/^^^ United States State Mineral

Taxes,1982

Research Report ThomaS F. StinSOfl

•Number 36

George S. Temple
Northern Great Plains

Coal Mining

What are the likely effects of expanded coal mining in Montana,

Wyoming, and North Dakota on the

small towns and communities there?

Mining activity in the sparsely populated region has grown dramatically

over the last decade—from less than 20

million tons of coal in 1970, to 100

million tons in 1978, with projections

for 350 million tons per year by the

mid-1980's.

The Fort Union coal formation,

which straddles those three States contains nearly 40 percent of the Nation's

coal reserves. Its coal is highly desirable

because:

—It is low in sulfur, meaning that it

can be burned by utility companies

with less air pollution than other coal.

—It is in thick seams (some seams

up to 200 feet thick), and can be recovered by strip mining.

To try to ascertain the effects of

development on the region, the authors

of this report used computerized simulations of various levels of coal activity

to see if the communities could afford

the increased level of government

services and upgraded Infrastructure

required by new energy projects and

the larger population attracted by

those projects.

In the long run (10 years or more),

most communities in the region will be

able to pay for the services required by

the new coal-related development, provided that they can tax the new developments. Without taxing authority (for

instance, if the mine lies outside the

taxing district of a locality), they will

have problems.

Northern Great Plams Coal Mining:

Regional Impacts (by Thomas F.

Stinson, Lloyd D. Bender, and Stanley

W. Voelker; AIB-452, July 1982; 36

pages; color illustrations; $5; stock no.

001-000-04265-3).

Order from the Superintendent of Documents, U.S. Government Printing Office,

Washington, O.C. 20402. Make your

check or money order payable to Superintendent of Documents. For faster

service, call GPO's order desk at (202)

783-3238 and charge your purchase to

your VISA, MasterCard, or GPO Deposit

account. Bulk discounts also available.
Preface

This report updatestwo earlier reports published in 1977 and 1978* When

those reports were written, the major concern was whether sufficient revenues would t)e available to meet the needs of State smd local governments

during periods of rapid growth. Reflecting that concern, the reports stressed

the form of mineral taxes and discussed the advantages and disadvantages of the alternative types of taxes.

Policy ooncerns have changed since then. The issue is no longer whether

sufficient revenues are available, but rather whether rates in some States

are excessive. Reflecting this change in the policy debate, sections discussing the amount of revenue collected in major mineral-producing States,

the factors which must be considered when setting a rate, and the recent

U.S. Supreme Court cases Invoiving State severance taxes were added,

while the analysis of alternative types of taxes was shortened. Anyone

wishing a more complete discussion of alternative taxes or impact aid programs should consult the earlier reports.

State summaries were updated to reflect changes in law between 1978 and

1982. Seven States enacted new severance taxes during that period. Significant modifications were made to existing taxes in a number of other States.

Although the summaries provide usefui information about the details of

State mineral tax systems, they cannot substitute for the careful reading of

each statute. Taxpayers needing details of the laws are urged to consult

State or locaf tax officials. Summarizing iegisiation of so many States is difficult;

errors of omission may have occurred. The authors will appreciate having these called to their attention.

The research on which this report is based was conducted under a cooperativeagreement with the university of Minnesota Partial funding was provided by the Office of Research and E)evelopment, Office of Environmental

Engineering and Technology, U.S. Environmental Protection Agency.

*State Taxation of Mineral Deposits and Production, BO^R-2, Econ. Stat. Coop.

Serv., U.S. Dept. Agr., A97Q,3rxï State Taxation of Mineral Deposits and Production,

EPA-600/7-77-008, U.S. Erivjronmental Protectiori Agency, 1977.
Contents

Page

¡V Summary

1 Introduction

2 Why Severance Taxes?

4 Types of Severance Taxes

4 Per-Unit Taxes

5 Gross Production Taxes

7 Net Production Taxes

8 Severance Tax Collections

11 Considerations in Setting Severance

Tax Rates

12 Cost of Services

14 Redistribution of Income

15 Effects of Economic Development

15 Natural Heritage

16 Constitutional Challenges

20 Summaries of State Mineral Tax Laws

Page Page

20 Alabama

22 Alaska 44 Nebraska

23 Arizona 45 New Mexico

25 Arkansas 49 North Dakota

26 California 52 Ohio

27 Colorado 53 Oklahoma

30 Florida 54 Oregon

31 Idaho 54 South Dakota

32 Kentucky 55 Tennessee

33 Louisiana 55 Texas

34 Maine 56 Utah

36 Michigan 57 Virginia

37 Minnesota 58 Washington

40 Mississippi 58 West Virginia

41 Missouri 59 Wisconsin

41 Montana 62 Wyoming
Summary

The 17 major mineral-producing States collected more than $4 billion in mineral taxes in 1980. Those revenues amounted to more than 20 percent

of total State tax revenue in seven States. Texas collected more than $1.5

billion in such taxes (representing 22 percent of total tax collections)

and Louisiana and Alaska each collected more than a half billion dollars

(representing 22 and 35 percent, respectively, of total State tax revenue).

The large amount of revenue collected, coupled with the great variation in

State tax rates, has provoked challenges to mineral taxes in both the

courts and Congress.

Two of those challenges recently reached the U.S. Supreme Court. The Court

ruled in 1981 that such taxes are within the domain of the State's taxing

authority, so long as the taxes are not overtly discriminatory. The Court

also refused to limit tax rates to those necessary to raise the funds

needed to provide the additional government services required by Ihe project and its employees. A concurring opinion, however, left little doubt

that Congress, if it chose to, could limit State severance tax rates.

No one seriously questions a State's right to levy a severance tax.

Disputes arise over the appropriate amount of revenue collected. There is

general agreement that such revenues should at least equal the direct

costs of the local government services consumed by the mine and its

employees. Out-of-State consumers object, however, when revenues

are collected which substantially exceed that level, whether they are justified as a reserve to offset potential future costs or as a way of preserving a share of the State's natural heritage for future generations.

Four types of mineral taxes may t>e used: an aci valorem property tax,

a per-unit tax, a gross production tax, and a net production tax. The gross

production tax appears best except when a market price for the mine's

output is difficult to establish. In those instances, a per-unit tax is preferable.

iv
state Mineral Taxes, 1982

Thomas F. Stinson

George S. Temple

Introduction

State mineral taxes, particularly those on coal, have provoked heated

debate since the midseventies. One side, composed primarily of residents

of energy poor States, asserts that current severance tax rates in some

States are so high that they transfer income from energy consumers to residents of energy-producing States. Others, typically from producing

States, cite the costs of providing services to new mines and miners and

the responsibility of the State to provide for the welfare of future generations in justifying existing tax rates.

The intensity of this debate is illustrated by recent action in Congress

and the courts. Congressional hearings have been held on legislation designed

to place a cap on severance tax rates in each of the last three sessions of

Congress, and the U.S. Supreme Court ruled on two cases involving State

mineral taxes during its 1980-81 term: Maryland v. Louisiana (69 L

Ed 2d 156) and Commonwealth Edison v. Montana (69 L Ed 2d 884). There

were also attempts to change the definition of locally raised revenues or

local tax effort (used in formulas for distributing some Federal funds) to

exclude revenue raised by severance taxes. The controversy has

focused on coal severance tax rates but any change in national policy is

likely to affect mining for all minerals as well as drilling for oil and natural gas.

Current interest in mineral taxes stands in sharp contrast to that of the

past. Until the midseventies, severance tax rates and revenues were so

low that in most States, few outside the minerai industry had heard of

them. Since then, rapid increases in prices and exploration and development

activity have made mineral taxes much more visible.

Public awareness of these taxes began to increase when many, especially

in the West, began to question whether localities could afford to build

the new schools, roads, and water and sewer systems necessary to serve

Stinson is an economist in the Economic Development Division of USDA's

Economic Research Service. Temple was formerly a research associate, Dept. of

Agricultural and Applied Economics, Univ. of Minnesota, St. Paul.
state Mineral Taxes, 1982

the new residents attracted by new mines. Several States enacted taws

coupling new or increased severance taxes with impact aid programs for

communities with rapid growth due to mineral development. The form of

the tax was the issue at that time. Policymakers searched for a tax which

would provide the funds needed for impact aid without unduly discouraging mineral development.

Continued increases in prices for coal, oil, natural gas, and uranium

created what many considered to be windfall profits for owners of existing

mines and wells. Inflationary pressures on State and local government

budgets, reflected in high individual tax bills, stimulated an interest in ways

in which the State could capture a share of those profits. Some States

increased their tax rates or added an escalator clause so that revenues would

keep pace with inflation. Others shifted from a tax levied at a fixed rate

per ton or barrel to one based on the value of production. State severance tax revenues increased substantially, producing the current

demands for a limit on the rates on which such taxes may be levied.

This report provides background for the current policy debate. Its initial

sections provide general informat'ron about severance taxes including

the rationale for a special minerals tax, the forms which the tax may

take, and the importance of the tax as a revenue producer. Sections examining considerations in setting severance tax rates and discussing the

implications of recent U.S. Supreme Court decisions follow. The report concludes with detailed summaries of existing severance tax laws in each

major mineral-producing State.

Why Severance Taxes?

Severance taxes, unlike the well-known, broadly based taxes on sales, income,

and property, apply only to extractive, resource based industries such as

mining, forestry, and fisheries. Any attempt to evaluate existing State mineral taxes must begin with an understanding of why mineral production

is singled out from other industries for a special tax.

Before severance taxes were introduced. States relied almost exclusively on the property tax to raise revenues. Mining companies, Jike airother

firms, vi^re taxed on the value of their property. Applying an ad vatoren?

property tax to mineral property, however, created several significant

problems.

The most obvious difficulties were with assessments. Estimating the value

of a mineral deposit is difficult even for trained geologists. For local
Why Severance Taxes?

assessors, it was often impossible.^ The resulting wide variation in assessed

values made the entire property tax system subject to question on equity

grounds. Many began to believe that almost any other system of taxing mineral property would be fairer. The volatility of mineral prices, the largely

unknown nature of the deposit, the unpredictability of future extraction costs,

and the dependence of future mine output on capital investment in the

mine all led States to move gradually toward using net income or some

measure of gross output as a substitute for the full value of the deposit.

>Ad va/orem taxes were also criticized as contributing to the unduly rapid

depletion of the resource.^ Such taxes depend entirely on the value of

the deposit and come due whether or not the mine is operating.

Consequently^ profit-maximizing producers accelerate their recovery

rates in an attempt to mine out from under the tax. Under a property tax

system, total taxes on two identicahmineral deposits, one mined over a

period of 10 years and one mined over 20 years, are quite different. Severance taxes, based on the amount or value of production during the year

avoid this problem.

Acf va/orem taxes accelerate the depletion of the Nation's resource base

by creating an incentive to produce more rapidly from each mine than

would be the case with more neutral taxation. This increases supplies of

the minerar beyond what they would otherwise have been. The excess

supply lowers the price for the mineral, which in turn produces two

effects. First, consumption of the mineral increases due to the lower price.

Second, and more important, the cutoff grade for the ore at the mine

increase, reducing the amount of ore economically feasible to mine. Because

of large startup costs, substantially higher prices will be necessary to

justify re-opening a mine—prices much higher than might be expected in

the future. Although the lower grade ore is not lost, the economics of

mining make it highly unlikely that those minerals will ever be used.

The ad va/orem tax's administrative problems and its adverse effects on

resource use led State officials to seek an alternative. Use of the mine's

output as a proxy for the value of the mine was one solution. In 1846, Michigan

enacted a severance tax to reduce the tax burden on the mineral industry.^

Today, more than a century later, 31 States make use of some form of that

tax.

^G. Howard Spaeth, "Iron Ore Taxation in Minnesota," Proceedings National

Tax Association, 1948. pp. 230-243, gives a more complete description of the process.

^Harold Groves, F/nanc/ng Governments (5th ed.). Holt and Co., New York, 1958,

pp. 314-317.

^Financing Goverment in Colorado, 1959. Report of the Governor's Study Group,

p. 351.
Stinson/Temple

Types of Severance Taxes

States levy three types of special mineral taxes—the traditional (per-unit)

severance tax, the gross production tax, and the net production tax."^ In this

section, these alternative forms of severance taxes are compared with

each other and with the ad va/orem property tax on the basis of administrative convenience, effects of resource use, and equity.

None of these taxes is clearly superior in all criteria. However, the per-unit

tax and the gross production tax, the two most popular forms, appear to

obtain the best overall rating. Choosing between a per-unit tax and a gross

production tax is more difficult. There, the decision depends on how difficult it is to determine a sales price for the mineral. If market prices can be

easily determined for each mine's or well's output, a gross production

tax is advantageous. If, however, an appropriate market price is not available,

the State will probably be better served by a per-unit tax.

Per-Unit Taxes

The oldest form of the severance tax is the per-unit tax. With it, no attempt

is made to determine the value of mineral inoldings or of output. Instead,

the tax is levied on the volume of production from the mine or well. North

Dakota's coai severance tax, $1.07 per ton in 1982, is an example of these

taxes. Such a tax reduces administrative problems to a minimum. All the

State requires is a measure of the year's output.

These taxes also have the advantage that they provrde no incentives to

accelerate production. Since no tax is due until after production begins, the

firm's decision about when to begin mining depends only on factors related

to the demand and supply of the mineral. Tax costs are not a factor in that

decision. But, while a per-unit tax is an improvement over the ad valorem

tax, it is still not perfectly neutrai with respect to resource use. Since this

tax is levied at a constant dollar amount per ton, the mining firni will extract

minerals only to the point at which its marginal cost plus the severance tax

is equal to the market prtee. This means that some portions of the deposit,

"^The dlstinctton made here between per-unit severance taxes, gross production taxes,

and net production taxes is not always made at the State level. For example,

Montana's tax on oil and gas is officially titled the Oil and Gas Producers' Severance

Tax even though its base is the gross value of petroleum extracted. Under the

ciassifteation system used In this paper, such a tax would be considered a gross production tax. Some States call their severance taxes occupation or privilege taxes,

as well, although they are really per-unit or gross production taxes.
Types of Severance Taxes

where the actual costs of extraction are less than the expected market price,

are not mined. Deposrts for which the market price minus the cost of extraction is less than the severance tax wilt be left in place, even though in the

absence of a tax they would be mined. This result is often termed highgrading.^ Its importance for a specific mineral deposit cannot be determined

without a specific study. In most instances though, where the amount of

the tax is only a small percentage of the mineral's value, such taxes probably have only limited impacts on the amount of the resource it is economical to mine.

Per-unit taxes also offer some improvements over aof valorem taxes on

matters of equity and ability to pay. With a severance tax, no taxes are due

until after production begins. Problems still remain, however. Since the

same flat tax rate applies to all production, mineral deposits of different values may not be taxed at the same percentage of revenues. Taxes can be

a higher percentage of gross revenues for mines located on lower grade

deposits.

Finally, per-unit taxes do not respond automatically to changes in mineral

prices or to inflation. Since the tax is levied at a fixed dollar amount per

ton, the tax rate is a declining percentage of the mineral's value as mineral

prices increase. More disturbing, if prices turn down, the tax rate (as a

percentage of mineral value) increases. And, during a period of inflation,

the quality of government services paid for by the tax will decrease, even

though the same dollar amount of revenue is obtained.

Several States, recognizing this problem and the difficulties of returning

annually to the legislature for small increases in the tax rate, have linked

the severance tax rate to a price index.^ Then, a one-point increase in

the Consumer Price index, or whatever index is chosen, increases the tax

rate by a set amount, allowing tax revenues to keep pace with inflation

and mineral prices.

Gross Production Taxes

Another way of maintaining a constant relationship between the tax take and

mineral prices is to use a gross production tax. This is the most common

^Karl E. Starch, Taxation, Mining and the Severance Tax, Bureau of Mines Inf.

Circ. 8788, U.S. Dept. Int., 1979. p. 26.

