Gragg v. Cayuga Independent School District

REAVLEY, Justice

(concurring).

The Court here writes upon the meaning of the words which require that the agricultural use—of the land being valued for taxation—be “a business venture for profit, which business is the primary occupation and source of income of the owner.” I differ with the opinion in two respects: its holding that gross income is the basis of comparison of the landowner’s occupations, and its holding that each non-agricultural business is to be compared separately with the landowner’s total agricultural business.

The agricultural land assessment provision of the Texas Constitution was original*871ly designed in 1965 by the Legislature to permit the lands of farmers and ranchers to be assessed for ad valorem taxation by ignoring true market value and by valuing it as if agriculture were the highest and best use to which the land may be put. See King v. Real, 466 S.W.2d 1 (Tex.Civ.App.1971, writ ref’d n. r. e.). The objectives of that basis of valuation of farm and ranch lands are easily understood and justified. Since 1967 when the taxing officers and boards and the landowners began to apply this Section 1-d, Article 8, of the Constitution, they have faced the problems and restrictions of this requirement that the agricultural use be “a business venture for profit, which business is the primary occupation and source of income of the owner.” The Legislature attempted to remove this requirement from the Constitution in 1970,1 but the proposed change was not adopted in the popular vote.

Before addressing the critical questions of the meaning of “primary source of income” presented in the present case, I must first avow a basic precept: the judicial function is to construe the Constitution and not to rewrite it. The Court is confined to the words and composition of the Constitution as they are — not as we prefer them to be. The task of construing constitutional expressions must first be directed toward deciding — by the consideration of the total language as well as the context of circumstances that aid us in understanding the objectives of that language — an overall rationale of plan and purpose for the constitutional provision. I have several difficulties with the majority opinion. While it tries to simplify the administration of agricultural land assessment, it actually adds complexity and new puzzles. It seems motivated by the desire to enlarge the number of farmers and ranchers who will be entitled to the agricultural use designation of their land, but this may not be the result — since the predicted effect of basing the determination on gross income seems to me to be no more than the Court’s own estimate rather than a product of any evidence of the circumstances of most farmers and ranchers. I should think that the effect of the holding that compares all agricultural income to each separate non-agricultural business will be enjoyed by relatively few landowners. Few of them have so many extra businesses as to profit by this ranking procedure, and those who do operate on a multi-business scale are given the means to acquire an agricultural use designation beyond the intent of the constitutional language. It seems to me that the fundamental flaw of the majority is its failure to base these specific interpretations upon an overall rationale of the constitutional provision and its purpose. I will begin by locating that base as I see it.

The special treatment of Section 1-d was not granted to land investors who might plant a crop or put some livestock on their land. It was not even granted to bona fide ranchers or farmers. Anyone whose ranching operations cover over 22,000 acres of land, and who expends on that operation the time and effort that O. L. Gragg does, is certainly a bona fide rancher. But the Constitution requires more: the agricultural operation must be the primary business— as judged both by commitment of effort and receipt of income.

The taxpayer/landowner’s occupations and sources of income to be measured are only those which are business ventures, i. e., occupational endeavors to obtain earnings. The taxpayer/landowner’s agricultural business must be the business which is “the primary occupation and source of income of the owner” — as compared to his non-agricultural business or trade or professional occupation and as measured by the income to him produced by these occupations. The agricultural use designation is to be given *872only to those whose primary occupation is agricultural rather than non-agricultural. Not only time and activity is to be weighed but also income. The inquiry as to income is but part of the test of the priority of the landowner’s occupation. Which occupation is the most important source of his income — agricultural or otherwise? The landowner is not primarily a farmer if he operates a dozen businesses and the ten percent of his time and income allocated and collected from his farm exceeds that allocated to and collected from each of the other endeavors. Net profit — the income to the landowner — is the indicator of the priority of the source rather than, for example, gross income from the sale of cattle or gross income from occasional trading in mineral leases. The tax assessor and board of equalization are not directed to a consideration of the taxpayer’s income during any certain period of time — since casualties or unusual factors may affect profits briefly without changing the priority of the occupation to which the taxpayer/landowner looks for his income.

