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Bailey v. Federal Land Bank

Supreme Court of Mississippi, In Banc
Dec 12, 1949
207 Miss. 764 (Miss. 1949)

Opinion

No. 37561.

December 12, 1949.

1. Estates — minerals in place — royalty.

The estate owned by an owner of minerals in place is substantially different from the estate of an owner of a 1/8 royalty or a part thereof, whether such ownership of the royalty interest is acquired by purchase or by reservation or exception.

2. Minerals — oil and gas lease — royalty — annual rentals — reverter.

The owner of all or an undivided interest in minerals in place which are under an oil and gas lease in the standard form is entitled to receive, (1) royalty in the event of production, and also (2) annual rentals under the lease; and he also owns (3) the possibility of a reverter of the minerals in fee upon the expiration of the lease according to its terms or because of the failure to pay the stipulated annual rentals.

3. Minerals — ownership — incidents of — effect of lease — taxation.

The owner of minerals under a lease has the right to sell any part of his minerals in place while such a lease is in force, and as an incident to such ownership to receive annual rents and the royalty, or any part thereof, that may accrue under a lease — he owns the minerals subject to the lease and may be assessed with the same, subject to the lease.

4. Taxation — assessment — minerals in place.

Where the owner of a separate estate in minerals had rendered, in a recent year, a return to the assessor at a valuation of $1.00 per mineral acre and such minerals had been uniformly assessed throughout the county at that valuation, whether under lease or not, such an assessment will be regarded as prima facie correct.

5. Taxation — assessment — mineral interests under lease.

Where the record shows that the owner of land in conveying it had reserved a one-half undivided mineral interest in, and under the lands so conveyed, the assessment of the retained mineral estate should be on the basis of the one-half so retained, even though the owner had leased his retained minerals under the usual oil, gas and mineral lease by which the owner, so long as the lease should remain in force, would be entitled to one-eighth royalty out of the said one-half interest.

6. Taxation — mineral interests — assessment and payment on a surface assessment — back assessment.

When the owner of a mineral interest has failed in his duty to return it to the assessor with the consequence that the entire estate in the land is assessed to the surface owner, the entire estate so assessed will pass by a tax sale; but when for like reason there has been a like assessment and the taxes so assessed have been paid and no tax sale occurred, the owner of the mineral interest may not take advantage of the circumstances brought about by his own default and thereby escape a back tax assessment of his separate mineral interest.

Headnotes as approved by McGehee, C.J.

APPEAL from the circuit court of Hinds County; H.B. GILLESPIE, Judge.

Alexander Alexander, for appellant.

Questions at issue are res judicata. Bailey v. Land Bank, 40 So.2d 173.

One-half mineral interest under lease is far more than 1/16th royalty interest under the lease. 4 Summers Oil and Gas Perm. Ed. Par. 783; State v. Cummins, 40 So.2d 587; Bailey v. Land Bank, 40 So.2d 173; Palmer v. Crews, 203 Miss. 806, 25 So.2d 430, 4 A.L.R. 2d 483; Hickey v. Dirks, 156 Kan. 326, 133 P.2d 107; Nell v. Rudman, (Fla.), 33 So.2d 234; Summers Oil and Gas Perm. Ed. 3 p. 348; Thuss, Texas Oil and Gas (2d Ed.) p. 156; Glassmire, Oil and Gas, p. 63; Watkins v. Slaughter, 144 Tex. 179 [ 144 Tex. 179], 189 S.W.2d 699; LaLaguna Ranch Co. v. Dodge, 18 Cal.2d 132, 144 P.2d 355, 135 A.L.R. 54; Schlittler v. Smith, 128 Tex. 628[ 128 Tex. 628], 101 S.W.2d 543; Richardson v. Hart, 143 Tex. 392 [ 143 Tex. 392], 185 S.W.2d 563; Humble Oil Refining Company v. Harrison, 205 S.W.2d 355; Harris v. Currie, 142 Tex. 93[ 142 Tex. 93], 176 S.W.2d 302; Hulse v. Hulse, 155 Ill. App. 343; Vandenmark v. Busiek, 7 Cir., 126 F.2d 893.

Minerals under lease for the time being may be termed "royalty acres", which should not affect assessments. Glassmire, Oil Gas, pp. 305-6.

Mississippi cases in point. Moss v. Jourdan, 129 Miss. 598, 92 So. 689; Koenig v. Calcote, 199 Miss. 435, 25 So.2d 763; Sec. 9770 Code 1942; Smith County Oil Company v. Board of Supervisors, 200 Miss. 18, 25 So.2d 457, 26 So.2d 685; Stern v. Parker, 200 Miss. 27, 25 So.2d 87, 27 So.2d 402; Hendrix v. Foote, 36 So.2d 145, 38 So.2d 111; Bailey v. Land Bank, 40 So.2d 173; State v. Cummins, 40 So.2d 587; Palmer v. Crews, 203 Miss. 806, 25 So.2d 430, 4 A.L.R. 2d 483; Anderson v. Butler, 203 Miss. 512, 35 So.2d 709.

R.E. Spivey, Jr., E.F. Steiner, and Beverly C. Adams, for appellee.

Appellee assessable, only, with interest reserved in leases or the value thereof. The chief question presented by this appeal is whether appellee is taxable with a full 1/2 interest in the minerals just as though it were not under lease or whether it is assessable with the 1/16 mineral or royalty interest reserved by it under said leases. This question, we respectfully submit, was answered by the court in favor of appellee in the cases of Bailey v. The Federal Land Bank of New Orleans, 40 So.2d 173, and State v. Cummins, 40 So.2d 587. Strangely enough appellant cites these very same cases as authority for her position but she has wholly failed to point out wherein they support her position. The court specifically held in the Bailey case that: "Under the usual royalty clauses of oil and gas leases, one-eighth of the oil and gas, or the value thereof, is reserved to the lessor. This is a property interest and is therefore taxable." Again, from the same opinion, we quote: "From the foregoing it is seen that not only under our statute but also under the general law as announced in Summers the royalty interest reserved in the lessor in an oil and gas lease is subject to ad valorem taxation, and it will be further noted that the interest of the lessee is not to be assessed upon the entire mineral value of the land but only upon the value of the leasehold interest." The court in that opinion quoted as an authority the following from 4 Summers Oil and Gas, Perm. Ed. Sec. 783: "A separate mineral fee interest in oil and gas in place created by grant or exception, the interest created in the lessee by the ordinary oil and gas lease, the royalty interest reserved in the lessor in an oil and gas lease, a perpetual interest in oil and gas created prior to lease for production, and an overriding royalty interest created out of the interest of the oil and gas lessee are all property interests, real or personal, and subject to taxation."

