Mineral Royalty : A Financial Burden that Ailing Coal Companies Cannot Escape

Prior to the global initiatives aimed at weaning nations away from fossil fuel dependence, mining laws were previously put in place to govern developments and capital investments in coal, oil and gas production. The legislations included mineral royalty that state and local governments can collect as remuneration for the depletion of mineral resources in their geographical jurisdictions.


How Much and When are Mineral Royalties Paid?

Federal laws require coal companies to pay mineral royalties, at 12.5 percent (12.5%) the value of the coal produced. The royalty payments are due for remittance to the government up to the last day of the month following the month that the coal was produced. That is regardless of how much a coal company was able to convert into sales and how much remains as part of the supply inventory.

The Decline of the Coal Mining Industry as the Nation Turns to Clean and Renewable Sources of Energy

Now that serious steps have been taken to foster the use of clean energy in lieu of fossil fuels, coal mining operations are faced with diminishing demands for coal. Coal companies though, still,have to pay mineral royalties based on coal production and must do so in due time. Otherwise, penalties and surcharges will increase their unpaid royalty liabilities, which will likewise increase their growing financial burdens.

tax preparer for a coal mining company can use as gross revenue deductions the mineral royalties, including the penalties and surcharges accruing to unpaid remittances. Yet this does not help in solving the unprofitable results when actual costs incurred are deducted from actual revenues earned.

As long as coal companies continue to operate under the going concern concept, they are still required to pay mineral royalties within the period required by federal laws. Coal companies are even barred by federal laws from paying royalties in installments, just so their obligation will not balloon to unmanageable proportions.

Apparently, coal companies had not expected the rapid effects of the movements aimed at eliminating carbon emissions associated with energy derived from fossil fuels. This can be surmised based on the growing number of coal companies that chose to cease operations during the past few years.

In 2019, at least seven more coal companies had sought bankruptcy protection. One of the greatest financial burdens they seek protection from are the mineral royalties that have accrued in large amounts.