Mining Association Says Coal Tax Is TABOR-ed

Colorado Mining Association president Stuart Sanderson says that if the state wants to increase the amount of severance tax that the coal industry pays, the proposal should be put to a vote of the people as required by the Taxpayers Bill of Rights (TABOR).

In early July, Colorado Attorney General John Suthers issued an AG’s opinion that said the state Department of Revenue had not been collecting coal severance taxes properly since 1993. Suthers ruled that the coal severance tax rate should have increased or decreased in step with the federal Commodity Price Index, as required by law. The Department of Revenue had frozen the rate at 54 cents a ton.

The state has lost about $40 million since 2000 as a result of Revenue’s interpretation of the rule.

But Sanderson says that the Revenue Department and not the Attorney General is right on this one. An inflation adjustment is a tax increase under the meaning of TABOR, he says.

“Notwithstanding the opinion, the index provisions, were they to be applied today, would violate the state constitution,” Sanderson says, “particularly the the TABOR requirement that new tax increases of tax policy changes may not take effect absent a vote of the people.”

“We believe that if the department wanted to put this out for a vote, it could be done.”

Sanderson notes that Colorado is more expensive to produce than coal from Wyoming, the state with which it usually competes in the marketplace. Nearly all of Wyoming’s coal comes from large surface mines which are much less costly to operate. Seventy-five percent of Colorado’s coal comes from relatively high-cost underground mines.

“Colorado’s coal production increased between 2001 and 2004,” Sanderson says. “Keeping the severance tax at a reasonable cents-per-ton level has been an important component in creating markets and allowing Colorado coal to compete.

If the AG’s opinion is enforced — in itself it does not constitute a regulatory action, it’s merely advisory — the coal severance tax rate in the first quarter of 2007 would be just over 70 cents a ton. But some public interest groups — notably Colorado Ethics Watch — are looking at avenues to collect the money that was foregone over the last several years.

“There are a number of different legal issues,” CEW director Chantell Taylor said last week. “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.”

Sanderson says, “If you get to the issue of retroactive application, we think that whether it is a prospective or retroactive applications, they both violate the state constitution.”

The cost of severance taxes is usually passed on to consumers in their electric bills. “In light of that, I think that electric consumers in Colorado should have the right to review it.”

In an August 2006 submission on a proposed Revenue Department rulemaking, the Mining Association wrote that the Revenue Department is barred by TABOR even from “catching up” to what the current rate would be if the increases had been imposed:

“As the Department many not increase the severance tax rate prospectively under TABOR, so too does the Department lack the authority to increase the tax rate retroactively to “catch up” for missed adjustments. The fact that the existing severance tax scheme was in existence before TABOR also does not grant the Department the legal authority to retroactively impose `missed’ severance tax increases.”

“I think in fairness to Suthers, his opinion does not endorse going back and retroactively collecting the tax,” Sanderson says.