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SALES TAX SHARING AGREEMENT
A-2020-045
This SALES TAX SHARING AGREEMENT ("Agreement") is made and entered into as
of April 1. 2020, by and between the CITY OF SANTA ANA, a charter city and municipal
corporation organized and existing under the Constitution and laws of the State of California
("City"), and TACenergy, a division of the Truman Arnold Companies, a Texas corporation
w ("TAC").
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RECITALS
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A. On August 5, 2013, the City approved the execution of a sales tax sharing
agreement with IPC (USA), Inc. ("IPC"), an independent wholesale distributor of gasoline, diesel,
jet fuel, and other refined petroleum products throughout the United States. The agreement
provided for a fifty percent (50%) sharing of local sales tax generation, increasing to seventy
percent (70%) when more than $1.4 million of sales tax is generated in a single year. The term of
this agreement was to expire in January 2028.
B. On November 1, 2019, IPC was acquired by TAC, one of the largest national
wholesale fuel suppliers in the county (such TAC activities in California are hereinafter referred
to as the "Petroleum Business"), with annual sales exceeding 2.7 billion gallons and more than $5
billion in revenue.
C. Since the acquisition, TAC has been evaluating all of its newly acquired assets and
have made the determination that they would like to remain in the City due to its local employment
base and centralized proximity to an airport and major freeways.
D. In consideration for TAC's performance under this Agreement, City has agreed to
pay to TAC certain payments, measured by a portion of the Sales Tax generated by the conduct of
TAC's "Required Operations" in the City, provided that TAC causes Required Operations to be
conducted in the City during the term of this Agreement and complies with the other terms and
conditions set forth in this Agreement, as more particularly set forth herein. City and TAC have
agreed that the amount to be paid by City to TAC hereunder is a fair exchange for the consideration
to be furnished by TAC to City.
D. By its approval of this Agreement, the City Council of City has found and
determined that it is of benefit to the City and its residents for the Required Operations to be
conducted within the City, and that the imposition of certain terms and conditions relating to such
uses and the City's payment of the City Consideration described herein constitute valid public
purposes under the City's Charter and Article XVI, section 6 of the California Constitution as
necessary for the economic enhancement of the City and to contribute to the City's general fund
that supports services for the health, safety and welfare of the residents of the City. The City
Council has further found and determined that TAC's conduct of its "Required Operations" as
contemplated in this Agreement will assist in the generation of additional sales and use tax
revenues to City as well as assist in the creation and maintenance of additional jobs and economic
opportunities for the residents of the City.
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EXECUTORY AGREEMENTS
Based upon the foregoing Recitals and for good and valuable consideration, the receipt and
sufficiency of which is acknowledged by both parties, City and TAC hereby agree as follows:
DEFINED TERMS.
The following terms when used in this Agreement shall have the meanings set forth below:
"City Consideration" shall mean the amounts to be paid by City to TAC for TAC's conduct
of the Required Operations during the Operating Period. The City Consideration paid for the
Operating Period shall be an amount equal to: (i) fifty percent (50%) of up to $1,400,000 of Sales
Tax generated in the City from the Required Operations during each Contract Year; plus, (ii)
seventy percent (70%) of any Sales Tax exceeding $1,400,000 generated from the Required
Operations within the City during that Contract Year.
"Commencement Date" shall mean November 1, 2019, the date on which TAC acquired
IPC and IPC's headquarters for its California business and southern California sales office in the
City of Santa Ana, and commenced operations in the City.
"Contract Year" shall mean the period from January 1 to December 31 during each year of
the Operating Period. For the purposes of this Agreement, the first Contract Year ends on
December 31, 2020.
"Covered Parties" shall mean the City and its elected and appointed boards, members,
officials, officers, agents, representatives, employees and volunteers.
"Effective Date" shall mean the date first written on page 1 of this Agreement.
"Operating Period" shall mean the period commencing as of the Commencement Date, and
continuing until and expiring on December 31, 2045; provided, however, that, after TAC has been
conducting Required Operations in the City for five (5) continuous years from the Commencement
Date, TAC may terminate this Agreement for any reason (or no reason) upon one hundred eighty
(180) days' written notice to the City.
"Petroleum Business" refers to the operation by TAC in the City of a sales office selling
petroleum products and products ancillary to the sale of refined petroleum that generate Sales Tax
revenue.
