(Updated at 2:12 p.m. on March 14, 2011 to include new comments from Sandoval Administration)
CARSON CITY – Senate Majority Leader Steven Horsford has requested emergency legislation to conduct a performance audit of the revenue collection functions of the Department of Taxation following questions last week about the thoroughness of the agency’s review of mining tax payments.
“We were told by the head of the Tax Department that they haven’t had properly trained individuals in place for two years on the net proceeds – that’s a major problem,” he said. “I am glad that the governor is going to immediately try to address that but the question then becomes what else isn’t being properly audited at a time when we have a $2.5 billion budget hole.”
Horsford, D-Las Vegas, is working with Sen. Sheila Leslie, D-Reno, the chairwoman of the Legislative Commission’s Audit Subcommittee and Chairwoman of the Senate Revenue Committee, on the precise language for the bill.
A number of the members of the Senate Revenue Committee expressed concern at a hearing Thursday when former Tax Department Executive Director Dino DiCianno told the panel that his agency has not had trained auditors to review the net proceeds of minerals tax reports submitted by mining companies, “for a couple of years.”
This at the same time gold prices have reached record levels.
Horsford asked DiCianno if he had informed former Gov. Jim Gibbons about the lack of trained auditors to review mining deductions claimed under the law, which are self reported by the companies.
DiCianno replied he had not, and that maybe he should have informed the governor.
The following day, DiCianno submitted his resignation to Gov. Brian Sandoval effective immediately.
In announcing DiCianno’s departure, Sandoval also named Deputy Director Chris Nielsen to lead the agency until the governor can appoint a successor. Sandoval asked Nielsen to begin preparing a full transition plan, including an immediate strategy to resume auditing mine operators to ensure the proper payment of the net proceeds of minerals tax. Sandoval has also directed the state Internal Audit Division to assist the Department of Taxation as it resumes the net proceeds audits.
Sandoval Senior Adviser Dale Erquiaga today said at a press briefing the governor has instructed the interim tax agency director to determine when the last mining audits were performed, which operators were audited and whether any deficiencies were identified.
The information will then be presented at a special meeting of the Tax Commission set for March 21. Sandoval may also call the Executive Branch Audit Committee together to consider evaluating other revenue sources collected by the Tax Department.
Erquiaga said there is at least one audit of a mining operator that the Tax Department is aware of. The Tax Department is required to conduct random audits so it is not clear if the 100 mining operators in the state could all be reviewed right away, he said.
Sandoval in his proposed budget made only a minor reduction in the agency funding to ensure it could effectively collect tax revenue, Erquiaga said.
“It’s bad management practice in the last administration to allow two years to go by without an audit,” Erquiaga said. “We want an explanation from the staff. We’re going to work with them to be sure going forward that doesn’t happen.”
Horsford said he does not know if the tax deductions claimed by the mining industry over the past few years are legitimate or not. The audit being requested will help answer that question, as well as whether audits of other revenues owed to the state are also being handled appropriately by the agency, he said.
“I was a little concerned about the fact that we’ve had increased revenues from mining, but also increased deductions,” he said. “So the tax payments are down.”
Horsford said the state needs to make sure the reporting is accurate.
“It’s obviously a top priority,” he said.
Leslie said one major focus will clearly be the auditing of the net proceeds of mines.
“This is a direct result of the testimony at the Revenue Committee last week which seemed to shock everyone,” she said. “That at a time when the price of gold is at record highs, we have not been auditing. And I think many of us are concerned about the whole idea of self reporting.”
The huge mining corporations likely have the best tax attorneys available to ensure they take advantage of every “loophole” in claiming exemptions from the mining tax, Leslie said.
“I’m sure they have been looking very closely at how to minimize their tax obligations, and that’s not illegal,” she said. “Right now it seems very one-sided on behalf of the mining companies.”
Leslie said she has questions about whether the mining exemptions have possibly been expanded over the years through the regulatory process that the Legislature may not be fully aware of.
The state has to ensure the exemptions are appropriate and the state is collecting all that is owed, she said.
“We’re outgunned to begin with,” Leslie said. “But the idea that we have nobody and haven’t had anybody looking at that for the last two years is preposterous. We need to be armed with our experts and right now we are unarmed.”
The mining industry has been a major target of both Democratic and Republican lawmakers already in the 2011 session. Some lawmakers have suggested the mining industry can afford to pay more in taxes and lessen the severity of cuts to education and state programs proposed in Sandoval’s $5.8 billion general fund budget.
Leslie said she wants to look at the multiple exemptions the mining industry can take on the minerals tax paid to the state and county governments and whether they are still appropriate, particularly the changes made in 1989.
Senate Majority Leader Steven Horsford says the Tax Department has not been properly auditing the net proceeds tax:
Horsford says the question is what else has not been audited:
Horsford says mining revenues are up but tax payments are down:
Sen. Sheila Leslie says the bill request is a direct result of the shocking testimony last week:
Leslie says she is certain that mining companies are taking every tax deduction they can:
Leslie says the state is outgunned in the auditing process:
Sandoval Senior Adviser Dale Erquiaga says it was bad management practice by the Gibbons Administration not to audit mining companies: