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O'Neil v. Byrne

Supreme Court of Arizona

October 21, 1946

O'NEIL et al.
v.
BYRNE

Appeal from Superior Court, Yavapai County; W. E. Patterson, Judge.

Affirmed.

John L. Sullivan, Atty. Gen., Harry O. Juliani, Chief Asst. Atty. Gen., and Burr Sutter, Asst. Atty. Gen., for appellants.

Byrne and McDaniel, of Prescott, for appellee.

La Prade, Justice. Stanford, C. J., and Morgan, J., concur.

OPINION

La Prade, Justice.

In this opinion we shall designate the appellants as the "Commission" and the appellee as the "Company" or "Trustee." The appellee is the trustee of an express trust and is vested with title to all the assets of the Iron King Mining Company. The Company was engaged in the operation of the Iron King Mine in Yavapai County, near the town of Humboldt, Arizona. It commenced operations in the year 1937; constructed a mill in the latter part of the year 1938; and commenced milling its ores in October of that year, producing bulk concentrates, nearly all of the values of which were gold and silver. In 1940, it enlarged its flotation plant to separate zinc. The first ores mined by it were very low in that metal, but their zinc content became higher as the mine operation continued so that it was economically [65 Ariz. 24] advantageous to capture its values. In 1940, the Company, to improve the extraction of zinc, installed a cyanide plant, its tests at that time indicating that before floating its ores, cyanidation permitted extraction of a large part of the gold and silver in a highly concentrated form and reduced freight and treatment charges. Had the Company continued with its cyanide process before flotation, the lead concentrate would have had very little value after paying the freight and treatment charges. The flotation process used by the Company required too close a regulation. The Company decided not to cyanide ahead of the flotation and to make a low-grade zinc concentrate and a low-grade lead concentrate. This was advisable in view of the fact that the zinc content became higher.

The lead and zinc concentrates shipped by the Company to the smelters during the taxable period had their weight in the base metal content. In a carload of lead concentrates weighing 100,000 pounds, there might be 100 pounds in the weight of the precious metals. Smelter charges were incurred because of the base metal content of the concentrates and not the precious metal content.

On July 1, 1942, the properties of the Iron King were acquired and thereafter operated by the Shattuck Denn Mining Company. In October, 1942, the Commission, under the provisions of the Excise Revenue Act, Article 13 of Chapter 73, A.C.A.1939, levied a sales tax against the gross proceeds of the sales of the Company received after January 1, 1942, to and including August 10, 1942. The tax levied was in the sum of $ 3,873.12. The trustee paid the tax under protest and petitioned for a hearing. The Commission sustained the objection of the trustee as to an overpayment of tax in the sum of $ 198.24, and

Page 634

entered its order denying the protest and sustaining the assessment of the tax in the amended sum of $ 3,674.88. The trustee admitted liability of $ 1,487.45 and brought suit in the superior court to recover $ 2,187.43, being the claimed overpayment of tax demanded and theretofore paid under protest. Under the provisions of Section 73-1308, A.C.A.1939, as interpreted in Luke v. East Vulture Mining Co., 47 Ariz. 220, 54 P.2d 1002, the gross proceeds from sales of gold and silver are not taxable, being sales to the United States government. The difference between the computations of the Commission and the Company of sales tax came about solely by reason of the Commission's charging freight and smelter costs against the precious metal content in proportion to its value as compared with the total concentrate value. Both freight rates and smelter charges are based on tonnage and not on values.

By the provisions of Section 73-1309, Id., the selling price of mining products shall be reduced by the amount of the actual freight paid by the taxpayer from the place of production to the place of delivery [65 Ariz. 25] when such freight is included in the sales price of such products. In the instant case, the records show that the Company paid out the sum of $ 28,006.26 for trucking the concentrates from mine mill to railroad loading point. The smelter, before remitting to the Company, retained the sum of $ 184,128.12 to pay for its treatment charges and to reimburse it on account of advances made by it in payment of freight charges. The trustee recovered judgment in the lower court for $ 2,187.43. The appeal is from this judgment.

It was the contention of the plaintiff in the lower court and is here that all freight and treatment charges should be deducted from the gross proceeds of sales of the lead and zinc recovered and sold from the concentrates. It was and is the position of the Commission that in computing gross proceeds of sales for the purpose of assessment under the Excise Revenue Act freight charges should be allocated on a basis of the proportionate values of the taxable and non-taxable metals sold. The Company submitted the following tax computation:

$ 802,035.69

-- Lead concentrates, 1-1-40 to

7-1-42

325,816.77

-- Zinc concentrates, 1-1-40 to

7-1-42

$ 1,127,852.46

-- Gross Production, 1-1-40 to

7-1-42

184,128.12

-- Freight and treatment

charges

$ 943,724.34

-- Net Smelter Returns

28,006.26

-- Trucking charges

$ 915,718.08

760,664.67

-- Gold and Silver (Not Tax-

able)

$ 155,053.41

-- Net Value Base Metals

$ 1,550.53

-- Tax at 1%


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