West Virginia

West Virginia

West Virginia

April 01, 2005 | By Keith Martin in Washington, DC
WEST VIRGINIA may have to refund more than $400 million in severance taxes collected from coal companies that produce coal in the state, but sell it overseas.

The state Supreme Court agreed in March to hear claims by coal companies that the taxes on exported coal violate the US constitution because they interfere with foreign commerce, which only the US government has the power to regulate. The state collects a severance tax of 5% of gross receipts on coal mined in the state. Approximately 10% of West Virginia coal is exported abroad. State severance tax collections were $214 million in 2003. The plaintiffs in the case are seeking refunds for severance taxes paid as far back as 1997. They include CONSOL Energy, Arch Coal and Massey Energy. The case is U.S. Steel Mining Co. v. Virgil T. Helton, Tax Commissioner.

TEXAS is moving to close a loophole that allows projects in the state largely to avoid franchise taxes by operating as limited partnerships.

One sixth of businesses in the state avoid paying franchise taxes currently. The state House of Representatives voted on March 16 to increase business taxes. Businesses would have a choice in the future of paying a tax tied to payroll — the tax would be 1.15% of the first $90,000 in wages paid to each employee — or choosing to pay a franchise tax of either 4.5% of net income or 0.25% of capital. The measure goes next to the state Senate, where Senate staff say they expect action by the end of April. The current session of the legislature ends on May 30.

The House also voted to increase the state sales and use tax rate to 7.25%. That would make it the highest state sales tax rate in the nation.


WYOMING properly charged severance taxes on coal-bed methane.

Minerals like gas from coal seams are taxed after they are “severed” from the ground. The tax is 6% of market value. The market value is determined at the point where the production process has been completed. The producer cannot deduct any expenses from the market value that are incurred before that point in the production process. However, expenses downstream from that point can be deducted.

The state Supreme Court said in March that coal-bed methane should be valued at a point just shy of when the gas goes into a triethylene glycol dehydrator, or TEGD machine. The Wyoming statute says the production process for gas is complete “after extracting from the well, gathering, separating, injecting, and any other activity which occurs before the outlet of the initial dehydrator.” The gas producer in the case argued that the gas should be valued at a point farther upstream.

The case is Williams Production RMT Co. v. Department of Revenue. The Supreme Court released its decision on March 2.

GERMAN Chancellor Gerhard Schroeder proposed reducing the corporate tax rate from 25% to 19% in a speech in parliament on March 17.

POLAND will reduce its rates for valued added tax and corporate and individual income tax to 18% in 2008, the finance ministry said in March. The value added tax rate is currently 22% on most items other than food, and income tax rates are 19% for corporations and up to 40% for individuals.

UKRAINE began collecting a 20% value added tax on oil imports on March 1.

INDIA will cut its corporate income tax rate.

The rate is currently 35%. The finance minister said in his budget message on February 28 that the rate would be reduced to 30%, but surcharges will increase from 2.5% to 10%, leaving the effective corporate rate at 33%. The changes are expected to be in effect from April 1. These are the rates for domestic corporations. Foreign corporations doing business in India will remain subject to income tax at a 40% rate.

In other news, the Authority for Advance Rulings said that a 20% withholding tax had to be collected on payments that an Indian subsidiary made to its US parent to pay for services the parent performed for the subsidiary outside India. The parent charged for the services at cost. Indian counsel advised that the parent could not opt instead to be taxed in India on a net basis and deduct its costs, which would have left it with no taxable income. The case is Timken India Limited. The rulings authority published its ruling on January 25.

BRAZIL bowed to pressure and withdrew a tax measure on April 4 that would have subjected foreign parent companies to tax on exchange rate gains in the value of shares in Brazilian subsidiaries.

The government said it would repackage the proposal. Any tax in the future is expected to be collected only when shares are sold.

The government has been attempting since 2002 to collect both income taxes and a social contribution tax on net profits — called a CSLL tax — from foreign parent companies on the appreciation in share value in their Brazilian subsidiaries caused by fluctuations in exchange rates. The US dollar appreciated 8.5% against the Brazilian real from January to June last year, but lost 7% in value measured over the entire year. The government based its past collection efforts on a directive that the Brazilian tax department issued in 2002. Most companies have been able to avoid payment because of court decisions that such taxes must be based on a law rather than a tax department directive.

The government moved at the end of December 2004 to provide a proper legal basis by imposing the taxes through a decree, number 232, that appeared in a special edition of the official gazette on December 30, but imposition of the taxes was delayed until April 2005 for CSLL tax and until January 2006 for income taxes.

Keith Martin