Duties, royalties and taxes

Duties, royalties and taxes payable by private parties

What duties, royalties and taxes are payable by private parties carrying on mining activities? Are these revenue-based or profit-based?

The US mining industry is not exempted from taxes and does not enjoy any type of tax holiday when new projects are commenced or undertaken whether by domestic or foreign parties. Taxes may be imposed at the federal, state and local levels, although there is no federal tax specific to minerals extraction. Nothing at the federal level of government requires a private party mining on federal lands to pay duties, taxes or royalties as such, although federal mining claims are subject to payment of annual maintenance fees. In general, however, private parties conducting mining in the United States must address the full panoply of taxes, including, without limitation, federal and state income taxes, state severance taxes (where applicable), ad valorem property taxes, sales taxes, use taxes, payroll taxes and the like. State income taxes and respective rates vary among the 50 states, with certain states not imposing any income tax at all. The requirements of each separate state where mining is conducted should be separately evaluated.

The federal and state income taxes tend to be profit-based since numerous deductions and credits can often be applied to reduce tax liability. Note, however, that the United States imposes an alternative minimum tax designed to extract a minimal amount of income tax, even if tax liability might otherwise be reduced due to certain deductions or credits. What, if any, efforts may be made by the Trump administration and Congress to modify the system of federal taxes that may directly impact mining remains to be determined.

Tax advantages and incentives

What tax advantages and incentives are available to private parties carrying on mining activities?

No specific tax advantages or initiatives exist for private parties carrying on mining in the United States. Private parties carrying on mining activities have the same opportunity as other taxpayers to utilise applicable deductions and credits to reduce taxes in association with mining activities.

Tax stablisation

Does any legislation provide for tax stabilisation or are there tax stabilisation agreements in force?

Tax stabilisation and related agreements are oftentimes offered in developing nations. In the United States, however, no legislation exists at the state or federal level to provide for tax stabilisation for mining activities. Similarly, no tax stabilisation agreements are authorised by US law regardless of whether the mining party is domestic or foreign.

Carried interest

Is the government entitled to a carried interest, or a free carried interest in mining projects?

No entitlement exists under US law for the government at any level to obtain a carried interest or a free carried interest in mining projects. Similarly, no states in the United States allow for such entitlement.

Transfer taxes and capital gains

Are there any transfer taxes or capital gains imposed regarding the transfer of licences?

The transfer of a mining licence is not subject to any transfer tax or capital gains tax as such at the federal level. States may apply a transfer tax or fee for such a transfer, and accordingly the individual state where the mining rights are located or the transaction is structured should be evaluated on a case-by-case basis.

Distinction between domestic parties and foreign parties

Is there any distinction between the duties, royalties and taxes payable by domestic parties and those payable by foreign parties?

The United States does not distinguish between domestic and foreign parties in regard to the payment of taxes pertaining to mining activities. Generally, tax rates, deductions for business expenses, available credits and the like apply equally to domestic and foreign parties. Note, however, that the Federal Foreign Investment in Real Property Tax Act of 1980 (Internal Revenue Code, section 1445) was enacted to ensure that foreign sellers pay taxes on the sale of real property in the United States, which has been defined to include mining properties. In any such transaction, tax withholding is determined on the basis of whether participating parties are domestic or foreign. Generally, a foreign party that sells or distributes a US real property interest must withhold tax equal to 35 per cent of the gain it recognises on the sale. A domestic corporation must deduct and withhold a tax equal to 10 per cent of the total amount realised by a foreign person on disposition of their property before 17 February 2016 (15 per cent thereafter).