Oil Company Windfall Profits Tax Act of 2026
- Sponsor
- Sen. Schiff, Adam B. [D-CA]
- Committees
- Finance Committee (primary)
- Last action
- Sep 28, 2026
Bottom line
The bill aims to capture a portion of what it defines as "windfall profits" from large oil companies and reallocate these funds to federal infrastructure and environmental cleanup trust funds.
What it actually does
This bill amends the Internal Revenue Code of 1986 to impose a new 50% excise fee on the "excess profit" of integrated oil companies for taxable years beginning after December 31, 2025. "Excess profit" is defined as adjusted taxable income exceeding a "reasonably inflated average profit" calculated from a five-year historical baseline. The revenue generated from this fee is directed to the Highway Trust Fund and the Leaking Underground Storage Tank Trust Fund.
Proponents argue
Proponents argue that this fee ensures large oil companies contribute a fair share to public funds when they experience exceptionally high profits, particularly during periods of elevated energy prices. They contend it provides much-needed revenue for critical infrastructure and environmental programs without burdening average taxpayers, as it targets profits deemed truly "excessive" rather than normal business earnings.
Opponents contend
Opponents would contend that imposing such a fee is a punitive tax that discourages domestic oil production and investment, potentially leading to higher energy prices for consumers, reduced energy security, and job losses in the energy sector. They might argue it represents an arbitrary government intervention in free markets that distorts economic incentives.
The bill is concise and clearly structured, allowing an informed reader to quickly grasp its core mechanisms and implications.
Section 1
Short Title
This section establishes the official short title of the Act as the "Oil Company Windfall Profits Tax Act of 2026." This title provides a common and concise name for the legislation, immediately signaling its primary focus and intent.
Supporters argue
A clear short title helps in public discourse and legislative tracking, immediately signaling the bill's intent to address oil company profits.
Critics contend
No specific opposition is typically raised against the short title itself, though opponents of the bill would likely criticize the "windfall profits" framing.
Tradeoffs
None inherent in the title itself, beyond the political framing it establishes for the bill.
Section 2(a), new Internal Revenue Code Chapter 56, Section 5896
Imposition of a 50% Excise Fee on Excess Oil Profits
This provision establishes a new 50% excise fee on the "excess profit" of "applicable taxpayers" for taxable years beginning after December 31, 2025. An "applicable taxpayer" is specifically defined as any integrated oil company, as referenced in section 291(b)(4) of the Internal Revenue Code. This means the fee targets large oil companies that are involved in both the production and refining of petroleum.
Section 2(a), new Internal Revenue Code Chapter 56, Section 5897
Defining "Excess Profit" and "Reasonably Inflated Average Profit"
This section defines "excess profit" as the amount by which an integrated oil company's "adjusted taxable income" for a given year exceeds its "reasonably inflated average profit." "Adjusted taxable income" starts with regular taxable income but adds back interest expense, charitable contributions, and net operating loss deductions. "Reasonably inflated average profit" is calculated as the average adjusted taxable income from the five taxable years starting after December 31, 2020, excluding the highest year, plus an additional 10%. This baseline aims to identify profits significantly above historical norms.
Section 2(b), amending Section 9503 of the Internal Revenue Code
Allocation of Fee Revenue to the Highway Trust Fund
This provision amends the Internal Revenue Code to direct revenue generated from the new excess oil profit fee to the Highway Trust Fund. It adds the new fee (Section 5896) to the list of revenue sources for the fund. Specifically, 0.5435% of the fee revenue is transferred to the Highway Trust Fund, and an additional 15.63% of the amounts attributable to the fee (after the initial 0.5435% transfer) are then transferred from the Highway Trust Fund to its Mass Transit Account.
Section 2(c), amending Section 9508(b) of the Internal Revenue Code
Allocation of Fee Revenue to the Leaking Underground Storage Tank Trust Fund
This provision amends the Internal Revenue Code to direct a portion of the revenue from the excess oil profit fee to the Leaking Underground Storage Tank (LUST) Trust Fund. It mandates that an amount equal to 0.5435% of the fees received under Section 5896 (the excess oil profit fee) be transferred to the LUST Trust Fund. This fund is primarily used for environmental cleanup activities related to leaking underground petroleum storage tanks.
Section 2(e), amending Section 164(a) of the Internal Revenue Code
Deductibility of the Excess Oil Profit Fee
This provision amends Section 164(a) of the Internal Revenue Code to explicitly state that the fee imposed by Section 5896 (the excess oil profit fee) is deductible for income tax purposes. This means that integrated oil companies can subtract the amount of the fee paid from their taxable income when calculating their regular income tax liability, thereby reducing their overall tax burden.
The fee imposed on excess oil profits is deductible for income tax purposes.
Section 2(e), amending Section 164(a)
Why it matters:This is standard legislative practice for integrating new tax provisions into existing tax law, ensuring proper accounting treatment and consistency with the broader tax framework.
Case for: Allows the fee to be treated as a legitimate business expense, which can reduce the overall tax burden on companies and potentially make the fee more palatable by not double-taxing the same income. This approach aligns with the treatment of many other excise taxes.
Case against: Reduces the effective rate of the "windfall" tax and the total net revenue collected for the federal trust funds. Critics might argue that allowing deductibility undermines the stated goal of capturing a larger share of perceived excess profits.
Estimated impact: Reduces the net financial impact of the fee on integrated oil companies and the net revenue generated for the federal trust funds. The exact amount depends on the companies' marginal tax rates and the size of the fee paid.
The term "applicable taxpayer" (who pays the fee) means any "integrated oil company (as defined in section 291(b)(4))".
Section 5896(b)
Why it matters:This is common legislative drafting practice to avoid redundancy and ensure consistency with existing definitions in the tax code, leveraging established legal terminology.
Case for: Ensures that the fee applies specifically to larger, vertically integrated oil companies, which are often the focus of "windfall profit" discussions, rather than smaller independent producers or refiners. It leverages an existing, understood definition.
Case against: Requires external research to fully understand the scope of the bill, potentially obscuring who exactly is targeted without a deep dive into the tax code. This can make the bill less transparent to a general audience.
Estimated impact: Limits the universe of companies subject to the fee, focusing on major players in the oil industry that meet the criteria of being both producers and refiners.