Forget audits: Mining exploits Nevada through tax loopholes

Nevada's Taxation Department director kicked off a firestorm recently when he admitted to the Senate Judiciary Committee that no one actually has the time or ability to audit the tax statements of Nevada's world-class gold mining industry. Both Senate Majority Leader Steven Horsford and Gov. Brian Sandoval immediately called for a fresh audit of the industry.

Although this is laudable, I'm sure the mining industry welcomes the distraction from the real issue: Mining is legally exploiting the state of Nevada thanks to a system of sweetheart tax loopholes and its protected status in the Nevada Constitution.

An audit will not change the sad truth that Nevada's largely foreign-dominated mining industry is mining billions of dollars of gold and too often gets away with not paying a single dime of net proceeds taxes on it.

Longtime Nevada journalist and independent researcher Hugh Jackson found "111 times over ten years, one Nevada gold mine or another claimed that gold produced at that mine had no taxable value. As a result, more than $4.3 billion was produced at gold mines where the mines paid no mining taxes whatsoever."

Barrick and Newmont mining produce 90 percent of the gold in Nevada, according to Jackson. In past years, some of their mines have produced a half-billion dollars or more in gold annually, yet reported zero taxable value. This is because of sweetheart tax loopholes in Nevada Revised Statutes they enjoy for the following: "Extraction, Transportation, Processing, Marketing and delivery, Repair and maintenance of equipment, Fire insurance on plant and equipment, Depreciation of the cost of machinery and equipment, Contributions or payments for unemployment insurance, social security, fringe benefits for employees, Royalties paid to claim holders, which are taxable to the recipient."

But then, mining lobbyists from Jones Vargas (the same law firm where Sandoval worked of late) also went to the Nevada Tax Commission, which granted mining 45 additional loopholes such as: "Accounting, advertising, bonus, cash awards, severance package, sales and use tax, travel, leases and rentals, management fees, medical costs …"

Because of these allowable deductions, it is doubtful that an audit will turn up any hanky panky from the gold miners' tax reports. Why would they want to cheat Nevada when they can take from the people legally? In 111 mines where they produced billions of dollars of gold tax-free, they freely admitted to Nevada that there wasn't anything left to pay taxes on, thanks to the laundry list of deductions they took. That's why the real issue here isn't the lack of state audits; it's the sweetheart deal that is unique to the mining industry.

A system that porous and that riddled with loopholes is a farce. It doesn't need more rigorous auditing. It needs to be changed. The audits aren't the problem. The deductions are.

Compare mining to the gaming industry. Steve Wynn spent $5 billion to build the Wynn Las Vegas and Encore. Did he get to deduct those costs from the gross gaming tax? Why should mining get to deduct its production costs? In 2008, mining took $5.7 billion in gold and paid $40 million in mining taxes to the state general fund. In 2009, gaming lost $6.8 billion, yet still paid $1 billion to the general fund.

We have the momentum to make substantial improvements. Mining has no credibility outside of its 25 lobbyists and the good ol' boys (and girls) clique in the Legislature. In poll after poll, the people of Nevada overwhelmingly support mining tax changes.

It's time to dump the loopholes. Assemblywoman Peggy Pierce, D-Las Vegas, has courageously offered a bill to cap the percentage of deductions mining can take. This is a big first step that the Legislature and governor should welcome with the same vigor as the audits.

Some legislators say it will be impossible to muster the two-thirds support required to limit deductions and make mining pay more. Maybe they are right, but it's high time that a vote is taken for us to see who stands with Nevada and who doesn't.

In addition to that, the Legislature should, by simple majority vote, place a question on the 2012 ballot to remove mining's tax protections from the Nevada Constitution. The voters would overwhelmingly pass it. Then, in 2013, the Legislature could vote to affirm the voice of the people and -- voila! -- no longer would mining enjoy its constitutionally guaranteed tax shelters.

That would then free up needed new revenues to help avert campus closures and overcrowded classrooms. A revenue crisis of historic proportions threatens to leave Nevada's kids with no hope for a decent education and leave our most vulnerable to grow sick and literally die on our streets. Legislators need a more sane and humane solution, and must force mining to be part of it.

As Jackson discovered, Barrick and Newmont produce more gold from Nevada than from any single country. They are not going anywhere if they have to start paying.

Mining is critical to our state's economy, and no one in their right mind wants to chase away that business or cost people their jobs. But ask yourself: Can giant, wildly profitable mining firms afford to contribute more to this state? Or should their 25 lobbyists call the shots to protect mining's coddled status while our state burns down?

Bob Fulkerson (bfulkerson@planevada.org) is state director of the Progressive Leadership Alliance of Nevada.