City of Rialto Tax on Fuels Storage Deemed Unconstitutional

Oct 04, 2019
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California’s Fourth Appellate District has struck down a City of Rialto business license tax on wholesale liquid fuel storage facilities of up to $1 per cubic foot of storage capacity. The tax was imposed on “any person engaged in the business of owning, operating, leasing, supplying or providing a wholesale liquid fuel storage facility in Rialto.”  The tax, passed as Measure U in the 2014 elections, was touted by the City as a gas tax. However, several companies on whom the tax was imposed sued, arguing that the tax was not a business license or gas tax, but rather a tax on real property. After losing in the lower courts, the appeals court agreed with the plaintiffs. In its decision, the Court said that the tax was imposed, not on the proportion of business activity, but rather on the capacity of a facility’s storage tanks irrespective of whether they are used in business or whether there was fuel inside. The tax was triggered merely by owning a wholesale fuel liquid storage facility. The Court therefore concluded that the tax was actually a tax on real property and violated the California Constitution. In determining the tax was not an excise tax (or a business tax), the Court said the following:

“The Measure U tax is not an excise tax because it is not a tax on the privilege of using the facilities, storing fuel in the storage tanks, any other use of the facilities or the tanks, or any other incident of owning the facility or the tanks. Rather, Measure U taxes the owners of the facilities based solely on the storage capacity of the tanks in the facilities, regardless of whether the owners lease the facilities or the tanks, whether the facilities or the tanks are used in any way, or whether any fuel is stored in the tanks.”

Please contact Leanne Sobel at 713.893.1241 or with any questions about this post.