U«£VX m I s ■ ■ ■ ■ I ■ I Vu' 1 1 1 ■i ■ HI ■ ■ ■ ■ mm *.-;jH Warn Wmw fwfo « ■ ^ V^V *,.™V %.^V' \ /.v^:-^ o°*,^i->o y..-^;/^ / .^. *°o > 4 • * v .<■••- ^ . r^ io * Q^^y^%' • ,0,. '.^siys^^ o 40 \ % ^y /v^\/* \z^>°- "v v ^ *• .0* % *<^7Z* A ^ A* 3 \ *1^1* * V vv * . » ' • , ^s 0* 6 • • • . **b A* h °o "*^rr»* .o° V » ' * °» c» SlfcC'. ^> .^ .^^,^1-c +* j& y*&sr. ^. ^^I'o te. .4* />^h*. ^> <^ 3 \ ■*• ,* v • *P- c* » • t • * * \; V ^ *♦ • • > * * < o ^ T* A- • • * \ y .«.«/ v^ 'v ^..^ •^Va\ % & / »"• ^ ^ Bureau of Mines Information Circular/1982 State Severance Taxes: A Summary and an Analysis of the Impact of Rate Changes on Copper Recovery Costs By Phillip N. Yasnowsky and Annette P. Graham UNITED STATES DEPARTMENT OF THE INTERIOR Information Circular 8879 Info State Severance Taxes: A Summary and an Analysis of the Impact of Rate Changes on Copper Recovery Costs By Phillip N. Yasnowsky and Annette P. Graham UNITED STATES DEPARTMENT OF THE INTERIOR James G. Watt, Secretary BUREAU OF MINES Robert C. Horton, Director ^ As the Nation's principal conservation agency, the Department of the Interior has responsibility for most of our nationally owned public lands and natural resources. This includes fostering the wisest use of our land and water re- sources, protecting our fish and wildlife, preserving the environmental and cultural values of our national parks and historical places, and providing for the enjoyment of life through outdoor recreation. The Department assesses our energy and mineral resources and works to assure that their development is in the best interests of all our people. The Department also has a major re- sponsibility for American Indian reservation communities and for people who live in Island Territories under U.S. administration. This publication has been cataloged as follows: Yasnowsky, Phillip N State severance taxes: a summary and an analysis of the im- pact of rate changes on copper recovery costs. (Information circular / U.S. Dept. of the Interior, Bureau of Mines ; 8879) Bibliography: p. 23. Supt. of Docs, no.: I 28.27:8879. 1. Mines and mineral resources— Taxation— United States. 2. Min- eral industries— Taxation— United States. 3« Mineral industries— United States— Accounting. 4. Copper industry and trade— Taxation— United States. 5- Taxation, State. I. 'Graham, Annette P. II. Title. HI. Series: Information circular (United States. Bureau of Mines) ; 8879. ~TN295rU4JilD9540.8.U52] 622s [336.2'7833385] 82-600058 AACR2 For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C. 20402 CONTENTS Page Abstract 1 Introduction 1 Acknowledgments 2 Summary of State severance taxes 2 Hypothetical illustration of the State severance tax on minerals — impact on cash flow 13 Estimated effect of severance tax rate changes on copper recovery costs 15 Methodology 15 Results of analysis 17 Significance of results 22 Conclusion 22 References 23 TABLES 1. Summary of State severance taxes on mineral production as of July 1, 1981.. 3 2. Hypothetical illustration of the use of the State severance tax on a nonf uel mineral 14 3. Effect of assumed severance tax rate changes on copper recovery cost at given levels of potential availability, domestic properties 18 4. Effect of assumed severance tax rate changes on copper recovery cost at given levels of potential availability, producing domestic properties.... 20 5. Effect of assumed severance tax rate changes on copper recovery cost at given levels of potential availability, nonproducing domestic properties. 21 STATE SEVERANCE TAXES: A SUMMARY AND AN ANALYSIS OF THE IMPACT OF RATE CHANGES ON COPPER RECOVERY COSTS By Phillip N. Yasnowsky ] and Annette P. Graham ABSTRACT This Bureau of Mines report summarizes State severance taxes imposed on minerals and mineral fuels, provides a hypothetical example of how a State severance tax affects selected components of a firm's income statement, and uses the Bureau's Minerals Availability System (MAS) to estimate the effect of assumed changes in State severance tax rates on copper recovery cost at given levels of potential copper avail- ability. A reduction of the rates to zero or a doubling of them results in changes in costs that are of the