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Ronald Reagan Presidential Library
Digital Library Collections
This is a PDF of a folder from our textual collections.
Collection: Roberts, John G.: Files
Folder Title: JGR/Unitary Taxation
(1 of 2)
Box: 56
To see more digitized collections visit:
https://reaganlibrary.gov/archives/digital-library
To see all Ronald Reagan Presidential Library inventories visit:
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Contact a reference archivist at: [email protected]
Citation Guidelines: https://reaganlibrary.gov/citing
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bate:
THE WHITE HOUSE
united new tanstin
WASHINGTON
Date
10.22.85
Suspense Date
MEMORANDUM FOR:
John
FROM:
DIANNA G. HOLLAND
ACTION
Approved
Please handle/review
x
For your information
For your recommendation
For the files
Please see me
Please prepare response for
signature
As we discussed
Return to me for filing
COMMENT
ID # 303362
CU
WHITE HOUSE
CORRESPONDENCE TRACKING WORKSHEET
OUTGOING
INTERNAL
I
INCOMING
Date Correspondence
Received (YY/MM/DD)
/
/
Name of Correspondent: D. Chew
MI Mail Report
User Codes: (A)
(B)
(C)
Subject: Decision memo re: Unitary Inyation
ROUTE TO:
ACTION
DISPOSITION
Tracking
Type
Completion
Action
Date
of
Date
Office/Agency
(Staff Name)
Code
YY/MM/DD
Response
Code
YY/MM/DD
Curtace
ORIGINATOR 85,10,21
/ /
Referral Note:
CUFICI
R
85,10,21
585,10,21 ≤
Referral Note:
L/ 30 PM
/ /
/ /
-
Referral Note:
/ /
/ /
-
Referral Note:
/ /
/ /
-
Referral Note:
ACTION CODES:
DISPOSITION CODES:
A Appropriate Action
I Info Copy Only/No Action Necessary
A Answered
C Completed
C Comment/Recommendation
R. Direct Reply w/Copy
B - Non-Special Referral
S Suspended
D Draft Response
S. For Signature
F Furnish Fact Sheet
X Interim Reply
to be used as Enclosure
FOR OUTGOING CORRESPONDENCE
Type of Response = Initials of Signer
Code = "A"
Completion Date = Date of Outgoing
Comments:
Keep this worksheet attached to the original incoming letter.
Send all routing updates to Central Reference (Room 75, OEOB).
Always return completed correspondence record to Central Files.
Refer questions about the correspondence tracking system to Central Reference, ext. 2590.
THE WHITE HOUSE
WASHINGTON
October 21, 1985
MEMORANDUM FOR DAVID L. CHEW
STAFF SECRETARY
FROM:
FRED F. FIELDING
COUNSEL TO THE PRESIDENT
SUBJECT:
Decision Memo re: Unitary Taxation
This is a very complex and important subject that some of us have
worked on for several years. Thus, it is a little perplexing to
be asked to deal with the proposal by way of a one hour review of
a cover letter and a draft letter.
Within those constraints, this appears to be a valid solution to
the long-standing unitary tax clash between the UK and U.S., even
though it requires resorting to federal legislation. Also, it is
not inconsistent with the U.S. position in any present
litigation.
I am assuming that other nations with whom we deal are also
threatening retaliatory action, and efforts will be made to
negate such action by them as well.
Further, I strongly urge that this "Jim - Nigel" letter somehow
establish that our support for the Mathias legislation might be
reevaluated if California passes suitable "water's edge"
legislation.
CLOSE HOLD
303362ss
Document No.
WHITE HOUSE STAFFING MEMORANDUM
DATE: 10/21/85
ACTION/CONCURRENCE/COMMENT DUE BY:
4:30 P.M. TODAY
SUBJECT:
DECISION MEMO RE UNITARY TAXATION
ACTION FYI
ACTION FYI
VICE PRESIDENT
LACY
REGAN
McFARLANE
MILLER
OGLESBY
\
BUCHANAN
RYAN
CHAVEZ
SPEAKES
CHEW
P
SS SPRINKEL
DANIELS
SVAHN
FIELDING
THOMAS
FRIEDERSDORF
TUTTLE
HENKEL
HICKEY
HICKS
KINGON
REMARKS:
We plan on forwarding the attached memo to the President this evening.
