Faced with budget crunches, western states treat miners kindly

Some of the states are instead offering tax incentives to attract new industries or stimulate production from existing facilities. “A mood of interstates tax competition prevails in some areas,” says the research firm

An example is Minnesota, which continued a 2-year streak of tax reform with passage of the 1988 Omnibus Tax Law. Property tax procedures were simplified and the tax burden was reduced for many industrial properties. Tax relief was granted to rural counties, including some with current exploration activity. Also impacted by the 1988 law was the infamous ad valorem tax on natural iron ore, which was modified, but not eliminated.

The 1988 law came on the heels of the more comprehensive 1987 Omnibus Tax Law, which repealed all specific taxes on copper-nickel mining; eliminated ad valorem taxes for all minerals except natural iron ore; established a net proceeds tax for all minerals except iron ore, taconite and some industrial minerals; reduced the income tax rate; and established an alternative minimum tax.

Stated objectives of the Minnesota laws were to simplify the state’s complex mining tax structure, improve the climate for iron mining, and encourage the current interest in exploration for base and precious metals.

Montana and North Dakota lowered their coal severance tax rates in 1987 in an attempt to lure production away from Wyoming and low-cost foreign producers. Montana coal producers saw their severance tax reduced again in 1988 by virtue of the 1987 bill, which promised a further rate decrease if production in the state exceeded 32.2 million tons for the year. To help balance the near term budget in 1987, Montana established a temporary 10% surcharge on personal income, with corporate income conspicuously exempt.

Nevada miners are awaiting passage of a constitutional amendment allowing taxation of the net proceeds of mines at 5% rather than at the local property tax rate. The amendment was called for by the 1987 legislature, but cannot be put to the voters until this year. The new tax will cost mining companies two to three times as much as the current property tax rates on mine proceeds. This hardly sounds like tax competition, but considering the high visibility and hefty profits of the Nevada gold mining industry, and in view of other more oppressive tax proposals considered, Nevada miners are quite satisfied with the new measure. In fact, many have already made voluntary prepayments of the tax at the higher rate as part of a negotiated agreement with the state.

In other states, Utah raised its income tax rate from 4% to 5% and replaced its Mining Occupation Tax with a severance tax, supposedly a revenue neutral change. Colorado lowered its income tax rate from 6% to 5.5% by virtue of a schedule established by previous legislation. New Mexico raised its coal severance tax by a factor keyed by a 1978 law to the annual rate of inflation. Property tax rates for the western states increased an average of about 4% in 1988.

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