Approved Minutes Wednesday, February 1, 2000


Wednesday, February 1, 2000

The Board met at its offices at 5901 Green Valley Circle, Culver City, at 9:00 a.m. with Chairman Andal, Mr. Klehs and Mr. Chiang present, and Ms. Mandel present on behalf of Dr. Connell in accordance with Government Code Section 7.9.

The Board recognized the passing of former Board employees Gene Norris, Chief, Financial Management Division, and Don Brady, Principal Tax Auditor, and offered their condolences to their families.

BUSINESS TAXES HEARINGS

Paradise Textile Corp., SR EH 23-888223-010, 89000436360

1-1-92 to 12-31-94, $248,102.93

For Petitioner: Robert C. Norton, Attorney

For Sales and Use Tax Department: Sharon Jarvis, Counsel

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

Issue: Whether the purchases of fixed assets qualify as sales tax transactions.

Whether the supplies in issue become an integral part of the manufactured item.

During hearing of this petition, Vice Chairman Parrish entered the Boardroom.

Action: Upon motion of Mr. Klehs, 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 petition be submitted for decision.

Rank Cintel, Inc., SR AC 30-676218-010, 89000853670

7-1-94 to 9-28-96, $408,487.55

For Petitioner: Jim Fier, CPA

Wade Downey, Consultant

Thomas M. Crapson, CFO

Craig Risebury, Technical Sales Manager

For Sales and Use Tax Department: Warren Astleford, Counsel

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

Issue: Whether petitioner made taxable sales of equipment to customers who, after accepting delivery of the equipment, became lessees of the equipment through apparent sale and leaseback transactions entered into with third-party finance companies.

Whether petitioner is eligible for relief from liability for alleged reasonable reliance on erroneous written advice from the Board.

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.

Mr. Klehs and Mr. Chiang left the Boardroom.

Chinese Overseas Marketing Service Corp., SN AP 52-003683-010, 89000964080,

7-1-92 to 12-31-95, $79,097.64

SN AP 52-003683-020, 89000964100

1-1-92 to 12-31-95, $14,643.11

For Petitioner: Jason C. DeMille, Attorney

Alan Kao, President

Kent Cheng, Accountant

For Sales and Use Tax Department: Janice Thurston, Counsel

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

Issue: Whether the evidence establishes that a resale certificate was issued to "China Times, Inc."

Whether the items purchased from "C.T. Printing" were described on the resale certificate.

Whether petitioner revoked the resale certificate prior to the purchases in question.

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

Mr. Klehs and Mr. Chiang entered the Boardroom.

BCC International, SR EAA 99-104074-010, 89002104400

4-1-93 to 6-30-96, $27,876.87

For Petitioner: Merci Jensen, Controller

Joseph Weisz

For Sales and Use Tax Department: Kevin Hanks, Hearing Representative

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

Issue: Whether petitionerís allegation that it overstated sales on a later return to report sales made in a prior period warrants a reduction to the tax.

Action: Upon motion of Mr. Chiang, 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.

J.S.I Cortez Pallets, Inc., SR EH 99-104199-010, 89002104510

For Petitioner: No Appearance

Action: The Board took no action.

Leather Expo, Inc. SY AB 99-105778-010, 89002105410

7-1-92 to 6-30-95, $29,882.42

For Petitioner: Richard Schultz, Attorney

Alex Hakakian

For Sales and Use Tax Department: Sharon Jarvis, Counsel

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

Issue: Whether the terms of the agreements of sale were later modified to provide for the addition of sales tax reimbursement to the sales prices.

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 submitted for decision.

The Board recessed from 11:00 a.m. to 11:05 a.m. and reconvened with Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel present.

Babken Tataryan, SR ARH 11-814925-010, 89000035800,

FV DHA 11-814926-010, 89000035810

4-22-92 to 5-31-92, $90,874.32

For Petitioner: Norma Goodreau, Agent

Babken Tataryan

Jack Tataryan

For Sales and Use Tax Department: Sharon Jarvis, Counsel

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

Issue: Whether petitioner is liable for the tax due.

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 submitted for decision.

ACTION ON CASES HEARD FEBRUARY 1, 2000

Upon motion of Mr. Andal, seconded by Ms. Mandel and unanimously carried, Mr. Andal, Mr. Parrish and Ms. Mandel voting yes, Mr. Klehs and Mr. Chiang not participating, the Board ordered that the petition of Chinese Overseas Marketing Service Corp. SN AP 52-003683-010;020, 89000964080, 89000964100, be redetermined as recommended by the Appeals Section.

Upon motion of Mr. Klehs, seconded by Mr. Andal and duly carried, Mr. Andal, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, Mr. Parrish voting no, the Board ordered that the petition of BCC International, SR EAA 99-104074-010, 89002104400, be redetermined as recommended by the Appeals Section.

