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OFFICE OF THE ATTORNEY GENERAL OF rrxAs
Q- c. m&w4 AUSTIN
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Honorable 3. P. Parker
Co:nty kttornep
Commohe County
:Ccmanohe,Texas
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ale of the properties,if any sucl:.
up03 constructl.oncosts wotid be confis-
hecauee of the 103 ear2.lz.g
pwer 32 the pro-
lngs aethod, chculd be given garmomt conslderetion,byths Ward
'in this tax v.aluatloa.
It is'fzrt:Xrpointed out tkat t.",a
Ccmn;?cbeCounty.
Z?uralSleotrificatlonAd2~i~istratlon, a oor~o7ationOr~etizedun-
der thf2zi.Z. k., isa, as 0: Zancury 1, iaa, sanstr.3cZeda>proxi-
matsly sixtpf3ur allea oi cmpleted pomr lines at a coat of a-
bout $490.00 Fez rzlle,far tke pspose af ?ir-lisi&k~electrical
gsnorable D. P. Parker, Page a
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energy to the rural seotlons of Zastlaud County,not with en ob-
jeot ol profit but of servioe to the e:~iculturalcozmnity. Zow-
ever, it is sttitedthat the lm income return is not due to the
non-profit charester of the enterprise,but to the thinness of the
territory served by it, o?d the relativelyhi;yhtivestrrentia fixed
properties in oozparisonv&th earsing poplar,a conditionv.$ichha's
prevented private utilities frm serving these rural areas.
To resolve this oontrovertJy
you ask the following ques-
Mont
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?&at shAd be the prlnoijlest&t, the Cm&-
aloners* Court sh&ld adopt in a.vr1vin.a
at fair snd
just tsxation?w
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Article 7174, of Ve&on~s AnnotatedCivil Statutes of
Texas, 1925, as mended, sets 'upcertain requirezestsrelating to
the valuation of real and personalproperty for ad val0X.z tax pur-
pOSeS. The articlefin questionprovides,in part, as follows:
Pooh separate parcel of real property shall be
valued at its true end lull value in z~oney,exclud-,
ing the value of mops grcru%3ggr uxigeethered,thereon.
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coindeterzzningthe tNe a3d full'valtie of'real
aad personal property the assessor skall not adopt a
laver or different standard of value beaause the se.m
is to serve as a bnsls of taxation,aor,shall,hoadopt
as a criterion of vaUe the price f6r which s*uchFro-
perty would sell at augtlon or a forced sale or in the
aggregatewith all the propertyin his county; but he
shall value eaoh~tractor lot by itself, az3.at sI*nham
and pioe as he believes the sem to be fairly rrorthin
money at the ti=lesuah assesszestis nade. . . .
*Personal.
property of every aeaariptlonshall bs
r&ued at its true and full value in,~oney,~
Artiole 7149 of Vernon'sAnnotatedZevised Civil Statutes
of Texas, 1925, as mended, provides as follcris8
I The ten, ttrus eu?ofull value';w!ierever used
shall be held to aoan the fair zzarketvalue, in cash,
at the place where the property to Which the tern is
appllod shall be at the tine of assessznt, belng the
prioe which could be obtained thereforat private sale,
833anot at roroad or auction s,ale."
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The term 3arket YeI.& ,* “fair market value, * ~*caah
market value, * *fair cash market value” end etrue and full val&e
in money* have been held to be synonymous tern. 40 Tex. Jur. ‘.
