Everyone has heard a bad joke where the setup for the punchline is “well, it coulda been worse”. Hardrock mining companies operating on federal public lands presumably didn’t feel like laughing when the House Natural Resources Committee released its committee print for President Biden’s proposed “Build Back Better” (BBB) legislation in September 2021. The committee draft contained a number of profoundly punitive provisions affecting the industry, including an 8% gross royalty on new mines, a separate per-ton “dirt tax” on non-ore materials displaced during mining, and civil penalties of up to $1,000,000 per violation for royalty miscalculations found by audit. The committee draft would also cancel a federal land exchange enabling the Resolution Copper project in Pinal, County, Arizona, potentially thwarting a mine capable of supplying 25% of the nation’s copper needs for several decades.
The most recent draft of the BBB legislation, released on October 28 by the U.S. House Rules Committee, scales back the mining provisions in the committee draft, while still imposing substantial new financial burdens on the industry. The “dirt tax” has been removed from the draft, as have the more punitive royalty audit provisions, and the cancellation of the Resolution Copper land exchange. Rather than the previous 8% royalty, a gross royalty of 4% is imposed on new mines and mine expansions, while mines with existing approved plans of operation will pay a 2% gross royalty.
Even with the new revisions, the current draft creates substantial uncertainty for the mining industry. The legislation directs the Secretary of the Interior to enact regulations governing the calculation and payment of royalties, but provides no guidance on the actual administration of a hardrock royalty program. The existing Office of Natural Resources Revenue (ONRR) within the Department of the Interior would presumptively be the home for the hardrock program, but ONRR currently administers royalties almost exclusively from oil, gas and other leasable minerals, and questions are sure to arise as to whether the office has the staff or expertise to administer royalties for the large and diverse public land mining industry.
The legislation is also ambiguous with respect to the basis upon which royalties must be paid. H.R. 5376 imposes royalties on “gross income” as defined in the Internal Revenue Code (IRC). The statutory reference in the draft legislation for “gross income” refers to 26 CFR 61, a reference which does not exist in the CFR, leaving uncertainty as to whether “gross income” is to be calculated under general corporate tax rules, or the specific definition of gross income from mining as defined in the depletion deduction provisions of the IRC. H.R. 5376 also makes miners liable for royalties from the date of enactment of BBB, even though no regulations or guidance are in place for calculating those royalties, with an initial royalty payment deadline of 12 months after enactment. The situation will be further complicated by the fact that western mining operations often involve a mix of federal, state, and private lands. Allocating “gross income” calculated at an enterprise level to the fractional interests represented by federal unpatented mining claims will be a considerable accounting challenge. But it coulda been worse.
 Markup to consider legislative proposals to comply with the reconciliation directive included in section 2002 of the Concurrent Resolution on the Budget for Fiscal Year 2022, S. Con. Res.14. | Committee Repository | U.S. House of Representatives
 H.R.5376–Build Back Better Act | House of Representatives Committee on Rules
 Code of Federal Regulations
 26 U.S.C §§ 611-613