The Constitution of the State of Nevada (Nevada Constitution) requires a tax on the net proceeds of resource extraction, but limits the amount of that tax to five percent. In last November’s election, Question 2 on the Nevada ballot posed the question whether the Nevada Constitution should be amended to remove the net proceeds cap. The measure failed by a margin of 49.7% in favor and 50.3% against.
Article 10, Section 5 of the Nevada Constitution requires the State Legislature to impose a tax upon the net proceeds of all minerals extracted in Nevada – including ores, metals, oil, gas, hydrocarbons, geothermal resources, and all other mineral substances – but limits the tax rate to a maximum of five percent of net proceeds.1
Additionally, the Nevada Constitution establishes specific restrictions on the taxation of patented mines or mining claims. Under the Constitution, a patented mine or mining claim is technically subject to real property tax; however, in assessing the property tax, Article 10, Section 5 provides that no value may be attributed to any minerals beneath the land, or attributed to the surface of the land if $100 of labor has been performed on the mine or mining claim during the preceding year. As long as minimal labor is performed on the mine or mining claim and an Affidavit of Labor is submitted, the claim is essentially exempt from Nevada property tax.
Taken together, the net proceeds cap and the property tax exemption provide a favorable tax structure for mining companies operating in Nevada. Some legislators, especially those in the southern part of the state (which has generally not benefitted from mining jobs), argued these tax incentives were too favorable for mining companies. On the other end of the political spectrum, fiscally conservative legislators and those in more rural areas have touted the job creation generated by mining. However, because this tax restriction is a Constitutional restriction, the five percent cap could not be altered or removed without the majority vote of the people.
If passed, Question 2 would have removed the existing constitutional restrictions, thereby enabling the State Legislature to enact laws altering, and likely increasing, the existing mining taxes. As expected, voters from Clark County (Nevada’s most populous county which includes the Greater Las Vegas area) were moderately in favor of repealing the constitutional restrictions, with 55% voting in favor of Question 2. In fact, the “yes” on Question 2 faction prevailed in Clark County by almost 33,000 votes. However, the measure was defeated in every other Nevada county, resulting in a statewide loss just over 3,000 votes (265,821 in favor, and 269,030 opposed).
As a result, Nevada’s favorable mining tax structure mandated by Article 10, Section 5 of the Nevada Constitution will remain in place for the foreseeable future.