The tax reform bills that passed the U.S. Senate and House of Representatives may provide a windfall of potential tax benefits and breaks for some oil and gas infrastructure developers and operators.
In addition to lowering the overall tax rates for corporations, a last-minute provision attached to the Senate bill may provide some additional benefits for partnerships, including publicly-traded oil and gas partnerships (MLPs), and other “pass-through” entities. Sen. John Cornyn’s (R-Texas) amendment confirms the status of MLPs as “pass through” entities, which may benefit these businesses by allowing their owners to take advantage of the new lower individual rates; but that is not all. The Senate version would allow taxpayers claiming certain types of business income, including MLP income, to deduct a percentage of that income from their total taxable income. In addition, the House version would provide for a special lower percentage “pass through” rate (i.e., lower than the highest incremental individual tax rate) for certain types of oil and gas related income.
These tax breaks are unlikely to return the industry to its high-spending days during the latest boom. But, the benefits will probably help boost investment in MLPs, and as a result of the reduced tax rates, may yield higher after-tax returns to their investors.
While the provision could be a boon for the oil and gas industry, the matter is not yet settled. The competing bills passed by the U.S. House of Representatives and Senate will need to be reconciled before we know the full impact of the tax benefit, or even if it remains a part of the final bill sent to the President’s desk.