By Holly K. Michels
January 2, 2018 - Although coal mining and the production from coal-fired power plants has declined in Montana, taxes on coal still remain a significant source of revenue for the state, bringing in $81 million to state and local governments in 2016.
A report produced for the Environmental Quality Council, which is made up of lawmakers and members of the public, examined the fiscal impacts of coal in Montana. The report calls coal a “significant source of revenue,” despite decreases from historical highs in years past.
The council is studying the economic and ecological impacts of the reduction or elimination of the mining and burning of coal, as called for by a Senate Joint Resolution passed during the last regular legislative session.
Several Montana lawmakers have also called for examining the state’s tax structure and reliance on natural resources, in light of a state budget crisis this fall. Despite revenues still being up over last year, they did not increase as much as expected in a projection adopted by lawmakers and used to craft the state’s $10.8 billion biennial budget.
Of the natural resource taxes, the coal severance tax has been one of the most steady for the Department of Revenue, according to a 2016 report.
The state brought in $60.4 million from the severance tax in fiscal year 2016, and it has hovered between $52.7 million and $60.4 million since 2011.
During the same time, the oil and gas production tax peaked at $135.7 million in 2014 and dropped to $45.5 million in 2016. Total state general fund revenues for fiscal year 2016 were $2.12 billion, with 56 percent coming from individual income taxes, 12 percent from property taxes and 3 percent from natural resource taxes.
Coal mines that produce more than 50,000 tons of coal a year pay the quarterly state severance tax on all production in excess of 20,000 tons. Smaller mines are exempt from the tax.
The state severance tax rates depend on the heat content of the coal and how the coal is extracted. The value of the coal on which the tax is applied is based on the contract sales price, minus what the mine is required to pay in other taxes.
The tax payment is divided among several different accounts, such as the coal trust fund, the long-rang building program, an account that provides for basic library services, a coal natural resources account and other places.
The federal government also collects royalties on every ton of coal mined on federal lands. About half of the royalty revenues are forwarded to the state of Montana. That money goes into the state’s general fund, with 25 percent going to a minimal impact account dedicated to local governments. In fiscal year 2016, Montana mines paid $20.9 million in federal royalties.
There’s also a gross proceeds tax, which is a 5 percent yearly flat tax imposed on coal gross proceeds. This tax is collected by the local county treasurer and distributed proportionally to the taxing jurisdictions where production occurred. In fiscal year 2016 this tax generated $20.8 million.
Smaller taxes collected include the resource indemnity trust and groundwater assessment tax, which generated $1.8 million in fiscal year 2016. The tax goes to a trust fund created to protect citizens from the loss of long-term value resulting from the depletion of natural resources and for environmental damage caused by mining.
Coal-fired power plants pay an electrical energy producer's license tax, which generated an estimated $2.62 million in fiscal year 2016, as well as a wholesale energy generation tax that generated $1.8 million.
The report notes it does not take into account corporate income tax paid by mine operators and individual income taxes paid by employees.
The report also does not specifically calculate property tax paid by coal mines and power plants because it does not break down data that specifically. Northwestern Energy, which owns 30 percent of a unit in Colstrip, pays $136 million in property taxes annually.
Coal production in Montana has dropped from 45 million tons in 2008 to 32 million tons in 2016, according to a report from the Legislative Services Division’s Legislative Environmental Policy Office.
The drop is blamed on weak economic markets for coal in the U.S. and internationally, as well as a decline in electricity coming from from coal-fired plants as cheaper natural gas and other renewable options come on the market, according to the report. The report also cites air quality regulations as a reason for the decline of coal.
Three-quarters of the coal mined in Montana is shipped by rail to out-of-state utilities and, according to the report, increasingly to foreign nations. The rest is consumed in Montana.
Montana has about 2,289 megawatts of coal-fired generating capacity, or about 37 percent of the state’s generating capacity, which is down 55 percent from 2015.
The J.E. Corette coal-fired power plant in Billings closed in 2015. In November the owner of the coal-fired power plant in Hardin announced it will close the facility if it can't find a seller by early 2018. Two of the four units at the coal-fired power plant in Colstrip will close by July 2022.
The state has six coal mines in Big Horn, Musselshell, Richland and Rosebud counties. Three mines are owned by Westmoreland.
Montana has four coal-fired power plants, including Colstrip, the Hardin Generating station, the Lewis and Clark station on the Montana-North Dakota border and the Rosebud power plant.
The report will be discussed at the Jan. 17 meeting of the Environmental Quality Council in Helena.