Coal severance tax means revenue to county entities

Severance taxes from coal mined at the proposed Rosa mine could amount to as much as $400,000 over the life of the mine, based on estimates by MCoal Corporation of the tonnage of coal that could be removed.

The Alabama Department of Revenue is authorized to levy and collect an excise and privilege tax on every person severing coal or lignite within the State of Alabama in an amount equal to 20 cents per ton of coal or lignite severed. So states section 40-13-31 of the Code of Alabama.

According to an estimate of the Rosa coal deposit calculated by McGehee Engineering Corp. of Jasper and published in a fact sheet dated May 2009, there are approximately 9 million tons of coal in the deposit, with approximately 2 million tons recoverable by the mining method MCoal proposes to use. McGehee is the engineering consultant employeed by MCoal.

At 20 cents per ton, that would produce total tax revenues of $400,000, rebated to Blount County from the state. According to the same fact sheet, the company indicated its initial rate of production would be about 150,000 tons per year, translating to about $30,000 in tax revenues the first year – more if the rate of extraction increases after the initial year. According to the fact sheet, MCoal has developed a three-phase mine plan covering 12 years.

State law provides for distributing a portion of taxes collected to any municipality within whose boundaries coal or lignite is removed. The taxes applicable to tonnage removed from within the town’s boundaries would be split 50-50 between the town and the county commission. The county would receive all the tax revenue from tonnage mined within the county, not lying inside municipal limits. Subject to being officially confirmed, it appears a small part of the area to be mined lying along Peach Orchard Ridge is within the town limits of Rosa.

District 4 Commissioner Waymon Pitts questioned whether $400,000 would be the actual amount collected on the county’s behalf. The 2 million tons projected could apply to the whole coal field covering over 3000 acres, not just to the 600- odd acres where the company would be permited to mine, he said.

Pitts: not worth the hassle

“Is it worth the hassle of coal mining operations for $400,000 in revenues?” Pitts asked. “In my opinion, no, when you consider the amount of damage they could do. For example, I understand they- ’re asking for 10,000 gallons of water a day for their coal washing operation. Where’s all that water going to go when it runs off? Andy Branch, Dry Creek, or even Calvert Prong, depending on where they put the washer. I think we can find $400,000 in revenue somewhere else.

“Am I in favor of coal mining? No. But then, the county commission doesn’t have control over mining. All we can control is their impact on county roads.” Pitts added that in the long run, the same or adjoining land would provide considerably more in revenues if used for residential development – generating recurring ad valorem taxes over a number of years – than if mined for a few years and producing severance taxes.

Total economic impact

“When you take into account other taxes the company will pay in addition to severance taxes, the economic impact is substantial,” said Sanford Hendon, mining engineer for McGehee Engineering. He said the corporation would pay an estimated $75,000 in state taxes on business profits, and $336,000 in state sales and use taxes. Some part of that would benefit Blount County. He added that the local payroll for 25 employees would be in the range of $1.25 million annually, assuming an average annual wage of $50,000.