HonorableRobert S. Calvert         Opinion No. WW-458~
Comptrollerof Public Accounts
Capitol Station                    Re: Whether or not an
Austin, Texas                          Interest owned by the
                                       Federal Land Rank of
                                       Houston, In production
                                       of oil, Is subject to.
                                       the production tax
                                       provided for by Art%-
                                       cle 7057a, V.C.S. and'
                                       the regulationpipe
                                       line tax provided for
Pear Nr. Calvert:                      by Article 6032, V.C.S.
    Opinion No. WW-458, dated June 19, 1958, on the above-
captionedmatter, is withdrawn and the following opinion
substitutedtherefor.
    You submit the folloning question:
    Whether or not an Interest owned by the Federal
    Land Bank of Houston, In production of 011, Is
    subject to the production tax provided for by
    Article 7057a. Vernon's Civil Statutes, and the
    regulatlk-ilie line tax provided for by Article
    6032, V.C.S.

     You advise us that the royalty Interest here Involved was
reserved by the Federal Land Bank in the sale of property
which It had acquired by foreclosure.
     The answer to your question depends upon the construction
that should be given to certain Federal'statutespertaining
to taxation and exemptions therefrom and'the powers conferred
upon Federal Land Banks by Congress. For example, Section 931,
Volume 12 of the United States Code Annotated deals with their
taxation. It Is as follows:
     "Every Federal land bank and every national farm loan
     association,Including the capital and reserve or surplus
     therein and the Income derived therefrom, shall beIexempt
     from Federal, State, municipal, and local taxation, ex-
     cept taxes upon real estate held, purchased, or+aken by
     said bank or associationunder the provlslons of sec-
Honorable Fbert S. Calvert, page 2,   Opinion No. WW-458A


    tions 761 and 781 of this title. First mortgages executed
    to Federal land banks, or to joint stock land banks,
    and farm loan bonds Issued under the provisions of this
    chapter, shall be deemed and held to be lnstrumental-
    ltles of the Governmentof the United States, and as
    such thev and the Income derived therefrom shall be
    exempt f>om Federal, State, municl al, and local tax-.
    atlon. July 17, 1916, c. 245 B 28, 39 Stat. 380."
     This provision of the Federal law Is broad enough to cover
exemptionsfrom all forms of taxation except that upon real
property, which It specificallypermits. Of course, the oil
production tax and the pipe line regulationtax are not ad
valorem taxes upon real property, but are In the nature of
excise and occupation taxes. The Supreme Court of the United
States in the case of Federal Land Bank of New Orleans v.         .
croshnd, Ala. 1923, 43 s.ct. 385, 261 U.S. 374, 67 L.F& 73,
29 A.L.R. 1, holds that Section 931, quoted above, must prevail
over any lnconalstentlaws of a state. We do noteconsider the
phrase 'Includingthe capital and reserve or surplus therein
and the Income derived therefrom"as a limit.$zLon upon f'fhrery
Federal land bank and every national $arm loan assoclatlo~n~~o
as to restrict the exemptionto "capitaland reserve or surplue
therein and the Income derived therefrom." Even If we were
to construe "capital and reserve or surplus and .lncomederived
therefrom"as constitutingthe extent of Federal immunity.
from taxation, exclusive of real estate which ,lstaxable, It
may reasonably be said that the exemption still applies, for
this oil Interest no doubt constitutesa part of the reserve
or surplus of the bank or Income derived therefrom.
     Therefore, unless we are prepared to hold that.the Federal
Land Rank holds this royalty In violation of other provisions
of the Federal Land Bank Act, such for example as Sections 781
and 791, we must hold the bank exempt from.thesetaxes.
     Section 781 provides In part as follows:
     "But no such bank shall hold title and possesslon of
     any real estate purchased or acquired to secure any
     debt due to It, for a longer period thar,flve years,
     except with the special approval of the Farm Credit
     AdmlnlstratlonIn writing."
     Section 791 provides In part as follows:
     "No Federal land bank shall have power to accept
     deposits of current funds payable upon demand except
     from Its own stockholders,or to transact any bank-,
Honorable Robert S. Calvert, Page 3,   Opinion No. W-458~


