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. 

In your letter you request the opinion of this office 

as to State and local ad valorem taxation of a military housing 

project constructed on James Connally Air Force Base in accordance with the provisions of the Act of August 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., a private corporation, the lessee. 

We have a photostatic copy of the lease executed by 

the Government and the lessee. 

The lease provides that the Government will lease 

the described land for 75 years to the lessee to be 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 in the area where the installation is located as are 

designated by the Commanding Officer. In the event the Commanding Officer fails to designate such personnel within a stated 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 of the lease contract 

reads, in part, as follows: 

“8. That the Lessee shall pay to the proper 

authority, when and as the same become due and payable, all taxes, assessments, and similar charges 
Hon. Tom Moore, Jr., page 2 (S-124) 

which, at any time during the term of this Lease, 

may be taxed, assessed or imposed upon the Government or upon the Lessee with respect to or upon the leased property. In the 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 to the leasehold interest of the Lessee therein), this Lease shall be renegotiated so as to accomplish 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 to his leasehold interest in the leased property prior to the 

granting of such consent by the Congress of the 

United States. . . .” 

At the expiration of the lease all improvements made 

upon the premises and all items required to be furnished by the 

lessee are to remain on the leased premises and be the property 

of the Government without compensation. 

Use and occupancy of the leased premises are subject 

to such rules and regulations as the Commanding Officer shall prescribe for military and security purposes. After there is no Federal 

Housing Insured Mortgage on the property and the leased premises 

are no longer under the control of the Federal Housing Commissioner, the lessee and the Commanding Officer are to agree on maintenance and repair standards. 

The Government has the right after the expiration of 

fifty years and six months to terminate the lease provided the interest of the Federal Housing Administration in the lease and in any 

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. 

If other provisions and conditions stated in the lease, are 

material to a determination of your 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 of facts 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 to names, dates, etc., as 

we are not able to improve on this statement of the pertinent facts. 

Opinion No. V-1251 is overruled only insofar as it may 

be in conflict with this opinion which is ‘confined to the facts presented in this request. 

We do not think a deed of cession by the Governor pursuant to the authority granted by Article 5247, Vernon’s Civil Statutes, 

when construed in connection with other pertinent statutory provisions, 

both federal and state, serves to render federal immunity from taxation so static and unyielding as to foreclose ad valorem taxation by 

the State and its taxing political subdivisions upon all property located 

upon the ceded premises. This was not the intention of the Legislature 

or of Congress. The contracting parties here are the United States 

acting by its duly authorized representative as lessor and a private 

corporation incorporated under the laws of this State, Cavu Village 

Homes, Inc. as lessee. The contracting parties contemplated the imposition of taxes 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 8 of 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 in any sense a ‘Federal instrumentality,” and for 

that reason enjoys federal immunity from taxation. What is said by 

the Supreme Court of Florida in the case of Gay v. Jemison, 52 So.2d 

137 (1951), in passing upon the application of certain taxes imposed 

under Florida law upon a similar housing project erected upon a military reservation in that State is likewise applicable here. In that case 

the Court said: 

“Comparing the probable useful life of the 

buildings with the time for which the lease is to extend, the question immediately arises in one’s mind 

whether the useful life of the buildings will not have 

ended by the time the lease expires. We have already 

said also that the buildings are for the ‘primary’ use 

of military personnel. It may be assumed that this is 

the chief purpose of the 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 of the commanding officer of the field 

to designate persons of those classifications to tenant 

any units within a certain length of time after they become vacant, the lessee may then rent to parties who 
. - 

Hon. Tom Moore, Jr., page 4 (S-124) 

do not fall in any of these categories. 

‘It is an obligation of the lessee to comply 

with all ordinances with reference to licenses 

and permits to do business and it is its privilege 

to engage public utility companies to provide water, 

fuel, telephone service, and electric power for the 

use of the occupants of the units. The lessee is 

bound to maintain the property in a state of good 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 to insure the buildings and to restore any of them damaged by fire, but tf a building is wholly destroyed, then 

the lessee has the right to determine 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 to or 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 a year. 

“Bearing in mind what we consider the evident 

intent of the Congress of the United States, and construing the language of the 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 a public 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 a preference with reference to accommodations for its personnel, but taken 

as a whole, the arrangement is in reality one affording a source of income to the 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 the 
Hon. 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 of a building by fire, keeps, if it 

chooses, the money paid by the insurance company 

to cover the loss. The corporation must pay the 

debt it incurs to finance the installation, and certainly any profit for a period of seventy-five years 

belongs to it. Meanwhile as a part of its expenses 

there is the nominal payment of $100 a year to the 

government as lessor. 

“We believe the Comatroller’s uosition is correct and that the materials furnished by the contractor will not become a part of a government work but 

of buildings of a private 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 to attain its purpose, but without unnecessary 

interference of the right of taxation. Federal immunity from taxation is personal to the Government and may not be transferred to 

or be used for the protection of citizens or private corporations. 

In other words, as applied to the problem here, the Federal Government may not confer its immunity upon the Cavu Village Homes, Inc., 

a private 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 a contract 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, and Article 5248, which accords a conditional 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 in such a manner as to defeat the legislative intent 

or the intention of Congress embraced in the Federal Housing Act. 