"Quarter" shall mean any three (3) month period commencing on January 1, and thereafter
on April 1, July 1 and October 1 during the Operating Period. If the quarterly or other periods used
by the State Board of Equalization in calculating or making Sales Tax payments to City differ from
City's fiscal quarters described above, the parties shall modify the timing (but not the amount) of
the City Consideration payments to coincide with the periods used by the State Board of
Equalization.
"Required Operations" shall collectively refer to the following on and with respect to TAC
conducting its Petroleum Business in the City: (i) TAC retaining and continuing to own or lease
sufficient facilities in the City to allow the Petroleum Business to be conducted; (ii) TAC's
operation of the Petroleum Business within the corporate boundaries of the City; and (iii) TAC not
transferring or otherwise relocating the retail sales operation or the point of sale as reported to the
State Board of Equalization for the Petroleum Business to another facility or location outside of
the City.
"Sales Tax(es)" means that portion of taxes that is allocated, paid to, and actually received
by City from the imposition of the Bradley -Bums Uniform Sales and Use Tax law (commencing
with Section 7200 of the California Revenue and Taxation Code), or any successor law thereto,
arising from all taxable sales transactions, occurring fiom Required Operations conducted by TAC
within the City during the Operating Period. "Sales Tax" shall not include sales tax revenues that
are provided to a city based upon a special election and are limited to be used for a specified
governmental function or functions.
"Sales Tax Reports" shall include, for each Quarter: (i) a statement identifying the amount
of Sales Tax paid by TAC from Required Operations within the City during the Quarter; and, (ii)
copies of all statements and quarterly reports filed with the State Board of Equalization.
"Termination Date" shall mean December 31, 2045, subject to extension or earlier
termination of the Operating Period as set forth in this Agreement.
2. TAC OBLIGATIONS.
2.1 Operating Agreement; Continuous Operation. TAC hereby covenants and agrees to
maintain its headquarters for its California business and all sales offices in Santa Ana that are
located in Orange County, California as of the date of this Agreement, and continuously conduct
or cause to be conducted Required Operations within the City during the entire Operating Period.
TAC agrees to maintain its principal place of business and all sales offices in compliance with
State Board of Equalization regulations pertaining to "place of sale". Such continuous operations
shall be subject to the force majeure provisions of Section 5.11 hereof.
2.2 Maximization of Sales Tax. At all times during the Operating Period, TAC shall
designate its corporate headquarters and sales office in the City as the point of sale for sales and
use tax purposes in all Petroleum Business and related sales that originate from within the City.
2.3 Payment of Taxes. TAC shall pay or cause to be paid any and all taxes applicable
to or arising out of TAC's lease, operation and/or use of its headquarters for its California business
and sales office in the City (including, without limitation, all taxes attributable to sales occurring
at such office), except that TAC retains its right to protest and contest County of Orange decisions
related to the value of its interest in any property or leasehold. TAC shall make or cause to be made
timely sales and use tax payments to the State Board of Equalization, except that TAC retains its
right to protest and contest State Board of Equalization assessments or decisions that TAC believes
to be erroneous.
2.4 Compliance with Laws. Subject to TAC's right to contest same, TAC shall conduct
or cause to be conducted all activities within the City and shall perform its obligations under this
Agreement in conformity with all applicable federal, state, and local laws, ordinances, and
regulations. Nothing in this Agreement is a representation or warranty by City that any tenant
improvement or other construction work performed by TAC within the City on or after the date of
this Agreement is not a public work as defined in Labor Code Sections 1720, et seq., including but
not limited to Sections 1771 and 1781.
3. CITY CONSIDERATION PAYMENTS.
3.1 Payment of City Consideration to TAC.
3.1.1 Calculation of City Consideration. Inconsideration for TAC's undertakings
pursuant to this Agreement, City shall make payments of City Consideration to TAC after the end
of each Quarter, as follows:
3.1.1.1 Subject to Paragraph 3.1.1.2 below, for Required Operations
conducted by TAC in the Operating Period, City shall pay TAC the City Consideration based on
the actual net amount of Sales Tax directly received by the City from the State Board of
Equalization during that Quarter. Subject to the terms of Section 3.1.2, the payment of City
Consideration for each Quarter shall be made in a single lump sum payment within ninety (90)
days following the end of that Quarter.
3.1.1.2 City Consideration shall be payable from any source of
funds legally available to City. In this regard, it is understood and agreed that the Sales Tax from
TAC's Required Operations in the City is being used merely as a measure of the amount of City
Consideration payments that are periodically owing by City to TAC, and that City does not and
legally cannot pledge any portion of that Sales Tax to TAC.
