Honorable Robert S. Calvert 

Comptroller of Publie Accounts 

State of Texas 

,! 

Austin, Texas 

Opinion No. M-109 

Rer Uhether oil and gas produced 

under an 011 and gas lease 

eKeouted by the United States 

to a private party leasee and 

covering lands over which the 

United State8 has ex%2uSive 

jurisdiction are subject to 

the gae and oil production 

taxee levied by Articles 3.01 

and 4.02, respectively, Title 

122A, Taxation-General, V.C.S., 

~ and the regulation pipeline tax 

Dear Mr. Calvert: imposed by Article 6032, P;b.S. 

You ask my opinion ai to whether the o%i and-gas btioduced from land within the Federal enclave, commonly known 

as the Corpus Chrlstf, Texas, Naval ASP Statfon, are subject 

to the Texas gas and oil produotion taxes and the regulation 

plpellng tax. 

The gross production taxes in question are Imposed by 

Articles 3.01 and 4.02, respectively, Title 122A, TaxationGeneral, Vernon's Civil Statutes; the regulation pipeline tax 

In question is imposed by Article 6032,, Vernon's Civil Statutes. 

Our opinion Is that the of1 and gas produced, other 

than the 16-2/3 per cent thereof whfch is payable as royalty 

to the lessor, the United States, .%;s subject to these taxes. 

The land in questfon,was.?aequlred by the United States 

by condemnation purauant to'APtfsles 5242, 5247 and 5248, 

Vernon's Civil Statutes, by judgment dated July 5, P940, in 

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Honorable Roberts S’. Calvert, Page’.2 (R-109) .’ 

the Dietriot Court of the Unlted Statesfor the Southern District 

of Texas, Corpus Christ1 Dlvislon. We assume the fee simple title 

was acquired. 

-” ’ 

* 

Subsequently 

5242, 5247 and 524 

g> on December 12, 1940, pursuant to Articles 

Vernon’s Civil Statutes, the Governor of 

Texas aeded to the kited States exclusive jurisdiction over said 

land for so long as the land should remain the property of the 

Uni’J;ed,States,cprovlded however that, the State retained concurrent 

jurladlction forexecution of all civil and criminal processes upon 

any~pereon upon sa$d land. The deed further provides that, 

n The United States of America 

@hall be*e&ure in Its possession and enjoylsnt o? all said lands, and said lands and 

Jurisdiction dver~ said land was formally accepted on behalf of 

the United States. 

Thereafter,~ on Decembe; 1, 1962, the ‘United States~of 

America executed’ to Humble ,011 6t’ Refining Co. ,an:‘.oll?.and gas lease 

covering the.land ,under consideration.. The lessee has, informed 

us that all of the lands under consideration from ,whlch production 

is had are on the mainland, thatnone of them are submerged lands 

or tidelands. r’ 

The pertinent provlslons.of this lease are as follows: 

The form used Is styled a ‘Protective Gal and 

Gas Leas&.* h ir’ 

2. 

The lease, at its Inception, ‘reads ,a? follows: 

n,,;;. 

“TRIS L?%ASE, entered into . . . by;and 

between the United States of America, . e . 
Honorable Robert S. Calvert, Page, 3 (M-W) 

hereinafter called the leasoy, and Humble 

;Oll and Refining Company, . e O hereinafter 

called the lessee, . * . 

"WITNESSE!lW: 

"Sec. 1. Rights of lessee. In consideration of rents and royalties to be paid, and the 

conditions and covenants to be obsdrved as herein 

set forth, the lessor does hereby grant to the 

lessee the exclusive right and privilege to drill 

for, mine, extract, remove, and dispose of all the 

oil,and gas deposits owned by the lessor, except 

helium gas,, in 6r under the following described 

land . . . 

i 

3. 

The term of the lease is stated as: 

11 for a period of five y&Fs and so 

long thdreafter as oil or gas Is $roduced In 

paying quantities: . . ." 

4. 

The lease contains the further graqt: 

n 

subject to 

Except as otherwise provided and 

the conditions herein specified, 

the lessee shall have the, right to construct 

and maintain upop the leased lands all works, 

buildings, plant$; waterways, roads, telegraph 

or telephone lines, pipe lines, reservofrs, 

tanks, pumping stations. or other structures 

as ma? be necessary to 

this lease," 

ihe ~f&l enjoyment of 

5. 

Section 2, styled "Th& lessee hereby agrees:" 

contains the following relevant provisions: 

"(d) Rentals and royalties. (1) To pay 

annual rentals and royal:ties on production 

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Honorable Robert S. Calvert,~Page 4 (M-$09) 

under this&ease as provided i';t Attachment 

B which is made a part hereof. 