®See, for example, the Minnesota Taconite, Iron Sulfides, and Agglomerates

Tax, Minn. Statutes of 1957, Sec. 298.26.
State Minerat Taxes, 1982

form for severance taxes. Instead of taxing on the basis of the numt)er of

physicai units of output, the tax is based on the value of the product

extracted from the ground. Many States also use gross proceeds as a proxy

for the value of the mine, or the mine and its equipment, for the local

property tax. The following discussion also applies to those instances.

Gross production taxes have many of the same effects as the per-unit

tax. But, since the tax is levied at a percentage of the value of the product,

there are also some important differences. Chief among them are equity

considerations. Gross production taxes allow for fairer treatment of mines

or wells producing different qualities of output as well as for fairer treatment of mineral extraction activities during periods of rapid price changes.

Gross production taxes also have the advantage of automatically increasing

State revenues as mineral prices increase. During a period of general

inflation, the State will receive approximately the same amount of purchasing power as before, without increasing the tax rate. During periods of declining mineral prices, State revenues will, of course, decline, but such a

reduction in taxes may altow the mine to remain in operation, helping to stabilize the local economy.

Gross production taxes may also sfightly reduce incentives for high-grading

deposits.^ Unlike the per-unit tax, which, as noted eariier, acts like a fixed

charge on each ton of minerai produced, gross production taxes are lowjer

for lower quality output or iower prices. Where the quality of a mineral

varies considerably across a State (as with coal) use of a gross production

tax rather than a per-unit tax is likely to allow more development of the

lower quality resource.

There is a potential administrative problem with use of the gross production tax. In some instances, there are no market transactions from which

the price of the mineral can be detennined. S<xne coal niines, for example,

are part of vertically integrated electric generating plants. All coal from a single mine goes directly to the powerplant and both the mine and powerplant

are owned by the same company. Here, determining value of production

from the mine can be a problem. Similar difficulties can occur when iron

ore and other minerals are mined and beneficiated in one location, then

shipped elsewhere for smelting or refining.

^Henry Steele, "Natural ResourceTaxation: Resource Allocation and Distribution

ImpHcatons," Extractive Resources ana Taxation, Mason Gaffney (Ed.). Univ. Wise.

Press, Madison, 1967, p. 246.

6
Types of Severance Taxes

Net Productiorr Taxes

The net production tax is more closely related to a net income tax on the

mine than to a tax on mineral production, Under this tax, firms are allowed

to deduct certain expenses from gross revenues. They are then taxed on

the remaining income. Such a tax has significant advantages on equity

and resource efficiency grounds. Its chief drawbacks are that, like all income

taxes, it is more difficult to administer and monitor than the per-unit or

gross production taxes and that its revenues fluctuate with the health of the

economy.

The greater equity, or fairness, of a net income tax is well known. The advantages in resource efficiency require some explanation.

When a net income tax properly reflects both the income and the costs of

productran for the firm, it is neutralwith respect to the timing of extraction and the amount extracted. But, if deductible costs do not include all relevant costs to the frrm, the tax will be less satisfactory. Under some

conditions, such a tax may even be worse than any alternative tax.

With a net production tax, there are no incentives to mine out from under

the tax since no taxes are due until after production begins. In addition, since

the levy is a percentage of net income and not a fixed amount per ton or

per dollar of gross income, the net income tax produces no incentives to

restrict production or to high-grade. With a net production tax, the marginal cost of producing a ton of the mineral remains the same as if there

were no tax. Profit-maximizing producers cannot raise their net income

by mining any more or less than they would in the absence of the tax.® The

tax's only effect is to reduce profits of the mine.

A major disadvantage to the net production tax is that revenues flowing from

it are often unstable. There likely will be periods when, due to fluctuating

market prices, the mine will have little net Income (and pay little or no taxes),

even though it is operating with a full complement of workers.^ These

fluctuating revenues could create hardships for State and local budgets dependent on revenues from severance taxes. Potential administrative problems

and uncertainty of revenues appear to outweigh advantages in equity and

efficiency of resource use. Only ttiree States have a net proceeds tax.

®lf mineral production is subject to a greater tax burden than other sectors of

the economy, investments in that sector will decrease and the minimum grade of ore

required will Increase. Levying a net production tax will not affect this result.

®Groves, op. cit., p. 317.
Stinson/Temple

Severance Tax Collections

Texas collected more than $1.5 billion in severance taxes in fiscal 1980,

while Louisiana, Alaska, and Oklahoma collected $525 million, $507 million,

and $436 million, respectively (table 1 ). Oil and natural gas revenues were

Table 1-^State revenues from mineral taxes

state 1970 1975 1980

Million dollars^

Texas 273.2 666.8 1,525.1

Louisiana 251.0 541.4 519.7

Alaska 10.8 26.6 506.5

Oklatioma 50.5 128.1 435.1

New Mexico 35.4 71.1 213.€

Kentucky .1 99.1 177.2

Florida .2 30.0 121.3

Wyoming 4.3 18.5 105.7

Montana 4.7 14.7 94.6

Minnesota 19.0 35.9 83.5

Mississippi 14.3 20.6 50.2

North Dakota 3.1 6.9 43.9

Micliigan 1.0 4.5 43.5

Colorado 1.0 2.4 31.1

Alabama 1.4 9.6 30.6

Arkansas 3.4 6.3 16.2

Utah 4.3 6.2 10.6

^Revenues shown for fiscal years.

Sources: U.S. Department of Commerce, Bureau of Census, Sfafe Government

Tax Collections in 1971; State Government Tax Collections in 1976; State Government Tax Collections in 1980.

8
Severance Tax Collections

the major sources of severance taxes in each of those States. New Mexico,

Kentucky, Florida, and Wyoming each had revenues in excess of $100

million from severance taxes while Montana, Minnesota, and Mississippi each

raised more than $50 million. Seventeen States had 1980 revenues in

excess of $10 million from mineral taxes.

The amount of revenue raised was generally directly related to the value

of minerals produced in the State, with some notable exceptions. California, a

major oil producer, obtained only $3.5 million (to finance the activities of

the State Oil and Gas Conservation Board) from its tax on oil production.

Illinois, Pennsylvania, Virginia, and West Virginia, all major coal producers,

levy no severance tax.

Growth in State severance tax revenues is also apparent. Total severance

tax collections increased from $676.7 million in 1970 to slightly more than

$4 billion in 1980 for the 17 States in table 1, due to a combination of higher

prices, increased production, and new or Increased taxes. In most States,

increases in price and production were more important than higher tax rates.

But, while this increase in revenues is impressive, it actually understates

the extent of changes occurring during the past decade. Since the most recent

data on tax collections is for 1980, the full impact of decontrol of domestic

oil production is not evident. In addition, taxes on natural gas reflect controlled

prices. After full decontrol of natural gas, one can expect significantly higher

revenues in gas-producing States, even if tax rates, production, and world

prices remain constant.

This increase in severance tax revenues and the further increases expected

to accompany decontrol of natural gas have created fears that some States

may take unfair advantage of their resource wealth. Some worry that severance

taxes may allow producing States to shift a major portion of their tax burden

to consumers in other States. The resulting interstate redistribution of income

and the improvement in the producing States' business tax climate, it is

argued, will harm good relations among States. While these issues are often

portrayed as pitting energy have-nots against the haves, such is not entirely

the case. Much of the original impetus for limits on coal taxes came from

residents of Texas, the State collecting the most severance tax revenue.

Some perspective on these concems can be obtained by examining severance

taxes per capita and as a percentage of total State tax collections (table

2). Alaska stands out as a special case: 1980 taxes on the production of oil

and gas were 35 percent of alt State tax collections and totaled more

than $1,300 per capita. Alaska eliminated some individual taxes, placed
State Mineral Taxes, 1982

revenue in a permanent trust fund, and offered a partial rebate of previous

income tax payments to the State's long-term residents. These major tax

advantages do not, however, appear to have stimulated substantial

migration of industry to the State. Markets and suppliers are too far away,

Table 2—State severance taxes per capita and as a percentage of

State tax collections, 1980

State^

Per capita

mineral taxes

Percentage of

tax collections

Texas

Louisiana

Alaska

Oklahoma

New Mexico

Kentucky

Florida

Wyoming

Montana

Minnesota

Mississippi

North Dakota

Michigan

Colorado

Alabama

Arkansas

Utah

Dollars Percent

110 22.6

127 21.7

1,319 35.2

149 24.6

167 23.1

50 8.3

13 2.5

228 27.2

123 21.7

21 2.6

20 4.0

70 11.8

2

.7

11 1.7

8 2.0

7 1.4

7 1.4

^States listed in order of the dollar value of collections in 1980.

^Less than $0.50 per person.

Source: Computed from U.S. Department of Commerce, Bureau of the Census,

Sfafe Government Finances in 1980.

10
Considerations in Tax Rates

and potential tax savings do not appear to overcome differences in

transportation costs.

Severance taxes in 1980 were more than 20 percent of State tax collection

in 6 of the 48 contiguous States. In 1975, they were more than 20 percent

only in Louisiana (33 percent), and greater than 10 percent of collections

in Texas, Oklahoma, New Mexico, and Wyoming. In 1970, severance taxes

were 25 percent of total State taxes in Louisiana, 12 percent in Texas

and New Mexico, 11 percent in Alaska, and less than 10 percent in all other

States.

Severance tax revenues in 1980 totaled $228 per capita in Wyoming and

were in excess of $100 per capita in Texas, Louisiana, Oklahoma, New

Mexico, and Montana. The remaining States received less than $25 per capita

with the exception of North Dakota ($70) and Kentucky ($50).

A tax saving of $100 per capita is significant, yet unlikely to induce any

substantiat migration of industry or people. Deregulation of natural gas

prices could increase the size of the tax incentives in some areas, but even

a doubling of the severance tax take would produce tax differentials of

$350 or less in every State but Wyoming. The actual saving to the taxpayer,

of course, is likely to be considerably less since some revenue will go

for services required by the mining firm and its employees. The deductibility

of State taxes from Federal taxable Income further reduces the actual

disparity.

A redistribution of$100 or more to residents of producing States affects

the welfare of tx)th those recei>4ng the income and those losing it. This potential

income transfer has generated much of the controversy over severance

taxes. Whether any regional redistribution of income actually occurs depends

on who actually pays the tax and the costs associated with the new mine's

opening. Both issues will be discussed below.

Considerations in Setting Severance Tax

Rates

No one seriously questions the right of States to levy a severance tax. But,

there is substantial disagreement over how much revenue it is appropriate

to collect. Most believe that rates should be set to produce at least an

amount sufficient to offset costs of the new public services required by

the mine and its employees. A limit on the amount of revenue collected

beyond those direct service costs has become the public policy issue.

11
Stinson/Temple

There is no well defined analytic framework for determining the appropriate tax rate. Rates are set aspart of a political process in which poiicymakers tfy to balance needs of the public sedor with those of the private

sector. The decision which emerges reflects a set of weights implicitly

assigned to a series of objectives. While the result in each State is likely to

be different, some items affecting the tax rate decision include:

^The cost of needed government sen/ices.

—The amount of income redistribution intended.

^The likely effects of the tax on économie development.

—The compensation due for the di^letioaoftiie State's natural heritage.

Several technical points need to be made before discussing these four

topics. First, debate over whethera fax is far or not must focus on the amount

of money paid in taxes by the industry or firm, not on the rate. Interstate

comparisons cannot be based on rates alone because the base, the value

of the product or activity taxed. Is not the same for all minerals, or even

for the sanie mineral, in different States.Wyoming, for example, taxes coal

at 10.5 percent of its value whiie Kentucky taxes coal at only 4.5 percent.

Wyoming, however, receives less revenue per ton of coal taxed because

Wyoming coal sells for $8 per ton while Kentucky coal sells for $28 per

ton.

Similariy, evaluations of the appropriate levels for taxes on the mineral

industry must look not just at the severance tax, but at the sum of all taxes

levied on the mining firm. When the severance tax is in lieu of all other

State and local taxes on the firnrv—Minnesota's taconite taxes, for example—

restricting the analysis to the severance tax rate is appropriate. But, when

income and property taxes are also levied on the mine or well, the total level

of taxation, not simply the severance t5w, needs to t)e the focus of the

discussion, since from the point of view of the mine owners and society, it

is total tax revenue which is important, not simply revenue from a single

tax. To simplify matters, the rest of this discussion assumes that the severance tax is the only tax levied at the State or local level on the mine.

Costof Services

When severance taxes are limited to the costs of providing necessary

public services for the mine and its associated employees, there is little

controversy. There is general agreement that new industry should pay

12
Considerations in Tax Rates

its share of the costs of government, including the cost of additional environmental monitoring required. Disagreements arise when revenues from

severance taxes are considerably greater than the cost of the additional government services.

The mineral-producing States assert that limiting comparisons to out-ofpocket public sector costs is improper, reflecting a confusion between

public sector costs and the full external costs associated with the new firm.

Restricting the analysis to the public sector's costs, they argue, ignores

other, very real costs to the State's residents, costs that must be taken into

account if the producing State is to be treated fairly.

Most economists agree that compensation should be allowed for such costs

as those of environmental degradation, increased congestion, and changes

in life style attributable to the mine's opening. Some of these external costs

(so named because they are external to the firm's balance sheet) are

almost impossible to measure. But, if they are ignored, local residents will

almost certainly be less well off. Equally important, if the firm does not

reflect these social costs in the price of its products, too much of those products will be produced. Production taxes that raise the firm's marginal costs

to equal the social costs are necessary for socially optimal levels of the

resources to be mined. The problem for public policy is to reach agreement on the difference between the social and marginal costs of a particular operation.

Collapsing this social cost rule into one that takes into account only the additional costs to State and local government will almost always be

inappropriate. For such a rule to produce desired results, the external costs

of the firm must be limited to its public sector costs. While this could be

possible for a small firm opening in a large metropolitan area, such an assumption appears tenuous for a mine in a rural area. There, out-of-pocket public sector costs may be only the smallest portion of the full social cost of the

mine.

Compensation also appears required for a second type of cost: the potential costs after the mine closes. Large public sector costs due to unforeseen environmental damage or human or social problems may emerge after

the mine shuts down. Premature shutdowns due to technological change,

changes in public policy, or unanticipated shifts in market forces may also

create unforeseen deficits for the public sector. States have not generally

tried to protect themselves against such uncertainties in the past, but they

13
State Mineral Taxes, 1982

need not act as if unanticipated costs are zero. Consequently, a suitable

reserve to insure against uncertainty, obtained by taxing in excess of the

full social cost of the mine, appears justifiable, Here, again, the policy

problem becomes one of reaching agreement on what a proper reserve might

be, then translating it into a tax rate. The total tax levied might be thought

of as the sum of the social cost tax, the uncertainty cost tax, and taxes to

cover redistribution and natural heritage objectives discussed below.

Redistribution of Income

States may also use their tax system to redistribute income. This redistribution may be either across a generation—from rich to poor, for example—or

from one generation to another—a gift from those paying taxes today to

those living in the future. Both are legitimate functions for State governments to engage in when only intrastate transfers occur.

Severance taxes are usually not thought to be good devices for carrying

out income redistribution across a single generation. The incidence of

the tax (who actually pays it as opposed to who is legally liable) is not always

well defined. The result is considerable uncertainty about whose income

is being affected. The actual incidence of the tax depends on the nature of

markets for the particular mineral to be taxed and on supply and demand

conditions in those markets. Under some assumptions, the tax will fati on

consumers, while under other equally plausible assumptions, the transfer

may be from the profits of the mining firm, the earnings of its workers, the

profits of fimns that use the product, or the royalties received by landowners.

Severance taxes, when dedicated to a trust fund, however, are particularly

effective ways of effecting intergeneratlonal transfers. By taking revenue

from one generation and forbidding its use until the total reaches a sum considerably in excess of the expected annual contribution, intergeneratlonal

transfers may easily be accomplished. Other ways such transfers may occur

is by investing heavily m the education of the State's youth or by dedicating a portion of the revenues to research on new technologies or items

designed to replace the resource used.

