CALIFORNIA WATCH : Thank You, High Court

Whew! California has dodged a $2-billion bullet.

Had the state lost this week in a case taken to the U.S. Supreme Court and been made to pay monetary compensation to multinational corporations as a result, the ruling might have been a knockout blow to its already precarious financial condition.

On Monday the nation’s top court upheld the right of states to collect tax revenues from multinational corporations by the “unitary tax” method.

The justices found that this method of state taxation, including California’s controversial unitary tax system for foreign corporations doing business here, was not unconstitutional.

The 7-2 decision means that California can continue to deviate from standard taxation practices by collecting taxes from multinational firms on the basis of their worldwide revenues--the unitary method.

The truth is that unitary taxes are ill-conceived. They discourage foreign business investment and interfere with the federal government’s all-important ability to negotiate international tax agreements.

Indeed, California itself seems to have recognized that fact. Last year it moved to allow foreign companies the option of filing either under the unitary rules or the “water’s edge” method, which taxes a company subsidiary as if it were a separate state-based firm. That’s good.

What the case really proves is the need for Congress to deal with this issue by legislating a uniform tax policy for all states in which foreign companies do business. That really isn’t too much to ask.