Approved 2000 Minutes - April 6, 2000


April 6, 2000

The Board met at its offices at 450 N Street, Sacramento, at 9:25 a.m. with Chairman Andal, Mr. Klehs and Mr. Chiang present.

ANNOUNCEMENT OF CLOSED SESSION

The Board recessed at 9:25 a.m. and reconvened immediately in closed session with Mr. Andal, Mr. Klehs and Mr. Chiang present.

Ms. Mandel entered the Boardroom on behalf of Dr. Connell in accordance with Government Code Section 7.9, and immediately went into closed session.

CLOSED SESSION

The Board met to discuss personnel matters and Revenue and Taxation Code 7093.5 and 50156.11 settlements.

The Board recessed at 9:43 and reconvened at 9:45 in open session with Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel present.

ANNOUNCEMENT OF ACTIONS TAKEN IN CLOSED SESSION

The Board announced the appointment of Freda Orendt-Evans to Chief, Field Operations, Sales and Use Tax Department.

SPECIAL PRESENTATION

On behalf of the Board, a retirement resolution was presented to Janice Masterton, Chief, Board Proceedings Division, extending its sincere and grateful appreciation for her dedicated service to the State Board of Equalization and the State of California.

PROPOSED CONTRACTS OVER $1 MILLION

Mr. Dade Powers, Chief, Administrative Support Division, presented a listing of proposed 2000-2001 contracts with costs estimated to exceed $1 million (Exhibit 4.3).

Upon motion of Mr. Klehs, seconded by Mr. Chiang and duly carried, Mr. Klehs, Mr. Parrish, Mr. Chiang and Ms. Mandel voting yes, Mr. Andal voting no, the Board approved the 2000-01 contracts over $1 million.

Exhibits to these Minutes are incorporated by reference.

RETIREMENT RESOLUTIONS

Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board adopted the following resolutions (Exhibit 4.4) extending its best wishes on their respective retirements and its appreciation for their service to the Board and the State of California:

Joe V. Romero, Business Taxes Representative, Torrance District Office

David J. Hendrick, Supervising Property Appraiser,

County Property Tax Department

Flora Mock, Office Technician, Property Taxes Department

Anna J. Parker, Tax Technician III,

Sales and Use Tax Department, Special Procedures Section

Richard A. Doak, Business Taxes Representative,

Sales and Use Tax Department, Special Procedures Section

    1. Dewey Roberts, Business Taxes Supervisor II,

Sales and Use Tax Department, Special Procedures Section

BOARD MEETING MINUTES

Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board approved the minutes of its meetings of February 23-24, 2000.

SUPERIOR ACCOMPLISHMENT AWARDS NOMINEES

Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board approved the recommendation for the additional Superior Accomplishment Award nominees (Exhibit 4.5). The nominees are as follows:

Group Sustained Superior Accomplishment Award

Rose Smith

Group Superior Accomplishment Awards – IRIS Implementation

Ester Cabrera Steve T. Norman

Sherrie Irwin Joann Richmond

Rick KinoshitaJag Sandhu

Bobbie A. Lee Kelli Spangler

Kathy MacRaeMichele Stuart

Sid MatsumotoMary Ann Stumpf

Lety Medrano James Van Gundy

Lydia Moreno Kelly S. Williams

SPECIAL TOPIC SURVEY

ASSESSMENT OF TAXABLE POSSESSORY INTERESTS

Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board approved the Special Topic Survey on the Assessment of Taxable Possessory Interests. (Exhibit 4.6).

AUTOMATED CUSTOMS IMPORT DATA PROJECT

AND FARM EQUIPMENT PROJECT

Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board approved the Automated Customs Import Data and Farm Equipment Project. (Exhibit 4.7).

LEGISLATIVE COMMITTEE REPORT

Upon motion of Mr. Klehs, seconded by Mr. Andal and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board approved the committee report. (Exhibit 4.8).

BUSINESS TAXES COMMITTEE REPORT

Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board approved the committee report. (Exhibit 4.9).

PROPERTY TAX COMMITTEE REPORT

Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board approved the committee report. (Exhibit 4.10).

CUSTOMER SERVICES & ADMINISTRATIVE EFFICIENCY COMMITTEE

Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board adopted the committee report (Exhibit 4.11).

CHIEF COUNSEL MATTERS - RULEMAKING

Upon motion of Mr. Parrish, seconded by Mr. Andal and duly carried,

Mr. Andal, Mr. Parrish, Mr. Chiang and Ms. Mandel voting yes, Mr. Klehs voting no, the Board authorized to release the changed version of Sales and Use Tax Regulation 5200, Annotations, and ordered that it be placed in the rulemaking file for 15 days. A copy of the changed version is incorporated in these minutes by reference (Exhibit 4.12).

Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board adopted the changed version of Sales and Use Tax Regulation 1525.2, Manufacturing Equipment. A copy of the changed version is incorporated in these minutes by reference (Exhibit 4.13).

The Board approved filing Sales and Use Tax Regulation 1802, Place of Sale and Use for Purposes of Bradley-Burns Uniform Local Sales and Use Tax, with the Office of Administrative Law as a Section 100 change. A copy of the regulation is incorporated in these minutes by reference. (Exhibit 4.14).

APPEALS MATTERS

Upon motion of Mr. Klehs, seconded by Mr. Andal and duly carried,

Mr. Andal, Mr. Parrish, Mr. Klehs voting yes, Mr. Chiang voting no, Ms. Mandel not participating in accordance with Government Code Section 7.9, the Board adopted the Memorandum Opinion in the matter of Reliastar Life Insurance Company, IT ET 34-000267-010, 89000895720.

The Board deferred consideration of John Chris Mogannam, SR KH 99-108404-010, 89002106580.

James and Tresa Shaw, SR AB 16-653118-010; 89000183840

4-1-93 to 3-31-96, $6,850.31

Considered by the Board:October 27, 1999

Contribution Disclosures pursuant to Government Code Section 15626: No contributions were disclosed.

Action: Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board ordered that the petition be redetermined as recommended by Appeals and deleting the negligence penalty.

Dan Tho Trinh, SR GH 99-340545-010; 89002209470

10-1-93 to 12-31-96, $18,357.97

Considered by the Board:December 8, 1999

Contribution Disclosures pursuant to Government Code Section 15626: No contributions were disclosed.

Action: Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board ordered that the petition be redetermined as recommended by Appeals.

Richard G. Doran, Eric Bortman & Bruce Bortman, SR EA 24-905457-010; 89000486880

7-1-96 to 12-31-96, $4,495.50

Contribution Disclosures pursuant to Government Code Section 15626: No contributions were disclosed.

Action: Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board ordered that the petition be redetermined as recommended by the Appeals section.

Edward Jack Sandel, SR CH 21-807823-010, 020; 89000335440, 89000335460

4-1-90 to 6-30-90, $1,548.05

7-1-89 to 6-30-92, $33,032.11

Contribution Disclosures pursuant to Government Code Section 15626: No contributions were disclosed.

Action: Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board ordered that the petition for rehearing be granted.

Food 4 Less of California, Inc., SY EA 23-819472-002, 003; 89000420120, 89000420130

Alpha Beta Company, SY EA 98-009419-001, 002; 89002086690, 89002086700

7-1-94 to 1-31-99, $172,338.71

Contribution Disclosures pursuant to Government Code Section 15626: No contributions were disclosed.

Action: Upon motion of Mr. Andal, seconded by Mr. Parrish and unanimously carried, Mr. Andal and Mr. Parrish voting yes, Mr. Klehs abstaining, Mr. Chiang and Ms. Mandel not participating in accordance with Government Code Section 15626, the Board ordered that the claims for refund be granted.

FRANCHISE AND INCOME TAXES MATTERS

Contribution Disclosures pursuant to Government Code Section 15626: No disqualifying contributions were disclosed for any of the following-listed matters .

The Board deferred consideration in the appeals of Kimberly-Clark Corporation, 93R-0091, 93R-0898, 93A-1129; 89002463530, 89002463540, 89002463550, to the May Sacramento meeting.

Upon motion of Mr. Klehs, seconded by Mr. Chiang and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board adopted a decision in the appeal of Charles & Clarise Blanchard, 98A-1310; 89002459750, modifying the action of the Franchise Tax Board.

Upon motion of Mr. Klehs, seconded by Mr. Chiang and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board adopted a decision in the appeal of Joseph A. Gimelli, 99I-0133, 89002467710, sustaining the action of the Franchise Tax Board.

Upon motion of Mr. Klehs, seconded by Mr. Chiang and duly carried, Mr. Andal, Mr. Chiang, and Ms. Mandel voting yes, Mr. Parrish and Mr. Andal voting no, the Board sustained the action of the Franchise Tax Board regarding the issue of the taxability of ACT payments in the appeals of Amdahl Corporation, 99A-0054; 89002459110 and 29780.

Upon motion of Mr. Klehs, seconded by Mr. Chiang and duly carried, Mr. Andal, Mr. Chiang, and Ms. Mandel voting yes, Mr. Parrish and Mr. Andal voting no, the Board also sustained the action of the Franchise Tax Board regarding the issue of the exclusion from gross income of certain dividends under Revenue and Taxation Code section 25106.

BUSINESS TAXES MATTERS

Contribution Disclosures Pursuant to Government Code Section 15626: No disqualifying contributions were disclosed.