Such redistribution is well within the right of the States as long as the redistribution is from the State's residents to other residents of the State. Objections emerge, however, when the redistribution is seen as coming from those

14
Considerations in Tax Rates

living in other States to those living in the taxing State. In such a situation,

it is argued, the interests of those living out of State are not effectively represented in the political decisionmaking process. Such might be the case

for the severance tax, depending on the incidence assumptions.

Effects on Economic Development

State policymakers also consider the potential negative effects of higher tax

rates. Because higher tax rates discourage development, the legislature

and the governor face the responsibility of evaluating relative benefits of higher

taxes and increased economic activity in the State. The choice in some

States may be for lower taxes and more development in order to eliminate

unemployment or underemployment among the Staters residents. Other

States may use taxes to control the rate at which certain resources are

developed, attempting to limit or smooth out the boom-and-bust cycles

often associated with mining. In either instance, benefits of the particular

policy choice are difficult to measure, so subjective judgments must be

made.

Natural Heritage

The most controversial argument made for mineral taxes is that the

resources represent the State's natural heritage, and the State and its

residents have the right to share in the profits from their sale. Mineral

extraction permanently reduces the wealth of the State, creating a need for

reimbursement. The severance tax is seen as the ideal vehicle to obtain

it. This philosophy is used to justify a tax that produces revenues in excess

of the full social cost of production, including a hsk premium for unforeseen events. Such a philosophy can be combined with a program to redistribute income to future generations, or it can be used to justify a transfer of

income to the State's curent residents.

The natural heritage argument differs from the pure redistribution argument in

that it calls for a redistribution without regard to whether those being taxed

are residents of the State or live outside it. Unlike the redistribution claim

which can be thought of as a voluntary transfer from one group to another,

enacted by representatives of the groups who pay the tax, taxes based on

the natural heritage claim can be levied by those who will t>enefit against

those with no effective say in the matter.

15
Stínsonrremple

Individuals taking the natural heritage position assert that States are responsible for creating and insuring économie opportunity within the State.''° Mineral resources are exhaustible, they argue, and when they are gone new

sources of economic activity must befound. Because the wealth of a State is

being depleted, the State's residents deserve an extra claim on the value

of minerals.

Opponents point out that taxes in excess of social costs are difficult to justify.

The natural heritage position claims for the State a property right in all

unmined minerals on privately held lands over and above those inherent in

property taxes. Such a claim, they say, directly chaHenges conventional

concepts of private property.^ ^

Application of the natural heritage principle, especially in conjunction with

a program to redistribute income to future generations, has precedent. Minnesota put half of its severance tax on iron ore into a permanent trust fund

for education under terms of a 1922 amendment to its constitution. A portion

of its production tax on taconite is earmarked for permanent trust funds for

northern Minnesota. Montana allocated 50 percent of its coal severance tax

to asimilar trust fund, as does Alaska with a portion of its oil severance tax.

There is no objective answer to the question of whether a natural heritage claim should be honored and, if so, how high atax should be levied.

Value judgments and one's perception of the incidence of the tax help

determine where one stands on this topic. The issue is extremely controversial,

with much of the justification for severance taxes in excess of public service cost based on this argument. The importance attached to this argument fey State officials as they set rates for their severance taxes varies

considerably.

Constitutional Challenges

Until recently, the States' constitutionarright to levy a severance tax was

clear and unrestricted. The Supreme Court, in a 1922 decision, Heisler

V. Thomas Go///e/y Co. (260 US. 245), ruled that severance taxes, regardless of their rate or ultirnate incidence, did not violate the commerce clause

of the Constitution sirKîe the taxable act, the severance of the mineral, occun^ed

prior to the product's entry into interstate commerce.

^°See, for example, Michael Browde and Charles DuMars, "State Taxation of

Natural Resource Extraction and the Commerce Clause; Federalism's Last Modern

Frontier," Oregon Law Review, Vol. 60,1981, pp. 47-49.

^^Starch,op. C/Í., pp. 26-27.

16
Constitutional Challenges

This interpretation has recently been challenged. The Court, taking note

of the interstate nature of most business today and recognizing the impracticality of excluding from State taxation all activity that touches on interstate

commerce, established a new test to ascertain which State taxes restrict

interstate commerce. The standards, set down in 1977 in Complete Auto

Transit, Inc. v. Brady (430 U.S. 274), are as follows:

1. The activity taxed must have substantial nexus, or connection, to

the taxing State.

2. The tax must be fairly apportioned to the amount of value derived in

the State.

3. The tax shall not be discriminatory.

4. The tax must be fairly related to services provided by the State.

Two recent decisions have helped redefine the Court's position on State mineral taxes. The first, Maryland v. Louisiana (69 L ED 2d 156), dealt with

Louisiana's first-use tax on natural gas. The more important case.

Commonwealth Edison v. Montana (69 L ED 2d 884), was a challenge to

Montana's 30-percent coal severance tax.

Louisiana levied a severance tax on all natural gas produced in the State

and its waters. It also levied a first-use tax on all gas brought into the

State not subject to tax in other States. This tax, levied at the same rate as

the State severance tax, was justified as a way of allowing the State to

gain compensation for costs associated with workers living in Louisiana, but

working on large offshore rigs. The first-use tax applied almost exclusively

to gas produced on the Federal Outer Continental Shelf (OCS) and piped

into Louisiana for processing. Louisiana consumers of OCS gas, however,

were effectively excluded from having to pay the tax through a system of

credits and exemptions.

The Court took the case on original jurisdiction and declared it unconstitutional without even requiring hearings at the State Court level or development of a factual record. The tax was found to violate both the supremacy

clause—due to a clause requiring the burden of the tax be borne either

by consumers or the pipeline companies—and the commerce clause. The

commerce clause violation was due to the difference in treatment between

Louisiana's residents and those in the rest of the world. The Court also dismissed Louisiana's claim that the tax was compensatory, levied to balance

the severance tax on gas found in Louisiana, noting that since the State

had no interest in the Federal OCS, no compensating tax could be allowed.

17
State Mineral Taxes, 1982

In Commonwealth Edison v. Montana, 11 midwestern utilities and 4 Montana coal-mining companies challenged Montana's 30-percent severance

tax rate on coal as excessive. The utilities, arguing that the Complete Auto

Transit test was now the operative rule, stipulated that the first two prongs

of the test (nexus and fair apportionment) were satisfied. They also agreed

that, unlike Louisiana's first-use tax, the Montana tax was on its face neutral.

The issues raised were whether the fact that over 90 percent of Montana's

coal is exported to other States made the tax discriminatory, and whether

the tax was fairly related to the services provided by the State. The suit was

originally filed in Montana State Court where the tax was upheld and the

complaint dismissed without receiving any evidenœ. The Montana Supreme

Court affirmed the lower court's action. The U.S. Supreme Court had the

option of upholding the Montana Courts' decision or remanding the case to

a lower court for trial.

In its decision upholding the lower court's decision, the Supreme Court verified that the precedents under the Heisler case no longer held. Instead,

it noted, severance taxes must pass the test specified in the Complete Auto

Transit decision. It then rejected the claim that the tax violated the commerce clause.

With respect to the claim that the tax was discriminatory because most

of Montana's coal is exported to other States, the Court noted that the purpose of the commerce clause was to make State borders irrelevant as

barriers for trade. Using those same t>aniers, which are supposed to be irrelevant In discrimination cases, to find the Montana tax unconstitutional woukJ,

the Court felt, be inconsistent. It noted that the appellants were implicitly

assuming that the commerce clause gives one State access to another's

minerals without regard to the terms on which the mineral rich State has

them. The Court refused to grant such access.

The major impact of the decision, however, came in the discussion of the

meaning of the fourth prong of the Complete Auto Transit test: the requirement that a tax must be fairly related to the value of services provided by

the State. This, it was thought, was the mechanism by which taxes which

were far in excess of social costs and yet on their face neutral could be

controlled.''^ The decision, however, sidestepped problems of establishing a proper rate, noting that an earlier ruling on the due process clause

imposed no requirement that tax revenues collected from any particular

activity be reasonably related to the value of government services provided

^^Browde and DuMars, op. cit., p. 40.

18
Constitutional Challenges

to that activity. Citing its 1937 decision in Carmichael v. Southern Coal

and Coke Co. (301 U.S. 495), the Court noted:

A tax is not an assessment of benefits. It is a means of distributing the

cost of government. The only benefit to which a taxpayer is entitled is

that derived from his enjoyment of the privileges of living in an organized society, established and safeguarded by the devotion of taxes to

the public purpose.

The Court further indicated that the fair relationship to services test is little

more than an extension of the nexus criterion, and that any tax levied on

a percentage basis is in the proper proportion to services. It also emphasized its determination to avoid getting entangled in judging whether specific rates are excessive:

Appellants argue that the fourth prong of the Complete Auto test must

be construed as requiring a factual inquiry into the relationship between

the revenues generated by the tax and the costs incurred on account

of the taxed activity This assertion reveals that the appellants labor

under a misconception about the Court's role in cases such as these.

The simple fact is that the appropriate level or rate of taxation is essentially a matter for legislative, notjudicial resolution.... Appellants

asl< this court to prescribe a test for the validity of State taxes that would

require State and federal courts to calculate acceptable ranges or

levels of taxation. This we decline to do. (emphasis added).

The Montana tax decision has clear implications for State mineral taxes.

The Court has, in effect, removed itself from the difficult area of determining what rate is appropriate, while reserving the right to rule on whether

or not a tax is discriminatory on its face, as was the first-use tax in Louisiana.

It also retained the right to judge the form of the tax and to determine

whether there was sufficient contact with the State. But, the Court cleariy

indicated that it did not wish to be involved in the weighing and balancing of tradeoffs necessary to decide upon a proper tax rate. Those problems were left specifically to the State legislatures and the U.S. Congress.

Justice White emphasized this point:

Congress has the power to protect interstate commerce from intolerable or even undesirable burdens.... The Constitutional authority and

the machinery to thwart efforts such as those of Montana, if it was

thought acceptable, are available to Congress and surely Montana and

other similarly situated States do not have the political power to impose

their will on the rest of the country.

19
Stinson/Temple

Summaries of State Mineral Tax Laws

Thirty-one States had special mineral taxes as of January 1983. This section summarizes mineral tax laws in eac^ôf those States and notes whether

mineral tax revenues are dedicated to any special use.

Alal>ama

Alabama taxes oil, natural gas, coal, and iron ore. In 1981, the State received

more than $60.7 million from these taxes and tsoces on forest products,

about 2,8 percent of its total tax revenue.

Two separate taxes are levied on the extraction of oil and gas; an oil and

gas production tax and an oil and gas privilege tax [9:17.25, 40:2Ô.2(a)].^^

The production tax is levied at 2 percent of gross value at the point of

production. Revenue from it goes to the Staters general fund [9:17.31],

The oil and gas privilege tax is levied at a rate of 6 percent of gross value,

including royalty interests, atthe point of production. However, all wells producing less than 40 barrels per day are taxed at 4 percent, as are all wells

coming into production after September 1,1979. The 4-percent rate on new

wells applies for 10 years after production begins. After that time, the rate

is 6 percent for wells from between 15,000 and 15,800 feet deep in the

Smackover formation.

Net revenue from the privilege tax is distributed according to the following

schedule:

1. 16% percent to the State's general fund.

2. 16% percent to the county in which the wells are located.

3. 66% percent accordingto the following schedule:

a. Twenty-five percent of the oil and gas production taxes collected in any county shall be allocated to the county to be

expended atthe discretion of the county government.

However, in counties with populations between 34,875 and

36,000 in the 1970 Federal census, the funds are to be

prorated to boards of education based on the number of children in net enrollment in the district. In counties with a population between 16,000 and 16,250, the first $150,000 shall

^^Numbers in brackets in this section refer to particular sections of the State's tax

laws.

20
Alabama

be paid to the custodian of the school funds. The balance

renrraining shall be allocated two-thirds to the county general

fund and one-third to the school fund.

b. Ten percent of the taxes levied on oil and gas wells located

within the corporate limits or the police jurisdiction of any

municipality shall be allocated to the municipality.

c. Fifty percent of the first $150,000 remaining goes to the State,

42.5 percent to the county, and 7.5 percent to municipalities

on a population basis [40:20.8].

All oil or gas produced, all leases in production including mineral rights on

producing properties, and all oil or gas under the ground on producing

property within the State are exempt from all ad valorem taxes of the State,

counties, or municrpalities. No additional assessment shall be added to

the surface value of such lands by reason of the presence of oil or gas thereunder or production therefrom [40:20.12]. Cities and counties are also

expressly forbidden from levying any additional taxes on oil and gas produced in Alabama.

A severance tax is also levied on iron ore. This tax, in the form of a license

or privilege tax, is imposed at a rate of $0.03 per long ton [40:12.128].

Since 1971, a severance tax of $0.135 per ton has been levied on coal mined

in Alabama [40:13.2]. The revenue goes to a special bulk-handling facility trust fund and pays principal and interest on revenue bonds issued to

construct the State docl<s bulk-loading facility.

An additional severance tax of $0.20 per ton on the mining of coal or lignite

was enacted in 1977. Proceeds from this tax are returned to local governments according to the following formula:

1. For mines located within the police jurisdiction or municipal limits of

a municipality, 50 percent of the tax collected goes to the municipality

and 50 percent to the county.

2. For mines located outside the police jurisdiction or municipal limits

of a municipality, 100 percent of the tax collected goes to the county

government.

Three counties levy county severance taxes on coal at rates of $0.50

per ton. Two other counties levy taxes on stone or sand and gravel.

21
State Mineral Taxes, 1982

Alaska

Alaska received more than $1.1 billion, about 50 percent of total State

revenue, from gross production taxes on petroleum and natural gas in 1981.

The 1981 Alaska Legislature raised the oil and gas production tax rate

from 12.25 percent to 15 percent of gross value at the point of production,

effective July 1,1981. For leases or property coming into production after

June 30,1981, the percentage rate remains at 12.25 percent during the first

5 years of production, then is 15 percent thereafter [Ch. 116, Laws 1981 ;

Sec. 43:55.013],

The actual tax levy is the greater of $0.60 per barrel of old crude oil ($0.80

per barrel for alt other oil) or the amount due under the percentage rate,

adjusted as follows [43:55.012(b)l:

1. The original cents-per-barrei rate applies to oil of 27 degrees API

gravity. For each degree of API gravity less than 27 degrees, the

per-barrel amount shall be reduced by $0.005 and for each degree

of API gravity greater than 27 durées the per-barrei amount shall

be increased by $0.005 except that oil above 40 degrees API gravity

shall be taxed as 40-degree oil.

2. The base rate adjusted for API gravity is then multiplied by an

economic limit factor to obtain the actual tax rate. The economic

limit factor acts to reduce taxes as production falls or as production

costs rise.

The economic limit factor for oil production equals:

(1 - [PEUTPDexp (460 • WD/PEL)

where: PEL = monthly production rate at the economic limit,

TP = total production during the month for which the tax is to be

paid,

WD = Total number of well days in the month for which the tax is

to be paid, and

exp indicates that the expression following is an exponent

[43:55.013(d)].

If for any month during the first 10 years of commercial production the economic limit factor is 0.7 or less, the value is used. If the value is greater

than 0.7, the value used is 1.0. After the first 10 years of production, the

actual values are used.

22
Alaska-Arizona

The economic limit factor for gas equals: 1 - PEL/TP [43:55.013(a), (c)].

The monthly production rate at the economic limit for oil property is presumed to be 300 barrels times the number of well days for the property during the month for which taxes are to be paid. The taxpayer may rebut

this presumption at a formal hearing [43:55.0t3(d)].

The monthly production rate at the economic limit for gas is presumed to

be 3,000 mcf times the number of well days for which the tax is to be paid.

The taxpayer may rebut this at a formal hearing as well [43:55.013(g),

(b), (c)J.

