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Rs 47:158 Basis For Depletion

§158. Basis for depletion

A. General rule. The basis upon which depletion is to be allowed in respect of any

property shall be the adjusted basis provided in R.S. 47:139 for the purpose of determining

the gain upon the sale or other disposition of such property, except as provided in

Sub-sections B, C, and D, of this Section.

B. Discovery value in case of mines, other than metal, coal, or sulphur mines

discovered by the taxpayer after December 31, 1933. The basis for depletion shall be the fair

market value of the property at the date of discovery or within thirty days thereafter, if such

mines were not acquired as the result of purchase of a proven tract or lease, and if the fair

market value of the property is materially disproportionate to the cost. The depletion

allowance under R.S. 47:66 based on discovery value provided in this Sub-section shall not

exceed fifty per centum (50%) of the net income of the taxpayer (computed without

allowance for depletion) from the property upon which the discovery was made, except that

in no case shall the depletion allowance under R.S. 47:66 be less than it would be if

computed without reference to discovery value. Discoveries shall include minerals in

commercial quantities contained within a vein or deposit discovered in an existing mine or

mining tract by the taxpayer after December 31, 1933, if the vein or deposit thus discovered

was not merely the uninterrupted extension of a continuing commercial vein or deposit

already known to exist, and if the discovered minerals are of sufficient value and quantity

that they could be separately mined and marketed at a profit.

NOTE: Subsections C and D eff. until June 30, 2018. See Acts 2015, No. 123, §6.

C. Percentage depletion for oil and gas wells. In the case of oil and gas wells the

allowance for depletion under R.S. 47:66 shall be fifteen and eight-tenths of one percent of

the gross income from the property during the taxable year, excluding from such gross

income an amount equal to eighty percent of any rents or royalties paid or incurred by the

taxpayer in respect of the property. Such allowance shall not exceed thirty-six percent of the

net income of the taxpayer, computed without allowance for depletion, from the property

except that in no case shall the depletion allowance under R.S. 47:66 be less than it would

be if computed without reference to this Subsection.

D. Percentage depletion for coal and metal mines and sulphur. The allowance for

depletion under R.S. 47:66 shall be, in the case of coal mines, three and six-tenths of one

percent, in the case of metal mines, ten and eight-tenths of one percent, and in the case of

sulphur mines or deposits, fifteen and eight-tenths of one percent, of the gross income from

the property during the taxable year, excluding from such gross income an amount equal to

seventy-two percent of any rents or royalties paid or incurred by the taxpayer in respect of

the property. Such allowance shall not exceed thirty-six percent of the net income of the

taxpayer , computed without allowance for depletion from the property. A taxpayer making

his first return under this Chapter or under Act 21 of 1934 in respect of a property, shall state

whether he elects to have the depletion allowance for such property for the taxable year for

which the return is made computed with or without regard to percentage depletion, and the

depletion allowance in respect of such property for such year and all succeeding taxable years

shall be computed according to the election thus made. If the taxpayer fails to make such

statement in the return, the depletion allowance for such property for all taxable years shall

be computed without reference to percentage depletion. This Subsection shall not be

construed as granting a new election to any taxpayer relative to any property with respect to

which he has filed a return under Act 21 of 1934.

NOTE: Subsections C and D as enacted by Acts 2015, No. 123, §§3, 6, eff.

July 1, 2018.

C. Percentage depletion for oil and gas wells. In the case of oil and gas wells the

allowance for depletion under R.S. 47:66 shall be twenty-two percent of the gross income

from the property during the taxable year, excluding from such gross income an amount

equal to any rents or royalties paid or incurred by the taxpayer in respect of the property.

Such allowance shall not exceed fifty percent of the net income of the taxpayer, computed

without allowance for depletion, from the property except that in no case shall the depletion

allowance under R.S. 47:66 be less than it would be if computed without reference to this

Subsection.

D. Percentage depletion for coal and metal mines and sulphur. The allowance for

depletion under R.S. 47:66 shall be, in the case of coal mines, five percent, in the case of

metal mines, fifteen percent, and in the case of sulphur mines or deposits, twenty-three

percent, of the gross income from the property during the taxable year, excluding from such

gross income an amount equal to any rents or royalties paid or incurred by the taxpayer in

respect of the property. Such allowance shall not exceed fifty percent of the net income of

the taxpayer, computed without allowance for depletion, from the property. A taxpayer

making his first return under this Chapter or under Act 21 of 1934 in respect of a property,

shall state whether he elects to have the depletion allowance for such property for the

taxable year for which the return is made computed with or without regard to percentage

depletion, and the depletion allowance in respect of such property for such year and all

succeeding taxable years shall be computed according to the election thus made. If the

taxpayer fails to make such statement in the return, the depletion allowance for such

property for all taxable years shall be computed without reference to percentage depletion.

This Subsection shall not be construed as granting a new election to any taxpayer relative

to any property with respect to which he has filed a return under Act 21 of 1934.

