Gifford-Hill & Co., Inc. v. Wise County Appraisal Dist.

OPINION

HIGHTOWER, Justice.

This is an ad valorem tax case. It involves the assessment of ad valorem taxes against limestone rock and the surface above the rock, and addresses whether limestone is a “mineral in place” or a “mine or quarry” under the Texas Tax Code. In 1987, Wise County Appraisal District created a new category of taxable property entitled “rock reserve” by separating the value of Gifford-Hill & Company, Inc.’s limestone from the value of its surface which qualified as “open-space” land. The surface was appraised based upon its productive capacity as agricultural land; however, the limestone was appraised based upon the income that it would generate upon extraction. Gifford-Hill & Company, Inc. contested the separate appraisal of its limestone. The district court held, however, that the limestone could be classified as “land,” a “mine or quarry” and as a “mineral in place” for ad valorem tax pur*813poses. The court of appeals affirmed. 791 S.W.2d 576. We reverse the judgment of the court of appeals and remand the cause to the trial court for further proceedings.

I.

Gifford-Hill & Company, Inc. (“Gifford-Hill”) has 2500 acres of open land in Wise County, most of which it owns but some of which it leases from third parties. Gif-ford-Hill extracts limestone rock from its land through open pit mining and processes the rock for sale as limestone aggregate. Prior to 1987, Wise County Appraisal District (“Wise County”) appraised Gifford-Hill’s property by utilizing a compilation of sales prices of similarly sized and situated tracts of real estate. Wise County appraised the property at $800 per acre without reference to the underlying limestone rock. However, since most of the property was “qualified open-space land,”1 its taxable value was approximately $56 per acre.

For the 1987 tax year, Wise County created a new category of taxable property, previously unknown in the law, entitled “rock reserve” by separating the value of Gifford-Hill’s limestone rock from the value of the surface. Wise County appraised Gifford-Hill’s “rock reserve” at approximately $10 million and carried forward the $800 per acre valuation of the surface from the prior year. Gifford-Hill filed a protest with the Wise County Appraisal Review Board (“Review Board”) challenging the separate appraisal of its limestone and the excessiveness of the rock reserve appraisal. The Review Board reduced the appraised value of the “rock reserve” from $10 million to $7.5 million. The surface of Gif-ford-Hill’s property remained “qualified open-space land” with a taxable value of $56 per acre. However, the rock reserve’s taxable value was $7.5 million or approximately $8,000 per acre.

Gifford-Hill appealed to district court alleging that its limestone rock should have been classified as “land” and that Wise County had unlawfully valued the component parts of land which are treated as a unit for ad valorem tax purposes. In response, Wise County filed a counterclaim for declaratory judgment requesting a judicial declaration that, as a matter of law, limestone reserves are taxable as “land,” a “mineral in place,” and as a “mine or quarry” pursuant to section 1.04 of the Tax Code. Wise County also sought a declaration that if limestone reserves are not taxable as “minerals in place” or as a “mine or quarry,” and are taxable only as part of the land, the property cannot be designated as “open-space land.” Gifford-Hill amended its pleadings to request a judicial declaration that its limestone was not a “mineral in place” or “mine or quarry” as those terms are used in the Tax Code. Gifford-Hill sought removal of the rock reserve valuation from the appraisal roll (as a separately classified item) and remand of the case to the Review Board for appraisal of that portion of the open working excavation which qualified as a “quarry.”2

After substantial discovery, both sides moved for summary judgment. In granting Wise County’s motion for summary *814judgment and denying Gifford-Hill’s motion for summary judgment, the district court found, among other things, that limestone is taxable as land, a mine or quarry, and as a mineral in place. The court of appeals affirmed by holding that limestone reserves are taxable as a mineral because “scientifically speaking, limestone is a mineral,” and are taxable as a “mine or quarry” because those terms are defined as “a rich source.” We hold that limestone is not a “mineral” as that term is used in the Tax Code, but that some limestone may reasonably be deemed to be part of a quarry.3

II.

The issue of whether limestone rock is taxable separate and apart from the surface is one of first impression. Section 1.04 of the Texas Tax Code defines “Real property” as, among other things, “(A) land ... (C) a mine or quarry [or] ... (D) a mineral in place_” Tex.Tax Code § 1.04(2). Both parties agree that limestone rock is real property and that it is legally taxable as land.4 They differ, however, on the issue of whether limestone ⅛' legally taxable as a “mineral in place” or as a “quarry” and thus not subject to the special appraisal afforded “open-space land.” We will address this issue of first impression and then review the summary judgment evidence to determine the propriety of the district court’s grant of Wise County’s motion for summary judgment and its denial of Gifford-Hill’s motion for summary judgment.

