Court Opinion

ID: 3542097
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:53:39.667708+00
Date Added: 2024-06-11T14:06:10.903655
License: Public Domain

We agree with the conclusion in the majority opinion to the effect that the value of arsenic or arsenious oxide should properly be included in computing the tax in question, and agree that the writ should issue. We are not able to agree, however, with the majority view that deductions are allowable from the New York City price in computing the gross value of the product under the Act.
The Act in question was initiated by the people in 1924 and took the place of a prior statute, sections 2344 to 2355, inclusive, Revised Codes 1921, which sections were expressly repealed by the Act involved here. The prior statute also imposed a license tax which consisted of an annual fee of $1 together with 1 1/2 per cent. of the net proceeds calculated and computed in the same manner and upon the same basis as the net proceeds of mines are determined for general tax purposes. The net proceeds were determined by subtracting from the value in dollars and cents of the gross product of the mine the following items: "All moneys expended for necessary labor, machinery and supplies needed and used in the mining operations and developments; for improvements, repairs and betterments necessary in and about the working of the mine; for costs of repairs and replacements of the milling and reduction works used in connection with the mine; depreciation in the sum of six per cent. of the assessed valuation of such milling and reduction works for the calendar year ending December 31st and immediately preceding; also allmoney expended for transporting the ores, mineral products ordeposits from the mine to the mill or reduction works or to theplace of *Page 51 sale, and for extracting the metals and minerals therefrom, and for marketing the product and the conversion of the same into money; but moneys invested in the mines and improvements during any year, except in the year immediately preceding such statement, must not be included in such expenditures, and such expenditures shall not include the salaries, or any portion thereof, of any person or officers not actually engaged in the working of the mine or superintending the management thereof." (Sec. 2090, Rev. Codes 1921.)
In the administration of the net proceeds license tax law (secs. 2344 et seq. 1921), controversies arose as to what were proper items of expenses to be allowable as deductions. The case of Anaconda Copper Mining Co. v. Junod, 71 Mont. 132,227 P. 1001, 1004, decided July 7, 1924, furnishes an example. With the evident purpose of eliminating these controversies, Initiative Measure No. 28 was proposed and adopted. Instead of making the tax 1 1/2 per cent. of the net, that measure exempted entirely the payment of any tax on the first $100,000 of the gross value of the product, and imposed a tax of 1/4 of 1 per cent. of the amount by which the gross value exceeds $100,000 and does not exceed $250,000; 1/2 of 1 per cent. of the amount by which the gross exceed $250,000 and does not exceed $400,000; 3/4 of 1 per cent. of the amount by which the gross exceeds $400,000 and does not exceed $500,000; and 1 per cent. of the gross in excess of $500,000.
The Act, in making provision for the method of ascertaining the gross value of the product, states: "The total `Gross Value of Product' as used in this Act, shall mean the market value of all merchantable metals, precious and semi-precious gems and stones extracted or produced, each year from any mine or mining property in the State of Montana or recovered from the smelting, milling, reduction, or treatment in any manner of ores extracted from any such mine or mining property or from tailings resulting from the smelting, reduction or treatment of any such ores. That whenever the ores require smelting, reduction, or treatment to ascertain the metal contents of such ores, the gross value of the product thereof shall be *Page 52 
determined by taking the market value of all merchantable metals or mineral products extracted or recovered thereby, as shown by the gross smelter returns of such metals or mineral product in dollars and cents, without any deductions for costs of smelting, reduction or treatment, or otherwise, based upon the average quotations of the price of such metals, or mineral products, in the City of New York, as evidenced by some established authority or market report, such as the Engineering and Mining Journal of New York City, or other standard publications, giving the market reports during the calendar year immediately preceding. Should there be no quotation covering any particular product, then the State Board of Equalization shall fix the value of such gross product, or such portion thereof, in such a manner as may seem equitable." It is an elementary rule that in construing a statute, the circumstances which led to its enactment, the evils or mischief which it was designed to correct or remedy, and the previous state of the law, may, and properly should, be taken into consideration. (36 Cyc. 1136, 1146.)
