March 10, 1954

Hon. Tom Moore, Jr. .Opinion No. S-124 District Attorney McLennan County Re: Ad valorem taxation of Waco, Texas military housing units constructed and maintained on James Conally Air Force Base by priDear Sir: vate corporation.

Inyour letter you request the opinion of this office
as to State and local advalorem taxation ofamilitary housing project constructed onJames Connally Air Force Base inaccordance with the provisions of the Act ofAugust 5, 1947 (10 U.S.C. 1270) and Title VIII of National Housing Act as amended (12 U.S. C. 1748-1748h), by the Cavu Village Homes, Inc., aprivate corporation, the lessee.

We have aphotostatic copy of the lease executed by the Government and the lessee.

The lease provides that the Government will lease the described land for 75years to the lessee tobe used for erecting, maintaining and operating the housing project. Lessee is to pay the Government an annual rental of $100.00. Provision is made for obtaining mortgage insurance under Title VIII of the National Housing Act. The lessee is required to lease all units of the housing project to such military and civilian personnel of the Army, Navy, Marine Corps or Air Force (including Government contractors’ employees) assigned to duty at the military installation or inthe area where the installation is located as are designated by the Commanding Officer. Inthe event the Commanding Officer fails to designate such personnel within astated period, and upon other stated conditions, the lessee may lease the units to persons other than said military or civilian personnel. Detailed provisions cover leasing agreements made by the lessee.

The eighth covenant and condition ofthe lease contract reads, inpart, as follows:

“8. That the Lessee shall pay tothe proper authority, when and as the same become due and payable, all taxes, assessments, and similar chargesHon. Tom Moore, Jr., page 2 (S-124)

which, at any time during the term ofthis Lease, may be taxed, assessed or imposed upon the Government or upon the Lessee with respect to or upon the leased property. Inthe event any taxes, assessments or similar charges are imposed with the consent of the Congress of the United States upon the property owned by the Government and included in this Lease (as opposed tothe leasehold interest ofthe Lessee therein), this Lease shall be renegotiated so as toaccomplish an equitable reduction in the rental provided above, which shall not be greater than the difference between the amount of such taxes, assessments or similar charges which were imposed upon such Lessee with respect tohis leasehold interest inthe leased property prior tothe granting of such consent by the Congress of the United States.

. ..”

At the expiration ofthe lease all improvements made upon the premises and all items required tobe furnished by the lessee are to remain on the leased premises and be the property ofthe Government without compensation.

Use and occupancy ofthe leased premises are subject to such **rules** and regulations as the Commanding Officer shall prescribe for military and security purposes. After there is noFederal Housing Insured Mortgage onthe property and the leased premises
are no longer under the control of the Federal Housing Commissioner, the lessee and the Commanding Officer are toagree onmaintenance and repair standards.

The Government has the right after the expiration of fifty years and six months toterminate the lease provided the interest ofthe Federal Housing Administration inthe lease and inany mortgage on the leasehold interest has been fully terminated. After there is no mortgage held or insured by the Federal Housing Administration on the leasehold estate, and the leased premises are no longer under the control of the Commissioner, all disputes concerning establishment of rental rates shall be decided by specified parties.

Ifother provisions and conditions stated in the lease, are material toadetermination ofyour question, we shall take note of the same in the course of our opinion.

This office has heretofore rendered an opinion upon this question on substantially the same facts. (Op. No. V-1251.) We have for the purpose of this opinion adopted the statement offacts as stated- .

Hon. Tom Moore, Jr., page 3 (S-124)

above upon which Opinion No. V-1251 was predicated. We have made only such changes as necessary to conform tonames, dates, etc., as we are not able to improve on this statement ofthe pertinent facts.

Opinion No. V-1251 is overruled only insofar as it may be in conflict with this opinion which is ‘confined tothe facts presented inthis request.

