HomeMy WebLinkAbout2008-07-14 08-244 ORDERitem Ro. 08 244
Date: Jury 14, 2008
Item/Subject ORDER, Authorizing the City Manager to Execute an Amendment m the Fuel Storage
and Handling Agreement with ExxonMobil Oil Corporalbn
Responsible Department Legal
Commentary: In 2007, the State of Maine revised its UnitaryTax taw redefining how Maine taxes
corporate revenue. The unitary tax taxes an end1y based on the total revenues of a unitary business
rather man only revenues generated in the State of Maine. Previously, me unitary tax was apportioned
based on three factors: 1) payroll; 2) property; add 3) sales. In 2007, the apportionment factor changed
and is now based solely on sales. The financial impact can a company depends on tre breadth and scope
of related/unitary business and whether or not a company is horizontally or vertically Integrated.
Earlier this month, the Airport's fuel supplier, ExxonMobii, notified the City that they are in the process of
evaluating how the revision to the unitary tax will impart their operations In Maine. As a result of this
change and until they are able to determine how to best proceed, ExxonMobll decided not enter into any
new contracts or renew existing contracts for the next 90 days.
The Fuel Storage and Handling Agreement with Exxonhlobil was scheduled to automatically renew at the
end of the year unless trey notified us of their intention not to renew by the end of June. In order to
remain In compliance with the directive from taonMol i headquarters and the existing lease which
requires a six month notice of intent not to extend, they have provided the Airport a letter stating that
they will not elect m reraw the current extract.
This Order will authorize the execution of an amendment to the existing Agreement ro extend the time
for ExxanMobil to give the City notice of its intent not to renew the Agreement until September 30, 2009;
void the notice received in June; and change the effective date of termination If Exxonslobil decides not
to renew from December 31, 2008 to March 30, 2009.
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Associated Information:
Budget Approval:
Finance Director
Legal Approval:
RY Solicitor
Introduced for
�. Passage
_First Reading Page _of _.
Referral
AssignM to Councilor D'8raaico July 16, 2008
CITY OF BANGOR
(T E.) ORDER, Authorizing the City Manager W Execute an Amendment to the Fuel
Storage and Handling Agreement with ExxonMobil Oil Corporation
WHEREAS, the City of Bangor and ExxonMobil Oil Corporation (ExxonMobil) are padres to a Fuel
Storage and Handling Agreement dated June 3, 1976, as previously amended by agreements
dated June 24, 1976, September 30, 1991, October 25, 1994, December 2004 and August 18,
20W; and
WHEREAS, under the Agreement tlm base term continued in effect until December 31, 1983 and
thereafter renews for eight consecutive five-year periods unless ExxonMobil provIdes a notice of
intent not W renew at least six months prior to the expiration of the term or Me applicable
renewal period; and
WHEREAS, for the current renewal period ExxonMobil requires additional Note to further
investigate supply options and wishes to extend the notice period from June 30, 2008 to
September 30, 2008; and
WHEREAS, an amendment M extend the notice period will also include a provision that Me
City will have six months from any roboe of non -renewal and termination of the Agreement
NOW, THEREFORE, BE Tr ORDERED BY THE CITY COUNCIL OF THE CITY OF BANGOR THAT
The City Manager, Edward A. Barrett, is hereby authorized, on behalf of the City of Bangor, to
execute an Amendment of Me Fuel Storage and Handhig Facilities Agreement by and between
the CM of Bangor and ExxonMobll Oil Corporation to provide that for the current term of the
Agreement ending December 21, 2008, any notice of non -renewal of the Agreement by
ExxonMobil may be given to the City on or before September 30, 2006; MM in the event of a
notice of non -renewal of the Agreement by ExxonMobil the effaAve data of termination shall
be March 30, 2009; and that any notice of non -renewal submitted by ExxonMobil M the City to
date are null and void. Said Amendment shall be In a final from as approved by the City
Solicitor or Assistant City Solicitor.
