Asteroid mining

US Taxation of Asteroid Mining

You know you’re a tax attorney if . . . The second thing you thought when you heard that Eric Anderson, Peter Diamandis, James Cameron, and the Google guys wanted to mine asteroids was: “How is the US going to tax that?” Obviously, the first thing you thought was, “Mining asteroids!? Awesome!” And, inevitably, the third thing that passed through your mind was Bruce Willis with a look of consternation on his face with Aerosmith playing in the background.

Harry Stamper: Yeah one more thing, um… none of them wanna pay taxes again.


Harry Stamper: Ever.


Ladies and gentlemen, hold on to your hats, the United States already has tax laws and regulations on the books that could apply to asteroid mining. As the laws are written, they clearly apply to income generated from satellites. I don’t know if asteroid mining was contemplated by Congress when the laws were passed or by Treasury when the Regulations were written (probably not), but they should apply to asteroid mining. In this article I’m going to discuss how income from asteroid mining would be sourced under current law, and I’m going to discuss how the percentage depletion deduction will likely be calculated using the statutory rates and gross income for asteroid mining companies.

Source of Asteroid Mining Income

In the United States, the basic rule is that US persons are taxed on their worldwide income, and receive foreign tax credits for taxes that they pay in other countries. Internal Revenue Code (IRC) section 863(d)(1) simplifies this rule even further by stating that space income by US persons is US source inome, and space income by foreign persons is not US source income:

Except as provided in regulations, any income derived from a space or ocean activity–

(A) if derived by a United States person, shall be sourced in the United States, and

(B) if derived by a person other than a United States person, shall be sourced outside the United States.

Space activity is defined in IRC 863(d)(2)(A)(i) as “any activity conducted in space,” and is non-exclusively defined in Treas. Reg. 1.863-8(d)(1). IRC 863(d)(2)(B)(iii) could mistakenly be interpreted as excluding asteroid mining income from the definition of space activity because it seemingly excludes mining from the definition of space activity:

any activity with respect to mines, oil and gas wells, or other natural deposits to the extent within the United States or any foreign country or possession of the United states (as defined in section 638).

However, the US has signed and ratified the Outer Space Treaty of 1967, and article II provides that celestial bodies, which includes asteroids, are not and cannot be within the jurisdiction of the US or any other nation:

Outer space, including the moon and other celestial bodies, is not subject to national appropriation by claim of sovereignty, by means of use or occupation, or by any other means.

Therefore, the source of asteroid mining income under US tax law is fairly clearly defined.

However, this clarity is clouded by regulations on the source of space activity income by controlled foreign corporations (CFCs) and by foreign persons engaged in a trade or business within the US. A CFC is a foreign corporation that is more than 50% owned by US persons, under IRC 957. In both cases, under Treas. Reg. 1.863-8(b)(2)(ii) & (iii), the income is apportioned between foreign source income and US source income “to the extent the income, based on all the facts and circumstances, is attributable to functions performed, resources employed, or risks assumes” within the US or in foreign countries. These regulations are not that opaque on the face, but, in the event of an international launch using a CFC, determining what is US and what is foreign source income would be a meticulous accounting project.

Percentage Depletion Deduction for Asteroid Mining

The percentage depletion deduction is a valuable tax deduction for petroleum, mineral, and timber companies. It allows mining companies to recover the capital costs of a mineral investment through a special type of depreciation. Rather than being limited by the original capital investment as with normal depreciation, the percentage depletion deduction allows a deduction that is fixed as a rate of the gross income derived from the mineral investment and it is not limited by the original capital costs.

The percentage depletion deduction is codified in IRC 611 and 613. And the IRS has a guide on percentage depletion in Publication 535.

Calculation of the Percentage Depletion Deduction

The percentage depletion deduction is equal to the lesser of: (1) the depletion rate of a mineral multiplied by the gross income from mining; or (2) 50% of the net income from the mineral property.

The depletion rate of a mineral is fixed by statute, and it is 14% for most minerals that would be mined on an asteroid, such as gold, titanium, and platinum, and therefore the percentage depletion deduction under the gross income calculation would likely be 14% of the gross income from the mineral property.

The net income calculation can use different methods. It is likely that the proportionate profits method would be used in asteroid mining because there are significant transportation costs and platinum extracted from an asteroid sitting on a robot in space is not a commercially marketable product. It should be briefly noted that since it is likely that the mined product will likely be transported more than 50 miles before it is processed, the miner will have to apply to Treasury for a ruling that the company faces challenges that force it transport the mineral more than 50 miles. This method is best explained with an example:

Celestial Mining Company (CM) has gross income from mining of $1M. It has total costs of $700k, and total mining costs of $500k. The mining percentage is equal to 500k/700k, which is equal to 71.43%. The gross income is multiplied by the mining percentage which results in mining income of $714,300. The net income limitation is then equal to (714,300 – 500,000) * 0.5, or $107,150. If this number is less than the gross income calculation, then CM may take a percentage depletion deduction of $107,150 for the year.

There is a pretty good chance that the transportation costs for asteroid mining that are considered mining costs could be very high which would make the net income limitation fairly high. In that case, it is likely that the statutory 14% of gross income calculation would be the percentage depletion deduction for asteroid mining.


Realistically, asteroid mining is not taxed all that differently from terrestrial mining. It will be interesting to see whether Congress will pass laws or Treasury will write regulations that increase the credit for celestial mining activities. One possible solution could be to allow the greater of the net or gross income calculation.

William Lewis is a tax and business attorney based in the Silicon Valley. He advises domestic and foreign clients on a range of business, tax, and estate planning matters.