Mining Tax Guide - Minnesota State Legislature

Definition
The taconite production tax is a severance tax paid on concentrates
or pellets produced by the taconite companies. It is paid in lieu
of ad valorem (property) taxes on taconite and lands containing
taconite. Land and structures used in the production of taconite
are also excluded from property tax, with some exceptions (see
pages 46 and 47). Electric power plants principally devoted to
the generation of power for taconite mining and concentrating
are considered to be used in the production of taconite (or
direct reduced ore) and are covered by the in lieu exemption for
property taxes. If part of the power is used for other purposes, that
proportion of the power plant is subject to the general property
tax. The power plant must be owned by a company subject to
production tax to qualify for the exemptions.
Tax Rate
The taconite production tax rate for any given year is determined
by multiplying the prior year’s rate by the percentage change in
the Gross Domestic Product Implicit Price Deflator (GDPIPD)
from the fourth quarter of the second preceding year to the fourth
quarter of the preceding year. The U.S. Department of Commerce
publishes the GDPIPD monthly in Survey of Current Business.
This escalator takes effect each year unless the rate is frozen or
changed by the Minnesota State Legislature. The tax rate for the
2010 production year was $2.380 per taxable ton. For concentrates
produced in 2011, the rate will be $2.412 per taxable ton.
Taxable Tons
The production tax is levied on taxable tons, which are the
average tons produced during the current year and the previous
two production years. This eliminates the peaks and valleys of
tax payments by the taconite producers and distribution to the
tax recipients. The result is a more stable tax base resembling a
property tax. The tax for a producer of other iron bearing material
is based on the current year production.
Distribution
Under Minnesota law, production tax revenues are distributed to
various cities, townships, counties and school districts within the
Taconite Assistance Area. This is an area comprising the present
taconite mining areas plus areas where natural ore was formerly
mined.
Funds are also allocated to the Iron Range Resources &
Rehabilitation Board (IRRRB), which administers the Taconite
Environmental Protection Fund, the Douglas J. Johnson Economic
Protection Trust Fund, the Taconite Economic Development
Fund (sometimes referred to as the Investment Tax Credit), the
Taconite Assistance Program and other loan and grant programs
for both the range cities and townships and the taconite industry.
More information about the IRRRB can be found on pages 25 - 29.
Taconite Production Tax
(M.S. 298.24, 298.27 and 298.28)
5
Payment Dates and Method
For taxes payable in 2004 and thereafter, the payments are due 50
percent on February 24 and 50 percent on August 24. If the 24th
falls on a weekend or holiday, the payment date is the next regular
work day. The Department of Revenue must notify each taconite
producer of its tax obligation for the year by February 15.
Each producer must make payments to six counties and the
IRRRB on or before the due date. Payments are made to Aitkin,
Cook, Crow Wing, Itasca, Lake and St. Louis Counties, and to
the IRRRB. The county auditors then make payments to cities,
townships, school districts and other recipients.
Producer Grant and Loan Fund (M.S. 298.2961)
The producer grant program was renewed by the 2005 legislature.
The amount allocated is 5 cents per ton (cpt) plus the revenue
generated by the tax rate increase for the 2004 production year.
The 2005 distribution was entirely allocated to the City of Virginia
for a steam-heating system. The 2006 distribution was allocated
to the cities of Hibbing and Virginia public utilities for biomass
conversion. The 2007 distribution was allocated to the City
of Tower for the East Two Rivers project. For distributions in
2008, the first $2 million was allocated to St. Louis County for
the relocation of St. Louis County Road 715. The remainder of
the 2008 distributions was paid to St. Louis County for a grant to
the city of Virginia for connecting sewer and water lines to the
St. Louis County maintenance garage on Highway 135, further
extending the lines to interconnect with the city of Gilbert’s sewer
and water lines. The amounts in 2009 and later are allocated for
projects under the Taconite Area Environmental Protection Fund.
Taconite Economic Development Fund (M.S. 298.227)
The Taconite Economic Development Fund (TEDF) was first
created for production years 1992 and 1993 at a rate of 10.4 cents
per taxable ton.
No distribution is made under the TEDF in any year in which total
industry production falls below 30 million tons. Any portion of
the TEDF fund not released within one year of deposit is divided,
with two-thirds to the Environmental Protection Fund and onethird
to the Douglas J. Johnson Economic Protection Trust Fund.
To date, all funds have been approved and released to the taconite
producers before the deadline expiration. The 2001 legislature
made the TEDF permanent at 30.1 cpt for distributions in 2002
and thereafter. The first 15.4 cents (of the 30.1 cents) does not
require a matching investment by the company. A matching
expenditure of at least 50 percent is required to qualify for the
additional 14.7 cents per ton (above 15.4 cents).
In addition: “If a producer uses money from the fund to procure
haulage trucks, mobile equipment, or mining shovels, and the
producer removes the piece of equipment from the taconite tax
relief area defined in section 273.134 within ten years from the
date of receipt of the money from the fund, a portion of the money