THE LEGISLATURE:

How mining will escape Session ’09 unscathed

Backroom deals for votes helped prevent industry tax increase, for now

By J. Patrick Coolican (contact), David McGrath Schwartz (contact)

Wednesday, May 27, 2009 | 2 a.m.

Pieces of budget puzzle falling in (5-3-2009)
Titus, Heller voice opposition to proposed mines near Anthem (4-27-2009)
Lawmakers' huddle with business a step toward tax hike (4-26-2009)
Starting point or model on mercury? (4-21-2009)
Group: Mining industry not paying its share of taxes (4-9-2009)

Archive of Sun politics stories

Nevada Mining Association

CARSON CITY — The gold mining industry began the legislative session like some 19th-century prospector who got lucky: Everyone outside the mining camp jealously eyed his nuggets, and he slept with one eye open and a hand on a revolver.

The upheaval in the world economy created record prices for gold as the session began four months ago, and prices have stayed high — more than $900 per ounce.

With the state in fiscal crisis and mining companies making record profits in an extremely friendly Nevada tax environment, many capital observers expected mining companies to see their tax bills increase. Despite the state’s $3 billion budget hole and all the talk that mining would pay more, however, the industry emerged unscathed.

Backed by a small army of more than two dozen lobbyists from some of Nevada’s most prominent firms, including R&R Partners, Jones Vargas and former elected officials such as Assembly Speaker Richard Perkins, they got the mining taxes pulled out of closed-door budget negotiations between Democrats and Republicans.

How did they do it?

They came in knowing their backs were to the wall and methodically worked over urban legislators one by one at endless private meetings and dinners. And they leveraged the influence of rural legislators such as state Sen. Dean Rhoads, R-Tuscarora.

U.S. Senate Majority Leader Harry Reid, who is up for reelection in 2010 and needs to pick up rural votes wherever he can, was also helpful, two mining lobbyists said.

A Reid spokesman didn’t deny the senator’s involvement, though he extended credit to others.

“Sen. Reid is a longtime champion of the mining industry and it should come as no surprise that he monitors these issues both in Nevada and nationally,” spokesman Jon Summers wrote in an e-mail.

He added: “He is flattered that people want to give him credit for controlling what was in (and not in) the negotiated tax package, but the fact is that Senators Rhoads and McGinness and Assemblyman (John) Carpenter all made the case that making rushed changes to Nevada’s mining tax code would send the wrong signal to Congress and was not something they could support.”

Reid apparently made it known that with mining under assault from coastal, urban Democrats in Washington, state Democrats had to show solidarity with the industry.

Reid’s involvement aside, there’s no doubt Rhoads and Carpenter — Republicans being courted to vote for the tax package the Legislature passed last week — had significant leverage. Democrats needed two Republican Senate votes to override an expected veto from Gov. Jim Gibbons, but wanted more than that in both houses to give themselves political cover for the tax vote.

Rural Republicans in mining districts knew it and pushed hard.

“Rural senators whose districts are most affected, who have the most mining jobs and impact on county and local governments, made clear their opposition,” said Billy Vassiliadis, CEO of R&R Partners, the advertising and public affairs firm, which represents mining companies.

Rhoads, for instance, made it clear that a yes vote for a tax package was contingent on mining not being targeted.

Assemblywoman Sheila Leslie, D-Reno, one of the most liberal members of the Legislature, agreed with Vassiliadis’ analysis. “They have a lot of lobbyists, and essentially blocked it by using rural Republican senators’ votes,” Leslie said.

Tim Crowley, president of the Nevada Mining Association, said legislators simply listened to reason.

“I think the legislators, by and large, didn’t agree with singling out one industry,” he said, though this is belied by the 3 percentage point increase in the hotel-room tax, which was clearly leveled at the gaming industry.

Liberals who argued for higher taxes on mining thought they had a good case: 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 received $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.

Nevada is the largest gold producer in the United States, and trails only China, South Africa and Australia worldwide.

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.

Crowley argues that in 2007, from which the latest figures are available, the mining industry paid $200 million in state and local taxes, through sales, property and payroll taxes. The industry also argues that its companies offer jobs that pay good wages and offer good benefits in communities that would be economically barren without mining.

Some liberals, outraged by the failure to raise taxes on the industry, are ready to press on after the session.

Bob Fulkerson, head of the Progressive Leadership Alliance of Nevada, had early in the session said that the Legislature should reduce deductions that the mining companies take before determining the “net proceeds” on the minerals they take out of the ground. Fulkerson said he thought mining would have had more trouble if Democrats had not needed two Republican votes in the Senate to pass a tax package. But, he said, “I’m disappointed in the whole bunch of them.”

His group is looking at a ballot initiative to go after mining, talking to its member organizations and doing “reconnaissance,” he said.

Leslie said the industry may have overplayed its hand this session.

“I think they’re going to regret that they didn’t come to the table,” she said. “The backlash among the public and legislators is strong. Most people in Nevada feel they’re not paying their fair share.”

Discussion: 11 comments so far…

By SgtRock

5/27/09 at 2:43 a.m.

Suggest removal

The tax on mining is fixed in the Nevada Constitution.

The rate is fixed.

Also, the tax is on net proceeds and not gross proceeds. That too is in the Nevada Constitution.

The legislature could have tried to change their laws on what net proceeds but that would have most likely resulted in a lawsuit of which they stood a good chance to lose depending on how many of the deductions they took away.

If you want to raise taxes on mininug then you need to change the state Constitution and that process takes many years.
By 2zero

5/27/09 at 6:04 a.m.

Suggest removal

Once again lobbyists run the legislature.

Nevada has the nations worst education system, highways in grid lock, third world health care and the finest, highest paid lobbyists.
By ksand99

5/27/09 at 8:15 a.m.

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Hmmm. When did jfNance32 become SgtRock? LOL! Now you are hiding behind pseudonyms?

You miss the point, of course. The problem isn't that it's a NET vs GROSS proceeds of minerals tax, it's the deductions that are written into state STATUTES that allow these companies to deduct 90%+ of the net value and pay a tax rate of 0.5%, as opposed to the constitutionally-mandated 5%.

But then you knew that, jfNance32.

But I'm all for raising the constitutional cap as well. There's an effort spearheaded by PLAN to amend the state constitution via ballot that will gain steam now that the state lawmakers have chickened out.

Kinda like chickening out and not using your own screenname...
By 2zero

5/27/09 at 11:59 a.m.

Suggest removal

Horsford was groomed by R&R, he worked for R&R and still is R&R's water boy.

The Senate had Joe Neil now they just have knell.
By CarsonNewshound

5/27/09 at 3:17 p.m.

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Pathetic.
By Patrick_R_Gibbons

5/27/09 at 5:16 p.m.

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"In 2007 the state set a record with $5.4 billion in commodities extracted, according to the state Minerals Division"

Is this market price or revenue? I seriously doubt this is even close to profit.

Also, the high price of gold is due to a poor global economy, it will fall when economic woes subside.
By SgtRock

5/27/09 at 6:22 p.m.

Suggest removal

I guess you are having trouble with the word "NET" vs. "GROSS"

Net does not equal gross.

Can the legislature adjust its definition of "net" to a certain degree? Maybe....it probably would result in a lawsuit and they have a very good chance to lose.

Can the legislature take away a major group of the deductibles? They would certainity lose in court if they did not.

Net does not equal gross in any language even in ksand99 world.
By ksand99

5/27/09 at 9:01 p.m.

Suggest removal

Thank you, jfNance32, for ignoring the point.

A 0.5% effective tax rate is 4.5 points less than the NPOM tax rate listed in the state constitution. Due to state statutes that allow deductions, the mining companies are able to deduct more than 90% of the value of the commodities extracted. Such statutes are easily changed by the legislature, and are NOT written into the state constitution. The NPOM max rate of 5% is in the state constitution.

A simple bill to reduce/eliminate those deductions would see tax revenue skyrocket from the mining companies.

"Can the legislature take away a major group of the deductibles? "

It's deductions, not deductibles, genius.

"Net does not equal gross in any language even in ksand99 world."

Of course, I didn't say it did, but you didn't answer that point, either. But I'm for changing it to a gross proceeds on mining tax. The point is that we can increase tax proceeds from mining TODAY by repealing the statutes that allow those companies to deduct everything under the sun.
By gmag39

5/27/09 at 11:32 p.m.

Suggest removal

I think it's REALLY CUTE when jfnance32 pretends to be "nevadaappleslices". Although THAT persona is pretty evil. Now we're "SgtRock"! Man of Action! STRONG!
I wonder how many other names he's posted under.
Jeez, how comical.
By OhSee

5/28/09 at 10:05 a.m.

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http://www.lasvegassun.com/news/2008/dec...

"Nevada could expand mining opportunities -- except we are one of the largest producers of gold in the country as it is. However, we are being pillaged by the mining industry. Unlike casinos, which pay a gross revenue tax on gaming winnings, the mining industry pays taxes on net profits after exemptions"

"Since 2000, Nevada miners have extracted more than $25 billion in gold from this state and have put a tiny fraction of that into state revenues.

During 2007, mining operations extracted more than 6 million ounces of gold from Nevada. Next to water, gold is Nevada's most precious natural resource, and it is being sucked out faster than the waters of Lake Mead. By the end of this year, 8 million ounces of gold are projected to be produced in Nevada, with very little money going into state coffers"

"Can you imagine how many B-2 bombers could have been built with the gold extracted from Nevada soil since 2000? The answer is 16. The only thing stealthier than the B-2 Bomber are the mining profits leaving Nevada"

"Here in Nevada, where the state budget was "destroyed in seconds" and gaming and mining are "how it's made," we need to work together to develop solutions to fix our broken economy"
By afveteran

5/28/09 at 3:40 p.m.

Suggest removal

State law can be changed by the voting public and tax laws on gold mining operations can be levied in an equitable fashion once the state law is amended. One of you rabblerousers out there can lead the bandwagon now!