A. State
Taxes Relating to Coal at Issue
A tax by any other name is still a tax. To
refer to all taxes at issue in this appeal simply as “severance” taxes
suggests erroneously that the only activity which creates tax liability is the
removal of coal from the earth of this State. (See
footnote 3) Other activities also create liability for some of the
taxes, such as treatment processes and the loading of coal for shipment. The
primary issue before this Court is therefore not the name which the State wishes
to attach to the taxes it seeks to collect, but whether such taxes, by their
operation and effect, violate the Import-Export Clause of the United States
Constitution. See Richfield Oil Corp. v. State Board of Equalization,
329 U.S. 69, 84, 67 S.Ct. 156, 164, 91 L.Ed. 80 (1946).
Here, I believe the taxes at issue are more
properly termed “privilege” taxes which result in taxes being assessed
on a tonnage basis or an “ad valorem” taxes based upon a percentage
of the value added to coal by certain activities engaged in by appellants. It
is this operation and effect of these specific coal-related taxes at issue in
this appeal which is
determinative to the propriety of such taxes. Therefore, I disagree with the
majority decision's lack of a specific delineation and consideration of the
operation and effect of the coal-related taxes at issue. It is this consideration
of the operation and effect of each such tax which, I believe, is crucial to
the determination of the effect of the binding precedent applicable to the
Import-Export Clause questions on this appeal.
1. Non-“Section
13A Taxes”
There are two (See
footnote 4) coal-related taxes identified by appellants in their
brief at issue on this appeal which I believe do not violate the Import-Export
Clause. These taxes are a tax under the “Minimum Severance Tax Act” found
at W. Va. Code § 11-12B-3(a), and a special tax on coal production
under the Surface Mining and Reclamation Act for the Mining and Reclamation Operations
Fund found at W. Va. Code § 22-3-32. Both taxes are similar
with
respect to the activities taxed and the measures by which the taxes are imposed.
It is these similarities which distinguish these two taxes from the “Section
13A taxes” which I find problematic under the Import-Export Clause.
These two non-“Section 13A taxes” tax
the privilege of “severing, extracting, reducing to possession or producing
coal for sale, profit or commercial use” and measure the taxes in terms
of specified “cents per ton of coal produced . . . for sale, profit or commercial
use.” W. Va. Code § 11-12B-3(a), § 22-3-32. Thus,
these are tonnage taxes, not “ad valorem” value taxes.
The principal differences between these taxes
and the “Section 13A taxes” are that these taxes do not tax activities
beyond the production of the coal and that they measure the taxes in terms of “cents
per ton of coal produced . . . for sale, profit or commercial use.” Id.
I do not find that their application offends the Import-Export Clause of the
United States Constitution. (See
footnote 5)
2. “Section
13A Taxes”
As with the non-“Section 13A taxes” related
to coal, the “Section 13A taxes” at issue on this appeal are privilege
taxes; that is, taxes upon the privilege of engaging in certain specified activities.
Although denominated as taxes upon privileges, the taxes are in operation and
effect upon the activities specified as privileges. Their calculation is based
upon a percentage of the value of the coal enhanced by such activities.
The “Section 13A taxes” at issue
arise under the Severance and Business Privilege Tax Act of 1993. Specifically,
as delineated by appellants in their brief, there is a “basic severance
tax” found at W. Va. Code § 11-13A-3(a), (b) and (f), and an “additional
severance tax”, found at W. Va. Code § 11-13A-6(a). (See
footnote 6) In language similar to that used by
the non-“Section 13A taxes”, the Section 13A “basic severance
tax” imposes a coal tax on “severing, extracting, reducing to possession
and producing for sale, profit or commercial use” activities. The Section
13A “additional severance tax” uses slightly different language,
specifying the activities it taxes as “severing coal, or preparing coal
(or both severing and preparing coal) for sale, profit or commercial use.” Whether
there is a substantive difference in this language is not readily apparent.
