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                                             The Attorney             General of Texas
                                                                 December 3, 1981

MARK WHITE
Attorney General


                                           Honorable Stephen Davidchik               Opinion No. m-402
Supreme      Court Building
                                           Grayson County Attorney
P. 0. BOX 12546
Austin,    TX. 76711                       Third Floor, Courthouse                   Re:    Taxation     of   mineral
5121475-2501                               Sherman, Texas   75090                    interests
Telex    9101674-1367
Telecopier     5121475.0266                Dear Mr. Davidchik:

1607 Main St., Suite          1400              The Choctaw Watershed Improvement District was created by an act
Dallas, TX. 75201                          of the legislature and empowered to levy and collect an ad valorem tax
2141742-6944                               pursuant to article XVI, section 59 of the Texas Constitution.     See
                                           Acts 1959, 56th Leg., ch. 33, at 67. You write:
4624 Alberta       Ave., Suite       160
El Paso. TX.       79905                             In   1960,   the   Choctaw  Watershed   Improvement
9151533-3484                                         District was formed in Grayson County by the
                                                     enactment of . .. Acts 1959, 56th Leg., p. 67, ch.
                                                     33.   An ad valorem tax has been charged on the
1220 Dallas Ave.. Suite             202
                                                     surface   land that is within      this  designated
Houston.      TX. 77002
7 131650-0666                                        district; but in the past twenty years there has
                                                     been no tax applied to the producing mineral
                                                     interests   involved within   this district.     An
606 Broadway,         Suite   312                    opinion is desired on whether the watershed tax is
Lubbock,     TX.    79401
6061747-5236
                                                     due on the producing mineral interest for present
                                                     and past years.

4309 N. Tenth. Suite          6                 A "producing mineral interest," as we understand the use of the
McAllen,    TX. 76501
                                           term in your letter, means a mineral interest such as an oil or gas
5121682-4547
                                           lease, a royalty interest therein, or a mineral estate in fee, from
                                           which mineral production is obtained -- all representing minerals in
200 Main Plaza. Suite 400                  place.   Minerals in place (and interests therein) are real property.
San Antonio,  TX. 76205                    See State v. Quintana Petroleum Company, 133 S.W.Zd 112 (Tex. 1939).
512/225-4191                               The term does not include oil or other minerals after they have been
                                           extracted from the soil and reduced to possession.      Property of the
An Equal      Opportunity/                 latter   type   is tangible  personalty,  not   realty.     _See Sabine
Affirmative     Action     Employer        Production Company V. Frost National Bank, 596 S.W.2d 271 (Tex. Civ.
                                           APP. - Corpus Christi 1980, no writ); 38 Tex. Jur. 2d Mines and
                                           Minerals 92, at 704; 42 Tex. Jur. 2d Oil and Gas 57, at 29.

                                                In 1979, the legislature enacted the first title of a new tax
                                           code, but until the new code takes full effect next year, a number of
                                           older tax laws remain applicable.    Generally, the code is to take
                                           effect January 1, 1982, but some parts have already become effective.




                                                                           p. 1363
Honorable Stephen Davidchik - Page 2   (MW-402)




See Acts 1979, 66th Leg., R.S., ch. 841, §3, at 2313.        Among the
provisions which have already taken effect are section 11.01 and (to
the extent necessary to apply section 11.01) section 1.04 of the 1979
Property Tax Code.   Section 11.01 declares that all real and tangible
personal property that this state has jurisdiction to tax is taxable
unless exempt by law.      See also Tex. Const. VIII, §l ("All real
property and tangible personal property...      shall be taxed....").
Section 1.04 declares "real property" to mean, among other things, "a
mineral in place."

      Inasmuch as all mineral interests, producing or non-producing,
are real property, and inasmuch as all real property and tangible
personal property must be taxed unless it has been legally exempted
under   the constitution,   the  fact  that   a mineral   interest  is
"producing" is not determinative of its status as taxable property,
although it will ordinarily have some bearing on the ease with which
its taxable value can be determined.     See Property Tax Code 523.17
(appraisals of mineral interests not being produced).   Similarly, the
value of a mineral interest is subject to tax whether the interest has
been severed from the surface estate or is still owned by the owner of
the surface.   As noted in Erskine, Ad Valorem Taxation of Mineral
Property, 21 Baylor Law Review 46, 52 (1969):

              Ordinarily realty in Texas is taxed as a unit
         and the owner of both mineral and surface estates
         pays but a single tax based upon the aggregate
         value of both, but where the owner severs the
         minerals   from    the remainder   of the land by
         conveyance,     exception,   or   reservation,   two
         distinct estates are created, and each is subject
         to separate     taxation.   Where   there have been
         severances of estates by conveyance, exception, or
         reservation, so that one portion of the realty
         belongs   to one person and other portions        to
         others, each owner should pay taxes under proper
         assessment against him on the portion owned by
         him; the fact that a portion may consist of a
         fractional   interest    in the minerals   makes no
         difference.

