Once the gold is gone, so is the source of revenue

By J. Patrick Coolican

Tuesday, April 26, 2011 | 2 a.m.

Strange times to be a lobbyist for Nevada’s gold mining industry: On the one hand, your clients are raking in hundreds of millions in profits. The price of gold has soared to $1,500 an ounce, helped along by Glenn Beck and other conservative talkers, whose advertisers hawk the precious metal as a safe investment against the insanity all around us — scariest of all the foreign-born socialist in the White House.

But on the other hand, with those juicy profits come prying eyes and uncomfortable questions, like, how much do the mining companies pay in taxes? And, should they pay more in the face of the state’s $2.3 billion budget hole?

Indeed, we’ve learned quite a bit about the mining industry these past few months.

• When we talk about the mining industry, for the most part, we’re talking gold. Of the $5.6 billion of minerals mined in 2009, 87 percent, or nearly $4.9 billion, was gold, a percentage that rises as the price of gold climbs. And even more specifically, we’re talking about two companies — Denver-based Newmont Mining Corp. and Toronto-based Barrick Gold. Those two companies accounted for 89 percent of all that gold in 2009, according to the Nevada Mines and Geology Bureau. Glenn Miller, a UNR professor of natural resources and environmental science, estimates that about 30 to 40 percent of active mines are situated on public land.

• Those two companies are doing well. In 2010, Barrick achieved profits of $3.3 billion; last week Newmont reported first-quarter profits of $500 million. How important is Nevada to the success of these two companies? Of all the gold mined in 2009 in the U.S., which is the third-largest producer in the world, 75 percent came from Nevada. That year, Barrick and Newmont each had a mine that produced more than 1 million ounces. These companies are doing just fine here.

(I should note that no one has done more to bring these facts to light than longtime Las Vegas journalist Hugh Jackson, who blogs at lasvegasgleaner.com and is a friend of mine. The facts and figures I’m citing here are mine.)

• Mining companies pay 5 percent of net proceeds. Net. This means when determining their tax bill, they get to deduct many of the expenses they incur mining the gold and bringing it to market. Deductions this year are expected to top $4 billion.

• When it comes to what’s a legitimate deduction, and what’s not, it’s often a judgment call on the part of legislators and regulators, specifically the Nevada Tax Commission. My Sun colleague Anjeanette Damon reported in a must-read piece Sunday that over the decades, the Tax Commission has often assented to new tax deductions, sometimes against the advice of staff and legal counsel. My favorite deduction: Employee housing. Earlier this session, we learned the Tax Department hasn’t audited any of these deductions in two years.

• Sometimes so many deductions pile up that the company pays no net proceeds tax on a given mine (they still pay sales, use, property and payroll taxes.)

Jackson counted 111 instances during the past decade in which mines took a total of $4.3 billion in product and paid no taxes on net proceeds. (Tim Crowley, president of the Nevada Mining Association, said the majority of those cases occurred when gold was selling for less than $500 per ounce; now, when they pay no net proceeds taxes, a mine is usually in its infancy or old and nearing closure, he said.)

This tax-free mining conundrum led to a brilliant exchange between my Sun colleague Jon Ralston on his show “Face to Face With Jon Ralston” and Gov. Brian Sandoval, who, until being sworn in as governor, was under the employ of the law firm Jones Vargas, which lobbies on behalf of mining. (I’m not suggesting anything untoward, merely pointing out that it’s a small world up there in Carson City, like a little drawing room where everyone is inhaling the same cigar smoke.) Sandoval, looking like the star of a hostage video rather than the duly elected governor, told Ralston the companies pay their fair share.

So do they?

Crowley, who has the somewhat unenviable job of heading up mining’s lobbying efforts, points to what the industry contributes to the state.

According to the group’s 2010 industry overview, mining in 2009 directly employed 11,600 workers who made an average of about $80,000 per year. That wage is nearly double the statewide average, although the number of jobs is a pittance in a state of 2.7 million. The industry says it indirectly employs about 50,000 people.

Mine operators paid about $204 million in 2009 taxes, including property, sales and payroll taxes, as well as on net proceeds. According to the mining association, the industry pays $14,000 more in state and local taxes per employee than other industries.

Crowley notes that as the price of gold has risen, mining taxes paid to the state have quintupled in the past decade, and this year, the industry is expected to pay 30 percent more than it did in 2010. In recent years, the industry has prepaid its taxes to help the state through its ongoing fiscal crisis.

Crowley says the industry has been supportive of a broad-based revenue solution to the budget crisis, rather than one that affects just one industry. “We should be treated like any other business,” he says.

He adds, “We don’t think the state should make long-term changes to its tax structure based on short-term prosperity.”

It’s a fair point; in the past we crafted a tax structure heavily reliant on gaming and tourism and growth and development, and look where that got us.

But his point cuts both ways: Gold is a volatile commodity, and it’s nonrenewable. Once it’s gone, it’s gone, and if all of Glenn Beck’s viewers die and the price of gold collapses, then there’ll be no mining revenue to collect.

This seems to be what motivated Sarah Palin as governor of Alaska to fight for a tax increase on oil — she wanted to capture revenue from that volatile, nonrenewable resource before it was too late.

Maybe the Democrats should hire Palin to come lobby for higher mining taxes.

Coolican’s column appears Tuesdays and Fridays.