Barclays Bank PLC v. Franchise Tax Bd. of Cal., 512 U.S. 298, 7 (1994)

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304

BARCLAYS BANK PLC v. FRANCHISE TAX BD. OF CAL.

Opinion of the Court

jective measures of the corporation's activities within and without the jurisdiction." Id., at 165.1

During the income years at issue in these cases—1977 for Barclays, 1970-1973 for Colgate—California assessed its corporate franchise tax by employing a "worldwide combined reporting" method. California's scheme required the taxpayer to aggregate the income of all corporate entities composing the unitary business enterprise, including in the aggregation both affiliates operating abroad and those operating within the United States. Having defined the scope of the "unitary business" thus broadly, California used a long-accepted method of apportionment, commonly called the "three-factor" formula, to arrive at the amount of income attributable to the operations of the enterprise in California. Under the three-factor formula, California taxed a percentage of worldwide income equal to the arithmetic average of the proportions of worldwide payroll, property, and sales located inside the State. Cal. Rev. & Tax. Code Ann. § 25128

1 This Court first considered the "unitary business principle" in 1897, Adams Express Co. v. Ohio State Auditor, 165 U. S. 194, 220-221; we revisited this "settled jurisprudence" most recently in Allied-Signal, Inc. v. Director, Div. of Taxation, 504 U. S. 768, 779-788 (1992). See generally 1 J. Hellerstein & W. Hellerstein, State Taxation: Corporate Income and Franchise Taxes ¶ 8.03, p. 8-29 (2d ed. 1993); id., ¶ 8.05. On the determination whether a business is "unitary," see Allied-Signal, 504 U. S., at 781-782 (business may be treated as unitary, compatibly with constitutional limitations, if it exhibits functional integration, centralization of management, and economies of scale); Edison California Stores, Inc. v. McColgan, 30 Cal. 2d 472, 481, 183 P. 2d 16, 21 (1947) ("If the operation of the portion of the business done within the state is dependent upon or contributes to the operation of the business without the state, the operations are unitary."); Butler Brothers v. McColgan, 17 Cal. 2d 664, 678, 111 P. 2d 334, 341 (1941) (A business is unitary if there is "(1) [u]nity of ownership; (2) [u]nity of operation as evidenced by central purchasing, advertising, accounting and management divisions; and (3) unity of use of its centralized executive force and general system of operation."), aff'd, 315 U. S. 501 (1942).

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