Coal Country Can’t Catch A Tax Break


By: Sara Johnston, Senior Staff Member

Kentucky has long been known for its coal resources.[i] Other than environmental opposition, coal companies encounter further obstacles in business practices via Congressional acts imposing stricter standards for any company that adversely impacts the environment.[ii] In recent litigation, coal companies attempt to fight back, but not with the stringent regulations of which they are required to comply, but the taxes imposed on exported coal.

The Surface Mining Control and Reclamation Act of 1977 (The Act) establishes programs for regulating coal mining and reclamation. [iii] Congressional findings state “many surface mining operations result in disturbances of surface area that adversely affect commerce and the public welfare by destroying or diminishing the utility of land for [other] purposes.”[iv] After making such findings, the Act’s aim was to establish a program to protect society and the environment from the adverse effects of coal mining operations with procedures and required permits. In fact, states with surface mining operations that are on non-federal lands that wish to assume exclusive regulatory jurisdiction over the mining, must submit a program to the Secretary, and the program must include a multitude of items. [v] The Act sets forth in detail the required permit application contents[vi], including a reclamation plan.[vii]  Headaches and requirements aside, this Act also imposes taxes on coal produced, and the proceeds fund the land restoration. The Act requires that mine operators pay the reclamation fee when the coal is sold. [viii]

In 2008, Consolidation Coal sued the DOI, stating the direct tax on coal exported would violate the Export-Clause of the Constitution, providing “No Tax or Duty shall be laid on articles exported from any state.”[ix] They sued in the Court of Federal Claims, and although initially successful, they lost on appeal in the Federal Circuit who, relying on the constitutional avoidance canon, interpreted the statutory phrase “coal produced” as referring to coal as coal extracted, and therefore the regulation was interpreted as a fee imposed on extraction, but collected at a later date.[x]

Recently, a new company, Coal River, filed similar suit, but with the D.C. Circuit.[xi] Coal River relied on Drummond Coal Co [xii] since a coal company challenged the Act, but had not presented a constructional argument as presented in Consolidation Coal.  Unfortunately, the D.C. Circuit didn’t bite, ruling that Coal River’s suit was untimely because the Act requires all challenges be brought within sixty days of the rules’ promulgation, even though the policy was finalized before the company started operations.

The appeals court said that Coal River’s argument is ‘by no means insubstantial; it is superficially troubling”, but the court ultimately decided with the DOI. The court also said later suits would be allowed under certain circumstances after the Interior actually imposes the regulation and fee on it. However, that future case, would likely end as Consolidation Coal, in constitutional avoidance.

In sum, at least until the proper situation arises, the ‘superficially troubling’ constitutional arguments coal companies are bringing to the table regarding export taxes on coal,  will not be heard.


[i] KENTUCKY DEPARTMENT FOR ENERGY DEVELOPMENT AND INDEPENDENCE, Kentucky Coal Resource Informaton (last modified July 29, 2014), available at

[ii] Surface Mining Control And Reclamation Act of 1977 30 U.S.C. §§ 1201-1328 (as amended 1992).

[iii] Id.

[iv] Id.

[v] Id. at Regulation of Environmental Impacts (including: a state law authorizing regulation of surface coal mining and reclamation operations in accordance with the Act; a state law providing sanctions for violations of state laws, regulations or permit conditions; a state regulatory authority with sufficient funding and personnel to carry out the Act's requirements; a state law implementing and enforcing a permit system for regulation of surface coal mining and reclamation on state lands; a process for designating state areas as unsuitable for surface coal mining (with designation of federal lands performed by the Secretary in consultation with the state); a process to avoid duplication of state and federal permit issuance; regulations consistent with federal regulations issued under the Act)

[vi] Id. (requiring permits meet all environmental protection performance standards. The Act sets forth 25 general performance standards applicable to all surface coal mining and reclamation operations, including that the operation must: restore the land to the pre-mining use or a reasonably likely higher use; restore the topsoil or the best available subsoil to support vegetation; ensure that reclamation efforts proceed in an environmentally sound manner and as contemporaneously as practical with the mining operations; to the extent possible using the best technology available, minimize disturbances and adverse impacts on fish, wildlife, and related environmental values, and achieve enhancement of these resources where practical. The Act contains additional standards for steep-slope mining. Permits for underground coal mining must contain a variety of requirements, including that the operator use the best available technology to minimize disturbance and adverse impacts on fish, wildlife and related environmental values, to the extent practical, and enhance these resources when practical.)

[vii] Id. Reclamation plans must include a statement of: pre-mining land condition; post-mining land use and how that use is to be achieved; the consideration given to developing the plan in a manner consistent with local physical, environmental and climatological conditions. The Act contains detailed requirements for plan approval, public notice and hearings, and appeals.

[viii] Coal River Energy, LLC v. Sally Jewell, Secretary, U.S. Department of the Interior and United States Department of the Interior, 2014 BL 132363, at *2 (D.C. Cir. 2014).

[ix] U.S. CONST. art. I, § 9, cl. 5.

[x] Consolidation Coal Co. v. United States, 528 F.3d 1344, 1348 (Fed. Cir. 2008), cert. denied 131 S.Ct. 2990 (2011).

[xi] supra note 27.

}[xii] 796 F.2d. 503 (D.C. Cir. 1986)