Powertech’s taxing issues

NUNN – Powertech USA hopes to earn millions of dollars from uranium mining operations in Weld County, which company officials have promised would inject money into the local economy through jobs as well as property and other taxes paid to local and state governments.

Whether the Vancouver, Canada-based company will pay any severance taxes – the taxes incurred by businesses that extract Colorado’s resources such as oil, gas and coal – remains an open question.

Under Colorado’s severance law, companies that mine metallic minerals, including uranium, pay a tax of 2.25 percent on gross income after the first $19 million earned in a given year.

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Jim Bonner, Powertech USA’s vice president for exploration, said he expects the company to produce more than $19 million in annual uranium sales but couldn’t predict with certainty how much it might earn.

Bonner said the company’s earnings would depend on the market price for uranium when it’s sold. “We could certainly reach that ($19 million per year), I would think. Under our plans right now, I’d say that would be the case.”

The price of uranium has increased dramatically in recent years as more nuclear power plants have been built in the United States and around the world. Last summer, uranium reached a record price of nearly $140 a pound. The latest price on the spot market for uranium oxide – U3O8 – was $78 per pound on Oct. 15.

In addition to the first $19 million in gross sales being tax-free, Powertech would also be able to deduct 50 percent of its county taxes under the state’s ad valorem tax rule.

Mark Couch, public information officer for the Colorado Department of Revenue, said his understanding of the severance-tax breaks is that they were included in the 1977 law to help mining companies make the investment to get started.

“It was a directive from the Legislature to get a break to promote their industry,” Couch said.

Colorado now collects more than $240 million in severance taxes each year – mostly from oil and gas operations. Critics of the system say that could be much higher if the state would update its severance-tax rates and get rid of the ad valorem rule.

Colorado generous

Colorado is generous when it comes to uranium severance taxes when compared to its neighbor to the north. Wyoming charges a higher percentage – 4 percent of taxable value – and has no initial or ad valorem deductions, said Cindy Rice, solid mineral work leader for the Wyoming Department of Revenue.

Wyoming, with no state income tax, depends heavily on its severance taxes, Rice said. “We do rely pretty heavily on our mineral industry to support us,” she said.

With interest growing in uranium mining, along with public concerns about how it might impact water supplies and human and animal health, Colorado legislators have been looking at possible changes in the severance-tax laws.

Rep. Randy Fischer, D-Fort Collins, said an interim committee that looked into the state’s severance-tax system last summer concluded that any effort to raise the rates would require a statewide vote under TABOR and would likely be a difficult battle.

“The problem is, to change the severance tax would have to go to a vote of the people, and that’s a pretty tall order,” he said.

Fischer said the state’s “numerous exemptions and credits” could mean that Powertech – which still must obtain a permit to begin mining operations in 2010 – might be able to extract uranium without much of a tax liability “and the people won’t see much economic impact.”

“It’s doubtful they’ll be paying any severance tax at all,” he said.

But Stewart Sanderson, president of the Colorado Mining Association, said Powertech shouldn’t be criticized for benefitting from the state’s severance-tax system.

“There will be property taxes assessed with the operation, and if it gets above $19 million, there will be additional severance taxes,” he said. “For some to claim that they’re not getting a fair shake, the fact is there isn’t any uranium mining yet. Let’s bring in a company and then determine what level of tax is appropriate.”

Sanderson said the mining industry feels it would “not be wise” to increase the severance tax, adding, “We think the severance tax is set at a reasonable level.”

Could discourage mining

Sanderson said Colorado legislators should tread lightly when it comes to raising severance taxes. “Colorado’s already a tough state to do business – there’s no question about that,” he said. “That’s why I think regulators should exercise caution and let the permitting process work in this state.”

Sanderson said he believes Colorado already has sufficient safeguards and a fair tax structure to ensure an ongoing mining industry that pumps millions into local and state economies.

“A mining company coming in to operate in Colorado is going to have to meet some very rigorous standards to do business in the state,” he said. “Let’s wait until we get some uranium mines in production before we start tinkering with the tax structure, which would tend to discourage uranium mining.”

Sen. Gail Schwartz, D-Snowmass, is vice-chair of the Senate Natural Resources and Energy Committee and chairs an interim committee that is looking at possible changes in the severance-tax system.

Schwartz said the committee’s work would likely focus more on how severance-tax collections are distributed than whether they should be raised due to state restrictions on new taxes and spending.

But, Schwartz said, with rising oil prices and increasing oil and gas pumping along with growing interest in uranium mining, the time is approaching when a revamping of the taxes may be a fight worth making.

“We need to make sure all of our extractor industries are paying their fair share in Colorado, which is not the case right now,” she said.