III.

Gifford-Hill argues that its limestone is not a “mineral” for ad valorem tax purposes. We agree.

The term “mineral” is not defined in the Tax Code. However, section 1.03 of the Code Construction Act applies and the term “mineral” is to be construed according to common usage, or according to a technical or particular meaning if one has been acquired by legislative definition or otherwise. Tex.Tax Code § 1.03; Tex. Govt.Code § 311.011. Although there is no legislative definition of the term “mineral,” a particular meaning has been acquired by judicial definition.

In Heinatz v. Allen, 147 Tex. 512, 217 S.W.2d 994 (1949), this court considered whether the ordinary and natural meaning of the word “mineral” includes a substance such as limestone. We construed a will in which the testatrix devised “the surface rights exclusive of the mineral rights” to *815one party and the “mineral rights” to another party. The controlling question was whether commercial limestone was included in the devise of “mineral rights.” In deciding the question, this court looked to evidence concerning the nature of limestone, its relation to the surface of the land, its use and value, and the method and effect of its removal. 217 S.W.2d at 995-96. We recognized that the scientific or technical definition of minerals is so broad that it would embrace not only metallic minerals, oil, gas, stone, sand, gravel and many other substances, but would include even the soil itself. Id. at 997. We held, however, that the ordinary and natural meaning of the word “mineral” does not include a substance such as limestone. Id. In Moser v. U.S. Steel Corp., 676 S.W.2d 99 (Tex.1984),5 we reaffirmed Heinatz and held that limestone belongs to the surface estate as a matter of law. Id. at 102.6 Thus, we hold that the term “mineral” as used in the Tax Code is to be construed according to its ordinary and natural meaning which, as a matter of law, does not include limestone.

IV.

Gifford-Hill argues that all of the limestone rock on its entire 2500 acres of land is not a “quarry” for ad valorem tax purposes. We agree.

The term “quarry” is not defined in the Tax Code or by legislative definition, thus it should be construed according to common usage. Tex.Tax Code § 1.03; Tex. Govt.Code § 311.011. Webster’s Dictionary’s primary definition of “quarry” is “an open excavation used for obtaining building stone, slate, or limestone.” Webster’s Ninth New Collegiate Dictionary 755, 964 (1983). The term, however, has a broader definition which includes the deposit or rich source of supply that is being quarried. Id. See also Thompson, Commentaries on The Modem Law of Real Property § 158 (1980). The court of appeals relied on the broad definition of quarry when it held that the limestone beneath Gifford-Hill’s 2500 acres of land could be classified as a “quarry” for tax purposes.

We agree that the term “quarry” means more than merely the excavation existing *816during the extraction of a source of supply or left after a source of supply has been extracted. However, the opening of a quarry on a tract of land does not automatically subject the entire tract to ad valorem taxation as a quarry. We recognize that a deposit of limestone may extend beyond the area from which limestone is presently being produced. Some adjacent land may be in the path of the quarry and its limestone deposit may reasonably be deemed to be producing and thus considered as part of the quarry. Also, if any phase of the operation of the quarry is conducted on surface land, such land may constitute part of the producing quarry. However, other land surrounding a quarry may not be included as part of the existing quarry even though the land’s value increases because the extent of the limestone is known with some certainty. See e.g. Washington Union Coal Co. v. Thurston County, 105 Wash. 208, 177 P. 774 (1919). The value of the land containing non-producing limestone should be determined by applying a per acre value to the number of acres covered by the interest rather than by an intrinsic price based upon the market price of the limestone per ton.7 We hold that limestone is taxable as a quarry; however, the extent of such quarry must be determined by considering, among other things, surface land used in conducting the quarry operation, incomplete reclamation activities on prior production areas, mining or quarrying plans filed with state authorities, and reports from company officials and engineers.

V.

