                                    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 th<Gover~nment       or upon the Lessee
with respect     to or upon the leased    premises.”

              It is obvious   from    these provisions    that the United States
has required    the Lessee    to pay the taxes in question.       Section   1270-D,
10 U.S.C.,   under authority    of which the lease     in question    was entered
into and executed,    provides,    “the Lessee’s    interest,   made or created
pursuant   to the provisions    of Sections   1270-1270-D      of this Title,  shall
be made subject     to State or local taxation.”

                 Section    1748f,    12 U.S.C.,  also,  pursuant    to and under au-
thority   of which the lease        in question   was entered     into by Lessee,
provides     “nothing     in this subchapter     shall be construed       to exempt   any
real property       acquired     and held by the Commissioner           under this Title
from    taxation   by any State or political        subdivision    thereof   to the same
extent,   according      to its value as other real property          is taxed.”    This
provision     is likewise     a part of the lease     in question    under the author-
ities cited.

               This is made clear     in the case of Meade Heights,  Inc. v.
State Tax Commissioner,        95 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

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