Mining’s boom does little for Nevada’s bottom line

By David McGrath Schwartz (contact)

Sunday, Sept. 7, 2008 | 2 a.m.

Chris Morris

Carson City — Sarah Palin is the new star of the Republican Party, embraced not only by social conservatives but also by the anti-tax advocates who dominate in Nevada.

Yet the Alaska governor and Republican vice presidential nominee did something no Nevada Republican — and hardly any Nevada Democrat — is willing to even propose: She raised business taxes.

Last year, Palin backed a massive tax increase on oil production that has left Alaska flush with a $5 billion-to-$9 billion budget surplus.

“These are nonrenewable” resources, Palin said in November 2007, according to the Anchorage Daily News. “When the oil is out of the ground, we don’t get a second chance at this. Let’s make sure we have appropriate value received today at high prices.”

Alaska, like Nevada, prides itself on being a low-tax state. But the tax increase — from 22.5 percent to 25 percent of net profit on a barrel of oil, with additional increases as oil prices go up — is noteworthy in Nevada, with a mining tax that’s among the lowest in the nation, according to one analysis, and a budget shortfall of more than $1 billion for the upcoming biennium.

The state has already cut $1.2 billion from the current budget as Gov. Jim Gibbons has stood by a promise not to raise taxes and lawmakers of both parties have gone along.

While the gaming and construction industries are suffering in Nevada, mining, which, like Alaska’s oil industry, taps a “nonrenewable” resource, has exploded. Nevada is the largest gold producer in the United States, and trails only China, South Africa and Australia worldwide. In 2007, the state set a record with $5.4 billion in commodities extracted, according to the state Minerals Division.

With the tax rate on mining capped at 5 percent, the state got $38 million and counties $37 million, according to Minerals Division records. (The tax on car rentals, by comparison, gave the state nearly $30 million in the past fiscal year.)

“We would love to have Sarah Palin’s tax on the mining industry in Nevada,” said Bob Fulkerson, executive director of the Progressive Leadership Alliance of Nevada. “The mining industry tax burden is grossly unfair to the working people in Nevada.”

While most states tax mining based on gross value, Nevada’s mining companies can deduct a slew of expenses, including equipment depreciation, ore transport and minerals marketing. After the deductions, Nevada mining companies reported net proceeds of $1.5 billion in 2007, up from $853 million in 2005.

Fulkerson said PLAN is examining the deductions. A report on its findings will be released before the 2009 legislative session in hope that the Legislature will eliminate some of the deductions.

Gibbons spokesman Ben Kieckhefer said “taking away deductions is just another way to increase the tax burden on the mining industry.”

States vary widely in how they tax mining, so direct comparisons are difficult. But in a recent World Bank report, mining companies rated Nevada’s tax system the most attractive in the world, ahead of those of British Columbia, Chile, Ontario and India. The companies also rated Nevada 98 out of a possible 100, also the highest rating in the world, on the attractiveness of its geology and government policy.

“Nevada over time imposes less of a burden on mining companies than surrounding states,” said Robert Ginsburg, a consultant who prepared a study for PLAN and other organizations looking at mining and taxes in 10 Western states.

Mark Amodei, the Republican state senator from Carson City and president of the Nevada Mining Association, pointed out that mining companies pay sales and property taxes like other businesses in Nevada, in addition to the mining tax.

And, he said, the mining industry offers good wages in rural communities.

The state should not “go after” individual industries to stabilize its tax structure, he said, noting PLAN has opposed mining because of environmental concerns.

“If you want to look for a broader tax base, we’ll be at the table,” Amodei said. “We’re happy to play as a business in Nevada. But to hear criticism from a group that has expressed disdain for mining over social land-use terms, there’s not a lot of credibility when it comes to responsible tax policy.”

John Dobra, a professor of economics at the University of Nevada, Reno, acknowledged that the price of gold right now — it hovered around $800 an ounce last week — makes the industry an easy target. Ten years ago, gold was about $200 an ounce.

“Right now ... I don’t think anyone will cry poor and close down,” Dobra said. “This is a cyclical industry, with cyclical price patterns. What do you think happens at $250?”

Kieckhefer said the governor “values the contribution the mining industry makes to Nevada,” pointing out that the healthy economies in places such as Elko are due to mining industry jobs.

Fulkerson said he would not rule out an effort to raise the mining tax. The rate is set in the state constitution, the result of a 1989 initiative. It would take an initiative petition, to be passed by voters twice, to change the tax.

That would be a daunting task.

The state teachers union had proposed a constitutional amendment to increase the gaming tax and was collecting signatures before it reached an alternative compromise with some gaming companies to support raising the hotel room tax. Mining companies took notice, and partnered with gaming to prevent the teachers from getting the signatures.

In Alaska, the Legislature increased the tax on oil with a simple vote.

There was criticism from some that Palin was expanding government and would hurt oil exploration in Alaska, said Steve Haycox, a professor of history at the University of Alaska, Anchorage.

“It proves the governor’s strategy is now abundantly clear,” a conservative talk radio host wrote in the Anchorage Daily News; “higher taxes, bigger government are the keys to our future.”

But ultimately, the public was so angered by a continuing corruption scandal that involved oil companies’ bribing politicians that the popular governor was able to form a coalition of Democrats and some Republicans to pass the tax increase.

Haycox noted it wasn’t the first time Palin had backed a tax increase. As mayor of Wasilla, she pushed for a hike in the town’s sales tax. As governor, she has also cut some taxes and sent Alaskans rebates using a portion of the state’s surplus.

“She’s a pragmatist,” he said.