Attachment B provides for a~royalty of 16-2/3 

per cent of the produ6tion to the lessor: 

"(k) ~Taxes and wages, freedom of'purchase. 

To pay when due, all taxes lawfully assessed 

and levied under the laws of the State or the 

United States upon improvements, oil, and gas 

produced from the lands hereunder or other 

right:, property, or assets of the Lessee; 

. . . 

Articles 3.01 and 4.02 impose an occupation tax.on the 

business of producing;gas and oil, respectively, within this 

State. Article 6032,:commonly known as the Regulation Pipeline 

Tax, imposes a tax,,upon each~ barrel,of crude petroleum produced 

within this State which shall be in addition to and collected in the same r&&r as the, present gross, receipts production tax on crude petroleum. 1( These taxes are occupation 

taxes. Group No. 1,0&l Corpo~ab& v. Sheppard, 89 S.W.2d 1021 

A 

:::X&%:::App. i942). 

1935 error ref )* St 

; ' 

ate v. Humphrey, 159 S.W.2d 

The 011 and gas lease 'conveyed to Humble, the lessee, 

a present determinable fee estate an all of the 011 and gas 

(except helium gas) In and under the lands covered by It. The 

above quoted provisions of the lease, and Its other relevant 

orovlslons. are analonous in law to the provisions of the oil 

and gas lease considered in v. Rid-Kansas 011 

& Gas Co., 113 Tex. 160, 254 29 A . L . R . bob 

This case and the unbroken 1 &ent decisions*of 

our Texas courts following It are unequivocal to the effect that 

this type of oil an8. gas lease 1s a present sale or conveyance 

of real property and operates to.transfer thetoll and gas in 

place In the premises described therein and to sever those minerals 

from the surface. 42 Tex.Jur.24 368, Oil and Gas, Sec. 175, and 

the pages and sections following*and;particularly the cases cited 

at page 369, note.1. 

Decisions of our State Supreme Court have established that 

an Interest in minerals In place,,and an interest in royalty are 

separate and distinct estates in land. 

335, 302 S.W.2d 645 (1957). 

Pith v. Lankford, 157 Tex.. 

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Honorable Robert S. Calve&, Rage 5 (n-%09)' 

Under both the relevant constitutional provisions land 

the three tax statutes underconsideration the royalty payable 

to the United States Is exemnt from the taxes under consldera1 Oil Corporation v. Sh 

4m 6 S W 2d b4b 

, supra; Thelson 

T 

a::*283 6.s. 275 (1931). 

; Group No. 1 Oil 

It 1s the conclusion of this office that the oil and gas 

produced which is allocable to the lessee la subject to the taxes 

under consideration. Under the cession deed by the State of Texas, 

the lands~remalned tax exempt only "so.long a.8 the same are held, 

owned, used, and occupied by the United States of America." It 

is clear from the lease by the Federal government to Humble the 

mineral lands are not in legal'contemplation of law either 'held" 

or 'owned" or "used" or 'occupied" by the government, whose m 

interestis in theroyalty aforesaid. When the mineral Iands 

are no longer used for a,~federal purpose or there has been an 

occurrence of the circumstances specified In the state cession, 

exclusive jurisdiction is terminated. 

In S.R.A. Inc. v. Minnesota, 327 U.S. 558 (lg46), the Supreme 

Court held that when a purchaser entered Into possession of real 

estate under Its contract of purchase of the fee title that the 

property became subject to the terrltorlal jurlsdlction of the state 

wherein it was located and was subject to a direct tax by the state 

on the realty. Under the contract of sale, legal title was retained 

In the United States until payment of the balance of the purchase 

price in InstalIments. The contract contained no express provision 

re,taining sovereignty in the United States; there was no express 

retrocesslon by Congress to the atate ; and the original act of cession of sovereignty over the property to the United States contained 

no requirement for return of sovereignty to the state when the property was no longer used for federal purposes. This case cites and 

follows New Brunswick v. United States, 276 U.S. 547 (1928). In 

both cases, the Court held that the equity situation was one wherein 

the United States had conveyed title to the purchasers, as,owners, 

and they had mortgaged the real estate to.,~the United States to r 

secure the unpaid purchase money. 

Two other cases by the Supreme Court of the United States 

have directly held that the estates granted by 011 and gas leases 

were subject to taxation by.the states. 