Upon motion of Mr. Parrish, seconded by Mr. Klehs and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board approved the staff recommendations with respect to refunds (Exhibit 4.15).

Contribution Disclosures Pursuant to Government Code Section 15626: Disqualifying contributions to Mr. Andal and Dr. Connell were disclosed. No other disqualifying contributions were disclosed.

Upon motion of Mr. Klehs, seconded by Mr. Chiang and unanimously carried, Mr. Klehs, Mr. Parrish and Mr. Chiang voting yes, Mr. Andal not participating in accordance with Government Code Section 15626, Ms. Mandel not participating in accordance with Government Code Sections 7.9 and 15626, the Board approved the staff recommendation with respect to the redetermination (Exhibit 4.16).

BUSINESS TAXES MATTERS

Contribution Disclosures Pursuant to Government Code Section 15626: No contributions were disclosed.

Upon motion of Mr. Andal, seconded by Mr. Klehs and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board approved the staff recommendations with respect to credits and cancellations. (Exhibit 4.17).

APPEALS MATTERS

Upon motion of Klehs, seconded by Andal and unanimously carried,

Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, except

Ms. Mandel not participating in the matter of American Sterling Insurance, IT ET 34-002426-010; 89000902810, pursuant to Government Code Section 7.9, the Board adopted the Legal Appeals Matters Consent Schedule dated April 6, 2000. The Board deferred consideration of Sandra L. McQuilkin & Grace Y. Boyd, SR AP 17-770659-010; 89000213130 and Octavio O. Ramirez, SR AP 23-854928-010; 89000427690. (Exhibit 4.18).

FRANCHISE AND INCOME TAXES MATTERS

Upon motion of Mr. Chiang, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board approved the staff recommendations with respect to the Franchise and Income Tax Decisions and Petitions for Rehearing Schedule dated April 6, 2000 except the Board deferred consideration of Robert G. Senchy, 99A-0278; 89002468830, Consolidated Freightways, Inc., 98A-0499; 89002460300, Douglas P. Pedersen, 99A-0008; 89002464850, Valley Pontiac-GMC Truck, 98A-0749; 89002460950 and Steve and Winifred Wachko, 98R-1006; 89002466110 (Exhibit 4.19).

BUSINESS TAXES MATTERS

Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, except Ms. Mandel not participating in accordance with Government Code Section 7.9 on Thrifty Oil Co.,TK HQ 44-026503; 89000948870 and 521125, the Board approved the staff recommendations with respect to the Business Tax Matters Consent Schedule dated April 6, 2000 with respect to redeterminations, relief of penalty and refunds (Exhibit 4.20).

Upon motion of Mr. Parrish, seconded by Mr. Chiang and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, except Ms. Mandel not participating in accordance with Government Code Section 7.9 on Ultramar, Inc., OA MT 46-000007-001; 53082, the Board approved the Business Tax Matters Consent Schedule dated April 6, 2000 with respect to credits and cancellations, refunds and relief of penalties, approving the staff recommendations (Exhibit 4.21)

PROPERTY TAXES MATTERS

Upon motion of Mr. Chiang, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang voting yes, Ms. Mandel not participating in accordance with Government Code Section 7.9, the Board adopted the Property Tax Matters Nonappearance Matters Not Subject to Contribution Disclosure Calendar dated April 6, 2000, consisting of an Audit, Nonunitary Escaped Assessments and Board Roll Changes.

Ms. Mandel left the Boardroom and Mr. Chivarro entered.

CHIEF COUNSEL MATTERS – APPLICATIONS FOR REVIEW,

EQUALIZATION AND ADJUSTMENT OF ASSESSMENTS

Upon motion of Mr. Chivarro, seconded by Mr. Parrish and duly carried, Mr. Parrish, Mr. Andal and Mr. Chivarro voting yes, Mr. Klehs voting no and Mr. Chiang not participating, the Board adopted the findings and decisions in the appeals of City of Long Beach, ARA97-002, 26430 and City of Los Angeles, ARA97-003, 26431.

FRANCHISE AND INCOME TAXES HEARINGS

Charlotte A. Llewellyn, 29505

1997, $712.00

For Appellant: Charlotte A. Llewellyn

For Franchise Tax Board: Suzanne Small, Tax Counsel

Contribution Disclosures pursuant to Government Code Section 15626: No contributions were disclosed.

Issue:Whether appellant’s daughter, who was legally married at the end of 1997 and who filed a joint reurn with her husband, can be the qualifying individual to allow appellant to use head of household filing status for 1997.

Whether any portion of the interest should be abated.

Whether alleged incorrect information from respondent’s instruction booklet may allow "equitable estoppel" relief.

Action: Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board ordered that the appeal be submitted for decision and directed the Franchise Tax Board to provide appellant with interest abatement procedures.

