Preferential Taxation

Abstract

OVER A LONG PERIOD of years, nothing has contributed more to the evolving structure of the oil industry than the preferential tax advantages bestowed on it by the Congress. Their importance is apparent from the fact that, in the face of a corporate tax rate of 48 percent, the federal income taxes paid in 1974 by the nineteen largest oil companies amounted to only 7.6 percent of their income before taxes.¹ Recognizable only to those trained in the arcane art of translating the almost undecipherable prose of tax statutes, the proliferation of preferential provisions is a tribute to the ingenuity and thoroughness with which the industry’s tax lawyers (and their Congressional allies) have gone about their work. Of the preferential provisions, three have been by far the most important—percentage depletion, the expensing of intangible drilling costs, and the foreign tax credit.