Untitled Texas Attorney General Opinion ( 1967 )

August 17, 1967
Honorable George A. Day Opinion No. M-129
County Attorney
Brown County Re: Whether a Municipal Gas
308~ North Broadway Corporation, created as
Brownwood, Texas a non-profit corporation
to serve a municipality,
is exempt from city, State,
Dear Mr. Day: county and school taxes.
We quote the following excerpt from your letter re-
questing the opinion of this Office on the above captioned
matter:
"The Brady, Texas, Munidipal Gas Corpo-
ration has claimed exemption from ad valorem
taxation for county, city and school pur-
poses. The question to be determined is
whether or not from and after January lst,
1967, the natural gas utili.ty ser,ving the .
City of,Brady, Texas, and its environs will
be subject to ad valorem taxation by Brown
County, Texas, and for city and school pur-
poses?
"On September 24, 1965, the City Council
of the City of Brady, Texas, adopted a rasolu-
tion requesting five Individuals to act as
initial directors of a corporation to be estab-
lished (under the Texas Non-Profit, Corporation
Act) for the purpose of acquiring the existing
natural gas utility system operating within the
City of Brady and its environs.
"The Corporation was established under the
name 'BRADY, TEXAS, MUNICIPALGAS CORPORATION.'
The Articles of Incorporation were filed In the
office of the Secretary of State on November.12,
1965. The Articles read in part as follows:
"'The purpose or purposes for which the
corporation is organized is to promote the pub-
lic interests of the City of Brady, Texas, by
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Honorsble ffeorge A. Day, page 2 (M-129).
*
constructing, acquiring, owning, leasing and
operating municipal natural gas utility faclli-
ties in behalf of and for the benefit of the
City of Brady, Texas, and Its Inhabitants.
All properties of the corporation shall
be’f& the use’and benefit of the public and
no part of the income or~revenues of the cor-
poration shall ever be paid to or Inure to the
beneflt of any director or officer of the cor-
poration except for reimbursement of actual,ex-
penses incurred in connection with the business
affairs of the corporation. . . .Nothlng here,-’
in shall prohibit the employfilent of a general ..
manager In accordance with the provisions of
Article 1396-2.24 of the Texas Non-Profit Cor-
poration Act. Upondissolution or liquidation
of the corporation after satisfaction of all
debts and claims) i sic7 shall be distributed, 5
transferred and conve?ed to or for the benefit
of the City of Brady, Texas.’
“A franchise has been granted to the Cor-
poration for the use of public streets, alleys, :
public grounds, etc. by the Corporation. The
franchise contains a provialon whereby at any
time the City may purchas,e the properties of the
Corporation by paying the indebtedness of the Cor-
poration in the manner prescribed. This pro-
vision is intended to provide a procedure where-
by the City may acquire full legal and equitable
title to the properties at any time it desires
to do so. The franchise with the City pro-
vides for &Lain payments to be made the City ~~
in lieu of all other taxes. . . .
“The phrasing of this portion of the fran-
chise is attempted compliance with Article 1038,
V.A.T.C.S. which reads as follows:
“‘The City Council may, by ordinance,.pro-
vide for the exemption from taxation of such
property as they may deem just and proper.’
!The Indenture of Mortgage and Deed of’
Trust ‘to be executed by and between the Corpo-
ration and the Mercantile National Bank at
- 596 “,
Honorable George A. Day, page 3 (M-129)
Dallas, Dallas, Texas, Trustee, contains sever-
al provisions relating to acquieitlon of the
properties by the City . . .”
The company, prior to the final payment of the bonds,
may assign or convey all or part of the System Andyor’part
of the Trust Estate to the City upon the terms and conditions
expressed In the Indenture of mortgage and deed of trust. The
rights of the City are limited should such a conveyance~occur,
until the time the outstanding indebtedness (secured by the
Indenture) Is retired. Furthermore, all obligations asaumed
by the company would not be affected by any conveyance.
The City during the time bonds, refunding bonds and ad-
ditional bonds are outstanding has an option to purchase the
System, subject to stated terms and conditions.
