In this
proceeding, several coal producing taxpayers challenged six state tax statutes (See
footnote 1) as violating the Import-Export Clause of the federal
constitution. (See footnote
2) The majority opinion, relying upon sound legal analysis, determined
that none of the statutes violated the Import-Export Clause. I fully concur in
the majority decision and its analysis. I have chosen to write separately to
emphasize the correctness of the legal analysis enunciated in the majority decision.
Fourth,
the “mining and reclamation operations fund tax” is imposed under W.
Va. Code § 22-3-32. This statute imposes a tax “[u]pon every person
in this state engaging in the privilege of severing, extracting, reducing to
possession or producing coal for sale, profit or commercial use[.]” Id. This
tax is imposed at the rate of $0.02 per ton of coal mined. Taxes collected under
this statute are placed in a mining and reclamation operations fund. The statute
states that the moneys in such fund must be used “solely for the purposes
of carrying out those statutory duties relating to the enforcement of environmental
regulatory programs for the coal industry as imposed by this chapter and the
federal Surface Mining Control and Reclamation Act of 1977[.]” Id.
Finally,
the “special reclamation tax” is set out under W. Va. Code § 22-3-11.
Under this statute, a tax is imposed on “every person conducting coal surface
mining operations[.]” Id. This tax is imposed at the rate of $0.03
per ton of coal mined. The taxes collected under this statute are to be placed
in a special reclamation fund. It is further provided by the statute that the
taxes collected for the fund are to be expended “for the reclamation and
rehabilitation of lands which were subjected to permitted surface mining operations
and abandoned . . . and where the land is not eligible for abandoned
mine land reclamation funds[.]” Id.
The coal
severance taxes imposed by the above statutes are not unique. Other
jurisdictions that produce coal have similar coal severance tax statutes. (See
footnote 7) See, e.g., Ala. Code § 40-13-2 (1980)
(“There is hereby levied, in addition to all other taxes imposed by law,
an excise and privilege tax on every person severing coal within Alabama.”);
Kan. Stat. Ann. § 79-4217(a) (2005) (“There is hereby imposed
an excise tax upon the severance and production of coal[.]”); Ky. Rev.
Stat. Ann. § 143.020 (1978) (“For the privilege of severing
or processing coal, in addition to all other taxes imposed by law, a tax is
hereby levied on every taxpayer engaged in severing and/or processing coal
within this Commonwealth[.]”); La. Stat. Ann. § 47:631 (1997)
(“Taxes as authorized by Article VII, Section 4 of the Constitution of
Louisiana are hereby levied upon all natural resources severed from the soil
. . . including . . . coal, lignite, and ores[.]”);
Mont. Stat. Ann. § 15-35-103(1) (1995) (“A severance tax is
imposed on each ton of coal produced in the state in accordance with the following
schedule . . . .”); Mont. Const. art. 9, § 5 (1979) (“The
legislature shall dedicate not less than one-fourth (1/4) of the coal severance
tax to a trust fund[.]”); N.M. Stat. Ann. § 7-26-6(A) (1993)
(“The severance tax on coal is measured by the quantity of coal severed
and saved. The taxable event is sale, transportation out of New Mexico or consumption
of the coal, whichever first occurs.”); N.D. Cent. Code § 57-61-01
(2001) (“There is hereby imposed upon all coal severed for sale or for
industrial purposes by coal mines within the
state a tax[.]”); N.D. Cent. Code § 57-61-01.5(1) (1995) (“The
state tax commissioner shall transfer revenue from the tax imposed by this
section to the state treasurer for deposit in a special fund in the state treasury,
which is hereby created, to be known as the lignite research fund. Such moneys
must be used for contracts for land reclamation research projects and for research,
development, and marketing of lignite and products derived from lignite.”);
Ohio Rev. Code § 5749.02(A) (2005) (“For the purpose of providing
revenue to administer the state's coal mining and reclamation regulatory program,
to meet the environmental and resource management needs of this state, and
to reclaim land affected by mining, an excise tax is hereby levied on the privilege
of engaging in the severance of natural resources from the soil or water of
this state.”); Tenn. Code Ann. § 67-7-103(a) (1981) (“There
is hereby levied a severance tax on all coal products severed from the ground
in Tennessee. The tax is levied upon the entire production in the state regardless
of the place of sale or the fact that delivery may be made outside the state.”);
Tenn. Code Ann. § 67-7-110(a) (2005) (“The [coal] tax shall
be levied for the use and benefit of local governments only and all revenues
collected from the tax, except deductions for administration and collection
provided for in this part, shall be allocated to the county from which such
coal products were severed.”); Wy. Stat. Ann. § 39-14-103(a)(i)
(1999) (“There is levied a severance tax on the value of the gross product
for the privilege of severing or extracting both surface and underground coal
in the state.”).
