WEST VIRGINIA has been collecting too much in severance taxes from some coal producers, the state’s highest court said. 

US states usually collect taxes from mineral producers on the right to “sever” minerals from the ground. In West Virginia, the severance tax on coal is 5% of gross value. Gross value is defined as the market value of the coal determined after the raw coal has been processed to put it in a commerciallymarketable form.
The state supreme court said in December that the state overcharged a coal producer by not letting him subtract transportation charges to move his coal from a preparation plant to a loading dock on the Kanawha River.

He claimed the coal was in a commerciallymarketable form once it left the wash plant. The state argued that since he owned both the wash plant and the river dock, the processing was not completed until the coal reached the river dock.

The court disagreed. It said the cost to move the coal to the dock could be subtracted from the sales price of the coal before severance tax was applied. The court said, “[F]reight charges paid by a coal producer to a third party to transport fully-processed clean coal from the coal preparation plant to the point at which title passes to the buyer are costs which are deductible from the gross proceeds of coal sales for purposes of assessing the severance tax.”

It helped that the moving costs in this case were paid to a third party, CSX railroad. The case is Kanawha Eagle Coal LLC v. Tax Commissioner.