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Last Updated: 1/24/2017

Net Proceeds Tax

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​Companies mining or exploring for nonferrous minerals or energy resources are also subject to Minnesota taxes. This includes mining or exploring for any of the following:

  • Base metals, such as copper, nickel, lead, zinc, titanium, etc.
  • Precious metals, such as gold, silver, and platinum
  • Energy resources, such as coal, oil, gas, and uranium

Companies that are in the exploration stage, and not actually mining, are NOT subject to Occupation Tax or Net Proceeds Tax,  but they are subject to income taxes (such as Corporate Franchise Tax, S corporation Tax, etc.).

Companies that are mining nonferrous minerals are subject to the same taxes as companies that mine ferrous minerals:

  •  Occupation Tax
  •  Sales and Use Tax 
  •  Ad Valorem Tax on severed mineral interests

In addition, they are subject to Ad Valorem Tax (Property Tax) in certain situations and a Net Proceeds Tax.

 

Ad Valorem Tax

 

Companies mining or exploring for nonferrous minerals or energy resources are subject to Property Tax the same as other businesses.

For commercial and industrial property, the assessor’s estimated market value is multiplied by a class rate to obtain gross tax capacity. The first $150,000 of market value is taxed at 1.5 percent, while a 2 percent rate applies to market value over $150,000. To determine the tax, the product of the market value and class rate must be multiplied by the local tax rate plus the 48.641 percent state general Property Tax rate for taxes payable in 2016. In St. Louis County, where the majority of Minnesota’s mining industry is located, the local tax rates payable in 2016 varied from a low of 82 percent to a high of approximately 414 percent. If a referendum tax is passed, the referendum rate times the full market value must be added.

If a company is mining minerals or energy resources subject to the Net Proceeds Tax under M.S. 298.015, then the following property is exempt:

  • Deposits of ores, metals, and minerals and the lands in which they are contained
  •  All real and personal property used in mining, quarrying, producing, or refining ores, minerals, or metals, including lands occupied by or used in connection with the mining, quarrying, production, or ore refining facilities;
  •  Concentrate
 For more information on Ad Valorem Tax, click here.
 

Net Proceeds Tax

 

The Net Proceeds Tax applies to the mining or producing of nonferrous minerals and energy resources, i.e., all ores, metals and minerals mined, extracted, produced or refined within Minnesota, except for sand, silica sand, gravel, building stone, crushed rock, limestone, granite, dimension granite, dimension stone, horticultural peat, clay, soil, iron ore and taconite concentrates.

The tax is equal to 2 percent of the net proceeds from mining in Minnesota. Net proceeds are the gross proceeds from mining less allowable deductions. Gross income from mining or producing nonferrous minerals or energy resources is calculated differently from the method used for ferrous minerals.

For non-equity or arms-length transactions, gross income is based on actual sales. Generally, for non-arms-length transactions, gross income is based on the average annual market price as published in the Engineering and Mining Journal.

The Net Proceeds Tax was designed to apply to mining and beneficiation, generally to the point of a saleable product. In the case of some hydrometallurgical processes, the saleable product may be a refined metal.

Deductions from the tax include only those expenses necessary to convert raw materials to marketable quality. Expenses such as transportation, stockpiling, marketing or marine insurance that are incurred after marketable ores are produced are not allowed, unless the expenses are included in gross proceeds.

Distribution of the tax. If the minerals or energy resources are mined outside the Taconite Assistance Area, the tax is deposited in the state’s General Fund. If they are mined or extracted within the Taconite Assistance Area, the tax is distributed to:

 

Cities and towns (5%), counties (20%), and school districts (10%) where the minerals or energy resources are mined or extracted, or where the concentrate is produced. If concentrating occurs in a different taxing district from where the mining occurs, 50 percent is distributed to the taxing districts where mined and the remainder to those districts where processed. In addition, counties must pay 1 percent of their proceeds to the Range Association of Municipalities and Schools.

 
  •  Regular School Fund (20%)
  •  Taconite Municipal Aid Account (10%)
  •  Taconite Property Tax Relief (20%), using St. Louis County as fiscal agent
  •  IRRRB (5%)
  •  Douglas J. Johnson Economic Protection Trust Fund (5%)
  •  Taconite Environmental Protection Fund (5%)

Distributions are made annually on July 15; however, there are currently no companies subject to the Net Proceeds Tax.