Severance Tax Leaves Kentucky in the Red

By Julie Johnson

The money that coal, timber, oil and natural gas companies pay in severance taxes is less than the subsidies provided by the state to the same companies, according to a recent study by the Mountain Association for Community Economic Development (MACED).

MACED examined Kentucky’s 2006 revenue from the coal industry—including severance taxes—and found that the state made $528 million but spent $643 million supporting coal mining activities, leaving Kentucky with a $114 million deficit.

Severance taxes are funds paid to the state by extraction industries based on the amount of resources they remove. The amounts can vary widely based on production. If production drops, so does the amount of money a county receives from the producer.

The tax revenues are disbursed from the state to the county governments with varying degrees of efficacy. Each state may decide independently how they will allocate the money, and each county can decide how to spend the funds; many support social services such as public schools, health departments and road repair.