Classification for a stone quarry

[Gretel]

I have a new client with a stone quarry. They mainly mine and resell but also refine the rocks and then resell.

My assumption is (for UNICAP) that they are not a manufacturing business and would like to get confirmation. Would this change if they did more refining work than just selling the raw rocks?

Thank you.

[Zee]

I have a new client with a stone quarry. They mainly mine and resell but also refine the rocks and then resell.

My assumption is (for UNICAP) that they are not a manufacturing business and would like to get confirmation. Would this change if they did more refining work than just selling the raw rocks?

Thank you.

My first impression is they are in the production business and subject to UNICAP. Even though they don't "refine" the rocks, they make big rocks into smaller rocks, "no"? I would assume the smaller rocks are inventory.

I'll try to do a little more research if I have time.

[Gretel]

My first impression is they are in the production business and subject to UNICAP. Even though they don't "refine" the rocks, they make big rocks into smaller rocks, "no"? I would assume the smaller rocks are inventory.

I'll try to do a little more research if I have time.

Thank you, Zee. Some of the rocks are sold as dug out, some are processed, made into smaller stones and also made into tiles. Yes, the processed ones would be inventory, probably all of them would be inventory. I am just not sure if the classification as manufacturing business depends on what the main line of biz is or if they do any refining/manufacturing at all.

I sure appreciate your input.

I am just through a lot of internet search and am thoroughly confused. Do I have this right:
Any manufacturing biz is required to use UNICAP, unless they meet certain requirements. I now lean heavily towards the Manufacturing classification for my client.

TTB says any biz can elect one of the simplified methods but all I could find on the Internet states a simplified method can only be used if production of property is "routine and repetitive". Am I making it too complicated or do I misunderstand?

I might have to do a lot more reading. Any recommendation?

[Zee]

263a

Gretel-

I don't think there's any question a Stone Quarry is a producer of products and you should consider a 263A calculation. The rocks are inventory, and that's actually probably a larger issue. Do they inventory the unsold rocks that aren't set aside for shipment? If not, Cost of Goods Sold may be overstated.

There is an exception for producer's with indirect costs less than $200,000, they can be excluded from the computation. I don't know how large your client is, but you may find the 263A adjustment would be minimal depending on the amount of inventory. And, of course, it's a "temporary adjustment" that will be recovered as the inventory is sold.

I have a worksheet for the Simplified Production Method. I'll send you a private email.