Court Opinion

ID: 9770834
Source: CourtListenerOpinion
Date Created: 2023-08-29 16:22:51.881992+00
Date Added: 2024-06-11T07:31:21.183391
License: Public Domain

GONZALEZ, Justice,
dissenting.
Today’s opinion creates a tax loophole big enough to drive a gravel truck through. The court’s decision converts the Texas Constitution’s insistence on tax fairness into a tax injustice by concluding that limestone is not taxable as a mineral in place. This conclusion undoubtedly will be viewed with as much surprise at the barbershop as at the law school or the university geology department.
In 1987, the Wise County Appraisal District assessed a tax valuation that combined separate appraisals of the surface acreage and the underlying limestone deposits. The court of appeals upheld Wise County’s appraisal, concluding that limestone is taxable as a “mineral in place” or as a “mine or quarry.” 791 S.W.2d 576, 583. Today, this court reverses the court of appeals’ judgment by holding that limestone is not a mineral for tax purposes. But the court also holds that the value of limestone in a “quarry” should figure into the ad valorem tax.
Ad valorem taxes should equitably burden the land based on the land’s value so as to provide a just relation between the landowner and the taxing authority. The limestone underlying the land in question clearly adds to the land’s value. That fact is undisputed. The problem is how to incorporate that added value into the tax appraisal process. The majority’s exclusion from the process of all limestone except that in an open quarry fails to equitably resolve the problem. I disagree with the court’s unworkable, unnecessary, and confusing formula for resolving this issue, and I believe that the judgment of the court of appeals is correct. Thus, I dissent.
The key question is whether Gifford-Hill & Company is paying a just ad valorem tax on 2500 limestone-rich-acres it owns in Wise County. This contiguous acreage contains approximately thirty-five years of reserves based on current levels of production. Gifford-Hill paid approximately $6,000 an acre for this land, and thus the land’s current market value equals nearly $15 million. Prior to 1987, the year in issue here, Wise County taxed the land without *818regard to the limestone reserves and appraised it at $800 per acre. Gifford-Hill claimed an “agricultural use exemption” and thus paid $56 per acre in taxes.
THE AGRICULTURAL USE EXEMPTION
For land to qualify as “open space land,” and thus to fall under the agriculture use exemption, the land must be devoted principally to agriculture or to the production of timber or forest products. Tex.Tax Code § 23.51(1) (Supp.1991). The purpose of this provision is:
To promote the preservation of open space land ... devoted to farm or ranch purposes ... [or] timber production ...
Tex. Const, art. VIII, § 1-d-l.
Naturally, it is in Gifford-Hill’s interest for Wise County to continue to tax its land as open-space land without regard to the valuable limestone reserves. But Wise County was concerned with the prospect of a 2,500 acre hole when Gifford-Hill concludes extracting all of the commercially available limestone from this property. That concern, together with the pressures of a tight budget and a shrinking tax base, led Wise County to hire an independent company to appraise the mineral estate underlying Gif-ford-Hill’s property. The appraiser valued the limestone reserves at 10 million dollars. On appeal, the tax appraisal review board reduced this valuation to 7.5 million dollars. Gifford-Hill does not contest this valuation.1
Instead, Gifford-Hill urges that since it runs some cattle on the surface estate, it is entitled to an agricultural use exemption covering both the surface and mineral estates. That contention compels this court to decide whether a mining company can take full advantage of the agricultural exemption by running livestock on the same property from which it is extracting minerals.2 The majority agreed with Gifford-Hill’s position; but I believe that at most Gifford-Hill should be allowed an agricultural use exemption for the surface estate alone. To grant them an agricultural exemption that extends to the mineral estate would flout the equities of this case and contravene the Texas Constitution and applicable state statutes.
TAXING REAL PROPERTY IN TEXAS
The Texas Constitution provides that counties may impose ad valorem taxes on real property in proportion to the property’s value. Tex. Const, art. VIII, § 1(b). Additionally, the Tax Code provides that taxing entities should derive a property’s value from the price the property would demand in the open market. See Tex.Tax Code § 1.04(7).3 This codification comports with previously accepted methods for ap*819praising fair market value. See Rowland v. City of Tyler, 5 S.W.2d 756, 760 (Tex.Comm’n App.1928, judgm’t adopted) (realty’s fair market value derived from reasonable cash market value which a voluntary sale would yield). Additionally, any appraisal of fair market value must include valuations of the property’s surface and mineral estates.
The Tax Code further specifies that “generally accepted appraisal techniques” must govern the appraisal process. A 1985 amendment to the Code amplified that requirement by providing that “each property shall be appraised based on the individual characteristics that affect the property’s market value.” See Tex.Tax Code § 23.01(b) (Supp.1991). The distinctive “individual characteristic” in this case is the extensive limestone deposits underlying the Wise County acreage. So we move to the central issue before the court; that is, to what extent should the limestone underlying Gifford-Hill’s property affect Wise County’s ad valorem tax rate on the 2500 acres.
