News & Publications

Nielsen Merksamer Wins Major Proposition 218 Decision, Striking Down Rialto’s “Tank Tax”

On January 15, the California Supreme Court denied review of the Court of Appeal’s decision in Tesoro Logistic Operations, LLC v. City of Rialto, 40 Cal. App. 5th 798 (2019), in which the Court of Appeal held that the City of Rialto’s purported “business license tax” on storage tanks owned by oil refiners was, in fact, an illegal property tax.

The tax, imposed on four taxpayers in Rialto, charged them $1 per cubic square foot of storage capacity. Since 2015, the City has collected approximately $40 million that now must be refunded with interest.

Property taxes are subject to a 2/3 public vote requirement under Proposition 218; a business license tax, by contrast, can be enacted with only a majority vote if the funds are not earmarked for particular uses, as Rialto’s tax was not. The Tank Tax passed in November 2014 with a bare majority.

The Court rejected the City’s attempt characterize the Tank Tax as a “business license tax,” noting that the tax was imposed without regard to the amount of fuel stored in the tanks—the amount of business conducted—“An owner of such facility is subject to the Measure U tax each calendar year, even if the facility is closed and conducts no business operations during the year.” It also rejected the City Council’s attempt to alter that conclusion by adopting post-enactment “Guidelines” that purported to require actual use of the tanks, holding that the Guidelines were a prohibited “amendment” to a voter-enacted measure, in violation of the Elections Code.

Nielsen Merksamer represented two of the four taxpayers in the appeal, Phillips 66 and Tesoro Logistics Operations.