Nevada mining industry dodges audits

(AP) - Nevada has no trained auditors to determine whether mining companies take proper deductions for costs including advertising expenses and worker bonuses before taxes on their net income are calculated, the head of the state's tax department conceded Thursday.

During a hearing before the Senate Revenue Committee, taxation chief Dino DiCianno said his agency has 2 1/2 people who do desk audits instead of in-the-field surveys. The department relies largely on the companies' revenue projections and reports in calculating taxes.

A terse exchange followed between Senate Majority Leader Steven Horsford, D-North Las Vegas, in which he pressed for information about why no one was trained and asked if the governor had been alerted to the lapse.

DiCianno said he hadn't informed Gov. Brian Sandoval, but he has asked his staff to "dust off the internal audit manual" and get up to speed.

The issue continued to rankle during the hour-long session, as the mining industry's fluctuating levels of taxable income were discussed and the split between the Legislature's need to understand the state revenue picture and the goals of private industry appeared to clash.

"We need to know now for the budget, not just the next two years, but really the next five, and because you are large, publicly traded companies, I know you have to know your anticipated revenues," Horsford told a panel of mining representatives that included Tim Crowley, president of the Nevada Mining Association, and industry lobbyist Jim Wadhams.

Horsford said the way mining companies pay their taxes - providing a lump sum on projected net revenues and then "trueing up" the difference once the year closes - will create a massive budget hole. He demanded corporate projections for mining company profits as a reality check for what's being paid and what's owed.

Also revealed during the hearing were the business deductions the mining industry is allowed to take before declaring their taxable net income. The deductions include an array of expenses including advertising costs, severance payments, employee or worker bonuses and sales tax.

According to the taxation department, deductions for Barrick Gold Corp. will amount to $1.7 billion this year. These deductions lower the mining company's taxable income to $1 billion. Were taxation based on gross income instead of net, the tax department's report shows Barrick would face taxes on almost $2 billion in 2011.

Jan Gilbert of the Progressive Leadership Alliance of Nevada said the scope of allowable deductions was astounding and made the net proceeds on which mining companies pay taxes appear even more nebulous.

Last year, the alliance pushed an unsuccessful ballot initiative to change Nevada's constitution and the way mining taxes are assessed. Under current law, mines pay no more than 5 percent on net proceeds. The initiative sought to change that to not less than 5 percent on gross proceeds.

Such a change would have tripled the proceeds tax on mines if it were in place in 2008, from about $92 million to about $284 million.

During Thursday's hearing, Crowley argued the industry bears distinct costs and pays the usual taxes that come with doing business.