Case Information

*1 OFFICE OF THE ATTORNEY GENERAL OF TEXAS

AUSTIN

GERALD C. MANN ATTORNEY GENERAL

Honorable Dan W. Jackson District Attorney Houston, Texas

Dear Sir:

Attention: Mr. Conrad J. Landran Assistant District Attorney

Opinion No. 0-5059 Key Where vacant property is purchased under an executory contract, and legal title retained in vendor, and the vendee makes valuable improvements thereon, are the land and improvements separable for the purpose of taxation, and against whom should the taxes be assessed if the land and improvements are not separable?

The facts upon which we predicate this opinion are clearly stated in your letter of January 20, together with the copy of the contract of sale and purchase submitted therewith, which we copy as follows:

I would like to submit for an opinion the following questions:

• Under the facts hereinafter outlined, has the Assessor authority to make a separate assessment against the improvements alone and if the rendition list which the owner of the land signed included, as is usual, a separate assessment for the land and a separate assessment for the improvements, is the owner of the land liable for the taxes on both assessments? The special facts are:

*2 Honorable Dan W. Jackson, Page 2 "The owner of the land, prior to the ereotion of any improroments, sold the racant lot to a purchaser under a form of contract a copy of which is hereto attached. This soller owned the lot, which vas racant on the execution of the contract of sale, and had made no conveyance to the contrect purchaser on or prior to January 1, of the assesment year. Hovever, the contract purchaser, prior to January 1 of the assesment year had erected improroments on the lot entirely at his own expense. The seller vas at no time under any obligation to erect improroments or advance funds for that purpose. There has been no forfeiture of the contract of purchase and the purchaser vas in possession on such January 1 and thereafter. The contract of purchase vas not paid out on such January 1 and vas not ready for execution of deed to the purchaser. "We may assume that the owner who signed said rendition list did not notice that the office of the Assessor had also included an assesment against the improroments on the lot, and that if he had noticed it, he would not have signed the rendition. I mention this as a fact to consider in deciding the second question. However, the answer to the second question right not answer the first question, and ve respectfully request your consideration of both questions. "I have reached the conelusion that the assesment of the improroments against the owner of the lot is both lavful and mandatory. "I have found no statute or decision which permits the value of the improroments to be exeluded from an assesment of the land and which permits a separate assesment on the improroments against a different party except where the improroments have been covered from the land by contrect or otherwise and are owned by some person other than the owner of the lot. The general rule is that improroments are fixtures and belong to the owner of the lot as part

*3 Honorable Dan W. Jackson, Page 3

of the land unless made a chattel by some recognized act of severance, either actually or constructively.

"A contract may operate as a constructive severance, but the contract in question does not appear to do so. It contains no provision whatever as to the ownership of the improvements and I presume that on forfeiture they will revert to the owner of the lot. The contract emphasizes the continuing ownership of the seller in the land itself by providing that the seller shall pay all State and County taxes until the purchase price is paid out. It provides that on forfeiture the contract purchaser shall immediately surrender peaceable possession of the premises to the seller.

"There is nothing in the facts to indicate that the seller holds the title to the land as a mere naked trustee under an absolute duty to execute a Deed to the purchaser.

"The owner of the lot in this particular case advises me that one of the other taxing units follows the practice of placing a separate assessment of the improvements on the unrendered roll against the contract purchaser.

"I would appreciate your rendering an opinion on this matter or sending me copies of other opinions if these particular questions have already been clearly settled."

