Las Vegas Sun

October 20, 2017

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Mining industry can’t make a big dent in state budget

CARSON CITY — For more than two years, liberal activists have been sounding the cry for the mining industry to pay more in taxes.

Even before record gold prices led to soaring profits for multinational mining companies operating in Nevada, organizations such as the Progressive Leadership Alliance began a public campaign to eke more revenue out of the industry.

Taking aim at the deductions gold companies are allowed on their net proceeds on minerals tax, activists such as liberal blogger Hugh Jackson found that companies paid nothing in mineral taxes some years because of the way they are allowed to calculate those deductions.

As a result of their efforts — and because the mining industry is the one sector of the economy that is booming amid the state’s worst recession — the mining industry has become the top target of Democratic lawmakers looking for new revenue.

“The mining tax is a proxy,” said Bob Fulkerson, PLAN’s director. “It’s symbolic. That’s the vessel everyone is pouring their hope for change into.”

Democratic lawmakers have introduced a slew of bills targeting mining, including measures to eliminate its constitutional tax protection, tighten or cap deductions and create a new commission to regulate it.

But one thing has become clear: Even with all of those measures still making their way through the Legislature, not one will make a significant impact on the state’s $1.2 billion shortfall.

Here are five reasons why.

      1. Closing the tax loopholes won’t get the state much money

      Senate Majority Leader Steven Horsford, D-North Las Vegas, has led the charge on closing the deduction loopholes the mining industry has spent the past three decades opening.

      An investigation by the Las Vegas Sun found the mining industry has systematically persuaded state regulators to approve tax deductions that are not specifically allowed in state law.

      The mining industry is allowed to deduct costs directly related to the extraction and production of minerals from the net proceeds tax. But the industry has been able to expand that definition to include costs such as employee housing, corporate expenses and sales taxes.

      Horsford’s proposed legislation would clarify which costs can and can’t be deducted, eliminating many deductions the industry currently takes.

      But even if it’s successful, the legislation would bring in little new revenue — only $15 million a year.

      Net impact on the budget shortfall: $30 million.

      2. The constitution prevents lawmakers from changing the way the industry is taxed

      Mining is the only industry in the state that has its tax enshrined in the constitution. So although lawmakers can fiddle with deductions, they can’t change the way minerals — while they’re still in the ground — are taxed.

      Sen. Sheila Leslie, D-Reno, has introduced legislation that would start the five-year process of amending the constitution to remove the net proceeds on minerals tax. That would free lawmakers to enact a totally different tax, or change the way the net proceeds tax is structured.

      The legislation could eventually lead to more revenue for the state, but it would do nothing for five years.

      Net impact on the budget shortfall: $0.

      3. Capping mining deductions is not all that lucrative

      In one of the first bills aimed at claiming more money from the mining industry, Assemblywoman Peggy Pierce, D-Las Vegas, proposed simply capping the dollar amount the industry can deduct at 40 percent.

      The bill is still alive, but hasn’t been brought up for discussion since April, indicating legislative leadership is aligned behind Horsford’s bill instead of Pierce’s.

      But of all the bills out there, this one would potentially net the state the most money from the industry.

      Net impact on the budget shortfall: $81 million.

      4. In the unlikely event the margin tax passes, mining’s share would likely be small

      In Democrats’ first version of the margin tax — which would be assessed on all businesses — the mining industry would have been almost entirely exempt. Worried that lawmakers would then more aggressively pursue an industry-specific tax, mining lobbyists argued to be let in to the tax.

      A new version of the bill has been drafted, which makes clear the industry, along with everyone else, would pay the 0.8 percent tax on its adjusted gross revenue.

      Industry lobbyists said they have not yet calculated an estimate of how much mining companies would pay if the tax passes. But a rough calculation by the Sun, based on an estimated projection of $6.5 billion in gross revenue, indicates the industry could pay somewhere in the neighborhood of $40 million a year in the new tax once it became effective in July 2012.

      Net impact on the budget shortfall: $40 million.

      5. Mining is a flawed messenger when it comes to lobbying Republicans to vote for broad-based taxes

      Part of the Democrats’ strategy to persuade swing Republicans to back their proposed margin and services taxes is to deploy “captains of industry” lobbyists to provide political cover for the increase and apply leverage on key lawmakers.

      To get the mining industry to do more than just pay lip service to a broad-based tax, Democrats have held out on passing final versions of their bills on the mining taxes.

      But with public opinion against the industry, and considerable political pressure to pass an industry-specific tax increase, mining lobbyists think they have little influence on that debate.

      “They’ll just think we’re trying to get out of paying a mining tax,” one lobbyist said.

      Still, mining lobbyists have testified at each tax hearing in support of both the services and the margin tax. And they conceivably have influence with rural Republicans, whose districts rely heavily on the industry’s economic activity.

      Net impact on the budget shortfall: Unknown.

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