Coalition Files Comments With FERC on Income Tax Allowance for PTPs, January 21, 2005.
On January 21, 2005, the Coalition filed comments with the Federal Energy Regulatory Commission in response to its Inquiry on Income Tax Allowances (Docket No. PL05-5-000). The Inquiry was issued following the Federal Court of Appeals' (D.C. Circuit) decision in BP West Coast Producers, LLC which rejected the rationale behind the Lakehead doctrine (which gives PTPs an incomee tax allowance in rate making, but only to the extent of corporate ownership) and remanding the case in question. The Coalition's comments urge FERC to provide all PTPs with a full tax allowance, regardless of the extent of corporate ownership, on the basis that 1) FERC should not distinguish between businesses owned by a single corporate entity and those owned collectively by partners; 2) the Administration, Congress, and FERC have a clear policy of encouraging investment in energy infrastructure; 3) PTPs are increasingly the means for channeling such investment; and 4) denial of a tax allowance will adversely affect the rate of return balance that have made PTPs a workable means of attracting investment capital for pipelines.
Click here for a copy of the Coalition's comments.
President Signs Tax Bill Containing PTP Mutual Fund Provision! October 22, 2004.
After several years' effort by the Coalition, legislation making PTPs a qualifying income source for mutual funds is has been signed into law by President Bush. The new provision is effective for tax years beginning after today, which for most funds will mean January 1, 2005.
The Senate approved on October 11, by a vote of 69-17, the American Jobs Creation Act (H.R. 4520) also known as the FSC/ETI bill. Section 331 of the bill contains the mutual fund provision. A House-Senate conference committee reached agreement on a final version of this bill on October 6, and the conference agreement was passed by the House on October 7 by a vote of 280-141. The bill now goes to the President, who is expected to sign it.
The provision adds net income derived from an interest in a PTP to the list of sources from which a regulated investment company (RIC) must derive 90% of its income in order to maintain its tax status as a RIC. RICs may now invest freely in PTPs as long as such investments do not constitute more than 25% of their assets, and as long as they do not own more than 10% of any one PTP. Under the previous law, income from PTPs was considered "nonqualifying" and could not exceed 10% of the mutual fund's income.
Links to the legislative language of the conference agreement and the statement of managers are below. The PTP provision is on page 150 of the legislative language and page 94 of the statement of managers (page 77 of the printed copy). You can also link to answers to the most frequently asked questions about the new law.
Legislative Language of H.R. 4520 -- Conference Agreement
Statement of Managers
Answers to FAQs
Enterprise Products Partners and GulfTerra Energy Partners Complete Merger, September 30, 2004
Enterprise Products Partners, L.P. and GulfTerra Energy Partners, L.P. announced today that they have completed their long-expected merger. The newly merged PTP, which will retain the name Enterprise Products Partners, will have some $14 billion in assets, including the combined assets of the two partnerships and nine additional natural gas processing plants and related facilities acquired from El Paso Corporation. For additional information, click here to see the press release at Enterprise's web site.
House Names Conferees on FSC / ETI Bill, September 29, 2004
The House of Representatives has named its conferees for the American Jobs Creation Act, H.R. 4520, also known as the "FSC/ETI" bill, which contains the mutual fund provision for PTPs. They are:
Majority Leader Tom DeLay (R-TX)
Ways and Means Committee Chairman Bill Thomas (R-CA)
Rep. Phil Crane (R-IL)
Rep. Jim McCrery (R-LA)
Rep. Charles Rangel (D-NY)
Rep. Sander Levin (D-MI)
As noted below in an earlier alert, the Senate conferees were appointed in July.
The conferees will begin work this week with the aim of agreeing on a bill before Congress adjourns on October 8. There is a good chance, however, that a final agreement will not be reached until November, when Congress is expected to return for a lame duck session. There is also a good possibility that the conferees, in order to get past a number of controversial provisions that are dividing the conferees, they may decide to strip the bill of extraneous provisions and pare it down to the foreign tax provisions and not much more.
If you live or have business operations in the state or district of one of the conferees, please contact him or her and urge that 1) the FSC / ETI bill, H.R. 4520, be passed this year and 2) the PTP provision, which is in section 899 of the Senate version and section 284 of the House version be included. Mention that this will help PTPs raise capital for investment in energy infrastructure. Links to conferee contact lists and a fact sheet are below.