The general purpose behind coal severance taxes was succinctly stated by a commentator as follows:
Two
rationales are advanced to support the imposition of severance taxes. One is
that mining or resource production imposes burdens upon the host community for
which it should be compensated. By this view, severance taxes are necessary to
repay the levying jurisdiction for damage to its infrastructure, environment,
lifestyle and heritage caused by extraction of natural resources. . . .
A
second rationale supporting imposition of severance taxes is the need of the
state for revenues to pay for public services, quite apart from those provided
to the severing industry.
John S. Lowe, Severance Taxes as an Issue of Energy Sectionalism, 5
Energy L.J. 357, 360- 61 (1984). Another commentator has addressed the purposes
behind coal severance taxes more extensively as follows:
Increased
coal severance tax rates have enabled coal producing states to achieve a variety
of policy goals designed to reduce the burden that coal production places upon
them. The first of these goals is to use severance tax revenue to compensate
the states' future generations for the irretrievable loss of their coal resource.
. . . This is accomplished by placing a percentage of the severance
tax revenue into a permanent trust fund to be drawn upon to aid the states' economies
when the coal resources inevitably are depleted.
A
second goal of increased severance taxes is to force coal producers to internalize
the impact costs that they impose upon the states. Coal production requires additional
state government expenditures to provide environmental monitoring, road construction,
and other related services. Despite strict state and federal reclamation laws,
coal mining causes irreversible damage to the land and to the natural acquifers
beneath it.
Indirectly, coal production harms the public health and threatens the social
well-being of mining communities. The states, by including these costs in the
calculation of severance tax rates, compel coal producers to raise the price
of coal to levels that reflect the public costs of coal production.
Use
of coal severance taxes as regulatory mechanisms to control mining rates and
methods is another goal of increased severance tax rates. In many instances,
when states raise their severance tax levels, the price of coal may rise high
enough to reduce the rate of extraction. A slower extraction rate can soften
the harsh effects of rapid coal development. Levying a higher severance tax on
coal mined by undesirable methods can encourage producers to use less objectionable
methods.
.
. . .
The
emergence of state severance taxation as a means of protecting local interests
from rapid coal development affords coal states greater control over coal development.
In light of the history of mineral exploitation . . . and the shortcomings
of federal aid, the assertion of state sovereign powers to meet the increasing
social and economic demands created by coal production has come as no surprise.
The rise of severance taxation, in fact, has been welcomed as an effective means
of meeting the distinctive demands place[d] upon each coal producing state by
the new coal rush. The legislatures of coal producing states have shown great
care in crafting severance tax schemes that ensure adequate revenues to provide
for the needs of impacted areas, while preserving the health of the local coal
industry.
Daniel L. Harris, Western Coal Severance Taxes and Congress: A Question
of State Sovereignty, 61 Or. L. Rev. 589, 591_611 (1982).
It is
clear from the above discussion that the coal severance tax statutes assailed
in this case are presumptively a valid exercise of the State's sovereignty. See Central
Realty Co. v. Martin, 126 W. Va. 915, 920, 30 S.E.2d 720, 723 (1944) (“The
power to tax property and the citizens of a state is an attribute of sovereignty
derived from necessity, and is one of the inherent powers of government.”).
The taxpayers have attempted to overcome this strong presumption by making
the two Import-Export Clause arguments that are discussed below.
Furthermore, there can be no question that Montana may constitutionally raise general revenue by imposing a severance tax on coal mined in the State. The entire value of the coal, before transportation, originates in the State, and mining of the coal depletes the resource base and wealth of the State, thereby diminishing a future source of taxes and economic activity. In many respects, a severance tax is like a real property tax, which has never been doubted as a legitimate means of raising revenue by the situs State (quite apart from the right of that or any other State to tax income derived from use of the property). When, as here, a general revenue tax does not discriminate against interstate commerce and is apportioned to activities occurring within the State, the State is free to pursue its own fiscal policies, unembarrassed by the Constitution, if by the practical operation of a tax the state has exerted its power in relation to opportunities which it has given, to protection which it has afforded, to benefits which it has conferred by the fact of being an orderly civilized society.
