Does Texas charge the agricultural rollback tax when the state buys farmland and stops farming it?

Plain-English summary

Texas lets qualifying farm and ranch land be taxed on its productive value instead of its market value, which sharply lowers the property tax. The trade-off is the "rollback" tax: when the land's use changes away from agriculture, the owner owes a penalty that recaptures the difference between the reduced taxes paid and the market-value taxes that would have been owed over the prior years (three years under article VIII, section 1-d; five years under section 1-d-1). Land Commissioner Garry Mauro asked the Attorney General whether that rollback is triggered when the state acquires agriculturally appraised land. The practical stakes were large: the General Land Office was disposing of about 17,000 acres in 2,300 parcels bought for the Superconducting Super Collider, a federal project Congress never funded, much of it classified as agricultural when the state acquired it.

The Attorney General concluded that state-owned land used for public purposes is not subject to the rollback tax under Tax Code section 23.55. The reasoning started from a basic principle: state property is generally exempt from taxation, and before any tax can reach state property the Legislature's intent to tax itself must appear by express enactment or clear implication. Taxing the state's own property would just move money from one government pocket to another. Tax Code section 11.11(a), enacted under article VIII, section 2 of the Constitution, expressly exempts property owned by the state or a political subdivision when used for public purposes.

Against that backdrop, the opinion looked at whether the agricultural-use statutes override the section 11.11(a) exemption. Neither article VIII, section 1-d-1 nor section 23.55 expressly imposes the rollback on state-owned land, and neither expressly exempts government land either. The opinion found the absence of an express exemption unimportant, because the Legislature is presumed to legislate against existing law, repeals by implication are disfavored, and statutes on the same subject should be harmonized. Section 23.55 and section 11.11(a) harmonize easily by reading the rollback not to reach state-owned property used for public purposes, which preserves both the rollback's recapture purpose and the public-property exemption.

The State Property Tax Board's appraisal manual took the opposite view, saying the rollback is triggered when a government buys agricultural land and changes its use, but adding that the lien cannot be foreclosed and the tax cannot be collected unless the government chooses to pay. The opinion declined to follow that construction. An agency reading gets serious weight only if reasonable and consistent with the statute, and this one imposed a tax burden the statute did not require, effectively repealed section 11.11(a) by implication, and was internally contradictory in saying the land is taxed but the tax can never be collected, a result that is neither reasonable nor capable of execution. The opinion noted that the Legislature had just amended section 23.55(a), effective September 1, 1997, to provide that an appraiser may not count any period of state ownership in deciding whether a change of use occurred. Finally, the opinion declined to answer a second question about whether intervening state ownership affects the "five of the preceding seven years" agricultural-use qualification, because the request offered no factual context to analyze.

Currency note

This opinion was issued in 1997. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

What the opinion meant at the time

For the General Land Office and state agencies disposing of land: The opinion concluded the rollback tax under section 23.55 did not attach to state-owned land used for public purposes, so the state's acquisition and change of use of agriculturally appraised parcels did not generate a rollback liability of the state.

For appraisal districts and the State Property Tax Board (then the Comptroller): The opinion declined to follow the appraisal manual's position that government acquisition and change of use triggers the rollback, finding that reading inconsistent with the section 11.11(a) public-property exemption and internally contradictory.

For later private buyers of formerly state-owned land: The opinion resolved only the state's liability and noted a separate, fact-dependent question about how intervening state ownership bears on the five-of-seven-years agricultural-use test, which it declined to answer without a factual record.

Common questions

Does the state owe the agricultural rollback tax when it buys farmland and changes its use?

Under this opinion, no. The Attorney General concluded that state-owned land used for public purposes is exempt under Tax Code section 11.11(a) and is not subject to the rollback tax under section 23.55.

Why doesn't the rollback apply to the state?

The opinion explained that state property is generally exempt from taxation unless the Legislature clearly says otherwise, and nothing in article VIII, section 1-d-1 or section 23.55 clearly imposes the rollback on the state. Reading it to apply would repeal the section 11.11(a) exemption by implication, which the law disfavors.

Didn't the State Property Tax Board manual say the rollback applies?

