United States v. Portland Cement Company of Utah, A Utah Corporation, 315 F.2d 169, 10th Cir. (1963)
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Scribd Government DocsUnited States v. Portland Cement Company of Utah, A Utah Corporation, 315 F.2d 169, 10th Cir. (1963)
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Scribd Government Docs315 F.
2d 169
63-1 USTC P 9375
UNITED STATES of America, Appellant,
v.
PORTLAND CEMENT COMPANY OF UTAH, a Utah
corporation, Appellee.
No. 7028.
United States Court of Appeals Tenth Circuit.
March 5, 1963, Rehearing Denied April 12, 1963.
Melva M. Graney, Atty., Dept. of Justice (William T. Thurman, U.S.
Atty., Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson and Robert
L. Waters, Attys., Dept. of Justice, on the brief), for appellant.
Glen E. Fuller, Salt Lake City, Utah (Jack R. Decker, Salt Lake City,
Utah, on the brief), for appellee.
Before BRATTON, LEWIS and SETH, Circuit Judges.
BRATTON, Circuit Judge.
Portland Cement Company of Utah, a so-called miner-manufacturer, sought in
this action to recover refund of income taxes paid for the years 1954, 1955, and
1956. Legal right to the refund was asserted on the ground that the base for
depletion allowance of the taxpayer was sales of finished cement, not a certain
kind of limestone. Judgment was entered for the taxpayer. On appeal, the
judgment was reversed and the cause was remanded for a new trial. United
States v. Portland Cement Company of Utah, 10 Cir., 293 F.2d 826. The cause
was again tried, evidence was adduced, and judgment was again entered for the
taxpayer.
The taxpayer mined from its own quarry in Utah a kind of limestone known in
the trade as cement rock, and it manufactured cement. The opinion of this court
on the former appeal contains in clear detail a statement of the procedures by
which such integrated business was conducted. On the second trial, the court
found these facts. The taxpayer blasted the rock out of the quarry; reduced it by
secondary blasting; crushed it by a gyrating crusher to smaller sizes, plus fines
ranging down to splinters; transported the crushed product to the cement plant
at which place it was further crushed and ground in ball mills, forming a slurry
which was very find mud; the slurry was placed in tanks where it was mixed
and made uniform; after the mixing, the slurry was fed into kilns where it was
sintered; the resulting clinker was cooled and later ground into cement; and the
cement was stored in silos for future sale. The court further found that these
processes were the ordinary treatment processes normally applied by cement
rock miners or operators throughout the United States in the production of
cement, and that the taxpayer never sold any of the cement rock which it
produced or put it to any use other than to make cement. The court further
found that the bulk cement sold by the taxpayer was at all times the first and
only commercially marketable product obtainable from its cement rock, and
that cement was the first and only commercially marketable product obtainable
from any cement rock mined anywhere in the United States. And the court
concluded in effect that the statutory depletion base of the taxpayer was the
income derived from the sale of finished cement.
3
In presently pertinent part, section 613 of the Internal Revenue Code of 1954,
26 U.S.C. 1958 ed. 613, provides in effect that in computing net income a
specified depletion shall be allowed on limestone and other named minerals;
and it defines mining to include the ordinary treatment processes normally
applied by mine owners and operators in order to obtain a commercially
marketable product or products. Section 114(b)(4)(B) of the Internal Revenue
Code of 1939, as amended, 26 U.S.C. 1952 ed. 114(b)(4)(B) was identical. In
United States v. Cannelton Sewer Pipe Co., 364 U.S. 76, 80 S.Ct. 1581, 4
L.Ed.2d 1581, the taxpayer owned an underground mine in Indiana from which
it produced fire clay and shale. The raw mineral product was transported to the
plant of the taxpayer at which it was processed and fabricated into vitrified
sewer pipe, flue lining, and related products. In such process, the raw material
was ground into a pulverized form about as fine as talcum powder; the powder
was mixed with water in a pug mill and became a plastic mass which was
formed by machines into the desired shape of the finished ware. The ware was
placed in dryers and subjected to heat to remove all of the water; thereafter the
ware was vitrified in kilns; and it was cooled, graded and either shipped or
stored. During the taxable year in question there were substantial sales of raw
fire clay and shale in Indiana, mostly about 140 miles from the mine and plant
of the taxpayer. In Kentucky, across the river from the plant of the taxpayer,
fire clay and shale of the same grade as that of the taxpayer were mined and
sold before, during, and subsequent to the year in question. And in certain
subsequent years to that in question, the taxpayer secured all of its mineral
requirements from that source on a lease basis under which the lessor mined
and delivered the raw material to the plant of the taxpayer. After reviewing the
legislative history of depletion allowances, the court said in substance that the
value of the taxpayer's vitrified clay products, obtained by expensive
manufacturing processes, bore little relation to the value of its minerals; that
depletion was not designed to recompense for costs of recovery but for
exhaustion of mineral assets alone; that to extend depletion allowance to the
finished product of an integrated miner-manufacturer would enable him to
enjoy depletion allowance on his manufacturing costs, including depreciation
on his manufacturing plant, machinery, and facilities; and that Congress
intended integrated mining-manufacturing operations to be treated as though
the operator was selling the mineral mined to himself for fabrication. The
judgment in favor of the taxpayer was reversed and the cause was remanded for
further proceedings in conformity with the opinion.
4
In point of material facts, Riddell v. Monolith Portland Cement Co., 9 Cir., 301
F.2d 488, reversed 371 U.S. 537, 83 S.Ct. 378, 9 L.Ed.2d 492, and this case
parallel each other closely. There the taxpayer owned a quarry in California
from which it extracted limestone and used all of such product in the
manufacture of cement at its plant located nearby. Small amounts of certain
other material which the taxpayer mined and some which it purchased were
added to the limestone. The processes in making the cement were those
normally applied in the cement industry by cement manufacturers having
deposits similar to that of the taxpayer. The trial court found that there was no
market for the taxpayer's mineral until such time as it was processed into
finished cement. Judgment was entered awarding the taxpayer depletion
allowance computed on the income from the sale of finished cement. On
appeal, the judgment was affirmed; but on certiorari, it was reversed. Citing
United States v. Cannelton Sewer Pipe Co., supra, the Supreme Court said in
substance that the property of the taxpayer with which the statute allowing
depletion dealt was the mineral product when it reached the crushed limestone
stage; and that the taxpayer's allowance for depletion was limited to the
constructive income received from such crushed limestone. Here, the basis of
depletion of the taxpayer is limited in like manner to the constructive income
from the limestone when it reached the crushed stage. It does not include
finished cement.
The judgment is reversed and the cause is remanded for further proceedings not
in conflict with this opinion.
