WASHINGTON -- The Clinton administration urged the Supreme Court to deny an appeal by Barclays Bank PLC that challenges California's controversial method of taxing foreign-based multinational corporations.
The administration's action makes it less likely, but not out of the question, that the high court will agree to consider an appeal filed by the British-based banking company challenging the state tax.
At issue is California's policy of taxing subsidiaries of foreign-based multinationals based on the income of the parent companies and all corporate affiliates. This combined method of calculating taxes has provoked protests from foreign companies with operations in California, as well as threats of retaliation by Britain and other U.S. trading partners.
For years, the federal government said California's unusual approach was unconstitutional and inconsistent with federal tax policy. But during the 1992 presidential campaign, Bill Clinton promised California he would take the state's side.
The administration was able to fulfill the campaign promise without abandoning the government's long-held position that in-state units of multinationals should be taxed only on local revenues. That is because the California legislature, under pressure from the White House, recently passed changes in the state's tax code that allow foreign multinationals to avoid the combined approach. The administration argued there is no longer a need for the top court to hear the Barclays appeal.
Barclays and the British government, however, argue that the Supreme Court should take the case to specifically rule on the legality of the worldwide combined method of taxation.