Bear Canon Coal Co. v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 9502.
| Decision Date | 14 January 1929 |
| Docket Number | Docket No. 9502. |
| Parties | BEAR CANON COAL CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
James E. Witten, Esq., for the petitioner.
Granville S. Borden, Esq., for the respondent.
This proceeding involves deficiencies in the amounts of $401.44 and $2,644.96 in petitioner's income and profits taxes for the calendar years 1920 and 1921, respectively. For the year 1918 the respondent determined an overassessment in the amount of $810.87, and no deficiency has been asserted for 1919.
Petitioner alleges that respondent erred in determining that its net income, derived from the sale of coal mined by it from Colorado State school lands, is not exempt from Federal income and profits taxes.
FINDINGS OF FACT.
Petitioner is a Colorado corporation with its office at Trinidad, and is engaged in the business of mining and selling coal.
Petitioner's income was derived from the sale of coal mined by it from certain school land owned by the State of Colorado and duly leased to petitioner for coal-mining purposes. The land included in the said lease and from which the coal was mined was granted to the State of Colorado by the United States under an act of Congress entitled, "An Act donating Public lands to the several States and Territories which may provide Colleges for the Benefit of Agriculture and Mechanic Arts," approved July 2, 1862 (12 Stat. 503), and other acts amendatory thereof and supplemental thereto. Briefly stated the pertinent provisions of the said act are as follows:
Section 1 made a grant of a certain amount of public lands "to the several states, for the purposes hereinafter mentioned."
Section 2 authorized such of the several States as contained public lands to select specified areas of such lands, and directed the issuance of land scrip to those of the States in which there were no such lands.
Section 3 required the States to pay from their own treasuries all expenses "of management, superintendence and taxes, from date of selection of said lands, previous to their sales, and all expenses incurred in the management and disbursement of the moneys which may be received therefrom * * * so that the entire proceeds of the sale of said lands shall be applied without any diminution whatever to the purposes hereinafter mentioned."
Section 4 as amended by the Act of March 3, 1883 (22 Stat. 484), requires that all moneys derived from the sales of the lands and the scrip shall be invested and loaned in specified manners, to yield not less than 5 per centum per annum, and declared that the amounts so invested and loaned "shall forever remain unimpaired" and "shall constitute a perpetual fund, the capital of which shall remain forever undiminished, * * * and the interest of which shall be inviolably apportioned by each state * * * to the endowment, support and maintenance of at least one college where the leading object shall be * * * to teach such branches of learning as are related to agriculture and the mechanic arts."
Section 5 declares that "the grant of land and scrip hereby authorized shall be made on the following conditions, to which as well as to the provisions hereinbefore contained, the previous assent of the states shall be signified by legislative acts."
First. That the States shall make good and replace any portion of said funds which "shall, by any action or contingency, be diminished or lost," and that the "annual interest shall be regularly applied without diminution to the purposes mentioned in the fourth section of this act."
Second. "No portion of said fund, nor the interest thereon, shall be applied directly or indirectly, under any pretense whatever, to the purchase, erection, preservation or repair of any building or buildings."
Third. That the grant "shall cease," and the money already received from sales of lands and scrip shall be paid to the United States by each of such States as shall fail to "provide, within five years, at least not less than one college as described in section four of this act," but that, "the title to purchasers under the state shall be valid."
Fourth. "Annual reports shall be made regarding the progress made by each college," etc., to the Secretary of the Interior.
Seventh. "No state shall be entitled to the benefits of this act unless it shall express its acceptance thereof by its legislature."
The legislature of Colorado, in accepting the grant, stated:
Full and complete acceptance, ratification and assent is hereby made and given by the State of Colorado, to all the provisions, terms, grants and conditions and purposes of the grants made and prescribed by the Act of Congress of the United States * * * approved July 2, 1862. (Laws of Colorado, 1881, p. 18).
Article 9, section 9 of the Constitution of the State of Colorado provides for a State Board of Land Commissioners who shall have the duty of directing, controlling and disposing of the public lands of the State under regulations prescribed by law, and section 10 of the constitution provides that it shall be the duty of the said Board to provide for the location, protection, sale or other disposition of all the lands granted to the State by the Federal Government.
The pertinent provisions of the statutes of Colorado provide, briefly, that the State Board of Land Commissioners shall select and locate all lands granted to the State of Colorado by the Federal Government, "for any purpose whatever," and to secure the approval of such selections; that said Board select lien lands and classify, appraise and keep plots of the State public lands; that the said Board may lease mineral lands for mineral purposes for such length of time and conditioned upon the payment of such royalties as it may determine; that all funds, rents and royalties received by said Board shall be placed to the credit of the proper permanent school fund; that the purchaser or lessee must pay for improvements placed on the land by a prior occupant; that school lands must be disposed of only at public auction; that lessees shall file bond to protect the State against loss of rents or other loss or waste; and that the said Board shall appoint a superintendent to inspect all mines or other works operated under leases from the State, for the purpose of estimating and checking royalties due therefrom and for the purpose of requiring all mining to be conducted in accordance with approved mining methods.
On May 7, 1904, the State Board of Land Commissioners, acting on behalf of the State of Colorado, executed the following lease of the land involved in this proceeding to one William Cole:
COAL LAND LEASE
THIS INDENTURE, made this seventh day of May A. D. one thousand nine hundred and Four, by and between the State of Colorado, party of the first part, and William Cole, Trinidad, Colorado, of the County of Las Animas, in said State, party of the second part;
WITNESSETH, That the said party of the first part, for and in consideration of the covenants, and agreements hereinafter mentioned, to be kept and performed by the party of the second part, his heirs, executors, administrators and assigns, has demised and leased to the said party of the second part, the right and privilege of mining for and taking out COAL from the lands hereinafter described, lying and being in the County of Las Animas, in said State, the same being known and described as follows, viz:
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Acres | Part of section | Sec. | Twp. | Rge
------------------------|-------------------------------------|------|-------|------
160 ___________________ | SW ¼ ______________________________ | 2 | 32 S. | 65 W
80 ____________________ | W ½ of SE ¼ _______________________ | 2 | " | "
80 ____________________ | W ½ of NE ¼ _______________________ | 11 | " | "
40 ____________________ | SE ¼ of NE ¼ ______________________ | 11 | " | "
160 ___________________ | NW ¼ ______________________________ | 11 | " | "
320 ___________________ | S ½ _______________________________ | 11 | " | "
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TO HAVE AND TO HOLD the said above described premises with the appurtenances, unto the said party of the second part, his heirs, executors, administrators and assigns, from the 20th day of April A. D. 1904, for the full term of eight (8) years, being until the 20th day of April A. D. 1912. The said party of the second part, in consideration of the leasing of said premises and privileges aforesaid, by the said party of the first part, to the said party of the...
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