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                                  OFFICE OF THE ATTORNEY GENERAL         OF   rrxAs
    Q-                  c. m&w4                     AUSTIN
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                          Honorable 3. P. Parker
                          Co:nty kttornep
                          Commohe County
                          :Ccmanohe,Texas




         ’

                                                       ale of the properties,if any sucl:.
                                                 up03 constructl.oncosts wotid be confis-
                                              hecauee of the 103 ear2.lz.g
                                                                         pwer 32 the pro-




                          lngs aethod, chculd be given garmomt   conslderetion,byths Ward
                         'in this tax v.aluatloa.
                                    It is'fzrt:Xrpointed out tkat t.",a
                                                                      Ccmn;?cbeCounty.
                          Z?uralSleotrificatlonAd2~i~istratlon, a oor~o7ationOr~etizedun-
                          der thf2zi.Z. k., isa, as 0: Zancury 1, iaa, sanstr.3cZeda>proxi-
                          matsly sixtpf3ur allea oi cmpleted pomr lines at a coat of a-
                          bout $490.00 Fez rzlle,far tke pspose af ?ir-lisi&k~electrical
         gsnorable D. P. Parker, Page a

,A~._
         energy to the rural seotlons of Zastlaud County,not with en ob-
         jeot ol profit but of servioe to the e:~iculturalcozmnity. Zow-
         ever, it is sttitedthat the lm income return is not due to the
         non-profit charester of the enterprise,but to the thinness of the
         territory served by it, o?d the relativelyhi;yhtivestrrentia fixed
         properties in oozparisonv&th earsing poplar,a conditionv.$ichha's
         prevented private utilities frm serving these rural areas.
                      To resolve this oontrovertJy
                                                 you ask the following ques-
         Mont
                                                8
                      ?&at shAd be the prlnoijlest&t, the Cm&-
                 aloners* Court sh&ld adopt in a.vr1vin.a
                                                       at fair snd
                 just tsxation?w
            _.
                      Article 7174, of Ve&on~s AnnotatedCivil Statutes of
         Texas, 1925, as mended, sets 'upcertain requirezestsrelating to
         the valuation of real and personalproperty for ad val0X.z tax pur-
         pOSeS. The articlefin questionprovides,in part, as follows:
                      Pooh separate parcel of real property shall be
                 valued at its true end lull value in z~oney,exclud-,
                 ing the value of mops grcru%3ggr uxigeethered,thereon.
/--
                      coindeterzzningthe tNe a3d full'valtie of'real
                 aad personal property the assessor skall not adopt a
                 laver or different standard of value beaause the se.m
                 is to serve as a bnsls of taxation,aor,shall,hoadopt
                 as a criterion of vaUe the price f6r which s*uchFro-
                 perty would sell at augtlon or a forced sale or in the
                 aggregatewith all the propertyin his county; but he
                 shall value eaoh~tractor lot by itself, az3.at sI*nham
                 and pioe as he believes the sem to be fairly rrorthin
                 money at the ti=lesuah assesszestis nade. . . .
                      *Personal.
                               property of every aeaariptlonshall bs
                 r&ued at its true and full value in,~oney,~
                   Artiole 7149 of Vernon'sAnnotatedZevised Civil Statutes
         of Texas, 1925, as mended, provides as follcris8
     I                The ten, ttrus eu?ofull value';w!ierever   used
                 shall be held to aoan the fair zzarketvalue, in cash,
                 at the place where the property to Which the tern is
                 appllod shall be at the tine of assessznt, belng the
                 prioe which could be obtained thereforat private sale,
                 833anot at roroad or auction s,ale."
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                  The term 3arket YeI.& ,* “fair market value, * ~*caah
      market value,  * *fair cash market value” end etrue and full val&e
      in money* have been held to be synonymous tern.     40 Tex. Jur.                   ‘.
      150.                                                                               I
                9iarket value* or Vair market ~&lue* has been defined
      ea “the ezount OS Honey that a person deslrin3to sell, but hot
      bound to 00 so, oould, within a reasonablet&e procure for ouah :
      propertyfrm a person who desires and is able to buy, but is not
      bomd to purahase the property. It is the mount thet oould be
      obtained at grivate      ~sale and not a ~foraed.or   auotlon   sale.“,    40
      Tex. Jur. 150.                      ,_    ”
                 Under this-detinltlonend the fasts before us, we think
      it rzy’be assumed thet the propertiesof the COnenche Coruty
      Eleotric~Cooperative Assmiation, looated~  .inZestlendCounty,
      either have no eotual *r;arket value,O d?reto ‘theslz3le gurgose
      and multi-aounty  nature of the propertyand its conse~.ucnt war&
      oi a reedy narket as other realty and personalty,bosszonly  bought
      and sold; or lf a mrket value z?aybe seid to exist, it Is so Us-,‘-
      proportionateto the oriEioe1 aost of the properties,  less depre-
      alation, or ths reproductionoost, iess.depreaietion;  as to afford
      no reasonable and proper basis       for Yaluation    by the Soar& of ‘Equal-
      izetion bf Zaatland County.                 :
                    Thus we see &at the broad &id .dozina& crltsrlon            pres-~
      oribed     b$ the Le~islatwa for the valuetiol? of prop&ty for
                                                                  tax
      purposes~ i. 0. ihe reasonablecash value o.fthe $operty on the
      market, or v&at it oan be bou&t ant sold for, is difficult if not
      tigosslbleof qgllcztlon    ns the aole~factorof value. Consequently
      upon this a8suspAon, we turn to the deoisionsof thh   and othsr
      jurisdictionsto det..rrdne  the aocegted w recognized nethods of
      valuing     property   for tex purposes   in swh situations.
                Intrinsia vsbue Is not amtiosed in the statute t&t de-
      fine0 the pcxveroof th6 Zossd Of yqueli~stioil($2.) tit.  7206)
      but it is only stated that the Eoard shall “bause the assessor to
      bring before then at such meeting all assessmentlists, etc. . . .
      to aae that every person has redderedhis propertyat a feir market
      value.96 fcLEphnsisours.)
                It h&s been noted that VAir nerket valuea is the basis
      required of the Assessor under Artiole 7174. 1s this~~Qo.~cotfOa
      it my be golnted out t;latArticle 7211, Vernon’sA22otsted ilevised
      Civil Statutes,.providesthat “IS such property shell be found to
      hare nb market value by such officer (t5.ewsessor), then at such
      •~ aa r&d ofClc,er shJ3 deem the ret+ 01 intrizsiovalue of the
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         Eaorable    Il.P.~Perkar,Page 4