We think it quite manifest that a private corporation, such as Cavu 

Village Homes, Inc., under the facts here presented is subject to ad 

valorem taxation under the laws of thin State upon the leasehold interest of such private corporation. Article 5248, as amended by 

chapter 37, Acts of the 51st Legislature, First Called Session, 1950, 

page 105, now reads as fo1Iows: 

“The United States shall be secure in their possession and enjoyment of all lands acquired under the 
Hon. 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 of this State so long as the 

same are held, owned, used and occupied by the 

United States for the purposes expressed in this 

title and not otherwise; provided, however, that any 

personal property located on said lands which is 

privately owned by any person, firm, associatron 

of persons or corporation shall be subject to taxation 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 of persons or corporation 

in its private capacity, or which is being used or 

occupied in the conduct of any private business or 

enterprise, shall be subject to taxation by this State 

and its political subdivisions.” 

The Governor’s deed of cession must be construed within the limits of this statutory provision, and the terms of the 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 in Texas 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, 54 S..c.2d 231-(Tex.Civ.App., 1932, 

error ref. ) . It is therefore quite apparent that the deed of cession 

by the Governor when construed in connection with the provisions of 

Article 5248, supra, the lease contract, and the acts of Congress 

does not have the effect of ceding unconditionally the State’s taxing 

power. It will 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 to be subject to State ad valorem taxes. In the 

Federal Housing Act it is specifically so provided. 

An examination of the lease in question from the Secretary of the Air Force to Cavu Village Homes, Inc., of date March 22, 

1952, discloses: 

(a) The lease was executed under authority of the Act 

of August 5, 1947 (10 U.S.C. 1270), and Title VIII of the National 
Hon. 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, at any time during the term of this lease, may be 

taxed, assessed or imposed on th<Gover~nment or upon the Lessee 

with respect to or upon the leased premises.” 

It is obvious from these provisions that the United States 

has required the Lessee to pay the taxes in question. Section 1270-D, 

10 U.S.C., under authority of which the lease in question was entered 

into and executed, provides, “the Lessee’s interest, made or created 

pursuant to the provisions of Sections 1270-1270-D of this Title, shall 

be made subject to State or local taxation.” 

Section 1748f, 12 U.S.C., also, pursuant to and under authority of which the lease in question 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 a part of the lease in question under the authorities cited. 

This is made clear in the case of Meade Heights, Inc. v. 

State Tax Commissioner, 95 A.2d 280 (Md.Ct.App.l953), in which the 

court was considering a lease similar in many respects to the lease 

here involved. In this case the court said: 

‘The lease between the Secretary of the Army, 

representing the Federal Government, and Meade 

Heights, Inc. provided for the lease of 28-l/2 acres 

of land in Fort Meade, to be used for the erection of 

348 housing units by the lessee, according to approved 

plans. It was made under the authority of Public Law 

364, 80th Congress, passed in 1947 and codified as 

Title 10 U.S.C.A. 51270, which authorized the Secretary of the Army ‘to lease such real or personal property underthe control of his Department . . . to such 

lessee or lessees and upon such terms and conditions 

as in his judgment will promote the national defense 

or will be in the public interest.’ Sec. 1270d provides 

that the ‘lessee’s interest, made or created pursuant 

to the provisions of sections 1270-1270d of this title, 

shall be made subject to State or local taxation.’ 

Title 12 U.S.C.A. 31748 et seq. passed two years later, 
Hon. Tom Moore, Jr., page 8 (S-124) 

established a system of mortgage insurance to encourage private interests to build and operate housing projects on military reservations. To be eligible the mor,tgagor had to be approved and to agree 

to restrictions as to sub-rents and tenants who were 

to be primarily military personnel.” 

It is quite apparent, it seems to us, that the Federal 

Government as lessor approved the lessee’s leasehold interest subject to ad valorem taxes imposed under our law, otherwise there 

would have been little reason to insert paragraph 8 in the lease 

which made the lessee liable for all taxes that might be imposed 

under our state law. There is little, if any, difference in the problem that was before the court in the case of Meade 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 a qualification that the lease must extend for 

three years or more and the lease here in question 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 of ascertaining the value. It is expressed in this language: “taxable leasehold estates shall be valued at such price as they would 

bring at a fair voluntary sale for cash.” We quote further from the 

case of Meade Heights, Inc. v. State Tax Commissioner, supra, 

which we think is appropriate here: 

“Coming to the main point, it is perfectly 

clear that, in the absence of congressional consent, 

express or implied, a State cannot impose a direct 

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 in government property are taxable 

to their 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. In the instant case, Congress has definitely consented to the taxation of the lessee-s interest. 

whatever that may be. It can only complain if, in fact, 

its reserved interest is subJect to taxation.” 

See, also, the case of Byram Holding Company v. Bogren, 63 A.2d 

822 (N. J. S.Ct., 1949), which holds that the Federal Government by 
Hon. Tom Moore, Jr., page 9 (S-124) 

its lawmaking power may waive wholly or with such limitations 

as it may deem proper, its immunity from State taxation. 

In other words, where Congress waives the tax immunity of the Federal Government and agrees that such property 

may be subject to taxation by the State in which it is located, such 

taxes may be imposed. Such is the situation we have here, but with 

a more cogent reason as to why the leasehold interest held by the 

private corporation under its lease from the Federal Government 

should be subject to ad valorem taxation under the laws of this State. 

The Federal Government has consented to the imposition of State 

taxation by the express covenant of the lease contained in paragraph 

8 quoted above, and Congress has in the Federal Housing Act expressly authorized ad valorem 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 to ad valorem taxation under the laws 

of this State. (Emphasis throughout supplied by the writer.) 

SUMMARY 

The leasehold interest of a private corporation 

which erected a housing project on a military reservation, over which the State ceded jurisdiction to the Federal Government after March 17, 1950, pursuant to the 

authority of the Act of August 5, 1947 (U.S.C. 1270), and 

Title VIII of the National Housing Act as amended (12 U. 

S.C. 1748-1748h), is subject to State ad valorem 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