Hemenway v. Peabody Coal Co.
United States Court of Appeals for the Seventh Circuit
159 F.3d 255 (7th Cir. 1998)
In 1969, Peabody Coal Co. (Peabody) (defendant) and the plaintiffs entered a mineral lease, which allowed Peabody to mine coal on the plaintiffs’ property. The lease required Peabody to pay the plaintiffs a royalty of 12 cents per ton, plus 10 percent of the difference between the sales price of coal and a base price defined by the lease. The base price was set at $2.28 at the time the lease was executed, but it fluctuated based upon the cost of labor. The amount of excise taxes imposed on Peabody by the government did not affect the base price. Peabody sold coal for $28.635 per ton and added an additional $1.10 per ton, which represented the excise taxes that Peabody wished to shift to the customer. Peabody paid the plaintiffs royalties only for the price it set for the coal, excluding the amount representing excise taxes. The plaintiffs sued Peabody, claiming that Peabody was obligated to pay a tax on the entire amount charged to customers, including the amount representing excise taxes.
Rule of Law
Holding and Reasoning (Easterbrook, J.)
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