(1)  PURPOSE:  Natural minerals severed from the ground within Alabama and sold as tangible personal property are taxed at the rate of 10 cents ($0.10) per ton.  The tax attaches at the point the products are sold by a producer to the first purchaser. This regulation provides definitions and clarifications for the enforcement of Act No. 2004-629, as codified in Chapter 13 of Title 40, Code of Alabama 1975.    

(2)  DEFINITIONS:  The following terms shall have the meaning ascribed to them for purposes of this regulation:

(a)  Agricultural Purposes- The use of lime or limestone in accordance with the “Alabama Agricultural Liming Materials Act” as codified in Chapter 23 of Title 2, Code of Alabama 1975.
 
(b)  Chert- A metamorphic, fragmentary, flint or silica formation interspersed with varying quantity and quality of clay binder. Chert in its natural formation may require blasting to facilitate loading and manipulation. 

(c)  Commercial Quarry - A place from which stone, aggregate or any other natural mineral is severed for sale.

(d)  Lightweight Aggregate - Expanded raw materials that are used in the production of lightweight concrete products (i.e. structural concrete, concrete building blocks, pre-cast structural units and insulating fill). Raw materials commonly used in the production of lightweight aggregate are clay, sand, gravel, and rock.

(e)  Manufactured Severed Materials - Natural minerals which have been blended, converted or otherwise transformed by the producer, into a finished product different from the natural minerals such that the component natural minerals are no longer identifiable in the resulting finished product. Changing the chemical makeup of a product is included within the definition of manufacturing, however activities such as drying or crushing are not to be considered manufacturing.

(f)  Pollution Control or Abatement - The treating, modifying, or disposing of water or air pollutants with lime or limestone in sanitary systems, field lines, septic tanks or scrubbing systems, in order to comply with a federal, state, or local pollution control law or regulation.

(g)  Portland Cement - A mortar made by heating lime and clay in a kiln and pulverizing the result.  It contains a large proportion of clay, and hardens after water is added. 

(h)  Processed Sand - Severed sand that has been washed. Clean sand that has the clay removed.

(i)  Rock Dust - Ground limestone or marble that is used for mine safety by rendering coal dust inert.

(j)  Severed Material - All natural minerals, including sand, gravel, sandstone, granite, shale, clay, dolomite, limestone, and any other mineral listed as such by the Geological Survey of Alabama that is not specifically excluded from taxation. Other taxable minerals include bauxite, salt, and silicon.

(k)  Ton - A short ton of 2000 pounds.

(l)  Unprocessed naturally occurring sand - Sand that is excavated from the earth in its natural form.

(m)  Used for Fill - Any material used to build up a formation on a road, house pad, or building pad.

(3)  EXEMPT NATURAL MINERALS:  The following minerals are not subject to the Alabama Uniform Severance Tax. No quantities of these minerals should be reported to the Department on the monthly Uniform Severance Tax returns. 

(a)  Marble and marble by-products
(b)  Iron ore - Materials subject to the tax in Section 40-12-128
(c)  Quartzite
(d)  Coal - Materials subject to the tax in Chapter 13 of Title 40, Code of Alabama 1975.
(e)  Oil and natural gas - Hydrocarbons subject to the tax in Chapter 20 of Title 40, Code of Alabama 1975.
(f)  Chert
 
(4)  EXEMPT MANUFACTURED MATERIALS:  Taxable severed materials that are converted into Portland cement or clay that produces lightweight aggregate are exempt from the tax.  The total quantities of the various materials produced should be listed on the tax return, and the exempt quantity used by the producer or first purchaser in the production of Portland cement or lightweight aggregate should be subtracted from the totals to arrive at taxable quantities.
 
(5)  EXEMPT USES OF SEVERED MATERIALS:  The minerals listed in this section are not exempt from the severance tax unless used as described below. The total quantities of these materials produced and sold should be listed on the tax return. Any materials used by the producer or first purchaser in ways qualifying the materials for the stated exemptions should be listed on the tax return and subtracted from the total quantities of the various materials to arrive at taxable quantities. 