150. I
9iarket value* or Vair market ~&lue* has been defined
ea “the ezount OS Honey that a person deslrin3to sell, but hot
bound to 00 so, oould, within a reasonablet&e procure for ouah :
propertyfrm a person who desires and is able to buy, but is not
bomd to purahase the property. It is the mount thet oould be
obtained at grivate ~sale and not a ~foraed.or auotlon sale.“, 40
Tex. Jur. 150. ,_ ”
Under this-detinltlonend the fasts before us, we think
it rzy’be assumed thet the propertiesof the COnenche Coruty
Eleotric~Cooperative Assmiation, looated~ .inZestlendCounty,
either have no eotual *r;arket value,O d?reto ‘theslz3le gurgose
and multi-aounty nature of the propertyand its conse~.ucnt war&
oi a reedy narket as other realty and personalty,bosszonly bought
and sold; or lf a mrket value z?aybe seid to exist, it Is so Us-,‘-
proportionateto the oriEioe1 aost of the properties, less depre-
alation, or ths reproductionoost, iess.depreaietion; as to afford
no reasonable and proper basis for Yaluation by the Soar& of ‘Equal-
izetion bf Zaatland County. :
Thus we see &at the broad &id .dozina& crltsrlon pres-~
oribed b$ the Le~islatwa for the valuetiol? of prop&ty for
tax
purposes~ i. 0. ihe reasonablecash value o.fthe $operty on the
market, or v&at it oan be bou&t ant sold for, is difficult if not
tigosslbleof qgllcztlon ns the aole~factorof value. Consequently
upon this a8suspAon, we turn to the deoisionsof thh and othsr
jurisdictionsto det..rrdne the aocegted w recognized nethods of
valuing property for tex purposes in swh situations.
Intrinsia vsbue Is not amtiosed in the statute t&t de-
fine0 the pcxveroof th6 Zossd Of yqueli~stioil($2.) tit. 7206)
but it is only stated that the Eoard shall “bause the assessor to
bring before then at such meeting all assessmentlists, etc. . . .
to aae that every person has redderedhis propertyat a feir market
value.96 fcLEphnsisours.)
It h&s been noted that VAir nerket valuea is the basis
required of the Assessor under Artiole 7174. 1s this~~Qo.~cotfOa
it my be golnted out t;latArticle 7211, Vernon’sA22otsted ilevised
Civil Statutes,.providesthat “IS such property shell be found to
hare nb market value by such officer (t5.ewsessor), then at such
•~ aa r&d ofClc,er shJ3 deem the ret+ 01 intrizsiovalue of the
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Eaorable Il.P.~Perkar,Page 4
propartY." Therefore, it scelzsttit the %erd, as well as the
AssaSSOr,nay and'shoulddeterzinevalue a:cordingto intrinsic.
;g;t in instanceswhere the property in quuestioxl
has no narket
. 40 Tax. Jur. 149.
~Bkethkror not the propertiesinmlved hers, dw to
low or non-existantearnin. power, or to the nature of the pro-
perties and the use to whioh they are put, have or do not have
a "fair market value," 80 a5 to enable th3 3oard of Equalization
to daternine, the "true and fi~llvaluetinploney"of the progsrty
on the basis of the price which auah propertywould brFr.3at sri-
.vatesale, pursuant to the literal tense of the'abovequoted stat;
utes, is-IIpure question of faot which this Zepsrtnsntis not
oonpetentto pass upon,.andit is not, by this opinion,under-
stood to be so doing. ZIowev6r, easuain,q,froiil
the facts stated,
t&i absence of an establishedmarket value for these properties
which wodld rspresent the:s*true andfull value" thereof, it is
our opinion that the Board of Zqualization,in arriving at in-
.trinsiovalue for tax purposee,~ zag.properlyand legally consider
all pertinent facts, eatixates,forecastsand oirc*sastoroes bro!l?ht
to its attention or establishedand recotgizsd ea f~danontallp~
casential and reasonablyrelated to,the.questionof v&116, either
_eer the principles of Joxmon law~or a&non aenee. The Lewis- ~I'
r‘,latureh5s vested in Poarda of Zquallzation,as,oonstit*&edby
statutes,'theoole discrstlonin the valuationclld tie equaliza-
tion of ths valusa of property eubjeot to taxation. Their action
is clothed tith the presuznption that it has been rightly nade on
the baois of actual valueand courts will deoline to disturb su*
assessnantsunlsas sham to be arbitraryand grossly excessive or
based upon a funde~eotallywrong principalor retaod of detemin-
fug value. 40 3x. Jur. 156, Great NorthernXailxay Company v.
Ueeka, 297 'J.S.195; 80 L. Ed. 932. ,:..,I.
