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Chevron and Richmond Roll The Dice Over Utility User Tax

Some 20 years after adoption of a utility users tax by the City of Richmond with a special exemption in the way of an alternative tax carved out for Chevron, a new day has dawned.

For the first time ever, Chevron has declined to seek, for the current FY 2006-2007, an agreement with the City of Richmond to pay the “maximum tax payable,” described under Richmond Municipal Code 13.52.100.

The maximum tax payable option, commonly known as “the cap,” has been a sore spot for many over the years, including me. It was originally inserted into the utility user tax legislation under pressure from Chevron.

There has been speculation from the beginning that Chevron had saved millions by paying “the cap” rather than the percentage of utility usage under which every other taxpayer is assessed.

On at least two occasions in the last 15 years, Chevron has offered data to support its contention that its tax liability under the cap is roughly equal to its liability under the percentage. Chevron maintained that it preferred the cap method because the company was concerned that otherwise its utility costs, which it considers trade secrets, would somehow be divulged to competitors, thus damaging the company. Unfortunately, the information provided by Chevron had no detailed backup that could be checked for accuracy.

For many years, it was accepted that if Chevron requested to pay under the cap, the City had no alternative but to accept. That line of reasoning ended in 2004 when Interim City Attorney Everett Jenkins opined that the agreement described in Richmond Municipal Code 13.52.100 required the consent of both parties – Chevron and the City.

By the time Fiscal Year 2005-2006 was underway, Chevron had requested the cap, and even though the City never signed the request giving its consent and creating a written agreement, it began cashing Chevron’s checks. The interim city attorney ruled that such action was tantamount to consent, and the issue went dormant for another year.

In the spring of 2006, Finance Director James Goins advised Chevron that if it intended to seek taxation under the cap, it would have to provide sufficient information to the City showing the projected tax liability under each method so that the City could make an informed decision.

Unlike you and me, who pay utility taxes automatically through our utility bills, Chevron operates in a much more complex manner because it cogenerates some of its electricity using its own fuel and uses raw petroleum products for both process energy and as feedstocks for various products. At the end of the day, Chevron will essentially compute its own utility tax liability. The Utility User Tax ordinance includes rather detailed instructions on how such tax liability shall be calculated, but its accuracy is dependent on the accuracy of Chevron’s internal calculations and perhaps how Chevron chooses to interpret the ordinance’s application.

Speculation is that Chevron will not readily share information with the City about how its energy costs have been determined that can be independently verified, potentially leading to mistrust and even litigation. We hope that will not be the case, but only time will tell.

This could go either way. The City might benefit from millions more than it would have collected under the cap. On the other hand, if Chevron has been telling the truth all these years, the City could have to dip into its reserves to support a budget based on utility user tax projections using the amount that would have been paid under the cap.

I and some other City Council members have been advocating for years that the City hire an independent expert to evaluate the probable outcome based on information publicly available about refinery energy usage. Every attempt, however, has bogged down in internal squabbling among councilmembers. That opportunity has now passed us by, and we are in the hands of fate.

A portion of RMC Chapter 13.52 is copied below. The remainder can be obtained via the Internet at http://bpc.iserver.net/codes/richmond/index.htm.

13.52.100 Maximum tax payable.

(a) The maximum tax payable by any service user under the cumulative application of Sections 13.52.030, 13.52.040, 13.52.050, 13.52.060, 13.52.070 and 13.52.080 and this section shall be the base amount of $1,148,137.54 for each percent of tax imposed for any tax year, which base amount shall be adjusted annually by that percentage which is ninety (90%) percent of the total percentage of change in the United States Department of Labor, Bureau of Labor Statistics' Gas (piped) and Electric Consumer Price Index For All Consumers Urban for the San Francisco/Oakland/San Jose Area calculated on the basis of the two consecutive and most recent completed years for which data is available from the United States Department of Labor.

This maximum tax liability shall be effective only if the service user elects to avail itself of such maximum tax liability provision and enters into an agreement with the Tax Administrator prior to the commencement of the tax year to pay the maximum tax liability directly to the City during the tax year. No portion of the sum shall be refundable in the event the service user subsequently determines that its tax liability under this chapter would have been less than the maximum tax liability. Upon execution of the agreement between the Tax Administrator and the service user, the Tax Administrator shall notify all relevant service suppliers of the names and locations of all service users making payments directly to the City.