• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Firms Fight Coal Export Tax: ; Producers Argue State Violates Constitutional Clause Prohibiting Tariffs on Imports, Exports

Posted on: Thursday, 22 September 2005, 00:00 CDT

West Virginia would have to pay back an estimated $360 million in coal severance taxes - not including interest - and make do without up to $50 million in annual collections, if producers prevail in their legal challenge to have taxes on export coal ruled unconstitutional.

In oral arguments scheduled before the state Supreme Court in Huntington today, attorneys for the coal companies will try to persuade the justices to throw out a Kanawha County Circuit Court ruling that found the taxes to be legal.

The coal companies argue that the tax on coal destined for export violates the Import-Export clause of the U.S. Constitution, which prohibits states from imposing tariffs or duties on imports or exports.

Attorneys for the state Tax Department want the justices to dismiss the idea that federal laws prohibit the severance tax, which is generally calculated at a rate of 5 percent of the sales price.

"The idea that the federal government can demand that any state hand over its natural bounty for export, free of taxation, is simply ludicrous," according to the Tax Department filing.

Of the 11 coal companies that originally filed the lawsuit in 2003, at least seven have since changed hands. The companies now involved in the lawsuit include Alpha Natural Resources Inc., Arch Coal Inc., Consol Energy Inc., Foundation Coal Holdings Inc., International Coal Group Inc., Massey Energy Co. and PinnOak Resources LLC.

The companies argue that because the tax is based on the sales price of coal, rather than on its extraction, the levy is a sales tax because "it does not arise upon the mere severance of coal," and therefore violates federal law.

"The relevant statutes, when read together, expressly equate the month in which the taxes 'accrue' with the month in which the coal is sold," according to the companies.

But the Tax Department attorneys argue that the statute's "careless wording" should not defeat its purpose.

"Certainly the state could require that tonnage should be determined earlier - perhaps as early as at the mine face, perhaps at any number of other places along the continuum before sale and passage of title - but such requirement would hardly be welcome by the parties," they argued.

Also, according to the Tax Department, severance taxes are distinct from other taxes, "and are entitled to special consideration."

"Severance taxes hold a rather unique place in the pantheon of taxes, because of the one-time nature of the thing being taxed," the government attorneys said.

State government collects 93 percent of the total severance taxes, while 7 percent is redistributed to West Virginia's counties and municipalities.

West Virginia produces about half of all U.S. coal exports, according to the West Virginia Coal Association.

The original lawsuit was filed as the coal industry - and particularly the metallurgical coal segment that dominates the export market - was in a downturn. Total exports moving through Virginia ports had declined from 58.5 million tons in 1991 to 24.2 million tons in 2000, according to the producers' filing.

An expert for the coal companies had testified that the way "decisions are made by purchasers in the international coal market, the winners and losers are separated by pennies per ton ... a fraction of the amount that is represented by the severance tax."

As a consequence, the producers say West Virginia's severance tax made export coal uncompetitive and caused layoffs and other hardship at the main ports in neighboring Virginia and Maryland.

The Tax Department demurred, arguing that "states with ports cannot demand that states that ship goods through those ports remove all taxes in order to maximize the volume shipped."

"West Virginia is not responsible for creating jobs in Virginia and Maryland at (its own) expense," according to the filing.

Export prices for metallurgical coal, which had hovered in the $40 range between 2001 and 2003, began a steep climb in early 2004 on strong demand, particularly from China. Export prices more than doubled to $80 by this spring, according to the U.S. Energy Information Administration.

Source: Charleston Daily Mail

More News in this Category