Washington tax jolt for Barclays

NEW YORK - Washington has formally thrown its weight behind a controversial California tax on multinational corporations, withdrawing its support for a legal challenge led by Barclays Bank, writes Larry Black.

The US Justice Department, with the backing of the Clinton administration, urged the Supreme Court to reject claims by Barclays and dozens of foreign corporations that they were unfairly obliged to pay hundreds of millions of dollars to California in the early 1980s. Under the state's unitary tax code system, which clashes with both international tax law and Washington's own way of treating multinationals, foreign companies are assessed for taxes based on their worldwide profits rather than the earnings of their California-based divisions.

Earlier US administrations had backed the Barclays challenge, terming the California law an 'irritant' to international commerce. But President Clinton, courting California voters in the election two years ago, campaigned on a pledge to back the cash-strapped state in the dispute. The Supreme Court is expected to hear the case in June.