Coal Industry Seeks an End to Export Tax

pjnyden@wvgazette.com

HUNTINGTON – If coal companies convince the state Supreme Court that severance taxes on exported coal are illegal, West Virginia would have to refund those companies between $400 million and $500 million for taxes paid since 1997, plus interest.

Lawyers for the coal companies tried to do just that Tuesday at a special session of the Supreme Court held at Marshall University.

In the case, called U.S. Steel Mining Co. et al. v. Helton, coal companies argue that the state’s tax on exported coal is illegal, because the U.S. Constitution’s “import-export clause” prohibits state governments from imposing any “imposts or duties on imports or exports.”

During much of Tuesday’s 45-minute debate, lawyers and justices debated a variety of terms to determine if and when “severance” taxes may be imposed upon coal produced in West Virginia.

“When coal is loaded into the [railroad] cars, it is already in the stream of export,” said Ned Rose, a lawyer for the coal companies.

At that point, he said, the state “cannot intrude” to impose any taxes on the coal.

Justice Elliott “Spike” Maynard pointed out that much of West Virginia’s coal is mined and sent on its way by people who don’t know where it’s going to end up, and wondered how the state would know which coal would be exported.

Speaking about Marrowbone Coal in Mingo County, Maynard said the company “sold some coal on the spot market and did not know where it was going to be sold. At the time it was mined, [Marrowbone] did not know whether it was going to North Carolina [Power and Light] or to Germany.”

Rose agreed, “Until a sale occurs, the [severance] tax does not accrue.”

Chief Justice Joe Albright said, “The law simply allows a seller not to pay taxes until he is able to invoice for it,” as a convenience to the coal producer.

Steven Stockton, senior assistant attorney general, argued that severance taxes bring some money back to the state when the value of land is reduced permanently by the extraction of minerals, such as coal.

“That coal is not coming back,” Stockton said. “It is a fundamental sovereign right of the state to tax its own resources when they are removed, never to return.”

Stockton and the justices referred to a somewhat analogous case in Montana, which once sent 90 percent of its coal to other states and imposed a 30 percent severance tax on all that coal.

“The Montana tax was so aggressive,” Stockton noted, “that it was seen as gouging out-of-state consumers.”

Stockton said roughly 10 percent of coal produced today in West Virginia is exported and severance taxes are only about 5 percent of its value.

Toward the end of arguments in the case, Albright said one alternative could be to simply tax each ton of coal produced.

“But there are varying values to West Virginia coal … Do you want a uniform taxation that applies to all coal per ton so the guy with lower value coal pays as much as a guy with higher value coal?” Albright asked Rose.

Rose insisted the central issue is that when coal is loaded onto coal trains for export, it can no longer be subject to any severance taxes.

After arguments, Stockton said he stood by the original estimates of debts up to $500 million, based on research done by the state Tax Department, even though Rose told the Supreme Court the past debts will only be $226.5 million, according to studies done for his clients.

“I don’t know where he [Rose] got his numbers,” Stockton said. “But we are confident about our numbers.”

In the future, West Virginia and its 55 county governments could lose between $45 million and $50 million a year from severance taxes imposed on coal exported from the state.

Gov. Joe Manchin said Tuesday he finds it “beyond comprehension” that any coal company really believes there is any legal basis for the suit.

Those companies want the court to give an economic advantage to foreign counties that import West Virginia coal, at the expense of state residents, Manchin said.

“I can’t believe in their own heart of hearts they believe this is fair,” he said. “I’d like to think common sense will prevail.”

In addition to U.S. Steel, other companies in the suit are: Consolidation Coal, Laurel Run Mining, McElroy Coal (a Consolidation Coal affiliate), Arch Coal, Mid-Vol Leasing, Coastal Coal-West Virginia, Elk Run Coal (a Massey Energy subsidiary), Paynter Branch Mining, Kingston Resources and Pioneer Fuel Corp.

Three similar suits filed by other coal companies are pending in three West Virginia circuit courts.

Whichever side loses this case before the state Supreme Court could appeal to the U.S. Supreme Court.

To contact staff writer Paul J. Nyden, use e-mail or call 348- 5164.