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Nevada Mining Taxes Measured, Found Wanting

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Nevada Assemblywoman Peggy Pierce’s bill (A.B. 428) was heard before the Assembly Taxation Committee yesterday morning, in hopes that at least a portion of Nevada’s budget shortfall might be filled by new revenues created in the provisions of this bill. The bill is designed to reduce tax deductions that mining has enjoyed for decades.

Peggy PierceThe Nevada Constitution is said to have been written by the mining industry, with major protections for themselves included. Essentially, the mining industry is only  taxed on their net proceeds in an amount no greater than 5%. While there is currently a proposal before the legislature to amend the Nevada Constitution to remove the cap, such a provision, if passed, would have to be revisited by the legislature in two years, and passed by voters on the ballot, yielding results no sooner than 2014.

Some Assembly Democrats are hoping that AB 428 might be a more immediate fix for the budget problems. Proponents testified on behalf of the bill before the committee this morning.

Hugh Jackson, of Las Vegas Gleaner fame, outlined the enormous record profits being made by the mining industry, thanks in large part to gold. He points out that the net income of mining is greater than Nevada’s entire state budget. They distributed $1.1 billion in dividends last year, and are sitting on $8 billion in cash.

He explained that Barrick and Newmont (NV’s 2 largest mining companies) aren’t likely to leave Nevada because their dividends of $1.1 billion are reduced to $1 billion (a difference reflected by the impact of this bill)

“Market Forces drive where mining operates, when it expands, and how many people it employs. Nevada is probably the most important region in the world for mining. This bill, if passed, will still leave Nevada’s mining taxes lower than nearly anywhere else in the world. It is hard to imagine this having any effect on the industry.”

Michael Ginsburg with the Progressive Leadership Alliance of Nevada, agreed, saying, “The idea that mining will leave Nevada due to a tax increase is farcical and absurd.”

Mining lobbyists countered with two points they claim are their only objections to this bill. First, they say it targets only one industry, and only exacerbates the nature of Nevada’s budget surplus/deficit cycle. Mining nearly came out and said they were in favor of a gross receipts broad-based business tax, though that is a convenient position to take since the likelihood of such a tax is minuscule.

They also raised concerns, via high powered attorneys from Jones Vargas, that the bill may be unconstitutional because it artificially raises the value of the minerals being taxed. In other words, because the Nevada Constitution only allows net proceeds to be taxed, these deductions are arguably required constitutionally. We should note at this point that Nevada’s governor is a partner with Jones Vargas, and thus profiting personally by these lobbying efforts. Wow! Yes, but just a microcosm of Nevada politics.

The problem with mining’s first assertion is that industries everywhere that receive special privileges (the ability to do damage to land, or people for profit) are targeted by extra taxes. Tobacco and alcohol are two easy examples. The “harm” these industries do to society is considered justification for why a tax is an appropriate compensation to the society, paid by the ones profiting from the harm.

Gold Mine in Nevada

Mining certainly does harm to the environment, and they are shipping non-renewable resources out of the state.  That is a special privilege.  They should be willing to pay extra.  Hey, even those commie pinkos in Texas have targeted the oil industry, which is a primary reason that the University of Texas enjoys one of the largest endowments in the world. Wyoming (another socialist pariah) also targets hefty taxes on mining that are a great deal higher than here in Nevada.

Mining’s second assertion begs the questionoif whether the deductions properly reflect the cost of getting the ore out of the earth. Many of the deductions are highly questionable.  The deductions include oddities like fire insurance and marketing costs (about $80-90 million), aspects specifically questioned by legislators during yesterday’s hearing.

Could this bill result in a lawsuit? Sure, any bill can. Would mining be successful in such an endeavor? Highly doubtful, considering many of the deductions have been added year after year, and many of which are not considered deductions for many other industries (aka “the cost of doing business” which is not deductible). Furthermore, such a lawsuit may motivate the state to find other ways to get payback via additional tax methods.

My solution to all these problems would be to introduce a bill that taxes the extraction of minerals. You wouldn’t be taxing proceeds, but rather taxing the process of extracting anything from the ground. Again, environmental concerns are a justification for such a tax.

Bottom line: in comparison to anywhere else in the world, Nevada mining companies are paying pennies, and Nevadans are getting the shaft.  We have an education system and essential services to fund.  The Legislature should do what it takes instead of coddling to wealthy lobbies. 

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About Justin McAffee

  • Cannonshop

    The West when I was growing up (aside from the Coasts, which we moved to later) is covered in mines that aren’t played out, in that the veins of ore are there, rich, and relatively easy to access-but the cost of operation is too high to make keeping it open profitable enough to keep it open-that’s Mining. Your product in mining is a commodity, and if the market is saturated with that commodity, or if your local production cost due to either internal, or external factors, is higher than it will cost your customers to have it shipped from, say, south africa, you don’t stay in business at that location-no matter HOW rich the vein is.

  • Cannonshop

    Have you accounted for the actual market price of the materials being mined, Justin? That has a hell of a lot more to do with whether the industry stays, or goes-as long as the price per tonne can soak the added cost on the open market.

    And Detroit is a PERFECT example-the auto industry got into a situation where they were dealing with a domestic monopoly on labor in their industry (UAW contracts with Ford look like UAW contracts at Chrysler looks like UAW contracts at GM), plus punitive externalities on their industry in the area (nobody is going to invest in Michigan for well-paying heavy industries, there’s a reason-it’s not JUST the unions, it’s also the government there. a good business climate can ignore or benefit from the presence of strong labor unions, but when the rest of the business environment turns hostile, the companies are going to up-root and un-ass for less hostile places.)

  • Justin McAffee

    Oh, I agree that you can’t take things to far with taxes, or else businesses will leave. The better comparison is California. Nevada gets lots of business from them. The reason Detroit is not a great example is because the auto industry took manufacturing outside the United States because corporations love to use slave labor when possible.

    You have to be willing to draw distinctions though.

    Wyoming produced less mining but brought in over 2 billion in revenue for the state. Mining hasn’t and wont leave there. Nevada brought in a lousy 48 million in tax revenues from mining. Don’t tell me that Nevada doesn’t have room to wiggle.

    And what about the teachers and students (educated workforce) that will leave if we treat them poorly by massive cuts?

  • Cannonshop

    I’m always amused when someone makes the claim that the people who make their money for them can’t, or won’t, leave if treated badly.


    Industries can, and WILL leave, even mining can and will leave, if the business environment reaches a point where the move costs less than the externalities imposed.

    Just Ask Detroit.