While there is certainly a growing renewable energy trend, there still remains an entrenched fossil fuel infrastructure and system of associated economic incentives. The public may not be all that aware of one of the incentives, but certain business people are. Master limited partnerships are a way to structure an energy business to reduce the corporate tax burden greatly or even to nothing at all. Each partner’s profits from an MLP are counted as income from an individual so the MLP can be exempt from paying corporate income tax.
Image Source: Analogue Kid, CC Wiki Commons
An estimated 90 tax-free partnerships own most of the oil pipelines in the United States. For example, Tennessee Gas Pipeline paid over $100 million in 2011 taxes when it was structured as a corporation. Recently, it was bought by Kinder Morgan and set up as an MLP. The result of the re-organisation was zero dollars paid in corporate taxes this past August.
Even non-energy companies like Burger King were trying to get in on the MLP action in the 1980s, but Congress restricted the tax break to energy companies. “The authors of the exception did not envision how popular the tax break would become,” explained John Buckley, a tax professor at Georgetown University Law Center. Mr. Buckley also helped write the tax code.
Though in retrospect it may appear a rather unfair benefit, at the time it was conceived, clean energy companies were not nearly as active as they are today. Congress may actually extend the tax break to these renewable energy players, but perhaps only as a way to preserve it for fossil fuel energy companies.
“These incentives are not Loop Holes’, they were placed in the Tax Code by Congress to make participation in oil and gas ventures one of the best tax advantaged investments,” explained the website Pipelineoilandgas.com.
Tax-advantaged indeed. The oil and gas industry is one of the most lucrative in the world, and yet it also produces an astronomical amount of air pollution and climate change emissions. (Not to mention regular spills.) Pre-tax profits were $16.7 billion for publicly traded oil and gas partnerships in 2011. This amount was more than double what their pretax profits were in 2007.
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