State Justices Reject Property Tax Case : Court: They won’t review challenge to Prop. 13. They agree to rule on fees charged to foreign-based firms.

SAN FRANCISCO —  The state Supreme Court on Thursday rejected a widely watched legal assault on Proposition 13 that was based on evidence of broad disparities in taxes paid by owners of comparable properties.

The justices, in brief orders, refused to review two appeal court decisions that upheld the landmark 1978 tax-reform initiative against recently renewed claims that it improperly discriminates against recent purchasers of residential and business property.

In another case that could cost the state up to $3 billion, the seven-member court agreed unanimously to decide the constitutionality of California’s so-called “unitary tax” on foreign-based, multinational corporations. An appeal court recently struck down the tax as an infringement on the power of the federal government to conduct foreign policy.

Proposition 13, adopted by a 62% majority at the height of a statewide tax revolt, set local property taxes at 1% of assessed valuation, rolled back assessments to 1975 levels and limited subsequent increases to 2% a year.

But under a provision now under legal attack, property that changes hands is reassessed at current value and the buyer pays taxes based on the purchase price. As a result, similar properties sitting side by side frequently are taxed at widely differing rates--with new owners paying five times or more what their neighbors pay, according to recent studies.

Ann E. Carlson of Los Angeles, attorney for a homeowner challenging the measure, expressed disappointment with Thursday’s action and said an appeal would be filed with the U.S. Supreme Court. “This is an issue that deserves to be revisited,” Carlson said. “We have evidence of dramatic disparities--some as high as 17 to 1 in neighborhoods in Santa Monica.”

Joel Fox, president of the Howard Jarvis Taxpayers Foundation, applauded the high court’s refusal to review the issue. “We have always felt Proposition 13 set forth a reasonable policy and we expect if the cases are appealed, the U.S. Supreme Court will feel the same way.”

The state of California has been defending the unitary tax in court for two decades--and a legal defeat now for the state could worsen a fiscal outlook that already portends a budget deficit of up to $10 billion in this and the next fiscal year.

Under the unitary system, the state taxes foreign-based, multinational corporations on a formula based on each firm’s worldwide earnings, payroll and property holdings. If 2% of a firm’s business operations is conducted in California, the state then applies its bank and corporation taxes to 2% of the firm’s worldwide taxable income.

Most states tax such corporations on the basis of profits reported within the state.

California established its tax more than 50 years ago to assure that firms do not shift profits from one subsidiary to another to avoid taxes. Foreign-based firms argue that the California system forces them to keep separate books, turn over confidential records and unfairly taxes profit centers outside the state.

Last November, in a case brought by London-based Barclays Bank and backed by the U.S. Department of Justice, a state Court of Appeal in Sacramento struck down the tax as unconstitutional.