# Petition for Writ of Certiorari — American Gilsonite Co. v. Commissioner > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386419_0708%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1959 - **Citation:** 359 U.S. 925 ## Text FILE COPY. “pe oye see Dawes. _ SUPREME COURT OF .THE UNITED STATES October Term, 1958 Ae ! : arenas - : ] No. 5 8 : AMERICAN GILSONITE COMPANY, Petitioner, °— a 5 . aed - COMMISSIONER OF INTERNAL REV 2NU | > oe e " PETIFION FOR WRIT OF CERTIORARI TO*THE UN ITED | \ STATES COURT OF APPEALS FOR THE TENTH CIRCUIT . ALLAN E. MECHAM ? _ Counsel of Record — ie 301 South State St. ” Salt Lake City, Utah. ELLIOTT LEE PRATT | rar Counsel and Attorney for. ar Petitioner 351 South State St. Salt Lake City, Utah ee t ae a 7 ; oe ¢ IND } | * Page « Opinions Below ..... RAE. eR ee heMie ate tee oe Nosenstasamutrceectea :* ann Statement of Jurisdiction. ee Se Eee oueainea ae & oe ~ Questions Presented............ a Sirern C i lulaecundinaodaadanake seeks lade 2 Statutes Involved ................. ui PAL Aaa RAT a oe : ie One 2 I igs staal none chsnaahs inci it ninnsiiigannlongicsinX tania -$ #8 Reasons for Allowance of Writs... ......5..::c:ccccccececeeceeeeseeqeeeeeeeens 5 . Argument iain Suaska flee i Sil deca Mah daa ool te cohen Aarne GkehalaeooaKe 6 Question SP sich sun aeedibaat graced Aelia aanuenida nna tabi hen ; ea pdcka eecedabics 6 A. The Cases ipsiaiiccimuss OPERATES, Sew Meee pegramgiGcaiscncatse © ars he Diatutie Mis PLP IS LTE Le SOE, Te LTE oD EO OT 10 Question If ..... vee sea aaiabuaceaneniiacinniundaienda lage PEN ee goatheoes = | I oieiccsntscn cts BOM a Shs pete dbateniaeieionieos Sine ae OI I i nae Appendix B — Opinion of Court of Appeals issdduacks wasdarnnlee at cinslecccvee 18_ ; Apperidix C — U.S. v. Utco Products, ‘Ine., cae aint Seer 21. ® iad : CITATIONS ; . ee a ico! Dragon Cement Company v. United States, 1 Cir. 244 F. 2d_ SiS, Cort. denied, S66°U.S. 38.2 ltt 549 “Matagarda Shell Company, 29 T.C. No. 111, Decision 22875 Eblveeas 43 New ldria Quick Silver Mining Company V.. Commissioner, 9 Cir. 144 F. BN RB nn sss cnne tee enseeaneestgepncnael les cigetacniaep a 4 Townsend ‘v. Hitchcock Corporation, 4 Cir. 233 F. 2d Le ware i 32% : United States v. Cherokee Brick and Tile ‘Company, 5 Cir. 218 . Se I si icicseiahecocbs nce ineccaeo sae adnan ahaha alae 6, 9 United’ States v. ‘Whey Bros. Brick and Tile Company. 5 Cir. 242 F. 2d 708, Cert. Denied 353 U. a rigane a4, . a . « . ch t 2 . INDEX— (Continued) United shites v. Sapulpa Brick and Tile Corporatio © 289 F. 2d 6942.00 cece aie: Tal - United States v. Utco Products, Inc., 19 Cir, 257 F. 2d 5,7, 21 ; STATUTES , I IN aie 3 Sec. 23 (m) Internal Revenue Code of 1939................ a Sec. 114 (b) (4) as amended, Internal Revenue Code of 1939. 8, 1h __ See, 3797 (b) Internal Revenue Code of 1939..............0.000000000.. 11,17 tre MISCELLANEOUS : Treasury Regulation 1.613 (d) (2) 1954 Code.......... Se S| * ; es rr IN THE ) o - SUPREME COURT OF THE UNITED STATES October Term, 1958 f : No,?... ls ° wae ; 0 AMERICAN ia si eae Petitioner, > COMMISSIONER | OF INTE RN Al, REVENUE,. : | — Respondent. / ) ve ; 7 PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT “a TO THE HONORABLE-THE € HIER JUSTIC ‘AND THE ASSOCEATE JUSTICES OF THE SU PREME COURT OF THE UNI TED STA TES: The Petition of American Gilsonite Company respect->~ filly prays that a Writ of Certiorari issue to review the — Judgment of the United States Circuit Court of Appeals for the ‘Tenth Ci ireuit entered in, these cases September aay 1958. OPINIONS BELOW ‘The opinion of the Tax Court of the United States is reported in 28 T.C. 194; (1957) and is printed in the Record at page 39. The opinion of the Court of Appeals i is reported 2S... Fed: 2d..:....; is S printed i in the Cifeuit: Court Record’ !The Circuit Court Record is designated as ; CR and the Record on Appeal is designated as R. + ‘of said J udgment. ‘ ws rd pe . ‘ at page 3, and inthe Appendix’B*. The decision ih United ‘States v. Utco Products, lic., is ado included in Appendix . ?—. : P ss a . . Y a STATEMENT OF JURISDICTION aye jurisdiction of this court is invoked under Ke x S.C. 1254, (1). The Judgment of the Court of Appei als] - was ay on September 25, 1958 and this Petition for Writ of. Certiorari“is filed within 90 days from the entry ‘ 35 : QUESTIONS. PRESENTED _ L. Whether under Sectians 23 (m), and 114 (b) (+) (A) (B) Internal Revenue Code of 1939, the term, “ordinary treatment processes” in its application to the gilsonite in- ‘dustry is limited only to those processes which effect a physical or chemical change in the gilsonite qnineral or effect a separation from other minerals in-which gilsonite is found, and ‘w ‘hether sacking of gilsonite is such a process. ote 2. If sacking gilsonite i is an ordinary treatment proc- ess, then uhder Section 114 (b) (4) (b) Internal Revenue © Code of 1939, as amended by Section 207 Revenue Act of 1950 (c) 994, 64 Stat. 906, what portion of the M3 miles transportation of gilsonite from the mine to the: sackinz plant \s includible’ under, the definition of mining in the determination of. gross income. . ° — STATUTES INVOLVED | The Federal Statutes involved are Section 23 (nr), See: tion 11+. (b)(4) (B), as amended, ‘and Section 3797 (b), Internal Revenue. Code of 1939. Portions of these statutes ire quoted i in the Appendix AL e > . de A ae “a & STATEMENT 2. The Judgment of the Court of Appeals sought to be reviewed, reversed the previous . Jndgment of the Tax Court - of the United States holding that the taxpayer was entitled to inchyle in its gross income from the property, income at-— tributable to, the bagging of gilsonite and to the cost of bags in whic the mineral was sold, and affirmed the Tax Court _decision, halding that transportation was not includible as gross incope from mining. * ‘ Petitioner mines and sells 7 10% of the gilsonite used in _ the United States ( R.55). The processes through whieh the» gilsonite passes to reacit the commercially marketable product are as follows: (a) Gilsonite is mined by blasting it out of the vein (R. 36) at the mine located at Bonanza, Utah (R. 73) and Js broken by this blasting into yarious sized chunks. (b) In this original form,-the gilsonite has inter- “mingled with it rocks, weeds, wires and other foreign matter. al conglomerate is cleaned by washing and blowing (R. 36, 48, 49 and 79). | ‘ ~{e) The gilsonite is then crushed, screened and sorted. - into three different sizes: The fine, the select and the-pul- ed (R. 36, 49) and is thereafter kept so segregated AR Of, dt). Pek irae (d) The gilsonite. is then trucked in- special air-tight . trucks 113 miles to the sacking plant at Craig, Colorado, . the nearest railhead to Bonanza (R. 37, ‘52, 53, 73, 77, SI, 83). The gilsonite, if not sacked and kept tightly contained, disintegrates. upon exposure to the eleménts and: breaks dows from handling (R. 51). The gilsonite must be kept in. ail oO 4 ‘8. pure state and uniform size in order to be marketed ik. 2, oO, G8, 70 and i) a (e) The gilsonite upon arrival at the sacking plant, is placed in large dirt proof bins-and thereupon descends into. the sacking machines and is placed in the air- tigeht sacks for loading and shipping» (R. 37, 52, 53, 81,83)... The gilsonite must be kept clean and uniform in size and must be placed in the sacks before it-is commercially inarketable (R..37, 56, 63, 64). [gis impractical to sell it. in anything but the sacked form (R. 64, 65), and the gilson- ite must be kept in sacks to prevent excessive handling re- sulting in disintegration. The sacking is further necessary to prevent destruction of the gilsonite becatise of its ex- plosive nature (R. 65). Customers cannot use or purchase . the gilsonite unless it is in the sacked form ee 68, 69, 70 | and - 71). : ‘ The cost of transportation for the taitable: years in question’ is ‘as follows: ' 1948 — pilpnen 1950 — $1313634.89; and 1951 —- $152,067.85 (R. 17, 25). The. cost of the sacking. process for the neni years is ‘as __-follows: 1948 — $189,395.61; 1950 — $234,118.37; and 1951 —$277,122.42 (R. 17, 21, 23). . The above amounts were. included by the Petitioner in computing gross income from mining for depletion pur- poses, for the reason that the sacking process was an ordi- nary iin ae under the statute. This. being > : : ° > te it Was-necessary, nsport the gilsonite from the mine to the: sacking plant where this ordinary treatment process * vecurred, The Commissioner disallowed this computation ~ and Petition was filed Grthe Tax Court of the United States. R. 28) re : 5) ‘The Tax Court sustained the taxpayer in its contention that the sacking process was an ordinary treatment process iR. 40), but denied the taxpayer the transportation cost ite for the reasons that the t taxpayer should not loeate the sacking plant beyond the statutory 50 mile: limit and that the Secretary of the Treasury had not made’ an act ministrative determination as tothe nec essity of transport- ing heyond the jO mile | lint CR. a). (See Appendix A.) Court relating to the sacking problem (CRS) upon gp 204 ‘ity of its opinion in the case of U nited States v. Utev Products, June TO, 1988, on Fed. 2d bo, C.CLA. 10th, and inion disallowing transporta- B). “REASONS FOR ALLOWANCE OF THE WRIT affirmed the Tax: Court's: ¢ tion costs (CR 9): (Append 1. Each of the questions presented herein wasbediies ay, settled by this Court. ; . 