It did, but the opinion declined to follow it. The manual said the tax is triggered yet cannot be collected unless the government chooses to pay, which the opinion found internally contradictory and not a reasonable or workable reading of the statute.

Did the law change after this opinion?

The opinion noted that the Legislature amended Tax Code section 23.55(a), effective September 1, 1997, to provide that the chief appraiser may not consider any period during which the state owns the land in determining whether a change of use has occurred.

Background and statutory framework

The request came from Land Commissioner Garry Mauro as the General Land Office prepared to dispose of Superconducting Super Collider parcels. Article VIII, sections 1-d and 1-d-1 of the Texas Constitution, implemented by subchapters C and D of chapter 23 of the Tax Code, allow agricultural and open-space land to be appraised on productive capacity rather than market value, with a rollback tax (Tax Code sections 23.46 and 23.55) recapturing the tax savings when the use changes. Section 1-d-1, adopted in 1978 and implemented in 1979, covers nearly all eligible Texas land; under it and section 23.55(a) the rollback is triggered by a change in use and equals the difference between taxes imposed and market-value taxes for the preceding five years. Acquisition alone does not trigger it (citing Attorney General Opinion JM-949 (1988)); cessation of agricultural use does (Resolution Trust Corp. v. Tarrant County Appraisal District). Section 23.55(f) exempts changes resulting from a sale for right-of-way or a condemnation.

On state property, the opinion relied on Attorney General Opinion O-1861 (1940) for the rule that exemption is the norm and the state's intent to tax itself must be express or clearly implied, and on article VIII, sections 1 and 2 and Tax Code section 11.11(a), which exempts state and political-subdivision property used for public purposes (citing Attorney General Opinion DM-383 (1996) and Lubbock Independent School District v. Owens). It applied the canons that statutes are read against existing law (Acker v. Texas Water Commission; McBride v. Clayton), that repeals by implication are disfavored (Acker; Gordon v. Lake; Eppenauer v. Eppenauer), and that overlapping statutes are harmonized to give effect to both (Acker; Standard v. Sadler; Conley v. Daughters of the Republic; Gov't Code section 311.021(3)), concluding that section 23.55 and section 11.11(a) harmonize by exempting public-purpose state land from the rollback.

On the agency manual, the opinion applied the rule that an agency construction gets weight only if reasonable and consistent with the statute (Tarrant County Appraisal District v. Moore; Stanford v. Butler) and may not add burdens beyond the statute (Riess v. Williamson County Appraisal District), and found the State Property Tax Board's manual position unreasonable, contradictory, and not feasible of execution (Gov't Code section 311.021(3), (4) and section 311.023(5)). It noted Senate Bill 728's amendment to section 23.55(a) effective September 1, 1997, and that the Resolution Trust Corp. decision had treated the rollback as a penalty barred against a federal instrumentality by sovereign immunity. It declined, for lack of a factual record, to address whether intervening state ownership affects the five-of-seven-years qualification in section 23.51(1).

Citations

Constitutional provisions and statutes

• Tex. Const. art. VIII, §§ 1, 1-d, 1-d-1, 2
• Tax Code §§ 11.11, 23.46, 23.51, 23.52, 23.55
• Gov't Code § 311.021

Cases

• Resolution Trust Corp. v. Tarrant County Appraisal District, 926 S.W.2d 797 (Tex. App.-Fort Worth 1996, no writ)
• Lubbock Indep. Sch. Dist. v. Owens, 217 S.W.2d 186 (Tex. Civ. App.-Amarillo 1948, writ ref'd n.r.e.)
• Acker v. Texas Water Comm'n, 790 S.W.2d 299 (Tex. 1990)
• McBride v. Clayton, 166 S.W.2d 125 (Tex. 1942)
• Gordon v. Lake, 356 S.W.2d 138 (Tex. 1962)
• Eppenauer v. Eppenauer, 831 S.W.2d 30 (Tex. App.-El Paso 1992, no writ)
• Standard v. Sadler, 383 S.W.2d 391 (Tex. 1964)
• Conley v. Daughters of the Republic, 156 S.W. 197 (Tex. 1913)
• Tarrant County Appraisal Dist. v. Moore, 845 S.W.2d 820 (Tex. 1993)
• Stanford v. Butler, 181 S.W.2d 269 (Tex. 1944)
• Riess v. Williamson County Appraisal Dist., 735 S.W.2d 633 (Tex. App.-Austin 1987, writ denied)

Attorney General opinions

• Tex. Att'y Gen. Op. Nos. O-1861 (1940), JM-949 (1988), JM-1085 (1989), DM-383 (1996); Tex. Att'y Gen. LO-95-054 (1995)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/dan-morales/dm-0448
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1997/dm0448.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative.

