BEFORE THE UTAH STATE TAX COMMISSION
formerly XXXXX ) INFORMAL DECISION
XXXXX ) Appeal No. 87-0288
Petitioner, : Mine Occupation Tax
v. : Audit Period: XXXXX
AUDIT DIVISION OF THE :
UTAH STATE TAX COMMISSION, :
STATEMENT OF CASE
This matter came before the Utah State Tax Commission for an informal hearing on XXXXX. James E. Harward heard the matter for and in behalf of Tax Commission. XXXXX, represented the Petitioner. XXXXX, represented the Respondent. The Petitioner operates an open-pit gold mine in XXXXX County, Utah. Because of the nature of the Petitioner's business it is subject to the Utah Mine Occupation Tax. The Petitioner uses a carbon-in-leach process to extract gold from processed ore. The Petitioner claims that the carbon-in-leach process is the functional equivalent to heat smelting and therefore claims deductions for those expenses occurred in the carbon-in-leach process in calculating its Utah Mine Occupation tax for XXXXX pursuant to Utah Code Ann.59-5-102(a)(iii). The Respondent has disallowed the deductions claimed by the Petitioner and have imposed an additional tax of $$$$$.
Utah Code Ann.59-5-102(a)(iii) states that: "If a mill or other reduction works is operated exclusively in connection with a mine, the mill or reduction works shall be treated as a part of the mine, and the cost of operating the mill or reduction works shall, for the purpose of fixing the occupation tax imposed by this chapter, be regarded as part of the cost of mining and cost of assaying, sampling, smelting, refining, and transportation only shall be deducted." All parties agree that this is the applicable code section which applies to the circumstances affecting the Petitioner. It appears from this code section that the Legislature is attempting to draw a line between mining and processing. The question before the Commission is, what constitutes reduction works? The Petitioner claims the carbon-in-leach process is the functional equivalent of smelting and does not fall within the definition of reduction works as contemplated by the statute. The term "reduction works" is defined by the U. S. Department of Interior, Bureau of Mines, in A Dictionary of Mining, Mineral, and Related Terms (1968) as follows: "Works for reducing metals from their ores, as a smelting works, cyanide plant, etc." It would appear from this definition of "reduction works" that all processes after the ore is extracted from the mine would fall within the definition of the reduction work. This, by itself, would include smelting; however, the statute goes on to specifically identify smelting, sampling, assaying and refining as a cost which can be deducted. The statute does not identify leaching specifically nor define the term "leaching" in terms of the statute and its application. The carbon-in-leach process is a hydrometallurgical extraction of the base metal, i.e. gold, from those impurities with which it has been chemically combined or physically mixed as in the ores, (Dictionary Mining Supra, pg. 133). In the process, a solvent is introduced to the ore to dissolve the gold from the ore. Elemental gold is then recovered from the solvent either by absorption onto an inert material or directly by electrolytic deposition. The solvent is continually re-used in the process. In contrast, smelting is typically understood as a pyrometallurgical extraction process which uses heat to separate the base metal from chemical and physical impurities. In the pyrometallurgical process, impurities are vaporized and driven off as a gas or they float to the top of the molten material or poured off in the form of slag. The carbon-in-leach extraction process is a relatively new method of hydrometallurgical extraction. In many cases this modern leaching method has replaced pyrometallurgical smelting or as permitted recovery of the base ore where pyrometallurgical smelting recovery would not be economically feasible. The Petitioner has pointed out that the pyrometallurgical process of smelting and the hydrometallurgical process of carbon-in-leach both employ a chemical change to the gold for the purpose of extraction. This is to be distinguished from concentrating ore into a higher grade material without chemical separation or extraction. It is implied through this argument that the Petitioner agrees that the processes of concentrating ore is not a deductible expense for the purposes of mine occupation tax. But, the line to be drawn between what should be deductible and what should not be deductible is when there is a chemical reaction which takes place that separates the base metal from its impurities. This chemical reaction takes place both in the pyrometallurgical smelting and the hydrometallurgical smelting process used by the Petitioner. The Petitioner would urge the Tax Commission to recognize that a reduction works for the purposes of the application of the mine occupation tax apply to crushing, grinding, commutation, and concentration of the ore and that the costs of chemically changing, either through a pyrometallurgical or hydrometallurgical process, is deductible for purposes of the application of the statute. The Tax Commission agrees with the Petitioner that under the circumstances of the Petitioner where the ore is physically removed to the processing plant where it is mixed with the sodium cyanide to dissolve the gold and an actual change takes place, that the carbon-in-leach process is the functional equivalent of a pyrometallurgical smelting process. The carbon-in-leach process under these facts will not be construed as a reduction work or a concentration process which is a non-deductible expense for the purpose of the mine occupation tax. The Tax Commission by issuing this decision does not decide in situ leach mining, or pad leaching, as it relates to the mine occupation tax. That type of process will continue to be treated as a mining expense.
DECISION AND ORDER
The order of the Utah State Tax Commission is that the request of the Petitioner be granted. That the audit be adjusted to reflect a credit for the deduction of expenses for the carbon-in-leach process and resulting reduction in taxes due.
DATED this 5 day of October, 1988.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger O. Tew
Joe B. Pacheco G. Blaine Davis