Honorable William P. Hobby            Opinion No. H-1022
Lieutenant Governor of Texas
State Capitol
Austin, Texas

Honorable Bill Clayton
Speaker of the House                  Re: Valuation of property
State Capitol                         for ad valorem taxation
Austin, Texas                         purposes.

Dear Governor   Hobby and Speaker Clayton:

     You have asked our opinion on four questions relating to
ad valorem taxation and the distribution of funds for public
school purposes.

     Your first question   is:

            Ray the' Legislature, in exercising its
          duty under Articl.e 8, Section 1, of the
          Texas Constitution, to provide by law how
          value is to be ascertained for ad valorem
          tax purposes, constitutionally provide that
          land used to produce agricultural products
          be valued for ad valorem tax purposes ac-
          cording to some standard of value other
          than market value, such as valuation on
          the basis of use or capability to produce
          agricultural products?

      We initially note that the first question is directed
solely to article a, section 1 and does not involve article
9, section l-d which is discussed in your second question
and which involves valuation of certain agricultural land.
Article a, section 1 of the Texas Constitution provides in
part:

          Taxation   shall be equal and uniform.  All
          property   in this State, whether owned by




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    Honorable William P. Hobby
    Honorable Bill Clayton              - Page 2   (H-1022)



                natural persons or corporations, other
                than municipal, shall be taxed in propor-
                tion to its value, which shall be ascer-
                tained as may be provided by law.

         On several occasions Texas courts have specifically in-
    dicated that the term "value," as used in article 8, section
    1, means market value.     Lively v. Missouri,   K. & T. Ry. of
    Texas, 120 S.W. 852, 856 (Tex. 1909); Rowland v. City of Tyler,
    5.2d      756, 760 (Tex. Comm'n App. 1928, jdgmt adoptea)       Har-
    lingen Independent School Dist. v. DunlaE, 146 S.W.2d 235, m
    (Tex. Civ. App. -- San Antonio 1940,      writ ref'd); Atlantic
    Richfield Co. v. Warren Independent School Dist., 453 S.W..2d
    190  19/ (Tex. Civ. App. -- Beaumont 1970 writ ref'd n.r.e.);
    Diekrich v. Phipps, 438 S.W.2d 900, 902 (&ex. Civ. App. --
    Houston [lst Dist) 1969, no writ).      See Whelan v. State, 282
                                            -
    S.W.2d 378, 380 (Tex. 1955); State v. Whittenburq, 26 5 S.W.Zd
    569, 572 (Tex. 1954). While it can be argued that the portion
    of article a, section l,.which refers to a~scertainment of value
    "as provided by law" permits the Legislature to establish a
    standard of value for taxation purposes other      than market value,
    the courts have clearly ruled otherwise.       See also Tex. Const.
    art. 8, § 20. Accordingly, it is our opinion that article 8,
    section 1 of the Constitution does not permit the Legislature
    to provide for the taxation of property other than in propor-
    tion to its market  value.

           Your second question   is:

                  If the answer to question #l is negative,
                could the Legislature constitutionally .pro-
                vide for use of a standard of value other
                than market value for taxation of agricul-
                tural land if Article 8, section l(d), of the
                Texas Constitution were repealed?

         Article a, section l-d permits assessment of certain land
    at its agricultural use value.   While this technique is based
    on market value principles, see King v. Real, ~466 S.W.Zd 1
    (Tcx. Civ. App. -- San Antonliol971, writ ref'd n.r.e.); At-
    torney General Opinion H-863 (1976). it will generally result
    in a lower value than assessment at full market value.

         If article 8, section l-d were repealed the standard of
    value would be determined by the requirements of article 8,
    section 1. In light of the judicial authority reviewed in




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Honorable William P. Robby
Honorable Bill Clayton           - Page 3   (H-1022)



discussion of your first question, it is apparent that the
repeal of article a, section l-d, would leave the Legislature
without authority to value agricultural land other than in
proportion to its market value.

     Your third question   is:

            May the Legislature, by statute, consti-
          tutionally provide that single-family res-
          idences be valued for tax purposes on the
          basis of a percentage of market value?

