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Audits find mining companies underpaid $8.7 million in Nevada taxes

Updated Friday, July 6, 2012 | 9:47 a.m.

Three Nevada mining companies have shorted their taxes by $8.7 million since 2008, according to recently completed audits of their tax returns.

The audits of 17 mining operations owned by Eagle Picher, Ormat Nevada and Barrick are the first of an industrywide examination by the Department of Taxation that is expected to extend to 2015.

The scrutiny was sparked last year when lawmakers discovered the state’s tax department had not audited major mining companies for two years.

Critics of Nevada’s mining industry, who have said the industry does not pay enough in taxes, said the audits revealed “outrageous” behavior by the companies.

“In the face of billions of dollars mining companies are taking out of Nevada, it might be minor,” said Bob Fulkerson, executive director of the Progressive Leadership Alliance of Nevada. “It’s the principle. They’re getting such a great deal to begin with, but even that’s not enough to satisfy their greed. That’s what’s outrageous. That’s what’s incomprehensible.”

John Restrepo, chairman of the Nevada Mining Oversight and Accountability Commission, described the audit findings as “relatively small.”

“There’s going to be a difference of opinion over what’s allowed during the normal course of business,” he said. “There are no major red flags on anything we saw so far.”

As a whole, the mining industry paid more than $300 million last year in state and local taxes. The audit findings, some of which are still being disputed, represented just a small portion of that, a mining industry representative said.

“We’re committed to paying what the law requires,” said Tim Crowley, president of the Nevada Mining Association. “There’s no harm in the audits. We always participate in the audit process.”

Crowley noted that some past state audits found that mining companies overpaid their taxes and were due refunds from the state.

The three companies plan to dispute some of the findings, extending a continuing disagreement over what can legally be deducted from the net proceeds tax.

According to the audits, Eagle Picher underpaid $4 million, Barrick underpaid $2.5 million and Ormat underpaid $2.2 million.

Nevada assesses a 5 percent property tax on minerals — called the net proceeds tax. Mining companies are allowed to deduct the cost of extracting and processing the mineral. Lawmakers, regulators and mining officials regularly argue over what constitutes an extraction or processing expense.

Lawmakers last year eliminated some of the deductions that mining companies could take, though those changes did not apply to the most recent audits.

Barrick and Newmont are the two largest companies operating in Nevada, mining 90 percent of the gold in the state. A Department of Taxation schedule shows that audits on Newmont mines began in March.

Lawmakers and activists alike have eyed mining’s booming profits as state coffers have struggled under the recession. In the last legislative session, Senate Majority Leader Steven Horsford, D-North Las Vegas, led the charge to increase the scrutiny on the mining industry after discovering companies had been routinely taking tax deductions not allowed under state law.

He pushed for the creation of the Nevada Mining Oversight and Accountability Commission, which reviewed the audit findings last week.

Horsford did not attend Thursday’s meeting and declined to comment on the audits.

Progressives also believe Nevada’s net proceeds on minerals tax is too low for an extractive industry. They are pushing legislation that would lead to the net proceeds on minerals tax being stripped from the Nevada Constitution, freeing lawmakers to impose a higher tax rate if they wish.

This story has been edited from its original version.

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  1. Considering no one was checking...

    and they were basically 'on their honor',
    this is SHOCKING, I tell you...

  2. I have long said that the mining industry, reaping windfall profits (the cost to extract was the same at $200/ounce as it is at $1,700/ounce). But the mining companies just invented additional costs in a WEAK attempt to cheat the state. Time to do away with this net proceeds tax, and make it a flat rate based on production and reserves. The 9.3% that the Casinos pay in taxes to the state would be a good starting rate.

  3. This is actually the corporate culture throughout America. Cry poor when the tax man visits, but then paints a rosy picture for Wall Street. The truth is somewhere in between.

    I don't expect anything to change in Nevada as Gov. Sandoval's largest campaign contributions came from mining.

  4. Well if we'd stop dumping every last dollar into K-12 and FUND THE AGENCIES so the Dept. of Tax COULD administer the tax laws.... You have no laws if you refuse to enforce them--would require regulators (auditors, collectors, appeals officers) willing to apply the law across the field WITHOUT favoritism for political contributors.

  5. There is a simple way to cure this. Tax them like they do the casino's. Percentage of Gross gaming income, not on the net. Much harder to play with the books that way and does not require extensive audits.

    Saves a ton of money and levels the playing field.

  6. The State of Nevada has missed and is missing huge amounts of sales and use tax revenue due to its lack of audit policy. Numerous companies from out of state ship building materials into our state and pay no tax. These companies drive the local suppliers out of business while providing nothing to Nevada. The state of California has a fierce audit program that enforces laws and penalizes scofflaws.
    Nevada should do the same. These programs pay for themselves.

  7. It would be a mistake to focus on this relatively small tax underpayment. The more glaring problem is is low rate of taxation, compared to other businesses, which the mining industry enjoys. I would expect other businesses and taxpayers to be outraged at the disparity, which places the burden of supporting state services on everyone else.

  8. vegasbike: Sales tax auditors do audit and assess tax and interest (why no penalties?) on those consumers who import from out of state BUT the Department is so UNDERFUNDED that many do get away with it. Legislators / Governors have listened to the endless hammer for K-12 funding (over funding with no results) and cut the budgets biennium after biennium on all other Departments so the State is not enforcing the most basic laws and regulations. Unfortunately, we're going to have to wait for the feds to allow uniform taxing including internet businesses that ship products into Nevada without having the nexus or brick-and-mortar storefront on our soil. Sure the law says you owe Use tax if you didn't pay Nevada Sales tax but the administrative impossibilities of enforcing that mean we go without the revenue. And then there are the complexities of service labor being exempt--tell me the difference between service labor and installation and/or direct labor? See, that's why another administrative ruling limits the amount of revenue and increases audits, appeals, disagreements about what is taxable. So let's try to get the Sales Tax FLATTER--applying to more things perhaps at a lower rate or keep the rate the increase revenue--apply tax to ALL charges involved when there is a sale of an item--no exempting portions of labor, fees.... And enact statutes, regulations and decisions that support the general concept that the whole thing is taxable unless there is a specific and clear exemption in the law. Ditto that for service labor such as personal care such as grooming--those who can afford a $500 haircut can afford the tax. Those who spend $20 for a haircut won't pay much. And TOURISTS do a lot of that grooming, spa care....