Contrary to appellant's brief, all issues were not decided in her favor in the Madison County case. The State Tax Collector contended in the Bailey case, supra, as she does in the case at bar, that no interest in the mineral fee passed to the lessee under the leases and that the full 1/2 mineral interest should be assessed against the Bank just as though the leases had never been executed. We contended in that case that the entire 1/2 mineral interest passed under the leases, and that the Bank, as lessor, retained no taxable interest whatever. The court held both contentions to be incorrect and said: "One-eighth of the oil and gas, or the value thereof, is reserved to the lessor. This is a property interest and is therefore taxable."

We next contended that the entire value of the entire mineral fee described in the lease was taxable against the lessee. Appellant contended that the entire value of the entire mineral fee was taxable against both lessor and lessee. The court, in holding against us said as to the lessee's interest "assessments are made on the value of that interest and not upon the entire mineral value of the land".

In the Cummins case, supra, the court enumerated the following as property interests subject to taxation: (1) "A separate mineral fee interest in oil and gas in place created by grant or exception, (2) "The interest created in the lessee by the ordinary oil and gas lease, (3) "The royalty interest reserved in the lessor in an oil and gas lease, (4) "A perpetual royalty interest in oil and gas created prior to lease for production, (5) "An overriding royalty interest created out of the oil and gas lessee." Each of these interests, the court said, is subject to taxation and "Assessments are made upon the value of that interest and not upon the entire mineral value of the land. Under the usual royalty clauses of oil and gas leases, one-eighth of the oil and gas or the value thereof, is reserved to lessor. This is a property interest and is therefore taxable. . .". The interest owned by appellee is unquestionably enumerated as No. 3 above. Yet appellant seeks to nullify the meaning of the language of that clause by insisting that the Bank is taxable under either clauses number 1 or 4. If appellee is taxable as contended by appellant, Clause No. 3 has no meaning and it was unnecessary for this court, text writers and courts of other jurisdictions to have included it in a list of property rights subject to taxation.

The court specifically held in the next preceding quotation from the Cummins case that what was reserved to the Bank was "one-eighth of the oil and gas or the value thereof". The court specifically instructed that assessments should be made on the value of that interest and "not upon the entire mineral value of the land". The entire mineral value of the land in Hinds County for taxation purposes in 1946 was $1.00 per acre. Each fractional interest was assessed uniformly in the proportion that said interest bore to $1.00. That valuation was fixed by the board of supervisors and tax assessor. The Bank had nothing to do with that. It is the uniform rate. This is conceded by appellant.

The rule thus announced by the court in the Bailey and Cummins cases, supra, is in strict accord with previous holdings of the court as to mineral interests conveyed and reserved by oil and gas leases. In the case of Stokely v. State (1928), 149 Miss. 435, 115 So. 563, the court said: "Under this instrument the title to seven-eighths of the oil in the land is vested in the grantee, while she is given the exclusive right to purchase all gas produced therefrom at a fixed and unchangeable price. Under the provisions of the instrument the rights conferred thereby continue so long as oil or gas, or either of them, is produced on said land, provided drilling was commenced by a fixed date. Under this provision, the termination of the grant is wholly uncertain, and the rights granted may endure forever."

The respective interests of lessors and lessees under leases similar to the ones here involved have been likewise discussed and defined by the court in the cases of Armstrong v. Bell (1946) 199 Miss. 29, 24 So.2d 10, and Koenig v. Calcote (1946), 199 Miss. 435, 25 So.2d 763.

Section 9770 of the Code of 1942 was enacted just two years after the Stokely decision. The Legislature, therefore, knew what interests were conveyed and what interests were reserved in oil and gas leases when it passed that law. Thus the Legislature adopted the holding of the court in that case. The statute provides, in part, that "when any person reserves any right or interest, or has any leasehold in the elements above enumerated, all such interests shall be assessed and taxed separately from said surface rights and interests in said real estate, . . ." It was held in the Bailey and Cummins cases, supra, that a one-eighth interest was reserved under the leases and that that reserved interest is subject to taxation under Section 9770. Surely the correctness of that holding cannot be controverted because no other interest is owned by appellee.

The rule is in accord with that in other jurisdictions. 4 Summers Oil and Gas, Perm. Ed., Sec. 783; Am. Jur. Taxation, Sections 437, 438, 439 and 691. Directly in point we quote the last paragraph of 51 Am. Jur. Taxation, Section 691, as follows: "In the case of gas and oil leases, the surface is usually assessed to the lessor and the mineral rights either to the lessee alone or else to both lessor and lessee in proportion to their respective interests."

Also in the case of State of Texas v. Quintana Petroleum Co. (Tex.), 134 S.W.2d 1016, 128 A.L.R. 843, the lessor in an oil and gas lease reserved an overriding royalty in addition to the I/8 royalty, 1/4 of the remaining 7/8 of the oil, gas and other minerals until the proceeds amounted to $2,000,000.00. After the receipt of that amount the full 7/8 interest was passed to the lessee. The court held that this was a reservation of a 7/32 interest in the minerals and was subject to assessment as such. Following the logic of appellant in this case, that interest should have been assessed as a 7/8 interest because it was created by reservation out of a 7/8 interest. The State Tax Collector makes just this argument in this case by saying in effect that you reserved a I/8 out of a half and therefore you should be taxed with a half.

If the position of the State Tax Collector were correct, there would have been no purpose in remanding the Madison County case. The back assessment was of a "1/2 mineral interest" and it was agreed in the stipulations that the uniform assessed value was 25 cents per acre. It is apparent then that the court did not intend for the assessment to stand as submitted but that the bank should be assessed with the interest reserved under the leases.

Through the Bailey case the court has plainly restated the ruling of Stokely v. State, supra, that 7/8 of the minerals passes to the lessee under the oil and gas lease and that I/8 is reserved to the lessor, that the interest reserved to the lessor is an interest in real estate and is therefore subject to taxation as realty. Since appellee started out with only a 1/2 interest in the minerals before executing the leases, it reserved a 1/16 interest in the minerals by way of royalty and conveyed the remaining 7/16 to the lessees. Therefore, the lessor and lessee are assessable with the respective interests created in each by the lease but not each assessable with "the entire mineral value of the land" as appellant insists. Any arrangements to tax appellee with a half interest, and the lessees with a 7/16 would constitute double taxation and be contrary to the public policy of this state.

