By Mark Robison, RGJ
On next month’s Nevada ballot, there’s a question that’s a bit strange because its passage will have no noticeable effect.
The catch is that it opens up the possibility for legislators to make changes later, and it’s those changes that could be big.
We’re talking about the mining tax initiative, which asks a seemingly simple question: Should the Nevada Constitution should be changed to remove the cap on the mining tax?
One twist is that although some supporters hope this makes it possible the mining industry could pay more than what it does now, legislators could also lower its tax burden.
People on different sides of the issue discuss their viewpoints below, but before getting to that, the highlights are this:
Supporters say a yes vote means mining will no longer get special treatment in the state constitution, enabling the Legislature to change the mining industry’s taxes if needed.
Opponents say a no vote keeps intact the constitution, which shouldn’t be changed without a good reason — and mining taxes aren’t a good reason because the Legislature can already change mining taxes in ways that don’t involve mucking with the constitution.
Right now, mines generally pay a 5 percent tax on the difference between what they sell minerals for and what it costs to get them.
This is called the net proceeds. For every $100 in net proceeds, they pay $5. A portion of that $5 goes to the county in which the mine is located — based on the county’s property tax rate — and the rest goes to the state.
If the ballot measure passes, the same amount of taxes will still go to the same places. That’s why there’s no noticeable change, at least initially.
But the tax would be changed from being a property tax — whose rate is limited in Nevada — to an excise tax. Politicians or voters can raise an excise tax to whatever they want, after going through the proper approval process, of course.
An excise tax is often a tax on a thing when it’s sold, such as cigarettes or gasoline. Sometimes it is put on an activity, such as gambling or highway usage by trucks.
The full ramifications of passage would play out in the Nevada Legislature, which returns for its every-two-years sessions in February.
It could lower the tax on mining, raise it or leave it the same. But it could also potentially create separate tax rates for different things, such as a lower rate for gold in years when the price is low or a high rate on lithium if its price goes through the roof thanks to rechargeable batteries.
“It opens a Pandora’s box from the industry perspective,” said John Dobra, an economics professor at the University of Nevada, Reno.
“There’s gonna be pressure to raise it over the current level. There will be continuous battles over what the excise tax would be for mining, like we also have for cigarettes, and that’s why it’s scary for industry because there’s no cap, the sky’s the limit.”
Dobra said this uncertainty “definitely could” keep a company from starting a mining operation here.
He added that some people characterize mining’s treatment in the Nevada Constitution as a sweetheart deal but “I published study in the International Resource Journal. It shows state mining taxes; Nevada is right in the middle. It’s not like it (the mining industry) is getting a great deal. We even come in comparable with California.”
Case in favor
Sheila Leslie said, “It’s only fair that the mining industry pay its fair share and not be only industry with tax protections written into the constitution. The constitution is no place for tax protections.”
She’s a former state senator who was chair in 2011 of the revenue committee where this mining tax plan originated.
“We held hearings on mining and we heard how many are not paying any of the tax because of generous deductions,” she said. “The more we dug in to it, the more we became concerned and wanted to take special tax protections out of the state constitution.”
The mining industry pays smart people to convince the Nevada Tax Commission to allow more and more deductions until the amount of deductions has become overly generous, Leslie said: “Go look up what they (mining companies) paid last year — a number paid zero.”
Indeed, quite a few paid zero, according to the 2013-2014 Net Proceeds of Minerals Bulletin.
Leslie said oil is taxed heavily in Alaska and many citizens get rebates from the oil industry, while in Wyoming with its natural gas boom, the state has a severance tax.
“Nevada can’t have a severance tax unless we take mining out of the constitution,” she said.
Passage won’t have much of an effect unless the Legislature approves more taxes for mining. If this happens, it would mean more money for education and human services, Leslie said.
