Approved 2000 Minutes - Wednesday, December 13, 2000

The Board met at its offices at 450 N Street, Sacramento, at 9:30 a.m. with Chairman Andal, Vice Chairman Parrish, Mr. Klehs and Mr. Chiang present, Ms. Mandel present on behalf of Dr. Connell in accordance with Government Code Section 7.9.

FRANCHISE AND INCOME TAXES HEARING

Toys R Us, 49612

1991, $ 689,601.00 Claim for Refund

1992, $1,178,134.00 Claim for Refund

1993, $1,561,119.00 Claim for Refund

1994, $1,913,263.00 Claim for Refund

For Petitioner: Prentiss Willson, Jr., Attorney
Glenn Bystrom, Representative
For Property Taxes Department: Carl Joseph, Tax Counsel

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

Issue: Whether the term "sales" for purposes of the sales factor for apportionment of business income (Revenue and Taxation Code (R&TC) Section 25134), which term is defined in R&TC Section 25120, subdivision (e) (as all gross receipts of the taxpayer), should include the gross amount received or the net amount received by appellant's treasury department from its investment activities occurring in New Jersey.

Whether respondent has the burden of proving that the statutory apportionment formula does not fairly reflect appellant's business activity in this state such that respondent may apply an alternate formula to appellant's business income under R&TC Section 25137; and, if so, whether respondent has met that burden.

Appellant Exhibit: Presentation (Exhibit 12.14)

Staff Exhibit: Charts (Exhibit 12.15)

Action:Upon motion of Mr. Klehs, seconded by Ms. Mandel and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs and Ms. Mandel voting yes, Mr. Chiang not participating, the Board ordered that the appeal be submitted for decision.

Exhibits to these Minutes are incorporated by reference.

BUSINESS TAXES HEARINGS

Linda M. Nantelle, SR GH 26-801366-010, -020, -030; 89000678810, -820, -830
4-1-94 to 5-31-97, $3,935.06 Tax, $00.00 Penalty

For Petitioner: No Appearance
For Sales and Use Tax Department: Kevin Hanks, Hearing Representative

Action:The Board took no action.

Salter Labs, SP UT 82-678258-010; 18370
10-31-98, $155,875.00 Tax

For Petitioner: William Lasher, Representative
For Sales and Use Tax Department: Carla Caruso, Counsel

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

Issue: Whether petitioner's use of the aircraft is exempt from use tax pursuant to California Code of Regulation, Title 18, Section 1620.

Action: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 ordered that the petition be granted in accordance with the revised recommendation of the Appeals Section.

AXIC, Inc., SR GH 21-790704-010; 89000332050
7-1-95 to 12-31-97, $7,095.00 Tax

For Petitioner: No Appearance
For Sales and Use Tax Department: Jeffery Graybill, Counsel

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

Issue: Whether petitioner is liable for sales tax on the sale of equipment it drop-shipped to the California customer of petitioner's out-of-state buyer, measured by the sales price the California customer paid to the out-of-state buyer.

Action:Upon motion of Ms. Mandel, 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.

Vikki G. Lozano, SR KH 28-872267-010; 89000779430
4-1-94 to 3-31-97, $10,836.55

For Petitioner: Vicki G. Lozano, Owner
Ted Lozano, Witness
For Sales and Use Tax Department: Robert Tucker, Counsel

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

Issues: Whether the evidence establishes that petitioner received and relied upon misinformation within the meaning of Revenue and Taxation Code Section 6596.

Whether relief from the tax is warranted based on petitioner's allegation that the understatement of taxable measure was caused by the lack of knowledge of her bookkeeper.

Whether the evidence establishes that a larger allowance for tax-paid purchases is warranted.

Action: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 ordered that the petition be submitted for decision.

James Akers, SR GHC 26-725121-010; 89000656470
10-1-92 to 9-30-95, $19,985.21, $00.00 Penalty

For Petitioner: James Akers, Owner
William R. Jespersen, CPA
For Sales and Use Tax Department: Sharon Jarvis, Counsel

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

Issue: Whether the evidence shows that audited sales for resale were computed in accordance with the facts.

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 submitted for decision, granting the Department 30 days to review new documentation, the petitioner 30 days to respond and the Appeals Section 30 days thereafter to bring the matter back to the Board with a final recommendation.