Commonwealth Edison, 453 U.S. at 624-25, 101 S. Ct. at 2957 (internal quotation marks and citations omitted).
Although Commonwealth
Edison was litigated in the context of the Commerce Clause, (See
footnote 9) the opinion nevertheless stands for the proposition that
a state may impose a coal severance tax that is determined by the contract sale
price of the coal, regardless of where the coal is ultimately destined. See Ky.
Rev. Stat. § 143.010(6)(a) (2005) (“For coal severed and/or processed
and sold during a reporting period, gross value shall be the amount received
or receivable by the taxpayer.”); Mont. Code Ann. §15-35-103 (1995)
(formula for tax based upon contract sale price); N.M. Stat. Ann. § 7-26-6(A)
(1993) (“The taxable event is sale, transportation out of New Mexico or
consumption of the coal, whichever first occurs.”); Wy. Stat. Ann. § 39-14-103(b)(vii)(A)
(1998) (“The sales value of extracted coal shall be the selling price pursuant
to an arms-length contract.”).
There
must be a point of time when [goods] cease to be governed exclusively by the
domestic law, and begin to be
governed and protected by the national law of commercial regulation, and that
moment seems to us to be a legitimate one for this purpose, in which they commence
their final movement for transportation from the state of their origin to that
of their destination. When the products of the farm or the forest are collected,
and brought in from the surrounding country to a town or station serving as
an entrepot for that particular region, whether on a river or a line of railroad,
such products are not yet exports; nor are they in process of exportation;
nor is exportation begun until they are committed to the common carrier for
transportation out of the state to . . . their destination. . . .
Until then it is reasonable to regard them as not only within the state of
their origin, but as a part of the general mass of property of that state,
subject to its jurisdiction, and liable to taxation there, if not taxed by
reason of their being intended for exportation, but taxed, without any discrimination,
in the usual way and manner in which such property is taxed in the state.
Coe, 116 U.S. at 525, 6 S. Ct. at 477. See Kosydar v.
National Cash Register Co., 417 U.S. at 67, 94 S. Ct. at 2111 (discussing Coe).
The initial
decisions by the Supreme Court addressing the issue of the actual loading and
unloading of vessels held that this activity was immune from local business taxes. See Puget
Sound Co. v. Tax Comm'n, 302 U.S. 90, 58 S. Ct. 72, 82 L. Ed. 68
(1937); Joseph v. Carter & Weekes Co., 330 U.S. 422, 67 S. Ct.
815, 91 L. Ed. 993 (1947). In a later decision, Canton Railroad Co. v.
Rogan, 340 U.S. 511, 71 S. Ct. 447, 95 L. Ed. 488 (1951), the Supreme
Court revisited the subject. In Canton a railroad company argued that
the Import-Export Clause prohibited the state from taxing goods loaded on and
unloaded from its trains. The Supreme Court found that it did not have to address
that issue because the
railroad company did not actually perform loading and unloading. However, the
Court noted the following in dicta:
To
export means to carry or send abroad; to import means to bring into the country.
Those acts begin and end at water's edge. The broader definition which appellant
tenders distorts the ordinary meaning of the terms. It would lead back to every
forest, mine, and factory in the land and create a zone of tax immunity never
before imagined. For if the handling of the goods at the port were part of the
export process, so would hauling them to or from distant points or perhaps mining
them or manufacturing them. The phase of the process would make no difference
so long as the goods were in fact committed to export or had arrived as imports.
Canton, 340 U.S. at 515, 71 S. Ct. at 449.
The decision
in Department of Revenue of Washington v. Association of Washington Stevedoring
Cos., 435 U.S. 734, 98 S. Ct. 1388, 55 L. Ed. 2d 682 (1978),
marked a departure from the Supreme Court's earlier ban on taxing the incident
of loading and unloading exported goods. The decision in Stevedoring involved
a tax imposed by the state of Washington on companies that loaded and unloaded
imported and exported goods from vessels. The courts in the state found that
the tax violated the Import-Export Clause and Supreme Court precedents in Puget
Sound Co. v. Tax Commission, 302 U.S. 90, 58 S. Ct. 72, 82 L. Ed.
68 (1937), and Joseph v. Carter & Weekes Co., 330 U.S. 422, 67 S. Ct.
815, 91 L. Ed. 993 (1947). (See
footnote 11) The case was appealed to the United States Supreme Court.
