Is Nevada’s mining industry paying its fair share of taxes?
How people answer that question says a lot about how people feel about the state’s mining industry — and how they might feel about any of the three constitutional amendments potentially headed to the ballot in 2022 that would increase limits on mining taxation.
In the months following the 2020 special sessions where those proposed constitutional amendments were passed, the Nevada Mining Association and its president, Tyre Gray, have been trying to influence the answer to that question — heavily promoting the industry in advertisements, social media and (virtually) in the Legislature.
This isn’t the first time mining has been in the hot seat — a similar debate played out a decade ago, when lawmakers at the time approved sending a proposed constitutional amendment eliminating the cap on net proceeds (the measure narrowly failed on the 2014 ballot).
(A quick recap on mining taxes. Nevada’s Constitution sets a 5 percent ceiling on the net proceeds of all minerals extracted in the state. Net proceeds are the dollar amount after taking the gross (total) value of all minerals extracted by a mining operation, and subtracting all the deductions for costs incurred during the mining process.)
But in 2021, with more and more of the state’s population and political power base far away from rural counties where the bulk of mining operations happen, that hot seat has begun to warm up again — especially with progressive groups again calling for the counter-cyclical industry to pay more in taxes during a fallow economic time for the state.
The Nevada Independent spoke with Gray for a 30-minute conversation on the mining industry’s priorities this session, and what it would consider a victory when lawmakers adjourn in about three months.
This interview has been edited for length and clarity.
Where I want to start is getting a sense of where you (and) the mining association were at the end of the (2020) special sessions, especially the “policy focused” one where they had that whole debate and the three proposed constitutional amendments. Without relitigating all of those details, what kind of happened, how are you feeling, how was the industry feeling at the close of that special session?
When you reflect back on the special session, it’s kind of important to realize where we were as a state and as an industry. The state was shuttered, our biggest financial revenue generator and largest employer in the state was shut down, and these were times that we had not seen before.
But even with that, before even most people knew what COVID-19 (was) going back into January 2020, Nevada's mining industry had been engaging in conversations with legislators and with the governor's office because everybody knew that 2021 was likely going to be some type of a revenue session.
So we've been engaging and at the time — I was not in the chair, but that's at least what's been communicated to me — reaching out and starting to have soft conversations, ‘Hey guys, how are things looking and what are we doing’. And so there had been some level of conversation about there being the 2021 legislative session that would probably go with some type of revenue.
Now you fast forward into February and we find out that there's a pandemic on the way, and then you fast forward into March, and those conversations that started by (a) nice reach out, ‘Hey, what can we do’, all of our focus went into making sure that our people were safe, our citizens here in the state were safe.
And you fast forward from March, into the very first special session, I receive a phone call, and I'd been on the job for about five months at the time, and I receive a phone call out that I kind of expected would be coming and said, ‘Hey look, we're going to look at the mining industry to prepay it’s taxes’. And that's something that we expected. We’ve seen that happen on two separate other occasions, particularly when we've had economic downturns.
That is a very big give, period. Whenever you have an industry that prepays an obligation that requires some people to dip into savings, other people to do capital calls in order to do so, so it's not a small gesture, not a small give. We were willing to do that, and we came to the table prepared to do that.
Yet what we didn't know, were there were other pieces of legislation that were being discussed in those hallways, and again those halls were closed and the conversations were not happening between us and the legislators about what would eventually be a bill to try to eliminate some of the, as people refer to them, deductions, but they're really a computation of how you get from gross to net.
(Gray is referring to proposals that fell short during the 2020 special session to limit deductions that mining companies can use to offset their tax burden.)
So, we have that dropped on us and my record is pretty clear on that, I think I've received about three hours of notice on that before that was heard on the floor. And then we go into the second special session where then we have three joint resolutions. And two of those joint resolutions, AJR1 and SJR1, I had heard about them about a day to a day and a half before the policy session began.
And then AJR2 was the result of some conversation between the industry and the speaker (Jason Frierson), and we are appreciative to him for launching that. But yet the 12 percent is beyond our comfort level as an industry, because even though that only authorizes the constitution to raise up to that, as you can imagine when you're looking for financing and different things which are critical to the mining space...between the permitting process before a shovel even hits the ground in Nevada, A) you have to pay a reclamation bond, B) there is a seven- to eight-year time period between permitting and construction, and then there's another eight to 10 years for a project to actually start to become profitable.
So you know you're looking at most cases of a 15- to 20-year period before you start to see a return on your investment. To say the least, when we came out of those special sessions, we kind of felt like we had just walked out of a tornado, because it was very much not anticipated, some of the joint resolutions were not anticipated, particularly as to what they cover.
