Audits find mining companies underpaid $8.7 million in Nevada taxes

By David McGrath Schwartz

Published Wednesday, July 4, 2012 | 2 a.m.

Updated Friday, July 6, 2012 | 9:47 a.m.

Three Nevada mining companies have shorted their taxes by $8.7 million since 2008, according to recently completed audits of their tax returns.

The audits of 17 mining operations owned by Eagle Picher, Ormat Nevada and Barrick are the first of an industrywide examination by the Department of Taxation that is expected to extend to 2015.

The scrutiny was sparked last year when lawmakers discovered the state’s tax department had not audited major mining companies for two years.

Critics of Nevada’s mining industry, who have said the industry does not pay enough in taxes, said the audits revealed “outrageous” behavior by the companies.

“In the face of billions of dollars mining companies are taking out of Nevada, it might be minor,” said Bob Fulkerson, executive director of the Progressive Leadership Alliance of Nevada. “It’s the principle. They’re getting such a great deal to begin with, but even that’s not enough to satisfy their greed. That’s what’s outrageous. That’s what’s incomprehensible.”

John Restrepo, chairman of the Nevada Mining Oversight and Accountability Commission, described the audit findings as “relatively small.”

“There’s going to be a difference of opinion over what’s allowed during the normal course of business,” he said. “There are no major red flags on anything we saw so far.”

As a whole, the mining industry paid more than $300 million last year in state and local taxes. The audit findings, some of which are still being disputed, represented just a small portion of that, a mining industry representative said.

“We’re committed to paying what the law requires,” said Tim Crowley, president of the Nevada Mining Association. “There’s no harm in the audits. We always participate in the audit process.”

Crowley noted that some past state audits found that mining companies overpaid their taxes and were due refunds from the state.

The three companies plan to dispute some of the findings, extending a continuing disagreement over what can legally be deducted from the net proceeds tax.

According to the audits, Eagle Picher underpaid $4 million, Barrick underpaid $2.5 million and Ormat underpaid $2.2 million.

Nevada assesses a 5 percent property tax on minerals — called the net proceeds tax. Mining companies are allowed to deduct the cost of extracting and processing the mineral. Lawmakers, regulators and mining officials regularly argue over what constitutes an extraction or processing expense.

Lawmakers last year eliminated some of the deductions that mining companies could take, though those changes did not apply to the most recent audits.

Barrick and Newmont are the two largest companies operating in Nevada, mining 90 percent of the gold in the state. A Department of Taxation schedule shows that audits on Newmont mines began in March.

Lawmakers and activists alike have eyed mining’s booming profits as state coffers have struggled under the recession. In the last legislative session, Senate Majority Leader Steven Horsford, D-North Las Vegas, led the charge to increase the scrutiny on the mining industry after discovering companies had been routinely taking tax deductions not allowed under state law.

He pushed for the creation of the Nevada Mining Oversight and Accountability Commission, which reviewed the audit findings last week.

Horsford did not attend Thursday’s meeting and declined to comment on the audits.

Progressives also believe Nevada’s net proceeds on minerals tax is too low for an extractive industry. They are pushing legislation that would lead to the net proceeds on minerals tax being stripped from the Nevada Constitution, freeing lawmakers to impose a higher tax rate if they wish.

This story has been edited from its original version.