August 17, 1967

Honorable George A. Day Opinion No. M-129 CountyAttorney BrownCounty Re: 308~North Broadway Whether aMunicipal Gas Corporation, created as Brownwood, Texas a non-profit corporation to serve a municipality, is exempt from city, State, Dear Mr. Day: county and school taxes.

Wequote the following excerpt from your letter requesting the opinion of this Office on the above captioned matter: "The Brady, Texas, Munidipal GasCorporation has claimed exemption from ad valorem taxation for county, city and school purposes. Thequestion to be determined is whether or not from andafter January lst, 1967, the natural gas utili.ty ser,ving the

. City of,Brady, Texas, and its environs will be subject to ad valorem taxation by Brown County, Texas, andfor city and school purposes?"OnSeptember 24, 1965, the City Council of the City of Brady, Texas, adopted a rasolution requesting five Individuals to act as initial directors of a corporation to be established (under the Texas Non-Profit, Corporation Act) for the purpose of acquiring the existing natural gas utility system operating within the City of Brady and its environs. "The Corporation was established under the name'BRADY,TEXAS,MUNICIPAL GASCORPORATION.' TheArticles of Incorporation were filed In the office of the Secretary of State on November.12, 1965. TheArticles read in part as follows: "'The purpose or purposes for which the corporation is organized is to promote the public interests of the City of Brady, Texas, by

- 595-Honorsble ffeorge A. Day, page 2 (M-129).

* constructing, acquiring, owning, leasing and

operating municipal natural gas utility facllities in behalf of and for the benefit of the City of Brady, Texas, and Its Inhabitants. All properties of the corporation shall be’f& the use’and benefit of the public and no part of the income or~revenues of the corporation shall ever be paid to or Inure to the beneflt of any director or officer **of** the corporation except for reimbursement of actual,expenses incurred in connection with the business affairs of the corporation.

. ..Nothlng here,-’ in shall prohibit the employfilent of a general

.. manager In accordance with the provisions of Article 1396-2.24 of the Texas Non-Profit Corporation Act. Upondissolution or liquidation of the corporation after satisfaction **of** all debts and claims) isic7 shall be distributed, 5 transferred and conve?ed to or for the benefit of the City of Brady, Texas.’

“A franchise has been granted to the Corporation for the use of public streets, alleys, : public grounds, etc. by the Corporation. The franchise contains a provialon whereby at any time the City maypurchas,e the properties of the Corporation by paying the indebtedness of the Corporation in the mannerprescribed. This provision 

### isintended to provide a procedure whereby the City mayacquire full legal and equitable title to the properties at any time it desires to do so. Thefranchise with the City provides for &Lain payments to be madethe City in lieu of all other taxes.

. . . ~~

“The phrasing of this portion of the franchise is attempted compliance with Article 1038, V.A.T.C.S. which reads as follows:

“‘The City Council may, by ordinance,.provide for the exemption from taxation of such property as they maydeemjust andproper.’ !The Indenture of Mortgage andDeed of ’ Trust ‘to be executed by andbetween the Corporation and the Mercantile National Bankat

- 596 “,Honorable George A. Day, page 3 (M-129)

Dallas, Dallas, Texas, Trustee, contains al provisions relating to acquieitlon of properties by the City

. . .” severthe

Thecompany, prior to the final paymentof the bonds, mayassign or convey all or part of the System Andy or’part of the Trust Estate to the City upon the terms and conditions expressed In the Indenture of mortgage anddeed of trust. The rights of the City are limited should such a conveyance~occur, until the time the outstanding indebtedness (secured by the Indenture) Is retired. Furthermore, all obligations asaumed by the companywould not be affected by any conveyance.

The City during the time bonds, refunding bonds andadditional bonds are outstanding has an option to purchase the System, subject to stated terms and conditions.

Unless the City proceeds to purchase the System as provided in the Indenture, all covenants of the companyshall remain the,obllgation and responsibility of the company, but in all other respects the City mayhave such possessory rights as expressed either in the instrument of conveyance or in a contract by and,between the companyandthe City.

, Whenall of the bonds a’ndcoupons secured have been paid or redeemed, all of the System andTrust Estate shall revert to the companyor the City, If the City is entitled to receive sameunder the provisions of the indenture. At page 7 of the brief submitted in connection with your request, the following statement appears:

“After the Indenture has been executed andthe bonds authenticated and delivered, it is contemplated that the Corporation will make a conveyance of properties to the City of Brady .(in substantially the form attached) as contemplated by the provision **of** the Indenture< quoted,” Wehave concluded’that under the facts of this case, the property in question is not exeypt from ad valorem taxes by virtue of Article XI, Section 9 of the Constitution of the

I/ Section 9of Article XI reads, in part,’ as follows:
*597-Honorable George A. Day, page 4 (N-129)

Stats of Texas, which exempts from ad valorem taxes various political subdivisions of the State. Webase our holding on Texas Turnpike Companyv. Dallas County, 153 Tex. 474, 271

. . 400 (1954)

. In~Texas Turnpike, the corporations were chartered under Articl.e lm subdivision 61, Vernon’s Civil Statutes,, for the purpose of building, bpbrctiag andmaintaining toll roads within the State of Texas. Thecorporations based their claim for exemption on certain provisions of Article 6674v, Vernon’s Civil Statutes. This Article created Texas Turnpike Authority as a State agency. Their position wasthat when certain by-laws of these corporations and certain escrow agreements were considered together, the result wasa placing of taxable title to the property in the State. The court rejected this contention even though the corporations were obligated to makean irrevocable gift of all of their assets to the State of Texas andbind themselves to use all of their net income to retire Indebtedness. Uponacquisition of real property, the corporations were to execu,te conveyances thereof to the State of TeXaBandplace samein escrow with anagreement that the escrow agent deliver the instruments to the Authority upon compliance with the requirements.

At page 402 of the opinion, the Court said:

“Under the foregoing facts is the property in question ‘publicly owned’ so as to ge exempt from taxes under Article XI, Section 9of the constitution? Public ownership, for tax-exemption purposes, mustgrow out of the facts; it js Rlegal statue, based on facts, that maynot be created or conferred bymere legislative, or

I/ (continued)

“Theproperty of counties, cities and towns,

ownedand held only for public purposes, such as public buildings and the sites therefor, fire engines and the furhiture thereof, andall property used, or Intended for extinguishing fires, public grounds and all other property devoted exclusively to the use andbenefit of the public shall be exemptfrom forced sale andfrom taxation,

. , .‘I

-598-. .

Honorable George A. Day, page 5 (M-129)

even contractual, declaration. If the state does not in fact ownthe taxable title to the property, neither the Legislature by statute, nor the petitioners and the Authority by’ contra2t, maymakethe state the owner thereof by Simply saying that it Is the owner.

“The petitioners ownandwill ownthe legal title to the property acquired and to be acquired O Theyare, andwill .bc, In possesslon and control of the property. Theyhalveplaced, andwill place, deeds conveying the legal title to the sta,te in escrow, but the deeds are to be delivered and to take effect only upon certain conditions, someone or more of which maynever occur or exist. Under these facts petitioners contend that the state is th,eowner of the equitable title to the property and that the equitable title is the taxable title. Undoubtedly the equitable title is the taxable title in those situations In which the grantee takes possession under a deed in which a vendor’s lien is reserved or under a contract of sale bywhich the vendee is obligated to pay the purchase price. Taber v. S~tate, 38Tex.Civ,App.. 235, 85 S.w...835, ..writ,‘~.~ refused; Harvey v. Provident Inv, Co., Tex.Civ. APP., 156 S.W, 1127, writ refused; Leonard v. Kendall, Tex,Clv.App., 5 S.W.2d 197, writ dismissed. Undoubtedly, also, this court has said that the grantee in a conveyance held in escrow is the owner b? the equitable title to the property conveyed. Cowdenv. Broderick &Calvert, 131 Tex. 434, 114 S.W.2d 1166, 117A.L,R, 61; Alworth v. Ellison, Tex.Civ.App., 27S.W.2d 639,writ refused; But in the latter cases taxable ownership was,not the issue. Moreover, in such cases delivery of the conveyance by the escrow agent wasdependent uponperformance of certain conditions by the grantee; the grantee had it within his powerto perform the conditions and compel the delivery of the conveyance transferring legal title. That is not true in this case. Here, the right of the state, as grantee, to acquire the deeds andthe legal title they convey Is enttielg dependent upon performance of conditions by the grantors. Thestate owns

