Cresson Consolidated Gold Mining & Milling Co.-Principal lessees and royalty paid for years 1935 to 1941, inclusive

STATEMENT OF THOMAS M. BURGESS, ATTORNEY AT LAW, COLORADO SPRINGS, COLO., APPEARING IN BEHALF OF THE AMERICAN MINING CONGRESS AND GOLDEN CYCLE CORP. AND AFFILIATED COMPANIES, CRIPPLE CREEK MINING DISTRICT, TELLER COUNTY, COLO.

Mr. BURGESS. My name is Thomas M. Burgess. I am an attorney at law, practicing in Colorado Springs, El Paso County, Colo. I have been representing the Golden Cycle Corp. and its related companies for the past 12 years.

I am appearing in behalf of the American Mining Congress, and particularly the Golden Cycle Corp. and its affiliated companies, all engaged in the gold-mining industry in the Cripple Creek mining district, Teller County, Colo., which is approximately 50 miles west of the city of Colorado Springs.

I understand that there have been previous statements made which apprise the committee of the reasons for the general, as well as some of the specific, objections of the mining industry to certain sections of H. R. 6000.

I do not wish to repeat the information which the committee already has before it, but I do endorse the statement as made by Mr. Robert M. Searls, of California, and wish to state briefly the position of the mining industry in the Cripple Creek mining district of Colorado in regard to some sections of H. R. 6000.

It is our position that a lessee of a block of ground in a mine should not be defined as an employee under the Social Security Act. By the terms of the proposed bill, mine block lessees would be defined as employees under section 210 (k) (3)–(F), page 50, and section 206 (d) (3) (F), page 151.

In these subsections an employee is defined

(F) as a lessee or licensee of space within a mine when substantially all of the product of such services is required to be sold or turned over to the lessor or licensor.

If this particular subsection was removed, mine block lessees would, in all probability, still be included in the general catch-all clauses,

and in definite standards contained in sections 210 (k) (4) on page 51, and section 206 (4) (2) on page 152 of the bill.

I believe that our opposition to these sections of the bill requires an understanding of the block-leasing system or "split check leases" as we identify them in the Cripple Creek mining district.

The "split check" leasing system has been in use in the Cripple Creek district for approximately 50 years. It has consistently increased in popularity and demand.

It is simple in operation. The various mining companies grant leases on blocks of ground in an operating mine, with each block being leased to one or more miners. A block is ordinarily about 200 feet square and extending upward from one level to the next. There may be any number of split-check leases in the same mine, and the company also has its own independent operations.

I might say here that in the Cripple Creek mining district we do not have the "head leaser" situation such as was described as to the California area. The leasing in the Cripple Creek district is from the company direct to the split-check lessee and there is no intervening head leaser on any part of the mine.

Senator KERR. Your split-check lessee, as you call him, is permitted to take partners or associates, is he not?

Mr. BURGESS. Yes. He may have partners in with him that the mine knows nothing about.

Senator KERR. Is that not about the same as the head leaser system? Mr. BURGESS. My understanding of the description of the California system was that a head leaser would take a very large block of mine ground and then sublease that out to other miners under him. Our system is that we lease to a split-check lessee a certain block of ground which is relatively small from one level of the mine to the other. He does not grant any additional subleases under him. He may take in a partner to work with him. And in some instances, even, the splitcheck lessee, we know, actually becomes grub-staked by the grocery man or by the hardware store as to his small supplies, and they take an interest in that lease with him, which is almost wholly unknown to the company itself.

There are also at times leases taken by men who don't even go near the operations themselves. They hire the workmen to go in for them and do all the work, and they simply carry their responsibility of the pay roll and collect the proceeds.

Under this system, the lessee furnishes his labor and any workmen who may be employed by him, together with his machines, hose, and small tools.

The company, or lessor, furnishes the supplies, such as powder, fuze, caps, drill steel, timber, and operates the hoist. The storage bins are maintained by the lessor on the surface so that the ore of each lessee is kept separate and shipped separately.

The ore is ordinarily held in storage bins until a sufficient quantity has been obtained for shipment. It is then sent to a gold-reduction mill in the name of the lessor and is handled by the mill under an instruction agreement signed by the lessor and the lessee.

In substance, the mill is instructed to first deduct the transportation and treatment charges from the gross value of the ore. The instructions then provide that the remaining value, or the net value, of the

ore shall be divided 49 percent to the lessee, 50 percent to the lessor, and 1 percent additional to the lesser to apply on State production taxes. The mill checks are issued direct to the lessor and to the lessee for their respective shares of the net proceeds.

