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

GONZALEZ, Justice,

dissenting.

In its motion for rehearing, Wise County alleges, among other things, that the Court erred: (1) in reversing the judgment of the court of appeals on grounds which were never presented to the trial court or the court of appeals; (2) in remanding this case to the trial court, because Gifford-Hill’s pleadings did not support the relief granted; (3) in stating that Wise County’s appraisal method would subject unsuspecting farmers to increased tax liability; (4) in holding that limestone is not a mineral; (5) in suggesting that all 2500 acres were taxed by Wise County for its limestone because there is no evidence of same; and (6) in noting at footnote four that the open space five-year rollback (§ 23.55 of the Tax Code) will recapture the taxes lost over the 30-year life of Gifford-Hill’s property. I agree with these assertions. For these reasons and those discussed in the earlier dissenting opinion, I would grant the motion for rehearing.

UNASSIGNED ERROR

Gifford-Hill’s argument all along has been that it was entitled to a summary judgment because limestone should not be taxed at all. It never asserted that too many acres were included; nor did it ever assert that a “fact issue exists regarding the extent of Gifford-Hill’s quarry,” at 827, the very basis on which the Court reversed and remanded the case to the trial court. This argument was introduced for the first time while the case was on appeal to this court. Thus, in my view, it was improper for the Court to reverse the judgment of the court of appeals on an argument not presented to the lower courts. Even though in Malooly Bros., Inc. v. Napier, 461 S.W.2d 119, 121 (Tex.1970), we allowed a broad point of error to preserve all potential challenges to a summary judgment, we did not dispense with the fundamental requirement that grounds for reversal be expressly presented to the trial court in order for them to be considered by the appellate court. See Combs v. Fantastic Homes, Inc., 584 S.W.2d 340, 343 (Tex.Civ.App.—Dallas), writ ref'd n.r.e., 596 S.W.2d 502 (Tex.1979).

LACK OF PLEADINGS

Wise County argues in its motion for rehearing that this Court improperly reversed and remanded this case to the trial court because Gifford-Hill had no pleadings to support such an action. This argument has substantial merit. The extent of the quarry is a value issue, and Gifford-Hill abandoned its pleadings that challenged the property’s value. The parties can relitigate the case on the number of acres comprising the quarry until the cows come home, but the value of that acreage has already been determined to be $7.5 million. The only way around this dilemma is for the Court to take the unprecedented step of reinstating Gifford-Hill’s pleading *826which challenged value and which they voluntarily abandoned.

NO INCREASED TAX LIABILITY TO FARMERS

The concern expressed by the Court in footnote eight that Wise County’s appraisal method would subject unsuspecting farmers and ranchers to increased tax liability is unjustified. As long as farmers and ranchers abstain from mineral production, they will benefit fully from the agricultural use exemption. Tex.Tax Code § 23.41 (1982 & Supp.1992). Further, for those fully devoted to the business of farming or ranching, existing limestone on their property has no value and therefore is not (and should not be) taxed. If, however, the farmer changed the primary use of the land from farming to quarrying, then the limestone would have taxable value and should be taxed as a mineral. As the name implies, the agricultural use exemption focuses on the landowner’s use of his property. For obvious reasons, companies engaged in stripmining land should not be able to employ the agricultural use exemption to obtain lower tax rates on their mineral estates. The Court’s opinion, however, permits just such a result.

Section 23.52 of the Texas Tax Code provides that the agricultural use exemption cannot be awarded to minerals. But this only applies when the minerals have value; that is, when commercial mineral production is anticipated or under way. Thus, a farmer who seeks to preserve his or her open space land may freely take advantage of the agricultural use exemption, though the land may contain limestone.

