Tax commission set to review mining industry regulations

CARSON CITY -- For decades environmentalists and liberal activists have been the leading critics of Nevada's major mining operations.

But an effort to scrutinize mining regulations for potential loopholes is now prompting even anti-tax Republican leaders to reconsider whether the industry is paying as much as it should in state taxes.

Today the Nevada Tax Commission is scheduled to review existing regulations for mining taxes and consider a petition from state Senate Majority Leader Steven Horsford, D-Las Vegas, seeking emergency changes to those regulations.

It's no surprise that Horsford, who has regularly called for higher taxes on business, would seek to squeeze more money from the mining industry.

What is unusual, however, is leading Republican lawmakers and even Gov. Brian Sandoval, who has pledged to oppose tax and fee increases, say they would support closing regulatory loopholes if it is determined mining companies should be paying a higher "net proceeds of minerals" tax bill.

"I think that is probably something we need to look at," said Senate Minority Leader Mike McGinness, R-Fallon. "Maybe there are deductions that shouldn't be allowed."

McGinness is the leader of a Republican Senate caucus that has pledged to support Sandoval's proposed $5.8 billion general fund budget for 2011-13 by voting against any tax or fee increases.

The lockstep, anti-tax position has frustrated Democrats and liberal activists because unified Republicans prevent pro-tax Democratic leaders from building the two-thirds support they need to increase revenue or override a gubernatorial veto.

Sandoval has said he would support moving money around underneath his $5.8 billion spending cap and at least one other Republican, state Sen. Michael Roberson, R-Las Vegas, has said he would vote to increase mining taxes if the amount were offset by decreasing what others pay.

McGinness, however, said if it appears the regulations allow mining companies to deduct expenses beyond what the law intends there would be no need to cut taxes elsewhere to offset any revenue gained by tightening the rules.

"I think it is just found money," McGinness said.

Sandoval in a written statement took a position similar to McGinness by saying it would be up to the tax commission to determine if mining tax regulations have been stretched beyond what the law should allow.

"The Governor believes any loopholes or other concerns can and will be addressed through that process and actions of the Taxation Commission," Sandoval spokeswoman Mary-Sarah Kinner wrote. "He will support closing loopholes the Commission identifies."

Assembly Minority Leader Pete Goicoechea, R-Eureka, said the state "could and should" ensure mining tax regulations don't allow deductions beyond those called for in law.

But he added that previous efforts to curtail deductions have ended with legal threats and court fights as mining companies point to the state constitution that limits the mining taxes to no more than 5 percent of net proceeds of minerals.

"They can still talk to the courts," Goicoechea said of the mining companies. "They happen to have good attorneys, too."

The upcoming tax commission review was prompted by a revelation in March from former Nevada Taxation Director Dino DiCianno who told a legislative committee his department had no auditors trained to inspect mining companies' payment of "net proceeds of minerals" taxes.

DiCianno abruptly resigned after the admission and Sandoval called a meeting of the tax commission to begin audits of net proceeds payments.

Horsford attended the commission meeting with his petition for emergency regulation changes.

Although Democrats and critics of mining would welcome any new money from the industry, which generated about $5.8 billion in gross proceeds in 2009, it's unclear how much it could generate for the state.

After deductions, the mining companies' 2009 net proceeds, the amount on which they pay taxes, was $1.8 billion.

The amount of state taxes paid on the net was $47.8 million, plus another $46.4 million in county taxes.

In contrast, Strip casinos made about $5.8 billion in gross gambling revenue in 2010 and paid about $416 million in state taxes on the proceeds.

Laura Granier, an attorney for Lionel Sawyer Collins who has studied the laws and regulations covering mining deductions, says it appears there are some discrepancies that result in unfair deductions.

She cited regulations that allow the deduction of expenses for certain reclamation costs, allowances for out-of-state salaries and sales and use taxes that appear in the regulations but aren't specifically identified in the law.

Granier represents a coalition of mineral exploration firms that support a review of the deductions.

The exploration firms say public perceptions that major mining companies represented by the Nevada Mining Association are taking too many deductions has hurt the reputation of the entire industry.

"Responding to the public outcry for more revenue from mining is essential to the future of Nevada's mining industry," Granier said.

Jim Wadhams, lobbyist for Newmont Mining, said even if the tax commission decides some changes to the regulations are in order he's confident deductions by major mining companies are in line with the regulations and the law.

"I'm completely comfortable with that," Wadhams said, adding it is the job of the tax commission to review deductions. "That is the way it should be. That is why the statute says they are supposed to review those (regulations) every 10 years."

Contact reporter Benjamin Spillman at bspillman@reviewjournal.com or 702-477-3861.