Opinion
No. 36086.
March 25, 1946. Suggestion of Error Overruled May 13, 1946.
1. TAXATION.
An oil or gas lease with right of entry is assessable ad valorem, but not including the oil or gas as a separate item of valuation.
2. TAXATION.
The method by which to assess a mineral lease, which gives lessee the sole right to the surface use, is to assess the lease as an entirety to owner thereof, instead of attempting to split it into fractional parts, and assessments should be made without regard to question whether lease does or does not give to lessee any present ownership in the minerals in place which may or may not be under the surface.
3. TAXATION.
Where mineral lease gave lessee exclusive right to use of surface as an adjunct to his mineral rights, lessor reserving by way of royalties a one-eighth of oil produced, attempted assessment against lessor of "one-eighth interest in oil, gas and mineral rights" in the leased lands was void.
ROBERDS and ALEXANDER, JJ., dissenting.
ON SUGGESTION OF ERROR. (In Banc. May 13, 1946.) [ 26 So.2d 685. No. 36086.]TAXATION.
Where land itself was assessed by ordinary governmental subdivisions, and mineral lease out of which lessor's "one-eighth interest in oil, gas, and mineral rights" grew, was assessed, such one-eighth interest went with one or the other of the assessments as made and, not having escaped assessment, could not be back assessed.
APPEAL from the circuit court of Simpson county, HON. HOMER CURRIE, Judge.
T.J. Wills, of Hattiesburg, and Buchanan Harper, of Laurel, for appellant.
There is no present statute by which an ad valorem tax could be enforced against oil, gas and other minerals, in place, as separate property, deposited in any certain tract of land under the provisions of Section 112 of the Constitution of 1890.
Gulf Refining Co. v. Stone, 197 Miss. 713, 21 So.2d 19; Boyd v. Coleman, 146 Miss. 449, 111 So. 600; Hawkins v. Mangrum, 78 Miss. 97, 28 So. 872; Armstrong v. Bell, 199 Miss. 29, 24 So.2d 10; Federal Land Bank v. Cooper, 190 Miss. 490, 200 So. 729; Board of Supervisors of Letcher County v. Swift Coal Lumber Co., 238 Ky. 21, 36 S.W.2d 664; Richardson v. State (Tex.), 53 S.W.2d 508; Code of 1930, Sec. 3146; Code of 1942, Sec. 9770; Code of 1942, Supplement, Sec. 9417-12, being Chap. 134, Laws of 1944; Constitution of 1890, Sec. 112; 4 Summers Oil and Gas, Secs. 782, 797.
The mineral rights in the oil, gas and other minerals in the case at bar being, at the time of said attempted assessment, covered by an oil, gas and mineral lease, which lease had been separately assessed for the same years, there was no property or property right left in the appellant which was subject to ad valorem taxation.
Armstrong v. Bell, supra; Stokeley v. State, 149 Miss. 435, 115 So. 563; Stephens County v. Mid-Kansas Oil Gas Co., 113 Tex. 160, 29 A.L.R. 566; Code of 1942, Sec. 9770.
Neither an undivided fractional interest in the oil, gas and minerals, in place, in land, nor an undivided fractional interest in the royalties to be paid or delivered upon the production of such oil, gas and other minerals, is subject to separate assessment for ad valorem taxes. The statutory requirement for the assessment and sale of real estate for delinquent taxes prohibits the assessment and sale of an undivided fractional interest in real estate therefor.
Stevenson v. Reed, 90 Miss. 341, 43 So. 433; Fountain v. Joullian, 110 Miss. 812, 71 So. 2; Code of 1930, Secs. 3146, 3148; Code of 1942, Secs. 9770, 9772.
Greek L. Rice, Attorney General, by W.B. Fontaine, Assistant Attorney General, and R.C. Russell, of Magee, for appellee.
The 1/8 royalty interest of Smith County Oil Company constitutes ownership in the land separate and apart from the leasehold and from the surface rights, and the same is subject to assessment for ad valorem tax purposes.
Fox v. Pearl River Lumber Co., 80 Miss. 1, 31 So. 583; Merrill Engineering Co. v. Capital National Bank, 192 Miss. 378, 5 So.2d 666; Stern v. Great Southern Land Co., 148 Miss. 649, 114 So. 739; Code of 1942, Sec. 9770; 4 Summers Oil and Gas (Per. Ed.), Secs. 783, 784.
Greek L. Rice, Attorney General, by W.B. Fontaine, Assistant Attorney General, and R.C. Russell, of Magee, Jones Ray, of Jackson, John T. Armstrong, of Hazlehurst, and Stevens Calhoun, of Hattiesburg, for appellee, on suggestion of error.
The oil, gas and mineral lease was not taxable for the year 1944.
Gloster Lumber Co. v. Adams County, 173 Miss. 865, 163 So. 541; Code of 1942, Secs. 9744, 9745.
Oil and gas and other minerals in Mississippi in place are real estate and are subject to separate ownership in fee, in severalty, or as tenants in common.
Merrill Engineering Co. v. Capital National Bank of Jackson et al., 192 Miss. 378, 5 So.2d 666; Wight v. Ingram-Day Lumber Co., 195 Miss. 823, 17 So.2d 196; Liverpool London Globe Ins. Co. v. Delaney, 190 Miss. 404, 200 So. 440; Stern et al. v. Parker, 200 Miss. 27, 25 So.2d 787; Code of 1942, Sec. 9770.
What is an oil, gas and mineral lease?
Gulf Refining Co. v. Stone, 197 Miss. 713, 21 So.2d 19; Stokeley v. State, 149 Miss. 435, 115 So. 563; Code of 1942, Sec. 9770; 1 Summers Oil Gas (Per. Ed.), p. 313, Sec. 132, and entire Chap. 7, p. 363.
It is not necessary for an oil, gas and mineral lease or a mineral or royalty deed to specifically grant the rights of ingress and egress, since such rights are implied.
McNeese v. Renner et al., 197 Miss. 203, 21 So.2d 7.
The royalty interest and other mineral interest has a fixed value.
Gulf Refining Co. v. Stone, supra; Stern et al. v. Parker et al., supra; Code of 1942, Secs. 9759, 9770.
The case of Gulf Refining Co. v. Stone, supra, does not hold that an interest in oil and gas in place is not taxable.
Gulf Refining Co. v. Stone, supra.
Section 9770 of the Code of 1942 has been and is a rule of property within the State of Mississippi and the majority opinion by the Court in this case would nullify same.
Webb v. Mobile O.R. Co., 105 Miss. 175, 62 So. 168; Forest Product Mfg. Co. v. Buckley, 107 Miss. 897, 66 So. 279; Robertson v. Puffer Mfg. Co., 112 Miss. 890, 73 So. 804; Fox v. Pearl River Lumber Co., 80 Miss. 1, 31 So. 583; McCubbins v. Morgan et al., 199 Miss. 153, 23 So.2d 926; Code of 1942, Sec. 9770 (Code of 1930, Sec. 3146).
The royalty interest is taxable.
McCubbins v. Morgan et al., supra; Gulf Refining Co. v. Stone, supra; Stern et al. v. Parker, supra; Code of 1942, Secs. 9769, 9770; Constitution of 1890, Sec. 112.
Whatever difference there may be between the ownership of minerals and the ownership of reserved royalty rights is immaterial under Section 9770, Code of 1942, because that section taxes both rights.
Code of 1942, Sec. 9770.
Our legislature has repeatedly recognized the separate ownership of such rights and their susceptibility to taxation.
Code of 1942, Sec. 9770; Laws of 1946, Chap. 409.
Argued orally by J.R. Buchanan and T.J. Wills, for appellant, and by W.B. Fontaine, for appellee.
Prior to January 1, 1944, the appellant Smith County Oil Company owned the oil, gas and other minerals under the 19,086 acres of land in Simpson County, the subject of this controversy, with full rights of ingress and egress for the discovery and recovery of said oil, gas and minerals. All other rights and estates in said land were, and still are, owned by the South Mississippi Land Company.
On April 15, 1944, the Smith County Oil Company leased to the Hunt Oil Company for said land all the said oil, gas and minerals, the principal provision of said lease being as follows:
"Lessor in consideration of ten dollars ($10.00) in hand paid, and of the royalties herein provided and of the agreement of the Lessee herein contained, hereby grants, leases and lets exclusively unto Lessee for the purpose of investigating, exploring, prospecting, drilling and mining for and producing oil, gas and all other minerals, laying pipe lines, building roads, tanks, power stations, telephone lines and other structures thereon to produce, save, take care of, treat, transport and own said products and housing its employees, the following described land in Simpson County, Mississippi, to wit:" describing them.
The additional consideration by way of royalties was to be one eighth of the oil produced, giving the lessee the right to pay the said one eighth in money from time to time as the oil was produced.
It will thus be seen that the exclusive right to explore for and to take the oil and other minerals and the exclusive possession for that purpose was vested in the lessee. What was left to the lessor, the Smith County Oil Company, and all that was left, was either (1) the ownership of the entire interest in the oils and other minerals in place under the surface, or else (2) the ownership of an eighth interest therein, or else simply a royalty of an undivided one eighth when, but not until, discovered and raised to the surface. It is not necessary here to decide which of these three results was produced, for if either of the first two, then what the lessor had left was oils and minerals under the surface where it could not be inspected and after inspection estimated and appraised, indeed no man knows whether there are any oil or minerals under said land. If all that appellant had left was a royalty in the minerals when produced this does not become assessable ad valorem until produced and brought to rest upon the surface.
All this was decided in Gulf Refining Co. v. Stone, 197 Miss. 713, 21 So.2d 19, and we see no reason to add further to what was said there, except to call attention to the fact that we there also said that a mineral lease, such as we have here, is assessable ad valorem, but not including the oil and gas as a separate item of valuation; and that enough was also there said to indicate that the method by which to assess a lease such as is here presented, which gives the lessee the sole right to the surface use, is to assess the lease as an entirety to the owner thereof, instead of attempting to split it into fractional parts as was attempted here, and this without regard to the question whether such a lease does or does not give to the lessee any present ownership in the minerals in place and which may or may not be under the surface. It is enough that the lessee has the exclusive right to the use of the surface as an adjunct to his mineral rights, and that the surface may be seen and the surface rights appraised; in addition to which the State will get its severance tax if and when oil is found and produced.
If the lessee does not obtain the exclusive surface rights, and the lessor retains in part such surface rights, — if there is or may be hereafter any such a lease, — a different and a more difficult question would be presented, which we will not approach until it is squarely before us.
It follows that the attempted assessment against appellant of "One-eighth interest in oil, gas and mineral rights," in said lands was without authority, and the trial court should have so held.
Reversed, and judgment here for appellant.
ON SUGGESTION OF ERROR.
What was attempted here was to back assess appellant's interest, it being the county's contention that appellant owned a one-eighth royalty interest which was subject to an ad valorem assessment, but which was not separately assessed for the two years in question. It is not disputed that the land itself was assessed by the ordinary governmental subdivisions, and it is admitted that the mineral lease out of which this one-eigth interest grew, was assessed. Insasmuch as appellant's one-eighth interest was, according to appellee's contention, a part of the realty, it went with one or the other of the above-mentioned assessments as made, and therefore did not escape assessment, and not having escaped assessment it cannot be back assessed. This is the effect of our opinion in Stern v. Parker, 200 Miss. 27, 25 So.2d 787, and is sufficient to dispose of the suggestion of error, without further review of what was said in the original opinion in the instant case.
Suggestion of error overruled.
Is a royalty interest in a mineral lease assessable for taxes? That is the question involved in this case. In Summers on Oil and Gas, Perm. Ed., p. 203, Sec. 783, it is said: "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 royalty interest in oil and gas created prior to lease for production, and an over-riding royalty interest created out of the interest of the oil and gas lessee are all property interests, real or personal, and subject to taxation. In a majority of the jurisdictions all of these interests, apart from the question of taxation, have been held to be real property. But whether in a particular jurisdiction such interests are taxable as real property in the county of the situs of the land or as personal property at the domicile of the owner, depends upon the conclusion of the court in a particular jurisdiction as to the nature of the particular interest, the provisions of the tax statutes of the particular state, and their interpretation by the court as applied to the particular type of interest."
In 51 Am. Jur., page 455, Sec. 439, it is said: "Although there seems to be authority otherwise, a royalty interest reserved by a lessor under an oil and gas lease, in the absence of contradictory enactments, is usually held subject to a general ad valorem property tax, whether such interest remains the property of the lessor or has been transferred by him to another."
An annotation in 128 A.L.R., page 851, discusses cases from the different states, which discussion reveals that the quoted rule prevails where there is no statute substituting another method of taxation for such ad valorem tax.
Mississippi has no statute substituting another method of taxation, but, on the other hand, it does have a statute expressly making such mineral interests taxable. Section 9770, Code 1942, provide that "whenever any buildings, improvements or structures, mineral, gas, oil, timber or similar interests in real estate . . . are owned separately and apart from and independently of the rights and interests owned in the surface of such real estate, or when any person reserves any right or interest, or has any leasehold in the elements above enumerated, all of such interests shall be assessed and taxed separately from such surface rights and interests in said real estate, and shall be sold for taxes in the same manner and with the same effect as other interests in real estate are sold for taxes." That statute further makes it the duty of the owner of any such interest to make a return thereof to the tax assessor and place a value thereon.
If it be said that the difficulty in placing a value upon such royalty interests defeats the power to assess them for taxes, the reply to that in this case is that the Smith County Oil Company has sold and transferred to different purchasers all the royalty interest which it reserved under the lease in question (although it makes no point as to that in this case); therefore, appellant and the various purchasers of separate interests in such royalty have themselves placed a value thereon. The statute makes it the duty of all of them to place a value upon their respective holdings for the benefit of the tax assessor. Having themselves placed a value thereon, can they successfully complain that the tax assessor does the same thing?
In my opinion, Gulf Refining Co. v. Stone, 197 Miss. 713, 21 So.2d 19, does not hold contrary to the view herein expressed. The Court was there dealing with a privilege or activity tax and it was not necessary to hold in that case that minerals in place are not taxable, but if necessary, such holding, in my judgment, was erroneous. Without prolonging the discussion I think, with great deference to my brethren, that the majority opinion erroneously and unnecessarily nullifies to a large extent Section 9770, Code 1942, and deprives the State and its subdivisions of an important source of revenue, which will likely result in many demands and much litigation to recover taxes which, under the holding in this case, have been illegally paid.
Alexander, J., joins in this dissent.