Coal companies lose, more challenges to W.Va. export tax expected

Coal companies lose, more challenges to W.Va. export tax expected

Washington (Platts)--7Jun2006

The US Supreme Court, refusing Monday to hear coal companies' case against
West Virginia seeking the return of between $250 million and $500 million in
severance taxes on exported coal, remained mum on the constitutionality of the
law, an attorney representing the companies told Platts Tuesday.

The court denied a writ of certiorari in US Steel Mining Co., LLC v. Helton,
WV State Tax Commissioner (PCT 6/6). Other plaintiffs in the case included
Consol Energy subsidiary Consolidated Coal, Laurel Run Mining, McElroy Coal,
Arch Coal, Mid-Vol Leasing, Coastal Coal-West Virginia, Elk Run Coal, Paynter
Branch Mining, Kingston Resources and Pioneer Fuel.

US Steel Mining and Coastal Coal operations have since been sold to other
companies, but the parent companies -- USX and El Paso -- could have recovered
tens of millions of dollars in back taxes in a favorable ruling.

By denying the writ, the court maintained last year's decision by the West
Virginia Supreme Court of Appeals that upheld the state severance taxes (PCT
9/26/05).

"We lost, best I can tell," Ned Rose, the lead attorney representing the
plaintiffs in Charleston, West Virginia, told Platts Tuesday. The plaintiffs
could have recovered "collectively, somewhere between a quarter and a half
billion dollars. ... We're talking about the big Appalachian producers
[including subsidiaries of] Massey, Consol, Arch, Peabody. ..."

"While we were a part of the case, our exposure was much smaller because we
didn't export much from West Virginia," Tom Hoffman, Consol vice president of
investor relations, told Platts. "Our dollar exposure was less than $15
million."

Constitutionality not resolved

The Supreme Court did not address the constitutionality of the West Virginia
severance tax on exported coal by refusing to hear the case, Rose said. "What
is possible, and what happens from time to time, is that someone else will
appeal the severance tax" and perhaps eventually convince the court to
consider the law on constitutional grounds. At stake is tens of millions of
dollars a year paid out by West Virginia coal companies on their exported
coal.

The decision "basically reaffirmed the tax department's position that the tax
was constitutional and justified," West Virginia Tax Commissioner Virgil
Helton told Platts Tuesday. The State Tax Department's position is that the
coal was subject to the severance tax when it was removed "regardless of the
use of the coal." There are a number of different severance taxes; some are a
flat rate/short ton, and some are based on a percentage of the value of the
coal.

"Our position is [the Supreme Court] will not hear this case," Helton said.
"As to what actions may be brought in the future [by other West Virginia
taxpayers], time will tell."

The plaintiffs sought tax refunds from 1997 through 2005. Plaintiffs had filed
separate cases a number of years ago, but they were consolidated into one as
the case worked its way through the court system

West Virginia coal severance tax collections topped $280 million in 2005, the
highest amount in history, according to the West Virginia Coal Association.
Coal exports make up about 10% of West Virginia's total coal sales.

-- Steve Hooks, steve_hooks@platts.com

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