Mining News

On Nevada Mining Tax - Caution Needed

Posted by Cheryl Rutledge on 10/16/2014 10:10:35 AM

By Taylor Jackson and Kenneth P. Green

On November 4th, as much of the U.S. is fixated on the approaching Midterm Elections, many people in Nevada will be pondering the implications of Question No.2 on this year’s ballot. Section 5 of Article 10 of the Nevada Constitution provides that taxation on profits from mineral based resource industries shall not exceed 5 percent, and Question No. 2 asks whether Nevadans would like to amend the constitution to remove this provision.

Proponents of the measure argue that mining is not paying its “fair share” and also benefits from the fact that there is no state tax on corporate profits. Further, when the resolution was first proposed in 2011, many suggested that increasing taxes on the mining sector could be used to help mitigate the State’s significant budget deficit. Others noted that this is an unfair cap on taxation for a special interest, suggesting that the resource industry receive special treatment while others do not.

While the corporate welfare argument has merit, the question of redressing the tax disparity isn’t clear cut. Raising taxes, and lowering them for that matter, comes with consequences. Extracting high taxes out of the mining industry would be a departure for a state that consistently rates at the very top of the Fraser Institute’s Annual Survey of Mining Companies. In the 2013 edition of the survey, Nevada ranks as the 8th (of 112) most attractive jurisdiction in the world for mining investment on the Policy Perception Index (PPI). When factoring in perceptions of mineral potential and the current policy climate in the Investment Attractiveness Index, Nevada moves up to be the 2nd most attractive jurisdiction in the world for investment. On taxation alone, 77 percent of respondents view Nevada as either encouraging or at least not deterring investment.

The payoffs from a favorable investment climate can clearly be seen. The National Mining Association reports that in 2012 metal mining employed 45,950 Nevadans, paid over $3 billion in labour income and contributed more than 7 percent of state GDP, while also having an average annual salary of $88,000.

Increased uncertainty in an industry that is fraught with many types of risk, from commodity price volatility, to costly social licenses to operate, to productivity improvements, could lead to a curbing of investment. This becomes an even greater probability as commodity prices such as gold and silver continue on a downward slide, making the prospect for profit from large capital developments bleaker.

The results of the Fraser Institute’s Annual Survey of Mining Companies would suggest that Nevada should be cautious when considering whether to place higher tax rates on the mining industry, especially if the state wished to continue receiving the benefits associated with the industry.

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