Bald Mountain Mining Co. v. Welsh

• Citation: 271 N.W. 819,65 S.D. 117
• Decision Date: 04 March 1937
• Docket Number: 7930.
• Parties: BALD MOUNTAIN MINING CO. v. WELSH, State Director of Taxation.
• Court: South Dakota Supreme Court

271 N.W. 819

65 S.D. 117

BALD MOUNTAIN MINING CO. v. WELSH, State Director of Taxation.

No. 7930.

Supreme Court of South Dakota

March 4, 1937

Appeal from Circuit Court, Lawrence County; James McNenny, Judge.

Action by the Bald Mountain Mining Company against W. C. Welsh, as State Director of Taxation. From a judgment in favor of the plaintiff, the defendant appeals.

Affirmed.

Walter Conway, Atty. Gen., and R. F. Drewry, Asst. Atty. Gen., for appellant.

Clinton G. Richards, of Deadwood, for respondent.

POLLEY Judge.

This action is brought for the purpose of recovering from the Director of Taxation certain tax money collected by said director from plaintiff as "Gross Income" tax for the month of March, 1935. Plaintiff claims that it should be taxed as a "manufacturer" under the provisions of paragraph (a) of section 2, chapter 184, Session Laws of 1933; while the defendant claims that plaintiff should be taxed under paragraph (e) of said section. Plaintiff paid the full amount, $371.94, demanded by defendant as provided by said paragraph (e), under protest and now brings this action to recover $278.65, the difference between $371.94 and the amount of the tax had it been levied under the provisions of paragraph (a) of said section. Paragraph (a) of said section reads as follows: "Upon every person, engaging or continuing within this state in the business of manufacturing, processing, compounding, or preparing for sale, profit or use, any article or articles, substance or substances, commodity or commodities, the amount of such tax to be equal to the value of the articles manufactured processed, compounded or prepared for sale, as shown by the gross proceeds derived from the sale thereof by the manufacturer, except as hereinafter provided, multiplied by a rate of one-fourth of one per cent. The measure of this tax is the value of the entire product manufactured, processed compounded, or prepared for sale, profit or use in this state, regardless of the place of sale or the fact that deliveries may be made to points outside the state."

Paragraph (b) relates to wholesalers and is not material in this case. Paragraph (c) relates to livestock and is not involved in this case.

Paragraph (d) relates to incomes or salaries and is not involved in this case, but paragraph (e) reads as follows: "Upon every person, located in, or engaging or continuing in any business, trade, profession or occupation within this state other than those businesses included in the four preceding subdivisions of this section, the amount of the tax levied and imposed by this act shall be equal to the gross income of such person multiplied by a rate of one per cent."

This is a sort of grab-bag provision intended to prevent the escape of any trade, profession, or occupation that cannot be reached under the provisions of either paragraphs (a), (b) (c), or (d), and it is the claim of defendant that plaintiff should be taxed under the provisions of this paragraph.

The term "manufacturer" as used in paragraph (a) of section 2 of said chapter is defined in paragraph (i) of section 1 of said chapter as follows: "The term 'Manufacturer' shall mean persons engaging, or continuing, within the state in the business of manufacturing, compounding, processing, producing or preparing for sale, profit or use, either as a finished or partly finished product, any article, substance, product or commodity, the production of which the manufacturer is calculated for sale at wholesale, or for further processing and manufacture."

Plaintiff had judgment, and defendant appeals.

In order to determine which of these paragraphs should govern in this case, it is necessary to examine in some detail the various operations performed by plaintiff in carrying on its business.

Plaintiff is a domestic corporation organized for the purpose, in part, as stated in its articles of incorporation, "to carry on the business of a mining, smelting, and refining company," and is engaged in the business of mining ore and extracting the gold and silver content thereof. In carrying on this business the ore is first broken from its place in the mine by the use of high explosives. It is then hoisted and trammed to plaintiff's cyanide mill. The ore is what is known as low grade, containing an average value of only $6.59 in gold, and 29 cents in silver per ton of ore, or a total value of only $6.88 per ton; in other words, approximately 3.5 penny-weights of gold and one ounce of silver per cubic yard of ore. Mining the ore and bringing it to the mill costs plaintiff an average of $2.29 per ton. In order to obtain any value from the ore it is necessary to extract therefrom its gold and silver content. To do this involves a long, difficult, and technical chemical process.

There are no custom mills in this state where ore can be treated and the values extracted therefrom. The nearest of such mills is one at Omaha, Neb., one at East Helena, Mont., and one at the Golden Cycle Mine near Colorado Springs, Colo. The freight charge for shipping plaintiff's ore to either of these places is $5.02 per ton to Omaha; $5.90 per ton to East Helena; and $6.87 to Colorado Springs. Either of these amounts plus the cost of mining the ore exceeds the total value of the gold and silver contained in the ore as it comes out of the mine. The result of this situation is that in order to operate the mine at all it is necessary for plaintiff to own and operate a reduction plant of its own.

The ore as it comes from the mine is in fragments in size from very small pieces to chunks weighing as much as 100 pounds or more. It is first run through the crusher, where it is reduced to such a size that it will all pass through a one and one-half inch mesh screen. It is then conveyed to the ball mill for grinding. As it passes into the ball mill, a quantity of cyanide in solution with water is added. Cyanide in solution with water is a solvent of gold and silver, and its purpose in the process of extraction of gold and silver is to dissolve the particles of gold and silver in the ore. After the cyanide solution has been added to the ore in the ball mill, the ore is ground and reground until it is as fine as flour. At that stage of the process the whole mass is known as "pulp." The pulp is conveyed from the ball mill into tanks where more of the cyanide solution is added. It is then conveyed to large tanks where it is aereated and agitated for a considerable length of time. Then the solution now carrying the gold and silver content of the ore is drawn off from the tanks, and the pulp is then flushed out of the tanks as waste or "tailings," and is washed down the creek. The solution as drawn from the tanks has now become "gold solution" and is stored in tanks ready for the next process. This gold solution contains as much of the gold and silver that was in the ore as can be economically recovered by the cyanide process; in case of plaintiff's ore the average recovery is 84.4 per cent. of the gold and 58.4 per cent. of the silver contained in the ore.

Gold and silver in solution with cyanide have a strange affinity for zinc in fine particles, and to separate the gold and silver from the gold solution zinc dust is added to the solution. When the particles of gold and silver in the solution come in contact with the particles of zinc dust, the particles of gold and silver...