The base tax rate for gas is $0,064 per 1,000 cubic feet of taxable gas

or 10 percent of the gross value of taxable production calculated at the point

of production [43:55.016 (b), (c)].

The tax levied under this section is in place of alt taxes imposed by the State

or its municipalities except franchise taxes, income taxes, taxes upon the

retail sale of oil and gas, and the one-eighth cent per ban-el oil and gas regulation and conservation tax [43:57.010].

Arizona

The 1982 Arizona Legislature replaced the existing gross proceeds taxes

on metalliferous mining with a net proceeds severance tax, effective January 1 , 1983 [Ch. 230, Law of 1982]. Those producing oil, natural gas,

limestone, sand, gravel, and other nonmetalliferous minerals are still taxed

under a gross proceeds framework.

The metalliferous mineral severance tax is levied at 2.5 percent of the net

severance base [42:1462], where net severance base is defined to be

the greater of:

1. The weighted mineral value—Xhe gross value of production

multiplied by the ratio of the costs actually incurred in mining to the total production costs, including mining and

production costs and site specific costs of support services

and administration. Depletion, interest on corporate debt,

and corporate salary expenses are among items not included

in total production costs.

2. The Arizona Value—50 percent of the difference between the gross

value of production and out-of-State processing costs [42:1464].

23
Stinson/Temple

This tax is to be phased in from 1983 to 1985. From January 1,1983, to

June 30,1983, the net severance base is defined as the difference between

the gross value of production and out-of-State processing costs. For fiscal

1984, net severance base is the greater of 83.3 percent of the difference

between the gross value of production and out-of-State processing costs or

the weighted mineral value. For fiscal 1985, net severance base is defined

as the greater of 66.7 percent of the difference between the gross value of

production and out-of-State processing costs or the weighted mineral value

[Ch 230, sec. 12; Laws of 1982, 2nd regular session].

Revenues will be distributed as follows:

1. 20 percent to the State's general fund, to be appropriated for public

education purposes.

2. Of the remaining 80 percent:

a. 4 percent for administrative expenses.

b. 15 percent to the Department of Economic Security.

c. 25 percent to incorporated cities.

d. 22.4 percent to the State's general fund.

e. 33.6 percent to counties to be allocated on the basis of the counties'

assessed values and the amount of privilege tax and severance

tax collected in the county [42:1342].

The legislature also imposed a temporary tax on the processing of purchased metallic products and metallic products severed out of State. The

tax is levied at 2.5 percent on the folJowing basis:

1. For the period January 1,1983, through June 30,1983, the tax is

levied on the difference between the gross value after processing

and the sum of the costs of purchasing the product and processing it in the State.

2. For fiscal 1984, the base is 66.7 percent of the difference found in

(1) above.

3. For fiscal 1985, the base is 33.3 percent of the difference found in

(1) above.

Revenue from this tax will be distributed according to the same schedule

as is the 80-percent share of the metalliferous mineral severance tax.

Those extracting nonmetalliferous and energy minerals are subject to two

gross proceeds taxes. The first, levied at 1.5 percent of gross proceeds,

goes to the State's school fund [42:13&1,1371]. During 1982 and 1983,

however, taxpayers are allowed a credit equal to the full cash value of min24
Arkansas

Ing property multiplied by:

(Property taxes current year Property taxes 1979 \

Full cash value current year ~ Full cash value 1979 /

Revenue from the Mining Privilege Tax, levied at 1 percent of gross proceeds,

is distributed in the same way as the 80-percent share of the metalliferous

mineral severance tax.

The State Department of Revenue has responsibility for taxing all producing and closed mining claims [42:126]. Value of the mine is determined by

estimating probable gross revenue and deducting the probable cost of

extraction, reduction, and sale of the ore product. The net value is then converted to its present worth. Eight classes of property are established in

Arizona for assessment purposes. Mines, smelters, railroads, mills, and timber are all assessed at 52 percent of market value, the highest rate of

any class.

Assessment rates are scheduled to decrease to 44 percent of full cash

value for 1983-1985, 36 percent for 1986-1988, 28 percent for 1989-1991,

and 25 percent for 1992 and beyond. In contrast, all other commercial

and industrial property is currently assessed at 25 percent of full value

(residential property at 10 percent)[42:136, 227].

Arkansas

Arkansas levies a per-unit severance tax on most natural resources

removed from the soil or water. Among those taxed are natural gas, coal,

barite, bauxite, titanium, manganese, zinc, cinnabar, lead, crushed stone,

gypsum, sand, and precious stones [84:2102]. Oil production is taxed by a

gross proceeds tax. During fiscal 1981, these taxes provided slightly over

$26.7 million, or about 2.2 percent of State tax revenues.

Taxes are levied at a fixed rate per volume for most minerals: $0.15 per

short ton of barite, bauxite, titanium, manganese and manganiferous ores,

zinc, cinnabar, and lead; $0.02 per short ton of coal, lignite, and iron ore;

and $0.15 per short ton of gypsum not used for manufacturing in Arkansas,

chemical grade limestone, silica sand, and dimension stone [84:212(a) -

(d)]. However, diamonds, other precious stones, native sulfur, salt, and an

assortment of less important stones and resources are taxed at 5 percent

of the value of the product at time of severance [84:2102(h)].

Natural gas and oil are also subject to tax. Natural gas is taxed at $0.003

per 1,000 cubic feet. Oil from a well producing an average of 10 barrels or

25
State Mineral Taxes, 1982

more is taxed at 5 percent of market value at the time of production. For

wells averaging t)elow 10 barrels, the tax is œmputed at 4 percent [84:2102(e)].

Three small taxes, totaling $0.02025 per barrel, are also levied on oil production [84:2102(3)].

Severance taxes are in addition to the general property tax. Payment of

the tax does not affect the liability of the producers for all State, county,

municipai, or special district taxes upon their real and corporeal property.

However, no other privilege or excise taxes are to t>e imposed upon the right

to use the natural resource [84:211]. This provision appears not to apply to

the Arkansas Oil and Gas Conservation Tax which is limited to 25 mills

per barrel of oil or 5 mills per 1,000 cubic feet of natural gas [53:125,

53:106].

Although the State collects all severance taxes, the State Treasurer \s

required to return a large portion of the funds to local governments. The general revenue fund receives 3 percent; the remaining 97 percent is distributed as follows:

1. All severance taxes, penalties, and costs on timtter and timt»er

products go the State forestry fund.

2. Of the severance taxes, penalties, and costs, except those on timber,

75 percent shall be general revenues and shall be allocated to the

various State Treasury funds participating in general revenues in

the proportions provkJed by 1^ Revenue Stabilization Law of Arkansas.

3. The county aid fund receives the remaining 25 percent.

The State Treasurer prorates the county aid fund among the counties based

on the proportion of the State's severance tax revenues produced by that

county. On receipt of these funds, the county treasurer credits 50 percent

of the money to the county general school fund and 50 percent to the

county highway fund.

California

California ievies a small tax on oil and ga&production which in 1980 raised

$26 million, about 0.01 percent of total State tax revenue. The tax is levied

on the number of barrels of oil and thousands of cubic feet of natural gas

extracted at a rate determined annually by the California Department of

Conservation [Pub. R. 3404]. The value of minerals in place is subject to

local property taxes, however.

26
California-Colorado

Colorado

Colorado taxes the extraction of metallic minerals, coal, oil and gas,

molybdenum, oil shale, carbon dioxide, rock, sand, gravel, limestone, and

dolomite. In fiscal 1981, the State received more than $31 million from

these taxes, approximately 2 percent of total revenue. Mineral property is

also subject to an ad valorem property tax.

The tax rate on metallic minerals is 2.25 percent of gross income in excess

of $11 million. Ad valorem taxes assessed during the taxable year are

allowed as a credit against this tax in an amount up to 50 percent of the

severance tax levied [39:29.103]. The tax on molybdenum ore is 15 cents

per ton.

on and natural gas are taxed at a percentage of gross income according

to the following schedule:

Gross income Tax rate (%)

Under $25,000 2

$25,000 to $99,999 3

$100,000 to $299,999 4

$300,000 and over 5

Gross income is defined as the market value of production at the wellhead

or the value of the severer's income as computed for Federal income tax

depletion purposes, whichever Is higher. Wells producing less than 10

barrels per day are exempt from the tax.

A credit equal to 87.5 percent of all ad valorem taxes assessed by State

and local governments during the taxable year on the leaseholds, royalties,

and royalty interests may be applied against the severance tax. Ad valorem taxes, however, do not qualify for inclusion if levied on equipment and

facilities used in drilling for crude oil or natural gas or producing, storing,

or transporting through a pipeline [39:29.105].

Coal is subject to a severance tax of $0.60 per ton, but no tax is levied

on the first 8,000 tons per quarter. In addition, coal produced from underground mines qualifies for a credit of 50 percent of the tax. An additional

credit equal to 50 percent of the tax is provided those mining lignite. Beginning January 1978, each three-point change in the producers' price index

prepared by the U.S. Department of Labor increases or decreases the tax

by 1 percent [39:29.106]. In September 1982, the tax rate was $0,798

per ton.

27
Stinson/Temple

Gross proceeds from the severance of oil shale are subject to tax at a

maximum rate of 4 percent. The tax does not apply until 180 days after the

shale facility begins commercial production. The taoc rate schedule is:

Year Percent

First 1

Second 2

Third 3

Fourth and each

succeeding year 4

Production of the first 15.000 tons per day of oil shale, or 10,000 barrels

per day of shale oil, is exempt from the tax.

Gross income from severance of carbon dioxide tjecame subject to tax

as of January 1,1983. Rates are the same as those applying to gross income

from oil and natural gas [Ch. 158 Laws of 1982].

Fifty percent of revenues from severance taxes on minerals and mineral fuels

realized after June 30,1981, go to a State severance tax trust fund. This

perpetual fund is to serve as a replacement for the State's depleted natural

resources. Only the income from investment of the trust fund is avaiteble

to be spent. That income is deposited in the State's general fund.

The other 50 percent of revenues goes to the local government severance tax fund administered by the Department of Local Affairs. Fifteen percent of this fund's receipts are returned to counties and municipalities in

proportion to the number of residents of the municipality or unincorporated

area of the county employed in mines or retorting facilities. The other 85

percent of the funds are distributed to local govemments affected by energy

or mineral development. This revenue is to take the place of property tax

revenues lost when severance tax payments were allowed as a deduction

in determining the value of the mine. These funds may be used for either

operating or capital expenditures by the localities.

The State created an energy impact advisory committee to recommend to

the Department of Local Affairs actions needed to assist impacted areas,

including problems faced by local govemments in providing services, the

extent of available local govemment tax resources, and other problems such

as housing and environmental deterioration that may result from energy

impacts. The executive director of the Department of Local Affairs is the chair28
Colorado

man of this committee. Other members include the Commissioner of

Education, the Executive Director of the Highway Department, the Executive Directorof the Department of Natural Resources, and five residents

from energy impact areas, two of whom must reside east of the Continential

Divide [39:29.110].

Colorado law allows taxpayers a credit against their severance taxes equal

to the amount of approved contributions made to assist in solving the

impact problems of local government. Credit is only allowed, however, for

contributions made before first severance of the mineral, or before increased

production [39:29,107.5].

Approved contributions for such credits include the donation of property

or payments to units of local government for use in planning, constructing,

or expanding public facilities. Such facilities are limited to county or municipal roads, schools, water facilities, sewage facilities, police and fire protection facilities, and hospitals deemed to be required because of a new mine

or by an increase in production from an existing one.

To receive credit, the following requirements must be fulfilled:

1. Each contribution shall be based on an agreement between the taxpayer and a unit of loca^ government specifying the need for contribution and its nature, value, and purpose.

2. Each contribution must be acted on for credit, within 90 days after

joint submission by the taxpayer and the impacted local government by the Executive Director of the Department of Local Affairs

upon recommendation of the energy impact assistance advisory

committee. Failure to act within 90 days shall be deemed as

approval.

3. Certification of eligibility for the credit must be transmitted from the

Executive Director of the Department of Local Affairs to the Executive Director of the Department of Revenue, the impacted unit of

local government, and the taxpayer [39:29.107.5].

In 1981, the Colorado Legislature added an additional credit equal to ^4 of

1 percent of approved contributions for each month which the contribution

precedes the month in which the contribution is credited against the

taxpayer's severance tax liability. This credit applies only to contributions

for which credit has not been used prior to July 1,1983. The total amount of

approved contributions may not exceed 50 percent of the taxpayer's severance tax liability during the first 10 years of severance from a new mine.

29
State Mineral Taoces, 1982

or 50 percent of the increased liability to be incun-ed during the first 10 years

of an expansion, plus any amountsof credit {39:29.107 5].

AHmines are also subject to an ad va/orem property tax. Each mine owner

or operator is required to file with frie county assessora statement sfK>vwng,

among other things, the gross value of the product extracted; costs of

extracting, treating, reducing, and transporting the product; gross proceeds of

the mine; and net proceeds of thermne. Metallic mines are then assessed

at 25 percent of gross proceeds, or at net proceeds, whichever is greater

[39:6.106].

For coal and other nonmetallic minerals, producing leasehold reserves

are evaluated by capitalizing imputed annual income. The mineral property

so valued is then taxed at the rate established by the county.

Florida

Florida levies a per-unit severance tax on solid minerals, defined broadly to

include clay, gravel, phosphate, rich lime, shells, stone, sand, and rare

earths as well as the mineral ores. The State also has a gross production tax on oil and natural gas. In 1980, the State received more than $169

million from these taxes, or about 3.2 percent of its budget.

Oil from wells yielding more than 100 barrels per day is taxed at 8 percent

of the gross value of production. Wells producing less than 100 barrels

per day and oil produced by tertiary methods are taxed at 5 percent of the

gross value. Of the revenue raised from this tax three-eighttis goes to the

State's general fund, one-eighth to the general fund of the county in which

the oil was produced, and one-half to the State Conservation and Recreation Lands Trust Fund [211:02.1].

Natural gas production is taxed at 5 percent of gross value of production.

Thirty percerit of this revenue goes to the State's general fund, 20 percent

to the general fund of the county where it was produced, and 50 percent

to the State Conservation and Recreation Lands Trust Fund [211.02.1].

The solid minerals severance tax is levied at a rate of 5 percent of all

solid minerals except phosphates and heavy minerals, in 1982, phosphate

rock was taxed at $1.84 per ton. Heavy minerals were taxed at $0.92 per

ton. The tax on phosphate rock will be adjusted annually to keep pace

with the producer price index for phosphates. The heavy metals tax rate

will be adjusted by the change in the annuaf producer price index for tita30
Florida-Idaho

nium dioxide. These taxes are in addition to any property taxes levied on

the mineral interests on the property on which the mine site is located

[211:325,211:326].

Fifty percent of the revenue from the tax on solid minerals goes to the State's

General Revenue Fund. The rest goes to the Land Reclamation Trust

Fund [211:31.3]. Revenues from the phosphate tax are distributed as follows:

1. 50 percent to the Conservation and Recreation Lands Trust Fund.

2. 30 percent to the General Revenue Fund.

3. 10 percent to the Nonmandatory Land Reclamation Trust Fund.

4. 5 percent to the Phosphate Research Trust Fund.

5. 5 percent to counties in proportion to the number of tons of phosphate rock produced within the county. These revenues are to be

used only for phosphate-related expenses.

Taxpayers are entitled to a reduction in taxes under this section if they institute a reclamation and restoration program on the mine site. Other alternatives include the reclamation of land other than the mine site, or the transfer

of the site to the State for use as State land. In the case of reclaimed land,

the taxpayer will receive an amount equal to 100 percent of the costs of

reclamation and restoration subject to a maximum limit of the amount of

taxes paid by the taxpayer that is deposited in the Land Reclamation Trust

Fund. With regard to the transfer of land to the State» a refund equal to 100

percent of the fair market value of the land, up to an amount equal to the

taxes paid by the owner deposited in the Land Reclamation Trust Fund, is

allowed.

