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Depletion For the Integrated Miner-Manufacturer

Jerry M. Hamovit, Proceedings of 13th Annual Rocky Mountain Mineral Law Institute (1967)

The laymen's notion of percentage depletion is probably confined to such percentage rates as 27 1/2%. However, the federal income tax deduction for percentage depletion, at least in the case of hard minerals, is largely the product of the interrelation of three factorsthe percentage rate, the cutoff point, and the method of computing gross income at that point. The percentage rate is like the tip of an icebergit gets most of the attention. But the mining tax man can verify that the other two factors may have as much or more effect on the ultimate deduction as the rate itself. Certainly these two additional factors take much of the tax man's time.

Discussion of the depletion deduction of the integrated miner-manufacturer initially requires a definition of that group. We are talking about not only mineral producers who engage in extensive manufacturing effortssuch as the producer of bricks, gypsum wallboard or portland cementbut also about mineral producers whose activities do not fall within usual concepts of manufacturing, such as the producer of finely pulverized stone or refined copper. This group has in common the problem of determining, for purposes of the percentage depletion deduction, where mining terminates, and the mineral's value at that interim stage of the overall process.

[412] THE CONTROVERSY OVER END-PRODUCT DEPLETION

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