Wah C. Wong, SR BH 52-006842-010; 89000966230
7-3-95 to 6-27-96, $9,041.89 Tax, $904.19 Penalty, Negligence

Royal Jade House, Inc., SR BH 97-098026-010; 89002056090
4-1-94 to 3-31-97, $35,711.28 Tax, $3,571.13 Penalty, Negligence

For Petitioner: No Appearance
For Sales and Use Tax Department: Kevin Hanks, Hearing Representative

Action:The Board took no action.

Marriott Corporation, SY OHB 30-628394-010; 89000817120
9-7-85 to 12-30-88, $00.00 Tax

For Petitioner: Waived Appearance
For Sales and Use Tax Department: Warren Astleford, Counsel

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

Issue: Whether petitioner's payments have been properly applied to the liability.

Action:Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs and Ms. Mandel voting yes, Mr. Chiang not participating, the Board found that the payments were applied correctly to the redetermination.

FINAL ACTION ON APPEALS HEARD DECEMBER 13, 2000

Upon motion of Mr. Andal, seconded by Mr. Klehs and unanimously carried, Mr. Andal and Mr. Klehs voting yes, Mr. Parrish and Ms. Mandel abstaining and Mr. Chiang not participating, the Board ordered that the appeal of Toys R Us, 49612, be denied.

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 of Vikki G. Lozano, SR KH 28-872267-010; 89000779430, be redetermined as recommended by the Appeals Section and directed staff to negotiate a generous 24-month payment plan.

The Board recessed at 11:00 a.m. and reconvened at 2:10 p.m. with Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel present.

FINAL ACTION ON APPEALS HEARD DECEMBER 13, 2000

Upon motion of Mr. Klehs, seconded by Mr. Parrish and duly carried, Mr. Klehs and Mr. Parrish voting yes, Mr. Andal voting no, Ms. Mandel abstaining and Mr. Chiang not participating, the Board ordered not to publish a Memorandum Opinion in the appeal of Toys R Us, 49612.

PROPERTY TAXES HEARINGS

Nextel of California (2737), SAU 00-021; 75862

2000, $731,700,000.00

For Petitioner: Bruce Cartwright, Senior Manager
Brad Pennington, Attorney
Douglas Mo, Consultant
Adele Jaffin, Consultant
Kathryn Crompton, Property Specialist
For Property Taxes Department: Mary Ann Alonzo, Counsel
Harold Hale, Chief
Robert Lambert, Counsel

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

Issues: Whether physical, functional and economic obsolescence is properly reflected in the value adopted.

Whether the system assets are over capitalized.

Whether the Board should have considered the income approach in determining the full value of Petitioner's property.

Whether the penalty for incomplete and late filing should be abated.

Petitioner's Exhibit: Law Reference (Exhibit 12.16)

Cell Site Valuation (Exhibit 12.17)

Action:Upon motion of Mr. Chiang, seconded by Mr. Klehs and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs and Mr. Chiang voting yes, Ms. Mandel not participating in accordance with Government Code Section 7.9, the Board ordered that the issue of the penalty for incomplete and late filing be submitted for decision.

Upon motion of Mr. Klehs, seconded by Mr. Chiang and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs and Mr. Chiang voting yes, Ms. Mandel not participating in accordance with Government Code Section 7.9, the Board ordered that all remaining issues be submitted for decision.

PROPERTY TAXPAYERS' BILL OF RIGHTS

Mr. Andal stated this was the full Board meeting to hear what taxpayers believe can be done to improve functions of the Board of Equalization.

Jennifer Willis, Taxpayers' Rights Advocate, made introductory remarks regarding the Property Taxpayers' Bill of Rights 1999-00 Annual Report (Exhibit 12.18).

Speakers:Speakers were invited to address the Board, but there were none.

FINAL ACTION ON PETITIONS HEARD DECEMBER 12, 2000

Upon motion of Mr. Andal, seconded by Mr. Chiang and unanimously carried, Mr. Andal, Mr. Parrish and Mr. Chiang voting yes, Mr. Klehs and Ms. Mandel not participating in accordance with Government Code Section 7.9, the Board ordered that the petition of AT & T Communications, SAU00-017; 75816, be denied with respect to construction work in progress.

Mr. Andal made a motion to deny the petition with respect to network

equipment. Mr. Chiang made a substitute motion to adopt the petition with respect to the network equipment value at $118,292,682.00. The motion was seconded by Mr. Parrish and duly carried, Mr. Parrish and Mr. Chiang voting yes, Mr. Andal voting no, Mr. Klehs and Ms. Mandel not participating.

