Wednesday, January 5, 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, and Ms. Mandel present on behalf of Dr. Connell in accordance with Government Code Section 7.9.

BUSINESS TAXES HEARINGS

Myles J. Zakheim, OD Optometric Corporation, SR AS 18-733353-010, 89000246540
4-1-91 to 3-31-94, $31,104.64

For Petitioner: Kai Mickey, Consultant
For Sales and Use Tax Department: Kevin Hanks, Hearing Representative

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

Issue: Whether petitioner's allegations that certain of petitioner's out-of-state vendors have sales agents located in this state automatically subjects the transactions to sales tax.

Whether the markup factor used to compute the credit measure for tax paid purchases resold is excessive.

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 on the remaining amount and approved a two year payment plan.

All Star Gasoline Incorporated, SR CHB 19-744849-020,89000280280
1-1-94 to 12-31-96, $31,104.64

For Petitioner: Bruce Weitzen, Attorney
Kelly Engineer, President
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 audited taxable mini-mart sales were established in accordance with the facts. 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, Mr. Chiang and Ms. Mandel voting yes, the Board ordered that the petition be submitted for decision.

Edward Celaya Borquez, SR GH 26-829523-010, 89000690810
7-1-93 to 6-30-96, $8,805.99

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

Action: The Board took no action.

Raj Kumar Aery & Santos Aery, SR KHD 28-867218-020, 89000777880
1-1-94 to 11-11-97, $8,797.77

For Petitioner: Raj Kumar Aery
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 the taxable sales were computed in accordance with the facts.

Whether relief from the negligence penalty 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.

General Electric Capital Auto Lease
SS OHB 30-625003-020, 89000815460, 1-1-93 to 12-31-96, $2,953,410.25

BMW Financial Services NA, Inc.
SS OHA 30-663830-020, 89000841740, 4-1-92 to 3-31-93, $505,831.17

Appellant’s Exhibit: Franchise Tax Board Regulation 25120 and Multiple Flows of Value Chart (Exhibit 12.11)
Respondent’s Exhibit: Miscellaneous Charts (Exhibit 12.12)
For Petitioner: Patrick F. Guerin, Manager, GE
Jeffrey Hyde, Senior Tax Counsel, GE
Joseph A. Vinatieri, Attorney
For Sales and Use Tax Department: Janice Thurston, Counsel

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

Issue: Whether the pre-July 15, 1991 leases qualify for exemption from the tax rate increases pursuant to Revenue and Taxation Code section 6376.1.

Whether Revenue and Taxation Code section 6487 prevents the Board from issuing a notice of determination to petitioner, GE.

Whether the Waiver of Limitation excluded calendar year 1993. (GE)

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 granted the petition for tax year 1993. 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 remainder of the petition be submitted for decision.

Boulevard Communications, SR GHC 14-700211-020, 003, 89000116360, 89000116350
4-1-93 to 3-31-96, $11,413.02

For Petitioner: Joseph Micallef, Consultant
For Sales and Use Tax Department: Sharon Jarvis, Counsel

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

Issue: Whether a certain sale of a vehicle qualifies as a nontaxable sale for resale.

Whether a certain sale of a vehicle qualifies as an exempt sale in interstate commerce.

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 in accordance with the revised recommendation of the Appeals section.

The Board recessed at 10:55 a.m. and reconvened at 11:05 a.m. with Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel present.

BUSINESS TAXES MATTERS

C-B Deli, Inc., SY CH 99-320007-010, 890002198430
1-1-93 to 12-31-95, $17,183.43

Appellant’s Exhibit: Franchise Tax Board Regulation 25120 and Multiple Flows of Value Chart (Exhibit 12.11)
Respondent’s Exhibit: Miscellaneous Charts (Exhibit 12.12)
For Petitioner: Appearance Waived
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 audited percentage of taxable to total sales was established in accordance with the facts.

Whether the percentages of taxable sales for periods of inclement weather and periods prior to 1994 warrant adjustments.

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 redetermined as recommended by the Appeals Section and approved a payment plan.

FINAL ACTION ON PETITIONS HEARD JANUARY 5, 2000

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 of All Star Gasoline Inc., SR CHB 19-744849-020, 89000280280 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 petition of Raj Kumar Aery and Santos Aery, SR KHD 28-867218-020, 89000777880 be redetermined as recommended by the Appeals Section.