"CONTRACT FOR DEED

"ENOW ALL MEEN BY THESE PRESENTS: That we (Here appears name of seller), of the County of Harris, and State of Texas, for and in consideration of the sum of 1/200 to us in hand paid by 1/200 of the receipt of which is hereby acknowledged, and the further agreement on 1/200 of the part to pay a further sum of 1/200 on the 1/200 of the amount on the day of each succeeding month thereafter until

*4 a total sum of 4 dollars has been fully paid, the said (here appears name of Beller) agree that upon the payment of said sum of Dollars in the manner, and at the time above stated, they will execute and deliver to the said, $$ a good and sufficient Warranty Deod, to

The purchaser above named is entitled to the following benefits under this contract according to conditions named herein, First: The said (here appears name of Beller) agree to pay all state and County taxes on this property until the installment payments are completed aceording to contract. Becond: The said (here appears name of Beller) will not charge any interest on deferred payments, provided they are paid when, and as they becone due. Third: The said (here appears name of Beller) agree to carry this contract in full force for thirty days after payment is due, and in case of 111nees vill carry this contract for six months on certificate from practicing physician, and the payment of a fee of fifty-cents per month on each lot. Fourth: In accordance with the agreement signed on the day of 194 by the purchaser above named, which agreement is made a part hereof, the said purchaser agrees that $$ vill make all installment payments when due, and should default be made on the payment of any installment for a period of thirty days after due, except in case of 111 nees as stated in clause Three, then all previous payments shall be forfeited to the said

*5 Honorable Dan W. Jackson, Page 5

(here appears name of Beller) as rental charges for the use and possession of the above named property from date of this contract, and this contract for deed shall, become null and void thenceforth, and the above named purchaser shall in that event be likewise relieved from all responsibility under this contract, and the possession of said premises shall immediately be peaceably surrendered to the said (here appears name of Beller) or their heirs, successors or assigns.

"IN WITNESS WHEREOF, the said (name of Beller) has signed these presents on this the day of A.D., 194.

Your inquiry may be resolved into two questions:

First, may the land and improvements, under the facts set out by you, be assessed separately; against the vendors in the contract as the owner of the land and against the vendee as the owner of the improvements erected thereon by him.

Second, if we should conclude that the land and improvements cannot be legally assessed separately as comprehended in the first question, then who may be legally regarded as the owner for the purpose of assessments and collection of the taxes, the vendor or the vendee.

The first question is easier to answer than the second, and should in any event be answered first.

Article 7146, Vernon's Revised Civil Statutes of 1925, provides:

"Real property for the purpose of taxation, shall be construed to include the land itself, whether laid out in town lots or otherwise, and all buildings, structures and improvements, or other fixtures of whatsoever kind thereon, and all the rights and privileges belonging or in any wise appertaining thereto, and all mines,

*6 Honorable Dan W. Jackson, Page 6

minerals, quarries and fossils in and under the same.

By this article the Legislature has laid down a comprehensive definition of what constitutes real property for purposes of taxation, and we think without reference to private contracts between private parties with respect thereto. In the case of Miller et al. v. Mimebaugh, 153 S.W. 338, (writ refused) the court said:

"... It is a general rule that fixtures, such as a house, become part of the reality upon which it is situated, and, as such, cannot be severed. There is nothing in the record which takes this case out of the rule. Had Miller been a bona fide purchaser, there could be no question but he would have held the house as part of the land, and appolled would have had to look to Reed personally for compensation. If the rules of equity have fastened a trust on the house which is part of the land upon which it is situated, then, as it cannot be severed therefrom, a court of equity, we think, will decree a lien on the land of which it is a part and direct a sale thereof in order to protect the interest of appolled. Atkinson v. Ward, 47 Ark. 533, 2 S.W. 77; Vivion v. Nicholson, 54 Tex. Civ. App. 45, 116 S.W. 388; Kennedy v. Barker, 59 Tex. 162; 3 Pomeroy's Eq. Juris. (3d Ed.) 8 1051."

In the case of City of Texarkana v. Texas-Pacific Railway Co., et al., 198 S.W. 804, taxes were assessed by the City of Texarkana as personal property against the 71 & P. Railway Company and other railroads, against a viaduct constructed by the railroad over their tracks at a much traveled street crossing. Under appropriate city ordinances and a contract between the city and the railroad, a viaduct was constructed by the railroad over this street crossing to remove the hazards of such public crossing. The contract provided:

"It is understood that the viaduct is to be a permanent structure, and the right of way

*7 Honorable Dan W. Jackson, Page 7 which the oity obligates itself to furnish and to prooure is to be permanently used therefor."

