In computing its excise under the Corporation Tax Act of August
5, 1909, a mining corporation is not entitled to deduct from it
gross income any amount whatever on account of depletion or
exhaustion of ore bodies caused by its operations for the year for
which the tax is assessed.
It cannot deduct the cost value of the ore in the ground before
it was mined, ascertained in compliance with the Treasury
Regulations of February 14, 1911.
Page 247 U. S. 127
The case is stated in the opinion.
MR. JUSTICE DAY delivered the opinion of the Court.
This case is here upon certificate from the United States
Circuit Court of Appeals for the Ninth Circuit, from which it
appears that the Goldfield Consolidated Mines Company brought an
action against Scott, United States Collector of Internal Revenue,
Fourth California District, to recover certain taxes levied for the
years 1909 and 1910 under the Corporation Tax Act of 1909. The
district court sustained a demurrer to the complaint and entered
judgment against the present plaintiff in error.
In the certificate, the circuit court of appeals sets out the
allegations of the complaint as to the first cause of action,
stating that the second cause of action need not be repeated, as
the facts are of the same character as those set out in the first.
Omitting formal and unnecessary matters, the circuit court of
appeals certifies as the allegations of the complaint, to which the
demurrer was sustained, the following:
"The plaintiff below and plaintiff in error herein, the
Goldfield Consolidated Mines Company, is and was a corporation
engaged in mining in the Nevada, which state is within the
jurisdiction of the Fourth Internal Revenue District of California.
"
Page 247 U. S. 128
"An assessment of an excise tax under § 38 of the Act of
Congress approved August 5, 1909 entitled 'An Act to provide
revenue, equalize duties, and encourage the industries of the
United States, and for other purposes,' was levied upon the
plaintiff in error by the then Collector of Internal Revenue for
the said District amounting to $41,890.91, upon an assessment of
$4,189,091.61, which tax was paid under protest of the levy and
assessment. The plaintiff in error had made a return of annual net
income for that year, 1909, claiming a deduction for the value of
the ore in the ground before it was mined, of 230,463 tons of ore,
of the value in the ground before it was mined of $5,646,940.46,
upon the ground that such ore constituted exhaustion of the capital
value of the property owned by it, and its protest against the
assessment and levy was based thereon. Thereafter, the plaintiff in
error made application for refund of said tax pursuant to §§ 3220
and 3226 of the Revised Statutes, and based its claim to such
refund upon the propriety of the deduction so claimed, and stated
in said application that such exhaustion of capital assets
constituted a depreciation within the meaning of the act in
question, and that the same would have more than offset the total
net income of the plaintiff in error."
"Thereafter, during the pendency before the Commissioner of
Internal Revenue of said application for refund, the plaintiff in
error, by its duly authorized officials, made full explanation
before the Commissioner of Internal Revenue and offered full proof
of the correctness in all respects of its said return of annual net
income for the year 1909 and of all statements of fact contained
therein, and, while the Commissioner of Internal Revenue was
holding said application under consideration, the plaintiff in
error was duly and regularly granted by said Commissioner leave to
comply fully with the then rules and regulations of the Treasury
Department embodied in
Page 247 U. S. 129
Treasury Decision 1675, promulgated February 14th, 1911, and
particularly §§ 80 to 89 thereof, relating to depreciation of
property of corporations whose business involved wasting assets,
and like leave was so given to present to the Commissioner of
Internal Revenue an amended statement and return of annual net
income for said year with explanations of fact in support thereof,
and to ascertain the unit cost per ton of the estimated ore bodies
belonging to the plaintiff in its various mining properties as of
January 1st, 1909, and the estimated value of the ore in the ground
before it was mined for the year 1909, by multiplying the said unit
cost per ton by the total number of tons mined in said year, all of
which was done, and the same was filed by the plaintiff in error
during the time so provided."
The rules and regulations are then set out.
"In addition to the rules and regulations as above set out, the
plaintiff in error was further required by the Commissioner of
Internal Revenue to make a calculation for the year 1909 and of
previous years of operation, to ascertain the total exhaustion of
ore which had taken place in the operation of its mining
properties, and to enter such amount of tonnage exhaustion,
multiplied by the unit cost per ton, in its official corporate
books of account, and also cause the same to be included in its
printed annual report of that current year to its stockholders and
the public with appropriate explanation thereof, all of which
requirements were performed by the plaintiff in error in obedience
to said orders of the Commissioner of Internal Revenue, and within
the time granted therefor."
