                                                           Aus-             11. TExAe

  WILL         WILSON
A-RNEY            GENBXCAI.

                                                                   January       5,     1962



         Honorable             William          A.     Harrison                 Opinion         No.     WW-      1234
         Commissioner                   of Insurance
         International               Life     Building                          Re:      The     correct        method         of valuing
         Austin         14,    Texas                                                     real     estate       in calculating         the
                                                                                         tax    rate     under        the provisions
         Dear         Mr.     Harrison:                                                  of Article          7064,       V. C. S.


                        You     have         asked        for    our     opinion       with     regard       to whether          or not the
         reasoning            and conclusion                    of Attorney        General’s           Opinion        S-200      is applica-
         ble    to real        estate         investments               held    by a foreign           insurance          corporation
         taxable        under         Article         7064,        V. C. S.


                        Article         7064,        V. C. S.,         in general,          taxes      insurance          companies          other
         than life,           health,         and accident               companies          on the basis             of the amount          of
         gross        premiums               received           upon      property        or risks         located       in Texas.          The
         amount         of this       tax,      normally            figured        at a rate          of 3. S5%,        may     be reduced
         if the company                 had invested               in “Texas           securities”          as defined          therein      from
         75%      to 100%         of the amount                  that it had invested                 in “similar         securities”            in
         the    state       in which          it then       had the highest              percentage             of its    admitted         assets
         invested.             (The     actual         rate       being     determined           by the percentile                relation
         between            the two amounts                 invested           in accordance            with     the formula          set    out
         in Article           7064.      )    Under         this    statute,          it obviously          becomes           necessary
         for    valuations            to be made                of the foreign          company’s            investments.


                        The     inquiry         answered            by Opinion           S-200        was      directed        at an invest-
         ment         in corporate             stock       and concerned               whether         or not market             value      or
         actual        cost     of acquisition              was        to be used        in determining               the proper          basis
         of     valuation.              The      opinion          held    that the plirdhase                price     wa’s the coirect
         figure        to be us&d            Bs to carporate                stock.


                        Your      current            request        informs           us that     since      the issuance           of S-200
         the State          Board       of Insurance                has    maintained            that the       “amount         invested”
         in foreign           real      estate       is    the amount            actually        expended           by the company
         for    its    original         acquisition              plus     the amount            expended        for     all    subsequent
         improvements.                       Your     request           is prompted            by the fact          that an insurer           is
         urging        that     the depreciated                   value     of the realty             should     be used        instead.
Hon.        William           A.     Harrison,          page       2         (WW-1234)




                We have             concluded         that the correct                  basis        for       evaluation          of a real
estate         investment              under     Article         7064         is its market            value.              “Texas           Securi-
ties”      are     specifically              defined       by Article             7064       to include             real      estate            in this
State.          Turning            to the portions              of the Insurance                   Code         particularly               applica-
ble     to the type            of companies               covered            by this       article,            we find,         for       example,
that Article             6. 08 authorizes               fire      and marine                companies               to hold        and convey
real      estate        “for       the erection           and maintenance                    of buildings                at least          ample
and adequate              for       the transaction              of its        own business,                   ” with      the further
qualification            that:         “Not      more       than       33-l/39/0           of its admitted                assets           shall          be
invested         by such            insurance         company                in real       estate.         ”     That     the latter             does
not     refer      simply           to a “cost”         figure          is    shown        by the last             paragraph               of
Article         6. 08 which             provides        “The       value         of real        estate           mentioned                . .    .
shall     be appraised                 by two or more                  competent             and disinterested                     citizens
of Texas          appointed             by the     Board         of Insurance                Commissioners                      of Texas.                  If
The      amount         invested          in real       property              under        Article         6.08      is thus          deter-
mined          by its market             value.         We       can find            no language               in Article          7064          indi-
cating         the Legislature                there     intended              a different          meaning.                General              casualty
companies             are,         by Article         8. 18 of the Insurance                         Code,         made         subject              to
Article         6.08.


