Share this story
Close X
Switch to Desktop Site

Energy-rich states aided by severance tax ruling

Arabs are not the only ones getting richer from the energy crunch. So are the energy-producing American states. And a Supreme Court ruling last week opens the door for these states to continue cashing in on their good fortune.

The high court ruled that Montana may charge a 30 percent severance tax on coal even if 90 percent of that coal goes out of state. The tax does not interfere with interstate commerce, said the 6-to-o majority.

About these ads

The long-awaited decision makes it clear that the courts are not going to send in the US cavalry to save the more than 36 other states that are energy poor. The decision also puts renewed pressure on Congress to limit state severance taxes. Lawmakers from the Midwest and Northeast are painting a gloomy picture for the energy-poor states in the wake of the Montana ruling.

The picture looks like this: Montana, Wyoming, Alaska, and other states will levy huge taxes on fossil fuels, most of which will go to other states. Their treasuries stacked high with proceeds from the fuel, these exporting states will cut other taxes drastically, luring investments into their towns and cities.

All of this will be at the expense of the 38 energy paupers in the United States, says the Northeast-Midwest Congressional Coalition.

"We are faced with a fundamental shift of economic wealth and investment capital from the many 'have not' states to a few 'have' states," said two coalition members, Rep. Howard E. Wolpe (D) of Michigan and Rep. Claudine Schneider (R) of Rhode Island, in reacting to the court ruling.

energy-producing states have countered that they need the severance tax funds to pay for environmental damage from strip mining and other energy-related operations. They also have pointed out that they need a buffer against the time when fossil fuel reserves finally give out.

The Montana case has been dramatic because its 30 percent severance tax is the highest in the country. In 1975 the Legislature decided to benefit from the soaring value of Montana's rich coal reserves, which contain one-fourth of all the known coal in the United States and half of the high-quality, low-sulfur coal. The state levied the newly upheld tax.

Montana has profited enormously from the tax. In 1978 it pulled in $33.6 million, and by some estimates the state will have collected $20 billion by the year 2010.

About these ads

Eight other energy-surplus states also charge severance taxes. Louisiana charges 12.5 percent and Alaska 12.25 percent for oil. Other states charge far lower rates. Texas charged 4.6 percent and Kentucky only 1.5 percent for oil. West Virginia, which has a lower-grade coal than Montana, charges only 3.5 percent. Wyoming, New Mexico, and Oklahoma charge from 4 percent to 10 percent for fossils fuels.

In a study released last week, the Northeast-Midwest Institute warns that these nine states could grow into a "United American Emirates" exploiting their energy-poor neighbors. The result would be further deterioration of the populous cities and states of the Northeast and Midwest, says the report.

So far Congress has taken no action to limit the state fees. Two bills, one in the House and one in the Senate, would limit severance taxes under certain circumstances to 12.5 percent. Similar bills failed to reach the floor last term, but the Supreme Court ruling on Montana could spur more interest.

While the Supreme Court gave no help to the energy have-nots in Montana, earlier this term it gave 30 importing states comfort in a natural gas tax dispute. In that case, Louisiana charged a "first use" tax on natural gas that was taken from offshore sites in the Gulf of Mexico and piped through the state. The court ruled that the gas was already in interstate commerce and thus not taxable by a state.

Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.