|Plains’ organizational structure provides investors with the optionality and flexibility to choose the tax regime that makes the most sense for them. Investors may invest in PAA Common Units or PAGP Class A Shares, both of which are listed on NASDAQ under the respective ticker symbols PAA and PAGP. The two securities have equivalent economic and voting rights but different tax attributes. The key tax aspects of each investment are as follows:
Traditional Master Limited Partnership (MLP) Investment- PAA Common Units
- As MLP, PAA treated as a partnership for federal income tax (FIT) purposes & pays no entity level U.S. state or federal tax
- PAA’s Canadian subsidiary pays provincial and federal taxes in Canada that are available (subject to limitations) to be utilized as a foreign tax credit against a unitholder’s US federal income taxes
- Cash distributions generally not taxed, but treated as return of capital that reduces basis (defers tax)
- Investors receive K-1 that allocates income (loss) among investors based on ownership
- Estate planning benefit for heirs through basis step-up at death (and no tax on prior distributions)
PAGP Investment- PAGP Class A Shares
- PAGP subject to tax as a corporation for FIT, but not subject to minimum corporate tax
- Investors receive Form 1099 instead of K-1
- Due to significant tax asset, PAGP is not expected to pay corporate income taxes until 2033+ (related deferred tax asset ~$1.3 Bn as of 9/30/2023, or ~$6.50 book value per PAGP Class A Share)
- PAGP distributions will be treated as “return of capital” until there are positive “earnings & profits” for tax purposes (estimated timing ~2029+); thereafter, distributions taxed as dividends or capital gains (depending on investor’s specific situation)
Investors desiring to learn more about the basic tax principles of MLP investments can obtain more information at Basic Tax Principles - Energy Infrastructure Council (eic.energy).
Investors are urged to consult a tax advisor regarding the benefits, risks and other consequences of owning PAA Common Units or PAGP Class A Shares. Investors should also refer to the risk and other disclosures set forth in PAA’s and PAGP’s respective filings with the Securities and Exchange Commission.