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W.Va. Court Upholds Tax on Coal Exports

Posted on: Friday, 2 December 2005, 15:00 CST

By LAWRENCE MESSINA

CHARLESTON, W.Va. - West Virginia's Supreme Court on Friday affirmed the state's right to tax coal exports, rejecting coal companies' arguments that its severance tax is actually a sales tax that violates federal protections of interstate commerce.

If the court had struck down the tax, the state said it would have been forced to refund an estimated $500 million in tax revenue and interest to the 11 coal companies that challenged it. Coal company lawyers place the figure at half that amount.

West Virginia companies export coal to 25 countries, most of it metallurgical coal which is used in making steel.

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 are Alpha Natural Resources Inc., Arch Coal Inc., Consol Energy Inc., Foundation Coal Holdings Inc., International Coal Group Inc., Massey Energy Co., Peabody Holding Co. Inc. and U.S. Steel Mining Co.

In its ruling, the high court found more than a half-dozen legal conclusions supporting the state's power to levy the severance tax.

"West Virginia's coal severance taxes are substantially similar to coal severance taxes that have been found to be constitutional by the United States Supreme Court," Justice Larry Starcher wrote for the majority. "No court in America has held that coal severance taxes like West Virginia's offend the Import-Export Clause (of the U.S. Constitution)."

Exports make up about 10 percent of West Virginia's total coal sales, and eliminating the exports' severance tax would have cost the state between $40 million and $50 million in future annual revenue.

Ned Rose of Charleston, the coal companies' lawyer, said they will appeal the ruling to the U.S. Supreme Court.

"I think the vote and the holding shows that the position taken by the taxpayers in this case is legitimate," said Rose, a former state tax commissioner. "It's a case that the state never thought it couldn't lose."

Issuing a dissent Friday, Justice Elliott "Spike" Maynard cited a 1946 U.S. Supreme Court ruling that struck down California's attempt to tax a refinery that sold oil to another country.

"Because of what I consider to be the majority opinion's insufficient analysis of the constitutionality of the other taxes challenged in this case, I decline to concur with its conclusion that those taxes are constitutional," Maynard wrote.

But the majority ruling cited U.S. Supreme Court decisions since that 1946 case, including a 1976 opinion that upheld West Virginia's view of the U.S. Constitution's Import-Export Clause in a case brought by Michelin Tire Corp.

"We've always thought the chances of prevailing on Michelin were more difficult," Rose said.

Thanks to high energy prices, total severance tax collections for the fiscal year ending June 30 - originally estimated at $162 million - were $248 million. Since July, the state has collected about $137 million in overall severance taxes. The state does not break tax collections down by energy source, but coal produces about 90 percent of the revenue.

Export prices for metallurgical coal have more than doubled to about $85 per ton since the beginning of last year, according to the U.S. Energy Information Administration. West Virginia exported about 13.6 million tons of coal in 2003, the most recent data available.

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On the Net:

U. S. Steel Mining, et al. v. Helton, WV State Tax Commissioner: http://www.state.wv.us/wvsca/Docs/Fall05/32528.htm

Source: Associated Press/AP Online

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