officer. In the event the Command-
ing Officer fails to designate such personnel within a stated period,
and upon other stated conditions, the lessee may lease the units to
persons other than said military or civilian personnel. Detailed
provisions cover leasing agreements made by the lessee.
The eighth covenant and condition of the lease contract
reads, in part, as follows:
“8. That the Lessee shall pay to the proper
authority, when and as the same become due and pay-
able, all taxes, assessments, and similar charges
Hon. Tom Moore, Jr., page 2 (S-124)
which, at any time during the term of this Lease,
may be taxed, assessed or imposed upon the Gov-
ernment or upon the Lessee with respect to or up-
on the leased property. In the event any taxes, as-
sessments or similar charges are imposed with
the consent of the Congress of the United States up-
on the property owned by the Government and inclu-
ded in this Lease (as opposed to the leasehold inter-
est of the Lessee therein), this Lease shall be rene-
gotiated so as to accomplish an equitable reduction
in the rental provided above, which shall not be great-
er than the difference between the amount of such
taxes, assessments or similar charges which were
imposed upon such Lessee with respect to his lease-
hold interest in the leased property prior to the
granting of such consent by the Congress of the
United States. . . .”
At the expiration of the lease all improvements made
upon the premises and all items required to be furnished by the
lessee are to remain on the leased premises and be the property
of the Government without compensation.
Use and occupancy of the leased premises are subject
to such rules and regulations as the Commanding Officer shall pre-
scribe for military and security purposes. After there is no Federal
Housing Insured Mortgage on the property and the leased premises
are no longer under the control of the Federal Housing Commission-
er, the lessee and the Commanding Officer are to agree on mainten-
ance and repair standards.
The Government has the right after the expiration of
fifty years and six months to terminate the lease provided the inter-
est of the Federal Housing Administration in the lease and in any
mortgage on the leasehold interest has been fully terminated. After
there is no mortgage held or insured by the Federal Housing Admin-
istration on the leasehold estate, and the leased premises are no
longer under the control of the Commissioner, all disputes concern-
ing establishment of rental rates shall be decided by specified parties.
If other provisions and conditions stated in the lease, are
material to a determination of your question, we shall take note of
the same in the course of our opinion.
This office has heretofore rendered an opinion upon this
question on substantially the same facts. (Op. No. V-1251.) We have
for the purpose of this opinion adopted the statement of facts as stated
- .
Hon. Tom Moore, Jr., page 3 (S-124)
above upon which Opinion No. V-1251 was predicated. We have made
only such changes as necessary to conform to names, dates, etc., as
we are not able to improve on this statement of the pertinent facts.
Opinion No. V-1251 is overruled only insofar as it may
be in conflict with this opinion which is ‘confined to the facts present-
ed in this request.
We do not think a deed of cession by the Governor pursu-
ant to the authority granted by Article 5247, Vernon’s Civil Statutes,
when construed in connection with other pertinent statutory provisions,
both federal and state, serves to render federal immunity from taxa-
tion so static and unyielding as to foreclose ad valorem taxation by
the State and its taxing political subdivisions upon all property located
upon the ceded premises. This was not the intention of the Legislature
or of Congress. The contracting parties here are the United States
acting by its duly authorized representative as lessor and a private
corporation incorporated under the laws of this State, Cavu Village
Homes, Inc. as lessee. The contracting parties contemplated the im-
position of taxes by the State and its political subdivisions notwithstand-
ing the deed of cession by the Governor, or at least the possibility of
such taxation. This is manifest by paragraph 8 of the lease quoted
above. We do not think it can be seriously contended that the Cavu Vil-
lage Homes, Inc., the lessee, is owned and controlled by the Federal
Government, or is in any sense a ‘Federal instrumentality,” and for
that reason enjoys federal immunity from taxation. What is said by
the Supreme Court of Florida in the case of Gay v. Jemison, 52 So. 2d
137 (1951), in passing upon the application of certain taxes imposed
under Florida law upon a similar housing project erected upon a mili-
tary reservation in that State is likewise applicable here. In that case
the Court said:
“Comparing the probable useful life of the
buildings with the time for which the lease is to ex-
tend, the question immediately arises in one’s mind
whether the useful life of the buildings will not have
ended by the time the lease expires. We have already
said also that the buildings are for the ‘primary’ use
of military personnel. It may be assumed that this is
the chief purpose of the installation; however, the
lease contains the statement that the property may be
occupied by civilian as well as military personnel of
the army, marine corps, and air force; and, further,
that upon failure of the commanding officer of the field
to designate persons of those classifications to tenant
any units within a certain length of time after they be-
come vacant, the lessee may then rent to parties who
. -
Hon. Tom Moore, Jr., page 4 (S-124)
do not fall in any of these categories.