(a)  Lime or limestone used for agricultural purposes - Producers and first purchasers of lime or limestone who are permitted as manufacturers or distributors of “Agricultural Liming Materials” by the Alabama Department of Agriculture and Industries may claim an exemption from the tax. A first purchaser who is not required to be permitted because he is located outside the state of Alabama, who manufacturers or distributes liming materials meeting the specifications of the Alabama Department of Agriculture and Industries may also claim an exemption from the tax. Producers may report as exempt the quantity of agricultural liming materials reported by the producer or first purchaser to the Alabama Department of Agriculture and Industries in accordance with Section 2-23-5(a). Exemptions may also be claimed for the quantity of materials meeting the specifications of the Alabama Department of Agriculture and Industries but not required to be reported because the first purchaser is located outside the state of Alabama. The exempt quantities may then be subtracted from the total quantities of severed limestone in arriving at the taxable quantities.

(b)  Lime or limestone used for pollution control or abatement purposes - Producers or first purchasers selling lime or limestone in a transaction which is exempt from the State of Alabama’s sales tax because the lime or limestone qualifies for the pollution control exemption may claim an exemption from the severance tax. Producers may report as exempt the quantity of such lime or limestone which is actually exempt from the sales tax, and subtract the exempt quantities from the total quantities of severed limestone in arriving at the taxable quantities.

(c)  Rock dust used for settling coal dust in underground mines or similar uses

(d)  Processed sand used in the foundry cores, molds, and linings

(6)  PERSON SUBJECT TO THE TAX:  Purchases made by a “person”, as defined in the Act are subject to the tax. A person is any individual or individuals, partnership, limited partnership, corporation, limited liability company, limited liability partnership, business trust, or any other association of persons. The Federal government and the State of Alabama and/or its subdivisions, are governmental entities. Direct purchases by governmental entities are, therefore, not subject to the tax. Cities, as municipal corporations, are subject to the tax, as are city and county school boards.

(a) Reporting of Sales to Federal government, the State of Alabama and/or its Subdivisions - If the producer sells severed materials directly to the Federal government, the State of Alabama and/or its subdivisions, which are not subject to the tax, the producer should maintain documentation that the sale was made directly to the governmental entity. This may be a bid request, purchase order, or other similar documentation received from the governmental entity. The producer should list the exempt sales to the Federal government, the State of Alabama and/or its subdivisions on the tax return and subtract them from the total quantities of the various materials to arrive at taxable quantities.

(b) Purchases by government contractors - Persons otherwise subject to the tax may not claim exemption from the tax because the materials will be used as part of a contract with governmental entities. Producers should charge the tax on all such sales.

(7)  PRODUCER’S RESPONSIBILITY TO COLLECT AND REMIT THE TAX:  The tax attaches at the point the products are sold or delivered by a producer to the first purchaser. Severed products which are sold, delivered, or transferred between separate legal entities are subject to the tax regardless of any common ownership or other affiliation between the producer and the purchaser.  It is the producer’s responsibility to collect the tax from the first purchaser at the time of sale or delivery unless the severed materials qualify for an exemption stated herein.

(a) Identification of the Tax - The producer may identify the tax on a bill of sale, invoice or other similar sales document to the purchaser of the severed materials.  Producers failing to identify the tax on the sales document or failing to collect the identified tax from the purchaser must remit the tax to the Department as if it was identified and collected.

(b) Purchaser’s Exemption from the Tax - A person purchasing severed materials from a producer and using the materials in a manner qualifying for one of the exemptions listed in Paragraph (4) and Paragraph (5) of this Rule must provide his identifying information to the producer as outlined in Paragraph (7)(c) of this Rule to document the exemption. A producer, who secures the required information, may report the exempt quantities on the monthly tax return, and reduce the total  quantities by the exempt amounts in calculating the quantities subject to tax.

(c) Purchaser’s Exemption Information - The information to be obtained by the producer from a purchaser wishing to claim an exemption must be sufficient for the Department to identify and locate the purchaser to verify the exemption. The information must include the following: 

1.   Purchaser’s name and address
2.   Purchaser’s telephone number
3.   Reason the exemption is claimed
4.   An allocation of total purchases between exempt and taxable portions, if needed.