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 of General Electric Capital Auto Lease, SR OHB 30-625003-020, 89000815460, and BMW Financial Services, NA, Inc., SS OHA 30-663830-020, 89000841740, be deferred to the next Sacramento Board meeting.

The Board recessed at 11:05 a.m. and reconvened at 1:30 p.m. with Mr. Andal, Mr. Parrish, Mr. Klehs and Mr. Chiang present.

PUBLIC HEARING

PROPOSED AMENDMENT OF PROPERTY TAX RULE 133, BUSINESS INVENTORY EXEMPTION

Lawrence A. Augusta, Assistant Chief Counsel, Property Taxes, reported that the proposed amendments to Rule 133 define as business inventory eligible for the business inventory exemption oak barrels that are used in the process of manufacturing wine and brandy for the purpose of physically incorporating the flavor- and aroma-enhancing chemical compounds of the oak into the wine or brandy.

Speakers: Honorable William Greenwood Fresno County Assessor

Mr. Greenwood testified that a partial exemption should be granted for oak barrels, that only a portion of the barrel is becomes part of the wine or brandy. He disagrees with the rule as proposed.

Dr. Connell entered the Boardroom.

Speakers: Joseph Kelly San Luis Obispo County

Mr. Kelly testified that he agrees with the rule as published.

Fling Traylor

Paso Robles, CA

Mr. Traylor testified that he agrees with the rule as published, and encouraged the Board to adopt the rule. He stated that the barrels cannot be portioned as previously suggested; the barrels are used in whole.

Action: Upon motion of Mr. Klehs, seconded by Dr. Connell and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Dr. Connell voting yes, the Board adopted the amendments to Property Tax Rule 133 as published. A copy of the rule as amended is incorporated in these minutes by reference (Exhibit 1.1).

Exhibits to these Minutes are incorporated by reference.

The Board recessed at 1:40 p.m. and reconvened at 2:15 p.m. with Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel present.

PROPOSED ADOPTION OF AND AMENDMENTS TO PROPERTY TAX RULES 301-321, LOCAL EQUALIZATION

Mr. Augusta reported that the proposed amendments to Rule 301 set forth more precisely the definitions that govern construction of the local equalization rules; the proposed amendments to Rule 301.1 clarify and make specific statutory provisions; proposed Rule 305.2 provides authority for boards of supervisors to establish prehearing conferences and prescribes notice procedures; the proposed amendments to Rule 309 add an exception to the requirement that an appeals board hear and decide an application within two years, specify the period of time for which the applicant's opinion of value remains on the roll if enrolled as a result of the appeals board failing to hear and decide the application within two years and clarify the notice and hearing procedures to be followed upon denial of an application; the proposed amendments to Rule 313 clarify the presentation of the case, the application of the evidentiary presumptions affecting the burden of proof, and the types of evidence that board members and hearing officers may not consider in their decision on an application; the proposed amendments to Rule 317 clarify and consolidate the provisions governing persons who are required to appear at hearing; and the proposed amendments to Rule 321 clarify the operation of evidentiary presumptions applicable to assessment appeals proceedings.

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

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 adopted Property Tax Rule 305.2 and amended Rules 301, 305.1, 309, 313, 317, and 321 as published. A copy of the rules as adopted and amended is incorporated in these minutes by reference (Exhibit 1.2)

PROPOSED AMENDMENTS TO SALES AND USE TAX REGULATION 1540, ADVERTISING AGENCIES, COMMERCIAL ARTISTS AND DESIGNERS

David H. Levine, Supervising Tax Counsel, reported that the proposed amendments to Regulation 1540 (1) generally treat advertising agencies as agents of their clients providing service but also explain under what circumstances advertising agencies are retailers, and make the regulation consistent with recent amendments to other sales and use tax regulations in related areas; (2) clarify when transfers of images on electronic media and for the purpose of reproduction are nontaxable, clarify when any receipts for the sale of additional copyrights or royalties are taxable, and establish the taxability of the transfer of tangible personal property as part of the performance of creative or development or environmental graphic design services, and specifically exclude from tax charges for designing, editing, or hosting an electronic website when no tangible personal property is transferred; and (3) update the regulation to conform it to the industry's use of computer hardware and software to produce print advertising and artwork.

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

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 adopted the amendments to Sales And Use Tax Regulation 1540 as published. A copy of the regulation as amended is incorporated in these minutes by reference. (Exhibit 1.3).

