LCB confirms to Legislature: Yes, you can cut mining tax deductions

Nevada lawmakers could attempt to rein in the mining industry’s exorbitant tax deductions and effectively bring more revenue to state coffers without going through the lengthy process of a constitutional amendment, a top fiscal analyst said Saturday.

The confirmation came during a Nevada Senate hearing for Senate Bill 3, a proposal to temporarily require the mining industry to pay taxes in advance. Those advance payments would bring between $50 to $60 million into the state’s general fund early, helping fill the $1.2 billion budget hole.

State Sen. Melanie Scheible during the hearing asked staff from the Nevada Department of Taxation and the Legislative Counsel Bureau’s fiscal analysis division to clarify what legislators can and cannot do to the mining tax.

LCB fiscal analyst Russell Guindon explained that the Nevada Constitution sets a 5 percent cap on the net proceeds of mining. Removing or adjusting that cap would require a constitutional amendment, a years-long process that involves two legislative sessions and a ballot question. However, the ratios used to determine the tax rate (between 2 and 5 percent) are set in Nevada Revised Statute, which can be changed by legislators. So, too, are the 13 deductions mining companies are allowed to claim.

Scheible said that explanation clarified “there is a room in these tax structures.”

“We could simply increase the amount of taxes these companies pay,” she said, “and that would result in a net larger contribution to the general fund.”

But Scheible fell short of advocating for that, prefacing her comments by saying, “I’m not saying we should or shouldn’t do this.”

No Democrat during the hearing expressed interest or support in an amendment to address the issue of deductions, though two others — state Sens. Chris Brooks and Mo Denis — did ask questions about how much revenue mining generates within the state.

Progressive advocates have long pushed for mining tax reform. Their calls have gotten increasingly loud since the coronavirus pandemic plunged the economy into a recession. Advocates also sought mining tax reform a decade ago during the Great Recession. They point specifically to the large deductions available to the industry to argue the companies can easily pay more.

The mining industry saw a total gross revenue of $7.8 billion last year, according to the Nevada Department of Taxation. Mining companies claimed approximately $5.5 billion in deductions, leaving $2.5 billion deemed taxable net proceeds.

That resulted in $57 million in revenue to the general fund and $61 million to the counties where the minerals are mined.

That translates to an effective tax rate of less than 1 percent of gross revenue.

In a live-streamed interview with the nonprofit advocacy group Battle Born Progress Saturday night, state Sen. Chris Brooks said he believes the 5 percent cap on net proceeds of mining should be removed.

“I don’t think we have the bandwidth to start that in this special session,” he added.

Brooks said the Legislature could address mining deductions during the special session, but again he cautioned that there is debate about whether making such changes would be considered raising taxes and therefore need a two-thirds majority vote in both chambers. Democrats are one vote shy of having that supermajority in the Senate.

During the 2019 Legislative Session, Democrats passed with a simple majority a bill to remove the sunsetting clause of a modified business tax. An LCB legal opinion stated the two-thirds requirement did not apply. Republicans filed a lawsuit challenging the passage. That lawsuit is still pending.

Brooks said Democrats could address deductions with the support of one Senate Republican.

It’s unclear whether the issue of deductions will gain traction within the Legislature during the ongoing special session, which will reconvene on Monday. Advocates from Progressive Leadership Alliance of Nevada and Battle Born Progress, two of the groups leading the public rally for mining tax reform, have expressed their doubts about seeing any progress during the special session. Democratic leadership has largely avoided weighing in on the issue when asked, choosing instead to focus on the challenges of passing tax increases without the supermajority required by state law.

Mining tax controversies in the state are as old as the state itself. More recently, the 2011 and 2013 Nevada Legislatures passed with bipartisan support a bill to remove the 5 percent tax cap on net proceeds of minerals from the constitution. That pushed it to the 2014 ballot, where voters narrowly voted it down.

Incremental changes have also been made over the years, including adding a section into NRS to codify that mining companies cannot deduct employee housing costs, lobbyist fees or costs associated with laying people off.