August 17, 1967 

Honorable George A. Day Opinion No. M-129 

County Attorney 

Brown County Re: 

308~ North Broadway 

Whether a Municipal 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. 

We quote the following excerpt from your letter requesting the opinion of this Office on the above captioned 

matter: 

"The Brady, Texas, Munidipal Gas Corporation has claimed exemption from ad valorem 

taxation for county, city and school purposes. The question to be determined is 

whether or not from and after 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, and for city and school purposes? 

"On September 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 GAS CORPORATION.' 

The Articles of Incorporation were filed In the 

office of the Secretary of State on November.12, 

1965. The Articles 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 

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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) i sic7 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 may purchas,e the properties of the 

Corporation by paying the indebtedness of the Corporation in the manner prescribed. This provision is intended to provide a procedure whereby the City may acquire full legal and equitable 

title to the properties at any time it desires 

to do so. The franchise with the City provides for &Lain payments to be made the 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 may deem just and proper.’ 

!The Indenture of Mortgage and Deed of’ 

Trust ‘to be executed by and between the Corporation and the Mercantile National Bank at 

- 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 

The company, prior to the final payment of the bonds, 

may assign 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 and deed 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 company would not be affected by any conveyance. 

The City during the time bonds, refunding bonds and additional 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 company shall remain the,obllgation and responsibility of the company, but in 

all other respects the City may have such possessory rights as 

expressed either in the instrument of conveyance or in a contract by and,between the company and the City. 

, When all of the bonds a’nd coupons secured have been 

paid or redeemed, all of the System and Trust Estate shall revert to the company or the City, If the City is entitled to receive same under 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 

and the 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,” 

We have 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 9 of 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. We base our holding on 

Texas Turnpike Company v. 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 and maintaining toll 

roads within the State of Texas. The corporations 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 was that when 

certain by-laws of these corporations and certain escrow agreements were considered together, the result was a placing of 

taxable title to the property in the State. The court rejected this contention even though the corporations were obligated 

to make an irrevocable gift of all of their assets to the State 

of Texas and bind themselves to use all of their net income to 

retire Indebtedness. Upon acquisition of real property, the 

corporations were to execu,te conveyances thereof to the State 

of TeXaB and place same in escrow with an agreement 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 9 of the 

constitution? Public ownership, for tax-exemption purposes, must grow out of the facts; it 

js R legal statue, based on facts, that may not 

be created or conferred by mere legislative, or 

I/ (continued) 

“The property of counties, cities and towns, 

owned and held only for public purposes, such as 

public buildings and the sites therefor, fire engines and the furhiture thereof, and all property 

used, or Intended for extinguishing fires, public 

grounds and all other property devoted exclusively 

to the use and benefit of the public shall be exempt from forced sale and from taxation, . , .‘I 

- 598 - 
. . 

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

even contractual, declaration. If the state 

does not in fact own the taxable title to the 

property, neither the Legislature by statute, nor 

the petitioners and the Authority by’ contra2t, 

may make the state the owner thereof by Simply 

saying that it Is the owner. 

“The petitioners own and will ownthe 

legal title to the property acquired and to be 

acquired O They are, and will .bc, In possesslon 

and control of the property. They halve placed, 

and will 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, some one or more of which may never 

occur or exist. Under these facts petitioners 

contend that the state is th,e owner 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 by which the vendee 

is obligated to pay the purchase price. Taber 

v. S~tate, 38 Tex.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. Cowden v. Broderick & Calvert, 131 

Tex. 434, 114 S.W.2d 1166, 117 A.L,R, 61; Alworth 

v. Ellison, Tex.Civ.App., 27 S.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 was dependent upon performance of certain conditions by the 

grantee; the grantee had it within his power to 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 and the legal title 

they convey Is enttielg dependent upon performance 

of conditions by the grantors. The state 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, 123 N.E. 

Neither is a possibility of reverter. 

Mayor and.council of City of Gainesville v. 

” Brenau College, 150 Ga. 156, 103 S.E. 164. If 

the agreements made by petitioners would not 

create a taxable ownership in a private grantee, 

it is difficult ~to see how they could create a 

tax-exempt ownership in the State of TeXaB. 

“The toll roads proposed by petitioners are 

mammoth projects which will cost rqsny millions 

of dollars. If their construction is begun but 

abandoned, or if bondholders should be compelled 

to foreclose their liens and take over the proper-: 

ties, or if the methods and procedures of the 

State Highway Department are not followed in the 

letting of contracts for construction and maintenance, or if the roads are not constructed and 

maintained in a manner equal or superior to. the 

standards of the State liighway Commission, or If 

the roads are not kept In good condition and repair 

to the satisfaction of the State Highway Commission 

- 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 and as long as this is so 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) 

: 

The holding in Texas Turnpike has been followed in 

Dickison v. Woodmen of the World Life Ins. Sot., 280 S.W.2d 

315 318 (Tex.Civ.App. 1933 f *M aher'v: Laeater, 

163'Tex. 356, 354 S.W.2d g25,e;gy(fG62 i and T arrant County 

Water Supply Carp, v. Hurst-Euless-Bedford ISD, 391 S.W,2d 

62 (Tex.Civ.App. lgbh P 1 We think the 

facts in Texas Turnpiki ~~~fh~faSt~':u~milted.to us are so 

clearly analogous that. further analysis would be superfluous. 

You are therefore advised that since the City of Brady would 

not have title to the properties involved, the property in 

question is not ent.itled to the exemption accorded by Article 

XI, Section 9 of t.he Constitution of Texas. 

SUMMARY 

Under submitted facts, a Municipal Gas 

Corporation, created as a nonrprofit corporation to serve a municipality, would not be 

exempt. from city, State, county and school 

district ad valorem taxes by the provisions 

of Section 9 of Article XI of the Constitution of Texas. 

Yopyvery truly, 

MMP:ms 

Prepared by Marietta McGregor Payne 

Assistant Attorney Generals 

APPROVED: 

OPINION COMMITTEE 

Kerns B. Taylor, Chairman 

W. 0. Shultz, Co-Chairman 

John R. Grace 

John Banks 

John Duren 

Robert Flowers 

STAFF LEGAL ASSISTANT 

A. J. Carubbi, Jr.