Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income tax expense is estimated using the tax rate in effect or to be in effect during the relevant periods in the jurisdictions in which we operate. Deferred income tax assets and liabilities are recognized for temporary differences between the basis of assets and liabilities for financial reporting and tax purposes and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established. Changes in tax legislation are included in the relevant computations in the period in which such changes are effective. We review contingent tax liabilities for estimated exposures on a more likely than not standard related to our current tax positions.

Pursuant to FASB guidance related to accounting for uncertainty in income taxes, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the tax position and also the past administrative practices and precedents of the taxing authority. As of December 31, 2022 and 2021, we had not recognized any material amounts in connection with uncertainty in income taxes.

U.S. Federal and State Taxes

Although we are organized as a limited partnership, we have elected to be treated as a corporation for U.S. federal income tax purposes and are therefore subject to both U.S. federal and state income taxes.

Canadian Federal and Provincial Taxes

All of our Canadian operations are conducted by entities that are treated as corporations for Canadian tax purposes (flow through for U.S. income tax purposes) and that are subject to Canadian federal and provincial taxes. Additionally, payments of interest and dividends from our Canadian entities to other Plains entities are subject to Canadian withholding tax that is treated as income tax expense.

Tax Components

Components of income tax expense are as follows (in millions):

	Year Ended December 31,
	2022		2021		2020
Current income tax expense:
State income tax	$	1	$	2	$	—
Canadian federal and provincial income tax	83		48		51
Total current income tax expense	$	84	$	50	$	51
Deferred income tax expense/(benefit):
Federal income tax	$	46	$	16	$	(149)
State income tax	11		23		1
Canadian federal and provincial income tax	105		23		(70)
Total deferred income tax expense/(benefit)	$	162	$	62	$	(218)
Total income tax expense/(benefit)	$	246	$	112	$	(167)

The difference between income tax expense based on the statutory federal income tax rate and our effective income tax expense is summarized as follows (in millions):

	Year Ended December 31,
	2022			2021			2020
Income/(loss) before tax	$	1,409		$	712		$	(2,607)
Net (income)/loss attributable to noncontrolling interests	(995)			(540)			1,872
Income taxes attributable to noncontrolling interests	(189)			(73)			19
	$	225		$	99		$	(716)
Federal statutory income tax rate	21		%	21		%	21		%
Income tax expense/(benefit) at statutory rate	$	47		$	21		$	(150)
Deferred tax rate adjustment	7			17			11
State income tax, net of federal benefit	3			1			(9)
Income taxes attributable to noncontrolling interests:
Canadian federal and provincial income tax	188			71			(19)
State income tax	1			2			—
Total income tax expense/(benefit)	$	246		$	112		$	(167)

The Canadian federal and provincial income tax for the year ended December 31, 2020 reflects the impact of permanent differences primarily related to an impairment of goodwill that was recognized during the year. A portion of the goodwill that was impaired had no basis for Canadian income tax purposes and thus was not a deductible expense in determining taxable income, resulting in a permanent difference for Canadian tax purposes. See Note 8 for additional information regarding this impairment.

Deferred tax assets and liabilities are aggregated by the applicable tax paying entity and jurisdiction and result from the following (in millions):

	December 31,
	2022		2021
Deferred tax assets:
Investment in partnerships	$	623	$	729
Net operating losses	686		633
Derivative instruments	—		39
Lease liabilities	45		48
Other	16		17
Total deferred tax assets	1,370		1,466
Deferred tax liabilities:
Property and equipment in excess of tax values	(515)		(531)
Derivative instruments	(46)		—
Lease assets	(42)		(47)
Other	(3)		(3)
Total deferred tax liabilities	(606)		(581)
Net deferred tax assets	$	764	$	885
Balance sheet classification of deferred tax assets/(liabilities):
Deferred tax asset	$	1,309	$	1,362
Other long-term liabilities and deferred credits	(545)		(477)
	$	764	$	885

As a result of the exchange of the ownership interest in AAP in connection with our IPO and all subsequent exchanges, a deferred tax asset was created. These transfers of ownership were accounted for at the historical carrying basis for GAAP accounting purposes, but were recorded at the fair market value of the Class A shares at the time of exchange for U.S. federal income tax purposes. These transfers were transactions among shareholders, with the basis differences resulting in a deferred tax asset that was recorded as a component of partners’ capital. Also, other equity transactions, including the repurchase of common units by PAA, and the associated adjustment to partners’ capital attributable to PAGP resulted in a corresponding change to the deferred tax asset balance that was recorded as a component of partners’ capital. See Note 12 for additional information regarding exchanges and the repurchase of common units by PAA. The deferred tax asset is amortized to deferred income tax expense as the associated basis step-up is realized on our tax returns.

As of December 31, 2022, our federal and state net operating loss carryforwards for income tax purposes were approximately $3,082 million and $855 million, respectively. If not utilized, the state net operating losses will begin to expire in 2023 and a portion of our federal net operating losses will begin to expire in 2033. Under the Tax Act, U.S. federal NOLs generated after 2017 will have an indefinite carryforward period but may only reduce up to 80% of taxable income in any given year. Our U.S. federal NOLs generated prior to 2018 will not be subject to the taxable income limitation and will remain subject to a 20 year carryforward period.

Generally, tax returns for our Canadian entities are open to audit from 2016 through 2022. Our U.S. and state tax years are generally open to examination from 2019 to 2022.

As of December 31, 2022, in reference to tax years 2008 to 2017, we had received notices of reassessment (“notices”) from the Canada Revenue Agency and the Alberta Tax and Revenue Administration (the “Canadian Tax Authorities”) related primarily to transfer pricing associated with cross-border intercompany financing transactions. These notices include assessments, including penalties and interest, associated with these transfer pricing matters totaling approximately $142 million (based on the exchange rate as of December 31, 2022). Payment of a portion of the assessment is required in order to file a notice of objection to dispute the reassessment. Accordingly, we have remitted approximately $115 million (based on the exchange rate as of December 31, 2022) related to the assessments, which is included in “Other long-term assets, net,” on our Consolidated Balance Sheets. We disagree with these notices and have contested the reassessments. We intend to vigorously defend our position, and we plan to pursue all remedies available to us to successfully resolve these matters, including administrative remedies with the Canadian Tax Authorities, and judicial remedies, if necessary. As of December 31, 2022, we believe that our tax position associated with these matters is “more likely than not” to be sustained and have not recognized any amounts for uncertainty in income taxes related to these notices.