Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...
The California Franchise Tax Board is trying one more time to end microchip inventor Gilbert P. Hyatt’s Nevada lawsuit against the tax agency stemming from a 25-year-old residency dispute.
California is asking the U.S. Supreme Court to revisit its 4-4 split in April 2016 on the question of whether Nevada has jurisdiction over lawsuits brought in its courts against other states. Because the Supreme Court justices split on the issue, a lower court ruling allowing such lawsuits stood.
Now that the Supreme Court has nine justices—with Justice Neil Gorsuch joining the bench after Justice Antonin Scalia’s death in February 2016—the state tax agency is seeking a majority opinion to overturn the court’s own 1979 ruling in Nevada v. Hall that allows one state to be sued in the court of another. California wants Hyatt’s case against the FTB in Nevada dismissed, arguing that all states should be immune from such actions.
“The State of California has been subjected to an astonishing intrusion on its dignity by being forced to defend the conduct of a core sovereign activity—its assessment of state taxes—in the courts of another State,” the FTB said in its petition for review filed March 12. “Other states should not be put to the burdens the FTB has faced here—two decades of litigation and the need to fight off a verdict in the hundreds of millions of dollars—before the Court has another chance to decide the question presented.”
Hyatt’s response to the petition is due April 13.
If the Supreme Court agrees to review the case, it would be the third time that Hyatt’s marathon fight with the FTB reaches the justices. Hyatt sued the FTB in Nevada in 1998, claiming the tax agency violated his privacy and abused its authority during audits into his residency. A 2008 trial court award of $490 million for fraud, invasion of privacy, emotional distress, and punitive damages was thrown out in various stages. Most recently, in December 2017 the Nevada Supreme Court capped Hyatt’s damages at $50,000 following the U.S. Supreme Court’s 2016 ruling to set aside punitive damages exceeding the state’s own cap of the same amount.
Although the Supreme Court set aside the damages in a 6-2 ruling, the justices split on the question of whether to overturn Nevada v. Hall and block one state from being hauled into another state’s court.
Given the Nevada Supreme Court’s judgment, a lower Nevada trial court only needs to enter a final judgment against the FTB, determine which party is the prevailing party, and entertain requests for costs and attorney’s fees, according to the FTB’s petition for review.
So that if the Supreme Court recognizes the FTB’s claim of sovereign immunity, the case finally will be dismissed, according to the FTB.
“If the U.S. Supreme Court were to overturn Nevada v. Hall, that would likely be the end of the litigation in Nevada,” an FTB spokesman told Bloomberg Tax March 19.
Citing the Federalist Papers, the Eleventh Amendment to the U.S. Constitution, and court rulings from 1781 and 1793, the FTB said Nevada v. Hall “stands in sharp conflict with the Founding-era understanding of state sovereign immunity.” Supreme Court rulings since the 1979 ruling also repudiate the holding in that case, the FTB said.
The saga of the Nevada case is one of several lawsuits, appeals, and jury verdicts that have produced a mixed bag of rulings for both sides stemming from FTB’s claims that Hyatt was a resident in California, not Nevada, when he earned $80 million in patent licensing agreements on computer chips invented in 1991 and 1992. The FTB has appealed its administrative loss before the State Board of Equalization on its residency claims in August 2017 to the new California Office of Tax Appeals.
In another venue, a federal appellate court in California said in September 2015 that Hyatt couldn’t claim he’s been denied a “plain speedy and efficient” remedy if he didn’t exhaust his administrative options by taking his underlying tax appeal before the SBOE. Hyatt also filed suit in New York along the way in an attempt to block subpoenas the FTB issued to obtain licensing records tied to U.S. Philips Corp.
The case is Cal. Franchise Tax Board v. Hyatt , U.S., 17-1299, petition for review filed 3/12/18 .
To contact the reporter on this story: Laura Mahoney in Sacramento, Calif., at firstname.lastname@example.org
To contact the editor responsible for this story: Ryan C. Tuck at email@example.com
Copyright © 2018 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)