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.
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.
That was the terrible calculus of submarine patents [0]. Submit a broad patent application today for something conceptually simple that's not currently possible (so nobody has bothered to patent it). File continuations and extensions for years until it is possible and people start doing it. Get patent with early priority date. Profit.
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.
Textbook example of why we need to have a flat tax or a fair tax / federal sales tax. It's way more difficult to game, if the tax code for individuals could fit into a few short pages...
>"“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."
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!
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.
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.
Presumably because you don't think those services are worth it or that the money is intelligently spent.
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. ;)
America does not spend it's taxes wisely. You can live in Canada for a similar tax load as a lot of people in California, yet not have universal healthcare, drive on roads that are in horrible conditions, deal with a horrible DMV, see a lot of obviously mentally ill people not being taken care of and live in unsafe conditions with a lot of bad school systems. There are also a lot of tax rules that are not nice to deal with that you don't have to deal with in Canada.
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.
I respect you greatly. I fear you do not understand the United States government very well. Would you tell me why the USA needs more in taxes and where it excels in using those taxes?
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.
> negotiated rate is less than the average private insurer for any given procedure, which is pretty impressive
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.
> People downvoting this are cordially encouraged to have a look at countries that have no taxes.
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.
Switzerland is doing pretty good. It is the only country where I know the citizens say we have decided instead of the government has decided. Oh, and they do pay taxes.
I never understand how people point to existing systems that are working for a country, and then make the (valid) point that the success of those policies can't necessarily be extrapolated to another country, but then (invalidly) believe that is a suficient statement to end the conversation.
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.
Switzerland sustains itself with a huge influx of foreign money by adopting policies attractive to the wealthy. That strategy can't be pursued by every nation on the planet.
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.
You understand that I wasn't taking issue with the taxation point, right? Just that there is a possibility that this is a case of egregious government abuse of power, not a case of dodging taxes, therefore utilizing an argument based on the idea of no taxation was missing the point.
If the tax man wins at taxing someone outside one's actual jurisdiction, everybody loses.
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.
> "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.
I think that would set a terrible precedent that your tax obligation is equal to your legal team costs to drown the government in paperwork or actual tax liability, which ever is lower.
Same reason a grocery store will spend $100 to catch and prosecute a shoplifter for taking a $2 candy bar. It's more expensive if they don't go after tax cheats.
(I'm not making a judgement on this specific case, but rather the idea of spending more money than you will recover in general)
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.
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.
NYC doesn't even care if you live there. If you visit NYC for work more than a min amount (say for meetings or to play in a professional sports game), you're on the hook for taxes.
No, you don't need to "unestablish" residence in your prior state. If I move from Virginia to Maryland on January 1, and I really intend to stay in Maryland, I'm a Maryland resident, and only a Maryland resident, starting January 1.
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.
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.
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.
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.
There is no dispute that Hyatt actually moved to Nevada, and did not, for example, spend most of his time in California after purportedly moving. (If he did, California could just have taxed him based on his presence in the state for more than 183 days a year.)
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.
>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.
So? And why should they be punished for it? Registration should be all that matters.
We don't allow individuals to choose a flag of convenience.
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.
>Otherwise, every December 31, every Wall St banker would change residence to New Hampshire to avoid bonus taxation.
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.
Perhaps not dispositive, but without evidence otherwise, FTB’s belief is not sufficient to convinct. It’s always possible that your fellow citizens are crooked assholes. But evidence should always be required to get a punitive conviction.
California may or may not be in the wrong here; I don't know, but I don't think there's enough information in the original article or the one you link to make that determination.
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.
OK, good points, but I can't see anywhere how many days out of the years 1991 and 1992 Hyatt spent in California vs Nevada. I'm sure it's been discussed by lawyers somewhere, but that information is just not in the articles.
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.
> 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.
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.
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.
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.
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[ 2.4 ms ] story [ 76.4 ms ] threadhttps://www.google.com/patents/US4942516
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.
[0] https://en.wikipedia.org/wiki/Submarine_patent
Unbiased elected officials is an oxymoron.
"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!
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...
If I was looking for a place to live, it would be high on my list.
I love they are tying fees/fines to income level too. Something, l feel, that the US should give a shot?
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.
> "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)
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.
https://youtu.be/FcYbMrS4cVg
https://venturebeat.com/2014/04/01/gil-hyatt-has-waited-40-y...
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.
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.