Document: 364 U.S. 76 80 S.Ct. 1581 4 L.Ed.2d UNITED STATES of America, Petitioner,v.CANNELTON SEWER PIPE COMPANY. No. 513. Argued May 19, 1960. Decided June 27, Mr. Ralph S. Spritzer, Washington, D.C., for petitioner. Erwin N. Griswold, respondent. Justice CLARK delivered the opinion Court. 1 This income tax refund suit involves statutory percentage depletion allowance to which respondent, an integrated miner-manufacturer burnt clay products from fire and shale, is entitled under Internal Revenue Code 1939.1 2 The granted by statute on respondent's 'gross mining.' It defines 'mining' include 'ordinary treatment processes normally applied mine owners * obtain commercially marketable mineral product or products.' Respondent claimed that its first 'commercially product' sewer pipe other vitrified articles. Alternatively, it contended should be based price tons ground shale actually sold during year in question. District Court agreed with claim. Appeals affirmed, holding respondent could not profitably sell raw without processing into finished products, was therefore properly gross sales latter. 268 F.2d 334. Government contends mining' computed industry-wide test cannot reduced a particular operation taxpayer might find profitable. further argues that, while permits ordinary miners their mines produce product, does embrace fabrication In view importance question taxpayers as well Government, we certiorari. 361 923, 294, 239. We disagree contention issue presented this record, reach merits. have concluded mandate statute, findings here value after application nonintegrated engaged recovery those minerals.2 I. 3 During ending November 30, 1951, owned operated underground produced proportions 60% 40% shale. transported truck plant at Cannelton, Indiana, about one one-half miles distant. There processed fabricated pipe, flue lining related products. process, pulverized form fine talcum powder. powder then mixed water pug mill becomes plastic mass, formed machines shape ware desired. placed dryers where heat less than 212 remove all water. process takes 12 hours weeks, depending size ware. Thereafter kilns 2,200 Fahrenheit, requiring 60 210 hours. cooled, graded either shipped stored. Not clays shales are suitable operations. They must plasticity, special drying qualities able withstand high temperatures. Respondent's clay, known Cannelton deepest mined Indiana and, says, yields, best pipe. Its cost removing delivering same $2.418 per ton 1951. used some 38,473 operations approximately bags $22.88 ton. Net wares amounted half million dollars. 5 connection assessment question, filed document stated 'we basis calculating our mining point manufacturing arrive clay. arrives crushed granulated such extent addition can made mortar use laying setting refractory brick. has definite market ascertainable any time end tile, simply adn necessary baking process'. return $22.81 ton, material At figure would been slightly above $2 error asserted rather being when reached stage only became e.g., On basis, petitioner's $4 since $40 hand, if 1951 valued $1.60 $1.90 going elsewhere 20¢ 6 record shows found there were substantial mostly vicinity Brazil, 140 Cannelton. average $1 Transportation costs Brazil ran $4.58 $5.50 Kentucky, across river plant, appears grade sold3 before, subsequent fact, 1957 secured requirements source lease lessor delivers plant. exact shown, but haul pit including ferry crossing, seven miles. II. 7 carefully studied legislative history allowance, voluminous materials furnished parties, briefs exhaustive appendices record.4 shall burden repetition. 8 summary, purposes exhaustion capital assets. Anderson v. Helvering, 1940, 310 404, 952, 84 L.Ed. 1277. addition, belief encourages extensive exploration increasing discoveries additional minerals benefit economy strength Nation. concerned validity theory policy. Our sole function congressional mandate. A study indicates came structure 1926, Congress oil gas producers. allowed property,' described 'the receipts sale property.' Preliminary Report, Joint Committee Taxation, Vol. I, Part (1927). report continued operator, property production posted oil, refind determining relating individual tract lease.' Treasury Regulations confirmed understanding. Treas.Reg. 74 (1929 ed.), Arts. 221(i), 241. 9 Thereafter, 1932, extended metal mines, coal, sulphur. engineer Committee, Alex. R. Shepherd, urged Congress5 computed, industry, percentage-of-income Act 1932 so drawn. Shepherd Report pointed out had force over 'functioned satisfactorily both economical administrative viewpoints loss revenue.' added 'careful method results will attained practice case gas,' because varied practices determine accounting which' calculated. recommended 'it logical peg property' f.o.b. cars mine,' i.e., net smelter returns, recognizing beyond included While certain metals, viz., gold, silver, copper, suggested crude, partially beneficiated refined' make provision specific metals. regard also proposed depreciation base 'in coal gas, (should be) competitive receipts, e uivalent, received crude concentrates mine, basis.' 10 fashioning took account these recommendations. incorporated allowing sulphur, § 114(b)(4), 47 Stat. 169. following February 10, 1933, issued 77, defined amount sells (a) (b) derived therefrom, exceed representative field kind derived, before exception listed *.' Art. 221(g). These exceptions industry preparing shipping product. regulation unquestioned 1943, instance substantially embodied itself, 58 21, 44, basic definition term property.'6 Since section depletion—s 114(b)(4)(B) 1939 remained basically same.7 Additional time—shale 1951—until practically included. 