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

ON MOTION FOR REHEARING

HIGHTOWER, Justice.

In its motion for rehearing, Wise County complains, among other things, that this Court considered issues and arguments injected into the case by amici curiae and other non-parties which were not presented to lower courts. The dissent on rehearing raises issues and arguments which were not presented to lower courts. First, the issue concerning potential increased tax liability of farmers and ranchers was first raised in several amicus briefs 1 but was injected into the case by the dissent. Second, the issue concerning potential applicability of this opinion to lignite holdings was raised specifically in an amicus brief 2 and injected into the case by the dissent. Third, Wise County and the dissent failed to mention that Wise County was approached and encouraged to appraise Gif-ford-Hill’s limestone acreage by Mitchell Energy Corporation and North Texas Oil & Gas Association. 3 The motion for rehearing is granted in part 4 and overruled in part.

I.

Contrary to the dissent’s rhetoric, the Court’s legitimate concern about subjecting thousands of unsuspecting ranchers and farmers — ordinary taxpayers — to increased tax liability is not “unjustified.” At 826 (Tex.1992) (Gonzalez, J., dissenting on rehearing). Applying the dissent’s reasoning, if limestone is a “mineral in place,” it would be appraised and taxed at a rate relative to its market value. Pursuant to section 23.17 of the Tax Code, a “mineral in *823 place” is “[a]n interest in a mineral ... that is not being produced [and] is appraised at the price for which the interest would sell while the mineral is in place and not being produced.” Tex.Tax Code § 23.-17. Under the dissent’s analysis, the limestone underlying the property of a rancher or farmer and not being produced would be valued and taxed as a “mineral in place.” 5 However, since neither the agricultural use nor qualified open-space land valuations apply to the “appraisal of minerals or subsurface rights to minerals,” the farmer or rancher would not be protected. See Tex. Tax Code § 23.52(f).

The dissent attempts to avoid this egregious result by asserting that whether limestone as a “mineral in place” actually is valued and taxed depends upon the identity of the landowner and the land’s use. However, once limestone is recognized as a “mineral in place,” even if it is not under production, it would be appraised and taxed at a rate relative to its market value. Unless property is exempt by law, taxing units may not arbitrarily determine not to tax otherwise taxable property based upon the identity of the landowner and the land’s use. See generally Tex. Const, art. VIII, § 1; Tex.Tax Code § 11.01. 6

The dissent states “As long as farmers and ranchers abstain from mineral production, they will benefit fully from the agricultural use exemption.” At 826 (Tex.1992) (Gonzalez, J., dissenting on rehearing). Farmers and ranchers will benefit as they always have from the agricultural use exemption for the surface of their land. However, under the dissent’s approach, minerals and minerals in place are effectively severed from the surface for tax purposes and valued and taxed as separate estates. Thus, farmers and ranchers would not benefit from the agricultural use exemption for the minerals underlying their property.

The dissent also asserts that section 23.52(f), which provides that the agricultural use and qualified open-space land valuations do not apply to the appraisal of minerals or subsurface rights to minerals, “only applies when the minerals have value; that is, commercial mineral production is anticipated or under way.” At 826 (Tex. 1992) (Gonzalez, J., dissenting on rehearing). 7 In essence, the dissent would act as a legislative body and engraft an exception to section 23.52(f) which does not otherwise exist. The dissent’s “amended” section 23.-52(f) now provides that the agricultural use and qualified open-space land valuations are inapplicable to the appraisal of minerals or subsurface rights to minerals only when commercial mineral production is anticipated or under way. However, what criteria would the dissent utilize in determining when “commercial mineral production is anticipated or under way?” How would the dissent determine when mineral production rises to the level of “commercial production?” How would the dissent make the subjective determination of when commercial mineral production is “anticipated?” Obviously, the dissent’s “amended *824 section 23.52(f)” would be impossible to apply and undoubtedly would generate unnecessary litigation.

II.

The determination of the extent of the quarry is not just a value issue. Wise County appraised the surface of Gifford-Hill’s 2500 acres at $800 per acre and the “limestone reserves” beneath the surface at $7.5 million. Gifford-Hill argued, among other things, that limestone is not a mineral and could not be appraised and taxed separately from the surface. However, if limestone is a mineral and could be appraised and taxed separately from the surface, Gifford-Hill conceded that the value of the limestone beneath the surface is $7.5 million. When this Court determined that limestone is not a “mineral” or a “mineral in place” for ad valorem tax purposes, the $7.5 million value of the limestone became meaningless. The argument of Wise County and the dissent — that since this Court held that a portion of Gifford-Hill’s limestone constituted a quarry, it is worth $7.5 million whether the quarry consists of 10 acres or 100 acres or 1,000 acres — defies reality and common sense.

