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## THEATTORNEY GENERAL.
OP TEXAS

AT-roRNEYGENERAl. December 12,

## 1962

HonorableJames A. Morris Opinion No, WW-1492 DistrictAttorney Courthouse Ae: (1)Whether the value of Orange, Texas real estate occupiedby a National Bank under a leaaepurchase agreementpursuant to which agreement the Bank pays taxes thereonmay be deducted from the value of the capital Stock, surplus and undividedprofits in determining the value of the shares of stock of said Bank when the value of such real estate was not taken into consideral tlon in arriving at the actual cash value of the aharea. (2)Whether a back-assessmentmay be made against the ahareholders under submitted Dear Mr. Morris: facts.

We quote the following excerpt from the statement attached to your letter requeating the opinion of this office

on the above captionedmatters:

"The CountyNational Bank of Orange, Texas was organized and began operations during the year

## 1960. The real estate and Improvementsoccupiedby the bank aa Its banking house are owned in fee by Mr. E. W. Brown, Jr., who ha8 leased the property to CountyNational Bank by the attached lease-purchaseagreement. In addition to,.astipulatedmonthly rental, the bank ia obligated to pay certain insurancepremiuma, a0 well as all taxes upon theproperty Involved. The land and improvementswere renderedby the bank for the year

## 1961 and 

## 1962

and the 

## 1961 taxeswere paid by the bank, The bank has also furnished the Tax AaaessorCollector of Orange IndependentSchool District with a list ahowing Its capital,Honorable James A. Morris, Page 2 OpinionNo. WW-1492

surplus and undividedprofits and a list of the names and addresses of its shareholders and the number of shares owned by each. In determining the value of the personalproperty to be assessed to the shareholders, the bank has subtracted from its capital structure the value of the real estate upon which it paid the taxes. The bank's published statementof condition does not list any real estate among its
resources.

"Our first question is:

"Wherea National Bank occupies real property under such a lease-purchase agreement and pays the taxes thereon in compliancewith the lease, should the value of the real estate [which was not taken Into consideration in arrlvin at the actual cash value of the shares -7 be deducted from the value of the capital stock, surplusand undivided profits in determining the value of personal property to be asaeaaed to the shareholders?"

The lease-purchaseagreement is for a term of five years. The lessor agreed to construct the bank building and improvements according to certainplans and specifications. At any time prior to the expiration of the original term of the lease, the lessee has an option to renew the lease for a further term of five years upon the original expiration date of the agreement with a further option to renew the lease for a third fiveyear period. Lessee has the right and option to purchase the leasedpremises during the various terms of the lease.

Article

## 7166,

Vernon's Civil Statutes,reads, in part,
as follows:

"Everybanking corporation,State or

national doing bualneas in this State shall, in the city or town inwhich it is located,render its real estate to the tax assessor at the time and in the
manner required of individuals. At the time of making such rendition the president or some other officer of said bank shall file with said assessor a sworn statement showing the number and amount of the shares of saidbank, the name and ,Honorable James A. Morris, Page 3 Opinion No. WW-1492

residence of each shareholder,and the number and amount of shares ownedby him. Every shareholderof said bank shall, in the city or townwhere said bank Is located,render,at their actual value to the tax assessor all shares owned by him in such bank; and in case of his failure 30 to do, the assessor shall assess such unrendered shares as other unrenderedproperty. Each share in suchbank shall be taxed only for the differencebetween its actual cash value and the proportionateamountper share at which its real estate is as-. aessed. The taxes due upon the shares of banking corporationsshallbe a lien thereon,and no banking corporationshall pay any dividend to any shareholderwho is In default in the payment of taxes due on his shares;nor shall any banking corporationpermit the transferupon its books of any share, the owner of which is In default in thepayment of his taxes upon the same.

. . ."

**We** call your attention to the fact that the value of shares of bank stock for ad valorem tax purposes should be based upon the actual cash value of the Stock, leas the value of the proportionateamount per share of the real estate owned: by the,bank.,.AttorneyGeheral's.OpfnlonNo. WW-1208pointed **out** that dependingupon the facts of each case, the actual cash value of the sharesmight or might not be obtainedby adding the value of the capital stock, the amount of surplus. undivided profits or reserve funds. As stated inRosenburg-v.Weekes, 67 Tex. 578. 4 S.W. 899. "Thevalue of a bank share deuends upon the-value of its-franchise,capital, and_property-ofall kinds, leas the amount of its debts." We assume that the m-d which has been followed In this case does, in fact, arrive at the actual cash value of the stock. However, it Is noted that the value of the leasehold Interest in the real estate, if any, waa not taken into consideration in arriving at the actual cash value of the ahares.

**We** think that the provisions of Article 7166 are clear and unambiguous, and each share in a bank shall be taxed only for the differencebetween Its actual cash value and the proportionateamount per ahare at which real estate actually owned by the bank is asseased. Ithas been held that the effect of Article 7165, V.C.S. and Article 7166, V.C.S;, is to require the banking corporation to pay taxes on all of its real estate and the shareholdersto pay the taxes on the personalHonorableJames A. Morris, Page 4 OpinionNo, WW-1492

property. Marshall ,v:

Engelgeke v. Schlenker, 12 S.W. ggg,&idgo); ;ity of StateBank of Marshall, 127 S.W. 10 3 (Civ.pp. 910, error ref.-)-.Implicit in the holdings of theae cases, is the requirement of actual ownershipby the banking corporation.

