I have
stumbled into our next story of outrageous state tax behavior.
I was
skimming (quickly, trust me) the Supreme Court decision in Franchise Tax Board v Hyatt.
It involves a resident of Nevada who sued California. California invoked
sovereign immunity, a legal doctrine arising from the era of royalty and
asserting that the king can do no wrong and is therefore immune from legal
action.
Handy, if
you are the king … or any of
California’s countless government agencies.
This case
goes back a long way. Gilbert Hyatt moved from California to Nevada in the
early 1990s. More specifically, he said he moved in September, 1991. California
says he moved in April, 1992.
COMMENT: Sounds like a “poe-tae-toe” versus “poe-taw-toe”
moment, on first impression.
California
said this meant he owed the state $10 million in taxes, interest and penalties
from patent income.
COMMENT: Of course.
Problem is
that the California Franchise Tax Board took some … questionable steps in developing
their case against Hyatt:
·
They
went through his mail
·
They
rifled through his garbage
·
They
contacted third parties, including estranged family and people who did not have
his best interests at heart
He brought
suit … in Nevada courts. There was a previous Supreme Court decision (Nevada v Hall) that allowed a private citizen to bring legal action against a second state, without the second state's consent.
The jury verdict
was almost $500 million in damages and fees.
Then
California appealed, arguing that Nevada's law limited damages in similar suits against its own agencies to $50,000.
California
got the Nevada Supreme Court to reduce the verdict to $1 million. The Court reasoned that California went a bit further than Nevada would allow, so the $50,000 cap did not apply.
COMMENT: Folks, we need our own state. We could do whatever
we want and then hide behind sovereign immunity, hakuna matata or whatever
other multi-syllabic nonsense springs to mind.
California
was still not happy, arguing that Nevada was exhibiting a “policy of
hostility.”
California
appealed to the U.S. Supreme Court, arguing that the Full Faith and Credit Clause of the Constitution applied. The Supreme Court agreed, using words such as "comity" to reduce the damages to $50,000.
My thoughts?
I allow that
there may have been a legitimate disagreement at the very beginning of this
whole matter. Let’s say that you move most, but not all, of your possessions to
another state. You leave some furniture there, as the realtor said that it
would help to show and sell the house. You then have a California tell you that
you had not really moved until the last chair and framed art had left the
state. What are you going to do: sue? You are not moving back to California
just to sue. That means that you are suing from another state and California is
going to invoke the doctrine of the king’s pantaloons or whatever.
Still,
doesn’t it feel … wrong … to have California going through your mail and trash, peering through your windows and contacting estranged relatives? This is behavior beyond the pale. We are not talking about homeland security, where some
argument might possibly be made to excuse the king’s overreach.
We are
only talking about taxes.
