Opinion ID: 1087040
Heading Depth: 3
Heading Rank: 1

Heading: Tesoro’s Business Activity

Text: At relevant times, Tesoro Corporation was a petroleum company headquartered in San Antonio, Texas.1 Tesoro had 33 subsidiary corporations that were 1 Our description of the facts is based on the facts explicitly found by the administrative law judge and the evidence the administrative law judge found persuasive. -2- 6838 organized into five business segments: (1) the Exploration and Production (E&P) segment based in Texas and Bolivia; (2) the Retail and Marketing (R&M) segment based in Alaska;2 (3) the Marine Services segment based in Louisiana and Texas;3 (4) the Corporate segment based in Texas; and (5) the Finance segment based in Texas. Tesoro’s board of directors had an active hand in shaping the financial, operational, and managerial decisions for Tesoro’s subsidiaries. During the relevant period, the board met almost monthly to discuss and approve various aspects of the subsidiaries’ operations. Furthermore, Tesoro’s Corporate and Finance segments provided a number of administrative and financial services that were shared across all subsidiaries. Two developments during the relevant tax years caused the companies within E&P to realize profits greater than those realized by the subsidiaries within R&M. In 1995 Tesoro sold part of its interest in a valuable natural gas field. And in 1996 Tesoro prevailed on a breach of contract claim and later that year sold its remaining interest in the same contract. Those events brought E&P nearly $200 million in revenue. Tesoro’s appeal here effectively tries to shield the profits related to those events from taxation in Alaska. 2 Although E&P and R&M are names the litigants and prior adjudicators have applied to Tesoro’s operational segments, this semantic choice should not be read to suggest that the Tesoro subsidiaries within each segment were necessarily somehow distinct from the Tesoro parent company or each other. All subsidiaries within each segment bore the name “Tesoro.” For example, the R&M segment included the Tesoro Northshore Company and the Tesoro Alaska Petroleum Company. 3 The Marine Services segment was deemed “relatively insignificant” by the administrative law judge. Tesoro asserts that the Marine Services operation is not at issue here, and nothing in DOR’s briefing or the orders below suggests otherwise. -3- 6838