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  WILL     WILSON
ATTORNEY     ORNERAE

                            June 22, 1960

     Honorable R. L. Lattimore           Opinion No. WW-863
     Criminal District Attorney
     Hidalgo County                      Re:    Proper evaluation and
     Edinburg, Texas                            assessment for ad valorem
                                                tax purposes of gas pro-
                                                ducing properties under a
                                                contract presently sus-
                                                pended by the Federal
                                                Power Commissionspending
     Dear Mr. Lattimore:                        further hearing.
          Your request for an opinion concerns the proper valuation,
     for ad valorem tax purposes, of certain gas producing properties.
     You advise that the gas was originally being sold under a
     contract establishing the price per MCF at 7-$ cents, but that
     in 1954 a new contract setting the price at 12 cents per MCF
     was negotiated. The price change was "suspended" by the
     Federal Power Commission, acting under the authority of the
     Natural Gas Act (15 U.S.C.A. 717), pending a determination as
     to the lawfulness of the new rate. The Federal Power Commission
     did not act upon the rate suspension within five months, where-
     upon the producer, acting pursuant to the terms of Sec. 4(e)
     of the Act, placed in effect and began collecting the new
     contract price of 12 cents per MCF. The Commission then
     required the producer to furnish a bond to refund, with interest,
     the portion of the increased price which it might ultimately
     find unjustified.
            In reference to the foregoing facts you ask:
                  "1. How should this property fi.e., the
                gas reservefl be evaluated and assessed?
                   "2 . What recourse does the taxing juris-
                 diction have if the property has been evaluated,
                 based on a 79 cent sales price and the F.P.C.
                 allows a higher figure? The taxable value is
                 directly related to the sales price.
                   “3.  Can the holder be assessed the value
                 of the 'suspense' account?" flhe suspense
                 account represents the amount of the rate
                 increase collected by the producerJ
Honorable R. L. Lattimore, Page 2     Opinion No. WW-863


    Article 7174, V.A.C.S., provides:
           “Each separate parcel of real property
         shall be valued at its true and full value
         in money, excluding the value of crops
         growing or ungathered thereon.
          “In determining the true and full value
        of real and personal property the assessor
        shall not adopt a lower or different
        standard of value because the same is to
        serve as a basis of taxation, nor shall he
        adopt as a criterion of value the price for
        which such property would sell at auction
        or a forced sale or in the aggregate with
        all the property In his county; but he shall
        value each tract or lot by Itself, and at
        such sum and price as he believes the same
        to be fairly worth in money at the time such
        assessment is made.
          11. . . .

           “Money, whether in possession or on deposit,
         or In the hands of any member of the family,
         or any other person whatsoever, shall be
         entered in the statement at the full amount
         thereof,
           “Every credit for a sum certain, payable
         either In money or property of any kind, shall
         be valued at the full value of the ssme so
         payable. , . ,” (Emphasis added.)
     Article 7149 states in part:
           ” ‘ValueI--The term, ‘true and full value’
         wherever used shall be held to mean the
         fair market value, in cash, at the place
         where the property to which the term is
         applied shall be at the time of assessment,
         being the price which could be obtained
         therefor at private sale, and no at forced
         or auction sale.”
     The term “fair market value, In cash,” Is generally held
to mean the price that the property would bring when It is
offered for sale by one who desires to sell but is not
obliged to sell, and is bought by one who desires to buy but
1




