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Friday, January 06, 2012, 08:10 pm PT (11:10 pm ET)

Apple wins $920K tax refund from 1989, loses appeal for overseas tax reprieve

California's Supreme Court has affirmed a $920,000 tax refund for Apple dating back to 1989, but it refused to hear the company's request to lower its tax bill for income earned abroad.

The court upheld an appellate ruling earlier this week that returned $231,000 in taxes to Apple, along with $689,000 in interest, The San Francisco Chronicle reports. The Franchise Tax Board was ordered to return the money because Apple should have been allowed to deduct interest from loans for its U.S. operations

However, the final ruling came as only a partial win, as the Supreme Court rejected Apple's request to reevaluate tax rates on foreign-earned income. After California reduced taxes on overseas income in 1989, the Cupertino, Calif., company sought to reclassify the status of income it received as dividends from its foreign holdings.

"Apple argued that its foreign dividends from that year should be attributed to income from previous years that had already been taxed," the report read.

But the appeals court sided with the tax board's assertion that companies should be taxed on foreign dividends from income generated that year.

Apple's lawyer warned the decision could have expensive ramifications in the future. "It creates some potential issues for companies that want to repatriate earnings from overseas," Jeffrey Vesely told the publication on Thursday.

According to the report, two organizations, the California Taxpayers Association and the Council on State Taxation in Washington, D.C., backed Apple in petitioning the state Supreme Court to hear the case.

The issue of overseas earnings has reached "heightened importance during our current economic climate, as it affects the ability of United States companies to bring billions of dollars of foreign earnings back into the United States economy," the California Taxpayers Association told the court.

Deputy Attorney General Kristian Whitten, speaking for the Franchise Tax Board, argued that Apple was "attempting to avoid, or at least indefinitely defer, the payment of tax on its remaining foreign-source income."

As the portion of Apple's income that it earns outside of the U.S. has surpassed its domestic earnings, the company has taken to lobbying for a tax holiday that would allow it to repatriate its cash with a reduced tax load. A consortium of companies, which includes Apple, has proposed a one-year break that would let companies pay just 5 percent to bring their money home, rather than the 35 percent tax rate they currently face.

Two-thirds of Apple's cash hoard, which reached $81 billion in the September 2010 quarter, is located offshore. The company's participation in the WIN America group fighting for the tax holiday has drawn the ire of a group opposing the proposed tax cuts. US Uncut staged several protests outside of Apple retail stores last year.

US Uncut Protest

Protest outside Chicago Lincoln Park Apple Store