Case Title: PFIZER v MADISON COUNTY

Citation: 

Docket Number: 

State: montana

Court: Montana Supreme Court

Date: 1973-01-19T00:00:00Z

Document:
No. 12289 I N THE S U P R E M E C O U R T O F THE STATE O F M O N T A N A 1972 PFIZER, INC., successor t o CHAS. PFIZER and CO., INC., a corporation, P l a i n t i f f and Respondent, M A D I S O N C O U N T Y , a p o l i t i c a l subdivision of the STATE O F MONTANA, et a l . , Defendants and Appellants. Appeal from: D i s t r i c t Court of t h e F i f t h Judicial D i s t r i c t , Honorable Frank E. B l a i r , Judge presiding. Counsel of Record : For Appellants : Edward Jene Bell argued, Helena, Montana. Chester L. Jones, County Attorney, Virginia City, Montana. For Respondent: Gough, Booth, Shanahan and Johnson, Helena, Montana. Ward Shanahan argued, Helena, Montana. Submitted: December 4, 1972 Decided: JA/{ ; ; ; ; J F i l e d : abi; . ; - T - ? d M r . Justice Wesley Castles delivered the Opinion of the Court, This appeal is from the d i s t r i c t court of the f i f t h judicial d i s t r i c t , county of Madison. The court, s i t t i n g without a jury, found p l a i n t i f f had paid excess taxes and ordered defendant State Board of Equalization t o refund such excess taxes. From that judgment, defendant appeals. The t r i a l court made rather exhaustive findings of fact and conclusions of law. The findings of f a c t , a s such, a r e not chal- lenged individually; but rather, the issues, a s w i l l hereinafter appear, encompass the conclusions of law as t o the meaning of the metal mines a c t as it applies t o the mining of talc. Plaintiff i s Pfizer, Inc., hereinafter called Pfizer, successor t o Chas. Pfizer and Co., a corporation, which owns and operates the Treasure State Mine i n Madison County, from which it mines raw t a l c ore. Pfizer also owns and operates the t a l c milling and reduction works some t h i r t y miles away near Barretts i n Beaverhead County. Pfizer hauls the ore mined a t the Treasure State Mine, i n trucks, t o a stockpile a t the Barretts plant. The raw t a l c i s then put through a beneficiation stage of processing, which is a process of washing, screening, sorting and crushing the raw t a l c by means of hand labor and centrifugal machines. The beneficiated t a l c i s placed i n a p i l e a t the Barretts plant i n pieces of ore ranging up t o 8 inches. The t a l c , i n t h i s s t a t e , i s called beneficiated talc. There i s a market for t a l c i n that stage a t a price of $22 per ton, and Pfizer s e l l s approximately 2% of i t s t a l c i n that stage, The re- maining 98% of the beneficiated t a l c i s further milled i n Pfizer's r o l l e r m i l l , hammer m i l l , j e t m i l l and calcining operation a t Barretts. This process reduces the pieces of beneficiated t a l c t o various fine sizes. Pfizer then s e l l s the t a l c under various trade names and packaging t o i t s customers who use the t a l c i n manufacturing paint, ceramics, cosmetics, plastics, insecticides, glass, paper, and other products. The State Board of Equalization, hereinafter called the Board, determined that Pfizer's net proceeds of mines tax should be based upon the value of the t a l c from sales on the open market. Pfizer contends that i t s milling and reducing operation a t Barretts i s a If manufacturingf' process a s distinguished from a "mining" process and that i t s net proceeds tax should be based upon the value of the t a l c a t the beneficiation stage, and not a t the value which the t a l c has a f t e r i t i s further milled and reduced. Pfizer's predecessor i n interest, Tri-State Minerals Company, operated a beneficiation plant a t Barretts. But, Tri-State sold and shipped a l l of its beneficiated t a l c t o Utah, where the product was further milled and reduced, The Board determined that Tri-State's net proceeds tax was based on the value of the beneficiated t a l c , which i s the same standard which Pfizer wants t o be used, Pfizer exhausted i t s administrative remedies and each year brought actions claiming refunds for the tax years 1968, 1969 and 1970, which actions were consolidated for t r i a l purposes. From the judgment for Phizer ordering refunds for back taxes, the Board appeals. The Board raises three issues for review, The principal issue concerns whether T i t l e 84, Chapter 54, R,C.M. 1947, imposes the net proceeds of mines tax on the profit earned by Pfizer through a l l stages of i t s mining, including i t s milling and reduction operation. The Board contends that Pfizer's milling and reduction operation i s nothing more than an integrated mining operation, which begins with the digging of large .chunks of raw t a l c ore and ends a f t e r the milling stage with finely ground particles of raw t a l c ore. I t It maintains t h i s operation by Pfizer i s not a manufacturing" process and T i t l e 84, Chapter 54, R,C,M. 1947, requires the deter- mination of Pfizer's net proceeds of mines tax on the basis of the value of i t s rap7 t a l c ore product, which it sells subsequent t o the milling operation. The Board bases i t s argument on Section 3 , Article X I T , Montana Constitution, which provides: " A l l mines and mining claims, both placer and rock in place, containing or bearing gold, silver, copper, lead, coal or other valuable mineral deposits, a f t e r purchase thereof from the United States, shall be taxed a t the price paid the United States therefor yc * * and a l l machinery used i n mining, and a l l property and surface improvements upon or appurtenant t o mines and mining claims which have a value separate and in- dependent of such mines or mining claims, and the annual net proceeds of a l l mines and mining claims shall be taxed as provided by law. I I The legislature i n compliance with t h i s provision of the Con- s t i t u t i o n enacted section 84-5401, R.C.M. 1947, which provides i n pertinent part : " A l l mines and mining claims, both placer and rock in place, containing or bearing gold, s i l v e r , copper, lead, coal or other valuable mineral deposits, a f t e r purchase thereof from the United States, shall be taxed a t the price paid the United States therefor +c * * and a l l machinery used i n mining, and a l l property and surface improvements upon or appurtenant t o mines and mining claims, which have a value separate and independent sf such mines or mining claims, and the annual net proceeds of a l l mines and mining claims, shall be taxed a s other personal property, I I Subsequent sections i n Chapter 54, T i t l e 84 spell out the net proceeds tax i n more detail. Based on t h i s Constitutional and statutory authority, the Board levied the tax on the mining pro- ducts of Pfizer. In i t s argument the Board c i t e s Northern Pacific Ry. Co. v, Musselshell County, 54 Mont. 96, 169 P. 53. That decision inter- prets Section 3, Article X I I , of the Montana Constitution, and explains that there i s a necessity for taxing mining property differently than ordinary r e a l property, and that mining property must be looked on a s both r e a l and personal property. It i s r e a l property i n regard t o the surface value, but is regarded as personal property as t o the minerals. The Board argues that i f t h i s net proceeds tax does not extend to the value of the product a f t e r it i s milled and reduced t o fine t a l c , the intent of the Constitution and the legislature would be thwarted, The Board contends it was the intent of the legislature that the net proceeds tax extend a l l the way through the mining process t o the point where the product i s marketed, sold and converted into money. Further, that both stages i n Pfizer's process, the beneficiation stage and the milling stage must be considered i n determining the net proceeds tax. The d i s t r i c t court heard the Board's argument, examined a l l the evidence introduced by the Board, and did not agree with i t s position. This Court has also carefully read the record, examined the evidence, and reaches the same conclusion a s the d i s t r i c t court---the Board has imposed the tax beyond its scope of authority. The Board admits Pfizer's predecessor i n interest, Tri-State Minerals Company, operated a beneficiation plant. Yet, Tri-State was charged a net proceeds tax only on the value of the beneficiated talc. Pfizer moved i t s reduction and milling plant t o Montana from Utah and the Board changed i t s position, so that the net proceeds of the mining operation extends a l l the way through the manufacturing process, The Board determined that because Pfizer integrated a l l of i t s f a c i l i t i e s , they a l l became part of the mining operation, and the net proceeds of mining tax was the gross value of a l l of the products which Pfizer i s producing i n Montana, The Board c i t e s Foreman v. Beaverhead County, 117 Mont. 557, 161 P.2d 524, i n support of its position. W e find Foreman does . not support the Board's position and, i f anything, would support Pfizer's position. There, t h i s Court found that a tailings dump long a f t e r the mine ceased operation was not part of the net pro- ceeds of a mine and therefore could not be taxed as such. W e find a somewhat similar situation here, the t a l c a f t e r it has gone beyond the beneficiation stage, is no longer subject t o the net proceeds of a mine tax. The tax i n question should be applied for the purpose already declared by t h i s Court, In Byrne v, Fulton O i l Co., 85 Mont. 329, 334, 278 P. 514, t h i s Court said: "The framers of the Constitution. on account of the d i f f i c u l t y i n arriving a t a f a i r value of mining property, adopted a s a substitute the method pro- vided for by section 3, Article XII, supra, for taxing the 'annual net proceeds.' The net proceeds tax i s simply a tax i n l i e u of, o r a substitute for, the ad valorem tax on the value of mines or mining in- terests. [Citing cases] "It i s well settled i n t h i s s t a t e that the mineral contents of a mine may not be taxed i n s i t u , but taxation must be on the annual net proceeds." The Constitutional and legislative intent was t o create a tax i n l i e u of an "ad valorem'' property tax. This is complicated be- cause of the different types of mining and mineral