No. 13524 

IN THE SUPRETIIE COURT OF THE STATE OF MONTANA 

1977 

CYPRUS MINES CORPORATION, a Corporation, 

Plaintiff and Respondent, 

MADISON COUNTY, a political subdivision 

of the State of Montana; ALICE FLAGER, 

County Treasurer of Madison County; and 

the DEPARTMENT OF REVENUE OF THE STATE 

OF MONTANA, 

Defendants and Appellants. 

Appeal from: District Court of the Fifth Judicial District, 

Honorable Frank E. Blair, Judge presiding. 

Counsel of Record: 

For Appellants: 

R. Bruce McGinnis argued, Helena, Montana 

For Respondent : 

Kline and Niklas, Helena, Montana 

John R. Kline argued, Helena, Montana 

Submitted: January 17, 1977 

Decided : MAR "i137T 
Mr. Justice Gene B. Daly delivered the Opinion of the Court. 

The Department of Revenue of the State of Montana (Department) appeals from the judgment of the district court, Madison 

County. At issue is respondent's net proceeds of mines tax, a 

tax in lieu of "ad valorem" property tax on net proceeds of its 

mines. Pfizer v. Madison County, 161Mont. 261, 505 P.2d 399. 

The court, sitting without a jury, found plaintiff taxpayer was 

compelled to pay excess taxes when certain deductions on its net 

proceeds of mines statement were disallowed. The court ordered 

the treasurer of Madison County to refund the excess taxes. 

Plaintiff is Cyprus Mines Corporation, (Taxpayer), an 

international corporation which owns and operates the Yellowstone 

and Beaverhead Mines, talc mines located in Madison County; a 

storage facility and wash plant located at Alder, Montana; and a 

grinding mill located at Three Forks, Montana. Taxpayer operates 

these three Montana facilities through Cyprus Industrial Minerals 

Company, which also has operations in Nebraska, California, Texas, 

Maryland, South Caroline, Georgia, Tennessee, Nevada and Ghent, 

Belgium. 

Taxpayer mines talc at its Yellowstone and Beaverhead Mines. 

It transports the talc to its other facilities for processing by a 

or 

grinding/upgrading procedure known as beneficiation. The beneficiated 

talc is either sold or further milled to various fine sizes. Talc 

is used in the manufacture of paper, paint, ceramics, catalytic 

converters, spark plugs, vinyl flooring, rubber, plastics, cosmetics 

and pharmaceuticals. 

The< present action stems from Taxpayer's filing its 1974 

net proceeds of mines statement. The department disallowed axp payer's 
deductions for net proceeds of mines tax and other taxes paid in 

1973, marketing expenses, and cost of conversion into money. 

Taxpayer paid under protest that portion of the property tax 

relating to the disallowed deductions. It brought an action in 

the district court to recover $91,418.54 in purported excess taxes. 

The district court entered judgment for Taxpayer. 

The Department of Revenue appeals and presents two issues 

for review: 

1. Whether Taxpayer is entitled to deduct net proceeds of 

mines taxes and other taxes paid on the Yellowstone and Beaverhead 

Mines in 1973, in determining its net proceeds of mines tax for 

1974? 

2. Whether Taxpayer is entitled to deduct marketing 

expenses and cost of conversion into money in computing its net 

proceeds of mines tax when the expenses are incurred after the 

beneficiation stage or are not directly related to the cost of 

extracting talc? 

Taxpayer contends the Department's first issue should be 

resolved in Taxpayer's behalf since it has consistently deducted 

taxes as a miscellaneous deduction in determining the net proceeds 

of its mines. Further, Taxpayer argues taxes are expenses actually 

required and necessary in mining and should be a deductdble item 

as there is no specific legislative provision characterizing taxes 

as a nondeductible item. 

A general rule of taxation is that an item may serve as 

a deduction only when the legislature specifically establishes the 

deduction. Anaconda Copper Mining Co. v. Junod, 71 Mont. 132, 

227 P. 1001. A revenue statute allowing a deduction should be construed with specificity, as opposed to the rule of liberal construction which generally applies to revenue laws. State ex Yel. Whitlock 

v. State Board of Equalization, 100 Mont. 72, 45 P.2d 684. 

