[Federal Register Volume 59, Number 60 (Tuesday, March 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7302]
[[Page Unknown]]
[Federal Register: March 29, 1994]
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DEPARTMENT OF THE INTERIOR
Minerals Management Service
30 CFR Part 218
RIN 1010-AB83
Interest Rate Applicable to Late Payment or Underpayment of
Monies Due on Solid Minerals and Geothermal Leases
AGENCY: Minerals Management Service, Interior.
ACTION: Final rule.
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SUMMARY: This final rule amends the interest rate applicable to late
payments or underpayments of royalties and other monies due under solid
minerals and geothermal leases to require the same interest rates and
calculation methodology used for oil and gas leases. The MMS believes
consistency for late payment and underpayment charges for all mineral
leases at the rate applicable under section 6621 of the Internal
Revenue Code of 1954 is appropriate and serves as an effective
deterrent to discourage late and underpayments.
EFFECTIVE DATE: April 1, 1994.
FOR FURTHER INFORMATION CONTACT:
David S. Guzy, Chief, Rules and Procedures Staff, Minerals Management
Service, Royalty Management Program, P.O. Box 25165, Mail Stop 3901,
Denver, Colorado 80225-0165, telephone (303) 231-3432.
SUPPLEMENTARY INFORMATION: The proposed rulemaking published on June
17, 1993, 58 FR 33413, provided for a 60-day public comment period
which ended August 16, 1993. All comments received during that time
period are addressed in this section. The principal author of this rule
is Dennis C. Whitcomb, Office of the Deputy Associate Director for
Audit, Royalty Management Program, Minerals Management Service.
Comments were received from two coal companies, two industry
associations as joint commenters, and the State and Tribal Royalty
Audit Committee. In general, the comments were not in favor of
increasing the interest rate.
(a) Two comments were critical of the lengthy administrative
appeals process which results in the lessee owing more interest when
the appellant posts a surety in lieu of payment and does not prevail in
its appeal.
Response: This issue is beyond the scope of this rulemaking.
However, currently the MMS is streamlining and improving its appeal
procedures to shorten the time required for appeals to the MMS
Director. The appeals streamlining includes a common tracking system,
simplified review and surname of field reports, definitive time frames
for appeal processing, standardized language and formats for field
reports, and establishing appeals coordinators in each MMS division.
When the MMS decision is appealed, the MMS has no control over the
Interior Board of Land Appeals process.
(b) Two other commenters on the appeals process observed that MMS
does not pay interest on monies refunded when an appellant prevails in
its appeal.
Response: In the absence of a statute or contract, the United
States cannot pay interest on overpayments. United States v. Louisiana,
446 U.S. 253 (1980). The MMS has not been given statutory authority to
pay interest on any overpayments made by appellants. However, the MMS
now accepts surety instruments for amounts under appeal which bear
interest in the appellant's favor. For complete information refer to 57
FR 44991, September 30, 1992, codified at 30 CFR 243.2 (1993).
(c) Two commenters stated that the application of the Federal Oil
and Gas Royalty Management Act of 1982 (FOGRMA) rate to solid minerals
would be illegal. One comment stated the Debt Collection Act does not
authorize MMS to charge the higher Internal Revenue Service (IRS) rate.
Response: As explained in the preamble to the proposed rule, this
rule is not being promulgated under FOGRMA or the Debt Collection Act,
but under the Secretary of the Interior's (Secretary) plenary authority
to establish necessary and appropriate rules pursuant to the Mineral
Leasing Act of 1920 (30 U.S.C. 189), Mineral Leasing Act for Acquired
Lands (30 U.S.C. (359), the Geothermal Steam Act of 1970 (30 U.S.C.
1023), and the Indian mineral leasing laws (25 U.S.C. 396, and 25
U.S.C. 396 a-g). The rate proposed is the same as that authorized by
FOGRMA, i.e., the rate applicable under section 6621(a)(2) of the
Internal Revenue Code of 1986 as amended. The MMS considers the
increase in the interest rate to be justified to fairly compensate the
Federal Government or Indian lessor for the lost time value of money.
The MMS believes this rate is necessary to encourage the prompt and
proper payment of royalties.
(d) Several commenters stated that the proposed rule is short-
sighted, displays unreasonable punishment for trustworthy reporters,
will unduly penalize marginal and temporary underpayments, does not
demonstrate a higher rate will assure timely collection of royalty, and
seeks merely to generate additional revenue.
Response: The MMS regulations that assess interest on late and
underpayments are not punitive, but account for the lost time value of
money. Late payments from payors cause States, Indian tribes and
allottees, and other recipients to receive monies due to them later
than they would be paid if the lessee had paid on time. Thus, these
recipients also are compensated for the lost time value of money
because late payment interest is shared with those recipients in the
same manner as principal lease revenues.
