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Example of results under current administration of the code The gravity of this situation is strikingly illustrated by the experience of one of our group, generally representative of experience in the area as set forth below.

The actual percentage depletion on coal allowed by the Internal Revenue Service in its reports of examination covering the years 1947 through 1953 (and calculations perpetuated on this basis for subsequent years) reflected on an average per ton basis is shown below together with the percentage relationship to gross income (value) and to costs of mining and related expenses. The actual percentage depletion per ton reflected in these statistics has been arrived at by aggregating the percentage depletion allowable for the several coal properties and dividing by the total tonnage from all such properties. The schedule reflects the amount of percentage depletion allowable (at the 5-percent rate applicable to years prior to 1951 and at the present 10-percent rate thereafter) before application of the 50-percent taxable income limitation and reflects the amount which is denied by reason of the application of said limitation (all expressed as an average amount per ton):

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The foregoing statistics forcefully illustrate the significance and severity of the 50 percent taxable income limitation feature of the law which operates to completely extinguish all percentage depletion allowance in the more recent years. You will observe, for example, that for 1953 the percentage depletion allowable before the 50 percent limitation was approximately 61 cents per ton but was reduced to less than 4 cents after the application of the 50 percent limitation. Also you will note that for the years 1954, 1955, and 1956, the 50 percent limitation removes all percentage depletion.

Although coal presently is accorded a relatively low percentage depletion rate (10 percent), the policy of the Internal Revenue Service together with the 50 percent limitation combine to deny any percentage depletion to most taxpayers in the Alabama district.

REASONS FOR A MINIMUM PERCENTAGE DEPLETION ALLOWANCE Coal deposits are a vital national asset and abandonment by operators who can no longer earn a reasonable profit will render certain of these reserves inae cessible, or at least not economically recoverable in the future, due to flooding and caving of mine workings.

The coal-mining industry needs above all a chance to make the minimum profit necessary for survival. Beyond that, it needs the necessary funds for research and development of means to improve its products and to develop new uses for its products. Only a favorable earnings situation will attract the necessary new capital to accomplish these objectives.

We do not believe that anyone will argue that the objective of percentage depletion legislation it other than to maintain and stimulate natural resource production. It is beyond dispute that this requires the expenditure of tremendous sums and great risks of capital. The 50 percent net income limitation

feature allows greater benefits to those taxpayers operating under more favorable conditions resulting in higher margins, and denies appropriate benefits to those less fortunate taxpayers in more difficult operating situations. Since the legislative objective is physical production, separate taxpayers producing a ton of coal should be accorded approximately the same benefits which are not presently accorded because of the net income limitation. While the maximum percentage depletion is defined by law as 50 percent of taxable income, a minimum percentage depletion provision should be incorporated in the law which would give appropriate recognition to physical production.

The statute provides that a reasonable allowance shall be provided. Congress recognized that the mining industry is fraught with many peculiar conditions and provided in the law for (1) a reasonable allowance (2) according to the peculiar conditions in each case. No percentage depletion as is the case of our Alabama group certainly is not reasonable and we believe not in accordance with the intent of Congress.

We submit that Congress did not contemplate that "Gross Income from Mining" as defined in code section 613 (c) (1) (2) would, in the case of taxpayers who process their minerals beyond the ordinary treatment processes referred to in section 613 (c) (2), be so reduced by application of unrealistic prices developed from restricted and isolated sales as to virtually eliminate percentage depletion due to the impact of the 50 percent limitation.

We believe that the conditions as brought out in this statement completely justify an equitable change in the law to provide at least a minimum amount of percentage depletion.

SUMMARY We have referred in the foregoing to the report of the Subcommittee on Coal Research of the House Committee on Interior and Insular Affairs, whose findings we heartily endorse.

We have outlined briefly the peculiar conditions which prevail in the Alabama coal industry.

We have cited what we consider to be a deficiency in the Internal Revenue Code, by reason of which certain inequities in the administration of the code have deprived Alabama coal producers of virtually any allowances for percentage depletion.

