REGIONAL— Lower taconite production in 2016 combined with a sales tax exemption applied to mine processing equipment in 2015, have contributed to a third straight year of reduced tax receipts to …
REGIONAL— Lower taconite production in 2016 combined with a sales tax exemption applied to mine processing equipment in 2015, have contributed to a third straight year of reduced tax receipts to the state and local governments in the region.
According to the 2017 Mining Tax Guide, just released by the Minnesota Department of Revenue, tax receipts levied on the industry fell to $80.56 million, their lowest level since 2009, when the financial crash shuttered most mines on the Iron Range.
As recently as 2013, the state levied taxes totaling $141.9 million. While the state and county levy a number of taxes on the industry, the production tax, which currently amounts to $2.66 per ton, makes up the lion’s share.
That means reductions in total taconite production due to layoffs and shutdowns can have a big impact on the amount of taxes the industry generates. Production tax dollars provide revenue for cities and townships, school districts, and counties in the taconite assistance area, along with funding to the IRRRB. The production tax generated as much as $102 million in 2014, when total tonnage hit just under 39.7 million tons.
But the slowdown in the industry that began in 2015 dropped production that year to 32.6 million tons. It fell even further in 2016, to just over 29 million tons, the lowest since 2009. That dropped production tax revenues to $89 million. The production tax fund does receive a $7.37 million allocation from the state’s general fund, which raised the total revenue available for distribution to communities in the taconite assistance area to $96 million this year. Those extra dollars are raised through statewide general taxes, however, not the mining industry.
At the same time, mining companies received $13.98 million in rebated sales taxes on production equipment in 2016. That left the total taxes actually levied on the industry at $80.55 million in 2016.
“This just goes to show what a huge impact Minnesota’s iron mining industry has on our region,” said Iron Mining Association of Minnesota President Kelsey Johnson in a press statement issued last week. “Despite the downturn caused by significant global pressures, millions of dollars still went into our communities,” Johnson said.
The majority of the 2017 production tax dollars – more than $38 million – went to the IRRRB which reinvests in Iron Range communities, businesses, and workforce development.
Nearly $22 million went to local school districts, $11 million went to property tax relief, and the remaining $25 million went to cities, townships, and counties in various ways.
While significant, the iron mining industry’s tax contribution to the region has failed to keep pace with inflation over the years, and pales in comparison to the tax impact the industry had decades earlier. For example, the industry generated an average of almost $97 million in taxes annually in the 1970s, on annual taconite production of about 42 million tons. Adjusted for inflation, the same tax revenues generated by the iron mining industry in the 1970s would be worth nearly $388 million today, according to the Bureau of Labor Statistics. While those were heady times for the industry, even in the relatively lackluster early 1990s, the industry generated an average of $98 million in taxes annually, according to the mining tax guide. Adjusted for inflation, that equals $175 million in today’s dollars.
In terms of dollars per ton, the value generated by taxes on the mining industry continues to slip to inflation. Beginning in the 1970s, when the state boosted taxes on the industry, the region’s taconite mines paid out an average of about $2.40 in taxes for every ton produced. At the time, according to the Federal Reserve, a ton of iron ore sold for $12.15 on the world market. That put the tax rate on a ton of ore at about 19.7 percent.
In 2016, by contrast, that same ton of iron ore fetched an average of about $60 per ton, while the region’s mining companies paid $2.77 of that in taxes, or just 4.6 percent of the value of an equivalent ton of ore.
And that $2.77 per ton, when adjusted for inflation, is worth far less than the $2.40 per ton that the industry generated in the 1970s and 80s. Indeed, that $2.40 per ton generated in 1980 is equivalent to $7.61 in today’s dollars, according to the BLS.
Over the years, the industry has coaxed legislators into enacting a number of changes in the law that have helped reduce their tax burden. In 1988, the Legislature repealed a gross earnings tax on railroads operated by mining companies, switching to an ad valorem assessment that dramatically reduced their tax bill. In 1989, legislators repealed the royalty tax, which generated over $4 million annually at its peak. In 1992, the Legislature created the Taconite Economic Development Fund, which dedicated a portion of the production tax to grants to the mining companies for investments in their operations. In 2001, the Legislature made the fund permanent and dedicated 30.1¢ per ton, or about 12 percent of the total production tax, to the program. In recent years, the program has provided mining companies anywhere from $10-$12 million annually, although that fell to just $700,000 in 2016. The law suspends payments if total taconite production on the Iron Range falls below 30 million tons, which it did last year.
In addition, in 2015, the Legislature approved a measure that exempts equipment purchased for use in mine processing from the state use tax, which is similar to the sales tax. That resulted in a $13.98 million rebate from the state to mining companies in 2016.
At the same time, the Legislature has kept the production tax rate from increasing at the rate of general inflation, and has enacted freezes on a number of occasions. Twenty-five years ago, for example, the state levied $2.05 on every ton of taconite produced. In 2017, that rate is $2.66 per ton. Had that rate kept pace with inflation, the production tax would be $3.67 per ton today and the tax would have generated $123 million in 2016, rather than the $89.1 million in production taxes actually levied on the mining industry last year.