Honorable Robert S. Calvert 

Comptroller of Public Accounts 

Capitol Station 

Austin, Texas 

Opinion No. WW-458~ 

Re: 

Pear Nr. Calvert: 

Whether or not an 

Interest owned by the 

Federal Land Rank of 

Houston, In production 

of oil, Is subject to. 

the production tax 

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Opinion No. WW-458, dated June 19, 1958, on the abovecaptioned matter, is withdrawn and the following opinion 

substituted therefor. 

You submit the folloning question: 

Whether or not an Interest owned by the Federal 

Land Bank of Houston, In production of 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 Interest here Involved was 

reserved by the Federal Land Bank in the sale of property 

which It had acquired by foreclosure. 

The answer to your question depends upon the construction 

that should be given to certain Federal'statutes pertaining 

to taxation and exemptions therefrom and'the powers conferred 

upon Federal Land Banks by Congress. For example, Section 931, 

Volume 12 of the United States Code Annotated deals 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 association under the provlslons of sec- 
Honorable Fbert 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 Government of 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 8 , 39 Stat. 380." 

This provision of the Federal law Is broad enough to cover 

exemptions from all forms of taxation except that upon real 

property, which It specifically permits. Of course, the oil 

production tax and the pipe line regulation tax are not ad 

valorem taxes upon real property, but are In the nature of 

excise and occupation taxes. 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 lnconalstent laws 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 exemption to "capital and reserve or surplue 

therein and the Income derived therefrom." Even If we were 

to construe "capital and reserve or surplus and .lncome derived 

therefrom" as constituting the extent of Federal immunity. 

from taxation, exclusive of real estate which ,ls taxable, It 

may reasonably be said that the exemption still 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 violation of other provisions 

of the Federal Land Bank Act, such for example as Sections 781 

and 791, we must hold the bank exempt from.these taxes. 

Section 781 provides In part as follows: 

"But no such bank shall hold title and possesslon of 

any real estate purchased or acquired to secure any 

debt due to It, for a longer period thar,flve years, 

except with the special approval 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 transact any bank-, 
Honorable Robert S. Calvert, Page 3, Opinion No. W-458~ 

lng or other business not expressly authorized by 

the provisions of this subchapter. 

These we shall now discuss briefly. 

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 appellant acquired 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 different times. This we do 

not understand counsel for the appellees to controvert, 

but they say that the purpose for which the appellant 

was organized was to 'set up a rural credit system 

by which credit, not adequately provided by commercial 

banks, should be extended to those engaged In agrlculture, upon the security of 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 'any banking or other 

business not express1 

of this sub-chapter* 9 

authorized by the provisions 

ltallca ours), and that the 

exception In this deed Is pursuant to a policy adopted 

by the bank of placing slmllar exceptions In all of 

the deeds conveying land owned by It for the purpose 

of engaging 'In the mineral or oil and gas business' -- 

a business not authorized by the appellant's charter, 

but In which It Is prohibited from engaging. . . . 

"As hereinbefore said, the appellant had the right to 

reserve the minerals In this land when selling It, 

and to thereafter sell 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 determination when but not until It Is challenged either by 

the Government from 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 (Court of 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 operation of its buslness, for more than five years, but we do not think this 
Honorable--Robert S. Calvert, page 4, Opinion No. WW-458A 

Is applicable to appellee bank which Is governed by 

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 Interest to do so, 

had the approval of the Farm Credit Admlnlstratlon.~ The 

Manual referred to contains the rules and regulations 

governing the operation of such banks which the Farm 

Credit Administration Is authorized to make by 12 U.S.C.A. 

El 665. It appears from this authority and 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 exception contained In the deed was valid." 

These rules and regulations seem to be general, and'apparently apply to the Houston Land Bank. 

A denial by the State of Immunity from taxation of a 

Federal agency Incorporated by Congress, such as a Federal land 

bank, Is not In our view such a challenge of lta.corporate powers 

under Its charter as Gas In the mind of the Court In the two 

cases referred to above. Rather, we think the challenge must 

be a direct action by the State or some affirmative action by 

the Federal government from 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 property by the expressed sanction of Congress and this we 

assume Is not questioned. 

SUNNARY 

The Houston Federal Land Rank Is exempt from 

the oil production tax 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 production tax and 

the oil pipe line regulation tax are excise or 

occupation taxes and, as such, are exempt from the 

State taxes here Involved under Section 931, Volume 12 of the United States.Code Annotated. 
Honorable Robert S. Calvert, page 5, Opinion No. WW-458A 

Yours very truly, 

. 

WILL WILSON 

Attorney General 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