[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