     lng or other business not expresslyauthorizedby
     the provisions of this subchapter.
     These we shall now discuss briefly.
     There are no Texas cases In point but two from other
jurisdictionswhich we fed1 impelled to follow. In the case
of Federal Land Rank of New Orleans v. Cooper, 190 Miss. 490,
200 Southern 729 the Court said:
     II
      . . . After the appellantacquired title to the land,
     It had the right to sell It without the minerals
     therein to one and the minerals to another, either
     contemporaneouslyor at different times. This we do
     not understand counsel for the appellees to controvert,
     but they say that the purpose for which the appellant
     was organized was to 'set up a rural credit system
     by which credit, not adequatelyprovided by commercial
     banks, should be extended to those engaged In agrlcul-
     ture, upon the security of farm mort ages’ (Federal
     Land Bank v. Gaines, 290 U.S. 247, 5& S.Ct. 168, 169,
     78 L.Rd. 298); that Section 791 of the Farm Loan Act
     prohibits It from transacting 'any banking or other
     business not express1 authorized by the provisions
     of this sub-chapter*9ltallca ours), and that the
     exception In this deed Is pursuant to a policy adopted
     by the bank of placing slmllar exceptionsIn all of
     the deeds conveying land owned by It for the purpose
     of engaging 'In the mineral or oil and gas business' --
     a business not authorizedby the appellant'scharter,
     but In which It Is prohibited from engaging. . . .
     "As hereinbeforesaid, the appellant had the right to
     reserve the minerals In this land when selling It,
     and to thereaftersell them. Should It go further
     than this and enter actively into the mineral, oil
     and gas business, its right so to do will be for deter-
     mination when but not until It Is challengedeither by
     the Government from which It received Its charter, or
     by someone Injured thereby, and who has the right so
     to do."
     The case of Llve1y.v. Federal Land Rank et al 176 S.W. 2d
264 (Court of Appeals of Kentucky, the highest Court of that
state) holds substantiallythe same In this language:
     8,
      . . . While It Is the general rule In this jurl$dlctlon
    that private corporationsmay not own real estate,
    except what Is necessary In the operation of its busl-
    ness, for more than five years, but we do not think this
Honorable--Robert
               S. Calvert, page 4,     Opinion No. WW-458A


    Is applicable to appellee bank which Is governed by
    the law creating such Institutionsand defining Its
    rights and authority. . . h
    II
         .   .   .

     n
     . . . 'However,retention of such minerals and mineral
    rights for periods In excess of five years when In
    the Bank's opinion It Is In the Bank's Interest to do so,
    had the approval of the Farm Credit Admlnlstratlon.~ The
    Manual referred to contains the rules and regulations
    governing the operation of such banks which the Farm
    Credit AdministrationIs authorized to make by 12 U.S.C.A.
    El665. It appears from this authority and the evidence
    produced that the bank had the right and power to retain
    an interest In the oil and gas and that the reservation
    or exception contained In the deed was valid."

    These rules and regulations seem to be general, and'ap-
parently apply to the Houston Land Bank.
     A denial by the State of Immunity from taxation of a
Federal agency Incorporatedby Congress, such as a Federal land
bank, Is not In our view such a challenge of lta.corporatepowers
under Its charter as Gas In the mind of the Court In the two
cases referred to above. Rather, we think the challengemust
be a direct action by the State or some affirmativeaction by
the Federal government from which the bank received Its charter.
Until this Is successfullydone, we are constrainedto hold
that the Federal Land Bank of Houston Is exempt from the taxes
here In question. The royalty la subject to ad valorem taxes as
real property by the expressed sanction of Congress and this we
assume Is not questioned.
                         SUNNARY
          The Houston Federal Land Rank Is exempt from
     the oil production tax and the regulationpipe line
     tax provided In Article 7057a and 6032, V.C.S.,
     respectively. The royalty owned by the bank Is
     real property and is taxable as -suchby the expressed
     consent of Congress, but the oil productiontax and
     the oil pipe line regulationtax are excise or
     occupationtaxes and, as such, are exempt from the
     State taxes here Involved under Section 931, Vol-
     ume 12 of the United States.CodeAnnotated.
                                                             .


Honorable Robert S. Calvert, page 5,   Opinion No. WW-458A


                              Yours very truly,
                              WILL WILSON
                              Attorney General of Texas



                                  Assistant
LPL:db
APPROVED:
OPINION COMMIl'TEE
Geo. P. Blackburn,Chairman
Leonard Passmore
Wayland C. Rlverts, Jr.
Henry 0. Braswell
RFVIEWEDFORTREATTORNEYGENRRAL
By: W. V. Geppert