We do not think adeed of cession by the Governor pursuant to the authority granted by Article 5247, Vernon’s Civil Statutes, when construed inconnection with other pertinent **statutory** provisions, both federal and state, serves to render federal immunity from taxation so static and unyielding as toforeclose advalorem taxation by the State and its taxing political subdivisions upon all property located upon the ceded premises. This was not the intention ofthe Legislature
or of Congress. The contracting parties here are the United States acting by its duly authorized representative as lessor and aprivate corporation incorporated under the laws ofthis State, Cavu Village Homes, Inc. as lessee. The contracting parties contemplated the imposition oftaxes by the State and its political subdivisions notwithstanding the deed of cession by the Governor, or at least the possibility of such taxation. This is manifest by paragraph 8of the lease quoted above. We do not think it can be seriously contended that the **Cavu** Village Homes, Inc., the lessee, is owned and controlled by the Federal Government, or is inany sense a ‘Federal instrumentality,” and for that reason enjoys federal immunity from taxation. What is said by the Supreme Court ofFlorida inthe case of Gay v. Jemison, 52 So.2d 137 (1951), inpassing upon the application of certain taxes imposed under Florida law upon asimilar housing project erected upon amili**tary** reservation inthat State is likewise applicable here. Inthat case the Court said:

“Comparing the probable useful life ofthe buildings with the time for which the lease is to extend, the question immediately arises inone’s mind whether the useful life ofthe buildings will not have ended by the time the lease expires. We have already said also that the buildings are for the ‘primary’ use ofmilitary personnel. Itmay be assumed that thisis the chief purpose ofthe installation; however, the lease contains the statement that the property may be occupied by civilian as well as military personnel of the army, marine corps, and air force; and, further, that upon failure ofthe commanding officer ofthe field to designate persons ofthose classifications totenant any units within acertain length oftime after they become vacant, the lessee may then rent to parties who. -

Hon. Tom Moore, 

### Jr., page 4 (S-124)

donot fall inany ofthese categories.

‘It is anobligation ofthe lessee to comply with all ordinances with reference to licenses and permits todo business and it is its privilege to engage public utility companies to provide water, fuel, telephone service, and electric power for the
use ofthe occupants ofthe units. The lessee is bound to maintain the property inastate ofgood repair and to save the government harmless against all actions and suits springing from any failure in this respect.

“The lessee is required at its own cost toinsure the buildings and to restore any ofthem damaged by fire, but tfabuilding is wholly destroyed, then the lessee has the right todetermine that the building shall not be reproduced.

“The lessee must pay ‘all taxes, assessments, and similar charges which, at any time during the term of (the) lease, may be taxed, assessed or imposed upon the Government or upon the Lessee with respect toor upon the leased premises.’

“The bare title of the property, of course, remains in the United States government, and for its
use the government receives but $100 ayear.

“Bearing inmind what we consider the evident intent ofthe Congress ofthe United States, and construing the language ofthe contract between the GOVernment of the United States and the lessee, we cannot arrive at the chancellor’s conclusion that this housing project when completed will be apublic work owned by the United States Government.

**“ It**  is **true that**  **the** government, through its military, retains a certain supervision over the area where the proj~ect is located and has apreference with reference toaccommodations for its personnel, but taken
as awhole, the arrangement is inreality one affording asource of income tothe lessee, and we think it is obvious that any money withheld from the state by applyrng the exemption would not benefit the nattonal exchequer but would reach the pockets of private citizens. The corporation borrows the money, takes theHon. Tom Moore, Jr., page 5 (S-124)

risks, bears the cost of maintenance and insurance, receives the income from rentals, and in case of total destruction ofabuilding by fire, keeps, ifit chooses, the money paid by the insurance company to cover the loss. The corporation must pay the debt it incurs tofinance the installation, and certainly any profit for aperiod of seventy-five years belongs to it. Meanwhile as apart of its expenses there is the nominal payment of $100 ayear tothe government as lessor.

“We believe the Comatroller’s uosition is correct and that the materials furnished by the contractor will not become apart ofagovernment work but ofbuildings ofaprivate enterprise, and thereforeare subject to state tax.

. ..”

The immunity of the Federal Government from State taxation of its property and instrumentalities must be given a practical application toattain its purpose, but without unnecessary interference ofthe right oftaxation. Federal immunity from taxation is personal tothe Government and may not be transferred to or be used for the protection of citizens or private corporations. Inother words, as applied to the problem here, the Federal Government may not confer its immunity upon the Cavu Village Homes, Inc.,
aprivate corporation. Ken Realty Co., Inc. v. Johnson Tax Assessor of Jefferson County, Ala., 138 F.2d 809 (1944). The mere fact that a private corporation conducts its business under acontract with the United States does not make it “an instrumentality of the United States” immune from State taxes. Buckstaff Bath House Co. v. McKinley, 60 S.Ct. 279, 308 U.S. 358, 84 L.Ed. 322 (1939).

