Kennecott may be asked to pay new mining tax

Michigan assesses severance tax when companies remove natural gas and oil and some state officials say operators of high-grade metallic mines should also be charged for removing minerals from the ground.

In an article published in The Bridge today Jeff Alexander writes that Michigan could raise $400 million in revenue from Kennecott’s UP nickel and copper mine if it charged an 8 percent tax on solid minerals extracted from the ground as Florida does.

“The severance tax would compensate for the loss of state resources,” State Dept. of Environmental Quality Director Dan Wyant told Alexander. “It would be a new source of revenue — the question is how significant a source.”

Severance taxes differ from local property taxes and royalties that companies pay the state in exchange for permission to remove oil, natural gas and minerals from state land. Severance taxes are assessed on commodities such as oil, natural gas, timber and minerals when those resources are “severed” from the ground. The taxes are designed to offset the loss of taxable resources and provide revenue for public services, such as new roads and police and fire protection, according to the Public Sector Consultants study.

The lack of a severance tax on high-grade metallic mines could leave communities footing the bill for roads and other public services needed to support new mines that could sprout across the U.P.

Last month Kennecott Eagle Minerals began blasting its nickel sulfide mine west of Marquette. The company is a subsidiary of the British/Australian mining company Rio Tinto.