
Where did wealthy inventor live in 1991? California’s taxman wants to know - HoppedUpMenace
http://www.sacbee.com/news/politics-government/the-state-worker/article169818567.html
======
rayiner
California is in the wrong here: [https://www.pillsburylaw.com/en/news-and-
insights/hyatt-to-m...](https://www.pillsburylaw.com/en/news-and-
insights/hyatt-to-make-second-trip-to-the-united-states-supreme-court.html).

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.

~~~
berberous
While I don't condone the abusive investigation, I will say that plenty of
people do pretend to move in order to avoid income tax liability. I don't
think the items you listed, like renting an apartment or obtaining a driver's
license, are dispositive. Presumably (but maybe not?), the record also had
evidence suggesting he still maintained California residence.

~~~
rayiner
The legal test for changing residency imposes a very low threshold: you move
to a new state with intent to remain there.

~~~
berberous
Yes, and my point is that a very wealthy person could easily rent an apartment
in Nevada, obtain a Nevada driver’s license, open a Nevada bank account,
register to vote in Nevada, obtain a Nevada automobile and renter’s insurance,
join a Nevada synagogue, and sell one of his many homes prior to the date of
his asserted residency change, but do all of the above with a simple intent to
defraud the taxman, have no real desire or intent to actually live or spend
time in Nevada for any substantial length of time, and just live at one's
various other homes while going to Vegas occasionally to gamble.

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.

~~~
btilly
In fact all of this is less work for the very wealthy than you might think. Do
you remember John McCain being asked in 2008 how many houses he owned and not
knowing the answer? I know people like that.

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.

~~~
Simon_says
Yea, but the rental income from houses in California are taxable by the
California FTB. That's a reasonable compromise. What's less clearly reasonable
is whether a California resident should pay CA taxes on a rental house in,
say, Guatemala, but that's also the CA FTB's position.

~~~
btilly
Those aren't rental houses, though she does let family/friends stay
sometimes... :-)

------
tlb
The money in question was royalties on a patent (eventually invalidated)
covering the idea of a microcontroller (CPU, memory, and communication on one
chip). It was a 20 year submarine patent: issued in 1990 but with priority
date 1970. It almost certainly could not have been built with 1970s
lithography.

[https://www.google.com/patents/US4942516](https://www.google.com/patents/US4942516)

~~~
winter_blue
How is the priority date so old? Did he invent this in 1970? Does the USPTO
allow you to put in anything you want as the priority date?

~~~
URSpider94
Prior to 1995, the term for patents in the USA was 17 years from the issue
date - and patents were not published until they issued. It was possible,
through legal maneuvering, to prevent the issuance of a patent for a long time
- in some cases decades, while the underlying markets grew and matured.

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.

------
whack
> _" If the state wins, Hyatt would be on the hook for at least $13.3 million
> in taxes and penalties from 1991 and 1992. At past court appearances, the
> state has argued that Hyatt owes more than $55 million when interest is
> tacked on to those initial charges."_

> _" 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...](http://www.huffingtonpost.com/2011/04/28/irs-budget-cuts-
deficit_n_850243.html)

~~~
slededit
To enforce the law? If we only enforced laws when economical to do so we'd
leave most unsolved.

~~~
thaumasiotes
We _do_ leave most laws unenforced. If laws had to be enforced, almost all of
them would quickly be thrown out.

~~~
valuearb
If all laws had to be enforced, most of the country would be in jail.

~~~
utternerd
For as little as clearing your browsing history[0].

[https://www.techdirt.com/articles/20150606/16191831259/accor...](https://www.techdirt.com/articles/20150606/16191831259/according-
to-government-clearing-your-browser-history-is-felony.shtml)

------
Arainach
>"“The ability to take this to a group of unbiased elected officials is better
than taking it to a group of state employees who in the long run benefit from
a decision for the state,” Runner said."

