PFIZER v MADISON COUNTY

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No. 12289 I N THE SUPREME C U T O THE STATE O M N A A OR F F OTN 1972 PFIZER, I N C . , s u c c e s s o r t o CHAS. PFIZER and CO., I N C . , a c o r p o r a t i o n , P l a i n t i f f and Respondent, MADISON COUNTY, a p o l i t i c a l s u b d i v i s i o n of t h e STATE O MONTANA, e t a l . , F Defendants and Appellants. Appeal from: D i s t r i c t Court of t h e F i f t h J u d i c i a l D i s t r i c t , Honorable Frank E. B l a i r , Judge p r e s i d i n g . Counsel of Record : For Appellants : Edward Jene B e l l argued, Helena, Montana. Chester L. Jones, County Attorney, V i r g i n i a C i t y , Montana. For Respondent: Gough, Booth, Shanahan and Johnson, Helena, Montana. Ward Shanahan argued, Helena, Montana. Submitted: Decided: F i l e d : abi; . ; -T- ? d December 4, 1972 JA/{ ; ;; ;J M r . J u s t i c e Wesley C a s t l e s d e l i v e r e d t h e Opinion of t h e Court, This appeal i s from t h e d i s t r i c t c o u r t of t h e f i f t h j u d i c i a l d i s t r i c t , county of Madison. The c o u r t , s i t t i n g without a j u r y , found p l a i n t i f f had paid excess taxes and ordered defendant S t a t e Board of Equalization t o refund such excess taxes. From t h a t judgment, defendant appeals. The t r i a l c o u r t made r a t h e r exhaustive f i n d i n g s of f a c t and conclusions of law. The f i n d i n g s of f a c t , a s such, a r e not chal- lenged i n d i v i d u a l l y ; b u t r a t h e r , t h e i s s u e s , a s w i l l h e r e i n a f t e r appear, encompass t h e conclusions of law a s t o the meaning of t h e metal mines a c t a s i t a p p l i e s t o t h e mining of t a l c . P l a i n t i f f i s P f i z e r , I n c . , h e r e i n a f t e r c a l l e d P f i z e r , successor t o Chas. P f i z e r and Co., a corporation, which owns and o p e r a t e s t h e Treasure S t a t e Mine i n Madison County, from which i t mines raw t a l c ore. P f i z e r a l s o owns and operates t h e t a l c m i l l i n g and r e d u c t i o n works some t h i r t y miles away n e a r B a r r e t t s i n Beaverhead County. P f i z e r h a u l s t h e o r e mined a t t h e Treasure S t a t e Mine, i n t r u c k s , t o a stockpile a t the Barretts plant. The raw t a l c i s then put through a b e n e f i c i a t i o n s t a g e of processing, which i s a process of washing, screening, s o r t i n g and crushing t h e raw t a l c by means of hand l a b o r and c e n t r i f u g a l machines. The b e n e f i c i a t e d t a l c i s placed i n a p i l e a t t h e B a r r e t t s p l a n t i n p i e c e s of o r e ranging up t o 8 inches. The t a l c , i n t h i s s t a t e , i s c a l l e d b e n e f i c i a t e d t a l c . There i s a market f o r t a l c i n t h a t s t a g e a t a p r i c e of $22 per ton, and P f i z e r s e l l s approximately 2% of i t s t a l c i n t h a t s t a g e , The r e - maining 98% of t h e b e n e f i c i a t e d t a l c i s f u r t h e r milled i n P f i z e r ' s r o l l e r m i l l , hammer m i l l Barretts. , jet m i l l and c a l c i n i n g operation a t This process reduces t h e p i e c e s of b e n e f i c i a t e d t a l c t o various f i n e sizes. P f i z e r then s e l l s t h e t a l c under v a r i o u s t r a d e names and packaging t o i t s customers who use t h e t a l c i n manufacturing p a i n t , ceramics, cosmetics, p l a s t i c s , i n s e c t i c i d e s , g l a s s , paper, and o t h e r products. The S t a t e Board of Equalization, h e r e i n a f t e r c a l l e d t h e Board, determined t h a t P f i z e r ' s n e t proceeds of mines t a x should be based upon t h e v a l u e of t h e t a l c from s a l e