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08 244
BGR �
IMERNASIONAL AIRPORT
MEMORANDUM
TO: Transportation and Infrastructure Committee
CC: Ed Barrett
FROM: Rebecoa Hupp
DATE: June 27, 2008
RE: Potential Impact of Maine's Unitary Tax on Fueling Operations at Bangor
Intemabonal Airport
1112007, the State of Maine revised! its Unitary Tax Law redefining how Maine taxes
corporate revenue. As a very general summary, the unitary tax taxes an Amity based
on the teal revenues of a unitary business rather than only revenues generated in the
State of Maine. Previously, the unitary tax was apportioned based on three factors: 1.)
payroll; 2.) property; and 3.) sales. In 2007, the apportionment factor changed and is
new based solely on sales. The formula calculates the %of sales in Maine compared to
the unitary business's sales globally. This percentage is then applietl to the global net
income of the unitary businesses, not only the revenue generated in Maine. The
financial impact on a company depends on the breadth and scope of relamd/unilary
business and whether or not a company is hodmntally or vertically integrated. For
businesses that are generally mare horizontally in[egrateel, such as retail chins, the
Impact is comparatively minor. For companies Mat are vertically integrated, the impact
can be quite significant. A more technical explanation of the tax provided by Berstein
& Shur, our consultant Is provided at the and of this memo.
Earlier Mis month, our fuel supplier, ExxonMoNI (EMA), notified us that they are in the
process of evaluating how the revision to the unitary tax will impact Meir operations in
Maine. Our EMA contacts noted Mat in 2007, the taxes Exxon paid totaled nearly 6
tlmes their total profit generated in the State of Maine. As a result of this change and
until they are able W determine how W best proceed, EMA has been instmaed to net
enter into any new contracts or renew existing contracts far the next 90 days.
While the City has numerous agreements with Exxon, the two basic agreements are the
Fuel Storage and Facilities Handling Agreement and the Agent Agreement. The Fuel
Srorage and Facilities Handling Agreement defines the rights, obligations and
responsibilities of Exxon and the City as they relate to Exxon's lease of the fuel famm.
Under this agreement the City leases the airports fuel related facilities W Exton in
neWm for a payment per gallon of fuel passing through the system. Eggert Is
responsible for all minor maintenance to the leased facilities while the City is responsible
for major mairmnance items and insuring that the facilities remain structurally sound
antl In compliance with all regulatory requirements.
The Flrtl Storage and Handling Agreement was scmduled to automatically renew at the
end of the year unless EMA notified us of its intention not to renew by the end of June.
In order to remain In compliance with the directive from ExxonMobll headquaneters and
0e 244
Unitary Tax Information
• Under Maine law, a corporation having income from business activity taxable
both within Maine and taxable in another state or states mixt apportion its net
Income between Mane and such other states. 36 MRSA section 5211(1).
Apportionment of net Income Is done pursuant trr a one factor formula, baud
upon sales in Maine and sales everywhere. 36 MRSA section 5211(6).
In the case of one corporation, the net income of that corporation is
appotioned. However, If a carporaton is a member of an affiliated group and is
engaged in unitary business with one or more members of that afiliatetl group,
then the net income of all members of the affillated group engaged in the unitary
business must be apportlmed between Maine and elsewhere. 36 MRSA section
5200(4).
•
For these purposes, an "afiliated group' is any group of two or more
corporations in which more than 50% of the voting stock of eeCn member
corporation is directly or incireNy, owned by the common owner or owners,
either corporate or noncorporate, or by one of more of the member
corporations. 36 MRSA section 5102(1-B).
• A "unitary business' mom a business activity which is characterized by unity of
ownership, functional integration, centralization of management aM economies
mf scale. 36 MRSA seoon 5102(10-A).
