WASHINGTON (AP) _ The U.S. Supreme Court allowed states Monday
to tax multinational corporations in a way that has provoked
other countries to threaten retaliation against U.S. businesses.
The decision affects both U.S.-based corporations with
worldwide markets and foreign-based corporations that do business
in this country.
The justices voted unanimously to uphold the aggressive way
California taxed U.S.-based businesses, and split 7-2 in
upholding how the state taxed foreign-based corporations.
In other business related cases, the court made it easier for
airline and rail workers who are fired after reporting safety
violations to challenge their dismissals. And it made it harder
for coal miners and longshoremen or their families to collect
disability or death benefits.
The foreign tax ruling took California off the hook _ the
state won't have to refund an estimated $4 billion in taxes paid
by multinational corporations under a so-called "unitary" tax
A unitary tax treats a corporation, its subsidiaries and other
far-flung activities as one entity. A state calculates the
corporation's in-state business as a percentage of its worldwide
business to come up with the company's tax liability to the
In contrast, the federal government and most other countries
treat a multinational corporation's subsidiary as a separate
company and tax only its income.
Congress has never banned states from using the controversial
"unitary" taxing methods, Justice Ruth Bader Ginsburg noted for
She said the challenge to California's tax "is directed to the
Jerome Libin, who represented the United Kingdom and 19 other
countries in attacking the California law, said, "This case shows
the reluctance of the current Supreme Court to involve itself in
what it considers policy matters affecting foreign commerce."
He said the court "has very firmly placed the ball in
Richard Ruda, chief counsel of the States and Local Legal
Center, called the decision "a very important victory for the
"It allows them, if they choose, to use this tax until
Congress says otherwise," Ruda said.
At least one member of Congress, Sen. Byron Dorgan, D-N.D.,
applauded the ruling.
"They were never attempting to overtax multinational
corporations. They were using these taxes to make sure that
multinational corporations were paying their fair share," he
The California tax had been challenged by the New York-based
Colgate-Palmolive Co. and the British-owned Barclays Bank of
California and Barclays Bank International. The companies sought
refunds on state tax bills dating back to the 1970s.
Before last year, the unitary tax was mandatory. But
California lawmakers voted last year to make the tax optional
starting with the 1994 tax year. …