Article 5247, which authorizes the deed of cession by the Governor, andArticle 5248, which accords aconditional exemption from taxation of land ceded, are part of the same Title 85 of the Revised Civil Statutes and should be construed together. They should not be construed insuch amanner as todefeat the legislative intent or the intention of Congress embraced in the Federal Housing Act. We think itquite manifest that aprivate corporation, such as Cavu Village Homes, Inc., under the facts here presented is subject toad valorem taxation under the laws ofthin State upon the leasehold interest ofsuch private corporation. Article 5248, as amended by chapter 37, Acts ofthe 51st Legislature, First Called Session, 1950, page 105, now reads as fo1Iows:

“The United States shall be secure intheir possession and enjoyment ofall lands acquired under theHon. Tom **Moore, Jr.,**  page 6(S-124)

provisions of this title; and such lands and all improvements thereon shall be exempt from any taxation under the authority ofthis State so long as the
same are held, owned, used and occupied by the United States for the purposes expressed inthis title and not otherwise; provided, however, that any personal property located onsaid lands which is privately owned by any person, firm, associatron ofpersons or corporation shall be subject totaxation bv this State and its political subdivisions; and provided, further, that any portion of said lands and improvements which is used and occupied by any person, firm, association ofpersons or corporation inits private capacity, or which is being used or occupied inthe conduct of any private business or enterprise, shall be subject totaxation by this State and its political subdivisions.”

The Governor’s deed of cession must be construed withinthe limits of this statutory provision, and the terms ofthe statute will be read into the deed of cession. When this is done, the leasehold interest which is privately owned must be rendered for taxation by the State and its political subdivisions.

As to contracts with respect to performance of certain acts orescribed bv **statute.** it is the well settled rule inTexas that the contract and statute will be construed together. Empire Gas &Fuel Co. v. State, 121 Tex. 238, 47 S.W.Zd 265. The statute becomes a **part** of the contract whether specifically incorporated therein or not. Pearson Lumber Co. v. Cooper, 54S..c.2d 231-(Tex.Civ.App., 1932,
error ref.

.

) Itis therefore quite apparent that the deed of cession by the Governor when construed inconnection with the provisions of Article 5248, supra, the lease contract, and the acts ofCongress does not have the effect ofceding unconditionally the State’s taxing power. Itwill not be presumed that the Legislature intended for the Governor to relinquish any more of the State’s sovereign power of taxation than necessary. Moreover, it is clear that Congress intended this property held by the corporation under its lease from the Federal Government tobe subject toState advalorem taxes. Inthe Federal Housing Act it is specifically so provided.

An examination of the lease in question from the Secretary oftheAir Force to Cavu Village Homes, Inc., ofdate March 22, 1952, discloses:

(a) The lease was executed under authority ofthe Act ofAugust 5, 1947 (10 U.S.C. 1270), and Title VIII ofthe NationalHon. Tom Moore, 

### Jr., page 7(S-124)

Housing Act as amended (12 U.S.C. 1748-1748h).

(b) Paragraph eight of the lease expressly provides

‘that the Lessee shall pay to the proper authorities when and as the
same become due and payable, all taxes, assessments, and similar charges, which, atany time during the term of this lease, may be taxed, assessed or imposed onth<Gover~nment or upon the Lessee with respect to or upon the leased premises.”

Itis obvious from these provisions that the United States has required the Lessee to pay the taxes inquestion. Section 1270-D, 10U.S.C., under authority ofwhich the lease inquestion was entered into and executed, provides, “the Lessee’s interest, made or created pursuant tothe provisions ofSections 1270-1270-D ofthis Title, shall be made subject toState or local taxation.”

Section 1748f, 12U.S.C., also, pursuant toand under **au** thority ofwhich the lease inquestion was entered into by Lessee, provides “nothing in this subchapter shall be construed to exempt any real property acquired and held by the Commissioner under this Title from taxation by any State or political subdivision thereof to the same extent, according to its value as other real property is taxed.” This provision is likewise apart of the lease inquestion under the authorities cited.
This is made clear inthe case of Meade Heights, Inc. v. State Tax Commissioner, 95A.2d 280 (Md.Ct.App.l953), inwhich the **court** was considering alease similar inmany respects tothe lease here involved. Inthis case the court said:

‘The lease between the Secretary of theArmy, representing the Federal Government, and Meade Heights, Inc. provided for the lease of 28-l/2 acres ofland inFort Meade, tobe used for the erection of 348 housing units by the lessee, according toapproved plans. Itwas made under the authority ofPublic Law 364, 80th Congress, passed in 1947 and codified as Title 10U.S.C.A. 51270, which authorized the Secretary ofthe Army ‘to lease such real or personal property underthe control ofhis Department

