Guest Post: The Predatory State of California, Part 2

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

The Predatory State of California, Part 2

Due process and rule of law have been replaced with "legalized" looting and harrassment by government in America.

Yesterday's entry Welcome to the Predatory State of California--Even If You Don't Live There generated dozens of emails recounting similar stories of "we don't need no stinkin' due process" looting and "fishing expeditions" by California and other state/local governments.

Let's begin with correspondent (and Arizona resident since 2001) R.T.'s experience of his account being looted without prior notice or due process by the state of California to the tune of $1,343. R.T. finally reached an employee of the State Franchise Tax Board and received an explanation.

The state representative stated that "we don't try to contact the person involved," i.e. the taxpayer whose account is about to be looted. The rep went on to explain that the state had received a 1099 from a financial institution for the year 2006 and had promptly stolen the citizen's money in the event that tax was owed to California.

Everyone who believes the government is "here to help disadvantaged people" needs to wake up and ask what kind of government we have when due process has been replaced with "legal" looting. R.T. reported the income in question on his 2006 Federal and Arizona tax return. Wouldn't common sense, not to mention common law, suggest that the state of California should be required to ask the citizen who now resided in another state if the income in question had been reported in that state?

How about notifying the citizen of the state's claim and his/her rights to present facts relating to the state's claim?

There was no due process. How can this be legal in a nation that is nominally governed by rule of law? First the state steals the $1,343 and authorizes its parasitic predatory bag-"person" Wells Fargo Bank to steal another $100 for handling the state's theft.

A week or two later the citizen is notified of the theft as a fait accompli. Now the onus is on the law-abiding citizen to attempt to reclaim his own money from a distant, all-powerful Kafkaesque state agency. How can this be legal in a nation supposedly operating under rule of law?

Let's be very clear about what happens here in America on a daily basis:

1. The state (or other agency of government) steals citizen's money without due process.

2. Then, in a move akin to the executioner making the condemned buy his own death bullet, the state authorizes the "too big to fail" corporate bank which received billions in taxpayer bailouts to steal $100 from the citizen for the digital theft of his money by the state.

3. If the citizen needed that money to pay rent, buy medication to stay alive, etc., tough luck, Buckwheat, the state of California has your money before they notify you of the purported tax liability or provide due process or recourse and now you enter the Kafkaesque insanity of pleading for a "refund" of your own money from an agency designed to thwart transparency and the reclamation of your own money.

So if you get evicted and are living in a cardboard box and pass away due to inability to buy your meds, hey, the State of California's political class and special interests could care less: they want your money and the rule of law means nothing to them.

If you understand that a purported tax liability is one issue and due process is another far more important issue, then you understand that we now live in an authoritarian nation where "rule of law" is only invoked at the convenience of the political and financial Elites for propaganda purposes.

The state of California has three basic methods of looting law-abiding citizens:

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.

In other words, residency has no meaning. Any income remotely connected to California--for example, you had the idea while residing in the state--obligates you to pay California income tax on that idea in perpetuity.

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.


Mr. Hyatt sued the FTB for torts and other misconduct. The FTB claimed it was immune from being sued under the doctrine of comity- defined by the Nevada Supreme Court as “an accommodation policy, under which the courts of one state voluntarily give effect to the laws and judicial decisions of another state out of deference and respect, to promote harmonious interstate relations.”


The Nevada Supreme Court sided with Hyatt. The FTB appealed to the United States Supreme Court who ruled 9-0 against the agency.


There are two key questions that the taxpayers of California need answered: were any employees of the FTB disciplined? Will California continue to pour money in this case by appealing in what could be called a hostile environment?

Rummaging through trash without warrants and harrassment is precisely the sort of conduct that occurred when Federal agencies ran roughshod over the Constitution in the COINTELPRO campaigns of domestic spying and subversion.

What exactly is the difference between the jackboot behavior of the California Franchise Tax Board, the Federal agencies that conducted COINTELPRO and any other run-of-the-mill fascist agency doing the dirty work of the Elites and special interests by ignoring legal rights and due process?

It's very simple: either we have due process and everyone is equal under the law, or we have an authoritarian regime that is only nominally democratic for PR purposes.