‘It is an obligation of the lessee to comply
with all ordinances with reference to licenses
and permits to do business and it is its privilege
to engage public utility companies to provide water,
fuel, telephone service, and electric power for the
use of the occupants of the units. The lessee is
bound to maintain the property in a state of good re-
pair and to save the government harmless against
all actions and suits springing from any failure in
this respect.
“The lessee is required at its own cost to in-
sure the buildings and to restore any of them damag-
ed by fire, but tf a building is wholly destroyed, then
the lessee has the right to determine that the building
shall not be reproduced.
“The lessee must pay ‘all taxes, assessments,
and similar charges which, at any time during the
term of (the) lease, may be taxed, assessed or im-
posed upon the Government or upon the Lessee with
respect to or upon the leased premises.’
“The bare title of the property, of course, re-
mains in the United States government, and for its
use the government receives but $100 a year.
“Bearing in mind what we consider the evident
intent of the Congress of the United States, and con-
struing the language of the contract between the GOV-
ernment of the United States and the lessee, we can-
not arrive at the chancellor’s conclusion that this
housing project when completed will be a public work
owned by the United States Government.
“It is true that the government, through its mili-
tary, retains a certain supervision over the area where
the proj~ect is located and has a preference with refer-
ence to accommodations for its personnel, but taken
as a whole, the arrangement is in reality one afford-
ing a source of income to the lessee, and we think it
is obvious that any money withheld from the state by
applyrng the exemption would not benefit the nattonal
exchequer but would reach the pockets of private citi-
zens. The corporation borrows the money, takes the
Hon. Tom Moore, Jr., page 5 (S-124)
risks, bears the cost of maintenance and insurance,
receives the income from rentals, and in case of
total destruction of a building by fire, keeps, if it
chooses, the money paid by the insurance company
to cover the loss. The corporation must pay the
debt it incurs to finance the installation, and cer-
tainly any profit for a period of seventy-five years
belongs to it. Meanwhile as a part of its expenses
there is the nominal payment of $100 a year to the
government as lessor.
“We believe the Comatroller’s uosition is cor-
rect and that the materials furnished by the contrac-
tor will not become a part of a government work but
of buildings of a private enterprise, and therefore-
are subject to state tax. . . .”
The immunity of the Federal Government from State
taxation of its property and instrumentalities must be given a
practical application to attain its purpose, but without unnecessary
interference of the right of taxation. Federal immunity from taxa-
tion is personal to the Government and may not be transferred to
or be used for the protection of citizens or private corporations.
In other words, as applied to the problem here, the Federal Govern-
ment may not confer its immunity upon the Cavu Village Homes, Inc.,
a private corporation. Ken Realty Co., Inc. v. Johnson Tax Assessor
of Jefferson County, Ala., 138 F.2d 809 (1944). The mere fact that a
private corporation conducts its business under a contract with the
United States does not make it “an instrumentality of the United States”
immune from State taxes. Buckstaff Bath House Co. v. McKinley, 60
S. Ct. 279, 308 U.S. 358, 84 L. Ed. 322 (1939).
Article 5247, which authorizes the deed of cession by the
Governor, and Article 5248, which accords a conditional exemption
from taxation of land ceded, are part of the same Title 85 of the Re-
vised Civil Statutes and should be construed together. They should
not be construed in such a manner as to defeat the legislative intent
or the intention of Congress embraced in the Federal Housing Act.
