During Jerry Brown’s first term as governor of California, he became embroiled in a highly complicated dispute over how the state should tax the income of multinational corporations.

More than four decades later, the issue has resurfaced in a corporate tax case against Microsoft, one of the country’s largest corporations. A draft law was also semi-secretly included in the state budget in June and two subsequent court cases have ensued.

The result could require refiling of tax returns from past years and potentially force companies to pay billions of dollars in retroactive taxes. Alternatively, it could eliminate unexpected corporate taxes that Gov. Gavin Newsom is counting on to help eliminate the state’s budget deficit.

In the 1970s, Brown faced the question of whether corporations should report their worldwide income in California and subject a calculated percentage of it to state tax, or whether they could limit their reporting of taxable income to their actual activities within the state.

At that time, the first method, called “Unitary Taxation,” was used by the Franchise Tax Board, the Californian equivalent of the IRS. However, foreign companies, especially those based in Japan and the United Kingdom, strongly opposed this and looked for an alternative, which was called “Water’s Edge.”

Brown initially supported the IRS, but after a visit to Japan he reversed course and accused the agency’s executive director, Martin Huff, of providing him with “unreliable data.” Huff responded by essentially accusing Brown of lying, which led Brown and legislative leaders to promptly change a unique state law that had protected the IRS’s executive branch from political interference.

Huff also unfairly encroached on lawmakers by publicly proposing that their “per diems” be subject to income tax. After the law was changed to facilitate Huff’s dismissal, he resigned.

The dispute over corporate taxation continued. At one point, it even became an issue in a tax treaty the US government negotiated with the UK government. In the 1980s, companies were finally given the option of using either the unitary or water’s edge method. Microsoft chose the latter method for its 2017-18 tax return, but got into a dispute with the tax authority over how to treat dividends from foreign subsidiaries.

The dispute escalated when Microsoft demanded a refund of $90.9 million, but the IRS denied the claim and the company appealed to the Office of Tax Appeals, a tax court. Last year, a three-judge appeals panel ruled unanimously in Microsoft’s favor after extensive trial-like hearings.

It could have forced the state to repay $1.3 billion immediately, and perhaps more as the decision trickled through the state’s corporate tax process. But the tax agency did not admit defeat and instead turned to Newsom and the Legislature for help.