WV Center on Budget and Policy > Blog > 2015 & 2016 Tax Reform > Yes, We Should Tax Coal Property Like Natural Gas Property

Yes, We Should Tax Coal Property Like Natural Gas Property

On Monday, the Joint Select Committee on Taxation met again to discuss revising our state’s tax system. The focus of this meeting was on local property taxation, especially as it impacts the coal and natural gas industries. During the meeting, John Mairs, a lawyer for the coal industry, stated that he “would love to have their taxes assessed like the oil and gas industry.” Presumably, Mairs believes that the coal industry would pay less in property taxes if its property were assessed the same way as natural gas and oil property. However, this is not the case. The natural gas industry has a much higher effective property tax rate than the coal industry.

As Sean and I highlighted in this report, the effective property tax rate on the value of natural gas in West Virginia is about 3 percent compared to just about 1 percent for coal. This is largely because producing natural gas property in West Virginia is valued differently than active coal property. Unlike coal, active oil and gas property is appraised and assessed on both the royalty land-owner and the producer (or leaseholder). Currently, active coal property  being mined is taxed based only upon the royalty rate value of the property, which is typically 5.5 percent of the value, and not the “chattel real interest” or the leaseholders (coal producers) working interest value. This means that a large portion – 94.5 percent, after reducing for operating expenses  – of the value of active coal property is not being assessed and taxed. The result is that coal companies pay much less in property taxes than natural gas and oil companies even though they are paying more on their machinery and equipment.

In 2008, natural gas paid $58.3 million in property taxes based on a production value of about $2 billion – an effective rate of 2.97 percent. Meanwhile, coal paid $90.8 million based on a production value of $9.7 billion or just 0.94 percent. If coal paid the same effective property tax rate as natural gas, it would have paid approximately $288 million or $197 million more in local property taxes. So, yes, taxing coal property the same as natural gas property would be great, as it would be provide additional resources to maintain our highways, and could pay for other important programs that have seen their funding cut over the past several years.

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