In determining whether the tax violated the Import-Export Clause, the Supreme Court noted that under Michelin Tire Corp. v. W.L. Wages, 423 U.S. 276, 96 S. Ct. 535, 46 L. Ed. 2d 495 (1976), the analysis under that Clause had changed dramatically:
Previous
cases had assumed that all taxes on imports and exports and on the importing
and exporting processes were banned by the Clause. Before Michelin, the
primary consideration was whether the tax under review reached imports or exports.
. . .
Michelin initiated
a different approach to Import-Export Clause cases. It ignored the simple question
whether the [goods] were imports. Instead, it analyzed the nature of the tax
to determine whether it was an Impost or Duty. Specifically, the analysis examined
whether the exaction offended any of the three policy considerations leading
to the presence of the Clause[.]
Stevedoring, 435 U.S. at 752, 98 S. Ct. at 1400 (internal citations omitted). Using the test under Michelin, the Supreme Court found that Washington's tax on loading and unloading goods did not violate the Import-Export Clause:
A
similar approach demonstrates that the application of the Washington business
and occupation tax to stevedoring threatens no Import-Export Clause policy. First,
the tax does not restrain the ability of the Federal Government to conduct foreign
policy. As a general business tax that applies to virtually all businesses in
the State, it has not created any special protective tariff. The assessments
in this case are only upon business conducted entirely within Washington. No
foreign business or vessel is taxed. Respondents, therefore, have demonstrated
no impediment posed by the tax upon the regulation of foreign trade by the United
States.
Second,
the effect of the Washington tax on federal import revenues is identical to the
effect in Michelin. The tax
merely compensates the State for services and protection extended by Washington
to the stevedoring business. Any indirect effect on the demand for imported
goods because of the tax on the value of loading and unloading them from their
ships is even less substantial than the effect of the direct ad valorem property
tax on the imported goods themselves.
Third,
the desire to prevent interstate rivalry and friction does not vary significantly
from the primary purpose of the Commerce Clause. The third Import-Export Clause
policy, therefore, is vindicated if the tax falls upon a taxpayer with reasonable
nexus to the State, is properly apportioned, does not discriminate, and relates
reasonably to services provided by the State. . . .
Under
the analysis of Michelin, then, the application of the Washington business
and occupation tax to stevedoring violates no Import-Export Clause policy and
therefore should not qualify as an “Impost or Duty” subject to the
absolute ban of the Clause.
Stevedoring, 435 U.S. at 754-55, 98 S. Ct. at 1401-02 (internal
citation omitted).
Stevedoring stands
for the proposition that taxing the service of “loading or unloading” imported
or exported goods does not offend the Import-Export Clause. The taxpayers have
attempted to distinguish Stevedoring by arguing that the tax in that case
was not imposed on the actual goods. This point is well taken, because the decision
in Stevedoring expressly stated that it did “not reach the question
of the applicability of the Michelin approach when a State directly taxes
imports or exports in transit.” Stevedoring, 435 U.S. at 734 n.23,
98 S. Ct. at 1403 n.23. However, two problems exist with the taxpayers'
attempt to distinguish the application of Stevedoring to the tax imposed
for
loading under W. Va. Code § 11-13A-4(a)(1).
First,
W. Va. Code § 11-13A-4(a)(1) is not a tax on coal. The tax is imposed
on the service of “loading” coal for shipment. This is exactly what
was taxed in Stevedoring. Second, the loading that occurred in the instant
case was not the commencement of “in transit,” for the purposes of
the Import-Export Clause. The coal would only be considered “in transit” once
it was actually on the train cars. See Richfield, 329 U.S. at 83,
67 S. Ct. at 164 (“[T]he commencement of the export would occur no
later than the delivery of the [goods] into the vessel.” (emphasis
added)). (See footnote
12) See also Kanawha Eagle Coal, LLC v. Tax Comm'r of State
of West Virginia, 216 W. Va. 616, ___, 609 S.E.2d 877, 884 (2004) (“The
initial loading of fully processed clean coal at the preparation plant for shipment
is one of the specified activities viewed as a taxable event associated with
the privilege of mining in this state.”); Tradewater Min. Co. v. Revenue
Cabinet Com. of Ky., 753 S.W.2d 551, 552 (Ky. 1988) (“Loading for shipment
at the processing plant is the last step in the continuing mining process.”); Portland
Pipe Line Corp. v. Environmental Improvement Comm'n, 307 A.2d 1 (Me. 1973)
(holding that tax imposed upon off-loading of oil rather than upon oil itself
and was not prohibited by Import-Export Clause).
Based
upon the foregoing analysis, I respectfully concur.