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.