same order of magnitude as the cost of transporting copper to the United States from major foreign producing countries. INTRODUCTION This Bureau of Mines report provides information and analyses regarding State severance taxes on minerals. Severance taxes may be levied on the "severing" of any natural resource such as minerals, tim- ber, or fish. However, severance taxes on minerals are of special interest because they are the most important in dollar terms and also in frequency of application. Although the tax system of an individual State is the prerogative of that State, State taxes affect the mineral industries and mineral supplies; therefore, they are of interest to the Bureau of Mines. Only the overall or general effects of severance taxes are analyzed in this paper; an analysis of individual State severance taxes is not undertaken. This report is an update and expansion of work done previously by the authors (10-11) . 2 For a comprehensive background study of severance taxes, the reader is referred to Information Circular 8788 (6). The Bureau of Mines Minerals Availability System (2^, _5, 9) is used to ana- lyze the possible effect of severance taxes on copper recovery costs. 'Economist, Branch of Economic Analysis, Bureau of Mines, Washington, D.C. 2 Underlined numbers in parentheses refer to items in the list of references at the end of this report. ACKNOWLEDGMENTS The authors wish to thank Aldo F. Barsotti, supply analysis studies coordi- nator, Division of Minerals Availability, Bureau of Mines, Washington, D.C., and Robert L. Davidoff, mineral economist, Minerals Availability Field Office, Bureau of Mines, Denver, Colo., for their assistance in the use of the Supply Anal- ysis Model. SUMMARY OF STATE SEVERANCE TAXES Severance taxes have been defined as "taxes imposed distinctively on removal of natural products — that is, oil, gas, other minerals, timber, fish, etc. — from land or water and measured by value or quantity of products removed or sold" (8_) . These taxes are generally levied by the State governments. Currently 33 States impose severance taxes on minerals. Table 1 lists the States and summarizes their severance taxes on minerals as of July 1, 1981. State statutes or appropriate summaries of statutes should be consulted if greater detail is needed. For severance tax use, various States apply unique definitions to terms such as gross value, market value, or taxable value. For example, the New Mexico Severance Tax Law defines gross value for potash as "33-1/3% of proceeds realized from the sale of potash products requiring processing or benef iciation and 33-1/3% of the value of potash products consumed in producing other potash products, less 50% of such value as a deduction for expenses" (1_) . Generally severance taxes are levied on a physical unit or value basis. The choice of a physical unit or value basis may be of considerable importance during periods of price changes. Some States recognize this when setting rates. For example, Minnesota and North Dakota tie some physical-unit-based taxes to price indexes. The number of States using each or both bases of taxation is as follows: Basis Unit and value, Value only . . . . Unit only , Number of States 17 11 5 The bases of individual taxes differ among States, making comparison of tax rates difficult. Generally, the rates based on gross value range from 2% to 30%. On a physical unit basis, oil is subject to rates ranging from less than U/bbl to 80^/bbl. The rates on natural gas are from less than Ifc to 12.6^ per 1,000 cubic feet. For the nonfuel miner- als, rates based on physical units are from 0.5«5/ton on salt in brine used for manufacturing (Louisiana) to $1.67/ ton for phosphate rock in Florida. Of the States with severance taxes on minerals, 16 States have broad-based taxes in the sense that they cover a wide range of minerals. The imposition of a severance tax does not necessarily mean that a mineral is currently produced in a State. For example, both Georgia and North Carolina tax oil and gas; however, there is no production of these fuels within these States at present. TABLE 1. - Summary of State severance taxes on mineral production as of July 1, 1981 State and commodity Tax Rate and basis Alabama : Oil and gas production Oil and gas severance. 