Dig deep

The Nevada Mining Association (NMA) has sued the Progressive Leadership Alliance of Nevada (PLAN) and Nevadans for Fair Mining Taxes (NFMT) to try to stop an initiative petition that seeks to change the basis for mining taxes in the state and to raise those taxes.

The petition changes the Nevada Constitution to remove a tax loophole for mining properties inserted by the second Nevada constitutional convention in 1864 at the behest of mining interests.

The NMA lawsuit argues repeatedly that the petition proposes “complicated and far-reaching implications” that represent “forcing voters simultaneously to confront the crucial issue of legislative prerogative, legislative expertise, and legislative deliberation in implementing the proposed constitutional amendment …”

But the change the petition proposes is fairly simple. As it stands, the Constitution reads, “The legislature shall provide by law for a tax upon the net proceeds of all minerals, including oil, gas and other hydrocarbons, extracted in this state, at a rate not to exceed 5 percent of the net proceeds.” The petition would reword the sentence this way: “The legislature shall provide by law for a tax upon the gross proceeds of all minerals, including oil, gas and other hydrocarbons, extracted in this state, at a rate not less than 5 percent of the gross proceeds.” (The italics were added.) An adjoining section of the constitution is also changed to reflect the net/gross switch.

The NMA contends that changing the constitutional formula for mining taxation and also directing the legislature how to implement it are two different things and that the initiative therefore violates Nevada’s single-subject rule for lawmaking. The big problem the NMA faces is that the existing constitutional provision does exactly those two things within a single sentence.

“These both represent precipitous alterations of Nevada’s historic constitutional scheme, and would properly be the separate subjects of two distinct initiative petitions,” the NMA’s lawsuit filing reads. “Under a single-subject analysis, Proponents can attempt one or the other, but not both, in a single petition.”

The group quotes a Nevada Supreme Court ruling a decade ago that the single-subject rule “prevent[s] the public from being confronted with confusing or misleading petitions [and] is designed to assist voters in determining whether to change the laws of Nevada and the structure of government, and ultimately protects the sanctity of Nevada’s election process.”

However, the proponents of the petition argue that changing mining taxation and implementing it through the legislature fit the statute that expresses the single-subject rule: “Embrace but one subject and matters necessarily connected therewith and pertaining thereto.”

“If our proposal violates that [single-subject] concept, then the existing language violates it as well,” said Tim Hay, attorney for the initiative petitioners.

The NMA filing also says that the “taxation rate aspect of the Petition is an example of logrolling, the very thing the single-subject rule is designed to prevent.” Logrolling is trading of favors for mutual political gain. The NMA quotes a previous Nevada Supreme Court opinion that found “the earmarks of logrolling” in a petition by a teachers organization initiative petition that would have earmarked money from a proposed tax for school district salaries, benefits, training and incentive pay. But NMA does not explain how that petition is analogous to the mining tax petition.

The NMA next argues that the petition “is attempting to strike ad valorem property taxation of mineral property and institute instead some form of gross income tax.” And because the capsule description imprinted on petitions does not explain this alleged effect, the NMA argues, it violates a previous finding of the Nevada Supreme Court that a petition should not “materially fail to accurately identify the consequences of passage.”

That capsule description reads, “The Nevada Constitution limits the state’s ability to tax mining to the net proceeds of mining production. The purpose of this initiative is to amend the Nevada Constitution to allow for the taxation of gross proceeds rather than net proceeds of mineral production at a rate not less than 5 percent.”

The NMA argues, “This description makes no effort to describe anything at all and offers no enlightenment to the prospective petition signer regarding any aspect of the Petition. It just re-states which words are struck and which are inserted into the constitutional provisions proposed to be amended.”

The NMA also argues that the enactment of the petition would put sections of the Nevada Constitution in conflict with each other. Article 10, section one of the constitution reads, “The Legislature shall provide by law for a uniform and equal rate of assessment and taxation.” Approval of the petition, the NMA contends, would mean that mining properties would be taxed “in excess of fair market value while all other property is taxed at or below fair market value”—not the “uniform and equal rate” envisioned. But proponents say the two sections would not conflict. The new language would simply be an exception to the “uniform and equal” language.

“We tax gross gaming revenues. We tax gross sales tax revenues,” Hay responded, arguing that the gross tax on mining is uniform and equal. “Now as you know, the gamers lost … something like $6 billion last year. They still pay taxes on their gross gaming revenue, whether they make a profit or not. The miners … are exceptionally profitable companies. What we’re trying to do is level the playing field and say, ‘Miners should be treated like a retailer or a gaming establishment. They should be taxed on their gross proceeds.’”

The NMA also contends, “Petition does not ‘allow’ for taxation on the gross proceeds of mineral property, it commands the Legislature to enact statutory provisions according to its terms.” It could be argued that the NMA’s disagreement is not with the petition but the already existing constitutional language, which is mostly left standing by the initiative petitioners. But by changing “not to exceed” to “not less than,” the petitioners do seem to be changing permissive language to an imperative. Hay said, “I think it’s an imperative either way. If you say not to exceed 5 percent, that’s a cap. If you say not to be less than 5 percent, that’s a floor. Either one is a mandate.”

The NMA seemed to be seeking any possible argument against the petition—“inserting a preposition and leaving out a conjunction—using at, while avoiding and” was one complaint—suggesting that it is not overly confident of the case it is making. Indeed, at one point it references the possibility that the court could reject one of its key points—“Even should this Court disagree that the Petition violates the single-subject rule …”

The NMA finds fault with the fact that the petition does not perform the function normally carried out by the election campaign: “The Petition does not advise what advantages or disadvantages to the state coffers the Petition may have. It does not attempt to describe the potentially negative economic or social effects likely to be visited upon Nevada in the wake of passage.”

At one point, the NMA lawsuit seeks to identify mining with green sentiment: “Furthermore, all publicity regarding the Petition to date would make most Nevadans think that gold was the only mineral in Nevada. One would never know, for example, that geothermal energy producers also fall under the constitutional and statutory provisions regarding mineral production. … Like other minerals, geothermal energy sources are deep within the earth; drilling, pumping, and conversion to usable electricity are expensive processes.” Whether the legislature or the courts would find that hot water is a mineral is anyone’s guess, though the mining process is certainly used to tap that water.