This is my construction of the constitutional provision. I now turn to my two specific points of dispute with the majority.

Gross or Net Income

The word “income” usually refers to gain or accretion or return. See Bowers v. Kerbaugh-Empire Co., 271 U.S. 170, 174, 46 S.Ct. 449, 70 L.Ed. 886 (1926); Humble Oil & Refining Co. v. Calvert, 478 S.W.2d 926 (Tex.1972); Fullerton v. Central Lincoln People’s Utility Dist., 185 Or. 28, 201 P.2d 524 (1948); Kennard v. Wiggins, 353 Mo. 681, 183 S.W.2d 870 (1944); State ex rel. Miller v. State Board of Education, 56 Idaho 210, 52 P.2d 141 (1935); Stanton v. Zercher, 101 Wash. 383, 172 P. 559 (1918); In re Niland’s Estate, 154 Wis. 514, 143 N.W. 170 (1913); Bingham v. Long, 249 Mass. 79, 144 N.E. 77 (1924); Connecticut General Life Ins. Co. v. Eaton, 218 F. 188 (D.C.Conn.1914); In re Owl Drug Co., 21 F.Supp. 907 (D.C.Nev.1937); Lyeth v. Hoey, 20 F.Supp. 619 (S.D.N.Y.1937); In re Phillips’ Will, 138 N.J.Eq. 96, 46 A.2d 796 (1946); Hattiesburg Grocery Co. v. Robertson, 126 Miss. 34, 88 So. 4 (1921); Black’s Law Dictionary (4th ed. 1951); Ballantine’s Law Dictionary (1969); Oran, Law Dictionary for Non-Lawyers (1975); Webster’s Third International Dictionary (1968); and Webster’s Seventh New Collegiate Dictionary (1967).

I agree that “income” has in some instances been used to mean the inflow without deduction for expenses. Our question then becomes a determination of the manner of use of the term in Section 1 — d, Article 8, of the Texas Constitution. It is not the purpose of this provision to prohibit gain or activity; it is a measurement of priority. Occupations are to be ranked according to their fruits or products or consequences for the person. The gross income of an occupation is a midway factor, but it is not the ultimate result of the occupation. Since the purpose of the constitutional provision is to test the priority of the taxpayer/landowner’s occupations, gross receipts or revenue is not the index; it is the gain or profit realized by the taxpayer/landowner from those occupations. We are directed by the Constitution to determine the business which is the primary source of income of the owner. Ranching and oil businesses are expected to have gross as well as net income, but the income of the owner from those businesses is his profit.

If O. L. Gragg were asked the amount of his income from his ranch business during 1971, would he be likely to give the total gross sales of livestock, etc., by his ranches ($299,205.84), or would he give the income produced for his benefit ($79,397.67)? Would Farmer Brown, who lost his crop and $50,000 last year, tell you that his income from his farm was $60,000 since the latter figure was the amount of his gross income received from the liquidation of his herd of cattle?

The majority seems to think that the determination of the gross income of a business is a simple matter. However, the gross income of a mercantile business is ordinarily considered to be the amount of total sales less the cost of goods sold. For the sake of simplicity let us assume that a *873farmer is on the cash basis of accounting; under federal tax regulations his “gross income” requires a computation of his profits from the sale of livestock or other items which were purchased by him. 1976 Federal Tax Regulations § 1.61-4. The full sales prices and receipts are not his “gross income”; the cost of the purchased livestock must first be deducted. I suggest that the determination of whether the taxpayer/landowner is primarily engaged in agriculture will not entail nearly so many difficult accounting problems as will the rule announced by the majority which requires a comparison of the gross income of each and every business in which the taxpayer/landowner is occupied. If the business is organized as a corporation, limited partnership or business partnership, there will be questions of how to allocate gross income to the taxpayer/landowner. Will it be possible to reduce the “gross income” by incorporating the business or by taking no money except in the form of wages or dividends?