House conferee contact list
Senate conferee contact list
In addition, Coalition members can find lists of the PTPs operating in each Member's state in the Members Only section.
New PTP Arrives on the Market, September 15, 2004
A new PTP, StoneMor Partners, L.P. began trading on the NASDAQ exchange on September 15 under the symbol STON. StoneMor's IPO of 3,675,000 units raised a total of $75.3 million.
Unlike most of the PTPs that have come onto the market in recent years, StoneMor is not involved in the energy industry. Rather, StoneMor, which is headquartered in Bristol, Pennsylvania, is in the "death care" business, operating through its subsidiaries 132 cemeteries, 120 of which it owns, in 12 states as of June 30.
Another recent--and more traditional--arrival to the PTP universe is Holly Energy Partners (NYSE: HEP), which entered the market on July 8. Holly Energy Partners owns and operates refined product pipelines and distribution terminals primarily in West Texas, New Mexico, Arizona and Utah. The pipeline system serve Holly Corporation's refineries in New Mexico and Utah. Holly Energy's IPO consisted of 7 million partnership units and raised $155.75 million.
Federal Appeals Court Overturns FERC on Tax Allowance for PTPs, July 20, 2004.
The U.S. Court of Appeals for the D.C. Circuit ruled on July 20 that the Federal Energy Regulatory Commission (FERC) was in error when it allowed PTPs to include an income tax allowance in their ratemaking to the extent that they are owned by corporate partners. This policy was established by FERC in Lakehead Pipe Line Co., L.P. , 71 FERC ¶61,338 (1995).
In BP West Coast Products LLC v. Federal Energy Regulatory Commission, No. 99-1020, shippers of natural gas challenged several FERC rulings regarding rates filed by the Santa Fe Pacific Pipeline (SFPP), a PTP which is now part of Kinder Morgan Energy Partners. One of these rulings gave SFPP a 42.7% tax allowance, reflecting the interest in SFPP held by a subchapter C corporation, under the Lakehead doctrine. Stating that FERC's decisions in both Lakehead and the SFPP case "do not evidence reasoned decision making," the Court ruled that PTPs are not entitled to any income tax allowance.
Click here for a copy Of the decision. The discussion of the tax allowance begins on page 28.
The evening of July 15, by voice vote, the Senate adopted an amended version of the FSC/ Jobs bill (striking all House language from H.R. 4520 and inserting its own language) and sent it to conference. The amendment adopted was the DeWine/Kennedy tobacco buyout which provides $12 billion over 10 years to buy out tobacco farmers and calls for FDA regulation of tobacco products and advertising. The Senate vote for the DeWine/Kennedy amendment was 75 - 18. The following conferees were named for the tax provisions (conferees were also named for nontax portions of the bill):
Republican Tax Conferees
Chuck Grassley - IA
Orrin Hatch - UT
Don Nickles - OK
Trent Lott -MS
Olympia Snowe - ME
Jon Kyl - AZ
Craig Thomas - WY
Rick Santorum - PA
Gordon Smith - OR
Jim Bunning - KY
Mitch McConnell - KY
Democratic Tax Conferees
Max Baucus - MT
John Rockefeller -WVA
Tom Daschle -SD
John Breaux - LA
Kent Conrad -ND
Bob Graham - FL
Jeff Bingaman -NM
Blanche Lincoln -AR
Jim Jeffords - VT
Ted Kennedy - MA
The House will name conferees shortly. It is anticipated that committee staff will work on negotiating a a conference agreement over the remainder of the summer so that the Members may take it up in September.
House Passes FSC / Jobs Bill Including Mutual Fund Provision, June 17 2004.
On June 17 the House of Representatives approved by a vote of 251-178 the "American Jobs Creation Act," H.R. 4520. H.R. 4520 is a revised version of H.R. 2896, the foreign sales corporation (FSC) bill, which eliminates international tax provisions that have been ruled illegal by the World Trade Organization and contains a number of other business tax provisions. Like the previous version, H.R. 4520 includes the Coalition's provision to make PTPs a qualifying income source for mutual funds. The provision is in section 284 of the bill. The House Ways and Means Committee approved the revised bill on June 14th by a vote of 27-9.
