DAN MORALES 

ATTORNEY GENERAL 

QBffice of t&z Rlttornep Qkterat 

State of QLexae 

The Honorable C. E. “Mike” Thomas III 

Howard County Attorney 

P.O. Box 2096 

Big Spring, Texas 7972 1 

May 2, 1997 

Opinion No. DM-438 

Re: Ad valorem taxation of equipment used to 

produce. minerals on mineral leasehold estate, and 

related questions (RQ-918) 

Dear Mr. Willcerson: 

You have requested our opinion regarding the proper method of assessing and collecting ad 

valorem taxes’ on “casing, tubing, pump jacks, tanks, surf&e pipe” and other equipment used to 

produce minerals on a mineral leasehold estate. As you know, both real and personal property are 

subject to ad valorem taxation in Texas unless exempted by law corn taxation. Tax Code 6 11.01(a). 

Because certain tax statutes and tax provisions of the Texas Constitution treat real and personal 

property differently, property must be classified as one or the other for certain ad valorem taxation 

purposes. 

You state that the Howard County Tax Appraisal District* and “most, if not all, tax appraisal 

districts around the state, include in their appraisal of oil and gas mineral leasehold interests the 

production equipment necessBfy to produce the oil and gas.” You explain that a property owner has 

challenged the district’s appraisal method, as follows: 

A delinquent taxpayer has attempted to break out the portion of the 

account attributable to the production equipment and claim the four year 

statute of limitation applies to that portion of the account. The Howard 

County Tax Appraisal District has taken the position that the prod&on 

equipment is indispensable to the production of oil and gas on the leasehold 

estate, and is therefore taxable as an improvement, tixture or appurtenance to 

the realty and may be included in the value of the leasehold interest. 

You first ask whether the appraisal district may include the value of production equipment 

as part of the value of the mineral leasehold for which the equipment is used. We conclude that 

irrespective of whether production equipment is real or personal property, it must be appraised 

‘Ad valomn taxes are taxes imposed on the value of propxly. &&x’s LAW DICTIONARY 5 l(6th ed. 1990) 

‘Appraisal dish&s are respomible for appraising pmpmty for taxing units that impose ad v&mu taxes cm 

property located io tbe appmisd districi Tax code $6.01; Tex. Comt art. VIII, $ IS@). Taxing units include cities. 

counties. s&o01 districts, and other political s&divisions of the state that are authorized to impose and are imposing ad 

vd~taxesanpropaty. TaxCode§ 1.04(12). 
The Honorable C. E. “‘Mike” Thomas III - Page 2 @M-438) 

separately from its correspondiig mineral leasehold interest. The Tax Code specifically designates 

land, improvements, interests in real property, and personal property as separate taxable entities. See 

Tax Code $5 l.04,2S.02,.04.r Thus courts have held that land, improvements to land, and interests 

in land must be appraised separately, even though they are all included within the code’s definition 

of “real property.” See Cameron County Appraisal Review Bd v. Credirbanc Sm. Ass’n, 763 

S.W.2d 577,579-80 (Tex. App.-Corpus Christi 1988, writ denied) (“This specific enumeration by 

the legislature appears to show the legislative intent that land and improvements are separate 

entities.“); see ah Waker v. Appraisal Review Bd, 846 S.WSd 14, 16 (Tex. App.-San Antonio 

1992, writ denied) (“lR]equiring the Tax Appraisal District to maintain the separate listing of both 

land and improvement is more than a mere bookkeeping requirement.“). The appraisals may be 

combmed into one taxpayer account, but the account must retlect separate valuations for each taxable 

property. See Tax Code $Q 1.04,25.02, .04. 

You next ask which statute of limitations period applies to the collection of a delinquent tax 

account if the values of the production equipment and the mineral leasehold interest are combined 

into one account. As your question suggests, the classification of property as real or personal is 

material to the statute of limitations because the statute treats real and personal property ditTerently. 

It provides: 

(a) Personal property may not be seized and a suit may not be tiled: 

(1) to collect a tax on personal property that has been delinquent 

more than four years; or 

(2) to collect a tax on real ~property that has been delinquent more 

than 20 years. 

Id 5 33.05. Smce an account may include taxes on several taxable properties, a different limitations 

period may apply to diierent parts of the account. Determination of the appropriate statute of 

hmitations turns upon whether the property is real or personal. Ifthe property is personal, taxes on 

it may not be collected by suit or seizure ifthey have been delinquent for more than four years. Ifthe 

property is real, the twenty-year limitations period applies. You have asked about the property 

classification of equipment used to produce minerals on a mineral leasehold estate. 

