Nevada Commission Discusses Lack Of Mining Audits


The Nevada Department of Taxation is reassigning staff to create a specialized mining audit team and notifying mineral companies to expect field audits, agency officials said Monday.

Acting Taxation Director Chris Nielsen told the Nevada Tax Commission that the agency is also enlisting Dennis Neilander, retired former head of the state Gaming Control Board, and state gambling auditors to help.

The renewed focus on mining comes after former taxation chief Dino DiCianno conceded during a March 10 legislative hearing that his agency hadn't conducted field audits of the industry in at least two years and lacked trained staff to carry them out.

"That is true," Nielsen told commissioners.

Nielsen said an initial report will be forwarded to Gov. Brian Sandoval by April 29 on the mine operator audit process.

Sandoval called for Monday's emergency meeting of the tax panel after the
lack of audits was revealed.

Besides renewed audits, state Sen. Steven Horsford, D-North Las Vegas, urged the eight-member commission to commence emergency rulemaking procedures to clarify net-proceeds taxes imposed on mines and allowable deductions.

Specifically, Horsford said state laws and regulations are contradictory, with regulations allowing deductions not specified in state law.

"We need to make sure that the mining industry is paying their fair share under existing state law," Horsford said. "However, there is another apparent discrepancy between the law and actual regulations, and it appears that ambiguity may be contributing to a widening gap between gross and net proceeds."

For example, state law allows deductions for extraction costs, transportation, refining, marketing, maintenance, insurance, depreciation and royalties.

Recent regulatory changes, however, also allow reclamation, employee transportation to site and housing, pension and retirement, as well as World Gold council dues.

Horsford said some of those expenses only benefit the out-of-state corporations.

According to the taxation department, deductions for Barrick Gold Corp. will amount to $1.7 billion this year, lowering the mining company's taxable income to $1 billion.

If taxation were based on gross income instead of net, the tax department's report showed Barrick could face taxes on almost $2 billion in 2011.

Tim Crowley, president of the Nevada Mining Association, said after the meeting that the industry welcomes with the review and will cooperate with auditors.

"We live by the law," he said.

Nevada's mining tax structure dates back to statehood in the 1860s. State law caps mining taxes at 5 percent of net proceeds - a figure determined after deductions are taken.

Operators also pay on a sliding scale, ranging from 2 percent to 5 percent - based on the percentage ratio of net proceeds to their gross yield.

Mining taxes account for only 4 percent of the revenue collected by the Department of Taxation. Sales and use taxes, in contrast, amount to 70 percent.

Of the mining revenue, only 51 percent collected goes to the state general fund; 46 percent goes to local governments and 3 percent to the state debt service fund.

In recent years, the net-proceeds tax has amounted to about $60 million a year.

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