TAXING LIMESTONE AS “A MINERAL IN PLACE”
Section 1.04 of the Texas Tax Code states that real property subject to taxation includes “a mine or quarry” or “a mineral in place.” The Tax Code further provides that minerals not under production may be taxed. Tex.Tax Code § 23.17.4 If the limestone underlying the Wise County property is “a mineral in place” that is not under production, then it must be appraised and taxed at a rate relative to its market value. See Tex.Tax Code § 1.04(7).
The majority says that limestone is not “a mineral in place” subject to taxation. That holding turns on the court’s conclusion that, as a matter of law, limestone is not a mineral within the ordinary and natural meaning of the word. This court previously has struggled with what the term “mineral” comprises. But this term’s prior development was caused by circumstances peculiar to Texas’ oil and gas law. The need to define the term arose from oil and gas conveyancing problems. See Moser v. U.S. Steel Corp., 676 S.W.2d 99, 101 (Tex.1984) (conveyance of oil, gas, and other minerals conveys all minerals within ordinary and natural meaning of word, which includes uranium but not limestone); Reed v. Wylie, 597 S.W.2d 743, 748 (Tex.1980) (conveyance of oil, gas, and other minerals did not convey lignite within 200 feet of the surface); Acker v. Guinn, 464 S.W.2d 348, 352-53 (Tex.1971) (conveyance of oil, gas, and other minerals did not convey near-surface iron ore); Heinatz v. Allen, 147 Tex. 512, 217 S.W.2d 994, 995-96 (1949) (devise of mineral rights did not embrace limestone). The majority’s opinion rightly recounts in footnote five, at 815, the policies that led the court to define this term, namely, the need for title certainty and the need to protect the interests of surface-estate-owners subject to an oil and gas conveyance. However, the policies pressed *820upon us by the conveyancing problems and the title uncertainty discussed in Moser do not apply with equal effect in ad valorem tax situations. I agree with Moser’s conclusion that the ordinary and natural meaning of the word mineral in an oil and gas context excludes limestone. But the particular context of that case compelled that conclusion. Applying Moser’s definition to a wholly separate area of law ignores the truism that legal definitions frequently achieve their meaning from the context in which they are applied rather than from generic understanding. A term’s applicable definition for a particular area of the law should be shaped by the constitutional and statutory policies the state seeks to promote in that area.
In Texas, our tax policy, as revealed by the Texas Constitution and the Texas Tax Code, seeks to ensure the taxation of real property at a rate reasonably related to its true value. This court could further the constitutional and legislative will in this regard by including limestone as within the word mineral’s ordinary and natural meaning in the context of tax law. The oil and gas policies that buttressed this court’s previous definition of the word “mineral” do not support grafting the same definition onto tax law. By importing an oil and gas definition into the realm of taxation, the court has not simply applied precedent regarding what a mineral is as a matter of law. Instead, the court has created a new rule in a new context that contravenes this state’s accepted tax policies.
The court’s new rule has some serious ramifications. By using a definition from oil and gas to say that limestone is not taxable as a “mineral in place” as a matter of law, the court implicitly exempts from ad valorem taxation all other minerals exempted in oil and gas law, including the following: near-surface lignite, iron and coal, gravel, building stone, and surface shale. See, e.g., Reed, 597 S.W.2d at 747 (near surface lignite, iron and coal not minerals); Heinatz, 217 S.W.2d at 997 (building stone not a mineral); Atwood v. Rodman, 355 S.W.2d 206, 213 (Tex.Civ.App.—El Paso 1962, writ ref’d n.r.e.) (surface shale not a mineral); Psencik v. Wessels, 205 S.W.2d 658, 661 (Tex.Civ.App.—Austin 1947, writ ref’d) (sand and gravel not minerals). This result imposes a policy inconsistent with the Texas Constitution and the Texas Tax Code, for it may prevent a taxing authority from imposing an ad valorem tax genuinely derived from the real property’s true value.
Texas’ tax policy requires that, unless the legislative intent is ambiguous, courts should resolve questions regarding tax exemptions in favor of the taxing authority. See Bullock v. National Bancshares Corp., 584 S.W.2d 268, 272 (Tex.1979), cert. denied, 444 U.S. 1016, 100 S.Ct. 667, 62 L.Ed.2d 645 (1980). Resolving ambiguities in favor of the state is not a concept unique to Texas tax law. In a dispute between the state and a private citizen over the ownership of coal and lignite, this court ruled that any ambiguities concerning what minerals the state conveyed to a private citizen should be resolved in favor of the state. See Schwarz v. State, 703 S.W.2d 187, 189 (Tex.1986). We concluded in that case that the state retained all of a tract’s coal and lignite and not just that coal and lignite within 200 feet of the surface (as would have been the result had the state not been a party). Id. Thus, when applying the ordinary and natural meaning of the term mineral to decide whether a particular substance is a mineral in place, we should resolve any ambiguities that arise in favor of the state. In the instant case, there is at least a facial ambiguity as to whether limestone should be considered a mineral when appraising real property in Texas and the court should have resolved this ambiguity in favor of the taxing authority.