(e) Two commenters suggested that MMS should offer discounts for
prompt payment and should not charge interest if a payment is within 5
percent of a final amount due.
Response: The MMS is not authorized to offer discounts on royalty
due for prompt payment nor allow any variation of gross proceeds
accruing to the Government. The various mineral leasing laws and lease
terms require that royalty shall not be less than a certain percentage
of the value. If a discount were offered for prompt payment, MMS would
receive royalties below the amount provided for by statute and lease
term. Thus, MMS does not have authority to provide for such discounts.
The MMS also believes that waiving the interest charge for small
underpayments would foster incorrect payment. Thus, this proposal has
not been adopted. The MMS mission is to timely and properly collect and
distribute all royalty, rent, and other payments due on Federal and
Indian leases.
(f) One commenter stated that the MMS should follow IRS timetables
if it charges IRS interest rates. The commenter pointed out the IRS
deadlines for filing tax returns after the taxable year ends.
Response: The MMS will not accept this proposal because it is
inconsistent with existing regulations and lease terms. If this comment
were followed, the result would be a loss of millions of dollars in
time value of money for the United States, States, and Indian tribes
and allottees. The reporting and payment cycle for royalties
established in the leases generally is monthly which also reflects
industry accounting practice. In contrast to Federal income taxes,
lease royalty payments and reports are due at the end of the month
following the month of production unless the lease terms expressly
provide otherwise.
(g) One commenter stated that no compelling governmental interest
exists that would justify charging the higher rate.
Response: The MMS is following the guidance found in the Federal
Claims Collection Standards at 4 CFR 102.13(c) which states ``An agency
may assess a higher rate of interest if it reasonably determines that a
higher rate is necessary to protect the interests of the United
States.'' Congress believed that for late royalty payments for oil and
gas leases, the IRS 6621(a)(2) rate was appropriate. There is no reason
to establish any lower rate for solid minerals or geothermal leases.
(h) The same commenter stated MMS has not met its threshold burden
of proving that assessing the higher rate is necessary to deter
underpayments and assure the timely collection of royalties.
Response: Under the various mineral leasing laws the Secretary may
prescribe rules and regulations necessary to carry out the requirements
of accounting for and collecting royalty. The MMS believes the
increased rate is neither arbitrary nor inconsistent with the statutes
or statutory purposes.
(i) The same commenter stated MMS misidentifies the reasons for
outstanding payments and its proposed solution is counterproductive to
administrative efficiency.
Response: The MMS does not agree because experience indicates MMS's
policies have proven effective. The rule provides for fair and
consistent compensation for the lost time value of money.
(j) One commenter stated that MMS used excessive interpretation of
the agency's general rulemaking authority that is contrary to law and
existing constitutional principles. The commenter believes that FOGRMA
expands the authorities and responsibilities of the Secretary only for
Federal oil and gas management.
Response: The MMS may promulgate necessary and appropriate rules
and regulations for royalty collection under 30 U.S.C. 189 and 1023 and
other mineral leasing laws for all minerals to meet its
responsibilities to disburse royalties timely to States and Indian
tribes and allottees.
(k) One commenter stated that the interest rate is too high because
MMS says that the revenue gains from a higher rate would be small.
Response: The rule is not intended to increase revenue but to
encourage the prompt and proper payment of revenues and to provide
compensation for the lost time value of money. In fact, under a perfect
system, all royalties would be timely paid, and MMS would not receive
any monies pursuant to the late payment charge regulations.
(l) Two commenters (based on an OIG report entitled ``Assessments
on Late and Underpaid Royalties for Solid Minerals and Geothermal
Leases'') stated that the OIG concludes that the present rules provide
an incentive for companies to underpay and that the proposed rule is
based on fallacious conclusions in the OIG report.
Response: The OIG's conclusions are consistent with this
rulemaking, but the OIG's report is not the authority for the rule.
However, the OIG's conclusion that the current interest rate for solid
minerals royalty late payments made it more attractive not to pay in
some circumstances appears to be reasonable, and nothing in the
comments demonstrates otherwise.
(m) Two commenters stated that virtually all coal and solids
royalties are paid timely and rarely are coal companies in an
underpayment status with MMS.
Response: As of August 31, 1993, MMS had 249 outstanding Bills for
Collection for solid mineral payors in the amount of $81,249,067.78.
Therefore, the increase in the interest rate is justified to compensate
for the lost time value of monies at a fair rate.
(n) The State and Tribal Royalty Audit Committee supports the rule
as proposed. They endorsed the proposed rule as governmental action
which will adequately protect the interests of all citizens and sustain
the efficient conduct of private enterprise for the benefit of all
concerned.
Response: The MMS is adopting the rule as proposed to increase the
interest rate applicable to underpayments on solid mineral and
geothermal leases. The rate will be the same as that applicable for
underpayments on oil and gas leases--under section 6621(a)(2) of the
Internal Revenue Code.