3.1.2 Payment Procedure.
3.1.2.1 After the end of each Quarter, and no later than thirty-five
(35) days after TAC's payment of the Sales Tax to the State Board of Equalization for that Quarter,
TAC shall submit to City the Sales Tax Reports for the preceding Quarter and a written request
for payment of the City Consideration owing to TAC. Any delay shall not constitute either a breach
of this Agreement or a waiver of TAC's right to receive the City Consideration under this
Agreement, but may result in a delay in the City's payment of City Consideration to the extent that
such delay by TAC causes the City to be unable to meet its payment obligations on a timely
manner.
3.1.2.2 Payment of the amount determined by City to be owing to
TAC for each Quarter shall be made by City within thirty (30) days after the later of the following:
(i) TAC's submission of its completed payment request; and, (ii) City's verification (based upon
corroborating information provided to City by either the State Board of Equalization and/or a sales
tax consultant retained by City) that City has received the Sales Tax attributable to sales from all
Required Operations within the City for the applicable Quarter. Any disapproval by City of a TAC
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payment request shall state in writing the reasons for disapproval and shall be provided to TAC
within fifteen (15) days after City has received information necessary to make the determination
that the payment request cannot be approved. City agrees to expeditiously process TAC's requests
for payment of City Consideration. TAC expressly understands that nothing contained in this
Agreement shall obligate or otherwise commit City to pay the City Consideration for a Quarter
unless and until City receives reasonably satisfactory verification that City has received the Sales
Tax attributable to sales from the Required Operations in the City for that Quarter.
3.1.2.3 In the event that the State Board of Equalization conducts a
review or audit of TAC's Required Operations or Sales Tax payments during the Operating Period
that results in an actual and final loss or reduction of monies that City has already paid to TAC as
City Consideration for one or more Quarters, or in the event that TAC amends any sales tax returns
that causes a reduction in the Sales Tax due to the City for one or more Quarters, TAC shall, within
thirty (30) days of its receipt of written notice by the City, return that portion of the City
Consideration attributable to the monies that were lost or reduced. In the event that the State Board
of Equalization conducts a review or audit of TAC's Required Operations or Sales Tax payments
during the Operating Period that results in an increase of Sales Tax that TAC must pay for one or
more Quarters, or in the event that TAC amends any sales tax returns that causes an increase in
the Sales Tax due for one of more Quarters, TAC shall inform the City and the City shall
commensurately increase the City Consideration paid by TAC. The provisions of this paragraph
shall survive the termination of this Agreement.
3.1.2.4 The parties acknowledge that certain payments of Sales Tax
received by City may be based on estimates and that such amounts will be periodically reduced or
increased by the State Board of Equalization to reflect the actual amount of Sales Tax owed to
City. The City Consideration payments shall be adjusted accordingly as necessary to conform to
such reconciliations. The adjustment shall be made within sixty (60) days through a payment by
TAC to City in the case of an overpayment to TAC, or a payment by City to TAC in the case of
an underpayment to TAC. Within thirty (30) days of a written request by TAC, the City shall
provide TAC with documentation to substantiate the adjustment of the City Consideration
payment(s).
3.1.2.5 Within ninety (90) days following the end of each Contract
Year, the City may conduct an accounting of all of TAC's Sales Tax Reports and Sales Tax
payments during the immediately preceding Contract Year, and the amount of the City
Consideration payments made to TAC for each Quarter during that immediately preceding
calendar year. However, the City may conduct such an accounting at any time by giving thirty (30)
days written notice in the event that facts or circumstances arise (such as change in operations,
change of ownership or business entity status) that can impact the method or amount of TAC's
Sales Tax Reporting or Payments. The City shall provide TAC a copy of that accounting and
reconciliation upon its completion. In the event that the accounting and reconciliation identifies a
disparity between the Required Operations, TAC's Sales Tax payments, or City Consideration
during that immediately preceding calendar year, appropriate adjustments shall be made within
sixty (60) days by a payment from TAC to City in the case of an overpayment to TAC, or a payment
from City to TAC in the case of an underpayment to TAC.
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3.1.3 No Acceleration. It is acknowledged by the parties that any payments by
City provided for in this Agreement may only be paid for those periods in which City receives the
performance of TAC pursuant to this Agreement. Therefore, the failure of City to make any
payments or the failure by City to perform any of its other obligations hereunder shall not cause
the acceleration of any anticipated future City Consideration payments by City to TAC.
