## Facts

- California imposed a corporate franchise tax on corporations doing business in the state and calculated the taxable share of income for members of a unitary multinational group using “worldwide combined reporting.”
- Under this method, California determined the worldwide income of the unitary business and apportioned to California a share based on an average of in-state property, payroll, and sales.
- Barclays Bank PLC (a U.K.-based multinational banking group) and Colgate-Palmolive Co. (a U.S.-based multinational) sought refunds, asserting that California’s method was unconstitutional as applied to their multinational operations.
- The Franchise Tax Board denied the refund claims, and California courts upheld the tax.
- The Supreme Court consolidated the cases and reviewed whether the Constitution or federal law barred California’s method for foreign-based and other multinationals.

## Issues

1. Whether California’s worldwide combined reporting, as applied to multinational enterprises engaged in foreign commerce, violates the Commerce Clause (including foreign-commerce concerns about discrimination, multiple taxation, and the federal government’s ability to speak with one voice).
2. Whether attributing a formulary share of a unitary enterprise’s worldwide income to California violates the Due Process Clause.
3. Whether federal statutes, treaties, or executive foreign-relations actions preempt or otherwise invalidate California’s worldwide combined reporting method.

## Decision

- The Court affirmed (7–2) the judgments upholding California’s tax.
- California’s tax satisfied the Complete Auto framework; the principal dispute concerned discrimination, which petitioners failed to establish on the record presented.
- The Court held that foreign-commerce concerns about multiple taxation and “one voice” did not render the tax unconstitutional, particularly given the absence of congressional prohibition.
- The tax did not violate due process because the unitary-business connection and the apportionment formula rationally related income attributed to California to in-state activities.
- No federal statute, treaty, or binding federal policy preempted California’s worldwide combined reporting.

## Legal Principles

- A state tax affecting interstate or foreign commerce is evaluated under Complete Auto Transit: substantial nexus, fair apportionment, nondiscrimination, and fair relation to state services.
- In foreign-commerce cases, additional considerations include an enhanced risk of multiple taxation and whether the tax impairs the federal government’s ability to speak with one voice in foreign commercial relations.
- A unitary business (functionally integrated operations, centralized management, and mutual dependence) may be taxed using formulary apportionment of combined income, including worldwide income, consistent with due process if the attribution is rational and not out of proportion to in-state activity.
- Compliance burdens and complexity do not establish unconstitutional discrimination absent proof that the tax, in operation, targets or disadvantages foreign commerce relative to similarly situated taxpayers.
- Federal preemption of state taxation in this area requires a conflicting statute, treaty obligation, or other binding federal action; diplomatic protests and nonbinding executive statements are insufficient without congressional enactment.

## Conclusion

The Court held that California could constitutionally apply worldwide combined reporting to unitary multinational groups, including foreign-parented enterprises, because the tax satisfied Commerce Clause and Due Process requirements and was not displaced by federal law or binding federal foreign-relations policy.


Barclays Bank PLC v. Franchise Tax Bd., 512 U.S. 298 (1994)