Jump in gold price could mean tax boost for Nevada

CARSON CITY - While the price of gold has increased more than 10 percent in less than two months, it is too soon to gauge how much additional tax revenue that means for state and local governments in Nevada, industry experts said.

Gold was selling for $1,733 an ounce Wednesday in New York. That comes after it fell to $1,558 an ounce late in June. At one point in 2011, gold peaked at $1,900 an ounce.

Nevada mines produce 79 percent of the nation's gold.

Wire service reports indicate gold could climb above $1,800 an ounce soon if the Federal Reserve buys up government bonds to stimulate the economy. That decision could come today .

But John Dobra, an economics professor at the University of Nevada, Reno, warned that despite the recent increases, a drop in gold prices could come by the end of the year.

He noted that if the Bush tax cuts are not reauthorized, then investors would be hit with a 33 percent increase in capital gains taxes, a step that might cause people to sell off gold immediately.

At the same time, a recession in India has resulted in the cancellation of weddings this fall. Families in India traditionally have bought gold as gifts for couples and as an investment.

"In the long term, I am much more bullish on gold than in the short term," Dobra said. "There is a lot of uncertainty out there."

Under the state's general fund budget, state government is scheduled to receive $81 million, about 2.7 percent of the state's tax revenue, this year in net proceeds of minerals taxes.

A similar amount of taxes goes to the counties where the minerals are extracted.

The minerals tax is the eighth-largest source of tax or fee revenue for state government. It produces about the same amount of money as cigarette taxes.

Alan Coyner, executive director of the state Division of Minerals, and Dobra both said the $81 million figure will be eclipsed, but by how much they do not know.

Mining companies work on long-term production plans and cannot easily ramp up production in response to rising prices.

"You cannot react in such a quick manner," Coyner said. "We have healthy reserves. I don't think there will be any production declines."

Because prices are so high now, the companies have been mining less lucrative deposits of gold. Average extraction costs are higher, now more than $500 an ounce.

Gold reserves in Nevada exceed
81 million ounces.

Dobra, formerly associated with the Nevada Mining Association, estimated the mining industry will pay more than $300 million in total taxes this year - counting sales, business and other taxes that all businesses pay.

The $300 million is just slightly more than 10 percent of the state's annual tax revenue. It compares with a $204 million estimate in 2009.

The Department of Taxation put the average wage for metal mining workers in 2010 at $85,907, twice the $42,536 pay for all workers.

Gold production in Nevada in 2011 was about 5.5 million ounces, a slight increase from 2010, but not near the
8.9 million ounces produced in 1998.

The Progressive Leadership Alliance of Nevada, through petition drives and lobbying of legislators, repeatedly has sought unsuccessfully to require mining to pay additional state taxes.

But the Legislature in 2011 approved a resolution to take the 5 percent net proceeds of mining tax out of the state constitution and let legislators change the rate to what they see fit.

The resolution must be approved again in 2013 and then by voters in 2014 before it takes effect.

Contact reporter Ed Vogel at evogel@reviewjournal.com or 775-687-3901.