TAXING LIMESTONE AS “A MINE OR QUARRY”
Taxing “a mine or quarry” entails appraising only those minerals actually under production. The majority admits that Wise *821County can use the authority provided under this section to appraise the limestone in any of Gifford-Hill’s open quarries or mines. But the land’s true value stems from its potential as a long-term source of limestone, not simply its present production levels. Nevertheless, the majority rests its solution on a modified “mine or quarry” classification. The majority’s solution, while straining for compromise, has created a complicated method for arriving at a just ad valorem tax. The majority says that limestone is not a mineral for tax purposes. As noted above, this conclusion stems from the court’s analogizing Texas’ oil and gas law to Texas’ tax law. This analogy fails because the parties’ status and the governing policies fundamentally differ.
The majority’s solution concludes that only limestone in a “quarry” should be taxed, while all other limestone, even though it adds value to Gifford-Hill’s interest, should remain untaxed. This contravenes the policies underlying ad valorem taxation. For the principal goal of an ad valorem tax is to tax property at a level that reflects the property’s true value.
The court further suggests that several other factors should figure into appraising limestone in a quarry, including “incomplete reclamation activities on prior production areas, mining or quarrying plans filed with state authorities, and reports from company officials and engineers.” At 816. The court leaves the parties and the bench and bar completely in the dark, because there are no requirements that mining companies reclaim or restore limestone quarrys nor that they file quarrying plans with any state authority.5
The majority’s compromise solution is neither equitable nor easy. It asserts that Wise County can tax any limestone in open quarries. But then it says that limestone in a quarry “may extend beyond the area from which limestone is presently being produced.” At 816. This will make the tax appraisal process quite difficult. To accurately appraise land on which an open quarry exists, counties will have to hire geologists to help them ascertain how far a limestone (or other mineral) vein extends beyond the open quarry. This prospect renders the majority’s solution too burdensome. Ironically, the court’s modified “quarry” standard could produce the same result as if we taxed limestone as a “mineral in place,” because a geologist conceivably could conclude that limestone in a quarry “extend[s] beyond the area from which limestone is presently being produced” to all of Gifford-Hill’s 2,600 acres.
SUMMARY
Authorities should tax real property at a rate reasonably related to the true value of the land. Gifford-Hill argues that its ad valorem tax should be derived from the surface estate’s value plus the tax value of any limestone actually removed. The majority agrees with Gifford-Hill’s assessment, amending it only with the directive that limestone should be taxed by measuring the extent of currently open quarries. Wise County argues that the tax rate should be derived from an average of the expected annual rate of limestone production projected over a ten-year span. This approach would more accurately tie the ad valorem tax to the land’s near-term productive value.
Wise County’s method of taxation is both equitable and legal, and thus it is the best method. A number of factors support that conclusion. First, the great value of the limestone reserves underlying the 2500 acres is not in dispute. Second, Gifford-Hill acquired this land to exploit those reserves. Third, Wise County’s failure to include the limestone in its 1985-86 tax appraisals did not preempt the county from *822amending the appraisal process in 1987 to include the limestone’s value. Fourth, dividing the appraisal process into two parts did not amount to “double-taxation.” Fifth, all parties agree that the limestone must somehow figure into the tax rate. And finally, the Texas Constitution and the Texas Tax Code insist that the ad valorem tax rate reflect the property’s true value, which in this case must include the limestone’s collective value.
Permitting a tax on limestone as Wise County has suggested will not increase the tax liability of legitimate farmers. The agricultural use exemption protects them. That is, if real property is devoted primarily to an agricultural use, such as ranching or timber production, then the landowner will pay a significantly reduced tax rate, despite the presence of a valuable, unexploited mineral estate.
In conclusion, I disagree with the court’s assertion that limestone is not a mineral under the Tex.Tax Code § 1.04, because it is inconsistent with the policies undergird-ing our tax laws. In an act of inverted alchemy, the majority treats a limestone-rich property as if it possessed relatively little value, and thus permits Gifford-Hill to skirt its true ad valorem tax burden. This holding should also signal the legislature of the need to amend § 1.04 of the Tax Code so as to specify which minerals in place are taxable. I further disagree with the court’s view on the taxing of limestone as “a mine or quarry,” because the proffered method is too burdensome. I am of the opinion that the appraisal method proposed by Wise County is legal and equitable. Thus, I would affirm the judgment of the court of appeals.
MAUZY, DOGGETT and GAMMAGE, JJ., join this opinion.