3C/ton. 2% of gross value. 6% of gross value (4% Oil, gas, and other hydrocarbons . for new wells for 10 years) . 13.5<:/ton. Coal and lignite severance . 20c/ton. Alaska : Oil Oil and gas production. 15% of gross value (12.25% for new wells for 5 years) or 80c/bbl (greater amount). Gas do 10% of gross value or 6.4 i X 1 3 o 01 ■1 4J 6 CO 3 M ■ to iNS < o m 0) 4-1 a) « 6 U 9 05 N CO o < CN aj 4-1 6 CD 3 rl to CO t>! < o S CO in < CM X cO 4J OJ aj CJ 6 s 3 O cO to c K to CU < > ai to r-. m 00 ON ON m - — r-l ^H r- 1 CM ON on -' oo CN ON on oo O -3- -d- o cjn oo vo «* •* i^ cjn ex> oo * O ON 00 o >3- ^r CM i-l en cjn oo CN r^ ^^\ — X B i» • i -« CO • o 4-1 o • 01 • 4-> • u a. rH • i-l 0) 01 • IM 01 CD #. rrj • CU o O 01 * — * O T) X 01 C! 3 • 01 s a ai e en| 0) X 01 u O CO 3 T3 CO CO U o b 01 4-1 >% o •rl o 5 M o CJ /^N ai o w cfl H <4H 4-> 3 •H 0) o 01 <4-l s t>S ti •H 01 0) CO O 4-1 60 rH > 0) •H vO o c CO r-l 4-1 X •H -H CO CO r-l ai XI vl- o •rl CJ ) 01 cd O 4-1 •H 4-1 CO CO tH c c co oi M CU 01 0) -i r-H a 01 oi c ai a a u 4J CO c 01 o a. o cu cu ► rl u o 4J r o !« 01 CO 4J •(- ax: a) o 0) 0) a cu rl -H CO , u 4-4 4J o C 0) o 50 m C t . •o 0) o CO CU rH CU CJ rH X X o cO CU VM 4J o C TJ 4-1 •H c CO cO 4-1 • 4-1 o •3 X A c 0) O to O CU 3 o •H e • 4J 4-1 o 3 to , 0) CJ o •H X 13 rH 3 •rl 3 01 (X -H 4-1 01 4-1 4-1 CU CJ CJ CJ T3 to 3 3 0) CO to X) cfl e U * o 0) S o 4-1 a M TJ o CJ X O 60 rH 3 s •H CU rH •H to 4-1 14-1 CJ cfl CO o 3 01 0) •rl cd 3 4-1 X CJ B-S 3 O 3 CU m o •H rl O ^ i-H rH 4-1 o 4-1 & rH tu CU CU 4-1 CO r-A rl to -a cO (X o ■H 3 CU CJ OJ "O o •3 OJ t-4 cu •rl rl M o 4-1 4-1 CU O 3 m-i cfl tu 60 >4H 00 0) rH rH 3 •H x> 3 Cu 4-1 tu m O OJ 3 •u 0) rH -3 CU 3 13 cfl CJ !-i 01 o CJ CU t-4 CO CJ 60 CU >, o C 0) CO 3. U r-H •H CJ ■U o O 3 3 M 4-1 e II CO CU O 3 01 5 CJ ■4-1 4-1 CO O U 3 01 0) rH CU 4-1 4-1 4-1 to rH P. •rl CO CO c Cfl e O CU 0) •rl 4-1 •rl ft 3 X rH CO T3 X O 4J -. CU •rl CO 4-1 3 rH M a 4-1 cfl X 4J cO 1 3 rH 3 3 Cm CU 3 4-1 3 CJ CJ u 1 u rH r>« u 01 Cfl o 3 • PL, CJ m U w H O -**, *■ — z -"1 CM| cn| 15 ESTIMATED EFFECT OF SEVERANCE TAX RATE CHANGES ON COPPER RECOVERY COSTS Methodology This study uses the Bureau of Mines Minerals Availability System (MAS) to estimate the effect of assumed changes in State severance tax rates on copper recovery costs at given levels of domes- tic copper availability. Availability is used here to mean the same thing as pro- duction. The following two paragraphs provide a brief and simplified explana- tion of the MAS, which is described in detail elsewhere (2, _5> 2) m The MAS is a Bureau system for de- termining potential mineral availability by identifying and then performing cost evaluations on major mineral depos- its. The Supply Analysis Model (SAM), which uses the discounted cash flow rate-of-return method, contains the financial analysis component of the MAS. The domestic copper part of the MAS consists of the 73 properties shown below, which are also the proper- ties used in the subsequent analysis. The analysis also considers separately the 34 producing and the 39 nonproduc- ing properties (status as of January 1980). Producing Nonproducing Arizona: 1. Bagdad 2. Bluebird 3. Christmas 4. Cyprus Johnson Camp 5. Esperanza 6. Inspiration Area 7. Lake shore 8. Magma (Superior) 9. Metcalf 10. Miami Leach 11. Mineral Park 12. Mission San Xavier 13. Morenci 14. New Cornelia (Ajo) 15. Ox Hide 16. Pima 17. Pinto Valley 18. Ray 19. Sacaton 20. San Manuel-Kalamazoo 21. Sierrita 22. Silver Bell 23. Twin Buttes Michigan: 24. White Pine Montana: 25. Butte Nevada : 26. New Ruth 27. Victoria 28. Yerrington Alaska • 1. Arctic Camp 2. Bond Creek, Orange Hill 3. Bornite 4. Brady Glacier 5. Yakobi Island Arizona: 6. Casa Grande 7. Copper Basin 8. Dubacher Canyon 9. Florence Conoco 10. Helvetia East 11. Helvetia West 12. Miami East 13. Oracle Ridge 14. Palo Verde 15. Peacock 16. Red Mountain 17. Safford Inspiration 18. Safford Kennecott 19. Safford Phelps Dodge 20. Van Dyke 21. Vekol Hills California: 22. Lights Creek 23. Walker Michigan: 24. Presque Isle Minnesota: 25. Minnamax 26. Ely Spruce 16 Producing Nonproducing New Mexico: 29. Chino 30. Continental — Underground 31. Continental — Surface 32. Tyrone Tennessee: 33. Copperhill Utah: 34. Bingham Montana: 27. Heddleston 28.