We think it quite manifest that a private corporation, such as Cavu
Village Homes, Inc., under the facts here presented is subject to ad
valorem taxation under the laws of thin State upon the leasehold in-
terest of such private corporation. Article 5248, as amended by
chapter 37, Acts of the 51st Legislature, First Called Session, 1950,
page 105, now reads as fo1Iows:
“The United States shall be secure in their pos-
session and enjoyment of all lands acquired under the
Hon. Tom Moore, Jr., page 6 (S-124)
provisions of this title; and such lands and all im-
provements thereon shall be exempt from any taxa-
tion under the authority of this State so long as the
same are held, owned, used and occupied by the
United States for the purposes expressed in this
title and not otherwise; provided, however, that any
personal property located on said lands which is
privately owned by any person, firm, associatron
of persons or corporation shall be subject to taxa-
tion bv this State and its political subdivisions; and
provided, further, that any portion of said lands and
improvements which is used and occupied by any
person, firm, association of persons or corporation
in its private capacity, or which is being used or
occupied in the conduct of any private business or
enterprise, shall be subject to taxation by this State
and its political subdivisions.”
The Governor’s deed of cession must be construed with-
in the limits of this statutory provision, and the terms of the statute
will be read into the deed of cession. When this is done, the lease-
hold interest which is privately owned must be rendered for taxation
by the State and its political subdivisions.
As to contracts with respect to performance of certain
acts orescribed bv statute. it is the well settled rule in Texas that the
contract and statute will be construed together. Empire Gas & Fuel
Co. v. State, 121 Tex. 238, 47 S.W.Zd 265. The statute becomes a
part of the contract whether specifically incorporated therein or not.
Pearson Lumber Co. v. Cooper, 54 S..c.2d 231-(Tex.Civ.App., 1932,
error ref. ) . It is therefore quite apparent that the deed of cession
by the Governor when construed in connection with the provisions of
Article 5248, supra, the lease contract, and the acts of Congress
does not have the effect of ceding unconditionally the State’s taxing
power. It will not be presumed that the Legislature intended for the
Governor to relinquish any more of the State’s sovereign power of
taxation than necessary. Moreover, it is clear that Congress intend-
ed this property held by the corporation under its lease from the
Federal Government to be subject to State ad valorem taxes. In the
Federal Housing Act it is specifically so provided.
An examination of the lease in question from the Secre-
tary of the Air Force to Cavu Village Homes, Inc., of date March 22,
1952, discloses:
(a) The lease was executed under authority of the Act
of August 5, 1947 (10 U.S.C. 1270), and Title VIII of the National
Hon. Tom Moore, Jr., page 7 (S-124)
Housing Act as amended (12 U.S.C. 1748-1748h).
(b) Paragraph eight of the lease expressly provides
‘that the Lessee shall pay to the proper authorities when and as the
same become due and payable, all taxes, assessments, and similar
charges, which, at any time during the term of this lease, may be
taxed, assessed or imposed on th95 A.2d 280 (Md.Ct.App.l953), in which the
court was considering a lease similar in many respects to the lease
here involved. In this case the court said:
‘The lease between the Secretary of the Army,
representing the Federal Government, and Meade
Heights, Inc. provided for the lease of 28-l/2 acres
of land in Fort Meade, to be used for the erection of
348 housing units by the lessee, according to approved
plans. It was made under the authority of Public Law
364, 80th Congress, passed in 1947 and codified as
Title 10 U.S.C.A. 51270, which authorized the Secre-
tary of the Army ‘to lease such real or personal prop-
erty underthe control of his Department . . . to such
lessee or lessees and upon such terms and conditions
as in his judgment will promote the national defense
or will be in the public interest.’ Sec. 1270d provides
that the ‘lessee’s interest, made or created pursuant
to the provisions of sections 1270-1270d of this title,
shall be made subject to State or local taxation.’
