BIR Ruling

August 6, 1976 Mineral Products Liability to the 2% Royalty Tax This refers to your letter dated May 11, 1976 stating that you are a mining and processing company engaged in the production of quicklime and hydrated lime at Bo. Sta. Catalina, Atimonan, Quezon; that your company acquired the right to operate commercially the mining lease of Mr. Ananias R. Biokno, Jr. by virtue of an operating agreement entered into on the 13th day of November, 1973; that the production of quicklime consists mainly of two (2) processes, namely: limestone preparation and calcination of kiln feed stone. Limestone preparation "Limestone of suitable sizes are quarried from the surface or open pit quarries within the area of our mining operations. Kiln feed stone is prepared from the limestone deposit by drilling holes in the rock and followed by controlled blasting to produce run of quarry stone of average sizes. These are further broken into kiln feed by sledge hammers and are cleaned to remove the soil or other contaminations." Calcination of kiln stone "Quicklime is produced by the calcination of limestone. Calcinating consists of a lime kiln which uses firewood or coal for fuel. Simply stated, calcination is the application of well controlled heat on limestone inside the kiln to produce lime and carbon dioxide. "Quicklime discharged from the kiln is stored in inventory warehouse for loading into drums or packing into bags of subsequent delivery. Part of the output or discharged from the kiln is slaked with water to produce hydrated lime." With the foregoing as a premise, you now pose the following entries: "1. What other taxes are we subject, in addition to the 2% royalty as provided for under Section 242, par. b, No. 3? (We have a duly approved Miner's Official Bond to guarantee our royalty payment as provided for under Secs. 245/246 of the NIRC); "2. Are we subject to the 7% percentage tax as provided for under Sec. 186 of the NIRC? and "3. What will be the basis of these taxes? "a. 2% royalty 1. Will it be based on the actual market value of the total cubic meters of limestone mineral removed from the mining claims? or 2. Will it be based on the total actual market value of the quicklime/hydrated lime which are our finished product? "b. 7% percentage tax 1. Will it be based on the gross selling price or gross value of the quicklime/hydrated lime without deductions? or 2. Will there be any deductions, so that it will be based on the net sales?" In reply, I have the honor to inform you that under Section 20(b) of Commonwealth Act No. 137, otherwise known as the Mining Act, lime is among those enumerated as falling under the fifth group of mineral products. Lime and limestone are also defined, viz: "Lime A caustic, highly infusible substance, white when pure, obtained by calcinating limestone, shells, or other forms of calcium carbonate." (53 Corpus Juris Secundum, 886). "Limestone A rock more or less crystalline or crystalline granular in condition, and consisting chiefly of calcium carbonate and yielding lime when burned." (ibid) Under the processes employed by that firm, the quicklime products and hydrated lime in question are mineral products, as defined in Section 246 of the Tax Code; hence, subject to the 2% royalty tax based on the actual market value thereof, in accordance with Section 242(b)(3) of the Tax Code. Accordingly, pursuant to Section 188(e) of the Tax Code, they are not subject to the 7% sales tax prescribed in Section 186 of the Tax Code. cdtech Moreover, that firm is subject to the income and residence taxes.