Nevada’s method for taxing mining went under the microscope during a legislative hearing on Saturday, with progressives calling for the industry to pay more and some Republicans raising concerns about how a proposal for companies to prepay their tax bills might have negative side effects on the rural counties that depend heavily on the revenue.
The discussion came up as the Senate contemplated SB3, a bill that features several techniques Nevada has used in years past to shore up budget holes. That includes shifting money from the highway fund to the general fund, implementing an “amnesty program” so people can pay delinquent taxes without penalties, and requiring mining to pay two years’ worth of payments at once to boost the budget by an estimated $54 million.
Progressive groups have singled out mining as a potential source of money to help the state avoid $1.2 billion in painful budget cuts, much of that to health and human services programs and K-12 students from disadvantaged backgrounds. Gov. Steve Sisolak has said that a wholesale change to the mining tax rate would take years to make a difference and was more appropriate for a regular session. But adjusting the law on deductions could be a more immediate fix.
In 2019, the 103 mining companies in the state reported gross revenue of $7.8 billion, but after accounting for 12 different deductions they’re eligible for, they reported “net proceeds” of $2.5 billion. Out of that, about $61 million went to state government and $61 million went to counties, according to the Nevada Department of Taxation.
Mining companies are allowed to deduct expenses such as the cost of extracting and refining minerals and doing maintenance and repairs on their buildings. Then, the Nevada Constitution caps the tax rate at 5 percent of the “net proceeds” after deductions, with some companies paying as little as 2 percent, depending on how thin their business margins are.
Speeding up payments of the taxes was a strategy used during the recession, and Nevada only switched back to normal about four years ago. That requires estimating how much mining companies owe rather than having a final number and then creates a gap year where no money comes in to “true up” the payment schedule.
Republican Sen. Pete Goicoechea, who represents rural counties where mining dominates, said that payment schedule has created problems when mining companies overpay their bills on the front end, then leave small county budgets in a lurch when the money is clawed back.
Republican Sen. Ira Hansen asked why mining was always “singled out” to pay their taxes early, pointing to similar moves in 2009 and 2011. Advocates for more taxation of mining shot back, asserting that mining has never paid its fair share since the inception of the state.
“It is right that they are now, quote, being singled out because they need to pay their fair share now more than ever in order to make sure the state they extract resources from is a better place to live for everyone,” said Maria-Teresa Liebermann-Parraga, deputy director at progressive group Battle Born Progress.
Legislative Counsel Bureau Fiscal Analyst Russell Guindon said that while the tax rate was somewhat set in stone as an element of the Constitution — changing the 5 percent cap would take a five-year process — lawmakers who did want to draw more money from the industry could change the payment schedule or remove deductions.
But Republicans, who can block any tax increases because Democrats fall short of a two-thirds majority, say they’re more interested in determining whether there’s money elsewhere in the budget that could stave off the most difficult cuts without raising taxes. Sen. Ben Kieckhefer, thought to be a potential swing vote, considers removing the deductions on mining a tax increase.
“It's not clear to me as of yet whether we can't solve some of these problems without a tax increase,” he said in an interview. “And I think that there's a likelihood that we can, and I'm working with my colleagues on both sides of the aisle to try to ensure that we are uncovering every opportunity to minimize these cuts without raising taxes.”
One area that drew interest was a proposed tax amnesty program in SB3 that would waive penalties for taxpayers who were delinquent if they paid the amount due. The state did something similar a decade ago.
Nevada Department of Taxation Director Melanie Young said there was $68.8 million past due from taxpayers who were anywhere from 60 days to three years behind. If the state can capture 30 percent of that, and then puts half of those collections into the general fund, that could add another $10 million to bolster the state budget.
But Young also acknowledged that the total amount of outstanding taxes owed to the state, including older debt, is actually $350 million. That caught the attention of Republicans, who think the amount that can be dedicated from the tax amnesty program is higher than $10 million.
“I think this is a great idea because it’s better to get some money versus no money, and offering this opportunity may well bring in substantial dollars,” said Republican Sen. Heidi Gansert, thanking Young for “offering to take a deeper dive on the numbers and a potential re-estimate of what we could put on the books as far as the budget changes.”
Lawmakers also eyed a planned diversion of revenue from the General Services Tax, which applies to vehicle registrations. While Nevada currently sends 75 percent of its share to the highway fund for road construction projects and 25 percent to the general fund, SB3 would make the split 50-50.
That is expected to provide an additional $21 million to address the budget shortfall, and officials from the Nevada Department of Transportation said that was a drop they could absorb without deferring any proposed road projects.
But lawmakers were incredulous that the diversion would not harm the timelines of projects at all. Transportation officials said it was a combination of the GST being a relatively small part of the budget — typically, projects are funded with 5 percent state funds and a 95 percent federal match — as well as the long timeline from when projects are approved to when the state must pay people.
Legislators also scrutinized the reserves for the agency. NDOT reported $340 million in unrestricted reserves at the end of fiscal year 2019.
“If NDOT has $21 million in reserves that the governor has not swept already, that’s kind of concerning,” said Republican Sen. Keith Pickard.
In public comment, however, Alexis Motarex of the Associated General Contractors opposed the bill, arguing that the $21 million would support $35 million in economic activity, including worker wages. She said it was also important to preserve that revenue because fuel taxes — another major source of funding for infrastructure projects — have dropped as the pandemic has reduced driving.
Senators took no action on the bill. They will reconvene on Monday.