Legislators scrutinize mining tax breaks

Legislators grilled Nevada mining representatives Thursday on why their booming industry gets tax breaks for marketing, vehicle maintenance and fire insurance while other businesses in the financially stressed state don't get those

write-offs.

The questions came as Assemblywoman Peggy Pierce, D-Las Vegas, presented AB428, which would change the formula mining companies use when determining their taxable income.

Mining is subject to a minerals tax constitutionally capped at 5 percent of a company's net proceeds. The bill would skirt the unique cap by changing the way net proceeds are calculated and potentially generating tens of millions more dollars for state coffers.

"Limits on the deductions bring mining more in line with other businesses in the state, and this is only fair," wrote Sparks resident Tanja Hayes, who supported the bill along with others who spoke about mining revenue's potential to restore Neva-da's crumbling education budgets.

The bill is the latest attempt to pull more revenue from the industry that birthed the Silver State. Spurred by soaring gold prices that reached $1,457 an ounce Thursday, mining grossed $5.5 billion in 2009.

The industry paid $94 million in taxes to state and county governments in 2009, $48 million of which went to Nevada's general fund. Mining expects to pay about

$140 million in state and county taxes this year.

Lawmakers earlier this week discussed amending the constitution to remove the tax cap; that process could take years to complete.

Mining industry representatives say the bill's approach is flawed. It allows mining companies to make the same tax deductions they already have, but allows only 40 percent of that amount to count when they're calculating their tax bill.

The minerals tax is essentially a property tax based on the amount of mineral in the ground. A mining company makes deductions from its gross product based on "the cost to take this dirt and turn it into a ring," mining lobbyist Jim Wadhams explained. Then a 5 percent tax is taken from that "net proceeds" figure.

Tim Crowley, president of the Nevada Mining Association, said reducing the deductions by 60 percent would only cover part of the cost of extracting the gold and other minerals, and "artificially inflates the value of our property."

"It's like saying, 'Let's just jack up the value of a house so we can tax it more,'" Wadhams said.

Lawmakers asked mining officials about their marketing costs, which amounted to $20 million in write-offs in 2009, according to the state Department of Taxation.

Mining officials said the deduction was not for direct advertising, but included all the processes to get the product to market, such as brokers' costs.

One executive acknowledged that while mines are especially vulnerable to fires, he "struggled" to understand why the industry can write off its fire insurance costs.

Mining Association representatives said that while they oppose AB428, they were willing to reconsider the deductions allowed in statute - many of which were not around when the net proceeds tax was placed in the constitution in 1864.

"Most of these deductions are less than 25 years old," said bill sponsor Pierce.

No action was taken on the bill.