The way mines are taxed in Nevada is enshrined in the State Constitution, and the Constitution is not easily revised, but any one of 3 joint resolutions passed during the recent special session of the Nevada Legislature could ultimately change the way and rate at which mines are taxed in Nevada.
The resolutions would need to pass another session of the Legislature and then pass a statewide vote in order to change the Constitution, a process that will take years to unfold.
Nevada Governor Steve Sisolak called the second special session this summer to address police reform, mail-in voting, COVID-19 liability protection for businesses, and other matters related to the novel coronavirus pandemic.
During deliberations over the mining taxation reform resolutions, Republican lawmakers in the Senate and Assembly complained that raising mining taxes is not related to the pandemic.
The Governor convened the first special session in July to revise state spending to close a $1.2 billion hole in the 2021 state budget. Without new sources of revenue, lawmakers made deep funding cuts to schools and health and human services. Medicaid matching funds were cut. Before the pandemic, Nevada’s public schools were among the worst-funded and poorest-performing in the nation.
The Value of Gold
The price of gold is cyclical. During the pandemic, demand for physical gold has driven the trading market price of the precious metal to more than $1,800.00 an ounce. Gold mines have continued to operate during the shutdown of nonessential businesses, and the elevated value of gold has not been lost on Democratic state lawmakers and Governor Sisolak, hence the 3 resolutions under Democratic leadership.
The effort to extract more tax revenue from Nevada’s fabled gold mines is not new. SJR15, first passed the 2011 legislative session and finally appeared on the statewide ballot in 2014 as Question 2. The initiative would have revised the Constitution to remove mining’s preferred status and the 5 percent cap on the net proceeds of minerals tax. The measure failed by 3,209 votes, 50.3 percent to 49.7 percent.
Net Proceeds on Minerals Tax
Net proceeds are determined by deducting, from the gross yield, the costs incurred mining and processing ore.
The tax rate applied to the net proceeds is based on a sliding scale between 2 and 5 percent. The rate depends on the ratio of net proceeds to gross proceeds.
Typically the State and host counties roughly split net proceeds tax revenue. In Humboldt County, home to numerous mines, the net proceeds tax makes up nearly 20 percent of the county’s budget, the rural municipality’s largest single source of revenue.
Nevada Gold Mines is a joint venture between Barrick and Newmont. As example, the company operates the Turquoise Ridge mine in Humboldt County, some 60 miles northeast of Winnemucca.
Based on state records, the mine realized $565,735,402.00 in gross proceeds in 2019.
The company deducted $238,755,319.00 for net proceeds of $326,980,083.00.
The mine is taxed at the full 5 percent. The state got $9,111,252.56 and Humboldt County got $6,737,751.59. A total of $15,849,004.15 in tax and $311,131,078.85 in profit.
The net proceeds tax enables some mines in the state to pay no tax. The Jerrit Canyon Mine in Elko County realized gross proceeds of $164,971,215.00 in 2019. The Jerrit Canyon Gold corporation deducted $169,606,943.00 for a net loss of $4,635,728.00. The company paid no state or county net proceeds tax.
Nearly half of Nevada’s gold mines paid no net proceeds tax in 2019.
Three Joint Resolutions
AJR1 and SJR1 are all but identical except for how the tax revenue is spent.
Should either resolution become law, it would eliminate the net proceeds of minerals tax and any appropriation to the counties. Instead, a tax of 7.75 percent on all gross proceeds of all minerals would be imposed.
AJR1 mandates that 25 percent of the gross proceeds tax be used exclusively for educational purposes, or “to provide for the health care of the residents or to provide economic assistance to the residents of this State, or any combination thereof. The remaining 75 percent of proceeds would not be restricted by the provisions of the Nevada Constitution.”
SJR1 earmarks 50 percent of the gross proceeds tax to be used exclusively to “fund a program to make payments to eligible persons domiciled in this State. The use of the remaining 50 percent of the proceeds of the tax would not be restricted by the provisions of the Nevada Constitution.”
During the recent special session, the Nevada Mining Association and mining companies and their lobbyists opposed AJR1 and SJR1 during public testimony on the measures. Both were voted out of the Senate and Assembly on party-line votes.
Barrick operates mines around the world. Shares of the company are traded on the New York and Toronto stock exchanges. The Canadian company mines a variety of minerals, and according to Christina Erling, Director of Government Affairs North America, Barrick employs some 7,000 people in Nevada. Erling could not accurately gauge the impact of a 7.75 percent tax on gross proceeds on the company’s operations in the state, but they oppose the concept.