Idaho

In 1981, Idaho received more than $2 million, about 0.4 percent of its budget,

from mineral taxes. Taxes are levied on oil and gas production and on

mining for gold, silver, copper, lead, zinc, coal, phosphate, limestone, and

other valuable metals or minerals.

Oil and gas production is taxed at a rate of 2 percent of market value at the

site of production [47:331]. An additional tax of 5 mills per barrel of oil or

50,000 cubic feet of gas is also levied [47:330].

All other minerals are taxed at 2 percent of net value, where net value is

computed by one of the following methods [47:1201].

1. By deducting from the gross value of the ore all costs of mining

and processing such ore using the formula prescribed in section

31
Stinson/Temple

613 of the Internal Revenue Code and Treasury Regulation 1,613-5

for computation of the net income from mining for depletion purposes,

less the deduction of Fédérai depletion.

2. By deducting the following from the gross value determined by the

U.S. Department of the Interior for computation of the value of minerals

on public lands for Federal royalty purposes:

a. All costs of mining the ore to the point at which valued: the costs

to include only those directly incurred in and attributable to the

mining operation in Idaho.

b. The applicable portion of the Federal deduction for depletion, allocated on the ratio of gross value of ore used for this computation

to the gross value of ore for the Federal depletion computation.

All revenue from this tax is credited to the State's general fund.

Kentucky

Severance taxes in Kentucky produced nearly $189 million, about 8.3

percent of State revenues in 1981. Gross production taxes are levied on

coal and petroleum production and other resource extraction, although

almost all revenues are derived from the coal tax.

The coal severance tax, enacted in 1972, is levied at a rate of 4.5 percent of the gross value of all coal severed or processed during a reporting

period [143:020]. The tax is in addition to all other taxes levied by the

State or local government. Oil production is also taxed at 4.5 percent of market value when first transported [137:120]. In addition, the 1980 Kentucky

Legislature approved a 4.5-percent tax on the value of all other resources

severed from the State, including natural gas [143A.020].

Beginning July 1,1981, 50 percent of the severance tax revenues collected

on all minerals but coal, and 50 percent of all severance tax revenues on

coal in excess of $177.6 million go to a local government assistance fund.

The remainder of the revenues goes to the State's general fund. [42.450].

Revenues in the local government assistance fund are to be distributed to

coal-producing and coal-impacted counties. The funds attributable to the

coat severance tax are distributed as follows:

1. 60 percent to each county on the basis of the ratio of tax collected

on coal severed in each county to statewide severance tax

collections.

32
Kentucky-Louisiana

2. 30 percent to each coal-producing county on the basis of per capita

income (inverse order), ton-miles of coal, and population, equally

weighted.

3. 10 percent to counties not producing coal but impacted by the transport of coal on the basis of geographic area, ton-miles, and per capita

income (inverse order) weighted on a basis of 0.3, 0.4, 0.3,

respectively). To qualify for this assistance, a county must have within

its boundaries 0.25 percent of the total coal ton-miles within the

coal impacted counties [42.470.1],

Fund receipts attributed to the severance taxes on oil and other natural

resources are to be distributed among the mineral-producing counties on

the basis of the severance tax collections in each county [42.470.2].

Grants from the local government assistance fund are to be spent on priority expenditures. Thirty percent of the fund is to be spent on the coal haul

road system. The remaining 70 percent is to be spent on priority items in

the following categories: public safety; environmental protection; public

transportation; health; recreation; libraries; educational facilities; social services for the poor, aged, and handicapped; financial administration; government management; industrial and economic development; and vocational

education.

LouisJana

Louisiana taxes the production of oil and natural gas as well as the extraction of several other minerals. In 1981, the State received more than $815

million from these levies, more than 29 percent of the State's tax revenues.

Severance taxes are levied in addition to all other State, parochial, municipal,

district, and special district taxes levied on real estate and other corporeal property. However, no further taxes or licenses may be imposed on oil

or gas leases or rights, nor can any additional value be added to the assessment of land by reason of the presence of oil or gas on the property. In

addition, no parish or other local government can levy a severance tax

or license fee [47:643].

The tax is levied at the following rates [47:633].

1. Oil, 12.5 percent of its value at time of severance.

a. On wells incapable of producing more than 25 barrels per

day, and which also produce at least 50 percent saltwater,

33
state Mineral Taxes, 1982

6.25 percent,

b. For wetis incapable of producing more than 10 barrels per day,

SVapercent.

2. Distillate, condensate, or similar resources, 12.5 percent.

3. Natural gasoline, ethane, or methane, $0.10 per 42-gallon barrel.

4. Butane and propane recovered through processing, $0.05 per 42-

gallon barrel.

5. Natural gas, W.07 per 1,000 cubic feet, tf the gas comes from an oil

well with pressure of 50 pounds per square inch or less, the rate is

$0.03 per 1,000 cubicfeet. If the well is judged incapableof

producing an average of 250,000 cubic feet of gas per day, the

rate is $0,013 per 1,000 cubic feet. Thetax is not levied on gas

injected into a formation for storage, used for drilling fuel, consumed as fuel in the operation of a gasoline or a recycling plant,

or in the production of natural resources in the State. Gas produced from oilfields vented or flared into the air is also not taxed.

6. Sulfur, $1.03 per long ton.

7. Salt, $0.06 per short ton,

6. Coal and ores, $0.1 Oper short ton.

9. Marble, $0.20 per short ton.

10. Stone, sand, and gravel, $0.03 per short ton.

The revenue collected through the severance tax is distributed as follows:

1. One-third of all severance taxes are credited to the State's general

fund.

2. One-third of the severance tax on sulfur and 20 percent of the severance taxes on oil, gas, coal, ores, shells, marble, stone, sand,

and gravel is allocated to the parish within which the taxes are

collected. These credits are subject to a limit of $100,000 per parish from the sulfur tax and $200,000 per parish from all mineral taxes.

Severance taxes not otherwise allocated are credited to the Severance Tax

Fund [47-645].

Maine

The 1982 Maine Legislature enacted an annual excise tax on all mining

companies in the State. This tax is in lieu of all property taxes on the mining

property except for real property taxes on the buildings, excluding fixtures,

and the land, excluding the value of minerals or mineral rights [28541.

34
Maine

The annual excise tax on each mine site Js the greater of the following:

1. The value of facilities and equipment multiplied by 0.005.

2. The mine's gross proceeds multiplied by:

a. if net proceeds are greater than zero, the greater of 0.009 or

[0.045-Gross Proceeds/(Net Proceeds *100)]

b. If net proceeds are less than zero, .009 [2856].

In computing a company's tax, gross proceeds and net proceeds are to

be computed as if each mine site were a separate taxpayer [2857].

Credits are allowed against the mine excise tax for property taxes paid

on land and buildings and for a portion of property taxes paid on the value

of mineral lands during the year mining commences. The amount of the

credit for taxes paid on the value of mineral land is equal to the number of

days t)etween the date mining commences and the next March 31st, divided

by 365, multiplied by the property taxes paid during that property tax year

[2858.1].

Estimated taxes equal to the lesser of last year's tax liability or 80 percent

of the liability for the current year are to be paid on or before the dates

Federal corporate estimated income taxes are due [2859.1].

Revenues from the excise tax are to be used to reimburse municipalities

for a portion of the revenue lost due to the exemption of mining property,

other than land and buildings, from the property tax [2861]. Revenues

remaining after municipal reimbursement shall be distributed as follows:

Year añer mining General Mining impact Mining e

commences fund assistance fund tax trust

Percent

1 20 80 0

2 15 75 10

3 20 65 15

4 25 50 25

5 25 45 30

subsequent 30 10 60

The mining excise tax trust fund is to be used to purchase and develop land

for park and recreational areas, to purchase wildlife or marine habitats and

unique natural areas, and to restore the quality of marine waters, lakes,

rivers, and streams [455].

35
Stinson/Temple

The mining impact assistance fund makes grants to municipalities, counties,

and the unorganized territory education and services fund for providing

new or additional public facilities and services related to mining [2863].

Michigan

Michigan levies a production tax on individuals severing oil or gas. This tax

produced nearly $83 million in 1981, or slightly more than 1.3 percent of

State tax revenues. The tax is levied at 5 percent of gross value of gas

severed. Oil is taxed at a rate of 6.6 percent, except for stripper well crude

and crude oil from marginal properties which is taxed at 4 percent [205:30],

There is also an additional fee not to exceed 1 percent of gross market

value [319:22]. These taxes are in lieu of all other taxes, State or local, on

the oil or gas, the property rights attached to them, or the values created

and upon all leases or the rights to develop any land for oil or gas [205:303],

Michigan also has a tax on low-grade iron ore production; a similar tax

on copper mining was removed in 1960. While plants for the beneficiation

or treatment of low-grade iron ore are being constructed, the property is

subject to an annual tax equal to the rated annual capacity of the plant in

gross tons multiplied by 0.55 percent of the value per gross ton, multiplied

by the percent completion of the mining property [211:622]. After production

has been established on a commercial basis, the property tax is equal to

the average annual production during ttie preceding 5-year period multiplied

by 1.1 percent of the value of the ore [211:623]. If at any time, however,

the specific tax as determined in section 623 (above) is less than the tax

determined under section 622, the provisions of section 622 become

controlling [211:624].

The tax provided in this act is in lieu of ad valorem taxes on the lowgrade iron ore, the low-grade iron ore mining property, and the lands used

in mining, quarrying, transporting, and beneficiating the ore, as well as

taxes on mining or producing concentrate from the ore or on iron ore pellets

or other concentrated products |211:624].

36
Michigan-Minnesota

Minnesota

Minnesota received nearly $98.9 million from mineral taxes during 1981.

This sum amounted to slightly more than 2.9 percent of State tax revenues.

The major revenue source is the tax on production of iron ores and lowgrade iron ores such as taconite.

An occupation tax of 15 percent of the value of production is levied on

production of taconite, semitaconite, and iron sulfides; all other iron ores are

taxed at 15.5 percent [298:01]. Gross value of the ore is defined as the

Erie pellet or ore price adjusted for iron content [298:03].

To encourage employment and the utilization of lower grade and

underground ores, a credit is allowed against the occupation tax if the ore

is beneficiated in the State. The credit per ton is equal to 10 percent of

labor costs in excess of $0.70 per ton and less than $0.90 per ton, and 15

percent of labor costs in excess of $0.90 per ton. For ore from open pit

mines not beneficiated in the State, the credit per ton is 10 percent of labor

costs between $0.80 and $1.05 per ton plus 15 percent of labor costs in

excess of $1.05 per ton. Both credits apply only to the first 100,000 tons

per year For underground and taconite operations, the credit may not

exceed 8.25 percent of the taxable value of the ore; for other operations,

the limit is 6.2 percent [298.02].

If allowable costs for mines other than taconite and semitaconite exceed

the value of the ore at the surface, a tax credit is allowed. The credit is

computed by applying the current tax rates to the excess of such costs over

the value, limited to 53.68 percent of the credit for open pit mine and 42.1

percent for underground mines [298:027]. A credit is also allowed for pollution

control equipment.

Minnesota also taxes all royalties received for permission to explore, mine,

take out, and remove ore. Royalties on taconite, semitaconite, and iron

sulfides are taxed at 15 percent; royalties on natural iron ores are taxed at

15.5 percent. The labor credit allowed under the occupation tax is also

allowed for the royalty tax [299:01]. Copper-nickel royalties are taxed at 1

percent with an additional tax of 1 percent on gold, silver, or other precious

metals [299:013].

37
state Mineral Taxes, 1982

In addition to the occupation and royalty taxes, the production of

merchantable iron ore concentrates from taconite and iron sulfides is taxed.

Minnesota levies a base tax of $1.25 per ton of merchantable iron ore

concentrate produced. In 1978 and beyond, this base Is multiplied by the

ratio of the steel mill products index during the production year divided

by that index for 1977. In no event, however, will that tax ever be less than

$1.25 per ton. A surtax is levied at 1.6 percent of the total tax above for

each 1 percent that the iron content of the concentrate exceeds 62 percent

when dried at 212°F [298:24, 298:393]. Also, there is a $0.10 per-ton tax

on tailings discharged into water [298:24(2)]. In 1982, the production tax rate

was $1.94 per ton plus any applicable surtax.

The production taxes imposed on taconite and iron sulfides are in addition

to the occupation tax imposed on the business of mining and producing

iron ore, the royalty tax, the taconite railway tax, and an ad valorem tax on

unmined taconite ore. The production tax hs in lieu of all other taxes on

taconite or iron sulfides, the lands in which they are contained, their mining,

quarrying, and concentration, or upon the machinery, equipment, tools,

supplies, and buildings used, in addition, firms receive a credit of up to $0.04

pertonfor direct taxes paid for principal and interest on bonds issued by

a school district or a city.

Proceeds from the taconite production tax are divided as follows [298:28]:

1. $0.025 per ton to the city or town in which the taconite was mined

or beneficiated.

2. $0.125 per ton tathe taconite municipal aid aœountto be distributed

to cities on Minnesota's Iron Range.

3. $0.06 per ton to the school district in which the mine is located.

4. $0.23 per ton to Iron Range school districts to be distributed in

proportion to the district's permitted fevies.

5. $0.155 per tonto the county in which the taconite was mined.

6. $0.004 per ton to the county road and bridge fund in the county

where the taconite was mined.

7. $0.24 per ton to the taconite property tax relief account.

8. $0.01 per ton to the State.

9. $0.03 perton to thelron Range Resources and Rehabilitation Board.

10. The remaining proceeds are to be divided equally between the

taconite area environmental protection and economic development

fund and the northeastern Minnesota economic protection fund.

38
Minnesota

Ten percent of all occupation taxes are distributed to the University of

Minnesota, 40 percent to foundation aids, and 50 percent to the State's

general fund (298.17].

The mining of semitaconite and agglomerates and the production of ore

concentrate are also taxed. Concentrates from agglomerates are taxed at

$0.05 per gross ton; concentrates from semitaconite not sintered within the

State are taxed at $0.10 per ton. To both of these rates is added a tax of

$0.001 per gross ton for each 1 percent that the iron content of the product

exceeds 55 percent when dried at 212°F [298:35]. Again, this tax is in

addition to the occupation tax. If, however, at least 1,000 tons of concentrate

are not produced during the year, the tax may be levied at the local millage

rates, provided that the tax will not be greater than that on the assessed

value assigned to semitaconite in 1958 or an amount sufficient to raise $1

per acre.

Proceeds of the semitaconite tax are returned to the various taxing districts

where the semitaconite was mined according to the following formula

[298:39]: 22 percent to the city or town, 50 percent to the school district, 22

percent to the county, and 6 percent to the State.

Other low-grade iron ores which must be separated from other detrimental

compounds and elements before processing are taxed at the same rate as

semitaconite [298:428].

The combined occupation, royalty, and excise taxes imposed on taconite

cannot be increased to exceed the greater of (1) the amount which would

be payable if such taxes were computed under 1963 law or (2) the amount

which would be payable if the person or corporation were taxed with respect

to the income, franchise, and excise tax laws generally applicable [298:40,

art. XXII Minn. Const.].

Minnesota also levies occupation and production taxes on copper-nickel

mining. The occupation tax, levied at 1 percent of value, is based on the

value of ore produced less costs of labor and supplies, costs of overburden

removal or tunnel construction, and royalties. The value of the ore is also

net of the tax on ore transported to a concentrating mill [298:61]. A credit

is allowed against the tax for intrastate processing and for research

experimentation and exploration [298:54,55].

Copper-nickel production is also subject to a production tax of $0.025 per

ton [298:61]. The base tax increases by 10 percent for each 0.1 percent

that the average copper-nickel content per each gross ton of ore exceeds 1

39
Stinson/Temple

percent. The prcx;eeds from the copper-nickel occupation and production

taxes are distributed In the same way as the taconite taxes.

