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December 22, 2014

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Damon Political Report

Nevada lawmakers seek to slice mining industry’s tax deductions

The mining industry spent more than an hour today working to defend itself against an effort by lawmakers to significantly reduce the substantial deductions it enjoys on its net proceeds on minerals tax.

The reaction split mostly down party lines, with Democrats skeptical of the special deductions the mining industry is entitled to that don’t apply to other businesses and Republicans defending the industry as important to rural Nevada’s economy.

Assemblywoman Peggy Pierce, D-Las Vegas, the lone lawmaker to put forward a series of tax bills that she says are an alternative to Gov. Brian Sandoval’s “nuclear option” budget cuts, sponsored Assembly Bill 428, which would reduce the mining industry’s tax deductions by 60 percent.

Legislative staff estimated the change would net the state $81 million as lawmakers work to fill a $2.5 billion shortfall.

“It may not seem like a lot but $81 million would help our communities,” said Jan Gilbert, of the Progressive Leadership Alliance, which has long sought to extract more tax revenue from the mining industry.

Mining industry lobbyists argued Pierce’s proposal would “artificially inflate” the value of their minerals and sought to convince lawmakers an industry-specific increase is poor policy that would exacerbate Nevada’s over-reliance on a narrow tax base.

Tim Crowley, president of the Nevada Mining Association, repeated his assertion that the industry would support a “broad-based” tax if the Legislature and Sandoval agreed to one—a somewhat hollow promise given that Sandoval has repeatedly vowed to veto any tax increase.

Democrats on the Assembly Taxation Committee repeatedly questioned why the industry is allowed a series of deductions that other businesses don’t enjoy.

The mining industry pays a 5 percent property tax, but is allowed to deduct the cost of extracting and processing the mineral.

An accountant for Barrick testified the vast majority of that cost is “refining and freight.” Skeptical lawmakers ran down the list of approved deductions, which include the cost of fire insurance, equipment maintenance and marketing (the cost of bringing the mineral to market, not the cost of enticing customers to buy it).

“We’re really begging the question here is how liberal some of these deductions and write-offs are,” Assemblywoman Theresa Benitez-Thompson said. “It’s hard to make the argument a lot of what you folks do to get the mineral out of the ground and to market is unique to your industry.”

Crowley countered that the net proceeds on minerals tax is a property tax. The deductions, he said, allow the government to determine the proper value of that property and are narrowly defined to include only the “essential” costs of extracting and processing the mineral.

“Anything that doesn’t pass that litmus test, it’s not deductible,” he said.

Lawmakers still questioned how some of the deductions were essential to extracting the mineral, and not a normal cost of doing business.

“I get that you guys have to buy fire insurance but I have to buy fire insurance to protect my business, too,” Assemblywoman Marilyn Kirkpatrick, D-Las Vegas said.

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  1. No more special treatment for the mining industry.