Aus- 11. TExAe 

WILL WILSON 

A-RNEY GENBXCAI. 

January 5, 1962 

Honorable William A. Harrison Opinion No. WW- 1234 

Commissioner of Insurance 

International Life Building Re: The correct method of valuing 

Austin 14, Texas real estate in calculating the 

tax rate under the provisions 

Dear Mr. Harrison: of Article 7064, V. C. S. 

You have asked for our opinion with regard to whether or not the 

reasoning and conclusion of Attorney General’s Opinion S-200 is applicable to real estate investments held by a foreign insurance corporation 

taxable under Article 7064, V. C. S. 

Article 7064, V. C. S., in general, taxes insurance companies other 

than life, health, and accident companies on the basis of the amount of 

gross premiums received upon property or risks located in Texas. The 

amount of this tax, normally figured at a rate of 3. S5%, may be reduced 

if the company had invested in “Texas securities” as defined therein from 

75% to 100% of the amount that it had invested in “similar securities” in 

the state in which it then had the highest percentage of its admitted assets 

invested. (The actual rate being determined by the percentile relation 

between the two amounts invested in accordance with the formula set out 

in Article 7064. ) Under this statute, it obviously becomes necessary 

for valuations to be made of the foreign company’s investments. 

The inquiry answered by Opinion S-200 was directed at an investment in corporate stock and concerned whether or not market value or 

actual cost of acquisition was to be used in determining the proper basis 

of valuation. The opinion held that the plirdhase price wa’s the coirect 

figure to be us&d Bs to carporate stock. 

Your current request informs us that since the issuance of S-200 

the State Board of Insurance has maintained that the “amount invested” 

in foreign real estate is the amount actually expended by the company 

for its original acquisition plus the amount expended for all subsequent 

improvements. Your request is prompted by the fact that an insurer is 

urging that the depreciated value of the realty should be used instead. 
Hon. William A. Harrison, page 2 (WW-1234) 

We have concluded that the correct basis for evaluation of a real 

estate investment under Article 7064 is its market value. “Texas Securities” are specifically defined by Article 7064 to include real estate in this 

State. Turning to the portions of the Insurance Code particularly applicable to the type of companies covered by this article, we find, for example, 

that Article 6. 08 authorizes fire and marine companies to hold and convey 

real estate “for the erection and maintenance of buildings at least ample 

and adequate for the transaction of its own business, ” with the further 

qualification that: “Not more than 33-l/39/0 of its admitted assets shall be 

invested by such insurance company in real estate. ” That the latter does 

not refer simply to a “cost” figure is shown by the last paragraph of 

Article 6. 08 which provides “The value of real estate mentioned . . . 

shall be appraised by two or more competent and disinterested citizens 

of Texas appointed by the Board of Insurance Commissioners of Texas. If 

The amount invested in real property under Article 6.08 is thus determined by its market value. We can find no language in Article 7064 indicating the Legislature there intended a different meaning. General casualty 

companies are, by Article 8. 18 of the Insurance Code, made subject to 

Article 6.08. 

Life insurance companies offer an analogous situation. They also 

are taxable on their gross premiums, by virtue of Article 4769, V. C. S. , 

the rate being reducible depending on the percentile relationship between 

its investments in Texas securities and its similar securities in the state 

in which it had its highest percentage of admitted assets invested. “Texas 

Securities” for life insurance companies are defined by Article 3.34 of 

the Insurance Code to include “the purchase of not more than one building 

site, and in the erection thereon of not more than one office building, or 

in the purchase, at its reasonable market value, of such office building. 

already constructed and the ground upon which same is located. . . ” The 

article proceeds by allowing all real estate owned by life companies in 

this State prior to 1910 to be treated as a Texas security “to the extent 

of its reasonable market value. I’ Appraisals are provided for, as in the 

case of fire and casualty companies, by Article 3.40, V. C. S., which likewise contains a restriction regarding real estate investments of over 

33-l/30/0 of the admitted assets of the company. 

In addition, the Legislature, in 1955, amended Article 1. 15, 

Sec. 2, to read as follows: 

“The Board of Insurance Commissioners in administering any provision of the Insurance Code, Acts 
. 

Hon. William A. Harrison, page 3 (WW-1234) 

1951, Fifty-second Legislature, Chapter 491, shall 

be authorized and empowered in determining ‘value’ 

or’ ‘market value’ of any investment in or upon real 

estate or the improvements thereon by any carrier 

authorized to do business in the State of Texas to consider any and all matters and things relating thereto, 

including but not restricted to, appraisals by real 

estate boards or other qualified persons, affidavits 

by other persons familiar with such values, tax valuations, cost of acquisition, with proper deductions for 

depreciation and obsolescense, cost of replacement, 

sales of other comparable property, enhancement in 

value from whatever cause, income received or to be 

received, improvements inade or any other factor or 

any other evidence which to said Board may be deemed 

proper and material. ” 

Thus, we see that the Legislature intended that the real estate 

investments authorized by the Code were to be treated in the same manner 

insofar as their evaluation is concerned regardless of the type of company involved; that the determinative figure is to be that commonly 

referred to as “market value” and that such figure is to be arrived at 

by the methods set out in Article 1. 15. This should obviously be the 

figure utilized for tax purposes under Article 7064, as it has been under 

Article 4769 for life companies. There is nothing in the Code to warrant 

a different treatment for tax purpose as between life companies and those 

affected by Article 7064. 

We find that the Insurance Code contains no provisions comparable 

to Article 1. 15 prescribing the method of evaluating securities other than 

real estate. We, therefore, reaffirm Opinion S-200 insofar as it relates 

to valuation of investments in corporate stocks. 

SUMMARY 

In calculating the tax rate under the provisions 
Hon. William A. Harrison, page 4 (WW-1234) 

of Article 7064, V. C. S. , real estate investments 

should be valued at their market value. 

Very truly yours, 

WILL WILSON 

Attorney General of Texas 

BES/pe 

APPROVED: 

OPINION COMMITTEE 

W. V. Geppert, Chairman 

Martin DeStefano 

Fred B. Werkenthin 

Joe B. McMasters 

William Allen 

BY 

I Bob E. Shannon 

Assistant Attorney General 

REVIEWED FOR THE ATTORNEY GENERAL 

BY: Houghton Brownlee, Jr.