The effective date of April 1, 1994, is appropriate inasmuch as
interest rates are normally updated at the beginning of calendar
quarters by both the IRS and the U.S. Treasury.
Pursuant to 5 U.S.C. 553(d)(3), the United States Department of the
Interior finds that there is good cause to make this rule effective
April 1, 1994.
On all payments due MMS prior to March 31, 1994, interest will be
calculated at the Current Value of Funds Rate (CVF) through March 31,
1994, and the IRS rate from April 1, 1994, through the date paid. The
IRS rate is compounded daily, as contrasted to the CVF rate which is
calculated as simple interest. For example, if a payment was due
February 28, 1994, and was not paid until April 30, 1994, then late
payment interest would be calculated on the principal for 31 days
(March 1994) at the CVF rate and calculated on the principal plus
accrued interest for 30 days (April 1994) at the IRS rate. The new rate
is applicable to any and all outstanding amounts on the effective date.
Procedural Matters
The Regulatory Flexibility Act
The Department certifies that this rule will not have a significant
economic effect on a substantial number of small entities under the
Regulatory Flexibility Act (5 U.S.C. 601 et seq.).
The rule is necessary to provide consistency in the existing
regulations in applying the same interest rate for late payment or
underpayment of monies due on solid minerals, geothermal, and oil and
gas mineral leases.
Executive Order 12630
The Department certifies that the rule does not represent a
governmental action capable of interference with constitutionally
protected property rights. Thus, a Takings Implication Assessment need
not be prepared under Executive Order 12630, ``Government Action and
Interference with Constitutionally Protected Property Rights.''
Executive Order 12778
The Department has certified to the Office of Management and Budget
that these final regulations meet the applicable standards provided in
sections 2(a) and 2(b)(2) of Executive Order 12778.
Executive Order 12866
This document has been reviewed under Executive Order 12866 and is
not a significant regulatory action.
Paperwork Reduction Act of 1980
This rule does not contain information collection requirements
which require approval by the Office of Management and Budget under 44
U.S.C. 3501 et seq.
National Environmental Policy Act of 1969
It is hereby determined that this rulemaking does not constitute a
major Federal action significantly affecting the quality of the human
environment and a detailed statement pursuant to paragraph (2)(C) of
section 102 of the National Environmental Policy Act of 1969 (42 U.S.C.
4332(2)(C)) is not required.
List of Subjects in 30 CFR Part 218
Coal, Continental shelf, Electronic funds transfers, Geothermal
energy, Government contracts, Indian lands, Mineral royalties, Natural
gas, Penalties, Petroleum, Public lands--Mineral resources, Reporting
and recordkeeping requirements.
Dated: February 18, 1994.
Bob Armstrong,
Assistant Secretary, Land and Minerals Management.
For the reasons set out in the preamble, 30 CFR part 218 is amended
as set forth below:
PART 218--COLLECTION OF ROYALTIES, RENTALS, BONUSES, AND OTHER
MONIES DUE THE FEDERAL GOVERNMENT
1. The authority citation for part 218 is revised to read as
follows:
Authority: 5 U.S.C. 301 et seq.; 25 U.S.C. 396 et seq.; 25
U.S.C. 396a et seq.; 25 U.S.C. 2101 et seq.; 30 U.S.C. 181 et seq.;
30 U.S.C. 351 et seq.; 30 U.S.C. 1001 et seq.; 30 U.S.C. 1701 et
seq.; 31 U.S.C. 3716; 31 U.S.C. 3720A; 31 U.S.C. 9701; 43 U.S.C.
1301 et seq.; 43 U.S.C. 1331 et seq.; and 43 U.S.C. 1801 et seq.
Subpart E--Solid Minerals--General
2. Section 218.202 is amended by revising paragraphs (c) and (d) to
read as follows:
Sec. 218.202 Late payment or underpayment charges.
* * * * *
(c) The interest charge on late payments shall be at the
underpayment rate established by section 6621(a)(2) of the Internal
Revenue Code, 26 U.S.C. 6621(a)(2).
(d) Interest will be charged only on the amount of the payment not
received by the designated due date. Interest will be charged only for
the number of days the payment is late.
* * * * *
Subpart F--Geothermal Resources
3. Section 218.302 is amended by revising paragraphs (c) and (d) to
read as follows:
Sec. 218.302 Late payment or underpayment charges.
* * * * *
(c) The interest charge on late payments shall be at the
underpayment rate established by section 6621(a)(2) of the Internal
Revenue Code, 26 U.S.C. 6621(a)(2).
(d) Interest will be charged only on the amount of the payment not
received by the designated due date. Interest will be charged only for
the number of days the payment is late.
* * * * *
[FR Doc. 94-7302 Filed 3-28-94; 8:45 am]
BILLING CODE 4310-MR-M
