Honorable William P. Hobby

Lieutenant Governor of Texas State Capitol Austin, Texas Opinion No. H-1022

Honorable Bill Clayton Speaker of the House Re: Valuation ofproperty State Capitol for advalorem taxation Austin, Texas purposes.

Dear Governor Hobby and Speaker Clayton:

You have asked our opinion on four questions relating to ad valorem taxation and the distribution of funds forpublic school purposes.

Your first question is:

Ray the'Legislature, in exercising its duty under Articl.e8,Section 1,of the Texas Constitution, toprovide by law how value is tobe ascertained for advalorem tax purposes, constitutionally provide that land used toproduce agricultural products be valued for advalorem tax purposes according to some standard of value other than market value, such asvaluation on the basis of use or capability toproduce agricultural products?

We initially note that the first question isdirected solely toarticle 

### a,section 1and does not involve article 9, section l-dwhich isdiscussed inyour second question and which involves valuation of certain agricultural land. Article 

### a,section 1of the Texas Constitution provides in part:
Taxation shall be equal and uniform. All

property in this State, whether owned by

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Honorable William P. Hobby Honorable Bill Clayton -Page 2 (H-1022)

natural persons or corporations, other than municipal, shall be taxed inproportion to its value, which shall be ascertained asmay be provided by law.

On several occasions Texas courts have specifically indicated that the term "value," as used inarticle 8, section 1,means market value. Lively v. Missouri, K. &T. Ry. of Texas, 120 S.W. 852, 856 (Tex. 1909); Rowland v. City of Tyler, 5.2d 756, 760 (Tex.Comm'n App. 1928, jdgmt adoptea) Harlingen Independent School Dist. v. DunlaE, 146S.W.2d 235,m (Tex.Civ. App. --San Antonio 1940, writ ref'd); Atlantic Richfield Co. v. Warren Independent School Dist., 453 S.W..2d 190 19/ (Tex.Civ. App. -- Beaumont 1970 writ ref'd n.r.e.); Diekrich v. Phipps, 438 S.W.2d 900, 902 (&ex.Civ. App. -- Houston [lstDist) 1969, nowrit). See Whelan v. State, 282 - S.W.2d 378, 380 (Tex. 1955); State v.Whittenburq, 265S.W.Zd 569, 572 (Tex. 1954). While it can be argued that the portion of article 

### a,section l,.which refers toa~scertainmentofvalue "asprovided by law" permits the Legislature toestablish a standard of value for taxation purposes other than market value, the courts have clearly ruled otherwise. See also Tex. Const. art. 8, § 20. Accordingly, it isour opinion that article 8, section 1of the Constitution does not permit the Legislature toprovide for the taxation of property other than inproportion to its market value.

Your second question is:

If the answer to question #l is negative, could the Legislature constitutionally .provide for use of a standard ofvalue other than market value for taxation of agricultural land ifArticle 8, section l(d), of the Texas Constitution were repealed?
Article 

### a,section l-d permits assessment of certain land at its agricultural use value. While this technique isbased
onmarket value principles, see King v. Real,~466S.W.Zd 1 (Tcx.Civ. App. -- SanAntonliol971, writ ref'd n.r.e.); Attorney General Opinion H-863 (1976). itwill generally result ina lower value than assessment at full market value.

If article 8, section l-dwere repealed the standard of value would be determined by the requirements of article 8, section 1. In light of the judicial authority reviewed in

P. 4221Honorable William P. Robby

Honorable Bill Clayton -Page 3 (H-1022)

discussion of your first question, it isapparent that the repeal of article 

### a,section l-d,would leave the Legislature without authority tovalue agricultural land other than in proportion to itsmarket value.

Your third question is:

May the Legislature, by statute, constitutionally provide that single-family residences be valued for tax purposes on the basis of apercentage ofmarket value?

