“Spoiler alert,” Baker Botts Partner Mike Bresson told listeners as he opened the law firm’s recent webinar. “Master limited partnerships [MLPs] did just fine on tax reform.”

Not everything landed exactly where companies might have hoped, but given the consensus of just a few weeks ago—that it just wouldn’t happen—the passage of the Tax Cuts and Jobs Act allowed the webinar’s legal team a chance to be the bearers of mostly good tidings to clients.

“The first big [change], which is definitely a positive, is a reduction in tax rates,” said Steve Marcus, partner and Dallas-based department chair in taxes. “The corporate tax rate’s been reduced from 35% to 21%.”

The second major change, which is a little negative, Marcus said, is that interest deductions are now limited. The limitation amounts to about 30% of an MLP’s adjusted taxable income. How this affects the typical MLP depends on its tax shield.

The issue won’t go away for a while, he said.

“Because of the way adjusted tax and income is defined, it’s unlikely that’s there’s going to be a material impact on tax shields at least until 2022,” Marcus said.

This interest deduction, however, does not apply to certain public utility businesses, he said. Baker Botts believes that companies transporting natural gas on natural gas pipelines fall into that category.

Another plus: bonus depreciation has been extended so that the percentage of capex, that is, tangible personal property, can be immediately written off. That depreciation has increased from 50% to 100%, although the 100% rate begins to phase out in 2023.

“Bonus depreciation has also been expanded so that it applies to used property purchased by a taxpayer, including an MLP,” Marcus said. The taxpayer must not have used that property and isn’t acquiring that property from related parties.

The bonus depreciation doesn’t apply to certain utility properties, he said, which likely includes regulated natural gas pipelines.

Baker Botts also compared the impact of the new tax act on a C-corporation and a partnership, building an example with $1,000 of income.

In the pre-act scenario, a C-corporation would pay its 35% tax rate, then a 20% qualified dividend rate, then shareholders income tax, Medicare and shareholders tax for a total federal tax of $505. By contrast, an MLP would pay a total tax of $434.

That results in an effective tax rate of 50.47% for corporations and 43.4% for MLPs, or a difference of 7.07%.

Under the new regime, signed into law by President Donald Trump on Dec. 22, an MLP utilizing a full 20% Section 199A pass-through deduction will still emerge from the tax wars with an advantage. Total tax paid by a C-corporation is $398 now, compared to $334 for an MLP, a narrower 6.4% differential that still favors partnerships.

Among the issues of concern to the oil and gas industry is Section 163(j) which deals with interest deduction limitations. This issue is seen as hitting oil and gas producers the hardest.

For an MLP to calculate the 30% limitation on its ability to deduct its own net business interest expense, it must determine its share of “excess taxable income” allocated to it from a subsidiary partnership. An MLP’s unitholder would then determine “excess taxable income” in calculating the limitation with respect to its net business interest expense, according to Baker Botts.

Joseph Markman can be reached at jmarkman@hartenergy.com and @JHMarkman.