HL Farm Corp. v. Self

• Decision Date: 11 May 1994
• Docket Number: No. D-1794,D-1794
• Citation: 877 S.W.2d 288
• Parties: HL FARM CORPORATION, Petitioner, v. Jackie SELF, Chief Appraiser-Kaufman County Single Appraisal District et al., Respondents.
• Court: Texas Supreme Court

Page 288

877 S.W.2d 288

HL FARM CORPORATION, Petitioner, v. Jackie SELF, Chief Appraiser-Kaufman County Single Appraisal District et al., Respondents.

No. D-1794.

Supreme Court of Texas.

May 11, 1994.

Dissenting Opinion by Justice Doggett Feb. 9, 1994.

*

Harold R. McKeever and Kevin J. Cook, Dallas, G. Walter McCool, Popp & Ikard, Austin, for petitioner.

Gil J. Altom, Joe M. Parnell and Louis N. Conradt, Jr., Kaufman, Peter W. Low and Bill Kimbrough, Austin, for respondents.

HIGHTOWER, Justice, delivered the opinion of the Court, in which PHILLIPS, Chief Justice, and GONZALEZ, HECHT, CORNYN, GAMMAGE and SPECTOR, Justices, join.

We grant Petitioner's motion for rehearing, overrule Respondents' motion for rehearing, withdraw our prior opinion and judgment, and substitute the following in its place.

This case presents the issue whether section 23.56(3) of the Texas Tax Code violates section 3 of article I of the Texas Constitution because it impermissibly discriminates against a Virginia corporation whose majority interest is owned by a nonresident alien. H.L. Farm Corporation (H.L. Farm) filed this action contesting the Kaufman County Appraisal District's (Appraisal District) denial of its application for an open space land designation. The trial court granted summary judgment for the Appraisal District. The court of appeals affirmed. 820 S.W.2d 372. We reverse the judgment of the court of appeals and remand the cause to the trial court for further proceedings.

I.

H.L. Farm ¹ is a Virginia corporation authorized to do business in Texas. H.L. Farm is owned by Liebherr-America, Inc., which is also a Virginia corporation and a subsidiary of Liebherr International, AG, a Switzerland corporation. ² H.L. Farm owns land in Kaufman County. H.L. Farm applied for an open-space land designation pursuant to section 23.54 of the Texas Tax Code. See TEX.TAX CODE § 23.54. This designation provides for reduced tax valuation for open-space land. See TEX.TAX CODE §§ 23.52-3. However, there are limits on the eligibility of certain owners of open-space land to qualify for the reduced tax valuation. Section 23.56(3) sets out the eligibility limitation which affects H.L. Farm:

§ 23.56. Land Ineligible for Appraisal as Open-Space Land

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

....

(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 ³ 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.

TEX.TAX CODE § 23.56(3) (footnote added). Based on section 23.56(3), the Appraisal District denied H.L. Farm's application for open-space land designation.

H.L. Farm filed suit against the Appraisal District alleging that section 23.56(3) violated various provisions of the Texas and United States Constitutions. The trial court upheld the constitutionality of section 23.56(3) and granted summary judgment for the Appraisal District. The court of appeals affirmed, holding that the statute did not violate either the Texas or United States Constitutions.

II.

H.L. Farm argues that section 23.56(3) violates section 3 of article I of the Texas Constitution because it impermissibly discriminates against a Virginia corporation whose majority interest is owned by a nonresident alien. We agree.

H.L. Farm asserts that section 23.56(3) violates various provisions of the Texas and United States Constitutions; however, we will examine our own Texas Constitution first to determine this question. See Davenport v. Garcia, 834 S.W.2d 4, 11-13 (Tex.1992). Equal protection is afforded by two distinct provisions of the Texas Constitution. See TEX. CONST. art. I, §§ 3, 3a. Section 3 provides that "[a]ll free men, when they form a social compact, have equal rights, and no man, or set of men, is entitled to exclusive separate public emoluments, or privileges, but in consideration of public services." ⁴ TEX. CONST. art. 1, § 3.

When a court reviews the constitutionality of a statute, it presumes that the statute is valid. Spring Branch Indep. School Dist. v. Stamos, 695 S.W.2d 556, 558 (Tex.1985); Whitworth v. Bynum, 699 S.W.2d 194, 197 (Tex.1985). If interests other than fundamental rights or a suspect classification are affected, the classification must be rationally related to a legitimate state interest. Whitworth v. Bynum, 699 S.W.2d at 197 ("Even when the purpose of a statute is legitimate, equal protection analysis ... requires a determination that the classifications drawn by the statute are rationally related to the statute's purpose."); Sullivan v. University Interscholastic League, 616 S.W.2d 170, 172 (Tex.1981). H.L. Farm does not assert that fundamental rights or a suspect classification are affected; consequently, we will apply the rational basis test. In doing so, we must determine whether the classification created in section 23.56(3) for eligibility for appraisal for open space land--ownership by a corporation that is required by federal law or rule to register its ownership or acquisition of land and whose majority interest is owned by a nonresident alien and/or a foreign government--is rationally related to the purpose of section 23.51 et seq. First, however, we must determine the purpose of section 23.51 et seq.

