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On May 28, 2021, the U.S. Department of the Treasury released
its General Explanations of the Administration’s
Fiscal Year 2022 Revenue Proposals, also known as the
“Greenbook.” The Greenbook provides additional detail
regarding the Biden Administration’s prior proposals (discussed
here and here) to increase taxes on fossil fuel
activities as part of its “American Families Plan.” It
remains to be seen whether these proposals will be enacted into
law.
Repeal fossil fuel “tax preferences,”
including the MLP tax regime
The Greenbook proposes to repeal 13 identified “tax
preferences” currently enjoyed by the fossil fuels industry.
Such repeal is projected to raise $35 billion of tax revenue over
the ten-year period through fiscal year 2031. Six of those
proposals (all effective for tax years beginning after 2021) would
account for over 80% of that projected revenue:
- repeal of the deduction for intangible drilling costs,
- repeal of percentage depletion for oil and gas wells,
- repeal of the 15% credit for eligible costs attributable to
enhanced oil recovery projects, - repeal of the deduction for tertiary injectants used as part of
a tertiary recovery method that increases the recovery of crude
oil, - increase of the two-year amortization period for geological and
geophysical expenditures of independent producers to seven years,
and - repeal of percentage depletion for hard mineral fossil
fuels.
The Greenbook also proposes to eliminate the passthrough tax
regime for MLPs/PTPs with qualifying income and gain from
activities relating to fossil fuels, effective for tax years
beginning after 2026. That proposal is projected to raise
approximately $1 billion over five years (2027 through 2031).
For a complete list of the 13 identified tax preferences, the
proposed effective date of their elimination, and the projected
increase in tax revenue, click here.
Reinstate, expand, and double the rate of Superfund
excise taxes
The Greenbook proposes to reinstate the Superfund excise taxes
that expired in 1996 (described in more detail below), at double
their prior rates. The scope of the excise taxes would also be
expanded beyond conventional crude oil and its products to
encompass other crudes such as those produced from sources such as
bituminous deposits and kerogen-rich rock. The reinstated and
expanded taxes would apply to taxable periods beginning after
December 31, 2021, and would expire after 2031. They are projected
to raise revenue of $25.3 billion over ten years.
Details Regarding Superfund Excise Tax on Crude Oil
The Superfund was financed in part by an excise tax of 9.7 cents
per barrel of crude oil that applied from 1987 through 1995. Click
here and here to view the expired statute. It was
collected from refiners, importers, users, and exporters in the
same manner as the current 9.0 cents per barrel Oil Spill Liability
Trust Fund excise tax (recently extended through 2025). The
Greenbook proposal to double the historic rate would mean that, if
enacted, the new excise tax rate would be 19.4 cents per
barrel.
Details Regarding Superfund Excise Taxes on Select
Chemicals
From 1987 through 1995, an excise tax also applied to the sale
by the manufacturer, producer or importer of 42 specified
chemicals. Click here and here to view the expired statute. The tax rate
ranged from 22 cents to $4.87 per ton. The highest ($4.87 per ton)
rate applied to certain petrochemicals to the extent they were not
put to a “qualified fuel use”: acetylene, benzene,
butane, butylene, butadiene, ethylene, naphthalene, propylene,
toluene and xylene. A rate of $3.44 per ton applied to methane not
used as fuel, used in fuel, or put to a “qualified fertilizer
use.”
A similar tax applied to the importation of other chemicals sold
or used by an importer, to the extent the 42 specified chemicals
constituted more than 50% of the weight or value of the chemical,
including 50 chemicals specifically identified in the statute as
satisfying this requirement. Click here and here to view the expired statute.
The Greenbook proposes to reinstate these taxes also at double
their historic rates.
Modify Oil Spill Liability Trust Fund
financing
The Greenbook also proposes to expand the scope of the 9.0 cents
per barrel excise tax that finances the Oil Spill Liability Trust
fund to (1) cover other crudes such as those produced from
bituminous deposits and kerogen-rich rock and (2) repeal an
administrative interpretation that currently allows a
“drawback” of that tax when products subject to the tax
are exported. Those provisions are projected to raise revenue of
$513 million over ten years.
Modify Taxation of Foreign Fossil Fuel
Income
The Greenbook proposes to repeal the exemption under current law
from global intangible low-taxed income (“GILTI”) for
foreign oil and gas extraction income (“FOGEI”), and to
codify the safe harbor for dual capacity taxpayers included in the
current Treasury regulations for determining the portion of a levy
that is paid for a specific economic benefit (making the safe
harbor the sole method for determining the creditable portion of
the levy). Those proposals would generally be effective for tax
years beginning after 2021 and are projected to raise $86.2 billion
over the ten-year period through fiscal year 2031 (98% of which is
attributable to the repeal of the FOGEI exemption from GILTI).
For a broader discussion of the Greenbook’s international
tax proposals, click here.
We will continue to monitor developments and will provide
further updates as more details are released. In the meantime,
Baker Botts would be pleased to assist you in your analysis of
these proposals.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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