Tuesday, November 1, 2011

Mining is an integral part of rural Nevada, so why do some in the state want to raise taxes on the industry?

Based on Nevada's "Silver State" nickname alone, you might guess that mining is an important industry to the state. Mining helped paved the way for statehood and first drew settlers to the inhospitable terrain. As reported by the Reno Gazette Journal, the mining continues to be a vital industry as the state looks to mining companies to bolster the economy in rural areas. As a result of its prominent place in Nevada's history and, the mining industry has been the beneficiary of a number of favorable tax laws. But, as Nevada's budget continues to shrink as a result of the slumping tourism sector, some Nevadans are starting to question the benefits provided to the mining companies.

The Las Vegas Sun noted that the debate results from the fact that the mining industry's tax rate in Nevada is constitutionally capped at 5%. Companies can then deduct extraction and production costs to further lower their taxes. Some of those deductions include things like fire insurance and marketing costs. This has led some people to ask whether those deductions are the result of industry-specific expenses or are simply the cost of doing business.

Representatives from the Nevada Mining Association argue that any increase in their state taxes would artificially inflate the price of their extracted minerals. They also argue that it is unfair for the state to expect a single industry to shoulder the state's deficit woes. Further, members of the Nevada Mining Association such as Barrick are often quick to point out that they have paid record taxes in recent years and that they have invested heavily in rural areas as part of developing their claims.

There is no doubting that the mining industry is important to rural Nevada. Nobody seriously challenges the Nevada Mining Association's claims that they provide some of the highest paying jobs in rural areas, employ a large number of people, and have made significant investments in the state that benefit local economies. What the mining company's protests seem to miss though, is that they have long been afforded special treatment. Those who want to increase the mining industry's tax burden are singling out the industry now because it has enjoyed special treatment in the past.

An example is illustrative. According to the American Gaming Association's Survey of the States, in 2010 Nevada casinos raked in $10.4 billion in total revenue. Of that amount, they paid $835.42 million in state taxes. That resulted in a tax rate of just over 8%. According to the Nevada Mining Association's own FAQ page, in 2009, members of the Association produced $5.8 billion in minerals in Nevada. That same year, they paid $200 million in taxes to state and local governments. That resulted in an effective tax rate of about 3.45%. According to one researcher in the state, Nevada mining companies paid 0.5% in taxes from 2000 through 2007. In other words, the mining industry has been taxed at no more than half the rate applied to Nevada's premier industry. And it appears by some calculations that the industry has paid taxes at a fraction of the rate paid by casinos. If mining companies are being singled out in current budget discussions, it is not in an attempt to force them to carry the state of Nevada, but instead to make them pay their fair share.

Mining is an important industry to Nevada both historically and for the future. Mining companies allow many Nevadans the opportunity to earn a good wage in rural places. Their investments also produce a number of economic benefits for towns that do not have any other large employers. However, start driving on almost any highway in the state and you won't have to drive very far to find any number of abandoned ghost towns and mining camps that dried up when their local mines shut down. By its very nature, mining cannot last forever. Every day that a mine operates successfully, it is one day closer to its inevitable closure. The mining companies can pick up and move on to other places once they have exhausted Nevada's natural resources. The push for higher taxes is simply an opportunity to make sure that those companies pay their fair share in the meantime so that Nevadans won't be forced to follow them elsewhere when they move on.


JLS said...

I also think mining in Nevada can play out very differently in rural and urban places. Because of the high price of gold, towns like Elko have boomed, even during a recession, while the major cities have been hit the hardest. I have friends from mining areas who are very loyal to the industry. The companies give out substantial scholarships to local kids and can pump a lot of money into the economy. Many of my urban friends seem to focus on the negative environmental impacts of the industry. The low tax burden adds another element to the discussion!

Scarecrow said...

During Sarah Palin's time as Alaska's governor, she increased taxes on the state's prime natural resource: oil. As a result, Alaska is one of the few states that hasn't been forced to drastically cut its budget.

Kevin's juxtaposition between gaming and mining is also illustrative. While there are only so many minerals that can be taken out of Nevada, there will always be people who want to play games of chance. If anything, the state should have a higher tax rate on minerals, so they get the most out of the industry while they still have a shot.

Lisa R. Pruitt said...

A controversy over taxing extraction industries brought down Kevin Rudd's government in Australia in 2010. Here's a relevant story:


A few months later, Rudd was out ...and most attribute his steep drop in popularity to the so-called mining super tax.