U.S. Court Will Hear Challenge of Unitary Tax : Revenue: In a surprise development, Supreme Court justices will consider the appeal of multinational corporations. State could lose $4 billion.

WASHINGTON — The Supreme Court agreed Monday to hear a major challenge to California’s method of taxing multinational corporations, a move that could cost the state $4 billion in lost revenue.

The court’s announcement stunned state officials and Clinton Administration lawyers, who had believed that the state Legislature headed off the challenge last month by ending the so-called unitary tax system as of 1994.

A day after Gov. Pete Wilson signed the measure into law, Administration attorneys urged the high court to dismiss the legal challenge.

But lawyers for British-owned Barclays Bank of San Francisco and New York-based Colgate-Palmolive Co. urged the court to intervene because tax payments from years past remain in dispute. In addition, lawyers for American and foreign firms asked the court to settle the question of whether the states must follow the federal government in calculating tax assessments.

In a brief order, the justices said they will hear arguments from Barclays, representing foreign-owned firms, and Colgate, representing U.S. firms that operate in California and overseas.

If the court rules against California in both cases, the state would have to refund $1.7 billion and forgo the anticipated collection of another $2.3 billion, according to an estimate by the State Board of Equalization.

A court defeat “would be more than twice as disastrous in economic terms as the recent Southern California fires,” said board Chairman Brad Sherman.

The U.S. government and most states treat a foreign subsidiary operating within its borders as though it is a separate company. Under this separate accounting method, taxes are assessed based on the company’s income, expenses and profit in that area.

By contrast, California taxes multinational firms based on a percentage of their entire worldwide income, expenses and profit. The percentage is based on how much of the company’s sales, property and payroll are in California.

Advocates of this method say it prevents companies from concealing profits by shifting them to other areas. Critics say it potentially allows California to tax profits that are not earned within the state.

The court’s action puts the Clinton White House in an awkward position. During the 1992 campaign, Clinton promised to side with California in this multibillion-dollar tax dispute. He also maintained that foreign firms were not paying their fair share of taxes.

But the Justice Department earlier had filed briefs in these cases, arguing that California’s taxing method was unconstitutional. It said that the states and federal government must “speak with one voice” on tax matters and that California was ruining the harmony by employing its separate method.

Six other states--Idaho, Montana, North Dakota, Alaska, Tennessee and Utah--use the unitary taxing system in some industries, but California has stuck with it through two decades of legal and diplomatic controversy.

In 1983, California won a major victory when the Supreme Court upheld the unitary tax in a case involving a domestic company with overseas operations. In ruling that California’s tax was constitutional, the justices noted that neither Congress nor the executive branch had expressed an opinion on the state’s different system of figuring taxes.

But that soon changed. In 1985, British officials threatened to retaliate against American firms operating there to protest California’s taxing system and other European nations followed suit. In response, State Department diplomats and Justice Department lawyers said that California’s tax must be repealed because it was threatening to disrupt foreign trade.

Arguments in the case are likely to take place in late February, with a ruling due by July.

In other actions, the court:

* Refused, for now, to reinstate a Colorado constitutional amendment that cancels local gay rights laws. The state Supreme Court has barred enforcement of the amendment while it is challenged in the lower courts. The justices refused the state’s request to intervene.

* Agreed to rule on whether a person who is picked up by police and taken in for questioning is a “suspect” who must be read his Miranda rights. The issue arose in the case of convicted California murderer Robert E. Stansbury, who in 1982 was asked by police to come in for questioning in the death of a 10-year-old Baldwin Park girl.

An ice cream driver in the neighborhood, Stansbury was a potential witness to the crime, police said. But after 30 minutes of questioning, they concluded that he was a suspect. They then told him of his Miranda rights, including his right to remain silent. At the trial, the police maintained--and the state courts agreed--that Stansbury’s answers during the initial questioning could be used against him because he was not then a suspect in custody. The justices agreed to hear his appeal.

* Dismissed a pending child pornography case because the Clinton Administration had changed the government’s prosecution policy. In 1991, the government had prosecuted a Pennsylvania man who had taken photos of young girls wearing bathing suits and underwear.

* RELATED STORY: D2