I hope that you’re not including me in the group of oil company “haters”. I derive a substantial portion of my income (directly) from shares of Exxon-Mobil, Chevron, and Marathon, and indirectly from holdings in the Vanguard Energy fund. I really enjoy the dividends, but I still perceive that the oil companies are not just “passing along” higher overhead expenses when they raise the price of fuel.
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As an individual - or the company I work for can’t claim those tax breaks. Not even close. The fossil fuel industry has subsidies well beyond what most individuals or businesses can claim. Their tax burden is not on par with the rest of businesses.
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This article disagrees with that statement and explains some of the “subsidies” oil companies share with every business.
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No, not at all. Fact is a lot of retirees and pensions invest in energy companies. Heck, the energy segment is one of the few bright spots for 2022!
Even hybrid and EV owners can benefit from that!
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Boy was that article extremely one sided.
They didn’t explain how the fuel industry is PAID to keep a plant open even though it may not be producing any oil so it can produce oil in the future.
They didn’t explain how when a well is done and capped they are allowed to deduct the complete cost of that well, but any future problems with that well (due to negligence of the oil company) is paid for by tax payers.
They are allowed to sell the oil as last-in first out. This allows the most expensive reserves to be sold first, reducing the value of their inventory for taxation purposes. I wish any company I worked for could do that.
Drilling deductions - This provision allows companies to deduct a majority of the costs incurred from drilling new wells domestically. My industry can’t deduct any R&D on their taxes. And if the R&D doesn’t pan out (which happens all the time) then we eat the cost.
Foreign Tax Credits - Typically, when firms operating in foreign countries pay royalties abroad they can deduct these expenses from their taxable income. Over 60% of my companies revenue comes from overseas. The oil and gas companies are able to treat them as fully deductible foreign income tax.
While I do agree with some of the Fossil fuel subsidies…they do have SPECIAL subsidies that the rest of the companies don’t have.
Some industry subsidies are scaled back based on the companies’ profits. Not so with Fossil fuel. They can make all the profit they want and still be FULL subsidies.
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Of course it is… it is IN the title! Articles from the opposing view are equally one sided!
I’d guess there is a national security reason for that seeing as how oil is a critical security resource. Maintaining that refining capacity is important and it incurs costs to the oil companies.
I think you mean the UNcapped wells, which, I agree, is a huge problem caused by abandoning unproductive wells. Exactly like abandoned manufacturing plants with asbestos or chemicals in the ground. When those responsible for those wells no longer exist, those DO fall to the states to address and that stinks… literally… but the problem is not unique to the oil industry.
Capped wells don’t post the same risks and the company that drilled it and capped it retains responsibility. Plus the cost of capped wells is a business expense that can be deducted from profits like any other expense.
Which leads to this;
I do not understand your statement. R&D is a business expense that is deducted from the profits which means it does not incur taxes. Capital equipment must be treated as such but any expenditures for R&D is deductible as business expense.
This article explains the 2017 changes that allow deductions for drilling.
And this the tax treatment of R&D in general.
I don’t see the difference.
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Nope. Just about all industries do. Electronics get about 50% more than O&G:
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I seem to recall Silicon Valley tech companies took some grief in the press a few years ago b/c US corporate tax laws gave them a way to move their money around the world to lower their taxes. Involved Ireland and the Netherlands I think. Maybe not the definition of a federal subsidy though. These tax avoidance laws may have been change since then as well. Issue difficult to fix b/c same companies fund political campaigns.
Yes, it’s deducted from our total expenses. We can’t deduct it as tax right-off. Fossil fuel can.
The only thing we are allowed to deduct from taxes is anything we have to buy for that R&D. The R&D itself is NOT tax deductible. The labor costs can NOT be deducted.
?? All industries deduct all payroll from gross income before calculating taxes. What are you talking about?
And what are you referring to about being paid to keep a non producing plant operating?
Your claim about abandoned wells is incorrect. Companies do not get to deduct the cost of the well at that time. And the current operating company is 100% responsible for paying the abandonment costs. The problem arises when the current operating company is bankrupt. Then the government steps in. They are referred to as “orphan wells” for that reason. It is a major problem, but not as you described.
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Copied from the article I’ve linked…
** Wages. Charge the costs of salaries, wages, and related costs to expense as incurred.*
and
** Contracted services. If the company is billed by third parties for research work conducted on behalf of the company, charge these to expense.*
Both are listed as charged to expense which is deductible from profits.
To a point. Not all R&D is deductible. Can only deduct against profits. Fossil fuel can still deduct Well Drilling if they don’t make any profit that year.
The 2017 Tax Cuts and Jobs Act (TCJA) contained a provision that effective January 1, 2022, costs incurred for R&D activities would no longer be allowed for immediate deduction. Instead, current law stipulates that costs associated with R&D activities will have to be capitalized and amortized over 5 or 15 years. Costs related to R&D activities performed domestically will be recovered over a 5-year amortization period, whereas costs related to activities performed outside the US will be recovered over a 15-year period. The amortization period will begin with the midpoint of the taxable year in which the expenses were paid or incurred.
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Fossil fuel can still deduct full amount of new Wells that same year.
As I said…Fossil fuel has different tax laws then the rest of us.
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There are R&D tax credits for technology development and they can significantly offset those expenses. I fill out the forms for our corporate tax group every year since 2008. I found out they didn’t use them for quite a few years which ticked me off because it is a lot of work but they explained that sometimes, there are better ways to minimize tax expense than using the R&D tax credits. Best simple analogy I have is itemizing your personal taxes vs taking the standard deduction.
Anyway, if your company is not taking advantage of them, they should. First of all, the work has to meet a four part test to be considered qualifying R&D (versus strictly development engineering). The crux is you have to be solving problems with a certain degree of uncertainty and performing analysis and/or iterative activities to resolve the uncertainty. It cannot be a derivative of an existing product and so on. If you’d like a bit more background, PM me and I can provide what I know or ask questions of our corporate FP&A group if it helps.
As director of Software Development - I can assure you that myself and our tax lawyers look into it every year. Some years we can…others we can’t. It all depends on our profit margins. We’re a small company with very tight regulated profit margins.
Oh, OK then. You seemed to indicate initially your “industry” wasn’t able to qualify for them.
Of course, if the company ends up profitable on R&D work, then you can’t claim a tax credit for that work.
This sounds like you could apply most of the time…
Then I misspoke. Well over 50% of the time we were unable to deduct our R&D or most of our R&D. While the oil industry has ZERO restrictions on what they can deduct on any wells. If the well doesn’t pay out they are allowed to deduct 100% of that cost.
No…it depends on a lot of circumstances. Well less than half the time can we deduct.
At some point then, various states will make laws prohibiting ICE cars from being registered for on-road use.
I think that’s at least 1-2 decades away.
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