Gragg v. Cayuga Independent School District

DANIEL, Justice.

This is a suit by the school district to collect ad valorem taxes on ranch land owned by O. L. Gragg for the years 1971, 1972 and 1973. Mr. Gragg’s defense is that the denial of an agricultural use designation for his land was contrary to law. The trial court rendered judgment in favor of the school district and the Court of Civil Appeals affirmed. 525 S.W.2d 32. We granted the writ to examine apparent differences between holdings in former cases and the manner in which the Court of Civil Appeals arrived at its judgment in this case. Although differing with its opinion in some respects, we arrive at the same result and *863affirm the judgment of the Court of Civil Appeals.

The special treatment of the assessment of agricultural lands for ad valorem tax valuation purposes, was effected by legislative resolution in 1965 and approved by popular vote in 1966. This self-enacting constitutional amendment is now Article 8, Sec. 1-d of the Texas Constitution.1

The landowner, 0. L. Gragg, is a highly successful businessman who resides in Anderson County. One of his several businesses, and the one to which he devotes most of his time, is a ranching operation covering over 22,000 acres of land. About one-third of his ranch land lies within Cayuga Independent School District. Mr. Gragg testified that he spent ten hours a day, seven days a week, in the ranching business. This was not disputed. The trial court found, however, that Mr. Gragg received more income, both gross and net, from other business ventures, occupations, and investments than from his ranching business. Thus, the question is the legal effect of the income he receives from his “eight or twelve other businesses.” His sources of income in addition to agriculture include oil and gas operations (including personal working interests, a partnership oil company which he manages, and a partnership drilling company in the control of which he participates), oil and gas royalty, corporate stock sales and dividends, rent from an office building in Houston, and interest from notes and savings accounts.

The findings of the trial court with respect to the income of Mr. Gragg during each of the relevant preceding years were summarized by the Court of Civil Appeals in the following tables:

*864Petitioner Gragg did not challenge the substantial accuracy of the findings or the above summaries of his income from the various sources indicated. He does, however, complain of any use of “net” rather than “gross” income in comparing his ranch income with that from other sources. He also asserts error in balancing his agricultural income against the total income received from all other separate business enterprises in arriving at a determination of whether his ranching business is his “primary occupation and source of income.” His appeal presents three contentions which are contested by the school district: (1) that the agricultural assessment provision refers to “gross” rather than “net” income; (2) that “primary” occupation and source of income does not require a majority (more than 50%) of one’s income to be agricultural so long as it is more than the amount received from any one of several other businesses; and (3) that only other income from other business ventures or occupations should be considered in comparing sources of income — specifically that dividends and interest from investments should not be considered. Petitioner Gragg also presents constitutional questions which are conditioned upon our answers to one or more of the foregoing questions.

All of the above questions arise from the last phrase of the following sentence in Sec. l-d(a):

“. . . ‘Agricultural use’ means the raising of livestock or growing of crops, fruit, flowers, and other products of the soil under natural conditions as a business venture for profit, which business is the primary occupation and source of income of the owner.” (Emphasis added.)

Background and Purpose

The questions can be considered in proper context and perspective by first examining the background and purpose of the constitutional amendment which created the special agricultural use assessment for land “owned by natural persons which is designated for agricultural use . . . ,”2

*865For the first one hundred years of its existence, Texas was largely a rural State. By 1965, increased urbanization had caused increased market values on agricultural lands near metropolitan areas due to industrial expansion, residential subdivisions, and speculative buying. Payment of taxes on market value as required by the Constitution of 1876 was discouraging farmers and ranchers from continuing their agricultural uses and was in some instances forcing sales and loss of both land and personnel from the essential business of producing food and fiber. See the Texas Legislative Council Report cited in note 2 and Report to the 62nd Legislature of the Agricultural Land Assessment Study Committee under H.C.R. 8, 61st Leg., Reg. Session.

The problem is shared by other states. Agricultural assessment aid with assessments based on value for agricultural uses rather than market values, has been extended to farm and ranch lands in 34 states, with proposed legislation pending in at least two other states.3 Most of the other states do not have the type of bona fide farmer-rancher safeguard that is a part of the Texas enactment, but many require that the land produce a minimum annual gross income.

