Duties, royalties and taxes
Duties, royalties and taxes payable by private parties
What duties, royalties and taxes are payable by private parties carrying on mining activities? Are these revenue-based or profit-based?
The US mining industry is not exempted from taxes and does not enjoy any type of tax holiday regardless of whether mining is conducted by domestic or foreign parties. Taxes may be imposed at the federal, state and local levels, although there is no federal tax specific to minerals extraction. Nothing at the federal level of government requires a private party mining on federal lands to pay duties, taxes or royalties as such, although federal mining claims are subject to payment of annual maintenance fees or performance of assessment work. In general, however, private parties conducting mining in the United States must address the full panoply of taxes, including, without limitation, federal and state income taxes, state severance taxes (where applicable), ad valorem property taxes, sales taxes, use taxes, payroll taxes and the like. State income taxes and respective rates vary among the 50 states, with certain states not imposing any income tax at all. The requirements of each separate state where mining is conducted should be separately evaluated.
The federal and state income taxes tend to be profit-based since numerous deductions and credits can often be applied to reduce tax liability. However, the United States imposes an alternative minimum tax designed to extract a minimal amount of income tax, even if tax liability might otherwise be reduced due to certain deductions or credits. What, if any, efforts may be made by the Biden administration and Congress to modify the system of federal taxes remains to be determined, but it is clear that the debate has started within Congress to determine whether reforms to the General Mining Law should be made and also whether increased fees and royalties should be assessed for the right to mine on federal land.
Tax advantages and incentives
What tax advantages, tax credits and incentives are available to private parties carrying on exploration and mining activities?
No specific tax advantages or initiatives exist for private parties carrying on mining in the United States. Private parties carrying on mining activities have the same opportunity as other taxpayers to utilise applicable deductions and credits to reduce federal and state taxes in association with mining activities.
Tax stabilisation
Does any legislation provide for tax stabilisation or are there tax stabilisation agreements in force?
Tax stabilisation and related beneficial arrangements are often offered in developing nations. In the United States, however, no legislation exists at the state or federal level to provide for tax stabilisation for mining activities. Similarly, no tax stabilisation agreements are authorised by US law regardless of whether the mining party is domestic or foreign.
Carried interest
Is the government entitled to a carried interest, or a free carried interest in mining projects?
No entitlement exists under US law for the federal government at any level to obtain a carried interest or a free carried interest in mining projects. Similarly, no states in the United States allow for such entitlement.
Transfer taxes and capital gains
Are there any transfer taxes or capital gains imposed regarding the transfer of licences?
The transfer of a mining licence is not subject to any transfer tax or capital gains tax as such at the federal level. States may apply a transfer tax or fee for such a transfer, and accordingly, the individual state where the mining rights are located or the transaction is structured should be evaluated on a case-by-case basis.
Distinction between domestic parties and foreign parties
Is there any distinction between the duties, royalties and taxes payable by domestic parties and those payable by foreign parties?
The United States does not distinguish between domestic and foreign parties regarding the payment of taxes pertaining to mining activities as such, but recall that mining claims on federal lands pursuant to the General Mining Law may be located and held only by US citizens or those who have declared their intent to become US citizens. Generally, tax rates, deductions for business expenses, available credits, deductions and the like apply equally to domestic and foreign parties. Note, however, that the Federal Foreign Investment in Real Property Tax Act of 1980 (section 1445 of the Internal Revenue Code) was enacted to ensure that foreign sellers pay taxes on the sale of real property in the United States, which has been defined to include mining properties. In any such transaction, tax withholding is determined based on whether participating parties are domestic or foreign. Generally, a foreign party that sells or distributes a US real property interest must withhold tax equal to 35 per cent of the gain it recognises on the sale. A domestic corporation must deduct and withhold a tax equal to 15 per cent of the total amount realised by a foreign person or entity on disposition of pertinent property after 17 February 2016 (10 per cent previously).
Acquisitions by foreign parties of a controlling interest in a US entity involved in mining operations will likely be subject to formal oversight and evaluation by the Committee on Foreign Investment in the United States. If the Committee determines that a threat to national security is presented by the acquisition, conditions can be imposed on the potential transaction or the transaction may be blocked altogether by the President, who has the ultimate decision-making authority. Even transactions previously approved may be re-evaluated and unwound after the fact.