Naive citizens might suggest alerting our fearless elected representatives to these systemic abuses by the state. This overlooks the fact that the agencies are conducting the looting at the behest of the elected toadies and their owners, the special interests and corporate lobbyists. Your complaint about being legally looted will go straight into the round file (or digital equivalent), and your name forwarded to the "hit squad" for harrassment and worse.

You know the dominant emotion that the government at every level generates in law-abiding, taxpaying citizens? Fear. People don't want their names used in reporting these kinds of outrageous abuses because they've heard too many stories of the COINTELPRO-like harrassment that the jackboot agencies unleash on anyone who dares to question their looting and lawlessness.

Our fearless elected representatives, meanwhile, are too busy brown-nosing their donors to care what happens to mere citizens. After all, the citizens don't fund their campaigns, the special interests do, and the special interests care about one thing: raising more revenue to fund their fiefdoms. They don't care how the state raises the revenue, and so neither do the political lackeys they fund.

What sort of government do we have when the typical response of law-abiding citizens is fear of retribution? When state looting and concerted campaigns of harrassment are "legal," then what sort of rule of law do we have?

Answer: none. The only action that will change things is to vote with your feet and leave the oppressive states where due process has been rendered meaningless and find states where rule of law and equality for all before the law still has meaning.

Are "fishing expeditions" and looting unique to California? Unfortunately not, as author/Iraq vet and midwest resident Chris Sullins reported two years ago:

Last week I received tax return forms in my name mailed to my address by a nearby city government. I've never worked in that city and as the letter states my physical address is not within that city's limits. I've lived at the address for over 10 years and this was the first time I've received such a notice.


I sent this letter in response with copies of the forms they had mailed to my address:




To Whom It May Concern:


My spouse and I recently received City of X individual tax return documents which stated a “return must be filed by April 30, 2010.” This letter you are now reading serves your agency notice that we are not required to file a tax return with the City of X. I will make it clear that we do not work in the City of X. Likewise, the mailing address your agency used to contact us is not and never has been within the city limits. Therefore, you will cease and desist from attempting to collect money outside of your legal authority.


Any future attempts by your agency toward collection of taxes on person(s) employed outside the city or at this address which is outside the physical boundary of the City of X will be considered harassment. Therefore, it would be in your agency’s best interests to remove our names and our address from your tax collection rolls posthaste.


Sincerely, Chris Sullins


I'm sure this overreach was done by the city due to their lower revenues, lost income and property taxes. But, to do this under the color of law is nothing short of official fraud. However, proving official misconduct is another matter. There was no official's name on the forms and I can't imagine I'm going to find a signed memo authorizing this new attempt at collection outside of the city's limits.


In the meantime I wonder how many people who reside on the same road also received the same tax forms? How many of them are just going to fill out the forms and send checks to the city without any protest? How many of them will ignore it altogether? But the important question is out of how many households did anyone bother to write a letter of protest? How many actually told them NO? This last question is the most important when considering the extent of the local MacRib Test.


If enough people don't say No early enough, things often tend to go past the camel's nose in the tent. I can imagine the local city continuing to extend its boundaries in the future and/or performing other actions under an air of legality. I can imagine situations in which cities overreach their boundaries and authority, yet still convince judges or a state administrator (aka bureaucrat) to garnish citizens' paychecks for supposedly unpaid taxes and fines which were never owed in the first place.


This outright theft would continue until the citizen trudges through an onerous Kafkaesque process of "proving" they didn't reside within the city and that the tax wasn't ever really owed. The city/judge/administrator could then play the "oops" game and blame a computer error or some other complexity of the system which they had purposely misused. Of course, the costs for the citizen to challenge such an "error" will be designed in advance to exceed the cost of submitting to the "error" in the first place.


Citizens must box in any attempts by government to exceed its authority. They must frame and contain any acts conducted under the color of law. This does not require violence. The simple act of refusing to comply is enough. This was evident in the many peaceful revolutions that took place in 1989 when people said NO to communism across Eastern Europe. Although governments hold the threat of force in reserve to force compliance, the American government will not use it against the citizens over taxation at this time.

You know what would be refreshing? A state government which openly declared itself committed to rule of law, due process, transparency and respect for taxpayers and taxpaying enterprises. If they followed through on their commitment with action, they would quickly attract a flood of the best and brightest fleeing parastic predatory states that have long since abandoned rule of law for looting and servitude to special interests.

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RKDS's picture

Besides as a requirement for employment or that the post office is weird about money orders in the amount of a mortgage payment?

