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Richmond May Dodge Bullet on Chevron Property Tax Assessment Reduction
September 28, 2006

Posted on Thu, Sep. 28, 2006

Oil refineries lose bid to lessen taxes
Board of Equalization passes rule that affects firms' ability to depreciate equipment to pay less in levies


A state panel passed a rule Wednesday that appeared to strengthen the hands of local assessors in their recurring battles with oil companies about property taxes at 20 California refineries, including five in the East Bay.

The California Board of Equalization made it tougher for refinery owners to cut their tax bills by invoking an interpretation of Proposition 13 that allows plant owners to offset rising land values by depreciating manufacturing equipment.

The board approved the refinery tax measure, dubbed Rule 474, in a 3-2 vote Wednesday. Two of the yes votes came from candidates for statewide office: Republican Claude Parrish, who is running for treasurer and who sponsored Rule 474, and Democrat John Chiang, the board chairman, who is running for controller. The third and deciding vote came from Betty Yee, who represents the Bay Area on the panel and is seeking re-election in November.

Contra Costa County Assessor Gus Kramer spoke briefly in favor of the rule and, after it was passed, said it would preserve the status quo in refinery property taxes: "It allows us to continue to appraise the refineries as we have for the last 35 to 40 years."

During the hearing, Cris O'Neall, a lawyer for the Western States Petroleum Association, a refiners organization, predicted that "the rule will be struck down because it conflicts with an existing statute."

Kramer said that Contra Costa County might take the lead in fighting a court challenge to the new rule, and that he would ask the Board of Supervisors to approve the necessary expenditures that would, he said, "work to our benefit."

A lot of money is on the table. California refineries have a total assessed valuation of about $20 billion, which at the tax rate set by the state constitution translates into an annual property tax bill of about $200 million. Five Bay Area refineries are on the tax rolls for a total value of $6.9 billion.

Four refineries account for 5 percent of the taxable property in Contra Costa County, where pending appeals by three refinery owners could reduce their combined annual tax bills by an estimated $30 million. Valero's Benicia refinery accounts for 2.5 percent of the tax roll in Solano County.

Wednesday's vote came after a short hearing in the auditorium of the board's Sacramento skyscraper, where backers and opponents pleaded their cases. Richard Ayoob, a property tax lawyer for the refiners, argued that the refiners were being singled out for harsh treatment, though their operations are essentially the same as those of car manufacturers, brewers and water-treatment plants.

And Matt Sutton, a spokesman for the California Manufacturers & Technology Association, warned the board that by passing the rule it would "send a message to the manufacturing community that you may be next."

But Rick Auerbach, the Los Angeles County assessor, countered that argument. "If you fail to pass Rule 474, you're giving a break to refiners that is not offered to the single family homeowner."

Depreciation, an accounting term, means reducing the taxable value of an asset to reflect the wear and tear that would eventually require that asset to be replaced. Aggressive depreciation combined with Prop. 13's ceiling on appreciation, or adjustment of a tax assessment to reflect rising property values, could cut a refinery owner's tax bill in half within a decade, according to an analysis by the Times.

The passage of Rule 474 comes as Kramer and the owners of three Contra Costa refineries -- Chevron in Richmond, Shell in Martinez and ConocoPhillips in Rodeo -- continue to wrangle over property tax appeals filed in 2004.

Victories by all three refiners could force 146 public agencies, including fire departments and libraries, to refund as much as $70 million to the refiners, and cut future annual property tax revenue by $30 million, according to the county administrator. A loss would hit especially hard in Richmond, where Chevron is the largest taxpayer.

Kramer said the new rule could provide those owners with "the impetus to come to the table" and reach a settlement with the county.

In Solano County, a settlement with Valero recently put the taxable value of that company's Benicia refinery at $848 million. The facility had been on the tax roll at $964 million, but the company had sought to get that assessment cut to $600 million.

Rick Jurgens covers energy and business. Reach him at 925-943-8088 or at rjurgens@cctimes.com.