- Stillwater 29. Troy Nevada: 30. Hall New Mexico: 31. Hillsboro (Copper Flat) 32. Nacimiento 33. Pinos Altos Utah: 34. Carr Fork 1 Washington: 35. Sunrise Wisconsin: 36. Crandon 37. Flambeau 38. Pelican River Wyoming: 39. Kirwin *A producing property starting in October 1979. Domestic copper availability is determined by first performing a dis- counted cash flow rate-of-return analysis using January 1980 costs for each prop- erty in the desired group. Then the 73 (or 34 or 39 as the case may be) proper- ties are ranked on the basis of the cost per unit of output required to bring them into operation. The amount of copper potentially available annually or in total is derived from the data for the individual properties. The increases in availability occur in a stepwise fashion in unequal increments with increased costs because the properties generally differ in the amount of copper available from them. Because this ranking of the properties to determine copper availabil- ity is done on the basis of cost, some nonproducing properties may be prior to some producers. phased in The sensitivity of copper recovery costs to changes in severance tax rates was estimated by assuming four cases of rates: (1) Base case, which holds sever- ance taxes at current levels, (2) all severance tax rates reduced to zero, (3) all severance tax rates doubled, and (4) all severance tax rates quadrupled. No changes were made in the taxes of States not utilizing severance taxes, nor were any changes made in the bases of the sev- erance taxes. The following tabulation shows which of the States where the 73 copper properties are located levy severance taxes on copper: With Severance Taxes Without Severance Taxes Arizona Minnesota Montana Nevada New Mexico Utah Washington Wisconsin Wyoming Alaska California Michigan Tennessee The assumed cases, which are fairly extreme, are merely used to give an indi- cation of the impact of severance taxes on copper recovery costs and should not be considered realistic. Furthermore, it is not likely that all States with 17 severance taxes would act in such a con- certed fashion as is assumed here. How- ever, there have been some major changes in severance taxes affecting copper in recent years; for example, in Wisconsin (1). Also, legislation that would have raised a severance tax rate from 1.4% to 30% for surface and 15% for underground mines was recently considered in Montana (3) . In Arizona, the severance tax on copper was reduced from 2.5% to 2.0% from June 1, 1978, to June 30, 1980, to help alleviate industry difficulties ( 1_) . There are several final points to be made in this discussion of the methodology: 1. It is assumed that the effect of the tax is solely on cost, and that there is no shifting of the tax forward to the consumer. This is probably realistic because copper is traded in world markets and individual producers do not have con- trol over the price. In essence, statu- tory incidence is the same as economic incidence. 2. The time period necessary to bring the properties into operation is not considered. Lead time is an impor- tant factor in determining miner- als availability, *and its omission here should be kept in mind. The SAM does have the capability for handling lead time, but it is not used in this report. 3. The analysis here is on a prop- erty or project basis. In actuality, decisions to invest and bring mineral properties into operation are much more complex than is indicated in this paper. Individual companies, some with business pursuits in addition to mining, must make their decisions to invest on the basis of their own analyses of any given situation. 