Richmond is interfering with interstate commerce by exposing Chevron
to the possibility of being taxed more than once by other cities or states
for the same business activity.�

�The San Francisco Chronicle, summarizing the court�s decision

Like many California municipalities, the Bay Area city of
Richmond has been struggling to balance its books in
recent years. But one �tax solution� that Richmond officials
came up with posed a dangerous, unconstitutional
precedent.

Richmond voters had approved Measure T, which converted the local business
license tax from a traditional
per-employee assessment into a tax on the value of the
raw materials processed by a business. That new tax would
have looked to the value of crude oil processed at Chevron�s
Richmond refinery, skyrocketing Chevron�s local tax liability
from $60,000 to $20 million per year, in a single jump.

But the �unequivocal evidence� (in the words of the
reviewing judge) that Chevron had been deliberately
targeted through this new tax was not sufficient grounds to
set it aside. Instead, Pillsbury proved that the tax violated
both federal and state law, in two different respects.

First, the scheme ran afoul of the Commerce Clause of the
U.S. Constitution, Pillsbury argued, by failing to �fairly
apportion� the tax so that there would not be multiple
taxation of the same business activity if every jurisdiction
adopted the same scheme. Here, the scheme carried a
significant risk of multiple taxation.

Second, because the tax was based on the value of the
product being used�crude oil in Chevron�s case�it was a
type of �use tax� that California lawmakers had reserved
for the state itself, and was therefore off-limits to local
municipalities like Richmond.

The judge agreed with Chevron on both arguments,
invalidating the tax and ordering Richmond to refund the
company approximately $20 million in overpaid taxes. With
the early and definitive defeat of this tax scheme, Chevron
and Pillsbury also put California municipalities on notice that
similar experiments in targeted taxation were equally
unlikely to succeed.

https://www.pillsburylaw.com/images/content/3/4/v2/3465/Litigation-
TaxControversy-Chevron-CS.pdf