Shane Thielges | Shale Plays Media
The Wall Street Journal reports today that US oil and gas companies are using loopholes to pay significantly lower tax rates.
Energy companies are using tax code incentives for drilling and capital expenditures to defer billions of dollars in taxes, the article says.
Over the past five years, 20 big publicly traded U.S. oil and gas producers paid a combined $15.6 billion in U.S. income tax, or 11.7% of their American earnings, and deferred $16.5 billion, according to the nonprofit Taxpayers for Common Sense. Together, the 20 had an effective tax rate of 24% on their U.S. income, below the statutory 35% rate and well below the 46.2% those with overseas operations paid abroad, according to the group’s analysis.
Industry heads dubiously claim that paying less in taxes is better for the country, linking increased corporate profits to job creation. The WSJ quotes Mitch Tiras, head of business tax at the Locke Lord LLP law firm of Houston, as saying companies are “supposed to act economically, and not necessarily in the government’s best interests, as long as it’s legal.”
One common tax avoidance strategy is to deduct “intangible drilling costs,” vaguely defined as money spent in preparation to drill a well. Another is to abuse a tax break called “bonus depreciation,” intended to limit equipment replacement costs over time but which has been used by some companies to deduct between 50 and 100 percent of yearly equipment costs.
In some cases, companies deferred up to six times as much in taxes as they paid.
For more information, including a list of the worst offending companies, read the Wall Street Journal story: U.S. Energy Companies Make Use of Tax Deferrals