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Vol. 11, No. 9 Week of February 26, 2006
Providing coverage of Alaska and Northwest Canada's mineral industry

MINING NEWS: Seaton wants to tax mining production

By Sarah Hurst

For Mining News

A bill in the Alaska Legislature introducing a mining production tax would ensure that the people of the state derive the maximum benefit from the use of resources, as guaranteed in the constitution, according to the bill’s sponsor.

Rep. Paul Seaton, R-Homer, a commercial fisherman, believes that the mining industry is not contributing enough to the state compared with the fishing industry and the oil and gas industry. His bill would impose a tax of 0.6 percent of the gross value of the resource at the point of production in 2007, increasing each year until 2011 when it would reach 3 percent.

The production tax would replace Alaska’s existing mining license tax, which was originally imposed by the Territorial Legislature and underwent several transformations until 1955, when the current structure was adopted. These tax rates are based on a graduated scale that increases with net income, topping out at 7 percent. Mining operations (excluding sand and gravel operations) are exempt from paying the mining license tax for the first three-and-a-half years of production.

Seaton and one of his aides, Ian Laing, have produced figures to demonstrate why the tax is desirable. Using data from state agencies including the Department of Revenue, they calculated that the oil and gas industry contributed 20.2 percent of its total production value to the state and 2.1 percent to municipalities in 2004. The fishing industry contributed 2.6 percent of its total production value to the state and 2.6 percent to municipalities that year. The mining industry contributed 0.7 percent to the state and 0.8 percent to municipalities, according to Laing.

The value of mineral production for 2004 was $1.34 billion, according to the Division of Geological and Geophysical Surveys’ Special Report 59 on Alaska’s mineral industry. From that the state received $8.82 million. One of the reasons why the amount was so low was because none of Alaska’s three hard-rock mines existing at the time — Fort Knox, Greens Creek and Red Dog — are on state land. Pogo gold mine, which is due to start production by the end of the first quarter of 2006, is on state land.

Like the mining license tax, Seaton’s proposed tax would apply to all mines, regardless of whether or not they are on state land, although the first $50,000 of the production value would be exempt. The product would have to be transported out of the mine or sold in order to be subject to the tax. The cost of transportation would be taken into account when calculating the tax. “If a company can profit by warehousing and storing the product until prices are higher, the state will benefit mutually,” Laing told Mining News.

The mining production tax is comparable to the raw fish tax, which is 3 percent of the first sale transfer from a fishing vessel to a processor if it occurs shore side and 5 percent if the fish is processed offshore, according to Seaton. “The mining industry is going from a much smaller base to a much larger industrial base,” Seaton told Mining News. “The Legislature needs to look at responsible resource development and we need to get a fair return for the people of Alaska.”

“Net tax scenarios ... create many problems,” the sponsor statement accompanying Seaton’s bill says. “They are easily subject to accounting manipulation and arm’s length pricing concerns. This requires comprehensive anti-avoidance measures on behalf of the administrator to ensure a full payment of the appropriate taxes. In addition, the net tax can create an undependable source of revenue and provide little compensation to the people of Alaska. Gross production taxes eliminate these potential abuses and provide the rights holder with fair and consistent compensation for the resource.”

Seaton pointed out that he took geology and mining classes many years ago and has done some small-scale prospecting near Fairbanks. “I think mining is a valuable industry to this state,” he said. However, his tax bill and his bill that prohibits mixing zones are both opposed by the Alaska Miners Association. “Last year we cut $75,000, one full-time position, out of DEC’s budget (the Department of Environmental Conservation) because they kept trying to get rid of the mixing zone prohibition,” Seaton said.

“The people of Alaska have spoken and said that the existing mixing zone prohibitions are appropriate. From DEC there’s been a fallback from very good, responsible practices. I wish we weren’t even talking about it. It definitely isn’t an attack on the mining industry.”

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