1997 ANNUAL REPORT
TAX & LEGAL

Court Says Testing "Fees" Are Not Taxes Even When Compulsory and Retroactive

In a decision that could enable state and local government to skirt Proposition 13 in seeking new sources of revenue, the California Supreme Court in June unanimously reversed the decisions of lower and appellate courts and ruled that the childhood lead poisoning "fee" is not an unconstitutional tax under Proposition 13.

At issue was a court challenge to the legislature's action in assessing "fees" on the oil and paint industries to pay for testing of children under the Childhood Lead Poisoning Prevention Act of 1991. The suit was brought by the Sinclair Paint Company and supported by WSPA and other industry groups. It alleged that the "fees" were in fact taxes and therefore required assent of two-thirds of the legislature under Proposition 13, a percentage not attained during passage of the 1991 act.

In reversing the lower and appellate courts' decisions, the Supreme Court ruled that the assessments were bonafide regulatory fees and not taxes, dismissing out of hand arguments that they had to be taxes because they were compulsory and retroactive. The court 's opinion also created a third category of regulatory fees: Remediation fees. To those who argue that this approach opens the way for governments to enact fees in lieu of taxes, the court placed the burden of proving the unconstitutionality of fees on the fee payers, which is contrary to all prior case law.

Appeal Likely in Contra Costa Land Use Case

A recent court decision ruled that the Contra Costa County Board of Supervisors followed appropriate procedures in passing a controversial land-use ordinance which has a major impact on refineries in that county. An appeal is expected to be filed.

WSPA had joined with others in the industry in challenging the proposed ordinance which would mandate certain safety standards be met before permits for modifications at refineries could be issued. Contrary to the industry's position, the court ruled that the supervisors acted within their authority even though the ordinance was adopted without the benefit of a written request by the Planning Commission and there were no significant grounds to challenge the decision under the provisions of the California Environmental Quality Act.

Progress Made in Diesel Exhaust Challenge

WSPA, the Engine Manufacturers and the American Trucking Association were successful in obtaining a decision from the California attorney general's office that could lead to a dismissal of a case alleging diesel engine exhaust emissions violate Proposition 65.

The litigation, initiated in northern California and threatened in Southern California by the Corporation for Clean Air, charged diesel engine manufacturers and more than 50 trucking and transportation companies with Proposition 65 violations. In a letter expected to be filed with the court by defendants, the attorney general's office said there was no evidence of such violations based on several state-reviewed studies of diesel engine exhaust emissions.

Aquilar Case Dismissed by Trail Court

A monumental effort was undertaken within WSPA to respond to a wide-ranging subpoena issued in the Aquilar case. The litigation was initiated by a group of individuals against major oil companies alleging a conspiracy to increase gasoline prices at the time when cleaner-burning gasoline mandated by the state was introduced in California in March of 1996. The case subsequently was dismissed by the trial court, citing the absence of any evidence supporting the plaintiff’s allegations. The dismissal is an emphatic pronouncement that the oil industry strictly complies with state and federal antitrust laws.

Tax Assessment of Oil and Gas Property Takes Center Stage

The long-standing controversy over the valuation of oil and gas properties for taxation purposes was thrust onto center stage this year. The attention came when WSPA requested that the State Board of Equalization conduct an audit to determine what economic parameters were used by the Petroleum Standards Advisory Committee (PSAC) of the California Assessors' Association and the Kern County Assessor's office in establishing the value of these properties.

Although the State Board declined to take up the issue, the request triggered reaction from Kern County Assessor James W. Maples, which may lead to expanded industry-government cooperation in the search for alternative valuation procedures.

"Our aim is to work with Mr. Maples and others in the assessor community," said David Kilpatrick, Chair of the Upstream Committee. "We must work together to find a way to bring a measure of certainty and economic reality to this inherently contentious process that we all go through year after year."

WSPA's Upstream and Property Tax Committees and the Oil, Gas and Geothermal Properties Subcommittee are working to develop additional alternatives and have suggested meeting with assessors to elicit their ideas on how to make the tax assessment process more realistic and less controversial.

Philip K. Verleger, Sr. Remembered

WSPA’s general counsel from 1960 to 1990, Philip K.Verleger, Sr. died May 11 following a severe stroke. A reception in his honor was held at his home in Fullerton, California. Mr. Verleger guided the industry through a diverse period of growth and transition culminating in the restructuring of the association in the late 1980’s. Doug Henderson, WSPA executive director, said: "Phil Verleger was a great resource of wisdom, clarity and stability during his years as our general counsel. His guidance helped the association during numerous difficult issues, controversies and changes. Phil, Jr.’s links with WSPA serve us well today and his ongoing work with us is a useful and appropriate way to remember his father."

1997 WSPA Annual Report
Tax & Legal