1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 APRIL 29, 2009 10 11 12 13 14 15 FINAL ACTIONS 16 AFTERNOON SESSION 17 18 19 20 21 22 23 REPORTED BY: JULI PRICE JACKSON 24 CSR NO. 5214 25 26 27 28 1 1 P R E S E N T 2 3 For The Board Betty Yee of Equalization: Chairwoman 4 5 Judy Chu Vice-Chair 6 Bill Leonard 7 Member 8 Michelle Steel Member 9 Marcy Jo Mandel 10 Appearing for John Chiang State Controller 11 (per Government Code Section 7.9) 12 Diane G. Olson 13 Chief, Board Proceedings Division 14 15 ---OOO--- 16 17 18 19 20 21 22 23 24 25 26 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 APRIL 29, 2009 4 ---o0o--- 5 MS. YEE: Okay, next item? 6 Does that conclude our hearings? 7 MS. OLSON: That concludes our oral hearings 8 for this afternoon. 9 MS. YEE: Okay. Why don't we then go and take 10 up the matters under submission? 11 ---o0o--- 12 C1 D.R. SYSTEMS, INC. 13 No. 381450 (FH) 14 ---o0o--- 15 MS. OLSON: Our first final action is C1, D.R. 16 Systems, Inc. 17 MS. YEE: Okay. We have item C1, D.R. Systems, 18 Incorporated before us. 19 Is there a motion. 20 DR. CHU: I move to adopt the staff 21 recommendation. 22 MS. YEE: Okay, motion by Dr. Chu to adopt the 23 staff recommendation. 24 Is there a second? 25 MS. MANDEL: Second. 26 MS. YEE: Second by Ms. Mandel. 27 MS. STEEL: Objection. 28 MS. YEE: Okay, discussion? 3 1 MR. LEONARD: I'll discuss it just for getting 2 on the record that we -- we still need to clarify that 3 this self-help or crediting overpayments to future 4 periods is something the Department doesn't recognize. 5 Mr. Levine stated it clearly that that's the 6 case, but I know that at the field level and at the 7 Return Analysis, that isn't always the practice. So, we 8 need to have our practice comport with our rules. 9 This taxpayer was caught in the middle of all 10 of this and should have been stopped much earlier. And 11 if he would been stopped, it would have been within the 12 refund period. 13 And I -- that's an that's unfair outcome. 14 MS. YEE: Okay. Ms. Steel? 15 MS. STEEL: I thought January 7th, 2005 letter 16 has to be treated as a valid claim for refund because 17 there is a date on it and which the tax period that 18 taxpayer was asking. 19 So, I think this taxpayer deserved to get 20 refund. 21 MS. YEE: Okay. Ms. Mandel? 22 MS. MANDEL: Yeah, it's -- I mean, it's a 23 very -- it's a sympathetic situation. If you could only 24 tell from the return that that's what they were doing in 25 the past. When Return Analysis had them do something 26 like that, they were specifically told how to do it 27 attach Return Analysis letter to the return where they 28 claimed it on a prepayment, you know, applied a credit 4 1 to a prepayment. 2 But you can't tell from the return where -- 3 where it was and it sounds like it was -- might have 4 been buried up in the numbers somewhere. 5 And it seemed more like the January letter was 6 requesting -- was giving a reason why -- a reason for 7 asking for penalty relief. 8 DR. CHU: Well -- 9 MS. YEE: Dr. Chu? 10 DR. CHU: -- for my part, I think that the 11 January 7th, 2005 letter was clearly a request for 12 relief of penalty. 13 And the later letter from this company asking 14 for a refund clearly stated it was for refund. So, they 15 knew how write a letter requesting a refund, but they 16 did not do it in the January 7th, 2005 letter. 17 MR. LEONARD: Dr. Chu? 18 MS. YEE: Mr. Leonard? 19 MR. LEONARD: You're totally right. I agree 20 that letter is not a request for refund. 