A county option severance tax on gravel pits, at up to $0.10 per cubic

yard, also exists [298:75].

Mississippi

Mississippi received nearly $85.7 million in oil and gas production taxes

in 1981 .These taxes accounted for more than 6.1 percent of State tax

revenue.

The severance tax on oil is levied at $0.06 per barrel or 6 percent of value,

whichever is greater [27:25.503]. Natural gas is taxed at 6 percent of value

or 3 mills per 1,000 cubic feet, whichever is greater [27:25.703].

Proceeds from the severance tax on oil are distributed as follows:

1. On the first $600,000, 90 percent to the State and 10 percent to the

county.

2. On the next $600,000,66% percent to the State and 33y3 percent to

the county.

3. Above $1.2 million, 95 percent to the State and 5 percent to the county.

If oil-producing properties exist within the corporate limits of a municipality,

the municipality shares the funds returned to the county in the proportion in

which severance tax proceeds from properties located within the

municipality bear to ttie total tax proceeds of the county. In no event, however,

shall the amount allocated to municipalities exceed one-third of the tax

produced in the municipality. The balance of the funds returned to the county

is to be divided among the various funds and districts at the discretion of

the board of supervisors.

The tax levied on gas production is distributed slightiy differently. Two-thirds

of the revenue goes to the State's general fund and one-third to the county

[27:25.705]. Again, if gas-producing property lies within the territorial limits

of any municipality, the municipality receives a pro rata share (not to exceed

one-third of the tax) based on the proportion of the tax collected in the

county that is derived from property located in the municipality.

All gas produced in the State and ail gas-producing properties are exempt

from ad valorem taxes levied by the State or any taxing district in the State

[27:25.721]. This exemption does not apply to personal property used to

drill for or gather gas, nor does it apply to the surface rights of land. However,

40
Mississippi-Montana

no additional assessment may be added to the surface value of the lands

by reason of the presence of gas.

The State also levies a charge of 10 mills per barrel of crude oil and up

to 1 mill per 1,000 cubic feet of gas produced to pay expenses incurred in

the administration and enforcement of the oil and gas conservation laws

[53:1.73].

The State also levies a license fee on all individuals mining clays, lignite,

or other earth products. The tax is $75 if output is more than 1,000 tons per

year; $25 if output is less.

There is also a salt severance tax at 3 percent of the value of production

[27:25.305].

Missouri

The 1982 Missouri Legislature enacted a limited per-unit tax on surface

coal mining. Revenues from this tax go to the Coal Mine Land Reclamation

Fund and are to be used to complete reclamation of any surface coal

mine after proceeds from any applicable performance bond have been

exhausted. Each permittee is assessed $0.30 per ton for the first 50,000

tons sold in each calendar year and $0.20 per ton for the next 50,000 tons

sold. No further assessments are due thereafter in that calendar year

[444:965.1].

Whenever the total balance in the fund exceeds $3 million as of the close

of the State's fiscal year, no assessments are required except from new

permittees [444:965.1]. Whenever an expenditure is made from the fund

for reclamation activities, a surcharge of 25 percent is levied in addition to

the regular assessment. This surcharge remains in effect until the

reclamation expenses have been recovered or until the fund reaches $3 million,

whichever comes first [444:965.3].

Montana

Montana levies gross proceeds taxes on the production of most minerals.

Coal, metals, oil and gas, micaceous minerals, cement, and gypsum are

subject to individual taxes and there is a general tax on the gross product

of any type of mining. In addition, since these taxes are not in lieu of the ad

valorem taxes, all mines are subject to local property taxes. In 1981,

Montana received about $92 million or about 19.6 percent of State tax

revenues from special mineral taxes.

41
State Mineral Taxes, 1982

Minerals are also tsüced through a series of selective license taxes levied

on the privilege of mining. These tax rates differ, allowing the State to

take account of differences in production costs fordifferent types of minerals.

The license fee for mining metals, precious or semiprecious stones, or

gems is based on the gross value of the products. The annual fee is $1 plus

the gross production levy. Rates for the gross production levy are: first

$100,000, 0.15 percent; above $100,000 not exceeding $250,000, 0.575

percent; above $250,000 not exceeding $400,000, 0.86 percent; above

$400,000 not exceeding $500,000, 1.15 percent; above $500,000,1.438

percent [15:37.103].

The State license tax on micaceous minerals such as vermiculite, perlite,

kerlite, and masonite is $0.05 per ton. A tax of $0.22 per ton is levied on

each ton of cement produced, used, or imported for use in the production

of cement, gypsum, gypsum plaster, stucco, wallboard, land plaster, or

other products. Gypsum produced, manufactured, or used is taxed at $0.05

per ton [15:37.201,15:59.201, 15:59.102].

Every person producing or extracting oil or natural gas in Montana must also

pay a tax on the total gross value of all merchantable or marketable natural

gas produced. Natural gas is taxed at a rate of 2.65 percent of total gross

value—where total gross value is defined as the average value at the

mouth of the well during the month the gas is produced, less any amount

used in production operations. There is, however, no severance tax for

3 years on gas wells that are greater than 5,000 feet deep and drilled i>etween

1976 and 1983. To qualify for this exemption, the gas must be sold to

consumers, either the majority of whom or at least 10,000 of whom are

Montana residents [Ch. 265, Laws 1981].

Ail oit produced is taxed at 5 percent of total gross value until March 31,

1983, and at 6 percent thereafter [Ch. 536, Laws 1981].

The amount by which the oil production tax from any county exceeds the

total amount collected from within that county during the previous fiscal

year, by reason of increased production and not because of increase in or

elimination of Federal price ceilings on oil and gas, is allocated to the

general fund of the county for distribution [15:36.112(2)(a)].

A privilege and license (formerly conservation) tax on oil and gas is levied

at rates set by the State Oil and Gas Commission. The maximum rate is

0.2 percent of market value [82:11.131-135].

42
Montana

The Montana eoal severance tax is designed to take account of differences

in the heating value of coals and differences in the cost of mining. The

rates are:

Btu's/lb Surface mine ^ Underground mine

\

7,000 or less $0.12/ton or 20% of value $0.05/ton or 3% of value

7.000 to 8,000 $0.22/ton or 30% of value $0.08/ton or 4% of value

8,000 to 9,000 $0.34/ton or 30% of value $0.10/ton or 4% of value

more than 9,000 $0.40/ton or 30% of value $0.12/ton or 4% of value

The Montana coal severance tax is levied on the contract sales price of the

coal—the f.o.b. mine price less any taxes levied on a per ton basis—not

on the full value of the coal [15:35.103].

Revenue from the coal license tax is allocated as follows:

t. The State Coal Trust fund receives 50 percent of all revenues.

2. The Alternative Energy Research and Development Account receives

2.25 percent of collections.

3. The Local Impact and Education Trust receives 18.75 percent of

total collections [28.1251.

4. The State School Equatization Fund receives 5 percent of all

collections.

5. The County Land Planning Account receives 0.5 percent of

collections.

6. The Renewable Resource Development Account receives 1.25

percent of collections until July 1,1983. After that time, it receives

0.625 percent.

7. Parks acquisition, operation, and management receive 2.5 percent

of collections.

8. The State Library Commission receives 0.5 percent of collections.

9. Conservation districts receive 0.25 percent of collections.

10. After July 1,1983, the Water Development Account receives 0.625

percent of collections.

11. All other revenues are deposited to the State general fund.

The same act established a Coal Board to make grants to local

governments affected by coal development. The board has seven members,

all appointed by the Governor. Two are required to have expertise in school

matters and two others must reside in coal impact areas.

The general mineral mining tax is levied on all individuals or firms mining,

extracting, or producing a mineral from the surface or subsurface of the State.

43
Stinson/Temple

This tax is levied at a rate of $25 plus 0.5 percent of the gross value of

the production in excess of $5,000. The revenue from this tax goes to a special

State fund [15:38.104, 15:38.106(2)]. When the fund reaches $10 million,

interest may be used to rectify environmentaJ damage caused by coal mining.

When the fund reaches $100 million, revenue from the tax as well as the

interest generated can be used.

Taxes imposed on mineral production in Montana are in addition to the

ad valorem taxes due. Montana has a classified property tax system in which

ail property Is put in one of 11 classes. Forclass 1 property, which includes

annualnet proceeds of all mines except coal and metal mines, and the right

of entry upon mining land, the taxable percentage is 100 percent of rnarket

value. Gross proceeds from strip mines are taxed on 45 percent of full value;

proceeds from underground mines are taxed at 33.3 percent. The metal

mines are taxed on 3 percent of net proceeds [15:6.131 to 15.6.141].

The 1981 legislature enacted a measure requiring any person intending

to construct a iarge-scale mineral development to prepay three times the

estimated property tax due the year the facility is completed. This

prepayment is then allowed as a credit against future tax liabilities [15:16.201,

HB718.UWS1981].

Nebraska

Nebraska levies a gross proceeds tax on oil and gasproduction at a rate

of 3 percent of the value of resources at the time of severance. Oil from

wells producing 10 barrels per day or less is taxed at 2 percent [57:703,

LB. 257,1981]. Oil and gas is also subject to a conservation tax ata rate

set by the State Oil and Gas Gommission, but not to exceed 4 mills per

dollar on the value of the oil and gas at the well [57:919].

In 1981, these taxes produced approximately $4.2 million or about 0.5

percent of the State's revenue.

Revenue from the oil and gas severance tax goes to the Severance Tax

Fund [57.705]. The portion of the Severance Tax Fund received from school

lands goes to the Permanent School Fund. Of the balance, $500,000

annually is to be allocated to the Nebraska Energy Research Fund and the

remainder to the School Weatherization Fund. After July 1,1983, that

portion of the severance tax fund revenues coming from other than school

tands is to be credited to the School Foundation and Equalization Fund

[57:705].

44
Nebraska-New Mexico

New Mexico

New Mexico's mineral tax system is extensive and complicated. All minerals

extracted are subject to severance and resource excise taxes whose rates

depend on the mineral produced. Coal and natural gas are subject to a

per-unit tax. All other minerals are taxed through a gross production tax. In

1981, the State received more than $322.5 million in severance taxes,

about 27 percent of total State tax revenue.

For minerals other than potash, molybdenum, uranium, coal, oil, and gas,

the tax is based on the sales value of the severed product at the first

marketable point without deductions. For minerals with a posted or field

price at the point of production, however, gross value is its posted field or

market price, less the expenses of hoisting, crushing, and loading necessary

to place the severed product in a marketable form in a marketable place.

These deductions are limited to an amount less than 50 percent of the

gross sales price. For products that must be beneficiated, the gross value

is the sales value after deducting freight charges from the point of severance

to the point of first sale and the cost of beneficiation.

The gross value of potash and molybdenum is determined slightly

differently. For potash, the gross vaiue is 33V3 percent of the proceeds realized

from the sale of muriate of potash and sulfate of potash magnesia and

33y3 percent of the value of those products consumed in the production of

other potash products, less 50 percent of the reported value as a deduction

for the expense of loading, crushing, processing, and beneficiating. For

molybdenum, the gross value is the value of the molybdenum contained

in concentrates shipped from a mine site, less 50 percent of that value as a

deduction for the expenses of hoisting, loading, crushing, and beneficiating

[7:26.4].

Severance tax rates on minerals are as follows:

Class Mineral Tax rate (%)

A Potash 2.5

B Copper .5

C Timber .125

D Pumice, gypsum, sand, gravel, clay,

fluorspar, and other nonmetallic minerals .125

E Gold, silver, manganese, lead, zinc,

thorium, molybdenum, rare earth, and

other metals -125

45
State Mineral Taxes, 1982

The severance tax on coal is levied on a per-ton basis. Severance of

steam coal is taxed at $0.57 per ton ($0.55 per ton for underground mines).

The coal severance tax is increased each year by a surtax computed by

multiplying the dollar amount of the severance tax in 1976 by the percentage

increase in the consumer price index from calendar^ 1976 to the calendar

year just prior to the year in which the surtax rates are computed [7:26.9].

In July 1982, the surtax was $0.34 per ton ($0.328 underground). Uranium

production (UsOs) is taxed according to the foJIowing schedule:

Taxable value of UsOs

Over But less than Tax per pound

0 $ 5.00 2%

$ 5.00 $ 7.50 $0.10 + 4% of excess over $5.00

$ 7.50 $10.00 $0.20 + 6% of excess over $7.50

$10.00 $15.00 $0.35 + 7% of excess over $10.00

$15.00 $20.00 $0.70 -f- 8% of excess over $15.00

$20,00 $25.00 $1.10 + 9% of excess over $20.00

$25.00 $30.00 $1.55 + 10% of excess over $25.00

$30.00 $40.00 $2.05 4- 11 % of excess over $30.00

$40.00 $3.15 + 12.5% of excess over $40.00

If, however, the taxpayer registers with the Department of Revenue an

arm's length contract entered into prior to January 1,1977, which does not

allow the taxpayer to obtain reimbursement for alt of the additional taxes

imposed by this section, the severance tax on the matehal covered by that

contract is 1.25 percent of the sales price of each pound of UaOe contained

in and recovered from the uranium ore [7:26.7].

Until June 30,1964, the taxable value for severed and saved uraniumbearing material is 60 percent of the sales price per pound of the UaOs

contained in the uranium ore. After June 30,1984, the taxable value will

be the full sales price [Ch. 169, Laws of1981].

There are also credits against the severance tax for those mining uranium

on or before January 1,1980. In fiscal 1983, the credit is equal to 50 percent

of the tax on the first 50,000 pounds [7:26.71].

A resource excise tax is also levied on the severing of hard minerals. This

tax is really three mutually exclusive taxes: a resources tax, a processors

tax, and a service tax. For all resources except timber, molybdenum, and

potash, the resources tax and the processors tax is 0.75 percent. For

potash, the resources tax is 0.5 percent and the processors tax is 0.125

46
New Mexico

percent. For timber, the resources tax is 0.75 percent and the processors

tax is 0.375 percent. For molybdenum, both ttie resources and the processors

tax are 0.125 percent [7:25.4,7:25.5]. In the case of both timber and potash,

the tax is designed to encourage in-state processing of the resource. A sen/ice

tax is levied against natural resources severed or processed and owned

by another individual which are not othenwise taxable. It is imposed at the

same rate as the resources tax [7:25.6].

Unlike many States, the mineral taxes in New Mexico are not in lieu of other

State and local taxes. Any individual who sells nonrenewable natural

resources other than for subsequent sale in the ordinary course of business

or for use as an ingredient or component of a manufactured product is

subject to the gross receipts and compensatory tax [7:9.1-9].

Mineral property is also not exempt from the ad valorem tax in New Mexico.

Mineral properties, other than those producing potash or uranium, are classified

as class 1 nonproducing mineral property if they are held under private

ownership and known to contain commercially workable minerals, but are

not presently being mined. Class 1 producing mineral properly is property

meeting the requirements for class 1 nonproducing mineral property, except

that it is being mined. Class 2 mineral property is defined as minerals

taken from property where the United States holds the mineral rights.

Class 1 productive mineral property is valued at 300 percent of the annual

net production value of the property [7:36.23]. The surface value for agricultural

or other purposes also is included when the surface interest is held by

the same owners as the mineral rights.

Class 1 nonproductive mineral property is valued for ad valorem tax

purposes by applying a per-acre value determined by the Department of

Revenue to the surface areas of the property. This per-acre value is to

be based on the tíonus bids accepted by the Commissioner of Public Lands

for the latest period in which bids were accepted for the sale of mineral

leases.

Class 2 mineral property is valued at an amount equal to 300 percent of

the annual net production [7:36.23].

Oil and gas production in New Mexico ¡s subject to several taxes. The

State imposes an oil and gas severance tax [7:29.4], an oil and gas equipment

tax [7:34.4], an oil and gas consumption tax [7:30.4], an oil and gas privilege

tax [7:31.4], a gas processors tax [7:33.4], and an oil and gas ad valorem

47
Stinson/Temple

tax [7:32.4]. The conservation tax, privilege tax, and the ad valorem tax

also apply to carbon dioxide.