. -599-. .



### Fwrable George A.'Day, page 6 **(~-129)**

neither the legal nor the equitable title. It holds at most a right to become the owner of the legal title under certain conditions. Its Interest in the property iB not a vested lnterest; it is purely contingent. ‘If, Instead of the state, another private corporation were the grantee in the deeds, would the grantee’s Interest in the property be taxable? It would ’

.‘

.. not because the grantee’s interest would be ptirely contingent. Thus it is held that a contingent remainder in property is not a taxable title. 163. Nation v. Green, 188 Ind. 697, 123N.E. Neither is a possibility of reverter. Mayorand.council of City of Gainesville v. ” Brenau College, 150Ga. 156, 103 S.E. 164. If the agreements madeby petitioners would **not** create a taxable ownership in a private grantee, it is difficult ~tosee howthey could create a tax-exempt ownership in the State of **TeXaB.**

“Thetoll roads proposed by petitioners are mammothprojects which will cost rqsnymillions of dollars. If their construction is begun but abandoned, or if bondholders should be compelled to foreclose their liens andtake over the proper-: ties, or if the methods andprocedures of the State HighwayDepartment are not followed in the letting of contracts for construction andmaintenance, or if the roads are not constructed and maintained in a mannerequal or superior to. the standards of the State liighway Commission, or If the roads are not kept In good condition andrepair to the satisfaction of the State HighwayCommission

**-** in **any** of these **possible** eftuations,~the State could not become the owner of the roadb under the express provisions of the statute. It iS not enough that petitioners’ officers **and directors**  assure us that these contingencies will **not** happen, or even that they have taken all possible steps to guard against their happening; they yet remain possibilities andas long as this 

### isso the state’s interest in the property is purely contingent and the taxable ownership **is** in petitioners.”. -

Honorable George A. Day, page 7 (M-129)

: Theholding in Texas Turnpike has been followed in

Dickison v. Woodmenof the World Life Ins. Sot., 280 S.W.2d 315 318 (Tex.Civ.App. 1933 f *Maher'v: Laeater, 163'Tex. 356, 354 S.W.2d g25,e;gy(fG62 i andT arrant County Water Supply Carp, v. Hurst-Euless-Bedford ISD, 391 S.W,2d 62 (Tex.Civ.App. lgbh P 1 Wethink the facts in Texas Turnpiki ~~~fh~faSt~':u~milted.to us are so clearly analogous that. further analysis would be superfluous. Youare therefore advised that since the City of Bradywould not have title to the properties involved, the property in question is not ent.itled to the exemption accorded byArticle XI, Section 9of t.heConstitution of Texas. SUMMARY Under submitted facts, aMunicipal Gas Corporation, created as anonrprofit corporation to serve a municipality, would not be exempt.from city, State, county and school district ad valorem taxes by the provisions of Section 9of Article XI of the Constitution of Texas. Yopyvery truly,

MMP:ms Prepared by Marietta McGregor Payne Assistant Attorney Generals APPROVED: OPINIONCOMMITTEE Kerns B. Taylor, Chairman W.0. Shultz, Co-Chairman JohnR. Grace JohnBanks JohnDuren Robert Flowers STAFFLEGAL

ASSISTANT A. J. Carubbi, Jr.