Date of Award:

5-1941

Document Type:

Thesis

Degree Name:

Master of Science (MS)

Department:

Economics and Finance

Department name when degree awarded

Commerce

Committee Chair(s)

William E. Mortimer

Committee

William E. Mortimer

Abstract

A discussion of the subject of coal mine taxation seems timely and should be of much practical interest in view of the present depressed condition in which the coal industry finds itself. Coal production has developed into one of Utah's most important industries from the standpoint of quantity, value, and associated employment. It has become vital to the economic stability and security of the state. Coal producers, however, have encountered serious economic difficulties during the past two decades. The task of building up profitable industrial activities is one thing, the job of protecting and maintaining them is another matter.

Not only has the industry failed to continue the progress of the War and pre-War period, but it has lost much of the market which had been developed. Shrinking demand, decreasing production, rising costs and falling prices have practically wiped out profits.1 Laborers and their families, people who have depended on the coal industry for their prosperity and existence for years, have found themselves unemployed and without incomes. The productive capacity of mines has been more than double the consumption needs of this area. Consequently, a considerable portion of the 40 million dollars2 which has been invested in coal mining equipment has become a millstone on the neck of the industry. Indeed, coal has become news--labor news, price news, bankruptcy news.

But because the coal industry is threatened with economic chaos, it must not be assumed that its tax is at fault. The coal problem is national in scope. The people of Utah cannot hope to uncover a panacea applicable to this state alone. Utah long since ceased to be a separate and distinct economic unit. Those economic and political factors that affect industries in other states, likewise tend to exert a similar influence upon corresponding industries in this state.

Notwithstanding this fact, coal taxes amount to a considerable portion of the cost of operations. They undoubtedly have a significant influence on the economic status of the industry. Mine operators contend that the present tax is both excessive and discriminatory, but this claim is not unnatural. No taxpayer ever denies that he ought to pay his fair share of the expenses of the government; what he loudly and sometimes violently asserts is that the tax imposed on him is more than his fair share, while other people oftentimes are equally forceful in asserting that what he pays is less than his fair share. What makes the contention of the operators significant, however, is the fact that the whole trend of mining activity has changed since the tax was adopted in 1919. The mine owners point out that all of the factors which were weighted heaviest in originally determining ton-values have changed to such an extent that they are not applicable now. On the basis of these changes, the mining companies have appealed for tax reductions, and they have also requested that tax discriminations between competing fuels be eliminated.

How much justification there is to these claims and appeals is not known. A detailed study of the problem has not been made, although economic conditions give it sufficient importance to justify some serious consideration. Coal production is too important to the welfare of Utah to have its problems ignored. If tax injustices are contributing to the economic distress of the coal industry, action should be promptly taken to remedy the situation. On the other hand, if the tax levied on coal mining property is not unjust, the loud and earnest assertions of the coal operators could be dismissed with the comforting assurance that coal mines are being fairly treated.

However, the fact must not be ignored that each tax is a regulatory tax. A pure tax (one that produces revenue without in any way altering the economic order) is an ideal of fiscal theorists. No tax has yet been devised that does not in itself result in minor or major economic changes. Whenever a tax on business, consumption, or property is not truly general and uniform, it discriminates between economic elements, and modifies the economic order. A gasoline tax which adds four or five cents to the price of motor fuel has a repressive effect on the oil industry. A heavy fixed-sum license tax on a class of retail stores may force some stores out of business altogether and may bring profits to others in excess of the tax they pay. Likewise, a tax on coal which adds several cents to the cost of producing each ton may reduce coal production and stimulate demand for other products. If the tax on all property is not uniform in its effect, some property is being given preferential treatment and other property is being handicapped by discrimination.

Since taxes can make a fairly profitable mine worthless and a very profitable mine worth less than it was before, the problem of analyzing the effect of coal mine taxes on the industry under present economic conditions seems appropriate. In this study we shall "look and see" what has actually happened to the ad valorem property tax which was imposed on the Utah coal industry 22 years ago. The industry has been in motion, changes have taken place; but, what about its tax?

Although there are other interesting coal mine taxes, we can do little more than recognize them in this study. In analyzing the property tax, our investigation will be limited to the following five topics: (1) the method employed in taxing Utah coal mines; (2) the economic characteristics of the industry; (3) the effect of economic changes on the tax burden; (4) the regulatory aspects of the tax; and (5) some comparisons of tax uniformity.

It would be more than one might expect, that such inquiries could be answered in absolute terms. In economic analysis it is seldom possible to arrive at more than tendencies and approximations. Even these points, if analyzed completely, could result in a voluminous report. The data contained in this study, therefore, will be carefully selected and tersely stated.

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