Unlike the non-“Section 13A taxes”,
both the basic and additional severance taxes under Section 13A also tax “[t]he
following treatment processes (and the treatment processes necessary or incidental
thereto) when applied by the mine owner or operator to [coal] mined in this state[:]
. . . Cleaning, breaking, sizing, dust allaying, treating to prevent freezing
and loading [of coal] for shipment.” W. Va. Code § 11-13A-4(a).
Also unlike the non-“Section 13A taxes” which are tonnage taxes, the
tax imposed by the “Section 13A taxes” is a value tax derived from
a percentage of the ultimate sale of the coal by the producer. The Section 13A
basic tax imposes tax in terms of a specified percentage “of the gross value” (See
footnote 7) as shown
by the gross income derived from the sale of the coal. The Section 13A supplemental
tax imposes tax in terms of a percentage of the “value” (See
footnote 8) of the coal severed and/or “prepared” (See
footnote 9) as shown by the gross “proceeds” (See
footnote 10) derived from the sale of the coal.
Accordingly, the principal differences between
the coal-related taxes at issue on this appeal are that the non-“Section
13A taxes” do not tax activities beyond the production of the coal and that
such taxes are tonnage taxes. The “Section 13A taxes” tax activities
beyond the production of the coal, including the loading of the coal for shipment,
and measure the tax in terms of a percentage of the value or gross value of the
coal as shown by the gross income or gross proceeds derived by the sale of the
coal. As such, the tax fixed by the
“Section 13A taxes” include a component of enhanced value of the coal
derived by the activity of the producer loading coal for shipment.
B. The
Import-Export Clause
It is perhaps understandable that fair minds
would disagree on the outcome of a case such as this. The law applicable to the
issues raised in this appeal are by no means subject to a simple application
of non-divergent case-law. Indeed, one might understandably hope that the United
States Supreme Court would take the opportunity to bring a new clarity to this
area of constitutional law in the near future.
It is, I believe, fundamental to our consideration
of the issues raised on appeal that this Court embrace and enforce that precedent
of the United States Supreme Court which best protects the rights and provisions
set forth in the United States Constitution. I do not believe that applicable
precedent should be ignored or minimized because another line of cases is more
to a court's liking. In Rodriquez de Quijas v. Shearson/American Express,
Inc., 490 U.S. 477, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989), the United States
Supreme Court admonished lower courts that “[i]f [its] precedent has direct
application in a case, yet appears to rest on reasons rejected in some other
line of decisions, [the lower court] should follow the case which directly controls,
leaving to [the Supreme] Court the prerogative of overruling its own decisions.” 490
U.S. at 484, 109 S.Ct. at 1921-22, 104 L.Ed.2d at 526.
The loading of coal for shipment is, like the severance of coal, a taxable activity under the “Section 13A taxes.” W. Va. Code § 11-13A-4(a). For appellant's coal which is irretrievably destined for a foreign market and which is taxed under the provisions of the “Section 13A taxes”, the loading of the coal for final transportation, with its concomitant irrevocable commitment of the coal to the foreign market, results in the latest passage of title and completion of the sale. (See footnote 11) The “Section 13A taxes” set the amount of tax to be payed as a percentage of the gross value of the coal as determined by the sale price of the coal. Necessarily included within this sale price is a component of enhanced value added by the loading of the coal for final shipment. Therefore, it is readily apparent that the tax is set by the value of coal dedicated for a foreign market after that coal's value has been enhanced by the loading activity in apparent violation of the Import-Export Clause. (See footnote 12)
Recognizing our obligation to precedent,
I believe that we must abide by the United States Supreme Court's interpretation
of the Import-Export Clause as set forth in Richfield Oil. I therefore
disagree with the majority of my colleagues and believe that Richfield Oil's “stream-of-export” rule,
rather than, as they believe, the policy rule (See
footnote 13) set forth in Michelin Tire Corp. v. Wages, 423
U.S. 276, 96 S.Ct. 535, 46 L.Ed.2d 495 (1976) and Department of Revenue v.
