Nevada Mining Tax Cap Amendment, Question 2 (2014)

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Question 2
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Type:Constitutional amendment
Constitution:Nevada Constitution
Referred by:Nevada State Legislature
Topic:Taxes
Status:On the ballot
2014 measures
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November 4
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Question 2
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The Nevada Mining Tax Cap Amendment, Question 2 is on the 2014 ballot in the state of Nevada as a legislatively-referred constitutional amendment. The measure, known as SJR 15 in the legislature, will ask voters whether or not the current five percent tax cap on mining should be removed from the Nevada Constitution, thereby allowing legislators to raise taxes on mining activity.[1] A similar measure failed to make the 2012 ballot.

Text of measure

Ballot title

The ballot question will appear as follows:[2]

Shall the Nevada Constitution be amended to remove the cap on the taxation of minerals and other requirements and restrictions relating to the taxation of mines, mining claims, and minerals and the distribution of money collected from such taxation?

[3]

Ballot summary

The ballot summary reads as follows:[2]

EXPLANATION—This ballot measure would repeal existing provisions of the Nevada Constitution that impose requirements and restrictions relating to the taxation of mines, mining claims, and minerals and the distribution of money collected from such taxation. If this ballot measure is approved by the voters, the Legislature, or the people through the initiative process, would be able to propose and enact laws to change existing methods of taxing mines, mining claims, and mineral extraction that are currently set forth in the Nevada Constitution.

The Nevada Constitution exempts mines and mining claims from the real property tax except for certain patented mines and mining claims. The Nevada Constitution also requires a tax upon the net proceeds of all minerals extracted in this State, including ores, metals, oil, gas, hydrocarbons, geothermal resources, and all other mineral substances. The tax rate must not exceed 5 percent of the net proceeds. Net proceeds are determined by calculating the gross value of all minerals extracted by a mining operation and then subtracting various deductions for certain operating costs incurred by the mining operation. The Nevada Constitution also prohibits any other type of tax upon a mineral or its proceeds, such as any mining tax upon gross value or upon the privilege of extracting minerals in Nevada. This ballot measure would remove these existing constitutional provisions.

Additionally, the Nevada Constitution requires a certain amount of the net proceeds tax to bedistributed to each county and the local governmental units and districts, including the school district, within the county where minerals are extracted. This distribution must be made to these entities in the same proportion as they share in the local property tax. This ballot measure would remove these existing constitutional provisions.

Finally, the Nevada Constitution establishes special rules for taxing land owned as a patented mine or mining claim. A person who has a patented mine or mining claim has an ownership interest in all the land, including its surface and any minerals beneath the land, regardless of whether the minerals are being mined. By contrast, a person who has an unpatented mine or mining claim has an ownership interest only in any minerals beneath the land. The Nevada Constitution states that a patented mine or mining claim is subject to real property tax, except that no value may be attributed to: (1) any minerals beneath the land; and (2) the surface of the land if $100 of labor has been performed on the mine or mining claim during the preceding year. This ballot measure would remove these existing constitutional provisions.

A “Yes” vote would remove provisions of the Nevada Constitution that impose a cap on the taxation of minerals and would remove other constitutional requirements and restrictions on the taxation of mines, mining claims, and minerals and the distribution of money collected from such taxation.

A “No” vote would keep provisions of the Nevada Constitution that impose a cap on the taxation of minerals and would keep other constitutional requirements and restrictions on the taxation of mines, mining claims, and minerals and the distribution of money collected from such taxation.

DIGEST—This ballot measure would create, generate, or increase public revenue because it would remove existing provisions of Article 10 of the Nevada Constitution that exempt mines and mining claims from the real property tax, thereby making mines and mining claims subject to real property taxation. However, the Legislature passed Senate Bill No. 400 in 2013, which would become effective if this ballot measure is approved by the voters. The legislation would exempt unpatented mining claims from the real property tax and would provide that, in determining the taxable value of patented mining claims and other real property, the value of any mineral deposit in its natural state attached to the land must be excluded from the computation of the taxable value of the property.

The Nevada Constitution requires the Legislature to impose a tax upon the net proceeds of all minerals extracted in this State at a rate not to exceed 5 percent of the net proceeds. It also prohibits any other type of tax upon a mineral or its proceeds, such as any mining tax upon gross value or upon the privilege of extracting minerals in Nevada. Existing laws exempt certain extracted minerals from the personal property tax and impose a graduated tax rate upon the net proceeds of all minerals extracted in this State, with a minimum rate of 2 percent and a maximum rate of 5 percent. Existing laws also impose a mineral royalties tax of 5 percent.