The next steps are as follows:
For technical reasons (the Constitution requires that all revenue bills originate in the House), the Senate will take H.R. 4520, strip out everything after the enactment clause, and substitute the language of S. 1637, the FSC / jobs bill it passed in May. The House and Senate will then be negotiating over two different versions of the same bill, H.R. 4520.
The House and Senate will each appoint conferees, usually but not always the most senior members of the tax writing committees.
The conferees will meet to resolve areas where there are differences between the two bills and produce a conference agreement. This is likely to be a difficult process as there are areas where the House and Senate have strong disagreements. Among them are whether to include the energy tax provisions and the revenue offsets in the Senate bill.
Once a conference agreement is reached, the House and Senate each must approve it. The bill is then sent to the President for his signature.
The tax writers are aiming to complete this process before Congress adjourns for its August recess at the end of July. After that, the election season will be in full swing, Congress will be highly politicized, and substantive achievements will be difficult.
Text of H.R. 4520 Text of S. 1637
FSC Bill Passes the Senate, May 11, 2004
Late in the day on May 11, after weeks of partisan conflict and seemingly interminable negotiations, the Senate passed S. 1637, the FSC/ETI bill by a vote of 92-5. The bill contains the Coalition's provision making PTPs a qualifying income source for mutual funds.
The action now turns to the House, where an FSC bill containing the PTP provision has been reported out of the Ways and Means Committee but has been stalled by sharp disagreements--not only interparty but within the Republican party--over its international provisions. The latest word, as of May 12, is that Ways and Means Committee Chairman Bill Thomas (R-CA) is planning to rewrite the bill with the aim of moving it to the House floor on a fast track.
Mutual Fund Provision Added to Senate FSC Bill, April 6, 2004.
On April 5, in an attempt to break the impass over the pending FSC/ETI bill, the "Jumpstart Our Business Strength (JOBS) Act," S. 1637 (legislation to repeal international tax provisions that have ruled by the World Trade Organization to violate international trade agreements, subjecting the U.S. to penalties), Senate Majority Leader Bill Frist (R-TN) introduced a substitute bill. The new bill adds some tax provisions favored by Democrats--and also adds the energy tax provisions of the conference version of the energy bill. This is the version that included the Coalition's mutual fund provision--so that provision is now in the FSC/ETI bill waiting to be approved by the Senate. The provision is already in the House version of the bill (H.R. 2896 (the "American Jobs Creation Act of 2003").
The bad news is that the bill, which has been stalled for several weeks by Democratic efforts to add a number of amendments favoring their constituencies, still doesn't look to be moving any time soon. Senator Frist apparently still does not have enough votes to invoke cloture--i.e., cut off debate so that the bill can be voted on. Both parties appear more interested in scoring political points than in moving the bill quickly. In the meantime, in response to the failure to repeal the offending foreign tax provisions, the European Union has begun raising tariffs on several of our imports.
All Coalition members and others interested in the passage of this bill are urged to contact any and all Senators of whom they are constituents and urge them to vote for cloture and support moving the bill forward. Contact information for Senators can be found on the Senate web site at http://www.senate.gov/general/contact_information/senators_cfm.cfm, or you can call 202-224-3121 and ask for your Senator's office.
International Tax / Jobs Bill May Be Vehicle for Mutual Fund Provision, March 12, 2004
With hopes waning that an energy bill can be passed in this conference, supporters of H.R. 1536/S. 752, legislation to make PTPs a qualifying income source for mutual funds, are turning to pending legislation to reform international tax rules--often referred to as the "FSC/ETI bill" as the vehicle most likely to carry the provision over the finish line. The international tax legislation is necessitated by a World Trade Organization ruling that our current tax provisions relating to foreign sales corporations (FSC) and extraterritorial income (ETI) violate international trade rules. Besides changing these rules, the legislation would make several other changes in international tax rules, as well as additional tax law changes aimed at helping U.S. businesses.
The mutual fund provision is already in one version of this legislation, H.R. 2896 (the "American Jobs Creation Act of 2003"), which was was approved by the House Ways and Means Committee on October 28. Committee Chairman Bill Thomas (R-CA) has announced that he will hold another committee markup the week of March 22 to add highway trust fund and other provisions to bring the bill's cost under $4 billion. Chairman Thomas has stated that the provisions approved last year will not be changed.
