Document: 67 L.Ed.2d 140 101 S.Ct. 1037 450 U.S. 156 COMMISSIONER OF INTERNAL REVENUE, Petitioner,v.PORTLAND CEMENT COMPANY UTAH. No. 79-1907. Argued Jan. 13, 1981. Decided March 3, Syllabus Respondent mines cement rock and manufactures it into Portland cement. Section 611(a) of the Internal Revenue Code 1954 allows respondent, as a miner, to deduct from its taxable income percentage gross mining recoupment capital investment in depleting mineral. Because an integrated miner-manufacturer, has no actual mining, must base depletion deduction upon constructive mining. For each tax years at issue this case, respondent used proportionate profits method prescribed by Treasury Regulations compute such income. This uses costs proceeds taxpayer's "first marketable product" derive The regulations define "the product (or group essentially same products) produced taxpayer result application nonmining processes, form or condition which products are first marketed significant quantities taxpayer." provide that bulk packaged considered be for purpose. required portion total reflects ratio between costs. Under regulations, include total-costs figure "all paid incurred produce, sell transport product." took position was sold bulk, rather than all sold, whether bags. bags bagging exceeded respondent's premium (the increase selling bags). Hence, did not sale total-proceeds method. Nor bags, bagging, storage, distribution, sales. yielded greater reported correspondingly deduction, thanit would have if had included those computation Petitioner Commissioner determined liabilities were deficient, taking is cement, should bagged calculation method, also then filed suit Tax Court redetermination. That court accepted position, Appeals affirmed. Held : defining prescribing treatment sales support Commissioner's position. Pp. 169. (a) customarily defers "implement congressional mandate some reasonable manner." United States v. Correll, 389 299, 307, 88 445, 450, 19 537. P. (b) Respondent's contention will yield distorted applied without regard particular circumstances i. e., exceed premium, misperceives both meaning "gross mining" holding Cannelton Sewer Pipe Co., 364 76, 80 1581, 4 1581. means received, actually constructively, value. In Cannelton, interpreting earlier statutory definition "mining," said "Congress intended mining-manufacturing operations treated operator mineral mined himself fabrication." Id., 89, S.Ct., 1588. statement, context occurs, does determine take account forces might cause differ difference warrant deviation regulation's 170-173. (c) "mining" processes up introduction kiln feed kiln, "but . any subsequent processes," forecloses further product, they indirect benefit entire operation, hence allocated manufacturing. recognizing thatstorage, "subsequent processes" reasonable. 173-174. 10th Cir., 614 F.2d 724, reversed. Stuart A. Smith, Washington, D. C., petitioner. Dennis Bedell, respondent. Justice POWELL delivered opinion Court. 1 case concerns taken under § 611 1954, 26 U.S.C. 611, company question presented company's product," purpose determining only bulk. 2 * Respondent, Cement Co. Utah, miner-manufacturer. It argillaceous limestone rock, known trade cement.1 As miner allowed 611(a)2 amount permits provides: 3 "In mines, oil gas wells, other natural deposits, timber, there shall computing allowance depreciation improvements, according peculiar conditions case; cases made Secretary ." may property." 613(a).3 property mining."4 Thus, receives 5 If therefore receipts But itself mining.5 See 86, 1587, 1581 (1960). 6 Revenue, petitioner here, two methods miners industry their on open market, who do use representative market field price" Treas.Reg. 1.613-4(c), CFR 1.613-4(c) (1980). marketor price cannot determined, industry, "proportionate method." 1.613-4(d). addition providing these methods, provided that, request, determines more appropriate circumstances. 1.613-4(d)(1)(ii).6 mining.7 7 principle dollar incurs sell, earns part product. 