Bill might change rates

Mining action might reach gravel pit owners

Posted: Tuesday, March 21, 2006

Alaska’s mining concerns get off relatively easy compared with other industries when it comes to paying state taxes on extracted resources, and Rep. Paul Seaton, R-Homer, proposes to even the playing field.

Among other things, House Bill 418, introduced by Seaton in early February, would change the rates charged miners under the Mining License Tax, which is levied on mining net income and royalties received in connection with mining properties and activities. This tax change could impact gravel pit operators on the Kenai Peninsula.

The House Ways and Means Committee is scheduled to hold a teleconference hearing on HB 418 at 9 a.m. Wednesday.

According to Seaton, Alaska mining industry “bears a light tax burden” compared with other high-value resource industries, such as oil and gas and fishing. For instance, state revenues from oil and gas amount to about 20 percent of production value, plus another 2 percent paid to municipalities, while revenues from fisheries amount to about 2.8 percent of total production value, with another 2.5 percent going to municipalities.

But revenue from mining operations totals only .7 percent of the mined resource value, plus another 1 percent that goes to municipalities, Seaton said.

HB 418 would change at least part of that picture by revamping three of the main taxes paid by mining operations — the Mining License Tax, state royalties for minerals and coal, and the per-acre rental fee for mining on state land.

Except for sand and gravel extraction, all mining activities enjoy an exemption to mining license tax for the first 3 1/2 years of production. HB 418 would change that exemption to a three-year deferral, and miners would be required to pay back the deferred taxes over the next 10 years of production.

Kenai Peninsula commercial sand and gravel operations could be impacted slightly by another proposed change to the Mining License Tax, which would increase the graduated rates currently paid by miners.

Proposed new rates would require a 5-percent rate between $40,000 and $50,000, a 7-percent rate between $50,000 and $100,000, plus a $1,500 fee, a 9-percent rate between $100,000 and $500,000, plus a $4,000 fee, and a 11-percent tax over $500,000.

“Everybody who mines in state pays the Mining License Tax. It’s essentially your permit to mine,” said Ian Laing, an aide to Rep. Seaton.

Also in line for changes are the current law’s depletion allowance provisions. Proposed amendments would let mines deduct development expenses over the life of a mine but eliminate the current deduction of a flat percent of gross income. The bill also would disallow indirect expenses (those not directly applied to extraction activities). These changes would primarily affect larger operations with multiple mines, Seaton said in a revised sponsor statement issued Monday.

The bill also would change the way state royalty payments are calculated. It would end the current 3-percent tax on net income and apply a 3-percent Net Smelter Return tax instead, taxing the fair market value of the recovered product after the deduction of smelter fees and the cost of transportation. Laing said it was the most important part of the bill.

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