The California Supreme Court has ruled that cities cannot force taxpayers to exhaust local administrative appeals before pursuing a tax refund claim in court, a decision that hands a procedural win to Marathon Petroleum in its long-running tax dispute with the city of Carson.
The ruling, issued Monday, stems from a disagreement between Carson and Tesoro, a Marathon subsidiary, over how much the company owes under the city’s business license tax on petroleum operations. Marathon, based in Ohio, acquired the Carson refinery in 2018 and now operates it jointly with a facility in Wilmington as a single complex known as the Los Angeles Refinery. Together, the two sites account for roughly 27% of California’s crude oil processing capacity.
Marathon did not respond to questions about the court’s decision, which arrives as California drivers continue to pay the highest gas prices in the nation amid a global spike in crude oil costs tied to the conflict with Iran.
Carson, located just south of downtown Los Angeles, is also home to one of two Southern California refineries that have shut down in recent years — a Phillips 66 facility that spanned operations in both Carson and neighboring Wilmington. A spokesperson for Carson did not respond to requests for comment.
Monday’s ruling does not settle the underlying dispute, which centers on Marathon’s claim that Carson overstated how much of the refinery’s business activity occurred within city limits, effectively taxing operations that actually took place in Wilmington and elsewhere. Still, just hours after the court’s decision, the Carson City Council took a significant step toward finalizing a $370 million settlement with the company by pulling back a proposed refinery tax measure that had gone before the council for a vote the previous week.
The state’s high court addressed a narrower legal question: whether Marathon was required to pursue a refund exclusively through Carson’s own administrative process, or whether it could instead file a claim directly under state law.
Cities and counties across California had sided with Carson, arguing that taxpayers should be required to complete local appeals before heading to court, and warning that allowing companies to bypass that process could weaken local governments’ ability to manage tax disputes.
Marathon, meanwhile, had the backing of the Western States Petroleum Association — the state’s largest oil industry lobbying group — along with two other business organizations. Those groups argued that the Government Claims Act was intended to spare companies from having to navigate what they described as a “labyrinthine claims system” made up of overlapping state statutes and local ordinances.
At the heart of the refund dispute is a local tax on refineries that Carson voters approved in November 2017, which imposes a 0.25% tax on business activity conducted within city limits. According to Marathon’s filings with the state Supreme Court, Tesoro calculated its tax payments based on what it believed was the actual business activity occurring in Carson.
Years later, the city audited those payments and told the company it owed additional taxes. Marathon disputed the assessment but paid the amount in question before seeking a refund under state law.
A Los Angeles County judge initially sided with Carson, ruling that the company should have followed the city’s own refund procedure — a decision later upheld by a state appellate court. The California Supreme Court, however, overturned both rulings.
At a city council meeting last week, Carson approved an additional tax measure that would allow the city to charge refineries up to $1 for every barrel of oil processed within city limits. Marathon spokesperson Jamal T. Kheiry said such a tax would carry “significant implications for the plant” and could prompt the company to reconsider its operations in California, which he described as one of the most costly business environments in the world.
On Monday, the council conditionally rescinded that tax measure, with the repeal contingent on finalizing the settlement agreement with Tesoro.
Original source: CalMatters
