Taxes

Mines pay all the state taxes that most other businesses in Nevada pay plus an additional tax, called the Net Proceeds of Minerals Tax (NPOMT). Because modern mining is a capital– intensive business, that is it spends large amounts on mining and processing equipment, both sales tax and property tax are relative large taxes for the mining industry. Mining, like all Nevada businesses, pays the Nevadas modified business tax based on the mining companys Nevada payroll. Since the tax is payroll based rather than employee based, mining pays relatively more per employee than most Nevada businesses because mining employees are the highest paid sector in the state (the average annual wage in 2005 was $66,508 for metal mining).

The tax unique to the mining industry, NPOMT, is actually a property tax on the minerals. When Nevada became a state in 1864, the politicians of the day understood that the mines, then by far the biggest economic activity in the state, could not accurately estimate the value of their ore deposits until the minerals were actually extracted. That fact remains true today. Ore deposits vary in size and richness (grade) and mineral prices change, in some cases, by the minute. The NPOMT is based on the value of the mineral extracted. The value is established by a sale of the mineral. In the case of gold and other commodities for which there is an established worldwide metal exchange that posts the price daily (or more frequently), that establishes the price used to calculate the sales value.

The NPOMT is, as the name suggests, a net tax. Certain allowable deductions, such as the cost of extracting, processing, transporting and marketing the minerals are subtracted from the sales value. The result of that calculation (the net) is multiplied by up to 5 percent. All gold mines are taxed at the 5 percent rate. Some mines, for example, barite or gypsum mines, may be taxed at a lower rate, but never less than the county property tax rate.

Because of the way the taxes paid by mining are allocated to the various governments, local and state, according to state law, the majority of taxes paid by mining remain with the local governments in the area where the minerals are mined. An estimated two-thirds of mining taxes stay with the counties and cities nearest the mines. This pays for schools, roads, water systems and other infrastructure. The remaining estimated one-third of mining taxes goes to the state general fund.

 

As the figure illustrates, total taxes paid by the Nevada mining industry over this 20-year period has totaled approximately $1.7 billion, or just under $100 million per year.

Each of these major taxes paid by the mining industry responds to the mineral price and industry growth cycle in slightly different ways. For example, the increase in NPOMT in 2003 and 2004 primarily reflected the increase in gold prices. With the relatively stable production costs and production levels, commodity price increases directly increase Net Proceeds. Higher production costs, or lower commodity prices have the opposite effect, as they did in 1999 through 2002, a period of relatively low gold prices. New mine development or existing mine expansion costs and near mine exploration can lower NPOPMT in current years but are investments for the future that will lead to longevity of mining, yielding greater overall taxes.

An issue that is frequently raised in public policy debates at both the state and national level concern the imposition of taxes and royalties on the minerals industry. One of the common misconceptions about the minerals industry that frequently arise in these discussions: This misconception is that since the mining company cannot move the mineral deposit, mines are immobile sources of wealth that can be taxed without consequence. While it may be true that a mineral deposit is immobile, there is ample evidence and numerous examples that will attest to the fact that mining capital, which includes both technical expertise and investment funds, is highly mobile. Hence, this rationale for mineral taxation and the imposition of royalties is myopic at best. The failure of exploration spending in Nevada to rebound to mid 1990s levels in spite of a rebound in gold prices because of the uncertain regulatory environment is an indicator of just how mobile mining investment can be.