The oil and gas severance tax was modified in 1980. Oil, liquid

hydrocarbons, and carbon dioxide are taxed at a rate of 3.75 percent of the

product's value less any royaKies paid to the United States, New^

any Indian tribe or pueblo, or any Indian who is a ward of the United States,

and less the expense of trucking any product from the production unit to

the first place of market [7:29.4].

For natural gas, the rate is $0,087 per 1,000 cubic feet [7:29.4]. There is

also a surtax on natural gas equal to the percentage rise in the consumer

price index since 1976 times the fixed rate of $0,087 [7:26.9]. in July 1982,

the surtax was $0,052 per 1,000 cubic feet of gas.

TaDcpayèrs liable for the payment of additional taxes imposed by the surtax

are entitled to a credit against that tax if they entered into a contract prior to

January 1,1977. forthesaie of oil or gas which does not allow the taxpayer

to obtain reimbursement for any additional taxes levied, or if a Federal

regulation prevents reimbursement. The credit Is equal to the amount of

increased taxes lor which the producer is not reimbursed. A similar credit is

available to producers of metallurgical coal on which severance t^^

have increased if the contract was entered before June 1,1979 [7:26.61].

Since 1980, oil and gas production has been subject to a second severance

tax at a rate of 2.55 percent of the value of production, less royalties to the

United States, New Mexico, or Indian tribes; the expense of trucking the

product to market; and the value of any products of a person taxed under

the occupational gross income tax [7:31.2, 4, 5].

Oil, gas, liquid hydrocarbons, geothermal energy, coal, and uranium are also

subject to a conservation tax [7:30.41. This tax is levied at 0.19 percent

of taxable value. Taxable value for all items except coal and uranium is defined

as the value at the point of first sale less transportation expenses, and

royalties due the United States, the State, and any Indian tribe. For coal,

taxable value is the value under the resources excise tax less royalties

to any Indian tribe. For uranium, taxable value is 25 percent of the value

under the resources excise tax less any royalties to Indian tribes [7:30.4].

Gas processors are also subject to tax at a rate of 0.45 percent of the value

of the products less the value of those products used for plant fuel by

48
North Dakota

the processor, returned to the lease, or sold to the United States, New Mexiœ,

local government, nonprofit hospitals, or religious and charitable

organizations.

Finally, the State applies an oil and gas production tax in place of an ad

valorem property tax. The tax is imposed on the assessed value of production,

which is an amount equal to 150 percent of the value of the products

after deducting royalties paid to the United States, the State, or any Indian

tribe, and a reasonable expense for trucking to the place of first marketing.

Taxable value is determined by applying the uniform tax ratio to the assessed

value of the product [7:32.4].

North Dakota

North Dakota has a gross production tax on oil and natural gas and a

per-unit severance tax on coal. In 1980, these taxes produced more than

$103 million, almost 23 percent of total tax revenues.

The gross production tax on oil and gas is levied at 5 percent of the gross

value of production at the well [57:51.02]. This tax is in lieu of all ad valorem

taxes imposed by the State, counties, cities, townships, school districts, and

other taxing jurisdictions on the property rights attached to producing oil

or gas, upon machinery or equipment used In the production of gas or oil,

or on the gas or oil produced [57:51.03].

Twenty percent of the revenue collected is credited to the State's general

fund. The remaining 80 percent of the production tax revenue is divided

as follows:

1. The first $200,000 of revenue from each county is divided with 75

percent going to the county and 25 percent to the State's general

fund.

2. The second $200,000 of revenue from each county is divided with

50 percent going to the county and 50 percent to the State.

3. All annual revenue above $400,000 produced in any county is allocated

25 percent to the county and 75 percent to the State's general

fund.

Forty percent of all revenue allocated to each county is to be credited to

the county road and bridge funds. However, the county commissioners may

use this money for projects dealing with the control and utilization of water

resources. Forty-five percent of all revenues allocated to any county shall

be apportioned to the school districts on the basis of average daily

49
state Mineral Taxes, 1982

attendance. Fifteen percent of ail revenues allocated to the counties shall

be paid to the incorporated cities of the county based on the population

of the cities [57:51,15],

In 1980, an initiative was approved which levied an oil extraction tax of

6.5 percent of gross value. Oil from stripper wells and the first 100 barrels

per day of royalty interests in the production from each well are exempt

from this tax.

Revenues collected under the oil extraction tax are to be credited to the

oil extraction tax development fund and apportioned quarterly as follows:

1. 45 percent to the State school aid program.

2. 10 percent to a special trust fund to be established in the State

treasury. The first $15 million is to be appropriated for the

remodeling and reconstruction of the Grafton State School. After that,

the principal of this trust fund shall not be used for any purpose.

The income, however, shall go for programs of energy conservation

and energy development from renewable resources.

3. 45 percent to the State general fund.

In 1975, the legislature placed a severance tax on coal and provided that a

portion of the funds collected be available to assist local governments feeling

the impacts of development. This tax, which was to have a life of only 2

years, was reenacted In 1977 and again in 1979. Goal mining is now taxed

at a rate of $0.85 per ton, plus an additional $0.01 per ton for each 4

points the wholesale price index increases. For 1982, the actual rate was

$1.00 per ton. This tax is in lieu of any sales or use taxes collected on

the sale of coal. It is not in lieu of ad valorem taxes on the mine site, however

[57:61.01].

All money collected from the severance tax on coal goes to a specially created

Coal Development Fund. Deposits in the fund are to be apportioned

according to the following formula [57:62.02]:

1. 35 percent of the funds are credited to a special fund for distribution

through grants by the Coal Development Impact Office to affected

cities, counties, school districts, and other taxing districts. Funds

available are limited to the amount appropriated biennially by the

legislature.

2. 15 percent of the revenue is credited to a special fund to be held in

trust by the State Treasury and administered by the Board of

50
North Dakota

University and School Lands. This fund is available for loans to affected

units of local government. Before making a loan, however, the

Board of University and School Lands must receive the recommendation of the Coal Development Impact Office. The board has the

power to prescribe the terms and conditions of these loans, and

It is to require a warrant from the unit of local government as evidence

of the loan. The warrants are to bear interest at a rate not exceeding

6 percent, and are to be payable only from money allocated from

the Coal Development Fund to the borrower. The warrants are

not to be considered a general obligation of the local government

nor as indebtedness of the unit of government. If the future

allocation of money to the borrowing unit of government ceases, the

loan shall be canceled. Funds not loaned may be invested by the

Board of University and School Lands as provided by law. The income,

including interest payments on loans, is to be deposited in the

State's general fund. Loan principal payments are to be redeposited

in the trust fund.

3. 20 percent of the revenue is to be allocated to the coal-producing

counties in proportion to the number of tons of coal produced in

each county. Within the county, the allocation is to be distributed as

follows:

a. 30 percent to incorporated cities of the county based upon the

population of each city.

b. 40 percent to the county government.

c. 30 percent to school districts in the county apportioned on an

average daily membership basis.

d. If the coal tipple is within 15 miles of a county where no coal is

mined, that county shares the revenue [57:62.02].

4. 30 percent of the revenue is deposited in the State's general fund.

The same act created the Coal Development Impact Office, the director of

which is appointed by the Governor. The office is empowered to develop

a plan to provide financial assistance to local governments in coal development

impact areas, to study and report to the Governor and the legislature on

the impact of coal development on local government, to establish procedures

and provide proper forms for use in making application for funds for impact

assistance, and to make grants to counties, cities, school districts, and other

taxing districts. In determining the size of the grant for which a political

subdivision is eligible, that revenue is considered which the local government

will receive from taxes on the real property of coal development plants

and from other tax or fund distribution [Ch. 563, Laws 1975, Sec. 14.4].

51
Stinson/Temple

North Dakota also taxes coal conversion facilities, in lieu of an ad valorem

tax on any of the property except the land on which the facility is located.

This tax is designed to provide additional revenue for communities where

electric generating plants or plants that convert coal from its natural form

into a substantiaHy different form will be located.

The tax is levied at a rate of 2.5 percent of gross receipts for facilities other

than gasification plants or electric generating plants. Gasification plants

are taxed at $0.10 per 1,000 cubic feet of gas produced or 2.5 percent of

gross receipts, whichever is greater. For electric generating plants, the

tax is 025 mill per kilowatthour produced.

Proceeds from the coal conversion tax on each facility are apportioned

65 percent to the State's general fund and 35 percent to the county in which

the plant is located. The amount received by each county is apportioned

as foltows:

1. 30 percent is divided among all incorporated cities in the county

according to the population of each as shown by the last regular

or special census.

2. 40 percent is deposited in the county's general fund.

3. 30 percent is divided among air school districts in the county on the

basis of average daily membership.

Ohio

Ohio levies a per-unlt severance tax on certain natural resources to provide

revenue necessary to meet the environmental management needs of the

State and the reclamation of land affected by strip mining [5749:02]. In 1981,

the State received about $4.1 million from this tax.

The tax is levied at a fixed rate per ton according to the following schedule:

$0.04 for coal; $0.04 for salt; $0.01 for limestone and dolomite; and $0.01

for sand and gravel. Oil is taxed at $0.03 per tmrrel and natural gas at $0.01

per 1,000 cubic feet. The money cotleeted through these taxes is for strip

mine reclamation and oil and gas well plugging.

In 1975, as part of the legislation establishing a State energy office, coal

conversion facilities were exempted from corporate taxes and personal property

taxes for up to 30 years [5709:35]. Under the provisions of this section,

a coal conversion facility was defined to be a gasification plant built under

the auspices of the Federal Government, pursuant to a contract with the

52
Ohio-Oklahoma

Energy Research and Development Agency, now part of the Department of

Energy [5709:30].

Oklahoma

Oklahoma levies gross production taxes on oil, natural gas, and several

otiier minerals. The tax yielded more than $601 million or about 27 percent

of total State tax revenues in 1981.

Every person engaged in the production or mining of asphalt, petroleum,

natural gas, or ores bearing lead, zinc, jack, gold, silver, or copper is liable

for the severance tax. The tax is levied at a rate of 0.75 percent on the gross

value of asphalt and ores bearing the above minerals and 7 percent on

the gross value of petroleum and natural gas [68:1001]. Uranium-bearing

ore is taxed at 5 percent of gross value [68:1020]. These taxes are in

lieu of all taxes by the State, counties, cities, towns, school districts, and

other taxing districts on any property rights to any of the above minerals

[68:1001 (f), (g)]. The State also levies an oil excise tax of 0.085 percent of

the value of oil and gas produced.

The gross production tax is apportioned as follows [68:1101,1102]:

1. 78 percent of the severance taxes collected on oil, asphalt, or ores

bearing uranium, lead, zinc, jack, gold, silver, or copper and 2/7 of

the oil and gas excise tax goes to the State's general fund.

2. 78 percent of 5/7 of the excise taxes collected on oil and natural gas

is distributed among funds as directed by the Oklahoma State

Teachers Retirement System.

3. 10 percent of the severance taxes collected from each county is

returned to the county treasury to be credited to the County Highway

Fund.

4. 10 percent of 5/7 of the excise taxes collected from each county is

paid to the county treasurer of the county and credited on the tösis

of average daily attendance to the school districts of the county,

provided that the district makes an ad valorem levy of at least 15

mrlls per year and maintains 12 years of instruction.

5. 2 percent of the severance tax and 2 percent of 5/7 of the excise

tax is placed to the credit of the Oklahoma Tax Commission Fund.

Oklahoma also levies a conservation tax on natural gas and casinghead

gas. The tax is levied at $0.07 per 1,000 cubic feet, less 7 percent of the

gross value of each 1,000 cubic feet of gas provided that this tax shall

53
State Mineral Taxes, 1982

not exceed one-third the gross value of the natural gas nor be less than

zero [68:1108]. The receipts from this tax go to a Special Conservation

Fund to be spent pursuant to legislative approprvation.

Oregon

In 1981, Oregon enacted a gross production tax on oil and natural gas. The

tax is levied at a rate of 6 percent of the gross value at the well of all oil

and gas produced, less the value of any portion of which the ownership is

exempt from taxation [324:070]. The first $3,000 in gross sales from each

well during each calendar quarter is exempt from this tax as are any royalty

or other interests in the oil or gas owned by the State, counties, cities,

towns, school districts, or other municipal corporations or political subdivisions

[324:080.090].

All aä valorem taxes imposed by the State, counties, cities, towns, school

districts, and other municipal corporations and subdivisions on any property

rights attached to the right to produce oil or gas shall be allowed as a credit

against the severarKiîe tax due. Ac/ v^a/orem taxes on producing gas leases;

on machinery, appliances, and equipment used in and around any well

producing oil or gas and actually used in the operation of the well; and

on oil or gas produced in the State or upon any investment in such property

are also allowed as a credit against the tax [324:090(2)].

The revenues from this tax, after the payment of refunds and expenses of

the Department of Revenue in administering this tax, are paid into the

Common School Fund and are continuously appropriated to the Division of

State Lands for the purposes for which other monies in the Common School

Fund may be used [324:340].

South Dakota

In 1981, the South Dakota Legislature repealed the State's existing mineral

extraction tax, which was based on ttie net income of the mining firm, and

replaced it with a 6-percent gross production tax on the gross yield from

the sale of gold and silver mined in South Dakota. The 4.5 percent gross

production tax on energy minerals was retained. In 1980, the former tax

and the energy minerals severance tax raised about $6 million for the State,

2 percent of tax revenues.

The precious metals severance tax applies to all persons severing gold and

silver in the State. If the processes of refining, finishing, or smelting are

carried on by someone other than the one who mined the ore, the tax will

54
Oregon-Texas

be allocated among the parties involved on the basis of the value of the

product at each stage of production, as determined by the Secretary of

Revenue. The tax is levied at a rate of 6 percent of the value of the finished

product. The tax does not apply to anyone severing less than 1,000 ounces

of precious metal in any calendar year [HB 1311,1981].

South Dakota imposes an energy minerals tax on all producers of coal, lignite,

petroleum, oil, natural gas, uranium, thorium, and any other mineral fuel

used in the production of energy. This tax is levied at a rate of 4.5 percent

of taxable value of the product, where taxable value is defined as the

sale price less any rental or royalty due the United States, South Dakota, or

any local government [10:39A.2].

Proceeds from the energy minerals tax are distributed as follows:

1. One-half of the proceeds are returned to the county in which the tax

was collected.

2 One-sixth of proceeds go to the State Energy Development Impact

Fund.

3. One-third of proceeds go to the State general fund [10:39A.8].

Tennessee

Tennessee levies gross production taxes on oil and natural gas and a

per-unit tax on coal. Oil and gas are taxed at 1.5 percent of the sales price

[60:1.301]. Proceeds from these taxes go to the State's general fund.

Counties and other local governments are prohibited from levying a similar

tax.

Coal mining Is presently taxed at $0.29 per ton. The rate is scheduled to

increase to $0.32 per ton on July 1,1983, and to $0.35 per ton on July

1,1984 [67:5902]. All revenue collected under this tax, less 3 percent to

cover administrative and collection expenses, is returned to the counties

in which the collection is made. Half the revenue returned goes to the

educational system of the county. The other half goes for highway

maintenance and water pollution control.

Texas

The gross value of minerals extracted in Texas is larger than that of any

other State. The revenues from gross production taxes on oil and natural

55
Stinson/Tempie

gas, and a per-unit severance tax or> sulfur are also much larger than those

of any other State. In 1981> the State received nearly $2.2 billion from

this source, approximately 27 percent of the State's tax revenue.