substances en- countered i n Montana. But, the scape of the tax is the net proceeds of the mine. Here, the net proceeds of the mining process is the benef iciated t a l c , The t a l c i s taken from the earth; it is washed so that dolomite and other rocks are separated from it; and it i s marketable i n i t s crude washed form. That i s the end of the mining operation and that i s what Pfizer w i l l pay i t s net proceeds tax on. Pfizer is making many special products, a l l t a l c but i n specified form, for many customers by use of specialized machinery, These products a r e used for face powder, paint, r i c e polishing, pitch control i n paper making, and ceramics. These special pro- ducts a r e not t o be included i n the net proceeds of mines tax, for i f they were there would be no way of cutting off t h i s tax. The copper w i r e sold i n a local store would be charged a s the net proceeds of mine tax to the company which originally mined the ore. That i s not done, and that was not the intent of the constitutional provision, The intent was t o tax the proceeds of the mine. When such proceeds are milled or manufactured into other products, that tax does not apply. A good example would be sapphires, a gem stone found i n Montana. It i s the value of the uncut sapphire that is taxed, not the value of the cut and polished stone subsequently sold by a jeweler. W e find the net proceeds tax of T i t l e 84, Chapter 54, R,C.M, 1947, does not apply t o the t a l c once it has passed the beneficia- tion stage. The ~ o a r d ' s second issue i s that Pfizer may not deduct monies expended f o r operations subsequent t o the beneficiation stage, i f the profits from such operations are not included i n the value of i t s net proceeds. There does not appear t o be any r e a l issue here between the parties. Pfizer has f i l e d two returns over each of the l a s t few years, one computed on the theory that beneficiated t a l c was the end of the mining process; the other computed on the theory that the e n t i r e process was under the net proceeds tax a s required by the Board. N o w that w e have found that the tax only applies t o the beneficiation stage, Pfizer of course w i l l not, and can not, de- duct expenses of i t s f i n a l milling stage against i t s net proceeds tax. Where the net proceeds tax ends, there also ends the deductions for such tax. Only deductions for the mining operation w i l l be allowed up through the beneficiation stage, A l l other expenses w i l l be incurred a s t o the manufacturing process. A t t h i s point, the Board contends that Pfizer i s , i n effect, 11 getting deductions for manufacturing" costs i n paying the tarr on the basis of "wash and sort" or beneficiation stage. The record does not contain a challenge t o the figures presented by Pfizer and no evidence was offered by the Board which would show any deductions claimed t o have been improper. If indeed there were deductions claimed that were improper, the Board had and has every opportunity t o catch them i n auditing and checking the returns. The f i n a l issue i s that the deposition of Vernon B. Miller and the cost of a transcript of proceedings before the State Board of Equalization, should not be charged t o the Board. The f i r s t part of the issue concerns the deposition of Vernon B. Miller, secretary of the Board. This deposition was taken by Pfizer, but it was admitted into evidence by stipulation of both counsel. N o w the Board, a f t e r having agreed t o admit the deposition, does not want t o be charged with the cost of it, W e find the d i s t r i c t court did not e r r when it ordered the Board t o pay for the deposi- tion, Authority for such order is section 93-8618, R.C.M. 1947, which provides: "A party t o whom costs a r e awarded i n an action is e n t i t l e d t o include i n h i s b i l l of costs h i s necessary disbursements, a s follows: * * * the expenses of taking depositions * * *," The deposition clearly f a l l s with the scope of section 93-8618, R.C.M. 1947. The Board argues that the deposition was for the benefit of Pfizer and therefore it is not chargeable as a cost and c i t e s Davis v. Trobough, 139 Mont. 322, 363 P,2d 727. The situation i n Davis was not the same since here the deposition was introduced into evidence, by agreement of both parties, and a t that point was not solely for the benefit of Pfizer, but for the benefit of the court and bath parties. The cost of the deposition w i l l be levied against the Board, The second part of the cast issue concerns the cost of a transcript of proceedings before the Board of Equalization. Pfizer s t a t e s i n its brief that i t trill withdraw its claim for t h i s cost i f such transcript i s not used or considered by t h i s Court i n making i t s decision, Since such transcript was not used by the Court, the issue of the cost of its preparation is rendered moot by Pfizer's offer of withdrawal of the claim f o r i t s cost. N o error appearing, the judgment of the d i s t r i c t court i s affirmed. ~ s s o c i e Justice / / Chief Justice ................................ Associate Justices.