Does claiming a property tax exemption trigger the agricultural rollback tax on Texas open-space land?

Plain-English summary

A Boy Scouts council owned an 8,059-acre tract that was appraised as agricultural open-space land, so it was taxed on its productive capacity instead of its market value. The council leased the land to area ranchers for grazing and hunting. When the council later won a separate youth-development-association tax exemption under Tax Code section 11.19 on the same tract, the appraisal district treated that as a "change of use" and imposed the agricultural "rollback" tax under section 23.55, which recaptures up to five years of the tax savings that the open-space valuation had provided. The chair of the Texas House Appropriations Committee asked the Attorney General whether merely qualifying for the section 11.19 exemption, by itself, triggers the rollback tax when the land keeps being used for farming and ranching.

The Attorney General answered no. Under section 23.55, the rollback tax is triggered only when land changes from agricultural use to a nonagricultural use, in other words when the owner physically stops using the land for agriculture. The opinion relied on the statute's administrative construction in the Comptroller's appraisal manual, which states that a change of use is a physical change and that land staying in agricultural use is not subject to rollback even if it loses its special valuation. Because the council's land continued to be used for farm and ranch purposes, there was no change of use.

The opinion acknowledged it is conceptually awkward for the same tract to be both "principally" agricultural (for open-space appraisal) and "exclusively" used by the council (for the section 11.19 exemption). But it concluded that this tension does not, as a matter of law, turn continued agricultural use into a change of use. The opinion expressly did not decide whether the land actually qualified for open-space appraisal or for the section 11.19 exemption.

Currency note

This opinion was issued in 2000. Subsequent statutory amendments, court decisions, or later Attorney General 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 for those who asked

County appraisal districts (what the opinion held for them): The opinion held that granting a section 11.19 youth-development exemption is not, standing alone, a section 23.55 change of use. An appraisal district could not impose the rollback tax solely because the land also qualified for the exemption when the land was still being used for agriculture.

Landowners with open-space land (what the opinion held for them): The opinion held that keeping land in actual agricultural use is what avoids the rollback tax. Losing the special open-space valuation, or picking up a separate exemption, did not by itself trigger rollback as long as the farming or ranching continued.

Legislators and tax-policy staff (what the opinion held for them): The opinion identified the trigger for the rollback tax as a physical cessation of agricultural use, consistent with the Comptroller's appraisal manual and with prior opinion JM-667, rather than a change in the land's tax classification.

Common questions

What is the agricultural rollback tax in Texas?
At the time of this opinion, section 23.55 imposed an additional tax when qualified open-space (agricultural) land changed use. It recaptured the difference between the taxes actually paid under the special low valuation and what would have been owed at market value over the prior five years, as a penalty for taking land out of agricultural production.

Did getting a different tax exemption trigger the rollback tax here?
No. The opinion concluded that qualifying for the section 11.19 youth-development-association exemption did not by itself amount to a change of use, so it did not trigger the section 23.55 rollback tax while the land stayed in agricultural use.

What actually triggers the rollback tax?
According to the opinion, a physical change: the owner stops using the land for agricultural purposes. Losing eligibility for the special valuation, on its own, does not trigger rollback if the land remains in agricultural use.

Did the Attorney General decide whether the land qualified for the exemption?
No. The opinion expressly stated it did not decide whether the land qualified for open-space appraisal under chapter 23 or for the complete section 11.19 exemption. It answered only the narrow change-of-use question.

Background and statutory framework

Generally, taxable property is appraised at market value under article VIII, section 1 of the Texas Constitution and section 23.01 of the Tax Code. Article VIII, section 1-d-1 and subchapter D of chapter 23 (sections 23.51 through 23.57) allow qualifying agricultural land to be appraised on its productive capacity instead, which lowers the tax. To be "qualified open-space land," the land must be currently devoted principally to agricultural use to the degree of intensity generally accepted in the area, and must have been so used for five of the preceding seven years (section 23.51(a)).

Section 23.55(a) imposes the additional "rollback" tax when the use of qualified open-space land changes. The opinion read "change of use" to mean a shift from agricultural to nonagricultural use, citing Resolution Trust Corp. v. Tarrant County Appraisal Dist. and the prior opinion JM-667 (no rollback when land fails to qualify for special valuation but stays in agricultural use). It gave weight to the Comptroller's appraisal manual, adopted under section 23.52(d), which describes a change of use as a physical change requiring the owner to stop using the land for agriculture, consistent with the deference principle in Tarrant Appraisal Dist. v. Moore.

