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October 2, 2014

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Mining industry acknowledges questionable tax deductions

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Steve Marcus

An open pit gold mine, part of a complex near Carlin, is shown in this 2009 file photo. Tim Crowley, president of the Nevada Mining Association, says mining companies have been deducting expenses from their tax bills that may not be authorized by state law.

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Tim Crowley

Mining

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Chris Nielsen

Chris Nielsen

Steven Horsford

Steven Horsford

Nevada mining companies have been deducting, with regulators’ approval, a slew of expenses from their tax bills that may not be authorized by state law, the president of the Nevada Mining Association acknowledged in a letter to the state tax director last week.

In the letter obtained by the Las Vegas Sun, Tim Crowley, president of the Nevada Mining Association, identified three categories of deductions taken by the industry and allowed by regulators that appear to conflict with state law governing the net proceeds on minerals tax.

That law allows mining companies to deduct expenses directly related to extracting minerals from the ground and processing them into a product ready for sale.

Crowley testified in a recent legislative hearing, “anything that doesn’t pass that litmus test, it’s not deductible.”

But in his letter to Tax Director Chris Nielsen, Crowley said a review by mining industry accountants found regulators are approving questionable deductions. Some of those deductions are not specifically mentioned in state law but are allowed through written regulations approved by state lawmakers.

Other deductions are not mentioned in either state law or written regulations, but have been allowed by tax officials just the same.

Regardless, many of those deductions are not related in any way to the extraction and processing of the ore — failing the ultimate legal test of an allowable a deduction, Crowley admitted in the letter.

State officials should reconsider those deductions, Crowley wrote: “Please understand that, to the best of their ability, association members comply with the statutes and regulations administered by the tax department. Our review has generated three categories for expenses worthy of reconsideration.”

According to the association’s review, the industry is allowed under regulations to deduct expenses for employee housing, exploration, corporate costs and fees paid to the World Gold Council, a marketing organization for the industry.

Those deductions are not mentioned in state law.

The industry has also been allowed to deduct miscellaneous travel expenses for training and to visit vendors, costs that Crowley wrote “may not be relevant to the value of the mineral.”

The association also questioned whether it’s appropriate to deduct employee severance costs, which Crowley stated bluntly have “little to do with the current minerals being extracted.”

Both the travel and severance costs do not appear in either written regulations or state law as allowable deductions.

Neither Crowley nor Nielsen could explain why those costs were allowed by regulators.

“In no way have we taken deductions that aren’t allowed by the (Tax) Commission,” Crowley said. “But we know there is going to be a discussion (about what deductions should be allowed) and we encourage it. We think it’s healthy.”

The commission signs off on state tax regulations and oversees the Department of Taxation.

The mining industry has come under increasing scrutiny and pressure from lawmakers and the public, who argue the state’s lone booming industry in the recession should contribute more in taxes to help the state with its crippling budget shortfall.

Lawmakers are considering legislation that would cut the industry’s deductions by nearly two-thirds and another bill that would eliminate the industry’s constitutional tax protections, in place since statehood.

How much in additional taxes the state could receive from the mining industry with revamped deductions is unclear. But under Assembly Bill 428, which would cut deductions by 60 percent, the state would net about $81 million in additional revenue.

Senate Majority Leader Steven Horsford, D-North Las Vegas, has also petitioned the Tax Commission to rewrite the regulations, which he says allow mining companies to make unauthorized deductions.

The commission is expected to make a decision on his petition during a special meeting Monday.

Nielsen was reluctant to comment on Crowley’s letter, saying it will be discussed publicly during the meeting. But he disagreed with the assertion that regulators are allowing deductions that are not specified in either regulations or state law.

“To my knowledge that is not occurring,” he said.

Nielsen also noted that tax auditors disallowed more than $74 million in deductions the industry attempted to claim in 2009, netting the state about $4 million more in tax revenue.

In response to Horsford’s petition, the association assembled a committee of accountants and other industry professionals to review regulations and deductions to determine whether they truly reflect the costs of extracting and processing minerals, Crowley said.

Industry lobbyists have strenuously fought the bill to cut their deductions, arguing it would artificially inflate the value of the property being taxed. But they’ve signaled a willingness to review individual deductions to evaluate whether they are appropriate, which could result in a higher tax bill for the industry.

