1. Exxon Mobile (“Exxon”), headquartered in Irving Texas, leases an oil tanker from a Japanese shipping company. The ship’s registry is in Panama. Panama and Japan both have a tax treaty with the United Sates. The ship transports crude oil from the North Sea, Canada and West Africa to Port Newark New Jersey in Union County. The crude oil is transferred to the Exxon Bayway refinery where it is refined into gasoline by Exxon. The oil refinery is located in Linden New Jersey in Union County. The refined oil is then sold to independent dealers and delivered by tanker trucks owned by Exxon Mobile Tanker Corp., a wholly owned subsidiary of Exxon, to the neighboring states of Delaware and New York. The gasoline is sold by independent Exxon gas stations owned by independent dealers. Exxon has no offices or sales people in New York or Delaware. Assume Exxon has no other business operations or employees in New York or Delaware. All orders are taken by phone or email in New Jersey. New Jersey and New York have a sales tax; Delaware does not have a sales tax. New Jersey has a “Throw Back Rule”. All states have adopted “Wayfair legislation”. The revenue from the sales of gasoline is substantial.

Union County New Jersey is in need of additional tax revenues and has notified Exxon of its intent to levy an Ad Valorem tax on the vessel as it spends about three months a year at Port Newark off-loading crude oil.

The state of New Jersey seeks to impose a use tax on the imported crude oil based on refining and wholesales sales in New Jersey, and a sales tax on the refined oil sold to independent dealers and shipped to New York and Delaware. The state of Texas is concerned as to how Exxon is apportioning business income and expenses from the sales of the refined oil (gasoline) in New York, Delaware and New Jersey as well the imposition of an Ad Valorem tax on the leased vessel by Union County New Jersey.

Your client Exxon has come to you for advice on its potential sales and use tax liability in New Jersey, New York, and Delaware and potential liability for the use tax in New Jersey regarding the import and refining of crude oil in New Jersey. Exxon is also concerned whether the imposition of an Ad Valorem tax on the leased vessel is constitutional. Exxon has also asked for your general advice on apportionment of business income and expense in the following states of New Jersey, New York, Delaware and Texas.

In responding to the questions raised by Exxon, you should identify all the issues relating to the ability of Union County New Jersey, the States of New Jersey, New York and Delaware to levy sales and use taxes and income taxes on Exxon addressing nexus (physical or economic), apportionment raised by the State of Texas, international trade issues, and any constitutional issues relating to the Due Process clause, Equal Protection Clause and Commerce Clause of the Constitution and whether the Dormant Commerce clause is applicable?

A. Issues: Identify and list as many issues raised by the fact situation. (Use bullet format)

B. Conclusion/Recommendation: Reach a conclusion or recommendation to your client as to each issue raised. List as many Conclusions/Recommendations raised by the fact situation. (Use bullet format)

C. Analysis: Provide a brief analysis on your case readings for each of your conclusion/recommendations. List your analysis as they relate to each Conclusion/Recommendations. (Use bullet format)

Answer rating: 100% (QA)

A Issues Potential Li ability for Sales and Use Tax in New Jersey New York and Delaware Potential Li ability for Use Tax in New Jersey regarding the import and refining of crude oil in New Jersey Pote... View the full answer