Paul L. Caron

Friday, June 11, 2021

Weekly SSRN Tax Article Review And Roundup: Roberts Reviews New Papers By Hackney And Peck

This week, Tracey Roberts (Cumberland; Google Scholar) reviews new works by Allison Peck (West Virginia) Standard Oil, Consolidation Coal, and the Roots of the Resource Curse in West Virginia, 124 W. Va. L. Rev. ___ (2021); and Philip Hackney (Pittsburgh), Dark Money Darker? IRS Shutters Collection of Donor Data, 25 Fla. Tax Rev. ___ (2021).

Roberts (2020)In Standard Oil, Consolidation Coal, and the Roots of the Resource Curse in West Virginia, Allison Peck recounts the early 20th Century efforts of Morgantown, West Virginia lawyer, George C. Baker, to pave a pathway for the state to tax its coal, oil, and gas resources. Industrialists initially delayed legislative reform by persuading the legislature to employ a time-honored tactic: setting up a commission to study the matter. Imagine their surprise and chagrin when the commission proposed that the state, in stark need of revenues, issue licenses for extraction and tax the licenses based on volume of production. The commission described the tax as merely sufficient to offset the state’s costs from extraction activities: mine inspections (West Virginia’s safety laws were the nation’s weakest), miner’s hospitals (miners were frequently injured and died from mine collapse, explosions, and fires), the decline in value and harm to the land resulting from extraction activities, and deployment of state militia and national guard to put down civil unrest as miners sought to unionize and strike (a prescient consideration, given the scope of West Virginia’s mine wars from 1912-21). Despite this setback, the industrialists defeated the commission’s proposed bill in a special session of the legislature.


Baker, undeterred, next looked to the state constitution, which authorizes the government to tax all property, real and personal. He succeeded in convincing the governor to implement a system to assess and tax coal, oil, and gas leases as personal property. While the West Virginia Supreme Court upheld the tax in a unanimous decision, the industrialists defeated the system again by litigating valuation. Since then, the West Virginia legislature has passed legislation to elect property tax assessors (rather than to allow the industry-funded patronage system to continue), placed a severance tax on resource extraction, and established a valuation standard for assessment of all property at 60% of actual value. However, at this stage much of the state’s vast resources have already been extracted, with West Virginians seeing little of that value.

As philosopher George Santayana wrote in The Life of Reason (1905), “Those who cannot remember the past are condemned to repeat it.” Professor Peck’s discussion of this history is important because we are poised again to make the same mistakes. Extraction activities are currently destroying countless cultural and natural resources across the globe, from Rio Tinto’s demolition of 46,000-year-old Aboriginal rock shelters in Western Australia, to the release of slurry from the breach of tailings ponds in Brazil, to the deterioration of abandoned mine infrastructure in Papua New Guinea, to six decades of devastation to the Niger Delta by the oil and gas industry. Furthermore, the same mechanisms and rationales that Professor Peck describes as foiling the collection of taxes on extractive industries in West Virginia are employed today throughout the world in reducing tax burdens based on the definition of property, taxpayer presence, and relative value, to the detriment of workers and the environment.

Sadly, we do not need to look beyond U.S. shores to reflect on the effects of the patronage and influence system. As Professor Peck points out, Senator Joe Manchin, a Democrat, has recently pledged to block the priorities of his own party, including a proposed infrastructure bill that would be funded through a reversal of the corporate tax cuts under 2017 Tax Cuts and Jobs Act and the For the People Act. Even though 68% of likely voters support For the People Act, including 70% of Democrats and 57% of Republicans, Jane Mayer, author of Dark Money, reports that Senate Minority Leader Mitch McConnell opposes the bill, has expressed alarm at its popularity, and is now using “under-the-dome” tactics to prevent the legislation from ever reaching a vote. According to Mayer, several out-of-state conservative groups, which may be funded by Koch Industries, have organized rallies in West Virginia to encourage Senator Manchin to block the bill and any change to the filibuster rules that would allow the bill to reach a vote. This activity, of course, brings us to our next article.

In Dark Money Darker? IRS Shutters Collection of Donor Data, Professor Philip Hackney discusses the impacts of the 2018 change to the Treasury Department and IRS guidance eliminating the donor name and address disclosure requirements for certain tax-exempt organizations. After describing the function and uses of the information return and the different reporting requirements for social welfare organizations, business leagues, and political organizations, he examines the rule change in light of Professor Leandra Lederman’s framework in Statutory Speed Bumps: The Roles Third Parties Play in Tax Compliance and under Professor Lloyd Hitoshi Mayer’s analysis in Politics and the Public’s Right to Know. Social welfare organizations and business leagues are granted tax exemption for carrying out collective activity, not for operating for the benefit of private parties. The tax laws specifically prohibit both types of organizations from allowing their earnings to inure to the benefit of private shareholders and from operating in ways that primarily benefit private parties instead of furthering their exempt purposes. Social welfare organizations are also barred from engaging in excess benefit transactions. To enforce these laws, the IRS needs information on significant transfers both to and from these organizations; it is unclear how it can enforce the tax laws without these disclosures. Beyond enforcement of the laws governing tax exemption, Professor Hackney also argues that the disclosures support enforcement of the income tax, the estate and gift taxes, securities laws, campaign finance laws, and state nonprofit laws.  Finally, Professor Hackney underscores society’s interests in access to information and the impartial and evenhanded enforcement of laws, and their relation to our democracy.

In the last year, the energy industry has been the poster child for dark money and campaign finance scandals. First Energy and American Electric Power have been embroiled in a bribery scandal in Ohio to require ratepayers to bail out nuclear plants and subsidize coal-fired power plants.  Cries of foul play have sounded in Virginia following the flow of funds from Dominion Energy and a clean energy PAC, Clean Virginia, to rival Democratic primary candidates for state and local races. The Colorado Public Utilities Commission has recently rejected efforts of a “Coalition of Ratepayers” to intervene in Xcel Energy’s Resource Plan following a 2018 investigation by the Energy and Policy Institute that revealed they were part of a campaign led by a front group for the state of Wyoming and coal mining companies to delay the closures of power plants that burn Wyoming coal. It is unclear whether Senator Manchin opposes the For the People Act because of the advocacy by chemical and energy industry-funded front groups to halt a bill designed to preserve the integrity of U.S. elections, reform campaign contribution laws, authorize the Securities and Exchange Commission to require corporate disclosures of political activity, and permit the IRS to bring transparency to nonprofit political activity. However, following the recent changes to the Treasury rules regarding nonprofit disclosure, we may never know.

Here’s the rest of this week’s SSRN Tax Roundup:

Scholarship, Tax, Tax Scholarship, Tracey Roberts, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink