Can a Virginia coalfield county use coal and gas severance tax revenue to fund repair of a town's water system?
Plain-English summary
The Dickenson County Attorney asked whether the county could use local coal and gas road improvement severance tax money to help the Town of Clintwood repair its water system. Both are public water service providers in Southwest Virginia coal country, and the town's water lines are aging.
The Attorney General said yes. Virginia counties and cities in coal country may assess severance taxes on coal and gas extracted from local mines and wells. Code § 58.1-3741(B) authorizes a 1% gross-receipts tax on coal, and Code § 58.1-3713(A) authorizes up to a 1% gross-receipts tax on gas. For localities that are members of the Virginia Coalfield Economic Development Authority (which Dickenson County is), three-fourths of the proceeds go into the locality's Coal and Gas Road Improvement Fund, and one-fourth goes into the Virginia Coalfield Economic Development Fund.
The Road Improvement Fund is not just for roads. Code § 58.1-3713 lets a member locality spend one-fourth of the Fund on public utility improvements including water and sewer construction and repair. Code § 58.1-3713.01 lets a locality designate an "additional one-fourth allocation" for water and sewer projects, including "regional water or sewer projects" defined as projects "involving two or more public water [or] sewer service providers located in the same or neighboring political subdivisions." Dickenson County and the Town of Clintwood are neighboring political subdivisions with separate public water service providers, so a joint project to repair the Town's water lines qualifies. The County must adopt an annual plan establishing priority of funding for the projects. Additionally, under Code § 58.1-3713(A), revenues designated for water systems must be distributed directly to the local public service authority rather than to the governing body, so the appropriation has to flow through that channel.
Currency note
This opinion was issued in 2019. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.
Background and statutory framework
Virginia's coal and gas severance tax framework is structured to give coalfield localities revenue tied to extraction activity, then channel that revenue toward specific purposes: roads, economic development, and public utilities. The general framework gives counties and cities two tax options: Code §§ 58.1-3741(A) and 58.1-3712 (unrestricted-use severance taxes) and Code §§ 58.1-3741(B) and 58.1-3713 (Coal and Gas Road Improvement and VCEDA severance taxes). The Road Improvement and VCEDA severance taxes both run at 1% of gross receipts for coal (three-fourths of 1% for small mines) and up to 1% for gas.
For VCEDA member localities, the proceeds of the Road Improvement and VCEDA severance taxes are split: three-fourths to the locality's Coal and Gas Road Improvement Fund, one-fourth to the VCEDA Fund. The Road Improvement Fund is designed for road work but has long had carve-outs for water and sewer projects. Section 58.1-3713(A) lets a member locality spend up to one-fourth of the Road Improvement Fund on public utility improvements (water and sewer construction, repair, or enhancement) in areas where natural water supply is insufficient. Section 58.1-3713 also allows an "additional one-fourth allocation" for water and sewer projects if the locality adopts an annual plan under Code § 58.1-3713.01.
Code § 58.1-3713.01 specifically encourages regional projects: "In order to promote cost savings and economic development, funding may be provided for regional water [or] sewer projects as provided in this section." A regional project means one "involving two or more public water [or] sewer service providers located in the same or neighboring political subdivisions." The Town of Clintwood's water system and Dickenson County's water service operate as separate public water service providers, so a joint project to repair the Town's lines qualifies. The plan must include the project, and the funding must follow the statutory channel: water-related revenues go directly to the local public service authority, not the governing body.
The opinion also notes (in a footnote) that gas and coal severance taxes collected under §§ 58.1-3741(A) and 58.1-3712, and one-half of the gas severance taxes collected by Dickenson County under § 58.1-3713.4, are unrestricted. Those revenues can be used for any valid public purpose, which includes appropriating funds to incorporated towns within the county under Code § 15.2-1202. So if the County wanted to support the Town's water lines without using the Road Improvement Fund's regional-projects pathway, the unrestricted severance tax revenue could be another route.
Common questions
What kinds of localities qualify as VCEDA members?
Localities in Virginia's coalfield region that have elected to join the Virginia Coalfield Economic Development Authority. The opinion confirms Dickenson County is a member.
Can the Town of Clintwood collect its own severance taxes?
No, only counties and cities may impose the severance taxes under Code §§ 58.1-3741, 58.1-3713, 58.1-3712, and 58.1-3713.4. Towns are not authorized to impose them. Towns receive severance tax revenue, if at all, through county appropriations.
What does "regional water or sewer project" mean?
A project "involving two or more public water [or] sewer service providers located in the same or neighboring political subdivisions." Two localities with separate water utilities collaborating on a project, or two utilities serving overlapping or adjacent areas, both qualify. The structure encourages joint planning.
What is the "annual plan" requirement?
Code § 58.1-3713.01 requires the locality to develop an annual plan establishing the priority of funding for water and sewer projects to be funded from the "additional one-fourth allocation." The plan must specifically identify and prioritize the regional projects to be funded. Without the plan, the locality cannot tap into the additional allocation.
Why must water-revenue distributions go to the local public service authority?
Code § 58.1-3713(A) provides that "revenues designated for water and water systems ... shall be distributed directly to the local public service authority for such purposes instead of the local governing body." This channels the money to the entity that actually operates the water system, rather than letting the board of supervisors hold and re-allocate it.
