Montana authorities have told the state Supreme Court that coal sales between companies and their own affiliates are subject to manipulation and need to be treated differently than other sales.
Coal sales to affiliates have come under scrutiny as state and federal regulators investigate whether companies are underpaying taxes.
The state presented its concerns over the common industry practice during a Tuesday hearing in Helena.
The Department of Revenue says Wyoming-based Cloud Peak Energy owes $3.4 million after selling coal to affiliated companies at less-than-market prices.
The state says sales to affiliates need to be valued at the time the fuel changes hands — not when a contract between related companies is signed.
Cloud Peak attorney Kyle Gray says the state’s argument goes against Montana law and a 2000 Supreme Court ruling in a similar tax dispute.