Alexander Ranch, Inc. v. Central Appraisal Dist. of Erath County

• Decision Date: 21 May 1987
• Docket Number: No. 11-86-192-CV,11-86-192-CV
• Citation: 733 S.W.2d 303
• Parties: ALEXANDER RANCH, INC. and Wendylou Ranch, Inc., Appellants, v. CENTRAL APPRAISAL DISTRICT OF ERATH COUNTY et al., Appellees.
• Court: Texas Court of Appeals

Page 303

733 S.W.2d 303

ALEXANDER RANCH, INC. and Wendylou Ranch, Inc., Appellants, v. CENTRAL APPRAISAL DISTRICT OF ERATH COUNTY et al., Appellees.

No. 11-86-192-CV.

Court of Appeals of Texas Eastland.

May 21, 1987.

Rehearing Denied June 18, 1987.

Richard D. Coan, Coan & Shell, P.C., Stephenville, for appellants.

Brian E. Brown, Calame, Linebarger & Graham, Austin, for appellees.

OPINION

McCLOUD, Chief Justice.

The principal issue in this case is whether or not TEX.TAX CODE ANN. sec. 23.56(3) (Vernon 1982) violates the Equal Protection Clause of the fourteenth amendment to the United States Constitution. Section 23.56(3) excludes from appraisal as open-space land real property owned by a corporation controlled by nonresident aliens.

Alexander Ranch, Inc. and Wendylou Ranch, Inc. filed a petition for review in the district court ¹ urging that the Erath County Appraisal Review Board erred in finding that the land which they owned should not be appraised as open-space agricultural land as defined by TEX.TAX CODE ANN. sec. 23.52 (Vernon 1982). The trial court held that the review board properly determined that the land was not eligible to be appraised as open-space land. The landowners appeal. We affirm.

The trial court's ruling was based upon TEX.TAX CODE ANN. sec. 23.56 (Vernon 1982) which provides in part:

Land is not eligible for appraisal as provided by this subchapter if:

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(2) the land is owned by an individual who is a nonresident alien or by a foreign government if that individual or government is required by federal law or by rule adopted pursuant to federal law to register his ownership or acquisition of that property; or

(3) the land is owned by a corporation, partnership, trust, or other legal entity if the entity is required by federal law or by rule adopted pursuant to federal law to register its ownership or acquisition of that land and a nonresident alien or a foreign government or any combination of nonresident aliens and foreign governments own a majority interest in the entity. (Emphasis added)

The facts were stipulated. The landowners, Alexander and Wendylou, are Texas corporations. Both corporations are required by federal law to register their ownership of the land in question because nonresident aliens own a majority interest in each corporation. See 7 U.S.C.A. sec. 3501 et seq. (West Supp.1987). Except for the nonresident alien stockholder limitation in Section 23.56(3), the land meets all the requirements to entitle it to be appraised as open-space land under Section 23.52.

Initially, the taxing authorities argue that the trial court's judgment must be affirmed because the constitutional issue was not properly raised. They cite City of Garland v. Louton, 691 S.W.2d 603 (Tex.1985), and Wichita County v. Robinson, 276 S.W.2d 509 (Tex.1954), to support their position that, when the constitutionality of a statute is raised in a case brought under the Texas Declaratory Judgments Act, Texas law requires "substantial compliance" with TEX.CIV.PRAC. & REM.CODE ANN. sec. 37.006 (Vernon 1986) which provides for notice to the Attorney General. The Attorney General's office was not notified of this suit.

The landowners did not bring a suit under the Texas Declaratory Judgments Act. See TEX.CIV.PRAC. & REM.CODE ANN. sec. 37.001 et seq. (Vernon 1986). The landowners filed a statutory petition for review as specifically provided for in TEX.TAX CODE ANN. sec. 42.21 (Vernon Supp.1987). ² See Brooks v. Bachus, 661 S.W.2d 288 (Tex.App.--Eastland 1983, writ ref'd n.r.e.). This is so even though the landowners state at one point in their petition: "Under the laws of the State of Texas and particularly Article 2524-1 et seq. of the Texas Revised Civil Statutes, this Court has jurisdiction to determine questions of construction of statutes...." ³ We hold that, since this was not a suit under the Declaratory Judgments Act, notice to the Attorney General was not required.

The thrust of the landowners' argument on the constitutional question is that the classification of land ownership under the Texas statute is based on alienage, an inherently suspect classification; therefore, it is subject to close judicial scrutiny. See Graham v. Richardson, 403 U.S. 365, 91 S.Ct. 1848, 29 L.Ed.2d 534 (1971). If the classification involves a "suspect class," the State must show that the classification was precisely tailored to serve a compelling governmental interest. Plyler v. Doe, 457 U.S. 202, 102 S.Ct. 2382, 72 L.Ed.2d 786 (1982). Neither Graham nor Plyler are controlling. Both cases, as well as the other cases cited by the landowners, concern "resident" aliens. The exemption statute under consideration speaks to "nonresident" aliens who own a majority interest in a corporation.