21 But as -- what I didn't know before they came 22 in here is the timing of that letter, they thought that 23 the credit that they had taken was accepted and, 24 therefore, there was no refund due. 25 And it wasn't until later they found out that 26 that was disallowed and that they actually owed money 27 for that period, which pushed the prior period back into 28 a credit balance. 5 1 So, you're correct, the date of that letter is 2 -- is -- I am not arguing it's a claim for refund. What 3 I'm arguing is that it's a notice to the Department that 4 they had claimed a credit on the return, which it now 5 points out is looking at the return itself was almost 6 impossible to identify, but that letter was real clear, 7 they were claiming a credit balance at one point in time 8 and, basically, describing that it had it been adjusted 9 by them, by the taxpayer, not the Department. 10 To me that would be a clear notice to the 11 Department that somebody needs to talk to this taxpayer 12 and figure this thing out because they're -- we're -- 13 none of us know what's gone on. 14 MS. YEE: Okay. We have a motion before us to 15 adopt the staff recommendation. 16 Please call the roll. 17 MS. OLSON: Madam Chair? 18 MS. YEE: Aye. 19 MS. OLSON: Mr. Leonard? 20 MR. LEONARD: No. 21 MS. OLSON: Ms. Steel? 22 MS. STEEL: No. 23 MS. OLSON: Dr. Chu. 24 DR. CHU: Aye. 25 MS. OLSON: Ms. Mandel? 26 MS. MANDEL: Aye. 27 MS. OLSON: Motion carries. 28 ---o0o--- 6 1 C3 A REALTY PUBLICATIONS, INC. 2 No. 343231,373181,379332,391653 (EH) 3 ---o0o--- 4 MS. OLSON: Next item is C3, A Realty 5 Publications, Inc. 6 MS. YEE: Okay, we have item C3, A Realty 7 Publications, incorporated. 8 Is there a motion? 9 DR. CHU: I move to adopt the staff 10 recommendation. 11 MS. YEE: Okay. Motion by Dr. Chu to adopt the 12 staff recommendation. 13 Is there a second? 14 I will second that motion. 15 Discussion? 16 MR. LEONARD: Yes. 17 MS. YEE: Mr. Leonard? 18 MR. LEONARD: It appears that March of '04 is 19 when they really knew for the first time that they owed 20 a sales tax on the markup amount and then they could 21 claim a -- charge sales tax on their purchase price plus 22 the markup and they could claim a credit for tax paid if 23 had they paid it, that we should impose the penalty 24 after March of '04 and not impose it for prior periods. 25 Is there an interest in that? 26 It divides the big period, so, I can't tell you 27 dollar amount would be. The one -- the first period's 28 the biggest, the $11,000 number and it comes in that, 7 1 and, so -- 2 DR. CHU: Well, I believe that they should have 3 known as of October 2001 that they owed some tax. The 4 amount was, of course, in dispute, but the Department 5 discussed the matter with the Petitioners at that time. 6 And then there was the Department's report of 7 field audit on January 2002. But then you actually had 8 Appeals making a decision on the Department's audit 9 finding in February of 2003. 10 So, there were at least three occasions that 11 they were on notice that they owed something. 12 MR. LEONARD: You're clearly correct that they 13 were told that the Department believes they owed 14 something, but they were disputing it on valid grounds. 15 And part of it is very subjective. 16 As the Department had pointed out, if they had 17 physically had a classroom and charged the same tuition, 18 brought the students in and handed out the same papers 19 and books, that they would have been such a small amount 20 of the total expense amount that there -- if I 21 understood it correctly -- sales tax wouldn't be due. 22 Then I misunderstood you guys -- they're all 23 shaking their heads no. 24 MS. YEE: Mr. Levine? 25 MR. LEVINE: Classroom instruction is viewed 26 differently because you have all that service involved. 