The existence of a fact issue concerning the extent of Gifford-Hill’s quarry was raised by Gifford-Hill and Wise County in their summary judgment pleadings. In its Amended Motion for Summary Judgment and Response to Defendants’ Motion for Partial Summary Judgment, Gifford-Hill prayed that “summary judgment be granted and the Court remand this matter in part to the A.R.B. for appraisal of that portion of Gifford-Hill’s property, if any, which is a ‘mine’ or ‘quarry’ in accordance with the law....” On remand, the trial court will determine that portion or portions of Gifford-Hill’s property which constitute “quarry” and also determine the value of the quarry. The trial court is not bound by Gifford-Hill’s “concession” that the value of the limestone beneath the surface is $7.5 million.

III.

In Heinatz v. Allen, 147 Tex. 512 , 217 S.W.2d 994 (1949), which involved the construction of the terms of a will, this Court held that “substances such as sand, gravel and limestone are not minerals within the ordinary and natural meaning of the word unless they are rare and exceptional in character or possess a peculiar property giving them special value....” Id., 217 S.W.2d at 997 . In Moser v. U.S. Steel Corp., 676 S.W.2d 99, 102 (Tex.1984), this Court held that limestone belongs to the surface estate as a matter of law. Although Heinatz v. Allen and Moser v. U.S. Steel Corp. are “conveyance” cases, there is no compelling reason to establish a different definition of “mineral” for ad valo-rem tax purposes.

Wise County’s argument that limestone has always been a mineral under Texas law is unpersuasive. In fact, Wise County does not refer to a single authority which holds that limestone is a mineral. 8

IV.

The Court did not “find” in footnote 4 or elsewhere that the open space five-year rollback tax would recapture the taxes lost over the 30 year life of Gifford-Hill’s property. Contrary to the dissent’s arguments, the Court was not (and is not) advocating the idea of tax recapture but was merely noting the existence of the additional tax imposed when use of qualified open-space land changes. A careful *825 reading of footnote 4 will reveal that the Court was responding to Wise County’s argument that if Gifford-Hill’s limestone was not valued and taxed immediately, the land would vanish and leave one huge hole and no tax revenue. Contrary to Wise County’s argument, Gifford-Hill’s quarry will expand resulting in a change of use of (and the loss of its open space land valuation for) that portion of the property. Wise County can “recapture” the tax on the difference between the productivity value and the market value for each of the 5 years preceding the year the change of use occurs plus 7% interest. For example, if the quarry expanded from 50 acres to 100 acres, Wise County could “recapture” the tax on the additional 50 acres of quarry for the difference between the productivity value ($57 per acre) and the market value ($6,000 per acre) for each of the preceding 5 years plus interest.

Dissenting opinion on rehearing by GONZALEZ, J., joined by MAUZY and GAMMAGE, JJ.

DOGGETT, J., not sitting.

. Amicus curiae briefs submitted by Texas Aggregate and Concrete Association and Mitchell Energy Corporation and North Texas Oil & Gas Association.

. Amicus curiae brief submitted by Enserch Exploration, Inc.

. In their amicus curiae brief, Mitchell Energy Corporation and North Texas Oil & Gas Association state that they "strongly encouraged Wise County Appraisal District to take the action of which Gifford-Hill now complains_” Brief of Mitchell Energy Corporation and North Texas Oil & Gas Association as Amicus Curiae at 8.

.The motion for rehearing is granted only concerning the award of court costs. The judgment is amended to reflect that each party shall pay their own costs in this Court and in the court of appeals. Otherwise, the motion for rehearing is overruled.

. For example, it is undisputed that Gifford-Hill purchased most of its Wise County property containing limestone deposits for |6,000-$7,000 per acre. Obviously, Gifford-Hill purchased the property from someone while the limestone was in place and not being produced. Consequently, under the dissent’s theory that limestone is a "mineral in place,” the farmer or rancher who owns property containing limestone deposits in Wise County which is not being produced could have his limestone deposits appraised at between $6,000-$7,000 per acre.

. Consequently, applying the dissent’s reasoning, Wise County would be required to reappraise all of the land in Wise County to consider the value of limestone as a mineral or mineral in place.

.However, the dissent concedes that the “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.” At 828 (Tex.1992) (Gonzalez, J., dissenting on rehearing).

. The dissent states that the legislative history of section 23.17 supports the position that limestone is a "mineral in place." This argument is equally unpersuasive. The legislative history indicates the existence of substantial uncertainty concerning when and how to apply section 23.-17. Although the lengthy portions of the legislative history specifically mentioned iron-ore, lignite, coal, gravel and caliche, the discussions never specifically mentioned limestone. In fact, there was disagreement and uncertainty concerning whether production was a necessary prerequisite to taxation of minerals in place.