s on t h e open market. Pfizer contends t h a t i t s m i l l i n g and reducing operation a t B a r r e t t s i s a If manufacturingf' process a s d i s t i n g u i s h e d from a "mining" process and t h a t i t s n e t proceeds t a x should be based upon t h e v a l u e of t h e t a l c a t t h e b e n e f i c i a t i o n s t a g e , and n o t a t t h e v a l u e which t h e t a l c has a f t e r i t i s f u r t h e r milled and reduced. P f i z e r ' s predecessor i n i n t e r e s t , T r i - S t a t e Minerals Company, operated a b e n e f i c i a t i o n p l a n t a t B a r r e t t s . But, T r i - S t a t e s o l d and shipped a l l of i t s b e n e f i c i a t e d t a l c t o Utah, where t h e product was f u r t h e r milled and reduced, The Board determined t h a t T r i - S t a t e ' s n e t proceeds t a x was based on t h e value of t h e b e n e f i c i a t e d t a l c , which i s t h e same standard which P f i z e r wants t o be used, P f i z e r exhausted i t s a d m i n i s t r a t i v e remedies and each year brought a c t i o n s claiming refunds f o r t h e t a x years 1968, 1969 and 1970, which a c t i o n s were consolidated f o r t r i a l purposes. From t h e judgment f o r Phizer ordering refunds f o r back t a x e s , t h e Board appeals. The Board r a i s e s t h r e e i s s u e s f o r review, concerns whether T i t l e 84, Chapter 54, R,C.M. The p r i n c i p a l i s s u e 1947, imposes t h e n e t proceeds of mines t a x on t h e p r o f i t earned by P f i z e r through a l l s t a g e s of i t s mining, including i t s m i l l i n g and r e d u c t i o n operation. The Board contends t h a t P f i z e r ' s m i l l i n g and reduction operation i s nothing more than an i n t e g r a t e d mining operation, which begins with t h e digging of l a r g e .chunks of raw t a l c o r e and ends a f t e r t h e m i l l i n g s t a g e with f i n e l y ground p a r t i c l e s of raw t a l c ore. It maintains t h i s operation by P f i z e r i s n o t a process and T i t l e 84, Chapter 54, R,C,M. It manufacturing" 1947, r e q u i r e s t h e d e t e r - mination of P f i z e r ' s n e t proceeds of mines t a x on t h e b a s i s of t h e value of i t s rap7 t a l c o r e product, which i t s e l l s subsequent t o t h e m i l l i n g operation. The Board bases i t s argument on Section 3 , A r t i c l e X I T , Montana C o n s t i t u t i o n , which provides: " A l l mines and mining claims, both p l a c e r and rock i n p l a c e , containing o r bearing gold, s i l v e r , copper, l e a d , c o a l o r o t h e r v a l u a b l e mineral d e p o s i t s , a f t e r purchase thereof from t h e United S t a t e s , s h a l l be taxed a t t h e p r i c e paid t h e United S t a t e s t h e r e f o r yc and a l l machinery used i n mining, and a l l property and s u r f a c e improvements upon o r appurtenant t o mines and mining claims which have a value s e p a r a t e and i n dependent of such mines o r mining claims, and t h e annual n e t proceeds of a l l mines and mining claims s h a l l be taxed a s provided by law. I I ** The l e g i s l a t u r e i n compliance with t h i s provision of t h e Cons t i t u t i o n enacted s e c t i o n 84-5401, R.C.M. 1947, which provides i n pertinent part : " A l l mines and mining claims, both p l a c e r and rock i n place, containing o r bearing gold, s i l v e r , copper, l e a d , c o a l o r o t h e r v a l u a b l e mineral d e p o s i t s , a f t e r purchase thereof from t h e United S t a t e s , s h a l l be taxed a t t h e p r i c e paid t h e United S t a t e s t h e r e f o r +c * and a l l machinery used i n mining, and a l l property and s u r f a c e improvements upon o r appurtenant t o mines