I mean, if we would have seen a joint resolution that sought to remove the mining industry from the Constitution which, again, we saw in the 2011 session, that would be something that, okay, we couldn't necessarily say that we were surprised about, but this is really a fundamental change to the mechanisms by which we're accustomed to being taxed in the state of Nevada.
So that was a lot there to digest. What I want to ask is about AJR2, and I believe you testified in the neutral position on AJR2 (in the 2020 special session).
If that measure was to come up again in the 2021 session, would you and the mining association continue to testify in neutral, or have you switched to opposition, knowing what you know now over the past several months?
(AJR 2 would raise the constitutional limit on the net proceeds of minerals from 5 to 12 percent, and require the minimum rate of the tax be equal to the property tax where the mining operation is located).
So at the moment, we haven't switched our position. We still remain neutral and really a lot of the conversation around AJR2 would have to do with the trailer bill that would eventually look at how much we would increase the net proceeds, but at the moment we remain neutral on the bill.
I know you probably don't want to talk about any personal discussions with legislators, but I've just noticed, I can go to basically any news website in Nevada, or, even in our newsletters, there's been a concerted effort by the mining association to do kind of a promotional blitz between the special sessions and the start of the legislative session.
Can you give any additional details on that campaign, any rough dollar amounts if you're comfortable sharing that, or any kind of rationale as to why this publicity campaign is coming out now?
Yeah, so I would say, I think maybe we're just noticing it right now. During the pandemic, the Nevada Mining Association took the time to look at its strategic plan, and out of its strategic plan, five pillars were revealed and two of those five pillars are particularly important to me. Number one being public outreach, and number two, being workforce development.
And so what we know around this is you know there's a saying by Nat Turner that says ‘Good communication is the bridge between confusion and clarity.’ And there are a lot of assumptions and frankly some just straight misinformation that exists out there around Nevada’s mining industry and so the opportunity to really be able to get out and share some of the information.
One of the things that most people are really surprised to find out is that mining is Nevada’s 12th largest industry in regards to GDP. A lot of times people will focus on, yes, the mining sector is a $7 billion industry in 2020. But by that nature that means that 11 (other industries) all the way up to one must have made at least $7 billion plus $1.
So, I really say that our blitz is really about making sure that we're able to build that bridge between reality and perception for people, so that there's an understanding of what Nevada’s mining industry is and what it actually does. We produce 20 minerals that are critical to life in the modern day world, and we do so by only disturbing roughly one half of 1 percent of land in Nevada. The fact that we're able to have the impact that we do here in the state, nationally, and globally by only disturbing that less than one half of 1 percent of land is incredible.
I want to give you a chance to address some of the things I've heard and seen from people who say that the mining industry in Nevada should be taxed more.
One of the biggest ones I've seen is that many mining companies and other countries pay a higher net proceeds tax rate, or just a higher tax rate in general than what they do in Nevada. Do you think that's an accurate statement to make? Are there any caveats that you think are important to add when people are looking at tax rates in Nevada versus other countries or states?
Yeah, I think that it's not apples for apples. I think it's important that when you look at other countries, versus a state, that it's important that when there is an agreement to pay a particular amount to a country, that is all that the industry pays in regards, usually to its obligation or tax burden. So, very much like here within the United States, we pay federal taxes just like everybody else does, so there is a large amount of compensation being remitted to the federal government and then we also have state taxes that remain here in the state of Nevada, so it's not quite an apples for apples comparison.
I think it's really one of those things where you really have to understand the nuance of what's being paid. So again, Nevada's mining industry pays every single tax, every other business here pays. That means we pay modified business tax, we pay sales tax, in fact, we account for nearly 10 percent of all sales tax collected in the state, paying over $120 million dollars a year in sales tax. We pay the Commerce Tax, if it's a tax that exists on property tax we pay property tax. If it's a tax that exists, we pay that, plus an industry specific tax.
Again, there's not a complaint around that. There's not a hesitancy around that payment, but it is one of those things where we do see some level of not treating mining always as a partner of the state. And that's not the state necessarily doing that, but there are people who don't see us as that partner, that good corporate citizen and steward that we really are.
It's really hard, when we hear people say mining doesn't pay its fair share. ‘We would like to see mining pay more,’ that is a different conversation than ‘mining doesn't pay its fair share’ because that, by its very means, means that mining isn’t paying enough. ‘Hey we have an industry here who might be able to help us out. Is there a way that you guys can help us out?’, versus, ‘You're not doing your part already, so come and do your part.’