TIMBER YIELD TAX RATE

Richard Johnson, Deputy Director, Property Taxes Department, reported that the Revenue and Taxation Code requires that the Board adjust the timber yield tax rate in December of each year to the nearest one-tenth of one percent for the next calendar year. The adjustment is to be in the same proportion as the change from the previous tax year to the present one of the average general property tax rate in the rate adjustment counties.

Speakers:Speakers were invited to address the Board, but there were none.

Action:Upon motion of Mr. Parish, seconded by Mr. Chiang and unanimously carried, Mr. Klehs, Mr. Andal, Mr. Parrish, Mr. Chiang and Ms. Mandel voting yes, the Board adopted the timber yield tax rate of 2.9 percent for 2001 (Exhibit 12.19).

TIMBER HARVEST VALUES

Richard Johnson, Deputy Director, Property Taxes Department, reported that on or before December 31, the Board, after consultation with the Timber Advisory Committee and after public hearings held pursuant to the Administrative Procedure Act, shall designate areas containing timber having similar growing, harvesting and marketing conditions to be used as timber value areas for the preparation and application of immediate harvest values.

Speakers:Speakers were invited to address the Board, but there were none.

Action:Upon motion of Mr. Parrish, seconded by Mr. Chiang and unanimously carried, Mr. Klehs, Mr. Andal, Mr. Parrish, Mr. Chiang and Ms. Mandel voting yes, the Board adopted the timber harvest values (Exhibit 12.20).

PUBLIC HEARING

PROPOSED AMENDMENT OF SALES AND USE TAX REGULATION 1503, HOSPITALS, INSTITUTIONS & HOME FOR THE CARE OF PERSONS

Mr. Andal announced the public hearing of Sales and Use Tax Regulation 1503, Hospitals, Institutions & Home for the Care of persons.

Janice Thurston, Assistant Chief Counsel, reported that Regulation

1503, is proposed to be amended to interpret, implement and make specific Revenue and Taxation Code section 6363.6. Amendments are proposed to: 1) abolish the distinction between administered and non-administered medical supply items so that all facilities covered by the regulation are consumers of tangible personal property used in the performance of the medical services they provide, and retailers of other tangible personal property intended to be taken home by the patient; 2) consider other medical service facilities, such as surgery centers and similar medical care facilities, as consumers of property used in connection with their services, and change the title of Regulation 1503 to include other medical service facilities; and 3) include enteral feeding tubes and feeding bags in the definition of non-reusable items that become component parts of meals when provided to patients of institutions; and 4) to reorganize the regulation. Ms. Thurston recommend a change to the operative date.

Speakers:Speakers were invited to address the Board, but there were none.

Action: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 approved further changes to the published version of Regulation 1503, Hospitals, Institutions & Home for the Care of Persons, and ordered that the changed version be placed in the rulemaking file for 15 days. A copy of the changed version is incorporated in these minutes by reference (Exhibit 12.21).

PROPOSED AMENDMENT OF SALES AND USE TAX REGULATION 1591, MEDICINES AND MEDICAL DEVICES

Mr. Andal announced the public hearing of Sales and Use Tax Regulation 1591, Medicines and Medical Devices.

Janice Thurston, Assistant Chief Counsel, reported that Regulation 1591,

is proposed to be amended to interpret, implement and make specific Revenue and Taxation Code section 6369. Amendments are proposed to provide that specified items of liquid nutrition are "substances and preparations" and that dental bone screws and abutments qualify as "medicines" within the meaning of the prescription medicine exemption.

Speakers:Mr. Joseph Micallef, Associated Sales Tax Consultants

Action:Upon motion of Mr. Parrish, seconded by Ms. Mandel and duly carried, Mr. Andal, Mr. Parrish, Mr. Chiang and Ms. Mandel voting yes, Mr. Klehs voting no, the Board adopted the amendments to Regulation 1591, Medicines and Medical Devices, as published (Exhibit 12.22).

PROPOSED AMENDMENTS TO REGULATION 6001, GENERAL PROVISIONS

Mr. Andal announced the public hearing of Regulation 6001, General Provisions.

Jean Ogrod, Assistant Chief Counsel, Settlement and Administration, reported that Regulation 6001, there are no proposed changes to the Conflict of Interest Code itself. The proposed changes to Appendix A reflect the organization and classification changes that have taken place at the Board since the conflict of interest code was last amended. The proposed change to Appendix B is the addition of the new Ballast Water Management Fee Law to disclosure category 2.

Speakers:Speakers were invited to address the Board, but there were none.