Only Texas and Alaska appear to consider income of the landowner in determining the land’s eligibility for the agricultural assessment. The Alaska statute, enacted in 1974, follows many provisions of the Texas statute, but it is less cumbersome. For instance, its bona fide farmer provision requires only that the owner or lessee “must be actively engaged in farming the land, and derive at least 10 percent of his yearly gross income from the farm use land,” with a specific exception in the event of a crop failure.4

It is obvious that the Texas “primary occupation and source of income” requirement was intended to prevent the lower agricultural assessment from being abused by allowing land investors and speculators to reduce their assessments and taxes simply by planting a crop or running livestock on the land. The provision also has the salutary purpose of encouraging not only that agricultural and ranch land be continued in production but that farmers and ranchers remain in the business of such production. So long as it is thus interpreted, we do not believe the classification will encounter the possible constitutional objections conditionally raised by Petitioner Gragg. The provision has been so interpreted in at least two Texas cases, San Marcos Consolidated Independent School District v. Nance, 495 S.W.2d 335 (Tex.Civ.App.1973, writ ref. n. r. e., 502 S.W.2d 694, 1974), and Klitgaard v. Gaines, 479 S.W.2d 765 (Tex.Civ.App.1972, writ ref. n. r. e.). See also Opinion of the Attorney General of Texas, M-1271, November 28, 1972.

Gross Income to be Considered

We agree with Petitioner Gragg’s contention that the “primary occupation and source of income” provision contemplates “gross” rather than “net” income. It *866is our duty in construing the Constitution to ascertain and give effect to the plain intent and language of the framers of a constitutional amendment and of the people who adopted it. Deason v. Orange County Water Control and Imp. Dist., No. 1, 151 Tex. 29, 244 S.W.2d 981, 984 (1952); Cramer v. Sheppard, 140 Tex. 271, 167 S.W.2d 147 (1942). When, as here, certain language is not plain, it is our duty to determine the intent from the other provisions, including the general purpose, of the entire enactment.

In writing and submitting to the electorate Section 1-d of Article 8, the Legislature failed to insert the word “net” or “gross” ahead of the word “income.” We are not authorized to supply a missing word for the purpose of clarity, but it is our duty to determine by recognized rules or judicial interpretation whether the Legislature intended the comparison of sources of income to be based upon net or gross income. We have concluded that this determination must be based upon the manner and context within which the term is used. This is because the word “income” is susceptible of various meanings. It has been interpreted by courts to mean “net” or “gross,” depending upon the connection in which it is used. In Words and Phrases, there are 116 pages of definitions of “income.” See 20A Words and Phrases, 163-279.

Different editions of the same legal dictionaries carry different definitions of “income,” depending upon the cases cited. For instance, the 1933 edition of Black’s Law Dictionary defined the term as “that which comes in or is received from any investment of capital, without reference to outgoing expenditures; while ‘profits’ generally means the gain which is made upon any business or investment when both receipts and payments are taken into account . ,” citing People v. Niagra County, 4 Hill (N.Y.) 20, and Bates v. Porter, 74 Cal. 224, 15 P. 732. Black’s Law Dictionary 944 (3rd ed. 1933). The 1968 edition gives a broader definition, including “return in money” and “profits,” as follows: “The return in money from one’s business, labor, or capital invested; gains, profits, or private revenue,” citing In re Slocum, 169 N.Y. 153, 62 N.E. 130 (1901). Slocum involved a bequest of “the income of my said estate, after deducting the necessary costs and expenses of investing the property and collecting the income . . . See the lower court opinion in the same case, styled In re Austin’s Will, 60 App.Div. 438, 69 N.Y.S. 1036 (1901).

There have been numerous cases in which the use of the word “income” has been held to mean “net income” because of the circumstances, purposes, and manner of its use, but which recognize that under other circumstances the word should be interpreted to mean gross income.” Such a case was Fullerton v. Central Lincoln People’s Utility District, 185 Or. 28, 201 P.2d 524 (1948), wherein the court said:

“The word ‘income’ is capable of a variety of meanings, depending upon the manner of its use. The ordinary meaning, without qualification, is as follows: ‘ “Income” means that which comes into or is received from any business or investment of capital, without reference to the outgoing expenditures. The term, when applied to the affairs of individuals, expresses the same idea that “revenue” does when applied to the affairs of a nation.’ 4 Words and Phrases, First Series, page 3504 [20 Words & Phrases, Perm.Ed., p. 492].”

