considered, and the President’s Administration has proposed, substantive changes to the existing U.S. federal
income tax laws that would affect the tax treatment of certain publicly traded partnerships. We are unable to
predict whether any of these changes, or other proposals, will ultimately be enacted. Any such change could
negatively impact the value of an investment in our common units.
Because of widespread state budget deficits and other reasons, several states are evaluating ways to subject
partnerships to entity-level taxation through the imposition of state income, franchise and other forms of
taxation. For example, we are required to pay the State of Texas a margin tax that is assessed at 1% of taxable
margin apportioned to Texas and a Michigan business tax of 0.8% on gross receipts, and 4.95% of Michigan
taxable income. Imposition of such a tax on us by any other state will reduce the cash available for distribution
to a unitholder. The partnership agreement provides that if a law is enacted or existing law is modified or
interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity-level
taxation for federal, state or local income tax purposes, the minimum quarterly distribution amount and the
target distribution levels will be adjusted to reflect the impact of that law on us.
Changes in tax laws could adversely affect our performance
We are subject to extensive tax laws and regulations, with respect to federal, state and foreign income
taxes and transactional taxes such as excise, sales/use, payroll, franchise and ad valorem taxes. New tax laws
and regulations and changes in existing tax laws and regulations are continuously being enacted that could
result in increased tax expenditures in the future.
If the IRS contests the federal income tax positions we take, the market for our common units may be
adversely impacted, and the cost of any IRS contest will reduce our cash available for distribution to our
unitholders.
We have not requested a ruling from the IRS with respect to our treatment as a partnership for federal
income tax purposes or any other matter affecting us. The IRS may adopt positions that differ from the
conclusions of our counsel or from the positions we take. It may be necessary to resort to administrative or
court proceedings to sustain some or all of our counsel’s conclusions or the positions we take. A court may not
agree with some or all of our counsel’s conclusions or positions we take. Any contest with the IRS may
materially and adversely impact the market for our common units and the price at which they trade. In addition,
our costs of any contest with the IRS will be borne indirectly by our unitholders and our general partner because
such costs will reduce our cash available for distribution.
Unitholders may be required to pay taxes on income from us even if the unitholders do not receive any
cash distributions from us.
Because our unitholders will be treated as partners to whom we will allocate taxable income, which could
be different in amount than the cash we distribute, unitholders will be required to pay any federal income taxes
and, in some cases, state and local income taxes on their share of our taxable income even if they receive no
cash distributions from us. Unitholders may not receive cash distributions from us equal to their share of our
taxable income or even equal to the tax liability that results from that income.
Tax gain or loss on disposition of common units could be more or less than expected.
If unitholders sell their common units, they will recognize a gain or loss equal to the difference between
the amount realized and their tax basis in those common units. Because distributions to unitholders in excess of
the total net taxable income allocated to them for a common unit decreases their tax basis in that common unit,
the amount, if any, of such prior excess distributions will, in effect, become taxable income to them if the
common unit is sold at a price greater than their tax basis in that common unit, even if the price is less than their
original cost. Furthermore, a substantial portion of the amount realized, whether or not representing gain, may
be taxed as ordinary income due to potential recapture items, including depreciation recapture. In addition,
because the amount realized includes a unitholder’s share of our nonrecourse liabilities, if a unitholder sells its
units, the unitholder may incur a tax liability in excess of the amount of cash it receives from the sale.
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