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 regard 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-1.
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 Gifford-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.
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.
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. 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.
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).
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). This codification comports with previously accepted methods for appraising 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.
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;
(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.
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. 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).
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.
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 upon 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' § 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' § 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 County 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.
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?
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 2,500 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 amending 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 undergirding 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.
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 briefsfn1 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 brieffn2 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 Gifford-Hill's limestone acreage by Mitchell Energy Corporation and North Texas Oil Gas Association.fn3 The motion for rehearing is granted in partfn4 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 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."fn5 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.
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.
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). 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 section 23.52(f)" would be impossible to apply and undoubtedly would generate unnecessary litigation.
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).
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 valorem 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.
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.
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 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.
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 (s 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 which 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 non-uniform 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 amicus 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 that 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 sub-surface 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
oil 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, sulphur, 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, " [l]imestone 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 Board 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 has 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 story, and we will have to revisit this issue somewhere down the line.
MAUZY and GAMMAGE, JJ., join this opinion.