You can tax multinationals
One can only imagine the cheers that must have gone up in many a financially pinched state governor's office after the US Supreme Court upheld California's tax on a multinational corporation's worldwide income. The California tax had been challenged by the Container Corporation of America, a unit of the Mobil Corporation, which argued that the state tax was unfair since it taxed profits earned abroad, not just profits earned in California.
The landmark decision not only upholds similar taxing methods used by a number of states, but paves the way for states not currently taxing worldwide profits of multinational firms operating within their borders to adopt such laws. Given the fact that many states now face severe budget deficits stemming from the recession and a reduction in federal aid in a broad range of programs, the decision comes at a propitious moment. By just one measurement, for example , that of the National Governors Association, the overall budget surplus for all 50 states will be roughly $345 million at the end of this week, when most states end their 1983 fiscal year. By contrast, the surplus three years ago was more than $11 billion. At least seven states are expected to finish the year in the red with a cumulative deficit of some $1.4 billion.
Indeed, the importance of the tax as a revenue-producing measure can be underscored by what would have happened in California had the high court gone the other way and overruled the state's taxing method. ''A loss,'' according to California State Controller Ken Cory, ''would have sent the state tumbling into bankruptcy and it would have forced us to increase taxation of our own California-based small businesses and farmers.'' California already expects to end the fiscal year with more than a $900 million deficit. Another $500 million added to that amount - equal to what California earned this year from the multinational tax - would have been a financial blow to state coffers.
Despite disappointment expressed by some corporate officials, it should be borne in mind that the California taxing method upheld by the court is a very carefully calibrated tax. It is based on three factors: the ratio of property, payroll, and sales in the state as applied against the firms's worldwide business. Thus, states using such a tax formula will have to make certain that their particular taxing equation is fair. At the same time business groups can take comfort in the fact that some states may actually prefer to abstain from such a tax as an inducement to coax firms inside their borders.
