Tax breaks for mining industry scrutinized

During a committee meeting that lasted nearly five hours, more than a dozen witnesses accused the industry of dodging its obligation to support schools and other government services by taking advantage of mining-related tax deductions worth billions of dollars.

The testimony came in support of Assembly Bill 428, which would reduce by 60 percent the value of available tax deductions and add about $80 million annually to mining companies’ tax bills.

It was the first hearing on the bill by Assemblywoman Peggy Pierce, D-Las Vegas, who compared Nevada’s tax system to "barbarism" because it doesn’t generate enough money to pay for adequate schools and social services.

"I still need a cure for cancer," Pierce, a cancer survivor, told the Assembly Committee on Taxation. "I want writers and musicians and I need the teachers who teach them. None of that happens without education."

Despite the emotional testimony, the bill faces a labyrinth of legal and political obstacles and is unlikely to become law.

Legally, the Nevada constitution puts tight restrictions on how taxes can be applied to minerals, making it difficult for lawmakers to craft significant changes that would hold up in court.

Politically, it would take two-thirds of the Legislature to approve any increase in taxes, and although Democrats hold the majority they would need Republican support to pass AB428.

Liberal activists are pressing Democrats to defy Republican Gov. Brian Sandoval’s plan to spend no more than $5.8 billion from 2011-13, which they say isn’t enough to fund education and social service programs. But so far, Republican lawmakers are sticking with Sandoval, making it unlikely Democrats could find two-thirds needed to override Sandoval on mining or any other tax increases.

Also, while tax proponents focused largely on gold mines during their testimony, the bill as written would result in higher taxes paid on proceeds from geothermal heat and lithium, both of which are important ingredients for the politically popular clean-energy industry.

Nevada Mining Association President Tim Crowley said Nevada is home to rich deposits of lithium, which could be used to help the United States gain ground on China in the production of high-tech batteries.

"The market is booming in the battery technology, energy storage area and Nevada is in position to be a world leader in that field," Crowley said. "We’re not opposed to taxation; what we’re opposed to is taxing an industry disproportionately."

Crowley and James Wadhams, a lobbyist for Newmont Mining, tried to keep the conversation focused on the legal structure behind Nevada’s method of taxing mines, called the net proceeds of minerals tax.

Wadhams cited the law and statements from state Supreme Court decisions that describe the system as a property tax, meaning it is meant to be calculated based on the value of minerals while they are still in the ground.

To calculate the tax, mining companies report the market value of the minerals and deduct the cost of extraction, which includes allowances for transportation, refining, equipment, insurance, depreciation and other expenses.

Under provisions in the state constitution dating back to the 1860s, the total tax bill can’t be more than 5 percent of mining proceeds minus deductions.

With the existing system in 2009 the industry reported about $5.8 billion in gross proceeds. After deductions the companies’ 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 comparison, casinos on the Strip in 2010 made about $5.8 billion in gross gambling revenue and paid more than $400 million on the proceeds.

Pierce’s bill would change the law by saying that mining deductions couldn’t exceed 40 percent of expenses, which would result in a tax increase of about $80 million under today’s gold prices.

"It is time to end the sweetheart tax breaks and the stranglehold the mining industry has on the state," said Michael Ginsburg, an organizer for the Progressive Leadership Alliance of Nevada. The umbrella advocacy organization represents more than 40 liberal-leaning groups in Nevada.

Wadhams and Crowley said although they oppose such changes to the net proceeds tax, they wouldn’t oppose overall business or corporate income taxes if lawmakers feel the state needs more money for schools and social services.

"Singling out mining or any particular industry to pay more taxes is not a comprehensive solution," Crowley said.

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