By Lynn Davison
Tunnels are being drilled as part of the infrastructure at the Hermosa
Project near Patagonia
Photo Credit: Lynn Davison

There is no simple answer to the questions of how much South32 might pay in taxes for the Hermosa Mine operations and where those tax revenues would go. While what South32 currently pays in taxes at the proposed mine site is easy to establish, getting a bead on what South32 might pay when fully operational is more elusive. 

In Arizona, the property taxes paid by mining operations in the pre-production phase are determined by the county assessor based on the value of the vacant land plus any improvements. For South 32’s 13 parcels at the Hermosa site, the Santa Cruz County Assessor established the total assessed value for 2019 taxes at $1,197,406. That translates to a projected tax bill for 2019 of approximately $22,000, according to the Santa Cruz County Tax Assessor’s office. This relatively low tax revenue will continue until the Hermosa project begins production. South32 predicts that will be sometime in 2021. 

Santa Cruz County is divided into area codes for property tax distribution purposes. Different area codes can have a different overall tax rate which is the sum of the individual taxing authority rates within them. The South32 property is located in area code 0600. The taxing authorities included in that code are Santa Cruz County which receives approximately 33% of the taxes collected, the Patagonia Elementary School District which receives 36%, PUHS 23%, School Equalization Funds 4%, and Santa Cruz Community College 4%. No tax revenues go to the town of Patagonia because it is not in area code 0600 and none to Patagonia Fire and Rescue because it is not a county fire district. Patagonia schools are the big winners for receiving property tax revenues, although the prize in this case is relatively small. 

Assuming the Hermosa mine moves to the production phase, i.e., actually removing ore from the property and transporting it to market, its taxes would then be determined centrally by the Arizona State Department of Revenue (DOR). It is important to note that once the mine is operational, the county no longer collects property taxes, according to a spokesman at the Santa Cruz County Assessor’s Office. For mines with metal deposits (metalliferous minerals), DOR levies a severance tax on products that are produced or extracted from the earth. The tax rate is 2.5%, and it is applied to 50% of the difference between the gross value of production and the production costs. The revenue generated is distributed by a formula set in State law: 20% to the State General Fund and 80% to the Transaction Privilege Tax (TPT). Within the TPT, 34.5% is allocated to the state general fund, 40.5% to the counties’ revenue sharing fund, and 25% to the cities’ revenue sharing fund. Statewide, in 2018, a total of $18.38M was levied through the severance-metalliferous minerals tax (mining tax).

South32 has not released the Hermosa site’s projected production levels for zinc, lead, and silver, so no tax estimates can be determined. The only clue about tax revenues comes in a 2018 Arizona State University study that projected an average of $10.4M per year in incremental revenues for local governments in Santa Cruz, Pima and Cochise counties. How much of this additional revenue would come directly from the mining tax is not available. 

What could all this mean for Patagonia and Santa Cruz County? It is unclear how the county and city revenue sharing pots from the mining tax will be divvied up. The answer is buried deep in state codes and regulations. Then there is the question of how the town and the county would distribute and use the funds they receive from the mining tax. For now it remains unknown what South32 would pay in taxes, assuming they move into production, and how much of what is levied would come back to support the local communities impacted by the mining operations. 

Sources for this story were Santa Cruz County Assessor’s Office, Santa Cruz County Treasurers Office, Arizona State Department of Revenue, and South32