11 As now enacted, provides includes 'not merely extraction ores operators order products,' plus transportation place 'plants mills thereto,' exceeding 50 miles.8 processes' specifically four categories covering 17 named minerals. Fire within enumerations. however, they come clause (iii) section, iron ore, bauxite, ball sagger rock asphalt, customarily product—sorting, concentrating, sintering bring form, loading shipment *' processes.' (Italics added.) Clause (iv) lists metals lead, zinc, etc., 'and product,' excludes permissible ones To recapitulate, contains processes': enumerating coal; second, sulphur; third, product; fourth, sold. note even states steps each pro ess, declares treatment' ones, 'electrolytic deposition, roasting, thermal electric smelting, refining.' Furthermore, none destroy physical chemical identity permit them transformed new From history, conclude intended grant constructive III. 13 three-fifths state. mineral. large Kentucky. marketable' state unless phrase implies marketability profit. believe not. Proof significant reveals ability profitably—which do—but tonnage conclusive proof extracted ready industrial consumption—in short, passed principle operates. strange, indeed, ascribe intent miner adopt peculiar his operation. Depletion, said, subsidy manufacturers high-cost operator. obtained expensive processes, bears little relation what tax-free 14 insists status makes difference. think true outnumbered ones. But three Acts indicated receive preferred treatment. discussed above, provided allowable And, enacted 1943 Act. need tarry deal differences said existed interpretation, authoritative action itself. Ever cut-off stopped same, mine. formula give preference miner, decided advantage manufacturer competitor. never create discriminatory situation. see it, selling himself he insofar concerned. IV. 15 available statute. principal witness put hearings Congress: 'Obviously take your different having very uses considered, depletion.'9 says industry. miner-manufacturer, true. 'ordinary' normal miner. whom object allowance. employed run-of-the-mill miner—only occasion them. 16 contends, utilize points prevents position leads conclusion no ground. If true, depletion. One deplete nothing. alleges yield Indiana.' problem purely recovery, item which, nothing do formulae. read designed recompense assets alone. asks, enjoy, minerals, similar costs, machinery facilities. Nor plural word 'products' indicating techniques r cognizing often more recovered finding quantities—in majority—of state, activity involved. That 'minerals product.' mining-manufacturing treated operator fabrication. would, course, calculate miners—not disposed All more. 18 cases involving cited apposite here.10 not, indicate approval holdings. sufficient say facts distinguishable. 19 considerations, neither alternate claims appropriate. judgment reversed, cause remanded proceedings conformity opinion. ordered. 20 Reversed remanded. 21 HARLAN, concurring result. 22 joining I refer matter among data me far most telling favor Government's position. 23 Regulation promulgated 1933 (47 169), contained 114(b)(4) carried forward successors. concededly supports, express terms (see page 83, 1585), present case. my undoubtedly valid exercise Commissioner's power construe generally worded See Staff Reports Taxation (1930), p. 68 (Shepherd Report); Helvering Wilshire Oil Co., 308 90, 102—103, 18, 25, 101. (58 45), provisions governing case, represented limited departure Regulation, taken principally area extractive did affect meaning See, Hearings Senate Finance, 78th Cong., 1st Sess., H.R. 3687, pp. 527—529; S.Rep. 627, 23—24; Revision 1942, House Ways Means, 77th 2d 1202; compare id., 1199; Silver, Special Investigation pursuant S.Res. 187 (74th Cong.), 761—764. efforts impugn supra, 70, 71; Revisions, 1947—1948, 80th 3283; Mineral Treatment Processes Percentage Depletion Purposes, 86th 258, 264, seem quite unpersuasive. 24 view, controlling gloss upon products' 'mining,' turn constitutes 'property' deals. supra. results, limiting applicable 23(m) 114(d)(4), 26 U.S.C.A. §§ 23(m), 114(b)(4). general, provide mining,' defined. 8, infra. permitted 5%, 15%. quantity bagged too negligible furnish appropriate computing evidence $50, Owensboro Sewer Pipe Company bought L.R. Chapman five acres deposits lay. Contemporaneously contract Chapman, Inc., deliver $1.40 testified Th arrangements varied. Some agreement, others leases royalty contemporaneous agreement set price. years clear, appear between 1949 1956. began using arrangement 1957. reason paper transfer title shown. However, 'didn't want prospecting sampling until sure get deed.' cover 294 pages 685, charts. 276 pages. Appendix XXXI Report). Finance Sess. 528; Means part 3, 1857; 8920, 81st 771; 2375, 53—54. 613 1954, 613, essentially unchanged. 1939, 114(b)(4)(B): 'Definition property. paragraph means mining. herein considered much (whether common carrier) plants thereto excess Secretary finds ore greater distance mills. processes,' herein, following: (i) cleaning, breaking, sizing, shipment; (ii) sulphur—pumping vats, cooling, fluorspar ores, potash, product—crushing, grinding, beneficiation concentration (gravity, Flotation, amalgamation, electrostatic, magnetic), cyanidation, leaching, crystallization, precipitation (but electrolytic refining), equivalent combination separation furnacing quicksilver ores. principles subparagraph attributable sections 450 453.' U.S.C. (1952 ed.) 114, 114. Robert M. Searls, Attorney, San Francisco, 764. United States Cherokee Brick & Tile Cir., 218 424 (adhered Merry Bros. 242 708), went off factual concessions here. pyramided statistically imposing number cases, predicated another. Close analysis go here, controversies For purposes, whether 'value' depleted. Other decision review, two Circuit (Commissioner Iowa Limestone 269 398; Bookwalter Centropolis Crusher 272 391), profitability test, unacceptable.

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