Colorado Ethics Watch is considering what legal avenues might be available for recovering about $40 million in coal severance taxes that haven’t been paid since about 2000.
“At least for the last couple of years the state should be able to go back and collect,” says group Director Chantell Taylor. The organization was formerly known as Colorado Citizens for Ethics in Government.
“There are a number of different legal issues,” Taylor says. “We haven’t come to any conclusions about this. But if people are just saying, `Oops,’ I don’t think that’s sufficient. The state’s budgetary issues are no secret. That money could be useful.”
The attorney general’s opinion that found that the coal severance tax rate had been improperly applied by the Department of Revenue since 1993 did not address the issue of whether back taxes could be collected.
But Stuart Sanderson, president of the Colorado Mining Association, says that his group’s analysis of the relevant laws indicates that the AG’s opinion is incorrect.
“They have reversed a 14-year legal interpretation of of the law,” Sanderson says. “The AG’s opinion overlooked an extremely significant part of the issue. The `grandfathering’ interpretation that Mr. Suthers relied on is contrary to the express language of the taxpayers bill of rights (TABOR), which states that TABOR automatically supersedes and repeals any inconsistent legislation.
“The Department of Revenue’s original interpretation was correct,” Sanderson says.
The legislatures interim severance tax committee has indicated that they will look into the question. In 1993, the Department of Revenue froze the coal severance tax rate at 54 cents a ton, despite provisions of the law that required adjustment of the rate for inflation. The department said raising the rate without a vote of the people violated TABOR, passed in November of 1992.
Any collection of the tax underpayments — which are estimated to be about $40 million since 2000 — could probably only extend back a few years because of the legal statute of limitations.
Colorado’s largest coal producer is the Colowyo Coal surface mine, owned by the British-based multinational Rio Tinto plc. Colowyo produced 6.3 million tons of coal in 2006. Individual severance tax payments are not made available. But by applying the state’s coal severance tax formula, we can estimate that Colowyo paid $3.2 million in severance taxes that year, while it should have paid, $4.3 million.
Asked if they had considered the back taxes question, Bob Green, Rio Tinto Energy America director of sustainable development, says:
“While the Attorney General issued an opinion in July on the Department of Revenue approach to coal severance taxes, it did not address any aspects of retroactive collection and a formal Department of Revenue rule that might address those aspects has yet to be issued. Until that rule is issued … and there is sufficient time to analyze … relative to the Taxpayer Bill of Rights, Rio Tinto Energy America will reserve comment.”
CMA’s Sanderson adds that on the issue of collecting the taxes retroactively, “We think that whether that is a prospective or retroactive application, they both violate the state constitution.”
“If the Internal Revenue Service told you for 14 years that it was not going to tax income in a certain way and then turned around and said, `We were wrong, we’re sorry, not we’re to have to not only catch up the rate, but we’re going to go back and ding you for all the years you didn’t pay.’?
“If that is part of the proposal, it sanctions a pretty massive revenue grab.”
Sanderson also objected to the implication in the coverage of the issue that the coal companies had somehow done something illegal in failing to pay the taxes. He noted that the companies paid their taxes as required by the state agencies.
The AG’s opinion did not address the issue of collecting the back taxes, nor is it a regulatory action. Any further action on retroactively collecting severance tax money could only come after complete regulatory review.
Under the Colorado coal tax formula, surface mines pay 100 percent of the tax rate, while underground mines pay only half of the applicable rate. The first 1.2 million tons mined each year are tax-exempt. About three-quarters of Colorado’s coal production is from underground mines.