                        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
                           - 595 -
    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:

                                * 597 -
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

                             - 598 -
.   .




        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


                                  - 599 -
    .
.   .




        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.




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