The uniform per acre assessed valuation of minerals for Hinds County for 1946 was $1.00. The Bank had nothing to do with fixing this valuation. It was done by the duly constituted taxing authorities in the statutory manner. If the valuation had been $500.00 per mineral acre the principle would be no different. The entire interest of the lessee under these leases was assessed to the leasehold and taxes paid thereon. Therefore, taxes were paid on 7/16 of the minerals involved, leaving only a 1/16 interest unassessed. A system of assessing fractional interests in Hinds County for 1946 is illustrated by the following table copied from paragraph 3 of the Stipulations:

"The uniform per mineral acre assessed valuation of separately owned minerals for Hinds County in 1946 was $1.00 per mineral acre. Each fractional part of such interest was valued in accordance with the fractional interest owned or reserved by the taxpayer. For instance, using a 100-acre tract as an illustration, the following valuations were made:

"Entire mineral interest severed $100.00 1/2 " " " 50.00 1/4 " " " 25.00 1/8 " " " 12.50 1/16 " " " 6.25

"It is further agreed that if the position of the State Tax Collector as above stated is correct the interest to be assessed is a 1/2 mineral interest with the total assessed valuation being $2590.00; but that, if the position of the Bank is correct, the interest to be assessed is a 1/16 mineral interest or a 1/16 royalty under the lease with total assessed valuation being $323.75."

The principle is that starting out with all the minerals under one acre of land, we have one mineral acre valued at $1.00. Whatever is done to that acre by way of leasing, conveying or reserving we cannot make more than one mineral acre out of it. To illustrate: A obtained a deed, separate and apart from the surface to all the minerals under one acre of land and is assessable with the entire mineral acre and with the entire mineral value of the land at $1.00. He sells half of it to B. A and B are owners 1/2 each of that mineral acre and assessable at 50 cents each. There is still that mineral acre valued at $1.00. Neither its extent nor its value have been increased by virtue of dividing the mineral acre into two parts. B leases his half to the lessee, C, by which he conveys a 7/16 interest in the minerals as in the leases here involved and reserves a 1/16 to himself. A's half is not leased. The assessment is 1/2 of 50 cents to A, 7/16 at 43.75 cents to C, and a 1/16 at 6.25 cents to B. Again, adding up each fractional part of the value thereof we have the original value of $1.00. The situation is very well illustrated by the following table:

Our Contention

A 1/2 mineral int. (not leased) .50 ¢ B 1/16 " " lessor-bank .0625¢ C 7/16 " " lessee .4375¢ ____ ________ 1 mineral acre $1.00

State Tax Collector's Contention

A 1/2 mineral int. (not leased) .50 ¢ B 1/2 " " lessor-bank .50 ¢ C 7/16 " " lessee .4375¢ _____ _________ 1-7/16 mineral acres $1.4375

The Tax Collector would end up taxing 1-7/16 mineral acres in place of one actually in existence, and would have a valuation of $1.4375, whereas the board of supervisors fixed the valuation at $1.00. To make the Tax Collector's position even more ridiculous she would assess B's interest and C's interest jointly at 15/16, with a valuation 93.75 cents. According to appellant, B's half interest in the minerals owned before the lease would be enlarged by executing the lease to a 15/16. Surely the language of the lease does not increase the mineral interest at all. Appellant must resort to hocus pocus if she is to get more than a half. No authorities have been cited by which these bare facts can be controverted. Carrying the point a step further, if A had leased his half the Tax Collector would assess A and B with a half, and both C and A's lessee at 15/16, making a total of 1-7/8 mineral acres at a valuation of $1.8650. This would be a clear violation of Section 112 of the Mississippi Constitution requiring assessments to be equal and uniform.

To state the matter rather crudely but plainly, out of every 16 buckets of oil under the one acre of ground above mentioned 7 are put in the barrel of lessee and one in the barrel of the Bank. Yet the Tax Collector wishes to assess the Bank's one bucket with more than the lessee's 7 buckets. As stated by the Supreme Court of California in the case of Graciosa Oil Co. v. Santa Barbara County, 155 Cal. 140, 99 P. 483: "The value represented by a royalty is ordinarily very small as compared to that of the right of the lessee." In fact appellant wishes to assess 15 buckets of oil (8 to the lessor and 7 to the lessee) when there are only 8 buckets altogether. Call it what you will — a 1/16 royalty or a 1/16 interest in minerals reserved — the Bank has reserved only 1/16 of the minerals under the ground and as long as the present lease is in effect can never own or receive more than 1/16 of the minerals.

Again from a practical — not theoretical view — the Bank parted with definite property rights of value upon execution of the leases covering the property here involved. They are: (1) Seven-eighths of its 1/2 interest in the mineral fee, (2) The right to execute mineral leases and to collect the initial consideration (bonus) for such leases, (3) The right to go upon the surface and explore for minerals, and (4) The right to take the minerals from the ground. In fact the lessor has no interest left except a reversionary interest in the mineral fee and the royalties in the event of production. There has been an absolute severance of 7/8 of the minerals. Stokely v. State, supra; Armstrong v. Bell, supra; Koenig v. Calcote, supra.

Appellant makes the assertion that a mineral interest reserved under a lease is more valuable than the interest owned before executing a lease. We heartily disagree. The total mineral value of the land can certainly not be increased by the execution of any document. The lessor parts with 7/8 of his interest in the minerals. It is a matter of common knowledge that the original cash consideration for leases, known in the oil vernacular as bonus, is frequently large in comparison with other mineral income to the lessor. It would be a happy mineral owner who had not until today leased his interest on property in a producing area. A striking example occurred recently in Adams County when an existing oil and gas lease of school lands was declared void by this court in the case of Humble Oil and Refining Company v. State, (Miss. 1949), 41 So.2d 27. The cancelled lease, by which a I/8 royalty was reserved, provided for a bonus of $5031.00. The press reports that the trustee received a bonus of more than $100,000.00 for the new lease and reserved one-half (1/2) of the minerals as royalty. Delay rentals are usually nominal and it is to the advantage of the lessor for the lease to be terminated so that he may again sell his minerals to another lessee.

