Each year, several Nevada gold mines claim so many tax deductions that they pay no mining tax at all.
This chart is from my 2008 factsheet on mining tax deductions, revised to include data from 2008 and 2009 (detailed 2010 information won't be available until the Tax Department publishes its annual Net Proceeds of Minerals Bulletin later this spring). It shows the total number of Nevada gold producing mines, the number of those that paid no mining taxes at all, and the value of totally untaxed gold that was produced at those mines:
So 111 times over ten years, one Nevada gold mine or another claimed that gold produced at that mine had no no taxable value. As a result, more than $4.3 billion was produced at gold mines where the mines paid no mining taxes whatsoever.
As I reported in 2008, the most egregious individual examples occurred earlier in the decade before the price of gold began to skyrocket. For instance:
- Barrick's Goldstrike mine produced gold worth $442.1 million in 2001 and $520.7 million in 2002. In both years, the total tax bill on that gold was zero.
- Newmont's Carlin Trend produced $394.7 million worth of gold in 2003, and $622.7 million of gold in 2005, and paid no mining taxes whatsoever on that mine's production in those years.
Even as the price of gold began scaling unprecedented heights, several mines have continued to claim enough deductions to completely erase their mining tax altogether. While less spectacular than the Goldstrike and Carlin Trend examples, in 2008 and 2009 there was still more than $400 million worth of gold produced at Nevada mines where the mines paid no taxes at all.
(A noteworthy aside: Of the $281.3 million of entirely untaxed gold in 2008, the bulk of it -- $211 million worth -- was produced at Newmont's Phoenix Project. Pheonix started producing a trickle of gold in 2001, but production ramped up in 2006, and by 2009 it was Nevada's seventh largest gold mine. From 2001 through 2008, nearly a half-billion dollars worth of gold was produced at Phoenix. None of it was taxed. When Phoenix paid a total of $3 million in taxes on gold production of more than $300 million in 2009, it was the first mining tax revenue counties or the state had ever collected from the mine.)
A couple things...
First, for a number of reasons, including SEC and IRS reporting requirements but primarily because of the breadth and depth of deductions allowed under Nevada law, I strongly believe the calculation of deductions at those untaxed mines was completely accurate. I (along with everyone else, apparently) have requested a detailed audit history from the Department of Taxation, and fully expect to find that in those 111 instances where mines paid no taxes at all, several of them -- perhaps even the giant Goldstrike and Carlin examples -- passed with flying colors.
In other words, under Nevada law, a mine can produce tens and even hundreds of millions of dollars worth of gold and not pay a single dime of taxes on it.
A system that porous and that riddled with loopholes is a farce. It doesn't need more rigorous auditing. It needs changed. All the hullabaloo about audits notwithstanding, focusing on audits is a distraction -- and one that is likely welcomed by the industry. The audits aren't the problem. The deductions are.
(This might be a good point to reiterate that a total of $36 billion in gold was produced from all mines in Nevada from 2000 through 2009, and $27.5 billion -- 76 percent -- of that value was deducted and never taxed.)
Second, in those 111 separate instances where mines didn't pay any tax on the gold they produced, they were essentially claiming it cost more to mine the gold than the gold was worth, so there wasn't anything left over to pay the state of Nevada. The mines don't tell their energy, chemical, or equipment providers, their insurance companies -- their lobbyists -- that they can't pay them anything because the mine didn't pencil out. Only the people of Nevada get told that.
Finally (for now), and probably least importantly, that fact that several producing gold mines pay no taxes whatsoever underscores the irrelevance of the industry's relentless mantra that the mining tax is a property tax. What other Nevada property owner is allowed to pay no property taxes at all? If a restaurant's expenses outstrip it's revenues, the restaurant still has to pay property taxes. The mining tax bears no similarity whatsoever to any property tax that anyone else in Nevada pays, and the industry's obsession with the subject is an attempt to distract legislators from more meaningful -- and pernicious -- facets of Nevada mining tax policy. When mining lobbyists tell legislators that the mining tax is a property tax, what they're really saying (albeit unintentionally) is that the mining tax needs to be changed.
Convoluted, dysfunctional, inadequate, unreliable and in need of scrapping -- that's what Nevada's mining tax is.