Coal Tax Rate: Mining Method, Price Cap, and Exemptions

The federal coal excise tax rate is $1.10 per ton for underground-mined coal and $0.55 per ton for surface-mined coal, capped at 4.4 percent of the selling price when that produces a lower number.¹ The Inflation Reduction Act of 2022 made these rates permanent after decades of temporary extensions. All revenue funds the Black Lung Disability Trust Fund, which pays medical benefits and compensation to coal miners disabled by black lung disease.²

Rates by Mining Method

The rate depends entirely on how the coal is extracted.

Underground mining: $1.10 per ton. This covers any coal not mined by first removing all the earth and rock above it.
Surface mining: $0.55 per ton. This covers operations that strip away all the material above the coal seam before removing the coal.

If every layer of earth above the coal is cleared before extraction, it counts as surface mining. Everything else is underground.¹ Coal extracted by auger is treated as surface-mined. Coal reclaimed from waste refuse piles also falls into the surface category, which means pulling usable coal from an old waste pile triggers the excise tax just as fresh extraction would.³

The 4.4 Percent Price Cap

The tax on any ton of coal cannot exceed 4.4 percent of the selling price. The producer pays whichever is lower: the flat per-ton rate or 4.4 percent of the sale price.¹

The math produces clear price thresholds. For underground coal, $1.10 equals 4.4 percent of $25, so the percentage cap only applies when the coal sells below $25 per ton. For surface coal, the breakpoint is $12.50 per ton. Above those prices, producers pay the flat rate; below them, they pay 4.4 percent of the actual sale price. When you compare the selling price against the threshold, don’t include the excise tax itself in that price.⁴

Who Owes the Tax and When

The tax falls on the “producer,” defined by federal regulation as the person who owns the coal under state law at the moment it leaves the ground. Contracts about who eventually buys the coal or who receives royalties don’t shift this responsibility. The definition also reaches anyone extracting coal from waste refuse piles or from silt left over from coal washing.³

The tax triggers when the producer first sells the coal or uses it for something other than mining. Breaking, cleaning, and sizing don’t count as “use” because they are part of the mining process. Burning the coal as fuel, converting it into coke, or feeding it into any non-mining industrial process does count as taxable use, even without a sale.³

What Is Exempt

Lignite

Lignite, sometimes called brown coal, is exempt. The IRS uses American Society for Testing and Materials classification standards to determine whether a particular coal qualifies. Producers extracting both taxable coal and lignite from the same operation must keep records showing the quantity of each.³

Imported Coal

The statute imposes the tax only on coal from mines located in the United States, so coal mined abroad and brought in is outside its reach.¹

Exported Coal

The Constitution bars Congress from taxing goods being exported from any state.⁵ To claim the exemption, producers need documentation that the coal actually left the country. Acceptable proof includes a copy of the export bill of lading, a certificate from the carrier’s agent confirming exportation, a customs officer’s landing certificate from the destination country, or a signed receipt from the foreign buyer.⁶

Silt From Coal Washing

Silt left over from washing coal isn’t taxable as long as no one extracts coal from it. Once someone pulls coal out, the extracted coal is taxed at the surface-mine rate, but the remaining silt stays exempt.³

Filing on Form 720

Producers report and pay the coal excise tax quarterly on Form 720, the federal excise tax return.⁷ The form splits coal into four line items based on mining method and price:

IRS No. 36: Underground coal sold at $25 or more per ton, taxed at the flat $1.10 rate.
IRS No. 37: Underground coal sold below $25 per ton, taxed at 4.4 percent of the selling price.
IRS No. 38: Surface coal sold at $12.50 or more per ton, taxed at the flat $0.55 rate.
IRS No. 39: Surface coal sold below $12.50 per ton, taxed at 4.4 percent of the selling price.⁴

The 2026 quarterly deadlines are April 30 (Q1), July 31 (Q2), October 31 (Q3), and January 31, 2027 (Q4). Each return covers the preceding three calendar months.

Penalties for Late Filing or Payment

Missing a Form 720 deadline can trigger two penalties. The failure-to-file penalty runs at 5 percent of the unpaid tax for each month the return is late, capped at 25 percent. The failure-to-pay penalty adds 0.5 percent per month on any unpaid balance, also capped at 25 percent. When both apply for the same month, the IRS reduces the filing penalty by the payment penalty so you aren’t double-charged for the overlap. Interest accrues on top of both.

If the IRS determines that a failure to file was fraudulent, the filing penalty rises to 15 percent per month with a 75 percent ceiling. These penalty structures apply to excise returns the same way they apply to income tax returns.

How the Rates Became Permanent

The higher $1.10 and $0.55 rates and the 4.4 percent cap were originally set in 1986, but they were temporary and got extended through a series of legislative patches. When the last extension lapsed at the end of 2021, the rates briefly dropped back to $0.50 and $0.25 with a 2 percent cap. The Inflation Reduction Act of 2022 removed the rate-reduction provision entirely, making the current rates and cap permanent.⁸ There is no sunset date. The rates apply to all coal sold after August 16, 2022, and stay in place unless Congress changes them.

State Severance Taxes Are Separate

Most coal-producing states impose their own severance tax on extraction, and these are completely independent of the federal excise tax. Paying one does not reduce or offset the other. Some states tax a percentage of gross value, with rates running roughly from 2 percent to 5 percent depending on the coal and its end use; others charge a flat amount per ton. A few layer additional extraction-related fees for reclamation or road maintenance. Producers operating in more than one state need to track each jurisdiction’s calculation method, rates, deductions, and filing schedule separately.

1
Office of the Law Revision Counsel. 26 USC 4121 – Imposition of Tax
2
Office of the Law Revision Counsel. 26 USC 9501 – Black Lung Disability Trust Fund
3
eCFR. 26 CFR 48.4121-1 – Imposition and Rate of Tax on Coal
4
Internal Revenue Service. Instructions for Form 720
5
Congress.gov. Export Clause and Taxes
6
Internal Revenue Service. Publication 510 – Excise Taxes
7
Internal Revenue Service. About Form 720 – Quarterly Federal Excise Tax Return
8
Congress.gov. Tax Provisions in the Inflation Reduction Act of 2022