A leading case on the subject in Texas is Houston Belt & Terminal Ry. Co. v. Clark, 122 S.W.2d 356 (Tex.Civ.App.1938, affirmed, 135 Tex. 388, 143 S.W.2d 373, 1940), in which the question was whether the railroad company was exempted from payment of a franchise tax under a provision that “this act shall not apply to corporations organized as terminal companies not organized for profit, and having no income from the business done by them.” In holding that the company had “income,” the court said:

“The term ‘income’ ordinarily means that ‘which comes into or is received by any business or investment of capital, *867without reference to the outgoing expenditures.’ 4 Words and Phrases, First Series, p. 3504. Income is the ‘gain which proceeds from property, labor, or business.’ 1 Bouv. Law Diet., Rawle’s Third Rev., p. 1527. The statutes use the word ‘income’ or the phrase, ‘income from the business done by them,’ in the sense of any income, as distinguished from net income.”

In affirming, this Court said:

“The contention of the terminal company finds complete answer in the opinion of the Court of Civil Appeals, which we approve in its entirety.”

See also Humble Oil & Refining Co. v. Calvert, 478 S.W.2d 926 (Tex.1972); San Marcos Consolidated Independent School District v. Nance, 495 S.W.2d 335 (Tex.Civ.App.1973, writ ref. n. r. e.); Denver Live Stock Comm. Co. v. Comm. of Internal Revenue, 29 F.2d 543 (8th Cir. 1928); Crider Bros. Comm. Co. v. Comm. of Internal Revenue, 45 F.2d 974 (8th Cir. 1931); In re Knight, 9 F.Supp. 502 (Conn.D.C.1934); Opinion of Justices, 254 Ala. 188, 47 So.2d 729 (1950); State v. Morgan Gin Co., 186 Miss. 66, 189 So. 817 (1939); Fullerton v. Central People’s Utility Dist, 185 Or. 28, 201 P.2d 524 (1948); State ex rel. McKay v. Keller, 140 Fla. 346, 191 So. 542 (1939); W. C. Sharp Drug Stores v. Hansard, 176 Tenn. 595, 144 S.W.2d 777 (1940).

In San Marcos Consolidated Independent School District v. Nance, supra, the decision in favor of farmer-rancher taxpayers was based on their gross income. Instructions to the jury which were held to be correct by the Court of Civil Appeals included the following:

“You are instructed that the term ‘income,’ as used in this charge, means that which comes in or is received from any occupation or business venture or investment of capital without reference to the outgoing expenditures.”

A similar term in the Federal Bankruptcy Act referring to farmer’s income was held to mean gross income in the case of In re Knight, 9 F.Supp. 502 (Conn.D.C.1934).

The statute, 11 U.S.C.A. § 203(r) or Bankruptcy Act, § 75(r), provided:

“The term ‘farmer’ means any individual who is personally bona fide engaged primarily in farming operations or the principal part of whose income is derived from farming operations.”

In discussing the meaning of “income,” the court said:

“And ‘income’ I construe to mean ‘gross income.’ Otherwise, when, by drought or depressed market conditions, the agricultural producer operates at a loss, he would cease to be a farmer entitled to the benefits of the act, if he had any net income from nonfarming operations. Certainly Congress did not intend that such a producer should cease to be a ‘farmer’ and lose the benefits of the act at the very time when he is most in need.”

The purpose of the self-enacting constitutional amendment and the manner in which the term was used in Section 1-d of Article 8 indicate that gross income was to be considered rather than net income. Use of the word “source” contributes to this conclusion. The word “source” as respects matters of taxation has been held to mean origin. Goldberg v. Gray, 70 N.D. 663, 297 N.W. 124 (1941). This and other terms of the amendment indicate an interest in the origin of the landowner’s gross income to determine whether he is a bona fide farmer or rancher. Since the amendment is self-enacting, it is believed that if net income had been intended, there would have been provisions as to how net income would be determined; whether it would be figured before or after taxes; whether depreciation would be allowed and if so at what rate; as well as other provisions necessary in determining net as opposed to gross income.

Furthermore, the interpretation contended for by the school district would defeat the purpose of the amendment. An almost insurmountable obstacle would be placed in the path of bona fide farmers and ranchers if their qualification under the amendment were to be tested by source of net income rather than gross income. There is a great *868difference, especially for those who depend upon the soil for their livelihoods. It is commonly known that farmers and ranchers require large expenditures in their operations'.and usually receive comparatively larger gross income than net income. Many of such bona fide farmers and ranchers depend upon additional sources of revenue in order to supplement their income from agricultural pursuits.5

Meaning of “Primary” Occupation and Source of Income

For some of the same reasons stated above with respect to the meaning of “income,” we agree with Petitioner Gragg that the word “primary” should not be interpreted as requiring the farmer or rancher to receive more than 50% of his total gross income from his farming or ranching business.

The word “primary” has a plain and simple meaning of chief, first, or foremost in degree, quality, or importance or in a list, series or sequence. It is not a synonym for “majority.” Available dictionaries seem to agree substantially with Webster’s Third New International Dictionary (1967) which defines “primary” as “first in rank or importance; chief, principal,” or the additional meaning given in the American College Dictionary (1957), “first in order in any series, sequence, etc.”

A similar definition was employed in San Marcos, supra, wherein the following instruction of the trial court was approved:

You are instructed that the term “primary,” as used in this charge, means principal; chief; and greater portion of.

It has been specifically held that “primarily engaged in manufacturing” does not mean that a corporation must receive from manufacturing “over fifty percent” of its income in order to qualify for a statutory offset against corporate excise taxes granted to any corporation “which is primarily engaged in manufacturing, processing or assembling materials into finished products ..” Industrial Refrigeration Equipment Co. v. State Tax Commission, 242 Or. 217, 408 P.2d 937 (1965). In that case manufacturing and assembling constituted 46% of the corporation’s four sources of income in 1959 and 30% in 1962. These percentages were not exceeded by revenues from any of the three other categories of activities (rentals, sales, or services). In holding the corporation eligible, the court said:

We believe that “primarily” means “chiefly” or “principally” but that it does not necessarily mean “over 50 per cent.” The Commission contends that in determining the ratio of activities only two factors should be considered — manufacturing and nonmanufacturing — and that Plaintiff is not entitled to the offset as it was not primarily engaged in nonmanu-facturing activities. We cannot accept this premise. If the legislature so intended, it could have used the words “over 50 per cent” or similar words describing more than half. It did not. “Primary” can be given its usual meaning without requiring that it be more than 50 per cent.
We hold that “primarily” as used in ORS 317.070(2) means the largest catego*869ry of several categories, but not necessarily more than 50 per cent of the total volume of business.

We hold that a landowner seeking the agricultural use designation and assessment can qualify by discharging his burden of timely showing in a proper administrative or judicial proceeding that his land is designated for agricultural use under the terms of Sec. 1-d of Article 8, including a showing that such use is a business which is his primary occupation and source of income, without showing that his agricultural business occupies more than 50% of his time or accounts for more than 50% of his total gross income for the relevant years. It is sufficient if the landowner shows that he devotes a greater amount of time to his agricultural business than to any other occupations or businesses and that he receives more gross income from his agricultural business than from any other occupation or business. As hereafter shown, Petitioner Gragg failed to carry his burden of proof timely or satisfactorily with reference to his gross income from agriculture as compared to other business ventures.

It has been suggested that this interpretation might lead toward the frac-tionalization of other businesses conducted by a farmer-landowner in order to make his gross receipts from agricultural uses larger than any one of several of his other businesses. Tax assessors are given sufficient authority under the amendment to ferret out and ignore any such artificial arrangements designed to qualify for the special agricultural tax assessment. If a landowner-agriculturalist with a greater gross income from the oil business or any other occupation intentionally divides his business into multiple corporations or partnerships for the purpose of making his agricultural income greater than the gross income of any one of the multiple separate but related business entities, the tax assessors have the authority to deny the application and prevent wrongful use of the agricultural assessment amendment.

