STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 6459

August 13, 1987

STATE GEOLOGIST:

Duty under low grade iron ore tax act

TAXATION:

Computation of low grade iron ore specific tax

The "lower lake price" for purposes of imposition of the specific tax upon low grade iron ore as provided in 1951 PA 77, Sec. 3, is determined upon the basis of generally prevailing market price as of the December 31 immediately preceding the tax year in question if only one of the statutorily enumerated trade journals publishes a price for Lake Superior iron ore pellets, or similar iron ore products, as of December 31 and the price published is not in agreement with the price published for such product in a reliable, replacement trade journal.

The only duty imposed upon the state geologist by 1951 PA 77 is to determine the allocation of the low grade iron ore property if it is located in more than one township.

Honorable Dominic Jacobetti

State Representative

The Capitol

Lansing, Michigan 48909

You have requested my opinion as to the correct method of determining the specific tax upon low grade iron ore under 1951 PA 77, as amended by 1978 PA 537, MCL 211.621 et seq; MSA 13.157(1) et seq. Specifically, you inquire as to the correct method of determining the "lower lake price" as that term is used in Act 77, Sec. 3. You also inquire as to the duties and responsibilities of the state geologist with regard to the valuation and taxation of low grade iron ore mining property.

The method of determining the specific tax on low grade iron ore is specified by Act 77, Sec. 3, which states:

The method of determining "lower lake price" as that term is used in Act 77, Sec. 3, is intended to be a comparison of the prices published by two separate and reliable trade journals. If those two journals agree upon a price, that price will be deemed to be the "lower lake price." This comparison is to be made using two specific publications: Iron Age and Industry Week. If one or the other of these publications fails to publish a price, a replacement journal is to be selected from those journals recognized and generally accepted as reliable by the iron ore industry. The price published by that replacement journal is to be substituted for the "missing" price and is used to conduct the comparison required by the statute. If a "lower lake price" cannot be determined utilizing this method, then the statute provides that the prevailing market price shall be deemed to be the "lower lake price." The prevailing market price would thus be utilized when, for example, one of the two journals used for comparison publishes two different prices or when prices published by the two journals fail to agree.

Regarding the particular question posed by your request, it appears that as of December 31, 1986, Industry Week did not publish a price for Lake Superior district iron ore pellets and Iron Age published 2 prices for December, 1986, those being 72.5 and 86.9 cents. A replacement trade journal, Skillings Mining Review, published a price for December 27, 1986 of 86.90 cents. This same price was published by Skillings Mining Review on January 3 and 10, 1987. On January 24, 1987, Skillings Mining Review published a price of 72.45 cents.

Pursuant to Act 77, Sec. 3, mine value is determined as of December 31. Consequently, the published prices subsequent to December 31, 1986 may not be used to determine the "lower lake price" (which is the starting point for determining "mine value") to be used for the 1987 tax year. The only prices published as of December 31, 1986 were the two prices published by Iron Age, (72.5 cents and 86.9 cents) and the single price published by Skillings Mining Review (86.9 cents). Since one of the two trade journals published two different prices, the "lower lake price" is the "generally prevailing market price at which iron ore pellets or concentrated and/or agglomerated products, of comparable quality and utility are being offered for sale in comparable quantity by or on behalf of bona fide producers from sources in the Continental United States or Canada."

The "lower lake price" is determined by a comparison of the base price of Lake Superior district iron ore pellets published as of the December 31 immediately preceding the tax year in question in Iron Age and Industry Week or, one of those trade journals and a substitute trade journal if Iron Age or Industry Week does not publish a price. If the trade journal used for this comparison does not agree on a price, then the "lower lake price" is the "generally prevailing market price" as of the December 31 immediately preceding the tax year in question.

It is my opinion in answer to your first question that the "lower lake price" for purposes of imposition of the specific tax upon low grade iron ore as provided in 1951 PA 77, Sec. 3, is determined upon the basis of generally prevailing market price as of the December 31 immediately preceding the tax year in question if only one of the statutorily enumerated trade journals publishes a price for Lake Superior iron ore pellets, or similar iron ore products, as of December 31 and the price published is not in agreement with the price published for such product in a reliable, replacement trade journal.

Your second question concerns the duties and responsibilities of the state geologist with regard to the taxation of metallic mining properties. There are three different statutes that relate to the taxation of metallic mining rights and properties, and the duties and responsibilities of the state geologist differ as to each one.

The General Property Tax Act, 1893 PA 206; MCL 211.1 et seq; MSA 7.1 et seq, is one such statute. Act 206, Sec. 24, provides for the duties and responsibilities of the state geologist under that Act. For those metallic mineral properties taxable under Act 206, the state geologist is mandated to determine the true cash value of such mining properties and mineral rights. This determination is to be reported to the State Tax Commission which, in turn, assesses the property so valued and certifies the same to the local supervisor or assessing official. It is noted that in 1986, there were no iron mines which were subject to general ad valorem taxation. All iron mines in Michigan, however, are subjected to taxation under one of two statutes imposing specific taxes on iron ore and related property.

The first specific tax statute is 1963 PA 68; MCL 207.271 et seq; MSA 13.158(1) et seq, which subjects to a specific tax underground iron ore and related property. The Act covers underground iron ore of such quality that it cannot be marketed in its natural state. In order to successfully market this ore, it must be "beneficiated" and "agglomerated."

Act 68, Sec. 5, imposes a duty upon the state geologist to determine the amount of the specific tax upon the ore property and the beneficiating facility on the agglomerating facility. It imposes an additional duty to apportion the specific tax if the mining property is located in more than one taxing district. Pursuant to Act 68, Sec. 9, the specific taxes levied under this particular tax act are in lieu of all general ad valorem taxes.

The second specific tax statute is 1951 PA 77, supra, the one to which your questions are directed. It imposes a specific tax upon low grade iron ore and related property. This taxing statute covers iron mines which consist of low grade iron ore which is not a merchantable product in its natural state and must be "beneficiated" and "agglomerated" before it is merchantable. The distinction between this taxing statute and Act 68 is that iron ore taxable under this statute is not "underground." Pursuant to Act 77, Sec. 4, the specific tax levied under this taxing act is in lieu of ad valorem taxation.

The only duty or responsibility the state geologist has under Act 77 is found in Sec. 4(2), which provides in pertinent part:

As can be seen, the duties and responsibilities of the state geologist differ under each taxing statute. The duties and responsibilities of the state geologist under either of the two statutes imposing specific taxes on iron ore and related properties are not the same as those under the General Property Tax Act, Act 206, Sec. 24.

The only duty that the state geologist has under Act 77 is to determine the allocation of low grade iron ore property if it is located in more than one township. The duty and responsibility of determining the "lower lake price" and the amount of the specific tax itself is imposed upon the township supervisor. See OAG, 1961-1962, No 3661, p 296 (February 26, 1962).

It is my opinion in answer to your second question that the duties of the state geologist relating to the specific tax on low grade iron ore and related property under 1951 PA 77 is to determine the allocation of low grade iron ore property if it is located in more than one township.

Frank J. Kelley

Attorney General