     We understand this question to involve the power of the
Legislature to provide for the assessment of residential prop-
erty at a different percentage of market value than other prop-
erty. As noted above, article 8, section 1 of the Texas Con-
stitution requires that taxation be equal and uniform.    The
courts have found schemes to tax one class of property at a
percentage of its value and another class at a differentper-
centage to be unconstitutional.    Among the plans the courts
have overturned include an omission of certain types of pro-
perty from the tax rolls, City of Arlington v. C%Inon, 251
S.W.2d 414, 416 (Tex. 1954); the assessment of railroad intan-
gible property at full market value while all other property
was assessed at 67 percent of value, <Lively v. !Iissouri,.K.
& T. Ry. of Texas, supra at 856; and the assessment of land
at 70 percent of full value, improv~ements at 25 percent, stocks
of merchandise at 5Q percent and omission of money, stocks,
bonds, notes and mortgages from the tax rolls. City of Houston
v. Baker, 176 S.W. 820, 623 (Tex. Civ. App. -- Galveston 1915,
writ ref'd).   See Yudof, The Property Tax in Texas under State
               -
and Federal Law, 51 Tex. L. Rev. 885,' 899-900 (1973).   Accord-
ingly, it is well established that-any plan to value or assess
one class of property at a smaller   percentage of market value
than other property is prohibited by the Constitution.

     Your final question   is:

            In calculating the local share of finan-
          cing the Minimum Foundation Program in
          public education, may the Legislature, by
          statute, set local fund assignments based
          on property values estimated at less than
          market value?




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Honorable William P. Hobby
Honorable Bill Clayton         - Page 4   (H-1022)



     While your first three questions relate to assessment
and taxation of property, the final question involves distri-
bution of State funds to local school districts.     We note
that the current formulas for distributing state funds for
education are under attack in the United States District Court
for the Western District of Texas in Wilson v. Brockette
(Civil Action No. A-76-CA-2231 and Bennett v. Brockette (Civil
Action No. A-77-CA-21).   Plaintiffs ins thes e cases allege that
the current formula for distribution of state funds is invalid
since it is alleged to entirely omit the value of substantial
amounts of property which are required by law to be taxed.
See also Sheffield v. Driscoc (No. B-6829) now pending in the
---
Tcxasiipi%iiieCourt.   'l'hczadings  in these suits do not pre-
cisely raise the issues involved in your more general inquiry,
but the issues are similar and we call your attention to the
litigation.

      In determining how to allocate state funds for public
education, the Legislature has broad authority.    Efunnnev.
Marrs, 40 S.W.2d 31 (Tex. 1931).    In fact, the Texas Consti-
tution even provides a method other than property valuation
for the distribution of certain school funds. Tex. Const.
art. 7, § 5. It also requires the Legislature to 'make suit-
able provision for the'support and maintenance of an effi-
cient system of public free schools."    Tex. Const., art. 7,
§I. The federal constitutional requirement that will have
to be satisfied by any school finance plan is that it must
bear some rational relationshio to a leaitimate state DurDose.
San Antonio Independent School*Dist. v.-Rodriguez, 411-U.S. 1
 (1973). For example, WC have already indicated that assess-
ments determined pursuant to article 8, section l-d of the
Texas Constitution, which permits certain land to be assessed
on the basis of agricultural use factors, could constitutionally
be utilized in the formula by which school aid was apportioned
among districts.    Letter Advisory No. 109 (1975).

     Whether a particular proposal will meet the constitutional
test will depend on the details of the proposal and its rela-
tionship to the overall statutory scheme of which it is a part.
your question is broadly phrased, and no specific legislative
proposal is before us. Unless and until a specific proposal
is presented, we have no basis on which to say that any and all
proposals which might fall within the scope of your inquiry
would meet the constitutional test we have outlined.   We be-
lieve that any proposal the Legislature adopts should specifi-
c;I~~L~indicate the legitimate state purpose which is being
served by the formula and should clearly reflect the rational
relationship between the legitimate state purpose and the formula.




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                    Honorable William P. Hobby
                    Honorable Bill Clayton            - Page S   (H-1022)



                                                SUMMARY

                                  The Texas Constitution requires that prop-
                                erty be assessed for taxation purposes in
                                proportion to its market value.  The Legis-
                                lature may not provide that one type of
                                property be assessed at a smaller percen-
                                tage of its market value than other types
                                of property.

                                  The Legislature has a constitutional ob-
                                ligation to provide for the support and
                                maintenance of an efficient system of public
                                free schools.   It has broad authority to
                                devise a plan to distribute state funds
                                for public education.   Any proposal the Leg-
                                islature adopts should specifically indicate
                                the legitimate state purpose which is being
                                served by the formula and should clearly re-
                                flect t,he rational relationship between the
                                legitimate state purpose and the formula.

                                                      Very truly yours,



                                                      JOHN L. HILL
                                                      Attorney General of Texas

                    APPROVED:




                    DAVID M. KENDALL,     First Assistant




                    Opinion   Committee

                    klw




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