4. The cost figures in this paper include a 15% rate of return on invested capital. Results of Analysis Table 3 shows the estimated effect of assumed severance tax rate changes on copper recovery costs for all of the 73 domestic properties listed above. Annual recoverable copper is shown ranging from 500,000 to 2.5 million metric tons in increments of 500,000 tons. The maximum annual recoverable copper from all 73 domestic properties under the given con- ditions is 2.7 million metric tons. Total recoverable copper is shown ranging from 20 million to 60 million metric tons in increments of 10 million tons. The maximum total recoverable amounts to 69 million metric tons. In 1979, the quantity of copper actually recovered from domestic mines was 1,444,000 metric tons. As shown in table 3, the assumed changes in State severance tax rates from current levels cause changes in copper recovery costs ranging from -bi to Hi per pound for the given levels of annual copper availability. The first 500,000 metric tons of copper would be available at the same recovery cost regardless of which severance tax case is assumed. However, a considerable change in recovery cost occurs when the given level of copper availability is increased to 1 million metric tons annually. Reducing severance tax rates to zero results in a reduction in recovery cost of 6i (8.2%) per pound, and doubling the rates increases recovery cost by 6i (8.2%). The results become more mixed at higher levels of copper availability, depending on the severance tax case. For example, at a given level of copper availability of 1.5 million metric tons, a zero level of severance taxes reduces recovery cost by only \£ (1.1%) per pound, but doubling the tax rate increases the cost by li (7.9%). The assumed changes in severance tax rates affect the recovery cost of copper from domestic properties in a generally mixed fashion for reasons mentioned following the discussions of tables 4 and 5. 18 -M U CO 0) OJ > •H c 4-1 a M OJ CD u o. o u >H 0) o. p. a a o •H u 4J CO b a) o 6 o CO XI a) M c >1 C3 4-1 A3 •H CJ cC cd 4J iH O a) a CD m T) o CD i CO 3 r-l en CD CO > ad CD rH 4-1 o 3 CD ■u > cj •H QJ Of. u-t 14-1 4-1 W CO en w •J 3 rH 0) 4-> O vO »J vO CJi •JCOHyOO B > CJ O CD Ph O CTiM ON \D on »-h \rj cr> cn U <-\ .— < i— 1 r-l «4-4 4-1 CD C X> 00 CD & a CD O -co- 4J U XI Ph CD CO O 3 3 cr co ^3 o o o r^ m o m ^r r- 4J CO U O I— 1 r-4 rH rH rH rH CD CO O CD co n o a ^i CD B !> O CD 4J O CM CT> -tf CO \o m X -a CD B cO CD W) CD ^ 4J rH fi M rH & cfl >H vd rv co o M CO CD CD > 4J ,£ CD CO H OOWOCON m oo oo oo r^- CO U 4J CO u in r~^ cti cm r-- ■ • • • « vO 00 CTi CM vO O CD , O i— 1 rH >— 1 1— 1 U £1. ■o CO OJ 4J *• CO iH IU CD > CD X CD CO Cfl t-H CO 4-> .O. a 4J tH o cocMnco oo cm r-» vO 00 C7> CM vO X o o n co rJ m n O rH I— 1 T-> r-1 4-) co u a, U 3 ■«> CD CD O 4J CJ !> co 3 CD 4-» O CO to co o M CD > ■ CD CO rH CD 4-J O CM rH CM CO rH O CD CD O CD Ph O COH MM CO CM rH CO CO e 4-1 rl rH 1 1 1 1 1 I 1 1 1 3 CO cd u m 4J CO CD B < X 00 CD ^ cfl O 3 M rH vOH>j Cfl CD U O CD 3 > XI CD CD o r~» oo r-t o\ cm co r~- rH r» co to 4-1 CO M m vo oo cm ^o • • • • • vO 00 CT\ cm m O CD O rH rH <-* r-4 O 3. •co- A >. ■U •H rH iH CJ rO iH CO >H rH 4-1 •H CD cfl 6 > cfl B --., O CM U -H CD iH CO co m • m • m r-i • • • • • & iH 3 cfl o o o o o CX -H O C O rH r-4 CM CM 4J cm co o CO CJ CD CD •H u 4-1 U rH CD Cfl a 4J o O )H 4-1 0- S o 3 •H B 4J •H CO X 3 •r( O P, 4-> Cfl O CJ •H XI Vl CD 4-> 4-1 CD CO B CD > 3 3 o •H •rl r-{ 3 r-i O •H B 3 M r-» 3 • 4-1 CM CD u CO •H <4H o CD CD & 4-1 P-. cfl o rl o +J CD 3 r-{ CD & CJ Cfl rl rl CD CD o. > 1 • O m 4-1 CJ rH X CD a) u cfl 4-1 <-i CO 0) cfl CD J2 3 • XI 4-1 3 to 3 3 3 rH 3 cO O CJ ■H 4J 3 B •H X) 3 a) B ■H 4-J 4-) •H U co co X 4-> o •H s ai B 19 Table 4 shows the estimated effect of assumed severance tax rate changes on copper recovery costs for the 34 produc- ing domestic properties. Annual recover- able copper is shown ranging from 250,000 to 1.5 million metric tons in increments of 250,000 tons. The maximum annual recoverable copper from these 34 produc- ing properties is 1.6 million metric tons. Total recoverable copper is shown in amounts ranging from 10 million to 40 million metric tons in increments of 10 million tons. The maximum total recoverable copper from these properties is 44 million metric tons. As shown in table 4, there is no obvious pattern in the percentage changes in copper recovery costs of producing properties due to the different severance tax cases or as levels of availability are changed. For