The President’s FY 2011 budget contains hundreds of billions of dollars of new taxes on energy production and consumption. These taxes will result in higher prices at the pump, increased utility bills and less American energy jobs as companies flee the U.S. to avoid these industry crippling taxes. The full energy tax booklet is available here.
One of the changes is a increase in the amortization time table which results in billions in new taxes.
According to IRS Publication 535, “Business Expenses”, the current law states: You can amortize the cost of geological and geophysical expenses paid or incurred in connection with oil and gas exploration or development within the U.S.
These costs can be amortized over a 24-month period beginning on the mid-point of the tax year in which the expenses were paid or incurred. For major integrated oil companies (as defined in section 167(h)(5)) these costs must be amortized ratably over a 5-year period for costs paid or incurred after May 17, 2006 (a 7-year period for costs paid or incurred after December 19, 2007).
The President’s budget will increase the amortization period to seven years will result in a $44 million tax increase in 2011 and a $1.1 billion tax increase by 2020.
ATR notes, Raising taxes on oil companies by increasing the amortization period of geological and geophysical (G&G) expenditures makes U.S. oil and natural gas exploration projects less competitive globally, thereby discouraging new U.S. production and increasing the nation’s reliance on imported oil. Almost all large oil and gas companies are publicly-traded entities, whose shares are owned by millions of investors through their 401(k) plans, retirement plans and pension funds. Taxing away the earnings of those companies negatively impacts the ability of hard-working Americans to achieve a more financially secure future.
Further, this tax will be passed on to every American family in the form of higher energy costs.
Check out the full table of energy tax increases and the industry impact numbers and the PDF of this amortization document with more information is available here.
Note: Increasing the amortization period results in A CORPORATE INCOME TAX INCREASE and is therefore a PLEDGE VIOLATION unless the increase is offset completely with other income tax cuts.