Capital Gains Treatment of Royalties on Coal Background The Internal Revenue Code contains a provision allowing coal-mining companies to treat income from royalties as capital gains. This provision permits individuals who lease mining rights and receive royalty payments to treat these payments as capital gains rather than ordinary income. Treating the income as capital gains allows the companies to capture reduced tax rates instead of the higher tax rates normally applied to income. Special capital gains treatment for coal was granted in 1952.
Green Scissors Proposal Repeal capital gains treatment for income generated from royalties. According to the White House Office of Management and Budget, this action would save taxpayers $380 million over 5 years.
Project Hurts Taxpayers Allowing coal companies to treat income from royalty receipts as capital gains gives these companies a higher profit margin at taxpayer expense. The tax break encourages leasing and unnecessarily subsidizes coal production. In 1996, 940 million tons of coal were consumed, and the total value of coal production was more than $19 billion. Clearly the coal industry doesn't need this tax break.
Project Hurts Environment Mountain top removal and strip mining for coal scar the landscape and pollute surrounding sources of water. This tax provision subsidizes an energy source that is a major cause of greenhouse gases and gives coal producers market advantages over cleaner, more efficient energy sources.
$380 million