example, reducing sev- erance taxes to zero reduces recovery costs by 2t (2.3%) at an annual copper availability level of 1 million metric tons. This reduction in cost is \i (1.0%) and 3i (2.5%) at annual copper availability levels of 1.25 million and 1.5 million metric tons, respectively. Table 5 shows the estimated effect of assumed severance tax rate changes on copper recovery costs for the 39 nonpro- ducing domestic properties. Annual recoverable copper is shown ranging from 250,000 to 1 million metric tons in increments of 250,000 tons. The maximum quantity of copper potentially available annually from the nonproducing properties is 1.1 million metric tons. Total recoverable copper is given in a range from 5 million to 20 million metric tons in increments of 5 million tons. The maximum total recoverable amount of cop- per from nonproducing domestic properties is 25 million metric tons. As in tables 3 and 4 , the data for changes in recovery cost in table 5 do not exhibit any particular pattern. The severance tax rate level does have a con- siderable impact on the recovery costs of the first increment of copper potentially available from nonproducing proper- ties. For the first 250,000 metric tons, reducing severance tax rates to zero decreases the recovery cost by li (9.5%), and doubling the rates increases this cost by 91 (12.2%). The relative effect at subsequent levels of availability is more moderate. As noted in the methodology section above, the 73 (or 34 or 39) properties are ranked according to per-unit cost, and a given level of availability is reached by adding up the quantities available from individual properties. The cost figure at a given level of availability is the cost required to bring into operation sufficient proper- ties to attain that level. Only the last (or last few) properties will have that cost figure; the others will have lower costs per unit. The severance tax rate changes affect not only the per-unit recovery costs, but also the order in which the properties are ranked. Only the proper- ties located in the States currently imposing severance taxes will have recov- ery costs affected by the rate changes. For example, assume State X has a sever- ance tax of 5% and State Y does not impose one. At current rate levels, a property in State Y might be phased in prior to a property in State X. However, if severance tax rates are reduced to zero, the property in State X may then be phased in first. Furthermore, the quan- tities available from individual proper- ties, on either an annual or a total basis, differ. Therefore, a change in ranking may also lead to a change in the number of properties required to reach a given level of availability. As an illustration, when considering all 73 domestic properties, it takes 23 proper- ties to achieve an annual level of copper availability of 1 million metric tons, assuming severance tax rates at current levels. If severance tax rates are reduced to zero, it takes only 21 proper- ties to reach 1 million metric tons. 20 CO 0) •H 4-1 u J-l DO >i a M 0) o > •H c •u o en OJ CD h e o 1-1 XI a ex OC ex c o •H u CJ 3 c XI O l-i 00 a a) CO « a ^ cfl 4-J x: •H u iH •H OJ X> 4J CO a) rH u •H CO A > Cfl CO 4-1 rH OJ CO •H c 4J 4 c M OJ OJ 4-) > o 0) o. m VM — O CJ = CO 2 rH oa a) CJ 1-1 ai OC IH 4J W CO w .J 3 OJ a c cfl >H OJ > aj CO •o a) e 3 co CO < X) O) H X a to 3 AJ M XI O) CO u 3 c cr CO M DO cu a) > 4J 0) CO CO >H X X) co 01 4-J lH X> 0) 3 U o C X) CO U DO CJ OJ > 4J OJ CO 00 >-l CD CJ 4J r, CO H u OJ > X CU CO rH 4J X> 4J rH CO X) 0) 01 C/3 l-( •H O X> -H CO V4 iH 4J •H CU co 6 U iH OJ rH a- .