Keeping in mind that this Act was to take the place of the net proceeds license tax law and again noting that in determining the net proceeds under the prior law, upon which the license tax was computed, many items were allowable as deductions, including that of the cost of transporting the products from the mine to the milling or reduction works, and to the place of sale, the conclusion is inescapable that when the Act provides that the gross returns in dollars and cents shall be "without any deductions for costs of smelting, reduction, or treatment, or otherwise, based upon the average quotations of the price of such metals, or mineral products, in the city of New York," the intention was to exclude any deductions and particularly those enumerated in section 2090, which were those allowable under the law superseded by the Act here.
Had the framers of the Act intended to allow any deductions, apt language would have been chosen to accomplish that result. And in view of the experience of those who *Page 53 
drafted the Act incident to the administration of the prior Act, were deductions to be allowable the measure would have itemized them with certainty. What was said in Anaconda Copper MiningCo. v. Junod, supra, which was decided about four months before this Act was submitted to the voters, is equally applicable here. It was there said: "If the legislature had intended that taxes and fire insurance premiums could be taken into consideration as deductible items, it could have easily said so. * * * Were we to place any other construction upon the statutes, the same would be indefinite and uncertain, and in fact there would exist an open field for deductions which in our opinion was never intended." That the New York quoted price is controlling under the Act is made plain by the specific provision in section 3 of the Act allowing the board when there is no quotation covering any particular product to "fix the value of such gross product, or such portion thereof, in such a manner as may seem equitable." The board has no discretion in fixing the value of the gross product when there is a quoted price. Its authority to apply equitable principles in arriving at the value of the gross product exists only when there is no quoted price. If the gross value of product under this Act means the Montana value or the New York quoted price less freight rates and other transportation charges from Montana to New York, then the same meaning must be ascribed to the same terms in section 2090. If this were done, then the value of the gross product under section 2090 (the Montana value) would be the New York quoted price less transportation charges from Montana to New York. And to get the net proceeds there would again be the deduction specified in section 2090 for "all money expended for transporting the ores, mineral products or deposits from the mine to the mill or reduction works or to the place of sale." Hence in determining the net proceeds there would be deduction of transportation charges twice. First, to get the value of the gross product in Montana; and, second, the same deduction from that gross to arrive at the net. As clearly showing the intention that it was the New York City price *Page 54 
and not the Montana value that is controlling, is the provision in section 3 of the Act which makes the controlling value depend upon "the average quotations of the price of such metals, or mineral products, in the City of New York, as evidenced by some established authority or market report, * * * giving the market reports during the calendar year immediately preceding."
If the market value in Montana was intended to be used upon which to compute the tax, then why does the Act refer to the market quotations for the preceding calendar year as the basis upon which the tax is to be computed? To us it seems plain that the Act was intended to fix a definite and easily ascertained measure of determining the gross value of product, viz., the average quoted New York City price for the year preceding the year of carrying on the operations without any deductions whatsoever.
The construction of the statute by the majority opinion nullifies the phrase in section 3 of the Act, which commands that the gross value of the product shall be determined by taking the market value, "without any deductions for costs of smelting, reduction or treatment, or otherwise." To say that the words, "or otherwise," relate to whatever expense is incurred in making the gross product, renders those words meaningless, for the costs of making the gross product are already excluded as deductions by the words, "costs of smelting, reduction or treatment."
Of the construction placed upon the Act by the administrative board, apparently acquiesced in by succeeding legislative assemblies, it is sufficient to say that such construction would be entitled to respectful consideration were the Act ambiguous. When the history and purpose of the Act is considered together with the specific deductions allowable under the Act superseded by the Act involved here, the statute is so clear and unambiguous as to require no construction. The construction placed upon the Act by the board with respect to allowing differentials on copper, lead and silver is no more binding upon us than its construction to the effect that the *Page 55 
value of arsenic should not be included in determining the gross product, or that a differential should be allowed on zinc greater than .65 cents per pound, and this the majority have held, and we think properly so, was erroneous. Much stress is laid on section 6 of the Act as indicating the intent to make the gross value of the product depend upon the value at the time and place of sale. It is but a re-enactment in practically the same language of a like provision found in section 2090 and in our opinion cannot be said to change the explicit language found in section 3. It should be noted that section 6 has application when the product is sold below the "market price," not below the "market value." The Act as a whole simply recognizes but one "market price," viz., the New York price regardless of the place of sale. There is no discrimination between those operators who sell during the year of production and those who do not. The New York City price is the only price recognized under the Act, wherever or whenever the product is sold. If sold during the year of production, the New York price at the time of sale is controlling. If not sold during the year of production, it is the average New York price for the preceding year that controls.