Chief Justice Vllson of the Texarkana Court of Civil Appeals in a brief opinion said: "The oult was brought and progeouted on the theory that the rladuet was personal property and subject to taxation as such. As we think the effect of article 7504, Vernon's Statutes, vas to require the court to treat the rladust as real property for the purpose of taxation, it is not necessary to determine whether, if it should have been treated as personal property, it appeared that appollens owned it, and if they did, whether they had so dedicated it to the pub110 as to oxempt it from taxation. Const. art. 8, 8 2; Vornon's Statutes, art. 7504; Special Lave 1907, 0. 104, 88 251, 274; 1 Cooley on Taxation, 263; 15 Cy0. 449-453; 40 Cy0. 201; 8 R.C.L. 910; 9 C.J. 422; Lamar Co. v. Olements, 49 Tex. 347; Comonvealth v. City of Rishmond, 116 Va. 69, 81 S.E. 69; Comonvealth v. Bridge Co. (KY.) 105 S.W. 378. Said article 7504 is as follows: "Real property, for the purpose of taxation, shall be construed to include the land itself, whether laid out in town lots or otherwise, and all the buildings, structures and improvements, or other fixtures of whatsoever kind thereon, and all the rights and privileges belonging or in any wise appertaining thereto, and all mines, minerals, quarries and fossils in and under the same." "It vas not pretended in either the pleadings or evidence that appollens had not paid all taxes assessed by appellant against land owned by them on and over which the rladuet vas constructed. When appollens paid those taxes they paid the taxes assessable against the rladuet and oved appellant nothing on account thereof."

*8

Honorable Dan W. Jackson, Page 8

Artie1e 7504, Vornon's Rovised Givil Statutes, referred to and quoted by Judge W11son is the same now as Artie1e 7146.

We must not contuse the power of the Logislature, to define what is meant by real property for the purposes of taxation" as is done in Artiolo 7146, Vornon's Rovised Givil Statutes, and what is defined as personal property for the "purpose of taxation", as is done in Artiolo 7147, Vornon's Rovised Givil Statutes, with which is concerned the inherent sovereign power of the state to tax with private contrectual righta between individuals upon the subject, as in the case of Clayton v. Phillips, 159 S.W. 117; Winchester Fire Insuranoe Co. v. Roon, 215 S.W. 985; Edvards v. Thanish, 254 S.W. 525; with the latter the Logislature vas not eonormed when it onacted the two foregoing artie1es defining what conatitutes real property and personal property for the purpose of taxation.

Our opinion is, under the facts presented, that the improvements and the land are not separable for the purposea of tazation.

We now pass to the osecond and more difficult question as to who is the "owner" for the purpose of taxation under the facts submitted by you. Article 7152, Vornon's Revised Givil Statutes, 1925, par. 1, is as follows: "All property shall be listed or rendered in the manner following: "(1) By the owner. Every person of full age and sound mind, being a resident of this state, shall list all of his real estate, moneys, credits, bonds or atook of joint atook or other companies (when the property of such company is not assessed in this state), moneys loaned or invested, annuities, franchises, royalties, and all other property."

It is observed that the Logislature does not tempt to define "owner" as used in this article of th thus leaving it for judie1al interpretation in con the subject under which it is here found, namely. and rendering of property for taxation.

We think it definitely aottled is a vandea, in possession under an executory at the date of aseessment as provided in Ar.

