A proposed ballot measure that would increase Nevada’s mining tax rate to help fund education would collapse rural economies and strain the state’s social safety net, according to an industry official.
“We‘re willing to have every conversation (about paying more), but not at the cost of destabilizing the state,” said Tyre Gray, president of the Nevada Mining Association. He said mining is being unfairly targeted when other sources of revenue, including property tax reform, also should be examined.
“We need to diversify our tax base,” he said. “Everybody plays a part in that and we’ll all be able to say, as Nevadans, ‘look what we did for our children.’ The mining industry can pay more, but we need to find that point where we don’t run into those unintended consequences.”
The industry beat back a tax increase in 2014, when voters narrowly defeated a ballot measure that would have removed mining’s 5% tax cap from the Nevada Constitution and allow the Legislature to set the tax rate. A similar initiative failed to make the ballot in 2012.
Ballot measures considered
In a special legislative session in August, lawmakers passed three resolutions for ballot measures aimed at increasing mining’s tax burden. The industry’s tax rate is capped at 5% of net proceeds. Teachers’ groups support AJR-1, the only measure of the three that would base the proceeds tax on gross revenues rather than the net (what’s left after allowable deductions are subtracted) and would raise the tax rate cap to 7.5 percent.
AJR-1 also mandates that 25% of the tax collected go to health and education. The other two ballot measures, AJR-2 and SJR-1 would put the revenue into the state’s general fund.
None of the three measures have progressed since being introduced in the current legislative session, which is required to adjourn May 31. Instead, mining lobbyists are negotiating what they say would be a more “reasonable” reform plan that wouldn’t require voter approval.
Educators back tax increase
This year’s debate mirrors previous efforts to make mining pay more. Each time tax increases on mining have been proposed, the industry has forecast disaster if new tax rates were to be imposed.
Proponents of this year’s attempts to change the way mining is taxed explained their positions in a Reno News & Review sidebar to this story. In a recent interview with the RN&R, Gray outlined mining’s objections to AJR-1. Excerpts from that conversation are below, edited for length and clarity.
Industry wants a deal
Q: The ballot resolutions have stalled while mining lobbyists are working on a side deal, is that correct?
A: “Yes, as an industry we are always looking to find ways on how best to legislate. What we saw during the special session was a reaction to our state being in a spot it has never been in before… I think that what we saw with some of these resolutions was a knee-jerk reaction to that. (The negotiations are) about coming up with a tax policy that is equitable. At the end of the day, what we don’t want is a tax policy that is going to create additional government spending.
“I think that’s what we see when you look at, particularly AJR-1 and SJR-1, is a package that will have devastating impacts and destabilize rural Nevada’s economy by removing funding from counties. Counties use these dollars for their roads, hospitals, their social safety net and other needs. Creating a tax that will have a negative impact on the industry would destabilize the state’s economy as well.”
Gray said that if the tax rate is increased and based on gross proceeds, rather than the net amount after operating costs are deducted, some mines would shut down. “What we’ve seen is that up to 30% of jobs could go away. Mining represents about 37,000 families across Nevada, so 30% of those 10,000 folks would be affected. This would be taking people, who are making an average of $95,000 a year, removing them off a private payroll and putting them on the state payroll. And we have to look at the dollars generated into the economy by those people, which allows towns like Elko and Winnemucca to survive. When we see a tax policy that will create that kind of destabilization, we try to negotiate something that’s more reasonable.”
Profits vs. revenue
Q: The argument that some mines would close is a familiar talking point. The minerals are here. Why would mines close?
A: “It’s important to distinguish between revenue and profit. You can’t just look at the revenue side. Increased taxes drive up the amount of overhead. Several mines are not necessarily generating profits; they may be just paying for themselves. Put another tax on and it’s no longer paying for itself. That’s why we would see a contraction of the industry, and, frankly, a realigning of investment, because Nevada wouldn’t necessarily be a friendly mining district any longer.
“Saying they will stay because the gold is here is a narrow view of the situation. The state now has a reliable, stable tax policy and people appreciate that.” Gray noted that mining companies often spend millions and prepare for years “before a shovel touches the ground” and then have to process the ore.
Q: If some mines are merely breaking even, why do they remain open?
A: “…Partly because they may hit a better vein of ore and part of it is the commitment to the community. There’s an understanding that the industry has always had a relationship to the community.” Gray said the mining corporations and investors may be off-shore, but the people directly operating the mines live and work in Nevada.
“We’re not some kind of robber barons. There really is an understanding that we hold to our social license to operate — that agreement with the community that we are going to be here as long as we can, as long as it makes sense.” – Tyre Gray, Nevada Mining Association.
Mines pay other taxes
Q: In 2019, 13 mines paid no minerals tax at all. Nevadans who pay their income taxes and don’t take advantage of itemizing deductions look at that and want to know why they are paying a higher tax rate than some players in a multi-billion-dollar industry.
A: “Mining companies pay every single tax that Nevada residents and other businesses pay, including property taxes, sales taxes, federal taxes and the commerce tax… Those shouldn’t be conflated with the tax that mining companies pay on net revenue, which was born out of a tax on property. The net tax rate is based on how much the ore is actually worth to the person who extracted it. Mining is the only industry that pays that tax, which is based on how much the companies sell (minerals) for, minus how much it cost the company to extract them… There is a long list of prohibited deductions.” Gray said it’s unfair to say mining “doesn’t pay its taxes.”