Therefore, in this case, the net income of FwmnMobll and any affiliated corporation can
be apportioned to Maine according to the one -factor apportionment formula if there Is
commonality, or ownership, and evidence of functional Integration, central'ued
management and economies of scale between the affiliated! corporations.
The usual argument is the make-up of the unitary business group of corporations. Mich
cmporations in the 6gmn Mobil group can be group because of the unity of ownership,
functional integration, centralization of management and economies of scale? The
factors are determined by a rmww of the facts and circumstances of each case.
Although there are no hard-and-fast rules, there are several important guidelines which
atse from the several unitary business cases (mostly ansintg in Calffomie). In California,
the factors are called the three unities (unity of ownership, unity of use, and unity of
operation). Maine's law follows, in general, the California approach. In general, the unity
of ownership is based on the thresholds set by common or state law. In Mane, there Is
unity of ownership if one corporation owns more than 50% of the voting stock of
another. corpoadw. Unity of use is evidenced by, among other things, a centralized
executive force and general system of operation, the use of economies of scale, and the
inter -company flow of goods or value. Unity of operation is evidenced by, among other
things, centralized staff, padhasing, advertising, a¢oum g, legal work, management
dlvlsions, and the edstarxe of intercompany loans and loan guarantees.
f
t1Q 244
the existing lease which requires a six month notice of Intern not to extend, EMA
provided the Airport a hotter stating that they will not elect to renew Ne current
uwMrad. The letter also slates that B"Mobil will remind its mbce'rf the City Is willing
to extend the notice period for 90 days, establishing September 30th as the new mike
dabs. A ropy of the letter is attached far your reference.
Airport and City staff have revkwetl the contacts and are in the process of researching
Ne imp a 9tlh Unitary lax and odher business altematNes should EM decide not to
renew the existing mMraM Since any (lel supplier would likely face the same tax issues
as ElAk It would not be in the AimorCs interest to terminate the mnba¢ und] we fully
under aM dhe implications the Mange may have on the IrMusary and our operations.
The current economic uncertainty in the aviation industry also makes this an
unfavorable time w solid competitive proposals. MR has enjoyed a long standing and
extremely beneficial resUorship whit EioonMol ig wlth favorable, competitive pricing and
cost sharing on capital projects. In adtlifion, Nis agreement is just oro among several
betomen the City and Exxon. If it Is not extended, we will aim have W calamine he
Impact on these atihr existing agreement. As Nis is a complicated issue, more
research is necessary.
In order bs allow both the City and Boon Ne necessary dime fo evaluat Nis situation,
the Airport requests Nat the pry grant a 90 day extension on the Fuel Storage and
Handling Agreement and reset the termirmpon notice date m September 30th..
NR 244
E xonMobil Oil Corporation
MS cola"R
Fain VA 23037{ 1
E*onMobil
June 27, 2008
City of Bangor
Bangor International Airport
287 Godfrey Blvd.
Bangor, Maine 04401
Attn: Rebecca Hupp,
Airport Director
Re: Fuel Storage and Handling Agreement-- Notice of Election Not to Renew
Dear Ms. Hupp:
Pursuant to that certain Fuel Storage and Handling Agreement dated June 3, 1976, as
amended June 24,1976, September 30, 1991, October 25, 1994, December 21, 2004
and August 16, 2006 by and between ExxonMobil Oil Corporation and the City of
Bangor (the "Agreement'), this letter serves as notice of our election not to renew the
Agreement at the expiration of the renewal period currently in effect, subject to the
following. Should the City of Bangor grand the requested ninety -day extension of the
notice period described in Paragraph 2 (TERM) of the Agreement, ExxonMobil shall
rescind this notice and advise you of our intentions on or before September 30, 2008.
Very
/ftruly yours,///nu/n
/ " l..tP
Richard Oldham
North America General Aviation Sales Manager
ca Mr. Tony Canso
Ms. Linda Fannin
Mr. Howie Strachan