Zinc mine sues municipality over new severance tax

ANCHORAGE — The company that manages one of the world’s largest zinc mines is suing an Alaska municipality over a new tax.

Teck Alaska Inc. says the Northwest Arctic Borough is improperly levying a severance tax that targets only the mine and threatens its future operations. The lawsuit filed Friday in state Superior Court in Kotzebue seeks an injunction to stop collection of the tax and a court order requiring the borough to negotiate a new payment agreement.

The tax would replace a “payment in lieu of taxes” system set up before the borough, created in 1986, had developed a comprehensive tax code. The tax would substantially increase payments to the borough, from which the company receives no services, according to the company.

“We have tried to communicate our concerns and work with the NAB to achieve a reasonable new payment agreement,” said Henri Letient, Teck’s general manager for Red Dog operations, in a letter to employees. “This tax could triple Red Dog’s average annual payments to the NAB.”

In a statement issued late Friday, the borough said it “does not believe that Teck’s claims have any merit — these are matters of settled law.”

The borough said that “it has a long history of entering into payment in lieu of taxes (PILT) agreements with industry …”

The borough also has the legal right to raise taxes to provide services to residents, the statement said.

“The Borough is committed to economic development and to working with businesses and industry in the Borough. The Borough has a demonstrated history of promoting and accommodating responsible resource extraction within its boundaries,” the statement said.

Teck Alaska is a subsidiary of Teck Resources Ltd., a Vancouver, British Columbia-based mining company.

Red Dog Mine is an open pit mine in the De Long Mountains of the western Brooks Range. The mine is 82 miles north of Kotzebue, a hub community for northwest Alaska villages, and 46 miles inland from the Chukchi Sea.

Teck moves zinc concentrate by truck to port and ships minerals to British Columbia, Asia and Europe.

The mine has operated since 1989 on land owned by an Alaska Native regional corporation, NANA, representing the Inupiat people of northwest Alaska. Teck shares profits with NANA, which shares income with Alaska’s other regional Native corporations. Through 2013, Teck paid NANA more than $1 billion in royalties.

Teck’s estimates the severance tax, dependent on zinc prices, to be $30 to $40 million. That contrasts to $11.6 million in payments Teck made to the borough in 2014 and 2015.

Teck’s tax payment would be $3.67 million if the mine were in the Fairbanks North Star Borough, according to the company, and $3.78 million in Juneau.

The borough and the company instead entered into the first “payment in lieu of taxes agreement” in 1987, before the new borough had set up a comprehensive tax code. Over 25 years, according the lawsuit, the borough encouraged the expectation that hundreds of millions in fixed investments, now impossible to move, would not be leveraged to extract dramatically increased payments.

“That ended in 2015, despite the fact that the Borough had a contractual obligation to negotiate in good faith,” the lawsuit said.

The borough in 2009 enacted a tax code, exempting any entity with a PILT agreement.

In February, according to the lawsuit, the borough approved an ordinance prohibiting an agreement with Teck Alaska that allowed the company to pay less than the amount required by the tax ordinance. In May, the borough increased the tax by 50 percent. The borough’s actions prevented good-faith renegotiations, according to the lawsuit.

The tax falls on just one taxpayer for a product sold exclusively in foreign commerce.

“This huge increase has no relationship to any change in services provided by the Borough or the cost of those services,” Teck said in the lawsuit.

Red Dog is the largest employer in northwest Alaska. Teck said 715 jobs in the borough are connected to the mine, paying $75 million in wages.

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