35 Miss. Admin. Code Pt. III, Subpt. 5, Ch. 05 — Depletion

100 Section 27-7-17(1)(g) provides that there shall be allowed as a deduction in computing
taxable income in the case of mines, oil and gas wells, other natural deposits and timber, a
reasonable allowance for depletion and for depreciation of improvements, BASED UPON
COST, including cost of development, not otherwise deducted, or fair market value as of
March 16, 1912, if acquired prior to that date.
101 In the case of standing timber, the depletion allowance shall be computed solely upon the
adjusted cost basis of the property. In the case of other exhaustible natural resources, the
allowance for depletion shall be computed upon either the adjusted cost basis of the
property (cost depletion) or upon a percentage of gross income from the property
(percentage depletion), whichever results in the greater allowance for depletion for any
taxable year, but in no case shall the aggregate deductions for depletion allowance exceed
the cost basis of the property. In no case will depletion based upon discovery value be
allowed. Unless cost of mineral deposits can be definitely determined and substantiated, a
depletion deduction will not be allowed. Depletion is allowable only in connection with
actual production. A depletion deduction is not allowed on lease bonus or lease rental
income.
102 For the purpose of this regulation, the regulations of the Internal Revenue Service shall be
followed in computing the depletion allowance, except as stated above and in those cases
where the Mississippi Law and the Federal Law are in conflict. The percentage depletion
allowance authorized by the Federal Law may be used as a method of computing the
depletion allowance for Mississippi tax purposes. However, in no instance shall the
aggregate deduction for depletion exceed the cost basis of the property. Taxpayers having
rights to natural resources located in this state and in other states shall confine their
computation and deduction for depletion allowances to only those natural resources which
produce income for Mississippi tax purposes.
103 (Reserved)
104 (Reserved)