Other Sources of Gross Income Should Include Only Business Occupations, Ventures or Investments

Petitioner Gragg contends that only sources of gross income from occupations or business ventures carried on for profit should be compared with gross income from agricultural sources in determining eligibility for the agricultural use designation. This seems to be the clear intent of the agricultural assessment amendment. Only farmers and ranchers who conduct agricultural uses of the soil “as a business venture for profit” are eligible, and then only if such business venture “is the primary occupation and source of income of the owner.” It would seem grossly unfair to disqualify a farmer or rancher because of greater receipts from social security, retirement pay, or any other source which was not an occupation or business venture operated for profit. In Klitgaard, supra, it was held that proceeds from several sales of land, principal and interest payments on notes given as partial payment for said lands, rentals from inherited commercial property, and oil and gas bonus and delay rentals from unsolicited mineral leases were occasional, isolated, and not part of any business venture. Therefore it was held that none of such receipts comprise the type of income from an occupation which must be balanced against the gross income from agricultural uses. The Court of Civil Appeals held: “Eligibility for benefits of the amendment is not to be determined by the vagaries of nature or the market, nor by fortuitous investment or inheritance.”

In San Marcos, supra, the trial court specifically instructed the jury that it should not consider the receipt by the owner of delay rentals or bonuses from non-producing oil and gas leases on the taxed lands; use of the land for residential purposes; or the receipt by the owner of any annuities, retirement income, pensions, social security payments, or old age assistance. We approve this instruction, because none of these uses or receipts constituted income from occupations or business ventures of the landowners. The non-agricul*870tural sources of income to be considered in determining a landowner’s “primary source of income” should be those produced from his activity or business ventures in which he works or gives continuing supervision or attention. In San Marcos the jury was charged as follows:

“You are instructed that the term ‘income,’ as used in this charge, means that which comes in or is received from any occupation' or business venture or investment of capital without reference to the outgoing expenditures.” (Emphasis added.)

We approve that construction except with reference to “investment of capital.” Income from capital investments should not be considered when the receipts come from the sale of long held assets or as the consequence of an occasional purchase, sale, or investment or loan of funds. The gross income from the investment of capital should be considered only if such investments constitute an occupation or business which requires the management or continuing supervision or attention of the landowner.

Under the facts in the present case we approve the trial court’s consideration of investment income, because Mr. Gragg did not discharge his burden of proving that such receipts were not returns from related or separate business ventures or occupations.

In both San Marcos and Klitgaard, supra, it was held that the burden is upon the landowner claiming the agricultural use designation to show the tax assessor, or a court that he is entitled to the designation. Petitioner Gragg wholly failed to attack by appeal or seek injunctive relief from the assessment of his property upon which the school district’s suit is based. He sat by and permitted the assessments to be made, the tax rolls to be prepared, and this suit for taxes to be filed against him before challenging the refusal of the tax assessor to give his land the agricultural use designation. The proper procedure would have been to seek an injunction or mandamus requiring the tax assessor to give the agricultural designation as was done in San Marcos and Klitgaard, supra.

Even if the tax assessor had been given all of the evidence on this taxpayer’s income that was introduced at the trial, the denial of the agricultural use designation would have been justified. The taxpayer’s gross agricultural income during the three calendar years of 1970, 1971 and 1972 (added together), was approximately $1 million, as compared with $1.5 million income from all other sources. He admitted that his income reported from his oil operations was “net” rather than the “gross,” which he contended for and reported in connection with his agricultural income. There was simply no proof of his gross income from the oil business. Neither was there any proof that the gross receipts from his oil operations or another business venture did not exceed the gross receipts from his agricultural business.

The record fails to show that the denial of the agricultural use exemption to this taxpayer by the tax assessor was unreasonable, arbitrary or in violation of requirements of the law. The burden fell upon the taxpayer to make that showing, and the trial court and Court of Civil Appeals have correctly held that the taxpayer failed to do so. See State v. Whittenburg, 153 Tex. 205, 265 S.W.2d 569 (1954); State v. Houser, 138 Tex. 28, 156 S.W.2d 968 (1941).

The judgment of the Court of Civil Appeals is affirmed.

