U.S. Supreme Court lets W.Va. coal severance taxes ruling stand

CHARLESTON – The United States Supreme Court on Monday refused an appeal from coal and steel companies challenging the constitutionality of West Virginia's coal severance taxes.

In December, the state Supreme Court ruled that the taxes didn't illegally interfere with interstate commerce, the argument presented by the companies. The state Supreme Court ruling came after Kanawha Circuit Judge Tod Kaufman had made a similar ruling.

The companies argued that the severance tax actually is a sales tax and a violation of federal protections for interstate commerce.

The companies' lawsuit focused on coal exports, which accounts for about 10 percent of the state's total coal sales. West Virginia companies export coal to 25 countries, and most of the exported coal is used in making steel.

Eliminating the tax on exports would cost the state $40 to $50 million each year, officials estimate. The state also could have been forced to refund the 11 companies that filed the suit about $500 million. Lawyers with those companies say the figure is about half that amount.

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.

Like with the state Supreme Court ruling, Charleston attorney Ned Rose, the coal companies' lawyer, said he wasn't surprised by the federal Supreme Court's decision Monday.

"Disappointed, but not particularly surprised," Rose said. "We thought it was an issue that the courts had not addressed for 25 years. Whether you take the sharply divide West Virginia Supreme Court of Appeals' decision in our case or take other cases with regard to the 'Import-Export Clause,' we thought there was a need for the Supreme Court to address it."

In December, the state Supreme Court ruled (Case number 32528) are very similar to others to 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." The court also said the taxes provide crucial revenue to West Virginia.

"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.

The severance taxes include two that are measured as a percentage of the coal's value and three that are fixed amounts on each ton mined.

Rose said he thinks now is a good time for the state Legislature to take a closer look at the severance taxes.

"The question is whether there is enough concern about the constitutionality of the severance tax," Rose said. "What happened doesn't mean they (the U.S. Supreme Court) have affirmed the constitutionality of the severance tax. They just didn't hear the case.

"Maybe it's a good time for the Legislature to look at the wording and operation of the coal severance tax. For example, one of the things we thought was suspect about the tx is that it didn't kick in until the coal is sold."

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.

U.S. Supreme Court case number: 05-1268