Unless the City proceeds to purchase the System as pro-
vided in the Indenture, all covenants of the company shall re-
main the,obllgation and responsibility of the company, but in
all other respects the City may have such possessory rights as
expressed either in the instrument of conveyance or in a con-
tract by and,between the company and the City.
, When all of the bonds a’nd coupons secured have been
paid or redeemed, all of the System and Trust Estate shall re-
vert to the company or the City, If the City is entitled to re-
ceive same under the provisions of the indenture.
At page 7 of the brief submitted in connection with
your request, the following statement appears:
“After the Indenture has been executed
and the bonds authenticated and delivered, it
is contemplated that the Corporation will make
a conveyance of properties to the City of Brady
.(in substantially the form attached) as con-
templated by the provision of the Indenture<
quoted,”
We have concluded’that under the facts of this case, the
property in question is not exeypt from ad valorem taxes by
virtue of Article XI, Section 9 of the Constitution of the
I/ Section 9 of Article XI reads, in part,’ as follows:
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Honorable George A. Day, page 4 (N-129)
Stats of Texas, which exempts from ad valorem taxes various
political subdivisions of the State. We base our holding on
Texas Turnpike Company v. Dallas County, 153 Tex. 474, 271
. . 400 (1954 ) .
In~Texas Turnpike, the corporations were chartered
under Articl.e lm subdivision 61, Vernon’s Civil Statutes,,
for the purpose of building, bpbrctiag and maintaining toll
roads within the State of Texas. The corporations based their
claim for exemption on certain provisions of Article 6674v,
Vernon’s Civil Statutes. This Article created Texas Turnpike
Authority as a State agency. Their position was that when
certain by-laws of these corporations and certain escrow agree-
ments were considered together, the result was a placing of
taxable title to the property in the State. The court reject-
ed this contention even though the corporations were obligated
to make an irrevocable gift of all of their assets to the State
of Texas and bind themselves to use all of their net income to
retire Indebtedness. Upon acquisition of real property, the
corporations were to execu,te conveyances thereof to the State
of TeXaB and place same in escrow with an agreement that the
escrow agent deliver the instruments to the Authority upon com-
pliance with the requirements.
At page 402 of the opinion, the Court said:
“Under the foregoing facts is the property
in question ‘publicly owned’ so as to ge exempt
from taxes under Article XI, Section 9 of the
constitution? Public ownership, for tax-exemp-
tion purposes, must grow out of the facts; it
js R legal statue, based on facts, that may not
be created or conferred by mere legislative, or
I/ (continued)
“The property of counties, cities and towns,
owned and held only for public purposes, such as
public buildings and the sites therefor, fire en-
gines and the furhiture thereof, and all property
used, or Intended for extinguishing fires, public
grounds and all other property devoted exclusively
to the use and benefit of the public shall be ex-
empt from forced sale and from taxation, . , .‘I
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. .
Honorable George A. Day, page 5 (M-129)
even contractual, declaration. If the state
does not in fact own the taxable title to the
property, neither the Legislature by statute, nor
the petitioners and the Authority by’ contra2t,
may make the state the owner thereof by Simply
saying that it Is the owner.
“The petitioners own and will ownthe
legal title to the property acquired and to be
acquired O They are, and will .bc, In possesslon
and control of the property. They halve placed,
and will place, deeds conveying the legal title
to the sta,te in escrow, but the deeds are to be
delivered and to take effect only upon certain
conditions, some one or more of which may never
occur or exist. Under these facts petitioners
contend that the state is th,e owner of the equi-
table title to the property and that the equi-
table title is the taxable title. Undoubtedly
the equitable title is the taxable title in those
situations In which the grantee takes possession
under a deed in which a vendor’s lien is reserved
or under a contract of sale by which the vendee
is obligated to pay the purchase price. Taber
v. S~tate, 38 Tex.Civ,App.. 235, 85 S.w...835, ..writ,‘~.~
refused; Harvey v. Provident Inv, Co., Tex.Civ.
APP., 156 S.W, 1127, writ refused; Leonard v.
