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Question of the Day - 30 May 2008

Q:
With gold worth so much these days, is Nevada a lot richer from taxes on the gold mining there?
A:

Not a lot.

Nevada is the U.S.'s top gold-producing state, responsible for more than 75% of the nation's output. In fact, it's the fourth highest gold-producing region in the world, after China, South Africa, and Australia.

Nevada mines produced a record $5.4 billion worth of gold, silver, and other minerals in 2007, up a half-billion from 2006. (For gold specifically, Nevada produced more than six million ounces, worth $4.2 billion.)

In 2006, the last full year for which tax numbers are available, Nevada mining companies earned $5 billion and paid $62 million in total mineral taxes, of which the state and local governments share was $30 million.

By comparison, in fiscal 2007, Nevada's casinos won $12.7 billion and paid $870 million in state taxes. Using the casino's tax rate, the mining companies would have paid $340 million, rather than $62 million, in 2006.

The mining companies, of course, have a big tax advantage over the casinos, which pay taxes on gross proceeds. Mining companies pay taxes on net proceeds, meaning they can deduct most of their production expenses before calculating what they owe in taxes. This tax structure was written into the state constitution in 1864. (In fact, an earlier version of the Nevada constitution, with a gross-proceeds tax on mining companies, was rejected in 1863, and statehood was held up for 10 months over this very issue.)

There's no doubt that mining in Nevada is a lucrative business, with extremely high-paying jobs. But its impact on the state coffers is minor, given the tax advantage and the fact that mining is machine, rather than labor, intensive, with a mere 13,800 employees, compared to the state's 1.2 million workforce.

The casinos gross-revenue tax has been raised three times in the past 20 years, while mining's net-proceeds tax rate has remained the same. And it doesn't look like that will change anytime soon: Any alteration in the mining tax structure requires two-thirds of Nevada's state senators and representatives to support it.

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