Mining industry opposes tax hike

CARSON CITY -- Nevada Mining Association President Tim Crowley finds it funny that some state legislators are looking to raise mining taxes to help bail the state out of its worst recession in generations.

"We are the classic boom and bust industry," he said. "That gets lost in the discussion. To look to us for a stable source of tax revenue is kind of ironic."

But with the gold market surging amid Wall Street's recent struggles, some state lawmakers see the mining industry as a potential source of untapped revenue to fill gaping budget holes.

"Mining will be taxed, but so will a lot of other businesses, and individuals, too," said Senate Taxation Committee Chairman Bob Coffin, D-Las Vegas.

His counterpart on the Assembly Taxation Committee agreed.

"I'm pretty sure it is one of the areas we will look at," said Kathy McClain, D-Las Vegas. "We don't know what kind of shortfall we really are looking at yet. Once we get a number, everything is on the table."

Gold prices have climbed steadily since 2007 as investors, wary of the world's volatile stock markets, have looked for an economic safe haven. Gold sold for $940 an ounce Friday, up about $300 from two years ago.

Nevada produces 80 percent of the gold in the United States and mines more of the precious metal than all but three countries.

The state's mining industry made $5.4 billion in revenue in 2007, with about 78 percent coming from gold sales.

That year the industry paid $34.7 million in state mineral taxes, a little more than 1 percent of the state government's total tax haul.

Despite rising gold prices, that number is expected to fall to $33.6 million this fiscal year, followed by years of $28 million and $26.5 million, according to state Economic Forum estimates.

The Legislature's taxation committees will decide by April 17 which taxes can be raised to help fill the expected state budget shortfall.

The $6.17 billion, two-year budget proposed by Republican Gov. Jim Gibbons has been rejected almost entirely in the Legislature, where Democrats hold a 28-14 membership advantage in the Assembly and 12-9 edge in the Senate.

Rather than accepting Gibbons' plan, legislators want to restore full funding to programs such as the state Office of Consumer Health Assistance, the county indigent hospital fund and the Nevada Check Up program.

Gibbons' proposal to cut state employee and teacher salaries by 6 percent and chop higher education funding by 36 percent also was greeted with antipathy.

Gibbons estimated his budget was nearly $2 billion short of what the state needed to keep services at the levels expected when the Legislature adjourned in 2007. Yet Gibbons, a former mining industry geologist and mining company lawyer, has vowed to veto any tax increases on mining.

During the one-day special legislative session in December, mining industry leaders agreed to pay some taxes in advance to help the state balance the current fiscal year budget.

But some groups, led by liberal-leaning Progressive Leadership Alliance of Nevada, think the mining industry should pay higher taxes.

Mines pay a 5 percent tax on net revenues, which is set in the state constitution. Any rate change would require state legislative resolutions this year and in 2011, followed by voter approval in 2012.

Instead of starting the long process of changing the constitution, lawmakers could raise $141 million in mining taxes by cutting most deductions the industry uses before calculating its tax burden. That was the conclusion of the "Fool's Gold" report released last month by PLAN, which includes Culinary union Local 226 and the Nevada State Education Association. PLAN would limit deductions to transportation and energy costs.

"Our assumption is the wealthy are not paying enough in our state," PLAN lobbyist Jan Gilbert said. "Nobody wants to pay taxes. We don't want to hurt businesses that aren't profitable. Mining is making money. Mining is not moving. The gold is here, and they know it."

Crowley said cutting the deductions would be disastrous to gold mining in Nevada.

"It would simply put us out of business," he said.

The industry isn't opposed to fair tax increases that affect all businesses, but it protests being singled out for a major tax increase that could hurt profitability, Crowley said.

"We want to help. We need to broaden our tax base. We exist here because the ore is here and the economic conditions work for us. When the economic conditions change, it could get to the point where it is not economical to maintain mining operations here."

Former Nevada Mining Association President Russ Fields served on a 2002 task force that proposed a business profits tax that would affect all industries. While touted by the gaming industry and mining, the proposal was rejected by the general business community and died in the 2003 Legislature.

Because of rising steel, diesel fuel and electricity costs, the industry paid about $408 to produce an ounce of gold in 2007, and that number has climbed, Crowley said, though he didn't have more a recent figure.

If mining is hit with a major tax increase, Crowley predicted companies would reduce efforts to find new ore deposits and curtail equipment purchases.

"You would see mining companies look elsewhere," he said. "I don't know where our breaking point is, but this is an industry that needs predictability. We have always had our bust periods. I won't predict against another bust at some point."

Crowley also said it is unfair to look only at his industry's net proceeds taxes. The state mining industry pays about $200 million a year in total taxes, including sales taxes, he said.

Assemblyman James Settelmeyer, R-Gardnerville, is no fan of increasing taxes on mining or any other industry.

But Settelmeyer said legislators long ago should have established a sliding scale to tax mining more when it was making high profits and less when its income was down.

Like Crowley, he figures various plans to raise mining taxes would be found as unconstitutional if challenged in court.

"We are in a terrible situation," Settelmeyer said.

Contact Capital Bureau Chief Ed Vogel at evogel@reviewjournal.com or 775-687-3901.