Senate Bill No. 400, which would become effective if this ballot measure is approved by the voters, would replace the existing tax upon net proceeds and royalties with an excise tax upon mineral extraction and royalties for the privilege of mining in Nevada. The excise tax rates would be equivalent to existing tax rates. The legislation also would exempt extracted minerals and royalties from the personal property tax if they are subject to the excise tax.

The Nevada Constitution requires a certain amount of the existing net proceeds tax to be distributed to each county and the local governmental units and districts, including the school district, within the county where minerals are extracted. This distribution must be made to these entities in the same proportion as they share in the local property tax. Senate Bill No. 400, which would become effective if this ballot measure is approved by the voters, would require the same distribution to these entities from the excise tax upon mineral extraction and royalties. [3]

Full text

The full text of the measure reads as follows:[2]

RESOLVED BY THE SENATE AND ASSEMBLY OF THE STATE OF NEVADA, JOINTLY, That Section 1 of Article 10 of the Nevada Constitution be amended to read as follows:

Sec. 1. 1. The Legislature shall provide by law for a uniform and equal rate of assessment and taxation, and shall prescribe such regulations as shall secure a just valuation for taxation of all property, real, personal and possessory. , except mines and mining claims, which shall be assessed and taxed only as provided in Section 5 of this Article.

2. Shares of stock, bonds, mortgages, notes, bank deposits, book accounts and credits, and securities and choses in action of like character are deemed to represent interest in property already assessed and taxed, either in Nevada or elsewhere, and shall be exempt.

3. The Legislature may constitute agricultural and open-space real property having a greater value for another use than that for which it is being used, as a separate class for taxation purposes and may provide a separate uniform plan for appraisal and valuation of such property for assessment purposes. If such plan is provided, the Legislature shall also provide for retroactive assessment for a period of not less than 7 years when agricultural and open-space real property is converted to a higher use conforming to the use for which other nearby property is used.

4. Personal property which is moving in interstate commerce through or over the territory of the State of Nevada, or which was consigned to a warehouse, public or private, within the State of Nevada from outside the State of Nevada for storage in transit to a final destination outside the State of Nevada, whether specified when transportation begins or afterward, shall be deemed to have acquired no situs in Nevada for purposes of taxation and shall be exempt from taxation. Such property shall not be deprived of such exemption because while in the warehouse the property is assembled, bound, joined, processed, disassembled, divided, cut, broken in bulk, relabeled or repackaged.

5. The Legislature may exempt motor vehicles from the provisions of the tax required by this Section, and in lieu thereof, if such exemption is granted, shall provide for a uniform and equal rate of assessment and taxation of motor vehicles, which rate shall not exceed five cents on one dollar of assessed valuation.

6. The Legislature shall provide by law for a progressive reduction in the tax upon business inventories by 20 percent in each year following the adoption of this provision, and after the expiration of the 4th year such inventories are exempt from taxation. The Legislature may exempt any other personal property, including livestock.

7. No inheritance tax shall ever be levied.

8. The Legislature may exempt by law property used for municipal, educational, literary, scientific or other charitable purposes, or to encourage the conservation of energy or the substitution of other sources for fossil sources of energy.

9. No income tax shall be levied upon the wages or personal income of natural persons. Notwithstanding the foregoing provision, and except as otherwise provided in subsection 1 of this Section, taxes may be levied be conducted for profit in the State.

10. The Legislature may provide by law for an abatement of the tax upon or an exemption of part of the assessed value of a single-family residence occupied by the owner to the extent necessary to avoid severe economic hardship to the owner of the residence.

And be it further RESOLVED, That Section 5 of Article 10 of the Nevada Constitution is hereby repealed. [3]

Fiscal note

The fiscal note reads as follows:[2]

Financial Impact—No

This ballot measure would remove existing provisions of the Nevada Constitution that exempt mines and mining claims from the real property tax, thereby making mines and mining claims subject to real property taxation. However, Senate Bill No. 400 of the 2013 Legislative Session,which becomes effective if this ballot measure is approved by the voters, would provide similar exemptions from the real property tax. Thus, there are no anticipated financial effects on real property tax revenues received by State and local governments.

Additionally, this ballot measure would remove existing provisions of the Nevada Constitution that require the Legislature to impose a tax upon the net proceeds of all minerals extracted in this State at a rate not to exceed 5 percent of the net proceeds. However, Senate Bill No. 400 would replace the existing net proceeds tax with an excise tax upon mineral extraction and royalties. The tax rates under the excise tax would be equivalent to existing tax rates, so there will be no change in the formula for calculating the revenue generated by the excise tax for State and local governments. Senate Bill No. 400 also would use the same formula for distributing the excise tax to State and local governments that is currently used for the net proceeds tax. Thus, there are no anticipated financial effects on tax revenues from mineral extraction received by State and local governments.