It should also be said that at the time the Act was before the people the then members of the state board of equalization as well as the defendant Anaconda Copper Mining Company, construed the Act as allowing no deductions whatsoever from the New York price and endeavored to lead the people who adopted it to believe from the statements made by them that the gross value was to be taken as shown by the average quotations without any deductions. In addition to the matters set forth in the majority opinion, "The Copper Target," which it is alleged was distributed to the voters, contained the following statements:
"In the case of a mine which ships to a custom smelter, the product of which is simply ore, which is sold, no deduction is permitted for ore transportation, mill or smelter reduction charges, shipping to refinery, refining, transportation to the ultimate destination and delivery, transportation or selling commission *Page 56 
charges. In other words, while the miner merely produces ore and sells it as such, he is taxed as though he were producing refined metal and selling and delivering it himself at the mine, at the New York price. In the case of a mine operator operating his own mill, smelter or other reduction works, who ships to an outside refinery, the above statement is true, beginning at the point of transportation from Montana and continuing to the refinery and so on. In the case of a company refining its product in Montana, no consideration is given to its cost of transportation to the eastern market, selling commission and delivery to the consumer.
"Plainly, the proposed law is as illogical and unfair as if the state of Michigan should place a tax on the gross value of all Ford cars (produced and sold in Michigan at $380 each), by taking $480, the retail price of a Ford car in Butte, as a basis for Michigan taxation, without permitting any deduction for crating, transportation to Butte, local agent's commission, salesman's commission, etc. It is as unjustifiable as if, in the case of a tax on the gross product of a Montana wheat farm, the gross value of the wheat should be determined not by taking the price received on the farm, or even at the elevator where delivered, but at the Minneapolis or London price, without any deduction for transportation, selling or commission."
We refer to what was said at the time the Act was before the voters to show how the Act was then construed by interested parties, and for the purpose of aiding in arriving at the intention.
Had the people thought that differentials were to be allowed, they might have preferred to let the law remain as it was prior thereto, viz., a tax of 1 1/2 per cent. on the net proceeds rather than the greatly reduced percentage on an indefinite part of the gross. We can see no constitutional objection to the Act as thus construed. It applies alike to all operators of metal mines, without discrimination. The different treatment of the operator who sells his product during the year of production and of him who does not is not eliminated by construing the Act as allowing differentials. Neither do we see any constitutional *Page 57 
objection to the Act because of burdening interstate commerce. The license tax is imposed regardless of whether the product ever enters into interstate commerce. In any event, if the Act be unconstitutional then the court should have no hesitancy in saying so, in which event the prior license tax law on the net proceeds would remain in full force and effect.
To us it seems preposterous that the framers of the Act intended to allow deductions without in any manner indicating what those deductions should consist of.
A pertinent inquiry, and one not answered in the majority opinion, is: "Just what deductions are allowable under the Act?" Does the matter rest entirely in the discretion of the board, subject only to the exercise of an honest judgment? That seems to be the rule as announced in the majority opinion. The board is commanded to correct mistakes, if any, which it made, but no guidance is given as to what deductions are properly allowable. If the board determines that it has made a mistake, then under the majority opinion it apparently need not correct it unless it also finds that the mistake was not honestly made. It is not likely to make such a finding.
The majority opinion lays stress upon the declarations made by the board that the tax is measured by the "gross value of the product which may have been derived by the operator from his mining business as shown by the smelter returns, and no deductions are allowable on account of mining costs, freight to smelter, reduction or smelting charges or otherwise." These statements by the board are but declarations, in practically the identical language of the statute itself, that it had been complying with the law; but the record before us shows conclusively that in truth and in fact deductions were permitted which are expressly prohibited by the law.
At the hearing before this court one of the members of the board, who was representing the board as counsel, explained what the differential allowed by the board consisted of, as follows: "As to what that differential would be based on, it would take in many things. It would take in the freight from the smelter to the refinery, the freight from the refinery to a *Page 58 
market — that is, probably a seaboard market. Take the case of zinc, it would be St. Louis. In the case of copper it would be New York. It would include certain carrying charges, such as insurance, and losses of ores. It would include the expense of smelting this ore. I do not mean smelting, but refining ore after it had left the smelter. It leaves the smelter with some impurities in it, and all of the metals there assembled in the anodes have to be separated. That is a considerable process. So that the cost of additional refining has to be taken into consideration."
