Hyatt v. Yee, No. 15-15296 (9th Cir. 2017)
Annotate this CasePlaintiff, for 22 years, contested in administrative proceedings a California Franchise Tax Board ruling that he owed close to $7.4 million in taxes, penalties, and interest. The Ninth Circuit affirmed the district court's dismissal of plaintiff's action under 42 U.S.C. 1983, which arose from his administrative proceedings. The panel held that the Tax Injunction Act, 28 U.S.C. 1341, barred plaintiff's suit because plaintiff could either pay now and litigate later, or the pay-then-protest remedy provided plaintiff a speedy remedy, even if the protest-then-pay remedy had not. The court also held that, if plaintiff pays and then protests, the California state courts would likely allow plaintiff to add constitutional claims to a state court action challenging the tax.
Court Description: Tax / Civil Rights The panel affirmed the district court’s dismissal of plaintiff’s action, brought under 42 U.S.C. § 1983, arising from his contested administrative proceedings of a California Franchise Tax Board ruling that he owed close to $7.4 million in taxes, penalties and interest. Plaintiff’s initial tax deficiency, compounding daily with 3% interest grew to over $55 million at the time he filed his complaint in this case. The taxes were assessed on income plaintiff earned during the 1991 and 1992 tax years, during which plaintiff alleges he had moved from California to Nevada. Plaintiff alleged that he had been unconstitutionally HYATT V. YEE 3 targeted and that so much time had passed in the administrative review of his tax claims that he could no longer receive due process. He asked the district court to enjoin California from collecting this tax bill. The panel agreed with the district court that the Tax Injunction Act barred this suit because plaintiff had a plain, speedy and efficient remedy for his claims. The panel noted that a taxpayer seeking to contest his tax bill solely on the basis that he was not a resident of California during the disputed period has two options. He could either pay now and litigate later, or bring his claim through a protest-then- pay process, which allows him to delay paying the disputed tax. A taxpayer who pays now and litigates later can bring his claims to state court within six months, which guarantees an expeditious route to the state courts on the taxpayer’s liability. A taxpayer who initially challenges a residency- based income tax assessment through the protest-then-pay administrative process may elect to use the pay-then-protest process at any point by paying the disputed tax, thus guaranteeing a route to state court within six months. The panel held that even though plaintiff in this case chose to challenge his tax assessment through the protest- then-pay process, he still had a plain, speedy, and efficient remedy available because he could pursue the pay-then- protest process. The panel rejected plaintiff’s claim that requiring him to pay his accrued tax bill and switch remedies in order to pursue his constitutional claims would be a bait and switch in violation of his due process rights. The panel further rejected plaintiff’s claim that he does not have access to a speedy remedy because the Appeals Board has not completed his administrative appeal, pending since 2008. The panel held that the pay-then-protest remedy now provides plaintiff with a speedy remedy, even if the protest- 4 HYATT V. YEE then-pay remedy has not. Finally, the panel rejected plaintiff’s claims that he would not be able to bring his constitutional claims in a pay-then-protest proceeding.
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