Office of the Attorney General
State of Texas

DAN MORALES
ATTORNEY GENERAL

August 14, 1997

The Honorable Garry Mauro
Commissioner
Texas General Land Office
1700 North Congress Avenue
Austin, Texas 78701-1495

Opinion No. DM-448

Re: Whether land designated for "agricultural use" is subject to the five-year rollback provisions when the property is acquired by the state and related questions (RQ-911)

Dear Commissioner Mauro:

You ask about the recapture or "rollback" of taxes on land appraised for property taxation at its value for agricultural use when the property is acquired by the state and other related questions. Your questions arise as the General Land Office (the "GLO") prepares to dispose of the real property assets of the Superconducting Super Collider project since many of the parcels of land acquired for that project were classified, at the time of acquisition by the state, as "agricultural" for property tax purposes.

Article VIII, sections 1-d and 1-d-1 of the Texas Constitution, as implemented by the provisions of the Tax Code, allow for the designation of certain land for agricultural use and appraisal of such land for property tax purposes on the basis of its productive capacity rather than its market value. The special valuation has the effect of reducing substantially the property taxes on land that qualifies. When the use of the land is changed, however, an additional tax is imposed in an amount equal to the difference between the taxes paid during the past three years or five years (depending on which particular provisions are applicable) and the taxes that would have been due during that period had the land been appraised at market value. Tex. Const. art. VIII, §§ 1-d, 1-d-1; Tax Code §§ 23.46, 23.55(a). The additional tax imposed is a penalty for taking the land out of agricultural production and is commonly called a rollback tax because it recaptures the taxes the owner would have paid had the property been taxed at market value for each of the years covered by the additional tax. Resolution Trust Corp. v. Tarrant County Appraisal Dist., 926 S.W.2d 797, 799-805 (Tex. App.-Fort Worth 1996, no writ); AG Manual, supra note 2, at 31 (The "Rollback" Tax).

You first wish to know whether the state's acquisition of a parcel of land subject to the special agricultural valuation constitutes a change in use which would trigger the rollback process. As alluded to above, land is subject to the provisions, including those with respect to additional taxes, of the constitutional amendment under which the land was designated for agricultural use for that year. See Tex. Const. art. VIII, § 1-d-1(b); Tax Code §§ 23.52(b), 23.55(f). Your letter indicates that the land at issue qualified for agricultural appraisal under article VIII, section 1-d-1.

Article VIII, section 1-d-1 of the Texas Constitution, adopted in 1978, authorizes the legislature to provide by general law for taxation of open-space land devoted to farm or ranch purposes on the basis of its productive capacity. Section 1-d-1 also authorizes the legislature to provide by general law for eligibility limitations and to impose sanctions to further the taxation policy of the constitutional amendment. In 1979 the legislature implemented the eligibility limitations and sanctions which are now found in subchapter D, chapter 23 of the Tax Code. See Tax Code §§ 23.51-.57. Section 23.55(a) of the Tax Code provides that "[i]f the use of land that has been appraised as provided by this subchapter changes, an additional tax is imposed on the land. . . ." Open-space land accorded the special valuation by the terms of the statute becomes subject to the rollback tax only if the use changes; acquisition alone does not trigger the rollback tax provisions. Attorney General Opinion JM-949 (1988) at 3. Change of use occurs when the use of the land changes from an agricultural use to a nonagricultural use. Resolution Trust Corp., 926 S.W.2d at 800. Accordingly, cessation of agricultural use constitutes a change of use which triggers the rollback tax under section 23.55(a) of the Tax Code. Id. Section 23.55(f) of the Tax Code, additionally, provides that "[t]he sanctions provided by [section 23.55(a)] do not apply if the change of use occurs as a result of a sale for right-of-way or a condemnation." Neither section 1-d-1 of the Texas Constitution nor section 23.55 of the Tax Code provide any exceptions to the rollback provisions other than those with respect to land acquired by condemnation or purchased for right-of-way.