PORPOSED AMENDMENTS TO EMERGENCY TELEPHONE USERS SURCHARGE REGULATIONS 2401, DEFINITIONS, AND 2406, LIABILITY FOR SURCHARGE; LIABILITY FOR SURCHARGE REMITTED BY BILLING AGGREGATOR; LIABILITY FOR SURCHARGE BILLED THROUGH BILLING AGENTS

Mr. Levine reported that the proposed amendments to Regulations 2401 and 2406 clarify that the service supplier remains liable to collect and remit the surcharge, but authorizes the service supplier to contract with a billing aggregator to act as its agent in collecting and remitting the surcharge to the state. The regulations authorize the billing aggregator to file a single return each reporting period as agent on behalf of multiple service supplier clients, pay the surcharge with a single check and provide, when requested by the Board, information about the individual service suppliers on whose behalf the return was filed. The service supplier would remain responsible to ensure the proper amount of surcharge is remitted on its behalf to the Board.

Mr. Levine recommend that, in response to public comment, the Board approve changes to the published version of Regulation 2406.

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

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 adopted the amendments to Emergency Telephone Users Surcharge Regulation 2401 as published, and approved changes to the published version of Regulation 2406 and ordered that the changed version be placed in the rulemaking file. A copy of these regulations is incorporated in these minutes by reference (Exhibit 1.4).

PROPOSED AMENDMENTS TO CONFLICT OF INTEREST CODE REGULATION 6001, GENERAL PROVISIONS

Jean Ogrod, Assistant Chief Counsel, Settlement and Administration Section, reported that Regulation 6001, with Appendices A and B, is required by the Political Reform Act, which is found in Government Code sections 81000 - 91015. Regulation 6001 incorporates by reference the standard Conflict of Interest Code adopted by the Fair Political Practices Commission in Title 2 California Code of Regulations, section 18730. Appendix A lists all designated positions and the applicable designated disclosure categories. Appendix B describes the reporting requirements of each disclosure category.

There are no proposed changes to the Conflict of Interest Code itself. The proposed changes to Appendix A reflect the classification changes that have taken place at the Board since the conflict of interest code was last amended. The timeframe for Category 5 of Appendix B is currently based on the filing of a Franchise or Income Tax appeal. The proposed change would extend the reportable period to include the time during which there is a pending Taxpayers' Bill of Rights reimbursement claim. Proposed Category 11 of Appendix B provides an appropriate reporting category for the new Telecommunications Systems Analyst classification. Category 9 is being redrafted for clarity, and minor changes for consistency are proposed in Categories 7-10.

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

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 adopted the amendments to Conflict of Interest Code Regulation 6001 as published. A copy of the regulation as amended is incorporated in these minutes by reference (Exhibit 1.5).

The Board recessed at 2:20 p.m. and reconvened at 2:25 p.m. with Mr. Andal, Mr. Parrish, Mr. Klehs and Mr. Chiang present.

BUSINESS TAXES HEARINGS

Harshida & Harivadan Parmar,
CR ET 02-001189-010, 89000005080, 4-1-88 to 3-6-96, $23,759.93
CP ET 50-000975-010, 89000959570, 1-1-89 to 3-6-96, $23,452.16

For Petitioner: Harivaden Parmar
Mark D. Poniatowski, Attorney
For Sales and Use Tax Department: Janet Vining, Counsel

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

Issue: Whether the evidence establishes that audited distributions of cigarettes are excessive.

Ms. Mandel entered the Boardroom.

Whether the evidence shows that audited distributions of tobacco products other than cigarettes is excessive.

Whether relief from the 25% penalties for fraud or intent to evade the tax is warranted.

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 petition be redetermined as recommended by the Appeals Section, but referred the claim of mathematical errors to the Appeals Section to review and return to the Board with a recommendation.

Hong Kong Investments, Inc., SR JHJ 99-218235-010, 89002153020
4-1-93 to 3-31-96, $8,570.44

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

Action: The Board took no action.

Mr. Klehs left the Boardroom.

Flight Light, Inc., SR KH 99-329314-010, 89002202760
1-1-94 to 9-30-96, $6,789.41

For Petitioner: Robert R. Rubin, Attorney
Kyle J. Owens, President
Jack D. Hart, Vice President
For Sales and Use Tax Department: Sharon Jarvis, Counsel

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

Issue: Whether the airport lighting regulators sold to a United States construction contractor is a nontaxable sale for resale to the United States government.

Mr. Klehs entered the Boardroom.