Where did wealthy inventor live in 1991? California’s taxman wants to know
sacbee.com
sacbee.com
Basically, California contends that this guy owes taxes for 1991-1992 because was still a California resident at that time, despite extensive evidence he changed his residence to Nevada before the relevant date:
> During the audit, Hyatt provided FTB with evidence that he had rented an apartment in Nevada, obtained a Nevada driver’s license, opened a Nevada bank account, registered to vote in Nevada, obtained Nevada automobile and renter’s insurance, joined a Nevada synagogue, and sold his California home prior to the date of his asserted residency change. Nevertheless, FTB concluded that Hyatt staged the alleged move to Nevada all in an effort to avoid state income tax liability on his patent licensing income.
In the process, the FTB conducted an abusive investigation:
> FTB conducted interviews and collected signed statements from various individuals who were estranged from Hyatt at the time, but ignored witnesses with whom Hyatt had good relations. FTB auditors allegedly rifled through Hyatt’s mail and garbage, and made anti-Semitic remarks in reference to Hyatt.
Hyatt sued the FTB in Nevada courts. The FTB then invoked California law, which provides it immunity from suit. The Nevada Supreme Court held that the FTB could not invoke California immunity from suit in a Nevada court. The U.S. Supreme Court agreed, holding that the FTB was entitled to no more protection than a Nevada State agency would receive in a Nevada court.
Hyatt then won almost $500 million at trial against the FTB on tort and fraud claims.
California appealed, arguing that Hyatt couldn't win a judgment against the FTB in a Nevada court that exceeded what he could win against a Nevada agency ($50,000). In a real "live by the sword, die by the sword" ruling, the U.S. Supreme Court agreed, knocking his judgment down to $50,000.
Multiple residency is a thing. As far as CA is concerned if you live there for some of the year, you are taxed.
Multiple residency is a thing, but it has to be based on actual presence in the other state. California isn't asserting that after moving to Nevada, Hyatt then spent more than 183 days in California over the next year.
Note that I have zero knowledge of the particular individual in question, so I take no position as to whether or not the above is true in this particular instance. I am just asserting that the taxman looks into this because it does happen. People see the simple legal test, and try to back-out some evidence that they think will satisfy the IRS or similar authorities.
In fact I know a woman who travels around the world, owns multiple properties in multiple US states, and also manages to keep up official Canadian residency. I've been to three of her houses in the Los Angeles area, but I'd bet that she isn't considered a resident of California for tax purposes.
I have an acquaintance who keeps detailed records of his physical presence on a daily basis due to audit issues with state tax authorities.
What's in dispute is when Hyatt decided to do that, in late 1991 or mid 1992. California is saying "yes, you did those things, but you didn't really mean to move until 9 months later." The problem with California's position is that it's totally legal to decide "hey, I'm going to make a bunch of royalties soon, and I don't want to pay California a dime more than I have to, so I'm moving to Nevada." If you have the intent, you're a resident of the new state on day 1. There is no probation period to show you really mean it.
So? And why should they be punished for it? Registration should be all that matters.
Otherwise, every December 31, every Wall St banker would change residence to New Hampshire to avoid bonus taxation.
On the flip side, you probably don't want insurance companies to decide that your winter home in South Carolina is your bona fide residence based on where your car is insured. States like NY, CA and MA generally have consumer rights that are better for the individual.
Don't allow them to change residence when they don't live there then.
It should not have anything to do with the tax department as soon as you're are registered as resident somewhere, nor should the tax department care about your whereabouts.
State residency is a complicated topic with no "bright line" rules that will definitively decide the issue, but California residency has a set of guidelines called the Bragg Factors that courts use in a "totality of circumstances" sense to determine residency. They are:
1. The location of all of the taxpayer’s residential real property and the approximate sizes and values of each of the residences;
2. The state wherein the taxpayer’s spouse and children reside;
3. The state wherein the taxpayer’s children attend school;
4. The state wherein the taxpayer claims the homeowner’s property tax exemption on a residence;
5. The taxpayer’s telephone records (i.e.1, the origination point of taxpayer’s telephone calls);
6. The number of days the taxpayer spends in California versus the number of days the taxpayer spends in other states and the general purpose of such days (i.e., vacation, business, etc.);
7. The location where the taxpayer files his tax returns, both federal and state, and the state of residence claimed by the taxpayer on such returns;
8. The location of the taxpayer’s bank and savings accounts;
9. The origination point of the taxpayer’s checking account transactions and credit card transactions;
10. The state wherein the taxpayer maintains memberships in social, religious and professional organizations;
11. The state wherein the taxpayer registers his automobiles;
12. The state wherein the taxpayer maintains a driver’s license;
13. The state wherein the taxpayer maintains voter registration and the taxpayer’s voting participation history;
14. The state wherein the taxpayer obtains professional services, such as doctors, dentists, accountants and attorneys;
15. The state wherein the taxpayer is employed;
16. The state wherein the taxpayer maintains or owns business interests;
17. The state wherein the taxpayer holds a professional license or licenses;
18. The state wherein the taxpayer owns investment real property; and
19. The indications in affidavits from various individuals discussing the taxpayer’s residency.
Presumably all of these issues have been hashed out and documented in court.
> The term “resident” includes individuals in this state for other than a temporary or transitory purpose, and individuals domiciled in this state who are outside the state for a temporary or transitory purpose. (Rev. & Tax. Code, § 17014, subds. (a)(1) & (a)(2).) The primary consideration under either facet of the definition is whether or not the individual is present in California or absent from California for a temporary or transitory purpose.
By selling his house renting an apartment in Nevada, it's pretty clear he at least changed is domicile to Nevada, if not his residency. But if he didn't have substantial presence in California either, then it's pretty clear he doesn't fall under the definition of "resident" at all, even without getting into the fact-specific inquiry.
The lack of domicile or actual presence is important. As Bragg states:
> The purpose of the residency statute is to insure that all individuals who are in California for other than a temporary or transitory purpose enjoying the benefits and protection of the state should in return contribute to its support
States can tax people who avail themselves of the benefits of living in, or at least spending large amounts of time in the state. What California is doing to Hyatt is not that; it's trying to tax someone who used to live in the State.
In my view, applying a fact-specific residency test to someone who is neither domiciled or present in a state creates serious Constitutional concerns. Many of the factors, such as "the taxpayer's voting participation history" or "wherein the taxpayer holds a professional license" or "wherein the taxpayer owns investment real property" are not things that are easily changed in the short term. But it's probably a Constitutional requirement that people be able to change their residency quickly. States cannot impose barriers to the free flow of residents between states. Trying to "hang onto" someone who is trying to leave arguably creates such a barrier.
Post-1995, patent terms in the USA are 20 years from date of filing, and applications are published after 18 months (unless the applicant waives the right to file overseas), which incentivizes companies to get their patents to issue as soon as possible.
Fortunately, the rules were changed in the 1990s to limit extensions. Still, you get 20 years from the initial filing. So if you think something will happen within 20 years but hasn't been explored yet, you too can submit a patent. Enforcing such patents is dirty work, so you basically have to dedicate the rest of your career to rent-seeking.
> "The Franchise Tax Board has already spent $25 million trying to collect the money while defending itself from Hyatt’s lawsuits, department spokesman Jacob Roper said."
Is it just me or do the above numbers sound ridiculous. Why is the govt spending $25M on a case, that if it wins, would result in a $13-55M payout?
Edit: To put the above numbers in context, the IRS recoups about ~$60B in tax enforcement, on a ~$10B budget. That's a 600% return on investment. I would have expected the California state tax enforcers to budget themselves in a similar manner.
http://www.huffingtonpost.com/2011/04/28/irs-budget-cuts-def...
https://www.techdirt.com/articles/20150606/16191831259/accor...
So YOU and me learn. CA will leave no stone unturned to get their money...
(I'm not making a judgement on this specific case, but rather the idea of spending more money than you will recover in general)
Unbiased elected officials is an oxymoron.
2. Anyone know if that kind of 'tax arbitrage' often challenged from states that see people move away just before a major event?