MachoMan's picture

this goes for all accounts... 

obviously your mattress is not a suitable place for very much capital, but other assets can be MUCH more difficult to steal.

johnQpublic's picture

bank local

use credit unions

dont put your money with any bank whose name has been in the newspaper in the last five years

buy a mattress...stuff it full

It's very simple: either we have due process and everyone is equal under the law, or we have an authoritarian regime that is only nominally democratic for PR purposes

as for that statement...has anyone at MF global gone to jail yet?

how about anyone involved with the whole mortgage gate fuckall?

we have have the second option

always have

3 presidents in a row admit smoking the reefer but its still illegal for everyone else

authoritarian regime that is only nominally democratic for PR purposes....winner!

john39's picture

the so called "rule of law" was always an illusion.  people don't get it unitl they have to square off against the government or a big corporation in the legal arena.  sure the little guy wins once in awhile, but usual, goliath wins, one way or another.  and the cost of even fighting is more than most can bear.

vast-dom's picture

Yes. When fighting legally becomes impossible precisely because of the laws that are fucking you over while at the same time claiming to protect you = insanity.

drink or die's picture

If you bank with Wells Fargo, Bank of America, etc, you deserve what you get.

kralizec's picture

Caveat Emptor!

If you use small local banks or credit unions, ask them who their correspondent banks are, you could still be "transacting" within a big bad bank network!


Timmay's picture

Obama's fault.

Buzzworthy's picture

The rule of "whose law" is the question.  The Founding Fathers had the radical idea that the law could be used to protect the ordinary citizen and enshrined it in the Constitution.  Too bad the powers that be find the Constitution problematic and so they do whatever they can to skirt it for their own selfish interests.  Its difficult to see how this nation can continue on this path without a massive political upheaval.  What will it take before the Sheeple wake up and find they have been skinned?

snblitz's picture

The rule of law was tied at the hip to trail by a jury of your peers.  Blackstone called it the most important safeguard of the peoples' freedom.  Notice how the government increasingly has removed your right to a trail by a jury of your peers?  IRS tax courts for example. No peers.

I know our peers are no longer educated enough to be jurors, but imagine the world as it once was:  The government had to find a jury of twelve of your peers to take antyhing from you.  And back then your peers were actually educated in their rights.  utopia lost.

dick cheneys ghost's picture

from reuters....


"Detroit is in danger of running out of money within the next 60 days due to massive cash outflows, and it does not have the financial latitude to pay off in full the swap agreements that could be triggered by the Moody's downgrade."


Its not just California, the states and cities are toast....

Sophist Economicus's picture

"Massive cash outflows"?   Is that what Reuters's euphemism for run away government spending is these days?

rosiescenario's picture

Oddly, there has not been very much chatter in the past year about the muni bond default issue.


From what I am seeing with a few pieces of commercial property here in CA, we are now having a major re-set in their values on the tax rolls. Either the local appraiser has re-set them or we have had to force the issue through 3rd. party appraisals. In either case the tax base is going down on commercial and residential property.


I think that perhaps those folks who were trumpeting the muni bond problem were about 1 year early since they did not quite understand the timing on these things. My guess is that during this year he swans are coming home to roost.

Dr. Engali's picture

This whole stinking shit pile can't reset fast enough.

-1Delta's picture

but ipads will fix this

pleseus's picture

Last month the State of California sent my wife a bill for over $ 500.00 for contested medical expenses from 2008.  She paid the bill not wanting to deal with the harrasment or incurring any furture fishing expeditions by the State Tax Board.  I must say personnally this is this closest thing to tyranny me and my family have faced and I have heard it is happening to more and more individuals and businesses. 

jowenchrist's picture

Was just in the lovely state of CA - how came they say they are broke? they're completing one hell of a fine new airport in Sacramentoville. "Arnol you got some 'splaining to do!"

The Paucity of Hope's picture

Old saying: You have a very good case here. Now, just how much justice can your afford?

lolmao500's picture

What's sad is that this kind of story NEVER get to the mainstream republicans/democrats so they could wake the fuck up...

Dave Thomas's picture

If you think this is unique to communist states like California you're wrong. Even the state of Texas goes on wild and wooly tax liability escapades.

We had a new thing called the "Franchise Tax" passed in 2003, if you make less than 150,000 dollars you don't owe anything.