We have pointed out that, while the present code and regulations provide for a maximum allowance for percentage depletion of not in excess of 50 percent of taxpayer's taxable income, the code does not provide for a minimum allowance for

percentage depletion.

We have, therefore, recommended an amendment to the code which would provide for a minimum percentage depletion allowance of 5 percent of the taxpayer's total allowable cost of recovery.

It is the considered opinion of the Alabama Mining Institute that this proposed amendment would not adversely affect any taxpayer, that it would not benefit any taxpayer who now enjoys a reasonable allowance for percentage depletion, and that it would provide Alabama coal operators and others similarly situated with an incentive to continue to prospect and develop mineral reserves and to improve facilities for preparation.

The opportunity to submit this statement is appreciated, and the Alabama
Mining Institute earnestly requests your serious consideration and adoption of
the recommended amendment to the Internal Revenue Code.


Mr. Chairman, my name is W. H. Parker. I am president of Alabama Mining Institute, Birmingham, Ala. We are a trade organization representing a majority of the tonnage of coal produced in the Alabama coal mining district. The members of our association are desirous of the repeal of section 4271 (b) of the 1954 code, imposing a tax on the transportation of coal at a flat rate of 4 cents per short ton. This transportation tax on coal is a direct hardship on the coal producers of this State. The Alabama trade area covering the sale of coal mined in Alabama is in a fiercely competitive position with the numerous gas distribution pipelines crisscrossing the State from east to west and from north to south. This additional cost of 4 cents per ton on transportation of coal from

mine to market may make the difference between selling and not selling our product in competition with the gas industry, and to a lesser extent in competition with fuel oil markets on Alabama's gulf coast; also to some extent in the western and northwestern coasts of the State of Florida. The transportation tax on coal is a direct hardship on our industry. Several thousand families of this area, especially mine and railroad employees, depend upon the production of coal for their livelihood. We feel that if this tax was repealed that our markets would broaden and we could furnish a livelihood for more and more wage earners. As you doubtless know, this tax was enacted in 1942 to discourage the nonessential use for public transportation facilities and to raise additional revenues for financing World War II. The financial purpose for which this tax was imposed no longer exists.

The coal producers of the Alabama field are unanimous to the effect that taxes on transportation of coal should be repealed, because, among other reasons, as before stated, they were imposed as a wartime regulatory measure and there is no longer any justification for its continued use. The principal competition of our industry in this area is natural gas. Frequently fuel selection of a large fuel consumer, such as electric utilities and large manufacturing plants, is resolved by the difference of a few cents per ton in a delivered price of coal. Tax on the transportation of coal discriminates against the coal industry in its competition with natural gas, especially in the Alabama area and it is not only inequitable to management and labor in the coal and related industries, but it is also inimical, in our opinion, to the national need to prolong the availability of natural gas for superior uses.

It appears to me, gentlemen, that we are most inconsistent when we fail to remove this 4 cents per ton discriminatory tax against coal, and at the same time look to and exhort the goal industry to maintain its productive capacity at a level to ideally supply wartime or emergency demands. In this tense situation, brought on by sputnik and the cold war now being waged, it is highly essential that the vital coal industry should receive every favorable condition as to the operation of its mines, whereby it could immediately be thrown into excess production should this country be forced into war. Now, therefore, gentlemen, with some of the salient facts as expressed to you above, relative our important industry, I would like to wholeheartedly recommend the removal of this wartime excise tax on the transportation of coal. I thank you for the opportunity of presenting this information to you.

Mr. FORAND. The Chair has been advised that the next witness, Mr. Boldrick, is not here.

The next witness, therefore, would be Mr. R. B. Carothers. Is Mr. Carothers here?

If not, the committee stands adjourned until 10 o'clock tomorrow morning

Mr. CURTIS. Mr. Chairman, before we adjourn, I ask unanimous consent to have put into the record of yesterday the statement prepared by our staff on the treatment of foreign income.

I previously talked to Mr. Mills about it.