     Consequently,  we advise you that the watershed       improvement
district tax is due for the current year on the value of all producing
mineral interests (as well as all non-producing mineral interests) in
lands not excluded from the boundaries of the district.  See Sheffield
v. Hogg, 77 S.W.2d 1021 (Tex. 1934); State v. Downman,m       S.W. 787
(Tex. Civ. App. - 1911, writ ref'd), aff'd 231 U.S. 353 (1913).

      Whether producing or not, and whether severed from the surface
or not, mineral interests have been taxable as real property for all




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    Honorable Stephen Davidchik - Page 3   (MW-402)




    the years the Choctaw Watershed Improvement District has been in
    existence.   See V.T.C.S. arts. 7145, 7146 (repealed by the 1979
    Property TaxCode,    Acts 1979, 66th Leg., R.S., chSta8t446,v§§6(a)(l),
    6(d), at 2329, 2330); Sheffield v. Hog&, supra;             . Downman,
    supra.  Until the new tax code takes effect January 1, 1982, any real
    property discovered    to have "not been assessed or rendered for
    taxation for any year since 1870" should be listed and assessed for
    those years by the assessor of taxes. V.T.C.S. art. 7207.     See also
    V.T.C.S. arts. 7208, 7346. When the new code becomes effective, the
    period for which back taxes on real property may be assessed will he
    statutorily limited to ten years.   Property Tax Code 525.21. But see
    Tex. Const. art. III, 555. Cf. Republic Insurance Company v. Highland
    Park Independent School District, 171 S.W.2d 342 (Tex. 1943) (personal
    property hack assessments).

         In the absence of fraud or illegality hack taxes against real
    property can he assessed 3      against property that was not assessed
    or rendered in a prior year.    See Property Tax Code 825.21; V.T.C.S.
    art. 7207 (repealed by the 1979xoperty     Tax Code); Yamani v. Gentle,
    488 S.W.2d 839 (Tex. Civ. App. - Dallas 1972, writ ref'd n.r.e.);
    Attorney General Opinion C-781 (1966). If property has been assessed
    or rendered for taxation in prior years, it cannot be back-taxed for
    those years even if the assessment or rendition failed to take into
    account all factors that should have contributed to the valuation of
    the land (such as minerals in place). Back taxes cannot he assessed
    for those years because the assessment of the land necessarily
    included an assessment of the mineral estate unless the mineral estate
    and the surface had been previously severed.     Humble Oil & Refining
    Company v. State, 3 S.F!.2d 559 (Tex. Civ. App. - Waco 1927, writ
    ref'd).   S:ee Victory v. Hinson, 102 S.W.2d 194 (Tex. 1937).       Cf.
    Property Tax Code $24.12 (omitted intangible value of transportation
    operations).   See also Erskine, supra.

         We therefore advise you that the watershed improvement district
    tax is to be assessed and collected for prior years on the value of
    producing or non-producing mineral interests that escaped taxation in
    those years.   A mineral interest will not be considered as having
    escaped taxation for the year, however, if (1) it had not been severed
    from the surface estate prior to January 1 of that year, and (2) the
    surface estate was rendered or assessed for that year.     -

                                 SUMMARY

                   The Choctaw Watershed Improvement District
              tax is to be assessed and collected for the
              current   year   on the value   of producing   and
              non-producing   mineral estates, whether   severed
              from the surface or not, located within        the
              district.    Back taxes are to he assessed and




                                     p. 1365
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Honorable Stephen Davidchik - Page 4     (MW-402)




          collected for prior years on the value of all
          producing and non-producing mineral estates that
          escaped  taxation   in prior years.     A mineral
          interest will not be considered as having escaped
          taxation for the year, however, if (1) it had not
          been severed from the surface estate prior to
          January 1 of that year, and (2) the surface estate
          was rendered or assessed for that year.


                                       %a

                                         M A R.K   WHITE
                                         Attorney General of Texas

JOHN W. FAINTER, JR.
First Assistant Attorney General

RICHARD E. GRAY III
Executive Assistant Attorney General

Prepared by Bruce Youngblood
Assistant Attorney General

APPROVED:
OPINION COMMITTEE

Susan L. Garrison, Chairman
Jon Bible
Jim Moellinger
Bruce Youngblood




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