    Honorable R. L. Lattimore, Page 3      Opinion No. WW-863


    is under no obligation to buy. State v. Carpenter, et al,
    89 S.W.2d 194 (Tex.Comm.App. 1936). Helms v. Day, 215 S W .2d
    356  (Tex.Civ.App. 1948); Texas Pow& & Light Company v.'Hering,
    224 S.W.2d 191 (Tex.Sup.Ct.
    Company v. Kiel 227 S.W.2d
    Pipe Line Company v. Hunt, 228
    King v. McGuff, et ux.,
    M.K.T. Railway Company v. Jaffee Cotton'Products Company, 193
    S.W.2d 986 ITex.Civ.Aoo. 1946). Actual sales of comrJarable
    property in the vicinity on ornear valuation date is the most
    accurate indicla for determining market vlaue. However, all
    elements which properly reflect upon the "fair market value"
    can be taken into consideration. See Rowland v. City of Tyler,
    et al., 5 S.W.2d 756 (Tex.Com.App. 1928); see also l'(T      ur.,
    Evidence, Section 162,  page 439. Our courts have presc%bed
    no definite or exact method by which property is to be valued.
    It is only required that the system adopted result in a
    valuation substantially the same as market value, City of
                                                         >53,
    Arlington v. Cannon, 263 S.W.2d 299 (Tex.Civ.App. Fan-.   rev'd.
    in part on other grounds, 271 S.W.2d 414) and not be arbitrary,
    discriminatory, or fraudulently induced. 40 Tex.Jur., Section
    114,  page 159. However, a valuation cannot be based wholly
    on one factor alone. Port Arthur Independent School District
    v. Baumer, 64 S.W.2d 412 (Tex.Civ.App. 1933).
         Property is to be assessed for taxation at its value as
    of January 1 of the taxing year. See Article 7151, V.A.C.S.;
    Humble Oil & Refining Company v. State, 3 S.W.2d 559 (Tex.
    Civ.App. 1928); Kirby v. Transcontinental Oil Company, 33 S.W.2d
    471 (Tex.Civ.Aoo. 1930). Fluctuations in value or income
    (either enhsnc%at or deoreciationj cannot be anticinated.
    Humble Oil & Refining                 , supra; Kirby-v.
    Transcontinental Oil                   am     Republic Natural
    Gas Company, 181 S.W.                  p. 1944, error ref.).
    Earning capacity, or income, from a mineral estate is of
    particular importance in estimating or assessing the value
    of the estate, Electra Independent School District v. W. T.
    Waggoner Estate, lb8 S.W.2d b45 (Tex.Civ.App. 1943) but in
    the Instant case, the amount of income which ultimaiely will
    be relaised from the suspended 12 cent contract price is
    prospective, or speculative. It is within the province of
    the Federal Power Commission to either grant the price increase,
    refuse it, or, if it is deemed in the interest of the public
    convenience and necessity, to reduce the price below the 73
    cents established by the original contract. What the Federal
    Power Commission will do, is, to a large extent, a matter of
    surmise and conjecture. Therefore, it is obvious that only
    the price that is certain as of January 1, i.e., 7$ cents
    per MCF, can be considered as income from the gas property.
Honorable R. L. Lattimore, Page 4    Opinion No. WW-863


     The fact that the suspended 12 cents per MCF price cannot
be considered as income does not mean that it must be altogether
excluded from consideration in evaluating the property. The
general rule on this point is stated in 51 Am.Jur., Sec. 706,
p. 656:
           "It would seem upon principle that
         prospective value cannot properly be made
         the substantive basis for assessment,
         although it may be considered to the extent
         that it enters into or is reflected by
         present value." (Emphasis added.)
To the same effect, see Lewis J. Summers v. City of Meridan,
119 Conn. 5, 174 A. 184 (19341. McCardles Estate v. City of
Jackson, 61 So.2d 44, (Miss.Su;.Ct.                      ated
at.L.R.      649 and 95 A.L.R. 434. Texai ~pe~%e~oC~e    in
accord with this line of reasoning. At 40 Tex.Jur., Sec.
108, p. 149, it is stated:
           "Prospective value, in the sense of
         value at some future time, cannot
         legitimately be made the basis of a
         determination of present value. On the
         other hand prospective value in the sense
         of potential future use, so far as it
         affects present market value, is undoubtedly
         a factor that may be considered."
Therefore, it appears that the fact that a hearing to determine
whether a rate increase should be allowed is pending before
the F.P.C. can be considered to the extent that such fact
affects the market value of the subject property as of January
1. It cannot be said that a person desiring to buy the property
would not take this factor into consideration. A buyer might
offer a higher price because of the expectancy of a price
increase; it is also possible that he would be induced to offer
a lower price because the rate increase might be disallowed,
which would necessitate refund of the money held in suspense
and payment of six per cent interest thereon.
     The influence of this factor upon market value is fraught
with surmise and open to conjecture. This, however, does not
affect its status as a proper element for consideration; the
same is more or less true of many elements which may be properly
considered on the issue of value. As pointed out in Allen v.
Rmery Indeoendent School District, 283 S.W. 674 (Tex.Civ.App.
1926):
Honorable R. L. Lattimore, Page 5    Opinion No. W-863