Association of Washington Stevedoring Corp., 435 U.S. 734, 98 S.Ct. 1388,
55 L.Ed.2d 682 (1978), provides the precedent that should control the judicial
outcome of the issues raised on this appeal.
My problem with the majority opinion is that
it seems to presume that Richfield Oil's “stream-of-export” rule
has been overruled or disregarded by the United States Supreme Court in favor
of Michelin's policy rule with respect to taxes, as here, on goods or
products
in the stream of export. The majority opinion asserts that the Supreme Court “took
a sharp turn” in Michelin. Sharp or not, the turn has not been
applied to state taxes on exports in transit.
The Supreme Court acknowledged in Washington
Stevedoring that it did not reach in that case “the question of the
applicability of the Michelin approach when a State directly taxes imports
or exports in transit . . . As in Michelin, decided less than three years
ago, we prefer to defer decision until a case with pertinent facts is presented.
At that time, with full argument, the issue with all its ramifications may be
decided.” 435 U.S. at 757, n. 23, 98 S.Ct. at 1403. Indeed, in the more
recent case of United States v. International Business Machine Corp, [“I.B.M.”],
517 U.S. 843, 116 S.Ct. 1793, 135 L.Ed.2d 124 (1996), the United States Supreme
Court stated that “contrary to the Government's contention, this Court's
Import-Export Clause cases have not upheld the validity of generally applicable,
nondiscriminatory taxes that fall on imports or exports in transit.” 517
U.S. at 862, 116 S.Ct. at 1804. (See
footnote 14)
With respect to taxes on the value of goods
or products in the stream of export, as I believe the “Section 13A taxes” are,
I therefore respectfully disagree with the reasoning of
the majority opinion and conclude that, in the words of the Supreme Court in Rodriquez
de Quijas, the precedent which “directly controls” the issues
raised in this appeal is Richfield Oil.
1. Richfield
Oil
Distilled to its essence, the Import-Export
Clause of the United States Constitution prohibits states from “lay[ing]
any Imposts or Duties on . . . Exports . . . .” United States Constitution, Art.
I, Sec. 10, Cl. 2. For purposes of a Richfield Oil analysis, I believe
the taxes questioned in this appeal are “Imposts or Duties.” 329 U.S.
at 76, 67 S. Ct. at 160. Implicit in any consideration of the Import-Export Clause
are two basic questions: (1) when is a product an “export”?, and (2)
when is there a tax on such an export? Richfield Oil addresses both questions
in the context of the facts of that case. Those answers are, I believe, determinative
of the resolution of the issues in this appeal.
In Richfield Oil the Supreme
Court was concerned with when the “exportation” or “movement
[of a product] abroad” began. The commencement thereof of the product
for the foreign market makes the product an export. In Richfield Oil,
the Court held that oil, the product at issue in that case, became an “export” at
the time it was delivered into the hold of a sea-going vessel, at which time
it passed into the control of a foreign customer, there being
no probability that the oil would thereafter be diverted to domestic use. 329
U.S. at 83, 67 S.Ct. at 164.
In Richfield Oil, California had assessed
a retail sales tax against the seller/deliverer of the oil measured by the gross
receipts from the transaction. The seller protested and sought a refund claiming
that the levy of the tax violated the Import-Export Clause. As interpreted by
the California Supreme Court, the California tax was described as an excise tax
for the privilege of conducting a retail business measured by the gross receipts
from sales. It was not a tax on the sale or because of the sale. While the United
States Supreme Court in Richfield Oil said that it was bound by the California
court's construction, being a matter of state law, the Supreme Court found that
that determination was not determinative of the question of whether the tax deprived
the taxpayer of a federal right, stating “[t]hat issue turns not on the
characterization which the state has given the tax, but on its operation
and effect”. 329 U.S. at 84, 67 S.Ct. at 164. (Emphasis added.)
