Justices Reject Property Tax Case Mounted as Challenge to Prop. 13 : Levies: The California high court agrees to decide a case regarding fees assessed on foreign-based firms.

The state Supreme Court on Thursday rejected a widely watched legal assault on Proposition 13 that was based on evidence of broad disparities in taxes paid by owners of comparable properties.

The justices, in brief orders, refused to review two appeal court decisions that upheld the landmark 1978 tax-reform initiative against recently renewed claims that it improperly discriminates against recent purchasers of residential and business property.

In another case that could cost the state up to $3 billion, the seven-member court agreed unanimously to decide the constitutionality of California’s so-called “unitary tax” on foreign-based, multinational corporations. An appeal court recently struck down the tax as an infringement on the power of the federal government to conduct foreign policy.

Proposition 13, adopted by a 62% majority at the height of a statewide tax revolt, set local property taxes at 1% of assessed valuation, rolled back assessments to 1975 levels and limited subsequent increases to 2% a year.

But under a provision now under legal attack, property that changes hands is reassessed at current value and the buyer pays taxes based on the purchase price. As a result, similar properties sitting side by side frequently are taxed at widely differing rates--with new owners paying five times or more what their neighbors pay, according to recent studies.

Ann E. Carlson of Los Angeles, attorney for a homeowner challenging the measure, expressed disappointment with Thursday’s action and said an appeal would be filed with the U.S. Supreme Court. “This is an issue that deserves to be revisited,” Carlson said. “We have evidence of dramatic disparities--some as high as 17 to 1 in neighborhoods in Santa Monica.”

Joel Fox, president of the Howard Jarvis Taxpayers Foundation, applauded the high court’s refusal to review the issue. “We have always felt Proposition 13 set forth a reasonable policy and we expect if the cases are appealed, the U.S. Supreme Court will feel the same way.”

The state Supreme Court upheld the constitutionality of Proposition 13 in 1978. But in 1989, the stage was set for another challenge by a U.S. Supreme Court ruling, which invalidated a West Virginia tax system that allowed higher taxes on newly purchased property than on long-held property.

The federal high court said it was taking no position on the validity of Proposition 13. But that was enough to spark a new round of challenges in California by foes of the measure.

In one case, lawyers for the Center for Law in the Public Interest brought suit on behalf of Stephanie Nordlinger of Los Angeles, contending that the provision, which requires property to be reassessed at market value when sold, illegally discriminates against new home buyers and infringes on the right to travel.

Nordlinger bought a house in Baldwin Hills in 1988 for $170,000. She contended that by 1998, she will have paid property taxes of nearly $19,000, while over the same period, her neighbors, who bought a comparable home in 1975, will have paid only $4,500.

Last December, a state Court of Appeal in Los Angeles rejected Nordlinger’s challenge to Proposition 13, finding that California’s law differed in important respects from the West Virginia law invalidated by the U.S. Supreme Court. In West Virginia, under a so-called “welcome, stranger” provision, assessors were allowed to arbitrarily impose higher taxes on new buyers, while leaving taxes lower for longtime owners, the appellate panel noted.

In contrast, under Proposition 13, taxes are uniformly based on acquisition cost--and thus all property owners are treated alike, the court said. The California system is permissibly aimed at protecting taxpayers from assessments based on unrealized paper value, the court said.

In another Proposition 13 case, lawyers for R.H. Macy & Co. brought suit in Contra Costa County challenging an increase in property taxes for a Macy’s store after the firm underwent a corporate restructuring in 1986. The restructuring was deemed a change in ownership and as a result, the value of the store was reassessed from $4.3 million to $11.6 million. That resulted in additional taxes of nearly $73,000 in 1987.

The company contended that it was denied equal protection under the law because similar business property that had not changed hands continued to be assessed at a lower level. Macy’s said it was paying nearly three times the taxes nearby competitors were paying.

A state Court of Appeal in San Francisco in December turned down Macy’s contentions, saying that the state Supreme Court had rejected similar arguments in its 1978 decision.

The state high court refused to review both the appeal by Macy’s and Nordlinger. Only Justice Joyce L. Kennard voted to hear the cases. Four votes are required for review on the seven-member court.

The state of California has been defending the unitary tax in court for two decades--and a legal defeat now for the state could worsen a fiscal outlook that already portends a budget deficit of up to $10 billion in this and the next fiscal year.

Under the unitary system, the state taxes foreign-based, multinational corporations on a formula based on each firm’s worldwide earnings, payroll and property holdings. If 2% of a firm’s business operations is conducted in California, the state then applies its bank and corporation taxes to 2% of the firm’s worldwide taxable income.

Most states tax such corporations on the basis of profits reported within the state.

California established its tax more than 50 years ago to assure that firms do not shift profits from one subsidiary to another to avoid taxes. Foreign-based firms argue that the California system forces them to keep separate books, turn over confidential records and unfairly taxes profit centers outside the state.

Last November, in a case brought by London-based Barclays Bank and backed by the U.S. Department of Justice, a state Court of Appeal in Sacramento struck down the tax as unconstitutional. The court noted the repeated opposition to the state tax by four U.S. Presidents--Nixon, Ford, Carter and Reagan--and concluded that it prevented the nation from “speaking with one voice” on foreign tax matters.