3.2 Conditions Precedent to City's Obligations. City's obligation to perform hereunder,
including without limitation its obligation to pay the City Consideration pursuant to Section 3.1 of
this Agreement, shall be contingent and conditional upon TAC's full and satisfactory performance
of its obligations set forth in this Agreement. Notwithstanding the foregoing, any delay by TAC in
sending reports or other information to the City, or the existence of inadvertent errors in reports or
information sent by TAC to the City, shall not constitute either a breach of this Agreement or a
waiver of TAC's right to receive the City Consideration payable under this Agreement. However,
such delay or error by TAC may result in a delay in the City's payment of City Consideration to
TAC to the extent that such delay or error by TAC causes the City to be unable to meet its payment
obligations on a timely basis.
3.3 Disclosure of Payments. TAC agrees that the City Consideration payments and the
amounts thereof do not constitute a violation of Revenue and Taxation Code Section 7056 or any
other provision of law pertaining to the disclosure of sales tax information, shall be a matter of
public record, may be disclosed to any person, and may be included on the City's warrant register.
TAC waives any law that is contrary to any of the agreements in this Section 3.3.
4. TERMINATION RIGHTS.
4.1 City Termination Rights. Subject to the force majeure provisions of Section 5.11
below, City shall have the right to terminate this Agreement if, following the Commencement
Date, Required Operations are not conducted within the City for a period of ninety (90) consecutive
days.
4.2 TAC Termination Rights. After TAC has been conducting Required Operations in
the City for five (5) continuous years from the Commencement Date, TAC may terminate this
Agreement for any reason (or no reason) upon one hundred eighty (180) days written notice to the
City.
4.3 Mutual Termination Rights. City makes no representation or warranty to TAC as
to the legality of the City Consideration payments or the City's authority to make such payments.
In the event that a final, non -appealable judgment or decree is rendered against City invalidating
its payment obligations set forth in this Agreement, either City or TAC may terminate this
Agreement by delivery of written notice of termination to the other party.
5. GENERAL PROVISIONS.
5.1 Entire Agreement, and Amendments. This Agreement incorporates all of the terms
and conditions mentioned herein, or incidental hereto, and supersedes all negotiations and previous
agreements between the parties with respect to the subject matter hereof. Any amendment or
modification to this Agreement must be in writing and executed by TAC and City.
5.2 Limitations on City's Liability. TAC acknowledges and agrees that:
5.2.1 The relationship between TAC and City pursuant to this Agreement is and
shall remain solely that of contracting parties, and City neither undertakes nor assumes any
responsibility pursuant to this Agreement to review, inspect, supervise, approve, or inform TAC
of any matter in connection with this Agreement or the Required Operations;
5.2.2 City shall not be directly or indirectly liable or responsible for any loss or
injury of any kind to any person or property (except to the extent proximately caused by City's
active negligence or intentional misconduct), resulting or in any way arising from: (a) any defect
in any building, grading, landscaping, or other onsite or offsite improvement; (b) any act or
omission of TAC or any of TAC's agents, employees, independent contractors, licensees,
sublessees or invitees; or, (c) any accident at the facility to which TAC operates its headquarters
for its California business and sales office, or any fire or other casualty or hazard thereon; and,
5.2.3 By accepting or approving anything required to be performed or given to
City under this Agreement, City shall not be deemed to have warranted or represented the
sufficiency or legal effect of the same, and no such acceptance or approval shall constitute a
warranty or representation by City to anyone.
5.3 Interpretation; Governing Law: Venue. This Agreement shall be construed
according to its fair meaning and as if prepared by both parties hereto. This Agreement shall be
construed in accordance with the laws of the State of California, without regard to conflict of law
principles. All legal actions must be instituted and maintained in the Superior Court of the County
of Orange, State of California, or in any other appropriate court in that County.
5.4 Severability. If any term, provision, Agreement, or condition of this Agreement is
held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of
this Agreement shall not be affected thereby to the extent such remaining provisions are not
rendered impractical to perform taking into consideration the purposes of this Agreement.
5.5 Binding Effect; Successors and Assigns. This Agreement shall be binding upon,
and inure to the benefit of, the parties hereto and their respective successors and assigns.