In its motion for summary judgment, Wise County alleged that Gifford-Hill has 100 million tons of limestone imbedded in its 2500 acres of land. Wise County contends that its separate “rock reserve” appraisal is valid because the limestone could be taxed as a “mineral in place” or as a “mine or quarry.” Based upon our discussion above, we hold that, as a matter of law, the limestone is not taxable as a “mineral in place.” Thus, Wise County’s summary judgment is appropriate only if the limestone is taxable as a quarry. Although the existence of a quarry on a portion of Gifford-Hill’s property is undisputed, the summary judgment evidence reveals that Wise County did not identify a quarry site, determine the extent of the quarry and value it accordingly. Instead, Wise County simply estimated that there was $7.5 million of producible limestone beneath Gifford-Hill’s 2500 acres of property which could be taxed in addition to the surface value. The limestone would be taxable as a quarry under such an appraisal only if the entire 2500 acres could reasonably be deemed a quarry. The parties agree, however, that much of Gifford-Hill’s property is qualified open-space land that is used primarily for agricultural purposes. Property cannot reasonably be deemed to be part of a quarry and at the same time be qualified open-space land used primarily for agricultural purposes. Because the existence of a quarry on a portion of Gifford-Hill’s property is undisputed and the record does not establish the extent of the quarry, a fact issue exists regarding the extent of Gifford-Hill’s quarry. As a result, we hold that the district court erred in granting summary judgment for Wise County.

VI.

The term “mineral” as used in the Tax Code should be construed according to its ordinary and natural meaning which, as a *817matter of law, does not include limestone.8 Consequently, since we hold that limestone rock is not a “mineral” under the Tax Code, it should be appraised as “land” unless it is part of an open working excavation which constitutes a “quarry.” A fact issue exists regarding the extent of Gif-ford-Hill’s quarry, thus the district court erred in granting summary judgment. Accordingly, we reverse the judgment of the court of appeals and remand this cause to the trial court for further proceedings including a determination of the portion or portions of Gifford-Hill’s property which constitute “land” or a “mine or quarry.”

Dissenting Opinion by GONZALEZ, J., joined by MAUZY, DOGGETT and GAMMAGE, JJ.

. "Qualified open-space land” is land that is currently devoted principally to agricultural use to the degree of intensity generally accepted in the area and that has been devoted principally to agricultural use or to production of timber or forest products for five of the preceding seven years. Tex.Tax Code § 23.51(1). Section 1-d-l of article 8 of the Texas Constitution provides:

(a) To promote the preservation of open space land, the legislature shall provide by law for taxation of open-space land devoted to farm or ranch purposes on the basis of its productive capacity and may provide by general law for taxation of open-space land devoted to timber production on the basis of its productive capacity. The legislature by general law may impose sanctions in furtherance of the taxation policy of this section.

. Gifford-Hill also alleged that Wise County’s appraisal of the non-producing limestone apart from the surface resulted in a method of taxation which was not equal or uniform in comparison to other properties containing limestone, that the limestone was appraised both as part of the “land” and the "rock reserve” and that Gif-ford-Hill is not the taxable owner of limestone beneath property which they have leased from others.

. The dissent erroneously states that the "key question is whether Gifford-Hill & Company is paying a just ad valorem tax” on its property. At 817 (Tex.1991) (Gonzalez, J., dissenting). The "key” questions in this cause are the characterization of limestone for ad valorem tax purposes and the method of appraising the limestone.

. The fact that Gifford-Hill’s “land” value may include the value of the limestone does not affect the land's designation as qualified open-space land. Special valuations under chapter 23 of the Tax Code, including the subchapter D open-space land valuation, are methods of appraisal that take into consideration the use of the subject property, but are not partial exemptions from taxation. See May v. Appraisal Review Bd., 794 S.W.2d 906, 908 (Tex.App.-Fort Worth 1990, writ denied). Wise County has argued that Gifford-Hill's limestone must be valued and taxed immediately, otherwise the land would vanish, leaving one huge hole and no tax revenue. We note, however, that when the use of any portion of Gifford-Hill’s property changes from qualified open-space land, an additional tax will be imposed. Section 23.76(a) of the Tax Code provides:

If the use of land that has been appraised as provided by this subchapter changes, an additional tax is imposed on the land for each of the five years preceding the year in which the change of use occurs that the land was appraised as provided by this subchapter and the tax that would have been imposed had the land been taxed on the basis of market value in each of those years, plus interest at an annual rate of seven percent calculated from the dates on which the differences would have become due.