That's a pretty sweet interest rate they've given themselves. Wish I could get that from my bank.
https://venturebeat.com/2014/04/01/gil-hyatt-has-waited-40-y...
People downvoting this are cordially encouraged to have a look at countries that have no taxes.
It always struck me as odd.
Personally, despite being aware of those issues, I take some manner of pride in the fact that I declare my side income properly and pay taxes on it, even when the people who paid me make an explicit point to pay with cash. I do my fair share, and that's why I feel entitled to whine about people doing a shoddy job at managing it. ;)
I think people don't mind taxes nearly as much if they feel like they are getting good value for their money. In the USA, you feel like your just getting shafted by the government half the time. In Canada not so much.
Would you say that legitimately pursuing a law-evader somehow inevitably leads to a police-state?
Medicare is a pretty good example. As best I'm aware, that program's negotiated rate is less than the average private insurer for any given procedure, which is pretty impressive.
Public broadcasting tends to do quite a lot on a continually reduced budget.
There are a number of programs that are generally inefficient, and while I'd very much like to see greater efficiency, I'd also be very much ok seeing those existing programs have more money: education, infrastructure, Medicaid.
And I feel like most people who malign the government's inefficiency have either never been exposed to the inefficiencies in the private sector, or willfully turn a blind eye to those inefficiencies to make a point. In my experience, all large organizations/projects suffer from an incredible amount of waste - the government is just the poor jerk that deals with some of the largest possible organizations/projects and then has publish that inefficiency for everyone to point at and critique.
Not very impressive considering the average prices everybody else pays are artificially inflated by collusion among the medical industry middlemen. That's how we end up with $500 Epipens and then get a "steal" of a discount for only $300.
No one is thinking there should be no taxation, just that there's a sizable chance here that the government is in the wrong. To reverse your argument: please point me to this magical utopia where the government is always right and they never abuse their powers.
Especially because those people often are talking about countries with some form of democratic socialism (where there are a number of strong success cases), and instead frequently put forward libertarianism - which is a completely untested government form in any country.
That is one of the reaons I moved here. Here more about this: "8 reasons why I moved to Switzerland to work in tech" https://medium.com/@iwaninzurich/eight-reasons-why-i-moved-t...
Your inverse isn't correct. The correct inverse would be to look at the countries that do have tax.
Let's look at Guinea
There's the tax information:
http://www.doingbusiness.org/data/exploreeconomies/guinea/pa...
Oh by the way it's the poorest country in the world 2017.
I did take a look at what jacquesm suggested and here is a list of countries that have no income tax.
* United Arab Emirates
* Oman
* Bahrain
* Qatar
* Saudi Arabia
* Kuwait
* Bermuda
* Cayman Islands
* The Bahamas
* Brunei
Now you could argue that the countries are rich countries and the only ones doing well are the native citizens or that two of them are tax havens for the rich. But hey that's not what he said.
And the moral of the story? Unquantified generic statements are usually bad. Don't do it. No matter who you are, don't do it.
He also said "no taxes", not "no income taxes".
I'm probably going to be in a similar fight (albeit with far less money involved) due to me having moved to Nevada from California this year. I'm not looking forward to a Californian tax man trying to wring me for money despite me residing outside of California for the entire time I've been employed this year.
"Hello M. Investor, I would like to start a laser tag place. It will use innovative technologies like drone targets, utilize the cheap real estate and latent suburban customer base of a disused mall, and we think we can conservatively double your investment for the initial capital outlays in ten years."
Well gee, that sounds nice, but this new laser-tag-as-a-service company has promised us enormous user growth and the possibility of a buyout by Facebook in ten years. They say they're looking at more like a 100x rate of return. Next!
this would solve a lot of cases.
and if you live somewhere you also pay property taxes.
When I do travel to California, I already get to pay high hotel taxes, rental car taxes, gas taxes, sales taxes. That covers my “share.”
Really states ought to abolish income taxes; Texas and Washington State and many others seem to be doing just fine. The idea of taxing income is already ridiculous — we should be taxing consumption, but that’s another discussion.