Tiia to the 1919 codification of the Property Tax Code, the definition of”real prow included impruvements 

tberem, and no provision required the improvements to be valued separstely. Thus prior to enactment of the new code, 

improvements were appraised as pm of the value of the real estate. See Attorney General Opinion H-370 (1974) at 2 

(referring to definition of reel property in former V.T.C.S. article 7146 and conchding that value ofiixtum and otta 

impma on ld ?sbdd be inchled in the value assigned to the realty”); c/: Comerun CountyAppmtsaiReview Bd 

Y. Creditbanc Sm. Ass%. 763 S.W.2d 577.579-80 (Tex. App.-Capus Christi 1988, writ denied) (TJn&r the new 

provisions of the Prop&y Tax Code tbe legislature has spe&cally designated land and impmvemmts and other taxable 

in- as separate entities of real proper@.“). 

p. 2443 
The Honorable C. E. “Mike” Thomas III - Page 3 @M-438) 

We begin with the relevant statutory definitions. “‘Personal property” is property that is not 

real property. ZG! $1.04(4). “Real property” is: 

(A) land; 

(B) an improvement; 

(C) a mine or quarry; 

(D) a mineral in place; 

(E) standing timber; or 

(F) an estate or interest, other than a mortgage deed of trust 

creating a hen on property or an interest securing payment or 

performance of an obligation in a property enumerated in Paragraphs 

(A) through (E) of this subdivision. 

Id 3 1.04(2). Since oil and gas and other mineral leaseholds are “estates or interests” in minerals in 

place, they are taxable as real property. Prince Bras Drilling Co. v. FArman Petroleum Cop., 150 

S.W.2d 314 (Tex. Civ. App.-El Paso 1941, writ refd); Attorney General Opinion MW- 402 (1981). 

Thus the twenty-year limitations period applies to the collection of delinquent taxes on mineral 

leaseholds. 

With respect to minerrd production equipment used on a leasehold, you state that the Howard 

County Appraisal District and other districts around the state appraise production equipment as real 

property along with the corresponding oil and gas leasehold interests because the equipment is 

“indispen&le to the production of oil and gas on the leasehold estate, and is therefore taxable as an 

improvement, fixture, or appurtenance to the realty.” We found no authority to support your view 

that property is considered an improvement, fixture, or appurtenance to real property if it is 

“indispensable” to the property. Furthermore, since a mineral interest is taxable whether it is 

“producing” or not, we decline to link the tax classiication of equipment to the production status of 

the interest. See Attorney General Opinion MW-402 (1981) at 2; Tax Code § 23.17. 

Instead, an “improvement” taxable as real property is de&d by the Tax Code as: 

(A) a building, structure, tixture, or fence erected on or atlixed 

to land; or 

(B) a transportable structure that is designed to be occupied for 

residential or business purposes, whether or not it is atIixed to land, 

if the owner of the structure owns the land on which it is located, 

unless the structure is unoccupied and held for sale or normally is 

located at a particular place only temporarily. 

D. 2444 
The Honorable C. E. ‘Mike” Thomas III - Page 4 (DM-438) 

Tax Code $1.04(3). Courts have long considered three factors in determining whether an article of 

property affixed to real property’ is an improvement:5 

(1) the mode and sufliciency of the annexation of the article to the realty, 

whether real or constructive; 

(2) the adaptation of the article to the uses or purposes of the realty; and 

(3) the intention of the party making the annexation. 

The third factor, intention, is the preeminent factor, and the first two are evidence of intention. See 

Sormier v. Chisholm-Ryder Co., 909 S.W.2d 475,479 (Tex. 1995); Logan v. Mullis, 686 S.W.2d 

605, 607-08 (Tex. 1985); Hutchins v. Masterson &Street, 46 Tex. 551, 554 (1877). 

In Attorney General Opinion H-370 (1974) this office considered the three factors with 

respect to the classification of a water pump and irrigation casing used with a water well. We 

concluded that the classitication of property as real or personal requires the consideration of facts 

unique to each piece of property. 

~]eaolution of the question of whether or not certain property is a fixture 

depends on the circumstances surrounding its placement on the land with 

particular emphasis being accorded to the intention of the party, or parties, 

who has placed it there. Since the same article or structure may in one set of 

circumstances be considered realty and in another be considered personal@ 

no categorical rules applicable to particular properties can be stated. 

Attorney General Opiion H-370 (1974) at 3; see aIsoMeIe?r& v. State, 902 S.W.2d 132,137 (Tex. 

App.--Houston [lst Dist.] 1995, no writ) (“Generally, whether a particular item is a Sxture or 

personalty is a question of fact, and should be determined by the factfinder.“). We similarly are of 

the opinion that neither this office nor county appraisal districts can categorically classify mineral 

production equipment as either real or personal property. Determinations of the proper tax 

classitication of production equipment must be made on a case-by-case basis. 

Court opinions addressing the tax treatment of mineral production equipment offer some 

guidance for districts in making these determinations. InMuro Co. v. State, 168 S.W.2d 510 (Tex. 