27 MR. LEONARD: Right. There's a reason it's 28 viewed differently. 8 1 MR. LEVINE: It's just substantially -- 2 MR. LEONARD: The services are more. 3 MR. LEVINE: -- more service than the -- 4 MR. LEONARD: Exactly, that's my point. 5 MR. LEVINE: -- correspondence course. 6 MR. LEONARD: So, it's kind of a subjective 7 area -- what's my ratio of services to tangible personal 8 property in the business I'm doing, I'm delivering to my 9 customers? 10 It's somewhat subjective. And I could see how 11 it would take five or six, seven years to argue that one 12 out as to what it is. 13 And then the further question, if you -- if you 14 really believe you are reselling the books without a 15 markup, that that's -- you're making your money on the 16 service side, you're just providing a pass-through to 17 the savings to your customers on the tangible personal 18 property side, I think it's -- I know there's a lot of 19 businesses that sell property below cost -- usually 20 because they're forced to, but it's not unheard of to 21 sell at or below the wholesale purchase price of a 22 product. 23 MS. YEE: Okay. And I think from my 24 perspective the fact that there was just no -- no 25 recognition or notation and the continuation by the 26 Petitioner to fully deduct the amount of the lump sum 27 charge just -- knowing that that was an issue -- is what 28 was compelling for me. 9 1 We have a motion before us to adopt the staff 2 recommendation. 3 Please call the roll. 4 MS. OLSON: Madam Chair? 5 MS. YEE: Aye. 6 MS. OLSON: Mr. Leonard? 7 MR. LEONARD: No. 8 MS. OLSON: Ms. Steel? 9 MS. STEEL: No. 10 MS. OLSON: Dr. Chu? 11 DR. CHU: Aye. 12 MS. OLSON: Motion fails. 13 ---o0o--- 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10 1 C4 FRANCISCO R.CORONADO 2 No. 396753 (EA) 3 ---o0o--- 4 MS. YEE: Take our next item. 5 MS. OLSON: Our next item is C4, Francisco R. 6 Coronado. 7 MS. YEE: Okay, item C4, Francisco R. Coronado. 8 Is there a motion? 9 DR. CHU: Move to adopt the staff 10 recommendation. 11 MS. YEE: Okay, motion by Dr. Chu to adopt the 12 staff recommendation. 13 Is there a second? 14 MS. MANDEL: Second. 15 MS. YEE: Second by Ms. Mandel. 16 Without objection? 17 MS. STEEL: Objection. 18 MS. YEE: Okay. Please call the roll. 19 MS. OLSON: Madam Chair? 20 MS. YEE: Aye. 21 MS. OLSON: Mr. Leonard? 22 MR. LEONARD: Aye. 23 MS. OLSON: Ms. Steel? 24 MS. STEEL: No. 25 MS. OLSON: Dr. Chu? 26 DR. CHU: Aye. 27 MS. OLSON: Ms. Mandel? 28 MS. MANDEL: Aye. 11 1 MS. OLSON: Motion carries. 2 ---o0o--- 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 12 1 C5 TEAM TOYSPORT AMERICA LIMITED 2 No. 333473 (AS) 3 ---o0o--- 4 MS. YEE: Okay. 5 MS. OLSON: Our next item is C5, Team Toysport 6 America Limited. This was a waived appearance. 7 MS. YEE: Okay. Item C5, waived appearance, 8 Team Toysport America Limited, is there a motion? 9 DR. CHU: Move to adopt the staff 10 recommendation. 11 MS. YEE: Okay. Motion by Dr. Chu to adopt the 12 staff recommendation. 13 Is there a second? 14 I will second that motion. 15 Any discussion on this, Members? 16 MS. STEEL: I have one question to Mr. Levine. 17 This one there is eleven quarters were over 18 deposited to the bank and only one quarter they 19 deposited less amount of money than what their sales was 20 reported. 21 And then now the Department is asking that they 22 are not going to give credit for -- they are not giving 23 adjustment for $156,000 because they gave wrong 24 adjustment for $81,000. 