Kendall, Tex,Clv.App., 5 S.W.2d 197, writ dis-
missed. Undoubtedly, also, this court has said
that the grantee in a conveyance held in escrow
is the owner b? the equitable title to the proper-
ty conveyed. Cowden v. Broderick & Calvert, 131
Tex. 434, 114 S.W.2d 1166, 117 A.L,R, 61; Alworth
v. Ellison, Tex.Civ.App., 27 S.W.2d 639, writ
refused; But in the latter cases taxable ownership
was,not the issue. Moreover, in such cases delivery
of the conveyance by the escrow agent was depend-
ent upon performance of certain conditions by the
grantee; the grantee had it within his power to per-
form the conditions and compel the delivery of the
conveyance transferring legal title. That is not
true in this case. Here, the right of the state,
as grantee, to acquire the deeds and the legal title
they convey Is enttielg dependent upon performance
of conditions by the grantors. The state owns
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.
. .
Fwrable George A.'Day, page 6 (~-129)
neither the legal nor the equitable title. It
holds at most a right to become the owner of
the legal title under certain conditions. Its
Interest in the property iB not a vested ln-
terest; it is purely contingent. ‘If, Instead
of the state, another private corporation were
the grantee in the deeds, would the grantee’s
Interest in the property be taxable? It would ’ .‘..
not because the grantee’s interest would be
ptirely contingent. Thus it is held that a con-
tingent remainder in property is not a taxable
title. Nation v. Green, 188 Ind. 697, 123 N.E.
163. Neither is a possibility of reverter.
Mayor and.council of City of Gainesville v.
” Brenau College, 150 Ga. 156, 103 S.E. 164. If
the agreements made by petitioners would not
create a taxable ownership in a private grantee,
it is difficult ~to see how they could create a
tax-exempt ownership in the State of TeXaB.
“The toll roads proposed by petitioners are
mammothprojects which will cost rqsny millions
of dollars. If their construction is begun but
abandoned, or if bondholders should be compelled
to foreclose their liens and take over the proper-:
ties, or if the methods and procedures of the
State Highway Department are not followed in the
letting of contracts for construction and main-
tenance, or if the roads are not constructed and
maintained in a manner equal or superior to. the
standards of the State liighway Commission, or If
the roads are not kept In good condition and repair
to the satisfaction of the State Highway Commission
- in any of these possible eftuations,~the State
could not become the owner of the roadb under the
express provisions of the statute. It iS not enough
that petitioners’ officers and directors assure us
that these contingencies will not happen, or even
that they have taken all possible steps to guard
against their happening; they yet remain possi-
bilities and as long as this is so the state’s in-
terest in the property is purely contingent and
the taxable ownership is in petitioners.”
. -
Honorable George A. Day, page 7 (M-129)
The holding in Texas Turnpike has been followed in
Dickison v. Woodmen of the World Life Ins. Sot., 280 S.W.2d
315 318 (Tex.Civ.App. 1933 f *M aher'v: Laeater,
163'Tex. 356, 354 S.W.2d g25,e;gy(fG62 i and Tarrant County
Water Supply Carp, v. Hurst-Euless-Bedford ISD, 391 S.W,2d
62 (Tex.Civ.App. lgbh P 1 We think the
facts in Texas Turnpiki ~~~fh~faSt~':u~milted.to us are so
clearly analogous that. further analysis would be superfluous.
You are therefore advised that since the City of Brady would
not have title to the properties involved, the property in
question is not ent.itled to the exemption accorded by Article
XI, Section 9 of t.he Constitution of Texas.
SUMMARY
Under submitted facts, a Municipal Gas
Corporation, created as a nonrprofit corpora-
tion to serve a municipality, would not be
exempt. from city, State, county and school
district ad valorem taxes by the provisions
of Section 9 of Article XI of the Constitu-
tion of Texas.
Yopyvery truly,
MMP:ms
Prepared by Marietta McGregor Payne
Assistant Attorney Generals
APPROVED:
OPINIONCOMMITTEE
Kerns B. Taylor, Chairman
W. 0. Shultz, Co-Chairman
John R. Grace
John Banks
John Duren
Robert Flowers
STAFF LEGALASSISTANT
A. J. Carubbi, Jr.
: