Snyder, Willard S.

English

University of Denver

Denver Law Review Volume 27 Issue 6 Article 4 June 2021 Taxation and Severed Mineral Estates Willard S. Snyder Follow this and additional works at: https://digitalcommons.du.edu/dlr Recommended Citation Willard S. Snyder, Taxation and Severed Mineral Estates, 27 Dicta 225 (1950). This Article is brought to you for free and open access by the Denver Law Review at Digital Commons @ DU. It has been accepted for inclusion in Denver Law Review by an authorized editor of Digital Commons @ DU. For more information, please contact jennifer.cox@du.edu,dig-commons@du.edu. June, 1950TAXATION AND SEVERED MINERAL ESTATESWILLARD S. SNYDERof the Denver Bar *It is well settled that the terms "mineral" or "mineral rights"include oil and gas.' It is in that sense that the word "mineral" isused herein. Solid minerals such as coal and iron are beyond thescope of this article.Inasmuch as the production of oil and gas is becoming moreand more prominent in the economy of the Rocky Mountain area,it is important for the attorney to become acquainted with the legalproblems involved. This article is concerned with the followingproblem: When the mineral estate is owned separately from thesurface estate, and the land is sold for delinquent taxes, does atax deed 2 carry the mineral estate?First of all, there are some fundamentals that we should havefirmly in mind. It is well settled that separate estates may becreated in respect to minerals, including oil and gas. Such separateestates may be created by a deed of the land excepting and reserv-ing all or part of the minerals. Or the separate estates may becreated by a deed of all or a part of the minerals only. 3 The processby which the separate estates are created is called a "severance."If there has been no severance of the mineral estate from thesurface estate, the minerals in and under the land are a partthereof and are taxable against the owner of the land.4 It wouldfollow, of course, that the recipient of a valid tax deed to such landwould become vested with both the surface and mineral estates inand to such land.Turning directly to the situation where there has been a priorseverance of the mineral estate, we find that our problem may bedivided into two major parts. These are: (1) where the tax deedis invalid and (2) where the tax deed is valid.PROBLEM WHERE TAX DEED IS INVALIDThere are many more or less technical reasons why a tax deedmay be invalid. For example, it may be void for uncertainty ofdescription or it may be void because of recitals therein that showa noncompliance with or violation of the statutes concerning taxdeeds and the antecedent procedure upon which said deeds arebased.5 Assuming that the tax deed is invalid, for some such reason,it is unnecessary to distinguish between a tax deed based upon asale of the mineral rights, and a tax deed based upon a sale of the* Written while Mr. Snyder was a graduate student at the University of DenverCollege of Law.;Crain v. Pure Oil Co., 25 F. 2d 824 (10 Cir. 1927).The term ordinarily used in Colorado is "treasurer's deed." The term "tax deed"is used herein for the sake of uniformity when referring to various Jurisdictions.'Summers, THE LAW OF OIL AND GAS (2d ed.) 5 784.'Id., § 787.'Calvat v, Juhan, 119 Colo. 561, 206 P. 2d 600 (19.49).DICTAJune, 1950land by its government description without, in terms, including orexcluding the mineral rights. In either case, the tax deed will notin and of itself pass good and sufficient title to the severed mineralestate, said estate being the one in which we are here interested.Closely connected with the problem where the tax deed is in-valid is the question of adverse possession. The holder of the taxdeed may admit its invalidity, but nevertheless argue that it con-stituted color of title and seek to establish adverse possession tothe mineral estate. However, one of the most firmly establishedand universally accepted rules of law in the field of oil and gas isthat after severance of the mineral rights, adverse possession ofthe surface is not adverse possession of the oil and gas underneath.6In a case involving a tax sale of mineral rights, the Supreme Courtof Colorado held that after a severance of the mineral rights,possession of the surface does not constitute possession of themineral estate, and the owner of the minerals does not lose hisrights by any length of nonuser.7 Thus, it may be seen that adversepossession of the severed mineral estate cannot be perfected exceptby drilling a well and taking actual physical possession of the min-erals and holding such possession for the statutory period.PROBLEM WHERE TAX DEED IS VALIDAn example may help to clarify the discussion. A is the feeowner of Blackacre. A conveys Blackacre to B reserving andexcepting the minerals in and under the land. Later B fails to payhis taxes. Blackacre is sold for taxes, the land being described byits government description without expressly including or exclud-ing the minerals. Ultimately a tax deed is issued to Y. The taxdeed and the procedure upon which it is based are valid. The onlyquestion is: Does the tax deed carry the mineral estate? In otherwords, does A or Y now own the mineral estate?There has been no express ruling on this question by theSupreme Court of Colorado. Consequently, it is necessary to lookto decisions from other jurisdictions in order that we may havesome basis for an opinion upon the point involved. Of course, Colo-rado statutes and judicial precedents are controlling as far as theyare applicable. But there are questions of policy and emphasisinvolved which have permitted the highest tribunals of the variousstates to reach opposite results, and an effort will be made to tiein these questions of policy and emphasis with the statutes andjudicial precedents of Colorado.A mechanical aproach to the problem disclosed that in Arkan-sas,, Minnesota,9 Missouri,"0 New Mexico," and Wyoming," it hasO 13 A. L. R. 375., Note 5, supra.'Huffman v. Henderson Co., 184 Ark. 278, 42 S.W. 2d 221 (1931).Washburn v. Gregory Co., 125 Minn. 491, 147 N. W. 706 (1914).10 Kernkamp v. Wellsville Fire Brick Co., 237 Mo. App. 457, 170 S. W. 2d 692 (1943).11 SiiS v. Vosburg, 43 N. M. 255, 91 P. 2d 434 (1939).12 Ohio oil Co. v. Wyoming Agency ..... Wyo ...... 179 P. 2d 773 (1947).DICTAJune, 1950been held that a tax deed in which the land is described by its gov-ernment description does not pass title to a prior severed mineralestate. In California,13 Mississippi, 4 and West Virginia, 5 it hasbeen held that a tax deed in which the land is described by its gov-ernment description does pass title to a prior severed mineral es-tate. Thus, we have the familiar situation of a conflict of authority,although at least it can be said that the weight of authority is tothe effect that the tax deed does not pass title to the prior severedmineral estate.Of more importance than a mere weight of authority is thereasoning upon which these various decisions are based. Some ofthe above cited cases are not too helpful one way or the other. Forexample, the supreme court of Wyoming in Ohio Oil Co. v. Wyom-ing Agency, 1o without advancing much in the way. of reasons,merely states the rule than when the mineral estate is owned separ-ately from the surface estate, and the land is assessed in the nameof the owner of the surface, a valid tax sale would not seem tocarry the mineral estate. Then there are those states which advancereasons for their holdings, but the logic involved would not be ofweight in Colorado, because of judicial precedents in Colorado. Un-fortunately such holdings appear on both sides of the fence.THE SAME YARDSTICK WITH DIFFERENT RESULTSThe California case of McCracken v. Hummel 17 holds that theowner of the tax title acquired the oil and gas rights in the propertyeven though there had been a prior severance of the mineral es-tate. The court reasons that since there were no separate assess-ments of the severed oil rights, and since the same assessmentwas placed upon the land as upon adjoining land where therewas no severed mineral estate, the assessment upon the land inquestion included the severed oil rights; therefore, the holder of thetax deed acquired title to both the surface estate and the mineralestate.The New Mexico case of Sims v. Vosburg 18 holds that theholder of the tax title did not acquire the mineral rights in the prop-erty when there had been a prior severance of the mineral estate.The prior severance was in favor of private parties. The courtreasons that since the land in question was assessed at the samevalue as adjacent and similar land from which the minerals hadbeen severed by the United States Government instead of privateparties (and could, therefore, not be taxed), the severed mineral in-terests in question were neither assessed nor sold for taxes andthat the holder of the tax title obtained no title to the mineral in-terests by virtue of his tax deed.13McCracken v. Hummel, 43 Cal. App. 2d 302, 110 P. 2d 700 (1941).4 Stern v. Parker, 200 Miss. 27, 25 So. 2d 787 (1946).1' Peterson v. Hall, 57 W. Va. 535, 50 S. E. 603 (1905).,GNote 12, supra."TNote 13, supra."8Note 11, supra.DICTAIt will be seen immediately that the courts of California andNew Mexico have used the same reasoning. The yardstick used isa comparison between the assessment of the land from which themineral estate has been severed and the assessment of adjoiningand similar land from which the mineral estate has either not beensevered, or, if it has been severed, the severance was in favor of thegovernment, in which event taxation of the mineral estate wasimpossible.Such reasoning is not necessarily valid. In the Colorado caseof Union Pacific R.R. Co. v. Hanna,19 which involved a differentquestion, such reasoning was rejected. In that case, the railroadwas the owner of severed mineral estates in and under every odd-numbered section of land in Weld County within 20 miles of therailroad right of way. The proceeding before the court was an ac-tion to reduce the assessed valuation of these reserved mineralrights. The assessor had assessed the surface estates in the odd-numbered sections from which the mineral estates had been severedat the same value that he had assessed the land in the even-num-bered sections from which the mineral estates had not been severed.In addition to the assessment of the surface estate in the odd-numbered sections, the assessor had assessed the reserved mineralestates to their owner, the Union Pacific Co. The railroad arguedthat this was discriminatory. The court rejected this argument,saying that if the surface estate in the odd-numbered sections sub-ject to mineral reservations is assessed too high, in comparisonwith the assessment of the land in the even-numbered sections with-out reservation, this works no hardship on the Union Pacific Co.,-owner of the reserved mineral estates. Thus, the test used in Cali-fornia and New Mexico of comparing the assessment of the sur-face estate from which the minerals have been severed with theassessment on adjoining land without reservations probably couldnot be used in Colorado. For in Colorado, even though the surfaceof the land subject to mineral reservations is assessed at-the samevalue as adjoining land without reservations, the highest tribunalin the state has taken the position that the surface estate subjectto the reservation may have been assessed too high, or the landwithout reservations may have been assessed too low. Therefore,even though the assessments on adjoining tracts of land (one beingsubject to a mineral reservation, and the other not) are the same,it would not follow that the assessment of the land subject to a min-eral reservation was an assessment which included the minerals.When there has been a prior severance of the mineral estate with noseparate assessment of that estate, and when the land is assessedin the name of the owner of the surface, it would seem that a taxsale in Colorado would not carry the severed mineral estate, forthere would be no practical way of showing that the severed min-19 73 Colo. 162, 214 P. 550 (1923).DICTA June, 1950228eral estate had even been assessed, let alone sold at the tax sale.However, it should be emphasized that the problem and facts underconsideration in the Union Pacific case were entirely different fromthe subject under discussion here, and the language used by thecourt in that case would not necessarily be controlling if the courtwere called upon to decide the question here involved.SEPARATE ASSESSMENT STATUTES NOT Too HELPFULOther courts have taken a different approach to the problemfrom that taken in California and New Mexico. Some states havewhat are termed "separate assessment statutes." That is, it is pro-vided by statute that when the surface estate and mineral estateare separately owned, they may, or must, be separately assessed.Colorado has no such statute. Even so, it was expressly held bythe Colorado Supreme Court in Union Pacific RR. Co. v. Hanna '0that a severed mineral estate was separately assessable to the ownerthereof. A person would expect that in a state having a separateassessment statute a tax sale would not carry the severed mineralestate. The Supreme Court of Arkansas in Huffman v. HendersonCo.,21 so held on the basis of Arkansas's separate assessment statute.But the Supreme Court of Mississippi, in the case of Stern v. Par-ker,22 held that the tax sale carried the severed mineral estate. Thisconclusion was reached notwithstanding the fact that Mississippihas a separate assessment statute 23 which, in referring to a severedmineral estate, provides: "all of such interest shall be assessed, andtaxed separately from such surface rights." It appears that theseparate assessment statute is not as important a factor in deter-mining whether a tax sale will carry the severed minerals as initialappearances might indicate. Mississippi takes the position that itwas the duty of the owner of the severed mineral estate to see thatit was separately assessed and that such owner had failed in hisduty by not paying taxes on his mineral estate. As a matter ofpolicy, it was thought that the payment of taxes should be encour-aged, that attempts to evade just taxes should be discouraged,and that the owner of the severed mineral estate was in noposition to complain. As to the question of whether the severedmineral estate had ever been assessed, the Supreme Court of Missis-sippi took what might be called a practical approach. The courtstates that when the land was assessed by its government descrip-tion, the land was assessed in its entirety, and this means all of itsassessable estate.The Minnesota case of Washburn v. Gregory Co.24 is a leadingcase often cited by those courts which hold that a tax sale in whichthe land was described by its government desctription without in-cluding or excluding the minerals held by a person other than the20 Note 19, supra.2Note 8, supra."Note 14, 8upra."Miss Code, J 9970 (1942).2Note 9, supra.June, 1950 DICTAJune, 1950owner of the surface does not carry such severed mineral estate.The Minnesota court takes a duty approach to the problem by hold-ing that it is the duty of the taxing officers to assess and tax separ-ately the interests of the owner of the minerals and the owner ofthe surface. The court states that when the land sold for taxes isdescribed by its government description, it will not be presumedthat the separate property of another (the owner of the minerals)is included in the general description used in the tax proceedings.The Mississippi Supreme Court puts the emphasis on the dutyof the owner of the minerals to see that his property is separatelyassessed and that he pays taxes thereon. The Minnesota SupremeCourt emphasizes the duty of the taxing officers to separately assessthe separate estate, and thereby these two courts reach oppositeresults. Yet it is believed that it is generally the duty of the tax-ing officers to assess all taxable property, and it is the duty of theowner of the taxable property to return it for taxation. Such isthe law in Colorado. 25  Although there are persuasive argumentsto support the Mississippi court in its holding that a tax sale passestitle to the prior severed mineral estate, it still is not felt that Colo-rado could accept the Mississippi court's holding that when there isa prior severance of the mineral estate, the assessment of the landby its government description includes the land in its entirety, i.e.all of its assessable estates. Before Colorado could accept this prop-osition, it would be necessary for our Supreme Court to reject thesame kind of reasoning that it advanced in support of its decisionin Union Pacific R.R. Co. v. Hanna.26A PRACTICAL SUGGESTIONIt is of course apparent that in a question such as we are con-cerned with here, it is impossible to predict absolutely what thelaw in Colorado may be determined to be at some future day. Thebest that can be hoped for is what might be called an educatedguess. Preventive jurisprudence has been called the most usefulbranch of the law. If a person is the owner of a severed mineralestate in Colorado, and if he wants to protect his said estate fully,it is suggested that he write to the assessor requesting a separateassessment of his mineral estate. If minerals are not being pro-duced thereon, it will be assessed for a nominal amount, and bypaying the tax assessed, he will be fully protected. Possible litiga-tion will be avoided, and the owner of the severed mineral estatewill have the satisfaction of knowing that his title is perfectly safe.THE BOOK TRADER'S CORNERIn the bullish market for a complete set of Colorado reportsis the firm of Davis and Lutz, 636 Symes Bldg., Denver, Main 1215.w The People v. Pitcher, 61 Colo. 149, 170, 156 P. 812 (1916) ; COLO. STAT. ANN., c.142, J§ 2, 20, 48, and 50 (1935).26 See note 19, supra.DICTA

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