Back to the gold mine
You have to hand it to the Dominican Republic when it comes to negotiating mining taxes. According to press reports last month, Barrick Mining agreed to pay $11 billion in tax revenue from one mine during its contract period. The deal includes a percentile distribution so both parties benefit as the price of gold goes up. Dominican politicians are already competing with each other to renegotiate the contract to increase tax revenue as the mine’s worth has increased to $60 billion.
Compare this situation to Nevada, the fourth largest gold producer in the world, with a special provision in the state constitution mandating mining tax policy. Consider that in FY 2011-12, Nevada’s gold mines produced $8.76 billion in gold and paid $104 million to the state’s General Fund under the special Net Proceeds of Minerals (NPOM) tax, for an effective tax rate of 1 percent. Contrast that meager amount with the Dominican deal where Barrick will pay the government 3.2 percent of gross production, 25 percent for income tax, and 8.75 percent from net earnings or $11 billion in revenue.
When these figures were presented to a community group last week, the woman next to me muttered what we all were thinking: “Are we stupid?”
There is no hope of renegotiating how mining is taxed in Nevada unless the special provision protecting the industry is removed from the state’s constitution. While the industry insists the NPOM tax is a property tax, it acts like an income tax, allowing deductions for all sorts of things with the net effect of some mines actually paying zero in NPOM taxes. Zero. Until a few loopholes were closed last session, the mines could even deduct the cost of their dues to the World Gold Council, an industry marketing organization.
Other states tax mining differently, through severance taxes, excise taxes and the like. Mining companies also have to pay a corporate profits tax in every state but South Dakota, Wyoming, and, naturally, Nevada. In other countries, the industry often pays a royalty tax when they mine public lands as a method of compensating the real owners of the gold.
In the 2011 session, the Legislature started the process of removing the sweetheart tax deal from the state constitution by passing Senate Joint Resolution 15. To continue the five-year process of amending the state constitution, SJR 15 must pass again in 2013 and then go to a vote of the people.
It is clear the industry has literally billions of dollars at risk should this resolution pass and has been sparing no expense in campaign contributions, charitable donations, public relations campaigns, and lobbyists gearing up for the battle this session. They know they need to kill it now before the public votes.
A quick review of the lobbyist list last week revealed 24 registered lobbyists for mining, exceeding the number of state senators by three. And the president of the Nevada Mining Association and three other prominent mining lobbyists hadn’t even registered yet. As one seasoned observer noted, “Mining is prepared to spend millions to save billions in taxes.”
Although SJR 15 was approved by the 2011 Legislature on votes of 13 to 8 in the State Senate and 27 to 15 in the Assembly, there are private messages circulating that the measure is already dead.
The mining industry has a head-spinning answer to every argument and a way of explaining the net proceeds tax and the danger presented by SJR 15 that is designed to confuse. And if those arguments don’t work, they will quickly resort to the tried and true mega-threat: If their constitutionally-protected deal is changed, they’ll go mine gold elsewhere, taking their boom and bust jobs and generous campaign contributions with them.
Like the Dominican Republic, perhaps.