. Gifford-Hill started out challenging the valuation, claiming that it was excessive. They abandoned this argument well after this litigation was under way. Gifford-Hill also contended that combining the surface and mineral valuations amounted to “double-taxation.” This argument fails because the record reveals that the separate appraisers diligently avoided overlap. The company engaged to value the mineral estate presented Wise County with a valuation that explicitly excluded any value attributable to the surface estate.

. See Tex.Tax Code § 23.41(a). The Tax Code provides that:
Land designated for agricultural use is appraised at its value based on the land’s capacity to produce agricultural products. The value of land based on its capacity to produce agricultural products is determined by capitalizing the average net income the land would have yielded under prudent management from production of agricultural products during the five years preceding the current year. However, if the value of land as determined by capitalization of average net income exceeds the market value of the land as determined by other generally accepted appraisal methods, the land shall be appraised by application of the other appraisal methods.
Id. See also Tex.Tax Code § 23.51(2) (agricultural use includes raising and keeping livestock).

.Sub-section 7 of § 1.04 of the Tax Code says that:
"Market value" means the price at which a property would transfer for cash or its equivalent under prevailing market conditions if:
(A) exposed for sale in the open market with a reasonable time for the seller to find a purchaser;
*819(B) both the seller and the purchaser know of all the uses and purposes to which the property is adapted and for which it is capable of being used and of the enforceable restrictions on its use; and
(C) both the seller and purchaser seek to maximize their gains and neither is in a position to take advantage of the exigencies of the other.

. Tex.Tax Code § 23.17 reads:
Mineral Interest Not Being Produced: 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. The appraised value is determined by applying a per acre value to the number of acres covered by the interest. The aggregate of the appraised value of the interest and the appraised value of all other interests that if not under separate ownership would constitute a fee simple estate in real property may not exceed the appraised value that would be placed on the fee estate if the interest in minerals were not owned separately.

Id.

Commercially available limestone adds value to real property. Those who purchase and use land intending to profit from the minerals it contains should be subject to ad valorem taxes under § 23.17.

. Gifford-Hill did not contest the $7.5 million valuation of the limestone reserves. One of the reasons may have been their unwillingness to disclose sensitive, confidential information of a proprietary nature to their competitors. Does the court now suggest that the legislature mandate that these "reports" now be filed with some state agency?