Current through Register 2024 Notice Reg. No. 38, September 20, 2024
(a) The provisions of this rule apply to the
valuation of the rights to explore, develop and produce minerals, other than
oil, gas and geothermal resources, and the real property associated with these
rights.
(b) General.
(1) Rights to enter in or upon land for the
purpose of exploration, development or production of minerals are taxable real
property interests to the extent they individually or collectively have
ascertainable value.
(2) It is the
right to explore, develop and produce that is being valued and not the physical
quantity of resources present on the valuation date.
(3) The unique nature of mineral property
interests requires the application of specialized appraisal techniques designed
to satisfy the requirements of article XIII, section
1, and article XIII A, section
2, of the California Constitution.
To this end, mineral property interests and other real property associated
therewith shall be valued pursuant to the principles and procedures set forth
in this section.
(4)
Notwithstanding any other provision in this section, any appropriate valuation
method described in section
of title
183 of title 18 of this code may be applied
in the event of a transfer of an ownership interest in the right to explore,
develop or produce a mineral property.
(c) Definitions. For the purposes of this
section:
(1) "Minerals" means organic and
inorganic earth material including rock but excluding oil, gas, and geothermal
resources.
(2) "Proved reserves"
means those minerals measured by volume or weight which geological and
engineering information indicate with reasonable certainty to be recoverable in
the future, taking into account reasonably projected physical and economic
operating conditions. "Proved reserves" includes all minerals that satisfy the
conditions of the preceding sentence without regard to how the term is used in
industry.
(3) "Exploration" means
the searching for and determining the location, quantity, nature, shape, and
quality of mineral deposits.
(4)
"Development" means the preparation of minerals for production including the
removal of waste rock or overburden, and the construction of improvements or
improvements to land related to the production of minerals.
(5) "Production" means the removal or
processing of minerals.
(6)
"Appraisal unit" consists of a mineral property that persons in the marketplace
commonly buy and sell as a unit or that is normally valued
separately.
(d) Valuation
of Mineral Properties Prior to Production.
(1) Exploration. The right to explore for
minerals is taxable to the extent it has value separate from the rights to
develop and produce any discovered minerals. The right to explore shall be
valued by any appropriate method or methods as prescribed in section
of title
183 of title 18 of this code taking into
consideration appropriate risks; however, in no event shall the right be
considered to be under construction. While the construction of structures or
the physical alterations to land, e.g., access roads, fencing, drainage or
water systems, land clearing, etc., during exploration constitutes assessable
new construction (subject to the provisions of section
of title
18463 of title 18 of this code), it does not
add to or diminish the value of the right to explore. Costs associated with
obtaining government approval related to new construction should be considered
when valuing new construction. Costs of obtaining governmental approval to
operate, taking ore samples, assaying for mineral content or testing processing
methods, shall not be considered for purposes of valuing the right to explore.
These latter elements of cost may appear in the value of the mineral rights
when production starts. Once the base-year value of the right to explore is
determined and enrolled, it shall not be changed except to reflect diminution
in value from all causes as well as any increase in value resulting from the
annual rate of inflation as prescribed by section
of title
18460 of title 18 of this code or to reflect
a change in ownership, or as provided in subdivision (g) of this
rule.
(2) Development.
(A) Although the right to develop and the
right to produce minerals are separate rights, the value of the right to
develop is virtually unascertainable separate from the right to produce.
Therefore no separate value shall be established for the right to develop
unless there is an intervening change in ownership at which time the right to
develop may have an assessable value as reflected in the purchase price. Any
value attributable thereto shall be deemed to be included in the base-year
value of the mineral rights established in accordance with subdivisions (e) and
(f) of this rule. In no event shall the right to develop or produce minerals be
treated as being under construction.
(B) Whether the construction of improvements
or alteration to land during development qualify as new construction shall be
determined by reference to sections
of title
18463 and 463.5 of title 18 of this code and
sections
70,
71,
and
73
of the Revenue and Taxation Code.
(e) Valuation of Mineral Properties During
Production.
(1) General.
(A) The base-year value of mineral rights
associated with producing mineral properties shall be established as of March
1, 1975 or thereafter when such rights undergo a change in ownership or as of
the date production commences. The market value of such mineral rights is
determined by valuing the estimated quantity of proved reserves that can
reasonably be expected to be produced during the time period these rights are
exercisable. The valuation of the proved reserves shall be based on present and
reasonably projected economic conditions (e.g., capitalization rates, product
prices and operating expenses, etc.) normally considered by knowledgeable and
informed people engaged in operating, buying, or selling of such properties or
the marketing of the production therefrom. While the assessor has full
discretion to select the appropriate appraisal method, the income approach will
generally be the most relevant appraisal method employed in establishing a
value for the total property.
