Lawmakers want state to sue ChevronTexaco
By Sean Hao
Advertiser Staff Writer
State lawmakers are urging Gov. Linda Lingle to pursue a lawsuit against ChevronTexaco Corp. seeking what some say are hundreds of millions of dollars in back taxes.
A Senate committee sent a resolution to the full Senate yesterday asking Lingle to sue the oil company for more than $500 million in state taxes. The company allegedly avoided paying the taxes by funneling income through an off-shore company. The allegations were raised last year in a report by former University of Michigan professor James Wheeler.
Chevron has denied the charges.
Wheeler urged senators to push for the lawsuit quickly, noting that the longer the state waits, the more difficult it becomes to gather testimony and documents involved in the case. The effort to avoid the taxes, according to Wheeler, dates as far as the 1960s. The state attorney general's office is mulling an offer by the Chicago law firm of Winston & Strawn to pursue the case on a contingency-fee basis.
"The sooner you go after them, the sooner, easier, the more accurate the recovery will be," Wheeler said.
At issue is whether Chevron and Texaco paid inflated prices for crude oil through an Indonesian operation allowing it to avoid U.S. taxes using both foreign tax credits and an offsetting rebate in the form of oil. The Internal Revenue Service took Chevron to court on similar allegations in 1994. Chevron settled that case for $675 million. Texaco also settled comparable issues with the IRS.
The two companies, which have since merged, did not testify at the hearing. But spokesman Albert Chee said later: "It remains our position that the allegations are without merit. It is our intention to continue to cooperate" with a state investigation into the issue.
ChevronTexaco is Hawai'i's largest gasoline retailer and owns one of the state's only two refineries. Tesoro owns the other.
In addition to any back taxes, penalties and interest, Hawai'i would benefit from a suit should it prevail since the oil company would be prevented from continuing the practice, Wheeler said. He believes use of the tax-avoidance process, which could lead to inflated oil costs, is still occurring and ultimately contributes to Hawai'i's high gasoline prices. Most of the crude oil refined in Hawai'i comes from Indonesia.
Hugh Jones, state deputy attorney general, said his office is reviewing documents provided by the IRS, but is awaiting others, before making a decision on whether to pursue the case. He said the state also is awaiting permission from ChevronTexaco to share corporate tax return data with Winston & Strawn.
"There's no question that the allegations are very serious ones," Jones said. "We want to make sure ... and the administration wants to make sure, that before it commits the state, the due diligence has been done."
Sen. Ron Menor, D-17th (Mililani, Waipi'o), said the state has nothing to lose by suing ChevronTexaco because Winston & Strawn is willing to take the case on contingency. He wants the Lingle administration to come up with a deadline for making a decision on pursuing the case by the end of the legislative session in May.
"I really think it's a no-brainer that the state should proceed with this lawsuit," Menor said.
Reach Sean Hao at shao@honoluluadvertiser.com or at 525-8093.
