More Tales From the Over Regulated State - A Series

wherein tonight's episode can be called, "You Owe Us".

It's one thing to live in a state with income tax, as most folks do (and I don't).  You expect a tax bill and you budget to pay it.  But what do you do when you get taxed by a state you don't live in?  Worse yet, what if they just raid your bank account for the alleged tax - and make you pay for the privilege?

I was tipped in a private email from GardenSerf to two articles on Charles Hugh Smith's blog, "Of Two Minds".  In "Welcome to the Predatory State of California - Even If You Don't Live There"  Charles opens the story this way:

On March 14, he received a letter from the California Franchise Tax Board (the agency that collects income taxes) claiming that he owed $1,343 for the tax year 2006. This was the first notification he'd ever received of this claim. This was an interesting claim given that R.T.:

-- Did not reside in California in 2006

-- Did not file a State income tax return in California in 2006

-- Did not have any outstanding tax issues with California in 2006

-- Did no business in California in 2006

-- Owned no property in California in 2006

He goes on to say:

But the truly interesting part of the story is that the state took $1,343 out of R.T.'s Wells Fargo bank account on March 2, prior to notifying him of the claim. Wells Fargo charged R.T. $100 for handling the removal of his $1,343.  

Round about this point,  my chin was reaching almost record separations from my upper teeth.  By the next day, in Part 2 of the article, other folks had emailed to tell similar stories!

1. The old "you didn't pay a $25 filing fee, the fine is now $499 which we took from your bank account." Never mind you have the cancelled check endorsed by the state, proving they received it and cashed it; the Board of Kafkaesque Authority claims "we didn't get the check" and loots your account for the $499 (true story.)

2. "Fishing expeditions" where companies and citizens are dunned for taxes and fees they might owe, though there is no evidence they do in fact owe fees and taxes. I received many emails describing these fishing expeditions, for example, merely having a license is "evidence" that you must have unreported income.

3. Enforce all sorts of dubious claims, most importantly:

A. That anyone collecting a pension from work performed while residing in California is liable for California taxes on that pension, regardless of where they live;

B. Any income resulting from something invented in California must be reported as income in California, regardless of where the income is derived from or where the inventor now lives. [emphasis added - GB]

I read that as California claims that if you thought of something simply while passing through their state that they are owed income tax on it no matter where you set up shop to make money off your idea, or where you live.  What power!  Anyone who invents something that makes them enough money to stand out from the crowd had better hope it can never be shown that they went through California on a trip - or (I imagine) even just changed planes.  How can anyone prove where the creative spark occurred? 

Lest you think this far-fetched, please consider this report sent to me by correspondent J.J.: Will California Gamble in Las Vegas? The Stakes are High in the Gilbert Hyatt Case:

To summarize, the California FTB sued Gilbert Hyatt, an inventor of a microprocessor chip, for tax fraud. The FTB claimed that Mr. Hyatt did not file a return for the income derived from his invention. Mr. Hyatt claimed he was already a Nevada resident at the time he invented the chip; California claimed otherwise. Whether that case has merit is still to be decided and could lead to a recovery of around $50M for the FTB, including penalties and interest, which account for over 80% of the total.

The real issue, however, is the FTB’s misconduct in pursuing Mr. Hyatt in Nevada. According to Bill Leonard, a member of the California State Board of Equalization, as published in his newsletter:

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.

This case appears unusual. Most of them seem to be stealing money at a level where it just doesn't make sense to hire lawyers and fight to the death.  They take $500 and make you spend $2000 to get it back - most people give up and write off the loss.  Which is what they're counting on, of course.  

As usual, California is merely the first to do insane or corrupt things, and similar attempts are showing up around the country as bankrupt governments at all levels scramble to get more money.   This is banana republic stuff.  Welcome to the Fascist States of Amerika.