(d) Audit of Claimed Exemptions - A purchaser must maintain records documenting the right to all claimed exemptions. Purchasers claiming exemption from the tax are subject to audit by the Department. If the Department in unable to locate a purchaser based on insufficient information obtained by the producer; if a purchaser maintains inadequate information to document the claimed exemption; or if an exemption is disallowed as a result of an audit; the Department will collect the tax from the producer. A producer must pay the audit adjustment, regardless of whether he collects the previously uncollected amount from the purchaser.

(e) Recovery of Audit Adjustments from the Purchaser - A producer who has relied on information provided by a purchaser in choosing not to collect the tax from the purchaser, and who is later required to pay an audit adjustment, may collect the underpaid tax from the purchaser at that time.

(8)  MANUFACTURED SEVERED MATERIALS: Severed materials are subject to the severance tax if used by the operator or producer in a manufacturing process to produce a product which is later sold by the operator or producer as tangible personal property.  A producer must measure or otherwise calculate the tons of each severed natural mineral contained in the sold product and report that amount on the severance tax return. Producers of Portland cement or lightweight aggregate see Paragraph (4) of this Rule. 

(9)  MATERIALS SOLD FOR USE OUTSIDE THE STATE: Materials sold to a purchaser for use outside the state must be reported by the producer on the monthly severance tax return. If such materials are not transported on the public roads in Alabama, the producer may subtract the quantities of such materials from the total sales amounts shown on the monthly tax return in calculating the taxable quantities. The producer must load the materials into a non-highway conveyance at his production site to qualify for the exemption. If the materials are transported any distance on the public roads in Alabama, the tax is due and no exemption may be claimed. The producer must maintain records documenting the method of transportation of all materials for which an exemption is claimed.

(10)  MATERIALS STOCKPILED BY THE PRODUCER: Materials which are moved from one place to another on the same site or transported to another site owned by the same operator or producer are not subject to the severance tax while in the possession of the producer. The materials become subject to the severance tax and must be reported on the monthly tax returns at the time the products are sold, delivered or transferred to a purchaser.

(11)  MATERIALS USED BY THE PRODUCER: Severed materials which are used by the producer and never transferred or sold, as tangible personal property, are not subject to the severance tax; including severed materials which are used by the producer to perform a furnish-and-install contract.  Materials not from a commercial quarry, such as from a borrow pit, which are both, severed and used by a producer, operator, or any other person for fill, are not subject to the severance tax. The severance tax is due if any severed products are sold by the producer and used for fill by a purchaser. See Paragraph (12) of this Rule, if severed materials are used by an entity related to the producer.

(12)  MATERIALS TRANSFERRED WITHOUT SALE: Severed materials which are donated or otherwise transferred without sale, in a bona fide transaction, to an unrelated person for no consideration, are not subject to the severance tax. Materials which are transferred for any consideration or economic benefit, such as in a barter transaction, are deemed to be sold for severance tax purposes. Materials transferred from a producer to a related person, such as a parent, subsidiary or sister company, are deemed to be sold at the time of the transfer.

(13)  COMMINGLED MATERIALS: If natural minerals severed from more than one county are commingled at one site, the tax shall be allocated to the individual counties using the first in first out (FIFO) accounting method. Severed materials which are sold from the site must be allocated between counties in the same order that the materials are received at the site. Producers must keep records to show the amount of natural minerals stockpiled by county, the withdrawal date by county, and the amount of taxes paid by county.

(14)  CONVERSION OF CUBIC YARDS TO TONS: All natural minerals which are sold by the producer to a purchaser in the normal course of business and measured by the ton must be reported by the ton to the Department on the monthly severance tax returns. If a producer severs and sells the natural minerals by the cubic yard or cubic foot in the normal course of business and there are no records available that indicate the tons severed and sold, the producer may convert the cubic yards to tons using a formula of Cu. Yd. x Lb./Cu. Ft. x 0.0135  = TONS. The density of the natural mineral varies by product based on the specific gravity and moisture content. The acceptable loose unit mass by producer is published annually by the Alabama Department of Transportation and may be used to convert cubic yards to tonnage. Producers not having a specific measure of the density of the severed materials may estimate the density to be 150 Lb./Cu. Ft., or 2 Tons/Cu. Yd.