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How does Kinder Morgan, the third largest energy company in North America behind ExxonMobil and Chevron, get away without paying any corporate taxes? Zachary Mider answers that very question in an eye-opening article in Businessweek. It is a jolly good story about another clever loophole primarily created for fossil fuels companies.

Our phrase of the day is "master limited partnership" (MLP). These publicly held corporations get to treat their stockholders as partners and pay out corporate profits as individual income. Their corporate tax rate is zero.

The IRS counts each partner’s slice of the company’s profits as ordinary individual income, allowing the company itself to legally avoid the 35 percent federal corporate tax.
It is not just federal corporate taxes MLPs get to skip. They are also exempt from state taxes as well.

Another highlight from Mider's article is the history of how MLPs came into existence and became the exclusive purview of fossil fuels corporations.

In 1981, an oil subsidiary of Apache Corp. (APA) became the first publicly traded partnership. By the mid-1980s a handful of non-energy companies, including Burger King (BKW) and the Boston Celtics, also began forming MLPs, leading to worries on Capitol Hill about a corporate rush to get around taxes. In 1987, Congress curtailed the break—but exempted oil and gas companies after industry lobbying.
MLPs are particularly popular among companies that transport fossil fuels. Kinder Morgan operates 75,000 miles of pipeline and 180 shipping terminals. They describe themselves as a "giant toll road," extracting a fee from moving flammable liquids and gases to wherever they can do the most harm. Since they charge by the mile rather than the value of the fossil fuels moving through the pipelines and terminals, they are largely immune to commodity price fluctuations. The only real risk comes from public policies that cut into the demand for fossil fuels or limit supply. In other words, to hell with energy efficiency, clean energy, carbon pricing, or drilling restrictions.

Think of it as representation without taxation. Kinder Morgan is a big fish moving tar sands goop from Alberta to Vancouver tanker terminals and Puget Sound refineries. It is also expanding liquified natural gas exports of shale gas produced in the eastern US. Lawmakers in Canada and the US are pushing pedal-to-the-metal policies that benefit Kinder Morgan's expansion plans.  

MLPs have a high cost of entry, which allows the big fish to get bigger. Kinder Morgan has taken advantage of its MLP status to gobble up other pipeline companies, effectively removing former competitors from the tax rolls.

Kinder Morgan Energy Partners is one of about 90 tax-free publicly traded partnerships that have taken over the U.S. pipeline business, partly by gobbling up dozens of tax-paying companies and absorbing them into MLPs. Their tax advantage helps them attract investors and outbid corporate competitors. Take Tennessee Gas Pipeline, which for more than 60 years has linked natural-gas wells in Texas to customers up north. Until last year, it paid corporate income taxes—$107 million in 2011. Last August, Kinder Morgan bought the pipeline. Tennessee Gas’s tax bill dropped to zero.
One final annoying little detail. While some Democrats are pushing to plug tax breaks and subsidies for fossil fuels, others are eager for a devil's bargain.
Senator Chris Coons, a Delaware Democrat, is pushing a bill to let clean-energy companies into the MLP club, an idea he’s pitched to the fossil-fuel industry as a way to protect their original break. “Republican senators have been quite responsive,” Coons says.
Gee, Senator, biofuels were added to the MLP club in 2008. (Kinder Morgan is a big player in the ethanol moving business.) So what sort of clean energy production or transport do you see benefiting from your little scheme?

MLPs generated over $16 billion in pre-tax profits in 2011 alone with 13 new MLPs created in 2012. More tax breaks for dirty energy, austerity for the unwashed masses, and climate death for future generations. Brilliant. Fucking brilliant.

Originally posted to DWG on Mon Jan 28, 2013 at 10:23 AM PST.

Also republished by DK GreenRoots.

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Comment Preferences

  •  Tip Jar (10+ / 0-)

    Be radical in your compassion.

    by DWG on Mon Jan 28, 2013 at 10:23:25 AM PST

  •  Oh, but Mitt and Paul were going to close... (5+ / 0-)
    Recommended by:
    DWG, AoT, DRo, Tinfoil Hat, DawnN

    ... corporate loopholes!

    That said, both parties are feeding at the same trough, which is why these industries continue to get favorable legislation inserted into all kinds of bills.

    •  I read the dynamic duo was going to close them (4+ / 0-)
      Recommended by:
      DRo, Tinfoil Hat, A Siegel, DawnN

      but the fine print said it would only apply to corporations that did not pay them special tribute.

      Yes, money in politics has killed democracy in America, leading to bipartisanship of the worst conceivable kind. Sad.

      Be radical in your compassion.

      by DWG on Mon Jan 28, 2013 at 10:49:33 AM PST

      [ Parent ]

  •  MLPs get the same tax treatment as DailyKos ! (2+ / 0-)
    Recommended by:
    Roadbed Guy, VClib

    Kos Media, LLC is the owner of this website.  "LLC" tells us that Kos Media is organized to be a "pass through" entity for tax purposes.  This means Kos Media pays no Federal Income taxes, but the profits are allocated to the shareholders for them to pay taxes on the business as ordinary personal income taxes.   This is reported on IRS FORM 1065 Schedule K-1.

    MLPs are taxed in exactly the same way - through K-1s.  The same is true for most law firms, many medical groups, REITs, and many other businesses.

    Before people think low taxes are the result - the profits from these businesses are tax at personal income tax rates - which are HIGHER than corporate tax rates.

    So if a wealthy person owns part of Kos Media or an MLP or REIT, etc., the profits are now federally taxed at 43.4%.

    If a regular C corporation had the same profits it would pay federal taxes of only 35%

    The most important way to protect the environment is not to have more than one child.

    by nextstep on Mon Jan 28, 2013 at 11:15:46 AM PST

  •  Nice that you shine some light on (2+ / 0-)
    Recommended by:
    DWG, 6412093

    Kinder Morgan, a company that is already moving a whole shitload ("game over" amounts in the usual DailyKos parlance) of Tarsands Oil to the Pacific.

    Not sure why they get a pass at this site almost all the time (for example, compared to the constant hysteria accorded Enbridge and Keystone pipeline schemes).

    •  To us mossybacked (1+ / 0-)
      Recommended by:
      A Siegel

      liberals, we remember when Kinder was top dog at Enron. He got out of Enron while the getting was good, before the indictments, and took Enron's pipeline assets with him, to form Kinder Morgan.

      Kinder has more money than God and probably given a million or more to the R's over the years.

      Orly, it isn't evidence just because you downloaded it from the internet.

      by 6412093 on Mon Jan 28, 2013 at 01:39:55 PM PST

      [ Parent ]

  •  Partnerships aren't corporations (2+ / 0-)
    Recommended by:
    johnny wurster, nextstep

    and therefore have no corporate level tax liability. MLPs like all partnerships, LLCs, and Sub S corporations are a flow through structure where the IRS rules require that all the income flows through to the limited partners as income on their individual returns. MLPs have been around for a long time and are restricted primarily to pipeline owners. They work much like Real Estate Investment Trusts (REITs) and have to distribute 90% of their earnings each year.

    I don't think there is anything new here.

    "let's talk about that"

    by VClib on Mon Jan 28, 2013 at 12:26:38 PM PST

  •  They *are* partnerships (1+ / 0-)
    Recommended by:
    These publicly held corporations get to treat their stockholders as partners and pay out corporate profits as individual income.
    They are actual partnerships FTR.  

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