STATE OF SOUTH DAKOTA
OFFICE OF
THE ATTORNEY GENERAL

September 17, 1975

Mr. Lyle Wendell, Secretary
Department of Revenue
Capitol Lake Plaza
Pierre, South Dakota 57501

OFFICIAL OPINION NO. 75-161

Applicability of mineral tax to the state cement plant

Dear Mr. Wendell:

You have requested an opinion as to whether the state cement plant is subject to the provisions of SDCL 10-39-23 to 10-39-41, inclusive, relating to the imposition, collection and disposition of a mineral tax. The secretary of the Department of Revenue, pursuant to SDCL 10-39-27, has promulgated rules defining as one of the crude minerals subject to the tax, "limestone when used in the production of cement."

SDCL 10-39-24 provides as follows:

10-39-24. For the privilege of mining or extracting minerals or mineral products in this state, every person in the business of mining or extracting minerals or mineral products in this state, shall pay to the state of South Dakota a license tax equal in amount to four per cent of the net profits from minerals or mineral products mined or extracted, as determined by this chapter, said tax to be due and payable on or before the first day of June of each year.

It would appear that the intent of the 1975 Legislature was to impose a tax upon the privilege of engaging in mining or extracting minerals or mineral products for the purpose of raising revenue. Therefore, unless there is a constitutional or statutory prohibition against taxation of the state cement plant or its operations the mineral tax is applicable thereto.

Article XI, § 5, of the South Dakota Constitution provides the only prohibition and states as follows:

§5. The property of the United States and of the state, county and municipal corporations, both real and personal, shall be exempt from taxation, provided, however, that all state owned lands acquired under the provisions of the rural credit act may be taxed by the local taxing districts for county, township and school purposes, and all state owned lands, known as public shooting areas, acquired under the provisions of § 25.0106 SDC 1939 and acts amendatory thereto, may be taxed by the local taxing districts for county, township and school purposes in such manner as the Legislature may provide.

By statute, the state cement plant is a state institution subject to regulation by the state. (SDCL 5-17-1,2.1.)

The question of what constitutes a "property tax" has been decided in South Dakota on several occasions. In Barnes v. Stout, 65 S.D. 592, 276 N. W. 920 (1937) the court held that a gross receipts tax on liquor inventory was an excise tax upon those engaged in the occupation of liquor sales and not a property tax. Likewise, a motor fuel tax was held to be a tax imposed upon highway users for the privilege of operating motor vehicles thereupon rather than a property tax upon the vehicle. State v. City of Sioux Falls, 60 S.D. 330, 244 N.W. 365 (1932).

A net profits tax on minerals and mineral products is somewhat distinguishable from a fuel tax and a liquor tax inasmuch as the two latter are designed to be more readily passed on to the consumer. Thus, it is arguable that a mineral tax is not an "excise" tax in the true meaning of that term as an excise is defined as a fixed charge on merchandise, products or commodities cut off from the price paid on a sale of said goods.

However, as is stated in State ex rel Botkin v. Welsh, 61 S.D. 593, 251 N. W. 189 (1933), the courts have universally been diligent to sustain the validity of tax legislation whenever the possibility existed. In this regard, a tax has been considered to be in the general class of "excise, as opposed to property, whenever it can be justified as levied against persons in an occupation or business rather than levied on an an ad valorem basis by reasons of the ownership of property." Barnes v. Stout, infra.

The specific issue of whether a mineral tax on production is a property tax as opposed to an excise tax has not been decided in South Dakota. However, in a number of other jurisdictions such a tax has been held to be an excise tax and not subject to the respective state's constitutional prohibition or limitations on property taxation. Oliver Iron Mining Co. v. Lord, 262 U.S. 930 (Minnesota), State v. Standard Oil Co. of Louisiana, 178 So. 601 (Louisiana), Flynn, Welch & Yates v. State Tax Commission, 28 P. 2d 889 (New Mexico), California Co. v. State, 348 P. 2d 382 (Colorado).

It is my opinion that the mineral tax is not a tax upon property and must be imposed upon the net profits of the state cement plant from extracting minerals or mineral products. The tax collected shall be paid into the state treasury and credited to the general fund. (SDCL 10-39-41.)

Respectfully submitted,

William Janklow
Attorney General

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