Asks Clinton Administration View in Unitary Tax Case
WASHINGTON -- The Supreme Court on Monday asked the Clinton administration for its view of unitary taxation, a policy in several states that has caused friction with multinational banks and other companies.
In a unitary system, the state tax is based on a multinational's global operations, rather than only in-state results. Barclays Bank PLC challenged the constitutionality of California's statute.
By asking for a Justice Department opinion before agreeing to review the Barclays case, the Supreme Court delayed a resolution for months. Meanwhile, foreign governments are threatening to retaliate against U.S. companies if the unitary tax is allowed to stand.
Last summer, the Bush administration filed a friend-of-the-court brief in support of Barclays and asked the Supreme Court to review the case. The new administration has not taken a position.
"The Supreme Court may be trying to get the Clinton Administration on record," said Benjamin F. Miller, counsel on multistate tax affairs at California's Franchise Tax Board, Barclays' legal opponent.
British and Dutch government officials and a member of the European Commission have said U.S. companies in Europe would face higher taxes if the Supreme Court upholds tthe California tax.
Britain has threatened to deny U.S. corporations certain benefits, raising their tax rate to 33% from 28%.
The dispute dates from the early 1980s when California moved to the unitary system. Barclays Bank of California, a subsidiary of the British giant, paid taxes - under protest - based upon its parent's worldwide earnings through 1987.
In 1988 California legislators permitted foreign companies to opt out of the unitary method. But the California Supreme Court ruled last year that these companies are not entitled to refunds.
Barclays argues that the ruling was unconstitutional because it infringed on the federal government's authority to regulate foreign commerce.
The Supreme Court in 1983 said states can levy unitary taxes on U.S.-owned multinationals, but it left the question open for foreign-owned companies.
"Obviously, we hope the Supreme Court will review the case," said a Barclays spokesman in London.
The Barclays case could cost California about $800 million in tax and interest refunds to foreign-owned companies. The British bank claims about $30 million, the Barclays spokesman said. Mr. Reerink writes for the Medill News Service.