Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, February 17, 1995 TAG: 9502180024
SECTION: BUSINESS PAGE: A7 EDITION: METRO
SOURCE: GREG EDWARDS STAFF WRITER
DATELINE: LENGTH: Long
\ Virginia's struggling coal industry - looking for a competitive advantage over coal producers in other Appalachian states - stands on the verge of getting a big hand up from the state legislature.
A bill that has moved with ease through the General Assembly would give Virginia companies a tax credit for every ton of coal they mine. The total cost would be an estimated $16.6 million a year in lost revenues.
Some might argue that the coal industry is getting a handout. The alternative, the bill's supporters say, could be more job losses in the coalfields, where unemployment already is the highest in the state. That would mean even more lost tax revenue and a greater demand on social service agencies.
The bill passed a House floor vote 98-0 on Feb. 7 and unanimously was reported out of the Senate Finance Committee on Wednesday. The Senate is to hold a third reading of the bill and vote on it today. The administration pf Gov. George Allen has not yet taken a position on the bill.
Del. Jackie Stump, D-Buchanan County, who also is an official with the United Mine Workers union, agreed to sponsor the bill after meeting with Virginia companies that mine small coal seams, said Stump aide Hobert Honaker. Coal operators told Stump the legislation would lead to the opening of new mines, Honaker said.
Virginia's best coal already has been dug, and what's left is in smaller seams and is more difficult to mine, said state Sen. William Wampler Jr., R-Bristol. That places the Virginia coal industry at a competitive disadvantage with companies in Kentucky and West Virginia, said Wampler, a Senate cosponsor of the bill.
The goal of the tax-credit legislation is to sustain coal mining jobs in Southwest Virginia and jobs at supporting businesses such as trucking companies, railroads, mine suppliers and utilities, Wampler said. The job-ripple effect of the coal industry is greater than that of many other industries, he said.
Since 1990, Virginia's coal production has fallen 17 percent, and the number of employed miners has dropped by 21 percent from 10,000 to 7,900, said Tommy Hudson, president of the Virginia Coal Association in Richmond. Figures provided by the Center for Coal and Energy Research at Virginia Tech confirm that trend.
Monthly statistics from the Virginia Employment Commission regularly show the coalfield counties at or near the top in statewide unemployment rates. In December, unemployment in the seven coalfield counties ranged from 6.6 percent in Scott County to 14.7 percent in Dickenson County.
Hudson, whose association represents companies mining 80 percent of the state's coal, said the association's consultant predicts that Virginia could lose another 8 million tons in yearly production by the year 2000, if nothing is done to improve the coal industry's situation.
The proposed legislation would give companies mining coal from underground seams that are less than 33 inches wide a 60-cent-per-ton credit against income taxes. In seams 33 inches and wider, a credit of 50 cents per ton would apply. A company would get a 25-cent credit for each ton of coal mined from the surface. The bill also provides for a one-cent credit for every million BTUs of coal methane gas produced.
A tax credit provides a dollar-for-dollar tax bill reduction. It's different from a tax deduction, which reduces only the adjusted gross income against which the tax bill is computed.
The use of tax law to benefit a particular industry is not a new public policy matter. Virginia offers tax credits to encourage investment in certain kinds of equipment and for creation of new jobs. But the coal tax credit is the first that would provide tax relief for each unit of a company's production.
Besides corporations, the legislation would make the credit available to individuals, estates and trusts. If the coal's owner is an entity other than the company mining it, the credit would be shared between the two.
Coal companies or other taxpayers could begin accruing the tax credits in 1996 but would not be allowed to claim them until l999.
The bill doesn't provide a dedicated source of revenue to pay for the credits. It says companies will be able to claim a credit only if state general fund tax collections exceed official revenue estimates by at least the cost of the credits.
But making the credit contingent on state revenue collections may destroy its effectiveness as a job producer. "If the credit is a good idea, it should be there without the contingency," said Eugene Seago, a professor of tax accounting at Virginia Tech. If the credit is uncertain, a company couldn't base a decision to make new investments on it, he said.
If the value of a company's credits is more than its tax bill and it has credits left over, the bill allows the state tax commissioner to pay the company for any unused credits at 95 percent of their face value. If the commissioner declines to redeem them, the credits may be transferred and applied to the corporate income tax or any other state-imposed tax at 100 percent of their value.
For instance, the owners of a coal company could ask for redemption of any unused tax credits and, if denied, could transfer the credits to offset their personal income tax bill. Allowing redemption and transfer of the credits would be unique to Virginia and could cause administrative problems for the state, according to an analysis of the bill by the Virginia Department of Taxation.
The legislation also extends two existing tax credits for those buying Virginia coal to make electricity, but provides that only one type of credit can be used for each ton of coal mined. An analysis by the Department of Taxation says the use of the credits will be difficult to monitor because the producer and purchaser credits will be claimed by different people in different years.
It is estimated that the extension of the purchase credits will cost the state another $1 million annually between 1997 and 2001 and $15.3 million annually after that.
by CNB