Unbiased elected officials is an oxymoron.

~~~
9935c101ab17a66
I thought that was quite funny. For anyone to even pretend they don't have a
bias is mind-boggling.

------
valuearb
Another example of tax arbitrage. I have a friend in Portland, Oregon who owns
a multimillion dollar business and lives 20 miles away from Vancouver,
Washington. Oregon's top income tax bracket is 11%, Washington has no income
tax. When it comes time to sell his business, by moving to Vancouver for a
year he can increase his net worth by a half million or more and his income
for the rest of his live by over 12% a year.

~~~
gt2
1\. Why wouldn't he go ahead and move there now to save on his presumedly
decently sized income along the way?

2\. Anyone know if that kind of 'tax arbitrage' often challenged from states
that see people move away just before a major event?

~~~
valuearb
Portland is much nicer place to life than Vancouver. And the business is
located in Portland, so profits are still subject to OR taxes.

------
kevin_thibedeau
> Hyatt would be on the hook for at least $13.3 million in taxes and penalties
> from 1991 and 1992. At past court appearances, the state has argued that
> Hyatt owes more than $55 million when interest is tacked on to those initial
> charges.

That's a pretty sweet interest rate they've given themselves. Wish I could get
that from my bank.

~~~
Simon_says
Well, the interest rate has to be substantially higher than the risk-free
rate, otherwise you're incentivizing late payments. 6% is a little on the high
side, but not unreasonable IMO.

~~~
ckinnan
Actually that is a low rate for the 1990s

~~~
Simon_says
Good point.

------
pcunite
VB has a perspective on this:

[https://venturebeat.com/2014/04/01/gil-hyatt-has-
waited-40-y...](https://venturebeat.com/2014/04/01/gil-hyatt-has-
waited-40-years-for-the-patent-office-to-rule-on-his-inventions-interview/)

------
pcunite
The actual evidence against the man has been lost, so claimed by this man. Go
to about 14 minutes in.

[https://youtu.be/FcYbMrS4cVg](https://youtu.be/FcYbMrS4cVg)

------
ams6110
No statute of limitations on tax collections in CA?

------
Lyle-Cantor
Patent troll vs the government that enforces patent law, no matter who wins we
lose.

~~~
jacquesm
That is incorrect. If the tax man wins _everybody_ wins.

People downvoting this are cordially encouraged to have a look at countries
that have no taxes.

~~~
JBReefer
I never understood that - why do people brag about cheating the tax man? I
have to make up the difference, in either (very slightly) reduced services or
higher taxes.

It always struck me as odd.

~~~
Dirlewanger
Because it's a "fuck you" to The Man™. A marginal several thousand or whatever
is probably a fraction of the amount that's lost daily across the federal
government due to negligence.

~~~
jjawssd
Is it just negligence or is there more to it than that?

------
nunez
What I've realized throughout the last few years is that there are wealthy
investors EVERYWHERE within the US and SV is kind of overhyped.

~~~
leggomylibro
SV just has the investors who will listen to promises of N-million% growth;
investors exist all over the country, but the prevailing risk/rewards seems to
have made that uniquely SV attitude the only one where actually investing
makes sense.

"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!

------
steffengm
Let's hope he pays up because California could use the money for
infrastructure and environmental remediations.

~~~
dawnerd
That money is a drop in the bucket. At best it would pay for one traffic
intersection.

~~~
astrodust
$50,000 doesn't even get you a stop light installed. This isn't the 1940s
where hundreds of dollars could buy something meaningful.

~~~
dawnerd
Whoops, didn't see that the cap was on what the state would owe, not what he
would owe.

------
jlebrech
where someone lives should have no bearing, for example if you work for an
employer the state where you turn up to work should receive taxes, and if
you're an inventor the state where the patent office resides should get to
money.

this would solve a lot of cases.

and if you live somewhere you also pay property taxes.

~~~
briandear
And I work remotely. I rarely step foot in California, yet I should pay for
California’s roads, schools, welfare programs, police, fire? The company for
which I work already pays massive corporate taxes to the state so their
“impact” and consumption of government is more than paid for.

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.

