With constitutional amendments scuttled, mining agrees to tax deal

A long-awaited compromise deal to raise taxes on the mining industry was introduced into the Nevada State Legislature late Saturday, leaving just 48 hours for it to get across the finish line before the session ends.

The bill’s potential passage will likely determine the fate of five potential ballot questions and would bring millions to the state’s K-12 education system. It would also mark a significant shift in tax policy toward an industry that has long been scrutinized for having a unique constitutional carveout protecting it from tax hikes.

Assembly Bill 495 would create a new excise tax on gold and silver mining companies with more than $20 million in gross revenue annually. Gross revenue between $20 million and $150 million would be taxed at 0.75% and gross revenue $150 million and above would be taxed at a rate of 1.1%.

While production can vary year to year, the new mining excise tax is expected to bring in approximately $85 million per year, or $170 million over a biennium.

Gold and silver mining companies grossed $7.07 billion in 2019.

The revenue from the new excise tax would be deposited into the state general fund for the upcoming biennium, but for subsequent bienniums would be deposited into the state education fund.

AB495 would also reroute the state general fund portion of the mining industry’s net proceeds of minerals tax to the state education fund.

Gold and silver mining contributed $55 million to the state general fund in 2019.

Of the 21 gold and silver operators who reported a gross yield of more than $20 million in 2019, eight contributed nothing toward the state general fund because of the existing structure of the net proceeds of minerals tax, which is capped at 5% in the Nevada Constitution.

Progressive groups have long taken aim at the mining industry but previous efforts have focused on amending the Constitution. Nearly a decade ago, in 2014, a ballot question to remove the 5% tax cap from the Nevada Constitution was defeated by just sixth-tenths of a percent. The creation of a mining excise tax could offer an easier path for future adjustments on the industry.

Between the new excise tax and the rerouted net proceeds of minerals tax, an estimated $150 million per year (or $300 million over a biennium) could be deposited into the state education fund beginning in 2023 — if the bill passes.

Nevada Democrats will need the support of at least four Republican lawmakers — two in each chamber — in order to clear the constitutional two-thirds voting requirement for passing new revenue.

AB495 includes some provisions clearly meant to entice Republicans into supporting the bill. One provision keeps the state’s Opportunity Scholarships program alive. That program, a favorite among Republicans, was being phased out. Another provision in AB495 relates to Medicaid and direct payments to personal care aides — an issue state Sen. James Settelmeyer (R-Minden) has attempted to address. A third allocates money to the Silver State Opportunity Grant Program, which helps low-income college students. A fourth allocates federal covid relief funds to the Nevada Department of Education to address learning loss.

During the 32nd Special Session last summer, Democrats only needed one Republican to break party lines, but they failed to secure it. Republican state Sen. Keith Pickard now infamously publicly committed to voting for an amended bill that would have brought in $55 million in additional revenue for education but reversed his position prior to the floor vote.

While Democrats need even more bipartisan support this session, they also have more leverage in the form of three proposed constitutional amendments — AJR1, AJR2 and SJR1 — passed by lawmakers during the 32nd Special Session last summer.  AJR1 and SJR1 proposed to amend the constitution to tax the mining industry at 7.75% of their gross proceeds of minerals. AJR2 would have raised the tax cap from 5% to 12% of net proceeds. AJR1 and SJR1 could bring in an additional $450 million in revenue annually. The third would have brought $150 million in new revenue annually.

During the special session, mining representatives opposed AJR1, which was quickly deemed the preferred option by progressive groups.

After the introduction of AB495 on Saturday, Nevada Mining Association President Tyre Gray released a positive statement on the proposal, saying it was the product of “deliberative conversation between Governor Sisolak, legislative leadership, and mining.”

Also in play are two initiative petitions spearheaded by the Clark County Education Association. The first of those initiatives proposed raising the gaming tax rate from 6.75% to 9.75% in order to bring in an estimated $350 million in additional revenue each year. The second ballot question would bring in an estimated $1 billion annually to K-12 education by raising the Local Schools Support Tax (part of the state’s overall sales tax) from 2.6% to 4.1%. That measure would bring the overall statewide sales tax to between 8.35% and 9.875%, depending on the county.

CCEA statements posted to social media this session have referenced ongoing discussions between the teachers union, legislative leadership, the governor, and the mining and gaming industries.

The compromise deal introduced Saturday would bring in significantly less revenue than the most ambitious of the proposed constitutional amendments or the CCEA ballot initiatives.  But it may be significantly easier to pass if the politically powerful mining and gaming industries are on board.

AB495 also includes a provision instructing the Commission on School Funding to continue studying possible revenue sources for education. The Commission would have to submit a report to the governor and Legislature by Jan. 1, 2023.

AB495 is expected to receive a committee hearing on Sunday, May 30.

The 81st Legislative Session is scheduled to end on Monday, May 31.