MPLX LPMPLX
MPLX LP Income Taxes Disclosure
Income Tax
MPLX 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 MPLX’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. While the new law included several key changes to tax law for United States tax payers, as MPLX is not a taxable entity, the new legislation has no impact on MPLX for federal tax purposes.
MPLX’s income tax provision/(benefit) primarily results from state and local activity in the states of Texas, Ohio, Kentucky and Tennessee.
As a result of the Class A Reorganization discussed in Note 8, MarkWest Hydrocarbon and 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. Prior to the Class A Reorganization, in addition to paying tax on its own earnings, MarkWest Hydrocarbon recognized a tax expense or a tax benefit on its proportionate share of Partnership income or loss resulting from MarkWest Hydrocarbon’s ownership of Class A units of MPLX, even though for financial reporting purposes such income or loss was eliminated in consolidation. The deferred income tax component prior to the reorganization related to the change in the temporary book to tax basis difference in the carrying amount of the investment in MPLX, which resulted primarily from timing differences in MarkWest Hydrocarbon’s proportionate share of the book income or loss as compared with the MarkWest Hydrocarbon’s proportionate share of the taxable income or loss of MPLX. MPLX recorded a residual tax provision during the year ended 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.
MPLX and MarkWest Hydrocarbon recorded income tax expense of $8 million, $1 million and a benefit of $12 million for the years ended December 31, 2018, 2017 and 2016, respectively. The effective tax rate was less than one percent for 2018 and 2017 and five percent for 2016.
The components of the “Provision/(benefit) for income taxes” are as follows:
December 31, | |||||||||||
(In millions) | 2018 | 2017 | 2016 | ||||||||
Current income tax expense: | |||||||||||
Federal | $ | — | $ | — | $ | 4 | |||||
State | — | 2 | 1 | ||||||||
Total current | — | 2 | 5 | ||||||||
Deferred income tax expense/(benefit): | |||||||||||
Federal | — | — | (16 | ) | |||||||
State | 8 | (1 | ) | (1 | ) | ||||||
Total deferred | 8 | (1 | ) | (17 | ) | ||||||
Provision/(benefit) for income taxes | $ | 8 | $ | 1 | $ | (12 | ) | ||||
A reconciliation of the “Provision/(benefit) for income taxes” and the amount computed by applying the federal statutory rate of 35 percent to the income before income taxes for the year ended December 31, 2016 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 taxes | $ | (13 | ) | $ | 1 | $ | — | $ | (12 | ) | ||||||
(1) | MarkWest Hydrocarbon paid tax on its share of MPLX’s income or loss as a result of its ownership of MPLX LP Class A units through September 1, 2016. |
In taxable jurisdictions, MPLX recorded deferred income taxes on all temporary differences between the book and tax basis of assets and liabilities. MPLX has a net deferred tax liability of $13 million and $5 million for the years ended December 31, 2018 and 2017, 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 MPLX 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, MPLX and MarkWest Hydrocarbon did not have any material uncertain tax positions for the years ended December 31, 2018, 2017 or 2016.
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 expense of less than $1 million in 2018, and a net benefit of less than $1 million in 2017 and 2016. As of December 31, 2018, 2017 and 2016, no interest and penalties were accrued related to income taxes. In addition, MPLX and MarkWest Hydrocarbon’s former corporate entity have federal tax years 2015 through 2016 and state tax years 2013 through 2017 open to examination.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2018 | Feb 28, 2019 | Showing above |
| 2017 | Feb 28, 2018 | |
| 2016 | Feb 24, 2017 | |
| 2015 | Feb 26, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.