Exports of coal, electricity and other commodities cannot be taxed.
The US constitution forbids the federal government from imposing any “Tax or Duty ... on Articles exported from any State.” Another clause in the constitution bars state governments from collecting any “imposts or duties” on exports or imports, except for fees that are strictly limited to covering the cost of inspections.
The IRS released a ruling in late April to a coal company that objected to paying a federal excise tax on its coal that was destined for overseas markets. The United States collects an excise tax of $1.10 a ton on coal from under-ground mines and 55¢ a ton on coal from surface mines. The tax is collected from the mining company when it sells the coal.
The company in the ruling sold coal to a coal processing company that removed impurities and then resold the coal to its own customers. The coal company was able to show that the processor had contracts to supply its coal to foreign buyers. It applied for a refund of the excise taxes it paid on the coal. The IRS balked at first, but then relented in a “technical advice memorandum,” or ruling that the national office issues to settle a dispute between a taxpayer and IRS agents in the field. A tax could not be collected in this case because coal entered the “stream of export” when it was sold to the processor. The ruling is Technical Advice Memorandum 200417005.
In a related development, a US appeals court in late May turned down a request by an Ontario power company for a refund of US excise taxes paid on coal the power company bought from US suppliers. Ontario Power Generation, Inc. said its suppliers passed through the taxes. The US government conceded the taxes should not have been collected on exported coal, but it said the power company had no right to a refund. The suppliers filed briefs arguing that if anyone was owed a refund, it was them — rather than their customer in Canada. The appeals court agreed. The case is Ontario Power Generation, Inc. v. United States.