Tax break for Big Coal on table in House Revenue Committee

With falling natural gas prices and their deleterious effects on state revenue projections dominating budget discussions in Cheyenne, one would think the state would protect its other revenue sources. But that’s not what the Wyoming Legislature is doing. Instead, the House Revenue Committee will consider a proposal to change the method for valuing coal extracted in Wyoming that will result in a projected drop in coal severance and ad valorem tax revenues of about $12 million. The proposal, House Bill 38 – Coal severance tax industry factor, was proposed to the committee last fall by the Wyoming Mining Association. Industry claims the measure will put the mines on more equal footing. The ESPC submitted testimony opposing the bill but the Joint Revenue Interim Committee agreed to sponsor it. With all the worry lately over the drop in natural gas prices and the resulting fall in severance tax revenues to the state, now is not the time to throw money away. The House voted to introduce the bill Monday. The House Revenue Committee will consider HB38 Wednesday (Feb. 15) at 8 a.m. The value of coal is set using a valuation method called “proportionate profits.” (See our Coal Valuation Fact Sheet.) Proportionate profits sorts out the direct costs of mining (which, as part of the value of the final product, are taxable) versus the direct costs of processing and transportation, which are not taxable. After decades of intensive mining in the Powder River Basin, mining costs generally are rising as the pits move further from the rail loadouts and the coal seams run deeper. This is hardly a surprise, since the producers had to file mining plans when they first got their permits many years ago. The producers want the Legislature to “fix” the direct cost ratio – that is, put a specific number in statute instead of allowing it to vary for each producer depending on each producer’s actual costs. Fixing the direct cost ratio will effectively hold down coal valuation and consequently the taxes levied on coal production. This comes on top of the following:
  • $22 million loss for the three years following adoption of the proportionate profits method in 1990 (compared to earlier collections);
  • expiration of 2% coal impact tax in 1987;
  • expiration of 1.5% capital facilities tax in 1993;
  • taxes limited on “high-cost” coal from 1987 forward; and
  • loss from reclassification of coal lease costs in 2002, initially estimated at about $4 million/year (severance and property) but now estimated at more than $10 million/year due to high amounts coal companies are bidding for leases.
It’s worth noting that production costs in Wyoming, even with the state taxes, are low compared to other coal fields in the nation. The coal industry competed successfully under a severance tax rate of 10.5% compared to the current 7%. The bill requires the Department of Revenue to compile data comparing the tax that would have been paid under the existing system to the tax paid under the formula mandated by HB38. Inexplicably, the department is not required to report the data to the Revenue Committee until Nov. 1, 2015.

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