HonorableRobert S. Calvert

Comptrollerof Public Accounts Capitol Station Austin,Texas Opinion No. WW-458~
Re:

Pear Nr. Calvert: Whether or not an Interestowned by the Federal Land Rank of Houston,In production of oil, Is subject to. the productiontax provided for by Art%- cle 7057a,V.C.S. and' the regulation

pipe line tax provided for by Article 6032, V.C.S. Opinion No. WW-458, dated June 19, 1958, on the abovecaptioned

matter, is withdrawn and the followingopinion substituted

therefor.
You submit the folloningquestion: Whether or not an Interest owned by the Federal Land Bank of Houston, In productionof 011, Is subject to the production tax provided for by Article 7057a. Vernon's Civil Statutes,and the regulatlk-ilie line tax provided for by Article 6032, V.C.S.
You advise us that the royalty Interesthere Involvedwas reservedby the Federal Land Bank in the sale of property which It had acquiredby foreclosure. The answer to your question depends upon the construction that should be given to certain Federal'statutes pertaining to taxationand exemptionstherefromand'the powers conferred upon Federal Land Banks by Congress. For example, Section 931, Volume 12 of the United States Code Annotateddeals with their taxation. It Is as follows: "Every Federal land bank and every national farm loan association,Including the capital and reserve or surplus therein and the Income derived therefrom, shall beIexempt from Federal, State, municipal,and local taxation, except taxes upon real estate held, purchased,or+aken by said bank or associationunder the provlslonsof sec-HonorableFbert S. Calvert,page 2, Opinion No. WW-458A

tions 761 and 781 of this title. First mortgages executed to Federal land banks, or to joint stock land banks, and farm loan bonds Issued under the provisions of this chapter, shall be deemed and held to be lnstrumentalltles of the Governmentof the United States, and as such thev and the Income derived therefrom shall be exempt f>om Federal, State,municl al, and local tax-. atlon. July 17, 1916, c. 245 B 2 , 39 Stat. 380." 8 This provision of the Federal law Is broad enough to cover exemptionsfrom all forms of taxation except that upon real property,which It specifically permits. Of course, the oil productiontax and the pipe line regulationtax are not ad valorem taxes upon real property,but are In the nature of excise and occupationtaxes. The Supreme Court of the United States in the case of Federal Land Bank of New Orleans v. . croshnd, Ala. 1923, 43 s.ct. 385, 261 U.S. 374, 67 L.F& 73, 29 A.L.R. 1, holds that Section 931, quoted above, must prevail over any lnconalstentlaws of a state. We do note consider the phrase 'Including

the capital and reserve or surplus therein and the Income derived therefrom"as a limit.$zLon upon f'fhrery Federal land bank and every national $arm loan assoclatlo~n~~o as to restrict the exemptionto "capitaland reserve or surplue therein and the Income derived therefrom." Even If we were to construe "capitaland reserve or surplusand .lncome derived therefrom"as constituting the extent of Federal immunity. from taxation, exclusiveof real estate which ,lstaxable, It may reasonablybe said that the exemptionstill applies, for this oil Interest no doubt constitutes a part of the reserve or surplus of the bank or Income derived therefrom. Therefore,unless we are prepared to hold that.the Federal Land Rank holds this royalty In violationof other provisions of the Federal Land Bank Act, such for example as Sections 781 and 791, we must hold the bank exempt from.thesetaxes. Section 781 provides In part as follows:
"But no such bank shall hold title and possesslonof any real estate purchasedor acquired to secure any debt due to It, for a longerperiod thar,flveyears, except with the specialapproval of the Farm Credit Admlnlstratlon

In writing." Section 791 provides In part as follows:
"No Federal land bank shall have power to accept deposits of current funds payable upon demand except from Its own stockholders, or to transactany bank-,HonorableRobert S. Calvert,Page 3, OpinionNo. W-458~

lng or other businessnot expresslyauthorizedby the provisionsof this subchapter. These we shall now discussbriefly. There are no Texas cases In point but two from other jurisdictions

which we fed1 impelled to follow. In the case of Federal Land Rank of New Orleans v. Cooper, 190 Miss. 490, 200 Southern 729 the Court said: II