But somehow the state tends to arbitrarily decide that you've all of a sudden started making millions and decides to send you a bill for $10,000 dollars. At which point you call up and go, "WTF? I only made 105,000 last year, where did you get these numbers?" "Uhh sir we base them on a number of factors."

Blizzard_Esq's picture

Just happened to my co-worker. He didn't even bother conducting any business, he simply never started the business and only got a license.

Three years later, he has a bill for $2500 for unpaid sale taxes to the City of LA based on "estimated sales" of $30,000. WTF? He even cancelled his state business license 2 years ago....

NotApplicable's picture

That anyone still believes in the legitimacy of these organized crime syndicates is where the problem lies.

Consent of the governed. Or as the author of this article (along with Californian Nancy Reagan) says, Just say NO!

CuriousPasserby's picture

In case anyone missed it last time, Big asset-protection rule: NEVER use a national bank. Anyone in another state can seize your account and you have to fight to get it back.

Use an in-state bank (they are [almost] all FDIC insured) or a cedit union. It's easier to fight in local court than in another state.

Ceteris paribus's picture

The FDIC only insures 2 cents on the dollar , and all deposits with big banks are now "loans" so you are not covered any more anyway.

VelvetHog's picture

I recommend the Craft-Matic adjustable bank.

gwar5's picture

Saw it coming a couple years ago. Nothing surprises me. Government = MF Global.

Bloated Governments desperate for money are going to resort to anything to try to survive. Government workers eager to save their jobs are going to rationalize it. Banks never need an excuse. 

16,000 newly hired IRS agents and shotguns in 2009? Nope... never saw this one coming.

centerline's picture

+1 gwar. Desperate governments will do desperate things. This is just the beginning. Like so many other things that begin in Cali and work thier way east. It is coming.

Read somewhere that in Greece (I think) they come in after you through the power bill. If you don't play along, no power for you.

ParkAveFlasher's picture

In NYC it's the water bill, and it's already begun as well.

Got stung for $40,000 for three months' usage, like 50 times the normal quarterly usage.  The building had 4 apt. tenants and a bar (with low-water-usage fixturing).  It was a one-hit and done for the city.  However I appealed but we'll see how far that goes.  I wonder how many other tenants on the block got hit with the same.

apberusdisvet's picture

Regarding some of the above comments:  The TBTFs will be the first to vaporize your funds under any bank holiday (most definitely coming); it might take you months (if ever) to get those funds back.  You should be aware that if you have any dealings with the IRS, one of their first questions will be "who's your bank?".  Rule #1: get thee to a credit union.  Rule #2:  maintain a balance sufficient only for Bill Pay; keep either cash or physical in a "safer" place.

centerline's picture

Rule #3. Don't fuck with the IRS.

Play it by the rules and stay a little on the conservative side when it comes to taxes. At some point the system will fail when too many people are crushed by the weight of the system. The goal is to make it to that point in one piece.

MachoMan's picture

This.  I deal enough with the IRS to know that you catch more flies with honey so to speak.  If you ever get reviewed and they find you to have conservatively done your taxes, you're golden.

Dr. Kenneth Noisewater's picture

I use TurboTax just like the Treasury secretary, why should I worry?

Shameful's picture

Keep talking about government like it's legitimate.    What's legitimate about a group with the monopoly of force that can at it's will and pleasure derive people of their personal property and indeed their very lives?  The whole idea of democracy is silly, if a group of people want to rob someone simply being the majority does not make it right.  This is just a government, like any other, that is desperate for more revenue ripping deeper into the slaves, and with the way things are going the trend is not our friend.

Amish Hacker's picture

"Robbery" is certainly the right word when they can claim that 80% of the money you owe them is because of penalties and interest.

Quinvarius's picture

If I thought tax collectors were going through my garbage, I would shit in a bag once a week and label it "tax documents".

Stuck on Zero's picture

That's form 1040EatShit for your information.

ouchtouch's picture

Keep your cash in the U.S. Treasury via  Good luck trying to intimidate them, California.

bob_dabolina's picture

Connecticut and New York are bad too but CA is truly the epitome of shit.

I want to thrash CA again but I had my venting session yesterday in Part 1.

Fuck California.

Its_the_economy_stupid's picture

Bullish for shredders.

Shredd itall, solicitations, personal mail....everything.


Then burn it.

