WASHINGTON - The Supreme Court yesterday left intact lower court rulings upholding a New York City tax on financial corporations and a controversial California levy on multinational firms.
The court, acting on more than 1,500 petitions for review as it launched its 1992-93 term, also agreed to examine a Jacksonville, Fla., affirmative action program. In addition, it asked the solicitor general to provide the views of the federal government in a dispute over airport user fees assessed on the nation's major airlines.
In the New York City case, Bankers Trust New York Corp. v. Department of Finance, the justices without comment declined to review whether what is in effect a city franchise tax that includes the interest income from U.S. bonds violates a federal law exempting federal debt from state and local taxation.
"We thought we had a shot at it," said David Sachs of White & Case, which was representing Bankers Trust. "But getting the court to review a case is like trying to hit the bull's-eye on a target 500 yards away. [The justices] take very few cases."
The dispute has been alive since 1976, when Bankers Trust sought a refund for taxes paid on $47.7 million in interest earned on U.S. government debt. The city declined the refund request, and Bankers Trust appealed without success in New York state courts.
Bankers Trust then appealed to the Supreme Court, arguing that the case was of "vital importance" to financial firms "because it is a common practice of banks and many financial institutions to hold substantial amounts of federal obligations." However, no other firms have appealed the issue to the Supreme Court.
Sachs said he suspected that other firms were "waiting on the sidelines, hoping to get the benefit of our successes but not the expense of failure." Sachs said Bankers Trust would take no other action in the matter. "The Supreme Court is the court of last resort." he said.
An official in the city's finance department said the bank tax raised $256 million for New York in fiscal 1991, which is the last figure available. The city's fiscal year runs from July 1 through June 30. Fiscal 1992 figures will be available within a few weeks, the official said.
In a surprise development yesterday, the court's justices bucked the advice of the U.S. government and the governments of 20 of the nation's major trading partners by letting stand a California Supreme Court ruling upholding the constitutionality of that state's method of determining the tax liability of multinational firms.
The court's decision not to hear arguments in the case, Barclays Bank v. Franchise Tax Board, leaves in place California's use of the worldwide combined reporting method of computing the income taxes of companies with foreign parents or foreign affiliates.
Under that method, the state ignores the separate corporate existence of parents, subsidiaries, and affiliates, pools their income together, and allocates a portion of the combined income to California based on an apportionment formula.
By contrast, the internationally accepted way of allocating income for multinational firms is the separate accounting, or arm's-length, method. The separate accounting approach treats each corporation as a distinct tax unit, doing business with every other corporation on an arm's-length basis.
Barclays, the United States, and the governments of major U.S. trading partners said the California practice taxes some firms too much.
The U.S. government, in a brief filed by Solicitor General Kenneth W. Starr, said California's use of worldwide combined reporting could set off international retaliation.
In 1983, the Supreme Court in Container Corp. v. Franchise Tax Board upheld the constitutionality of the California tax in a case involving a domestic parent corporation doing business in the states. But the court reserved the question of whether the tax would be constitutional when applied to foreign multinational firms.
While the court declined review in the New York City and California tax cases, it agreed to examine lower court rulings in 21 other cases, including a challenge to an affirmative action program in Jacksonville, Fla.
In that case, Northeastern Florida Chapter of the Associated General Contractors of America v. Jacksonville, non-minority contractors claim they have been denied an opportunity to get city business on account of their race.
The U.S. Court of Appeals for the 11th Circuit threw out the case because the contractors group failed to bring forth non-minority contractors who could prove they had actually been hurt by the affirmative action program.
The city law in question sets aside 10% of most city contracts for minorities. However, the law does not dictate a mandatory quota and provides city officials the discretion to waive the program in certain circumstances.
The Supreme Court in recent years has not been supportive of affirmative action programs. However, before reaching the issue of whether the Jacksonville plan is constitutional, the court will first have to decide whether the appeals court was correct in dismissing the case because the contractors group was unable to prove that any individual contractor was injured as a result of the program.
In other action yesterday, the Supreme Court:
* Signaled it would hear arguments in a case that may require New York State to forfeit an estimated $800 million in unclaimed interest and dividends on bonds and stocks the state collected under its abandoned property law. The court said the case, which pits the 50 states against each other, will be put on the court's argument schedule "in due course."
* Asked the solicitor general to provide the views of the United States in a dispute over user fees at an airport owned by Kent County, Mich. The fees had been challenged by Northwest Airlines and other carriers as a violation of the Constitution's commerce clause.