Please ensure Javascript is enabled for purposes of website accessibility
Walters: California Gets a Hollow Victory in Tax Battle
dan_walters
By Dan Walters, CalMatters Commentary
Published 5 years ago on
May 20, 2019

Share

California officials have pursued Gilbert Hyatt for nearly three decades, trying to force him to pay state income taxes on royalties he began receiving in the early 1990s from his groundbreaking technology inventions.

Dan Walters
CALmatters

Hyatt moved from Southern California to Las Vegas just before the royalty payments began rolling in, clearly hoping to take advantage of Nevada’s lack of a state income tax. But the Franchise Tax Board, California’s tax collector, alleged that it was an improper tax dodge and billed him for millions of dollars in taxes, igniting their epic battle.

The conflict over Hyatt’s residency has been waged in state tax agencies, in Nevada courts and in federal courts, expanding from tax residency into the inventor’s allegations that he was being unfairly harassed.

“It’s been a horrible quarter-century,” Hyatt told the Bloomberg Tax newsletter at one point. “The FTB has used all kinds of tactics that I’ve been concerned it’s using with all taxpayers to extort taxes that aren’t owed.”

In 2017, Hyatt scored a major win before the Board of Equalization—essentially California’s tax court—which rejected the FTB’s claims of fraud. It ruled that Hyatt owed no state tax for income in 1992 but did for a part-year residence in California in 1991. It reduced his potential tax bite from $55 million to $1.9 million plus interest.

However, that wasn’t the end of it.

Something of a Hollow Victory

Hyatt’s complaints about the FTB’s tactics prevailed in Nevada state courts, including that state’s supreme court, which declared that California owed damages to Hyatt.

But that wasn’t the end of it, either.

California maintained that under the doctrine of “sovereign immunity,” it could not be sued in the courts of another state, even though the U.S. Supreme Court, in another case out of Nevada, declared in 1979 that such suits were permissible.

By and by, therefore, Hyatt’s suit against California made its way back to the U.S. Supreme Court. Last week, on a 5-4 vote, it overturned its 1979 ruling and upheld California’s claim of immunity—even though it had previously allowed Hyatt’s case to proceed.

Although California won last week, it was something of a hollow victory, since Hyatt largely prevailed on the initial dispute over his residence. The state spent an estimated $25 million to pursue the inventor so probably wound up in the red.

An Even Wider Impact—perhaps on Abortion Rights

Hyatt’s semi-victory indicates that California taxpayers who flee the state’s highest-in-the-nation income taxes stand a pretty good chance of avoiding the state’s tax collectors, if they carefully plan their moves. There’s anecdotal evidence that such relocations are occurring among the state’s wealthiest residents, especially since they can no longer deduct more than token amounts of state taxes on their federal income tax returns, thus increasing the bite.

“Today’s decision can only cause one to wonder which cases the court will overrule next.” — Justice Stephen Breyer

However, last week’s Supreme Court ruling could have an even wider impact—perhaps on abortion rights.

“Today’s decision can only cause one to wonder which cases the court will overrule next,” dissenting Justice Stephen Breyer wrote, citing the 1992 case of Planned Parenthood vs. Casey in which the justices, by a 5-4 vote, reaffirmed a woman’s right to have an abortion.

Many abortion-rights supporters fear that Justice Brett Kavanaugh could provide the court’s conservative bloc a fifth vote to overturn some or all of the court’s abortion rulings.

The Hyatt ruling was published just as Alabama’s Legislature and governor enacted a sweeping ban on abortions, virtually inviting a lawsuit on the issue that would make its way to the Supreme Court.

CALmatters is a public-interest journalism venture committed to explaining how California’s state Capitol works and why it matters. For more stories by Dan Walters, go to calmatters.org/commentary.