An occupation tax on the business of producing natural gas has been in

effect since 1931. The tax is 7.5 percent of the market value of the gas

produced [3:01 (1 ) Gen. Tax]. Revenue from this tax is distributed as follows:

0.5 percent for administration and enforcement, 25 percent of net revenues

to the available school fund, and 75 percent of net revenue to the Omnibus

Tax Clearance Fund, no portion of which can be altocated to any other fund

until the needs of the Medical Fund havebeen fully met [3:02],

Since 1933, Texas has also levied an occupation tax on the business of

producing oil in the State. The tax rate is 4.6 percent of gross value

[202.052]. There is also an additional tax of three-sixteenths of $0.01 on

each 42-gallon barrel [Sec81.11, Nat. Res. Code].

TKe State has also levied a tax on sulfur producers since 1930. This tax is

levied at $1.03 per long ton of sulfur [5:01].

Utah

Utah collects a gross production tax on metals, oil, and natural gas. In

1981, the State received more than $16 million from this revenue source,

about 1.9 percent of the State's tax revenue.

The most important source of revenue is the State's mining occupation tax.

Every person engaged in mining or extracting ore or metal containing

gold, silver, copper, lead, iron, zinc, tungsten, uranium, or other valuable

metal in the State must pay an occupation tax equal to 1 percent of the

gross amount received for the product. For oil, gas, or other hydrocarbons,

the occupation tax is 2 percent of value. The law provides for an annual

exemption from payment of the occupation tax for the first $50,000 in gross

value from each mine or well [59:5.67]. The taxes collected under this

provision go to the general fund [59:5.84]. There is also an oil and gas

conservation tax levied at a maximum rate of 2 mills on market value

[40^6.14].

In 1975, the legislature took steps to minimize the impact of future resource

development on local (X)mmunities. The legislature recognized that:

56
Utah-Virginia

1. The development and utilization of natural resources in the State,

particularly in rural areas, may have a significant financial impact

on State agencies, local immunities, and government unless

financing is available so that necessary public works and

improvements can be provided.

2. That it may be necessary and in the public interest of the State to

provide through utilization of prepaid sales or use taxes funds for

these necessary public works and improvements.

3. These necessary public works and improvements may in part be of

benefit primarily to the person developing or utilizing the natural

resource in this State [63:51.2].

As a result, the legislature provided that any person engaged in the

development of a resource facility may prepay all or a portion of the sales

taxes anticipated with the construction of the facility, including sales or use

taxes anticipated to be imposed upon contractors, agents, and subcontractors

[63:51.3]. All revenues collected under this provision go to a prepaid sales

and use tax construction account. This account is to be used to finance

State-related public improvements including but not limited to highways and

related facilities and schools and related facilities [63:51.5].

Funds for construction of the facilities needed as a result of the development

of natural resources shall be appropriated by the legislature to the State

Board of Education and the State Road Commission [63:51.6]. Appropriations

to the school fund shall be returned to the State's general fund by the

school district in which the new facility is located within 6 years after the

facility is completed.

Virginia

The 1982 Virginia Legislature enacted a limited per-unit severance tax

on coal mining to support Its coal surface mining reclamation fund. Operators

participating in the fund are subject to a reclamation tax in any quarter

during which the balance in the fund is less than $500,000.

The tax rates are as follows:

1. $0.02 per clean ton of coal produced by surface mining.

2. $0.01 per clean ton of coal produced by a deep mining operation.

3. $.005 per clean ton of coal processed or loaded by preparation or

loading facilities permitted [45:1-270.4].

57
state Mineral Taxes, 1982

Any operator not having 5 years satisfactory operation in the Commonwealth

prior to application for permit shall pay taxes at twice the rates above for

a period of 1 year after permit.

At the end of any calendar quarter in which the total balance in the fund

exceeds $1 million, payments shall cease until the balance is less than

$500,000. No operator is to pay tax on production in excess of 5 million

tons per year. Any operator holding a permit upon which coal is mined and

processed or loaded shall only pay the tax applicable to mining.

Counties and municipalities are authorized to tax coal or gas severance at

a rate of up to 1 percent of value [58:266.1].

Washington

Washington levies a tax of $0.05 per pound of uranium and thorium

compound milled from raw ore. The total charge from each radioactive

materials licensee shall not exceed $1 million from each licensee. Funds

from this tax go to the Department of Social and Health services to defray

the estimated costs of monitoring the mill site [70V121.050].

West Virginia

The West Virginia tax structure relies heavily on a series of annual taxes

on the privilege of doing business in the State. The extraction of coal and

other natural resources is one of the occupations covered under this tax,

which is really a gross production tax.

The gross product of mines is taxed at the following rates: 3.5 percent

for coal; 2.2 percent for limestone or sandstone; 4.34 percent for oil; 8.63

percent for natural gas in excess of the value of $5,000; 4.31 percent for

blast furnace slag; 4.34 percent for sand, gravel, or mineral products not

quarried or mined; and 2.86 percent for other natural resource products

[11:13.2a].

In 1975, an additional tax on the severance of coal was enacted. This

act added 0.35 percent to the tax previousiy imposed. Seventy-five percent

of the net proceeds of this additionaltax is distributed to the county. The

remaining 25 percent of the net proceeds is deposited in the county and

municipal fund [11:13.21].

58
Washington-Wisconsin

Wisconsin

Wisconsin has a single comprehensive net proceeds tax with a progressive rate schedule for all metallic mineral mining. This tax, revised in 1981,

replaced previously existing taxes on the mining of low-grade iron ore

and copper.

In Wisconsin, taxable net proceeds are computed as follows [70:375.4]:

1. Gross proceeds are equal to the company's production of ore or ore

concentrate during the taxable year muJtiplied by the appropriate

price. For taconite pellets, copper, lead, zinc, silver, and gold, the

price is computed from the monthly prices published in the

Engineering and Mining Journal. For other metallic minerals or other

forms of metallic minerals, the price is determined administratively

by the Secretary of Revenue [70:375.3].

2. Net proceeds are gross proceeds less deductions for expenses

incurred by the mining company in converting the ore in the ground

to the product to which the published price applies. Deductions

allowed include:

a. Costs of labor, tools, appliances, and supplies used in mining.

b. Costs of transporting, milling, concentrating, smelting, reducing,

assaying and sampling, inventorying, and handling the ore.

c. Expensesforadministration, accounting, appraising, legal, medical,

engineering, clerical, and technical services directly related to mining in the State.

d. Expenses related to repair and maintenance.

e. General and personal property taxes, Federal and State income

taxes, sales and use taxes, and other taxes deductible under the

income tax, excluding the metallrferous minerals tax.

f. Rents paid on personal property used in mining.

g. Costs of employee relocation within the State,

h. Premiums for bonds required by State law.

i. Premiums for insurance on persons or tangible assets.

j. Losses from uninsured casualty losses and the sale of personal

property used in mining,

k. Straight-line depreciation on machinery, mill, and reduction works,

buildings, structures, and permit fees, license fees, and other

fees required by the State.

I. Royalties paid to owners of mineral rights to the land where the

mine was located,

m. Amortization by a straight-line method over the life of the mine

beginning with production of premining costs and expenses of

mining.

59
Stinson/Temple

n. Necessary and actual reclamation costs.

0. Interest (not to exceed 5 percent of total gross proceeds for the

year),

p. An allowance for depletion based on actual original cost.

Net proceeds, as calculated above, are then subject to tax at the following rates [70:375.5]:

Net proceeds Tax rate

0 to $ 250,000 0

$ 250.001 to $ 5,000,000 3

$ 5.000.001 to $10,000,000 7

$10,000,001 to $15,000,000 10

$15,000,001 to $20,000,000 13

$20,000,001 to $25,000,000 14

over $25,000,000 15

For calendar year 1983 and beyond, the dollar bracket amounts will be

changed to reflect the percentage change between the gross national

product deflator for June of the current year and June of the previous year,

except that no increase may be greater than 10 percent.

The Investment and Local Impact Fund receives 60 percent of the taxes

collected under the metalliferous mining tax or the "first dollar" amount,

whichever is greater. The remainder goes to the Badger Fund. The "first

dollar" amount is defined as equal to $100,000 for each county, municipality,

and native village eligible to receive payment from the impact fund. If tax

collections in any 1 year are less than the prescribed "first dollar" payment for that year, the entire amount of taxes collected under the metalliferous minerals tax becomes the "first dollar" amount [70:395.1 (a), (b)].

The Investment and Local Impact Fund is administered by a special board

attached to the Department of Revenue for administrative purposes, but

with independent administrative rulemaking authority. The board has 11 members including the Secretary of Local Affairs and Development, the Secretary of Revenue, 3 public members, 2 municipal officials, 2 county officials,

1 school board member, and 1 native American. The members are

appointed by the Governor for staggered 4-year terms. One of the public

members shall reside in a town in which a metalliferous ore body is known

to exist. One of the public members shall reside in a county in which metalliferous mineral development is occurring or in an adjacent county. One of

the local officials shall reside in a county or school district in which metallifer60
Wisconsin

ous mineral development is occurring or in an adjacent county or school

district, and one local official shall reside in a county or school district in which

metalliferous minerals are extracted or an adjacent county or school district.

The native American shall reside in a municipality in which a metalliferous

mineral ore body is known to exist [15:435(1)].

The Investment and Local Impact Fund is to be distributed as follows:

1. Each county in which metalliferous minerals are extracted receives

the "first dollar" amount plus 20 percent of the metalliferous minerals tax collected from mines in the county or $250,000, whichever is less.

2. Each dty, town, or village in which metalliferous minerals are extracted

receives the "first dollar" amount minus any payments during the

year under item 4 below.

3. Each native American community that has tribal lands within a municipality qualified to receive payments receives $100,000 minus any

payments under 4 below. The amount shall be adjusted annually using

the same method as is used to index the tax brackets.

4. Each municipality (and any native American community contained

within such municipalities) which contains a metalliferous mining

site for which a mining permit has been made prior to January 1,

1986, shall receive $100,000 per year for 4 years, or until the permit is granted, whichever is shorter. Each municipality containing a

mining site on which construction has begun prior to January 1,

1989, but at which extraction has not been engaged in for at least 3

years, shall also receive $100,000 annually. The construction payment is to be financed by an annual construction fee levied on the

person constructing the mine. The construction fee can be used

as a credit against future metalliferous minerals taxes due, provided

that it does not reduce the taxpayer's liability below the amount

needed to make the first dollar amount payments.

5. The Investment and Local Impact Fund receives an amount equal

to 10 percent of the taxes paid by each mine to hold as a project

reserve fund. Funds withdrawn are to be used to insure payments

to municipalities where mining is occurring which are equal to the

average received by that municipality, to reimburse municipalities

for costs associated with the cessation of mining, and to indemnify

municipalities for reclamation expenses [70:395.2].

If the Investment and Local Impact Fund has a balance of over $20 million

on January 1 of any year, the excess over $20 million shall be transferred

61
state Minera! Taxes, 1982

to a separate account to be administered by the Badger Board. The funds

are not to be commingled with the Badger Fund, however. [70:395.1].

The Badger Board makes the guaranteed payments to counties, towns,

villages, and cities; certifies the eligibility of school districts for assistance;

and makes discretionary payments to counties and municipalities. The board's

power in this area is limited by statutes which list the types of projects

eligible for funding.

Purposes for which the board may make discretionary payments include:

1. Protective services, such as fire and police.

2. Highway repair or construction necessitated by the construction or

operation of the mining facility.

3. Studies and projects for local devetopment.

4. The monitoring of the effects of the mine on the environment.

5. Extraordinary community services and facilities necessitated by the

mining activity.

6. Legai counsei and technical consultants to represent and assist

municipalities appearing t)efore State agencies on matters relating

to mining.

7. Other expenses associated with the construction and operation of

the mining facility.

8. The preparation of areawide community service plans.

9. Educationaf señolees in a school district.

10. Expenses attributable to a permanent or temporary shutdown of a

mine, including costs of retraining and the cost of operating a

job referral service.

Wyoming

Wyoming levies gross production taxes on caal, oil and gas, precious metals,

and other minerals. The gross proceeds from all mines also are included

in the State and local property tax base. The special mineral taxes produced more than $138 million dunng fiscal 1981, neariy 30 percent of

State tax revenues.

All mineral extraction is subject to a mining excise tax. This tax is levied

at 2 percent of the value of the gross product extracted for gold, silver, other

precious metals, soda, saline, coal, petroleum or other crude mineral oil,

and natural gas. Revenues from this tax go to the State's general fund

[39:6.302].

62
Wyoming

In addition, the extraction of coal, uranium, trona, oil, and natural gas are

subject to several other excise taxes. The rates and the disposition of

the revenues are given below [39:6.303]:

Minerals

Coal, uranium, trona, oil,

natural gas, oil, shale

Coal, uranium, trona

Coal

Coal

Coal

Coal

Oil

Tax rate (%) Disposition of revenues

2.0 Wyoming Mineral Trust Fund

1.5 Capital Facilities Revenue

Account

1.0 Highway Fund

1.5 Water Development Account

2.0 Impact Tax Revenue Account

.5 Wyoming Mineral Trust Fund

2.0 3/8 to cities in the State on

per capita basis

1/8 to counties on a per

capita basis

1/3 to State Highway Fund

1/12 to permanent minerals

trust fund

1/12 to Wyoming Water

Development Account

The tax going to the Capital Facilities Revenue Account will expire on

January 1 following the year in which the taxes collected total $250 million.

The tax going to the Impact Tax Revenue Account is to expire on January 1 of the year following that in which total tax collections from this tax

total $160 million [39:6.303(b)].

The distribution of the revenues obtained from the special severance tax is

under the jurisdiction of the Farm Loan Board. Revenue is to be used to

assist in areas affected by the production of coal. At least 50 percent of the

revenue must be used for highways and streets, while the remainder may

be used for water and sewer projects. The board has complete freedom in

the choice of terms for the grants or loans.

An oil and gas production tax is levied on the value at the well of all oil and

gas produced, saved, sold, or transported. This tax may not exceed 0.8

mill per dollar of value [30:5.116].

The Wyoming Legislature has approved a series of bills designed to reduce

al impact of new development. The program includes the is

The Wyoming Legislature has approved a senes of bills desic

the local fiscal impact of new development. The program i issues
Sîirïson/Temple

anee of revenue bonds to finance a State community development authority,

a special coal tax for impact assistance, and an industrial development information and siting act which foil3ids issuing a permit for the construction

and operation of the facility if a means of alleviating negative impacts is not

specified.

The Wyoming Community Development Authority was created and authorized to issue up to $100 million of revenue bonds so that the State can

provide assistance in are^ where there have been major devebpnnent impacts

and where needed facilities and sen/ices cannot t»e financed through existing sources.

This agency is unique because it has the power to make loans to the

private sector to provide financial institutions in the affected area with additional mortgage money as well as the power to loan to public agencies.

Because the Community Development Authority has the power to set terms

for repayment of loans to local governments, the act may channel new

funds into the local community during the early stages of the development.

Such a program has several advantages over the coal impact board programs used in other States. It allows the mobilization of a consicterat^e amount

of capital relatively quickly—not dependent on the actual mineral production in the State—and it allows some aid to the private sector in communities feeling the impact. The $100 million of funds made available for impact

assistance appears more likely to be an adequate amount than that provided in other States. However, the community has no certainty about

receiving funds. There could be considerable delay before the loan is granted,

depending on the action of the Community Development Authority.

The 1981 Wyoming Legislature modified the allocation of State sales tax

revenues in order to provide additional front-end assistance to localities.

Wyoming law now provides that during the instruction period—defined as

the time between the commencement of construction and that when the

physical components are 90 percent complete—the county and its cities will

receive an additional share of the sales tax revenue generated by

development.

The additional amount returned directly to the county for distribution is

equal to the difference between one-third of the State sales taxes collected

in the county—less 1 percent for administrative œsts-^uid the base period

amount. The base period amount is the average over the previous 12 months

of one-third of sales tax collections in the county less 1 percent for

administration. A new base period amount is established on each anniver64
Wyoming

sary of the date of construction by multiplying the previous base period

amount tjy 1.08. No revenue from this program is to go to counties not imposing the full 1-percent local sales tax [Ch. 145, Laws 1981].

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