Taxing Times in California: The depths to which his California has fallen

NRO ^ | 7/16/2003 | Iain Murray

[Utah Girl]

Stories of taxpayer abuse at the hands of the IRS were once so common as to be cliché, but Gil Hyatt recently discovered that California's state taxing authorities can be even nastier. On April 22, the Supreme Court rewarded his persistence, unanimously declaring that his lawsuit against California for harassment, trespassing, extortion, and violation of privacy could move forward. This was good news, of course, for Hyatt, but it was also very good news for Californians, who will now get to see clearly how state employees are using state power to harass, intimidate, and abuse the very taxpayers they are sworn to protect and who just happen to pay their salaries.

The Court's involvement came about because of California's obscenely high income taxes. Gil Hyatt, a wealthy and successful inventor-entrepreneur, felt forced to leave high-income-tax California for no-income-tax Nevada. Rather than confront the reality that California's taxes were driving away the state's tax base, California proceeded to assert that Hyatt never left.

The Supreme Court said that the state of Nevada was not required under Article IV of the Constitution to give full faith and credit to California's law providing broad legal immunity to its state taxing authority, the California Franchise Tax Board. Ordinarily, such legal gobbledygook would be of interest only to scholars of constitutional law, but the practical consequences could be much more important. According to U.S. Congressman Christopher Cox (R., CA), California "lost this case on the law. If there is any justice, Mr. Hyatt will win his lawsuit on both the law and the merits." Indeed, the lawsuit which will now go forward against the Franchise Tax Board could shed light on unseemly and extortionate practices by California's taxing authority that are driving law-abiding taxpayers out of the state.

From the beginning, California had fought to prevent the hearing of Hyatt's claims of abuse and urged every level of Nevada's court system to dismiss his case, claiming that California state law reigned supreme over a Nevada resident — law that would provide full immunity to the Franchise Tax Board for even the most heinous of actions.

Governor Davis's loss at the hands of the Supreme Court reflects his administration's warped commitment to wasteful spending and unremitting tax increases. The Supreme Court's decision signals a triumph for California taxpayers over the tax-grabbing hallucinations of the Governor and his compatriot, Attorney General Bill Lockyer.

Even as California faces a budgetary shortfall of up to $40 billion through the next fiscal year, Governor Davis used scarce California taxpayer funds to hound and prosecute residents of other states. Franchise Tax Board agents went so far as to travel to Nevada to rummage through Gil Hyatt's garbage.

Most troubling amongst the actions of the Franchise Tax Board were the collection of harmful statements from third parties about Hyatt's personal life and subsequent threats to publish them in court documents in order to extort a settlement. As the proverbial straw that broke the camel's back, the Franchise Tax Board's decision to publish Hyatt's home address and Social Security number confirmed his worst fears about government meddling and waste.

The Franchise Tax Board's treatment of Gil Hyatt is only the most recent example of the Davis administration's ongoing mismanagement of state resources, reflected in the form of mounting budget deficits and endless tax increases. Echoing Governor Davis's calamitous handling of the California electricity crisis, the Franchise Tax Board pursued every opportunity to avoid Hyatt's legitimate complaints. Fortunately, while Californians still suffer the effects of Davis's disastrous energy policies, taxpayers have received a reprieve from the Supreme Court, stopping the Franchise Tax Board's tort shenanigans.

Of course, these shenanigans don't come cheap. In a time of budgetary crisis, Governor Davis has wasted millions of taxpayer dollars on failed litigation adventures in other states. According to Grover Norquist, president of Americans for Tax Reform, "Instead of providing a more favorable business climate," Governor Davis instead used his powers "to try to intimidate former residents into paying large tax settlements that are no longer owed to California."

Despite the malfeasance of government bureaucrats, it is a healthy sign for our democracy that an individual taxpayer can fight to level the playing field between taxpayers and taxing authorities. Whatever happens to Gov. Davis, now that the Supreme Court has ruled that Hyatt's suit against the Franchise Tax Board can move forward, California taxpayers can hope that the merits of their arguments, rather than the threat of endless lawsuits, will win the day.

— Iain Murray is a senior fellow at the Competitive Enterprise Institute in Washington D.C.

[Lancey Howard]

Franchise Tax Board agents went so far as to travel to Nevada to rummage through Gil Hyatt's garbage. Most troubling amongst the actions of the Franchise Tax Board were the collection of harmful statements from third parties about Hyatt's personal life and subsequent threats to publish them in court documents in order to extort a settlement. As the proverbial straw that broke the camel's back, the Franchise Tax Board's decision to publish Hyatt's home address and Social Security number confirmed his worst fears about government meddling and waste.