DON'T MISS

Local Leaders Must Put Their Shoulders Into Making Fresno ‘Education City USA’

DON'T MISS

EdSource Welcomes Fresno News Veteran Jim Boren to Its Board

DON'T MISS

Senate Dismissed Two Articles of Impeachment, Ending Trial on Mayorkas

DON'T MISS

Netanyahu Dismisses Calls for Restraint, Says Israel Will Decide Iran Attack Response

DON'T MISS

New Study Calculates Climate Change’s Economic Bite Will Hit About $38 Trillion a Year by 2049

DON'T MISS

Biden Pledges to Block Japanese Takeover of US Steel and Promises Tariffs on Chinese Steel

DON'T MISS

Don Arax Talks About His New Football Job at Visalia’s Central Valley Christian

DON'T MISS

Dem House Challengers Salas, Gray Flex Fundraising Muscle

DON'T MISS

Career-High Strike Outs for Ryan Weathers as Marlins Best Giants 6-3

DON'T MISS

LeBron’s Lakers Top Pelicans in Play-in, Set up Playoff Rematch With Nuggets

UP NEXT

Carbon Capture Isn’t Nearly as ‘Green’ as Fossil Fuel Promoters Make It Sound

UP NEXT

CA’s High Construction Costs Limit Housing. A Supreme Court Decision Might Help

UP NEXT

A Fresno Edition of Monopoly? That’s Capitalism at Work, Baby!

UP NEXT

Biden’s Embrace of Trump’s Tariffs Could Spell Trouble for His Reelection: Fareed Zakaria

UP NEXT

‘Digital Democracy’ Project Penetrates California’s Opaque Political Processes

UP NEXT

While California Politicians Skirmish Over Housing, the Shortage Keeps Growing

UP NEXT

As PG&E Bills Skyrocket, Will California Lawmakers Hold Anyone Accountable?

UP NEXT

Trustees Owe a Nationwide Superintendent Search to Fresno’s Children

UP NEXT

Taxes Are on the November Ballot in Monumental CA Showdown

UP NEXT

California Progressives Forced to Play Defense as State Faces Huge Budget Deficits

Netanyahu Dismisses Calls for Restraint, Says Israel Will Decide Iran Attack Response

2 hours ago

New Study Calculates Climate Change’s Economic Bite Will Hit About $38 Trillion a Year by 2049

2 hours ago

Biden Pledges to Block Japanese Takeover of US Steel and Promises Tariffs on Chinese Steel

2 hours ago

Don Arax Talks About His New Football Job at Visalia’s Central Valley Christian

3 hours ago

Dem House Challengers Salas, Gray Flex Fundraising Muscle

5 hours ago

Career-High Strike Outs for Ryan Weathers as Marlins Best Giants 6-3

5 hours ago

LeBron’s Lakers Top Pelicans in Play-in, Set up Playoff Rematch With Nuggets

5 hours ago

Storm Dumps Record Rain and Floods Dubai’s Airport

5 hours ago

Mookie Betts Matches Career Best with 5 Hits in Dodgers’ 6-2 Victory Over Nationals

5 hours ago

Klay Thompson Misses All 10 Shots in Potential Last Game With the Warriors

5 hours ago

Local Leaders Must Put Their Shoulders Into Making Fresno ‘Education City USA’

Fresno leaders keep searching for the silver bullet that will make California’s fifth-largest city sparkle. And they just keep shootin...

32 mins ago

32 mins ago

Local Leaders Must Put Their Shoulders Into Making Fresno ‘Education City USA’

58 mins ago

EdSource Welcomes Fresno News Veteran Jim Boren to Its Board

2 hours ago

Senate Dismissed Two Articles of Impeachment, Ending Trial on Mayorkas

2 hours ago

Netanyahu Dismisses Calls for Restraint, Says Israel Will Decide Iran Attack Response

2 hours ago

New Study Calculates Climate Change’s Economic Bite Will Hit About $38 Trillion a Year by 2049

2 hours ago

Biden Pledges to Block Japanese Takeover of US Steel and Promises Tariffs on Chinese Steel

3 hours ago

Don Arax Talks About His New Football Job at Visalia’s Central Valley Christian

5 hours ago

Dem House Challengers Salas, Gray Flex Fundraising Muscle

MENU

CONNECT WITH US

Search

Send this to a friend