Letter to President Clinton on Barclays case.

On April 9, 1993, Tax Executives Institute sent the following letter to President Clinton, recommending that his Administration intercede in a Supreme Court case involving the State of California's constitutional authority to require the use of the worldwide combined reporting method for taxing multijurisdictional businesses. The letter, which urged the Federal Government to file a brief amicus curiae in the Supreme Court of the United States in the pending case of Barclays Bank PLC v. Franchise Tax Board (No. 92-1384), was prepared under the aegis of TEl's State and Local Tax Committee, whose chair is Harry F. McKeon of the Biltrite Corporation.

On behalf of Tax Executives Institute, I am writing to urge your Administration to file a brief amicus curiae in the Supreme Court of the United States in the pending case of Barclays Bank PLC v. Franchise Tax Board (No. 92-1384). We believe the Federal Government's involvement in the case is imperative because the Court's decision will affect not only the scope of the Foreign Commerce Clause of the Constitution but also the Administration's authority--and obligation--to "speak with one voice" in setting and implementing the foreign economic policy of the United States.

Tax Executives Institute is the principal association for corporate tax executives in North America. Our 4,700 members are employed by the largest 2,200 companies in the United States and Canada. The overwhelming majority of the companies represented by our membership are engaged in interstate commerce and a substantial number of them have significant sales or operations overseas. In addition, our membership includes individuals who are employed by the U.S. affiliates of foreign-based multinational groups. TEI is dedicated to promoting the uniform and equitable enforcement of the tax laws throughout the country, to reducing the costs and burdens of administration and compliance to the benefit of both the government and taxpayers, and to vindicating the Commerce Clause and other constitutional rights of all taxpayers.

The Barclays case involves the constitutionality of the State of California's worldwide combined reporting method (the so-called unitary method) for taxing multijurisdictional businesses. Although lower courts in California have held that the State's unitary method unconstitutionally interferes with the Federal Government's ability to conduct the country's foreign economic policy and subjects multinational businesses to inordinate compliance burdens, the California Supreme Court recently voted to sustain the California taxing scheme. As you know, the United States appeared as amicus curiae in support of Barclays at all levels in the California court system and also unsuccessfully urged the Supreme Court to hear the Barclays case last year. (The Court's decision not to hear the case earlier was based on the procedural posture of the case at that time; the case is now ripe for high court review.) We understand that the State of California has urged your Administration to oppose Barclays' petition for a writ of certiorari. We believe such a course of action would be in error.

The companies represented by Tax Executives Institute have no uniform position concerning the propriety or impropriety of worldwide combined reporting. Some companies benefit from the unitary method (in terms of their tax liability), whereas others would clearly pay higher taxes if the use of the method were sustained. No one benefits, however, from the uncertainty that will obtain in the absence of the Supreme Court's review of Barclays. We believe the Federal Government has an absolutely essential role to play in bringing certainty to this area of the law. When the Supreme Court last considered the validity of the worldwide unitary method in 1983 in Container Corporation of America (which involved a U.S.-based corporate group rather than a foreign-based group such as Barclays), it noted that the Executive Branch had chosen not to file an amicus brief in the case.(1) Regardless of how the Barclays case should ultimately be resolved, it unquestionably should not be resolved by default.

TEl believes Supreme Court review of Barclays is also necessary to allay concerns--among both taxpayers and our foreign trading partners--that the State of California's position in the case may be motivated more by the revenue involved than by a proper interpretation of the pertinent provisions of the Constitution. In their public statements, California officials have argued not so much the merits of the case (or the constitutional principles involved) as the impoverished condition of the State's risc. Such an approach to constitutional adjudication, however, cannot help but breed cynicism among the taxpaying public and, more ominously, embolden other nations either to retaliate against U.S. companies doing business within their borders or to adopt unprincipled taxing schemes. The end result could be a decidedly unlevel playing field and a consequent deterioration of U.S. industry's ability to compete abroad.

For these reasons, Tax Executives Institute urges your Administration to become involved in the Barclays case and to urge the Supreme Court to resolve the case in a manner that vindicates both the Federal Government's preeminent role in setting foreign economic policy and the Foreign Commerce Clause rights of all taxpayers.