Section 11.19 exempts the tangible property of a qualified youth development association when the property is owned by the association, used exclusively by qualified youth development associations (subsection (b) allows incidental use by others), and reasonably necessary to the association's operation. The opinion cited Texas Conference Ass'n of Seventh-Day Adventists v. Leander Indep. Sch. Dist. for the requirement of a nexus between the property's use and the activity that qualifies the institution for exemption. It noted the conceptual difficulty of land being both principally agricultural and exclusively used by the association, but held that difficulty does not convert continued agricultural use into a change of use.

Citations

Constitutional and statutory provisions:

• Tex. Const. art. VIII, §§ 1, 1-d-1
• Tex. Tax Code Ann. §§ 23.01, 23.51-.57, 23.51(a), 23.51(2), 23.52(d), 23.55(a) (Vernon Supp. 2000)
• Tex. Tax Code Ann. § 11.19(a)(1), (b), (d) (Vernon Supp. 2000)

Cases and prior opinions:

• Tarrant Appraisal Dist. v. Moore, 845 S.W.2d 820 (Tex. 1993)
• Resolution Trust Corp. v. Tarrant County Appraisal Dist., 926 S.W.2d 797 (Tex. App.—Fort Worth 1996, no writ)
• Texas Conference Ass'n of Seventh-Day Adventists v. Leander Indep. Sch. Dist., 669 S.W.2d 353 (Tex. App.—Austin 1984), aff'd in part, rev'd in part on other grounds, 679 S.W.2d 487 (Tex. 1984)
• Tex. Att'y Gen. Op. No. JM-667 (1987)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/john-cornyn/jc-0299
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2000/jc0299.pdf

Original opinion text

Best-effort transcription from the official scanned PDF. Minor character-level errors from the source OCR have been corrected; the linked PDF is authoritative.

OFFICE OF THE ATTORNEY GENERAL - STATE OF TEXAS

JOHN CORNYN

October 24, 2000

The Honorable Robert Junell
Chair, Committee on Appropriations
Texas House of Representatives
P.O. Box 2910
Austin, Texas 78768-2910

Opinion No. JC-0299

Re: Whether the qualification and granting of a youth-development-association-use tax exemption under section 11.19 of the Tax Code constitute a "change of use" for purposes of section 23.55 of the Tax Code such that the agricultural "rollback" tax is triggered (RQ-0245-JC)

Dear Representative Junell:

This request relates to a particular youth development association's land that qualifies and is appraised as open-space land used for agricultural purposes pursuant to article VIII, section 1-d-1 of the Texas Constitution and subchapter D of chapter 23 of the Tax Code; and, therefore, it is taxed on its productive capacity rather than its market value. Under section 23.55 of the Tax Code, agricultural open-space land is subject to an additional or "rollback" tax when its use is changed. You ask whether qualification of the association's open-space land for a youth-development-association-use tax exemption under section 11.19 of the Tax Code by itself constitutes a change of use for the purposes of the section 23.55 rollback tax when the land continues to be used for agricultural purposes. Because a change of use triggering the rollback tax under section 23.55 occurs only when the land is no longer used for agricultural purposes, we conclude in the negative.

We understand the facts giving rise to your request to be as follows: The Concho Valley Council, Inc. ("Council"), Boy Scouts of America, is a youth development association under section 11.19(d) of the Tax Code. The Council owns an 8,059-acre tract devised to it "to provide a permanent camp and income for [the Council] and such income will be used for the improvement, maintenance and operation of [a separate 300-acre tract on which the Council's permanent camp ground is located]."[1] The Council leases the surface of the 8,059-acre tract to area ranchers for livestock grazing and hunting purposes. Until 1998, the Menard County Appraisal District appraised the tract as open-space land based on its principal use for farm and ranch purposes. In 1998, the Council unsuccessfully sought a complete exemption from taxation of the tract under section 11.19 of the Tax Code, believing that the surface lease for agricultural purposes was incidental to the tract's use for youth development purposes. In 1999, the Council filed applications for both open-space land appraisal (based on principal use of the land for agricultural purposes) and tax exemption under section 11.19 (based on principal use of the land for youth development purposes). The appraisal district denied the section 11.19 exemption, but granted the open-space land valuation appraisal application. On appeal, however, the Menard County Appraisal Review Board granted the section 11.19 tax exemption. Because the land qualified for the section 11.19 tax exemption, the appraisal district determined that a change in use of the land had occurred triggering the rollback tax. The Council appealed the rollback tax determination to the appraisal review board, but ultimately settled its dispute with the appraisal district: the Council withdrew its claim for a section 11.19 tax exemption; the appraisal district agreed to again appraise the land as open-space land; and the appraisal district rescinded the rollback tax. The Council, however, may seek the section 11.19 tax exemption again in the future. See Request Letter, supra note 1, at 1-3; Appraisal District Brief, note 2, at 1-2.[2] You specifically ask:

Would the eligibility of the ranch for exemption from taxation under Section 11.19, Property Tax Code, and the granting of such exemption by the Menard County Appraisal District, in and of itself, constitute a change of use under Section 23.55, Property Tax Code, such that the "rollback" tax is triggered, even though the ranch continues to be used for farm and ranch purposes?

Request Letter, supra note 1, at 1 (italics in original).

We begin by briefly reviewing the open-space land tax statutory scheme. Generally, all taxable property is appraised at its market value. See TEX. CONST. art. VIII, § 1; TEX. TAX CODE ANN. § 23.01 (Vernon Supp. 2000). Article VIII, section 1-d-1 of the Texas Constitution and subchapter D of chapter 23 of the Tax Code allow for appraisal of qualifying agricultural land for property tax purposes on the basis of its productive capacity rather than its market value. See TEX. CONST. art. VIII, § 1-d-1 (Vernon 1992 & Supp. 2000); TEX. TAX CODE ANN. §§ 23.51-.57 (Vernon Supp. 2000). The special valuation reduces the property taxes on qualifying land.[3] To constitute "qualified open-space land," the land must be "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 "for five of the preceding seven years." TEX. TAX CODE ANN. § 23.51(a) (Vernon Supp. 2000) (footnote added). If the land is used for several purposes, the primary or most important use must be agricultural. Id.; Tarrant Appraisal Dist. v. Moore, 845 S.W.2d 820, 823 (Tex. 1993); MANUAL, supra note 3, at 8.

When the use of qualified open-space land is changed, section 23.55 of the Tax Code imposes an additional tax in an amount equal to the difference between the taxes paid during the past five years and the taxes that would have been due during that period had the land been appraised at its market value. See TEX. TAX CODE ANN. § 23.55(a) (Vernon Supp. 2000). The additional tax is a penalty for taking the land out of agricultural production and is referred to as a "rollback tax" because it recaptures the taxes the owner would have paid had the property been taxed at its market value. Resolution Trust Corp. v. Tarrant County Appraisal Dist., 926 S.W.2d 797, 804-05 (Tex. App.—Fort Worth 1996, no writ); MANUAL, supra note 3, at 31. Change of use triggering the rollback tax occurs when the use of the land changes from an agricultural use to a nonagricultural use; cessation of agricultural use, thus, constitutes change of use for rollback tax purposes. Resolution Trust Corp., 926 S.W.2d at 800. No change of use occurs if the land continues to be used for agricultural purposes even though the land may no longer qualify for open-space land appraisal. See Tex. Att'y Gen. Op. No. JM-667 (1987) (concluding that no rollback tax may be imposed when land fails to qualify for special valuation but is still in agricultural use).

This interpretation of change of use in section 23.55(a) comports with its administrative construction. See Tarrant Appraisal Dist., 845 S.W.2d at 823 (stating that construction of statute by administrative agency charged with its enforcement is entitled to serious consideration if it is reasonable and does not contradict plain language). Pursuant to the authority granted in section 23.52(d) of the Tax Code, the Texas Comptroller of Public Accounts has promulgated rules regarding appraisal of open-space land that are contained in its MANUAL. The rules provide that "[a] change of use is a physical change. The owner must stop using the land for agricultural purposes." MANUAL, supra note 3, at 31. The rules further provide that if the land continues to be used for agricultural purposes, it is not subject to the rollback tax:

If the owner continues to use the land for agriculture but does not maintain the degree of intensity typical for the area, the land may lose its eligibility for 1-d-1 appraisal without suffering a rollback. Reduced intensity that results from the owner's free choice will cause a loss of agricultural appraisal. [ ]. If the land remains in agricultural use, however, neither kind of reduction [by choice or necessity] will trigger a rollback.

Id. at 31-32.

Based on the foregoing judicial and administrative construction of section 23.55(a), unless the Council's land is no longer used for agricultural purposes, i.e., taken out of agricultural production, there is no change of use triggering the rollback tax. You advise us that the Council's land continues to be used for farm and ranch purposes. Request Letter, supra note 1, at 1, 3.