         propartY." Therefore, it scelzsttit the %erd, as well as the
         AssaSSOr,nay and'shoulddeterzinevalue a:cordingto intrinsic.
         ;g;t in instanceswhere the property in quuestioxl
                                                         has no narket
              . 40 Tax. Jur. 149.
                 ~Bkethkror not the propertiesinmlved hers, dw to
       low or non-existantearnin. power, or to the nature of the pro-
       perties and the use to whioh they are put, have or do not have
       a "fair market value," 80 a5 to enable th3 3oard of Equalization
       to daternine, the "true and fi~llvaluetinploney"of the progsrty
       on the basis of the price which auah propertywould brFr.3at sri-
       .vatesale, pursuant to the literal tense of the'abovequoted stat;
       utes, is-IIpure question of faot which this Zepsrtnsntis not
       oonpetentto pass upon,.andit is not, by this opinion,under-
       stood to be so doing. ZIowev6r,  easuain,q,froiil
                                                      the facts stated,
       t&i absence of an establishedmarket value for these properties
       which wodld rspresent the:s*true andfull value" thereof, it is
       our opinion that the Board of Zqualization,in arriving at in-
      .trinsiovalue for tax purposee,~  zag.properlyand legally consider
       all pertinent facts, eatixates,forecastsand oirc*sastoroes   bro!l?ht
       to its attention or establishedand recotgizsd    ea f~danontallp~
       casential and reasonablyrelated to,the.questionof v&116, either
     _eer     the principles of Joxmon law~or a&non aenee. The Lewis-      ~I'
    r‘,latureh5s vested in Poarda of Zquallzation,as,oonstit*&edby
       statutes,'theoole discrstlonin the valuationclld tie equaliza-
       tion of ths valusa of property eubjeot to taxation. Their action
       is clothed tith the presuznption that it has been rightly nade on
       the baois of actual valueand courts will deoline to disturb su*
       assessnantsunlsas sham to be arbitraryand grossly excessive or
      based upon a funde~eotallywrong principalor retaod of detemin-
       fug value. 40 3x. Jur. 156, Great NorthernXailxay Company v.
       Ueeka, 297 'J.S.195; 80 L. Ed. 932.      ,:..,I.
                     Certainly if the oouvts are loath to dist?rrb
                                                                 the die-
          aretion of Boardsof Zqtalizatloain disahargin~their s'titutory
          duties of 'assessingand vaiuin;,propertyfor taxation,then, with
          strong3r reasons, this 3spartnsnto~lnot pkoperiy,in advance of
          the exercise 3f such discretionby the EqualizationZoard of
          xaath4a c9mlty,outline end prescribe,by tie requestedopinion,
          any t3yLit.m,fomula, ruls or rethod for the oontrol and guidance
          of said Soara in ths aisaharge of its duties. %or can said Soard
         .tbe oonpelled to aubzit to exanizetionas to the operationof their
          ninda in arriving at tis *true and full valus" of the property
          before  then.
               Cn the other hand, we thlnk'wsnag pkpsrly point out
      som of tds fornulas.oreystaas aomotily
                                         _, used by tax officiala
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         Bonorable D. P. Parkar, Page 5


