Print Page | Contact Us | Report Abuse
NISA Position on the Percentage Depletion Tax Deduction
Share |

The tax reform discussions drafts that have been released in the House and Senate would both repeal the percentage depletion deduction. The National Industrial Sand Association (NISA) along with its sister association, the Industrial Minerals Association – North America (IMA-NA) strongly encourages Congress to reject these unwarranted proposals that would significantly harm the competitiveness of American resources producers. U.S. mineral, coal, aggregates, natural stone, and independent oil and gas producers play an integral role in sustaining American economic prosperity and energy security. The percentage depletion deduction is vitally important to these U.S. natural resources operations and must be retained.

According to the United States Geological Survey (USGS), the total estimated value of U.S. production of industrial minerals or non-fuel minerals, in 2012 was $41.6 billion, and the industry employed over 100,000 men and women. Industrial minerals are a vital part of our everyday lives. These minerals, including, silica, are used extensively in various manufacturing processes. In an average working day you likely will come into contact with at least 100 items that have been manufactured using silica. Glass, paint, ceramic tiles and plates, drinking water, wines/beers, chemicals, cement and concrete, and natural gas are all produced with the help of silica. 

Industrial sand, in the form of frack sand, plays a crucial role in natural gas development. The maintenance of the percentage depletion deduction is critical not only for industrial sand producers but also for the downstream consumers of industrial sand, namely small and marginal oil and natural gas producers. Under current law, the percentage depletion deduction can only be claimed by small and marginal oil and natural gas producers and is essential to keeping these wells in operation. A change in existing law to deny percentage depletion could make many wells unprofitable on an after-tax basis and result in early abandonment (i.e., resources becoming shut in). Once shut down, marginal wells cannot be re-opened. Currently, the U.S. marginal oil and natural gas base is significant. Approximately 80 percent of oil wells in the U.S. are marginal wells that produce 20 percent of U.S. oil, and 67 percent of natural gas wells produce 12 percent of U.S. natural gas. The closure of these wells would not only impact the domestic and international energy markets, but importantly would effect the demand for industrial sand in the US. 

Any tax reform effort should increase the competitiveness of domestic industries, create jobs, and spur economic growth. We do not believe the discussion drafts meet these goals for the American resources industries. The thousands of resource producers in the U.S. all have in common that their businesses are extremely capital intensive. Repealing the percentage depletion deduction would raise the cost of capital for U.S. resources industries, making their products less competitive globally, and directly putting hundreds of thousands of high-wage jobs at risk throughout the U.S. economy. Repeal of the percentage depletion deduction would impact future exploration and development of mineral operations, which would in turn increase the United States’ reliance on foreign producers throughout our economy. 

The National Industrial Sand Association stands ready to participate constructively in this discussion as Congress proceeds forward with tax reform.