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1. the "owner" for the purpose of taxation. We concede that the word "owner" has no technical meaning. Under different circumstances the word "owner" has been held to mean the person having the legal title, and under other circumstances the one who has the equitable title. To review the many varied decisions upon the subject would extend this opinion to unnecessary length. We deem it sufficient to say that it is settled in this state that a vendee under an executory contract, of purchase and in possession at the time fixed by law for assessment is the owner for purposes of taxation. The Court of Civil Appeals in the case of Faber v. State, 85 S.W. 835, (writ of error refused) has held under a similar state of facts that the assessment was made properly against the vendee in such executory contract and not the vendor. In that case taxes were assessed against the property, and it was contended that because legal title remained under the contract in Dallas County until the entire purchase price had been paid, that the property was, under the Constitution, exempt from taxation as the property of Dallas County. The court held to the contrary, and that the purchaser should be regarded as the owner, regardless of the fact that the legal title had not vested in the purchaser. It stated this holding as follows:

"That our tax laws should be construed, as they long have been, to require the vendee holding lands under an executory contract of sale to pay the taxes assessed against such lands, we entertain no doubt. Lands so held are subject to execution as the property of the vendee, and the title of such vendee will support an action of trespass to try title. The fact that a county is the vendor ought not to change the legal status of such vendee. True, it has been held that county school lands, so long as they remain the prop of the county, are exempt from taxation, even in the hands of a lessee (Daugherty v. Thompson, 71 Tex. 192, 9 S.W. 99); but after the lands are sold by the county they become the property of the vendee for purposes of taxation, as well as of execution, even though the sale be on a credit, and the contract executory. It would certainly be unreasonable to treat a

*10 Gonorable Dan W. Jackson, Page 10 gounty gelling its sehool lands on a oredit as owner both of the notes of obligation taken for the purchase price and of the land. Yrue, the gounte is not entirely divested of title to the lands until they are finally paid for, but until a forfeiture of reselasion takes places on ascount of the default of the purchaser the purchaser is to be regarded as the owner, and the lands may be sold for taxes as his property."

This rule of lav was sustained by the Austin Court of Civil Appeals in the case of Harvey v. Provident Investmeat Co., 156 S.W. 1127. In that case the court said: " . . Beause it has been held in this state that when a granter in a deed purporting to conrey land retains a vendor's lien, the legal and paramount title remains in the vender, therefore appellant contends that within the purview of the tax laws authorizing a suit by the state against unknown owners, the vender, and not the vendee, in such a deed is to be eonsidered the owner. We do not regard that eontention as sound. On the contrary, such a vendee has title to the property against every one except his vendor; as between him and the render it is his duty to pay all taxes which aeerne against the property, and therefore, for the purpose of taxation, he should be considered the owner of the land."

It vas held in the case of Bene v. Coven, 84 S.W. 385, that one is the "owner" and so, entitled to purchase contiguous public land, when he has an oral contrast to purchase it, under which he had taken possession and made improvements permanent and valuable relative to the value of the land.

A few cases from other jurisdictions are noted. In the case of Bitehie v. Citty of Green Bay, 254 M. W. 115, 95 A. L. R. 1081, it vas held that a vendee in possession under land contrast obligating him to pay purchase money is owner of property, within atatute exempting reality owned by lodge from taxation. To the same effect is the case of Bowla v. Oklahoma City, 104 P. 902, 24 L. R. A. (B.B.) 1299,

*11 Honeable Dan W. Jackson, Page 11 holding that the vendee of reaity in possestion under an executory contract of sale at the date of the aseessment is the real owner for the purpose of taxation.

Under the authority of the above cases, ve hold that under the facts sutmitted by you the land and improve. mente are not separable for purposes of taxation and that a vendee in possession, who has made valuable improvements under an executory contract to purchase, when no forfeiture has occurred, is to be regarded as the owner for the purpose of taxation.

Ve have not overlooked the following provision of the contract between the vendor and vendee or seller and purchaser: . . . . The said (here appears name of Soller) agree to pay all state and county taxes on this property until the installment payments are completed according to oontrast . . . ."

Under this provision of the oontrast the vendor or seller oves the taxes, and the vendee or purchaser would have a right of indemnity against the vendor or seller for the state and ounty taxes, which he, the vendor or seller, obligates himself to pay under this provi sion of the oontrast for ouch state and ounty taxes as may be aseessed and colleoted against the vendee or purchaser, whom ve have held to be regarded as the owner for the purpose of taxation.

Very truly yours ATTORNEY GENERAL OF TEXAS By W. Lollar

Assistant

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