‘86 Battle Seen on Unitary Tax : Backers Vow to Raise Issue Again Next Year

With time running out on passage of corporate tax break legislation, proponents of unitary tax relief vowed Friday to bring the issue up again in 1986 if they failed to work out a compromise before the Legislature adjourned for the year.

“Each year we get a little bit more of a consensus, and I presume that we’ll just build from what we’ve established this year,” said Assemblyman Sam Farr (D-Carmel), author of a unitary bill in the Assembly.

The tax legislation is sought by foreign-based multinational corporations and would provide annual tax breaks of about $250 million to some of the world’s largest business concerns.

The Senate-passed bill was bottled up by Democrats on the Assembly Ways and Means Committee on Thursday night. The vote to hold the bill in committee was an angry response to Gov. George Deukmejian’s decision to veto Democratic legislation aimed at penalizing companies that do busi ness in South Africa or with the Pretoria government.

Assembly Democratic leaders had made it clear that they would not support the unitary tax bill unless Deukmejian agreed to support the anti-apartheid measure sponsored by Assemblywoman Maxine Waters (D-Los Angeles).

Farr struggled to keep the legislation alive and hoped to convene a two-house conference committee that could fashion some sort of compromise as the lawmakers headed toward scheduled adjournment at midnight Friday.

Efforts to bring negotiators together were hampered by strong differences over the best means of protesting South Africa’s white minority policy of apartheid.

Sen. Alfred E. Alquist (D-San Jose), who carried the legislation in the Senate, said: “It’s still alive, somewhat feebly at the present time. We are negotiating.”

Developments were similar to the situation last year, when a unitary bill went down to defeat on the last day of the session.

Thorny Issue

The unitary issue is perennially thorny for legislators, who off-and-on over the last seven years have wrestled with various bills seeking to change the decades-old method of taxing multinational corporations.

As it stands, multinational corporations pay a state tax on the basis of worldwide business operations.

Foreign-based firms have led the drive to overhaul the tax, claiming it is unfair for the state to use profits earned by subsidiaries outside the United States in figuring their California tax liability.

Strong opposition came from domestic corporations, especially the Silicon Valley high technology companies, who said the proposed legislation was skewed in favor of their foreign competitors, particularly the Japanese.

But many legislators said they were persuaded to support the tax bill by assertions that the unitary system posed so many problems for the foreign firms that it was discouraging new investment in California. Several Japanese corporations cited the tax in announcing plant expansions in non-unitary states like Oregon and Washington, rather than California.

‘Profound Problem’

Sadami Wada, a vice president of Sony Corp. of America--who has led the fight to overhaul the unitary tax--called it “a very profound problem” for foreign-based corporations doing business in California.

“It must be resolved, if not this year, then sometime in the future,” Wada said.

Farr and others said that it may be more difficult to pass the tax break legislation next year because of election-year politics. Deukmejian, who gave the tax legislation a strong push this year, is up for reelection, as are all 80 members of the Assembly and half the members of the Senate.

“Pressures are keener in an election year. Everybody is much more sensitive to opposition to legislation. It makes (legislators) much more cautious,” Farr said.

One of the governor’s advisers who did not want to be identified acknowledged that election-year pressures would make it harder to get a unitary bill next year.