Bisbee daily review. [volume] (Bisbee, Ariz.) 1901-1971, 1917-11-25

War Taxes On Mining Cos.
AblyUscussedbyL OcaIMan
T. o. McGrah Lets Much Light Upon Mooed Question of
Large Interests to Property Owners and nvesors-What
Is the Value of Product Mined? = Interprets Internal
Revenue Ruling

T. o. McGrath. Of Shattuck- Arizona,
in the current issue of the Engineer
ing and Mining Journal. sets forth an
exceptionally clear analysis of he war
taxes on mining companies. The a.
ticle is in response TO an editorial ap-
pearing in an earlier number of the
Engineering and Mining Journal. In
the current number the Journal prints
column editorial acknowledging Mr.
McGrath's article and the issue taken
therein OF the previous editorial. the
whole comprising much OF an acces-
sion to the views of Mr. McGrath,
whose article is copied from the Jour
nal as follows:
An editorial in the Journal of Oc-
tober q. dealt with the question of de-
pletion allowance as defined by the
commissioner of internal revenue. as
follows:
In the case of mines, a reasonable
amount for the depletion thereof not
TO exceed the market value in the
has been mined and sold during the
year for which the return and COM
putation was made.
The question arises: What is the
market value in the mine of the pro-
duct mined and sold during the year:
Apparently there can be only one in
depreciation of this clause; namely.
the difference between the cost OF
extraction and the selling price of the
product. or the net operating profit
earned.
To illustrate: If / should make an
agreement with a mine owner to take
over his mine for one years operation
and should pay him at the end of the
year the market value in the mine Of
the product mined and sold during the
years operation. less a certain per-
centage for the use of my money
certainly would pay him the differ
ence between what il cost ne to ex-
tract the product and the price at
which ! sold the product, or the net
profit, less my commission.
Now. according TO a literal interpre-
tation one may deplete an amount
equal to mis- yearly operating profit.
and no more. However. if the Journal
had gone little further into this ruiz
ing it would have found something in
teresting. For instance. as to the to
tai amount of depletion allowable. the
same ruling states: Provided. that
when the sum of the annual allow
ances for depletion equals the original
capital invested, or in case of pur-
chase prior to March I, 1918, the fair
market value as Of that date of the
mineral in place, no further allowance
on this account shall be made" The
black face type is mine.
Apparently not only may one eX-
empt from taxation an amount equal
TO his total operating earnings for
acquired prior to March l. 1913. he
may continue to deplete his earnings
for each year until he has exempted
an amount equal TO the fair market
value of the mineral in place on March
1. 1913"
What is the fair market value of
material in place in a mine on March
l. 1913? If my Interpretation of the
clause defining the amount OF yearly
depletion allowable is correct. then
the fair market value of the mineral
in place on March l. 1913. would be
the difference between the operating
cost of extraction and the market price
of metals on that date or the net value
of the ore in the mine according to
operating cost and ruling market
prices.
Therefore. in the case OF mining
company which had on March l. 1913.
one million tons OF So copper ore in
place. and whose net operating cost
per pound was 1Oscents. if the market
price of copper was Is cents. a fair
market value of the mineral in place
on that date would have been cents
per pound of copper. s. per ton of
ore. or 100000 for the mineral in
place. and such a company would be
permitted, IL il desired so to do, 10
deplete its total operating earnings for
each year until s5.OOO,OOO had been
allowed
Thus it can readily be seen that the
only possibility of a company. whose
property had. been purchased prior to
March 1. 1913. paying any income or
war-profit taxes whatsoever during its
life. would be (al that conditions
should change so as 10 make the min
eral in place of greater value as taken
out than it was on March 1. 1913; Cb)
metals holding at figures than the
price Of March l, 1913; (c) the op-
Grating costs being reduced below the