Findlay, Ohio,
09:21 PM

The role of subsidies in petroleum operations

This information first appeared in the 2017 Citizenship Report.

You might have heard petroleum companies receive government subsidies. We’d like to clear up a few things.

When a profitable company receives a handout of taxpayer money, taxpayers take notice. So it’s only natural that when people hear the often-repeated assertion that profitable petroleum companies receive billions of dollars in subsidies, they wonder what’s going on.

But we have good news. Marathon Petroleum Corporation is profitable, and our petroleum operations aren’t subsidized by your tax dollars. In fact, quite the opposite. As we’ve reported in this publication for years, we pay billions of dollars into federal, state and local treasuries. In 2016, we had about $600 million in income tax expenses alone. See Page 45 of the 2017 Citizenship Report for more about our tax payments.

So how can anyone say we’re subsidized?

The trick is in how they define a “subsidy.” In addition to cash outlays of taxpayer money from the government, they also define subsidies as almost anything that reduces our taxes. If we apply this definition to a typical home-owning family with children, it would mean that if you have a mortgage, you receive subsidies because you deduct mortgage interest and it reduces your taxes. It would also mean you receive subsidies because each of your children represents a deduction on your tax return.

The fact is, governments reduce taxes on activities they want to encourage. Below is a list of tax reductions MPC uses, none of which is a subsidy, under the common use of the word:

  • Domestic Manufacturer’s Section 199 Deduction
    • Who is eligible for it: All taxpayers engaged in manufacturing, producing, growing or extraction in the U.S.
    • Details: While most industries are eligible for a deduction of 9 percent, the oil and gas industry is singled out and limited to a deduction of only 6 percent.
  • Last-In, First-Out (LIFO) Inventory Accounting
    • Who is eligible for it: All industries
    • Details: Under LIFO, the most recent inventory purchased is deemed to be used first. In times of rising prices, the LIFO accounting method results in better matching of costs and revenues. It has been a recognized means of valuing inventory under the U.S. tax code since 1939.
  • Federal Biodiesel Blender Tax Credit
    • Who is eligible for it: A biodiesel blender that is registered with the IRS
    • Details: Amounts to $1 per gallon of pure biodiesel, agri-biodiesel, or renewable diesel blended with petroleum diesel to produce a mixture containing at least 0.1 percent diesel fuel. Only blenders that have produced and sold or used that qualified biodiesel mixture as a fuel in their trade or business are eligible for the tax credit. This credit expired Dec. 31, 2016.
  • Bonus Depreciation
    • Who is eligible: Any eligible taxpayer
    • Details: Allows businesses to take an immediate 50 percent deduction on the purchase of eligible business property. This accelerated deduction is being phased out.
  • Work Opportunity Tax Credit
    • Who is eligible: Any eligible taxpayer
    • Details: Available to employers for hiring individuals from certain target groups who have consistently faced significant barrier to employment (such as unemployed veterans, food stamp recipients or ex-felons).
  • Federal Empowerment Zone Employment Credit
    • Who is eligible: Any eligible taxpayer
    • Details: Available to employers that hire employees who live and work in an empowerment zone, which are designated distressed urban and rural areas. May be eligible for an employment credit of up to $3,000 per eligible employee through the end of 2016.
  • Research & Experimentation Tax Credit
    • Who is eligible: Any eligible taxpayer
    • Details: A general business tax credit for companies that incur certain defined research and development costs in the U.S.

And one actual subsidy

Non-petroleum energy sources are generally subsidized by the U.S. and some state governments. MPC built a solar array several years ago that was eligible for a federal grant of $1.3 million and a grant from the state of Ohio of $1 million, which we received. However, the fact remains that our petroleum business is not subsidized.

To put that $2.3 million solar subsidy into perspective, the solar array cost us approximately $4 million to build and about $30,000 a year to maintain. We also have donated all of the power it generates to the city of Findlay, Ohio, which saved the city about $287,000 over a four-year period, including almost $97,000 in 2016 alone.