                          T.C. Memo. 1997-51



                     UNITED STATES TAX COURT



     BRYAN ROCK PRODUCTS, INC. AND SUBSIDIARY, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 23230-94.                      Filed January 28, 1997.



     Walter A. Pickhardt, for petitioner.

     John C. Schmittdiel, for respondent.



                          MEMORANDUM OPINION


     TANNENWALD, Judge:     Respondent determined deficiencies in

petitioner's Federal income taxes for the taxable years ending

November 30, 1989, and November 30, 1990, in the amounts of

$23,926 and $25,622, respectively.    The sole issue for decision

is whether petitioner is entitled to a 14-percent depletion
                                 - 2 -

allowance under section 613(b)(7)1 for the red dolomitic

limestone mined and sold by petitioner as landscaping rock.

     This case was submitted fully stipulated under Rule 122.

The stipulation of facts and attached exhibits are incorporated

herein by this reference.

Background

     Petitioner is a Minnesota corporation with its principal

office in Shakopee, Minnesota.    For the taxable years ending

November 30, 1989, and November 30, 1990 (1989 and 1990,

respectively), petitioner was the common parent of a consolidated

group of corporations that joined in the filing of a consolidated

corporate income tax return.

     Petitioner mines a material referred to as either dolomite

or dolomitic limestone from three quarries in Shakopee,

Minnesota, and additional quarries in Bayport, Hastings, and

Denmark, Minnesota.   This material comes within the meaning of

either dolomite or limestone, or both, as those terms are used in

section 613(b)(7).    Hereinafter, we will refer to this material

as dolomite.   Petitioner's dolomite comes from the Oneonta

Dolomite and Shakopee formation of the Prairie du Chien Group, an

expansive sedimentary rock deposit extending throughout

southeastern Minnesota and into portions of Wisconsin and Iowa.

     1
        Unless otherwise indicated, all statutory references are
to the Internal Revenue Code in effect for the years in issue,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
                               - 3 -

Oneonta Dolomite is composed of both limestone and dolomite, with

the latter distinguishable from the former by reason of its

greater magnesium content.   Petitioner's dolomite is of

insufficient purity to be considered metallurgical or chemical

grade.

     Most limestone and dolomite in Minnesota and neighboring

States is of a buff or brownish-gray color.   Petitioner mines

buff and brownish-gray dolomite from its quarries.   Petitioner

also has mined a reddish-brown colored dolomite from two of its

quarries at Shakopee, Minnesota.   The reddish color most likely

is caused by its iron oxide content.   We shall refer to this

particular dolomite as red dolomite.   During 1989 and 1990,

petitioner mined red dolomite from its Merriam Quarry, located in

Shakopee, Minnesota.   Petitioner currently mines red dolomite

from its 169 Quarry, which is located approximately one-half mile

from the Merriam Quarry.

     Road material is aggregate2 used in the construction of

roads.   Typically, a base consisting of crushed and graded

aggregate is placed on roadbeds, parking lots, and in utility

trenches to provide support for the overlying pavement or

utility.   Road material aggregates are also material mixed with


     2
        "Aggregate" is: "1. rock composed of mineral crystals of
one or more kinds or of mineral rock fragments. 2. any of
several hard materials (as sand, gravel, or slag) used for mixing
with cement material to form concrete, mortar, or plaster."
Webster's Ninth New Collegiate Dictionary 64(1985).
                                - 4 -

asphaltic cement or concrete to produce asphalt or concrete.     The

types of material suited for this use include crushed limestone

and dolomite, other quarried rock, and sand and gravel.

       Concrete aggregate is aggregate used in the production of

concrete.    It is generally made up of washed and graded natural

aggregate deposits or crushed quarry rock, typically occupies 65

to 75 percent of the concrete volume, and influences various

properties of concrete.    Most rocks can be used as concrete

aggregate with the exception of rocks containing any appreciable

amounts of shale, soft porous materials, or chert.

       Rip rap is a pile of rocks and boulders placed as an erosion

control measure and slope stabilizer to protect slopes, piers,

abutments, walls, or other structures.    There are specific size

requirements and gradations for different classes of rip rap.

Rip rap may be any type of durable, field or quarried stone, free

of soil or other debris.    In southeastern and central Minnesota,

where limestone is abundant, limestone and dolomite are used for

rip rap.    In northern Minnesota, where carbonaceous deposits are

not available, field stone, taconite, and granite are used as rip

rap.

