The U.S. Supreme Court has ended more than 17 years of litigation by ruling against Barclays Bank of London in a California tax dispute.

The court's ruling on Monday, by a 7-2 vote, upheld a California Supreme Court decision allowing the state to impose a so-called unitary tax on multinational corporations.

A unitary tax is based on a company's worldwide operations, according to a complex formula taking into account global revenues, payroll, employees, and volume of business within the state.

Practice Is Ended

Even though California discontinued unitary taxation several years ago and has been taxing multinationals only on domestic activity, Barclays continued to seek damages and led a crusade to prevent a possible return to the old policy.

The dispute had diplomatic implications. The British government and European Community had filed briefs supporting Barclay's argument that unitary taxation was unconstitutional.

The British government last year approved retaliatory legislation that would similarly tax California-based corporations with operations in Britain.

Barclays, which has $249 billion of assets and ranks among the world's largest banks, hoped to avoid paying back taxes and sought to recover a portion of taxes already paid. The taxes were imposed by California's Franchise Tax Board, the defendant in Barclays' appeal to the Supreme Court, on Barclays Bank of California, a subsidiary that subsequently has been sold to Wells Fargo & Co.

According to one estimate, California would have owed Barclays and other international organizations around $535 million if it lost the case. Barclays and other foreign companies would reportedly have owed the state about $330 million if they lost.

Barclays itself has never disclosed just how much it owed or expected to recover, but a spokeswoman for the bank in London denied that the amounts would have exceeded $30 million.

O'Connor, Thomas Dissent

She said Barclays will be looking closely "at the implications of the decision." Bank attorneys in San Francisco declined to comment until they had examined the 33-page Supreme Court ruling, which included a majority opinion by Justice Ruth Bader Ginsburg and a dissent by Sandra Day O'Connor, in which Clarence Thomas concurred.

California feared that an adverse Supreme Court ruling would open the door to similar suits and claims for reimbursement. California tax officials had estimated that the state would have had to pay back over $1 billion and lose up to $2 billion in taxes assessed on U.S. multinationals like Colgate-Palmolive, which filed a similar appeal of the California court ruling.

Barclays said in a statement Monday that it regretted the Supreme Court's decision.

In an indirect warning that U.S. companies might be subject to similar taxation, the bank added that the decision affects not only Barclays but "numerous other U.K. and foreign-owned multinationals."

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