The Honorable Tim Curry Opinion No. H- 738
Criminal District Attorney
Tarrant County Courthouse Re: Ad valorem tax con-
Fort Worth, Texas 76102 sequences of financing arrange-
ments for federal facilities.
Dear Mr. Curry:
You have asked us three questions about state and county ad valorem
tax consequences where the United States, pursuant to 40 USC, 5 602a, con-
tracted with a private builder to build a parking facility for federal employees
on federally owned land leased to the builder for forty-five years at a total
consideration of one dollar for the term.
The United States agreed to purchase the building with payment of the pur-
chase price to be made in installments over a thirty year period. The presently
outstanding lease, otherwise for a forty-five year term,will terminate upon full
payment, and title to the leasehold and the erected improvements will automa-
tically vest in the United States.
The “lease” specifies, that the “leasehold interest” has been granted solely
for the purpose of securing the government’s obligations and although the
builder is termed by contemporaneous instruments as the holder of the title to
the building and the lease until the purchase price is paid, the builder is given
no right to remove the building or to occupy the premises. The government was
given the right to take possession of the building when it was ready for occupancy
and did so but the United States is not obligated to pay rent to the builder and does
not do so The builder is forbidden to demolish or erect improvements on the
property except as agreed by the United States, and is forbidden to sublease or
assign the lease without the consent of the government. The building has been
completed, and accepted and occupied by the government, and the leasehold in-
terest and the right to receive the installment payments have been assigned by
the builder to a third party with the consent of the United States.
You pose three specific questions:
(a) Is the contractor’s interest in the building
real property?
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The Honorable Tim Curry - page two (H-738)
(b) Is the building taxable separately from
the land?
(c) If the contractor’s interest in the building
is a separate interest in real property, is it
taxable to the contractor?
Every instrument that is given as security for a debt is a mortgage re-
gardless of its form, and the language used or the form imparted to an in-
strument is immaterial. If it was intended to secure the payment of money,
it must be construed as a mortgage. 39 Tex. Jur. 2d Mortgages and Trust
Deeds, $ 12. A mortgage is merely a lien on the mortgaged property to secure
payment of the sum owed by the mortgagor. The mortgage does not operate as
a conveyance of title to the property affected and the mortgagor retains the title,
even where the transaction takes the form of a conveyance. 39 Tex. Jur. 2d
Trust Deeds, $4.
In our opinion the “lease” here is not a lease, but is merely a security
device which conferred upon the builder no real property interest whatsoever to
the site or to the improvements erected thereon. It represented a charge
against the interest purportedly conveyed by the lease and not a bona fide trans-
fer of the leasehold title or a property interest. 36 Tex. Jur. 2d Liens, $ 1.
Its sole purpose was to secure payment of the purchase price of thebuilding,
and its life is entirely dependent upon the existence of the debt it secures. Until
the debt is paid or forty-five years have elapsed the builder, or the builder’s
assignee, can prevent the government from conveying the full legal title to the
property but the “lease” accords them no rights in the premises.
We answer your first question in the negative.
Article 7146, V. T. C. S., defines “real property for the purpose of tax-
ation” as the land itself, and all buildings, structures and improvements, or
other fixtures thereon, and all rights and privileges appertaining thereto. Im-
provements on leased land can be taxed as personalty if placed there by the
lessee under an agreement that they are for the use of the lessee and may be
removed by him. But here the improvements are erected for the benefit of thefee
owner and the “lessee ” has no right to remove them. See Mission Ind. Sch.
Dist. v. Armstrong 222 S. W. 201 (Tex. Comm’n App.320,holding approved),
reversing Armstrong v. Mission Ind. Sch. Dist., 195 S. W. 895 (Tex. Civ. App.
--San Antonio 1917, ‘no tiFit) on question of tax lien rights i,n personalty.
Unlike such cases as Reader v. Christian, 234 S. W. 155 (Tex. Civ. App. --
Beaum,ont 1921, writ ref’d) and Sharkey v. Hollums, 400 S. W. 2d 353 (Tex. Civ.
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c
. .
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The Honorable Tim Curry, page three (H-738)
APP. --Amarillo 1966, writ ref’d n. r. e. ), .there is no indicia here that
the improvements were intended to represent personalty of the “lessee. It
In our opinion, the building is an inseparable part of the realty to which
it is attached and is not separately taxable. See Attorney General
Opinions M-319 (1968), O-5059 (1943), 0-466m942).
We answer your second question in the negative also.
Your third question was conditioned upon affirmative answers to the
first two questions, and we, consequently, do not reach it.
SUMMARY
A “lease” of federal real property which is a
mere security device to secure the purchase price
of parking facilities erected upon the “leased” site
conveys to the “lessee” no separately taxable real
property interest in the erected facilities.
Very truly yours,
Attorney General of Texas
APPROVED:
DAVID M. KENDALL, First Assistant
Opinion Committee
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