Attorney General's OplnlonNo. O-1214 held that the leglalatlvepurpose inpermitting the deductionof the assessed valuationof real estate ownedby the bank in arriving at the value of the ahareawaa to prevent double taxation of the real estate owned by the bank. In the instant case, the taxespaid by the bank amount to nothingmore than a part of the considerationpaid for the lease. Thus refusing to allow deduction for the assessedvaluationof the real estate In this case in valuing the shares of stock does not result in double taxation since the real estate isnot taxed again through the shareholders
as a part of the assets of the bank, as the value of the real estate, if any, was not taken into consideration in arriving at the actual value of the shares.

**We**quote again from the statementattached to your request:

"Our second question results from the

failure of the school district to make **any** aaaeaamentagainst the shareholder.3 for the year 1961. Along with its real estate rendition, the bank furnisheda statementof its capital, surplus and undividedprofits, a copy of which is attached,as well as a list of its shareholders and the number of shares owned by each. Since the omissionwas discoveredwithin two years,we infer that It is proper tomake a back-assessment for the year 1961 against the shareholders at the value determined to be correctby your anawer to the first question. The bank contends that the unsigned list showing capital, surplus and undividedprofits, togetherwith the list of shareholders,constituteda rendition of thepersonalproperty on behalf of the shareholdersand further contend8 that such property cannotnow be back-assessed.

"Our second question is:

"Shouldthe school tax anaessorcollectormake a back-assessmentforHonorable James A. Morris, Page 5 OPin,ionNo. WW-1492

the year 1961 against the shareholders in themanner provided inArticle 7208?”

The provisions of Article 7208, V.C.S., read as follows:

“If the assessor of taxes shall discover in his county any property, or outside of his countybut belonging to
a resident of the county, any personal propertywhich has not been assessed or rendered for taxation every year for two years past, he shall list and assess the same for each year thus omitted which it has belonged to said resident, in themanner prescribed for assessing other property; and such assessment shall be as valid and binding as though ithad been renderedby the owner thereof.”

InRepublic Ins. Co. v. Highland Park IndependentSchool District, 141 Tex. 224 171 S W 2d 342 (1943) th e court held that Article 7208 has Ao application to schooi district assessora,but only to county assessors in assessing taxes due the state and county. In that case the attemptedback-assessment involved taxesmorethan two years past due. We quote the following excerpt from page 348 of the court’s opinion:

II

. . .Wehave said thatArt. 2791, aupra, gives the assessor and ~01:~ lector of an independentschool diatrict the aame powers and dutieswith respect to assessing and collecting taxes as are vested in the tax officials of towns and villages. The very next article (2792,R.S. 1925) authorizes the school districts to have their taxes assessed and collectedby the county
assessor and collector,or collected only by the county collector,and the only limitationplaced upon the county official,when he thus becomes ex officio assessor and collector for the schooldistrict, is that he cannot as8888 the taxableproperty In the district at a greater value than that assessed for county and statepurposes. We think 1t is clear that if the leglslaturehad meant that his powers and duties should otherwisebe different from those given a duly constituted.

,

HonorableJames A. Morris, Page 6 OpinionNo. WW-1492

school district assessor and collector under Art. 2791, the limitationwould appear inArt. 2792. Therefore, the county assessor and collector, in dlacharginghis duty to ass~ess and collect for respondentduring the years in question,was governedby Art. 1047 and not by Art. 7208; in ao far as his power to 'back'assess for school taxeswas concerned. And, as we have said, if he suffered taxablepersonal property to be omitted from the rolls during those years, his action was in no wise binding on the school district and did not affect the right and duty of some successor in office to 'back'assess it, under Art. 1047."

Article 1047,V.C.S., reads as follows:

"Whenever.theassessor and collector shall ascertain that any taxableprow*ty, real or personal,has not been assessed for any previous year, he shall assess the same in a supplement to his next assessmentroll, at the
same rate under which suchproperty shouldhave been assessed for such year, stating the year for which such property should have been assessed; and the taxes thereon shall be collected in the samemanner as other assessments. In any casewhere any party has omitted to render property for taxation for any former year or years, and such taxeshave not been paid, suchparty shall give such property in for assessment for the years thus omitted and pay such taxes; and the assessor and collector shall enter all such property in a supplement to his next assessmentroll, under the head of payments for former years."

Under the plaln'terms of the above quoted statute the Tax Assessor-Collectorof the Orange IndependentSchool District has a clear duty tomake the back-assessments for the year 1961 against the shareholdersand shouldproceed according to the provisions of the statute..

, Honorable James A. Morris, Page

## 7 OpinionNo. WW-1492

SUMMARY

The value of real estate occupiedby a National Bank under a lease-purchaseagreement pursuant to which agreement the Bank pays taxes thereonmay not be deducted from the value of the capital stock, surplus and undividedprofits in determining the value of the shares of stock of said Bank, as the value If any, of~the.realproperty was not taken into consideration in arriving at the actual cash value of the shares. Under the submitted facts, a back-assessmentmay be made against shareholderspursuant to theprovisions of
iC le 1047, V.C.S.

Yours very truly, the Art

WILL WILSON AttorneyGeneral of Texas



## MMP/j P

APPROVED:

OPINION COMMITTEE W. V. Geppert, Chairman

Charles Llnd Frank Booth W. E. Allen Vernon Teofan

REVIEWED FOR THE ATTORNEY GENERAL By: Leonard Paaamore