          in valuing property for'taxationand axzovea by the aourts,
         where market value is non-existent. Some of these are: (1) orig-
         inal cost cr re?roduationcost, less a rsaemable annual depre-
         oiation; (2) "the etmk and bo;ldnethod," or the averagemarket
         priae of ths outstandingstocke and bon5e of a corporation;
         Great Ziorthern-Xallnay  Co. v. iieeks,supra; (3) *tie capitallza-
         tion of net ope-stinginaoms ~.ethod;~   26 H.C.L. 367, 368; Grsat
         Northern Railway Co. v. Zeeke, eupra;Parsoae, st al v. Detroit
         k Canada Tunnel Co., et al, 15 Fed. 2upp. 926, aff. City of Ds-
         .,troit Y. Detroit E;Canada Tunn& Co.! 92 Fed. (2)'33.
                                                    .
                     The laet formula or msthod for.acouratelydetermining
         the *true and full value" of propertyPer taxationpurposes by
         tax assessing officials and boards has been, by ths courts, in
         the cited zaaee and others, approved as beiq particularlyappli-
         cable to railroads and pub110 utiliti4sof variouskinds suoh as
         ferrye, bridgse, canals, toll roads, pipe lines and elsctrio
         powsr ana eerviae oompenles,euuh as the one involvedin the in-
         stant case. The wcapitel.ization-of   net izlcoae rnethtivmay be
         rtated aa follows:
                                                            "
                     When  property has a known and determinate .
               value aeasrtaicedby commera4 in it, as~.inmany
               kinds or parsonal propsrtyariain aertain classes
           . of real estate, them can be no difficultyin ae-
               aertaining its val*uefor purposes of taxation.
               In many ce3es,  however, ~24 asosssortae no s;ich
               eatisfaatoryguide, and muet value the property
               by other z14acs. In euah cases, if the property
               is devoted to the uee for %%ich lt ~143 desiiyned,
               and is in a condition to pro&ace its maximum in-
               0438, one very important 416mentfor ascertaining
               its present value is tie net profitsaerlved thcre-
               from. In suah a ease the tax ie not levied Won
               th4 earnin.zsas ezch, but the earninEsare treated
               ae a guide to tie capital valus. Ths valus of the
               proparty is arrived at by oap$taliziagthe net
               icoons therefra at the rate of return prewiling
               in the sem seatim of the -countryupon InvsstzIsnte
               o? a sl-silarotiracter. In dsterainini;   the net
               11100~4 of any itsm of property a3 E basis for
               valuation for the purpose of taxation,t5a average
               net income fm a umber of y4ars should be oon-
               eldersd, rather t;Fi;hs earnic.~s  of a sin?Je ySar
               standing alone.         , however,the eaiiin~capa-
               oity of th4 property a8 distinguishedfrom the

