Bill to End Unitary Tax--With a Libya Twist--OKd by Assembly

Rekindling an old battle, the Assembly on Thursday passed a bill to phase out the state’s unitary method of taxing multinational corporations but this time with a new twist--prohibiting corporations doing business with Libya from reaping any tax breaks.

By a 55-7 vote, the lower house approved a revised version of a bill by Sen. Alfred E. Alquist (D-San Jose), chairman of the Budget and Fiscal Review Committee. The measure now includes a different formula for changing the tax system, one being pushed by Assembly Ways and Means Committee Chairman John Vasconcellos (D-San Jose).

The action sets the stage for a two-house conference committee to make another stab at negotiating a compromise on the controversial unitary tax issue, which has bogged down in bitter wrangling during the final hours of the last several legislative sessions.

Under the unitary method, multinational corporations are taxed on their worldwide earnings instead of only their U.S. profits.

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.

The Vasconcellos formula would end unitary tax collections in three phases and require companies that benefit from the tax break to reinvest in California.

In Washington, U.S. Sen Pete Wilson (R-Calif.) has introduced a bill on behalf of the Reagan Administration to strike down the unitary tax system, also used by five other states, because of threats that some foreign nations might retaliate against U.S. firms if the practice continues unchanged.

One of the past major stumbling blocks in the California Legislature has been the insistence of Assembly Democrats that corporations, as a condition for receiving any breaks on unitary taxes, agree not to renew or initiate business dealings in racially segregated South Africa.

Gov. George Deukmejian has said he would veto a unitary tax change bill if it reached his desk containing that kind of language.

Assemblyman Steve Peace (D-Chula Vista) inserted the anti-Libyan language in the bill in the wake of terrorist attacks against American citizens and the U.S. bombing raid on the country.

“I see no reason in the world why we should allow U.S. international corporations to contribute to Libya’s economy and security,” Peace said.

He added that the anti-Libyan language might pick up votes from some conservative Republicans who had opposed--as had Deukmejian--linking the unitary issue with South African apartheid.

“It sure did in the Ways and Means Committee,” Peace said, referring to conservative GOP support, “and I hope it does on the floors of both houses.”

Vasconcellos said he didn’t know if the Libya amendment would help or hinder the chances of passing a unitary tax modification bill.

“Your guess is as good as mine,” he said. “I think a compromise can be reached. If I knew what it would be, we wouldn’t have to go to conference.”