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**WILL** WILSON A-RNEY GENBXCAI. January 5, 1962

Honorable William A. Harrison Opinion No. WW- 1234 Commissioner ofInsurance International Life Building Re: The correct method ofvaluing Austin 14, Texas real estate in calculating the tax rate under the provisions Dear Mr. Harrison: ofArticle 7064, V. C.S.

You have asked for our opinion with regard towhether or not the reasoning and conclusion ofAttorney General’s Opinion S-200 is applicable to real estate investments held by aforeign 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 ofthe amount of gross premiums received upon property or risks located in Texas. The amount ofthis tax, normally figured at arate of 3.S5%, may be reduced ifthe company had invested in “Texas securities” as defined therein from 75% to 100% ofthe amount that it had invested in “similar securities” in the state inwhich it then had the highest percentage ofits admitted assets invested. (The actual rate being determined by the percentile relation between the two amounts invested inaccordance with the formula set out inArticle 7064. ) Under this statute, it obviously becomes necessary for valuations to be made ofthe 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 ofacquisition was to be used in determining the proper basis of valuation. The opinion held that the plirdhase price wa’s the coirect figure tobe us&d Bs to carporate stock.

Your current request informs us that since the issuance ofS-200 the State Board ofInsurance has maintained that the “amount invested” inforeign 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 ofthe realty should be used instead.Hon. William A. Harrison, page 2 (WW-1234)

We have concluded that the correct basis for evaluation ofa real estate investment under Article 7064 is its market value. “Texas Securities” are specifically defined by Article 7064 to include real estate inthis State. Turning to the portions ofthe 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 tohold and convey real estate “for the erection and maintenance ofbuildings atleast ample and adequate for the transaction ofits own business, ”with the further qualification that: “Not more than 33-l/39/0 ofits admitted assets shall be invested by such insurance company in real estate. ” That the latter does not refer simply toa “cost” figure is shown by the last paragraph of Article 6.08which 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 nolanguage inArticle 7064 indicating the Legislature there intended adifferent meaning. General casualty companies are, by Article 8. 18ofthe 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 ofArticle 4769, V. C.S., the rate being reducible depending on the percentile relationship between its investments in Texas securities and its similar securities inthe state inwhich ithad its highest percentage ofadmitted assets invested. “Texas Securities” for life insurance companies are defined by Article 3.34 of the Insurance Code to include “the purchase ofnot more than one building site, and inthe erection thereon ofnot more than one office building, or inthe 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 ofits reasonable market value. I’ Appraisals are provided for, as inthe case offire and casualty companies, by Article 3.40, V. C.S., which likewise contains arestriction regarding real estate investments of over 33-l/30/0 ofthe admitted assets ofthe company.

Inaddition, the Legislature, in 1955, amended Article 1. 15, Sec. 2, to read as follows:
“The Board of Insurance Commissioners inadministering any provision ofthe Insurance Code, Acts.

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

1951, Fifty-second Legislature, Chapter 491, shall be authorized and empowered indetermining ‘value’ or’ ‘market value’ ofany investment in or upon real estate or the improvements thereon by any carrier authorized to do business inthe 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 ofacquisition, 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 inthe same manner insofar as their evaluation is concerned regardless ofthe 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 inArticle 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 inthe Code towarrant adifferent 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. 15prescribing the method of evaluating securities other than real estate. We, therefore, reaffirm Opinion S-200 insofar as it relates to valuation ofinvestments in corporate stocks.

SUMMARY

Incalculating the tax rate under the provisionsHon. William A. Harrison, page 4 (WW-1234)

ofArticle 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.