Energy and Taxes

Tax Reform Needs to Retain Support for American Investment

Independent producers reinvest as much as 150 percent of their U.S. cash flow in new U.S. projects. This investment and reinvestment in America’s vibrant oil and natural gas production sector supports the small businesses and the countless other industries and consumers who benefit from affordable, secure American energy.

 

The Tax Code Impacts America’s Energy Production. The federal tax code recognizes the concepts of capital formation and capital recovery, encouraging investment in capital-intensive American industries – like oil and natural gas production. This ensures a stable, American energy supply and a vibrant manufacturing base.

 

The Tax Code Works for American Energy. Federal oil and natural gas tax policy works and results in an increasing amount of American oil and natural gas development – decreasing the United States’ reliance on imported sources of energy for the first time in decades. Any tax reform proposal that eliminates key current tax provisions for independent producers could result in fewer wells drilled and the premature termination of existing wells in the United States.

Common Business Deductions for America’s Independent Producers Are Not Subsidies

Deducting Business Expenses and Receiving Subsidies are Different. Generally, the U.S. Code taxes businesses on net income. Businesses, across sectors of the economy, are taxed on earnings after the costs of doing business (expenses) are deducted. Conversely, subsidies are either targeted reductions of taxes owed or direct payments from the government.

 

Expensing Drilling Costs. Independent producers may immediately deduct intangible drilling costs (IDCs) associated with developing natural gas and oil that have no salvage value – a provision in the tax code since 1913. IDCs are 65 to 90 percent of the capital expenditures of independent producers. Eliminating IDCs will decrease American jobs and energy production.

 

Percentage Depletion. All mineral natural resources are eligible for a percentage depletion income tax deduction to reflect the decreasing value of the resource as it is produced. Percentage Depletion allows independent producers to reinvest cash into the expenses of existing wells and redeploy capital to drill new wells. This deduction is highly limited and only applies to smaller independent producers and to royalty owners. These taxpayers – who typically file as individuals – should not be penalized through tax reforms that will result in the loss of these important American natural resource assets.

 

Passive Loss Exception for Working Interests. The tax code enables working interest owners in oil and natural gas production to achieve some parity between their investments and those of corporate shareholders. Counting any working interest investment losses as active instead of passive allows individual investors to treat the normal business deductions from their investment in the same way as corporations. If tax reform retains the active-passive distinctions, this exception should be continued.

Tax Reform That Impedes American Natural Gas and Oil Production is Bad Policy.

Congress faces a key question – it can either promote or impede oil and natural gas development in the United States. While lower tax rates are an important component of tax reform, America’s independent oil and natural gas producers rely on capital recovery provisions to reinvest back into the U.S. economy. Current Congressional tax reform proposals embrace the concept of encouraging American investment through lower tax rates and faster depreciation of capital assets. As these proposals develop the policies that will shape future American investment, it is essential that they reflect the positive aspects of the current federal tax code that support the production of American oil and natural gas.

For more information, visit our Energy Tax Facts campaign at www.EnergyTaxFacts.org

Press Releases

  • WASHINGTON, D.C. – Independent Petroleum Association of America (IPAA) President and CEO Barry Russell issued the following statement after the U.S. House of Representatives today passed pro-growth, pro-jobs tax reform legislation: “Today’s action by the House is a significant step towards modernizing the U.S. tax......

  • WASHINGTON, D.C. – Representing the nation’s independent producers that develop 90 percent of America’s oil and natural gas and generate 4 percent of the U.S. Gross Domestic Product, IPAA President and CEO Barry Russell issued the following statement on the Republican tax reform plan announced......

  • “As Washington, D.C., looks to tackle reforming the tax code, the critical role of American energy production cannot be overlooked. Tax reform…needs to move in the direction of strengthening businesses of many shapes and sizes, putting our economy on a track for success, and creating......

  • “As this industry faces new uncertainties, it is critical that our leaders in Washington, both on Capitol Hill and in the White House, continue to advocate for a sound, secure energy policy that supports the continued operation of these businesses that are the backbone of......

  • Statement from Barry Russell, president and CEO, Independent Petroleum Association of America (IPAA): “In the last five years, the success of America’s oil and natural gas industry has taken our nation from energy dependence and scarcity to security and abundance. We have achieved status as......

  • WASHINGTON, D.C. – Today, Independent Petroleum Association of America (IPAA) President and CEO Barry Russell released the following statement in response to President Barack Obama’s released budget proposal for Fiscal Year 2016: “At a time when the oil and natural gas industry is experiencing significant......

Correspondence

IPAA is the industry’s strongest presence in the nation’s capital and these are important times. The entire oil and gas industry remains under fire from anti-development groups; but with these challenges arise unique opportunities that IPAA is seizing for our members.