2. The decision herein is at variance and in conflict Soa, Wherein the placing of cement .in silos’ from which. if was loaded and shipped in bags’ or in — to be ordinary tre: tment processes, Corporation” 233 F.2d 444, wherein the packaging and tosts of bags for the tale were held to be ordinary treatinet : : " processes, : . ; ° ’ ° . . The € ourt of “Appet ils reversed the opinion of the ‘Tax with the decisions of Fail, Cireuits: * "e a CA) Tlie Ir inst Cireuit wh Dragon Cement Company “y. United States, 244 F.2d O15, Cert. Denied tar CK (B) The Fourth Cireuit:in Townsend vy, Hitchcock = the cost of the packages for crayons and the hagging and. questions of Federal law which have not been, but should ee eae / \ ' v4 ~ . ao 2 : ; 6- oe (C). “The: Pith Cireuit in United States v. Cherokee . ’ Brick and. Tile, Companye: 218 F. 2d 424, paid in, United States v. Merry. Bros. Hrivk and Tile Company, a 2d 708, Cert. Denied, a? a2 824, wherein all processes ] up to and including: the lofiding of the. finished. brick were held fo be ordinary : treatment processes. : ’, (D) The Ninth Cirewit in New ‘tévéa Quick Silver Nisiag Company y. Commissioner, 144 F.2d 918, wherein the cost of the containers for the finished mercury was in- eguded 3 in gross income from mining. e v ine _ ARGUMENT te, : QUESTION I° - The Court of Appeais érred in holding*that an.ordinary treatment, process for filsonite must effect a chemical or physical change: i in the gilsonite or must effect a separation of the mineral from thé material in which it is found. The, court concluded that gilsonite .“is.not ‘customarily sold in ‘ the form of ‘a crude mineral product’” (CR 8), that this” case is not distinguishable from United States vy. (teo oH Products, Inc.; supra, and that, therefare, the sacking pfoc- ess is not an ordinary treatment process applied to obtain the commercially marketable mineral product (CR 8). This position h has no support eithe a aa or in the statutes. As THE CASES ; ’ The Court of, Appeals cites the Utco Products ease as the authority for its decision herein, although the prodact | there involved, perlite, is of a different nature and sub jept to different processes than is ‘Bilsonite, although the [te , case only passed upon the cost of bay (not bagging), and 7 ‘notwithstanding the Court’s recognition that its deeisioa was:at variance with other Circuit Court decisions. ‘ 6 The Court said.in Utco Products: . “So far as. Townse icock, + Cir., 232 F. 2d 444, and New Idria Q silver Mining Com- pany, v. Commissioner, 9.Cir., 144 F. 2d 918, may be té the contrary, we are not in accord witli the con- clusions there reeled. * 257-F. 2d 65, 68. ( a ) ; T he Townsend and the New jivie cases, along with the other cases relaiing to this preblém, are very cléarly con- ‘ trary to the. Court/ of Appeals’ decision herein. ‘The # 3 . Townsend case involved the sagging of tale and the cutting and packaging of crayons. In this case, ‘the Court in holding z that such steps were ordinary treatment pro¢esses, relied J upon the F indings of F act-of the District-Court and stated: ; “The District Court made the. following Fd. .ings, of Fact: ‘There is no commercial market for the tale ‘mined by plaintiff before the tale is put ine the form of tale crayon or pulverized tale and ‘be- fore such products are packaged or bagged for ™ p- _ment.””” : Likewise’ ethere i is no market fer gilsonite until ara] unless “it is “sacked we 34,8 32, 56, 63, 64% ie The Court then went on to approve the language of the, | e District Court relating to the legislative history of the par- tie ular: ‘portion. of the Act involved, stating: ce = * Phe District C ourt stated ‘Congress clearly provided that the cost of obtaining a..market abil. produtt should come within the definition of mining and the sanie basis should be applied to gross sales. The only limitation by Corigréss is that the process _ “ must be that normally applied by: the miner to ob- ‘ - f° er a tain a .marketable product. It seems ‘immaterial whether that process be one of manufacture, as ip the brick and tile case (U.S. v. Cherokee Brick & Tile Company, 5 Cir. 218 P. 2d 424), or some othe: step; that which was essential to obtain the first marketable prodiacts is an expense of mining .and the gross sales of the products so mined ‘is the gross income from which the 15 percent depletion is to he taken.’ ” ae ee ie enn The Court-further.states with reference to Sec. 114 (hy) (+) (B): “This statutory language is clear and, unan- biguous: Its obvious meaning is that gross income from mining must inélude the income from treat ment processes which must normally be applied to -the ore or mineral to obtain ‘the commercially mar. ketable mineral product or products,’ that is the ‘ products obtained by the mine owner or operator for which a commercial market exists, the product: which are marketable in commerce.”’ It sepyis clear in the Townsend case that an ordinary. treatment process does not’ necessarily ‘involve a change in the nattire of the mineral or a separation from. other minerals. Thus tlie holding of the Court of Appeals in placing such a restriction upon the gilsonite sacking process . is in direct conflict with the halding of the Townsend case. The New Idria case holds that the sale of mereury in-flasks is the first marketable product and that the costs up to and including .that point are included as ordinary treatment processes under the definition of “mining.” - A brief examination of the so-called “brick cases” indi- cates the trend of the various,Cireuit Court decisions in’ defining ordinary treatment processes. The end result sought in each of the cases is the commercially, marketable | 9 product, and°all steps taken to achieve that product are defined as ordinary treatment processes. In United States Merry Bros, Brick & File Company, supra, the Court ead its prior position in the case of United States v. Cherokee Brick & Tile Company, supra. In these eases, the question was: W hether or not the various steps leading up to the final sale of the brick and tile, including the load- ‘ing for shipment thereof, should be ordinary treatment processes, The Court, in holding, that these are prope r ordinary treatinent processes, states: “There is no provision in the statute for exclud- ing any* process berore such a marketable product is reached, The only réstriction is that the process must be the ordinary treatment process normally —— by mine owners or operators.” — ‘Again in the ¢ ise of Dragon Cement Company v. United States, 244 FY 2d 513, theC ourt, in holding that all of the steps up to and ine ‘luding the loading of the cement efor shipment. are ordinary treatment processes, states: fai “The purpose of the provision (relating to the + _definition of ordinary treatment process) is to make certain that’ the ordinary treatinent process-ehich amine operator would normally apply ‘to obtain a marketable product should he considered as a, part of the inining. operation, and to give reasonable specification fot What are to be considered such processes for various kinds or classes of mines.’ ty The Court then w ent on to indicate that the Congress had int¥oduced new language which had never previously appeared in the history of the depletion allowance and that rather than - being restricted fo certain processes, me pur- Pose of the new provision was: - 1) s i . “Po make certain that.the ordinary treatmen' process which a mine operator would nofmally ap ply, to obtain a marketable ‘produet should be con.” sidered as a part of the minirig operation.” All of: these cases indicate a trend of decisions pro.” viding for depletion: on the various processes resulting in ‘the marketable product, including sacking and packaging processes. There are no exceptions to these leading cases, except the decisions here’ of our Court of Appeals dealing with gilsonite and perlite. ? B. THE STATUTES Section 114 (b) (4, (B) under subdivisions (i), (ii), (ili) and (iv) lists four groups of ores and minerals, together with the specific processes applicable, to each group, which processgf are stated to be ordinary treatment: processes (Appendix A). The Court of Appeals concluded that gril = sonite “is not ‘customarily sold in the form of a crude mineral product’” and, therefore, falls under subdivision (iv). Subdivision (iv), however, refers to ores and not to minerals such as gilsonite. Gilsonite is not an ore within the meaning of Subsection (iv). The, Court of Appeals, by its own definition of ore, excludes gilsonite. The Court stated in United States Sannin Brick & Tile Cor pord- tion, 239 F. 2d 694 C.C.A. 10th: + = ~*Ore is a material containing valuable metallic constituents which are extractable therefrom: Brick and tile clay such as is involved in the instant case contains no valuable metallic constituents whic ‘h-ean be extracted theref Nga wv It is apparent that gilsonite contains no valuable mefal- ‘lie constituents which can be extracted from it, since it is 7 11: sold in the form in which it is found exéept for having been cleaned, crushed, sorted, sized and sacked. _ This definition of ore and its application to this statute—.——+ ~~ is further upheld in the Townsend case, supra, where the - Court determined that tale was not an ore and was not specifically mentioned in the said four subparagraphs: The . Court there stated that the lists of processes were not ex- - clusive in view of the language employed in said subdivi- sions and also in view of Section 3797 (b) Internal Revenue Code (1939) (see. Appendix A)» Gilsonite, therefore, bats being mineral, might more properly, if at all, be included. under subparagrgph (iii) in which ordinary treatment processes include “loading for shipment.’’ This very ‘provision as well as provisions in the: other’ two subparagraphs negative any possible inter- pretation of the;statute to the. effect. that ordinary treat- ment processes: hai involve a physical change or a PeFical separation from other materials such as_oceurs in the refin- ing of ores. x _It is apparent that there are various ‘minerals such as tale’ (Townsgnd), perlite (Uteo Products) and gilsonite which do not specifically fit-under any of the listed minerals or ores and the specifie processes set forth in said sub- divisions. The disposition of such minerals and the de fini- tion of the ordinary treatment processes as applied to these minerals is the problem before the Court. The T reasury Department recently has recognized that the aforesaid four subdivisions are not the exclusive lists-ef—ordinary treatment processes affee ‘ting the various’ minerals supon . Which depletion is allowed, and. has provided for additional ordinary treatment processes as follows: ee a ae “Regulation 1.613-3 ae ) 1954 es Iu ti case of minerals to whieh subdivision He subparagraph is_not-applicable — (x any pre “Was applied for the purpose of separating the miners : -or-ore from waste or from other minerals or ores and. (b) any process HOCESSATY on pul the Ar: + Snineral in condition for shipment.’ " (Eimphasis add. “ed. ) This reguiation would very clearly ine ‘ude as an ord nary Semaeery process the sac king of gilsonite. AS a process to put the mineral in condition for shiprae NW is c there | is this additional inte rpretation: of the statutes contrary to the holding of the ourt of Appeals. Even recognizing the Court-of Appeals’ position that -gilsonite is a refined mineral and as such must be subject te. the restriction that its ordinary treatment’ pron Wsser must effect a vhysical or chemical change or nitist “effect ta sepa: ration, an unde ‘rstanding of the nature of gilsonite and of the processes involved would résult ina determination that - the sacking process isan essential separation process. Aa. is pointed out above under the Statement of Facts, the : sacking process ix not only required by the, CONSUINET As“ condition precedent. to purchase of the gilxonite, but is re. quired by the taxpayer to preserve the mineral in the Form in which it arryes after it is cheaned, crushed and sorted. The sacking, process ix ax important to the preservation of the form and of the Separatipn into-variows catagories. in finally arriving at a commercially imarketable product. ax is auy-of the other processes leading up to the sacking process, Were the gilxonite not protected from the vle- ments, froys dirt and foreign matter, and from excessive ° * . : > ’ handing, the gilsonite: would become a mass of broken Ss particles unsellable on the BO: § ae market. Furthier- Is — more by reas@ of: the caged baton of the mineral, the gilsonite might be destroyed entirely through shipping and confinement in large-magses. Hf the term “ordinaty - trentment process *-hasvany relationship to the necessity al preserying the product-or putting it in condition for sale and shipping, then certainly sacking ix et ordinary treat- nent process, eel , Dane ae ~ ‘QUESTION II | Under the second question presented, by Mix Petition fora Writ of Certiorari, there minkist be a determination of “the proportionate amognt of the transportation from the ming to ‘the sacking plant, in the event that sacking is ain ordinary treatment process: Under the statute, 50 miles is autoniatically allowed the taxpayer. The Tas ‘Court originally denied even the 50 Gile portion, but. later in fe case of Matagorda Shell Com- pany, 29-T.CONo. TL, Decision $22875, recognized the error -in the gilsonite decision, and stated : “We reached our conclusion, because we thought that the intent of the statute was that if a taxpayer hauled his mineral product a distance of more than OW niles, he had to apply to the Commissioner for all of such distance or he allowed nothing. “We Have re-examined the legislative. history of the 1950°Amendment and now conelude that Con- ‘gress meant to allow transportation up-to the first WW miles regardless of how far-away the processing plant might be.” - | Thus irrespective of any determination by the Coi- missioner petitioner is entitled to the first 50 miles, re | 14 Petitioner contends that althougle the Commissioner did not make an administrative determination, the Tay. Court could make such a determination and if the full 112 miles transportation was necessary to take the mineral to the seheomniiass plant, the full, 113 miles should be allowed in computing depletion. Suet ‘a finding should be made |» the trial court in the event that sae king i is found to bean c ordinary am process. _/’ Ce ‘¢- (oNcLUsION The de¢ision of the ¢ Court of Appeals is a complete te . versal of the trend of the prior decisions of other Circuit in defining “ordinary ‘treatihent process.” The decision is. contrary. to the other Cireuit-C urt decisions and is con | trary to the provisions of the statutes: involved. For thes: reasons, the Writ+of Certiorari. should be granted. erat . : Meares Respectfully submitted, - | “-™. “ALLAN FE: MECHAM Counsel of Record | A ees vy +304 South State St Salt Lake City, Utah ° ; ELLIOTT LEE PRATT . ; Counsel and Attorney for Petitioner 301 South State St. : Salt ‘ake City, Utah a el e » . = oma e = * acne. 15 APPENDIX A ght Ss ie “Internal Revenue Code of 1% 39: “SEC. 23. DEDUCTIONS FROM. GROSS. INCOME. . In- computing net income there shall be allowed” as’ deductions : . i 7 ; ~*~ ‘ ° (mn) Depletion. — In the case-of mines, oil and gas, wells, Other natural deposits, and’ timber, a reasonable allowance fag depletion and for deprecia-_ > tion of improvements, re to the peculiar con- ditions in each case; sith réasonable allowance in all cases to be made under rules aad aelden to be prescribed by the Commissioner, with ‘the ap- A *. proval of the Secretary. °** For percentage depletion allowable under this, subsection, see section: 114 (b), (3) and (4). , * = 8 ff (26 U.S.C. 1952 ed., See. 23.) SEC. 114.. BASIS. FOR DEPRECIATION AND ~~ _ (b) Basis for pene. —_ (4) [As amended by Sec. 145(a), Revenue Act _ Of 1942, ¢. 619, 56 Stat. 798, ‘and See. 15 (b), Act of { August 8, 1947, ¢. 515, 61 Stat. 917] on de- pletion for®** gilsonite***,— _ . (A) In general. — The siteniaiioets for ‘de- pletion under section 23 (m) shall be, in the ease of °° ® gilsonite, * °° 15 per centum, and in the case of sulfur mines or deposits, 23 per centum, of the gross income from the property during the taxable vear, excluding from such gross in- come an amount equal’ to any rents or royalties paid or incurred by.the taxpayer in respect of the property. Such allowance shall not exceed Sve 16s . 50 per centum of the net: income of the taxpayve: (computed without allowance for depletion) from the property, except that in no case shai! the depletiomgllowance under section 28(1m) bi less than it woMd be iftcomputed without refer ence to this paragraph. (B) [As added by See. 124(¢), Revemi " Act af 1943,. ¢. 63, 58 Stat. 21] Definition o: gross income from property, — As used in t!:i- paragraph the te€wWt “gross income from the - property” means th&gross income from mining. ’, The term “mining,” as used herein, shall be considered to include nos merely the extraction of the ores or‘minerals from the ground but alsothe ordinary treatment processes norma!|y ied by mine owners or operators in order to in the commercially marketable minerai luct or products. The term “ordinary treat ment \)processes,” as used herein, shall include the follywing:-(i) in the case of coal — clean ingghreaking, sizing, and loading for shipment: (it) m the case of sulphur — pumping to vats. coogng, breaking, and loading for. shipment: (iii) inthe asd of iron ore, bauxite, ball an! sagger clay, rock asphalt, and minerals whic, are customarily sold in the formr of a ernude mineral product -= sorting, concentrating, ay | sintering to bring to-shipping grade and fair, and loading for shipment: and (iv) in the ens: of lead, zine, copper, Bolt silver, or fluorspa: ores, potash, and ores which are not customary, sold in the form of the erudé@mineral prodact crushing, grinding, and beneficiation by concen. tration (gravity, flotation, amalgamation, ele trostatic, or magnetic), evanidation, leachine. erystadlization, precipitation (but not ineludine as an ordinary treatment process electrolytic — ‘deposition, roasting, thermal or electrie smy!t ing, or refining), or by substantially equivalent 17 _ processes or combination of processes used in the separation or extraction of the product or products from the ore, ine luding the furnacing of quicksilver ores. The prince iples af this sub- ‘paragraph ‘shall be applicable in determining gross income attributable to mining for theepur- pose of sections: 731 and 735. (26 U.S.C. 1952 ed, See. 14.) Reve mue Act. of 1950, ¢. 994, 64 Stat. 906: a SEC. 207 PERCENT AGE DEPLETION. - (a) Transportation from mine. — The second sentence of section 114 (b) (4) (B). (relating t@# the definition of grossAncome from property) -s héreby amended to read fis follows: “The term ‘mining’ as used herein shall pe.considered to include not me rely the extraction of the eres or minerals. from: the ground but.alsfg the ordinary treatment processes - normally appYed by mine owners or. operators in order to cbtzin the commercially marketable mineral product or/produets, and so much of the transporta- | tion of ores or minerals (whether or not by common carrier) froin the point.of.extraction from the ground to the plants or mills in which the ordinary‘ treat- inent/ processes are applied thereto as is not in ex- cess: 6f 50 miles unless the Secretary ‘finds that the physical and other requirements are such that the, ore or mineral-must be transported a greater dis- tance to such.plants or mills.”’ ; s (b) Effective date. — The amendment made bv subsection (a) shall be applicable with respect to taxahle years beginning after December 51, 1949. 4 SEC. 3797 (b) INCLUDES AND INCLUDING , The terms “Includes’ land: “including” when used in-a definition contained in this tithe shall not Se oe ™, € : d . i ‘ o ‘ iy . * 9 ; ‘ Cte ree oo 18 ‘ : oe ’ —2_ be deemed: to salads other things otherwise: within the meaning of the termdefined. =. , |. + APPENDIX B Before BR ATTON, Chief Judge, and PHILL IPS and LEWIS; Cireuit Judges. - . | te a “ ‘PHIBLIPS, Cireuit Judge. This matter is before us on a petition of the Com. missioner of Internal Revenue and the cross:petition of ‘American Gilsonite Company’ to review a decision of the . Tax Court. Income tax deficiencies for the years 1948, Ia WW . and 1951 are involved. . i During such tax years. the taxpayer was principatly* engaged in the mining of gilsonite, a hydrocarbon sub- stance, from vertical veins averaging 20 feet in width and up to 1,000 feet in depth. The taxpayer's mines are located - near Bonanza, Utah, approximately 50 miles southwest o! - Vernal, Utah. | —Qionite is mined by a blasting ‘operation at the face _of the Ore as it lies in the vein. The blasting breaks the ore into chunks of various sizes. With it there is intermingled rock and other foreign matter. The ore is taken from the: -mine to a.cleanjng plant, where the rock and other foreign inatter is removed by a washing and air blowing process. . The cleaned ore is put through a crusher and is then passed through sereens*which separate it into.three sizes: (1) fine. 2) select, and (3) pulverized. Approximately 10 per-cent of it is pulverized. Each size ‘of ‘gilsonite is stored in sepa- rate tight bins. From the processing plant at Bonanza the . gilsonite is transported to Craig, Colorado, by trucks espe- . ‘Hereinafter called the taxpayer. 19 % cially designed to keep it dry and dirt free. Craig is the nearest railhead to Bonanza which is available as a shipping point. At Craig the ore is hoisted. from the truck into‘a’ closed hoist and is placed into closed hoppers. From the hoppers it descends into the packing machines, whereby it _ is packed in bags of 100 pound capacity. The filled bags are closed and placed ppon a conveyor, which transports them . directly into the rajlroad car and they are then transported by rail to the wi hasing customer. “Gilsonite is ‘used in the ‘manufacture | of paints,: var- nizhes, inks, asphalt tile, storage hatteries pipe insulation and ‘other similar products. To meet the deniands, ¢ gf « ‘Gasto- mers, gilsonite must be made available ir. different sizes’ -and each size must be approxiinately ‘unifoéin. Handling, especially of the larger sizes, tends to break them down into smaller particles. Bagging tends to prevent gilsonite from thus breaking down. Commercial gilsonite must be kept in a pure state, free from ‘dust, dirt, or other foreign matter. Bagging gilsonite protects it from impurities. Pul- ' yerized gilsonite, or gilsonite dust, is highly Nolatile and it is safer to handle when contained i in bags. Purchasers of gilsonite desire it to be packed in 100 pound bags. Bag- ging of gilsonite is Speen order to preserve its free- “ 2 dom from impurities, to preseFve its uniform Size, pel 64 it safer to iiandle, and to satisfy ‘customers’ deman . ‘ . : * ¢ ‘ ‘ ia | 7 ; ? Edong The Tax Court decided that in computing’ the fper- centage depletion allowed by the provisions of the Intarnal Revenue Code’ of 1939, as amendel, 25 S.C. A., 1952 Sections : 23(mi) and 114(b) (4); the taxpayer was entitle to include in its gross income aa idttis 3 ‘Tax Court erred in ine ‘luding the ineome attributable tlie attributable to the heasil: of: the gilsonite and to the hags in whielr it was sold, The Commnissioner challenges that ghienisy of the decision. - ° The Tax Court b decided that the t taxpayer Was ws gig titled to inélude in its income from the property .f¢ -purpose of computing depletion for the year 1950 the cos’ of trafisporting the refined gilsonite for 50 miles of the dis tance between the point of extraction and the bagging ani loading plant at Craig, Colorado, ee e * * , 3 = — ‘ : ; a % “Refine’’ is defined as follows in Webster's New [nter national Dictionary, Second Edition: “To reduce to a fine, unmixed, or pure state} to separate from extraneous iat. ter; * *.