III.

In 1966, section 1-d of article VIII of the Texas Constitution was adopted. Section 1-d states in pertinent part:

(a) All land owned by natural persons which is designated for agricultural use in accordance with the provisions of this Section shall be assessed for all tax purposes on the consideration of only those factors relative to such agricultural use. "Agricultural use" means the raising of livestock or growing of crops, fruit, flowers, and other products of the soil under natural conditions as a business venture for profit, which business is the primary occupation and source of income of the owner.

Tex. Const. art. VIII, § 1-d(a). Sections 23.41-46 of the Texas Tax Code were enacted pursuant to section 1-d.

In Gragg v. Cayuga Indep. School Dist., 539 S.W.2d 861 (Tex.1976), we inquired into the purpose of section 1-d, concentrating on the phrase "primary occupation and source of income of the owner." We stated that section 1-d was enacted for the purpose of relieving the tax burden of bona fide farmers and ranchers who depend upon the soil for their livelihoods. Id. at 867-68. We further stated:

It is obvious that the Texas "primary occupation and source of income" requirement was intended to prevent the lower agricultural assessment from being abused by allowing land investors and speculators to reduce their assessments and taxes simply by planting a crop or running livestock on the land. The provision also has the salutary purpose of encouraging not only that agricultural and ranch land be continued in production but that farmers and ranchers remain in the business of such production.

Id. at 865.

In 1978, section 1-d-1 of article VIII of the Texas Constitution was adopted. Section 1-d-1 states:

(a) To promote the preservation of open-space land, the legislature shall provide by general law for taxation of open-space land devoted to farm or ranch purposes on the basis of its productive capacity and may provide by general law for taxation of open-space land devoted to timber production on the basis of its productive capacity. The legislature by general law may provide eligibility limitations under this section and may impose sanctions in furtherance of the taxation policy of this section.

(b) If a property owner qualifies his land for designation for agricultural use under Section 1-d of this article, the land is subject to the provision of Section 1-d for the year in which the designation is effective and is not subject to a law enacted under this Section 1-d-1 in that year.

Tex. Const. art. VIII, § 1-d-1. Sections 23.51 et seq. were enacted pursuant to section 1-d-1. Section 1-d-1 did not supersede section 1-d. ⁵

In Alexander Ranch, Inc. v. Central Appraisal Dist., 733 S.W.2d 303 (Tex.App.--Eastland 1987, writ ref'd n.r.e.), the court of appeals considered whether section 23.56(3) violated the equal protection clause of the fourteenth amendment to the United States Constitution by excluding from appraisal as open-space land real property owned by two Texas corporations controlled by a nonresident alien. Citing Gragg v. Cayuga Indep. School Dist., 539 S.W.2d 861 (Tex.1976) and San Marcos Consolidated Indep. School Dist. v. Nance, 495 S.W.2d 335 (Tex.Civ.App.--Austin), writ ref'd n.r.e. per curiam 502 S.W.2d 694 (Tex.1973), the court stated that "[i]t is apparent that the purpose of the open-space exemption in Section 23.51 et seq. is to preserve and benefit the family farm." Id. at 307. However, Gragg and San Marcos Consolidated Indep. School Dist. involved section 1-d of the Texas Constitution concerning agricultural valuation and not section 1-d-1 and sections 23.51 et seq. concerning the open-space land valuation. Consequently, the court of appeals erroneously determined the purpose of section 1-d-1 and sections 23.51 et seq. concerning the open-space land valuation. In Riess v. Williamson Cty. Appraisal Dist., 735 S.W.2d 633 (Tex.App.--Austin 1987, writ denied), the court of appeals reviewed the denial of an open-space land valuation based upon the degree of agricultural use generally accepted in the area. Concerning the purpose of section 1-d-1, the court stated:

It appears to this Court that § 1-d-1 expresses two policies to be achieved by the legislature in appraising farm and ranch land: (1) preserve "open-space land"; and (2) provide for taxation on the basis of the land's "productive capacity."

Id. at 637. In Tarrant Appraisal Dist. v. Moore, 845 S.W.2d 820 (Tex.1993), we recognized that "[t]he Texas...