15 AAC 65.125 - Deductible mining expenses; other expenses; depletion
(a) Other expenses that cannot be inventoried
are deductible when paid or accrued. These expenses must be allocated in
accordance with (b) of this section, and include:
(1) except as provided in (2) and (3) of this
subsection, interest expense paid or accrued in connection with the mining
operation is deductible as a current operating expense;
(2) construction period interest expense,
including all interest paid or accrued in connection with depreciable property
to be used in the mining operation in the state, is to be capitalized and
recovered through depreciation or amortization in accordance with the person's
election for federal income tax purposes;
(3) interest expense paid or accrued by a
consolidated business in connection with the mining operation in the state is
deductible as follows:
(A) 100 percent of the
interest on specific new borrowings made with the purpose, expressed at the
time of the borrowing, of financing the mining operation in the state; specific
new borrowings may not exceed the amount of accumulated expenditures made for
fixed capital and working capital to finance the mining operation in the
state;
(B) if no specific new
borrowing is made to finance the mining operation in the state, the interest
deduction may not exceed a portion of the total interest paid or accrued by the
consolidated business ; that portion is determined by multiplying the total
interest by a fraction, the numerator of which is the cost of the taxpayer's
real and tangible personal property in the state and the denominator of which
is the cost of all real and tangible personal property of the business; in this
subparagraph, "total interest paid or accrued by the consolidated business "
does not include interest expense arising from intercompany obligations within
the consolidated business except to the extent that the interest expense
reflects a pass-through of interest on a third-party borrowing by the parent or
other member of the consolidated business ;
(4) advertising expenses;
(5) Alaska corporate net income
tax;
(6) salaries paid to officers
and others for the performance of services that are incident and necessary to
the person 's business activities as a whole rather than to extraction and
ordinary treatment processes;
(7)
other expenses that are incident and necessary to the person 's business
activities as a whole rather than to extraction and ordinary treatment
processes.
(b) For the
purpose of expense allocation under (a) of this section,
(1) interest expense and taxes allowed under
(a)(1) of this section are deductible to the extent that they relate to a
person 's mining activity in the state and are determined by multiplying total
expenses by a fraction, the numerator of which is the person 's direct mining
expenses in the state and the denominator of which is the person 's total direct
expenses related to both mining and non-mining activities in the
state;
(2) the expenses allowed
under (a)(4) - (7) of this section are deductible to the extent they relate to
mining activities in the state and are determined by multiplying the total
expenses by a fraction, the numerator of which is the person 's direct mining
expenses in the state and the denominator of which is the person 's total direct
expenses related to both mining and non-mining activities.
(c) While a mining property is in the
development stage, all development expenditures in excess of net income from
the sale of mined materials must be included in the mine's basis and are
recoverable through the depletion allowance. Development expenses incurred
after the mine has reached the production stage are deductible as a current
operating cost. The mine is considered to have passed from a development to a
production stage when the principal activity of the mining property becomes the
production of ore from the property rather than the development of the ore body
before production.
(d) A deduction
for depletion may be taken by a person for each economic interest held in an
Alaska mining property ; an economic interest is held when a person has acquired
by investment any interest in a mineral in place and that person derives, under
any form of legal relationship, income from the extraction of the mineral, to
which the person must look for a return of capital.
(e) A percentage depletion allowance is
permitted for each property described in
AS
43.65.010(e), if the
allowance is not less than if it were computed on a cost basis. If computed on
a percentage basis, the depletion allowance may not exceed 50 percent of the
person 's mining net income as computed without the allowance for depletion.
Cost depletion must be used for all other mineral types not described in
AS
43.65.010(e).
(f) In computing mining taxable income,
depreciation expense on all mining equipment, buildings, and other facilities
located in Alaska, is allowed as a deduction. A property's basis for computing
depreciation is the adjusted basis of the asset for federal income tax purposes
on the date the asset is placed in service in Alaska. Depreciation on mining
assets may be computed using any of the methods allowed under secs. 167 and 168
of the Internal Revenue Code (26 U.S.C. 167 and
168) . In place of the
depreciation expense deduction, a person may elect to amortize the cost of
pollution control facilities used in the mining operation in accordance with
sec. 169 of the Internal Revenue Code (26 U.S.C. 169) .
(g) Exploration costs, federal income taxes,
taxes under this chapter, losses on the sale of mining equipment or properties,
net operating losses and other capital losses are not deductible.
(h) If the allocation provisions of this
section do not fairly represent the amount of the person 's expenses paid or
accrued in connection with the mining operation in the state, the person may
petition the commissioner for the use of another method to effectuate an
equitable allocation of the person's expenses.
Notes
Authority:AS 43.05.080
AS 43.65.010
AS 43.65.060
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