and mining claims, which have a value s e p a r a t e and independent s f such mines o r mining claims, and t h e annual n e t proceeds of a l l mines and mining claims, s h a l l be taxed a s o t h e r personal property, I I * Subsequent s e c t i o n s i n Chapter 54, T i t l e 84 s p e l l out t h e n e t proceeds t a x i n more d e t a i l . Based on t h i s C o n s t i t u t i o n a l and s t a t u t o r y a u t h o r i t y , t h e Board levied the t a x on t h e mining products of P f i z e r . I n i t s argument t h e Board c i t e s Northern P a c i f i c Ry. Co. v , Musselshell County, 54 Mont. 96, 169 P. 53. That d e c i s i o n i n t e r - p r e t s Section 3 , A r t i c l e X I I , of t h e Montana C o n s t i t u t i o n , and explains t h a t t h e r e i s a n e c e s s i t y f o r taxing mining property d i f f e r e n t l y than ordinary r e a l property, and t h a t mining property must be looked on a s both r e a l and personal property. It i s r e a l property i n regard t o t h e s u r f a c e v a l u e , b u t i s regarded a s personal property a s t o t h e minerals. The Board argues t h a t i f t h i s n e t proceeds t a x does n o t extend t o t h e v a l u e of t h e product a f t e r i t i s milled and reduced t o f i n e t a l c , t h e i n t e n t of t h e C o n s t i t u t i o n and t h e l e g i s l a t u r e would be thwarted, The Board contends i t was t h e i n t e n t of t h e l e g i s l a t u r e t h a t t h e n e t proceeds t a x extend a l l the way through t h e mining process t o t h e point where t h e product i s marketed, sold and converted i n t o money. F u r t h e r , t h a t both s t a g e s i n P f i z e r ' s process, t h e b e n e f i c i a t i o n s t a g e and t h e m i l l i n g s t a g e must be considered i n determining t h e n e t proceeds tax. The d i s t r i c t c o u r t heard t h e Board's argument, examined a l l t h e evidence introduced by t h e Board, and d i d n o t agree with i t s position. This Court has a l s o c a r e f u l l y read t h e record, examined t h e evidence, and reaches t h e same conclusion a s t h e d i s t r i c t court---the Board has imposed t h e t a x beyond i t s scope of a u t h o r i t y . The Board admits P f i z e r ' s predecessor i n i n t e r e s t , T r i - S t a t e Minerals Company, operated a b e n e f i c i a t i o n p l a n t . Yet, T r i - S t a t e was charged a n e t proceeds t a x only on t h e v a l u e of t h e b e n e f i c i a t e d talc. P f i z e r moved i t s reduction and m i l l i n g p l a n t t o Montana from Utah and t h e Board changed i t s p o s i t i o n , so t h a t t h e n e t proceeds of t h e mining operation extends a l l t h e way through t h e manufacturing process, The Board determined t h a t because P f i z e r i n t e g r a t e d a l l of i t s f a c i l i t i e s , they a l l became p a r t of t h e mining o p e r a t i o n , and the n e t proceeds of mining t a x was t h e g r o s s value of a l l of t h e products which P f i z e r i s producing i n Montana, The Board c i t e s Foreman v. Beaverhead County, 1 1 7 Mont. 557, 161 P.2d 524, i n support of i t s p o s i t i o n . W e f i n d Foreman does . n o t support t h e Board's p o s i t i o n and, i f anything, would support P f i z e r ' s position. There, t h i s Court found t h a t a t a i l i n g s dump long a f t e r t h e mine ceased operation was n o t p a r t of t h e n e t proceeds of a mine and t h e r e f o r e could n o t be taxed a s such. W e f i n d a somewhat s i m i l a r s i t u a t i o n h e r e , t h e t a l c a f t e r i t has gone beyond t h e b e n e f i c i a t i o n s t a g e , i s no longer s u b j e c t t o t h e n e t proceeds of a mine tax. The t a x i n question