Please provide any comments by 4:30 p.m. today.
RESPONSE:
David L. Chew
Staff Secretary
Ext. 2702
THE THE TREASURY
THE SECRETARY OF THE TREASURY
WASHINGTON
1789
October 21, 1985
MEMORANDUM FOR: THE PRESIDENT
FROM: JAMES A. BAKER, III MbIII
SUBJECT: Worldwide Unitary Taxation
I believe that the time has now come for the Administration to
take positive steps to seek to resolve the problems associated
with state use of the worldwide unitary method of taxation. In
the attached letter, I am recommending a proposed course of
action. I am also attaching a draft letter from me to Chancellor
of the Exchequer Nigel Lawson which responds to the concerns of
the Government of the United Kingdom on this issue.
Approve
Disapprove
Attachments
or
COMMITMENT THE TREASUMI
THE
THE SECRETARY OF THE TREASURY
WASHINGTON
1788
October 21, 1985
Dear Mr. President:
I believe that it is now appropriate for the Administration to
publicly support federal legislation that would limit the state
use of the unitary method of taxation to the "water's edge" for
all multinational corporations and would restrict state taxation
of dividends received by U.S. corporations from their foreign
subsidiaries.
The issues posed by the state use of the worldwide unitary method
of taxation are not new. In September 1983, in response to the
concerns of foreign governments and the business community, you
established a Worldwide Unitary Taxation Working Group. The
Group, which was chaired by then-Treasury Secretary Regan, was
composed of representatives of state governments, the business
community, and the federal government and was "charged with
producing recommendations that will be conducive to harmonious
international economic relations, while also respecting the
fiscal rights and privileges of the individual states."
At its final meeting on May 1, 1984, the Working Group agreed on
three principles that should guide state taxation of the income
of multinational corporations:
Principle 1: Water's edge unitary combination for both
U.S.- and foreign-based companies.
Principle 2: Increased federal administrative assistance and
cooperation with the states to promote full
taxpayer disclosure and accountability.
Principle 3: Competitive balance for U.S. multinationals,
foreign multinationals, and purely domestic
businesses.
The Working Group recommended that principles one and three be
implemented on a state-by-state basis without resort to federal
legislation. Secretary Regan, in a July 31, 1984 letter
transmitting to you his report as Chairman of the Working Group,
stressed the need for prompt state action. "If there are not
sufficient signs of appreciable progress by the states in this
area by July 31 of next year, whether by legislation or admin-
istrative action, I will recommend to you that the Administration
propose federal legislation that would give effect to a water's
edge limitation
"
-2-
Since the Working Group issued its recommendations, Colorado,
Florida, Indiana, Oregon, and Massachusetts have adopted a
"water's edge" limitation, but Alaska. California, Idaho,
Montana, New Hampshire, and North Dakota continue to tax on a
worldwide unitary basis. Most significantly, the California
legislature adjourned in mid-September without passing "water's
edge" legislation. Though the California legislature will
consider the issue again when it reconvenes in January 1986, a
solution is far from certain. Because of its size and economic
importance, California is the most pivotal state.
In July of this year, in response to long-standing frustration,
the U.K. Parliament unanimously passed anti-unitary retaliatory
legislation aimed at U.S. multinationals as part of the 1985
Finance Act. This is enabling legislation that would require
additional Parliamentary action to implement. In a recent letter
to me urging decisive federal action, Chancellor of the Exchequer
Nigel Lawson stated that: "It is clear from the reaction in the
U.K. to the news from California that I will be under pressure to
invoke the reserve powers (in Section 54 of our Finance Act 1985)
when Parliament reassembles at the end of October, unless you
have made your announcement about federal action before then."
In view of these developments, I believe that the Administration
must now act and announce its support for "water's edge" legis-
lation. Of necessity, this legislation must also curb state
taxation of foreign dividends. The Administration does not need
to introduce its own legislation. Rather, it can announce its
support of legislation already introduced by Senator Mathias. To
emphasize our determination, I recommend that the Administration
also file briefs in cases pending in federal and state trial
courts in opposition to state use of the worldwide unitary method
of taxation.
Though Congress may be reluctant to pass such legislation, I
believe that Administration support would be welcomed by our
foreign trading partners as well as the world business community.
