E 

F S 

WILL WILSON 

ATTORNEY ORNERAE 

dbST,?XN 1lL. %?EtiS 

June 22, 1960 

Honorable R. L. Lattimore Opinion No. WW-863 

Criminal District Attorney 

Hidalgo County Re: Proper evaluation and 

Edinburg, Texas assessment for ad valorem 

tax purposes of gas producing properties under a 

contract presently suspended by the Federal 

Power Commissions pending 

Dear Mr. Lattimore: further hearing. 

Your request for an opinion concerns the proper valuation, 

for ad valorem tax purposes, of certain gas producing properties. 

You advise that the gas was originally being sold under a 

contract establishing the price per MCF at 7-$ cents, but that 

in 1954 a new contract setting the price at 12 cents per MCF 

was negotiated. The price change was "suspended" by the 

Federal Power Commission, acting under the authority of the 

Natural Gas Act (15 U.S.C.A. 717), pending a determination as 

to the lawfulness of the new rate. The Federal Power Commission 

did not act upon the rate suspension within five months, whereupon the producer, acting pursuant to the terms of Sec. 4(e) 

of the Act, placed in effect and began collecting the new 

contract price of 12 cents per MCF. The Commission then 

required the producer to furnish a bond to refund, with interest, 

the portion of the increased price which it might ultimately 

find unjustified. 

In reference to the foregoing facts you ask: 

"1. How should this property fi.e., the 

gas reservefl be evaluated and assessed? 

"2 . What recourse does the taxing jurisdiction have if the property has been evaluated, 

based on a 79 cent sales price and the F.P.C. 

allows a higher figure? The taxable value is 

directly related to the sales price. 

“3. Can the holder be assessed the value 

of the 'suspense' account?" flhe suspense 

account represents the amount of the rate 

increase collected by the producerJ 
Honorable R. L. Lattimore, Page 2 Opinion No. WW-863 

Article 7174, V.A.C.S., provides: 

“Each separate parcel of real property 

shall be valued at its true and full value 

in money, excluding the value of crops 

growing or ungathered thereon. 

“In determining the true and full value 

of real and personal property the assessor 

shall not adopt a lower or different 

standard of value because the same is to 

serve as a basis of taxation, nor shall he 

adopt as a criterion of value the price for 

which such property would sell at auction 

or a forced sale or in the aggregate with 

all the property In his county; but he shall 

value each tract or lot by Itself, and at 

such sum and price as he believes the same 

to be fairly worth in money at the time such 

assessment is made. 

11 

. . . . 

“Money, whether in possession or on deposit, 

or In the hands of any member of the family, 

or any other person whatsoever, shall be 

entered in the statement at the full amount 

thereof, 

“Every credit for a sum certain, payable 

either In money or property of any kind, shall 

be valued at the full value of the ssme so 

payable. , . ,” (Emphasis added.) 

Article 7149 states in part: 

” ‘Value I --The term, ‘true and full value’ 

wherever used shall be held to mean the 

fair market value, in cash, at the place 

where the property to which the term is 

applied shall be at the time of assessment, 

being the price which could be obtained 

therefor at private sale, and no at forced 

or auction sale.” 

The term “fair market value, In cash,” Is generally held 

to mean the price that the property would bring when It is 

offered for sale by one who desires to sell but is not 

obliged to sell, and is bought by one who desires to buy but 
1 

Honorable R. L. Lattimore, Page 3 Opinion No. WW-863 

is under no obligation to buy. State v. Carpenter, et al, 

89 S.W.2d 194 (Tex.Comm.App. 1936). Helms v. Day, 215 S W 

356 (Tex.Civ.App. 1948); Texas Pow& & Light C 

.2d 

224 S.W.2d 191 (Tex.Sup.Ct. 

ompany v.'Hering, 

Company v. Kiel 227 S.W.2d 

Pipe Line Company v. Hunt, 228 

King v. McGuff, et ux., 

M.K.T. Railway Company v. Jaffee Cotton' Products Company, 193 

S.W.2d 986 ITex.Civ.Aoo. 1946). Actual sales of comrJarable 

property in the vicinity on ornear valuation date is the most 

accurate indicla for determining market vlaue. However, all 

elements which properly reflect upon the "fair market value" 

can be taken into consideration. See Rowland v. City of Tyler, 

et al., 5 S.W.2d 756 (Tex.Com.App. 1928); see also l'( T ur., 

Evidence, Section 162, page 439. Our courts have presc%bed 

no definite or exact method by which property is to be valued. 

