“It is very hard to generalize and say all energy is going to look at tax reform the same way. It's a big mix and not easy to cull out one factor that means more than anything else.”
—Greg Jenner on energy industry and tax reform.
Tax and energy attorney Greg Jenner was quoted in Law360 in an article titled “Tax Reform Isn't One-Size-Fits-All For Energy Industry.” The article discusses the implications of tax reform on various segments of the industry, arguing that a reduction in the corporate tax rate may not provide the same measure of relief for all providers of energy.
Whether or not tax reform will benefit a certain sector of the industry will depend on the maturity of the industry, whether it is capital intensive, the subsidies provided, etc. For example:
- Some would welcome an outright reduction in the corporate tax rate from 35 percent to 15 percent, as proposed by the Trump administration.
- Many in capital-intensive sectors are more focused on tax reform that would allow them to fully expense (depreciate) the cost of an investment at once instead of over time.
- Those that finance projects with debt will be concerned about repeal of interest deductibility.
- For those in the renewables industry, preserving the tax credits they currently have is the immediate tax reform priority, while a reduction in the corporate tax rate is not as desirable due to their reliance on tax equity investments.
According to Jenner, renewable producers actually benefit from higher corporate tax rates, because their tax equity investors will derive a higher benefit from tax losses. “They are beginning to see the amount that tax equity investors will invest decrease because of the prediction of lower tax rates,” he said.
Read “Tax Reform Isn't One-Size-Fits-All For Energy Industry,” published September 7, 2017. (Subscription required.)
Greg Jenner has written an introduction to how tax reform may unfold. Read his special report “Rebooting the Tax Code: Musings of an ‘86 Act Insider.”