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Lawmakers reach deal with mining industry over tax deductions

Updated Sunday, June 5, 2011 | 10:57 p.m.

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CARSON CITY - In an example of how even final deals can be subject to change, lawmakers late Sunday night reversed themselves on an agreement that would have let Nevada mining companies keep their tax deductions for health care expenses in exchange for making a one-time payment of $6.4 million to the state.

The initial deal had addressed the immediate budget problem, but would have saved the mining industry more than $12 million a year going forward.

But the deal also would have eliminated funding for local school districts that had already been built into the budget. To fix that, lawmakers reversed their decision to eliminate the health care deduction. Under the new deal, however, mining companies would be able to resume taking the health care deduction in two years.

Under the original compromise, six of the state’s largest mining companies had agreed not to seek a refund on an increased mining claims fee that a district court recently found unconstitutional. With the new deal, mining companies are no longer held to that promise, said Senate Majority Leader Steven Horsford, D-North Las Vegas.

"That is separate from this," Horsford said. "They can make that decision now."

The original deal had clearly left Horsford and Sen. Sheila Leslie, D-Reno, frustrated.

“You say you want to be treated like every other business, but, oh, you deduct your sales tax,” Leslie said to mining lobbyist Tim Crowley. “And, oh, you also get to deduct your health insurance twice. You can understand our frustration.”

Horsford has spent the session seeking to close what he described as tax loopholes exploited by the industry, which has been taking questionable deductions that aren’t explicitly allowed by state law.

Click to enlarge photo

Steven Horsford

The industry is allowed to deduct from its net proceeds on minerals tax only the costs specifically related to extracting and processing the minerals. But over the past three decades, the industry has succeeded in convincing regulators to expand those deductions. Horsford said it was a policy priority to close those loopholes by clarifying exactly what can be deducted and what can’t. Lawmakers are moving forward on eliminating deductions for sales tax, travel, marketing and fire insurance.

But the policy debate became mired in the budget fight, as Democrats sought to eke more taxes out of the booming mining industry to help with the revenue shortfall.

The issue was further complicated when a district court ruling found unconstitutional an increase in mining claims fees, proposed by the large mining companies, that lawmakers used to close a budget shortfall in 2010.

“This was some idea that they suggested, we didn’t have a hearing, we adopted it, it got challenged and we lost,” Horsford said. “Now we’re in a predicament.”

Democrats then found themselves in the position of finding a way to replace the $38 million that court decision cost them, as well as raising taxes on the industry.

“It is not enough,” Horsford said of the additional money the industry will pay in the next biennium. “They are not contributing their fair share. Yeah, I feel strongly about that.”

Horsford and Leslie also are pushing a bill, Senate Joint Resolution 15, that would put a ballot question before voters that would remove the minerals tax from the constitution.

Lawmakers can’t change the rate or change the share of the tax collected by the counties because of the constitutional provision.

“They have a special deal,” Horsford said of the constitutional protection. “It prevents us from asking them to do more to help us to fund our budget. I think that is wrong.”

Assemblyman Tom Grady, R-Yerington, said the mining industry provides “some of the highest paying jobs in the state” to rural counties that lack any other economic base. Taking the protection out of the constitution could result in a lower tax rate, he argued.

“We may be sorry we even looked at it,” he said. “It’s a real, real gamble.”

Taking the tax out of the constitution would take at least five years. If successful, lawmakers could then decide how and at what rate to tax in the industry.

“To suggest somehow that putting SJR 15 through would somehow be a tax decrease is false,” Horsford said. “It’s false. It’s spin and it’s a misrepresentation of the facts. It empowers us to set the rate and determine what the split (between the counties and the state) is. That’s it.”

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