California Supreme Court Rules Cities Cannot Add Extra Hurdles to Oil Refiner Tax Refunds

The California Supreme Court on Monday ruled that cities cannot require oil refineries to complete additional local procedures before filing a tax‑refund claim under state law. The decision was reached in a lawsuit involving Marathon Petroleum Corporation, which operates the state’s largest refinery in Carson, California.

Marathon Petroleum, which acquired the Carson refinery in 2018, had been in dispute with the City of Carson over a business‑license tax that the city imposed on oil‑industry activity. In 2022, Carson notified Marathon’s subsidiary Tesoro that the company owed additional taxes under the city’s oil‑industry business‑license tax. Marathon paid the assessed amount and then filed a refund claim under the Government Claims Act, a state statute that allows taxpayers to seek refunds of overpaid local taxes.

A Los Angeles County judge and a state appellate court had previously agreed with Carson that Marathon should have used the city’s own refund process. The California Supreme Court overturned those decisions, holding that the state law preempts local administrative requirements. The court’s ruling does not resolve the underlying question of whether Carson had correctly attributed the refinery’s business activity to the city, but it does remove a procedural barrier that Marathon had faced.

The refinery in Carson, which is part of the Los Angeles Refinery unit that also includes the Wilmington facility, accounts for 27 % of California’s crude‑oil refining capacity. The dispute has attracted attention because California’s gasoline prices are the highest in the United States, a situation that has been exacerbated by the global price rise following the Iran war.

Following the ruling, the City of Carson took a step toward finalizing a $370 million settlement with Marathon. The city had recently approved a measure that would have allowed it to charge refineries up to $1 per barrel processed in Carson. Marathon’s spokesperson said that such a tax would have significant implications for the facility and could lead the company to reconsider its operations in California. The city council voted to rescind the measure, a decision that was contingent on completing the settlement with Marathon.

The case highlights the tension between local governments’ authority to levy taxes on industrial activity and the California state law that seeks to streamline tax‑refund claims. The Government Claims Act was designed to prevent companies from navigating a “Byzantine claims system involving myriad state statutes and local ordinances,” according to the Western States Petroleum Association, the state’s largest oil lobby.

Marathon’s legal team argued that the state law allows companies to seek refunds without first satisfying local administrative procedures. The Supreme Court’s decision affirms that interpretation. The ruling may affect other local tax disputes involving large industrial operators, although the court did not address whether the same principle applies to other types of local taxes.

The settlement, which is still pending final approval, will resolve the financial dispute between Marathon and Carson. The city’s rescission of the additional tax measure is a separate development that reflects the city’s willingness to negotiate a resolution that avoids further litigation.

At present, the California Supreme Court’s ruling removes a procedural obstacle for Marathon but leaves the core tax‑assessment dispute unresolved. The city and the company are expected to finalize the settlement in the coming weeks, after which the refinery will continue to operate as part of California’s critical oil‑refining infrastructure.

The decision underscores the importance of clear legal frameworks for local taxation in a state where industrial activity has significant economic and environmental implications.