1. The tax imposed by Laws of Minnesota, 1921, c. 223, on the
business of mining iron ore, measured by a percentage of the value
of the ore mined or produced, is an occupation tax. P.
262 U. S.
176.
2. The mining of ore, even when substantially all of the ore
mined is immediately and continuously loaded on cars and shipped
into other states to satisfy existing contracts, is not interstate
commerce, and is subject to local taxation. P.
262 U. S.
177.
3. The facts that the Minnesota tax,
supra, applies
only to those engaged, as owners or lessees, in mining or producing
ores on their own account, and not to those who do mining work for
them
Page 262 U. S. 173
under contract and whose pay is part of the expenses of the
business, and that it does not apply to owners or lessees who do
development work, but remove no ore, do not bring it in conflict
with the equal protection clause of the Fourteenth Amendment, or
with § 1 of Art. 9 of the Minnesota Constitution, providing that
taxes shall be uniform upon the same class of subjects. P. 179.
4. The question whether a provision of this Minnesota law
allowing the amount of royalties paid on the ore mined and produced
during the year to be deducted from the value of such ore before
computing the tax introduces an unconstitutional discrimination in
favor of those who operate under leases and pay royalties and
against owners who operate their own mines and pay no royalties
cannot be raised in this case, it appearing that all of the iron
mines in the state are operated under such leases except six which
were not operated during the tax year in question and are not
threatened with a tax for that or later years. P.
262 U. S.
180.
5. A tax based on the value of ore mined and produced, after
deducting royalties and major expenses of the business, cannot be
adjudged arbitrary or unreasonably discriminatory merely because of
lack of uniformity in royalties and expenses producing
corresponding differences in the tax. P.
262 U. S.
181.
Affirmed.
Appeals from decrees of the district court dismissing, on their
merits, as many suits, brought by the appellants to enjoin the
enforcement of a state tax law.
Page 262 U. S. 174
MR. JUSTICE VAN DEVANTER delivered the opinion of the Court.
These are suits to restrain and prevent the enforcement of a
taxing act adopted by the State of Minnesota, April 11, 1921, c.
223, Laws 1921. The principal sections of the act are copied in the
margin, [
Footnote 1] and may be
summarized as follows: the first subjects all who are "engaged in
the business of mining or producing iron ore or other
Page 262 U. S. 175
ores" within the state to the payment in each year of "an
occupation tax" equal to 6 percent of the value of the ore mined or
produced during the preceding year, such tax to be "in addition to
all other taxes." The second directs that the tax be computed on
the value of the ore at the place where it is "brought to the
surface of the earth" less certain deductions to be noticed
presently. The third requires all who are engaged in such business
to make on or before the 1st of February in each year a true report
under oath of relevant information respecting their mining
operations during the preceding year. And the sixth provides that,
where such a report is not made, the state Tax Commission shall
determine, from such information as it may possess or obtain, the
amount and
Page 262 U. S. 176
value of the ore, and shall compute the tax and include therein
a penalty of 10 percent for the failure to make the report.
The plaintiffs are corporations engaged in the business of
mining or producing iron ore from mines within the state, and the
defendants are the officers designated to carry the act into
effect.
Preparatory to assessing the tax in 1922, the defendants
requested the plaintiffs to make the prescribed reports of their
mining operations during 1921, which the plaintiffs refused to do
because they conceived that the act was invalid. The defendants
then proceeded to take the requisite steps for imposing the tax,
and the plaintiffs brought these suits to restrain and prevent such
action on the grounds that the act and the tax about to be imposed
were in conflict with the commerce clause of the Constitution of
the United States, with the equal protection clause of the
Fourteenth Amendment, and with a clause in § 1 of article 9 of the
state constitution providing: "Taxes shall be uniform upon the same
class of subjects."
The cases were heard together on an agreed statement of facts
and some supplemental evidence which was free from conflict. One of
the matters stipulated was that the suits were brought in
circumstances making them cognizable in equity. The district court
sustained the act and the tax and dismissed the suits on the
merits. The cases are here on direct appeals by the plaintiffs
under § 238 of the Judicial Code.
The parties differ about the nature of the tax, the plaintiffs
insisting it is a property tax, and the defendants that it is an
occupation tax. Both treat the question as affecting the solution
of other contentions. There has been no ruling on the point by the
supreme court of the state. We think the tax in its essence is what
the act calls it -- an occupation tax. It is not laid on the land
containing the ore, nor on the ore after removal, but on
Page 262 U. S. 177
the business of mining the ore, which consists in severing it
from its natural bed and bringing it to the surface where it can
become an article of commerce and be utilized in the industrial
arts. Mining is a well recognized business wherein capital and
labor are extensively employed. This is particularly true in
Minnesota. Obviously a tax laid on those who are engaged in that
business, and laid on them solely because they are so engaged, as
is the case here, is an occupation tax. It does not differ
materially from a tax on those who engage in manufacturing.
Stratton's Independence v. Howbert, 231 U.
S. 399,
231 U. S. 414;
Stanton v. Baltic Mining Co., 240 U.
S. 103,
240 U. S. 114.
The plaintiffs regard
Dawson v. Kentucky Distilleries &
Warehouse Co., 255 U. S. 288, as
making the other way. But that case is not in point. The tax there
considered, as the opinion shows (pp.
255 U. S.
292-294), was not laid on any business, but on the mere
exertion by an owner of distilled spirits of his right to withdraw
them from a bonded warehouse, and had "none of the ordinary
incidents of an occupation tax."
We shall therefore treat the tax as an occupation tax in dealing
with the contentions presented.
The chief contention is that mining, as conducted by the
plaintiffs, if not actually a part of interstate commerce, is no
closely connected therewith that to tax it is to burden or
interfere with such commerce, which a state cannot do consistently
with the commerce clause of the Constitution of the United
States.
The facts on which the contention rests are as follows: the
demand or market within the state for iron ore covers only a
negligible percentage of what is mined by the plaintiffs. [
Footnote 2] Practically all of their
output is mined to fill existing contracts with consumers outside
the state
Page 262 U. S. 178
and passes at once into the channels of interstate commerce.
Three-fourths of it is from open pit mines, and one-fourth from
underground mines. At the open pit mines, empty cars are run from
adjacent railroad yards into the mines and there loaded.
Steamshovels sever the ore from its natural bed and lift it
directly into the cars. When loaded, the cars are promptly returned
to the railroad yards, where they are put into trains which start
the ore on its interstate journey. The several steps follow in such
succession that there is practical continuity of movement from the
time the ore is severed from its natural bed. The operations within
the mine and the movement of the cars into and out of the mine are
conducted by the plaintiffs. The subsequent transportation is by
public carriers. At the underground mines, the plaintiffs dig the
ore, bring it to the surface through shafts, and put it in elevated
pockets where it readily can be loaded into cars. The subsequent
movements are much the same as at the open pit mines, but their
continuity is not so pronounced. Some of the ore from both kinds of
mines -- between 10 and 20 percent -- is concentrated by washing or
beneficiated after coming out of the mine and before starting out
of the state, but our conclusion respecting the usual operations
renders this deflection immaterial.
Plainly the facts do not support the contention. Mining is not
interstate commerce, but, like manufacturing, is a local business,
subject to local regulation and taxation.
Kidd v. Pearson,
128 U. S. 1,
128 U. S. 20;
Capital Dairy Co. v. Ohio, 183 U.
S. 238,
183 U. S. 245;
Delaware, Lackawanna & Western R. Co. v. Yurkonis,
238 U. S. 439,
238 U. S. 444;
Hammer v. Dagenhart, 247 U. S. 251,
247 U. S. 272;
United Mine Workers v. Coronado Coal Co., 259 U.