               Life     insurance             companies            offer        an analogous                   situation.          They              also
are     taxable         on their         gross        premiums,                by virtue           of Article            4769,        V. C. S. ,
the rate         being        reducible          depending             on the percentile                       relationship           between
its     investments                in Texas       securities             and its        similar            securities           in the state
in which         it had its            highest     percentage                 of admitted            assets         invested.                   “Texas
Securities”             for     life    insurance          companies                 are    defined            by Article          3.34          of
the Insurance                 Code      to include          “the       purchase            of not more              than        one building
site,     and in the erection                    thereon         of not more                than one office                   building,               or
in the purchase,                    at its     reasonable          market             value,         of such         office       building.
already         constructed              and the ground                 upon         which      same           is located.            .    . ”        The
article        proceeds             by allowing           all    real        estate        owned      by life           companies                in
this     State     prior           to 1910     to be treated                 as a Texas            security             “to   the extent
of its      reasonable              market        value.        I’ Appraisals                are     provided            for,      as       in the
case      of fire       and casualty              companies,                 by Article            3.40,         V. C. S.,         which             like-
wise      contains            a restriction           regarding               real     estate        investments                of over
33-l/30/0        of the admitted                 assets         of the company.


               In addition,             the Legislature,                     in 1955,        amended              Article        1. 15,
Sec.      2,    to read            as follows:


                               “The      Board        of Insurance               Commissioners                      in ad-
               ministering              any provision              of the Insurance                   Code,          Acts
.




    Hon.      William       A.       Harrison,         page         3         (WW-1234)




                 1951,      Fifty-second              Legislature,               Chapter          491,      shall
                be authorized              and empowered                      in determining              ‘value’
                or’ ‘market             value’      of any investment                   in or upon           real
                estate      or the improvements                         thereon         by any carrier
                authorized             to do business               in the State          of Texas           to con-
                 sider     any and all             matters          and things          relating          thereto,
                including            but not restricted                 to,    appraisals          by real
                estate      boards          or    other        qualified        persons,          affidavits
                by other         persons           familiar         with       such     values,          tax valua-
                tions,      cost        of acquisition,             with       proper      deductions               for
                depreciation              and obsolescense,                    cost     of replacement,
                 sales     of other         comparable              property,            enhancement                in
                value      from         whatever           cause,        income         received           or to be
                 received,           improvements                 inade        or any other              factor      or
                any      other       evidence        which         to said       Board      may          be deemed
                proper         and material.               ”


                 Thus,      we see          that    the        Legislature         intended          that     the real          estate
    investments           authorized             by the        Code      were     to be treated              in the       same      manner
    insofar      as    their     evaluation           is       concerned         regardless              of the type           of com-
    pany      involved;          that the determinative                       figure     is to be that              commonly
    referred       to as       “market           value”         and that        such    figure       is to be arrived                at
    by the methods               set     out in Article             1. 15.       This      should         obviously            be the
    figure     utilized        for     tax purposes              under        Article      7064,          as it has       been      under
    Article      4769      for    life     companies.               There        is nothing          in the Code               to warrant
    a different          treatment         for     tax purpose                as between          life     companies            and those
    affected      by Article             7064.


                 We find         that     the Insurance             Code        contains      no provisions                    comparable
    to Article         1. 15 prescribing               the method               of evaluating             securities           other      than
    real     estate.       We,         therefore,          reaffirm            Opinion      S-200          insofar        as    it relates
    to valuation          of investments              in corporate               stocks.




                                                               SUMMARY



                               In calculating              the tax       rate     under      the provisions
Hon.        William        A.   Harrison,       page   4      (WW-1234)




                 of Article     7064,   V. C. S. , real           estate        investments
                 should    be valued        at their   market       value.



                                                             Very     truly       yours,


                                                             WILL       WILSON
                                                             Attorney           General     of Texas




                                                             BY
                                                                  Bob      E.     Shannon
                                                       I
BES/pe                                                            Assistant         Attorney     General




APPROVED:


OPINION             COMMITTEE


W.     V.     Geppert,          Chairman
Martin           DeStefano
Fred        B.     Werkenthin
Joe    B.        McMasters
William           Allen


REVIEWED                  FOR THE ATTORNEY                   GENERAL
BY:                       Houghton Brownlee,           Jr.