It is obvious that to follow the theory of the appellant would be to introduce in Mississippi for the first time double taxation. Our State abhors and will not permit double taxation. Section 9788 Code 1942; Panola County v. Carrier, 92 Miss. 148, 45 So. 426; Thompson v. Craig, 196 Miss. 465, 17 So.2d 439; Craig v. Dun Bradstreet (Miss.), 30 So.2d 798; Middleton v. Lincoln County, 122 Miss. 673, 84 So. 907.

At the risk of being overly persistent we again, by way of cross-appeal present the proposition that all interests in the land, including all the minerals involved, were assessed for 1946 to the landowner and, having once been assessed, cannot be back assessed. This has nothing to do with the taxability of minerals nor with the power of the tax assessor and board of supervisors to assess the interests as are here involved at the regular time and in the statutory manner. If the 1/16 interest in minerals had been assessed in 1946 by the local taxing authorities the assessment would be perfectly good under the present decisions of this court because by that assessment, the mineral interests would have been accepted and excluded from the assessment by governmental subdivisions to the landowner. With the greatest deference we urge the court to re-examine its holding in the Bailey case, supra, and to overrule the same as to this point, or to overrule the case of Stern v. Parker, 200 Miss. 27, 25 So.2d 787, 27 So.2d 402. We respectfully submit that the two holdings are entirely inconsistent. We think the Stern case is sound and should be reaffirmed.

As we see it the question is as simple as this. A owns the Northwest quarter of a certain section. On December 1, 1945, A conveyed the S 1/2 of the NW 1/4 to B. On the 1946 roll the entire Northwest quarter was assessed to A who paid the 1946 taxes thereon. There was no assessment to B of the S 1/2. Could the State Tax Collector back assess B for 1946 taxes on the S 1/2 of the NW 1/4? All of the things said about liability for taxation and duty to assess apply to B just as to the owner of a severed mineral estate. Yet there can be no question but that the S 1/2 of the NW 1/4 did not escape assessment just because it was assessed in the name of the wrong person. As provided in Section 9744: ". . . it shall not be necessary to the validity of an assessment, or of a sale of land for taxes, that it shall be assessed to its true owner."

In the Stern case, supra, the court held all minerals to be included in the assessment to the landowner. In the Bailey case it was held that they were included merely for the purpose of the tax sale. There can be no other purpose for which property is assessed except the purpose of payment of taxes. Either the tax is paid voluntarily or it is paid by selling the property to satisfy the lien. The taxes were paid voluntarily on the land assessment in the case at bar. They were paid involuntarily in the Stern case by a tax sale.

The fact remains that there can be no valid sale without a valid assessment and that the separate interest in minerals in the Stern case was sold. The fact remains that if there is an assessment of an interest in land the State Tax Collector has no power whatever to back assess.

Surely it cannot be that an assessment of the SW 1/4 of Section 15 includes the minerals where there is a sale for delinquent taxes whereas an assessment of the SW 1/4 of Section 15 does not include the minerals when the taxes are paid. In each instance we are, of course, assuming that the minerals were not excepted from the land assessment in any manner.

An actual case now en route to this court will illustrate very clearly the complication arising by virtue of the conflict in these two cases. There was a sale for delinquent taxes to an individual under the assessment of the land by governmental subdivisions. Prior to maturity the State Tax Collector back assessed the separately owned mineral interest. Will the back assessment serve to except the minerals from the sale of the surface? Would not an affirmative holding deprive the purchaser of his property without due process of law? When he purchased there was no exception of the mineral interests on the assessment roll and there was no assessment of the mineral interests thereon which constitute an exception. Nevertheless, before title matures in the tax purchaser the State Tax Collector makes his back assessment. The very unfair and inequitable situation then arises that the tax purchaser is deprived of an interest in the land which he purchased or that the owner of the mineral interest is required to pay back taxes on real estate which he has already lost by the tax sale.

Because a description by governmental subdivisions without exceptions on the assessment roll includes all estates in the land as held in the Stern case and because our statute (Section 9744) provides that an assessment to the wrong person does not affect the validity of the assessment, we submit that the mineral interests involved were definitely included in the land assessment in the case at bar.

If our premise is true there may be no back assessment because the State Tax Collector has no power to back assess of the interests involved have already been included in the land assessment. Adams, State Revenue Agent v. Luce, 87 Miss. 221, 39 So. 418; Gully, State Tax Collector v. J.J. Newman Lumber Co., 178 Miss. 312, 172 So. 740.

If the court feels that it is unsound to leave the possible loophole for a mineral owner to escape taxation under this theory (and we cannot see how any mineral owner can afford to take such a chance ordinarily), we respectfully submit that the Stern case should be overruled. It is neither equitable nor fair that a mineral owner may lose his minerals by a sale under the land assessment and for another mineral owner to be forced to back assess when the taxes have been paid on the same type of assessment.

With deference, we submit that in preference to the present conflict between the rules announced in these two cases, a much better rule would be that once there has been a severance, the minerals are on and after January 1 of the year following the severance, excluded by operation of law from the surface assessment. This is the rule in other jurisdictions which apparently do not have statutes similar to Section 9744. Authorities on this point are collected in 75 A.L.R. 434. The overruling of the Stern case would permit the back assessment of the mineral interests either voluntarily or involuntarily for 15 years and would leave the State with the possibility of collecting taxes when the escaped assessment was discovered and would only deprive the tax purchaser of an interest which the person in whose name the land assessment was made did not own. Under the present rule there can be no back assessment after maturity and the State has thereby a large potential loss of taxes. This would give effect to the pronouncement in the Bailey case that each interest in minerals must be separately assessed. We recognize that in presenting these views we are arguing against our interests in this particular case with the hope that we may be helpful in clearing up what we believe to be a direct conflict between these two decisions. We respectfully urge the court, for all time, to put an end to speculation and to hold that minerals either are or are not included in an assessment of land by governmental subdivisions without the mineral interests having been excepted therefrom.

Alexander Alexander, for appellant in reply.

Appellee, the Federal Land Bank, admits that there are only two issues presented by this appeal, as follows: "1. Whether the lessor under the usual oil and gas lease is assessable, as appellee contends, with the I/8 interest reserved under the lease or, as appellant contends, with the full interest owned prior to execution of the lease just as though no lease had ever been executed. 2. Whether assessment to the landowner by governmental subdivisions without exception or mention of separately owned mineral interests includes those mineral interests in the assessment and thereby precludes a back assessment where taxes have been paid under the land assessment."

The second issue listed above is another attempt to apply or overrule Stern v. Parker, 200 Miss. 27, 25 So.2d 787, 27 So.2d 402. It is tantamount to a second suggestion of error in the Madison County case (Bailey v. Land Bank) 40 So.2d 173. The same attack on Stern v. Parker was also made in the cases of Hendrix v. Foote and Cummins v. State. Even though appellant's position may be strengthened by overruling Stern v. Parker, we shall not discuss this issue further.

Getting back to the first issue presented by appellee, to which we shall limit this brief reply, we wish to remind the court how adroitly appellee weaves into the picture, and in our mind thus rather clouds the issue, the fact that on January 1, 1946 the Land Bank's mineral interests were under lease. Appellee says: "The State Tax Collector, however, insisted on back assessing a 1/2 mineral interest at the full mineral value of the land just as though no leases had been executed."

Respectfully we reply to this charge that the State Tax Collector insists on back assessing for 1946 the 1/2 mineral interests of the Land Bank, as they then existed, without regard to whether they were under lease, at the same valuation that the Federal Land Bank has assessed them for previous years, and at the same valuation fixed by the Land Bank in the assessments tendered the tax assessor for 1946, and withdrawn. True, the Land Bank withdrew the assessment of those mineral interests which were under lease because of its interpretation that the decision in Smith County Oil Company case (and subsequently Stern v. Parker) relieved the Land Bank of assessment and taxation of these particular mineral interests under lease.

The fact that such mineral interests which must now be back assessed for 1946 in all counties, where the assessments of same were withdrawn by the Land Bank, were under lease prior to and on January 1, 1946 was never suggested or utilized as a basis for reducing the assessments or as a basis of recovering back taxes on same which had been previously paid by the Bank for many years. This "under lease" bugaboo has just recently become of great value to appellee after it finds itself liable for 1946 assessment and taxes thereon.

Appellant is not attempting to assess appellee's mineral interests "at the full mineral value of the land, just as though no lease had been executed". We are assessing the Federal Land Bank's mineral interests at a valuation which the Bank had previously fixed and maintained for years. The fact that said mineral interests are under lease is a mere incident of ownership, which had no bearing on the assessment by the State Tax Collector, just as it was ignored by the Land Bank when it first offered said assessments. Again we remind you that in making the back assessment the State Tax Collector used an exact copy of the assessment rolls that had been used by the Land Bank. These mineral interests, although under lease, were assessed by the Land Bank as "1/2 minerals". The Land Bank didn't say "1/2 minerals less leasehold interests", nor did they assess the 1/2 minerals under lease differently than the 1/2 minerals not under lease. If the 1/2 minerals under lease are now to be reduced to a 1/16th royalty interest per acre, why was not this mathematical dexterity used when the Land Bank first thought they would have to pay the 1946 taxes thereon? The decision in the Madison County case, 40 So.2d 173, holding such interest taxable did not give the Land Bank, at this late date, any right to change or reduce the assessment made by the State Tax Collector.

In a few brief paragraphs we will summarize our arguments in reply to appellee.

(1) The valuations of the mineral interests of the Land Bank indicated in the assessment by the State Tax Collector were previously fixed by the Land Bank. Our friends say in their brief: "The uniform per acre assessed valuation of minerals for Hinds County for 1946 was $1.00. The Bank had nothing to do with fixing this valuation. It was done by the duly constituted taxing authorities in the statutory manner". It is true that the taxing authorities approved the valuation, and so did the Land Bank until the decision in Bailey v. Land Bank on April 25th, 1949, 40 So.2d 173.

(2) The basis of $1.00 per mineral acre which is agreed to in the Stipulation of Facts, applied to a mineral acre whether under lease or not. No different basis of assessment was used for mineral acres under lease than for mineral acres not under lease. If there had been such difference in valuations, appellee would have blazoned such fact prominently in its brief.

(3) Although we admit that the leasehold interest under said minerals was subject to taxation and was separately assessed, please note no evidence was offered by appellee to show a basis of leasehold assessment valuations. Whatever assessed valuations were placed on the leases, did not enter into nor were they considered in fixing the assessed valuations of the mineral rights.

(4) If a leasehold's assessed valuation should be deducted from the valuation of the minerals under such lease, should not the assessed valuation of an oil and gas lease given by the land owner on his land, which includes all his minerals, be deducted from the assessed valuation of the owner's (or lessor's) land? This has never been done, to my knowledge.

(5) A I/2 mineral owner has the same interest in the minerals under a tract of land as the landowner, who owns the other 1/2 mineral interest under the lands. What about the landowner's assessments? Probably ninety percent of the store buildings on Capitol (or Canal) Street are under lease for a term of years. Have you even seen or heard of any change in the assessed valuation of the land because it is under lease? If the store building was not under lease, its value would be reduced — not increased. The same rule should apply to fractional mineral interests. A lease of such minerals is one of the valuable privileges of ownership, a source of revenue through rentals, bonuses, possibility of royalties in the future. An oil lease is not a fractional 7/8th of the full participating mineral interest, it is a lease and nothing more.

The landowner's royalty interest under a producing lease was subject to separate taxation in State v. Cummins, 40 So.2d 587. Was this valuable asset of ownership deducted from the assessed valuation of the land, thus reducing such land assessment to an absurdity?

(6) The brief of appellee admits: "The facts are the same as those set out in the first paragraph of the opinion of the court in the case of Bailey v. The Federal Land Bank, supra." Now, quoting from the opinion of Justice Hall in the Madison County case: "The appellee filed with the tax assessor of the county a list of the oil, gas and mineral rights which were separately owned by it. Thereafter there was rendered the decision of this court in Smith County Oil Co. v. Board of Sup'rs. of Simpson County, 200 Miss. 18, 25 So.2d 457, 26 So.2d 685, and upon the basis of that decision the appellee withdraw its assessment upon its undivided oil, gas and mineral interests under lease, and said interests were not assessed to appellee and no taxes thereon were paid by it for the year 1946." Admittedly the Land Bank was satisfied with the assessed valuations of its mineral interests, until they later learned that they must pay the taxes on their same valuations.

