City can't tax mines on ore due to law

Posted: Friday, April 04, 2008

How Juneau assesses mine taxes is very different from how it's done in most other parts of the country, according to Donald Ross, a geologist and mine appraiser who consulted on mine appraisals for the city in the past.

When the city property tax assessors finished their annual revaluation of the Kensington and Greens Creek mines this week, they paid no attention to the skyrocketing prices of gold and silver.

Assessors ignore the ore because a state law, unique to Alaska, forbids municipalities from taxing ore in the ground. The state itself collects a tax based on the ore that comes out of the ground.

"The law doesn't say you should ignore the price of gold and silver," Ross said. "When the price of gold goes up, ore body becomes worth more. But all the assets at the mine are also worth a lot more money."

That's not how Juneau appraisers work, though.

Last year, Kennecott Greens Creek Mining Co. paid $1 million in local taxes on $125.8 million in property, according to city tax records. Property taxes for the Kensington gold mine, not yet in production, totaled $327,000.In February, Hecla Mining Co. paid mining group Rio Tinto PLC $750 million for the 70.3 percent of Kennecott Greens Creek Mining Co., putting the Admiralty Island mine's value at more than $1 billion. Hecla already owned the rest of the mine.

Appraisers have three basic methods to value land: comparison with sales of similar properties, the cost of replacement and the income that can be earned with the property.

City appraiser Ken Miller said the latter is used for assessing properties such as apartment buildings that will be leased.

"The income approach is simply not appropriate here," he said.

City Attorney John Hartle said that several years ago, the city considered assessing income and subtracting the ore body value, and decided against it.

The decision was "based on the vehement opposition by the mines, and the time and resources available," he said.

"That's a very, very hard thing to do," he said of assessing mines' income. "You're going to necessarily be engaging in speculation, and you're going to require the mines to have to hand over so much information."

"We do oppose being taxed on our income, because it's not an income tax," said Clayton Walker, Greens Creek general manager. "It's a property tax."

Officials from Coeur d'Alene Mines Corp. and Coeur Alaska, which operate Kensington, did not comment because they could not locate someone who was knowledgeable enough to answer questions on taxation.

The value of a mining business depends on the price of metals and other market factors, as well as the value of the ore body, which is never totally known. It's a complicated task that few municipalities have the ability to take on. That's why many states have a central assessor who values mining properties.

The Fort Knox mine owners paid $3 million on $215 million in property to the

Fairbanks North Star Borough last year. The borough assessor, Pat Carlson, uses primarily a cost approach to value that mine.

Incorporating income would be a disservice to the public, he said.

"You have to be careful that you're not riding that rollercoaster of the value of the gold, because that's where it will bite you," Carlson said.

Elsewhere in Alaska, the Northwest Arctic Borough and the Delta Junction Borough negotiate with the Red Dog and Pogo mine operators for payments in lieu of taxes, which last year totaled $9 million and $500,000, respectively.

In Juneau, city assessors look at a parcel's grade, wetlands, proximity to the waterfront and a host of other characteristics. They assess values for each foot of tunnel, and for bridges, roads, docks, buildings and other improvements to the property.

Professional standards also bind assessors to value land according to its "highest and best use."

Land used as a comparison to determine the value of some Kensington mine lands was described by Skagway borough as "remote recreation," according to city records. It was being used as a remote helicopter landing site.

• Contact reporter Kate Golden at 523-2276 or kate.golden@juneauempire.com.



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