Lastly, this ballot measure would remove existing provisions of the Nevada Constitution that exempt minerals and their proceeds from the personal property tax. However, Senate Bill No. 400 would exempt extracted minerals from the personal property tax if they are subject to the excise tax. Thus, there are no anticipated financial effects on personal property tax revenues received by State and local governments. [3]

Background

A similar measure failed to make the November 2012 ballot as an initiated constitutional amendment.

Support

Arguments

Assemblywoman Bustamante argued that the measure is an opportunity for voters to decide whether or not they want to remove the provision from the state constitution. Assemblyman Daly also supported the passage of the measure on the basis that the state constitution has not kept up with modernizations in the mining industry. To address concerns of loss of mining business due to the changes proposed by the measure, he said, "The state won’t lose mining jobs because the minerals are here."[4]

Opposition

Arguments

Assemblyman Ellison opposed the bill, saying, “Just this one bill has the power to close many of the small ore mines around Nevada and can adversely change the way mining is done forever."[4]

Assemblyman Wheeler also opposed the measure and claimed that its passage would create instability in the Nevada marketplace and would "not create one job in Nevada."[4]

Lobbyist for the Nevada Mining Association, Tim Crowley, expressed the associations disapproval of the measure after the second passage of SJR 15, saying,

Passage of SJR15 will lead to significantly less state revenue to fund essential services and potentially disrupt revenue streams in rural mining counties as well. There’s no certainty if, how or when these revenues will be restored. [3]

—Tim Crowley, [4]

On May 2, 2014, Jim Wadhams, a lobbyist for Newmont Mining and the Nevada Mining Association, warned that the mining industry will challenge the measure in court, if it becomes law.[5]

Controversy

At a hearing of the Assembly Taxation Committee, the Nevada Mining Association claimed that if the repeal is approved by voters, the mining would be taxed under property tax provisions that limit the tax rate to 3.64 percent of the assessed value of the property. Deputy legislative council, Kevin Powers, refuted that claim by saying the taxes on minerals produced by mines would not be property taxes but as excise taxes that are not required to be uniform and equal. Wadhams, in return, cited opinions of the United States Supreme Court that consider the net proceeds of mineral tax as a property tax.[6]

Assembly Minority Leader Michael Roberson (R-20) spoke against the claims made by Wadhams by urging Assembly members to be "smart enough and listen to your lawyer," rather than statements made by people "sent here to deceive you."[6]

Media editorial positions

Support

  • The Moapa Valley Progress said,
Ultimately, it is the job of the state legislature to set tax rates on industries like mining. Those rates should reflect comparable and customary rates and should be fair to both the industry and to the taxpayers of the state.

Where we have a problem is when long-held provisions tie the hands of the legislature and make it difficult to do that job of setting appropriate tax rates. The current caps on mining taxes limit what the legislature can do. It makes it difficult for the state to stay up to date on its mining tax structure.

If Question 2 passes, raising the mining tax would still require 2/3 support in both houses of the legislature to pass; just the same as raising taxes against any other industry. The legislature has flexibility in determining tax rates for gaming in the state; and every other business and industry. It should have the same flexibility for mining. We recommend a YES vote on Question 2.[3]

Moapa Valley Progress, [7]

  • The Reno Gazette-Journal said,
Nevadans should vote yes on Question 2 to remove the limit on mining taxes from the state Constitution and allow the Legislature to decide how and how much mining companies should be expected to pay, just like nearly every other Nevada business and individual.[3]

Reno Gazette-Journal, [8]

Path to the ballot

See also: Amending the Nevada Constitution

According to Article 16, Section 1 of the Nevada Constitution, an amendment proposed by the legislature must be approved by a majority in both the Assembly and Senate in two consecutive legislative sessions. If twice approved by the legislature, the amendment then goes to the ballot where voters decide whether or not to ultimately pass it.

SJR 15 was first approved by the Senate on May 28, 2011, and the Assembly on June 11, 2011. It was approved by a second consecutive legislature when the Senate approved it on April 1, 2013 and the Assembly on May 23, 2013.[9][10]

First Senate vote

May 28, 2011 Senate vote

Nevada SJR 15 Senate Vote
ResultVotesPercentage
Approveda Yes 13 61.90%
No838.10%

Second Senate vote

April 1, 2013 Senate vote

Nevada SJR 15* Senate Vote
ResultVotesPercentage
Approveda Yes 17 80.95%
No419.05%

First Assembly vote

June 6, 2011 Assembly vote

Nevada SJR 15 Assembly Vote
ResultVotesPercentage
Approveda Yes 27 64.29%
No1535.71%

Second Assembly vote

May 23, 2013 Assembly vote

Nevada SJR 15* Assembly Vote
ResultVotesPercentage
Approveda Yes 26 63.41%
No1536.59%

See also

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