S. 344,
259 U. S. 410.
Its character in this regard is intrinsic, is not affected by the
intended use or disposal of the product, is not controlled by
contractual engagements, and persists even though the
Page 262 U. S. 179
business be conducted in close connection with interstate
commerce.
Cornell v. Coyne, 192 U.
S. 418;
Browning v. Waycross, 233 U. S.
16,
233 U. S. 22;
Delaware, Lackawanna & Western R. Co. v. Yurkonis, supra;
General Railway Signal Co. v. Virginia, 246 U.
S. 500;
Hammer v. Dagenhart, supra; Arkadelphia
Milling Co. v. St. Louis Southwestern Ry. Co., 249 U.
S. 134,
249 U. S. 151;
Crescent Cotton Oil Co. v. Mississippi, 257 U.
S. 129,
257 U. S. 136;
Heisler v. Thomas Colliery Co., 260 U.
S. 245.
The ore does not enter interstate commerce until after the
mining is done, and the tax is imposed only in respect of the
mining. No discrimination against interstate commerce is involved.
The tax may indirectly and incidentally affect such commerce, just
as any taxation of railroad and telegraph lines does, but this is
not a forbidden burden or interference.
The contentions made under the equal protection provision of the
Fourteenth Amendment and under the state constitutional provision
that "taxes shall be uniform upon the same class of subjects"
present a question or classification, and have been argued
together.
Consistently with both provisions, the legislature of the state
may exercise a wide discretion in selecting the subjects of
taxation, particularly as respects occupation taxes. It may select
those who are engaged in one class of business and exclude others,
if all similarly situated are brought within the class and all
members of the class are dealt with according to uniform rules.
Southwestern Oil Co. v. Texas, 217 U.
S. 114,
217 U. S. 121;
State ex rel. v. Parr, 109 Minn. 147, 152. Here, the
selection is of all who are engaged in mining or producing ores on
their own account -- that is to say, as owners or lessees. The
selection seems to be an admissible one, so we turn to the
objections urged against it.
One is that contractors who strip off the overburden of soil,
gravel, etc., in open pit mines, other contractors who
Page 262 U. S. 180
load the ore in such mines into cars, and still others, usually
four in a group, who take ore out of underground mines, are not
included. But none of these are engaged in mining on their own
account. Instead, they are working for those who are so engaged.
However important their service, they are not principals in the
business, but employees, and their pay, whatever it be, is part of
the expense of the business. Their omission has a reasonable
basis.
Another objection is that all owners and lessees who mine or
produce ore are included, while those who do extensive development
work, but remove no ore, are omitted. This is not fairly subject to
criticism. Equality does not require that unproductive mining be
taxed along with productive mining. Besides, if ore is uncovered or
made accessible by such development work, the tax will be imposed
when the ore is mined.
Among the deductions which the act provides shall be made from
the value of the ore before computing the tax is "the amount of
royalties paid on the ore mined and produced during the year." This
provision is assailed as working a serious discrimination in favor
of those who operate under leases and pay royalties, as all the
lessees do, and against owners who operate their own mines and pay
no royalties. The question is an important one, and has not been
before the supreme court of the state. It apparently requires a
construction of the particular provision, along with other parts of
the act, and possibly of the state constitutional provision. After
that, it may be that there would be need for turning to the
Fourteenth Amendment. "Only those whose rights are directly
affected can properly question the constitutionality of a state
statute and invoke our jurisdiction in respect thereto."
Hendrick v. Maryland, 235 U. S. 610,
235 U. S. 621;
Hatch v. Reardon, 204 U. S. 152,
204 U. S. 160;
Plymouth Coal Co. v. Pennsylvania, 232 U.
S. 531,
232 U. S. 544.
The record shows that, of the many iron mines in the state, all but
six are operated
Page 262 U. S. 181
under leases, and that none of the six was operated in any way
during 1921, the year in respect of which the tax was about to be
imposed when these suits were begun. Therefore, no tax could be
imposed in respect of the six mines based on that year's
operations, and it is made plain that the defendants have no
purpose to impose one. It cannot be merely assumed that mining has
been resumed at those mines, nor that any tax in respect of them
for later years is now threatened. The situation in these cases is
therefore such that none of the plaintiffs is entitled to invoke a
decision of the question. We accordingly leave it entirely
open.