* to free or cleanse from impurities, # * *.”" BF rom the undisputed facts # seems clear to us tha gilsonite, when it has been cleaned, separ ated from mate vial ‘Associated witli it’iy its envirownent % and freed of impuri- ties cand. when it has been erushed and separated into th three SIZES | fine, select and pulverized, i ix a refined miners product. In that state it is combined with other products in the manufacturing process in which it is utilized. Ht is no: “customarily sold in the-form of a er ude mineral produck With respect to the “qu ation whether the mcome nt tributable to the bags and the bagging was. gross inde” trom the property, we are of the opinion that. the instan’ ‘axe Is indistinguishahle from niled States v. Flea pP rod nets Tne, decided June 10; 1958, 10 Cir. ‘...... i eee Wi actordingly conchaide, on authority of that ease, that the bagging and the haces. i in the gross income from the property in; computing depletion allow anee: og i * me el ieee — eT Se ee ee | inigisiant _— Ga 24 Section Ll4(b) (4) (B): of the Internal Revenue Code of 1939, as amended by Section 207 of the Revenue Act of 1950, effective December 31, 1949, provides that “The term ‘mining’ as used herein shall be considered to include *** soanucht of the transportation of ores or. minerals (w hether ‘or not by commion carrier) from the point of extraction from the ground to the plants or mills in which the ordinary treatment processes are applied thereto as is, not in excess of 00 miles unless the Seeretary finds that the physical anid other requirements are such that the oré or mineral must be transported a ‘greater distance to such plants or mills.” Since there were no ordinary treatment processes ap-: plied at the bagging plant at Craig; the Tax Court did not err in holding ‘the transporiation was not includile in gross income from mining, even though it sais another reason for its holding. ., : Since the taxpayer, by ordinary treatment processes, reduces’ the gilsonite to a refined _ mineral product and since gilsonite is not customarily sold i in the form of a crude mineral product, “loading for sip i is not an ordinary - treatment process. See United States v. Uteo Products, Inc., supra... fa lee Therefore, income attributable to loading the bagged gilsonite should not be’ ‘included in gross income from the property for the purpose of com- puting depletion allowance. The order of the Tax Court is reversed’ and the cause remanded for further sie cal in accordance with this "sales Cc Before nelaton Chief Judge, and PHILLIPS: and: BREITENSTELN, Circuit Judges. © . PRILL IPS, ‘Cireuit Judge. 22 Uteo'Products, Ine.) a Utah corporation, brought an action in the United States District Court for the District > of Utah, under 28 USCA $1346, against the United States. ‘seeking a refund of income taxes paid for the years 1951, 1952 and 1953, with interest. During those vears the ae was engaged in the mining and processing of perlite. It mined perlite from its. deposit located near Milford, Utah, and shipped it: to its plant at Salt Tgike City, Utah, for proc essing. At the proe- essing plant. the raw perlite was run through, preliminary and secondary: crushers. which reduced the raw perlite to the size of sand.. The crushed perlite was introduced int» ‘a rotary kiln where it was expanded, by.eating, approxi-. mately 10 times its crushed size. The expanded perlite was distributed through lumber placed” in bins, hagged yards and other retailers of buNding equipment. Expanded perlite is used as an aggregate to be mixed with plaster or.cement. It ean also be usedas a soil aerator and a filter aid... is ; * Because of its softness gnd lack of cohesiveness: tlie he taxpayer's expanded raw perlite, is not commercially mar ketable in bulk. It is only commercially matketable whet it has been bagged. The trialcourt concluded that hageing “The perlite was an- ordinary treatmerit _ process applied ph obtain the commercially. marketable minovt ‘and held that the taxpayer was entitled to a refund of taxes for 1951 in the .nount, of $1,134.62, for 1952 in the amount of $1,340.20, and for 1953 in the amount of $162.39, ~~ interest on‘suci amounts. The amount of the taxpayer's tefund was cou ‘puted by. including in the gross income from the perlite ‘Hereinafter called the. taxpay?y. es a . ' 23 a the full amount received on the taxpayer's sales of bagged perlite, including income attributable to the’ bagging and oe to the bags in ‘which the perlite was sold. The question presented on this appeal is whether in computing its percentage depletion allowance under §23 (m) and §114(¢b) (4) of the Internal Revenue Code of 1939, . as amended, the taxpat r was entitled to include~in its gross income from the property, income ‘attributable to the hagging of the expanded perlite and to the bags in which it was sold. “< Section 283 of the Internal Revenue Code of 19: 9, as . amended, in part provides: r] > Aanpaaprciem. o “Deductions from gross income. comnputing > : net income “we a * rere shalk be allowed as deductions: “(m) Sustetion, In*the case of mines, oil and gas wells, other natural deposits, and timber, a reasonable allowance for depletion. and for de- preciation of improvements, according to the pecu- diar conditions in each ease; * * *” Section 114 of the Internal Revenue Code of 1939, as amended, in part provides: o “Basis for-depreciation and depletion “