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        .Hmorable D. P, Farlser,Page 6
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             aotual earnings that is the proper slanentfor oon-
             sideration in fixing a.8 valuatLonOSprop3rtyfor
           ' taxation. . . .* .26B.C.L. 367.
                  In ugholdirtgthe wcapitallzationof net earnings~prin-
        oiple for the ga:danoe OS tax officialsin the valuationOS pub-
                                      e other system or Sormlas above
        110 utlllty propeztles over tii
        emmeiated, u&er statutes ahost identicalto those whloh 20vern
        here, the oourt, in the case of'Pemms TV.Detroitb;Cmada Tur-
        ml Co., supra, saidr                $
                  *The original, or rearoduotion;construction
             cost of tt,iat\;r;sa~is so 6nOPnauS thst there Is
            absolutelyno aowrent relatttion   between suoh cost
             and its earninE cnpaoity. Kor does such cost ap-
            pear to have any possible bearing upon such eaiitig
            CsQacity. IS nature had aonzitruoted   tbls tunnel
             in its preeent Soxz, it v+lU ba as valuable to its
             owner a8 it nav is.   It would'be as val&ble to the
             owner or a prospectivepurohaaer,re&ardlessOS its
            original cost. ItS OOSt dOeS E&t &XX]-S ClteF hItO
             the questionsas to what price a purchaserwould pay            'I
            .03-aselier 7souldtake. The basis So? a sale price
            wuld be the present, ar.d probable Suttie, taming
            power of the property; erd certainlypresent and
            past earnings are proper and tigortantSactors in
             $.idgi~gwhet eazzings my fairly be expeatodfn the      -'
            SutumL             -.
                                                   _.
                  'Therefore It ie t5.ecouolusionOS the ooiirt
            that the tunnel i;roperty  here involvedis OS auoh
            character as to be usable for a single purpose only;
            that it is devoted to the public serviceunder reg-
            ulations and oetkxls oS operation,a6 to classify
            it as a aublio utility; also that the capitalization
            cl earn&s    nethod should hare been~given, controlling
            considerationed eSSect bytho assassin:<     ol'floers
            in.arrivizIg at the true cash value of the >ropsrty,
            witbin ths ntanlng and oooF)e,o?  tke ap::licable
                                                            Xioh-
            &.n statutes; that the taxing authorities,in basing
            their valmtions for the tame years in qus.stLon.
            eatlrely upon dspreciatadCost, ecd in iailicg to
            give imy cohsidertitioz  or xrc2Thtto the capitaliza-
            tion of net irso-& method, have adopted e fundazental-
            ly erro:.eozs 2ri:;ciple or rathod of arrivingat the
            true cash value 31 t;leEroperty in ques:log,in viola-
            tion OS tLejducip,mcess clsute of th6 EwXeenth
            Amendmnt to the ConstitutionOS the i?nltedktatss,


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       .HonorableD. F. Parker, Page 7
EM-.

             and the reaultlng assestmtntsare thereforeIllegal
             and void. . . ."
                 We reiterate that the groper Somfila,nethod or prinod-
     pie to aide the Eoard of EqualizationOS Xaatiand CounQ~ in the
      perfoxzanceOS their statutoryduties OS dete,-ini=%the *true
     and full value" of the propertiesoI    + the CozamheCoucty 2lectrio
     COOpiQtiVe    Assoolatl3n,is not 3ure to dooide, bat rests square-
     ly ar.dsolely within tha sound disoretlooof tilesa:d Bomd.~ It
      is their province   to hem the avideme    azd weigh the Saots, cir-
      amstmioes and conditions8urromliIigt-he;rro?ei-ties     ir:question
     end therefrm deterzxine    vhi3ti3i the three sethods, Sorml.aa or
      Prinoiplssaug;-Tested  hereimbote, or my others, aiiiglyor in.
     ambifiation,will be best ada_s';ad   to the peculiar facts of this
     aase. in other words, this opinion should not be understoodto
     hold that the wca~ltali-&tionoS net inoo~e aethod2+is the anly.
      one applicableto the faots of this case, to be exoluslvelyand
     xeiy Sollmed by the Dcard. UC are mrely pointtiogout that
      6uOh mtiiod ~a_y: be lawfully consideredby the Eoardj if ,itap?ears~
     iron   the facts adduced before then thatmch nethod is beat cal-
     auleted to arrive at the *true and full value" 0S the Froperty.
     But, if soy otbr xzethod   , grinaiple or.forzula,whether clistmssed
.T-- herein'&    not,  arjpsaisto the 3aard to better establishsuch "true
     and full value," then said Eoard is et llberVJ,tofollow such
     method, subjeot, OS oourse, to revieelr   by the courts in the &amer
     -herein discussed.                             .:,
                                          :
                 Trawtlng the foregoing Sully armveru yaw inqw,    we
       are

                                              Tauzs very truly
