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Franchise Tax Board makes SCOTUS arguments in residency case

If you live or work in more than one state, how does that affect your state taxes?

There are of course numerous aspects to this broad question. For example, the question of whether you have to file a California tax return does not depend entirely on residency; it also depends on income.

In this post, we'll update you on a long-running dispute about residency and state taxes that California and Nevada have been litigating for years.

The case is called Franchise Tax Board of California v. Hyatt. It involves an inventor named Gilbert Hyatt who made millions from a patented computer chip. The California Franchise Tax Board (CFTB) claimed Hyatt had evaded taxes by making a false claim to have moved to Nevada.

When the CFTB continued to pursue him for back taxes, Hyatt pushed back in Nevada state court, alleging harassment. He won a multi-million-dollar verdict that was later reduced greatly during a series of appeals.

The complicated proceedings included two visits to the U.S. Supreme Court. The first was in 2003, when the Court allowed Hyatt's suit against California in Nevada courts to proceed.

The second came in 2016, after Hyatt prevailed in Nevada state court. The U.S. Supreme Court held that Nevada's Supreme Court had violated the U.S. Constitution's Full Faith and Credit clause by allowing a damage award against a California agency more than what would have been permitted against a Nevada agency.

Now the case is back before the U.S. Supreme Court again, on the question of whether a state has sovereign immunity against suits against it in another state's court. The Court did not rule on that question in 2016 because Justice Scalia's death had created a 4-4 deadlock on it.

Earlier this month, the Court heard oral arguments. Much of the discussion concerned a Supreme Court precedent on sovereign immunity for states in other states' courts. In that case from 1979, Nevada v. Hall, the Court held there generally is such immunity.

We will update you further when the Court makes its decision on whether to overrule that precedent and finally resolves the CFTB's long-running Hyatt case.

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