1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 AUGUST 31, 2009 10 11 SALES AND USE TAX APPEAL HEARING 12 LOCAL TAX REALLOCATION HEARINGS 13 ITEM C2 14 CITY OF POMONA AND TOWN OF LOS GATOS 15 NO. 469261 16 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 For the Board Betty Yee of Equalization: Chair 3 Steve Shea 4 Acting Member 5 Bill Leonard Member 6 Michelle Steel 7 Member 8 Marcy Jo Mandel Appearing for John 9 Chiang, State Controller (per 10 Government Code 11 Section 7.9) 12 Diane G. Olson, 13 Chief, Board Proceedings Division 14 15 For Board of David Levine Equalization Staff: Staff Counsel 16 17 For Department: Carole Ruwart Tax Counsel 18 Robert Tucker 19 Tax Counsel 20 Bob Wils Tax Counsel 21 22 For the City of Pomona: Fran Mancia 23 Representative 24 Linda Lowry Representative 25 Eric Myers 26 Representative 27 For the Town of Los Gatos: Fran Mancia 28 Representative 2 1 Stephen Conway Representative 2 3 For Affected Jurisdictions: Robin Sturdivant Cities of Alhambra, Arcadia, Representative 4 Burbank, Carson, Commerce, Covina, Culver City, Glendale, Matt Hinderliter 5 Glendora, Industry, Ingewood, Representative Lakewood, Lancaster, Monrovia, 6 Montebello, Paramount, Redondo Mark Mulkerin Beach, Santa Monica, Signal Representative 7 Hill, South Gate, West Covina, West Hollywood, Whittier 8 9 For Affected Jurisdictions: Mitchell E. Abbott Cities of Beverly Hills, Attorney 10 Hawthorne, La Mirada, Norwalk, Pasadena, and Palmdale Judy Skousen 11 Redevelopment Agency Attorney 12 13 14 15 ---oOo--- 16 17 18 19 20 21 22 23 24 25 26 27 28 3 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 AUGUST 31, 2009 4 ---oOo--- 5 MS. YEE: Next case? 6 MS. OLSON: Our next item is C2, City of Pomona 7 and Town of Los Gatos. 8 We do have public speakers on this item. 9 MS. YEE: All right. 10 MS. OLSON: Would the public speakers like to 11 come forward to the center table? 12 MS. YEE: Are there other public speakers? 13 Please go ahead and have a seat at the table. 14 Let me do this, I am going to have Appeals 15 introduce the matter and then I would like to hear from 16 the public speakers for two minutes each. 17 And then we will be get into the regular 18 hearing of this matter, with a ten minute presentation 19 from the Petitioners. 20 Okay, Appeals? 21 MS. NIENOW: The issue here is whether the 22 local tax from sales negotiated outside California 23 should be reallocated directly to the warehouse making 24 the delivery for periods prior to and on and after 25 October 1st of 1993. 26 Based on the Board's prior decision to grant 27 the request for this hearing, we regard the appeal as 28 open and recommend granting the petitions for periods 4 1 beginning October 1st of 1993 and denying periods prior 2 to that date, which denial Petitioner Pomona disputes. 3 The substantially affected jurisdictions 4 primary dispute here is that the appeal should not be 5 regarded as open. And they assert that the regulation 6 our recommendation is based on should not be applied 7 retroactively. 8 Again, as a reminder to all of the hearing 9 participants, please be careful not to disclose 10 confidential information regarding the taxpayer. 11 Thank you. 12 MS. YEE: Thank you very much, Ms. Nienow. 13 If the public speakers would each identify 14 themselves, you have two minutes for your comments. 15 MS. SKOUSEN: My name is Judy Skousen and I am 16 here representing the Redevelopment Agency for the City 17 of Palmdale and the city of Palmdale. 18 We are here -- 19 MS. YEE: Mr. Levine? 20 MR. LEVINE: I wonder if we should have public 21 speakers from the cities that are actually represented 22 at the table to make arguments to the Board. 23 We do have, I think, public speakers from 24 parties, substantially affected jurisdictions who not 25 taking time -- 26 MS. YEE: That's fair. 27 MR. LEVINE: But it seems that if the 28 jurisdiction is at the table arguing, and I believe 5 1 Palmdale is sharing half the time, unless I am mistaken, 2 it seems to me that we're doubling up that way. 3 MS. YEE: Okay. Mr. Mancia, who do you have 4 here -- 5 MR. MANCIA: Yes, thank you, Madam Chair. 6 MS. YEE: -- on behalf of Pomona? 