South Dakota was tardy with a gold tax. Can it afford to sleep on lithium?

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South Dakota was tardy with a gold tax. Can it afford to sleep on lithium?

Date: 02/16/2024     Category: News & Media     Author: Seth Tupper     Publication: South Dakota Searchlight    

Original Post

A May 2023 aerial view of Lead’s Open Cut, which was part of the Homestake Mine. Although gold was discovered in the Black Hills in the 1870s, South Dakota didn’t impose a tax on gold mining until 1935. (Seth Tupper/South Dakota Searchlight, via EcoFlight)

When lawmakers convened in Pierre during the depths of the Great Depression in 1935, they faced a vote on “possibly the most widely advertised and discussed piece of legislation that has ever been brought before the South Dakota Legislature.”

That’s how proponents of a tax on gold mining described their bill.

Gold was famously discovered nearly six decades earlier in the Black Hills, so you might wonder why the state lacked a gold tax as late as 1935.

The answer is simple: Until that year, legislators refused to enact it.

Meanwhile, about $308 million worth of South Dakota gold had been mined since the 1870s without being taxed, wrote historian R. Alton Lee in “A New Deal for South Dakota.”

Each of the past two winters, lawmakers faced a similar choice about another form of mining. But unlike legislators in 1935, who finally stood up to the powerful Homestake Mine and imposed a tax on gold, modern legislators failed to adopt a tax on lithium.

It wasn’t for a lack of trying. Kirk Chaffee, a Republican representative from the Black Hills community of Whitewood, started last year with a bill that passed the House of Representatives but failed in a Senate committee.

He tried again this year. The bill cleared the House and a Senate committee but failed by one vote in the full Senate. The bill’s other sponsor, Sen. Randy Deibert, R-Spearfish, got the bill reconsidered, only to fail by three votes on the second try.

All the while, multiple companies have been exploring for lithium in the Black Hills. They see economic opportunity in the world’s growing appetite for lithium ion batteries, which are used to power electric devices and vehicles. And that activity has sparked important questions about whether and where lithium mining should be allowed in the state.

We already know there’s lithium in the Black Hills. It was mined for other purposes in decades past. Whether anybody will seek to mine it again depends on the findings from exploratory drilling, which companies will use to determine if there’s enough lithium left, and whether it can be extracted profitably.

Sen. David Johnson, R-Rapid City, said the state should not discourage that work.
“What this bill does is put up a big banner that says ‘tax, tax, tax,’ and it’s going to be a disincentive to future mining in South Dakota,” Johnson said this month during a debate in the Senate.

Opponents of the gold tax made similar arguments in 1935.

“Any tax upon the mining industry greater than that imposed upon other properties will inevitably frighten foreign capital and embarrass and retard the development of the mining industry of the state,” said materials distributed by opponents of the tax that year.

Yet the Homestake Mine operated another 67 years after the enactment of the gold tax. It became the deepest and most productive gold mine in the western hemisphere. Since the Homestake’s closure in 2002, operations have continued unabated at the Wharf, another gold mine not far from the Homestake.

Of course, gold mining was already a well-established and lucrative South Dakota business when legislators decided to tax it. Lithium mining is just a possibility.

But whether it’s gold or lithium, companies can only mine it where it’s found. And once it’s mined completely, that’s it. It’s gone.

History shows that when there’s a material to be mined in South Dakota and money to be made from mining it, permission to do so is typically granted. Maybe that’ll happen with lithium mining, or maybe it won’t.

Before those difficult debates are settled, legislators could answer an easier set of questions.
If mining is ever to occur, should we allow companies to extract and potentially deplete a natural resource for profit alone? Or, in exchange for granting that privilege, should we extract a public benefit in the form of tax revenue?

We can look to the gold tax for a cautionary tale about the importance of answering those questions early on.

When South Dakota lawmakers finally enacted the gold tax in 1935, they set it at 4%. Applying that percentage to the value of gold already mined by then would’ve yielded roughly $12 million.

Adjusting for inflation, that would be nearly $300 million today.