Interest Rate Applicable to Late Payment or Underpayment of Monies Due on Solid Minerals and Geothermal Leases

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.

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(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.

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[FR Doc. 94-7302 Filed 3-28-94; 8:45 am]

BILLING CODE 4310-MR-M