Q: No one I’ve talked to has argued that mining doesn’t pay taxes; what they say is that basing the industry’s tax rate on net proceeds means that even if the percentage cap was raised on the net amount, mining is going to find a ways around that. How do you respond to those people?
A: “It’s unfortunate to hear that, because it’s somewhat of a very cynical view and it impugns a bad faith concept on industry. At the end of the day, it’s relatively simple… All business models in the U.S. are taxed on their profits. (The minerals tax) is not on profits, but on property, and the question is how do you determine the value of the property? How much did you sell it for minus how much did it cost you to dig? There are no extraordinary deductions that are listed (in state law) In fact, a lot of people who talk about this have never actually even read (the law or the administrative code).
Saying that, ‘they’ll just find a way to deduct around it’ is very cynical and bad faith… The fairest way is built on a net profits tax, not a gross tax.” He added that the price of gold is very volatile and that the net proceeds method is “a very fair system” because the price of gold and other minerals is so unpredictable.
“You have to design a mechanism that will account for that, and net proceeds are a nice mechanism that allows for continued investment in the community… Nevada is unique among its sister states in that we are the only state in the Southwest where our rural communities are exporters of tax dollars; the rural counties are able to send tax dollars to our urban areas. If AJR-1 passes, that will reverse.” – Tyre Gray, Nevada Mining Association.
The 12th largest industry
Q: I spoken to teachers who have upwards of 40 students in their classes. Why shouldn’t mining kick in more money to help alleviate overcrowding and other problems?
A: “The greatest argument we have about school funding is that mining is the 12th largest industry in the state, so it’s important to recognize that of the billion-dollar industries, there are 11 that account for more revenue than mining. We’re the 12th_largest, but we have the highest per-employee tax burden in the state already. It’s over $21,000 per employee per year. Gaming, at the top (of the revenue list) is second with $20,000 per employee. We’re OK with that, but not with increasing the burden on the 12th largest industry that is already paying the highest tax in the state. AJR-1 wouldn’t just raise taxes, but would increase them by 400%. That’s not reasonable.”
Q: So, where can the state find the money to improve our education?
A: “Again, we need to diversify our tax base… Nevada is the only state that gives its citizens property tax abatement to the tune of $2 billion. If we took away half of the property tax abatement that you, me and every other person in Nevada who owns a piece of property has, except for mining because mining doesn’t have that abatement, we would have 1 billion extra dollars to put directly into education. We are the only state that has a property tax structure that is broken that could yield up to $2 billion if we just took away our cap that we put in 2005 and have that money for education. That’s where we should be focusing on: our broken property tax system.
Q: It would take a two-thirds vote at the Legislature to change that. Do you think that can happen?
A: “That shouldn’t be a political issue. I think it just requires political courage from both Democrats and Republicans. It may be difficult because when we talk about property taxes, we’re talking about me and you and not some third-person straw man. So it’s easy to say ‘let’s blame the mining industry’ instead of talking about what all of us should be doing and how all of us should be paying our fair share in order to make sure our educational system is adequately funded.”
Q: If the Legislature passes AJR-1 for the second time, they aren’t approving a tax increase, they would just be throwing the decision to the voters. Why not let the people decide?
A: “The voters have decided before, but we don’t want people voting on a tax policy that is not actually well considered has unintended consequences; that’s the deal with AJR-1. Anyone who is reasonable and has done some homework will recognize that it will have some negative impacts and will increase government spending and will destabilize the majority of our counties that have mining. The 30% is not a talking point; it’s not made up. Those are the smartest economic minds in our state and our businesses saying that ‘this is where we have our breaking point.’
“AJR-1 is the breaking point for 30 % of our operations – those jobs go away and we know that rural communities don’t have very many options when it comes to other jobs. The state is going have to pony up $10,000 per one unemployed person. That’s $300 million that the state is going to have to start spending in rural areas in order to take care of people who used to make $90,000 a year and used to have a very robust and vibrant economy. That’s what this is really about, a destruction of the major counties in our state
“Going back to your first question, we were having conversations about (increasing the tax burden) before COVID-19 ever hit… (But) you can’t have a joint resolution passing in special session three days that deals with one of Nevada’s foundational industries… It needs to be a wider conversation.
Gray said in addition to eliminating some of the property tax abatement, the state also should be considering a tax on services as well as a digital tax (on software, music, videos or other electronic files that users download from the Internet)… “If we’re going to talk about large sweeping changes in our tax structure those are three areas that we should be talking about, rather than looking at a single industry.”
‘Demonizing’ the industry
Q: Right now, the focus is on that industry and the Legislature will adjourn in about two weeks. Again, why not just get AJR-1 on the ballot and leave the decision to voters?
A: “…If this is about getting additional money why wait two or three years for something to pass, when maybe we can work on a reasonable solution that will give the state immediate money? We’ve been talking about that since the special session. I think that anything we could do or would want to do can be done before this session ends.”
Most Nevadans know that education isn’t adequately funded, he said, but “demonizing” the mining industry and making it shoulder an unreasonable tax burden isn’t the solution.
“In the end, it’s not about politics or business or a single industry; it’s about all people, whether they have kids or not,” Gray said. “We’re committed to helping with that, but raising tax rates on mining is not the solution. It’s only a part of the solution… Everybody can pay more. The question is how much more?”