This question has been surfacing around here for, oh, roughly 150 years. And it did so again this year, as the Nevada Legislature considered a proposal to raise mining taxes to help fade the $900 million state budget shortfall. But like most proposals to tax the mining industry over the past century and a half, this one failed.
In 1863, the Nevada state constitution was delayed for nearly a year while the debate raged over placing a tax on gross mining revenues. Voters rejected the first constitution, which included the tax, in favor of a second constitution that taxed the net proceeds of gold and silver, which passed October 1864.
It wasn’t until 125 years later, in 1989, that Nevada voters, in a special second election required to alter the constitution, approved (by a 3-1 margin) a 2% rise in the net tax on minerals to 5%.
However, the term "net proceeds" allows the miners to deduct a number of expenses, including depreciation of equipment, ore transportation costs, and production and marketing expenses, from what they gross by selling minerals. In fact, recent estimates hold that nearly 80% of mining-company expenses can be written off as deductions, which gives it an effective tax rate of not 5%, not even 3%, but .5%. For example, in 2007, Nevada gold mines produced a record $5.4 billion in gold, netting out $1.5 billion, while paying a mere $30 million in net-proceeds taxes (roughly the same amount as rental-car companies pay in taxes).
On the other side of the equation, the miners don’t only pay this net-proceeds tax. They also pay sales tax on new equipment, which runs in the millions every year. And they pay all the Nevada business taxes, including major payroll taxes. Their investments in Nevada mines run in the billions before they earn a single penny. And they’re the highest paying industry in the state, with an average wage in the $70,000s (mine truck drivers average $65,000 a year).
On the other hand, the gambling industry’s taxes have been raised three times since 1989, while mining’s haven’t been changed at all. And the casinos are taxed on gross proceeds, not net, and pay a 6.5% tax on gross, while the mines pay an ostensible 5% on their net.
Anyway, in the 2009 Nevada Legislature, a bill was proposed to trim the miners’ allowable deductions by 40%, which would raise a couple hundred million in additional taxes, at a time when the state is nearly $1 billion in the hole and gold is selling for near-record levels ($950 an ounce as of this writing). The proposal went down in flames, in part thanks to the at least two dozen mining-industry lobbyists in the capital at Carson City.
But proponents are calling for a statewide referendum on raising mining taxes. It’ll be tough to raise the net-proceeds tax in the state constitution, which requires a two-thirds approval vote in both houses of the Legislature, plus voter approval in one general and one special election. But lowering the applicable deductions only requires majority votes in the state Senate and House, and with a public referendum supporting it, the tax increase might have a shot in the next biennial session of the Nevada lawmakers, set for January 2011.