7 MR. MANCIA: Fran Mancia of MuniServices. On 8 my left is Steve Conway, the Finance Director for the 9 Town of Los Gatos. We also have Linda Lowry from the 10 City of Pomona, the City Manager. 11 MS. YEE: Okay. Is it relative to the 12 petitioning cities? 13 MR. MANCIA: Yes. 14 MS. YEE: And for the affected jurisdictions, 15 it's Palmdale and, sir, where are you from? 16 MR. MULKERIN: Mark Mulkerin for the City of 17 Industry. 18 MS. YEE: Okay. 19 MS. SKOUSEN: Madam Chairman, I was going to 20 make a public comment and we have our attorney here, 21 Mitch Abbott, who is -- 22 MS. YEE: That's okay. We'll just kind of sort 23 through the order here. 24 Anyone else in the audience that is going to be 25 interested or speaking on this? 26 Yes. Could you just kind of come forward and 27 identify yourselves so I know who you are? 28 MR. DE BOO: Jim DeBoo on behalf of the City of 6 1 Los Angeles and Mayor Villaraigosa. 2 MS. YEE: Okay. 3 MS. STURDIVANT: Robin Sturdivant, the HdL 4 Companies on behalf of 23 of the affected jurisdictions. 5 MS. YEE: Okay. 6 MR. LEVINE: I'm apparently mistaken about 7 Palmdale. The Redevelopment -- go ahead. 8 Trecia will explain. 9 MS. NIENOW: Just for clarification, the 10 Redevelopment Agency of Palmdale is a substantially 11 affected jurisdiction whereas the City of Palmdale is 12 not. 13 And, so, it was my understanding that Miss 14 Skousen was here to give public comment with respect to 15 City of Palmdale and also here to argue the case on 16 behalf of the Redevelopment Agency of Palmdale. 17 MS. YEE: Okay, okay. 18 And your testimony is going to be related to -- 19 well, actually, if we're going to hear from you, if you 20 could speak on your public comment, speak to the effect 21 on the Redevelopment Agency of Palmdale? 22 MS. SKOUSEN: Okay. 23 MS. YEE: Okay, does that -- 24 MS. NIENOW: You got it reversed. 25 MS. YEE: I've got it switched? 26 Okay. 27 MS. SKOUSEN: The City of Palmdale is not an 28 affected agency, although they will lose money. The 7 1 Redevelopment Agency is the affected agency and Mitch 2 Abbott will do the argument on behalf of the 3 Redevelopment Agency. 4 And I will make the public comment on behalf of 5 the City. 6 MS. YEE: Okay, all right. 7 Let me then have you start with that particular 8 statement. 9 MS. SKOUSEN: Okay. 10 MS. YEE: Okay. Then we'll move to your 11 colleague to the right. 12 And we'll bring up other speakers as you 13 complete your thoughts and then we'll get into the case 14 itself. 15 MS. SKOUSEN: Okay. The City of Palmdale 16 respectfully requests that you deny the appeal of the 17 City of Pomona. 18 In this time, when the budgets have been so 19 tight, the and economic problems that all of the cities 20 are facing, the City of Palmdale depends on the money 21 from sales tax. We have done everything we can to 22 reduce our spending. We've had substantial layoffs, 23 we've cut programs. But we have already spent this 24 money. It was spent when we received it 15 years ago. 25 It would be, in our opinion, very unfair to 26 take that money away from the city now, when it's 27 already been spent and budgets are so tight and we 28 simply can not afford to give the money back at this 8 1 time. 2 The money that the city will lose is enough to 3 fund one full deputy for our police department. We 4 contract with the city -- with the county for sheriffs 5 to patrol the city. To lose that deputy to and to lose 6 that police protection would be a severe detriment to 7 the city. 8 And we're asking you, please don't grant this 9 appeal and take the money from the City of Palmdale. 10 Thank you. 11 MS. YEE: Thank you very much. 12 Next speaker? 13 MR. MULKERIN: Mark Mulkerin for the City of 14 Industry. 15 Members of the Board, you're being asked by 16 MuniServices and Pomona to unwind allocations dating 17 back to 1993. It's 15 years ago. 18 As the City of Palmdale has indicated, the 19 money has long since been budgeted and spent by all of 20 the affected jurisdictions. 21 There is a list in the materials submitted by 22 HdL on pages 5 and 6 that itemized out the number of 23 jurisdictions and the monetary impact on those 24 jurisdictions. 25 And I am sure every city that comes before you 26 will repeat the same story. In this tight economic 27 time, there simply -- there is no more room to unwind 28 something going back 15 years. 