La. Revenue and Taxation § 47:158

Current with operative changes from the 2024 Third Special Legislative Session

Section 47:158 - 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 Subsections 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 Subsection 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.

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 Subsections 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 Subsection,

(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) of this Subsection in respect to such interests shall be suspended.

(b) Limitation. Subparagraph (a) of this Paragraph 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) of this Subsection 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) of this Subsection 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 Subsection (2)(b) of this Subsection.

(a) Fair market value rule. Except as provided in Paragraph (2) of this Subsection, 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) of this Paragraph.

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) of this Subsection. 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) of this Subsection except with the consent of the collector.

(3) Manner and scope of election. The election provided by Paragraph (1) or (2) of this Subsection 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 fifty 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.

La. Revenue and Taxation § 47:158

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.

Added by Acts 2015, No. 123,s. 3, eff. 7/1/2018.

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

See Acts 2018, 2^nd E.S., No. 4, §1, re: applicability.