. . . After the appellantacquired title to the land, It had the right to sell It without the minerals therein to one and the minerals to another, either contemporaneously

or at differenttimes. This we do not understandcounsel for the appelleesto controvert, but they say that the purpose for which the appellant was organizedwas to 'setup a rural credit system by which credit,not adequatelyprovidedby commercial banks, should be extendedto those engaged In agrlculture, upon the securityof farm mort Land Bank v. Gaines, 290 U.S. 247, 5 ages’ & (Federal S.Ct. 168, 169, 78 L.Rd. 298); that Section 791 of the Farm Loan Act prohibits It from transacting 'anybanking or other businessnot express1 of this sub-chapter* 9 authorizedby the provisions ltallca ours), and that the exception In this deed Is pursuant to a policy adopted by the bank of placing slmllar exceptionsIn all of the deeds conveyingland owned by It for the purpose of engaging 'In the mineral or oil and gas business' -- a businessnot authorizedby the appellant'scharter, but In which It Is prohibited from engaging.

. . . "As hereinbeforesaid, the appellanthad the right to reserve the minerals In this land when selling It, and to thereaftersell them. Should It go further than this and enter actively into the mineral, oil and gas business,its right so to do will be for determinationwhen but not until It Is challengedeither by the Governmentfrom which It received Its charter, or by someone Injured thereby, and who has the right so to do." The case of Llve1y.v.Federal Land Rank et al 176 S.W. 2d 264 (Courtof Appeals of Kentucky, the highest Court of that state)holds substantially the same In this language: 8,

. . . While It Is the general rule In this jurl$dlctlon that private corporations may not own real estate, except what Is necessary In the operationof its buslness, for more than five years, but we do not think thisHonorable--Robert S. Calvert,page 4, OpinionNo. WW-458A

Is applicableto appellee bank which Is governedby the law creating such Institutions and defining Its rights and authority.

. . h

II

. . .
n

. . . 'However,

retention of such minerals and mineral rights for periods In excess of five years when In the Bank's opinion It Is In the Bank's Interestto do so, had the approval of the Farm Credit Admlnlstratlon.~ The Manual referred to contains the rules and regulations governingthe operation of such banks which the Farm CreditAdministration Is authorizedto make by 12 U.S.C.A. El 665. It appears from this authorityand the evidence produced that the bank had the right and power to retain an interest In the oil and gas and that the reservation **or** exceptioncontained In the deed was valid." These rules and regulationsseem to **be** general,and'apparentlyapply to the Houston Land Bank.
A denial by the State of Immunity from taxationof a Federalagency Incorporated by Congress, such as a Federal land bank, Is not In our view such a challengeof lta.corporate powers under Its charter as Gas In the mind of the Court In the two cases referredto above. Rather, we think the challengemust be a direct action by the State or some affirmative action by the Federalgovernmentfrom which the bank received Its charter. Until this Is successfully done, we are constrained to hold that the Federal Land Bank of Houston Is exempt from the taxes here In question. The royalty la subject to ad valorem taxes as real propertyby the expressed sanctionof Congressand this we assume Is not questioned.
SUNNARY

The Houston Federal Land Rank Is exempt from the oil productiontax and the regulation pipe line tax provided In Article 7057a and 6032, V.C.S., respectively. The royalty owned by the bank Is real property and is taxable as -such by the expressed consent of Congress,but the oil productiontax and the oil pipe line regulationtax are excise or occupationtaxes and, as such, are exempt from the State taxes here Involvedunder Section 931, Volume 12 of the United States.CodeAnnotated.HonorableRobert S. Calvert,page 5, OpinionNo. WW-458A

Yours very truly, .

WILL WILSON AttorneyGeneral of Texas

Assistant LPL:db
APPROVED: OPINION COMMIl'TEE
Geo. P. Blackburn,Chairman Leonard Passmore Wayland C. Rlverts,Jr. Henry 0. Braswell
RFVIEWEDFORTREATTORNEYGENRRAL By: W. V. Geppert