Certainly if the oouvts are loath to dist?rrb
the die-
aretion of Boardsof Zqtalizatloain disahargin~their s'titutory
duties of 'assessingand vaiuin;,propertyfor taxation,then, with
strong3r reasons, this 3spartnsnto~lnot pkoperiy,in advance of
the exercise 3f such discretionby the EqualizationZoard of
xaath4a c9mlty,outline end prescribe,by tie requestedopinion,
any t3yLit.m,fomula, ruls or rethod for the oontrol and guidance
of said Soara in ths aisaharge of its duties. %or can said Soard
.tbe oonpelled to aubzit to exanizetionas to the operationof their
ninda in arriving at tis *true and full valus" of the property
before then.
Cn the other hand, we thlnk'wsnag pkpsrly point out
som of tds fornulas.oreystaas aomotily
_, used by tax officiala
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Bonorable D. P. Parkar, Page 5
in valuing property for'taxationand axzovea by the aourts,
where market value is non-existent. Some of these are: (1) orig-
inal cost cr re?roduationcost, less a rsaemable annual depre-
oiation; (2) "the etmk and bo;ldnethod," or the averagemarket
priae of ths outstandingstocke and bon5e of a corporation;
Great Ziorthern-Xallnay Co. v. iieeks,supra; (3) *tie capitallza-
tion of net ope-stinginaoms ~.ethod;~ 26 H.C.L. 367, 368; Grsat
Northern Railway Co. v. Zeeke, eupra;Parsoae, st al v. Detroit
k Canada Tunnel Co., et al, 15 Fed. 2upp. 926, aff. City of Ds-
.,troit Y. Detroit E;Canada Tunn& Co.! 92 Fed. (2)'33.
.
The laet formula or msthod for.acouratelydetermining
the *true and full value" of propertyPer taxationpurposes by
tax assessing officials and boards has been, by ths courts, in
the cited zaaee and others, approved as beiq particularlyappli-
cable to railroads and pub110 utiliti4sof variouskinds suoh as
ferrye, bridgse, canals, toll roads, pipe lines and elsctrio
powsr ana eerviae oompenles,euuh as the one involvedin the in-
stant case. The wcapitel.ization-of net izlcoae rnethtivmay be
rtated aa follows:
"
When property has a known and determinate .
value aeasrtaicedby commera4 in it, as~.inmany
kinds or parsonal propsrtyariain aertain classes
. of real estate, them can be no difficultyin ae-
aertaining its val*uefor purposes of taxation.
In many ce3es, however, ~24 asosssortae no s;ich
eatisfaatoryguide, and muet value the property
by other z14acs. In euah cases, if the property
is devoted to the uee for %%ich lt ~143 desiiyned,
and is in a condition to pro&ace its maximum in-
0438, one very important 416mentfor ascertaining
its present value is tie net profitsaerlved thcre-
from. In suah a ease the tax ie not levied Won
th4 earnin.zsas ezch, but the earninEsare treated
ae a guide to tie capital valus. Ths valus of the
proparty is arrived at by oap$taliziagthe net
icoons therefra at the rate of return prewiling
in the sem seatim of the -countryupon InvsstzIsnte
o? a sl-silarotiracter. In dsterainini; the net
11100~4 of any itsm of property a3 E basis for
valuation for the purpose of taxation,t5a average
net income fm a umber of y4ars should be oon-
eldersd, rather t;Fi;hs earnic.~s of a sin?Je ySar
standing alone. , however,the eaiiin~capa-
oity of th4 property a8 distinguishedfrom the
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.Hmorable D. P, Farlser,Page 6
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aotual earnings that is the proper slanentfor oon-
sideration in fixing a.8 valuatLonOSprop3rtyfor
' taxation. . . .* .26B.C.L. 367.