.. .to such lessee or lessees and upon such terms and conditions
as inhis judgment will promote the national defense or will be inthe public interest.’ Sec. 1270d provides that the ‘lessee’s interest, made or created pursuant tothe provisions of sections 1270-1270d of this title, shall be made subject toState or local taxation.’ Title 12U.S.C.A. 31748 et seq. passed two years later,Hon. Tom Moore, Jr., page 8(S-124)

established asystem of mortgage insurance to encourage private interests tobuild and operate housing projects on military reservations. To be eligible the mor,tgagor had tobe approved and toagree to restrictions as to sub-rents and tenants who were tobe primarily military personnel.”

Itis quite apparent, it seems tous, that the Federal Government as lessor approved the lessee’s leasehold interest subject to advalorem taxes imposed under our law, otherwise there would have been little reason to insert paragraph 8inthe lease which made the lessee liable for all taxes that might be imposed under our state law. There is little, ifany, difference inthe problem that was before the court inthe case ofMeade Heights, Inc. v. State Tax Commissioner, supra, and the problem before us. The Maryland law, as does ours, provides for taxation of leasehold estates. **Our** law has aqualification that the lease must extend for three years or more and the lease here inquestion extends quite beyond the useful life of the buildings constructed by the lessee. Out statute which provides for the taxation of leasehold interests is Article 7173, V.C.S., and Article 7174, V.C.S., provides the method ofascertaining the value. Itis expressed inthis language: “taxable leasehold estates shall be valued at such price as they would bring at afair voluntary sale for cash.” We quote further from the
case ofMeade Heights, Inc. v. State Tax Commissioner, supra, which we think is appropriate here:

“Coming tothe main point, it is perfectly clear that, inthe absence of congressional consent, express or implied, aState cannot impose adirect tax upon property owned by the Federal Government or held for it. John Hopkins Univ. v. Board of Coun185 Md. 614, 45 A.2d 747; United States ? Ezmoi?;legheny County, Pa., 322 U.S. 174, 64 S. Ct. 908, 88 L.Ed. 1209. But it is equally clear that private interests ingovernment property are taxable totheir full value. Baltimore Dry Dock Co. v. Baltimore City, supra; S.R.A., Inc. v. State of Minnesota, 327 U.S. 558, 66 S.Ct. 749, 90 L.Ed. 322; New Brunswick v. United States, 276 U.S. 547, 48 S,Ct. 371, 72 L.Ed. 693. Inthe instant case, Congress has definitely consented tothe taxation of the lessee-s interest. whatever that may be. Itcan only complain if, infact, its reserved interest is subJect totaxation.”
See, also, the case ofByram Holding Company v. Bogren, 63A.2d 822 (N. J. S.Ct., 1949), which holds that the Federal Government byHon. Tom Moore, Jr., page 9(S-124)

its lawmaking power may waive wholly or with such limitations
as itmay deem proper, its immunity from State taxation.

Inother words, where Congress waives the tax immunity of the Federal Government and agrees that such property may be subject to taxation by the State inwhich it is located, such taxes may be imposed. Such is the situation we have here, but with
amore cogent reason as towhy the leasehold interest held by the private corporation under its lease from the Federal Government should be subject toadvalorem taxation under the laws ofthis State. The Federal Government has consented tothe imposition ofState taxation by the express covenant ofthe lease contained inparagraph 8quoted above, and Congress has inthe Federal Housing Act expressly authorized advalorem taxation upon the leasehold estate under the laws of our State.

We therefore hold that the leasehold interest of the Cavu Village Homes, Inc., is subject toadvalorem taxation under the laws ofthis State. (Emphasis throughout supplied by the writer.)

SUMMARY
The leasehold interest ofaprivate corporation which erected ahousing project on amilitary reservation, over which the State ceded jurisdiction tothe Federal Government after March 17, 1950, pursuant tothe authority oftheAct ofAugust 5, 1947 (U.S.C. 1270), and Title VIII of the National Housing Act as amended (12 U. S.C. 1748-1748h), is subject toState advalorem taxes.
**Yours** very truly,

APPROVED:

W. V. Geppert Taxation Division JOHN BEN SHEPPERD Attorney General

John Atchison Reviewer Mary K. Wall Reviewer Assistant

Robert S. Trotti First Assistant LPL:mg