As pointed out by an amicus brief, permitting Gifford-Hill an agricultural use exemption on all the acreage in question reshapes the application of the exemption. The amicus brief also identifies a potential equal protection problem, noting that allowing an exemption for limestone in place while taxing oil and gas in place is a nonuniform and thus impermissible method of taxation. If a mining company owns a tract’s surface estate and its mineral estate containing limestone, then the company could employ the agriculture use exemption to exempt both estates from standard ad valorem taxes. Under the Court’s cumbersome test, Gifford-Hill may only have to pay taxes on the limestone it produces plus a tax on the assessed value of limestone contained in and extending from the open quarry. The rest of the limestone would be covered by the agricultural use exemption.

PROBLEMS WITH HOLDING THAT LIMESTONE IS NOT A MINERAL

Wise County asserts that the cases relied on by the Court to hold that limestone is not a mineral “are wholly inapposite to the concept of ad valorem appraisals as set forth in the Property Tax Code, to Government’s right to tax property, and to the public’s Constitutional right to equal and uniform taxation.” Likewise, another ami-cus brief filed supporting Wise County’s position noted that Heinatz v. Allen, 147 Tex. 512, 217 S.W.2d 994, 995-96 (1949), relied on by the Court, held that limestone belonged to the surface estate because extraction of it would otherwise destroy the surface estate. But Heinatz and its progeny addressed the ownership of limestone and other near-surface minerals and not whether limestone was in fact a mineral subject to taxation.

Section 23.17 of the Texas Tax Code specifically addresses the appraisal of “minerals” that may be removed by surface mining or quarrying; this excludes oil and gas. See Tex.Tax Code § 23.17 (1982). Thus, this section could only refer to quarryable minerals such as limestone, lignite and iron ore. The Court held, however, that the ordinary and natural meaning of the term mineral, as defined in Moser v. U.S. Steel Corp., 676 S.W.2d 99 (Tex.1984), did not include limestone. At 817. As I previously noted, applying Moser’s definition of the word “mineral” to Texas tax law means *827that not only is limestone not a taxable mineral, but neither is near-surface lignite, iron, coal, gravel, building stone, and surface shale. Moser, 676 S.W.2d at 102. Contrary to the Court’s conclusion, I urge that section 23.17, which provides for the taxation of minerals in place, include limestone such as that for which Gifford-Hill sought an exemption. The legislative history of section 23.17 supports such a reading. As the following paragraphs reveal, all who participated in the legislative debate over this provision used as examples of taxable minerals, substances that the Court’s ordinary and natural meaning test would exclude from taxation.

The Texas Legislature conducted hearings concerning section 23.17 in 1977. These hearings make clear that the Legislature did not define mineral under the Tax Code in the sense of Moser’s “ordinary and natural meaning” test. Whereas Moser’s test would exclude near surface iron ore, lignite, gravel, and caliche, the legislative debate over this provision clearly contemplated the inclusion of these minerals as taxable under section 23.17. Senator Jones introduced Senate Bill 815, which eventually became section 23.17 of the Tax Code, by stating that the section’s purpose was:

an attempt to place the market value valuation on non-producing minerals in place and it simply provides that if the tax assessor is levying taxes on non-producing minerals, that he would treat minerals the same, across the board whether they are severed ... or owned in fee.

Senator Jones also stated that the provision applied to all minerals in place and was “not related to any particular type of mineral.” Mr. Howard Jensen, Vice President and General Counsel of Lone Star Steel, testified in support of the bill noting that he hoped the provision would improve the method by which his iron-ore rich land was taxed. Mr. Sam Winters, representing Texas Utilities, then testified concerning the proper way to tax lignite in place. He believed this legislation would “alleviate presently existing inequities in the valuation and taxation of non-producing deposits of minerals such as lignite coal.”