       Ballast is a material which is placed on a railroad bed to

provide a stable foundation for the track and ties.    Ballast

distributes train loading, drains the roadbed, and resists

deformation of the railbed.    Ballast can be any rock of specific

size and gradation where it is durable and resists degradation.
                               - 5 -

In Minnesota, railroads generally use granite, gabbro, or

taconite for ballast.   Dolomite is not generally used because it

is softer than desirable.

     Rubble is a loose mass of angular fragments of rock or

masonry crumbled by natural or human forces and irregular

fragments or pieces of rock used in masonry or the masonry made

with such rocks.   The type of angular rock which may be

incorporated in the rubble could be virtually any type of rock

that is used in manmade structures.

     Petitioner processes and sells the dolomite that it mines

for the following products:   driveway and road base rock;

concrete aggregate; utility and bedding rock; and "specialty

rock".   "Specialty rock" includes rip rap, agricultural lime

(aglime), red ball diamond aggregate, and landscaping rock.

Petitioner did not sell dolomite for use as ballast during the

years at issue.

     Petitioner sells driveway and road base rock, which is

available in sizes ranging from a maximum3 of 3/8" to a maximum

of 3" in diameter, for use as a base upon which a driveway or

road surface (concrete or asphalt) is laid.   This product

includes dolomite fines, a powdery material created when dolomite



     3
        Each product size actually includes a range of rock
sizes. The maximum size within that range is used to label that
size. For example, 1-3/4" size rock may range from 3/4" to 1-
3/4"; the 3/4" size may range from 5/15" to 3/4".
                                - 6 -

is crushed; when compacted, dolomite fines facilitate the

hardening of the roadbed.

     The concrete aggregate sold by petitioner is a washed

dolomite ranging in size from 5/16" to 3/4" in diameter.    It is

used, together with water, fine aggregate (usually sand), and

cement, as an ingredient in concrete.    During the years at issue,

only the Merriam quarry, of all of petitioner's quarries, had

washing facilities.

     The utility and bedding rock sold by petitioner is dolomite

ranging in size from 3/4" to 4" in diameter, with smaller sizes

included in the product.    Some dolomite fines are included, but

not to the extent they are included with road base.    Utility and

bedding rock is used as a base for concrete pipe or PVC pipe,

especially sewer pipe.

     The rip rap sold by petitioner consists of dolomite used for

erosion control, especially around waterways.    Petitioner sells

rip rap as small as 4" to 9" in diameter, but also in a small

boulder size, 24" in diameter and sometimes larger.    The aglime

sold by petitioner is a fine, pulverized dolomite material,

crushed to a size generally no larger than a grain of white rice,

which is used to neutralize soil acidity and to provide magnesium

to soil compositions.    The red ball diamond aggregate sold by

petitioner is identical to aglime in size and composition but,

unlike aglime, always has a red color.    Petitioner's customers

used this product as a ball diamond surface.
                               - 7 -

     The red landscaping rock sold by petitioner is washed,

crushed red dolomite, sold in two sizes.    The larger size is

screened to an individual diameter size of not less than 3/4" and

not more than 1-3/4" in diameter (1-3/4" red landscaping rock).

The smaller size is screened to an individual diameter size of

not less than 5/16" and not more than 3/4" in diameter (3/4" red

landscaping rock).   The 3/4" red landscaping rock sold by

petitioner was identical to the 3/4" washed red rock that

petitioner sold for use as a concrete aggregate.

     Petitioner does not run reflectance tests, dry brightness

test, or other test relating to the measurement of the color of

its red landscaping rock.   Petitioner does not sell red

landscaping rock on bid in direct competition with a bona fide

bid to sell a mineral listed in section 613(b)(3).

     A common use of landscaping rock, including petitioner's red

landscaping rock, is to lay it on the ground, several inches

deep, to act as a border or buffer between adjoining areas or

structure in a landscape or outdoor area.    Landscape rock is also

used to separate shrubs and other plantings from adjoining

walkways, driveways, and lawn areas.   Landscaping rock reduces

maintenance (e.g., trimming, spraying, weeding) because it

inhibits weed and grass growth in areas where growth is not

desired.   In this regard, landscaping rock is often used over

plastic sheeting or a similar weed barrier.    Consistent

appearance, including color and size, is a consideration for
                                 - 8 -

customers purchasing landscaping rock.    Color is not normally a

consideration for customers purchasing dolomite for use as

driveway and road base rock, concrete aggregate (unless it is an

exposed aggregate), utility and bedding rock, aglime, and rip

rap.    Rocks used for landscaping purposes include:   limestone,

dolomite, quartzite, sandstone, granite, pumice, marble, scoria,

baked clay or shale, diabase, gabbro, and river rock.     In

addition to the various aggregates sold for landscaping rock,

organic materials such as shredded hardwood or bark chips are

sold for landscaping purposes.