“We wouldn’t have put it out there if we didn’t think it’s not clear, and it’s not clear,” Crowley said. “Let’s clarify it. Let’s go through it and decide, ‘is this in or is this out?’ If we were just going to go into defense mode, we wouldn’t have written a letter.”

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  1. Who knows how long the mining industry has been scamming taxpayers. Its time these foreign corporations paid up for past mistakes as well as for the misery they have profited off of for years.

  2. Let's not kid ourselves by confusing dubious deductions with our budget problems.

    Cracking down on questionable deductions is important. Everyone should pay the taxes they are required to under law. There are questions about whether the state was doing all it could to stop these practices.

    The $4 million in revenue resulting from 2009 audits was helpful An extra $4 million will not solve our budget woes.

  3. you mean that individuals with obscene wealth have found ways to pay almost nothing in taxes?!?

    And that, despite an insultingly contrived display of public contrition, they know in the back of their minds that they will continue to do so in the future?!?

    I'm shocked!

    Shocked and dismayed!

    Thank you to the publishers and the reporter for elucidating a dynamic that I never could have imagined would actually happen.

    My head is just spinning.

  4. Isn't obvious that the State of Nevada has been looking the other way on a number of issues. Now that times are tough legislators have crack down on their large political backers, isn't that just a shame. Now there will be no way to go back and regain that lost revenue. Our legislators do not want to loose campaign donations.

  5. "With Regulator's Approval?"
    You mean without any tax audits - these aren't the regulators.
    No operations audits either.

    The Regulators of the mines in Nevada are the same ilk as the Regulators of Casinos - this is why small businesses like Dotty's are taking the heat and being driving out of business - the REGULATORS IN NEVADA ARE CROOKS THEMSELVES.

  6. Tax reform with the mining and gaming/resort industries must be REAL and palpatable. If need be, a citizens' fund for political leaders willing to tackle these industries should be instituted, as they may LOSE any potential political contributions from mining, gaming, resort, and big box store industries by being HONEST REPRESENTATIVES OF THE PEOPLE OF NEVADA, unlike many who have taken the bribes, er, political campaign contributions in the past, present, and future!

    All the citizens of the State of Nevada ask, is that these industries pay their FAIR SHARE in TAXES; i.e., that at the very least, they pay an average of what they pay in such taxes in the other 49 states! But it would be MORE FAIR to tax them more now to make up for their PAST EXPLOITATION IN BARELY GETTING TAXED!

    Let us NOT have a fox guarding the hen house, if anything, ask citizen volunteers to be regulators. The criminal corruption needs to be sifted out and put to an end in this state, or NEVADA will have no future, it will, and is heading, towards being a slave state with exploited citizens and residents here. Shame, Shame, Shame!

  7. Time for the State to seize the productive mines under eminient domain and give them to George Soros and Michael Moore...that way maybe we can stop hearing of the "Buy Gold" Commercials on talk radio and FOX.

  8. This is part of a very calculated ploy by the mining industrty to exploit Nevada's budget crisis. Watch what happens now: the industry will offer to come up with what amounts to a charity payment of something close to $100 million to the state as "mea culpa" for criminal tax deductions (but of course without admitting to anything wrong). It will offer its gold-heavy wrist to be slapped.

    Also: industry lobbyists will push for some very minor revisions in the "illegal" deductions (as mentioned in this article). Big mining will offer and support all of this, but only in trade for the legislature backing off from fixing the tax laws, and our attorney general agreeing to hold big mining harmless from prosecution for past tax crimes.

    Nevada is run by back room deals. Until now, our state has been treated by the mining industry like that old West saying from cowboy bordellos: "getting screwed without getting kissed." It's the oldest story in our state.

    So: here comes the deal offered by big mining to keep screwing Nevada citizens while reaping obscene profits.

  9. Clarifying that I'm not the commenter 'jpc'.

  10. This is just a diversion to keep Legislators from truly Taxing these multinational corporations a fair tax rate for the profits they make from defiling the publics lands.

  11. So, let's get the regulations overhauled and properly defined! No hard task!

    Why make such a bid deal out of something that could be easily fixed?