On the same day that the Senate heard SB 815, the House Ways and Means Committee heard the companion bill, House Bill 1866. Messrs. Jensen and Winters testified again regarding their iron-ore and lignite interests, and Rep. Davis spoke in support of the provision. When asked whether an entire mineral-rich tract of land became subject to taxation once production started, Rep. Jones replied that upon production, the land would be taxed at “the value of the mineral capable of being produced from that tract.” HB 1866 was then passed to the full House, where Rep. Olsen presented it. Argument ensued as to whether subsurface minerals should be taxed. During the debate, Rep. Olsen noted that “we intended only to talk about minerals in place such as lignite, coal and other things that dealt with quarrying and surface mining.” The debate then addressed whether minerals in place, upon which no production has begun, should be taxed under section 23.17. As to whether farmland containing lignite should be taxed as having a mineral in place, Rep. Olsen said: “It hasn’t been opened. It’s a mineral in place. And officially what the bill does is to clarify the law.”

The debate then moved to an exchange between Reps. Wilson and Olsen, which further indicated that substances such as gravel, lignite, and caliche could be considered minerals in place subject to taxation under section 23.17.

Wilson: Well, alright, let’s just move away from oil and gas then. The only tax on — let’s use gravel, that’s a mineral, isn’t it?
Olsen: Alright.
Wilson: Gravel.
Olsen: John, let me tell you, my amendment, as far as oil and gas is concerned, there’s been some concern about some tax questions and other things and that’s what — the amendment gets away from *828oil and gas, we’re talking about minerals such as coal, lignite, caliche, and that kind of stuff.
Wilson: Alright, well, the people that go out and they know that the lignite’s there, Mr. Olsen, and they buy the land or lease it up and have those reserves which are of some value to them. And what you’re really saying is that the people of that district cannot assess what isn’t a known value of the district. Isn’t that what your bill really says?
Olsen: Yeah, but essentially, John, is that what you’re saying is, the ground hasn’t been opened.

Representative Olsen later asserted that you could not tax minerals in place unless production had begun on the land; Reps. Wilson and Gilley disagreed with him.

This legislative history reveals that ambiguity permeated the question of when and how to apply section 23.17. Some legislators, including the bill’s sponsor, interpreted the section as only allowing taxation of minerals in place if production had already begun on the land. Others believed that production was not a necessary prerequisite to taxation. This ambiguity does not affect the case before us because Gifford-Hill has already begun production. However, the debate contained no ambiguity as to what substances the term mineral comprised. Thus, the Court’s opinion and judgment in this case plainly defeats the intended legislative scope of section 23.17 by precluding the taxation of limestone as a mineral in place.

If the Court needed a statutory definition of mineral, it need only have turned to section 75.001(a)(1) of the Texas Property Code, which defines a mineral as follows:

“Mineral” means oil, gas, uranium, sul-phur, lignite, coal, and any other substance that is ordinarily and naturally considered a mineral in this state, regardless of the depth at which the oil, gas, uranium, sulphur, lignite, coal, or other substance is found.

§ 75.001(a)(1) Tex.Prop.Code (Supp.1992). This definition of mineral obviously differs from the Moser holding, even though it also includes all substances “ordinarily and naturally considered” minerals, because its definition embraces all lignite, coal, and iron-ore, regardless of the depth at which they may be found. In Moser, the court held that near-surface lignite, coal, and iron-ore are not minerals as a matter of law. 676 S.W.2d at 102. The conflict between the Texas Property Code’s definition of “mineral” and the Court’s definition forebodes further litigation to clarify what the Court’s definition means.

Finally, the State Property Tax Board, the enforcing authority for our tax code, believed limestone to be a taxable mineral. On July 17, 1987, the assistant director of the State Property Tax Board’s Valuation Division wrote the Wise County Appraisal District’s chief appraiser and said that, under section 1.04 of the Texas Tax Code, “flJimestone falls under any definition of mineral that I could find.... Both the United States Geological Survey and the Texas Bureau of Economic Geology consider limestone to be a mineral. The Department of Interior’s Bureau of Mines treats limestone as a mineral” as does the Bureau of Land Management. (emphasis added).