5.6 Notices. All notices and other communication required under this Agreernent shall
be in writing and shall be delivered by either: (i) personal delivery; (ii) reliable courier service that
provides a receipt showing date and time of delivery; (iii) registered or certified U.S. Mail, postage
prepaid, return receipt requested; or, (iv) facsimile. Notices shall be addressed to the respective
parties as set forth below or to such other address and to such other persons as the parties may
hereafter designate by written notice to the other party hereto:
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To City: City of Santa Ana
20 Civic Center Plaza
P.O. Box 1988
Santa Ana, CA 92702
Attn: City Manager
Facsimile: (714) 647-6954
To TAC:
Each notice shall be deemed delivered on the date delivered if by personal delivery or by overnight
courier service, on the date of receipt as disclosed on the return receipt if by mail, or on the date
of transmission with confirmed successful transmission and receipt if by facsimile. By giving to
the other party written notice as provided above, the parties to this Agreement shall have the right
_from time to time, and at any time during the term of this Agreement, to change their respective
addresses or contact persons.
5.7 Representations and Warranties. As a material inducement to City's entry into this
Agreement, TAC represents and warrants to City that: (i) TAC has the full power and authority to
enter into and perform under this Agreement; and, (ii) all authorizations and approvals required to
make this Agreement binding upon TAC have been duly obtained. As a material inducement to
TAC's entry into this Agreement, City represents and warrants to TAC that, subject to and limited
by the provisions of Section 5.2: (i) City has the fall power and authority to enter into and perform
under this Agreement; and, (ii) all authorizations and approvals required to make this Agreement
binding upon City have been duly obtained.
5.8 Litigation Expenses. If either of the parties institutes any legal action against the
other in connection with any controversy related to, concerning or arising out of this Agreement,
or any facts based upon or involving this Agreement, then the prevailing party, whether in court,
through mediation, arbitration or by way of out -of -court settlement, shall be entitled to recover
from the non -prevailing party such prevailing party's reasonable attorneys' fees, court costs, expert
witness fees and other expenses relating to such controversy, including such fees, costs and
expenses on appeal, if any; and the arbitrator(s), if any, is hereby authorized to make such an
award to the prevailing party in arbitration.
5.9 Termination. In the event this Agreement terminates, no termination shall release
any party in default and this Agreement shall survive for purposes of allowing a party to enforce
its rights and remedies under this Agreement in the event of a default, including without limitation
the provisions of Section 4.3. All indemnification provisions and any other provision that by its
nature cannot be performed during the term of this Agreement shall survive the termination of this
Agreement.
5.10 Defense of Third Party Claims. To the fullest extent permitted bylaw, TAC shall
indemnify, defend and hold harmless the City, its officers, agents, and employees from and against
any and all losses, liabilities, damages, costs and expenses that may be asserted by a third party,
including attorneys fees and costs in the event that a third party files litigation challenging the
validity or enforceability of this Agreement, or any payment of the City Consideration by the City
to TAC. The City and TAC may jointly defend the Agreement and/or City Consideration payment.
If the litigation is filed only against the City, TAC may move to intervene as a defendant,
respondent or real party in interest, based upon the nature and form of the litigation.
5.11 Force Majeure. The obligations by either party hereunder shall not be deemed in
default and times for performance hereunder shall be extended where delays are caused by
fire/casualty losses; strikes, riots or war; litigation; unusually severe weather; inability to secure
necessary labor, materials or tools because of a shortage in the market; delays of any contractor,
subcontractor or supplier; unjustified acts or failure to act by City in the processing or approval of
plans or permits or inspection or approvals of improvements for TAC's relocation of its
headquarters for its California business and sales office to the City; acts of God, or other similar
causes without the fault and beyond the reasonable control of the party, despite the party's diligent
efforts (collectively, "force majeure"), if written notice is provided to the other party within a
reasonable period following commencement of any such circumstances and, provided further, that
the extension of time shall be only for the period of the force majeure delay. Adverse market
conditions or the inability to obtain financing shall not constitute an event of force majeure.
5.12. Termination of IPC Agreement. Upon the Effective Date of this Agreement, the
previous IPC Agreement No. A-2013-130 shall be terminated for all purposes, and deemed no
longer effective or enforceable.
5.13 Counterparts. This Agreement may be executed in two or more counterparts, each
of which when so executed and delivered shall be deemed an original and all of which, when taken
together, shall constitute one and the same instrument.
{Signatures on following page}
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the date and year
first above written.
ATTEST:
APPROVED AS TO FORM:
SONIA R. CARVALHO
City Ajtm;ney ,
By: 1�y* O.
Attorney
RECOMMENDED FOR APPROVAL:
STEVEN A. MENDOZA
Executive Director
Community Development Agency
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CITY OF SANTA ANA
STINE GE�e
City Manager
TACENERGY:
FREDERIC C. SLOAN
Chief Operating Officer