Commission v. Texas Company 336 U.S. 342 

The first, Oklahoma Tax 

(1949). considered 

whether a lessee of minerar'rlghts ln,certaln Indian lands in the 
Honorable Robert S. Calvert, Page 6 (M-%09) 

State of Oklahoma was subject to %he payment of nondiscriminatory 

state gross production taxes and state excise taxes on petroleum 

produced from such lands. The excise tax was very similar to the 

Texas gross production taxes under consideration. It was at the 

rate of one mill per barrel on every barrel of petroleum produced 

In Oklahoma. The Oklahoma Supreme Court construed it as an excise 

tax on the prodtiction~ of oil. The Court held that under Oklahoma 

law the lessees became the owners of all the right, title and interest in the minerals in theireases, subJect only to the royalty 

interest reserved to the Indian lessors and that they were liable 

for the taxes. The Court said: 

II it is well established that property p&h&ed by a private person from the 

Federal Government becomes a; part of the general mass of property in the state and must bear 

its ,falr share of the expenses of local government. . . ." (at page 353). 

In the second case, Group No. 1 Oil Corporation v. &SB, 

supra, the Court had under consideration oil and gas leases granted by the State of Texas to a private corporation for a term of 

years, with the right to enter on the lands of the state public 

domain for the purpose of drilling and operating for oil and gas 

and to erect and maintain all necessary structures for the production, transportation and storage of these products, and which 

required the lessee or owner of these rights conveyed to pay the 

State the value of a certain percentage of the oil and gas produced and,sold, The Supreme Court reoognlzed and followed the 

construction of the Texas Supreme Court bo~:Che;effe~t that such 

leases had effected present sales to the lessee of the oil and 

gas in place. The Court held: 

"This Court has consistently held that 

where property or any interest lnit has 

completely passed from the gcvemment to Y: 

the purchaser, he can claim no immunity from 

taxation with respect to it, merely because 

it was once government-owned or becan$e the 

sale of it effected some g@ernment purpose. 

New Brunswick v, ,Unfted Shkes, supraj Forbes 

v. Gracey, supra; Tucker v* Fergnson, supra,? 

see Gromer v. Standard Dredging Co., 224 U.S. 

362, 3718.. Choctaw, 0. & G, R, Co, v. Maokeg, 

256 U.S. 531, 537; Central Pacific R. Co. v. 

California, 162 U,S, 91, 125; Railroad Co. 

v. Peniston, 3.8 Wall. .5 35-37; Weston v. 

Charleston, sipra. p. 46s. 

d 

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. 

Honorable Robert S. Calvert, Page 7 (M-109) 

"Property which has thus passed 

from either the national or a state:. 

government to private owner&&p becomes 

a part of the common mass of property. 

and subject to its common burdens. 

Denial to either government of the 

power to tax it, or income derived 

from it, in order to insure some remote 

and indirect antecedent benefit to :the .' 

other, would be an encroachment of:'the 

sovereign power to tax, not justified 

by the implied constitutional restriction. 

Q. 468. 

See Weston v. Charleston, supra., 

The interest which passed to::'. 

petitioner here, as defined by the J.aws 

of the State, is not distinguishable : 

from the mining claims, acquired in 

lands of the United States under its 

statutes, which, together with minerals 

and ores derived from them, were held 

subject to sta;e taxation in Forbes v. 

Gracey, supra. (at pages 2.82-283) 

Humble, as lessee, has accepted from the Federal government the conveyance of a present determinable fee in the oil and 

gas and mineral estate in the lands. Under the foregoing cases, 

the sovereign power of the State of Texas to impose the taxes 

under consideration seems to be established. 

The case of Oklahoma Tax Commission v. Texas Company 

supra, fs conclusive agalnst any immunity of the lessee. in 

that case, the Court said, 

I, 

a e . The taxes here are nondfscriminatory. The respondents are 'private 

persons' who seek immunfty 'for their property or gains because they are engaged in 

operatfona under a government contract or 

lease.' The functions they perform in 

operating the leases are hardly more governmental fin character than those performed 

by lessees of school lands or, indeed, by 

many contractors with the Government. n *' *' 

(at page 363) 

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. . , 

Honorable Robert S. Calvert:,Page 8 (?&lo?) 

11 

. * . . . 

” But, so far aa concern8 private 

person8 claiming immunity for their ordinary 

business operations (even though in connection with governmental activities), no implied 

constitutional immunity can rest on the merely 

hypothetical interferences with governmental 

functfons here asserted to sustain~exemption. 

. . . (at page 365) 

It is also pertinent that the Court .could find no statutory 

immunity to imposition of the taxes. 