We think the correct rule was applied by the Supreme Court of Wisconsin in Lehndorff Geneva, Inc. v. Warren, 74 Wis.2d 369, 246 N.W.2d 815 (1976). There, a Texas corporation whose stock was owned by nonresident aliens brought suit challenging the constitutionality of a Wisconsin statute limiting the amount of land that a corporation could own in Wisconsin if more than 20 percent of the stock of the corporation was owned by nonresident aliens. The Texas corporation argued that the Court should apply the strict scrutiny standard of review because the classification, based on nonresident alien status, was suspect. The State of Wisconsin argued that the United States Supreme Court decisions do not require strict scrutiny when the classification concerns "nonresident" aliens.

The Wisconsin Supreme Court cited Graham v. Richardson, supra, and pointed out that it is beyond doubt that resident aliens enjoy the "heightened judicial solicitude" of a suspect class. As to resident aliens, the Wisconsin Supreme Court stated:

In summary, the cases which called for a "heightened judicial solicitude" toward aliens dealt with statutes which obstructed the normal affairs of life even though the national government had determined that the aliens in question could live in this country. As residents, these aliens bore the burdens imposed by society but not the sought-after benefits. Nor could they participate in the political process, which is the normal avenue of redress for a citizen unhappy with a governmentally-imposed burden. In this type of situation, the court repeatedly held, "heightened judicial solicitude" is appropriate.

But, as to nonresident aliens, the Court said:

None of these considerations appears in the instant case, in which foreign nationals who reside outside our borders have voluntarily associated with each other simply to have an investment vehicle here. The duties and burdens shared by the resident alien in common with the citizen entitles him to most of the benefits enjoyed by citizens. But burden sharing, except for payment of taxes in connection with the ownership or development of the land, is lacking in the case of the nonresident aliens in the case before us.

Lehndorff Geneva, Inc. v. Warren, supra 246 N.W.2d at 822.

The Wisconsin Supreme Court, rejecting as do we the argument that nonresident aliens are a suspect class, held:

We conclude the plaintiffs do not possess the characteristics which warrant heightened judicial solicitude and the state has acted in an area traditionally within its province. Therefore the proper test is found in Simanco v. Dept. of Revenue (1973), 57 Wis.2d 47, 54, 203 N.W.2d 648. Only if a challenger can show that the classification is arbitrary and has no reasonable purpose or relationship to the facts or a justifiable and proper state policy will a legislative classification fall on the grounds of a denial of equal protection.

Lehndorff Geneva, Inc. v. Warren, supra 246 N.W.2d at 824-25. The following cases also distinguish between resident and nonresident aliens when applying the Equal Protection Clause: De Tenorio v. McGowan, 510 F.2d 92 (5th Cir.1975), cert. denied, 423 U.S. 877, 96 S.Ct. 150, 46 L.Ed.2d 110 (1975); Alvarez Martinez v. Industrial Commission of State of Utah, 720 P.2d 416 (Utah 1986); and Pedrazza v. Sid Fleming Contractor, Inc., 94 N.M. 59, 607 P.2d 597 (1980).

The classification of nonresident aliens is not an inherently suspect classification and, therefore, does not require strict judicial scrutiny.

The United States Supreme Court has long recognized that the States have much discretion where classification for taxation purposes is concerned and has repeatedly held that, where no specific federal right, apart from equal protection, is concerned, the States have a large leeway in distinguishing between classifications. Williams v. Vermont, 472 U.S. 14, 105 S.Ct. 2465, 86 L.Ed.2d 11 (1985); Kahn v. Shevin, 416 U.S. 351, 94 S.Ct. 1734, 40 L.Ed.2d 189 (1974); Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356, 93 S.Ct. 1001, 35 L.Ed.2d 351 (1973); Allied Stores of Ohio v. Bowers, 358 U.S. 522, 79 S.Ct. 437, 3 L.Ed.2d 480 (1959). The Equal Protection Clause does not impose an iron rule of equality, prohibiting the flexibility and variety that are appropriate to reasonable schemes of state taxation. Allied Stores of Ohio v. Bowers, supra.

In Allied Stores of Ohio v. Bowers, supra 358 U.S. at 527, 79 S.Ct. at 441, the Court stated the standard of review for nonsuspect classifications:

The State must proceed upon a rational basis and may not resort to a classification that is palpably arbitrary. The rule often has been stated to be that the classification "must rest upon some ground of difference having a fair and substantial relation to the object of the legislation." "If the selection or classification is neither capricious nor arbitrary, and rests upon some reasonable consideration of difference or policy, there is no denial of the equal protection of the law." That a statute may discriminate in favor of a certain class does not render it arbitrary if the discrimination is founded upon a reasonable distinction, or difference in state policy. (...