The letter distinguished the Texas Supreme Court’s treatment of limestone in its oil and gas jurisprudence by noting that “in all such cases the issue has been one of ownership and title, never of exemption from taxation.” The assistant director then included the following paragraph:

While legally taxable, nonfuel mineral reserves have rarely been assessed in Texas in the past. Possibly a perception that no real incremental value to the tax rolls was possible fostered this practice. This would certainly not be the case in Wise County. The limestone reserve there is viewed by experts as one of the largest and most high-quality blocks in the state, and production of this kind of mineral in Wise is significant even in national rankings.

(emphasis added). The letter concluded by asserting that the State Property Tax *829Board believed limestone was taxable as a mineral. This is consistent with the legislative history of section 23.17 of the Tax Code. The Court has ignored that section’s legislative history, as well as the views of the State’s tax enforcement authority, the collective wisdom of those entities engaged in mineral analysis, and instead Aas exempted from taxation one of the most valuable limestone deposits in Texas, if not the nation.

FIVE-YEAR ROLLBACK — RECAPTURE OF TAXES

In footnote four of the majority opinion, the Court noted that I had failed to consider or even mention that additional taxes are imposed when use of qualified land changes. Tex.Tax.Code § 23.55(a) (1982 & Supp.1992). Traditionally, this section has been used to recapture lost taxes when the use of the land goes from pasture land to a higher or better use, such as residential or commercial, thus increasing the land’s value. But in this case the exact opposite is true. Stripmining does not increase the value of the land. After Gifford-Hill finishes its operation, all it will leave behind is a deep hole with little utility. Even if this were not the case, the statute facilitates the recapture of taxes for only the five preceding years, and Gifford-Hill has more than thirty years of limestone reserves.

There are other problems with the Court’s simplistic idea of tax recapture. What are the criteria for a “change of use” that would provoke a rollback of taxes? What if the cattle continue to graze on whatever sparse vegetation clings to life in the pit created by Gifford-Hill? Has there been a change of use? Is change of use determined on an acre by acre basis? These unanswered questions undoubtedly will generate more litigation.

SUMMARY

The Court reached its result by insisting on using a definition of the word “mineral” developed in the peculiar contexts of oil and gas conveyancing law. As noted in the previous dissent, this holding now will cause near-surface lignite to be considered as something other than a mineral under Texas tax law. An amicus brief noted that its lignite holdings currently were being taxed as minerals in place. Under the Court’s holding, the amicus brief argues that it should not have to pay taxes on its lignite holdings and that it can properly refuse to pay. Under the Court’s holding, this goes for every other mineral owner in the state that may be paying taxes on lignite, near-surface coal, or any other substance defined in oil and gas law as not a mineral within “the ordinary and natural meaning of the term.” The record also clearly shows that the State Property Tax Board, the authority in charge of enforcing the tax code, believed Wise County was correct in subjecting Gifford-Hill’s limestone to an ad valorem tax. Perhaps most significantly, the legislative history of section 23.17 clearly contemplated the taxation of minerals beyond those encompassed by the Moser test. Likewise, section 75.-001(a)(1) of the Texas Property Code conflicts with the Court’s interpretation of the word mineral, and this inevitably will cause more litigation in this area.

The Court’s conclusion that limestone is not a mineral differs from the assessments of the State Property Tax Board, the United States Geological Survey, the Texas Bureau of Economic Geology, the Department of Interior’s Bureau of Mines, and the Bureau of Land Management, all of which, the record indicates, classify limestone as a mineral. Unless the legislature corrects the confusion that this unfortunate opinion creates, namely, the significant conflict between this Court’s definition of a mineral and what other expert authorities believe a mineral to be, today’s holding will doubtlessly spawn protracted litigation over which “minerals” in Texas are subject to ad valorem taxation. All of these problems could have been avoided by affirming the judgment of the court of appeals. Since the Court refuses this course of action, the reality is that this is not the end of the *830story, and we will have to revisit this issue somewhere down the line.

MAUZY and GAMMAGE, JJ., join this opinion.