West Virginia Wins Coal Lawsuit
By Paul J. Nyden, The Charleston Gazette, W.Va.
Dec. 3–West Virginia coal companies will continue to pay state severance taxes on exported coal, a divided state Supreme Court ruled Friday.
If the court had decided to eliminate severance taxes on coal mined in the Mountain State, the state would have been required to pay nearly $500 million back to coal companies for taxes collected since 1997.
The state also would have lost between $40 million and $50 million each year in future years.
The majority opinion, written by Justice Larry Starcher, said the proposed refunds and the loss of future severance taxes would be “a body blow to the welfare … of West Virginia and her citizens.” Chief Justice Joe Albright and Justice Robin Davis indicated that they will file separate concurring opinions.
Albright and Davis concurred with the decision, and reserved the right to file separate opinions.
Justice Elliott “Spike” Maynard disagreed with the decision and filed a dissent Friday. Justice Brent Benjamin disagreed with part of the decision, but has not yet filed any opinion of his own.
Ned Rose, a Charleston lawyer representing the 11 coal and steel companies that originally filed the lawsuit, said the companies will appeal Friday’s ruling to the U.S. Supreme Court.
“Our plan has always been to take the case to Washington,” he said. “I am operating on that assumption.”
Rose said he was encouraged by the closeness of the decision. “With five different opinions coming out, it obviously was a difficult case for the court to decide,” he said.
On Friday, state Tax Commissioner Virgil Helton said that if the decision had gone the other way, the state would have had to pay $360 million back to coal companies for severance taxes already paid. With interest, the total would have reached nearly $500 million.
“Fortunately, we don’t have to consider that issue at this point. We have been very positive about this all along and I felt our position was sound and constitutional,” he said. “Had the decision gone the other way, we certainly would have had to regroup and look at the resources of the state to see how the state could take care of this liability.”
The coal companies argued that the severance tax was an illegal sales tax imposed on goods to be sold to other nations.
Rose also said that by increasing the costs of mining coal, severance taxes also reduce the competitiveness of West Virginia coal on world markets.
In recent years, between 14 percent and 21 percent of the coal produced in West Virginia has been exported, primarily to European nations.
Of the 60 million tons of coal the United States exports each year, about 40 percent comes from West Virginia, according to the West Virginia Coal Association.
But today, the United States is a relatively minor player in international coal markets. U.S. coal accounts for about 20 percent of all metallurgical coal and 4 percent of all steam coal sold on the international market, according to a legal brief filed by Helton.
The court’s majority opinion said that West Virginia’s coal severance taxes are similar to severance taxes that the U.S. Supreme Court has deemed constitutional. The state court also said, “no court in America has held that coal severance taxes like West Virginia’s offend the Import-Export Clause [of the U.S. Constitution].”
Rose had argued that coal enters the export stream the moment it is dumped from the mine into railroad cars for shipment.
But the court’s ruling said, “The initial loading of coal at coal preparation facilities into rail cars is not clearly a part of the export transit process.”
The opinion also noted that coal severance taxes provide “crucial revenue” to the state. Some of that revenue is used by the Department of Environmental Protection to reclaim mine lands abandoned by coal companies and to treat acid mine drainage from mine sites, particularly in the northern part of the state.
Earlier this year, acting Tax and Revenue Secretary John C. Musgrave warned that losing this lawsuit would have “a severe negative impact” on counties and cities across the state, as well as state agencies, that receive severance tax revenue.
In his dissent released Friday, Maynard cited a 1946 U.S. Supreme Court ruling that a California law taxing oil shipped to New Zealand was unconstitutional, because it violated the U.S. Constitution’s Import-Export Clause.
Maynard argued that severance taxes “imposed on the coal after it is moved into export transit, is a tax upon an export within the meaning of the Import-Export clause and is therefore unconstitutional.”
With recent sales and mergers, the 11 coal companies that originally filed the lawsuit are now owned by seven companies, including: Alpha Natural Resources, Arch Coal, Consol Energy, Foundation Coal Holdings, the International Coal Group, Massey Energy, Peabody Holding Co. and U.S. Steel Mining Co.
The Supreme Court’s decision upheld an earlier ruling made by Kanawha Circuit Judge Tod Kaufman in May 2004.
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