California is making a strong case that its pillage people – tax collectors, that is – are the worst in the nation. Should that be doubted, consider the Golden State’s enduring campaign against inventor Gilbert Hyatt, who in 1990 was awarded the patent for the first single-chip microprocessor.
The computer industry welcomed this invention, earning Hyatt a lot of money. He soon moved to Nevada, which has no state income tax. California’s Franchise Tax Board (FTB) claimed Hyatt lied about his residency, and that he owed $7.4 million in taxes for a six-month period from 1991 to 1992. Over more than 20 years, that sum has ballooned to between $55 million and $60 million.
In Nevada, California’s FTB goons ransacked Hyatt’s trash without warrant, told his business partners and doctors he was under investigation, and shared Hyatt’s personal information with the media. Hyatt sued the agency for harassment and violation of privacy. California tried to get the suit dismissed, but in 2003 the U.S. Supreme Court ruled that Hyatt had a right to go to trial. So he did.
In 2008, a Las Vegas jury awarded him $388 million, including $250 million in punitive damages. California’s tax hacks duly appealed to the Nevada Supreme Court, calling the award “flagrantly excessive” and claiming they did nothing wrong.
In 2014, Nevada’s Supreme Court tossed much of the award, but Hyatt retained the $1.2 million for fraud. He had been awarded $85 million for emotional distress, but the court has ordered a new trial on the amount Hyatt deserves.
Despite the reduction in damages, the verdict was a clear beat-down of California’s Franchise Tax Board. The agency’s response was to continue its legal pursuit of Hyatt, with encouragement from U.S. District Judge Garland Burrell Jr., a George H. W. Bush nominee who questions Hyatt’s motives and would place the burden of proof on the inventor.
Hyatt claims the FTB is contending that he was both a resident of California who owed them taxes, and a nonresident who owed them taxes. Now 76, Hyatt believes California officials are waiting for him to die, believing it would be easier to deal with his heirs.
Former California state senator and assemblyman Bill Leonard has said the FTB action against Hyatt “does amount to a persecution at this point.” Constitutional expert Erwin Chemerinsky of the UC Irvine law school, who is representing Hyatt free of charge, told reporters that “It’s a real injustice” what has happened to the inventor, who has been “denied due process.”
As far as can be discerned, California’s loss in Nevada courts did not prompt the Franchise Tax Board to fire or discipline any managers or employees. Nor has a state senator held public hearings on the Hyatt matter, as happened for the new span of the Bay Bridge after news reports raised concerns about safety problems. Nor has Governor Jerry Brown, an evangelist for the state’s high taxes, made an issue of the tax agency’s zealous persecution of Hyatt.
Taxpayers might conclude that FTB bosses believe they are above the law and unaccountable. The tax collectors have not exactly been transparent about how much money they are spending to pursue Hyatt.
“At some point, you have to wonder whether the costs are justified based on the amounts that taxpayers have laid out,” David Kline of the California Taxpayers Association told reporters. “The FTB has hired outside lawyers in addition to using their own staff resources. It’s a significant cost and it continues to grow.”
Meanwhile, as the Sacramento Bee reported, the attorneys general of 19 other states filed a brief siding with California, claiming the Nevada verdict had a “chilling effect” on tax investigators. Clearly, all states have their pillage people, but those states will be hard pressed to match California for sheer government greed.
Bill Leonard explains that in California, tax collectors “just pick on anyone successful.” Inventors of useful products such as the single-chip microprocessor will find better conditions in other states.
Lloyd Billingsley is a policy fellow with the Independent Institute in Oakland, California, and author of Hollywood Party: Stalinist Adventures in the American Movie Industry.