On the Senate side, the "Jumpstart Our Business Strength (JOBS) Act," S. 1637, was reported out of the Finance Committee on November 7 and was brought to the Senate floor the week of March 1. Because several amendments proposed by Democrats, consideration of the bill was not completed that week. Senator Grassley and Senator Jeff Bingaman, the sponsor of S. 752, have agreed on adding the PTP provision to the bill as a floor amendment. Senator Bingman filed the amendment on March 10 (SA 2767). Consideration of the FSC/ETI bill is expected to resume the week of March 22.
Those interested in passing the mutual fund provision can help by contacting Senators Grassley and Bingaman, as well as any Senators of whom they are constituents, and ask them to vote for the Bingaman-Hutchison amendment (SA 2767) to the FSC bill, to make PTPs a qualifying investment for mutual funds. On the House side, contact House Ways and Means Committee members to express support for the provision as included last October in H.R. 2896.
Energy Bill Conference Agreement Includes Mutual Fund Provision, But May Not Make it Through Senate, November 21, 2003.
On Friday, November 14, Energy Committee Chairmen Billy Tauzin (R-LA) and Pete Domenici (R-NM) announced that a conference agreement had been reached on the Energy Policy Act of 2003 (H.R. 6) The language of the agreement was released on November 15. The tax portion of the agreement includes the Coalition's provision to make income from PTPs a qualifying income source for mutual funds under the tax code (section 1363).
The conference agreement easily passed the House; however, it ran into trouble in the Senate, where Senators from both parties objected to various provisions and the Democrats threatened a filibuster. A cloture vote on Friday, November 21, failed 57-40 (60 votes are needed to invoke cloture). Majority Leader Frist, who switched his vote to allow for reconsideration after the vote count stood at 58 to 39, promised to try for cloture again next week. In the meantime, the White House is pushing the Republican leadership to make whatever changes are needed to get the bill passed.
Tax Provisions of Conference Agreement (mutual fund provision is on p. 211)
Statement of Managers for Conference Agreement (mutual fund provision is discussed on pp. 122-124 (pp. 126-128 of the PDF document)
Coalition Letter Endorsing Energy Bill
Cloture Vote in Senate
On October 28, the House Ways and Means Committee voted 24-15 to approve the "American Jobs Creation Act," H.R. 2896. The bill includes the Coalition's provision to make income from PTPs a qualifying income source for mutual funds under the tax code.
H.R. 2896 contains a number of foreign and corporate tax provisions aimed at bringing the United States into compliance with World Trade Organization rules while helping U.S. businesses compete in international markets. The Senate Finance Committee on October 1 reported out its own version of this legislation (the "Jumpstart Our Business Strength (JOBS) Act," S. 1637), which is more limited and does not include the PTP provision.
In the meantime, the PTP provision is still in play as part of the House-Senate conference on the energy bill, with Finance Committee Chairman Grassley pushing for its inclusion in the bill along with several other tax provisions. The two Chairman have been deadlocked over the tax provisions for several days, with the chief issue being Senator Grassley's insistence on, and Representative Thomas' opposition to, certain alternative fuel provisions.
Coalition members can find the markup documents on the Federal Legislative page in the Members Only Section.
On October 16, 2003, the Executive Committee of the Multistate Tax Commission voted unanimously to exclude publicly traded partnerships from the MTC's model legislation requiring withholding from distributions to nonresident partners. The exclusion includes a requirement that PTPs provide states each year with a list of unitholders with over $500 of income in the state. The Executive Committee's action was the result of an analysis performed for the Coalition by PricewaterhouseCoopers which showed that only a very small number of unitholders have PTP income over the proposal's $1,000 threshold. The decision was also influenced by the Coalition's arguments regarding the difficulty of compliance and the enormous burden that would be placed not only on PTPs but on state tax administrators. This culminates a year's effort by the Coalition to obtain an exclusion for PTPs from the withholding proposal. The model legislation will now go to the full MTC for adoption.
On September 3, 2003, the IRS published proposed regulations providing guidance under I.R.C.§1446, which requires partnerships to pay a withholding tax on the effectively connected taxable income (ECTI) allocable to foreign partners. The proposed regulations update and will eventually replace the guidance provided in Rev. Proc. 89-31. A summary and the text of the proposed regulations, along with the Coalition's comment letter, can be found on the Regulations page.