Mr. FORAND. Without objection that will be done. The committee stands adjourned until 10 o'clock tomorrow morning. (The following letters were received by the committee :)



Washington, December 9, 1957. The Honorable JERE COOPER, Chairman, Committee on Ways and Meuns,

House of Representatives, Washington, D. O. DEAR CHAIRMAN COOPER: In connection with your committee's forthcoming general tax revision study, I am enclosing a letter which I have received from Hon. John W. Caudill, an outstanding attorney of Blytheville, Ark.

Mr. Caudill recommends that the percentage depletion allowance for brick and tile clay and most particularly for fire clay be retained at present rates. He states that the percentage depletion allowance has been a big help to the brick and tile industry; also, that the Government may be losing some revenues but I seriously contend that it is much more important to keep this industry in a healthy position.

Your every consideration and attention to Mr. Caudill's recommendations will be greatly appreciated. Yours sincerely,


BLYTHEVILLE, ARK., December 3, 1957, The Honorable E. C. GATHINGS,

House of Representatives, Washington, D. C. DEAR MR. GATHINGS: For quite some time, I have been keenly interested in the percentage depletion allowance for brick and tile clay and most particularly for fire clay. I have watched the Commissioner of Internal Revenue argue that the depletion allowance should be limited to the market value of the clay itself. Time after time, the courts have denied the Commissioner and his argument and have allowed the depletion allowance on the first commercially marketable products-i. e., the burnt brick and tile. The Supreme Court has now ruled in the Dragon Cement Co. and Merry Bros. cases and has denied writ of certiorari. The Commissioner has no more room for argument, he is compelled to interpret the code as Congress originally intended and he must now allow the full depletion allowance.

I have been in position to know that the percentage depletion allowance (as interpreted by the courts) has been a big help to the brick and tile industry. Very much as the oil and gas industry, risk capital is readily obtainable by the brick and tile people and I feel that they have a healthy industry.

The Commissioner of Internal Revenue is now arguing that the Government is losing too much revenue because of the present percentage allowance for brick and tile and fire clays. The Government may be losing considerable revenues but I seriously contend that it is much more important to keep this industry in a healthy position. I would, therefore, urge you to give serious consideration to this matter, to keep the percentage depletion allowance as it now is and to not permit any amendments to the Internal Revenue Code that would change this allowance.

Please accept my thanks in advance for your attention to this matter. If you would like further information from me, please do not hesitate to let me know. Respectfully submitted.


Attorney at Law.



House of Representatives, Washington, D. C. SIR: It is my understanding that an opportunity will be provided to Mr. Horace M. Albright to appear before your committee sometime after January 7 to present to the committee arguments for the inclusion of borax or boron in the group of strategic materials which are now entitled to depletion allowances of 23 percent.

The purpose of my letter is to advise you that Stauffer Chemical Co. is vitally interested in this presentation inasmuch as it is extracting borax from Searles Lake, Calif. Mr. Albright has provided us with a copy of the statement which he intends to present at your hearings, and we are in full accord with his arguments on behalf of the increased depletion allowance for borax or boron.

I know that very careful consideration will be given to the discussion to be initiated by Mr. Albright, and it is hoped that recognition of the very real problem of the industry will result in the granting of the requested depletion rates. Very truly yours,



Los Angeles, Calif., January 23, 1958. Hon. WILBUR D. MILLS, Chairman of the Ways and Means Committee,

House of Representatives, Washington, D.O. MY DEAR MR. Mills: I have read the testimony of Mr. Horace Albright presented on behalf of the United States Borax & Chemical Corp. before your committee on January 22, 1958, requesting an increase in the depletion rate on borax from 15 percent to 23 percent. This company endorses the testimony of Mr. Albright and we join in requesting that borax be granted a 23-percent depletion rate, I respectfully request that this letter be included in the printed record of the hearings immediately following Mr. Albright's testimony. Sincerely,

R. B. Coons, Vice President. (Whereupon, at 12:05 p. m., the committee adjourned, to reconvene at 10 a. m., Wednesday, January 22, 1958.)

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