Barclays Bank PLC v. Franchise Tax Bd. of Cal., 512 U.S. 298 (1994)

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certiorari to the court of appeal of california, third appellate district

No. 92-1384. Argued March 28, 1994—Decided June 20, 1994*

During the years at issue in these consolidated cases, California used a

"worldwide combined reporting" method to determine the corporate franchise tax owed by unitary multinational corporate group members doing business in California. California's method first looked to the worldwide income of the unitary business, and then taxed a percentage of that income equal to the average of the proportions of worldwide payroll, property, and sales located within California. In contrast, the Federal Government employs a "separate accounting" method, which treats each corporate entity discretely for the purpose of determining income tax liability. In Container Corp. of America v. Franchise Tax Bd., 463 U. S. 159, this Court upheld the California scheme as applied to domestic-based multinationals, but did not address the constitutionality of the scheme as applied to domestic corporations with foreign parents or to foreign corporations with foreign parents or foreign subsidiaries. Both petitioner Barclays Bank PLC (Barclays)—a foreign multinational—and petitioner Colgate-Palmolive Co. (Colgate)—a domestic multinational—have operations in California. In separate cases, two members of the Barclays group and Colgate were denied refunds by the California authorities.

Held: The Constitution does not impede application of California's tax to

Barclays and Colgate. Pp. 310-331. (a) Absent congressional approval, a state tax on interstate or foreign commerce will not survive Commerce Clause scrutiny if the taxpayer demonstrates that the tax (1) applies to an activity lacking a substantial nexus to the taxing State; (2) is not fairly apportioned; (3) discriminates against interstate commerce; or (4) is not fairly related to the services the State provides. Complete Auto Transit, Inc. v. Brady, 430 U. S. 274, 279. A tax affecting foreign commerce raises two additional concerns: one prompted by the "enhanced risk of multiple taxation," Container Corp., 463 U. S., at 185, and the other related to the Federal Government's capacity to " 'speak with one voice when regulating

*Together with No. 92-1839, Colgate-Palmolive Co. v. Franchise Tax Board of California, also on certiorari to the same court.

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