-3- 
Title 84, Chapter 54, Mines-General Property and Net 

Proceeds Tax, R.C.M. 1947, section 84-5403 sets forth those items 

which the taxpayer may deduct from the gross yield of a mine in 

arriving at the net proceeds upon which the tax is calculated. 

There is no provision in section 84-5403 which would characterize 

taxes as a deductible item. Absent such specific language, we 

fail to find Taxpayer entitled to a deduction for taxes paid in 

1973 in determining its net proceeds of mines tax for 1974. 

The Department's second issue concerns the validity of 

 axp payer's deductions for cost of marketing and conversion into 

money. Taxpayer contends due to the complexities of the talc 

industry it should be allowed to calculate these deductions by an 

allocation formula, rather than a cost accounting basis. Taxpayer 

has valued the net proceeds of the Yellowstone and Beaverhead Mines 

by comparing the sales of rrom these mines at the beneficiation 

stage to the total sales of the Cyprus Industrial Minerals Company. 

and applying that ratio to the total marketing and conversion into 

money costs for Cyprus Industrial Minerals Company. Included in 

Taxpayer's cost of marketing and conversion, into money are expenses 

for administration, production, engineering, accounting, data 

processing and research and-development. 

Taxpayer contends that authority for such an allocation 

procedure is provided in section 84-5403 (6) , R.C .M. 1947 : 

"6. All moneys actually expended for transporting the 

ores, and mineral products or deposits from the mines 

to the mill or reduction works or to the place of sale, 

and for extracting the metals and minerals therefrom, 

and for marketing the product and the conversion of the 

same into money." (Emphasis added. ) 
The controversy in the instant case does not require a 

resolution as to the validity of deductions for cost of marketing 

and conversion into money, The statute allows such a deduction. 

Here, this issue necessitates a determination as to the validity 

of the allocation process by which Taxpayer arrived at its deduction. 

This Court, in a determination of the procedure to be 

utilized in arriving at the net proceeds of mines in Anaconda 

Copper Mining Co. v. Junod, 71 Mont. 132, 140, 227 P. 1001, stated: 

"* * * It was the aim and intention of the legislature 

to fix some definite and uniform basis for the determination of net proceeds of mines for taxation purposes. 

This it has done by authorizing deductions of only actual 

costs. It was not its intention to permit deduction of 

every conceivable item of expense. " 

The language used in Anaconda Copper Mining Ca. displays 

an intent to determine the net proceeds of mines by a definite 

and uniform method, On the other hand, Taxpayer's allocation 

formula contemplates expenses incurred not only by its Montana 

facilities, but by all of the facilities which comprise the Cyprus 

Industrial Minerals Company. Further, Taxpayer's allocation 

formula contemplates expenses incurred by the Taxpayer beyond the 

beneficiation stape as defined in Pfizer v. Madison County, 161 

Mont. 261, 267, 505 P.2d 399. 

In Pfizer the issue was at which stage of the processing 

of talc does the mining cease and the manufacturing or marketing 

begin. This, of course, determines the point and value at which 

the net proceeds tax is applied. The State Board of Equalization 

claimed the reduction operation was nothing more than an integrated 

mining operation and the value for the tax would be taken at the 

selling price, subsequent to the milling operation. The district 
court held, and this Court affirmed, that the net proceeds tax 

does not apply to the talc once it has passed the beneficSatbn 

stage and further held: 

"* * * Only deductions for the mining operation 

will be allowed up through the beneficiation stage. 

All other expenses will be incurred as to the 

manufacturing process. I I 

 ax payer's allocation formula fails to meet the test of 

definiteness and uniformity contemplated in section 84-5403, R.C.M. 

1947. Taxpayer failed to allocate the actual costs which it 

incurred in the mining of talc, when determining the net proceeds 

of its Yellowstone and Beaverhead Mines. 

The judgment of the district court is reversed. 

We Concur: