Appeal from the United States District Court for the Southern District of West Virginia, at Beckley. Elizabeth V. Hallanan, District Judge. CA-85-1556:5.
Wilkinson, Circuit Judge, Haynsworth and Butzner, Senior Circuit Judges.
HAYNSWORTH, Senior Circuit Judge:
This is a suit for the refund of excise taxes paid by one alleged to have been the "producer" of coal. In the district court, judgment went for the taxpayer, and the United States has appealed.
The Black Lung Benefits Revenue Act of 1977, see 26 U.S.C.A. § 4121 (1989), imposed an excise tax upon producers of coal for the purpose of funding black lung benefits to miners who would not be compensated directly by their employers.
The statute does not define the term "producer" but Treas. Reg. § 48.4121-1(a)(1) (1988) defines it as "the person in whom is vested ownership of the coal under state law immediately after the coal is severed from the ground." The regulation provides that one should disregard any contractual arrangement for the sale or other disposition of the coal or the payment of any royalties. In order to determine ownership of the coal immediately after severance one must look to the contractual or other legal relationship between multiple parties. We do not understand the restriction in the regulation as intending to limit that inquiry, but only to inhibit attempts by actual producers by contract to transfer the incidence of the tax. Hence, we look to the actual arrangement between the relevant parties.
In 1974 Piney Creek Coal Company, as owner or lessee, controlled some coal producing lands in West Virginia. In that year it entered into an agreement with JoAnn Coal Company under which JoAnn would mine coal on lands controlled by Piney Creek and would deliver the severed coal to Piney Creek. JoAnn would be paid $23 per ton for clean coal delivered to Piney Creek under this arrangement. JoAnn was responsible for providing all the labor, supplies, material and equipment used in mining the coal. Piney Creek was responsible for payment of other costs, such as those incurred in loading and shipping the coal and welfare payments to the United Mine Workers of America.
Under the 1974 arrangement, it is clear that JoAnn was a contract miner of coal owned by Piney Creek immediately upon severance. The Internal Revenue Service made no contrary contention, and it is clear that JoAnn had no power of disposition over the severed coal. It could only deliver the severed coal to Piney Creek and collect its charge of $23 per ton for its contract services.
In 1979 Piney Creek began experiencing difficulties in finding purchasers for the coal being mined by JoAnn. JoAnn, however, had access to potential purchasers to whom it could sell the coal it was producing. This development led to a new letter agreement modifying the 1974 arrangement. Instead of delivering the severed coal to Piney Creek and collecting its fee of $23 per ton, the new arrangement gave JoAnn the right to sell the coal it mined. It was to pay Piney Creek $9.22 per ton for mined and removed coal, but Joann could then remove the coal and deliver it to whomever JoAnn pleased, JoAnn could sell the coal for the highest prices it could obtain.
Under the 1979 letter agreement JoAnn was required to report its sales to Piney Creek. As to each sale, it reported to Piney Creek the quantity of coal sold, the sales price and the identity of the buyer.
Under the 1979 arrangement Piney Creek was responsible for paying royalties and wheelage charges, but JoAnn was responsible for all other costs of extraction, preparation and shipment of the coal to its customers. It was also responsible for all required payments to the United Mine Workers of America and to its Pension and Benefit Trust.
The 1979 letter agreement provided that it could be cancelled by either party upon notice of 48 hours. Piney Creek did cancel ...