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California Wins Tax Battle, But No Taxes

By William Vogeler, Esq. on May 17, 2019

The U.S. Supreme Court gave California the final round in a decades-long tax fight, but it was a muted victory.

In Franchise Tax Board v. Hyatt, California had tried to collect $13.3 million in taxes from a wealthy inventor who had moved to Nevada. Instead, Gilbert Hyatt won a $100,000 lawsuit against the state for pursuing him. The Supreme Court reversed that judgment, but California will get no taxes from the decision. Meanwhile, the 5-4 Supreme Court drew far more interest for its dissenting point of view.

In the law as in life, everything seems to be a matter of perspective.

A Tax Matter

Hyatt moved from California to Nevada just before he cashed in on a lucrative patent. That set off a 26-year tax dispute: California imposes an income tax; Nevada does not; Hyatt said he didn't owe California anything. That's why he sued the Franchise Tax Board in Nevada -- and won. A jury awarded him $490 million, although the award was reduced to $100,000 over the course of appeals. The case plodded on, back and forth, and then up to the Supreme Court for a third time. This last and final time, California won. The Franchise Tax Board has yet to collect taxes from Hyatt, but it won't have to pay him the judgment. In reversing, the majority said "that States retain their sovereign immunity from private suits brought in the courts of other States."

The decision did not sit well with the minority. They said the Supreme Court was overruling its own precedent in Nevada v. Hall. That was the bigger news of the day, especially in the legal community.

Another Matter

Writing for the dissent, Justice Stephen Breyer asked: which cases will the court overrule next? His comments whipped up a legal, political, and social whirlwind of opinions. Mark Joseph Stern, who covers the courts and the law for Slate, said the dissenters are warning that Roe v. Wade is in danger. It wasn't just Breyer's comments about overturning precedent, Stern said.

"And if there were any doubt which cases Breyer was alluding to in this dark denouement, he cited the portion of Planned Parenthood v. Casey that explained why Roe should be upheld," he wrote. "The justice has hoisted a red flag, alerting the country that the court's conservative majority is preparing an assault on the right to abortion access."

That's just an opinion, of course, like Nevada v. Hall. Apparently things change depending on the Supreme Court's perspective, too.

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