Archive for the ‘Nevada’ Category

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$146.88 Million and Counting

Monday, August 11th, 2008

Back in October 1991 Gilbert Hyatt moved from California to Nevada. California’s Franchise Tax Board didn’t think he did, so they commenced a residency audit. California determined that Mr. Hyatt didn’t establish residency in Nevada until April 1992. Normally, six months wouldn’t be a big deal; however, Mr. Hyatt had invented a microprocessor and received a substantial amount of income during that time period. California assessed $49 million in taxes.

Mr. Hyatt fought the judgment through administrative appeals. He also wasn’t happy about the methods the FTB used to investigate him. Mr. Hyatt filed a lawsuit against the FTB in Nevada, alleging

…that [FTB] directed “numerous and continuous contacts … at Nevada” and committed several torts during the course of the audit, including invasion of privacy, outrageous conduct, abuse of process, fraud, and negligent misrepresentation.

The FTB fought the case, arguing that they were immune from being sued. (As an aside, had the actions that Mr. Hyatt alleged took place in California, the FTB would be immune.) The case went all the way to the US Supreme Court; the Court ruled unanimously that the FTB could be sued in Nevada. The case was remanded back to the Nevada District Court for trial.

The first phase of the trial ended last week, and the FTB suffered a ringing rebuke. According to Bill Leonard’s Leonard Letter, Mr. Hyatt prevailed on every claim and was awarded $137 million in damages plus $1.08 million in legal fees. The jury is now looking at potential punitive damages which could easily be another $400 million or so.

What did the FTB do? From the Leonard Letter:

Tax agents rummaged through his trash without warrants, visited business partners and doctors, and shared his Social Security Number and other personal information with the media. This is outrageous behavior and I call on the FTB to rein in their agents. What really galled me is the FTB testified in open court that this level of harassment was only a typical audit. If true, then the stormtroopers are alive and well at the FTB.

I have little to add to what Mr. Leonard stated. And he should know; Bill Leonard is an elected member of California’s Board of Equalization. The BOE hears administrative appeals on FTB cases after an individual (or organization) exhausts appeals at the FTB.

What’s the cost to California? To date, the FTB has spent $8.8 million fighting Mr. Hyatt. Add the $138.88 million that is now owed to Mr. Hyatt and the total is $146.08 million. If we add another $250 million for punitive damages the total is nearly $400 million. And while Mr. Leonard is hopeful that the FTB won’t appeal the case, I am almost 100% certain that the FTB will appeal. Thus, unless the FTB gets lucky in Nevada this case could easily cost California taxpayers over half a billion dollars.

Welcome to the Bronze Golden State….

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Posted in California, Nevada | Comments Closed

Where did the “Prima Donna” Dock?

Wednesday, June 4th, 2008

If you’ve ever driven from Southern California to Las Vegas, the first exit on Interstate-15 when you cross into Nevada is for Primm, site of three casinos. These casinos used to be owned by the Primm family but were sold to MGM (now MGM/Mirage) in 1998. (I believe that the Primm Casinos were later divested to Herbst Gaming.)

The family patriarch, Gary Primm, bought a yacht, the Prima Donna. It’s a big yacht, 145 feet in length. The yacht is registered in the Cayman Islands and, according to Alexander Druft, attorney for Mr. Primm, was normally docked in Baja California.

The Orange County, California assessor believes that the yacht was docked part of the time during 2002 and 2006 in nearby Newport Beach, and Mr. Primm thus owes the county nearly $380,000 in property taxes (for 2003 and 2007, the years following the dockings). Mr. Primm has appealed the assessor’s office ruling; he previously won an appeal regarding 2006 (based on 2005 dockings).

So is this “harassment” as claimed by Mr. Druft or is Webster Guillory, Orange County Assessor, correct when he states, “If he owns a big boat, even if he lives in Nevada, he’s not docking it there.” Well, I know Mr. Guillory is correct in that an ocean-going vessel isn’t docked in Nevada. Still, given the precarious nature of California’s finances it’s not surprising that the assessor is looking under every rock (or at every dock) to find anything worth taxing.