I can find no rational purpose in requiring a comparison of the sources of gross income. If I understand the writing of the majority at this point, the thought is simply that more farmers and ranchers will be entitled to the agricultural use designation if only gross agricultural income is considered. I do not know that this is true, but if it is, I respectfully request that this reasoning be compared to the time honored rule that the courts will construe constitutional and statutory exemptions strictly. River Oaks Garden Club v. City of Houston, 370 S.W.2d 851 (Tex.1963); Morris v. Loan Star Chapt. No. 6, Royal Arch Masons, 68 Tex. 698, 5 S.W. 519 (1887). Whether or not the agricultural use designation must be termed an “exemption” from taxation, it is favored treatment and the constitutional amendment should not be liberally construed. See Driscoll Foundation v. Nueces County, 445 S.W.2d 1, 5 (Tex.Civ.App.1969, writ ref’d, n. r. e., Tex., 450 S.W.2d 320, 1970).

Meaning of “Primary” Business

The majority is most liberal in allowing the agricultural use designation to the landowner whose agricultural business produces more income than each of his other businesses or occupations — however many the non-agricultural occupations may be and despite the fact that the total non-agricultural income and time requirements may greatly exceed those of the agricultural business. Our first step in this analysis is to decide whether we must lump the agricultural operations together. Why not permit the tax assessor to rank each farm or ranch separately? O. L. Gragg, for example, operates several different ranches. Suppose the taxpayer and his wife operate a field where they grow vegetables, while he and his son have a large cotton farm, he and another son have some chicken houses, and he and a brother operate a large West Texas ranch. Are these separate businesses under the Constitution? I think not. The Constitution provides:

“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 .

Any and all “agricultural use” is the one business that must be the taxpayer/landowner’s primary occupation.

The next step: “primary.” There is no problem as to the meaning of the word. The question is primary as to whatl I conclude that the objective, as indicated by putting agricultural uses together, is to determine whether agriculture is the primary occupation — as compared to non-agriculture. What would be the purpose of requiring that the farm be more significant than each of a dozen other ventures? This requirement of the Constitution is obviously restrictive. It was no casual bit of drafting; it was intended to prevent the owners of some farms and ranches from obtaining this advantageous assessment of their lands. The comparison that counts — the restriction that ensures that those who obtain the agricultural use designation truly deserve it — is the requirement that the taxpayer/landowner be primarily in the business of agriculture, whatever else (combined) he may do as an occupation.

*874If the rule of the majority is to apply, how shall we divide the non-agricultural occupations for purposes of comparison? Do oil and gas operations go together, or is Gragg Drilling Company one entity and Carter-Gragg Oil Company another, etc.? At some point the courts will have to write the rules for arranging these non-agricultural incomes. This could be avoided by following what seems to me to be the plain intent of the Constitution itself. The majority seems to be looking in the direction of that plain intent when it says that the denial of Gragg’s agricultural use designation was justified and cites the evidence that his gross agricultural income during the three calendar years of 1970, 1971 and 1972 (together) was approximately $1 million as compared to $1.5 million income from all other sources. I agree that this proof gets to the heart of the case and requires the affirmance of the judgments of the lower courts. The non-agricultural income was all profit or gain, and the gain to Gragg from the agricultural business was necessarily much less than the $1 million (actually about $320,000).

The argument for separation of the non-agricultural income would seem to be that the Constitution points to each “source of income” and thus requires that the taxpayer/landowner receive greater income from agriculture than from any other individual source. Gragg Drilling Company and Carter-Gragg Oil Company are two different sources of income, and their income would then be considered separately rather than added together. Gragg owns several different oil properties, and it seems that the production from each of these should be considered as income from a separate source. I conclude that whereas O. L. Gragg may have failed to make the proof required to obtain 1970, 1971 or 1972 agricultural use designations, the record and briefs in this case indicate that he may come within the new rules and be able to make the proof to qualify in future years.

McGEE and JOHNSON, JJ., join in this Concurring Opinion.

. S.J.R. 15 of the 61st Legislature would have reduced Section 1-d, Article 8, to the following language: “The Legislature shall have the power to provide by law for the establishment of a uniform method of assessment of ranch, farm and forest lands, which shall be based upon the capability of such lands to support the raising of livestock and/or to produce farm and forest crops rather than upon the value of such lands and the crop growing thereon.” Acts 61st Leg., R.S.1969, pg. 3227.