Interior Department Repeals Valuation Rule, Rolling Back Tax Regulations on Energy Industry

The Stewart Lee Udall Department of Interior building. Image-DOI

The Stewart Lee Udall Department of Interior building. Image-DOI

In a “Sweeetheart Deal” to the energy industry, the Department of Interior repealed the Consolidated Federal Oil and Gas and Federal and Indian Coal Valuation Reform Rule (Valuation Rule) put in place by the Obama administration that curtailed a practice by the industry to short-change the  Federal government and Indian entities of royalty taxes owed to them by energy interests.

The repeal, announced on Monday, by Secretary of the Interior Ryan Zinke, will do away with the “arms-length” regulation, and once again allow energy interests, such as the coal industry, to sell coal that is mined, to affiliates at low rates. That sale price was then used, and now will be used again with the repeal of the valuation rule, to calculate the taxes owed to the Federal government and American Indian entities.  

The coal, is then re-sold by the coal company’s affiliates at a much higher price to buyers, most often overseas, allowing the industry to pocket the monies that would have otherwise been taxed under the now repealed valuation rule.

Zinke said in the  Department’s announcement, the valuation rule “created confusion and uncertainty regarding how companies report and pay royalties on energy and other mineral resources from federal onshore and offshore areas and American Indian lands.”

Federal lawmakers and watchdog groups, say that the valuation rule stopped the loss of hundreds of millions in royalties annually because of the practice of selling to an affiliate to calculate tax. Approximately half of the royalties that are collected from sales of coal is disbursed to Wyoming, Montana, Colorado, Utah and New Mexico.

“I support Interior’s decision to repeal this rule and provide greater certainty to companies seeking to produce our valuable domestic resources, from Alaska to the Atlantic,” Alaska’s senior  senator, Lisa Murkowski said. “While the federal government will continue to collect its fair share of revenues from responsible development, the repeal of this rule will help prevent negative impacts to exploration and production that would put our energy dominance at stake.”

The Interior published the final repeal notice in the Federal Registry on Monday, and it is due to go into effect on September 6th.