Major Oil and Gas Companies Paying Far Less than the Corporate Tax Rate

New report details effective tax rates and various tax breaks used by the industry

Washington, DC – Tax day is around the corner and there is a heated debate in Congress on the extension of dozens of annually renewed tax expenditures, so it’s not surprising that the need for comprehensive tax reform has moved to front and center. Both the House, under Chairman Camp and the Senate, under Chairman Baucus, released comprehensive tax reform proposals and, while dramatically different, both would repeal billions of dollars in oil and gas subsidies provided through the tax code.

Taxpayers for Common Sense’s new report, “Understanding Oil and Gas Tax Subsidies,” offers a detailed review of the suite of tax subsidies the oil and gas industry receives. While industry proponents claim the oil and gas industry does not receive special treatment in the tax code, several century-old breaks sit on the books solely for oil and gas development. The report also refutes claims by the industry that it pays a higher effective tax rate than other industries, in defense of its special treatment.

“The writing is on the wall,” said Ms. Ryan Alexander, President of Taxpayers for Common Sense. “There is widespread agreement that it is time to end these taxpayer subsidies to one of the most profitable industries in the world. Even if we weren’t searching through the couch cushions for more revenue to cover our bills, this is an industry that does not need any more federal handouts.”

The report begins with an analysis of the financial statements of the three largest US-based oil and gas companies – ExxonMobil, ConocoPhillips, and Chevron – and finds these companies pay a lower tax rate than the statutory rate of 35 percent. The companies reported a total of $105.7 billion in US pre-tax income from 2008-2012 and accrued a total of $27.7 billion in federal taxes on this income, giving them an average US effective tax rate (ETR) of 26.2 percent. Of the total amount these companies owed the federal government, they deferred payment of $6.3 billion, giving them a “current” ETR (excluding the amount deferred) of 20.3 percent. One company, ExxonMobil, had a current effective tax rate of 16.5 percent.

The report explains the advantageous tax treatment the oil and gas industry receives through a variety of tax provisions. Some of these provisions, such as the intangible drilling costs deduction or the special depletion allowance, are industry-specific. Others, like last-in, first-out accounting largely benefit oil and gas companies.

“As Congress debates comprehensive tax reform, these tax breaks have to be part of the equation that generates revenue and drives down rates,” continued Alexander. “Some of these breaks first appeared in the tax code shortly after the constitutional amendment allowing an income tax was ratified. We think a century of subsidies is enough.”

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