The California Supreme Court has sided with Marathon Petroleum in a procedural dispute over local tax refunds, ruling Monday that cities cannot force taxpayers through extra local review steps before they head to court seeking their money back.
The decision stems from a long-simmering fight between Marathon and the city of Carson, home to one of the largest refinery complexes in the state. In 2022, Carson officials told Marathon subsidiary Tesoro that it owed more money under the city’s business license tax targeting the oil industry. Marathon, based in Ohio, took over the Carson refinery in 2018 as part of its acquisition of Andeavor.
Together with its Wilmington operations, the Carson refinery functions as a single facility known as the Los Angeles Refinery, which accounts for roughly 27% of California’s crude oil processing capacity. Marathon declined to comment on the ruling, which lands as California drivers continue to pay the highest gas prices in the nation amid a spike in global crude prices tied to the conflict in Iran.
Carson, just south of downtown Los Angeles, has already seen one refinery shut its doors in recent years — a Phillips 66 facility that spanned both Carson and Wilmington. City officials did not respond to requests for comment on the court’s decision.
Monday’s ruling doesn’t settle the underlying disagreement between the two sides. Marathon contends that Carson overstated how much of the refinery’s business activity happens within city limits, effectively taxing revenue tied to operations in Wilmington and other locations. That larger question remains unresolved. Still, hours after the court issued its opinion, the Carson City Council moved to advance a $370 million settlement with the company, rescinding a separate ballot measure that would have imposed a new refinery tax.
The high court’s ruling was narrower than the underlying tax fight — it addressed only whether Marathon was required to pursue a refund through Carson’s internal appeals process or whether it could instead rely on a claim filed under state law.
A coalition of California cities and counties had backed Carson’s position, warning that allowing companies to bypass local review procedures could weaken municipal authority over tax disputes and create inconsistency across jurisdictions.
Marathon, meanwhile, drew support from the Western States Petroleum Association and two other business organizations. They argued that the state’s Government Claims Act exists precisely to spare companies from navigating a tangle of overlapping city ordinances and state statutes.
At the center of the case is a local tax approved by Carson voters in November 2017, which imposes a 0.25% levy on refinery business conducted within city limits. According to court filings, Tesoro calculated its payments based on what it determined was the actual share of business happening in Carson. Years later, a city audit concluded the company owed more. Marathon disputed the finding but paid the disputed amount before seeking a refund under state law.
Both a Los Angeles County trial court and a state appellate panel had previously sided with Carson, ruling that the company needed to exhaust the city’s own refund procedure first. The California Supreme Court reversed those rulings.
The legal fight unfolded against the backdrop of a broader clash between Carson and Marathon over refinery taxation. Last week, the City Council approved a ballot measure that would have allowed the city to charge refineries up to $1 per barrel of oil processed within Carson. A Marathon spokesperson, Jamal T. Kheiry, warned that such a tax could force the company to reconsider its operations in California, which he described as one of the most expensive places in the world to do business.
Then, on Monday, following the Supreme Court’s ruling, the council voted to conditionally withdraw that barrel-tax proposal — a move tied directly to finalizing the pending settlement with Tesoro.
Original source: CalMatters