          "There are numerous elements and
        tests of value. It is generally a matter
        of estimate or opinion, at best, as of
        time and distances and the like, and about
        which witnesses the most competent to
        know often widely differ in particular
        instances according to personal determina-
        tion of the primary facts which support
        their conclusion. The constitutional pro-
        vision is manifestly founded upon such
        recognized situations. Therefore, the
        conclusiveness of valuation must rest with
        such tax officers or tribunals 'as may be
        provided by law.' A presumption of correct
        action will attend what they do and give
        prima facie support to their conclusion when
        apparently warranted by law, but this proposi-
        tion is not conclusive in any case.  A merely
        and purely arbitrary or capricious valuation
        made by such tribunal disproportionate to the
        property's value is ground for objection and
        cause for interfering with its action."
Because of the conjectural nature of this particular element of
value, it is incumbent upon the taxing authority to use prudent
judgment in considering it, and to receive all testimony
regarding its influence upon the actual market value of the
gas property. As was pointed out in State v. Illinois C. R.
Company, 27 Ill. 64, 79 Am.Dec. 396 (1861):
            I,    .We are not prepared to say that
         an assessor, making yearly valuations of property
         for taxation, can or ought to take into considera-
         tion anything more than the value of the prop-
         erty at the time he is called upon to value it,
         since, if it does increase in value in the
         process of time, advantage can be taken of it
         in future valuations, as they may be periodically
         made, but if he can and does look to the future
         for the purpose of ascertaining the present
         value of property, he should do it with extreme
         caution." (Emphasis added)
     From the foregoing discussion, it appears that the answer
to your first question is that in assessing the property
consideration should be given to all relevant and proper
factors regarding value as of Januuary 1. Income is an
important element to be considered but cannot act as the
sole criterion. Only 74 cents per MCF can be considered as
Honorable R. L. Lattimore, Page 6        Opinion No. ww-863


the income from the property in question until otherwise
changed by order of the Federal Power Commission.
     The fact that there is pending before the Federal Power
Commission a hearing to determine whetherthe price of the
gas produced from the property should be increased may be
considered, but only to the extent that it actually influences
or affects market value as of January 1.
     In answer to your second question, you are advised that
the county must assess the property in accordance with the
foregoing rules. There obviously would be no recourse to
reassess the property and consider the income at 12 cents
per MCF should the F.P.C. allow the higher figure.
     Your third question is whether the holder can be assessed
the value of the suspense account. If the suspense account
is represented by cash, either in the possession of the holder
or on deposit in a bank, it is to be assessed as personalty.
If the holder is a domiciliary of Texas and the suspense account
is on deposit outside the State, the county of domicile may
assess the account. See Article 7147,  V.A;C.S., and First-
Trust Joint Stock Land Bank of Chicago v. City of Dallas,
167 S.W.2d 783 (Tex.Civ.App. 1942, error ref.).
     In cases where no money is actually collected and held
in suspense, a different result obtains. Debts due a person
over and above his indebtedness are taxable as personalty.
See Article 7147, V.A.C.S., and Fielder, The Texas Tax
Structure, Vol. 20, page XV, V.A.C.S. If the producer carries
the suspense account as a potential asset without actually
collecting the money, no tax liability arises because there is
no actual debt due until such time as the F.P.C. acts upon
the suspended rate. Further, the potential asset would be
offset by a potential liability on the books of the producer;
therefore, there would be no debt due the producer "over and
above his indebtedness".
                        SUMMARY
                  In evaluating property for ad valorem
             taxation, a taxing authority may notconsider
             as income from gas property a price which
             has been "suspended" by the F.P.C., but can
             consider only the price in effect prior to
             the suspended rate change. However, the fact
             that there is pending a hearing to determine
             whether the rate increase should be granted
             can be considered to the extent that such
Honorable R. L. Lattimore, Page 7     Opinion No. ww-863


         fact influences the market value   of the
         property as of January 1.
              The suspense account representing the
         money collected under the price increase
         can be taxed as personalty. However, if
         such price increase is not actually collected,
         it cannot be assessed for taxation because
         it is not a debt due the taxpayer over and
         above his indebtedness.
                           Yours very truly,
                           WILL WILSON
                           Attorney General of Texas



                               j&k N. Price
                               Assistant
JNP:cm
APPROVED:
OPINION COMMITTEE:
W. V. Geppert, Chairman
James R. Irion
Jot Hodges
J. Arthur Sandlin
:Virgil Pullium
REVIEWEDFOR THE ATTORNEYGENERAL
By: Leonard Passmore