Action: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, the Board adopted the amendments to Regulation 6001, General Provisions, as published (Exhibit 12.23).

BUSINESS TAXES HEARINGS

Stratacom, Inc., SY GH 26-773927-010, -002; 89000669540, -520
7-1-91 to 6-30-94, $44,150.37 Tax

For Petitioner: Derek Lesicko, Manager
Roy Crawford, Representative
Mehrdaf Talaifar, Representative
For Sales and Use Tax Department: Warren Astleford, Counsel

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

Issues: Whether title to replacement circuit boards provided under an optional maintenance agreement passed to petitioner's customer outside this state.

Alternatively, whether petitioner is the consumer of parts used in the performance of its optional service agreements for replacement circuit boards shipped out of state to a customer.

Whether petitioner is entitled to a refund of use tax accrued and paid to the Board on tolling used and retained outside this state for the period of July 1, 1990 through June 30, 1991.

Action:Upon motion of Mr. Chiang, seconded by Mr. Klehs and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs and Mr. Chiang voting yes, Ms. Mandel not participating, the Board ordered that the petition be submitted for decision.

Rajinder Singh Garcha, SR KH 99-624109-010; 30060

7-1-95 to 6-30-98, $13,236.36 Tax

For Petitioner: No Appearance
For Sales and Use Tax Department: Kevin Hanks, Hearing Representative

Action:The Board took no action.

Double Buck Investments, Inc., SY JH 27-779221-010; 89000720040

1-1-94 to 12-31-95, $27,204.02 Tax, $00.00 Penalty

For Petitioner: Nicholas L. Stameroff, CPA
Charles Hinds, Controller
For Sales and Use Tax Department: Sharon Jarvis, Counsel

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

Issues: Whether the determination of understated taxable sales through an analysis of petitioner's California sales and use tax accrual account was proper.

Whether petitioner is the installer or the consumer of shelving acquired from Spacesaver Corporation (Spacesaver) for performance of Spacesaver's contract with the Federal Bureau of Investigation (FBI).

Action: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 ordered that the petition be submitted for decision.

William Ross Galyon, SR KH 28-735025-010; 89000752730

4-1-95 to 12-31-97, $11,052.72 Tax

For Petitioner: William R. Galyon
For Sales and Use Tax Department: Kimberly Mitchell Bott, Counsel

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

Issues: Whether petitioner's claim that the determination is based upon fraudulent books warrants adjustment to the tax.

Whether petitioner's claim that he never received the tax from his customers because his bookkeeper stole the money warrants relief from the tax.

Whether petitioner's status as a victim or petitioner's allegation that the Board shares responsibility for the crime warrants relief from the tax.

Whether interest should be accrued only from the date petitioner received the audit workpapers.

Whether the Board can honor petitioner's request that no additional penalties or tax liens be imposed, and that collection be held in abeyance while he contacts his Congressman and the Governor.

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 submitted for decision, granting the Department 30 days for review of new documentation, the petitioner 30 days to respond and the Appeals Section 30 days thereafter to bring the matter back to the Board with a final recommendation.

The Board recessed at 5:05 p.m. and reconvened at 5:10 p.m. with Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel present.

FINAL ACTION ON PETITIONS HEARD DECEMBER 13, 2000

Upon motion of Mr. Klehs, seconded by Mr. Chiang and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs and Mr. Chiang voting yes, Ms. Mandel not participating in accordance with Government Code Section 7.9, the Board ordered that the petition for reassessment and penalty abatement of Nextel of California (2737), SAU 00-021; 75862, be denied.

Upon motion of Mr. Andal, seconded by Mr. Parrish and duly carried, Mr. Andal, Mr. Parrish and Mr. Chiang voting yes, Mr. Klehs voting no and Ms. Mandel not participating, the Board ordered that the petition of Stratacom, Inc., SY GH 26-773927-010, -002; 89000669540, -520, be granted.

Upon motion of Mr. Andal, 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 of Double Buck Investments, Inc., SY JH 27-779221-010; 89000720040, with respect to audit technique be redetermined as recommended by the Appeals Section.

Upon motion of Mr. Andal, seconded by Mr. Parrish and duly carried, Mr. Andal, Mr. Parrish, Mr. Klehs and Ms. Mandel voting yes, Mr. Chiang voting no, the Board ordered that the petition be granted with respect to being the installer for another company under a contract with the Federal Bureau of Investigation.

The Board adjourned at 5:15 p.m.

The foregoing minutes are adopted by the Board on March 29, 2001.