Certain Costs of Transportation Excluded from Gross Value of Limestone
In Yager Material, Inc. v. Finance and Administration Cabinet, Order No. K-20301 (KBTA Feb. 4, 2009), the Kentucky Board of Tax Appeals (“KBTA”) determined that, for severance tax purposes, the cost of transporting processed limestone from a quarry to a sales yard is excluded from the taxable gross value of such limestone.
By way of background, Yager Material Inc. (“Taxpayer”) operates a limestone quarry and sells limestone at three yards, all near the Ohio River. Once severed, the Taxpayer’s limestone is barged downstream from the quarry to the yards for sales purposes.
The Taxpayer urged the KBTA to determine “gross value” for purposes of the severance tax imposed by Chapter 143A of the Kentucky Revised Statutes is the same as “gross income from mining” as defined by the Internal Revenue Code of 1986, as amended (“Code”). The KBTA determined that the “gross value” of limestone, as defined by KRS 143A.010(9)(b), means the value of the first sale of the limestone less the cost of transportation from the quarry to the sales yard, as such transportation is a “non-mining operations” cost. Further, the KBTA determined the transportation of the limestone within the quarry/processing area is not a deductible “non-mining operations” expense, but instead a cost of transportation related to extraction and processing, and thus included in “gross value.”