It is only required that the system adopted result in a 

valuation substantially the same as market value, City of 

Arlington v. Cannon, 263 S.W.2d 299 (Tex.Civ.App. Fan-. >53, rev'd. 

in part on other grounds, 271 S.W.2d 414) and not be arbitrary, 

discriminatory, or fraudulently induced. 40 Tex.Jur., Section 

114, page 159. However, a valuation cannot be based wholly 

on one factor alone. Port Arthur Independent School District 

v. Baumer, 64 S.W.2d 412 (Tex.Civ.App. 1933). 

Property is to be assessed for taxation at its value as 

of January 1 of the taxing year. See Article 7151, V.A.C.S.; 

Humble Oil & Refining Company v. State, 3 S.W.2d 559 (Tex. 

Civ.App. 1928); Kirby v. Transcontinental Oil Company, 33 S.W.2d 

471 (Tex.Civ.Aoo. 1930). Fluctuations in value or income 

(either enhsnc%at or deoreciationj cannot be anticinated. 

Humble Oil & Refining , supra; Kirby-v. 

Transcontinental Oil am Republic Natural 

Gas Company, 181 S.W. p. 1944, error ref.). 

Earning capacity, or income, from a mineral estate is of 

particular importance in estimating or assessing the value 

of the estate, Electra Independent School District v. W. T. 

Waggoner Estate, lb8 S.W.2d b45 (Tex.Civ.App. 1943) b ut in 

the Instant case, the amount of income which ultimaiely will 

be relaised from the suspended 12 cent contract price is 

prospective, or speculative. It is within the province of 

the Federal Power Commission to either grant the price increase, 

refuse it, or, if it is deemed in the interest of the public 

convenience and necessity, to reduce the price below the 73 

cents established by the original contract. What the Federal 

Power Commission will do, is, to a large extent, a matter of 

surmise and conjecture. Therefore, it is obvious that only 

the price that is certain as of January 1, i.e., 7$ cents 

per MCF, can be considered as income from the gas property. 
Honorable R. L. Lattimore, Page 4 Opinion No. WW-863 

The fact that the suspended 12 cents per MCF price cannot 

be considered as income does not mean that it must be altogether 

excluded from consideration in evaluating the property. The 

general rule on this point is stated in 51 Am.Jur., Sec. 706, 

p. 656: 

"It would seem upon principle that 

prospective value cannot properly be made 

the substantive basis for assessment, 

although it may be considered to the extent 

that it enters into or is reflected by 

present value." (Emphasis added.) 

To the same effect, see Lewis J. Summers v. City of Meridan, 

119 Conn. 5, 174 A. 184 (19341. McCardles Estate v. City of 

Jackson, 61 So.2d 44, (Miss.Su;.Ct. ated 

at.L.R. 649 and 95 A.L.R. 434. Texai ~pe~%e~oC~e in 

accord with this line of reasoning. 

108, p. 149, it is stated: 

At 40 Tex.Jur., Sec. 

"Prospective value, in the sense of 

value at some future time, cannot 

legitimately be made the basis of a 

determination of present value. On the 

other hand prospective value in the sense 

of potential future use, so far as it 

affects present market value, is undoubtedly 

a factor that may be considered." 

Therefore, it appears that the fact that a hearing to determine 

whether a rate increase should be allowed is pending before 

the F.P.C. can be considered to the extent that such fact 

affects the market value of the subject property as of January 

1. It cannot be said that a person desiring to buy the property 

would not take this factor into consideration. A buyer might 

offer a higher price because of the expectancy of a price 

increase; it is also possible that he would be induced to offer 

a lower price because the rate increase might be disallowed, 

which would necessitate refund of the money held in suspense 

and payment of six per cent interest thereon. 

The influence of this factor upon market value is fraught 

with surmise and open to conjecture. This, however, does not 

affect its status as a proper element for consideration; the 

same is more or less true of many elements which may be properly 

considered on the issue of value. As pointed out in Allen v. 

Rmery Indeoendent School District, 283 S.W. 674 (Tex.Civ.App. 

