c   I   .




                            TXZEA-ETORNEYGENEWL
                                           OWTEXAS
                                           AUSTIN.    TEXAS
PRICE       DANIICL
*--          o-mn.


                                         Decembef    16, 1948


               Hon. Geo. H. Sheppard                   opinion No. VA739
               Comptrollar of Public Accounts
               Aus~tfn, Tcrae                          R”,;. The ,,nec@xiily for purface
                                                             owacrs ef State classifi’ed
                                                             mineral lands to pay’stata
                                                             ad valorem tanem on the
                                                             value bf ,th~ sp*fac* plus
               Dear Sir:                                     the minerals.

                        You request our opinion as to whether surface owners of
               State mineral claraified lands must pay a State ad valorem tax on
               the value of the surface plushthe minerala or on the surface value
               only.

                         Par the purpose of, this. opinionyour question nil! be
               considered as to the liability of aa surface owner ~for the payment
               of the State ad valorem tax (a) :prior to the lease of the mineral in-
               terest, and (b) at the ,time of and subsequent to the lease of said
               interest.

                         Tae Supreme C,ourt of Texas in the case of Sh&+d~v.
               Hogg, 124.T.e~. 29.0. 77 S.W.(td) ~1021.has stated the’~rule of law
               as follows:

                            :‘!Wo-will ‘add’s few words as toths royalty in-
                       terest involved under the lease of the unpatented
                       school land survey, which:is, as staid in plaintiffs
                       in error’s arpmint,       ‘executed by the lessor in-
                      ‘dividually and as agent for the State of Texas.’

                           “After upholding the validity of the Relinquish-
                      ment Act in Greene v. ~Robison, 117Tax. 533, 8 S.W.
                      (td) 655, the Supreme Court, in an adopted opinion
                      by Judg,e Sharp, for the fir’st time definftely deter-
                      mined the nature of the interests of the agent lessor
                      and of his assigns in words concise, clear, and un-
                      ambiguous, viz.:

                           ‘In the case of Greene v. Robison, 117Tex. 533,
                      8 SiW! (2d) 655, it was held that, by the terms of the
                      Relinquishment Act it is meant that the oil and ‘gas
                      in place shall not vest in the owner of the soil as
                      his property, but that it means that 15/16 of the
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        H,on. Geo. H. Sheppard, Page 2 (V-739)



                    minerals and f of any and all amounts received
                    above 10 cents per acre per annum as rental
                     shall be allowed the owner of the land for his
                     services as agent 0X the state in making the
                    mineral leases. In-our opinion, the act, when
                    sairly and reasonably. construed, aleo means
                    that ail minerals not disposed of 80 with the
                    title of the land, subject to the provisions of
                    the act., That .yben a’.valld and binding lease
                     or conveyance of the minerals,,is .made .by *the.
                     owqer of~t&$,*qLd; a+he agent of the state,
                    then in that,,eye?g he receives the foregoing
                    amount& .ks cqmpensation for ,,his servfces.
                    aisls~Lr.e.,~,She,,rentals,     royalties. and bonus-
        1,”          eq 4er&r& from- the leases ex4cuted by him
                    b,econyyprop~erty rights during the period of time
                    Ior whi&h the lease runs:. Prior to the.making of
                    .+E .x+wW      lea.se:,.the. ovmor:,:‘,of
                                                            ~tlie.
                                                                 .lan$&as .no
                    rig&i4 ko assi@ QP coxvmy.*qy :kpiger+,l;&hts in
                    thqwqmrty.       ;It.is .tbs int4ntJon.of~Ur+,laa th;at
                     the owner of the land shall be the agent of the
                     state to, execute mineral leases. :.Whepev?r a
                    minbral.lease     ox&M& .by ,a.p+r.Joqowryr;.tsr:         -
                    ~minst,&s~.ihe,~then   ow#     of:the land.bec~oxnes        ”
                    -the a&t, sf. *e state with ,authqri* to: sell or
              ,~.   .le4se the eil and gas mfneral rights, as pro?
                     vided for in tbc Relinquiahmeqt Act.

                          “‘The rulq is wall established that it is
                    :noktite.-policy #f the laws of thie st&to   favor
                     rastraiatsapon    alioaation”of prqqrtqy. The
                     cuurtwofthis~state    frave @abiishi+d tbexe
                    that ente ur royalties payatiI8uim4rtM~anZ         ..
                     gas rfineral ~lea,ses are severa~bl4.an$t S4pard;
                     he tram :~a qwnerynip ,ox me surzaci, ds.tate ,+qd
                     are prop.4xty rights, and, having astablishod tpss
                    ,-lo wftlr r4,s;pect to .su,ch property, we think, un:
                     S*r the policy.0: the, law of this state, that they
                     arp a$srgnahl,e by the owner t@erepf,‘;, LWX+r v.
                                                               .%,a(24
                                                                    !69,
                                          4   ,*;*   *   ~‘!


                          “keading the Constitution and &ah&es to.-, ,’ ~.
                    gather, there is no escape from the coxiclusion ‘~ ~~
                    that ,tbc intcrpsts, he-r.4involved Fro meant to be
                    taxed 46~real.:4statc.!~~~,Clasrifythem ‘8,: you may,
                    they prq at Ipast rights or pr~v@gea.belonging~
    -..   -
.


              Hon. Geo. H, Sheppard, Page 3 (V-739)



                  or in some wise appertaining to real property,
                  and the Legislature has provided that they be
                  taxed as such. Bracken v. Van Zandt County
                  (Tex.Civ.App.)  74 S.W.(2d) 540.”

                        On motion for rehaariag (124 Tex. 290, 80 S.W.(2d) 74l)i
              the Supreme Court held that the surfac’e ,owner’s royalty inter-
              est acquired by biro as agent for the State was taxable 4s an in-
              terest in land, irraspective 4s to whether, or not the mineral class-
              ified land was patented or unpatented.

                        Prior to the execution of the mineral lease, all of the min-
              eral interest in the mineral classified land is the prope,rty of the
              State of Texas, and the surface owner has no title to the minerals
              whatsoever&~, Hence, he is not. required to r,ender such~mineral in-
              terest for taxation or to pay an ad valorem tax thereon.

                       However, upon the execution, of a mineral lease by the sur?
              face owner 6s agent for ~theState of Tex4s, he is required to make
              rendition of and pay an ad valorem tax’upon the value of the royalty
                                                                 .
              interest acquired by him as agent by the’exccutloa     of the lease, as
              well as the surface value, during the lffe, of the lease. ,.

                                          SUMMARY

                          Prior to,the rxecution of a mineral lease by,tbe
                    ‘surface owner of State mineral classified land& the.
                     surface owner is liable for the payment of State ad
                     valoremtaxas. upemtke surfaoe va,lue only. After a
                     7@~1~&~tsrrr~*s      ~+en~~~ecnrerl :by .the -mdaci own-
                    ,.er 4s agent for the State of Texas, he is requir.Ld to
                 : :~,pay a State ad valOr4m tax uponthc royalty interest
              -~~~‘C)acqu~r.e~  0 y him by reasodof  the, execution of such
                  I lease; in addition to the surface valuc.~ Sheffield v.
                  1. Hogg, 124 Tex. 290, 77 S;W.(td) 1021, 80 S.W.(td) 741.

                                                         Yours very truly
                                                 ATTGRNEYGENERALOFTEXAS



                                                           C. K. Richards
                                                             Assistant
              CKR/JCP