In determining the fair and equitable valuation of Gifford-Hill’s property, the dissent inexplicably fails to consider (or even mention) the additional tax imposed when use of qualified open-space land changes. See Tex.Tax Code §§ 23.-55, 23.76.

. For a period of years, this court struggled to determine which substances are "surface” or "mineral.” See Heinatz v. Allen, 147 Tex. 512, 217 S.W.2d 994 (1949); Acker v. Guinn, 464 S.W.2d 348 (Tex.1971); Reed v. Wylie, 554 S.W.2d 169 (Tex.1977); Reed v. Wylie, 597 S.W.2d 743 (Tex.1980). As described in Moser v. U.S. Steel Corp.:

We have previously attempted to create a rule to effect the intent of the parties to convey valuable minerals to the mineral estate owner, while protecting the surface estate owner from destruction of the surface estate by the mineral owner’s extraction of minerals. In so doing, we decided that determinations of title should be based on whether a reasonable use of the surface by the mineral owner would substantially harm the surface. Application of this rule has required the determination of several fact issues to establish whether the owner of the surface or the mineral estate owns a substance not specifically referred to in a grant, reservation or exception. As a result, it could not be determined from the grant or reservation alone who owned title to an unnamed substance. Determining the ownership of minerals in this manner has resulted in title uncertainty.

676 S.W.2d at 101 (citations omitted). In order to avoid "title uncertainty,” we held that “a severance of minerals in an oil, gas and other minerals clause includes all substances within the ordinary and natural meaning of that word, whether their presence or value is known at the time of severance." 676 S.W.2d at 102.

. Concerning other substances, Moser v. U.S. Steel Corp. stated;

We ... hold uranium is a mineral within the ordinary and natural meaning of the word.... We continue to adhere, however, to our previous decisions which held certain substances to belong to the surface estate as a matter of law. See, e.g., Heinatz v. Allen, 147 Tex. 512, 217 S.W.2d 994 (1949) (building stone and limestone); Atwood v. Rodman, 355 S.W.2d 206 (Tex.Civ.App.—El Paso 1962, writ refd n.r.e.) (limestone, caliche, and surface shale); Fleming Foundation v. Texaco, 337 S.W.2d 846 (Tex.Civ.App.—Amarillo 1960, writ refd n.r.e.) (water); Psencik v. Wessels, 205 S.W.2d 658 (Tex.Civ.App.—Austin 1947, writ ref'd) (sand and gravel); Reed v. Wylie, 597 S.W.2d 743 (Tex.1980) (near surface lignite, iron and coal).

676 S.W.2d at 102. Thus, uranium is a mineral but limestone, building stone, caliche, water, sand, gravel, surface shale, and near surface lignite, iron and coal belong to the surface estate as a matter of law.

. See e.g. Tex.Tax Code § 23.17 which states:

An interest in a mineral which may be removed by surface mining or quarrying from a deposit that is not being produced shall be valued at the price for which the interest would sell while the mineral is in place and not being produced. The value shall be determined by applying a per acre value to the number of acres covered by the interest.

See also Comment, Ad Valorem Taxation of Non-Producing Lignite Interests, 29 BAYLOR L.REV. 933, 936 (1977).

. The dissent states that "[pjermitting a tax on limestone as Wise County has suggested will not increase the tax liability of legitimate farmers. The agricultural use exemption protects them.” At 822 (Tex.1991) (Gonzalez, J., dissenting). However, applying the dissent’s reasoning, if limestone is a "mineral in place” that is not under production, it must be appraised and taxed at a rate relative to its market value. See Tex.Tax Code § 23.17 ("An interest in a mineral that may be removed by surface mining or quarrying from a deposit and that is not being produced is appraised at the price for which the interest would sell while the mineral is in place and not being produced.”). Under the dissent’s analysis, the limestone underlying the property of a farmer or rancher would be valued (and taxed) as a "mineral in place” that is not under production; since the agricultural use exemption (or valuation as qualified open-space land) only applies to the surface estate and does not apply to minerals, the farmer or rancher would not be protected. See Tex.Tax Code § 23.52© (“The appraisal of minerals or subsurface rights to minerals is not within the provisions of this subchapter [Appraisal of Agricultural Land].”). The dissent’s approach would subject thousands of unsuspecting farmers and ranchers to increased tax liability and frustrate the Constitution’s intent ”[t]o promote the preservation of open space land ... devoted to farm or ranch purposes.” Tex. Const, art. VIII, § 1-d-l.