In ugholdirtgthe wcapitallzationof net earnings~prin-
oiple for the ga:danoe OS tax officialsin the valuationOS pub-
e other system or Sormlas above
110 utlllty propeztles over tii
emmeiated, u&er statutes ahost identicalto those whloh 20vern
here, the oourt, in the case of'Pemms TV.Detroitb;Cmada Tur-
ml Co., supra, saidr $
*The original, or rearoduotion;construction
cost of tt,iat\;r;sa~is so 6nOPnauS thst there Is
absolutelyno aowrent relatttion between suoh cost
and its earninE cnpaoity. Kor does such cost ap-
pear to have any possible bearing upon such eaiitig
CsQacity. IS nature had aonzitruoted tbls tunnel
in its preeent Soxz, it v+lU ba as valuable to its
owner a8 it nav is. It would'be as val&ble to the
owner or a prospectivepurohaaer,re&ardlessOS its
original cost. ItS OOSt dOeS E&t &XX]-S ClteF hItO
the questionsas to what price a purchaserwould pay 'I
.03-aselier 7souldtake. The basis So? a sale price
wuld be the present, ar.d probable Suttie, taming
power of the property; erd certainlypresent and
past earnings are proper and tigortantSactors in
$.idgi~gwhet eazzings my fairly be expeatodfn the -'
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'Therefore It ie t5.ecouolusionOS the ooiirt
that the tunnel i;roperty here involvedis OS auoh
character as to be usable for a single purpose only;
that it is devoted to the public serviceunder reg-
ulations and oetkxls oS operation,a6 to classify
it as a aublio utility; also that the capitalization
cl earn&s nethod should hare been~given, controlling
considerationed eSSect bytho assassin:< ol'floers
in.arrivizIg at the true cash value of the >ropsrty,
witbin ths ntanlng and oooF)e,o? tke ap::licable
Xioh-
&.n statutes; that the taxing authorities,in basing
their valmtions for the tame years in qus.stLon.
eatlrely upon dspreciatadCost, ecd in iailicg to
give imy cohsidertitioz or xrc2Thtto the capitaliza-
tion of net irso-& method, have adopted e fundazental-
ly erro:.eozs 2ri:;ciple or rathod of arrivingat the
true cash value 31 t;leEroperty in ques:log,in viola-
tion OS tLejducip,mcess clsute of th6 EwXeenth
Amendmnt to the ConstitutionOS the i?nltedktatss,
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.HonorableD. F. Parker, Page 7
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and the reaultlng assestmtntsare thereforeIllegal
and void. . . ."
We reiterate that the groper Somfila,nethod or prinod-
pie to aide the Eoard of EqualizationOS Xaatiand CounQ~ in the
perfoxzanceOS their statutoryduties OS dete,-ini=%the *true
and full value" of the propertiesoI + the CozamheCoucty 2lectrio
COOpiQtiVe Assoolatl3n,is not 3ure to dooide, bat rests square-
ly ar.dsolely within tha sound disoretlooof tilesa:d Bomd.~ It
is their province to hem the avideme azd weigh the Saots, cir-
amstmioes and conditions8urromliIigt-he;rro?ei-ties ir:question
end therefrm deterzxine vhi3ti3i the three sethods, Sorml.aa or
Prinoiplssaug;-Tested hereimbote, or my others, aiiiglyor in.
ambifiation,will be best ada_s';ad to the peculiar facts of this
aase. in other words, this opinion should not be understoodto
hold that the wca~ltali-&tionoS net inoo~e aethod2+is the anly.
one applicableto the faots of this case, to be exoluslvelyand
xeiy Sollmed by the Dcard. UC are mrely pointtiogout that
6uOh mtiiod ~a_y: be lawfully consideredby the Eoardj if ,itap?ears~
iron the facts adduced before then thatmch nethod is beat cal-
auleted to arrive at the *true and full value" 0S the Froperty.
But, if soy otbr xzethod , grinaiple or.forzula,whether clistmssed
.T-- herein'& not, arjpsaisto the 3aard to better establishsuch "true
and full value," then said Eoard is et llberVJ,tofollow such
method, subjeot, OS oourse, to revieelr by the courts in the &amer
-herein discussed. .:,
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Trawtlng the foregoing Sully armveru yaw inqw, we
are
Tauzs very truly