Appeal from the United States District Court for the Southern District of Indiana, Evansville Division.
No. EV 94-79-C R/H Gene E. Brooks, Judge.
Before CUMMINGS, COFFEY, and EVANS, Circuit Judges.
ARGUED SEPTEMBER 26, 1997
This case explores the depths of the Black Lung Excise Tax ("BLET"), Internal Revenue Code sec. 4121 (1986):
(1) In general. There is hereby imposed on coal from mines located in the United States sold by the producer, a tax equal to the rate per ton determined under subsection (b).
(2) Limitation on tax. The amount of the tax imposed by paragraph (1) with respect to a ton of coal shall not exceed the applicable percentage (determined under subsection (b)) of the price at which such ton of coal is sold by the producer.
(b) Determination of rates and limitation on tax. For purposes of subsection (a)--
(1) the rate of tax on coal from underground mines shall be $1.10,
(2) the rate of tax on coal from surface mines shall be $.55, and (3) the applicable percentage shall be 4.4 percent.
In other words, the BLET comes in two forms--a flat per ton tax and a limited ad valorem tax. At issue here is the second form of the tax, the limited BLET. Specifically, this case involves the application of the 4.4 percent tax to surface-mined coal from Wyoming and Indiana sold by the Amax Coal Company at a price below $12.50 per ton. The problem is that when coal producers sell "coal" at a per ton rate, they often define it as including things that one might not ordinarily think of as being pure coal. For instance, one of Amax's contracts allows "coal" to contain up to 35 percent excess moisture. Excess moisture (a.k.a. free, added, or surface moisture) is water on coal that comes from washing (a process used to separate coal from sulfur and ash) and from natural condensation. Scientists distinguish excess moisture from inherent moisture in the natural coal seam. The dispute is over how to apply the 4.4 percent tax when a producer sells coal and excess moisture rather than just coal.
The courts and the IRS have resolved this issue regarding the flat per ton tax detailed in sec. 4121(a)(1). In A.J. Taft Coal Co. v. United States, 605 F. Supp. 366, 372 (N.D. Ala. 1984), aff'd without opinion, 760 F.2d 280 (11th Cir. 1985), the court ruled that the flat rate per ton tax applies to the weight of coal and not to the weight of excess moisture sold along with the coal. This interpretation of the flat rate per ton tax generally favors coal producers by allowing them to avoid paying tax on a portion of the weight of any given shipment. ...