Cii. App.-Amarillo 1943, writ ref d), Wdbarger County argued that casing, rods, tubing, pumps, and 

WbilCihCT.%XCOdCSCClU.5tOdCfbCllC”impWCUl en~“~inreIatioototheslnfaceofthelanduponwhichit 

is placed, courts have reoogniml that improvcmuI ts may be d&d in relation to lcasebold in-. See Shugurf v. 

Nomalndep. Sch Dist, 288 S.W.2d 243,241 (Tex Cii. App.-Fort Wotih 19%. no wit); Mar0 Co. v. State, 168 S.W.2d 

510,512(Tcx Civ. App.--Amarillo 1943,wti~tv.fd). 

“‘FixRue” is included in the statutcsy dehition of “improvement” Tax Code 0 1.04(3). “Apprtrtenancts” arc 

dogons to improvmts and lixtwes. See Hamoxv. Peek, 355 S.W.Zd 568,569 (Tcx. Civ. App.-Fort Worth 1962. 

wit r&d n.r.c.). Our rcsearc hshowsthstthesamefactorsare~bycorntstodeterminewhctherpropertyisim 

improvcmcnt, cxlnre, or applntenancc. 
The Honorable C. E. Yvlike” Thomas III - Page 5 (DM438) 

other equipment used to produce oil on a leasehold estate was real property. Applying the three 

factors discussed above, the court stated that “it stands to reason that the intention of the parties to 

the original lease contract would be to place the casing, rods, tubing and even the pumps and tanks 

on such a leasehold for temporary use only with the full intention of removing them onto other leases 

if desired, and certainly in case production became unprofitable.” The court held that “the casing, 

rods, tubing and other such property was not a part of the realty.” Id at 5 13. 

In shugar v. Nocona Znakpendent School District, 288 S.W.2d 243,247 (Tex. Civ. App.- 

Fort Worth 1956, no writ), a taxing unit argued that the casing, surface pipe, storage tanks, and ,other 

production equipment located on leased premises were personal property that could be seized and 

sold for payment of a tax debt. The court agreed citing Man, and applying the three factors, because 

the record in the case showed that the oil field operator “reserved complete charge and possession 

[of the equipment] along with the right of removal, in case of abandonment, of all of it, even 

including the salvageable pipe in the hole.” Id at 247. 

And in Lingleville Independent school Disbicr v. Valero Transmission Co., 763 S.W.2d 616 

(Tex. App.-Eastland 1989, writ denied), taxing units tiled suit to collect delinquent taxes on a gas 

pipeline buried beneath the ground. The pipeline owner argued that the suit was barred by the fouryear statute of limitations because the pipeline was personal property. The evidence in the case 

showed that the pipeline company and the surlbce property owner expressly agreed that the company 

could remove or replace the pipeline at any time. The court held that the pipeline was personal 

property because the evidence showed that the parties never intended the pipeline to become a 

permanent part of the realty. Id 

Armed with facts, this office determined in Attorney General Opinion O-5268 (1943) that 

while pipeline located on an easement was personal property, the pumping equipment also located 

there was real property. The instrument conveying the easement provided that the grantee “‘may 

remove [the pipeline] . . . in whole or in part at will.“’ Id at 7. With respect to the pumping equipment, however, the attorney general conchrded that “[w]e have been placed in possession of no facts 

which indicate the pumping equipment was not intended by the parties to become a part of the 

realty.” Id at 8. The Attorney General cited cases in support of classifying pumping equipment as 

real property, but all of the cases were from states other than Texas. Id 

In sum, a determination of whether mineral production equipment is personal or real property 

depends upon factors relating to the equipment’s placement on the mineral leasehold. If the 

equipment is personal property, taxes on it may not be collected by suit or seizure if they have been 

delinquent for more than four years. Ifthe equipment is an “improvement,” and thus “real property 

as defined by the Tax Code, the twenty-year limitations period applies. Irrespective of whether the 

equipment is real or personal, it must be appraised separately from the mineral interest for which it 

is used. 

p. 2446 
The Honorable C. E. “Mike” Thomas III - Page 6 @M-438) 

SUMMARY 

For purposes of ad valorem taxation, the value of mineral production 

equipment must be appraised separately .gom the vahre of the mineral 

leasehold interest for which the equipment is used. Determination of the applicable statute of limitations period for collection of delinquent ad valorem 

taxes turns upon whether the property is real or personal. If the property is 

personal, taxes on it may not be coIlected by suit or seizure if they have been 

delinquent for more than four years. Ifthe property is real, the twenty-year 

limitations period applies. Mineral production equipment cannot be categorically &ssi&d as either real or personal property. Instead, determinations 

of the proper tax classification of production equipment must be made on a 

case-by-case basis. 

DAN MORALES 

Attorney General of Texas 

JORGE VEGA 

Fist Assistant Attorney General 

SARAH J. SHIRLEY 

Chair, Opinion Committee 

Prepared by Barbara GrifIin 

Assistant Attorney General 

p. 2447