Title 12 U.S.C.A. 31748 et seq. passed two years later,
Hon. Tom Moore, Jr., page 8 (S-124)
established a system of mortgage insurance to en-
courage private interests to build and operate hous-
ing projects on military reservations. To be elig-
ible the mor,tgagor had to be approved and to agree
to restrictions as to sub-rents and tenants who were
to be primarily military personnel.”
It is quite apparent, it seems to us, that the Federal
Government as lessor approved the lessee’s leasehold interest sub-
ject to ad valorem taxes imposed under our law, otherwise there
would have been little reason to insert paragraph 8 in the lease
which made the lessee liable for all taxes that might be imposed
under our state law. There is little, if any, difference in the prob-
lem that was before the court in the case of Meade Heights, Inc. v.
State Tax Commissioner, supra, and the problem before us. The
Maryland law, as does ours, provides for taxation of leasehold es-
tates. Our law has a qualification that the lease must extend for
three years or more and the lease here in question extends quite
beyond the useful life of the buildings constructed by the lessee.
Out statute which provides for the taxation of leasehold interests
is Article 7173, V.C.S., and Article 7174, V.C.S., provides the meth-
od of ascertaining the value. It is expressed in this language: “tax-
able leasehold estates shall be valued at such price as they would
bring at a fair voluntary sale for cash.” We quote further from the
case of Meade Heights, Inc. v. State Tax Commissioner, supra,
which we think is appropriate here:
“Coming to the main point, it is perfectly
clear that, in the absence of congressional consent,
express or implied, a State cannot impose a direct
tax upon property owned by the Federal Government
or held for it. John Hopkins Univ. v. Board of Coun-
185 Md. 614, 45 A.2d 747; United States
? Ezmoi?;legheny County, Pa., 322 U.S. 174, 64 S.
Ct. 908, 88 L. Ed. 1209. But it is equally clear that
private interests in government property are taxable
to their full value. Baltimore Dry Dock Co. v. Balti-
more City, supra; S.R.A., Inc. v. State of Minnesota,
327 U.S. 558, 66 S. Ct. 749, 90 L. Ed. 322; New Bruns-
wick v. United States, 276 U.S. 547, 48 S,Ct. 371, 72
L. Ed. 693. In the instant case, Congress has definite-
ly consented to the taxation of the lessee-s interest.
whatever that may be. It can only complain if, in fact,
its reserved interest is subJect to taxation.”
See, also, the case of Byram Holding Company v. Bogren, 63 A.2d
822 (N. J. S.Ct., 1949), which holds that the Federal Government by
Hon. Tom Moore, Jr., page 9 (S-124)
its lawmaking power may waive wholly or with such limitations
as it may deem proper, its immunity from State taxation.
In other words, where Congress waives the tax im-
munity of the Federal Government and agrees that such property
may be subject to taxation by the State in which it is located, such
taxes may be imposed. Such is the situation we have here, but with
a more cogent reason as to why the leasehold interest held by the
private corporation under its lease from the Federal Government
should be subject to ad valorem taxation under the laws of this State.
The Federal Government has consented to the imposition of State
taxation by the express covenant of the lease contained in paragraph
8 quoted above, and Congress has in the Federal Housing Act ex-
pressly authorized ad valorem taxation upon the leasehold estate
under the laws of our State.
We therefore hold that the leasehold interest of the Cavu
Village Homes, Inc., is subject to ad valorem taxation under the laws
of this State. (Emphasis throughout supplied by the writer.)
SUMMARY
The leasehold interest of a private corporation
which erected a housing project on a military reserva-
tion, over which the State ceded jurisdiction to the Fed-
eral Government after March 17, 1950, pursuant to the
authority of the Act of August 5, 1947 (U.S.C. 1270), and
Title VIII of the National Housing Act as amended (12 U.
S.C. 1748-1748h), is subject to State ad valorem taxes.
Yours very truly,
APPROVED: JOHN BEN SHEPPERD
Attorney General
W. V. Geppert
Taxation Division
John Atchison
Reviewer
Assistant
Mary K. Wall
Reviewer
Robert S. Trotti
First Assistant
LPL:mg