(7) The decision of this court in the Bailey case, followed by the Cummins Case, does not favor appellee's amazing contention. On the contrary, it sustains the contention of appellee. The five separate mineral interests which are subject to taxation in Mississippi, outlined first by Summers, then in the Bailey opinion and again in the Cummins opinion are: (1) "A separate mineral fee interest in oil and gas in place created by grant or exception, (2) "The interest created in the lessee by the ordinary oil and gas lease, (3) "The royalty interest reserved in the lessor in an oil and gas lease, (4) "A perpetual royalty interest in oil and gas created prior to lease for production, (5) "An overriding royalty interest created out of the oil and gas lessee."

The Land Bank's interest is a "full participating 1/2 mineral fee interest created by exception (reservation in a deed)."

Our friends insist that the appellee's interest is No. 3 — the royalty of (1/2 of 1/8) under the oil leases which were on said mineral rights on January 1, 1946.

The Land Bank owned No. 1 and No. 3. The perpetual 1/2 mineral interest was of special value. The royalty interest under the particular lease was of little value. When the lease expires (who knows whether these 1946 leases are in force, anyway?) the 1/2 mineral rights remain, just as the landowner's mineral rights, perpetually.

(8) Appellee charges "double taxation" by appellant. What is double taxation? Words and Phrases, Perm. Ed. Vol. 13 in the 1949 Cumulative Supplement, Page 76 cites these definitions: "'Double taxation' within constitutional prohibition means that one person or any one subject of taxation shall not directly contribute twice to the same burden, while other subjects of taxation belonging to the same class are required to contribute but once. Olson v. Oklahoma Tax Commission, 198 Okla. 607, 180 P.2d 622, 625, 626. . . . 'Double taxation' is the imposition of the same tax, by the same taxing power, upon the same subject matter. City of Philadelphia v. Heinel Motors, 142 Pa. Super. 493, 16 A.2d 761. . . . 'Double taxation' applies to any case where the same intrinsic values are twice taxed. Brophy v. Powell, 58 Ariz. 543, 121 P.2d 647, 641, 642."

Appellee's theory of double taxation is based on the assumption that a mineral right under lease grants the lessee 7/8 full participating mineral interest, leaving the mineral owner only I/8 mineral interest, and in the Federal Land Bank's case, there remains only 1/2 of I/8 or 1/16 mineral interest. Never have we heard of a similar contention in our experience as oil company attorneys for many years. A 1/2 mineral interest under lease is still a 1/2 mineral interest — the lease is an incident. Such 1/2 mineral interest under forty acres, as an illustration, may be designated as twenty mineral acres. If and when such 1/2 mineral interest is leased, then it is termed twenty royalty acres. Never is a 1/2 mineral interest under lease designated as a 1/16th "mineral or royalty" interest. Incidentally, our friends do not seem to know what description fits their argument "1/16th mineral interest or "1/16th royalty interest".

(9) The Tax Collector is proceeding under Section 9184 Code 1942. The back assessment is made by the tax assessor on the demand of the State Tax Collector. A failure of the assessor to do so subjects him to a severe penalty. After notice received, the tax assessor makes the assessment and files the same with the chancery clerk, who gives ten days' notice to the party assessed, who may file objections to the assessment with the board of supervisors. When the board approves, as in this case, an appeal can be taken to the circuit court as was done in this case. The circuit court can "approve" or "disapprove" the assessment — nothing more. It cannot change the nature of the assessment; assess only part of the landowner's interest (such as a royalty under a particular lease), nor can the circuit court compel the State Tax Collector to assess something different than that intended by the State Tax Collector.

"Upon appeal to the Circuit Court from a judgment of municipal authorities on an assessment made under the direction of the revenue agent, the judgment should be one simply approving or disapproving the assessment. If it is approved the Court should not render a personal judgment against the taxpayer for the amount of taxes due. Morris Ice Co. v. Adams, 75 Miss. 410, 22 So. 944."

Neither must we overlook that the board of supervisors is the taxing authority. The board had before it all of appellee's learned arguments and approved the assessments. This was res adjudicata. Riley v. Gaddis, 146 Miss. 44, 111 So. 739.

Respectfully we insist that the circuit court, under Section 9184 had no authority to reduce the assessment, by compelling the State Tax Collector to assess to the Land Bank only a 1/16th royalty interest under lease, which is only a small fraction of the Land Bank's privileges and benefits which it enjoys under its full participating 1/2 mineral rights. The circuit court could only approve or disapprove the assessment as made.

(10) The disapproval by the circuit court of the assessment made by the State Tax Collector and approved by the board of supervisors was predicated upon a ground far beyond the scope of the circuit court. There being no evidence or reason offered why said assessments should be disapproved, the order of the circuit court should be reversed.

Appellees are making an adroit attempt to reduce its 1946 assessments to a ridiculous minimum. Appellee starts with the valuation which was placed upon its mineral interest by itself, accepted by the local tax assessors and used a basis of back assessment, — $1.00 per mineral acre. However, appellee argues that 7/8ths of said mineral interests are owned by the lessee under the oil lease, and thus only 1/2 of 1/8 minerals remain in the Land Bank. Earnestly we insist: (a) The leasehold interest is not a full 7/8th mineral ownership. (b) No evidence offered to show the assessed valuation of the leasehold interest, and certainly it is nothing more than an assumption to suggest that the said leasehold was assessed at 7/8th of the base valuation of $1.00 for full mineral interest. (c) The $1.00 valuation, used by the local assessor, originally fixed by the Land Bank and accepted as a basis of valuation by the State Tax Collector, was without regard to whether the minerals were under lease. (d) No evidence (or even suggestion) that any other mineral owners whose minerals were assessed on a basis of $1.00 per mineral acre, reduced or attempted to reduce their assessment of mineral rights where said minerals were leased. This amazing effort by the Land Bank to change and reduce its 1/2 mineral interest to I/8th of the already low valuations is the first of its kind.

(11) We respectfully request this court to reverse the judgment of the circuit court and affirm the action of the board of supervisors in approving the assessment made by the State Tax Collector, and the chancery clerk directed to certify the same to the Tax Collector with instructions to proceed to collect the taxes due on the assessed valuation of $2,590 for the year 1946 at the tax rates then in force, with legal interest on such taxes at 6% from February 1, 1946 to date of payment, as the law directs.


