Tax Break for Multinational Firms Approved

The Senate overrode appeals of California corporations Wednesday night and voted heavily in favor of a multimillion dollar tax-break bill sought by foreign-based multinational companies.

The measure went to the Assembly on a 28-11 vote, where proponents were confident of winning passage and where opponents plan to launch a last-minute effort to kill it.

Domestic companies and their supporters in the Senate mounted an intense but unsuccessful last-ditch lobbying campaign to amend the legislation so that it would provide a broader tax cut that would satisfy American firms.

A motion to incorporate such amendments, drafted by Assemblyman John Vasconcellos (D-Santa Clara), was voted down by a better than 2-to-1 margin.

Domestic Firms to Benefit

Sen. Alfred E. Alquist (D-San Jose), who carried the measure, argued that more than two-thirds of the estimated $250 million in tax breaks would go to domestic companies and that to grant them further benefits was unnecessary.

Vasconcellos said he will attempt to stop the legislation in the Assembly, hoping that he can get it sent to his Ways and Means Committee, where a nearly identical version was once blocked.

But Alquist said he thinks that the measure will pass. “I feel fairly confident,” he said.

As now written, the unitary bill would give corporations the option of basing state tax returns on their worldwide earnings or on just the income received from operations within the United States--the so-called “water’s edge” approach.

Robert Noyce, chief administrative officer of Intel Corp. and a spokesman for the California Business Council, a coalition of 90 U.S. multinational companies, said during a news conference earlier in the day that most American companies could not take advantage of the tax breaks contained in the bill because it is written in a way to benefit foreign firms.

Currently, the state’s unitary tax is figured only on a worldwide basis with no option or choice allowed. Both foreign and domestic multinational corporations consider the tax unfair because it counts earnings of all of a firm’s various subsidiaries, rather than just those earning income in California. Defenders say the unitary system is needed because tax accountants can use gimmicks to shift profits from one subsidiary to another and escape taxes altogether.

Earlier in the day, a delegation of California corporate leaders accused Gov. George Deukmejian of reneging on a promise made during a private meeting with businessmen not to block the proposed amendments by Vasconcellos that they said could resolve the bitter dispute over the unitary tax break legislation.

Noyce, speaking for the business coalition, said of a conversation with the governor: “He stated very clearly he would not oppose the Vasconcellos’ amendments.”

Asked for a response, Nancy Ordway, chief deputy director of the state Department of Finance, said the governor made it “very clear” that he supported the Alquist bill and that he had no position on the Vasconcellos amendments.

Personal Lobbying

But two Republican senators who considered voting for the Vasconcellos compromise at a hearing Monday said they were personally lobbied by the governor to vote against the amendments.

The domestic companies want the legislation written so that they would be free of state taxes on income or dividends received from their own foreign subsidiaries.

Such a benefit would more than double the tax revenue loss to the state, the Franchise Tax Board has estimated.

Deukmejian has refrained from saying publicly that he opposes the amendments.

Governor Made Decision

One of the business groups’ own lobbyists, relating a conversation with Deukmejian’s chief of staff, Steven A. Merksamer, told the businessmen in a letter obtained by The Times that “the governor had made the decision to go ahead with a bill even if the California Business Council was not satisfied with its contents.”