Mobil Oil Corp. v. City of Long Beach

MEMORANDUM OF DECISION

For purposes of this Memorandum, this somewhat simplified recital of facts is believed sufficient. In 1965 plaintiffs Mobil, Shell, Texaco, Exxon and Union (“the oil companies”) jointly entered into a “Contractors’ Agreement” with the City of Long Beach. Under this agreement, the oil companies have the right and obligation to produce oil from certain properties owned by Long Beach, purchase the oil so produced at prices dictated by the Contractors’ Agreement, deduct from the purchase price the expenses of production listed or described in the agreement, and divide with Long Beach the remaining “net profit.” The parties have been operating under this contract ever since its execution.

In 1980, Congress enacted the “Windfall Profit Tax on Domestic Crude Oil,” 26 U.S:C. § 4986 et seq., which imposed upon the producer of the crude oil “An excise tax ... on the windfall profit from taxable crude oil removed from the premises during each taxable period.” Id. § 4986. The plaintiff companies, in computing the net profit to be shared with Long Beach, have been deducting as expenses the Windfall Profit Taxes paid by them. Long Beach contends that they are not…