News Story: Orange County Register

Posted in California, Nevada, Property Taxes | Comments Closed

Democrats Unhappy With Nevada Advertisements

Sunday, March 30th, 2008

Earlier this week I posted an advertisement from the Nevada Development Authority. The Los Angeles Times had an article today noting that Democrats in Sacramento are unhappy with the advertisements that portray California as a tax-happy state. Of course, Democrats in Sacramento are arguing for more taxes.

Somer Hollingsworth, President of the Authority, told the Times, “We can see what is going on in California as far as businesses are concerned…They’ve got workers’ comp issues, a $16.5-billion deficit, employee retirement funds that are out of whack.”

State Senator Mark Ridley-Thomas (D-Los Angeles) told the Times, “Businesses are here because they appreciate the powers of this economy…I suspect Nevada wishes it could be ranked as among one of the top economies in the world.”

Perhaps the Democrats in the Legislature would like to talk with some of my corporate clients who are again contemplating leaving the Bronze Golden State because of high taxes and too many regulations. Maybe Nevada won’t be the destination, but if California tries to close the deficit on the back of businesses other states will benefit. State Senator Ridley-Thomas is naive if he believes that taxes can increase forever without businesses reacting.

Posted in California, Nevada | Comments Closed

Sometimes There Really Is A Free Lunch

Friday, March 28th, 2008

Nevada’s constitution exempts food for human consumption. The Nevada Department of Taxation believed that Use Tax was owed on meals that were given out free of charge (either to employees or as complimentary meals to patrons); the Nugget Hotel in Sparks, Nevada thought that the plain language of the Nevada Constitution exempted such food from tax. The Nevada Supreme Court gave the answer earlier this week.

Use Tax is the equivalent of sales tax on items purchased from out-of-state where no sales tax is charged. For example, if you purchase a book on Amazon.com and are not charged sales tax and live in California, you are supposed to remit Use Tax to the Board of Equalization. The Nevada Department of Taxation believed that there’s no such thing as a free lunch, and that the Nugget owed Use Tax on the free food.

The Nevada Supreme Court disagreed.

“…[T]he Nugget’s initial purchases of unprepared food did not “escape” sales tax liability since Nevada’s constitution exempts such purchases from sales and use taxation. Indeed, Nevada’s constitutionally mandated food exemption applies to all “food for human consumption,” unless that food is “prepared food intended for immediate consumption.” Because the food at issue in this case was not “prepared food intended for immediate consumption” at the time it was purchased by the Nugget, the Nugget’s initial purchase was exempt from sales taxation. Furthermore, the Nugget’s later “use” of that food to prepare complimentary meals was not subject to use taxation since the Nugget’s “use” did not follow an otherwise taxable purchase that had “escaped” sales tax liability.”

So many Nevada casinos may be requesting tax refunds from the Nevada Department of Taxation. Nevada, too, has a state budget crisis. This ruling may exacerbate that a bit, but it does prove that sometimes there really is such a thing as a free lunch.

Hat Tip: TaxProf Blog

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The Nevada Development Authority Strikes Again

Tuesday, March 25th, 2008

With California having a $16 billion deficit, and the Democrats in California’s Legislature saying that the only solution to the problem is to increase taxes, it was only a matter of time until the Nevada Development Authority struck. Here’s their latest print advertisement:

My advice to the Democrats (and Republicans) in the Legislature: Increasing taxes will increase the Nevada Development Authority’s business.

Posted in California, Nevada | Comments Closed

The Gilbert Hyatt Case Inches Forward

Monday, March 3rd, 2008

Remember Gilbert Hyatt? Mr. Hyatt is the inventor who fled the Bronze Golden State seeking lower taxes. He filed a lawsuit against the Franchise Tax Board alleging that the FTB “…directed “numerous and continuous contacts … at Nevada” and committed several torts during the course of the audit, including invasion of privacy, outrageous conduct, abuse of process, fraud, and negligent misrepresentation.” This case was filed in 1998 and will finally go to trial in April.

Why did it take so long? Because the FTB claimed that it was immune from the lawsuit. That issue was litigated up to the US Supreme Court which ruled that the lawsuit could go forward.

