'Coal valuation' bill advances in Senate

‘Coal valuation’ bill advances in Senate

By Dustin Bleizeffer, WyoFile editor-in-chief

A bill that would curb the rising severance tax calculation for some coal mines advanced in the Wyoming Senate on Wednesday. HB 38, the “coal valuation” bill would trim millions of dollars each year in anticipated revenue to the state.

Wyoming’s coal industry asked for the legislation, complaining that the formula used to establish the value of coal sales at mine-mouth for severance taxes unfairly results in a higher rate as a mine digs deeper and incurs more costs in transporting and processing the coal onsite.

“So you might have two mines side-by-side selling coal for the same $10 per ton, and the mine that has the highest mining cost ends up with the highest ratio and the highest taxes,” Wyoming Mining Association executive director Marion Loomis told WyoFile in February.

Large surface coal mines in the Powder River Basin must remove more and more overburden as they chase downward sloping coal seams — a phenomenon most pronounced in the southern portion the basin where some coal leases are approaching 500 feet of overburden to top of coal.

With HB 38, coal producers hope to set a fixed “ratio” — one for Powder River Basin producers, and another for all coal mines outside the basin — to create a ceiling for what has been a rising tax rate based on a complicated valuation adjustment. But opponents of the bill, such as the Equality State Policy Center, have argued that other taxpayers do not receive the same consideration. The higher the value of a home, for example, the more the homeowner pays in property taxes.

Loomis counters, “In this instance, the mine with the least value — if you’re going to sell it — pays more in taxes.”

Creating a ceiling on the ratio at which coal sales are valued would level the playing field among coal mines, Loomis said.

But some lawmakers have expressed concern about setting two different tax methods for the same industry,  opening the door to a constitutional challenge. Coal mines in Sweetwater and Lincoln counties are not digging deeper and experiencing higher taxes to the degree that mines in the southern Powder River Basin have in recent years.

Dan Neal of the Equality State Policy Center said coal companies have nominated and purchased federal coal leases knowing full-well what Wyoming’s tax code expects of them, and that each mining company is free to make its own business decisions based on that long-standing tax code.

“Our big concern is, at a time when we hear a lot of concerns expressed about declining state revenue about to drop in (natural) gas prices, why would we take a step to reduce future revenues from an industry that seems to be thriving, and looking to ship coal to Asia?” Neal said in a phone interview on Wednesday.

While some coal companies speak of the need for a more level playing field, companies also claim to have superior products and operations compared to their counterparts in Wyoming. For example, Powder River Basin coal producer Peabody Energy, in its 3rd quarter 2011 shareholder report, appears to tout the varying value of coal products — even within the Powder River Basin.

“The price premium related to ultra-low sulfur coal is expected to be enhanced under these rules,” Peabody stated in reference to more stringent federal sulfur dioxide standards. “Peabody’s North Antelope Rochelle Mine, which produces more than half of Peabody’s U.S. sales volumes and nearly 10 percent of U.S. production, contains approximately 40 percent less sulfur than the benchmark PRB product.”

Amendments have been added to HB 38 in an attempt to keep it revenue neutral. But in the Senate floor discussion on Wednesday, Sen. Chris Rothfuss (D-Laramie) said that based on the Legislative Service Office’s fiscal note on the bill, the amendments would merely cut the estimated revenue loss from $12 million through 2015 to about $4 million.

“That’s not revenue neutral,” said Rothfuss.

HB 38 may come up for second reading in the Senate on Thursday (March 1). The bill must go back to the House for approval.

— Contact WyoFile editor-in-chief Dustin Bleizeffer at (307) 577-6069 or dustin@wyofile.com.