"The complaint alleged that the resulting figures so rendered in
said return were and are in all respects true and correct, and
resulted in a showing of net income measuring the excise tax under
the rules and regulations
Page 247 U. S. 130
amounting to $765,380.02, upon which the tax would have been
$7,653.80; it also appeared from said complaint that this
compliance with the requirements of the Commissioner of Internal
Revenue was made by the plaintiff in error without waiving its
claim to the full deduction originally claimed."
"It further appears from the complaint that, in disobedience and
disregard of the law and of the rules and regulations of the
Treasury Department, the Commissioner of Internal Revenue
disallowed the application for refund of the plaintiff in error
in toto, which disallowance was communicated to the
plaintiff in error December 29, 1913, by the defendant in error,
Collector of Internal Revenue, the then collector having succeeded
to the office of the Collector of Internal Revenue who had
originally levied the tax in question. The complaint alleges that
no part of the said tax has been refunded or paid back, and that
the same is still due and unpaid."
The questions propounded are:
"1. Under the provisions of paragraph 38 of the Act of Congress
entitled: 'An Act to provide revenue, equalize duties, and
encourage the industries of the United States, and for other
purposes,' approved August 5, 1909 (36 Statutes at Large, p. 11 at
p. 112), is a mining corporation, for the purpose of determining
its net income for the basis of taxation, entitled to deduct from
its gross income any amount whatever on account of depletion or
exhaustion of ore bodies caused by its operations for the year for
which the tax is assessed?"
"2. Is such a corporation under said act entitled, in the
ascertainment of its net income, to a deduction against gross
proceeds from the mining and treatment of ores to the extent of the
cost value of the ore in the ground before it was mined,
ascertained in strict compliance with the rules and regulations of
the Treasury Department of February 14, 1911 (Tr. Dec. 1675)? "
Page 247 U. S. 131
3. Where such a corporation claimed originally in its return of
net income under said act a deduction for depreciation from
exhaustion of ore for the year equal to the actual value of the ore
in the ground before it was mined, and, having been denied any
deduction whatever for exhaustion of ore, and having been assessed
accordingly and having paid the resulting tax, made application
pursuant to §§ 3220 and 3226, Revised Statutes for refund, during
the pendency of which application said corporation was granted
leave to amend and did amend its return of net income in strict
accordance with the rules and regulations promulgated February 14,
1911, §§ 80 to 89 T.D. 1675, resulting in an amended return based
upon cost as provided in said regulations and showing claimed
deductions therefrom less than the corporation's net realizations
for the year from the ore actually mined, is such corporation
entitled to an allowance of deductions and refund of taxes
accordingly?
"4. In what, if any, way is the right to such claimed deductions
affected by the fact that such corporation, in obedience to
requirements imposed by the Commissioner of Internal Revenue at the
time of filing its amended returns showing the cost value as of
January 1, 1909, of the ores mined during the year, caused to be
entered in its official books of account and printed in its annual
report of that current year to all of its stockholders and to the
public, a statement of the total amount of ore exhaustions,
multiplied by the unit cost per ton on its mining properties for
that and all previous years?"
In the brief submitted for the Goldfield Consolidated Mines
Company, counsel frankly admit that, if this Court is to adhere to
the principles laid down in
Stratton's Independence v.
Howbert, 231 U. S. 399, and
Von Baumbach v. Sargent Land Co., 242 U.
S. 503, those cases are conclusive against the
contentions of the Mines Company in this proceeding. In view of the
discussion of the nature
Page 247 U. S. 132
of mining property in
Stratton's Independence v. Howbert,
supra, and the application of the principles therein laid down
in the subsequent cases of
Stanton v. Baltic Mining Co.,
240 U. S. 103, and
Von Baumbach v. Sargent Land Co., supra, it is unnecessary
to enter upon further consideration of the matters disposed of in
those cases. We find no occasion to depart from the principles
therein announced or the rulings therein made. They have been
reaffirmed in the case of
United States v. Biwabik Mining Co.,
ante, 247 U. S. In this
view, it follows that the first and second questions must be
answered in the negative, and that it is unnecessary to answer the
third and fourth questions.
So ordered.