Tax commission agrees to review regulations on mining tax deductions

By Anjeanette Damon

Monday, April 18, 2011 | 5:44 p.m.

The Nevada Tax Commission voted unanimously to accept a petition by Senate Majority Leader Steven Horsford, D-North Las Vegas, to review regulations on what the mining industry can deduct from its net proceeds tax, agreeing it’s unclear whether the regulations conflict with state law on what is an allowable deduction.

The commission, however, rejected Horsford’s request to establish emergency regulations changing the deductions, a swifter process that could have resulted in more tax revenue for the state this year.

Instead, the commission will begin the process for a permanent regulatory change at its meeting on May 16. Commissioners worried they would open the state up to a lawsuit if they passed a temporary emergency regulation that potentially would have established two different sets of rules for one tax year.

In a lengthy hearing this afternoon, Horsford argued that prior tax commissions have repeatedly sided with the mining industry to expand deductions beyond what is considered in state law.

“I am asking you to put a stop to the loss of revenue by putting the regulations back to where they need to be, in line with state law,” Horsford said.

At least one commissioner expressed frustration that state law is not clear enough to write strong regulations and demanded lawmakers take up the issue themselves.

“Apparently some of these errors in broad interpretation occurred in 1984,” said Commissioner George Kelesis. “That was over 20 years ago. My question is where was the Legislature over the last 20 years if the tax commission was misinterpreting a statute?

“This Legislature has the ability in this time right now to clean up (the law) and tell us what is and what is not an allowable cost.”

Horsford said lawmakers would likely take up the statute as well, but pointed the finger back at the commission.

“Over the objections of the state tax department and the attorney general’s office, with the support of the industry, some of these deductions have been approved,” Horsford said. “They shouldn’t have been and they need to be corrected.”

Mining lobbyist Jim Wadhams said the industry welcomes the review of the regulations, but said such a review won’t necessarily result in any changes.

The Nevada Mining Association president Tim Crowley, wrote a letter last week indicating three categories of questionable deductions worthy of consideration because they may not directly relate to the extraction and processing of minerals.

“What should not be inferred from that is a suggestion that reconsideration may not come to precisely the same result of the existing statutes and regulations,” Wadhams said.

Under state law, the mining industry is allowed to deduct what it costs to extract the minerals from the ground and process them into a finished product.

In his letter, Crowley identified deductions that appear in written regulations but not state law, regulations that are unclear enough to decipher and regulations that are allowed by tax officials but don’t appear in either state law or written regulations.

Horsford also named several deductions allowed in written regulations that do not appear in state law.

Neither Horsford or Crowley had an estimate for how much the state may be losing because of the deduction loopholes.

As the state’s only booming industry during an economic recession that has led to a $2.5 billion revenue shortfall, the mining industry has come under increasing pressure from lawmakers and the public to pay increased taxes.