Industries that have long reigned in Nevada, such as its famous gaming sector, have been rocked by the pandemic, burning a hole in the state budget in the process. Seeking to plug a $1.2 billion deficit, state Democratic lawmakers have targeted the mining industry, which has enjoyed a cap on its tax rate as old as the state itself.

The lawmakers' bid, if successful, would put the question of raising state mining taxes to voters in 2022. Differing mining tax changes have been proposed, and each one would remove the ceiling and increase rates. All bets will be off for giants operating in Nevada such as Barrick Gold Corp., which formalized a long-imagined joint venture with Newmont Corp. in 2019 known as Nevada Gold Mines LLC.

"The mining industry is obviously not happy," Michael Green, an associate professor of history at the University of Nevada, Las Vegas, said in an interview. Green said the mining taxes in Nevada have not changed since 1864, when the mining industry opposed more stringent rates proposed for the state constitution. The document was ultimately finalized with a flat 5% tax rate on net proceeds from mining operations, and the industry has enjoyed the "tax break" for over a century and a half, he said.

"In a lot of states, gaming pays a lot more [in taxes], but gaming doesn't dominate those states. And mining dominated Nevada at the time the constitution was written," Green said. "I don't say that as a criticism. I'm sure there are Californians complaining about the movie industry. It goes on everywhere."

Three resolutions were passed during a special summer session of the Nevada legislature that started July 31, each a first step toward amending the state constitution.

One of the proposals, AJR1, would eliminate the 5% net proceeds tax limit, set a 7.75% tax rate on gross proceeds from mining, and require a quarter of that tax revenue to be allocated to state education and healthcare programs.

A second resolution, SJR1, would remove the cap on mining taxes and replace it with a 7.75% tax on gross proceeds, while compelling the state to use the funds to provide payments to state residents, akin to Alaska's Permanent Fund Dividend, which is funded by oil and gas tax revenues.

A third proposal, AJR2, would raise the mining tax limit to 12% of net proceeds and tie the maximum taxation rate for a mine to the property rate of its jurisdiction.

State lawmakers will need to agree to one of the three proposals and pass it again when the legislature reconvenes to put the measure to voters. Green said Democrats in the state legislature were forced to make the change via ballot measure because they lacked enough support from Republicans to change the tax code unilaterally, which requires a two-thirds vote of the state legislature.

The proposals would be "devastating" to the mining industry, and particularly companies in the research and development stage, Robin Titus, Republican leader of the Nevada Assembly, told Market Intelligence in a Nov. 25 email. Titus said the Democratic-led legislature did not fully understand the consequences.

'How much can we take from them?'

Barrick said in a Nov. 5 filing that it opposed each of the tax proposals and that any of them could "significantly increase" the taxes paid by Nevada Gold Mines. On a same-day earnings call, CEO Mark Bristow discussed the debate at length, detailing how the company has been campaigning in a part of the U.S. known as a world-renowned mining jurisdiction.

"I'm optimistic that we'll find a solution that's good for everyone and puts mining right in the center of society's understanding of the importance of having more than just a gaming industry to support the Nevada economy," Bristow said.

Tensions over the tax measures could run higher as the extent of the pandemic's impacts on tax revenue become clearer and more dire. Casino winnings in Nevada, an indicator of financial health in the state, declined for the eighth month in a row in October. Ahead of the Thanksgiving holiday and Black Friday in the U.S., Gov. Stephen Sisolak announced Nov. 22 a return to business capacity restrictions that threaten to further erode tax revenues.

Janelle Cammenga, an analyst with D.C.-based think tank Tax Foundation, told S&P Global Market Intelligence the debate in Nevada is the result of states "getting creative" given a lack of options to save their budgets due to the pandemic. While states have issued sector-specific tax hikes, those are typically designed to make up for externalities like use of limited natural resources or potential environmental impacts. Nevada's move would be different, Cammenga said.

"Different taxes are levied for different reasons, but with severance taxes, they are taking different resources out of the ground and depleting those resources. These taxes are meant to recoup some revenue to that state," Cammenga said. "It doesn't look like the tax increase is making up for resources they're taking. It's not based in volume or mass at all, but how much are these companies making and how much can we take from them?"

The mining industry has argued it already pays exorbitant funds to the state through other taxes levied on businesses. At an August panel of Nevada mining executives, Neil Jensen, vice president and general manager of Kinross Gold Corp.'s Round Mountain gold operation, said the asset he managed was the largest tax base in its county.

"We have got to make sure that, as we move forward, we continue to pay our equitable share of the tax base, but not be overly taxed in comparison to other industries in the state," Jensen said, according to an Aug. 1 Nevada Business Magazine report on the panel. "It's always that balance of paying the right amount of taxes and supporting the communities in the state, but being able to keep companies in business and keep mines going."

Golden opportunity

According to Bristow, Barrick met with the office of Nevada Gov. Sisolak, a Democrat, almost immediately after the pandemic began and offered to make some tax payments in advance to assist the state during the crisis. Sisolak's office could not be reached for comment on the details of the deal and Barrick declined to elaborate on conversations with the governor's team.

After Sisolak called a special session of the Nevada legislature in response to the coronavirus pandemic, lawmakers tried to advance legislation that would compel one year of double tax payments from the mining industry, along with other modifications for the sector. But lawmakers could not find sufficient consensus during the special session to overcome the two-thirds requirement. Then came the three resolutions, which Bristow called a "surprise move" by Nevada Democrats.

The origin of the resolutions was "messy" amid a flurry of action during the special session, said Ainslee Archibald, a coordinator with the Las Vegas hub of the Sunrise Movement. Archibald said in an interview that there was initially some disagreement among environmentalists about which resolution to support, and said Sunrise supports AJR1 because it would earmark funds for public programs. "It is the only one that actually addresses the issue of our government not having enough money and not being able to fund things like healthcare and education by earmarking that money," Archibald said.

After passage of the resolutions, Barrick invited legislators involved in the debate to its mine sites and has continued to have discussions with Sisolak's office and political party leaders in both chambers of the Nevada legislature, according to Bristow. "What was initially quite a sort of political move has become a very considered, engaged process," Bristow said. "This is a long process if you want to go down the route of changing the constitution and introducing sort of radical tax structures."

Barrick and Newmont both declined to comment to Market Intelligence about their discussions with policymakers in Nevada.