It also is said that the royalty provision and others respecting
deductions will work a discrimination as between different lessees,
in that some will be subjected to a higher tax than others. No
doubt there will be differences in the amount, but they will result
from differences in situation, and not from differences in
treatment. Some lessees pay higher royalties than others, and will
secure a higher deduction on that score. Some are subjected to
greater expense in mining than others, and will secure reductions
accordingly. And some are subjected to higher local taxes on their
mines than others, the mines being scattered through several
counties and minor municipal subdivisions, and this will cause the
deductions to vary. But all lessees will have the benefit of
deductions adjusted to the royalties, expenses, and taxes actually
paid, and the value of the ore, according to which the tax will be
computed, will in each instance be its actual value when it is
brought out of the mine less those deductions. In short, the tax is
to be adjusted to the value of the output less the major expenses
of the business, and this according to uniform rules. We therefore
cannot say that it is intended to or will work any arbitrary or
unreasonable discrimination as between different lessees.
Decrees affirmed.
[
Footnote 1]
"Section 1. Every person engaged in the business of mining or
producing iron ore or other ores in this state shall pay to the
State of Minnesota an occupation tax equal to 6 percent of the
valuation of all ores mined or produced, which said tax shall be in
addition to all other taxes provided for by law, said tax to be due
and payable from such person on May 1 of the year next succeeding
the calendar year covered by the report thereupon to be filed as
hereinafter provided."
"Sec. 2. The valuation of iron or other ores for the purposes of
determining the amount of tax to be paid under the provisions of
Section 1 of this act shall be ascertained by subtracting from the
value of such ore at the place where the same is brought to the
surface of the earth, such value to be determined by the Minnesota
Tax Commission:"
"1. The reasonable cost of separating the ore from the ore body,
including the cost of hoisting, elevating, or conveying the same to
the surface of the earth."
"2. If the ore is taken from an open pit mine, an amount for
each ton of ore mined or produced during the year equal to the cost
of removing the overburden, divided by the number of tons of ore
uncovered, the number of tons of ore uncovered in each such case to
be determined by the Minnesota Tax Commission."
"3. If the ore is taken from an underground mine, an amount for
each ton of ore mined or produced during the year equal to the cost
of sinking and construction shafts and running drifts, divided by
the number of tons of ore that can be advantageously taken out
through such shafts and drifts, the number of tons of ore that can
be advantageously taken out in each such case to be determined by
the Minnesota Tax Commission."
"4. The amount of royalties paid on the ore mined or produced
during the year."
"5. A percentage of the
ad valorem taxes levied for
said year against the realty in which the ore is deposited equal to
the percentage that the tons mined or produced during such year
bears to the total tonnage in the mine."
"6. The amount or amounts of all the foregoing subtractions
shall be ascertained and determined by the Minnesota Tax
Commission."
"Sec. 3. Every person engaged in such mining or production of
ores shall, on or before the first day of February, 1922, and
annually thereafter on or before the first day of February of each
year, file with said Commission under oath a correct report in such
form and containing such information as the Tax Commission may
require, covering the preceding calendar year."
"Sec. 6. If any person subject of this act shall fail to make
the report provided for in section 3 hereof at the time and in the
manner therein provided, the Tax Commission shall in such case,
upon such information as it may possess or obtain, ascertain the
kind and amount of ore mined or produced, together with the
valuation thereof, and shall thereon find and determine the amount
of the tax due from such person, and there shall be added thereto a
penalty for failure to report, which penalty shall equal ten
percent of the tax imposed, and shall be treated as a part
thereof."
[
Footnote 2]
In 1921, out of a total output of 18,167,370 tons, the amount
sold and used within the state was 261,622 tons.