I also believe that this action would provide California with
additional incentive to adopt suitable "water's edge" legislation
to avoid federally-imposed restrictions. The Administration, of
course, could reevaluate its support for such legislation if
California limits its use of the unitary method on its own
accord. In assessing our action, the states should understand
that we have been extraordinarily patient in waiting for them to
resolve the problem in the two years since the Working Group was
formed. To lessen state concerns, we should simultaneously
announce our intention to continue to support the federal
assistance measures recommended by the Working Group.
-3-
If you approve this course of action, I propose to seek
assurances from Chancellor Lawson that the United Kingdom will
withhold implementing its retaliatory legislation. In
particular, I believe that we should ask the Government of the
United Kingdom to join the Government of the United States in a
joint statement indicating that, in light of the Administration's
support for the Mathias legislation, the United Kingdom would not
make use of the retaliatory authority in the Finance Bill. I am
enclosing a draft letter to Chancellor Lawson which takes that
position.
Respectfully,
James Jun A. Baker, III
The President
The White House
Washington, D.C. 20500
Enclosure
Dear Nigel:
Thank you for your letter of September 26, 1985, in which you
urge federal action to resolve the problems associated with
worldwide unitary taxation. I am pleased to report that the
Administration is prepared to publicly support federal legis-
lation to limit state use of the unitary method to the "water's
edge" for all multinational corporations, namely S. 1113,
sponsored by Senator Mathias. In addition, we also stand ready
to file briefs in appropriate cases challenging state use of the
worldwide unitary method of taxation.
As you know, we are very concerned about the anti-unitary
retaliatory provision in the 1985 Finance Act. Due to its
retroactive feature, some U.S. taxpayers have advised us that it
has already prompted them to modify their dividend repatriation
practices. In order to be able to reassure our own business
community, I would request a statement from your government that,
because of the position taken by the U.S. government, the United
Kingdom will withhold any exercise of the authority available
under the retaliatory legislation and that, should the unitary
issue not be resolved in a satisfactory manner, any future
-2-
exercise of that authority would have only prospective effect.
Perhaps the positions of our two governments could be made clear
in a joint statement sometime this week as the U.K. Parliament
reconvenes.
I look forward to your response.
Sincerely,
James A. Baker, III
The Right Honorable Nigel Lawson
Chancellor of the Exchequer of the United Kingdom
London
APR
I
1982
069360 CU
ID #.
FI 0/0
TRACKING WORKSHEET
o - OUTGOING
H . INTERNAL
from ORM
I . INCOMING
Date Correspondence
Received (YY/MM/DD)
/
/
Name of Correspondent:
Williamson
MI Mail Report
User Codes: (A)
(B)
(C)
Subject:
United to
ROUTE TO:
ACTION
DISPOSITION
Tracking
Type
Completion
Action
Date
of
Date
Office/Agency (Staff Name)
Code
YY/MM/DD
Response
Code YY/MM/DD
ORIGINATOR 52,04,01
TJ C 82,04,13
Referral Note:
is
w ATO4
A 104,01
C82,14,13
FFF
Referral Note:
WFIEL
I 82104113
C82,4,13
Referral Note:
/
/
/
/
-
Referral Note:
/ /
/ /
Referral Note:
ACTION CODES:
DISPOSITION CODES:
A- - Appropriate Action
1. . Info Copy Only/No Action Necessary
A - Answered
C Completed
C - Comment/Recommendation
R - Direct Reply w/Copy
B - - Non-Special Referral
S. Suspended
D - Draft Response
S - For Signature
F. . Furnish Fact Sheet
X - Interim Reply
to be used as Enclosure
FOR OUTGOING CORRESPONDENCE:
Type of Response = Initials of Signer
Code = "A"
Completion Date = Date of Outgoing
Comments:
Keep this worksheet attached to the original incoming letter.
Send all routing updates to Central Reference (Room 75, OEOB).
Always return completed correspondence record to Central Files.
Refer questions about the correspondence tracking system to Central Reference, ext. 2590.