“The negative possibility is we’ll lose jobs and close mines, but it’s a boom-and-bust industry with many factors so I don’t think these multibillion-dollar corporations will feel much pain,” she said. “And if mining pays more, maybe our sales tax can be lowered.”
Of course, the ballot measure could backfire on supporters and lead to a lower tax rate for mining.
“It’s ludicrous to think in our low-tax state that we would tax them less,” Leslie said. “That’s not going to happen.”
But she does expect a battle to tax the mining industry more.
“The way people in Clark County feel about the rest of us taking their money — that’s the only thing that gives me hope that mining will be taxed more appropriately,” Leslie said. “The mining in Nevada is by multinational billion-dollar corporations. For the most part, these aren’t mom-and-pop operations. They can afford to pay this state for our non-renewable resources.”
Jim Wadhams, a lawyer who has represented mining companies on tax issues for 20-plus years, said the first things people should ask themselves regarding the ballot question are: Do we want to amend the constitution and is this a good reason to do it?
He doesn’t see the point. For one, he agrees mining companies are treated differently in the constitution: “They are exposed to a higher tax rate than other property owners.”
Nevada’s property tax rate is capped at 5 percent. Counties charge less than that, but mining companies pay the appropriate county’s tax rate plus the difference between it and 5 percent.
For another, “the claim that mining is the only industry mentioned in the constitution is simply not true,” Wadhams said. “We specifically exempt retail inventories and goods in warehouses from tax. … So that comes back to why should we amend the constitution if the reasons you’re giving aren’t true?”
For a third, opponents say mining can’t be taxed more — “that’s false,” he said. “Mining pays the modified business tax. If they wanted to raise it, they could. If they wanted to add an income tax on mining, they could without amending the constitution.
“The constitution has served the public well so it shouldn’t be changed so easily. And the reasons they (opponents) give — none of them holds water.”
Wadhams said when taxes are raised on a business, it changes the economics of that business.
“People say mining companies will never leave Nevada because that’s where the gold is — that’s crazy,” he said. “Companies come and go depending on whether the time will allow them to make money.”
Last year during the Legislature, a Las Vegas Review-Journal said Wadhams never used the word “lawsuit” but he warned lawmakers that if the ballot measure passes, the mining industry might take the issue to court.
Asked if he might sue, he said, “No. I’m not sure what there would be to sue over. If (the ballot measure) passes, then we’ve amended the constitution for no valid reason because the Legislature could tax or not tax anyway so what’s the lawsuit over?”
He did make a connection with the Tesla battery factory, though.
“The Tesla deal passed unanimously in the Legislature,” Wadhams said. “Why? Because we wanted jobs that come from making batteries with lithium and nickel. That battery factory is just the end process of the mining industry. If we want to raise the prices of mining, what’s that going to do to the Tesla deal?
“The other question it raises is: Tesla is creating 6,500 $40,000-a-year jobs while the mining industry currently has 10,000 jobs currently worth about $85,000 a year. The policy question this comes back to is why are we amending the constitution to mess around with basically a two company industry that creates high paying jobs and contributes to the economy?”
How mining tax works
Mines take stuff out of the ground and sell it. Then they generally pay 5 percent on the difference between what that stuff can be sold for and what it cost to get it.
So if a certain nugget sells for $1,500 and it costs $1,400 to dig it up, process it and get it to market, that leaves $100 left over. This is called the “net proceeds.” (The $100 amount was chosen purely for ease of calculation, not for real world accuracy.)
A mine would then pay $5 in taxes on that nugget: 5 percent of $100.
The county in which the mine was located gets a cut based on its property tax. In rural Washoe County, the rate is 2.7002 percent so it would get $2.70. The remaining $2.30 — to get to the total $5 in taxes — would go to the state’s general fund.
If the mining tax ballot measure passes, these same rates would be paid to the same governments unless the Legislature or voters decide to change them. The only difference is the tax would now be considered an excise tax, which has no limit, instead of a property tax, which is capped.
— Mark Robison, RGJ.com