It is no wonder that California's political class wants more gun confiscation.

By the way, this ruling came down from the United States Supreme Court, right? I cannot imagine that the pathetic mice on the California Supreme Court would buck their political masters.

[thegreatbeast]

Gray Davis, always plumbing new lows.

[Support Free Republic]

A Recall AND a Fundraiser? I'm toast.

Let's get this over with FAST. Please contribute!

[Husker24]

California is behaving like a third world Socialist dictatorship.

[microgood]

Unbelievable. This remnds me of them trying to collect taxes from I think it was state employess that moved out of state when they retired as if they still lived in the state. They have a long tradition of this criminal activity.

[Swordmaker]

A Solid Victory Against Tax Tyranny

By Jon Coupal

Americans love an underdog. Indeed, the birth of America was the quintessential David v. Goliath story: Thirteen ragtag colonies taking on the most powerful nation on the planet.

Chalk another one up for the little guy. Last week, the U.S. Supreme Court, in a 9-0 decision, ruled in favor of a high tech entrepreneur over California's dreaded tax agency, the Franchise Tax Board. In addition to being a great victory for taxpayers, the case also reveals the stupidity of California in the conduct of its fiscal affairs.

The Franchise Tax Board (FTB) declared war on Gil Hyatt back in 1991. This business savvy inventor had lived in California but had moved to Nevada -- in part because of California's onerous tax burdens and general anti-business policies. While in Nevada, his business became very successful.

Nonetheless, California's FTB (the agency that makes the IRS look compassionate) reached out across its borders to "touch" Mr. Hyatt claiming a huge percentage of his wealth. But Hyatt fought back and the underlying dispute regarding Hyatt's tax liability, if any, continues to this day in a Sacramento County Superior Court courtroom.

However, the Supreme Court decision was not about FTB's right to seize Hyatt's tax dollars. Rather, the case before the high court involved the extraordinary tactics by FTB's relentless harassment of a taxpayer. In pursuit of its claim, the FTB sent its auditors to Nevada to "investigate" Mr. Hyatt. There, according to a lawsuit filed by Hyatt in Nevada state court, the auditors engaged in outrageous behavior including trespassing on his property, rummaging through his trash and mail, giving the address of his business facilities (which he had strived to keep confidential) to Hyatt's competitors, and damaging his reputation.

Amazingly, FTB's position in the lawsuit was the Nevada courts were bound to grant immunity to California tax auditors for torts committed in Nevada because California itself granted the immunity to those auditors. In other words, FTB wanted its auditors to be exempt from prosecution for activity that everyone knows is illegal. But how far could FTB go?

The Justices of the Supreme Court asked this very question. Chief Justice William Rehnquist asked California's Deputy Attorney General defending the FTB, "You're not saying that it's all right if somebody came over to Las Vegas from California and beat somebody up just because they didn't pay their taxes, are you?" But FTB was forced to admit that that was precisely its view. Justice Souter, in exasperation asked, "What if California allowed the use of thumb screws in tax collection authority when its agents were in Nevada?" Again, FTB's lawyer equivocated.

It is no surprise then that the United States Supreme Court ruled unanimously in favor of Hyatt. The very notion that one state had to recognize the immunity that another grants to its agents for intentional torts is offensive. The ruling by the Supreme Court now means that Hyatt can continue his Nevada lawsuit seeking damages from the FTB for the outrageous conduct of its agents. (It is strangely
satisfying to speculate what a jury in Las Vegas would have to say about FTB's conduct).

Gil Hyatt's ongoing battle with FTB holds many lessons for us all. Painfully obvious is the first lesson: California is a state that is out of control in way it treats taxpayers of all stripes: From a hostile business climate, crushing tax burdens, absurd workers compensation system and Byzantine regulatory mazes, it abuses the productive segments of society as a matter of course. We can now add to these abuses the manner in which it treats taxpayers (the ones
paying the bills) in the audit process. Its mindless tyranny will cause more to flee the state precisely at the time when California should be bending over backwards to attract innovative individuals who create jobs and pay taxes.

Second, despite the gauntlet he has been forced to run, Hyatt shows that one person's courage can further the cause of freedom.

Third, Hyatt's case calls for a review of whether California should continue to grant tax auditors immunity. After all, there are millions of taxpayers still living in California (who haven't left yet) and shouldn't we be protected against these sorts of abuses? Indeed, yes, and Assemblyman John Campbell is pushing for such legislation.

