Nevada Republicans Want New Mining Tax

If a group of Nevada Republican senators has its way, mining in the state will get more expensive. Funding is needed for education, and while the state’s teachers’ union and other labor groups are pushing for the Education Initiative, a measure that would bring in funds from a broad-based margin tax, some Republican senators are staunchly opposed to that idea. Instead, they want to milk miners for the money.

The Education Initiative proposes a 2-percent tax on businesses with annual earnings over $1 million. Supporters of the measure have said that this new tax could raise $800 million per year, according to a Bloomberg Businessweek article.

The matter will be put before the state legislature on March 15. If lawmakers do not take action, the matter will be placed on the 2014 ballot for consideration by Nevada voters, an NBC News report notes.

Leading Nevada Republicans, such as Senate Minority Leader Michael Roberson, are opposed to this broad-based taxation, which has been called flawed and a job killer. He and his comrades were reportedly among the “no new tax” group. But now, as an alternative to the across-the-board business tax, the group believes Nevada should look to miners to improve education.

Nevada’s constitution currently limits how much miners can be taxed, allowing only the “net proceeds of mining” to be taxed, according to the Las Vegas Review-Journal; currently these proceeds can be taxed at 5 percent. Republicans are hoping that Democrats will support the taxation of the “gross proceeds” of mining “with a severance tax or in other ways,” another Las Vegas Review-Journal article notes.

Those opposed to the current mining scheme say it amounts to special treatment of an industry that is profiting from non-renewable resources: the tax paid by miners is lower than the one paid by industries such as gaming, and critics are irked that the tax is charged only on net proceeds.

Will the gold industry suffer?

The details surrounding the new mining tax have not been worked out. Thus far, there is nothing to suggest that the measure will single out gold miners, but Nevada is the United States’ top gold-producing state. Furthermore, there are indications that the gold industry is viewed as a potential cash cow.

“We value the industry’s positive impact on Nevada’s economy and our communities, and we want the mining industry to be productive and profitable,” Roberson said in a media statement, according to Mineweb.

“However, mining is different from every other industry in this state. Billions of dollars of nonrenewable natural resources are extracted from our state and shipped out-of-state every year. At some point the gold will be gone. And, when the gold is gone, mining will be gone. It is imperative that we ensure that Nevadans get the best deal we can, while we can,” he continued.

NVMA advocates for miners

The Nevada Mining Association (NVMA) openly recognizes the need for the industry to pay its fair share of taxes and has expressed a commitment to working with the government to address budget shortfalls and modify tax policy.

But the NVMA insists on its website that “[t]he state must not seek any new single-source taxes, such as new or increased taxes solely on gaming, mining, or insurance industries.”

Only four industries in the state are currently subject to an industry specific tax, according to the NVMA. Mining is one of them, with the 5-percent Net Proceeds of Mines (NPOM) tax. Miners are also subject to property taxes, as well as sales taxes, which the NVMA states are the largest tax obligation for such companies.

The association’s report on mining’s role in Nevada’s economy reveals that Newmont Mining (TSX:NMC,NYSE:NEM) and Barrick Gold (TSX:ABX,NYSE:ABX) are among the top taxpayers in several of the state’s resource-rich counties.

The NVMA’s website also points out that miners’ state and local responsibilities do not include the federal taxes that they must also pay. And they do not include the investments that miners are making. Given that Nevada is a gold-rich state, much of this spending is also associated with the yellow metal.

In addition to spending on expansion by majors such as Barrick and Goldcorp (NYSE:GG,TSX:G), the NVMA report identifies Great Basin Gold’s investment in the Hollister gold mine project as one the state’s major mining investments.

Other juniors are who are active participants in Nevada’s gold mining industry include Gold Standard Ventures (TSXV:GSV,NYSE:GSV), which claims to be the third-largest landholder in the Carlin Trend.

Pershing Gold’s (OTCQB:PGLC) focus is on Pershing County, an “underexplored” area of the state where the company hopes to develop the past-producing Relief Canyon mine.

Rye Patch Gold (TSXV:RPM,OTCQX:RPMGF) is an exploration company with projects along the Oreana trend and the Cortez trend.

Voters likely to support increased taxation for miners

Still, some say the mining sector is not contributing enough. Nevada’s gold mining industry reportedly had gross proceeds of $8.8 billion in 2011, with miners paying $203 million in state and local taxes, according to the Reno Gazette-Journal. Republicans in favor of the mining tax believe that even if the tax on miners is raised to 6.75 percent — the amount the gaming industry pays — the rewards could total $780 million over a two-year period. That is assuming that factors such as production and prices remain the same.

But the issue of increasing taxes on miners seems clearly set to create divisions, some of which have already been seen. Nevada’s Republican governor, Brian Sandoval, issued a statement saying he is opposed to the idea; his proposed budget already includes increased spending on education, a Las Vegas Sun article notes.

Republicans in the Assembly are taking a similar position to that of the governor and are distancing themselves from the pro-mining tax Senate Republicans.

Nevada Democrats have vowed to find more money for education, but they have not rushed to take a stance on the idea of higher mining taxes. Such a measure, if successful, would not go into effect until 2015, and Democrats are reportedly focused on getting money sooner rather than later.

However, a measure to milk miners for more money is expected to be popular among Nevada’s urban voters. Mining is commonly viewed as rural business that benefits individuals in those areas.

“We are proposing that we can give voters a choice about how we generate more revenue to fund education in our state,” said Roberson in a press release.

Securities Disclosure: I, Michelle Smith, hold equity interests in Goldcorp.