(B)
Increases in proved reserves that occur following commencement of production
and that are caused by changed physical, technological or economic conditions
constitute additions to the mineral rights which have not been assessed and
which shall be assessed on the regular roll as of the lien date following the
date they become proved reserves. The increased quantity of proved reserves
shall be used to establish the value of the addition to the property interest
which value shall be added to the adjusted base-year value of the reserves
remaining from prior years as the separate base-year value of the addition.
Reductions in recoverable amounts of minerals caused by production or by
changed physical, technological or economic conditions or a change in the
expectation of future production capabilities constitute reductions in the
measure of the mineral rights and shall correspondingly reduce value on the
subsequent lien date.
(2)
Value Calculation.
(A) The base-year value or
the adjusted base-year value of mineral rights as quantified by proved reserves
for the current year's lien date shall be calculated as follows:
1. Estimate the market value of the total
property and estimate the physical quantity of proved reserves that may be
reasonably expected to be produced during the time the right to produce is
exercisable using current market data.
2. Estimate the current value of proved
reserves by segregating the value of land (other than proved reserves),
improvements to land constructed during the exploration, development, and
production stages (e.g., roads, ditches, trenches, excavations, pits, drifts,
stopes, etc.), other improvements and personal property (including any
resources severed from the land except for inventory already excluded from the
market value of the unit) from the unit value by an allocation based on the
current market value of the component parts.
3. Estimate the quantity of additions to
proved reserves by subtracting the prior year's proved reserves, less
depletion, from the estimated current proved reserves.
4. Estimate the value of reserves removed
(depletion) by multiplying the quantity of the reserves removed in the prior
year by the weighted average value, for reserves only, per unit of minerals for
all prior base years. The adjusted base-year value of the reserves remaining
from prior years shall be found by subtracting the value of removed reserves
from the prior year's adjusted base-year value.
5. Value the added proved reserves by
determining the current market value of all of the proved reserves less the
current market value of proved reserves existing prior to adding new proved
reserves.
6. The current adjusted
base-year value for proved reserves only is the sum of the value of the prior
year's proved reserves, less the depletion calculated in 4. above, factored for
inflation as prescribed by section
of title
18460 of title 18 of this code added to the
value of the new reserves, as calculated in 5. above.
(B) The base-year value or adjusted base-year
value of land (other than mineral rights) and improvements for the current
year's lien date shall be calculated as follows:
1. Determine the adjusted base-year value of
land, improvements to land constructed during the exploration, development and
production stages (including roads, ditches, trenches, excavations, pits,
drifts, stopes, etc.), and other improvements in accordance with sections
51
and
110.1
of the Revenue and Taxation Code.
2. Add the current market value of any
construction in progress on the lien date.
(C) Declines in the value of the mineral
property shall be recognized when the market value of the appraisal unit,
(i.e., land, improvements including fixtures, and reserves), is less than the
current adjusted base-year value of the same
unit.
(f)
Valuation of Mineral Producing Properties Without Proved Reserves. Where proved
reserves cannot be estimated or are not usually estimated, the value of the
mineral property shall be estimated in accordance with the provisions of
section of title 183 of title 18 of this
code.
(g) Taxable Value of the
Right to Produce Minerals. The value of the right to produce minerals shall be
established as of the date that the production of minerals commences and the
value shall be placed on the roll as provided by law. When the value of the
right to produce minerals is enrolled, the roll value of the exploration or
development rights for the same reserves shall be reduced to zero.
1. New
section filed 7-3-78 as an emergency; effective upon filing (Register 78, No.
27).
2. Amendment filed 10-2-78 as an emergency; effective upon
filing. Certificate of Compliance included (Register 78, No. 40).
3.
Order which was filed 10-2-78 refiled 10-20-78, as an emergency, to correct
date of adoption; effective upon filing. Certificate of Compliance included
(Register 78, No. 43).
4. Editorial correction of NOTE filed 2-2-83
(Register 83, No. 6).
5. Amendment filed 7-26-90; operative 8-25-90
(Register 90, No. 39).
6. Change without regulatory effect amending
section filed 5-20-91 pursuant to section
100, title 1, California Code of
Regulations (Register 91, No. 27).
7. Amendment of section and NOTE
filed 7-14-99; operative 8-13-99 (Register 99, No. 29).
8. Change
without regulatory effect amending subsection (e)(2)(B) filed 6-7-2001 pursuant
to section 100, title 1, California Code of
Regulations (Register 2001, No. 23).
9. Change without regulatory
effect amending subsections (c)(6), (e)(2)(B), (e)(2)(B)2. and (e)(2)(C) and
NOTE filed 8-20-2018 pursuant to section
100, title 1, California Code of
Regulations (Register 2018, No. 34).
Note: Authority cited: Section
15606,
Government Code. Reference: Article XIII, Section
1, California Constitution;
Article XIIIA, Section
2, California Constitution; and
Sections
51
and
110.1,
Revenue and Taxation Code.
