Barclay's Bank, PLC v. Franchise Tax Bd. of California

PETITIONER: Barclay's Bank, PLC
RESPONDENT: Franchise Tax Bd. of California
LOCATION: Aware Woman Center for Choice

DOCKET NO.: 92-1384
DECIDED BY: Rehnquist Court (1993-1994)
LOWER COURT: State appellate court

CITATION: 512 US 298 (1994)
ARGUED: Mar 28, 1994
DECIDED: Jun 20, 1994

Drew S. Days, III - on behalf of the United States, as amicus curiae, supporting the Respondent
Joanne M. Garvey - on behalf of the Petitioner Barclays Bank
James P. Kleier - on behalf of the Petitioner Colgate-Palmolive Company
John D. Schell - for respondent Colgate Palmolive Co
Timothy G. Laddish - on behalf of the Respondent

Facts of the case

California used a "worldwide combined reporting" method to determine tax liability for multinational corporations operating inside the state. Under this method, the multinational's income was taxed in proportion to the average percentage of worldwide payroll, property, and sales located inside the state. Barclays Bank of California (Barcal) was wholly owned by a multinational corporation, Barclays Bank International Limited (BBI). Barcal did not include financial data for BBI in its 1977 tax filings. The California Franchise Tax Board (Tax Board) determined that Barcal misrepresented the proportion of income subject to taxation, causing a tax deficiency of over one hundred thousand dollars. Barcal and BBI paid, but then sued for the amount paid, complaining that the cost to provide BBI's worldwide financial data was disproportionately large considering that Barcal operated largely independently of BBI and BBI operated largely outside of California. Barcal and BBI contended that this violated the Commerce Clause-derived anti-discrimination requirement, which prevents States from imposing disproportionately large tax compliance burdens upon corporations. The Tax Board allowed BBI to make a "reasonable approximation" of financial data to minimize costs, but BBI claimed that this action violated Due Process by admitting financial data that was possibly inaccurate.

The California Supreme Court found no constitutional violation and remanded the case to a California Court of Appeals, which also did not find the burden disproportionate. Barcal and BBI also contended that the "worldwide combined reporting" method risked double taxation by the state and the federal government. Additionally, The "worldwide combined reporting" method deviated from taxing methods employed by other states, thus transgressing the federal government's interest in providing uniform standards for taxing foreign commerce. (The case was consolidated with Colgate Palmolive Co. v. Franchise Tax Board Of California.)


1) Does a state violate the Due Process Clause by accepting "reasonable approximations" of financial data?

2) By requiring multinational corporations to provide exhaustive financial information to calculate taxes, does a State impose a disproportionately large compliance burden upon the corporation and thereby violate the anti-discrimination requirement of the Commerce Clause?

Media for Barclay's Bank, PLC v. Franchise Tax Bd. of California

Audio Transcription for Oral Argument - March 28, 1994 in Barclay's Bank, PLC v. Franchise Tax Bd. of California

Audio Transcription for Opinion Announcement - June 20, 1994 in Barclay's Bank, PLC v. Franchise Tax Bd. of California

William H. Rehnquist:

The opinions of the Court in two cases will be announced by Justice Ginsburg.

Ruth Bader Ginsburg:

The first case I have to announce is Barclays Bank against Franchise Tax Board consolidated with Colgate-Palmolive against Franchise Tax Board.

These consolidated state tax refund cases concern the constitutionality of the worldwide combined reporting method, a method California used in the years at issue to determine the corporate franchise tax owed to the state by unitary multinational corporate group members doing business in California.

California's calculation started with the worldwide income of the group.

The State imposed its tax on a portion of that income, a portion equal to the arithmetic average of the proportions of worldwide payroll, property, and sales located within California.

Eleven years ago, in Container Corporation of America against Franchise Tax Board, this Court held that the California's scheme, as applied to a domestic-based multinational, did not violate the Constitutiom's Commerce Clause.

We adhere to that decision today and further hold that the constitutional assessment is not dispositively different as applied to foreign-based multinationals.

We, therefore, affirm the judgments of the California Court of Appeals which denied the tax refund claims of petitioner, Barclays, a foreign-based multinational and of petitioner Colgate, a domestic multinational.

Among rulings made and explained in the Court's opinion, the Court rejects Barclays' charges that California imposed inordinate compliance burdens on foreign-based enterprises and exposed such enterprises to constitutionally intolerable prospects of double taxation.

On the issue most energetically pressed by the parties, we hold that California's scheme did not prevent the Federal Government from speaking with one voice in international trade.

Congress holds the control reign.

It has the deciding voice in this area.

Congress has been informed for many years, both before and after this Court's decision, in Container Corporation of the displeasure of foreign governments with these five California or any other taxing jurisdiction of the worldwide combined reporting method.

Aware that worldwide combined reporting is out of accord with the transactional method used in our own federal income tax system and in the system of other developed countries, Congress has nevertheless failed to enact any of the newest measures purposed to bar use of the method challenged by Barclays and Colgate.

Executive Branch actions, statements, and print of the court filings do not supply the requisite federal directive proscribing states used of worldwide combined reporting for the regulatory authority is congresses to will.

Justice Blackmun who joins the Court's opinion has also filed a concurring opinion; Justice Scalia joins all but one part of the Court's multipart opinion and has filed a concurring opinion; Justice O'Connor, joined by Justice Thomas, has filed an opinion concurring in the judgment in Colgate?s case and dissenting in Barclays?.