The Board recessed at 10:35 and reconvened at 10:40 with Mr. Andal,

Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel present.

Ted W. and Darlene Dress, 29838

1992, $87,008.00

For Appellant: John J. Trezza, Attorney

Ron Eggleston, CPA

For Franchise Tax Board: Terry Collins, Tax Counsel

Contribution Disclosures pursuant to Government Code Section 15626: No contributions were disclosed.

Issue:Have appellants shown that payments they made (based on a guarantee of certain corporate loans) should be treated as business bad debt, as opposed to being treated as nonbusiness bad debt.

Action: Upon motion of Mr. Andal, seconded by Ms. Mandel and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board ordered that the appeal be submitted for decision, instructing the Appeals Section to prepare a recommendation and bring back to the Board for consideration within 30 days.

The Pillsbury Company, 98A-1358; 89002464970

5-31-86, $99,465.00

5-31-87, $1,039,047.00

For Appellant: Jeffrey M. Vesely, Attorney

Michael D. Herbert, CPA

For Franchise Tax Board: Jack Stilwell, Tax Counsel

Contribution Disclosures pursuant to Government Code Section 15626: No contributions were disclosed.

Issue:Whether California adopted the federal rules regarding transfers of net operating losses by Alaska Native Corporations, which would allow appellant to use such losses to reduce its California state income tax liability.

Appellant’s Exhibit: A-1 definitions and regulations (Exhibit 4.22)

Mr. Klehs left the Boardroom.

Action: Upon motion of Mr. Parrish, seconded by Mr. Chiang and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Chiang and Ms. Mandel voting yes, Mr. Klehs absent, the Board ordered that the appeal be submitted for decision.

Sara Lee Corporation, 97R-0948; 89002458860

6-30-87, $ 69,628.00

6-30-87, $671,556.00

6-30-87, $ 33,000.00

6-30-88, $108,469.00

6-30-88, $ 8,329.00

6-30-88, $441,375.00

6-30-89, $ 57,971.00

6-30-89, $ 23,006.00

For Appellant: Eric Miethke, Attorney

John F. Ormsby, Tax Attorney, Sara Lee

For Franchise Tax Board: Ed Kline, Tax Counsel

Contribution Disclosures pursuant to Government Code Section 15626: No disqualifying contributions were disclosed.

Issue:Whether California adopted the federal rules regarding transfers of net operating losses by Alaska Native Corporations, which would allow appellant to use such losses to reduce its California state income tax liability.

In the alternative, whether appellant can reduce its California state income tax liability by deducting its cost of acquiring federal income tax benefits from Alaska Native Corporations.

Appellant’s Exhibit: A-1 Regulations (Exhibit 4.23)

Mr. Klehs entered the Boardroom.

Action: Upon motion of Mr. Klehs, seconded by Mr. Andal and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board ordered that the appeal be submitted for decision.

AMFAC, Inc., 98A-0262; 89002459150

12-31-84, $299,772.00

12-31-85, $1,160,862.00

12-31-86, $797,569.00

For Appellant: No Appearance

For Franchise Tax Board: John Jensen, Tax Counsel

Action: The Board took no action

The Board recessed at 12:05 and reconvened at 12:10 with

Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel present.

FINAL ACTION ON APPEALS HEARD APRIL 6, 2000

Upon motion of Mr. Klehs, seconded by Mr. Andal and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board ordered that the appeal of Charlotte A. Llewellyn, 29505, be denied.

Upon motion of Mr. Klehs, seconded by Mr. Andal and duly carried,

Mr. Andal, Mr. Parrish and Mr. Klehs voting yes, Mr. Chiang voting no and Ms. Mandel abstaining, the Board ordered to sustain the Franchise Tax Board on the 1986 tax year of The Pillsbury Company, 98A-1358; 8900246497.

Mr. Andal moved to grant the remainder of the appeal, seconded by

Mr. Parrish but failed to carry, Mr. Parrish and Mr. Andal voting yes, Mr. Klehs and

Mr. Chiang voting no and Ms. Mandel abstaining.

Upon motion of Mr. Klehs, seconded by Mr. Chiang and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board decided to reconsider the 1986 tax year, deferring consideration to the next Board meeting.

Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board deferred consideration of the remainder of the appeal to the next Board meeting.

Mr. Andal moved to grant the appeal of Sara Lee Corporation, 97R-0948; 89002458860, seconded by Mr. Parrish but failed to carry, Mr. Parrish and Mr. Andal voting yes, Mr. Klehs and Mr. Chiang voting no and Ms. Mandel abstaining.

The Board deferred consideration of this matter to the next Board meeting.

The Board adjourned at 12:20 p.m.

The foregoing minutes are adopted by the Board on May 24, 2000.