We begin by noting that insofar as property owned by the state is concerned, exemption from taxation is the general rule and not the exception. Attorney General Opinion O-1861 (1940) at 5. As explained in Attorney General Opinion O-1861:

The object of taxation is to produce the revenues with which to conduct the business of the state; it is entirely inconsistent with our theory of government for the property of the state to be taxed, in order to produce the money to be expended by the state.

The purpose of taxation being only for the raising of money with which to carry on the governmental functions, to tax the property of the state would only amount to taking money out of one pocket and putting it in another.

Id. at 4 (citations omitted). Before state property may be subjected to any form of taxation, the legislative intent to tax must be demonstrated either by express enactment or clear implication of the law. Id. at 5.

Article VIII, section 1(b) of the Texas Constitution declares all real property and tangible personal property to be taxable in proportion to its value unless the property is exempt as the constitution permits or requires. Attorney General Opinion DM-383 (1996) at 2. Article VIII, section 2 provides in relevant part that "the legislature may, by general laws, exempt from taxation public property used for public purposes." Pursuant to article VIII, section 2, the legislature enacted the predecessor to section 11.11(a) of the Tax Code governing the taxation of public property. Id. Section 11.11(a) of the Tax Code states that "[e]xcept as provided by Subsections (b) and (c) of this section, property owned by this state or a political subdivision of this state is exempt from taxation if the property is used for public purposes." Thus, as a general matter, by express legislative enactment, land owned by the state and used for public purposes is not subject to taxation. Accordingly, state-owned land used for public purposes is subject to taxation only if provided for by another law. See, e.g., Lubbock Indep. Sch. Dist. v. Owens, 217 S.W.2d 186, 189 (Tex. Civ. App.-Amarillo 1948, writ ref'd n.r.e.) ("There is no statute warranting a fixing of a lien against the land for taxes during the time it was held by the State. The contention that taxes accrued against the property while held by a taxing unit has been rejected by the courts of this state.").

We proceed to consider whether the agricultural use provisions provide for the taxation of state property exempted by section 11.11(a) of the Tax Code. Neither article VIII, section 1-d-1 of the Texas Constitution nor section 23.55 of the Tax Code expressly provide for imposition of the rollback tax on state-owned land. See Tex. Const. art. VIII, § 1-d-1; Tax Code § 23.55. It is also true that neither expressly exempts governmentally owned land. We do not believe, however, that the failure to specifically exempt such property is significant, or can reasonably be read to imply an intent to tax state-owned property exempted by section 11.11(a). First, we think it unlikely that the state, if it chose to tax itself, would do so by other than express enactment. See Owens, 217 S.W.2d at 189 (need statutory authority to fix tax lien against state property); Attorney General Opinion O-1861 (1940) at 5 (state has never held itself subject to taxation except by special enactment). Secondly, a specific exemption for state-owned property is unnecessary. A statute is presumed to have been enacted by the legislature with complete knowledge of and with reference to the existing law. Acker v. Texas Water Comm'n, 790 S.W.2d 299, 301 (Tex. 1990); McBride v. Clayton, 140 Tex. 71, 166 S.W.2d 125, 128 (Tex. 1942). Furthermore, statutory repeal by implication is not favored by the law. Acker, 790 S.W.2d at 301; Gordon v. Lake, 356 S.W.2d 138, 139 (Tex. 1962); see also Eppenauer v. Eppenauer, 831 S.W.2d 30, 34 (Tex. App.-El Paso 1992, no writ) (repeal by implication will not be declared unless there is no room for doubt and repeal not favored by law). Thus, a statute covering the same subject dealt with by the preexisting law but not repealing that law is required to be harmonized with the older law in such a way as to give effect to both statutes. Acker, 790 S.W.2d at 301; Standard v. Sadler, 383 S.W.2d 391, 395 (Tex. 1964); Conley v. Daughters of the Republic, 156 S.W. 197, 201 (Tex. 1913). Section 23.55 can be easily harmonized with section 11.11(a) of the Tax Code by exempting state-owned property used for public purposes from the operation of the rollback tax provisions. Such coordination preserves both the purpose of section 23.55 to recapture property taxes and penalize taking land out of agricultural use, and the objective of section 11.11(a) to exempt publicly owned property used for public purposes. See Acker, 790 S.W.2d at 301; Gov't Code § 311.021(3) (in enacting statute, it is presumed that just and reasonable result is intended). We, therefore, conclude that state-owned land exempt under section 11.11(a) of the Tax Code is not subject to the rollback tax provisions of section 23.55 of the Tax Code.

