BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 450 N Street, Room 121 Sacramento, California REPORTER'S TRANSCRIPT FEBRUARY 3, 2009 BUSINESS TAXES COMMITTEE Reported by: Beverly D. Toms No. CSR 1662 1 1 2 P R E S E N T 3 4 For the Committee: Betty Yee Chair 5 Judy Chu 6 Member 7 Bill Leonard Member 8 Michelle Steel 9 Member 10 Marcy Jo Mandel Appearing for John 11 Chiang, State Controller (per Government Code 12 Section 7.9) 13 Diane Olson Chief, Board 14 Proceedings Division 15 Board of Equalization Staff: Jeff McGuire 16 Sales and Use Tax Department 17 Robert Tucker Legal Division 18 19 ---oOo--- 20 21 22 23 24 25 26 27 28 2 1 INDEX OF SPEAKERS 2 3 Page 4 Speaker: 5 PETER MICHAELS 6 6 ---oOo--- 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 1 Sacramento,California 2 February 3, 2009 3 ---oOO--- 4 MS. OLSON: The first item on the agenda this 5 morning is the Business Taxes Committee. 6 MS. YEE: We have one item on the Business 7 Taxes Committee agenda. It's Sales and Use Tax 8 Regulation 1668 regarding sales for resale. 9 Good morning. 10 MR. McGUIRE: Hi. 11 MS. YEE: Please introduce yourselves for the 12 record and then Appeals will introduce the issue. 13 MR. MCGUIRE: Good morning. I'm Jeff McGuire 14 with the Sales and Use Tax Department. And with me 15 today is Robert Tucker of our Legal Department. 16 As you mentioned, we have one agenda item today 17 for your consideration that involves revisions to 18 Regulation 1668, which is sales for resale. 19 Alternative 1, which is recommended by staff 20 and supported by interested parties would clarify that 21 when a purchase order is issued under a qualified resale 22 certificate, it is not limited to the use of specific 23 words -- the words "for resale" and may include 24 comparable terminology such as "not taxable." 25 This change would provide a bright line test as 26 to who is responsible for the tax due when there is a 27 dispute as to the validity of the qualified resale 28 certificate and related purchase order. 4 1 Alternative 2 would make no changes to the 2 regulation. 3 So, we are respectfully requesting your 4 approval of one of these alternatives and then your 5 authorization to publish any changes to the regulation. 6 I believe we have one speaker and then we're 7 available to answer any questions that you may have. 8 MS. YEE: Very well. Thank you very much. We 9 do have one speaker on this item. Mr. Rivera, you want 10 to come forward. 11 MR. MCGUIRE: I think it was Peter Michaels. 12 MS. YEE: Oh. 13 MR. McGUIRE: He just signed in, I believe. 14 MS. YEE: Okay. Mr. Michaels. 15 ---oOo--- 16 17 18 19 20 21 22 23 24 25 26 27 28 5 1 PETER MICHAELS 2 MR. McGUIRE: Good morning. 3 MR. MICHAELS: Good morning, Members of the 4 Board. For the record, my name is Peter Michaels. And 5 I actually am here to applaud the effort to liberalize, 6 if that's the right word, 1668. And I'm knee deep in a 7 case at the moment where I developed a lot of empathy 8 for the vendor who has thousands and thousands of 9 customers and it's just impossible to vet each and every 10 resale certificate that the vendor receives. And it's 11 an almost impossible circumstance to require a customer 12 to produce before actually doing business. 13 So, I applaud the -- the approach that this 14 revision takes to -- to be I say even more seller 15 friendly than the law already is, which as I interpret 16 it, it is relatively seller friendly in a resale 17 circumstance. So I applaud this. 18 MS. YEE: Great. Thank you very much. 19 Other speakers on this item? 20 Okay, hearing none, questions or comments, 21 Members? 22 Mr. Leonard. 23 MR. LEONARD: I'm -- I would say common sense, 24 and so I want to thank the -- the staff what -- their 25 work on this. 26 I would suggest that we -- that we make sure 27 that our web page search engine and our other ways -- 28 I'm thinking of out-of-state retailers who may -- who 6 1 may want to find out what our rules are or may have 2 limited awareness that we have rules that are different 3 than other states, that they can get to it as easy as 4 possible. 5 So, search terms or something like that to -- 6 to help out if -- if somebody has any kind of curiosity 7 they can come up with it quickly, this is what a resale 8 certificate looks like; this is what you need to do. 9 MS. YEE: Okay. 10 MR. LEONARD: Okay. 11 MR. MICHAELS: Could I share one afterthought? 12 I in the last week have done a lot of work in this area. 13 The audit manual has express provisions about sales for 14 resale, a whole section. The annotations, there are a 15 fair number of them -- 16 MR. LEONARD: Right. 17 MR. MICHAELS: -- that would be affected by 18 this, for better or for worse. 19 MR. LEONARD: There's a cross-reference in all 20 those areas. 21 MR. MICHAELS: Yeah. 22 MR. LEONARD: It would be a good idea. Thank 23 you. 24 MS. YEE: Thank you. Mr. McGuire, perhaps you 25 can just take a moment to comment on how we plan to do 26 outreach with respect to this change. Either you've 27 covered it in the issue paper. 28 MR. McGUIRE: Yeah, I think the -- the primary 7 1 thing that we'll do is we'll be updating all of our 2 publications, anything -- when we talk about sales for 3 resale we'll be updating the audit manual. 4 But primarily the biggest change we'll be 5 making sure that all of our staff is on board because 6 it's really that's where the audits -- kind of the 7 rubber meets the road, and where the issues actually 8 come up so it's making sure that our staff consistently 9 is following the -- the new guidance. 10 MS. YEE: Very well. Thank you. And I do want 11 to applaud our district office staff for working with 12 our taxpayers in this regard in bringing the issue 13 forward. I think this will provide definitely more 14 clarity and a bright line. 15 Other questions or comments? 16 Hearing none is there a motion? 17 MR. LEONARD: Move. 18 MS. YEE: Motion by Mr. Leonard -- 19 DR. CHU: Second. 20 MS. YEE: -- second by Dr. Chu to approve the 21 proposed revisions and authorize publication. 22 Without objection, such will be the order. 23 Thank you very much. 24 MR. McGUIRE: Thank you. 25 MR. TUCKER: Thank you. 26 ---oOo--- 27 28 8 1 REPORTER'S CERTIFICATE. 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, BEVERLY D. TOMS, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 February 3, 2009 I recorded verbatim, in shorthand, to 10 the best of my ability, the proceedings in the 11 above-entitled hearing; that I transcribed the shorthand 12 writing into typewriting; and that the preceding 8 pages 13 constitute a complete and accurate transcription of the 14 shorthand writing. 15 16 Dated: March 11, 2009. 17 18 19 ____________________________ 20 BEVERLY D. TOMS 21 Hearing Reporter 22 23 24 25 26 27 28 9