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.

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