Bush’s Support of Firms Called Fiscal Blow to State

A top California tax official urged the Bush Administration on Thursday to withdraw its support for multinational corporations that are suing the state over $3.5 billion in disputed income tax assessments.

Brad Sherman, chairman of the State Board of Equalization, said the Administration’s involvement on behalf of the foreign and U.S.-based companies threatens to throw the state’s finances into further disarray.

Sherman, a Democrat, issued a less than subtle threat that, unless President Bush changes course, the Republican chief executive risks having the issue used against him as he campaigns for California’s 54 electoral votes--one-fifth of what he needs to win a second term.

Sherman also sought to link Republican Gov. Pete Wilson to the Bush Administration policy, though Wilson has taken no position on the matter.

Wilson, who is expected to run Bush’s California reelection campaign, “should ask his friend in the White House to stop his attacks on California’s corporate tax,” Sherman said.

At issue is the “worldwide method” of unitary taxation, which the state used until 1988 to collect income tax from corporations with operations around the world, based on the share of their business conducted in California. Although the requirement was relaxed in 1988, two lawsuits are challenging the taxes levied before then.

One lawsuit, filed by Barclays Bank of London, addresses the rights of foreign-based companies. The other, filed by Colgate-Palmolive, represents U.S.-based companies with worldwide operations.

Both cases, pending before the California Supreme Court, assert that the “worldwide method” is unconstitutional because it conflicts with the federal government’s right to conduct foreign policy.

The Barclays case involves a dispute over $500 million. The Colgate-Palmolive case could cost the state $3 billion.

The Bush Administration filed a “friend of the court” brief in the Barclays case, contending that the tax method cannot be applied “without impairing the ability of the United States to speak with one voice in . . . foreign relations and international commerce.”

In the Colgate-Palmolive case, the Treasury Department sent supportive letters to the corporation.