Tax Board Can Be Sued Over Pursuits

Aggressive California tax collectors who cross state lines to pursue former residents are not shielded from being sued, the U.S. Supreme Court ruled Wednesday.

In a 9-0 decision, the justices rejected the California Franchise Tax Board’s claim that it is immune from being sued in a Nevada court.

Nevada is entitled to protect its residents from harassment or other wrongs, the justices said, and it need not bend its laws to favor another state.

The high court was called upon to resolve the rather unusual claim, in which both states said their sovereignty was at issue.

California said it was owed taxes by Gilbert Hyatt, an inventor of computer microprocessors, who moved from California to Las Vegas before collecting $40 million in licensing fees he was due. California officials pursued him and sought to document when he moved out of the state.

In response, Hyatt sued California’s tax board, contending its agents had invaded his privacy and disclosed false information about him.

The lawsuit has not been tried. California officials characterized Hyatt’s complaint as a nuisance suit that has tied up lawyers in a costly wrangle.

The Franchise Tax Board argued that California, like all states, has a sovereign right to enforce its tax laws and that Nevada must honor that right.

But the Nevada Supreme Court refused to dismiss the suit and said its residents were entitled to be protected from harassment.

Last year, lawyers for 35 states joined California in urging the Supreme Court to take up the case, Franchise Tax Board vs. Hyatt. But on Wednesday, the justices affirmed the decision of Nevada’s high court and allowed the suit to proceed.

-- David G. Savage