Fourth, and more as a footnote, it is amazing to witness the obsession with which the state's tax officials have persecuted Mr. Hyatt. Is this dispute really about collecting needed tax revenue? Not likely. Not when one considers that California has spent $3 million paying private attorneys in Nevada to fight Hyatt. From the taxpayers' perspective, this is adding insult to injury.

Taxpayers and lovers of liberty have their work cut out for them in the (used-to-be) Golden State. However, for the moment, we can savor an important victory by a courageous individual.

Jon Coupal is an attorney and president of the Howard Jarvis Taxpayers
Association -- California's largest taxpayer organization with offices in Los Angeles and Sacramento.

To download and/or print a PDF version of this commentary, click here.

Permission to reproduce this commentary in any format -- print or electronic -- is hereby granted.

[Swordmaker]

Here is an excellent analysis of the case from a pre-decision source that also includes some of facts surrounding California's attempt to tax Hyatt as though he were still living in Kalifornia.

Discussion

It's a long read but worthwhile.

[microgood]

intentional torts

Good post. Thanks. I was just wondering what this meant. It seems key to the ruling.

[SAJ]

My sympathies to you, for apparently having expected some other sort of behavior.

The only remaining question is whether or not we citizens of other states will have our effort, earnings, and wealth confiscated by the Feds, in order that they may FOR A TIME feed the gaping socialist maw in Calbania.

There are still great numbers of perfectly honest American citizens in that state, and I wish them nothing but good. But, wishing against, in the face of fact, is a losing game.

[Lancey Howard]

Thanks for posting that excellent commentary by Jon Coupal, and God Bless the Howard Jarvis people. When the last remnant of Kalifornia goes swirling down the liberal toilet forever and all the working, traditional American families have (hopefully) escaped, I hope the Howard Jarvis Taxpayers Association will relocate to someplace where there may still be hope. Like Pennsylvania. Please hurry - - the liberal cancer which has doomed Kalifornia and New Jersey is spreading fast!

[Lancey Howard]

There are still great numbers of perfectly honest American citizens in that state, and I wish them nothing but good. But, wishing against, in the face of fact, is a losing game.

Yes, picking up your roots and moving can be a traumatic experience for many people. However, it is better than being the last white farmer in Zimbabwe. Those "perfectly honest American citizens" who, against all reason, still remain in Kalifornia had better think about fleeing. Time is running out.

[JackelopeBreeder]

Damn. I'm beginning to think someone needs to drop a couple of very big nukes in the San Andreas Fault.

[Swordmaker]

Good post. Thanks. I was just wondering what this meant. It seems key to the ruling.

Intentional torts mean the deliberate infliction of an injury, whether physical or legal, on another party.

In this instance, the Franchise Tax Board agents violated Hyatt's privacy, civil rights, and attempted extortion. Under California law, these agents have TOTAL immunity from un-intentional AND intentional offenses of this nature. Nevada law only protects such agents from UNintentional offenses. If they intended to commit them, they are on their own.

[Richard-SIA]

This sort of confiscatory tax abuse is nothing new for Kali.

For several decades they continued to tax the income of retiree's who left the state, but who's retirement originated in Kali. They called it a "Source Tax".

It took and act of congress to put an end to it, an effort begun and pursued for several years by former congresswoman Barbara Vucanovich (R-NV.).

Of course, after she retired senator Harry Reid (D-NV.) claimed all the credit for himself.

Unfortunatly I do not think anyone ever got any money refunded from Kali., but I could be wrong.

Kali. continues to pass laws they claim extend beyond their borders, or even the grave!
Just look at some details of their AW ban for examples.

If you visit Nevada you will see signs and bumber stickers that read, "Please do not quote California laws or ordinances in this office (premises, store, etc.), you are now in NEVADA, California law does not apply here!"

The principle is pretty well established, on Kali. Gov. Org. cannot understand it.

[jetson]

San Francisco is actually loosing population. Very bad sign for California. Thanks Gray.

[slasher82]

NO, Bad for the rest of the U.S. Question #1 How do we keep Californians in California? OR #2 Is it possible to build a bridge from there to Iraq?

[squidly]

California.
The poster child for what happens when liberals take over. Don't let it happen to your city/state/nation.

[goldstategop]

Gil Hyatt needs to leave Nevada. The state's RINO Governor Kenny Guinn AKA Nevada's Gray Davis, got his massive tax increases rammed through with the help of the SCON Seven. His troubles are from over.

[jetson]

Good point. Calif has some of the stupidest elitests' in the world. I think all of the health food has pickled the logical brain centers.