Lawmakers Get Wise to Windfall Paper Profits, Seek To Limit Benefit (IP, VRS, VZ, KPPC)
After surging in recent weeks, shares of paper companies like International Paper Co. (NYSE: IP) are under pressure today on reports from the New York Times lawmakers may repeal or limit an obscure tax provision which has created a windfall for paper manufacturers.
The provision was intended to spur the development of alternative fuels, but instead, because of unintended consequences, the measure has created a windfall for paper makers and thus boosted their stock prices.
Brian McClay, a paper analyst in Montreal, said the potential windfall to the paper industry is $6 billion, though other estimates have been somewhat lower.
The paper companies have been able to qualify for the tax credit by mixing small amounts of diesel to the wood byproduct called black liquor they have been using for years to fuel their plants. Using the diesel fossil fuel has made them eligible for the tax credit.
International Paper has already received a $71 million check from the IRS and an analyst at Deutsche Bank estimates that the company could receive as much as $1.27 billion this year. Verso Paper Corp. (NYSE: VRS) has also benefited from the tax credit. Other paper companies that could benefit from the credit include Boise, Inc. (NYSE: BZ) and KapStone Paper and Packaging Corporation (Nasdaq: KPPC).
Link to NY Times Article
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