Merkley Joins Robert Menendez and Bill Nelson to Close Tax Loopholes, Save Taxpayers $20 Billion Over 10 Years
Senator Jeff Merkley Press Release
Washington, D.C. – U.S. Senator Jeff Merkley (D-OR) joined Senators Robert Menendez (D-NJ) and Bill Nelson (D-FL) today to announce legislation that will close a number of corporate tax loopholes that allow oil companies to avoid paying billions of dollars in taxes. The Close Big Oil Tax Loopholes Act targets a series of tax breaks related to drilling activities and revenues, as well as foreign tax schemes. Menendez estimates that closing these loopholes will amount to more than $20 billion over ten years for taxpayers…
Among its provisions, the legislation would accomplish the following:
* Recoup royalties that oil companies avoided paying for oil and gas production on public lands
* Prevent oil companies from manipulating the rules on foreign taxes to avoid paying full corporate taxes in the U.S.
* End a number of tax deductions and relief afforded to the oil industry, such as the deductions for classifying oil production as manufacturing, for the depletion of oil and gas through drilling and for costs associated with preparing to drill.
Oil companies make up four of the top ten spots on the Fortune 100 list of largest corporations. In the first three months of this year alone, the top 5 oil companies made over $23 billion in profits.
The Close Big Oil Tax Loopholes Act is based upon provisions in President Obama’s budget in which he signaled the need to stop subsidizing polluting industries. The bill does contain important safeguards to allow refineries and oil companies with yearly revenues of less than $100 million to retain certain tax credits and deductions.
Background on legislation:
* Recoup Royalty Revenue Lost to Contract Loopholes: This proposal would create an excise tax on oil and gas produced on federal lands on the Outer Continental Shelf (OCS) in order to pay back American taxpayers for contract loopholes whereby oil and gas companies avoided paying royalties on certain oil and gas produced in the Gulf of Mexico. This would save an estimated $5.3 billion.
* End Oil Companies Abuse of Foreign Tax Credits: Would require that a dual capacity taxpayer establish that the foreign country generally impose an income tax to be able to claim a foreign levy as a creditable tax, saving $8.2 billion.
* Repeal Expensing of Intangible Drilling Costs: Would repeal the deduction for IDCs and require such costs be capitalized as a cost of the well or tangible property and recovered through depreciation or depletion, as applicable. Oil companies with yearly revenues of less than $100 million would retain the use of this deduction. In the President’s Budget this provision saved $10.9 billion, but the grandfathering of smaller companies will lower that score.
* Repeal Percentage Depletion for Oil and Gas Wells: This proposal would repeal percentage depletion for oil and gas properties. Oil companies with yearly revenues of less than $100 million would retain the use of this deduction. In the President’s Budget this provision saved $9.6 billion, but the grandfathering of smaller companies will lower that score.
* Repeal Deduction for Tertiary Injectants: The proposal would repeal the current deduction and instead allow oil companies to capitalize and depreciate or deplete costs for tertiary injectants. For example, supply costs would be capitalized and deducted when consumed or as part of cost of goods sold. Oil companies with yearly revenues of less than $100 million would retain the use of this deduction. In the President’s Budget this provision saved $57 million, but the grandfathering of smaller companies will lower that score.
* Repeal Exemption of Passive Loss Limitations for Interests in Oil and Gas Properties: The proposal would end the exemption from passive loss rules for oil companies so they must operate under the same tax rules as other corporations. Oil companies with yearly revenues of less than $100 million would retain the use of this exemption. In the President’s Budget this provision saved $217 million, but the grandfathering of smaller companies will lower that score.
* Repeal Domestic Manufacturing Deduction for Oil and Gas Production: This proposal would repeal the ability of oil and gas companies to claim oil and gas production as manufacturing, thus making the production activities ineligible for the domestic production activities deduction. Oil companies with yearly revenues of less than $100 million would retain the use of this deduction. The deduction would also be retained for oil refining and natural gas processing. This exact proposal has not been scored, but could easily save billions.
* Match Geological and Geophysical Amortization Periods for All Oil and Gas Companies: This proposal would create more uniform amortization rules for geological and geophysical costs. G&G costs are costs incurred in obtaining and accumulating data that serves as the basis for acquiring and retaining oil and gas properties. Oil companies with yearly revenues of less than $100 million could amortize geological and geophysical costs over two years. All others would amortize these costs over 7 years. In the President’s Budget this provision saved approximately $1 billion, but the grandfathering of smaller companies will lower that score.
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