Jet fuel supplier cites state taxes for decision to pull out of BIA

BANGOR – The corporation that supplies jet fuel to Bangor International Airport has notified the city that it plans to end its agreement with the facility because of the state’s high tax burden.

ExxonMobil Corp. officials who attended Tuesday night’s Transportation and Infrastructure Committee meeting said a revision in a state tax law has the corporation paying the state of Maine six times the profit it generates in the state on everything from gas stations to jet fuel.”The implications are dramatic when you are talking about six times what we are earning,” Roberto Zamora, ExxonMobil’s U.S. general aviation business development manager, told councilors. ExxonMobil and the Maine Revenue Service would not comment on the corporation’s revenue figures or the taxes paid by the company.Since any other fuel provider would suffer the same tax burden, BIA Director Rebecca Hupp recommended to councilors that ExxonMobil be granted a 90-day extension it requested to give the city, state and company more time to learn the repercussions of the tax change. She also noted that it would be an unfavorable time to seek competitive bids, given the state of the airline industry.

Hupp would not speculate about what the predicament means for BIA’s future.

ExxonMobil leases the airport’s fuel facilities from the city of Bangor and has continued to renew a contract initially drafted in 1976, according to Hupp. The city held an agreement with the corporation before 1976, but the latter arrangement has been renewed every five years since that date. The agreement is set to expire on Dec. 31, 2008, and the city requires six months’ notice if ExxonMobil wishes to terminate the arrangement.

In a letter addressed to Hupp and dated June 27, ExxonMobil indicated it did not want to renew the long-standing agreement. The letter went on to say that if the city granted the corporation a 90-day extension to give notice, then it would rescind the June 27 notice.

If the extension is granted, the notice date is pushed to Sept. 30, with an amendment that would delay the current agreement’s expiration to March 30, 2009. Councilors will decide during the July 14 City Council meeting whether to grant the extension, according to City Manager Ed Barrett.

ExxonMobil officials present Tuesday were told by corporate superiors not to renew or enter into new contracts for the next 90 days, Hupp said. The state’s revised unitary tax law has the corporation questioning the value of its Maine business ventures.

“The extension gives us the ability to assess the full state of impact,” Zamora said after the meeting. “We need to find how to lessen taxation … or legislatively find any possible recourse.”

The unitary tax law in Maine had previously assessed a corporation’s tax assessment by considering the payroll or employees, property in state and sales. Under the old formula, sales were factored twice, and the variables were divided by four, according to Jerome Gerard, acting executive director of the Maine Revenue Service. With the new formula, which was instituted Jan. 1, 2007, corporate sales was the only factor considered when calculating the tax burden. To determine a corporation’s tax bill, the state multiplies the corporation’s apportioned U.S. profit by the business’s Maine sales divided by U.S. sales. The end result is then multiplied by the state tax rate, Gerard said.

During Tuesday’s meeting, Zamora said historically despite high sales in Maine, the corporation’s tax burden was lessened by ExxonMobil’s limited payroll and property in the state. The problem with the new law came to light recently during the corporation’s tax filing process.

The tax change was initiated to help Maine businesses, said state Sen. Joseph Perry, who is chairman of the Legislature’s Taxation Committee. The shift helps Maine-based businesses – which export most of their products – that have significant property and employees in the state, he said. A move to taxing profits nearly wipes out the tax burden for Maine industries, he said.

“We did a lot of tinkering with this because, as the economy changes, we’ve wanted to make the state more attractive,” Perry said.

The tax revision will boost state revenues by nearly $6.2 million in fiscal year 2007-2008, Gerard said. Each year the state generates between $160 million and $190 million in corporate tax revenue, he said. While this amount sounds significant, Perry said the state makes more annually from the cigarette tax, which rakes in around $200 million.

In the next 90 days, the airport will research its three logical options, Hupp said. The city of Bangor could either select a different supplier, work under a distributor agreement, or maintain the status quo if ExxonMobil agrees to keep the agreement, she said.

Zamora said the corporation has enjoyed its long history with the airport and that Bangor is a key customer for ExxonMobil. But, Hupp said, the corporation was surprised by the additional tax burden.

“It is a very real concern for ExxonMobil and there would be no reason for us to expect them to exaggerate their concern because if they didn’t want to continue doing business in Bangor they could notify us and not continue,” said Hupp. “They don’t have to give us a reason for that.”

trobbins@bangordailynews.net

990-8074