       On each of petitioner's price lists for 1989 and 1990, the

1-3/4" red landscaping rock was identified as "red decorative

rock"; the 3/4" red landscaping rock was not so designated.      On

its price lists for 1989, the 3/4" red landscaping rock was

identified as "washed red rock", which was the same designation

given to rock sold as concrete aggregate.    On its price lists for

1990, the 3/4" red landscaping rock was identified as "red rock",

which was the same designation given to rock sold as concrete

aggregate.

       In general, during the years in issue, the geographical

market for dolomite sold by petitioner for use as driveway and

road base rock, utility and bedding rock, and rip rap consisted

of an area no greater than a 30-mile radius from the quarry out

of which the dolomite was extracted.     Most of the dolomite sold

by petitioner as a concrete aggregate was for use within a 30-
                               - 9 -

mile radius from the quarry out of which the dolomite was

extracted; however, petitioner sometimes sold concrete aggregate

to truckers who, having made deliveries in the Twin Cities area,

would purchase a load of concrete aggregate as a back haul for

delivery beyond a 30-mile radius.   In contrast, petitioner

regularly sold aglime and red ball diamond aggregate for use

beyond a 30-mile radius from the quarry out of which the dolomite

was extracted.   Petitioner sold dolomite for use as red

landscaping rock to charge customers in the following areas:

Minnesota, Wisconsin, North Dakota, South Dakota, and Iowa.     Red

landscaping rock occasionally was sold in other States as well.

Petitioner does not maintain records of the quantity of red

landscaping rock sold within a 30-mile radius of its quarries in

Shakopee.

     For depletion purposes, petitioner identified instances when

it sold "washed red rock" or "red rock" as concrete aggregate and

when it sold this rock for landscaping purposes.

     For 1989 and 1990, petitioner claimed percentage depletion

under section 613(b)(7) equal to 14 percent of sales less

royalties on its dolomite sold for use as red landscaping rock.

Petitioner also claimed 14-percent depletion on dolomite sold for

use as aglime and as red ball diamond aggregate.   Petitioner

claimed 5-percent depletion on dolomite sold for use as driveway

and road base rock, concrete aggregate, utility and bedding rock,

and rip rap.
                               - 10 -

     Respondent determined that the proper rate of depletion for

petitioner's red landscaping rock is 5 percent, not 14 percent.

Respondent has not proposed adjustments in connection with

petitioner's depletion deductions except for those claimed for

dolomite sold as red landscaping rock.

Discussion

     Section 611 provides for a reasonable allowance for

depletion in the case of mines.    This allowance is "the

percentage, specified in subsection (b), of the gross income from

the property excluding from such gross income an amount equal to

any rents or royalties paid or incurred by the taxpayer in

respect of the property."    Sec. 613(a).   Section 613(b)(6)

provides in relevant part:

     (6) 5 Percent--

           (A) gravel, peat, pumice, sand, scoria, shale
     * * *, and stone (except stone described in paragraph
     (7));


Section 613(b)(7) specifies a 14-percent depletion rate for:

     all other minerals, including, but not limited to,
     * * * dolomite, * * * limestone, * * * stone (used or
     sold for use by the mine owner or operator as dimension
     stone or ornamental stone), * * * except that, unless
     sold on bid in direct competition with a bona fide bid
     to sell a mineral listed in paragraph (3), the
     percentage shall be 5 percent for any such other
     mineral * * * when used, or sold for use, by the mine
     owner or operator as rip rap, ballast, road material,
     rubble, concrete aggregates, or for similar purposes.
     * * *
                                - 11 -

     Initially, respondent argues that petitioner's red

landscaping rock should be classified as "stone" under section

613(b)(6) because the red landscaping rock was not used for its

chemical or metallurgical properties; this classification would

result in a 5-percent depletion rate.      Prior to the enactment of

the 1954 Code, the predecessor to section 613(b) provided a 5-

percent depletion rate for sand, gravel, and stone; a 10-percent

rate for dolomite; and a 15-percent rate for chemical and

metallurgical grade limestone.    Sec. 114(b)(4)(A) of the 1939

Code, as amended by the Revenue Act of 1951, ch. 521, sec.

319(a), 65 Stat. 452, 497; G. & W. H. Corson, Inc. v.

