Coal severance tax upheld by state Supreme Court

By Chris Dickerson | Dec 7, 2005

CHARLESTON – The state Supreme Court has upheld the state's right to tax coal exports after coal companies argued that the severance tax actually is a sales tax and a violation of federal protections for interstate commerce.

The state claims it would have been forced to pay back about $500 million in taxes and interest to the 11 coal companies in the suit had the court struck down the tax. Lawyers with those companies say the figure is about half that amount.

West Virginia companies export coal to 25 countries. Most of the exported coal is used in making steel. Those exports are about 10 percent of the state's total coal sales.

The elimination of the severance tax would have cost the state between $40 and $50 million in future yearly revenue.

The coal companies argued that the severance taxes violates the "Import-Export Clause" of the United States Constitution, which states that no state can impose any imposts or duties on imports or exports unless they are absolutely necessary for executing its inspection laws.

In saying the taxes provide crucial revenue to West Virginia, the court ruled the state's severance taxes are very similar to others t have been found constitutional by the U.S. Supreme Court and that the taxes do not discriminate against coal exports and do not go against the "Import-Export Clause."

"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 in the majority 4-1 opinion. "No court in America has held that coal severance taxes like West Virginia's offend the Import-Export Clause (of the U.S. Constitution)."

In a dissent, Justice Spike Maynard said a 1946 U.S. Supreme Court ruling killed California's effort 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.

Chief Justice Joseph Albright and Justice Robin Davis reserved the right to file a concurring opinion. Justice Brent Benjamin concurred in part and dissented in part, and he reserved the right to file a separate opinion.

Kanawha Circuit Judge Tod Kaufman issued a similar ruling on the case, which originally was filed in 2003.

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

"I would've liked to have seen the factual record examined more carefully by the court in its majority opinion," said Rose, a former state tax commissioner. "The question always has been what is the U.S. Supreme Court going to do the next time they get an import-export case."

Rose said he wasn't surprised by the state Supreme Court's ruling.

"It looked that it was going to be a 3-2 decision one way or the other," he said. "And it's a tough element for the state Supreme Court with that large of an amount of money. It's the 800-pound gorilla sitting over in the corner. It can't be ignored. And I wouldn't expect the West Virginia Supreme Court of Appeals to ignore it."

Rose said the appeal must be submitted to the U.S. Supreme Court within 90 days of the Dec. 2 state Supreme Court ruling.

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.

Supreme Court of Appeals case number: 32528

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