In order to expedite a final determination of the controversy involved in a former appeal by the State Tax Collector from a decision of the Circuit Court of Madison County in favor of the Federal Land Bank, reported in 206 Miss. 354, 40 So.2d 173, the present litigation was substituted therefor in Hinds County where the cause could be heard at an earlier term of court than the former case could have been heard after its remand to the Circuit Court of Madison County.

It is conceded that the facts involved are the same as those recited in the first paragraph of the opinion in the reported case, supra, except that the assessment herein is one relating to one-half of the minerals underneath certain lands in Hinds County, instead of the assessment involved in the Madison County case. In this instance the State Tax Collector caused the County Tax Assessor to back-assess the Federal Land Bank with one-half of the minerals under the land in the first judicial district of Hinds County which it had sold to individuals and where it had retained one-half of the minerals and they were owned by the Bank on January 1, 1946, and where the land was then under an oil and gas lease such as is described in the first paragraph of the opinion on the former appeal.

In the former case the Board of Supervisors of Madison County sustained the objections of the Bank to the back-assessment so made and on the appeal to the Circuit Court in that County the action of the Board of Supervisors was affirmed. We reversed the judgment on that appeal and remanded the cause. A final judgment here was not rendered therein because of the fact that it had been stipulated "that the bank may enlarge its objections so as to make the point that even if the mineral interests involved are held to have escaped assessment and to now be subject to back-assessment for 1946 taxes, the maximum assessable interest is the I/8th royalty (1/2 of which is owned by said bank) and not the fractional mineral interest owned". That is to say, that the bank was to be allowed to enlarge its objections so as to make the contention that even though it should be held that the bank is the owner of a 1/2 undivided interest in the minerals under the leases outstanding on January 1, 1946, it could only be assessed with a 1/16th mineral interest or royalty upon the theory that it owned only 1/2 of the 1/8th royalty under the lease and that the other 7/8ths interest in the minerals were owned by the lessee. Under our view of the case this is the only remaining issue not decided on the former appeal. It was then clearly held that a back-assessment was proper and the cause was remanded to determine what estate in the minerals should be assessed.

However, counsel seem to assume that there is also left open for decision on this appeal the further question of whether or not the assessment of the surface to the landowner by governmental subdivisions without exception as to the separately owned mineral interest in the bank, and on which assessment the taxes were paid for the year 1946 by the landowner, included the mineral interest owned by the bank, and precludes a back-assessment thereof. We shall, therefore, deal also with the latter question again in the light of the decision in the case of Stern v. Parker, 200 Miss. 27, 25 So.2d 787, 791, 27 So.2d 402, and in the light of what we have already said in Bailey v. Federal Land Bank, supra, in regard to the ground upon which the decision in Stern v. Parker, supra, was predicated.

In the instant case the back-assessment made by the County Tax Assessor at the instance of the State Tax Collector was approved by the Board of Supervisors of Hinds County, but was disapproved and disallowed on the appeal to the Circuit Court of said county, except to the extent that the Circuit Court held that the bank was liable for back taxes for the year 1946 on a "1/16 mineral interest or a 1/16 royalty under said leases and is assessable with such interest only". In other words, the Circuit Court instead of either approving or disapproving the assessment as made by the taxing authorities, or fixing a different valuation on that which had been assessed, reduced the quantity of the mineral interest assessed to the bank from a 1/2 interest to a 1/16th interest, thereby reducing the total valuation of the minerals under the land involved in this suit and owned by the bank from the sum of $2,590.00 to the sum of $323.75 on the basis of $1.00 per mineral acre.

In the brief of counsel for the appellee bank it is conceded that the present litigation "is in effect a continuation of the proceedings in the case of Bailey v. Federal Land Bank of New Orleans, . . . and reported in 206 Miss. 354, 40 So.2d 173, on the appeal from the Circuit Court of Madison County", and since it is further conceded that "the facts are the same as those set out in the first paragraph of the opinion of the court in the case of Bailey v. Federal Land Bank, supra," it would follow that such former decision should be controlling here as to the law to be applied.

The stipulation of facts discloses that on January 1, 1946, the appellee, Federal Land Bank of New Orleans, was the owner of a 1/2 undivided interest in and to all the oil, gas and other minerals in, on and under the lands described in the back assessment involved; that such minerals were under the usual oil, gas and mineral lease on January 1, 1946; that the Bank was receiving its share of the annual rentals that were accruing under the lease; that the leaseholder paid the taxes for the year 1946 on its leasehold interest; and that the owner of the surface paid the taxes levied on the land and assessed against him thereon, without there having been any exception of the minerals on the assessment roll for said year 1946.

On the first issue presented, we think it well settled that (Hn 1) the estate owned by an owner of minerals in place is substantially different from the estate of an owner of a I/8th royalty or a part thereof, whether such ownership of the royalty interest is acquired by purchase or by a reservation or exception. (Hn 2) The owner of all or an undivided interest in minerals in place which are under an oil and gas lease in the standard form is not only entitled to receive royalty in the event of production, but also annual rentals under the lease. He also owns the possibility of a reverter of the minerals in fee upon the expiration of the lease according to its terms or because of the failure to pay the annual rentals contracted for under the lease. Armstrong v. Bell, 199 Miss. 29, 24 So.2d 10; Koenig v. Calcote, 199 Miss. 435, 25 So.2d 763.

Moreover, (Hn 3) the owner of minerals that are under a lease has the right to sell any part of his minerals in place while such a lease is in force the same as he could do if no lease had ever been executed. In other words, the right of an owner of minerals in place to receive annual rentals and the royalty, or any part thereof, that may accrue under a lease is incidental to his ownership of such minerals. He owns the minerals subject to the lease, and he may be assessed with the same subject to the lease. We are not justified in assuming in the absence of any proof on the point that $1 per mineral acre is not a fair and reasonable valuation of minerals in place which are under a lease. (Hn 4) The record discloses that the bank had rendered an assessment to the taxing authorities of $1 per mineral acre for its minerals for the year 1946 and prior thereto without regard to whether they were under lease or not. They were so assessed by the County Tax Assessor during former years on a uniform valuation throughout the County of $1.00 per mineral acre whether under lease or not, and such assessment of a tax assessor is prima facie correct. Such assessment rendered for 1946 was withdrawn by the bank because of the decision in the case of Smith County Oil Co. v. Board of Sup'rs of Simpson County, 200 Miss. 18, 25 So.2d 454, 26 So.2d 685. (Hn 5) The assessment for 1946, made by the County Tax Assessor at the instance of the State Tax Collector and approved by the Board of Supervisors, was for 1/2 of the minerals in, on and under the land, and this is the assessment from which the appeal was taken to the Circuit Court. The question is whether or not the Circuit Court should have approved and affirmed that assessment. We are of the opinion that the assessment thus made should have been approved and affirmed by the Circuit Court, and that, therefore, the judgment of the Circuit Court which relieved the Bank of such assessment and substituted therefor an assessment of a "1/16th mineral interest or a 1/16th royalty under said leases" was erroneous and that, therefore, the judgment of the Circuit Court should be reversed and the assessment as approved by the Board of Supervisors for a 1/2 mineral interest should be reinstated; and that a judgment should be rendered here accordingly insofar as the contention of the appellee as to the extent of the estate to be assessed is concerned.