Nobody For President's picture

Actually, this is exactly what I do - that shredded stuff is great for starting my brush piles...

jarboejl's picture

My mother (who lives in Missouri) has to pay income taxes on her business in California since it's partnered with UCLA and that's where their LLC is legally located.  They overpaid in 2010, and she is STILL waiting for that refund!!  I told her to re-register her LLC in Nevada so it'd still be close AND she could avoid state income taxes altogether...but the Ivory Tower Liberal UCLA Professor she works with won't have any part of it.  Goddamn, even when things are so obvious, they still won't let go of their ideology.  Geez.

Strom's picture

It doesn't matter where your company is incorporated. If you do business in California, you have to pay California taxes on the money made in the state. Works that way in most states - at least the ones I've had experience with.

Blizzard_Esq's picture

Yep. But you have to have a presence in the state of california per rulings from the US Supreme Court which is why has been able to avoid paying sales tax. Albeit California has passed a law trying to collect it anyways, remains to be seen what happens...

A Lunatic's picture

As they say, Globalism starts at home............

adr's picture

i've had cities i live in try to collect taxes for years after I moved. I'll get a letter and send them proof in writing that I haven't lived there in 10 years. A month later I'll get a court summons, an illegal summons since it is sent by regular mail.

After dealing with it for years I went to the court one time. I said, obviously I don't live in the town or work in the town as my home address and the address on my W2 are not within the town. Here are ten years of records showing that I have never earned any income in this town during the entire time questioned.

I left with them saying I satisfied the inquiry. The next year I get another letter claiming I owe taxes again. They always say that non-filing could result in a warrant issued. All you need is for some asshole cop to run your plates while he is bored trolling for revenue and shoot you dead because a warrant was issued for non-payment of tax that was never owed in the first place.

But that's the new USSA.

chubbar's picture

How many of these "misunderstandings" are the result of illegal aliens pilfering SS#s and using them when they work?

In addition to that comment. Anyone who has taken a look at the Asset Forfeiture laws that are now on the books isn't surprised at all by the actions of the IRS and other gov't agencies. This is outright theft where the burden of proof resides with the person unfortunate enough to be caught with money in their pocket when stopped by the cops. Since the law allows the cops to keep some of the stolen bounty they have an incentive to use the law to steal all the money they can find. Anyone think this is to push us into using electronic currency instead of hard cash? Just bizarre behavior from our gov't. What kind of assholes work in these agencies anyway?

I wrote to my senators about this and of course they both fully support it. Not surprising since one of my nazi senators was the cosponsor to the NDAA legislation. The only thing that may save us is total and complete collapse.

snblitz's picture

In 1996 I was robbed by an organized crime syndicate run in Massachusetts and supported by the courts there. It was 10 years later that I even learned of the case I lost in a state I have never been to and have never done business in.

Later I learned that the state or more exactly a certain county is well known for its shenanigans

Romney was in charge of the state at the time I was battling to hold onto my money and I wrote him. No response. Not even a form letter. The organized theft operating within his state and under his authority was not a concern of his.

And for the record I am writing in Ron Paul.


toadold's picture

You need to check out the credit union or local bank that you use.  I've been screwed by a credit union in the past.  Some of the local banks offer you no protection what so everr if you  get your identity stolen.  Be careful of credit unions that are or were associated with a company that is going or has gone under.  As the lose company employees they try to expand and also get greedy and move into areas of finance  where they have no experience.  I got jamed on a car lease that turned out to financed by a credti union. I had to go to court on them. 

bankrun's picture

Keep physical! And I'm not talking about gold, I'm talking about Tide!

"Law enforcement officials across the country are puzzled over a crime wave targeting an unlikely item: Tide laundry detergent.

Theft of Tide detergent has become so rampant that authorities from New York to Oregon are keeping tabs on the soap spree, and some cities are setting up special task forces to stop it. And retailers like CVS are taking special security precautions to lock down the liquid. 

One Tide taker in West St. Paul, Minn., made off with $25,000 in the product over 15 months before he was busted last year.

'That was unique that he stole so much soap,' said West St. Paul Police Chief Bud Shaver. 'The name brand is [all] Tide. Amazing, huh?'

Tide has become a form of currency on the streets. The retail price is steadily high — roughly $10 to $20 a bottle — and it’s a staple in households across socioeconomic classes."