Capturing Resource Wealth to Invest in the Future: Possible Structures and Potential Benefits of an Illinois Coal Severance Tax
October 23, 2015
The report, co-authored by Downstream Strategies and Center for Tax and Budget Accountability, compares the structures of severance taxes in other states and analyzes the potential benefits of instituting a coal severance tax in Illinois. Illinois is one of the only coal-producing states that does not collect a coal severance tax.
The report also calculates foregone revenue that Illinois could have already generated with a severance in place. Between 2002-2012, Illinois could have collected annual revenues between $1.2 million (with a model similar to Indiana) to upwards of $66 million (under West Virginia’s model).Comparing the different models, the results indicate that Illinois should implement a coal severance tax set at 5% of the gross value of coal produced, distributing a portion of the revenues to benefit communities where coal is mined. Considering revenues last only as long as coal is economical to extract, the report also recommends that Illinois set up a permanent mineral trust fund to extend the impact of a severance tax into periods with little or no coal mining. A mineral trust fund allows the revenue to accumulate interest for the benefit of future generations.