Income Tax
The Partnership is not a taxable entity for United States federal income tax purposes or for the majority of states that impose an income tax. Taxes on the Partnership’s net income generally are borne by its partners through the allocation of taxable income. On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. The new law included several key changes to tax law for United States tax payers, as the Partnership is not a taxable entity the new legislation has no impact for federal tax purposes.
The Partnership’s income tax provision (benefit) primarily results from partnership activity in the states of Texas, Ohio and Tennessee.
As a result of the Class A Reorganization discussed in Note 8, MarkWest Hydrocarbon (MarkWest Hydrocarbon, Inc. prior to the Class A Reorganization) is no longer a tax paying entity for federal income tax purposes or for the majority of states that impose an income tax effective September 1, 2016. The Partnership recorded a residual tax provision during the year ending December 31, 2017 related to MarkWest Hydrocarbon’s 2016 income taxes. In connection with the Class A Reorganization, MPC assumed $377 million of MPLX LP’s deferred tax liabilities.
The Partnership and MarkWest Hydrocarbon recorded income tax expense (benefit) of $1 million, $(12) million and $1 million for the years ended December 31, 2017, 2016 and 2015, respectively. The effective tax rate was less than one percent for 2017, five percent for 2016 and less than one percent for 2015.
The components of the provision for income tax expense (benefit) are as follows:
|
| | | | | | | | | | | |
| December 31, |
(In millions) | 2017 | | 2016 | | 2015 |
Current income tax expense: | | | | | |
Federal | $ | — |
| | $ | 4 |
| | $ | — |
|
State | 2 |
| | 1 |
| | — |
|
Total current | 2 |
| | 5 |
| | — |
|
Deferred income tax expense (benefit): | | | | | |
Federal | — |
| | (16 | ) | | 3 |
|
State | (1 | ) | | (1 | ) | | (2 | ) |
Total deferred | (1 | ) | | (17 | ) | | 1 |
|
Provision (benefit) for income tax | $ | 1 |
| | $ | (12 | ) | | $ | 1 |
|
A reconciliation of the (benefit) provision for income tax and the amount computed by applying the federal statutory rate of 35 percent to the income before income taxes for each of the years ended December 31, 2016 and 2015 is as follows:
|
| | | | | | | | | | | | | | | | |
| | December 31, 2016 |
(In millions) | | MarkWest Hydrocarbon(1) | | Partnership | | Eliminations | | Consolidated |
(Loss) income before (benefit) provision for income tax | | $ | (41 | ) | | $ | 461 |
| | $ | 2 |
| | $ | 422 |
|
Federal statutory rate | | 35 | % | | — | % | | — | % | | |
Federal income tax at statutory rate | | (14 | ) | | — |
| | — |
| | (14 | ) |
State income taxes net of federal benefit | | (2 | ) | | 1 |
| | — |
| | (1 | ) |
Provision on income from MPLX LP Class A units | | 3 |
| | — |
| | — |
| | 3 |
|
Change in state statutory rate | | (1 | ) | | — |
| | — |
| | (1 | ) |
Other | | 1 |
| | — |
| | — |
| | 1 |
|
(Benefit) provision for income tax | | $ | (13 | ) | | $ | 1 |
| | $ | — |
| | $ | (12 | ) |
|
| | | | | | | | | | | | | | | | |
| | December 31, 2015 |
(In millions) | | MarkWest Hydrocarbon(1) | | Partnership | | Eliminations | | Consolidated |
Income before provision (benefit) for income tax | | $ | 9 |
| | $ | 324 |
| | $ | 1 |
| | $ | 334 |
|
Federal statutory rate | | 35 | % | | — | % | | — | % | | |
Federal income tax at statutory rate | | 3 |
| | — |
| | — |
| | 3 |
|
State income taxes net of federal benefit | | — |
| | (2 | ) | | — |
| | (2 | ) |
Provision on income from MPLX LP Class A units | | 1 |
| | — |
| | — |
| | 1 |
|
Other | | (1 | ) | | — |
| | — |
| | (1 | ) |
Provision (benefit) for income tax | | $ | 3 |
| | $ | (2 | ) | | $ | — |
| | $ | 1 |
|
| |
(1) | MarkWest Hydrocarbon paid tax on its share of the Partnership’s income or loss as a result of its ownership of MPLX LP Class A units through September 1, 2016. |
In taxable jurisdictions, the Partnership recorded deferred income taxes on all temporary differences between the book and tax basis of assets and liabilities. The Partnership has a net deferred tax liability of $5 million and $6 million for the years ended December 31, 2017 and 2016, respectively. The net deferred tax liability is principally derived from the difference in the book and tax basis of property, plant and equipment.
Significant judgment is required in evaluating tax positions and determining the Partnership and MarkWest Hydrocarbon’s provision for income taxes. During the ordinary course of business, there may be transactions and calculations for which the ultimate tax determination is uncertain. However, the Partnership and MarkWest Hydrocarbon did not have any material uncertain tax positions for the years ended December 31, 2017, 2016 or 2015.
Any interest and penalties related to income taxes were recorded as a part of the provision for income taxes. Such interest and penalties were a net benefit of less than $1 million in 2017 and 2016, and a net expense of less than $1 million for 2015. As of December 31, 2017 and 2016, no interest and penalties were accrued related to income taxes. In addition, the Partnership and MarkWest Hydrocarbon’s former corporate entity have federal tax years 2013 through 2016 and state tax years 2012 through 2016 open to examination.