E. Definition of property.

(1) General rule. For the purpose of computing the depletion allowance under

Sub-sections C and D of this Section, the term "property" means each separate interest owned

by the taxpayer in each mineral deposit in each separate tract or parcel of land.

(2) Special rules as to operating mineral interests in oil and gas wells.

(a) In general. Except as otherwise provided in this Sub-section,

(i) all of the taxpayer's operating mineral interests in a separate tract or parcel of land

shall be combined and treated as one property, and

(ii) the taxpayer may not combine an operating mineral interest in one tract or parcel

of land with an operating mineral interest in another tract or parcel of land.

(b) Election to treat operating mineral interests as separate properties. If the taxpayer

has more than one operating mineral interest in a single tract or parcel of land, he may elect

to treat one or more of such operating mineral interests as separate properties. The taxpayer

may not have more than one combination of operating mineral interests in a single tract or

parcel of land. If the taxpayer makes the election provided in this Paragraph with respect to

any interest in a tract or parcel of land, each operating mineral interest which is discovered

or acquired by the taxpayer in such tract or parcel of land after the taxable year for which the

election is made shall be treated,

(i) if there is no combination of interests in such tract or parcel, as a separate property

unless the taxpayer elects to combine it with another interest, or

(ii) if there is a combination of interests in such tract or parcel, as part of such

combination unless the taxpayer elects to treat it as a separate property.

(3) Certain unitization or pooling arrangements.

(a) In general. Under regulations prescribed by the collector, if one or more of the

taxpayer's operating mineral interests participate, under a voluntary or compulsory unitization

or pooling agreement, in a single cooperative or unit plan of operation, then for the period

of such participation,

(i) they shall be treated for all purposes of this Chapter as one property, and

(ii) the application of Paragraphs (1), (2) and (4) in respect to such interests shall be

suspended.

(b) Limitation. Subparagraph (a) shall apply to a voluntary agreement only if all the

operating mineral interests covered by such agreement,

(i) are in the same deposit, or are in two or more deposits the joint development or

production of which is logical from the standpoint of geology, convenience, economy, or

conservation, and

(ii) are in tracts or parcels of land which are contiguous or in close proximity.

(c) Special rule in the case of arrangements entered into in taxable years beginning

before January 1, 1964, if

(i) two or more of the taxpayer's operating mineral interests participate under a

voluntary or compulsory unitization or pooling agreement entered into in any taxable year

beginning before January 1, 1964, in a single cooperative or unit plan of operation,

(ii) the taxpayer, for the last taxable year beginning before January 1, 1964, treated

such interests as two or more separate properties, and

(iii) it is determined that such treatment was proper under the law applicable to such

taxable year, such taxpayer may continue to treat such interests in a consistent manner for

the period of such participation.

(4) Manner, time, and scope of election.

(a) Manner and time. Any election provided in Paragraph (2) shall be made for each

operating mineral interest, in the manner prescribed by the collector by regulations, not later

than the time prescribed by law for filing the return (including extensions thereof) for

whichever of the following taxable years is the later: The first taxable year beginning after

December 31, 1963, or the first taxable year in which any expenditure for development or

operation in respect of such operating mineral interest is made by the taxpayer after the

acquisition of such interest.

(b) Scope. Any election under Paragraph (2) shall be for all purposes of this Chapter

and shall be binding on the taxpayer for all subsequent taxable years.

(5) Treatment of certain properties. If, on the day preceding the first day of the first

taxable year beginning after December 31, 1963, the taxpayer has any operating mineral

interests which he treats under paragraph (4) of this section (as in effect before the

amendments made by Act 175 of the 1964 Regular Session), such treatment shall be

continued and shall be deemed to have been adopted pursuant to paragraphs (1) and (2) of

this subsection (as amended by such Act).

(6) Allocation of basis in case of termination of election under Sub-section E(2)(b).

(a) Fair market value rule. Except as provided in Paragraph (2), if a taxpayer has a

Section 158(E) aggregation, then the adjusted basis (as of the first day of the first taxable

year beginning after December 31, 1963) of each property included in such aggregation shall

be determined by multiplying the adjusted basis of the aggregation by a fraction,

(i) the numerator of which is the fair market value of such property, and

(ii) the denominator of which is the fair market value of such aggregation.

For purposes of this Paragraph, the adjusted basis and the fair market value of the

aggregation, and the fair market value of each property included therein, shall be determined

as of the day preceding the first day of the first taxable year which begins after December 31,

1963.