Upon motion of Mr. Klehs, seconded by Mr. Andal and duly carried, Mr. Andal, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, Mr. Parrish voting no, the Board ordered that the petition of Leather Expo, Inc., SY AB 99-105778-010, 89002105410, be redetermined as recommended by the Appeals Section.

BUSINESS TAXES MATTERS

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 adopted the Appeals Matters Consent Schedule dated February 1, 2000 (Exhibit 2.1). The Board deferred consideration of Charals Haagen, SR AB 12-722407-010, 89000510810 and Richard G. Doran, et al, SR EA 24-905457-010, 89000486880.

FRANCHISE AND INCOME 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, the Board approved the staff recommendations with respect to Franchise and Income Tax Decisions and Petitions for Rehearing Schedule dated February 1, 2000 (Exhibit 2.2)

The Board deferred consideration of the appeals of Wayne N. Fleischer, 98A-0909,89002462350, Rosemarie A. Fleisher, 98A-0908,89002462340, Cleofas P. & Amelia Sales, 99R-0021, 89002465620 and Joseph R. & Marianne Barrios, 98A-0085, 89002466390.

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, the Board approved the staff recommendations with respect to redeterminations, relief of penalty and refunds (Exhibit 2.3).

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 staff recommendations with respect to credits, cancellations and refunds (Exhibit 2.4).

The Board recessed at 11:45 a.m. and reconvened at 1:35 p.m. with Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel present.

SPECIAL PRESENTATION

Mr. Chiang and the Board members presented to Rudy Pagano, District Principal Compliance Supervisor, Van Nuys District office, a retirement resolution extending its sincere and grateful appreciation for his dedicated service to the State Board of Equalization and the State of California.

Mr. Andal entered the Boardroom.

BUSINESS TAXES HEARINGS

Jin Woo Chang, SR AB 99-303950-010, 89002191290

1-1-94 to 12-31-96, $7,410.32

For Petitioner: Michael Forest, Attorney

Jin W. Chang

For Sales and Use Tax Department: Mark Woolston, Hearing Representative

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

Issue: Whether bank deposits totaling $7,000 were loan payments from Rush Dye & Laundry (Rush) and not from retail sales of tangible personal property.

Whether a $7,000 bank deposit was from a loan payment from Western Laundry, rather than a retail sale to Western because Western never paid for the equipment and petitioner later repossessed it.

Whether the $70,000 disallowed sale for resale to Lucky Die & Laundry (Lucky) was in fact a sale by vendor East-West to Lucky with petitioner only acting as a middleman (broker); and therefore, no tax is due by petitioner.

Whether additional adjustments should be made for nontaxable repair labor.

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 petitioner 60 days to submit additional documentation and the Appeals Section 30 days thereafter to bring the matter back to the Board with a recommendation.

Joey M. Eddeek, SR AC 99-350028-010, 89002212630

7-1-94 to 6-13-96, $15,713.67

For Petitioner: Joey M. Eddeek, Former Owner

Majidah Eddeek, Wife

For Sales and Use Tax Department: Kevin Hanks, Hearing Representative

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

Issue: Whether audited taxable merchandise purchases are excessive.

Whether the audited taxable mark-up is excessive.

Whether an allowance for self-consumed taxable merchandise is warranted.

Whether an allowance for pilferage is warranted.

Whether relief from the negligence penalty is warranted

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

Arutyun Oganesyan, SR AC 13-876963-020, 89000097330,

10-1-91 to 5-31-94, $5,314.60

SR AC 13-876963-030, 89000097340

1-1-93 to 12-31-93, $17,504.69

FP HQ 98-500079-010,(Formerly FV AC 13-876964-010) 89000097370

10-1-91 to 5-31-94, $80,457.89

For Petitioner: Patrick McGinnis, Attorney

Arutyun Oganesyan

Digran Barsamion

For Sales and Use Tax Department: Kevin Hanks, Hearing Representative

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

Issue: Whether the evidence shows that petitioner paid the prepaid sales tax at issue to certain fuel distributors.

Alternatively, whether the prepaid sales tax for 1993 was disallowed in both the October 1, 1991 through May 31, 1994 audit period (020) and the January 1, 1993 through December 31, 1993 audit period (030).

Whether the purchases of diesel fuel were properly recorded and projection of additional purchases was warranted.

Whether the evidence shows that petitioner paid the prepaid excise tax at issue to certain fuel distributors.

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 of SR AC 13-876963-020, 89000097330, be redetermined in accordance with the revised recommendation of the appeals section.

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 remainder of the petitions be submitted for decision.

Goarik Kaladji, SR AC 99-746287-010, 89002379800

8-1-95 to 3-31-97, $21,645.30

For Petitioner: Goarik Kaladji, Owner

Gegam Kaladjian

Susie Mastikia

For Sales and Use Tax Department: Mark Woolston, Hearing Representative

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

Issue: Whether audited taxable sales were established in accordance with the facts.