Commissioner, 54 T.C. 668, 675 (1970), affd. 453 F.2d 578 (3d

Cir. 1971).   However, in section 613(b) of the 1954 Code, the

qualifiers "chemical grade" and "metallurgical grade" were

dropped from limestone, dolomite was added to the 15 percent (now

14 percent) depletion rate category, and the "use test", i.e.,

"when used, or sold for use, by the mine owner or operator as rip

rap, ballast, road material, rubble, concrete aggregates, or for

similar purposes", was added.    Thus, whether limestone is of

chemical grade is no longer a factor.      G. & W. H. Corson, Inc. v.

Commissioner, supra; see also C. J. Langenfelder & Son, Inc. v.

Commissioner, 69 T.C. 378 (1977) (chemical attributes test

rejected for use of oyster shells).      Accordingly, the chemical

and metallurgical properties foundation of respondent's argument

falls by the wayside.
                               - 12 -

     The parties have agreed that petitioner's red landscaping

rock qualifies as either dolomite or limestone.    As dolomite and

limestone both are listed in section 613(b)(7), and those terms

are more specific than stone, section 613(b)(7), rather than

section 613(b)(6), governs our determination of the proper

depletion rate.

     Since petitioner did not sell its red landscaping rock on

bid in direct competition with a bona fide bid to sell a mineral

listed in section 613(b)(3), the focus of this case is on the

"use test".   We are asked to decide whether petitioner sold its

red landscaping rock for a purpose similar to rip rap, ballast,

road material, rubble, or concrete aggregates (the enumerated

uses).

     Congress added the use test in 1954 in order "to prevent

discrimination in percentage depletion rates between materials

which are used competitively for the same purposes."    S. Rept.

1622, 83d Cong., 2d Sess. 77 (1954).    When the minerals in the

category "all other minerals", otherwise entitled to a depletion

rate of 14 percent, are used "for certain purposes for which

crushed stone is commonly used, they are to be entitled to a

percentage depletion rate of 5 percent."    Id.   Congress specified

these certain purposes as "rip rap, ballast, road material,

rubble, concrete aggregates, or for similar purposes".    Sec.

613(b)(7).    The use test is one of actual use, not possible uses.

The statutory language speaks in terms of actual use.    Sec.
                              - 13 -

613(b)(7) ("when used, or sold for use").   The legislative

history clearly points in the same direction.   S. Rept. 1622,

supra at 77, 331-332.

     The House version of this section had included dimension

stone and ornamental stone in the enumerated uses, but in the

final bill, those were eliminated and, instead, "stone (used or

sold for use * * * as dimension stone or ornamental stone)" was

included in the list of "all other minerals", thus entitling

stone used for those purposes to the higher depletion rate.      Id.

at 78.   Dimension stone means "blocks and slabs of natural stone,

subsequently cut to definite shapes and sizes and used or sold

for such uses as building stone (excluding rubble), monumental

stone, paving blocks, curbing and flagging."    Sec. 1.613-2(b)(3),

Income Tax Regs.   Ornamental stone means "blocks and slabs of

natural stone, subsequently cut to definite shapes and sizes and

used or sold for use for making ornaments or statues."    Id.

     The enumerated uses are generally construction uses.       C. J.

Langenfelder & Son, Inc. v. Commissioner, supra at 390.     We have

interpreted "similar purposes" to include those uses reasonably

commercially competitive with the enumerated uses.    G. & W. H.

Corson, Inc. v. Commissioner, 54 T.C. at 677.

     In G. & W. H. Corson, Inc. v. Commissioner, supra, the

taxpayer mined dolomitic limestone for its use in manufacturing

Poz-O-Pac and Corson's masonry cement.   Poz-O-Pac was a product

composed of hydrated lime, fly ash, an aggregate, and water; it
                               - 14 -

was used primarily as a base for road surface.    Other

manufacturers of Poz-O-Pac used gravel instead of limestone.      We

found that the function of the limestone in the Poz-O-Pac was

similar to the function of road material in the laying of asphalt

and other forms of roadways.    Poz-O-Pac also competed with

concrete, and the limestone in the Poz-O-Pac had a significant

use similar to a concrete aggregate.    The primary use of the

taxpayer's masonry cement was as a mortar.    We found that the

limestone in the product served the purpose of aggregate

comparable to that mixed with Portland cement to make other

masonry cements or mortars.    The taxpayer's limestone acted as a

functional substitute for, and thus in actual competition with,

materials used as road material and concrete aggregate.

Consequently, we held that the lower depletion rate applied to

the limestone so used by the taxpayer.

      In C. J. Langenfelder & Son, Inc. v. Commissioner, supra,

the taxpayer dredged oyster shells for sale as cultch, a surface

to which oyster larvae could attach and grow into mature oysters.