9 1 And Miss Nienow made one statement at the 2 beginning of her presentation which is very important 3 and it bears true in terms of the rationale for the 4 Appeals Division analysis and that's that it was based 5 on this Board's decision to allow the matter to be 6 heard, that it's open. I don't think that's correct. I 7 think there are Members that have reviewed the webcast 8 of the -- there are people present here who have 9 reviewed that prior hearing in December and there was a 10 lot a statements by Board Members that, "Let's give a 11 hearing. Let's figure out what needs to be said." 12 But I think that there was -- well, 13 the position of Industry is it is still open. We have 14 got a very tortured hearing here in terms of reaching 15 way back. 16 The D & R for this case was dated 17 September 29th, 1999 -- sorry, skipped 1999. On May 18 2nd, 2000 Pomona appealed to Board Management. That 19 appeal was denied on July 24th, 2000 and then nothing 20 happened. Nothing happened until six years later when 21 the Board Regulation 1699 and 1802 were amended. 22 Then a couple of years later in 2008 -- 23 MS. OLSON: Time has expired. 24 MS. YEE: Finish your sentence, sir. 25 MR. MULKERIN: Then in 19 -- in 2008 Regulation 26 1807 was amended. And that then, ten years later, 27 prompted the resurrection of this appeal. 28 MS. YEE: Okay, very well. Thank you very 10 1 much. 2 Other representatives from jurisdictions 3 with -- being negatively? If -- 4 MR. DE BOO: Madam Chair and Members, Jim DeBoo 5 on behalf of the City of Los Angeles and Mayor Antonio 6 Villaraigosa. 7 For all the reasons that the previous two 8 witnesses stated, we're opposed this appeal. I think if 9 you look statewide, the State -- going after and barring 10 Prop 1A, looking at gas tax, we're all in really hard 11 financial times right now and every dollar, at this 12 point, counts. And as the City of Los Angeles, we've 13 already budgeted this money. It's already been spent. 14 We would ask you to deny the appeal just 15 for -- on the simple fact of fiscal considerations for 16 local governmentsThank you. 17 MS. YEE: Thank you. 18 Any other speakers? 19 Okay, very well. Good afternoon, gentlemen. 20 You have ten minutes for your presentation. 21 If you will introduce yourselves for the 22 record? 23 MR. LEVINE: We need -- we're missing our 24 middle table group, who is actually the -- 25 MS. YEE: Oh, there you are. 26 Yes, please come forward. 27 MR. LEVINE: -- who get to go first because 28 they are arguing against our recommendation. 11 1 MS. YEE: Okay. 2 Okay, actually, why don't we have you -- 3 MS. MANDEL: Sorry. 4 MS. YEE: Okay. If the speakers now at the 5 table could go ahead and spend some time stating your 6 name and your position? 7 MS. STURDIVANT: Good afternoon, Madam Chair 8 and Board Members. My name is Robin Sturdivant with the 9 HdL Companies. 10 I'm here before you today on behalf of 23 of 11 the affected jurisdictions in this case. Thank you for 12 your time today and thank you allowing the jurisdictions 13 the time to speak with you. 14 As you are aware, this petition in this matter 15 was filed in 1994. And it involved the warehouse issue. 16 The case progressed to the Board's administrative 17 process and was ultimately heard in an Appeals 18 conference in 1999. 19 A subsequent decision and recommendation 20 denying the petition was issued in September of 1999, 21 ruling that the regulations in place at the time did not 22 support reallocation. 23 The Petitioner appealed to Board Management, 24 who in July of 2000, found that Board staff had made the 25 correct determination and once again denied the 26 petition. 27 After this decision the Petitioner did not make 28 a request for Board hearing and the Department 12 1 considered the matter closed. 2 In September of 2008, after eight years had 3 passed, Al Koch of MuniServices appealed, in writing, to 4 the elected Board Members asking that this case be 5 considered for Board hearing. Mr. Koch's letter 6 included the phrase, "MuniServices requests on behalf of 7 the City of Pomona." 