Whether the evidence shows that petitioner did not sell any fixtures and equipment when the business was sold.

Whether relief from the 10% penalty for negligence is warranted.

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.

The Board recessed from 2:40 p.m. to 2:45 p.m. and reconvened with Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel present.

Bernacchi-Perry, Inc., SR EA 25-878136-010, 89000605670

4-1-94 to 3-31-97, $5,114.19

For Petitioner: Thomas Bernacchi, President

Elida Flores, Bookkeeper

For Sales and Use Tax Department: Janice Thurston, Counsel

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

Issue: Whether the evidence establishes that certain sales were nontaxable sales for resale and exempt sales in foreign commerce.

Whether the test period is representative of petitionerís operations.

Action: Mr. Andal moved that the petition be redetermined with adjustments. The motion was seconded by Mr. Parrish but failed to carry, Mr. Andal and Mr. Parrish voting yes, Mr. Klehs, Mr. Chiang and Ms. Mandel voting no.

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 submitted for decision.

Octavio O. Ramirez, SR AP 23-854928-010, 89000427690

10-1-91 to 12-31-94, $13,237.73

For Petitioner: Moises Lissin, Bookkeeper

Octavio Ramirez

For Sales and Use Tax Department: Kevin Hanks, Hearing Representative

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

Issue: Whether audited taxable sales were established in accordance with the facts.

Whether relief from the negligence penalty is warranted.

Action: Upon motion of Mr. Klehs, 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 petition be submitted for decision.

Mr. Chiang left the Boardroom.

Picante Mexican Grill, Inc., SR AC 99-971318-010, 89002451040

4-1-92 to 9-30-96, $77,964.75

For Petitioner: Norbert Fabian Nowydwor, C.E.O.

For Sales and Use Tax Department: Kevin Hanks, Hearing Representative

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

Issue: Whether the disallowed sales for resale were established in accordance with the facts.

Whether petitionerís sales of non-carbonated drinks are subject to tax.

Whether the measure of underreported taxable sales was established in accordance with the facts.

Whether relief from the fraud penalty is warranted.

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

Fine Quality Foods, Inc. SR EH 99-968079-010, 89002450160

4-1-95 to 8-31-96, $3,877.12

For Petitioner: Appearance Waived

For Sales and Use Tax Department: Sharon Jarvis, Counsel

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

Issue: Whether petitioner is liable as a successor.

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

Mr. Chiang entered the Boardroom.

FINAL ACTION ON PETITIONS HEARD FEBRUARY 1, 2000

Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang voting yes, Ms. Mandel abstaining, the Board ordered that the petitions of Babken Tataryan, SR ARH 11-814925-010, 89000035800, FV DHA 11-814926-010, 89000035810, be granted as recommended by the Appeals Section.

Upon motion of Mr. Klehs, seconded by Mr. Andal and duly carried, Mr. Andal, Mr. Klehs and Ms. Mandel voting yes, Mr. Chiang passing then voting yes, Mr. Parrish voting no, the Board ordered that the petition of Paradise Textile Corporation, SR EH 23-888233-010, 89000436360, be redetermined as recommended by the Appeals Section.

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 petitions of Arutyun Oganesyan, SR AC 13-876963-020, -030, 89000097330, 89000097340, FP HQ 98-500079-010, 89000097370, be redetermined as recommended by the Appeals Section.

(Motion Expunged) 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 its previous motion to redetermine the appeal of Goarik Kaladji, SR AC 99-746287-010, 89002379800 be expunged.

Mr. Parrish moved that the penalty be deleted. The motion was seconded by Mr. Andal but failed to carry, Mr. Andal and Mr. Parrish voting yes, Mr. Klehs,

Mr. Chiang and Ms. Mandel voting no.

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

Mr. Andal, Mr. Klehs and Ms. Mandel voting yes, Mr. Parrish and Mr. Chiang voting no, the Board ordered that the petition be redetermined as recommended by the Appeals Section.

Mr. Klehs moved that the petition of Octavio O. Ramirez, SR AP 23-854928-010, 89000427690, be redetermined as recommended by the Appeals Section. The motion failed for lack of a second.

Mr. Parrish moved that petition be redetermined and the penalty be deleted. The motion was seconded by Mr. Andal but failed to carry, Mr. Parrish and

Mr. Chiang voting yes, Mr. Andal, Mr. Klehs and Ms. Mandel voting no.

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

Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, Mr. Andal and Mr. Parrish voting no, the Board ordered that the petition be redetermined as recommended by the Appeals Section.

Upon motion of Mr. Klehs, seconded by Mr. Chiang and duly carried, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, Mr. Andal and Mr. Parrish voting no, the Board ordered that the petition of Bernacchi-Perry, Inc. SR EA 25-878136-010, 89000605670, be redetermined as recommended by the Appeals Section.

The Board adjourned at 3:45 p.m.

The foregoing minutes are adopted by the Board on March 16, 2000.