Yeah, I asked that question because I was trying to give you a chance to address a concern I've heard, but I think the point you ended on is the next question I had, which is, there's a lot of conversation about ‘Is mining paying its fair share or not paying its fair share’. It sounds like you're saying, yes, we are paying our fair share, but it doesn't necessarily mean that the fair share (equals) paying more. There's a difference between what's fair, and what's possible for the industry. Is that accurate to say?
Yeah, I think that's accurate to say. So when somebody says, ‘Pay your fair share,’ if I were to ask you that, your natural response would probably be to say ‘Okay, what's my fair share?’
What industry within the state would you say their tax structure is what your tax structure should be? And so I think it's important to recognize that mining is the 12th largest industry in the state. We have the highest per-employee tax burden in the state.
So it's important to make sure that the narrative is one that is actually fair, if you will. Just define what a fair share is. That's never anything that's ever been defined and, even in my personal conversations with people before even I sat in this chair, and I would hear people say, mining doesn’t pay its fair share. What is that? I mean, if we could start to have a conversation about what that actually looks like, and for it to be fair, that means that everybody would be doing that, and then that to me a little bit of a larger conversation.
I think a lot of times people will point to mining, because it's easy. You get to see what we make. It's a publicly available report. Even when you compare that to the gross gaming report, the gross gaming report says, Clark County table games, X amount of dollars. It doesn't say what property, X amount of dollars, versus the net proceeds tells you exactly what property, tells you how much they made, how much it costs them to extract the mineral, and then how much they’re paying taxes on.
I think it's kind of important to make sure that what most people I think really have a frustration with is Nevada’s tax system as a whole. And that's why it's important to remember that Nevada is a property tax state. We were built on property tax and the second that we started kind of playing around with our property tax, today I believe we, we, abate somewhere close to $2.1 billion per biennium in property taxes.
So I think it's probably fair to say that the question of ‘Is mining paying its fair share,’ you view as sort of a flawed inherently question, because ‘fair share’ hasn't really been defined.
What I want to ask is, what does victory look like for you and look like for the mining association at the end of the legislative session? Is it, none of these proposed constitutional amendments passed? Are you happy with how mining tax is set up right now and are fine with no additional changes? What will make you happy if on June 1 the session ends, what sort of end status would you like to see as it relates to mining and taxation?
Well I would say what makes me happy is good policy. Good tax policy is meant to accomplish three things; continue to make Nevada's family stronger, continue to fund our government and continue to allow businesses to be healthy and thrive within our borders.
When you look at these three joint resolutions AJR1, and SJR2, it's easy to get caught up on the impact to the mining industry. But what's much, what kind of is getting unintentionally swept under the rug, is that this actually results in a loss of county funding. And that's the scary part to that to the family that's living in Ely who wants to be able to have their daughter there and easily without needing to go all the way down to Las Vegas to have their daughter.
So the impact to the industry is one thing, but the impact is going to be so much larger than to the industry. It really is those rural counties that depend on their portion of the net proceeds, with that money going away will be crippled. And what does that do to the urban counties that are now usually importers of tax.
Because again, I think it's important to recognize that most mining counties are exporters of tax revenue, to the point where we've even kind of changed our school funding formula in order to be able to capture more of those exported taxes from those communities. So, what happens when those counties are no longer able to be self-sufficient? Clark County and Washoe are going to have to start to divert more funds back to those counties, and so it creates a weird cycle of reversing the tables of flow.
So, for us, good policy is the easy answer to that, we are opposed AJR1 and SJR1, we are neutral on AJR2, but I believe that our legislators are smart enough, and they're willing, and we are willing, we've been at the table, to hopefully maybe come up with the structure and a solution, outside of those three joint resolutions.
So, if AJR2 were to pass out of this session and proceed to the ballot in 2022, would you be happy, or still neutral on June 1 when the session is over?
Well I think we would have to evaluate that at the top. Again, I think a lot of it comes down to financing of projects. And again, I know that sounds a bit of an evasive answer,
When you go to the bank and you're applying for a loan, the bank is going to always use the highest available amount of money that you might have to pay, in order to determine your creditworthiness.
And so, even with AJR2, banks and or loaning institutions, and capital calls, going out and trying to raise capital, they're going to evaluate it through the lens of 12 percent. Even if it came out to be 7 percent, that's still going to be the number that they will use to evaluate the project, because the ROI of the project is so far out, that there could be changes in between now and then.
And so that's really the concern about AJR2, is how it's going to impact the continued investment into Nevada around the mining community, and the cost of particular projects that today are probably viable, but if that percentage went up, might not be as viable.