This statement was in no manner challenged by eminent counsel for the Anaconda Company, by counsel for the intervener, or by any of the counsel appearing as amici curiae on behalf of other mining companies. Nor is it of importance that this member of the board was not a member when the differential was originally fixed. He has been a member for four years and presumptively is conversant with the facts and must know the factors going to make up the differential. Furthermore, it would seem that what is a proper differential (assuming that any differential is allowable) is a matter that must be determined each year. Freight rates undergo change; smelting costs may fluctuate. Is it possible that a differential once fixed and established remains the same from year to year, and that a member of the board for the past four years has nothing to do with differentials allowed each year, simply because the system was in vogue, and a differential already fixed, at the time he became a member of the board?
A deduction of 3 cents an ounce was made on silver, 2 1/2 cents a pound on copper, 1 1/2 cents a pound on lead, and 1 cent a pound on zinc.
In addition to the explanation as to the various items which make up these differentials as given by a member of the board, who represented it in this action, the differentials themselves suggest that an allowance was permitted for treatment, and reduction. We think it a reasonable assumption that the freight, commission and insurance would be no greater on *Page 59 
copper than on lead or zinc, yet a substantial difference in the deduction is allowed. This, when considered in the light of the pleadings, shows that the member of the board was correct when he advised the court that the differentials included refining ore after it leaves the smelter. "It leaves the smelter with some impurities in it, and all of the metals there assembled in the anodes have to be separated. This is a considerable process. So that the cost of additional refining has to be taken into consideration." How a deduction for refining costs can be allowed in the face of the express declaration of the Act that no deduction shall be made for cost of smelting, reduction, ortreatment or otherwise is beyond our comprehension.
If the court cannot take the uncontradicted statement of one of the members of the board, representing the board at the hearing before this court, as to the factors going to make up those differentials, then it is difficult to conceive of any means of ascertaining what those factors were. Accepting his statement regarding the factors going to make up the differentials, it is plain that deductions were made for costs of reduction and treatment which are clearly excluded by the plain wording of the statute. This being so, it would seem to follow, of course, that to this extent also the board adopted a fundamentally erroneous system, even though some deductions may be allowable (but this we do not concede).
Nor will it suffice to say, as do the majority, that, "if the board has erred in some minor matters with respect to the differentials, that alone will not vitiate the assessments." With a greater degree of propriety might it be said that the differential on zinc to the extent of .35 cents per pound is a minor matter that does not affect the validity of the assessment, and yet as to that the majority hold, and we think correctly, that the board violated the law. If it has allowed deductions expressly prohibited by law, it certainly has adopted a fundamentally erroneous system of assessment.
If the board may allow a deduction of 2 1/2 cents a pound from the average quoted copper price, as it has done here, *Page 60 
then what is to prevent it, if it sees fit, from allowing a deduction of 3 1/2 cents or 4 1/2 cents per pound? The same question may be propounded with reference to lead, silver, and zinc. Under the majority opinion as we read it, when considered in the light of the facts here shown, the only limitation upon the amount of deductions allowable by the board is that which the board in its discretion may see fit to allow, save that it must not act fraudulently or maliciously or make a mistake or error so gross as to be inconsistent with the exercise of honest judgment. In other words, as we understand the opinion, it holds that unless the error is so gross as to preclude the exercise of honest judgment, the allowance of deductions prohibited by law is not alone sufficient to affect the legality of the assessment. To this we cannot assent.
Also to the extent that the majority opinion directs the board to assess the arsenious oxide as omitted property we think it erroneous.
The law applicable to the assessment of omitted property (sec. 11, p. 13, Chap. 3, Laws of 1923) has relation to ad valorem
taxes, and not to license taxes such as are here involved.
What the board should do is to proceed under section 9 of the Act here under consideration, to the end that the returns shall be corrected so as to include the arsenious oxide and the license tax computed accordingly without the allowance of any differentials. Whether under the circumstances, and in view of the pleadings, the penalty there imposed should be exacted, is not before us, and hence we express no opinion thereon. *Page 61