-i tX -H o e o O cn| a) C 00 OJ 3 u co J3 CJ CD U O 0) C_> ex e > O 0) >H iH 4J CU c 00 CU c CO rfl U CJ 4-1 CO U O CU o a, cu 3 00 CU 3 n cfl X! o CO u O CU o ex CO O vO H O CO CO O CJ\ CO CN 00 CO CO o vO i • • t CO »-H 00 CTi oj vo r-» r^ cn o O O O O O ~h cn i— i r-~ cn O O O r-1 o r- vfr O CO o o «-H vO 00 CT> O CO r^ o m r^ •— I 00 CTi CO o •co- co <- oo co o m O COvOCN CN O O t-H cti oo H N CO CN o •co- in 00 CO vO 00 o <-< m r-» oo cyi cn in o> oo in ^h r- oo cn o r~. ^ i— i co o m vO co vr CN i— I CN I I l I l l r^ co o cn vO — I CO I I I -H CN CO CN r-H CO O O O O O O O I •CO- I I I I I o o o I I _Q_ <• vo o <}■ r^ r-~ i— i m r-» oo o\ i— i o CJ CU u CO 3 c m cn m o cm m J3 CO u cu > o u a j-i o H o o o o H(N CO^ OC c •H CJ 3 XI o H a •* CO CU co J3 •rH 4J M CU CU 1-1 (X CO (X o CO CJ CU •H CU 4-J rH U rO CU CO a, M o CU u > (X o CJ o CU •H u 4J CO r-i Qi CO B 4-1 o O X) 4-> 00 B 3 3 •H B CJ •H 3 >< X) CO o B ^ PU X3 3 cfl rH M CO CO 4-> 3 •H o fX 4-1 CO o CJ •H X) iVl CU 4J 4-1 a cn e CU > 3 3 O •H •H iH 3 H O •H i 3 U VO 3 • 4-1 r-l CU S-i CO •H M-( O M CU CU o. •u • Oi Cfl 4J o U X CJ CU 4-1 4J CU 3 rH CU CU J3 CJ J3 cfl • U 4J >-( CO CU cu 3 &, 3 > O 1 -H O 4J m CJ H X) CU o CU >-( -H Cfl 4J 1-1 CO rH 4-1 CO -H CO CU CU iH 3 e X3 3 3 CO 3 3 •H CU cfl O O i-l •H 3 4J e -h •H Vj 3 rH CU e -h 4-j a. •h e co o X o u cfl H •H u 4-> cu CO > S! o a CJ o cu t3 u OC u 3 * CO 4-1 43 •H o rH •H CU 43 4-1 CO CO rH u iH CO X > CO « 4-> iH cu CO o •H 3 4-1 CO s p cu CU 4J > o cu a CO MH T3 O cu CO 3 rH CO CU CO > CO CU rH <4-4 o s cu 4J > CJ •H cu (H 4H 4-1 4-) 1 CO • u-l W -1 9 iH CU 4J oo in o r» co r» o\ O S > CJ • • • • • • • • o cu P-4 CO h- Cl ffi CO CJ\ ON 00 M iH CO rH i-H CO -H 4-4 4J CU C •o 00 CU 43 IO O H vO mn>*-4 • • • • ■ • ■ • X Q, 6 3 rl o CO 3 CU ■CO- 4-1 M T3 PM CU cO O 3 3 cr CO 43 ON St CO ON on o in ov U CO iH 4J CO U O i-H r-t CM i-H i— 1 i-H CU (0 o cu • CO u CJ (X rH CU a > O CU 44 NNHO r^- vo oo co U rH O • • • • • • • • <4-l PM CM CN CO ON CM CM CM 4-1 i-H CM X 13 cO CU CU 3 00 CU 43 4J i-H 3 H H on co m CM CO -sj- «* 43 CO !-i o o o CM O O O CU 3 43 3 M • • • • • • • a o • CO o CU o 3 "3 cO U CO P-4 ■co- o CU CU > ti 43 CU CO i-H co r-» r- co o m on C/i U 4-1 00 CO vO 00 on.cn «* r^ CO M o cu • • • • •co- • • • • •— t f— i •— i CO CU 4J » CO rH rl CU , > CU X CU CO CO rH CO 4J 43 a 4-» iH cu a «* -tf CM CO r^ co vo oo «*: r^ »-h m r^ »-h si- r>- X a cu n • • • • • • • • cO C *4 « O ■— 1 i-H i-H i-H ^H i-H 4J CO M CX M 3 CU CU CJ 4-t CJ > CO a 0J 4-> O CO CO CI) CJ n 0) > cu to rH - 9* 4J IONHO in r>» i-H CO T3 CO S > u • • • • • • • • 3 CU o cu Ph 0\ CN CO ON i-H CM CM i 4-* M rH J > ■ 1 1 1 1 3 CO «4H CO U 4-1 CO CU 3 •< X oo cu 43 r-» co in r^ cm co «* cO O 3 H rH O O O o o o o 4J CO u • • • • • • • O 4= 3 M O 1 1 1 1 1 1 CU 4J O CJ CU 1 CJ 3 t> Ph o CO cu J-i CJ CU 3 > T) 43 a> CU •H CU o > co e CJ o > cu o * Cv u cu O CM u U -H rH m h co CO m m o I-l a ,-h c 3 cm m r» • cfl o m o o, -h o 3 • • • .-H 4-1 m ■-- - o e 4J o $ c > o H 21 cu 43 4J CU u CO CO cu u cu a o u a. co a o *o 00 3 •H CJ 3 TJ O U P. 3 O Z CO 4J •H P- cO CJ ■3 CU 4J CO cu I? •H 3 O cu a. o. o CJ 43 cO u CU > o o cu u I cO B s CO 3 o 4-1 CJ t4. u 4-1 3 o SI 3 M CU rH 3 43 • 4-1 4J i-4 CU u 3 CO <4H O -3 CU 4J 4J CO CO t4 U rH 4-1 CO 3 cu CU iH CJ 4J S-i u cu cu a. a rl cu cu I m o u a. co oo 3 CO -H CU CJ -3 3 3 T) rH O U H 4J CO CU 3 3 3 3 CO O 4J 3 CO O ON CJ CO S rH 2 ,H S T! h e x m CN £ rH| CM | 22 Significance of Results Given the relatively extreme assumed tax changes, the resultant changes in recovery costs are not particularly sig- nificant in an absolute sense. This is partly because not all of the States included in the analysis levy severance taxes, and in those that do, the rates applied are generally relatively low. Also, the effect of the severance tax is lessened owing to its deductibility in computing the Federal income tax. Of course, the effect on any individual operation could be significant. The changes in recovery cost per pound of copper, ranging from -b£ to It for the "all properties" cases of zero severance tax rates and a doubling of the rates, (table 3), need to be placed in perspective to determine some sort of relative significance. The competitive- ness of the U.S. mineral industries in world markets has been of concern in recent years. Therefore, an appropriate measure against which to judge the sig- nificance of these cost changes would be transportation costs. It has been observed that "most met- als and minerals are international com- modities in that only a few cents per pound can move them physically in the major markets of the world" (4). Cer- tainly copper is one of these "inter- national commodities." The following is a sample of ocean liner rates (excluding bunker fuel