RESPONDENT: Commissioner of Internal Revenue
LOCATION: Criminal District Court, Parish of New Orleans
DOCKET NO.: 134
DECIDED BY: Warren Court (1962-1965)
LOWER COURT: United States Court of Appeals for the Fourth Circuit
CITATION: 380 US 624 (1965)
ARGUED: Mar 08, 1965
DECIDED: Apr 28, 1965
Facts of the case
Media for Paragon Jewel Coal Company, Inc. v. Commissioner of Internal Revenue
Audio Transcription for Oral Argument - March 08, 1965 in Paragon Jewel Coal Company, Inc. v. Commissioner of Internal Revenue
Number 134, Paragon Jewel Coal Company Incorporated, Petitioner, versus Commissioner of Internal Revenue and Number 320 -- 237 Commission of Internal Revenue versus Robert Lee Merritt et al.
Frederick Bernays Wiener:
Mr. Chief Justice, may it please the Court.
The question in these consolidated cases is whether a lessee of coal lands must share its depletion allowance with the persons it hired to mine the coal but who themselves never own the coal while it is was unmined in the ground or own the coal after it had been extracted.
Tax Court decided this question in favor of the petitioner Paragon Jewel and against the respondent contractors, the respondents in 237.
The Court of Appeals reversed.
We brought supp certiorari on the grounds of conflict with Parsons against Smith in the 359th United States and the Commissioner who fiscally is a stakeholder agreed with us and still agrees with us and as Your Honors will doubtless discern in the course of the argument, they agree with us completely in result and only somewhat -- disagree only somewhat in emphasis.
I shall take up first the facts found by the Tax Court concerning the agreement, the arrangements between petitioner Paragon Jewel, the lessee, and its contractors.
I will then discuss the statute because after all we are dealing here with a deduction that is accorded as a matter of legislative grace and yet the court below dealt with that deduction without discussing the statute without holding the statute and without even citing the statute.
And then I will take up the common law of depletion the decisions here to show that the entire emphasis in Your Honors' decisions has been that depletion is an allowance to the owner for the exhaustion of his capital investment of his capital assets and that therefore it isn't available to one who never had any capital investment in the minimum.
Let me first deal with the facts found by the Tax Court.
Petitioner Paragon Jewel was the assignee or the sub-lessee of numerous coal leases in the hills of the Commonwealth of Virginia.
It is assumed all the obligations of the original lessee under those leases.
It paid all the royalties, it paid all the property taxes.
It never assigned or sublet any of its leases and it never surrendered any capital interest in the coal in place.
I pause to say that the expression mineral in place, coal in place, oil in place seems somehow confusing to some of the lawyers with whom I have discussed it.
I may refer to it as the coal in the ground.
I don't see that that's a word of art at all, that's perfectly quite.
Now, Paragon made contracts with various individual miners to mine this coal.
These contractors assume no obligations under the leases.
They paid no property taxes on the mineral on any mineral interest.
They paid no royalties under the leases.
They paid nothing for the coal.
They got no title to the coal either in the ground or after it was mined and the great many of them on the stand expressly disclaimed any capital investment in the unmined coals.
They got nothing by purchase or lease.
They were not entitled to sell to anyone -- to any outsider the coal that they mine for Paragon.
They had to deliver every bit of coal they mine to Paragon at its tipple and in return they got the personal covenant of Paragon to be paid for their mining operations at a fixed price per ton.
Tom C. Clark:
Any negotiation on this depletion item?
Frederick Bernays Wiener:
There was none.
No, it's plain that depletion is a conflict which I'll come to in a minute on whether it was terminable.