Mollusk shells, including oyster shells, are listed in section

613(b)(7).   Following G. & W. H. Corson, Inc. v. Commissioner,

supra, we rejected respondent's argument that use for physical

rather than chemical attributes leads to the lower depletion rate

and   applied the use test.   We found that the use of oyster

shells as cultch was not a construction use.    Respondent argued

"that construction stones could have been used competitively with
                              - 15 -

oyster shells as oyster cultch" and "therefore, that to allow

[the taxpayer] the higher depletion rate would discriminate

against miners of construction stones."    C. J. Langenfelder &

Son, Inc. v. Commissioner, supra at 390.     We rejected

respondent's potential-for-use argument and found that, used as

oyster cultch, oyster shells did not compete commercially with

materials that would qualify as rip rap, ballast, road materials,

rubble, and concrete aggregate.   We, therefore, held that the

exception circumscribed by the use test did not apply, entitling

the taxpayer to the higher depletion rate.

     In Maryland Green Marble Corp. v. United States, 528 F.2d 51

(4th Cir. 1975), the Court of Appeals for the Fourth Circuit

interpreted the use test to mean:   sold or used for the same

purpose as, and in competition with, construction stones.    The

taxpayers' marble and quartzite chips were used in the

manufacture of terrazzo flooring and architectural precast

panels, respectively, for their distinctive coloring and

decorative qualities.   The Court of Appeals found that these

features distinguished the chips from ordinary hard stone and

that the chips did not compete with ordinary construction stones.

It held that the taxpayers were entitled to the higher depletion

rate.

     In Bonsal Co. v. United States, 72-1 USTC par. 9175, 29 AFTR

2d 72-535 (W.D.N.C. 1971), the only case dealing with rock used

for landscaping purposes, the District Court looked strictly to
                             - 16 -

the statutory language of section 613(b)(7) and did not consider

competition to be a "significant consideration".   It held that

the uses of quartzite for roofing, mosaic panels, golf course

sandtraps, and landscaping were not purposes similar to rip rap,

ballast, road material, rubble, or concrete aggregates in the

conventional sense and allowed the taxpayer the higher depletion

rate for these uses.

     In the instant case, respondent argues that landscaping is

a construction use and that petitioner's red landscaping rock

competes with materials that could be used for one of the

enumerated uses, including petitioner's red rock used as concrete

aggregate.

     Since actual use is the focus of the use test, whether the

sale of petitioner's red landscaping rock competes with the sale

of its same rock as concrete aggregate is not a determination.

In this connection, we think it highly significant that

petitioner kept detailed records that separated the sales of 3/4"

red rock for concrete aggregate from sales of the same rock as

landscaping rock and claimed only the 5 percent on the former.4

Furthermore, although the legislative history records Congress'

concern about competition between the listed minerals and common


     4
        Respondent has not questioned the accuracy of these
records either as to allocations of quantities or sales amounts.
Cf. Reagan v. Commissioner, T.C. Memo. 1973-266, where respondent
did not question the application of the 5-percent and 14-percent
rates to different uses of the same mineral.
                               - 17 -

stone, the use test as written in the statute does not extend to

include each use where common stone could be used.   In keeping

with this Court's previous decisions involving the use test, we

think the critical test herein is whether the subject rock in

fact competed commercially with common stone in the specific use

placed at issue.

     Petitioner's red rock when used as landscaping rock is not

used for a purpose which is a functional substitute for one of

the enumerated uses.   Thus, it does not compete commercially with

the enumerated uses.   Cf. G. & W. H. Corson, Inc. v.

Commissioner, 54 T.C. 668 (1970).    It is used for a decorative

purpose, not for a construction use.    Its purpose, although not

exactly that of dimension stone, i.e., stone used for building

stones, paving blocks, curbing, and flagging, is more similar to

the use of dimension stone than to the enumerated uses.

     Many of the other materials sold as landscaping rock are

among those listed as "all other minerals" in section 613(b)(7).

The geographic market for petitioner's red landscaping stone is

much greater than for the same stone when sold as concrete

aggregate.   These factors indicate that petitioner's red

landscaping rock is competing with the "other minerals", not with

ordinary stone.    We find that petitioner's red landscaping rock

was not sold for a purpose similar to rip rap, ballast, road

material, rubble, or concrete aggregates.   Therefore, petitioner
                             - 18 -

is entitled to the 14-percent depletion rate for its red

landscaping rock.

     In accordance with the above holding,

                                   Decision will be entered

                              for petitioner.