5/81
,
MAR 31 1982
THE WHITE HOUSE
069360
WASHINGTON
March 31, 1982
MEMORANDUM FOR JAMES A. BAKER, III
EDWIN MEESE, III
RA4- FFF confuss
FROM:
RICHARD S. WILLIAMSON
SUBJECT:
UNITARY TAX
On March 3, 1982, the Cabinet Council on Economic Affairs determined
that the Administration would not take a position on legislation re-
lating to the unitary tax until it had completed further study of the
issue and undertaken extensive consultations with interested parties.
Earlier this year, at the request of the Department of the Treasury,
the Department of Justice filed an Amicus Curiae brief in the Chicago
Bridge and Iron Company Case pending before the U.S. Supreme Court.
The Solicitor General's Office petitioned the Supreme Court for an op-
portunity to make an oral argument in this case. Oral argument has
been tenatively approved for April 19, 1982.
As a result of the Cabinet Council decision mentioned above, Assistant
Secretary John Chapoton contacted the Solicitor General's Office to
suggest they not make an oral argument in the Chicago Bridge and Iron
Company Case: Chapoton has not received a response to his request.
White House Intergovernmental Affairs received a substantial number
of critical comments from the National Governors' Association, and
Republican Governors in particular, at the time the Department of
Justice originally filed the Amicus Curiae brief. The Governors
argued that it was inconsistent with the President's New Federalism
for the Federal government, through the Justice Department, to be
arguing against a state's right to impose the unitary tax on cor-
porations doing business within that state.
It is my information the Solicitor General's Office has indicated
to Treasury that to withdraw the request for oral argument would
be an embarrassment to the Solicitor General's Office. I suggest
that to proceed with oral argument, prior to an Administration
decision being made by the Cabinet Council on Economic Affairs,
will undercut the Administration's credibility both on the unitary
tax issue and on the Federalism Initiative. I believe the
Solicitor General's Office should be made aware of this situation.
CC: Fred Fielding
acted M sign request for oral argument.
Advised Jui medas that Sr. Ct has not
Richard G. Darman
Craig L. Fuller
Nevertheless, the SG will check w/
Stan alams before proceding Stan
will, in him, check WI Wr.
4/13/82
II
99TH CONGRESS
1ST SESSION
S.1113
To amend the Internal Revenue Code of 1954 to clarify the extent to which a
State, or political subdivision, may tax certain income from sources outside
the United States.
IN THE SENATE OF THE UNITED STATES
MAY 9 (legislative day, APRIL 15), 1985
Mr. MATHIAS introduced the following bill; which was read twice and referred to
the Committee on Finance
A BILL
To amend the Internal Revenue Code. of 1954 to clarify the
extent to which a State, or political subdivision, may tax
certain income from sources outside the United States.
1
Be it enacted by the Senate and House of Representa-
2 tives of the United States of America in Congress assembled,
3 That (a) chapter 77 of the Internal Revenue Code of 1954
4 (relating to miscellaneous provisions) be amended by adding
5 at the end thereof the following new section:
6 "SEC. 7518. INCOME OF CORPORATIONS ATTRIBUTABLE TO
7
FOREIGN CORPORATIONS.
8
"(a) IN GENERAL.- Where two or more corporations
9 are members of the same affiliated group of corporations-
2
1
"(1) for purposes of imposing an income tax on
2
any corporation which is a member of such group, no
3
State, or political subdivision thereof, may take into
4
account, or include in income subject to such tax, any
5
amount of income of, or attributable to,
6
"(2) any other corporation which is a member of
7
such group and which is a foreign corporation,
8 unless such amount is includable in the gross income of the
9 corporation described in paragraph (1) for purposes of chapter
10 1 (including any amount includable in gross income under
11 subpart F of part III of subchapter N of chapter 1) for the
12 taxable year in which or with which the taxable period (for
13 purposes of State or local law) ends.
14
"(b) INCOME TAX DEFINED.-For purposes of this sec-
15 tion, the term 'income tax' means any tax which is imposed
16 on, according to, or measured by net income.
17
"(c) AFFILIATED GROUP DEFINED.-For purposes of
18 subsection (a), the term 'affiliated group' means a common
19 parent corporation and one or more chains of corporations
20 connected through stock ownership with such common parent
21 corporation.