Are there limits on how much severance tax revenue can go to water projects?
Yes. The basic allocation for water and sewer is one-fourth of the locality's Road Improvement Fund proceeds, with an "additional one-fourth allocation" available for regional projects under § 58.1-3713.01. So at most, half of the locality's Road Improvement Fund can go to water and sewer; the remaining half is for road improvements (or qualifying public utility purposes).
Could Dickenson County also use unrestricted severance taxes to help the Town's water system?
Yes, according to the AG's footnote. Severance taxes collected under §§ 58.1-3741(A), 58.1-3712, and half of those collected under § 58.1-3713.4 are unrestricted. The County can appropriate those funds to any valid public purpose, including under Code § 15.2-1202, which permits a county to appropriate funds to an incorporated town within its boundaries.
Does Wise County's special carve-out apply here?
No. Code § 58.1-3742 establishes a sole exception for Wise County, requiring 20% of certain severance tax revenue to be distributed to incorporated towns and the city within Wise County. Dickenson County is not subject to that special distribution rule.
Citations
- Va. Code § 58.1-3713 (Coal and Gas Road Improvement Fund, VCEDA Fund, water/sewer allocations)
- Va. Code § 58.1-3713.01 (regional water/sewer project plans)
- Va. Code § 58.1-3741 (severance taxes on coal)
- Va. Code § 58.1-3712 (severance taxes on gas)
- Va. Code § 58.1-3713.4 (additional gas severance tax)
- Va. Code § 58.1-3742 (Wise County exception)
- Va. Code § 15.2-1202 (county appropriations to towns)
Source
- Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
- Original PDF: https://www.oag.state.va.us/files/Opinions/2019/18-011-Mullins-issued.pdf
Original opinion text
COMMONWEALTH of VIRGINIA
Office of the Attorney General
Mark R. Herring
Attorney General
February 15, 2019
Stephen W. Mullins, Esquire
Dickenson County Attorney
Post Office Box 781
Clintwood, Virginia 24228
Dear Mr. Mullins:
I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of
the Code of Virginia.
Issue Presented
You ask whether Dickenson County is authorized to appropriate a portion of the revenues derived
from local coal and gas road improvement severance taxes to the Town of Clintwood, to fund the repair
of a water system or lines that are owned and operated by the Town.
Applicable Law and Discussion
Although the Code of Virginia contains various provisions authorizing counties and cities to
assess taxes on the severance of coal and gas, your inquiry deals with the severance taxes that are
authorized pursuant to §§ 58.1-3741(B) and 58.1-3713 of the Code, often referred to as local coal and gas
road improvement and Virginia Coalfield Economic Development Authority severance taxes. These taxes
may be assessed by a county or city at a rate of one percent of gross receipts for coal, and up to one
percent of gross receipts for gas. The revenue from these taxes must be distributed as provided for under
§§ 58.1-3713 and 58.1-3713.01.
For localities that are members of the Virginia Coalfield Economic Development Authority, such
as Dickenson County, § 58.1-3713 directs that three-fourths of the proceeds of these taxes be paid into the
locality's Coal and Gas Road Improvement Fund, a special fund designated for road improvement
projects, and one-fourth of the proceeds be paid into the Virginia Coalfield Economic Development Fund.
With respect to the portion of the taxes paid into the locality's Coal and Gas Road Improvement
Fund, otherwise known as local coal and gas road improvement severance taxes, § 58.1-3713 provides
that a locality that is a member of the Virginia Coalfield Economic Development Authority is not limited
to using these funds solely for road improvement projects. Rather, the locality has the option of
expending "one-fourth of such revenue" for public utility improvements as set out in the statute, including
"the construction of new water or sewer systems and lines and the repair or enhancement of existing
water or sewer systems and lines in areas with natural water supplies that are insufficient from the
standpoint of quality or quantity ...."
Further, an "additional one-fourth allocation" from the portion paid into the locality's Coal and
Gas Road Improvement Fund may be used to fund such water and sewer projects, provided the locality
adopts an annual plan establishing the priority of funding for the projects as directed under
§ 58.1-3713.01. Such an annual plan may provide funding for "regional water or sewer projects," which
are defined in § 58.1-3713.01 as "projects involving two or more public water [or] sewer service
providers located in the same or neighboring political subdivisions."
As neighboring political subdivisions with separate public water service providers, Dickenson
County and the Town of Clintwood may, pursuant to § 58.1-3713.01, approve and agree to a regional
project to repair a water system or lines that are owned and operated by the Town of Clintwood.
Revenues from an "additional one-fourth allocation" of severance taxes paid into Dickenson County's
Coal and Gas Road Improvement Fund therefore may be used to fund the project, in accordance with an
annual plan developed by the County under § 58.1-3713.01.
Conclusion
Accordingly, it is my opinion that Dickenson County is authorized to appropriate a portion of the
revenues derived from local coal and gas road improvement severance taxes to fund the repair of a water
system or lines that are owned and operated by the Town of Clintwood. Specifically, the County may
fund such a project through an "additional one-fourth allocation" of these severance taxes as permitted in
§ 58.1-3713. The project must be incorporated into an annual plan that is developed by the County in
accordance with § 58.1-3713.01.
With kindest regards, I am,
Very truly yours,
Mark R. Herring
Attorney General