8 Chapter 8, Article 1, Section 7056b of the 9 Sales and Use tax law explicitly states, 10 "A representative must have a valid resolution 11 and an existing contract with the agency in 12 question." 13 At the time the request for Board hearing was 14 made, neither Mr. Koch nor MuniServices represented the 15 City of Pomona. They did not have a resolution and they 16 did not a valid contract. And, therefore, this hearing 17 should have been denied. 18 The Petitioner took no action on this case 19 after the denial by Board Management in July of 2000. 20 The Petitioner makes the argument that they were working 21 on the larger warehouse issue. 22 The Petitioner's representatives did, however, 23 make a timely request for Board hearing on four other 24 warehouse cases, which were eventually taken off 25 calendar pending regulatory changes involving the 26 warehouse issue. Those changes went into effect in 27 December of 2006. Yet the Petitioner still took no 28 action on this case, waiting another two years to make a 13 1 request for Board hearing. 2 In that two year period another $1 million was 3 allocated to the Los Angeles Countywide pools and 4 distributed on to the affected jurisdictions. 5 The Petitioner claims this case was on a roster 6 of cases identified by MuniServices and Board staff as 7 being valid and open subject to the regulatory changes. 8 That roster was a list of cases prepared by 9 MuniServices. It was never sanctioned or approved by 10 Board staff. 11 The Petitioner did not file a request for 12 hearing on this case and did not reserve their right to 13 Board hearing. By their own admission, the Petitioner's 14 representatives chose certain cases to advance through 15 the administrative process, leaving this case behind. 16 That representative cannot expect to take the 17 efforts associated with one petition and apply the 18 results to every other petition involving a similar 19 issue. 20 The process for reallocating local tax was 21 designed to protect both the Petitioner and the 22 potential losing jurisdictions. 23 The Petitioner had the option of perfecting 24 their right to Board hearing by asking that the issue be 25 continued until the appropriate regulatory 26 clarifications were in place, but they did not exercise 27 that option. 28 The Petitioner in this case is asking every 14 1 other agency in Los Angeles County to bear the burden of 2 a $9 million reallocation on a case that was denied 3 eight years ago, a case that the Board considered closed 4 and a case where a timely request for hearing was not 5 filed. 6 Granting this case after such a long span of 7 time, when the correct procedures were not followed, is 8 not reasonable, timely or just. 9 Thank you. 10 MS. YEE: Thank you very much. 11 Next speaker? 12 MR. ABBOTT: Thank you, Madam Chair and Board 13 Members. 14 My name is Mitchell Abbott of Richard Watson 15 and Gershon in Los Angeles. I am here to represent the 16 Community Redevelopment Agency of the City of Palmdale 17 and seven -- six other affected cities or agencies in 18 Los Angeles County. 19 We've submitted an extensive reply brief and I 20 don't intend or want to belabor all of the points we've 21 made in that brief. 22 I do want to emphasize two primary arguments. 23 First, the appeal by the City of Pomona is incredibly 24 stale. It should be dismissed by this Board on the 25 grounds that it is late, late, late, late. 26 Second, the 2006 revisions to the Board's 27 regulations were not -- and in my view cannot -- 28 constitutionally be rendered retroactive in the way that 15 1 Pomona is urging you to do. 2 And I think either of those points is 3 sufficient to defeat Pomona's appeal in this case. 4 First, the timeliness of the appeal, there was 5 a final administrative decision -- that some of the 6 speakers have already said -- back in the year 2000. No 7 appeal was taken until 2008, which is eight years later. 8 That is a staggering delay. And I must say, for a 9 person who practices appellate law, it's completely 10 other worldly. Civil Code Section 3527, our State law, 11 one of our maxims of jurisprudence, says, 12 "The law helps the vigilant before those who 13 sleep on their rights." 14 Here Pomona would ask you to ignore that 15 important principle, ignore the fact that they waited 16 for eight years to appeal their loss at the 17 administrative level, ignore the fact that they slept on 18 their rights and, instead, ask that you reward them for 19 their slumber. 20 Now Pomona's brief deals with this argument, in 21 my view, very arrogantly and very shortly. They say, in 22 effect, well, the Board has already decided to accept 23 our appeal and give us this hearing and, so, the issue 24 of timeliness of the appeal has already been decided. 25 Not so fast. I watched the streaming webcast 26 of the Board's meeting last December 17. And there was 27 no decision made by the Board -- certainly no 28 articulated decision made by the Board to declare this 16 1 stale appeal timely. There was simply a vote to grant a 2 hearing. I remember Mr. Leonard specifically saying he 3 wasn't saying he was going to grant Pomona and the 4 other cities involved any relief, he wasn't saying that 5 he was deciding whether the appeal was timely or not, 6 instead, he simply wanted to give them a hearing. 7 And I believe that sentiment was repeated by 8 other Members of the Board. Now you are granting that 9 hearing. You have received briefs from the parties. 10 You are going to hear testimony from -- or at least 11 arguments from counsel. 12 And then I think the way is clear for you to 13 say the appeal by Pomona is too late and is, therefore, 14 rejected. And that is what I believe the Board should 15 do. 16 Second, there is nothing -- nothing in the 17 Board's regulations or the record of the Board to 18 indicate that this Board intended to make those 2006 19 amendments retroactive 15 years. The presumption of the 20 law California is that laws and regulations operate 21 prospectively. They can operate retroactively, but only 22 if the legislature or the administrative agency 23 explicitly says, "That's our intention." 24 Here Pomona is saying that the regulations 25 ought to be made retroactive back to sales taxes that 26 were collected and distributed in 1993. That is 27 unconstitutional. And here's why -- the courts have 28 held that retroactive statutes and regulations may be 17 1 given retroactive effect for what they call, "a modest 2 period of retroactivity." That's discussed at page 14 3 of our brief. And 15 years ain't modest. That is 4 grossly overreaching. And I think that argument should 5 be rejected. 6 I -- Pomona hasn't disclosed how far back they 7 think the retroactivity ought to apply, but I understand 8 they're preparing papers on behalf of John Sutter, who I 9 understand had some warehouses in the area. So, we can 10 expect to hear from his heirs. 11 The Board should reject Pomona's appeal, first, 12 because it is grossly late and they offer no excuse and, 13 second, because the change in the law in 2006 cannot 14 constitutionally apply retroactively to allow reopening 15 of cases involving sales taxes that were collected and 16 distributed 15 years ago. 17 I thank you for your time and your courtesy and 18 I'd be happy to respond to any questions that the Board 19 may have. 20 MS. YEE: Thank you very much. 21 Let me repeat the admonition of our Appeals 22 staff and that is we're going try to refrain -- we are 23 going to refrain from any references to the retailer at 24 issue in this matter. 25 Thank you. 26 Next speaker? 27 MS. OLSON: Time has expired for the affected 28 jurisdictions. 18 1 MS. YEE: Okay. Did you have any new arguments 2 you want to make? 3 MS. SKOUSEN: Actually, no. Mr. Abbott 4 addressed all my comments. 5 MS. YEE: Okay, very well. Thank you very 6 much. 7 Okay. Then let us go to the representatives 8 for Petitioners. 9 If you would introduce yourselves for the 10 record? 11 MR. MANCIA: Good afternoon, Madam Chair and 12 Members. Fran Mancia from MuniServices. 13 I first want to thank the Board Members and 14 their staff for considering this important matter. I 15 believe a ruling in this matter in favor of Pomona would 16 be consistent with other warehouse rulings that have 17 been before the Board recently. 18 And in this matter the law applies to the facts 19 of the petition in favor of approval for reallocation to 20 Pomona. I also believe that the application of the law 21 is also consistent with the preservation and protection 22 of situs allocation, which is what we all strive for, I 23 believe. 