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The Associated Press April 6, 2011, 11:32AM ET

Measure could alter NV constitution's mine tax cap

A tax cap meant to stimulate mining in newborn Nevada's depressed economy helped pass the state constitution in 1864. But people who say the provision is grossly preferential and has outlived its usefulness are pushing to get it scratched from its constitutional safe zone.

Legislators on Tuesday considered Senate Joint Resolution 15, which would start a multistep process to remove a section of the constitution that limits taxes on minerals, oil, gas and hydrocarbons to 5 percent of the net proceeds.

"The mining industry has been a sacred cow in Nevada," said Nevada history professor emeritus James Hulse. "It's time Nevadans take another look at something our founding fathers established long ago."

Mining is protected from the heavy taxes imposed on the state's gambling industry, and is the only industry with a tax cap in the state constitution. Spurred by soaring gold prices, mining grossed $5.5 billion in 2009. Net proceeds tax revenue totaled $94 million, and $48 million -- or less than 1 percent of the gross -- went to the state's general fund.

"If the governor speaks about shared sacrifice, we should also talk about the mining industry," said Jan Gilbert of the Progressive Leadership Alliance of Nevada.

The cap came about in an era when mining was the only major industry in Nevada, and mining interests wielded great political power.

"Mining has a privileged status that no other business has," said historian Guy Rocha. "But it's not the paramount industry anymore."

Rooting the cap out of the constitution would be a complex, multiyear process. If the SJR 15 passes, it will be up for consideration during the 2013 legislative session. If the resolution passes that session, it will go to the ballot for a vote. If voters approve it, legislators could reconsider tax rates.

Nevada Mining Association President Tim Crowley said mining is different than other industries and a net proceeds tax is appropriate because extraction costs are so high. The industry's payment to the state has quintupled over the past 10 years, he added, and legislators have imposed other kinds of taxes -- including the modified business tax and higher sales tax -- in recent years.

Sen. Elizabeth Halseth, R-Las Vegas, questioned how increasing mining taxes might adversely affect northern Nevada communities such as Eureka County, pop. 2,100, which draws much of its funding directly from mining.

Resolution supporters, pointing to Nevada's position as one of the world's top gold producers, shot back.

"Eureka is sitting on a gold mine. Where are the gold miners going to go?" said Erin Neff of Progress Now Nevada. "Nobody's leaving poor little Eureka."

The hearing came as legislators considered another bill, SB493, which would create a Mining Oversight and Accountability Commission. Proponents said mining companies exploit loopholes in tax code and write off large portions of their tax burden.

Members of the Senate Revenue Committee did not take action Tuesday on SJR 15, but the issue drew wide interest as the state seeks to alleviate a multibillion-dollar budget hole that promises major cutbacks to education.

"Which resource does the state value more?" asked Craig Stevens of the Nevada State Education Association. "A mineral that will be depleted, or the children who will eventually lead the state to a more diversified economy?"

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