should be a p p l i e d f o r t h e purpose a l r e a d y declared by t h i s Court, I n Byrne v , Fulton O i l Co., 85 Mont. 329, 3 3 4 , 278 P. 514, t h i s Court s a i d : "The framers of t h e C o n s t i t u t i o n . on account of t h e d i f f i c u l t y i n a r r i v i n g a t a f a i r v a l u e of mining property, adopted a s a s u b s t i t u t e t h e method provided f o r by s e c t i o n 3 , A r t i c l e XII, supra, f o r t a x i n g The n e t proceeds t a x i s t h e 'annual n e t proceeds.' simply a t a x i n l i e u o f , o r a s u b s t i t u t e f o r , t h e ad valorem t a x on t h e value of mines o r mining i n t e r e s t s . [Citing c a s e s ] "It i s w e l l s e t t l e d i n t h i s s t a t e t h a t t h e mineral c o n t e n t s of a mine may n o t be taxed i n s i t u , but t a x a t i o n must be on t h e annual n e t proceeds." The C o n s t i t u t i o n a l and l e g i s l a t i v e i n t e n t was t o c r e a t e a t a x i n l i e u of an "ad valorem'' property tax. This i s complicated be- cause of t h e d i f f e r e n t types of mining and mineral substances encountered i n Montana. of t h e mine. But, t h e scape of t h e t a x i s t h e n e t proceeds Here, t h e n e t proceeds of t h e mining process i s t h e benef i c i a t e d t a l c , The t a l c i s taken from t h e e a r t h ; i t i s washed s o t h a t dolomite and o t h e r rocks a r e separated from i t ; and i t i s marketable i n i t s crude washed form. That i s t h e end of t h e mining operation and t h a t i s what P f i z e r w i l l pay i t s n e t proceeds t a x on. P f i z e r i s making many s p e c i a l products, a l l t a l c but i n s p e c i f i e d form, f o r many customers by use of s p e c i a l i z e d machinery, These products a r e used f o r f a c e powder, p a i n t , r i c e p o l i s h i n g , p i t c h c o n t r o l i n paper making, and ceramics. These s p e c i a l pro- d u c t s a r e n o t t o be included i n t h e n e t proceeds of mines t a x , f o r i f they were t h e r e would be no way of c u t t i n g o f f t h i s tax. The copper w i r e s o l d i n a l o c a l s t o r e would be charged a s t h e n e t proceeds of mine t a x t o t h e company which o r i g i n a l l y mined t h e ore. That i s n o t done, and t h a t was not t h e i n t e n t of t h e c o n s t i t u t i o n a l provision, The i n t e n t was t o t a x t h e proceeds of t h e mine. When such proceeds a r e milled o r manufactured i n t o o t h e r products, t h a t t a x does n o t apply. found i n Montana. A good example would be sapphires, a gem stone It i s t h e value of t h e uncut sapphire t h a t i s taxed, n o t t h e value of t h e c u t and polished stone subsequently s o l d by a jeweler. W f i n d t h e n e t proceeds t a x of T i t l e 84, Chapter 54, R,C.M, e 1947, does n o t apply t o t h e t a l c once i t has passed t h e b e n e f i c i a tion stage. The ~ o a r d ' ssecond i s s u e i s t h a t P f i z e r may n o t deduct monies expended f o r operations subsequent t o t h e b e n e f i c i a t i o n s t a g e , i f t h e p r o f i t s from such o p e r a t i o n s a r e n o t included i n t h e v a l u e of i t s n e t proceeds. There does n o t appear t o be any r e a l i s s u e h e r e between t h e parties. P f i z e r has f i l e d two r e t u r n s over each of t h e l a s t few y e a r s , one computed on t h e theory t h a t b e n e f i c i a t e d t a l c was t h e end of t h e mining process; t h e o t h e r computed on t h e theory t h a t t h e e n t i r e process was under t h e n e t proceeds t a x a s required by t h e Board. N w t h a t we have found t h a t t h e t a x only a p p l i e s t o t h e o b e n e f i c i a t i o n s t a g e , P f i z e r of course w i l l n o t , and can n o t , deduct expenses of i t s f i n a l m i l l i n g s t a g e a g a i n s t i t s n e t proceeds Where t h e n e t proceeds t a x ends, t h e r e a l s o ends t h e deductions tax. f o r such tax. Only deductions f o r t h e mining operation w i l l be allowed up through t h e b e n e f i c i a t i o n s t a g e , A l l o t h e r expenses w i l l be incurred a s t o t h e manufacturing process. A t t h i s p o i n t , t h e Board contends t h a t P f i z e r i s , i n e f f e c t , g e t t i n g deductions f o r 11 manufacturing" c o s t s i n paying t h e tarr on t h e b a s i s of "wash and s o r t " o r b e n e f i c i a t i o n s t a g e . The record does n o t contain a challenge t o t h e f i g u r e s presented by P f i z e r and no evidence was o f f e r e d by t h e Board which would show any deductions claimed t o have been improper. I f indeed t h e r e were deductions claimed t h a t were improper, t h e Board had and has every opportunity t o c a t c h them i n a u d i t i n g and checking t h e r e t u r n s . The f i n a l i s s u e i s t h a t t h e d e p o s i t i o n of Vernon B. M i l l e r and t h e c o s t of a t r a n s c r i p t of proceedings before t h e S t a t e Board of Equalization, should n o t be charged t o t h e Board. The f i r s t p a r t of t h e i s s u e concerns t h e d e p o s i t i o n of Vernon B. M i l l e r , s e c r e t a r y of t h e Board. This d e p o s i t i o n was taken by P f i z e r , b u t i t was admitted i n t o evidence by s t i p u l a t i o n of both counsel. N w t h e Board, a f t e r having agreed t o admit t h e d e p o s i t i o n , o does not want t o be charged with t h e c o s t of i t , W find the d i s t r i c t e c o u r t d i d n o t e r r when i t ordered t h e Board t o pay f o r t h e deposition, Authority f o r such o r d e r i s s e c t i o n 93-8618, R.C.M. which provides: 1947, "A p a r t y t o whom c o s t s a r e awarded i n an a c t i o n i s e n t i t l e d t o include i n h i s b i l l of c o s t s h i s the necessary disbursements, a s follows: expenses of t a k i n g d e p o s i t i o n s * * *," *** The d e p o s i t i o n c l e a r l y f a l l s with t h e scope of s e c t i o n 93-8618, R.C.M. 1947. The Board argues t h a t t h e deposition was f o r t h e b e n e f i t of P f i z e r and t h e r e f o r e i t i s not chargeable a s a c o s t and c i t e s Davis v. Trobough, 139 Mont. 322, 363 P,2d 727. The s i t u a t i o n i n Davis was n o t t h e same s i n c e h e r e t h e d e p o s i t i o n was introduced i n t o evidence, by agreement of both p a r t i e s , and a t t h a t p o i n t was n o t s o l e l y f o r t h e b e n e f i t of P f i z e r , b u t f o r t h e b e n e f i t of t h e c o u r t and bath p a r t i e s . The c o s t of t h e d e p o s i t i o n w i l l be l e v i e d a g a i n s t t h e Board, The second p a r t of t h e c a s t i s s u e concerns the c o s t of a t r a n s c r i p t of proceedings before t h e Board of Equalization. Pfizer s t a t e s i n i t s b r i e f t h a t i t trill withdraw i t s claim f o r t h i s c o s t i f such t r a n s c r i p t i s n o t used o r considered by t h i s Court i n making i t s d e c i s i o n , Since such t r a n s c r i p t was not used by t h e Court, t h e i s s u e of t h e c o s t of i t s p r e p a r a t i o n i s rendered moot by P f i z e r ' s o f f e r of withdrawal of t h e claim f o r i t s c o s t . N e r r o r appearing, t h e judgment of t h e d i s t r i c t c o u r t i s o affirmed. ~ s s o c iJe s t i c e u / / Chief J u s t i c e ................................ Associate J u s t i c e s .

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