American Oil and Gas Reporter - December 2017 - 28

Federal Legislation

Tax Reform Bills Keep IDCs, Depletion
WASHINGTON-Two of the independent oil and gas industry's top priorities
were still standing following the first rounds
of federal tax reform action in November:
The deductions for intangible drilling costs
and percentage depletion were left unchanged in the tax reform package that
passed the U.S. House of Representatives
Nov. 16 and in the version reported the
same day by the Senate Finance Committee
on a 14-12 party-line vote.
Barry Russell, president and chief executive officer of the Independent Petroleum Association of America, says HR
1, the Tax Cuts and Jobs Act, which
passed the House 227-205, "ensures the
U.S. tax code is modernized, pro-growth,
and benefits American consumers, businesses and the economy. We support this
extraordinary effort."
National Ocean Industries Association
President Randall Luthi says the bill
"brings the potential of a brighter future
for U.S. businesses and workers."
Adds American Petroleum Industry
President and CEO Jack Gerard, "By including pro-growth proposals such as
lowering the corporate tax rate and strong
cost-recovery provisions, this legislation
will help unleash economic growth and
allow our industry to continue providing
safe, reliable energy for Americans."
Lawmakers also earned praise from
the National Federation of Independent
Business. "The House took a big step toward tax cuts that will help America's
small businesses grow and create jobs,"
says President and CEO Juanita Duggan.
Oil industry groups in November also
were praising a comprehensive overhaul
of federal land management policies that
passed the House Natural Resources Committee: HR 4239, the Strengthening the
Economy with Critical Untapped Resources to Expand (SECURE) American
Energy Act.
Tax Package Provisions
In addition to preserving IDCs and
percentage depletion, NOIA observes,
HR 1 also retains "last-in, first-out" inventory accounting, although it does eliminate the marginal well and enhanced oil
recovery tax credits.
In that regard, the Senate bill is better
for the industry, according to published
reports, in that it leaves the marginal well
and EOR tax credits intact.
The Senate bill also leaves the $2.30per-megawatt hour tax credit for energy
from wind and other renewables on the
28 THE AMERICAN OIL & GAS REPORTER

phase-down schedule to 2020 that was
agreed to by Congress in 2015, reports
say, while the House bill reduces the production tax credit to $1.50 an mwh and
eliminates the $7,500 tax credit for purchasing electric motor vehicles. HR 1
also eliminates a 10 percent tax credit
for commercial-scale solar and geothermal
projects after 2027.
Both bills repeal the Section 199 domestic production income tax deduction,
although the Senate delays repeal until
2019, according to a Bloomberg report,
while both preserve the research and development tax credit.
Other business-related provisions of
the House and Senate tax reform packages,
according to various published reports:
* Both bills lower the corporate income tax rate to 20 percent, although the
Senate would delay the effective date
until January 2019.
* Both also allow immediate expensing for investments in certain depreciable
assets (i.e., not structures or land) placed
in service after Sept. 27, 2017, and before
Jan. 1, 2023.
* Both bills repeal both the corporate
and individual Alternative Minimum Tax.
* The House bill caps the net interest
deduction at 30 percent of earnings before
interest, taxes, depreciation and amortization. The Senate bill caps it at 30
percent before interest and taxes.
* Both bills move toward a territorial
tax system for international businesses
by providing a 100 percent deduction to
U.S. corporations for dividends received
from foreign subsidiaries, although the
Senate plan excludes hybrid dividends.
* Both bills propose a one-time tax
on stranded overseas profits, but at different
rates. The House would tax liquid assets
at 10 percent and illiquid assets at 5 percent, while the Senate would tax liquid
assets at 14 percent and illiquid assets at
7 percent.
* One area where the two chambers
take different approaches is in taxing
pass-through entities. The House caps
the tax rate on business income of passthrough owners at 25 percent, rather than
their individual income tax rates. However,
the bill phases in a lower rate on the first
$75,000 in net business income for married
filers ($37,500 for single filers) who earn
less than $150,000 ($75,000 single filers)
beginning at 11 percent in 2018, and
going to 10 percent in 2020 and to 9 percent in 2022 and thereafter. The Senate
provides a 17.4 percent deduction for

pass-through income, provided the deduction does not exceed 50 percent of
the owner's pro rata share of W-2 wages
from the pass-through entity. However,
the W-2 wage limit does not apply for a
married taxpayer filing jointly with taxable
income not exceeding $500,000 ($250,000
for a single filer). The W-2 wage limit is
phased in for married filers over the next
$100,000 of taxable income ($50,000 for
single filers).
* Both bills double the estate tax exclusion from $5 million to $10 million,
indexed for inflation, but the House bill
repeals the estate tax in 2024.
ANWR Leasing
In an action related to the Senate's
tax reform effort, the Committee on
Energy and Natural Resources announced
Nov. 15 that it had reported reconciliation
legislation that directed the Department
of Interior to conduct at least two oil and
gas lease sales within 10 years on the
coastal plain of the Arctic National Wildlife
Refuge.
The legislation also contains an amendment offered by Senators Bill Cassidy,
R-La., and Luther Strange, R-Al., to temporarily raise the cap on the amount of
money Gulf of Mexico states receive from
federal offshore oil and gas operations.
The Senate budget resolution passed
in October instructed the Energy Committee to develop policies that would
generate at least $1 billion during the
next decade (AOGR, November 2017,
pg. 26).
The amendment, which was introduced
by Energy and Natural Resources Chairwoman Lisa Murkowski, R-Ak., instructs
DOI to hold one areawide lease sale
within four years of enactment and the
second within seven years. Each sale
must offer at least 400,000 acres consisting
"of those areas that have the highest potential for the discovery of hydrocarbons."
The amendment limits surface disturbance
from production activities to 2,000 acres.
According to the Energy Committee,
the Congressional Budget Office estimates
the amendment will raise $1.092 billion
during the 10-year budget window.
DOI earlier had instructed the U.S.
Fish & Wildlife Service to update its regulations to allow geological and geophysical exploration activities on the coastal
plain (AOGR, October 2017, pg. 28).
Under the 2006 Gulf of Mexico Energy
Security Act, published reports note, Gulf
coastal states with the exception of Florida

American Oil and Gas Reporter - December 2017

Table of Contents for the Digital Edition of American Oil and Gas Reporter - December 2017