1.613-4(d)(4)(i). objective identify—from among product—that been earned operations. To identify proceeds, formula requires apportion bear bears samerelationship mining.8 8 On returns question, sells most loading finished directly silos customers' trucks railroad tank cars. customers want buy relativelysmall quantities.9 running storage silo bin above machine, pours seals them. cost exceeds bags.10 still profit but less bulk.11 9 sales.12 10 After audit, deficient.13 figure, 11 Court, following rule applying law appeals appeal taken,14 relied Ideal Basic Industries, Inc., 404 122 (CA10 1968), cert. denied, 395 936, 89 1997, 23 451 (1969), 36 TCM 578 (1977), ¶ 77,137 P-H Memo TC. Industries held miner-manufacturer revenues sales, calculations 125-126. Tenth Circuit affirmed, adhering Industries. 724 (1980) (per curiam). rejected argument dictate opposite result. We granted petition writ certiorari because Courts with substantially identical facts.15 449 818, 69, 66 20 now reverse. II 12 Congress "in Secretary." pursuant delegation authority.16 Also authority, promulgated specifically address questions before us. find dispositive. 13 others marketing area." 1.613-4(d)(4)(iv) continues: 14 "For purpose, results additional manufacturing area. example, manufacturer his own concrete blocks dry ready-mix aggregates containing additives, constitutes him." 15 regulation supports container cement—whether car supplied customer bag respondent—does distinguish Federal below uphold General States, 628 321, 323 (CA5 1980), pending, 80-1211; California 413 161 (CA9 1969). Indeed, supported stipulation "[t]hat material bulk." 16 distribution. costs, 1.613-4(d)(4)(ii) exclusion effect including within base. Such inclusion enhancesrespondent's accordingly becomes exhaustion mine. undisputed, however, permit only. U.S., 81, 85-86, 1584, 1586-1587; Southwest Exploration 350 308, 312, 76 395, 397, 100 L.Ed. 347 (1956); supra, 322. undisputed classify distribution 1.613-4(d)(3)(iii) (1980).17 also. 326; Southwestern 435 504, 508, 510 1970); 168-169; Whitehall Manufacturing 369 468, 473-474 (CA3 1966). 17 Finally, miner-manufacturers treat expenses absent evidence unintegrated typically incur §§ 1.613-4(d)(3)(iv), 1.613-5(c)(4)(ii).18 These simply recognize occur after point miner-manufacturer's phase ends begins. 613(c)(4)(F); cf. 333. Integrated allocate phasesif can show expenses, maintains parity miners. put forth being industry. 18 command our respect, delegated Treasury, task "of administering laws Nation." Cartwright, 411 546, 550, 93 1713, 1716, 528 (1973); accord, 537 (1967); see 7805(a). defer 450; National Muffler Dealers Assn. 440 472, 476-477, 99 1304, 1307, 59 519 (1979). conversely, "must sustained unless unreasonable plainly inconsistent revenue statutes." South Texas Lumber 333 496, 501, 68 695, 698, 92 831 (1948); Fulman 434 528, 533, 98 841, 845, 55 (1978); Bingler Johnson, 394 741, 749-751, 1439, 1444-1445, 22 695 (1969). customary deference particularly previously recognized necessity "broad rule-making delegation" authority area depletion: "As obviously could foresee multifarious involve depletion, duty making regulations." Douglas Commissioner, 322 275, 280, 281, 64 988, 991, 992, 1271 (1944);19 Helvering Wilshire Oil 308 90, 102-103, 60 18, 25, 84 (1939). III contend either face Code. contrary, acknowledges several courts found prescribe where realized available. case. rests (i) assumption about (ii) interpretation Court's decision deems mining," thing value extracted mineral" end phase, Brief 14; reads hold operation one independent business another business, phase. basis notions, perceives potential distortion inhering premise alike, view, true share proceeds. contends, arm's-length negotiations so affect when proceeds; contends certainly dollars premium. 21 conclude reasoning itself. Rather, argues distort extent facts deviate method's premise, possibility increases attending postmining included. remedy this, asks "peculiar" circumstance premium.20 done, says, obviated considering willbe excluded F.2d, 125-127. accept Cannelton. cites nothing language 613(a) assumption; Mountain Producers Corp., 303 376, 381-382, 58 623, 625, 82 907 (1938), it.21 397. argument. there, ended burnt clay products. 