. The full text of Article 8, Sec. 1-d follows:

Sec. 1-d. (a) All land owned by natural persons which is designated for agricultural use in accordance with the provisions of this Section shall be assessed for all tax purposes on the consideration of only those factors relative to such agricultural use. “Agricultural use” means the raising of livestock or growing of crops, fruit, flowers, and other products of the soil under natural conditions as a business venture for profit, which business is the primary occupation and source of income of the owner.
*864(b) For each assessment year the owner wishes to qualify his land under provisions of this Section as designated for agricultural use he shall file with the local tax assessor a sworn statement in writing describing the use to which the land is devoted.
(c) Upon receipt of the sworn statement in writing the local tax assessor shall determine whether or not such land qualifies for the designation as to agricultural use as defined herein and in the event it so qualifies he shall designate such land as being for agricultural use and assess the land accordingly.
(d) Such local tax assessor may inspect the land and require such evidence of use and source of income as may be necessary or useful in determining whether or not the agricultural use provision of this article applies.
(e) No land may qualify for the designation provided for in this Act unless for at least three (3) successive years immediately preceding the assessment date the land has been devoted exclusively for agricultural use, or unless the land has been continuously developed for agriculture during such time.
(f) Each year during which the land is designated for agricultural use, the local tax assessor shall note on his records the valuation which would have been made had the land not qualified for such designation under this Section. If designated land is subsequently diverted to a purpose other than that of agricultural use, or is sold, the land shall be subject to an additional tax. The additional tax shall equal the difference between taxes paid or payable, hereunder, and the amount of tax payable for the preceding three years had the land been otherwise assessed. Until paid, there shall be a lien for additional taxes and interest on land assessed under the provisions of this Section.
(g)The valuation and assessment of any minerals or subsurface rights to minerals shall not come within the provisions of this Section.

. The Texas Legislative Council published an analysis of the proposed amendment before it was adopted by the people in 1966, in which it was stated:

“In 1876, when the present constitution was adopted, the state was largely rural and through the years one of the main forces behind constitutional change has been that of increasing urbanization. As the cities have grown, surrounding land areas have increased rapidly in value. Ordinarily, the owners of land on the fringes of urban areas have welcomed the great capital gains arising from the sale of their land. The profits have more than compensated for the higher tax levies. However, a farmer or rancher who continues to look upon his land as a home and a means of livelihood suffers from the high taxes imposed when the city expands toward his property line. This amendment is designed to give him some relief from the *865increasing tax burden which might eventually drive him off his land.”

Under arguments stated by the Council in favor of the amendment, it was said:

“Family farming is a wholesome occupation but is often a risky or marginal business. Any extra burden placed on the family farmers threatens to drive thousands off the land and onto the unemployment and welfare rolls. When the city approaches the farm, the tax burden to the farmer often becomes prohibitive. An equitable tax adjustment, such as the one proposed by this amendment will help to preserve the family farm.” Legislative Reference Library, Capitol Building, Austin, Texas.

. An Analysis of Present and Proposed Texas Laws on Use-Value Assessment of Agricultural Land, prepared by Michael Moeller for the Texas Legislative Property Tax Committee, June, 1975. For a discussion of the general problem and varying state solutions, see also Recent Legislation — Ad Valorem Taxation of Agricultural Land in Tennessee, 4 Memphis St.L.Rev. 127 (1973); Property Taxation of Agricultural and Open Space Land, 8 Harvard J.Leg. 158 (1970); and Wershow, Ad Valorem Taxation and Its Relationship to Agricultural Land Tax Problems in Florida, 16 U.Fla.L.Rev. 521 (1964).

. Alaska Mun.Gov. § 29.53.035 (Supp.1974).

. See Report to the 62nd Legislature of the Agricultural Land Assessment Study Committee (H.C.R. 8, 61st Leg., Reg. Session), 6-14. This Committee, in its study of the Agricultural Assessment Amendment after it had been in effect for several years, said that it “feels that the assessor should look to the owner’s gross income because it is an easier figure to obtain and does not reflect high operating expenses which diminish a net income.” Id. 24. By 1970 the Committee found from questionnaires that only 1,433 applications were made for the agricultural use assessment and 1,053 were approved. Id. 16. Recent figures, however, based upon questionnaires submitted to school districts by the Education Resources Division of the Governor’s Office, with 1,000 school districts out of 1,100 reporting, indicate that 11,-727 applications for the special agricultural assessments were made in 1975, with only 739 rejections, and a total of 2,459,439 acres qualifying for the special assessments. See Preliminary Report from John H. Poerner, Director, Education Resources Office of the Governor, to the Commissioner of the Texas Education Agency dated April 15, 1976.