The decision to raise mining taxes is being prepared for a return to Nevada voters in 2022, after a pair of proposed constitutional amendments were introduced on Friday during the 32nd Special Session.
Senate Joint Resolution 1 and Assembly Joint Resolution 1 would both alter how mining companies are taxed, something that has been codified (and criticized) in the Nevada Constitution since its inception. Both proposals would tax mining on gross (rather than net) proceeds. Both would remove the existing 5 percent tax cap in the constitution and replace it with a 7.75 percent tax rate that could more easily be raised by lawmakers.
The change would bring hundreds of millions of new revenue dollars to the public coffers.
In 2019, for example, the mining industry reported gross proceeds of $7.7 billion. After taking the generous deductions provided to them by state law, the industry’s taxable net proceeds was reduced to $2.3 billion. After the constitutionally enshrined 5 percent tax cap was applied, $123 million in mining taxes was paid to Nevada, split roughly equally between the state general fund and the counties where the mineral was produced.
According to the nonpartisan Legislative Counsel Bureau staff, if you run those figures through the tax structure detailed in the proposed constitutional amendments, the mining industry would have paid $607 million in taxes instead.
What would happen to all of that revenue is where the dual proposals differ. The Senate’s resolution would deposit half into a yet-to-be-designed program that would pay money to residents annually, similar to an existing dividend program with the oil and gas industry in Alaska, and half in the state general fund. The Assembly resolution would dedicate a quarter of the revenue to Health and Human Services and K-12 Education and three-quarters into the state general fund.
Both resolutions are expected to pass since only a simple majority is needed, rather than a two-thirds majority in both houses as constitutionally required to raise taxes. Then, the Legislature would take up both resolutions in the 2021 regular session and determine which to pass a second time. That second approval would push the issue to the 2022 general election ballot for voters to decide.
Both proposed amendments also turn the two-thirds requirement on its head, providing that a two-thirds majority would instead be required to reduce mining taxes. Both amendments also supersede the two-thirds rule by allowing the Legislature to raise mining taxes in the future with a simple majority.
During the Senate resolution’s committee hearing, Minority Leader James Settelmeyer criticized the bill for allowing legislators to “pick winners and losers.” He questioned whether any other industry in the state was singled out through industry-specific taxes levied against their gross revenue.
Russel Guindon, the LCB’s principal fiscal analysis, pointed to the gaming industry, which pays gaming tax on their “win.”
State Sen. Ben Kieckhefer questioned whether the proposed changes could result in businesses being taxed out of profitability.
Guindon replied that it was possible.
“But that could be possible for any tax because it would be an expense that they would have to deal with,” he added.
Gold, which is set record prices this week and is trading at nearly $2,000 an ounce, accounts for 90 percent of the value of mineral production in Nevada. Of the 30 gold producing mines in the state in 2019, 14 of them declared so many deductions they paid no taxes at all to the state general fund, and of those, 11 also paid no taxes to the counties where the gold was mined.
A clear favorite emerges
Both bills were introduced Friday on the first day of a packed special session that will also deal with social justice reform, evictions, elections, business liability, worker protections and unemployment.
Only the Senate resolution received a committee hearing that same day, but it is already clear which proposal is preferred by the progressive advocates who have long pushed to raise mining taxes.
Zero individuals or groups spoke in support of the Senate resolution.
“We must oppose SJR1 in the strongest of possible terms,” said Patrick Donnelly of the Center for Biological Diversity, which has supported previous attempts to raise mining taxes.
Donnelly testified he believes mining dividends are tantamount to legal bribery because they create perverse incentives to skirt environmental regulations that are sorely needed. That money “is far more valuable to us, collectively, as a society than it is doled out to individuals,” he added. “We will fight, hard, to see AJR1 passed into law by voters.”
The Progressive Leadership Alliance of Nevada, which proposed and led the narrowly defeated 2014 ballot initiative to remove the mining industry from the constitution altogether, has taken a neutral position on the Senate resolution. They plan to support the Assembly resolution.
Mining industry allies described the resolution as “a death knell” that would force or compel companies to shutter their operations within the state and move elsewhere. Representatives from the business community decried industry-specific taxes.
Dagny Stapleton, the executive director of the Nevada Association of Counties, said her organization opposes the resolution primarily because it offers no guarantee that counties currently receiving revenue from net proceeds of minerals will be held harmless.
Under the amendments, counties would no longer receive their portion of the current tax on net proceeds, because the current tax on net proceeds would no longer exist. So either constitutional amendment would require companion legislation during the 2021 session to assure counties still get money.
Stapleton added that 25 percent of revenue in Humboldt County comes from the current mining tax structure.
The introduction of the dual resolutions comes weeks after Senate Democrats — in the first special session of the summer — failed to flip one Republican into voting for a bill that would have raised more mining revenue by altering the industry’s tax deductions.That failed bill would have raised an additional $57 million for the state in the current fiscal year.
Republican Sen. Keith Pickard told the opposing caucus he would support an amended version of the bill but backed out of the deal.
Editor’s Note: This article has been updated to correct proper distribution of revenue generated by AJR1. Three-quarters would go to the state general fund and one-quarter would go toward K-12 or health care.