(b) Allocation of adjustments. If the taxpayer makes an election under this

Paragraph with respect to any Section 158(E) aggregation, then the adjusted basis (as of the

first day of the first taxable year beginning after December 31, 1963) of each property

included in such aggregation shall be the adjusted basis of such property at the time it was

first included in the aggregation by the taxpayer, adjusted for that portion of those

adjustments to the basis of the aggregation which are reasonably attributable to such

property. If, under the preceding sentence, the total of the adjusted bases of the interests

included in the aggregation exceeds the adjusted basis of the aggregation (as of the day

preceding the first day of the first taxable year which begins after December 31, 1963), the

adjusted bases of the properties which include such interests shall be adjusted, under

regulations prescribed by the Collector of Revenue, so that the total of the adjusted bases of

such interests equals the adjusted basis of the aggregation. An election under this Paragraph

shall be made at such time and in such manner as the collector shall by regulations prescribe.

F. Special rules as to operating interests in coal and metal mines and sulphur.

(1) Election to aggregate separate interests. If a taxpayer owns two or more separate

operating interests which constitute part or all of an operating unit, he may elect (for all

purposes of this Chapter),

(a) to form an aggregation of, and to treat as one property, all such interests owned

by him which comprise any one mine or any two or more mines; and

(b) to treat as a separate property each such interest which is not included within an

aggregation referred to in Subparagraph (a).

For purposes of this Paragraph, separate operating interests which constitute part or

all of an operating unit may be aggregated whether or not they are included in a single tract

or parcel of land and whether or not they are included in contiguous tracts or parcels. For

purposes of this Paragraph, a taxpayer may elect to form more than one aggregation of

operating interests with any one operating unit; but no aggregation may include any operating

interest which is a part of a mine without including all of the operating interests which are

a part of such mine in the first taxable year for which the election to aggregate is effective,

and any operating interest which thereafter becomes a part of such mine shall be included in

such aggregation.

(2) Election to treat a single interest as more than one property. If a single tract or

parcel of land contains a deposit which is being extracted, or will be extracted, by means of

two or more mines for which expenditures for development or operation have been made by

the taxpayer, then the taxpayer may elect to allocate to such mines, under regulations

prescribed by the collector all of the tract or parcel of land and of the deposit contained

therein, and to treat as a separate property that portion of the tract or parcel of land and of the

deposit so allocated to each mine. A separate property formed pursuant to an election under

this Paragraph shall be treated as a separate property for all purposes of this Chapter

(including this Paragraph). A separate property so formed may, under regulations prescribed

by the collector be included as a part of an aggregation in accordance with Paragraphs (1) and

(3). The election provided by this Paragraph may not be made with respect to any property

which is a part of an aggregation formed by the taxpayer under Paragraph (1) except with the

consent of the collector.

(3) Manner and scope of election. The election provided by Subsection F(1) or

Subsection F(2) of this Section shall be made, for each operating interest in accordance with

regulations prescribed by the collector, not later than the time prescribed by law for filing the

return (including extensions thereof) for the first taxable year beginning after December 31,

1963, or the first taxable year in which any expenditure for development or operation in

respect of the separate operating interest is made by the taxpayer after the acquisition of such

interest. Such an election shall be binding upon the taxpayer for all subsequent taxable years,

except that the collector may consent to a different treatment of the interest with respect to

which the election has been made.

G. Operating mineral interest and operating interest defined. For purposes of this

Section, the terms "operating mineral interest" and "operating interest" include only an

interest in respect of which the costs of production of the mineral are required to be taken

into account by the taxpayer for purposes of computing the 50 percent limitation provided

for in Subsection D of this Section or would be so required if the mine or well were in the

production stage.

H. Special rule as to nonoperating interest. Aggregation of separate interests. If a

taxpayer owns two or more separate nonoperating interests in a single tract or parcel of land

or in two or more adjacent tracts or parcels of land, the collector shall, on showing by the

taxpayer that a principal purpose is not the avoidance of tax, permit the taxpayer to treat (for

all purposes of this Chapter) all such interests in each separate kind of deposit as one

property. If such permission is granted for any taxable year, the taxpayer shall treat such

interests as one property for all subsequent taxable years unless the collector consents to a

different treatment.

Acts 1958, No. 242, §11; Acts 1964, No. 175, §1; Acts 1964, No. 234, §1. Amended

by Acts 1974, No. 187, §1, eff. Dec. 31, 1974; Acts 1974, Ex.Sess., No. 13, §1; Acts 1984,

1st Ex. Sess. No. 9, §1, eff. Jan. 1, 1984; Acts 2015, No. 123, §1, eff. July 1, 2015; Acts

2015, No. 123, §3, eff. July 1, 2018.

{{NOTE: SEE ACTS 1984, 1ST EX. SESS. NO. 9, §3, EFF. MARCH 27,

1984.}}

NOTE: See Acts 2015, No. 123, §5, re: applicability.

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Local Government
Louisiana
3
8
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John Bel Edwards
John Bel Edwards
January 11, 2016 -
Democratic
1-225-342-4404
900 North 3rd Street, Baton Rouge, LA, 70802

Keywords
taxpayer
operating
interests
tract
mineral
taxable
parcel
include
land
separate