LAS VEGAS—The price of gold may be soaring, but that doesn’t guarantee that Nevada, the nation’s biggest gold-producing state, will share in the wealth.
With gold prices hovering around $900 an ounce, the mining industry is projecting it will pay less than half as much in mineral taxes in 2009 as it did last year.
That’s according to projections compiled last month by state Department of Taxation. The report is based on quarterly estimates submitted by the mining industry, which cautions that the numbers are estimates and can be adjusted upward throughout the year.
While preliminary, the numbers aren’t likely to help the industry silence calls for the industry to pay more in taxes. As state lawmakers consider closing clinics, cutting teachers’ salaries and shutting down school programs, they’re looking for ways to bridge a funding gap of at least $900 million. Nevada’s gold mining industry, one of the few bright spots in a dark economy, is on a list of targets.
The report shows miners expect to pull $4.5 billion worth of minerals, the vast majority in gold, out of Nevada mines this year, a 21 percent drop from last year’s $5.7 billion haul.
But the industry’s tax bill is projected to take a far steeper tumble—from the $93 million paid to the state and counties in 2008 to $45 million in 2009.
If accurate, that would put the mining industry’s net proceeds tax bill back where it was in 2004, when the average price of gold was $400 and the mining industry’s gross yield in Nevada was more than a billion dollars less than this year’s projection.
Put another way, Nevada, which ranks only behind South Africa, Australia and China in gold production, would collect about the same amount in taxes on car rentals as it does from its gold reserves.
The numbers surprised the even the industry’s advocates and experts.
John Dobra, a professor of economics at the University of Nevada, Reno and an industry consultant, said he suspects the estimates are conservative.
Under legislation passed in 2008, the industry has incentive to be cautious, he said. Mining companies are required to pay their net proceeds tax earlier in the year, based on these estimates. To avoid overpayment, they will report lower projections early and later adjust the numbers to avoid the penalties for low estimates, he said.
“When these companies make estimates, they’re probably going to lowball the price of gold and then, if they find if they’re in the range where they could be penalized, they’ll put up in later quarters,” Dobra said.
Nevada Mining Association President Tim Crowley agreed with Dobra’s assessment.
“The industry is proud to have stepped forward to make advanced payments during these tough financial times to provide additional cash flow to the state,” he said.
The explanation did not satisfy advocates clamoring for changes in the way the mining industry is taxed.
Bob Fulkerson, head of the Progressive Leadership Alliance of Nevada, said the estimates demonstrate how Nevada law allows mining companies to use deductions to drastically reduce their tax bill.
While the value of the amount companies are pulling from the ground is projected to fall 20 percent from last year, the decline in taxable revenue could fall 50 percent. That’s because the companies can deduct the cost of production, extraction and transportation.
In the past five years, those deductions have allowed the industry to be taxed on just 26 percent of the $25 billion worth of minerals pulled from the ground.
“What these numbers show is that the mining industry manipulates these deductions to their advantage,” Fulkerson said. “They’ve got their manipulation down to a science and it really underscores why the Legislature needs to eliminate those deductions and make mining start paying their fair share.”
Some in Carson City appear to be listening to Fulkerson. A proposal to remove 40 percent of the industry’s deductions is circulating among legislative leaders. The plans would raise $30.2 million a year, according to an analysis reported in the Reno Gazette-Journal.
Gov. Jim Gibbons, who says he opposes any tax increase not “approved by the people,” said he does not support increase mining taxes as a way to stabilize the state’s tax base.
“It’s one of those commodities, unlike the rest of the state, which happens to rise when times are bad,” Gibbons said of gold. “So when times are good and their metal or commodity prices are way down, should we then go back to them and give them a break? That’s a cycling nature which I don’t think works. You can’t depend on the commodity price.”
Crowley said those calling for a cap on deductions misunderstand the nature of the state’s tax on minerals. The tax is a property tax, not an income tax. The deductions are used to assess the fair market value of the mineral in the ground and unprocessed, he said.
“It’s illegal to manipulate fair market value. So that proposal simply, mechanically, does not work,” Crowley said.
Asked if the industry would sue over a proposal to remove deductions, Crowley said, “This is no time to be throwing lawsuit threats out.”