We understand this question to involve thepower ofthe Legislature to provide for the assessment of residential property at a different percentage ofmarket value than other property. As noted above, article 8, section 1of the Texas **Con** stitution requires that taxation be equal and uniform. The courts have found schemes to tax one class of property ata percentage of itsvalue and another class at adifferentpercentage tobe unconstitutional. Among the plans the courts have overturned include an omission of certain types ofproperty from the tax rolls, City ofArlington v. C%Inon, 251 S.W.2d 414, 416 (Tex. 1954); the assessment of railroad intangible property at fullmarket value while all other property was assessed at 67percent of value, <Livelyv. !Iissouri,.K. &T. Ry. of Texas, supra at 856; and the assessment of 

### land at 70percent of full value, improv~ementsat 25percent, stocks ofmerchandise at 5Qpercent and omission ofmoney, stocks, bonds, notes andmortgages from the tax rolls. City ofHouston v. Baker, 176 S.W. 820, 623 (Tex.Civ. App. -- Galveston 1915, writ ref'd). See Yudof,

- The Property Tax inTexas under State and Federal Law, 51Tex. L. Rev. 885,'899-900 (1973). Accordingly, it is well established that-any plan tovalue orassess one class of property at a smaller percentage ofmarket value than other property isprohibited by the Constitution.

Your final question is:

In calculating the local share of financing the Minimum Foundation Program in public education, may the Legislature, by statute, set local fund assignments based on property values estimated at less than market value?

P. 4222Honorable William P. Hobby

Honorable Bill Clayton -Page 4 (H-1022)

While your first three questions relate to assessment and taxation of property, the final question involves distribution of State funds to local school districts. We note that the current formulas for distributing state funds for education are under attack in theUnited States District Court for theWestern District of Texas inWilson v.Brockette (CivilAction No. A-76-CA-2231 and Bennett v. Brockette (Civil
ecases allege that Action No. A-77-CA-21). Plaintiffs insthes the current formula for distribution of state funds is invalid since it is alleged to entirely omit thevalue of substantial amounts of property which are required by law tobe taxed. See also Sheffield v. Driscoc **(No.** --- Tcxasiipi%iiieCourt. 'l'hczadings B-6829) now pending in the in these suits do not precisely raise the issues involved inyour more general inquiry, but the issues are similar and we call your attention to the litigation.

Indetermining how to allocate state funds for public education, the Legislature has broad authority. Efunnne v. Marrs, 40 S.W.2d 31 (Tex. 1931). In fact, theTexas Constitution even provides amethod other than property valuation for the distribution of certain school funds. Tex. Const. art. 7, § 5. It also requires the Legislature to 'make suitable provision for the'support andmaintenance of an efficient system of public free schools." Tex. Const., art. 7, §I. The federal constitutional requirement that will have to be satisfied by any school finance plan is that itmust bear some rational relationshio to a leaitimate state DurDose. San Antonio Independent School*Dist. v.-Rodriguez, 411-U.S. 1 (1973). For example, WC have already indicated that assessments determined pursuant to article 8, section l-d of the Texas Constitution, which permits certain land to be assessed
on the basis of agricultural use factors, could constitutionally be utilized in the formula by which school aidwas apportioned among districts. Letter Advisory No. 109 (1975).
Whether aparticular proposal will meet the constitutional test will depend on the details of the proposal and its relationship to the overall statutory scheme ofwhich it is apart. your question isbroadly phrased, and no specific legislative proposal isbefore us. Unless and until a specific proposal ispresented, we have nobasis on which to say that any and all proposals which might fallwithin the scope ofyour inquiry would meet the constitutional test we have outlined. We believe that any proposal the Legislature adopts should specific;I~~L~

indicate the legitimate state purpose which is being served by the formula and should clearly reflect the rational relationship between the legitimate state purpose and the formula.

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Honorable William P. Hobby Honorable Bill Clayton -Page S (H-1022)

SUMMARY
The Texas Constitution requires that property be assessed for taxation purposes in proportion to itsmarket value. The Legislature may not provide that one type of property be assessed at a smaller percentage of itsmarket value than other types of property.
The Legislature has a constitutional obligation toprovide for the support and maintenance of an efficient system of public free schools. Ithas broad authority to devise aplan to distribute state funds for public education. Any proposal the Legislature adopts should specifically indicate the legitimate state purpose which isbeing served by the formula and should clearly reflect t,herational relationship between the legitimate state purpose and the formula.
Very truly yours,

JOHN L. HILL Attorney General of Texas

APPROVED:

DAVID M. KENDALL, First Assistant

Opinion Committee

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