The Supreme Court then made much of a concession
by the California court, namely, “that the delivery of the oil 'resulted
in the passage of title and the completion of the sale, and the taxable incident'”. Id. (Emphasis
added.) The Supreme Court's holding that the California tax was unconstitutional
under the Import-Export Clause was based, in my opinion, on its conclusion that “ [t]he
incident which gave rise to the accrual of the tax was a step in the export process”. Id. (Emphasis
added.)
The highlighted phrases are, I believe, of
importance to navigating the issues in the case on appeal. These phrases, “ operation
and effect,” “taxable incident,” “incident,” and “accrual”, require
some consideration. The Supreme Court did not accept the California court's view
that the activity or incident taxed by that state's excise tax was the conducting
of a retail business and that the gross receipts from sales were only the measure
of the tax. Rather, the Court ruled that the “ operation and effect” of
the tax was that it was a tax on the sale of the oil. In other words, the tax was a
sales tax, as the California court implicitly conceded in describing the completion
of the sale as the “ taxable incident”. When the Supreme Court
said that “ [t]he incident which gave rise to the accrual of the tax
was a step in the export process”, the “incident” was
the sale itself. The gross receipts from the sale was the measure of the tax
on the sale itself and not the measure of the tax on the conducting of a retail
business because the conducting of a retail business was not a “taxable
incident”. In using the phrase, “ [t]he [taxable] incident which
gave rise to the accrual of the tax”, the Supreme Court determined that
the sale was “ [t]he [taxable] incident” which created the liability
for the California tax. (See
footnote 15) Id. at 84-85, at 164-65
Accordingly, I am of the opinion that Richfield
Oil stands for the proposition that a coal- related tax is a tax on an export
only if (1) an incident or activity involving the coal is taxed
simultaneously with, or subsequent to, the commencement of exportation, and
(2) that incident or activity contributes or relates to the value of the coal
which determines the amount of the tax liability. I do not believe such a coal-related
tax would be a tax on an export if the activities or incidents involving coal
occurred prior to the commencement of exportation even though the measure of
the taxes on such prior activities may not be ascertainable until after the
commencement of the exportation. Accord, Washington Stevedoring.
2. The “Section
13A Taxes” and The Import-Export Clause
At the latest, I believe that the
loading of appellant's coal onto a unit train, like the delivery of the oil into
the vessel's hold in Richfield Oil, marked the commencement of the movement
abroad and made the coal an “export”. Loading commenced when the coal
which was dedicated for a foreign delivery was segregated from domestic coal
and ended not with the coal falling into the rail car, as some have contended,
but when the coal was on the floor of the rail cars. “Loading” included
the filling of the cars. If that were not so, it would be inappropriate to speak
of a loaded rail car or a loaded vessel.
This act which made appellants' coal an “export” was
also a “taxable incident” under the Severance and Business Privilege
Tax Act of 1993. W. Va. Code §§ 11-13A-3(a), 4(a), and
6(a). The tax on that incident was determined in the appellants' case by the
coal's gross value as shown by the gross income derived from the sale. This gross
value/gross income included
a component of value or income attributable to the loading of the coal, a taxable
incident that, in the words of Richfield Oil, was “a step in the
export process”. Since appellants engaged in a taxable activity that made
the coal an export and thereby incurred an added measure of tax liability because
of the export incident, the tax in operation and effect was, in my opinion,
on the export itself.
