help pay for reclamation of abandoned coal mining land. There is no state “cleanup” fee on coal mining, as there is on the production of oil and gas. But the federal government does impose a production tax used to close abandoned mines and clean up and reclaim land used in mining.
The absence of state taxes or fees on coal production is striking especially when compared to the taxes and regulatory clean-up fees paid by the other major energy extractive industries in Texas. Some have argued that a severance tax on coal production in Texas result in more out-of-state coal being imported, and a loss of jobs in Texas. Other states have adopted severance or other types of taxes on coal production to raise state monies and help offset some of the environmental degradation caused by coal mining without significant job losses. Of the 15 other major coal- producing states in the U.S., 12 have revenues exceeding Texas from coal taxes and fees, both overall and in rate per ton.
The options for adopting a coal tax in Texas include:
A Coal Use Tax. In the 2001 legislative session, House Bill 2901 sought to tax all coal and lignite either purchased or used in Texas at the rate of 7.5 percent of purchase price, the same rate as the severance tax on natural gas. The Comptroller of Public Accounts estimated it would generate about $110 million per fiscal year. Similar bills were introduced in 75th (HB 2657) and 76th (HB
sessions. (It should be noted that imposing such tax rates would NOT put Texas coal mining at a competitive disadvantage compared to other fuel sources.)
A Coal Production or Severance Tax. Rather than taxing coal use at industries and utilities, only coal mined in Texas would be taxed. The disadvantage to such a tax is that it might make coal produced in the state more expensive than coal imported from other states. (All of the coal currently imported into Texas already is subject to severance taxes in its state of origin.)
Whether a coal use or severance tax was adopted, there are several options in terms of the tax rate. One would be to tax it at the same rate as either oil (4.6 percent of value) or gas (7.5 percent). Another option would be to make the rate equal to those of another large coal-producing state. West Virginia, New Mexico, Montana, and Wyoming are among the states that raise the most money from coal mining taxes and fees. Table 7 shows the amount that could be raised annually in Texas, based on 1999 mining rates and coal costs, and the effective cost per ton in 2000 dollars of the other state’s systems. It should be noted that the West Virginia legislature recently raised its environmental tax (reclamation tax) to $0.14 cents per ton to cleanup 275 strip-mining sites. The measure is expected to raise more than $20 million per year. 19
This report recommends that the 78th Legislature impose a 7.5 percent coal use tax in Texas, with those monies flowing to general revenues. This tax would generate about $270 million over the biennium, based on current coal use figures. That money could be used to offset rising health care costs or help finance public education.
Such a tax might raise even more than money projected here because of regulatory changes occurring in Washington. Recent actions by the Bush administration may prompt an increase in the burning of coal to generate power in Texas and the U.S. The Environmental Protection Agency has announced changes in provisions of the Clean Air Act known as "New Source Review". These
Tax Analysts, State Tax Notes, September 24, 2001, p. 941.