25 This totally one-way street, because when you 26 over deposit it, they're counting all those, but the 27 under deposit, the Department doesn't want to count 28 that. 13 1 MR. LEVINE: We had one quarter of 2 overreporting. If there was some variation, maybe 3 things would be different. But in a bank deposit 4 analysis when you look at it like this, you wouldn't 5 normally expect a large true credit amount under -- 6 overreporting compared to the deposits, it just doesn't 7 normally make sense and there's indication in the record 8 that this taxpayer would have really had that type of 9 deposit history. 10 And the fact that they waived appearance was -- 11 and I talked to their representative -- they accepted 12 that, they didn't dispute that aspect of it. 13 And when you factor in the generous nature of 14 the 50 percent adjustment, which is a judgment call, 15 could have been higher, could have been lower, but they 16 didn't support it, I think the Department was being 17 pretty fair about it. 18 And I think the taxpayer ultimately accepted 19 that, or, at least, its representative convinced it that 20 it should accept that. 21 MS. STEEL: Is that the reason that they didn't 22 show up? 23 MR. LEVINE: Actually, the representative 24 indicated that the taxpayer wanted to show up, but the 25 rep didn't want the taxpayer to because the rep didn't 26 think there was much of a chance to prevail. 27 Basically, the rep accepted that this was 28 a fair figure. 14 1 MS. YEE: Okay. We have a motion before us to 2 adopt the staff recommendation. 3 Please call the roll. 4 MS. OLSON: Madam Chair? 5 MS. YEE: Aye. 6 MS. OLSON: Mr. Leonard? 7 MR. LEONARD: Aye. 8 MS. OLSON: Ms. Steel? 9 MS. STEEL: No. 10 MS. OLSON: Dr. Chu? 11 DR. CHU: Aye. 12 MS. OLSON: Ms. Mandel? 13 MS. MANDEL: Aye. 14 MS. OLSON: Motion carries. 15 ---o0o--- 16 17 18 19 20 21 22 23 24 25 26 27 28 15 1 C6 GILBERTO GONZALEZ PEREZ 2 No. 396030 (AR) 3 ---o0o--- 4 MS. YEE: Okay. 5 MS. OLSON: Our next item C6, Gilberto Gonzalez 6 Perez. 7 MS. YEE: Okay. Item C6, Gilberto Gonzalez 8 Perez, is there a motion? 9 DR. CHU: I move to adopt the staff 10 recommendation. 11 MS. YEE: Motion by Dr. Chu to adopt the staff 12 recommendation. 13 Is there a second? 14 MS. MANDEL: Second. 15 MS. YEE: Second by Ms. Mandel. 16 Without objection, that motion carries. 17 ---o0o--- 18 19 20 21 22 23 24 25 26 27 28 16 1 C7a WOODLAND HILLS CAR WASH,INC. 2 No. 299486 (AC) 3 C7b BHUPINDER SINGH MAC 4 No. 299487 (AC) 5 ---o0o--- 6 MS. OLSON: Our final action is C7a, Woodland 7 Hills Car Wash and C7b, Bhupinder Singh Mac. 8 MS. YEE: Okay. We item C7a, Woodland Hills 9 Car Wash and C7b, Bhupinder Singh Mac. 10 Is there a motion? 11 MS. MANDEL: Staff recommendation. 12 MS. YEE: Okay. Motion by Ms. Mandel to adopt 13 the staff recommendation. 14 I will second that motion. 15 Discussion? 16 Please call the roll. 17 MS. OLSON: Madam Chair? 18 MS. YEE: Aye. 19 MS. OLSON: Mr. Leonard? 20 MR. LEONARD: No. 21 MS. OLSON: Ms. Steel? 22 MS. STEEL: No. 23 MS. OLSON: Ms. Mandel? 24 MS. MANDEL: Aye. 25 MS. OLSON: Motion fails. 26 MS. YEE: Okay. 27 MS. OLSON: That's our last item of business 28 today. 17 1 MS. YEE: Okay, very well. 2 We will recess until 9:30 tomorrow. 3 Thank you. 4 ---o0o--- 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 18 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, JULI PRICE JACKSON Hearing Reporter for the 8 California State Board of Equalization certify that on 9 APRIL 29, 2009 I recorded verbatim, in shorthand, to the 10 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 pages 1 13 through 19 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: May 13, 2009 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 19