No Texas court appears to have directly addressed the application of the rollback tax provisions to acquisition and change of use of agricultural land by the state or one of its political subdivisions. The State Property Tax Board (the "board"), the agency charged with enforcing the agricultural use provisions has, however, adopted the position that governmental acquisition and subsequent change of use of agricultural land triggers the rollback provisions of section 23.55 of the Tax Code. Pursuant to the authority granted under section 23.52(d) of the Tax Code, the board promulgated rules with respect to appraisal of agricultural land under article VIII, section 1-d-1. These rules are contained in the Manual For The Appraisal of Agricultural Land (the "manual"), published in 1990. With respect to the application of the rollback tax provision, the manual states the following:

Exemptions that apply to ordinary property taxes do not apply to rollback taxes. Even if the land might be exempt from ordinary taxes in the new owner's hands, the rollback tax still becomes due if that owner takes property out of agricultural use. In most cases, the owner will be personally liable for the rollback tax, and the tax lien can be enforced against the property. Where the state or a political subdivision buys the land and changes the use, the rollback tax will be triggered but the lien cannot be foreclosed. The tax can't be collected unless the governmental entity chooses to pay it. However, the lien against the land continues and could be enforced against a later buyer.

AG Manual, supra note 2, at 35 (Does the Rollback Tax Apply to Land Bought and Changed by an Exempt Organization or Government Entity?) (emphasis added).

Construction of the agricultural use statutes by the board is entitled to serious consideration, but only as long as such construction is reasonable and does not contradict the plain language of the statute. See, e.g., Tarrant County Appraisal Dist. v. Moore, 845 S.W.2d 820, 823 (Tex. 1993); Stanford v. Butler, 181 S.W.2d 269, 273 (Tex. 1944). A construction that imposes additional burdens, conditions, or restrictions in excess of or inconsistent with the statutory provisions will not be upheld. See Riess v. Williamson County Appraisal Dist., 735 S.W.2d 633, 637-38 (Tex. App.-Austin 1987, writ denied) (board rule requiring "intensity of use" as part of historical agricultural use inconsistent with Tax Code § 23.51). Based on our discussion of section 23.55 above, we believe the board's construction is neither reasonable nor consistent with the statute. The board's construction imposes the burden of taxation on the state and its political subdivisions when no such imposition is required by either the express language of, or clear implication in, the statute. See Riess, 735 S.W.2d at 637-38; Moore, 845 S.W.2d at 823. There appears to be nothing in the legislative history of article VIII, section 1-d-1 of the Texas Constitution, or of section 23.55 of the Tax Code, indicating that the rollback tax was intended to apply to governmentally owned land that was otherwise exempt from property taxes. The board's construction necessarily repeals by implication section 11.11(a) of the Tax Code without attempting to reconcile section 23.55 with the older provision even when there is no manifest inconsistency between the two provisions. See Acker, 790 S.W.2d at 301; Eppenauer, 831 S.W.2d at 34 (presume that legislature desired just and reasonable result and contemplated effect of statutes which are, on their face, conflicting, and both will be given effect unless manifestly inconsistent). Moreover, the board's construction is internally contradictory in that it posits that the governmentally owned land is subject to the tax because the section 11.11(a) or similar exemption does not apply, but the tax cannot be enforced or collected from the governmental entity, presumably because of the exemption provided in section 11.11(a) or another provision. The result of such construction, that the rollback tax is intended to be imposed on land owned by, but never collected from, governmental entities, is neither reasonable nor feasible of execution. See Gov't Code § 311.021(3) (in enacting statute, presume just and reasonable result intended), (4) (presume result feasible of execution intended), § 311.023(5) (in construing statute, court may consider consequence of particular construction). We, therefore, decline to adopt the board's construction of section 23.55, with respect to the application of the rollback tax provision to state-owned property.