We consider whether qualifying for a youth-development-association-use tax exemption under section 11.19 of the Tax Code, nonetheless, entails a change of use of the land as a matter of law. While land qualifying for open-space appraisal and the section 11.19 tax exemption is conceptually problematic, we conclude that the section 11.19 tax exemption qualification does not effect a section 23.55 change of use.

Under section 11.19(a) of the Tax Code, an association that qualifies as a youth development association is entitled to exemption from taxation of:

(1) the tangible property that:

(A) is owned by the association;

(B) except as permitted by Subsection (b), is used exclusively by qualified youth development associations; and

(C) is reasonably necessary for the operation of the association.

TEX. TAX CODE ANN. § 11.19(a)(1) (Vernon Supp. 2000). Subsection (b) provides that "[u]se of exempt tangible property by persons who are not youth development associations does not result in the loss of an exemption if the use is incidental to use by qualified associations and benefits the individuals the associations serve." Id. § 11.19(b).

To qualify for a section 11.19 tax exemption, the land must be used exclusively by the Council and must be reasonably necessary for its youth development operation. See Texas Conference Ass'n of Seventh-Day Adventists v. Leander Indep. Sch. Dist., 669 S.W.2d 353 (Tex. App.—Austin 1984), aff'd in part, rev'd in part on other grounds, 679 S.W.2d 487 (Tex. 1984) (noting that statute necessarily implies that there must be a nexus between use of property and activity that qualifies institution for exemption). Incidental use by others, i.e., the area-rancher lessees, that benefits the boy scouts served by the Council is permitted. You ask us to assume "that (i) the lessee[s'] use of the Boy Scout Ranch is for farm and ranch purposes[,] and (ii) the lessee[s'] use is incidental to BSA's use of the Boy Scout Ranch such that the Boy Scout Ranch qualifies for exemption under §[] 11.19, Property Tax Code[.]" Request Letter, supra note 1, at 4. Neither of these assumptions is necessary to the legal question you pose: whether qualification of the association's open-space land for a youth-development-association-use tax exemption under section 11.19 of the Tax Code by itself constitutes a change of use for the purposes of the section 23.55 rollback tax when the land continues to be used for agricultural purposes. In order to answer this question, we need not and do not decide whether the land qualifies for open-space land appraisal under chapter 23 of the Tax Code or complete tax exemption under section 11.19 of the Tax Code.

It is difficult to conceptually reconcile that land used principally for the lessees' agricultural purposes (meaning other uses are incidental) can simultaneously be exclusively used by the Council (meaning the lessees' agricultural use is incidental) for youth development purposes. Cf. Tarrant Appraisal Dist., 845 S.W.2d at 823 (stating that land used for recreational purposes may still receive open-space designation so long as land is principally used for farm or ranch purposes); MANUAL, supra note 3, at 8 (if land is used for more than one purpose, most important or primary use must be agricultural); see also Appraisal District Brief, supra note 2, at 2 ("It is logically impossible for land to be used principally for a lessee's agricultural operations and, at the same time, to be used exclusively by [a] youth-development association[] for [its] youth development activities with agriculture use being merely incidental . . . ."). However, this conceptual difficulty does not change or negate the fact that when the land continues to be used for agricultural purposes, it has not been taken out of agricultural production. Qualification of land under section 11.19 does not effect, as a matter of law, a change in agricultural use when in fact there is no such change. Accordingly, the section 11.19 tax exemption does not as a matter of law constitute a change of use for the purposes of the section 23.55 rollback tax.

SUMMARY

Qualification of agricultural open-space land for a youth-development-association-use tax exemption under section 11.19 of the Tax Code does not itself constitute a change of use for purposes of the rollback tax under section 23.55 of the Tax Code, when the land continues to be used for agricultural purposes.

Very truly yours,

JOHN CORNYN
Attorney General of Texas

ANDY TAYLOR
First Assistant Attorney General

CLARK KENT ERVIN
Deputy Attorney General - General Counsel

SUSAN D. GUSKY
Chair, Opinion Committee

Sheela Rai
Assistant Attorney General - Opinion Committee

[1] Letter from Honorable Robert Junell, Chair, Committee on Appropriations, Texas House of Representatives, to Honorable John Cornyn, Texas Attorney General at 2 (June 8, 2000) (on file with Opinion Committee) [hereinafter Request Letter].

[2] Brief from Roy L. Armstrong, McCreary, Veselka, Bragg & Allen, P.C., to Honorable John Cornyn, Texas Attorney General (July 20, 2000) (on file with Opinion Committee) [hereinafter Appraisal District Brief].

[3] See State Property Tax Board, Manual for the Appraisal of Agricultural Land at 1 (1990) [hereinafter MANUAL].