-11-
the coal to the owners. The taxpayers argued that they were
entitled to deduct depletion in connection with these payments
because they had a capital investment in minerals (coal) in
place. The taxpayers argued that their capital investment was in
the equipment, facilities, and labor which they expended to mine
the coal. The Supreme Court disagreed. The Court held that the
taxpayers lacked an economic interest in the coal. The Court
noted first that the taxpayers lacked any interest or investment
in the coal apart from any interest held under the mining
contracts. The Court then stated that the contracts gave the
taxpayers merely an economic advantage from the strip mining
operation. The Court viewed the following seven factors as
relevant to its decision: (1) The taxpayers’ investment was in
their equipment, all of which was movable, and they lacked an
investment in the coal in place; (2) the taxpayers recovered
their investment in the equipment through depreciation; (3) the
taxpayers’ contracts with the owners were terminable without
cause on short notice; (4) the owners never agreed to surrender,
nor did they ever surrender, to the taxpayers an interest in the
coal in place; (5) title to the coal always vested in the owners,
and the taxpayers were not allowed to sell or keep any of the
coal but had to deliver it to the owners; (6) the taxpayers
received none of the proceeds from the coal’s sale but were paid
for their services a set amount for each ton of coal mined and
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Next
Last modified: May 25, 2011