Unrelated to the rollback tax provision, you also ask whether "government ownership suspend[s] the 'five out of seven years' agricultural use requirement for qualification for the special agricultural valuation" and "may the appraisal district consider only the last seven years of use in private ownership when determining whether a parcel is qualified for the special valuation."

Article VIII, section 1-d-1 of the constitution authorizes the legislature to provide by general law for taxation of "open-space land devoted to farm, ranch, or wildlife management purposes on the basis of its productive capacity" and "eligibility limitations." Section 23.51(1) defines "qualified open-space land" as

land that is currently devoted principally to agricultural use to the degree of intensity generally accepted in the area and that has been devoted principally to agricultural use or to production of timber or forest products for five of the preceding seven years or land that is used principally as an ecological laboratory by a public or private college or university.

Tax Code § 23.51(1) (emphasis added). Section 23.51(2) additionally defines at length the activities that may constitute "agricultural use."

We assume your questions arise in anticipation of sale of the state-owned land to persons who may want the land to qualify for agricultural designation. You do not provide any particular factual context for your questions nor any support for the suggestion that intervening governmental ownership may be disregarded. Your questions assume that in all cases the intervening state ownership resulted in nonagricultural use of the land for the total period of the ownership, which may not necessarily be the case. Also relevant to analysis of the matter may be the period the use was changed during the time the land was governmentally owned. In the absence of a specific factual context, and development or briefing of the issues, we decline to address this matter.

SUMMARY

State-owned land used for public purposes is not subject to the rollback tax under section 23.55 of the Tax Code.

DAN MORALES
Attorney General of Texas

JORGE VEGA
First Assistant Attorney General

SARAH J. SHIRLEY
Chair, Opinion Committee

Prepared by Sheela Rai
Assistant Attorney General

Footnotes

[The scanned source carries explanatory footnotes. Among them: note 1 cites Government Code § 2301.001(7) defining a "super collider facility"; note 4 contrasts article VIII, section 1-d (self-enacting; rollback triggered by diversion or sale; three-year recapture under Tex. Const. art. VIII, § 1-d(f) and Tax Code § 23.46(c)) with section 1-d-1 (requiring implementing legislation; rollback triggered only by change of use; five-year recapture under Tax Code § 23.55(a)), and notes that 95 percent or more of eligible Texas land qualifies under section 1-d-1; note 15 cites Senate Bill 728, Act of May 14, 1997, 75th Leg., R.S. (eff. Sept. 1, 1997), amending Tax Code § 23.55(a) to bar the chief appraiser from considering any period of state ownership in determining whether a change of use occurred; note 16 explains that in Resolution Trust Corp. the court held the rollback tax is a penalty barred against the Resolution Trust Corporation, a United States instrumentality, by sovereign immunity (926 S.W.2d at 798, 805, construing 12 U.S.C. § 1441a(g)); note 17 notes the State Property Tax Board was abolished in 1991 and its functions transferred to the Comptroller of Public Accounts; and note 20 discusses Attorney General Opinion JM-1085 (1989) and the Veterans' Land Board, citing State v. City of San Antonio, 209 S.W.2d 756, 757 (Tex. 1948), Childress County v. State, 92 S.W.2d 1011, 1016 (Tex. 1936), Maverick County Water Control & Improvement Dist. No. 1 v. State, 456 S.W.2d 204 (Tex. Civ. App.-San Antonio 1970, writ ref'd), State v. Bean-Medina-Atascosa Counties Water Improvement Dist., 310 S.W.2d 641, 643 (Tex. Civ. App.-San Antonio 1958, writ ref'd), and Owens, 217 S.W.2d at 188. Other footnotes cite Letter Opinion No. 95-054 (1995), Attorney General Opinion JM-949 (1988), the State Property Tax Board appraisal manual, and 34 T.A.C. § 9.4001.]