We are aware of that line of! decisione.represented by 

the case of Humble Pipeline Co. v.lWaggoner,:-376 U.S. 369 ~(1964), 

which would denv imoosltion of the taxes because of the continuing;exclusive jurisdiction of the United States over the lands 

covered by this oil and gas lease. This last mentioned case considered an oil and gas lease on lands in Louisiana. It denied 

authority to the State of Louisiana to levy ad valorem taxes upon 

pipelines and other pers.onal property equipment used by a private 

person who was lessee under an oil and gas lease covering lands 

on which Barksdale Air Force Base was located and on which lands 

the State of Louisiana had:ceded to the United States exclusive 

jurisdiction, except for right to execute certain civil'and criminal processes. The deed to ,the United States was for a fee simple 

estate in the lands. This ease and our holding in this opinion 

are distinguished on the basis of the nature of th& estate granted 

to a mineral lessee under an oil and gas lease in Louisiana and in 

Texas. 

In Louisiana, a mineral lease is held to be merely a con-' 

tract which permits theme lessee to ~explore for minerals on the 

land of the lessor in consideration of the payment of a rental 

and/or bonuses. It is well settled that it is not in essence a 

real rimht: it does not create substantive real ri8ht8 in the land 

leased.- Tinsley v. Seismic Fxploratidns', Inc., 

Sup. 1960 ; see also Summers, Oil' d G 

117 So.2d 897, (La, 

Permanent Edition 

lo, p. 470-485, set, 167, also at p"tgesa286g-303, sec. 132-136. 

Vol. 

The distinction between the eases relied upon to support 

our opd.ntnl'on and the ease of Humble Pipeline Co, v. Waggoner, supra, 

is well stated in Kingwood Oil Company v. Henderson County &ard 

of Supervisors, 367 S.W,2d 129 (Ky. Ct. of App. -- Court of last 
. . 

Honorable Robert S. Calve&,' Page 9 (M-109) 

resort -: 1963), wherein the Court in'~oonsiderlng S.R.A., Inc. 

v. Minnesota, supra, sald:,~ 

'We think there is sound, reason for saying 

that if the United States conveys away a portion of the territor over which it has juris-:, 

diction therd e no '~ reason for the jurisdiction to continue over that portion. But 

the same is not true where the United States 

conveys some right less than a fee. In that 

case valid reason may exist for a continued 

exercise of federal jurisdiction overthe 

territory," 

132) 

(Emphasis by the court.) (at p. 

In that case, the mineral lease under the law of Kentucky is 

held not to convey the equivalent of a fee to the minerals with a 

complete severance as in Texas. 

Sec. 160. 

See lA, Summers,011 and Gas,410, 

The distinction above drawn seems to be the basis on 

which the United States Supreme Court distlngulshed its holding 

In S:R;.A:,:.,Incl,~'~v: Minnesota; 'supr$,'and, ite~~holdtn$~:in Humble 

Pipeline Co. v. Waggoner; supra, made Inthe latter case-pages 

2 d 373 h i the court distinguished between a sale of 

landa&er whi~he~~enUnited States had exclusive jurisdiction and 

the lease of that property fo,r commercial purposes, or for farming, or for the conveyance of a mere right of way. 

The recent case of Adams v. Calvert, 396 S.W.28 948 (Tex. 

SUD. 1965) is also distinguishable in that the government had in - -. 

no-way terminated its jur?sdlct~ion over the reai estate, and under 

the terms of the cession deed by the State, the State remained 

powerless to impose the taxes there involved. 

SUMMARY 

The oil and gas lease executed by the United 

States covering lands over which it had exclusive jurisdiction, except, forthe right of Texas 

to execute civil and criminal process,toa private party lessee, subjected the oil and gas 

produced, other than the royalty payable to the 

United States as lessor, to the oil and $as production taxes Imposed by Articles 3.01 and 4.02, 

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,,;~.. . * 

(_ ! 

Honorable Robert S. Calvert, Page 10 (M-109) *' 

respectively, Title 122A, Taxation-Qeneral, 

Vernon's Civil Statutes, and the regulation 

pipeline tax Imposed by Article 6032 of said 

statutes. 

-'~ :The royalty interest payable to the United 

States is exempt from these taxes. 

,:' ey General of Texas 

Prepared .by W. E. Allen 

Assistant Attorney General 

APPROVED: 

O~IMIOH CCMHIT'TBE 

Hawthorne Phillips, Chairman 

Kern&B. Taylor, Co-chairman 

Houghton Brownlee 

Linward Shivers 

Jack Goodman 

Lewis Berry 

STAFF LEGAL ASSISTART 

A. J. Carubbi, Jr. 

.I 

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