It is well known that any debate in the Nevada Legislature over raising mining taxes has been a controversial topic since prospectors first struck gold in the 19th century. Previous efforts to raise the tax or reduce the ability of companies to deduct net proceeds have come up short.
Opponents have argued successfully that any increase in the tax rate would severely damage one of the state’s largest and most important industries, while supporters of eliminating the current tax structure believed mining companies benefited unfairly from that structure at the expense of the state.
That all changed this legislative session as mining lobbyists, a bipartisan group of lawmakers and the state’s largest teacher’s union reached an agreement that effectively doubles the amount of taxes on the industry, allowing lawmakers to approve the deal in the waning hours of the 2021 Nevada State Legislature.
The deal also prevents tax increase measures from being placed on the November 2022 ballot.
Prior to the legislature adjourning on May 31, Assembly Bill 495 gained the two-thirds majority needed to pass a tax increase in both houses, with the Assembly passing the measure on a 28-14 vote followed by a margin of 16-to-5 in the Senate.
“It was a little bit of a surprise that they got the mining tax through the legislature,” said Chris Wilcox, a partner with Eide Bailly in Las Vegas. “Mining, for a long time, has had a strong enough presence to [block] any tax increases.”
Although he was surprised by the outcome, Wilcox said he believed there was a general assumption that a compromise would be reached between the mining industry and proponents of a tax increase during the legislative session.
“The mining industry was committed to finding a solution that helped the state direct more money to K-12 education funding,” Wilcox said.
Mining Tax
The agreement establishes a new tiered tax structure for gold and silver mining companies, directing the additional revenue along with existing mining tax revenue to education. Estimates say the new tax structure could add almost $300 million into the state’s education system over the next two years.
The new tax method preserves the state’s Net Proceeds on Minerals tax structure, which required companies be taxed at less than 5 percent of net proceeds, which are profits minus deductions.
It adds an excise tax of 0.75 percent on mines that report gross revenue of $20 million to $150 million and 1.1 percent on mines with revenues higher than $150 million.
“While numerous tax bills were introduced throughout the session, the most significant business tax legislation is the implementation of a new tax on mining companies,” said Cindy Creighton, president of the Nevada Taxpayers Association.
Creighton also concured on the implementation of the new mining tax legislation indicating it represents a very significant compromise amongst numerous stakeholders in Nevada.
Getting Republicans in the Legislature to support the change took some major compromise and concessions by both parties. It also took agreement from the mining industry to pay more in taxes.
“I can’t speak for the past but I can say the complexity of Nevada’s tax system does not conveniently fit into a tweet,” said Tyre Gray, president of the Nevada Mining Association. “Creating AB495 was a very delicate process that took a lot of different stakeholders with varying viewpoints working together to find something everyone could agree on.”
Gray added that expecting any one industry to “single handedly solve Nevada’s problems is unrealistic, let alone its 12th largest in mining.”
“Our leaders need to have real conversations about things like the one-of-a-kind property tax system we have, that abates more than $1 billion from the state annually,” he added.
From mining’s perspective, Gray said he is confident that this agreement will provide revenue to the state without hurting the 37,000 Nevadans working along the industry supply chain.
“That is not to say there will not be any ramifications as this is still a 100 percent tax increase,” Gray said. “Many companies currently operating in Nevada are re-evaluating expansion plans, potentially minimizing mine lifecycles. We have also seen an uptick in exploration dollars going to other jurisdictions, especially following the first passage of last summer’s joint resolutions.”
Concessions
To get the bill across the finish line, lawmakers agreed to sending $15 million in federal coronavirus relief funds to the state’s Charter School Authority to fund learning loss grants. They also eliminated Senate Bill 292, which would have allowed for straight-ticket voting, by an amendment.
In addition, lawmakers added and approved an amendment to Assembly Bill 321 that allows proponents of a ballot initiative to withdraw it up to 90 days before an election after it qualifies for the ballot, even though the Nevada constitution says the secretary of state “shall” put qualified measures on the next general election ballot.
But perhaps most important, Democratic Governor Steve Sisolak signing AB 495 means that several ballot measures that could have raised taxes even higher on mining companies and upped the state’s sales and gaming taxes, will not move forward.
The amendment was aimed at eliminating two initiatives from raising sales taxes and gaming taxes from the November 2022 ballot.
The two initiatives sponsored by the Clark County Education Association (CCEA) proposed raising the gaming tax rate from 6.75 percent to 9.75 percent, while the second ballot questions would have raised the Local Schools Support Tax, part of the state’s overall sales tax, from 2.6 percent to 4.1 percent.
The sales tax measure would have increased the state sales tax to between 8.35 percent and 9.875 percent, depending on the county.
Joanna Miller, a spokeswoman with the Clark County Education Association, confirmed they will be withdrawing the measures. Both initiatives were intended to increase funding for education.
“The industry supported tax as approved by the legislature is viewed as a balanced approach relative to other mining tax proposals,” Creighton said. Political observers credit three provision passed during a Special Session in August 2020, with pushing all sides to come to an agreement. During that Special Session, lawmakers approved changing provisions of the state Constitution that cap the amount of taxes that can be levied on the mining industry. The session was held after lawmakers convened for 12 days in July to update the state budget affected by the coronavirus pandemic.
The resolutions – AJR 1, AJR 2, and AJR 3 – passed through both the state Assembly and Senate and was the first step toward increasing taxes on mining in the state.
To amend Nevada’s Constitution, lawmakers must approve proposed amendments in two legislative sessions and then seek voter approval in a subsequent election. The agreement reached during the recent session means the initiatives will not appear on the November 2022 ballot.
An effort in July 2020 by the Democratic-controlled Legislature to pass a bill limiting the tax deductions mining businesses could claim died after they failed to garner enough Republican support and fell short of the two-thirds majority state law require to increase taxes.
Sisolak praised the partnership of business, education leaders and a bipartisan group of lawmakers for creating an investment that will benefit education in the state. He also said the agreement creates a significant and meaningful investment in education funding generated from the mining industry.
“We entered the session thinking it was going to a big year for taxes,” Creighton said. “But the mining tax agreement was the major issue this session. Members are always discussing mining, gaming, property and business taxes.”
And when it comes to taxes on Nevada businesses, Wilcox said most companies will not see any tax rate increases for the next two years.
“There were no legislative proposals to increase the Modified Business Tax or Commerce Tax on the general business community this session,” Wilcox said.
Supreme Court Overturns Fee, Tax Extensions
While lawmakers were busy negotiating on a new mining tax, the Nevada Supreme Court overturned two tax and fee bills passed in the 2019 Legislature that had lawmakers scrambling how to cover the loss of revenue to the state budget. The state Supreme Court ruled that both bills required a two-thirds vote in both houses to pass and therefore were unconstitutional.
The court’s decision has left the Nevada Department of Taxation working on a proposal to address the ruling, according to Creighton. The challenge by eight Republican lawmakers involved Senate Bill 551 and Senate Bill 542 from the 2019 Legislative session.
SB 551 extended existing rates under modified business tax past a planned July 2019 sunset date, while SB 542 extended for two years a technology fee motorists paid the Department of Motor Vehicles that was set to expire June 30. The bills passed the Senate on a party line vote of 13-8, one short of a supermajority needed.
The Supreme Court upheld a decision by Carson City District Judge James Todd Russell in September that required the state to pay back the collected revenue to taxpayers with interest. The amount the state must repay in already collected taxes and fees may be $100 million, according to early estimates on collections.
Wilcox said the ruling means that businesses will not see an increase to their Modified Business Tax.
“The state Legislature did not pass legislation that would extend the [Modified Business Tax] rate, so businesses may experience a lower amount that they need to pay to the Nevada Department of Taxation,” Wilcox said. “The DMV received an allocation from the legislature to determine how to credit the fee of $1 back to residents in the near future.”
Creighton said the Nevada Taxpayers Association has had discussions with the department, but it will take some time to analyze the outcome of the ruling and then issue a plan to refund businesses.
“We are waiting to see what their plan will be,” Creighton said. “They have not announced it … but it has to be dealt with.”
The Department of Taxation confirmed it is developing a plan to reduce the Modified Business Tax rate for quarters ending Sept. 31, 2019, through March 31, 2021, for general business, financial institutions and mining. In a notice to taxpayers, the department said it, “will soon announce when the refunds will be issued.”
However, the department reminded businesses that Nevada law requires them to verify that a credit is valid before the amount can be refunded, “therefore, a taxpayer’s account must be in full compliance before any refund can be issued.” In developing the refund plan, the department noted it has identified taxpayers who have delinquent returns, invalid address and/or existing debt on their account.
Tax Proposals
While the mining tax bill received most of the attention in Carson City during the recently concluded 81st Nevada legislative, there were other bills that will impact business in the state.
The other major tax policy change approved by lawmakers was Assembly Bill 363, a measure that subjects short-term rentals to the 6.5 percent lodging tax that hotels face and other regulations.
The bill was amended in the final days of the legislature to apply to cities with populations of more than 25,000 within Clark County, including Las Vegas, Henderson, and North Las Vegas.
“Additionally, while a proposed tax on digital goods was not approved this session, the legislation will return in the 2023 legislative session,” Creighton said.
Senate Bill 346 would have imposed an excise tax on the retail sales of specified digital products to an end user in Nevada. Specified digital products was defined as electronically transferred digital audio works, digital audio-visual works, and other digital products, including images, videos or electronic games.
They would also impose an excise tax rate of 5 percent of the gross receipts derived from direct-to-home satellite television service to customers in the state. The bill, authored by Senator Dina Neal, a Democrat, was referred to the Committee on Finance but did not receive a vote.
“It’s also very likely changes to the Nevada property tax system will be studied through the 2021-2022 interim period,” Creighton said.
From a tax policy perspective, Wilcox said there were several ideas originally being floated about in Carson City on how to generate more revenue for the state, including education.
“The majority of those ideas were focused on businesses paying either new taxes or paying higher rates on existing taxes,” Wilcox said. “I believe we will see several proposals during the 2023 legislative session.”
Wilcox credited the work of lobbyists with the Vegas Chamber with protecting business during this year’s session.
“It doesn’t feel like business got beat up like we thought,” Wilcox said.
