Mineral Royalties

The Mining Law of 1872 governs mining for most minerals on federal lands, the vast majority of which are found in the western states and Alaska. This legislation allows individuals to stake claims on federal lands and mine ore, including copper, gold, and silver, without compensating the government. In contrast, the government has been receiving royalties for coal and natural gas on federal lands since the 1920s. Congress has considered but has yet to amend the law to ensure that the public receives a fair return for minerals extracted. This report looks at how 12 western states--Alaska, Arizona, California, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming--share in the proceeds from minerals mined on state lands and on federal and private lands within each state. GAO also discusses how Australia, Canada, and South Africa--three of the largest mineral-producing countries--share in the proceeds from minerals mined in those countries.

GAO found that: (1) 92 percent of federal lands are located in 12 western states; (2) the Mining Law of 1872 allows states to file claims giving them the right to mine and sell the minerals extracted without paying the federal government a royalty; (3) all of the 12 western mining states, except Nevada, allow mining on state-owned lands; (4) all states require miners to obtain a lease or mining contract before mining public lands; (5) 11 states that leased lands for mining purposes shared the proceeds from minerals mined on state lands; (6) 10 states shared proceeds from certain minerals extracted from any federal, state, or privately-owned lands; (7) five states assess a severance or excise tax on certain minerals extracted; (8) three states assess a mine license tax on all persons engaged in mining in the state; (9) two states assess more than one tax on state mining operations; (10) Australia's national government assesses an income tax on mining and the Canadian government imposes taxes similar to royalties on profits derived from mining; (11) in Australia, state governments commonly negotiate special royalty rates with companies that are seeking mineral leases for large-scale developments; (12) four Canadian provinces charge fixed-rate mining taxes, while other provinces have a progressive tax structure where rates increase when profits exceed a specified level; (13) in South Africa, nearly all mineral rights belong to the landowner; (14) the South African national government administers mining on federal and private lands; and (15) although South African mining operations do not pay a royalty, they do pay a higher rate of income tax than nonmining companies.