22
"(d) CERTAIN CORPORATIONS TREATED AS FOREIGN
23 CORPORATIONS.-For the purpose of this section, a domes-
24 tic corporation shall be treated as a foreign corporation if
25 under section 861(a)(2)(A) a dividend received from such cor-
S 1113 IS
3
1 poration in the taxable year referred to in subsection (a)
2 would not be treated as income from sources within the
3 United States.
4
"(e) CERTAIN DIVIDENDS PAID OR DEEMED PAID.-
5
"(1) DIVIDENDS EXCLUDED FROM TAX.-If a
6
corporation receives in any taxable year a dividend
7
from a foreign corporation (or is by application of sec-
8
tion 951 treated as having received such a dividend), in
9
imposing an income tax on such corporation no State,
10
or political subdivision thereof, may tax, or otherwise
11
take into account-
12
"(A) in the case of a dividend received from
13
a corporation with respect to which an election
14
under section 936 is in effect for the taxable year
15
in which such dividends are paid, the amount of
16
deduction allowed by section 243,
17
"(B) in the case of a dividend received from
18
a corporation described in subsection (d) which is
19
not described in paragraph (A), more than the
20
lesser of-
21
"(i) the amount of the dividend exclu-
22
sive of any amount of dividend determined
23
under paragraph (3), or
24
"(ii) the amount by which the dividend
25
plus any amount of dividend determined
S 1113 IS
4
1
under paragraph (3) exceeds the excluded
2
portion of the dividend determined in accord-
3
ance with paragraph (2).
4
"(C) in the case of a dividend received from
5
any other foreign corporation more than the lesser
6
of-
7
"(i) the amount of the dividend (exclu-
8
sive of any amount determined under section
9
78), or
10
"(ii) the amount by which the dividend
11
plus any amount determined under section
12
78 exceeds the excluded portion of the divi-
13
dend determined in accordance with para-
14
graph (2).
15
"(2) EXCLUDED PORTION OF A DIVIDEND.-The
16
excluded portion of any dividend shall be determined
17
by multiplying the amount of the dividend (including
18
any amount of dividend determined under section 78 or
19
paragraph (3)) by a fraction-
20
"(A) the numerator of the fraction shall be
21
the sum of-
22
"(i) the total amount of tax withheld
23
from all such dividends at the source.
24
"(ii) the total amount of tax which by
25
application of section 902 or section 960 to
S 1113 IS
5
1
all such dividends, the domestic corporation
2
is deemed to have paid, and
3
"(iii) the total amount of tax deemed
4
paid by application of paragraph (3).
5
"(B) The denominator of the fraction shall be
6
46 percent of all such dividends.
7
"(3) SPECIAL RULE WITH RESPECT TO DIVI-
8
DENDS RECEIVED FROM DOMESTIC CORPORATIONS
9
TREATED AS FOREIGN UNDER SUBSECTION (d).-A
10
corporation that receives a dividend which is described
11
in subparagraph (B) of paragraph (1) shall-
12
"(A) treat as a dividend for purposes of sub-
13
paragraph (B) of paragraph (1), and
14
"(B) treat as a tax deemed paid for purposes
15
of subparagraph (A) of paragraph (2), foreign
16
income taxes which such other corporation has
17
paid or deemed paid in the same proportion on or
18
with respect to the accumulated profits of such
19
corporation from which such dividend was paid,
20
which the amount of such dividend bears to the
21
amount of such accumulated profits in excess of
22
all income taxes (other than those deemed paid).
23
For purposes of this section, only a tax for which a
24
credit against tax would be allowable under section
S 1113 IS
6
1
901 (determined without regard to the limitations in
2
section 904 and 907) shall be taken into account.".
3
Nothing in this section shall subject any dividend, other
4 income item or portion thereof to taxation if such taxation is
5 otherwise prohibited by any law, or rule of law, of the United
6 States.
7
(c) EFFECTIVE DATE.-The amendment made by this
8 section shall apply to taxable periods (for purposes of State or
9 local law) beginning after December 31, 1986.
10
(d) AMENDMENT OF THE TABLE OF SECTIONS.-The
11 table of sections for chapter 77 of such Code is amended by
12 adding at the end thereof the following new item:
"Sec. 7518. Income of corporations attributable to foreign corpora-
tions."
S 1113 IS
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less h little + will the meme off Calif.
will not wt fal Lagi.
Unitary taxation
Chingo Buty
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No. 84-902
84-922
84-1041
Wall Ra Wardais Canda V.
Fla Dept of
Revenue