Rev. Rul. 57-584

Advice has been requested as to how the Internal Revenue Service will determine whether a mineral produced is or is not quartzite in the light of the decision of the Tax Court of the United States in the case of Spencer Quarries v. Commissioner , 27 T.C. 392, acquiescence, page 6.

Revenue Ruling 54-443, C.B. 1954-2, 164, holds as follows:

The term `quartzite,' for purposes of section 114(b)(4)(A)(iii) of the Internal Revenue Code of 1939 (as amended by section 319 of the Revenue Act of 1951) and section 39.23(m)-5(a) of Regulations 118, includes any quartz rock of sufficient purity and such physical characteristics that it is used or sold for use as a refractory. It also includes any metamorphosed or silica-cemented sandstone which has a free silicon dioxide content of at least 95 percent, is so firmly cemented that it tends to break across rather than around the original sand grains, has low porosity, and is used or sold for purposes for which it is peculiarly adapted by reason of its chemical composition and physical characteristics. For example, it is used for construction and lining of industrial furnaces and in special chemical ware and apparatus because it is very resistant to high temperatures, sudden changes in temperature, and most chemical reagents. It does not include any rock which is used or sold for use as `stone,' as defined in section 39.23(m)-5(b) of Regulations 118 for the purpose of section 114(b)(4)(A)(i) of the Code of 1939.

Thus, it has been the position of the Revenue Service that application of the end-use test was proper in the determination of the classification of the mineral or sold for use as quartzite or `stone.'

In the Spencer Quarries case, the court held that the 15 percent rate of depletion provided by section 114(b)(4)(A)(iii) of the Internal Revenue Code of 1939 was applicable to `quartzite' quarried by the taxpayer and used by purchasers to line river banks, for road building, and for general construction work. Thus, in arriving at its decision the court rejected the Government's contention that the end-use test was necessary in determining whether the mineral produced was `stone' as that term is used in section 114(b)(4)(A)(i) of the 1939 Code.

The court pointed out that its decision was consistent with the decision rendered in the case of Virginian Limestone Corporation v. Commissioner , 26 T.C. 553, acquiescence, C.B. 1957-1, 5, which although it involved dolomite was, in principle, the identical issue. In that case, the court held that dolomite was entitled to a flat rate of 10 percent, the depletion rate prescribed by the statute, irrespective of its use. See also Rev. Rul. 57-288, C.B. 1957-1, 518.

In the Spencer Quarries case the court found that all of the natural deposits removed from the quarry and sold during the year were identified and classified according to their mineralogical, petrological, geological, and chemical content, as `quartzite'. These deposits were defined in the language of the court as `mineral deposits of metamorphosed or silica-cemented sandstone having a free silicon dioxide content in excess of 95 percent; are so firmly cemented that they have the physical characteristic of breaking across rather around the original and grains; have a low porosity, and are very resistant to high temperatures, sudden changes in temperature, and most chemical reagents.'

Therefore, for purposes of determining the depletion rate under the 1939 Code, the use or non-use as a refractory and the use or non-use as a stone is immaterial as long as the mineral in question has the definite chemical and physical characteristics (including capacity for use as a refractory) which enable it to meet the foregoing definition of quartzite.

Accordingly, the term `quartzite' for purposes of section 114(b)(4)(A)(iii) of the 1939 Code (as amended by section 319 of the Revenue Act of 1951) and section 39.23(m)-5(a) of Regulations 118, is defined as a mineral deposit of metamorphosed or silica-cemented sandstone having a free silicon dioxide content in excess of 95 percent; being so firmly cemented that it has the characteristic of breaking across rather than around the original sand grains; having a low porosity; and being very resistant to high temperatures, sudden changes in temperature and most chemical reagents.

However, this does not necessarily mean that the automatic application of a quartzite depletion rate to an entire gravel pit is appropriate merely because it contains a few quartzite pebbles. Any fragmentary quartzite contained in sedimentary beds, will be recognized as quartzite, and subject to depletion as such, only when extracted and separated from all other components of a gravel deposit.

Revenue Ruling 54-443, C.B. 1954-2, 164, is hereby revoked.