What is the coal severance tax?

• A tax imposed by a state on the extraction (severing) of natural resources, such as oil, gas, timber, coal or other minerals.

• Kentucky has had a coal severance tax since 1972 and is currently 4.5 percent of the value of severed and/or processed coal.

Why does Kentucky have a coal severance tax?

The extraction of limited natural resources like coal does not provide long-term prosperity for local communities. A severance tax serves two functions:

1. It is public compensation for the environmental, social and economic costs of coal mining incurred by a community.

2. It serves as capital resource for building a better more diverse economy.

How much revenue does it generate?

Kentucky received over $215 million in coal severance taxes in 2006.

What is the revenue from the coal severance tax spent on?

• Most of Kentucky’s coal severance tax money goes into the state’s General Fund and to Legislative earmarks.

• Less than 30% is divided among a variety of programs and returned to coal producing and impacted counties through the Local Government Economic Development Fund (LGEDF) and the Local Government Economic Assistance Fund (LGEAF).

• The LGEDF is used for non-coal economic development

• The LGEAF is used to help counties pay for public infrastructure. 

• $26.7 million is directly or indirectly returned to the coal industry annually. (This does not include any from HB 1)

Who controls the Coal Severance Funds?

• For over thirty-five years The Legislature and Kentucky’s Governors have maintained a firm grip on the coal severance funds. 

• The Legislature has consistently used line-item allocations, “earmarks”, each legislative session to fund special projects. 

• The Governor’s Office of Local Development (GOLD) has administrative authority for distributing the coal severance funds.