surcharges) that existed in March 1980: — Less than kt per pound for Chilean and Peruvian copper bars to U.S. Atlantic and gulf coast ports. — Between 2t and 5t per pound for copper concentrates from South America, Africa, and the Far East. These transportation cost figures are of the same general magnitude as the changes in the copper recovery cost figures caused by the assumed changes in severance tax rates. Of course, as noted earlier, it is not likely that all States would make such changes in severance tax rates. However, major changes in sever- ance taxes on copper, which could be due to changes in the rates or bases of pres- ent taxes or the imposition of new ones, could have a comparable effect on the tax burden of copper producers. Also, these results are more significant when it is remembered that the severance tax is only one of the taxes levied on copper producers. CONCLUSION Currently 33 States levy severance taxes on minerals. Most States use a value base as opposed to a physical unit base; however, a few States use price indexes to adjust the rate on unit based taxes. Only 16 States have broad-based severance taxes that cover a range of minerals. The 73 domestic copper properties in the Bureau of Mines Minerals Availability System have been used to estimate the effects of assumed changes in severance tax rates on copper recovery costs. The changes in recovery costs are small given the relatively extreme assumed changes in severance tax rates. However, these results are not insignificant because the severance tax is only a small part of the total tax burden on copper producers. Furthermore, a reduction of the rates to zero or a doubling of them results in changes in costs that are of the same order of magnitude as the cost of trans- porting copper to the United States from major foreign producing countries. REFERENCES 23 1. Commerce Clearing House, Inc. State Tax Guide: All States. New York, Chicago and Washington, 2d ed. , 1980, 2 vols, with updated supplements. 2. Davidoff , R. L. Supply Analysis Model (SAM): A Minerals Availability System Methodology. BuMines IC 8820, 1980, 45 pp. 3. Mining Journal (London). Mining Week. Mar. 6, 1981, p. 167. 4. Morgan, J. D. Strategic Minerals: Overview. Pres. at U.S. Department of State, Foreign Service Institute, Science Symposium Series, Strategic Materials Supply: An International Minerals Crisis?, Washington, D.C., Mar. 4, 1981, 15 pp.; copy available from authors of this Information Circular. 5. Rosenkranz, R. D. , R. L. Davidoff, and J. F. Lemons, Jr. Copper Availabil- ity — Domestic: A Minerals Availability System Appraisal. BuMines IC 8809, 1979, 31 pp. 6. Starch, K. E. Taxation, Mining, and the Severance Tax. BuMines IC 8788, 1979, 65 pp. 7. Stermole, F. J. Economic Evalu- ation and Investment Decision Methods. Investment Evaluations Corp., Golden, Colo. , 1974, 350 pp. plus index. 8. U.S. Bureau of the Census. Tax Collections in 1974. State 9. U.S. Bureau of Mines — Mineral Supply. The Bureau of Mines Minerals Availability System and Resource Classi- fication Manual. BuMines IC 8654, 1974, 199 pp. plus appendix, 15 pp. 10. Yasnowsky, P. N. , and A. P. Graham. State Severance Taxes on Mineral Production. Proc. Council of Economics, 105th Ann. Meeting, AIME, Las Vegas, Nev. , Feb. 22-26, 1976, pp. 45-58. 11. . State Severance Taxes on Nonfuel Minerals as of January 1, 1978. BuMines IC 8774, 1978, 6 pp. 4882 f I ■ H^t - ■ * * :- *<*o« : ^o* * /,i^-. V (!»*..^Xi.*«5» ./.v^k.\. .c°*..^aji.% >* o > p** ^^ oV^Pi*- ^ .^af^-. -w . % i^Pia*- " v v *vfim^.'. '^^ v-cr *bK V-0^ V » ' * °* ^ • A ^ 9 ^ v *v U \ &- v *& V^ + / V^\/ %*^v v^-y' \ • G o, * • • • * .v» ^^ : ^ v^ 6* \\^'A ^0^ ♦/ V^- / V-^'y" V^ f/ / v^^^'y" %* ;i .* ^ / :0fe' XS .'&&- %/ :£&': V* :'&X£: ^ /^ -.1 r: <,*' ** ^ /.^-.^ >.*&•.% /.«>- /tife-\ /^X ♦-" «5°* *o. •'T7i« A A y ^ •/-T" A »bv" V .i^L'. V *..o'* .** °a *•»"'* A ' r f^ "oV° *bv D XT*' <\ /,^i'>o ./.v^k^X > .-^U:. o o y\i^.-.% c,o* /% A U Xfc • • • -v* • r«5v\Vv^ - ^ 'bV 0* .vVL'* > v v -r- '% '" ^"jji.. %*-V \.v,-\ ^ V^' & & /. V ^.^i>o /,^.\ ^.^->o y ^°^ * ^ ■ rtf m ■ ■ ■ ■ •/ I I ■ 1 1 ■ ■ ■ ■ :■ I «rt i ■ Jl ■ ■ ■ ■ I ■ ■ LIBRARY OF CONGRESS 002 959 801