“Your net proceeds tax is a profit-based tax and allows for when the commodity price falls we can still fully operate,” Erling said in a phone interview with the Ally. “That (net revenue taxation) factors in cost structure and cost increases that are out of the company’s control, whereas a gross proceeds tax is a percentage of the revenue and it applies irrespective of whether or not industry is profitable. The gross tax when the commodity prices fall – mines can be shorted because we’re forced to mine only the profitable tons until production falls. And that’s when you start looking at jobs being eliminated.”
Nevada’s rural counties rely heavily on tax revenue from the net proceeds tax. Both AJR1 and SJR1 would eliminate tax payments to counties.
“The net proceeds is split between the General Fund and the counties where the mines operate, and removing the county portion would have a devastating impact on the counties I’m sure,” Erling said. “We haven’t had a direct conversation with counties yet, but the decrease in revenue would certainly hit the local communities very hard.”
Demar Dahl is chair of the Elko County Board of Commissioners and says the loss of mining tax revenue would be devastating for his county. Dahl says a 7.75 percent tax on gross receipts will not only cause a big hole in the county budget but also cause mining activity in the county to contract, which he says will have untold economic ripples.
“So you’ve got a lot of people voting on that bill who don’t understand business very well and don’t understand the difference in 5 percent of the net compared to 7.75 percent of your gross, which is enough to make a considerable difference to the entire industry,” Dahl said by phone.
If Nevada Gold Mines’ Turquoise Ridge operation had to pay 7.75 percent of $565,735,402.00 gross receipts in 2019, the company would have paid $43,844,493.65 in tax instead of $15,849,004.15.
The Jerrit Canyon Mine in Elko County paid zero tax in 2019, but if Kinross Gold did not have the deductions provided under the net proceeds tax and had to pay 7.75 percent of their gross, they would have owed $12,785,269.16 in tax on $164,971,215 in gross proceeds.
Republican lawmakers are in a minority in both the state Assembly and Senate, so during the recent special session, Republicans mostly watched as Democrats passed bills and resolutions. At last week’s Elko County Board of County Commissioners meeting, commissioners lamented the passage of the resolutions.
“The Republican vote has become irrelevant,” said Elko County Commissioner John Karr.
Commissioner Dahl said state Senator Pete Goicoechea and Assemblyman John Ellison did their best to represent rural counties’ interests, but democracy is about votes, and Dahl admitted elections have consequences.
“No, our voice wasn’t really heard,” Dahl said. “One of the things that isn’t considered on something like this is the benefits that the mining industry brings to the whole area. Do you know that they put up, Nevada Gold Mining put up $10 million for broadband expansion? And if you start taxing them almost 8 percent of their gross, they’re not going to be able to do things like that and they’re not going to be able to continue to explore and expand. It would just be devastating for Elko County.”
Ken Tipton is the chair of the Humboldt County Board of Commissioners.
“I think it’s horrible,” Tipton said by phone. “I think it’s a rape of the rural counties by the metropolitan areas, specifically Las Vegas, Clark County. I don’t think that if they wanted to bring a bill like this, they should have been brought up in a special session. It should have been brought up in a general session. The mines are very, very important to the rural counties like Elko and Humboldt County, Lander County. I don’t know the numbers for those other counties, but I know that for Humboldt County the net proceeds is a little over 20 percent of our total revenues received. Just under 17 percent of our general fund revenues, so it’s the single largest form of revenue for the county.”
Assembly Joint Resolution 2 would retain the net proceeds tax structure and continue limited disbursements to counties based on real estate valuation. The measure would also raise the tax rate on net proceeds to between 5 and 12 percent. The net proceeds tax is currently capped at 5 percent. During public testimony on the resolution, Barrick and Nevada Gold Mines testified neutral on the bill.
“Yes, it does represent a 140 percent increase in the taxation on the industry, but we have recognized for a long time that mining needs to contribute more, at least in the Nevada Gold Mines perspective, that mining needs to contribute more, but in a way that protects the industry’s ability to operate throughout the cycle,” Erling said.
Erling said she was disappointed Barrick was not consulted for the drafting of the resolutions. She says for Barrick and Nevada Gold Mines, their profitability is closely linked to the price of gold, so retaining the net proceeds system is key for economic sustainability. She cited a time in 2015 when the price of gold was around $1,000 an ounce.
“At that time, it was a hard time for the industry and for the company, and we almost went under. But we want to keep this dialogue open with our elected leaders, and AJR2 was really that vehicle to say, listen, we are willing to come to the table, we want to have this conversation. We want to have this open dialogue.
“SJR1 and AJR1 are really something that we are very wary of and will have a devastating impact on Nevada Gold Mines alone, let alone the smaller operators, but we spoke with Assembly leadership on AJR2 and we hope that we can keep that conversation going as we’re moving into 2021,” Erling said.
Brian Bahouth is the editor of the Sierra Nevada Ally and a career public media reporter. Support his work.