Compared to other industries such as oil and gas or fisheries, mining in Alaska operates in a comparatively tax-free environment. A bill sponsored by Rep. Paul Seaton would alter parts of the state’s mining tax law for the first time since statehood and significantly increase what miners pay.
The Homer Republican, joined by Rep. Andrea Doll, D-Juneau, said House Bill 156 would change the existing Mining License Tax, as well as royalties on minerals and coal, and the way the state charges rent for mining activity on state land.
“HB156 allows the state a reasonable share of the wealth for its mined resources through many long-overdue changes to the mining tax structure,” Seaton said in a sponsor statement. “It is important that we establish a stable tax structure that is fair to the private sector and provides the people of Alaska with a reasonable benefit from their resources.”
Mining spokesperson Steve Borell, executive director of the Alaska Miners Association, warned that HB 156 would “turn upside-down a system in place since before statehood,” and lead to huge and, for some operators, untenable tax increases that could prevent some resources from being mined.
If the bill became law, it would “guarantee that state land that could be mined would become less attractive to explorers compared to private land or Native land,” Borell said.
Under current law, a Mining License Tax is levied on the net income from mining activities. Rates are based on a graduating scale that increases with net income, with a top rate of 7 percent. Here how the state’s current tax law would change if the current version of HB 156 became law:
• The existing law exempts mines from paying the license tax for the first three years of operation. Seaton’s bill would change the exemption to a deferral payable over the following 10 years of production.
• It would raise the graduated scale by 2 percent and add an additional bracket for income over $500,000 to be taxed at 11 percent.
• The bill would exempt miners with net incomes under $40,000 from the current duty to file tax forms.
• It would change a depletion allowance, eliminating the deduction of a flat percent of gross income in favor of allowing a mine to deduct all development expense over the life of the mine. Indirect expenses would be disallowed under the bill. According to Seaton, this primarily would affect larger operations with multiple mines.
• Royalties paid for mining on state land would be calculated differently. The current royalty is 3 percent of net income. Instead, the bill would impose a 3-percent tax on processed minerals called a Net Smelter Return (NSR) tax. The royalty represents the owners’ share of mineral wealth. According to Seaton, most owners other than the state negotiated NSR royalties between 2 percent and 5 percent.
• Provisions setting royalties paid on extracted coal would be updated for the first time since statehood. The current 5 percent levied against adjusted gross income would become the minimum royalty that could be negotiated with the administration.
• Also for the first time since statehood, the way operators pay for the right to mine on state land would change. Under HB 156, the per-acre land claim rental rates would be updated to reflect the $3 per acre for coal and $3.30 per acre for minerals currently in regulation. Those rates would be tied to the Anchorage Consumer Price Index, allowing rates to increase with inflation, Seaton said.
• Under HB 156, the state could accept coal as royalty in-kind, the way it now accepts oil.
Compared to Alaska’s other high-value resource industries, Alaska’s mining industry “bears a light tax burden,” Seaton said.
Alaska gets less than 1 percent of the mined resource value as tax revenue. Municipal governments derive another 1 percent, mostly as property tax. Meanwhile, the oil and gas industry pays a 12.5-percent royalty for operating on state land, and pays a 22.5-percent tax on the net profits. The oil and gas industry also pays a property tax of 20-mills.
State fisheries, Seaton noted, contribute 2.8 percent of the total production value to the state and an additional 2.5 percent paid in severance and use taxes to municipalities. Vessels, docks and processing plants also pay municipal property taxes.
Borell disagrees with the basis of Seaton’s comparisons. As he sees it, mining and fisheries provide the same level of benefits to the state even before taxes revenues are handed to the state and municipalities. As of oil and gas, they should be charged more, because mining produces nowhere near the same rates of return.
Borell said the current mining tax laws are sufficient to guarantee the state and municipal governments a fair share while offering the explorer a chance to see a mining venture come to fruition. He called land rental rates in any amount “a parasite” on mining efforts and the proposed increases enough to stop many projects.
The current rental rates do act as an incentive to diligently explore a claim, he said.
He also said the kind of royalty rates proposed by Seaton’s bill would require that deposits be significantly richer in order to make them worth developing.
“Some deposits that could otherwise be developed, would not be developed,” Borell said. “Those that do get developed, there would be the potential that mineable material would be left in the ground. It wouldn’t be economical.”
HB 156 has been referred to the House Special Committee on Ways & Means, as well as the House Finance and House Resources committees.
A Ways & Means Committee meeting will be held 8:30 a.m. on Friday, March 16.
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