1926) : 
Honorable R. L. Lattimore, Page 5 Opinion No. W-863 

"There are numerous elements and 

tests of value. It is generally a matter 

of estimate or opinion, at best, as of 

time and distances and the like, and about 

which witnesses the most competent to 

know often widely differ in particular 

instances according to personal determination of the primary facts which support 

their conclusion. The constitutional provision is manifestly founded upon such 

recognized situations. Therefore, the 

conclusiveness of valuation must rest with 

such tax officers or tribunals 'as may be 

provided by law.' A presumption of correct 

action will attend what they do and give 

prima facie support to their conclusion when 

apparently warranted by law, but this proposition is not conclusive in any case. A merely 

and purely arbitrary or capricious valuation 

made by such tribunal disproportionate to the 

property's value is ground for objection and 

cause for interfering with its action." 

Because of the conjectural nature of this particular element of 

value, it is incumbent upon the taxing authority to use prudent 

judgment in considering it, and to receive all testimony 

regarding its influence upon the actual market value of the 

gas property. As was pointed out in State v. Illinois C. R. 

Company, 27 Ill. 64, 79 Am.Dec. 396 (1861): 

I, .We are not prepared to say that 

an assessor, making yearly valuations of property 

for taxation, can or ought to take into consideration anything more than the value of the property at the time he is called upon to value it, 

since, if it does increase in value in the 

process of time, advantage can be taken of it 

in future valuations, as they may be periodically 

made, but if he can and does look to the future 

for the purpose of ascertaining the present 

value of property, he should do it with extreme 

caution." (Emphasis added) 

From the foregoing discussion, it appears that the answer 

to your first question is that in assessing the property 

consideration should be given to all relevant and proper 

factors regarding value as of Januuary 1. Income is an 

important element to be considered but cannot act as the 

sole criterion. Only 74 cents per MCF can be considered as 
Honorable R. L. Lattimore, Page 6 Opinion No. ww-863 

the income from the property in question until otherwise 

changed by order of the Federal Power Commission. 

The fact that there is pending before the Federal Power 

Commission a hearing to determine whetherthe price of the 

gas produced from the property should be increased may be 

considered, but only to the extent that it actually influences 

or affects market value as of January 1. 

In answer to your second question, you are advised that 

the county must assess the property in accordance with the 

foregoing rules. There obviously would be no recourse to 

reassess the property and consider the income at 12 cents 

per MCF should the F.P.C. allow the higher figure. 

Your third question is whether the holder can be assessed 

the value of the suspense account. If the suspense account 

is represented by cash, either in the possession of the holder 

or on deposit in a bank, it is to be assessed as personalty. 

If the holder is a domiciliary of Texas and the suspense account 

is on deposit outside the State, the county of domicile may 

assess the account. See Article 7147, V.A;C.S., and FirstTrust Joint Stock Land Bank of Chicago v. City of Dallas, 

167 S.W.2d 783 (Tex.Civ.App. 1942, error ref.). 

In cases where no money is actually collected and held 

in suspense, a different result obtains. Debts due a person 

over and above his indebtedness are taxable as personalty. 

See Article 7147, V.A.C.S., and Fielder, The Texas Tax 

Structure, Vol. 20, page XV, V.A.C.S. If the producer carries 

the suspense account as a potential asset without actually 

collecting the money, no tax liability arises because there is 

no actual debt due until such time as the F.P.C. acts upon 

the suspended rate. Further, the potential asset would be 

offset by a potential liability on the books of the producer; 

therefore, there would be no debt due the producer "over and 

above his indebtedness". 

SUMMARY 

In evaluating property for ad valorem 

taxation, a taxing authority may notconsider 

as income from gas property a price which 

has been "suspended" by the F.P.C., but can 

consider only the price in effect prior to 

the suspended rate change. However, the fact 

that there is pending a hearing to determine 

whether the rate increase should be granted 

can be considered to the extent that such 
Honorable R. L. Lattimore, Page 7 Opinion No. ww-863 

fact influences the market value of the 

property as of January 1. 

The suspense account representing the 

money collected under the price increase 

can be taxed as personalty. However, if 

such price increase is not actually collected, 

it cannot be assessed for taxation because 

it is not a debt due the taxpayer over and 

above his indebtedness. 

Yours very truly, 

WILL WILSON 

Attorney General of Texas 

j&k N. Price 

Assistant 

JNP:cm 

APPROVED: 

OPINION COMMITTEE: 

W. V. Geppert, Chairman 

James R. Irion 

Jot Hodges 

J. Arthur Sandlin 

:Virgil Pullium 

REVIEWEDFOR THE ATTORNEYGENERAL 

By: Leonard Passmore