We got some more news about the case in a roundabout way. The Las Vegas Review-Journal reported last week that the Clark County District Court is modernizing its computer system so that only sealed information is withheld from online computer records. Previously, if any information was sealed in a case all of the records were sealed. The first case chosen to see the public light was the Gilbert Hyatt case.

Everyone seems to be happy about the additional information becoming available. I am pleased because the Hyatt case is one where the FTB is alleged to have overreached and it will be interesting to see what happens when the case is tried.

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Posted in California, Nevada | Comments Closed

States of Opportunity

Sunday, February 17th, 2008

Last Tuesday, the Wall Street Journal ran an excellent editorial titled “States of Opportunity.”

“But one reason to conclude that taxes are also a motivator is because the eight states without an income tax are stealing talent from other states. They are Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming, and each one gained in net domestic migrants. Each one except Florida — which has sky-high property taxes on new homesteaders — also ranked in the top 12 of destination states.

“Politicians who think taxes don’t matter might want to explain the Dakotas. North Dakota ranked second worst in out-migration last year, while South Dakota ranked in the top 10 as a destination. The two are similar in most regards, with one large difference: North Dakota has an income tax and South Dakota doesn’t.”

The editorial also contrasts California, which has lost 1.5 million residents, with Nevada, which is booming. Perhaps our legislature will begin to think logically about this and start cutting taxes. And maybe pigs will fly….

Posted in California, Nevada | Comments Closed

Why California Businesses Keep Moving to Nevada

Thursday, October 11th, 2007

In news that won’t shock anyone who does business in California, the Bronze Golden State now ranks 47th out of 50 states in a business tax climate survey done by the Tax Foundation. Meanwhile, Nevada ranks 3rd in the Nation. I have a feeling this news will soon be on the website of the Nevada Development Corporation.

So what ten states have the worst tax climate?
41. Maine
42. Minnesota
43. Nebraska
44. Vermont
45. Iowa
46. Ohio
47. California
48. New York
49. New Jersey
50. Rhode Island

Meanwhile, the ten best states are:
1. Wyoming
2. South Dakota
3. Nevada
4. Alaska
5. Florida
6. Montana
7. New Hampshire
8. Texas
9. Delaware
10. Oregon

What do you think the California Legislature’s reaction to this will be? My guess is more proposals for tax increases.

You can read the Executive Summary of the Tax Foundation’s study here. The full study is here.

Posted in California, Nevada | Comments Closed

California Fights Back Against Nevada; Will It Matter?

Friday, July 14th, 2006

According to this news story, California will soon unveil a $600,000 ad campaign to fight back at Nevada’s attempt to lure California businesses. California, according to the new ads, is, “…the place where the smartest companies are located.”

While this may be true—after all, Silicon Valley is in California—it’s going to be a hard sell. Costs in California compared to neighboring states are noticably higher. Whether California can battle back remains to be seen.

Posted in California, Nevada | Comments Closed

Nevada Ups the Ante

Monday, April 10th, 2006

As I perused this morning’s Orange County Register, I was surprised to see the Nevada Development Authority advertising in the Register. You can find the ad on page 7 of the business section. It reads:

“California Business Profits After: Worker’s Comp, Business Taxes, High Power Bills, Anti-Business Legislation = [hand shown holding some peanuts]. 5 Ways to lower your nut. Eliminate personal income tax, axe corporate income tax, don’t pay inventory tax, lower workers’ comp costs, relocate to Las Vegas.”

A similar ad appears in today’s Los Angeles Times. The NDA’s website has links to some of their television commercials, which are quite humorous (and effective).

Meanwhile, in the “Am I Really This Stupid” side of the ledger, both the Los Angeles Chamber of Commerce and the San Francisco Chamber of Commerce are supporting Proposition 82, the Mandatory Pre-School/Income Tax Increase, Help Las Vegas, Phoenix, and Denver Initiative. Showing some sanity, The California Chamber of Commerce opposes Proposition 82. If Las Vegas really wants to see an increase in business relocations, they should hope that Rob Reiner’s flawed initiative passes.

Posted in Canada, Nevada | Comments Closed

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