The Supreme Court in the Washington Stevedoring case
was careful to point out that the Washington tax on stevedoring did not “relate[]
to the value of the goods” and fell “upon a service distinct
from the goods and their value”, and, as a consequence , the tax
could not “be considered taxation upon the goods themselves”. 435 U.S.
at 757 98 S.Ct. at 1403. (Emphasis added.) In this case, the tax on the loading
of the coal related to, and fell upon, that part of the value of the coal that
was attributable to the loading thereof. Accordingly, the tax became a tax upon
the export itself. (See
footnote 16)
I conclude, therefore, that the application
of West Virginia's “Section 13A taxes” herein offends the Import-Export
Clause of the United States Constitution to the extent that such taxes are calculated
based upon the value added to the coal by its loading, since the coal was then
in
the export-stream of commerce. (See
footnote 17) Taxes calculated based upon activities which occur
prior to the coal's entry into the export stream do not violate the Import-Export
Clause.
C. Limitation
of the Operation of the "Section 13A Taxes"
In deference to Richfield Oil and
on the basis of this Court's precedent in Hope Natural Gas, I would restrain
the activities taxed under W. Va. Code §§ 11-13A-1, et
seq., within narrower limits than the words of those Code sections express
on the ground that the Legislature did not intend to violate any provision of
the United States Constitution. I would accomplish the restraint by deleting
from the two “Section 13A taxes” the loading of coal onto a unit train
for export shipment as a taxable activity, and by requiring the Tax Commissioner
for tax computation purposes in this case to subtract the contribution which
such loading made to the gross value/gross proceeds of the coal sold by the appellants
to foreign customers. (See
footnote 18)
I find this Court's reasoning in Hope
Natural Gas to be relevant to the issues in this case. In Hope Natural
Gas, the tax in question was one that taxed “every person engaging or
continuing within this state in the business of mining and producing for sale,
profit, or use, any coal, oil, natural gas, limestone, sand or other mineral
product, or felling timber for sale, profit, or use.” 102 W. Va. at
275, 135 S.E. at 583. The amount of the tax was “equal to the value of the
articles produced as shown by the gross proceeds derived from the sale thereof
by the producer . . . multiplied [by certain specified rates].” Id. In
the case of natural gas, the rate was “one and seventeen-twentieths of one
percent.” Id.
Hope contended, among other things, that
the tax as applied to its natural gas that was transported through its pipe line
system and sold to customers in Ohio and Pennsylvania violated the Commerce Clause
of the United States Constitution. The Tax Commissioner contended that “there
is no tax on the sale of the transportation of the gas or on the proceeds from
the sale thereof.” 102 W. Va. at 279, 135 S.E. at 584. Rather, “the
gross sales price is
simply the taxable measure of the commodity.” Id. Hope, on the
other hand, contended that the tax act evidenced a plain intention to tax the
gross proceeds of sales in interstate commerce.
This Court held “that the [Tax Commissioner]
may not treat the gross proceeds of plaintiff's sales outside the state as the
worth of the gas within the state, but that [the Tax Commissioner] enforce the
act upon the value thereof within the state and before it enters interstate commerce.” (See
footnote 19) 102 W. Va. at 284, 135 S.E. at 586. In so-holding,
this Court observed:
There
is a presumption, however, that the Legislature did not intend to violate any
provisions of the federal constitution. In fact, it has been declared our duty
to “restrain the operation of the statute within narrower limits than its
words import” when satisfied that a literal interpretation will include
cases not intended by the Legislature. Consequently, we are warranted in
presuming that the Legislature did not mean to include, as an element of value,
so much of the gross proceeds of the sale of an article in interstate commerce
as is represented by the cost of transportation, and we restrain the operation
of the statute accordingly.
102 W. Va. at 276, 135 S.E. at 583 (internal citations omitted). (Emphasis
added.) (See footnote
20)
Except for this limited restraint on the
operation of the “Section 13A taxes” and resulting subtraction by the
Tax Commissioner, I would deny the remainder of Import-Export challenges by appellants
based upon Richfield Oil. I would order the Tax Commissioner to return
to the appellants only that amount of “Section 13A taxes” which were
derived from the contribution which the loading for final export made to the
gross value/gross proceeds of the coal sold by the appellants to foreign customers.