This, in brief, is the system of operation under a split-check lease. We object to the inclusion of split-check lessees as employees under the Social Security Act for the following reasons:

First, on the Cripple Creek district operations, the Commissioner, at least 10 years ago, ruled that split-check lessees were independent contractors, and not subject to the Social Security Act as it now exists. Unless it is now the intent and purpose to include every selfemployed person under the act as an employee then there is no excuse for singling out block or split-check mining lessees for special class treatment and inclusion.

It is my understanding that self-employed farmers, agricultural labor, and crop-share farmers are not intended to be covered under H. R. 6000. The split-check leasing system for mines is copied after the share-crop leasing system on farms. If the share cropper is to be an independent contractor, then the split-check mining lessee should be an independent contractor.

Second, there is no reason for drawing a distinction between a royalty mining lessee and a split-check lessee.

On a royalty lease, the lessor negotiates a lease on an entire mining claim, with its shafts, hoist and other equipment. The lessor has nothing to do with the operation. The lessee must provide all of his supplies, workmen, hoisting costs, and all other expenses that go with the operation of the mine. The ore is shipped in the name of the lessee. The settlement instructions filed by the parties with the mill provide for the split of the net proceeds according to the leasing agreement between the parties. The lessee, of course, gets a larger percentage and the lessor a smaller percentage than under a split-check lease. In the final analysis, however, there is a definite split of the net between the lessor and the lessee.

At the outset, of course, a royalty lessee must have financial backing to open and operate the mine. He may finish with less than a splitcheck lessee because he has risked more in capital.

Under the terms of this proposed act, the royalty lessee, who operates the mine on his own account and ships the ore in his own name, would not be required to pay social-security taxes, for he still would be recognized as an independent contractor. On the other hand, this split-check lessee, who risks nothing but his time and labor and stands to make more in profit from his operation than does the royalty lessee, would be subject to the Social Security Act and required to pay taxes. I submit that there is no equity in such a provision.

Third, it would be impossible to determine and compute the amount. of tax which should be paid for the split-check lessee and for the lessor.

The 49 percent of the net value of the ore as received by the lessee is not the net earnings of the lessee. He must pay for his machines, his additional workmen, if any, workmen's compensation insurance on his employees and other incidental items of expense, the amount and nature of which the lessor has no knowledge and the lessee keeps

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inaccurate records. Certainly the amount upon which the social-security tax should be paid would be the net amount to the lessee after he pays all of his incidental expenses, and that sum is wholly impossible for the lessor to determine. I take it, however, that it would be the duty of the lessor, as the employer, to accurately determine the amount of those net earnings and pay the tax accordingly. This the lessor could not do.

The inclusion of split-check lessees, is, therefore, wholly impractical in operation. Such inclusion would, I believe, spell the end of a long-used and highly advantageous leasing system.

We heartily endorse the amendments presented on behalf of the American Mining Congress, and respectfully urge your committee to adopt those amendments.

I thank you for your attention, gentlemen.

The CHAIRMAN. We thank you, sir, for your appearance. We were glad to have you.

Are there any questions?

Senator MILLIKIN. I might say, Mr. Chairman, that Mr. Burgess is one of our great lawyers out in that country. He was president of our State bar association. He is a specialist in mining law, and he is an inheritor of great traditions in Colorado, which he maintains steadfastly and ably. The old-timers in the law made a lot of money when they had a lot of mining litigation out there, and when they were not engaged in the foolishness of politics they were spending their earnings sinking holes in the ground to find that "picture" ore that the gentleman showed us a while ago. I know Mr. Burgess is more conservative than that.

The CHAIRMAN. Thang you very much, Mr. Burgess.

Mr. BURGESS. Thank you, Senator.

The CHAIRMAN. Mr. James K. Richardson.

You may be seated, Mr. Richardson, if you wish.

STATEMENT OF JAMES K. RICHARDSON, MANAGER, UTAH MINING ASSOCIATION, SALT LAKE CITY, UTAH, ACCOMPANIED BY T. P. BILLINGS, CONSULTING ENGINEER, SALT LAKE CITY, UTAH

Mr. RICHARDSON. Mr. Chairman, I have asked Mr. T. P. Billings, a consulting engineer from Utah, to come up with me. In the event you want to ask any questions, he is one of the most experienced men in this field of mine leasing that I know.

The CHAIRMAN. Mr. Billings, we are very glad to have you here.

Mr. RICHARDSON. My name is James K. Richardson. I am a graduate mining engineer who has worked in various capacities in the mines of the western United States. At present, I am the manager of the Utah Mining Association and reside in Salt Lake City, Utah.

This association's membership accounts for the production of approximately 90 percent of the nonferrous metals credited to Utah each year. It is the considered opinion of the members of the association that if the definition of "employee" currently embodied in H. R. 60** is adopted it will kill leasing in Utah mines. That is the reason I am appearing, in behalf of the association, in opposition to that portion of the act.