Mineral Rights Bills Would Cost Kentucky Counties

Jan 25, 2016

Credit Erica Peterson

Two bills before the Kentucky House would change the way the state taxes coal that’s left in the ground.

The “unmined minerals tax” applies to minerals such as coal, gas, oil and limestone that aren’t currently being extracted.

The owner of the mineral rights pays taxes to the state every year. And that adds up to a substantial amount: In 2014, Kentucky collected more than $39 million from this tax. Most of that — $34 million — went to the individual counties where the minerals are. The remainder went to the state.

But with the decline of the coal industry, less coal is being mined in Eastern Kentucky. And when it’s not economical to mine the coal, mineral rights owners are still stuck paying taxes on coal they may never extract.

That’s why two Eastern Kentucky legislators — Democratic state Reps. Fitz Steele and John Short — have introduced separate bills to change that tax.

“A lot of the people now, they’re probably not going to have their coal being mined anymore, is having to pay this unmined minerals tax that is extremely high and extremely unfair,” Short said.

Short’s bill would exempt mineral rights owners from paying taxes on coal reserves that haven’t been mined in a decade. Under Steele’s bill, any coal reserves without active permits or any plans to be mined in the next year wouldn’t be subject to the tax.

The Kentucky Department of Revenue, the Kentucky Geological Survey, the Kentucky Energy and Environment Cabinet and the Kentucky Coal Association could not say what percentage of the state’s coal reserves are held by coal or land companies versus individuals. Everyone agrees there’s a mix of corporations and regular landowners paying the tax. Each year, the state sends out 18,588 tax bills for these unmined minerals.

But what is certain is that both bills would have an immediate effect on county revenue, especially in Eastern Kentucky’s coal-producing counties.

In Harlan County, the decline of coal has hit the county hard. Judge-Executive Dan Mosely said his county now gets about 25 percent of the coal severance revenue it received in 2012. But coal severance is charged when coal is mined. Last year, Mosely said Harlan County was still bringing in nearly $700,000 in taxes for all of the minerals — mostly coal — that remain under the earth.

If either Steele or Short’s bill passes, Mosely said his county would definitely feel it.

“The old saying, ‘kick a horse while it’s down,’ that would certainly apply in this case, because we’re relying on that revenue,” he said. “I feel their pain, but I’m sure they also feel mine, trying to balance this budget in this type of situation.”

Mosely said he’s heard coal operators complaining about the multiple taxes they pay on coal both before and after it’s mined, and understands their frustration. He wouldn’t say if he supports efforts to change the way unmined coal is taxed, but he said it’s probably not the best time to consider it.

“If we were all mining coal and everybody was working, that would probably be a more pleasant time to try to get that tax reevaluated,” he said. “But I don’t think now’s the time to have the discussion, because everybody is trying to pinch every penny that they can get and make it go as far as we possibly can.”

Both bills have been referred to committee.