(Hn 6) On the second issue presented by the briefs of counsel on this appeal as to whether or not the assessment of the land to the landowner and his payment of the taxes thereon for the year 1946, without the minerals having been excepted from such assessment, had the effect of constituting a payment also of the taxes on the minerals so as to preclude a back assessment thereof to the extent of either 1/2 of the minerals or "a 1/16th mineral interest or a 1/16th royalty under the leases", we do not think that the decision of this court in the case of Stern v. Parker, supra, sustains the contention of the Bank in that behalf. In that case, as pointed out in the opinion of the court on the appeal of the former case of Bailey v. Federal Land Bank, the court "did not hold that the owner of a separate mineral interest cannot be back-assessed when he has failed to list his interest for assessment and when the entire estate is assessed to the surface owner. What the court did hold was that the owner of the separate mineral interest cannot avoid his duty to see that his mineral interest is assessed and take chances on the surface owner paying taxes on the whole, and then claim as a matter of right that the mineral interest should be back-assessed and taken out of the tax sale 'after it had been sold for defaulted taxes.'" [ 206 Miss. 354, 40 So.2d 176]

The decision in the case of Stern v. Parker, supra, was based upon estoppel, as shown by both the opinion therein and by the opinion of this Court on the former appeal of this litigation in Bailey v. Federal Land Bank, supra. In the case now before us there has been no tax sale to divest the bank of its ownership of the minerals upon the theory of an estoppel, but on the contrary the bank still owned such minerals at the time of the back assessment.

Moreover, the same contention now made as to the nonliability of the bank for any back assessment of the minerals because of the payment by the landowner of his taxes on an assessment which did not except the minerals, was urged upon suggestion of error on the former appeal of Bailey v. Federal Land Bank involving a like controversy in that behalf, and the suggestion of error was overruled.

Nor are we confronted with an attempt here to doubly assess the bank for minerals under a lease, since there has been no attempt to assess the bank with both the minerals in place and for its royalty interest reserved therein under the lease, because the right to receive the latter is a mere incident to its ownership of the minerals in place with which it has been assessed and there was only an assessment of 1/2 of the minerals.

It follows from all the foregoing views that we are of the opinion that the cause should be reversed and a judgment rendered here for the appellant State Tax Collector reinstating the assessment of 1/2 of the minerals, as made by the Board of Supervisors.

Reversed and judgment here for the appellant.

Alexander, J., took no part in this decision.


Back assessment under the circumstances of this case would be contrary, in my opinion, to the holding in Stern v. Parker. In that case, the original opinion [ 200 Miss. 27, 25 So.2d 790] said: "The land was assessed in its entirety, and that means all of its assessable estates, by this unit assessment. This, they could and should have had corrected then, but did not. . . . The land had appeared on the assessment rolls by its definite governmental description, and had thus come under the eyes of the proper assessment and taxing authorities, and by such descriptions the land had been assessed, and sold for non-payment of the taxes. This was sufficient to carry with it the title of the entirety of the land, both above and below the surface for the reasons stated, and in harmony with our statutes and decisions."

The Suggestion of Error [ 200 Miss. 27, 27 So.2d 402] used this language: "For more than a generation, and especially since the decision in Eureka Lbr. Co. v. Terrell, Miss., 48 So. 628, it has been understood as the settled rule in this State that when a parcel of land has been assessed by a valid surface description, as for instance by the government survey, without any reservations or exceptions or limitations either in the particular assessment or elsewhere on the roll, this would be to the same effect, so far as the description is concerned, as if it were a private deed of conveyance and would include every interest in the land so described and not only the surface but every estate, horizontal or otherwise, and whether above or below the surface, although separately owned."

And to make certain the exact basis of the rule, the Court further said: "Here the assessment was of the appropriate surface description without any reservation or qualification or limitation appearing anywhere on the assessment rolls. It included therefore appellant's horizontal estate and inasmuch as they made no objections in writing as required by Section 9790, Code 1942, the assessment so made became unassailable as to the matter in pais upon which appellants seek now to rely. And this was the ultimate basis upon which our original opinion in this case is founded, as an unbiased examination of it will disclose."

There is no possibility of misunderstanding as to the foundation of the rule. The reference in the original opinion to the duty of the owner to have his land assessed was a mere comment upon the comparative duties and rights of the owner, the assessor and the public. It was not an effort to define an act, or omission, which would constitute the vehicle for transmission of title to land under the doctrine of estoppel. The true foundation of the rule is well grounded in reason and our jurisprudence, as is shown by the clear language above quoted and the authorities cited in the opinions. But, it would never do to say an owner is estopped to attack an invalid tax sale, or assert his taxes have been paid, simply because he failed to have his property assessed, in the one case, or, in the other case, that someone else, purposely or inadvertently, had paid his taxes for him. Such payment may be a matter of adjustment between the owner and the payor, but it is not a matter of which the State can take advantage.


Summaries of

Bailey v. Federal Land Bank

Supreme Court of Mississippi, In Banc
Dec 12, 1949
207 Miss. 764 (Miss. 1949)
Case details for

Bailey v. Federal Land Bank

Case Details

Full title:BAILEY, STATE TAX COLLECTOR, v. FEDERAL LAND BANK OF NEW ORLEANS

Court:Supreme Court of Mississippi, In Banc

Date published: Dec 12, 1949

Citations

207 Miss. 764 (Miss. 1949)
43 So. 2d 375

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