Last year, Wyoming coal production hit yet
another all-time high—but revenues from
Wyoming coal have not kept pace proportionately
with these record production levels.
While combined revenues from Wyoming’s coal
severance tax and the state’s share of federal coal
royalties also stand at an all-time high, the data
chart on page three tells the full story. While production
has increased by 172% since 1986, combined
coal severance and federal royalty revenues
have increased by only about 42%.
Revenues lag production for three main reasons:
(1) lower prices for Wyoming coal;
(2) the reductions in Wyoming’s coal severance
tax rate; and
(3) changes in the way Wyoming sets a value on
coal for tax purposes, resulting in lower values.
Coal Prices
Over the past 15 years, prices for Wyoming coal
dropped considerably as long-term contracts expired
and utility customers chose to purchase more coal on
the spot market. Prices reached their low point in the
late 1990s and have since rebounded, now averaging
$6-$7 a ton. Since taxes and royalties are levied as a
percentage of value, lower prices resulted in lower
revenues.
Coal Severance Tax
Revenues from Wyoming’s coal severance tax
peaked in 1986, the last year the tax rate stood at
10.5%. The expirations of the 2% coal impact tax at
the end of FY 1987 and the 1.5% capital facilities tax
at the end of FY 1993 dropped Wyoming’s coal severance
tax rate by 33% to its current level of 7%.
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The impact of falling coal severance tax revenues
was mitigated by the state's share of rising
federal coal royalties. The federal government’s
decisions to substantially increase both the federal
coal royalty rate and the state’s share of federal coal
royalties combined to generate the increase in federal
coal royalty revenues to Wyoming. But in the
face of state severance tax reductions, the federal
royalty revenue increases were not enough to keep
coal revenues proportionate to coal production
increases.
A substantial increase in coal “bonus” money
also has accrued to the state, but these funds are
shown separately in the table on page three
because, as noted, the bonuses are one-time, competitive
payments by coal producers to secure federal
leases. Bonuses are not a continuing revenue
source, but strongly demonstrate the industry’s confidence
in the future profitability of Wyoming coal.
Coal Valuation
In 1990, the Legislature changed the way the
value of coal is determined for severance and property
tax purposes. The Legislative Service Office
predicted at the time that coal valuations would go
down, consequently reducing tax revenues to both
the state and counties.
A recent Wyoming Supreme Court decision will
further reduce coal valuations. A bill to restore this
loss was defeated in committee during the 2003
Legislature.
Because taxes are levied as a percent of value, lower
coal valuations mean lower tax collections.
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