Master Limited Partnerships for Oil and Gas Companies

A Master Limited Partnership (MLP) is a partnership, or a limited liability company (LLC) with interests that are traded on a public exchange or an over-the-counter market, like stock in a corporation. MLPs are taxed as partnerships, eliminating the corporate income tax for these publicly traded entities and creating a significant advantage for them in accessing capital investment. This is a tax preference that is available predominantly to natural resource companies. For an MLP to qualify for this tax-advantaged partnership treatment under the tax code, 90 percent of its income must come from qualified sources, including specified natural resources activities. The definition of qualified income has resulted in the oil, gas, and coal industries dominating the use of tax-advantaged MLPs. At the end of 2016, 133 MLPs had a combined market capitalization of almost $500 billion, with energy and natural resource MLPs representing 81 percent of this total.