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Coal severance tax collections lower in 2012 than in 2011

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Several conditions can reduce coal severance tax collections.

Less coal mined, obviously, and lower coal prices both reduce the amount of severance taxes paid and collected.

Also contributing to a reduction in coal severance tax collections is an increase in the volume that comes from thinner seams and so pays severance taxes at lower rates.

"The numbers have gotten big enough that we've been tracking it," said Deputy Revenue Secretary Mark Muchow.

The state Legislature created lower severance tax rates in 1997 for coal mined from thinner seams. While the regular rate paid to the state is 4.65 percent of sales, the new law created taxes of 1.65 percent on coal mined from seams less than 45 inches thick and 0.65 percent on coal mined from seams less than 37 inches thick.

Because the new tax rates applied only to thin-seam coal and only to coal from new mines, the difference it made in state tax collections was small in the early years: $3.4 million in 1998, rising to $8.3 million in 2000 and $33 million in 2005, according to numbers Muchow provided.

But as old mines close and new mines open and as more thinner coal is mined, the difference it makes in state tax collections has grown — reaching about $98 million in 2011 and falling back a little to $88 million in 2012.

Again, these numbers represent the amount of the tax "preference" — the difference between the full tax rate and the lower tax rate, or taxes that were not collected.

And because these numbers are based on both volume and prices for mostly metallurgical but also steam coal, and those prices move independently, they don't given an indication of the share of all coal sold that is coming from seams in the two thin-seam categories. Muchow was not able to obtain that information at this time.

"I think we're going to change the tax return to request that type of data in the future," he said.

But it's clear to see that, in the 15 years since the thin-seam preference was created, the amount of production that enjoys that preference is growing.

Little, if any, thin-seam coal comes from mines that were started before the preferences were created and pays the full amount.

"About all of the thin-seam mines are new mines nowadays," Muchow said.

Coal severance tax collections at the state level hit a peak in calendar 2011, at $442 million, and fell to $385 million in calendar 2012.

The $88 million that might have been paid in 2012 under the regular rate of 4.65 percent but wasn't — acknowledging that production from thin seams might have been a little lower if producers knew they had to pay the full rate — comes to about 2 percent of the state budget, Muchow said.