84, n. 8, 1585, 8. observed integratedmining-manufacturing Regulation's net every sells, despite fact markup infer, therefore, contribute inference 330-331; 474; Cement, B 24 There remains operation. reason, urges 25 contention. 613(c)(4)(F) defines process." process[es]," we (storage anddistribution); 1.613-4(d)(3)(iv) 1.613-5(c)(4)(ii) (sales). allow different expenses. 168-169. bore burden proof showing treating anything costs.22 IV sum, sure, approximate approximate. approximation suffice concedes approximating. accepted, seek approval method.23 Accordingly, apply Commissioner. 27 judgment 28 ordered. suggested term "integrated miner-manufacturer," phases: begins blasting quarry. crushing pieces cubic inch size, transports processing plant, miles quarry Utah. grinds finely adds water, producing mud "slurry." feeds slurry tanks fired kilns heat hard glass-like substance "clinker." Once clinker cooled, gypsum produce placed await customers. dispute 613(c)(2) Code, 613(c)(2), "not merely extraction ores minerals ground described paragraph (4) (and necessary incidental thereto), much transportation (whether common carrier) plants mills thereto excess 50 Paragraph (4)(F) 613(c) describes be— calcium carbonates cement—all (other preheating feed) prior When definitions applied, stored kilns. found, 578, 579 77,137, p. 582, TC, parties agree. All citations stated otherwise. pertinent part: deposits listed subsection (b), section percentage, specified beginning October 9, 1969, 613 carbonates, chemical name 15%. 613(b)(7) (1964 ed.). 14%. 613(b)(7). Title 613(c)(1) (1976 ed., Supp.III), "The 'gross property' means, well geothermal deposit, mining." n.1, supra. propose 1.613-4(d)(1)(ii)(e)(5), (6) three ending 31, 1970, 1971, 1972. explain way: "(i) 'proportionate method' ascertain (as defined subdivision (iv) subparagraph) profit. ranking permissible excluding minimizing "(ii) multiplying (actual constructive) fraction whose numerator sum allocable products, denominator herein restatement formerly set second sentence 118, 39.23(m)-1(e)(3) (1939 Code). illustrated equation: Mining Costs Gross Income ------------ X Sales= ------------------- Total Mining" 1.613-4(d)(4)(i), captured gist fewer words: proportionate-profits separate components." North Carolina Granite Corp. 56 T.C. 1281, 1291 (1971). During approximately 92-94% 6-8% stipulated $55,410.88 year $66,667.45 $64,590.41 "that although over [respondent] nevertheless cement." state formulaic terms 1.613-4(d)(4)(ii), (1980), multiplier method; fraction. asserted deficiencies $44,200, $41,509, $7,175 1972, respectively. TCM, Golsen 54 742 (1970), aff'd grounds, 445 985 (CA10), 940, 284, 30 254 321 Arvonia-Buckingham Slate 426 484 (CA4 1969); 468 reference successive since 1940. 1.613-4(d)(4) appeared Treas.Regs. 103, 19.23(m)-1(f) (1940), continued 1939 111, 29.23(m)-1(f) (1943); 39.23(m)-(e)(3) (1953). 118 force until superseded 1.613-3(d)(1)(i), (ii). T.D. 6965, 1968-2 Cum.Bull. 265. present 1.613-4(d)(1) (4)(i), (ii), 7170, 1972-1 178. provides based costs— "(a) attributable containers, packages, pallets, similar items materials labor packaging, palletizing, "(c) warehouses terminals manufactured "Accordingly, profits." regulations' characterization 725 concluded court, transporting 726. principles 1.613-5 treated, whole part, (c)(4)(ii) 1.613-5, "A refined, manufactured, fabricated subtracted property. equivalent typical producers maintain equality comparison producer-manufacturers. involved 23, Act 1936, ways 278, 990. argument, relies 611(a), "according case." read phrase out context. fuller reading, Secretary. (Emphasis added.) Read context, case" refers types depletable resource, individual taxpayers. modified wells. By contract, owner oil-field leases agreed refiner price. return, agreed, oil, conduct develop oil. claimed property," consisted cash payments received refiner, plus production defrayed contract. 378-379, 624. claim. deductible "is fixed factor, increased lessened equities," time bearing contracts." 382, 625. added: "With motives lead satisfied he concerned." Ibid. decisions E. g., 170-172. decided issuance 1972 1.613-5(c)(4)(ii). Prior answered assume, Nonetheless, 161, 6.

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