24 I would like to introduce Eric Myers, counsel 25 for MuniServices, who will speak in the case, but, 26 first, we have Steve Conway, Finance Director or Los 27 Gatos, followed by Linda Lowry. 28 MR. CONWAY: Good afternoon, Madam Chairwoman 19 1 and Members of the Board. 2 On behalf the town of Los Gatos, once again my 3 name is Steve Conway, Director of Finance. I've been 4 following this matter for a number of -- seems like 5 quite a while. And I am just happy to be here to today 6 to urge you to please grant our petition. 7 And I would like to remind the Board that it 8 appears -- at least on the Los Gatos case -- that our -- 9 our petition that we have no opposition at this time. 10 And I will, of course, be glad to answer 11 questions you may have. 12 MS. YEE: Thank you. 13 Mr. Myers, please step forward. 14 MS. LOWRY: Madam Chair, Members of the Board, 15 good afternoon. My name's Linda Lowry and I am the City 16 Manager for the City of Pomona. 17 Thank you for granting the City a hearing in 18 this case. This petition is very important to the City 19 of Pomona. We are most eager to receive a fair 20 allocation of sales taxes which were distributed 21 erroneously to other jurisdictions beginning in 1993. A 22 number of regulatory clarifications have been required 23 in order to ultimately receive our proper allocation. 24 Although most local governments are suffering 25 loss of revenues in 2009-10, I think it's important to 26 know what the financial state of Pomona was in 1993 and 27 ensuing years while other cities were receiving a 28 significant portion, at times perhaps much as 10 percent 20 1 of Pomona's sales tax. In the City for the two year 2 period ending in June 1993, no cost of living increases 3 were granted to City employees. And this was 4 appropriate since the City had to increase its utility 5 taxes in order to balance the general fund, making it 6 more difficult on residents and making Pomona less able 7 to compete in business attraction. 8 The City also reduced staffing levels by 9 approximately 48 positions. The City had to join five 10 other LA County cities and fifteen other cities 11 statewide in imposing a property tax fee -- excuse me, a 12 property transfer tax fee higher than the County fee. 13 We also had to increase the administrative services 14 charge to the RDA by $500,000, which, again, reduced the 15 City's resources for economic development. 16 In 1993, due to continued financial -- '94, due 17 to continued financial difficulties, the City 18 implemented major departmental reorganizations, 19 including combination of Library and Recreation, Public 20 Works and Water. 21 In '93-'94 the City took a firetruck and an 22 engine company out of service to save one and a half 23 million dollars. And in '94-'95 the City actually 24 outsourced fire services to LA County Fire District in 25 order to save money. From '93 to'96 Pomona used 26 $5.7 million of reserves. Reserves had accrued only due 27 to the receipt of PERS credit and a one time fee for 28 processing mortgage revenue bonds. Pomona does not have 21 1 equipment or replacement funds, nor does it have a 2 reserve for liability claims as other cities do. 3 I share these facts to indicate that the loss 4 of sales tax dollars has major implications to the 5 health of the City of Pomona and to reassure the Board 6 that there is no hidden money. 7 In its 2009-10 adopted budget, the City needed 8 to eliminate 71 positions and unfunded 19 sworn 9 positions. All employees are furloughed through the 10 year, equating to a five percent pay reduction. A 11 negotiated increase for all nonsworn and flip positions 12 has been delayed till 2010-11. Failure to receive the 13 sales tax allocation funds will force further staff 14 reductions. 15 We've waited for the restoration of funds and 16 worked towards completion of the Board's reallocation 17 and Appeals process. We believe that it is now time 18 that Pomona should receive the monies which have been 19 misallocated so that the dollars can be devoted to the 20 ongoing needs of the citizens of Pomona, Pomona. 21 Pomona understands the plight of the 22 jurisdictions that would be forced to give up revenues 23 that are valuable to them in the midst of the most 24 severe economic downturn in more than fifty years. We 25 point out, however, that these future revenue reductions 26 will be spread over some 39 jurisdictions, no one of 27 which will suffer the concentrated impact of the 16 28 years of misallocations which the City of Pomona has 22 1 endured. 2 In order, however, to soften the impact of 3 these current losses for the substantially affected 4 jurisdictions in this case, Pomona stands ready to 5 accept reasonable compromise of its effects on those 6 jurisdictions. 7 Madam Chair, I want to thank you and the Board 8 Members again for your time and consideration. 9 MS. YEE: Thank you. 10 Other comments, Mr. Myers? 11 MR. MYERS: Thank you, Madam Chair, Members of 12 the Board. 13 First again to echo the statement from 14 Los Gatos, we urge the Board to keep in mind amidst 15 the -- what we anticipate will be a lot of comments 16 today that Los Gatos stands, to our knowledge, unopposed 17 in their reallocation -- request for reallocation. 18 Once that -- once that's understood, if you 19 turn to the Pomona petition, we note that the law 20 governing the case has been recognized and applied since 21 1993 and -- at least 1993, and has subsequently been 22 clarified retroactively to confirm the rule that we give 23 Pomona these monies. We find 7051 to -- Revenue and 24 Taxation Section 7051 to be directly on point. The 25 Board has the authority to -- in fact, the regulations 26 are retroactive unless otherwise stated. 27 Once that is understood, the opposing parties, 28 who we have heard from today, their arguments boil down 23 1 basically to various objections to holding this hearing 2 because of the process that it took to get here. We 3 will not take the Board's time with belaboring the 4 process that it took to get here. Needless to say, that 5 the characterization that it was doing nothing or 6 somehow lying in wait is not an accurate 7 characterization of what took place in the intervening 8 years. A history of the Board is aware of and that we 9 have briefed. 10 The arguments advanced fail to show the date of 11 knowledge should not apply. They fail to show any other 12 legal reason for not allowing the 7051 regulations to be 13 retroactive and they fail to show that the hearing was 14 untimely because, in fact, it was timely. 15 As a matter of fact, in the December hearing 16 the issue, as posed by Appeals summary, was whether or 17 not this appeal was still open. And it's our opinion 18 that it was and that this hearing and the appeal are 19 timely and that we -- we had urged the Board to rule on 20 the substance, the law that applies in this case. 21 We will reserve the rest of our time for 22 rebuttal, if any. 23 MS. YEE: Thank you very much. 24 Department? 25 MS. RUWART: My name is Carole Ruwart. I am a 26 Tax Counsel for the Legal Department, Sales and Use Tax 27 Department. 28 With me is Bob Wils of the Allocation Group of 24 1 the Sales and Use Tax Department and Bob Tucker, also of 2 the Board's Legal Department. 3 Just a few comments. The parties have -- have 4 put forth their arguments. One issue that was not 5 addressed by the Petitioners was the argument brought up 6 by the affected jurisdictions regarding representation. 7 We just wanted the Board to know that we do -- we do 8 think that the hearing was properly requested and 9 validly requested. We note that the person requesting 10 the hearing is not required to be covered under 11 Section 7056 subdivision b to request a hearing. 7056b 12 deals with access to taxpayer's confidential 13 information, which is not necessarily required in order 14 to request a hearing. 15 We also note that the hearing request, the 16 letter sent to a Board Member, was copied to the City of 17 Pomona, several responsible individuals. And we would 18 consider that they were aware that MuniServices was 19 purporting to represent them and that we have had no 20 indication that Pomona did not think that they were 21 being represented. 22 As stated in the Appeals Division analysis and 23 hearing summary for this case, we understand the Board's 24 action in granting the hearing to find that the appeal 25 was open. Assuming that that is the decision of the 26 Board, the other issue not specifically addressed by the 27 Petitioner is that we believe that the recommendation of 28 the Appeals Division should be adopted. That 25 1 recommendation is to grant the petition for all periods 2 except the first period under petition, which predates 3 the October 1st, 1993 prior operative date of the 4 Regulation 1802 subdivision that was amended effective 5 2006. 6 To pick up on the Petitioner's discussion of 7 Revenue and Taxation Code Section 7051, the Board's 8 Legal Department is -- stands in the position that Board 9 regulations are retroactive unless they are specifically 10 made prospective. Retroactive application includes 11 application to all open appeals. 12 I have no further comments unless you have any 13 questions for the Department? 14 MS. YEE: Mr. Wils. 15 MS. WILLIS: No. 16 MS. YEE: Okay, Mr. Tucker? Nothing at this 17 point? 18 MR. TUCKER: (Shakes head.) 19 MS. YEE: Okay, five minutes on rebuttal. 20 I am sorry, yes -- 21 MR. LEVINE: We go to Party No. 1. 22 MS. YEE: Yes. 23 MS. STURDIVANT: Robin Sturdivant with the HdL 24 Companies. 25 MS. YEE: Yes? 26 MS. STURDIVANT: At the time this petition was 27 filed the regulations in place did not support 28 reallocation. So, in effect, at that time there wasn't 26 1 a misallocation Pomona didn't lose out on any local tax 2 because it rightfully did not belong to them based on 3 the regulations in place at that time. 4 Clarifications to Regulations 1699 and 1802 5 took place in 2006, December of 2006. Yet still the 6 Petitioners took no action once those clarifications 7 were in place and didn't bring this case forward to 8 request a Board hearing. They waited two full years. 9 And, finally, in December of 2008, when it 10 was -- when the arguments were made to request a Board 11 hearing, the Board Members never stated, "This case is 12 open." They just agreed to hear what all of the parties 13 had to say. 14 MS. YEE: Okay, thank you. 15 MS. STURDIVANT: Thank you. 16 MS. YEE: Mr. Abbott? 17 MR. ABBOTT: Madam Chair, Mitchell Abbott 18 again. 19 The -- Mr. Myers made a good argument and it 20 sounded -- each sentence by itself -- rational and 21 defensible. It's only when you stand back from it that 22 you see what a loony result is -- is emerging from this. 23 And we believe that the Board, when it decided 24 in the midst of all of the statements and speeches and 25 prayerful requests back in December to grant the 26 hearing, that the Board was not making a binding 27 determination that the appeal was open or that the 28 appeal was timely. You know, the California Supreme 27 1 Court does this all of the time -- they will grant a 2 petition for review and then, after taking a closer look 3 at it, they do what they call "DIGS," dismissals 4 improvidently granted. 5 And if that is the route that whatever the 6 procedural device is, that's what we believe the Board 7 should do and declare that the appeal is simply 8 untimely. 9 On the retroactivity issue, I will respectfully 10 say to Ms. Ruwart, we'll see you in court because I 11 don't think there is any judge in California who is 12 going uphold 16 year retroactivity even if that's the 13 way you generally play the rules around here, that is 14 not sustainable in court. I don't believe there is a 15 single case in the history of California where a 16 year 16 retroactivity has been -- has been upheld. 17 Thank you very much. And, again, I'd be happy 18 to ask (sic) questions. 19 Miss Skousen, from the City of Palmdale, would 20 also be available if you have any questions. 21 MS. YEE: Thank you, Mr. Abbott. 22 Ms. Skousen, any further comment? 23 MS. SKOUSEN: Yes, I just wanted to make one 24 short statement. 25 It's my understanding that Regulation 7051 that 26 generally makes regulation changes retroactive as to 27 only open appeals. This appeal was not open. It had 28 been finally decided and had not -- no appeal had been 28 1 filed. 2 An appeal was not filed until two years after 3 that. So, that retroactivity did not apply. 4 Thank you. 5 MS. YEE: Thank you. 6 Okay, Mr. Myers? 7 MR. MYERS: We will return again, for a short 8 moment, to the timeliness and openness of the appeal. 9 We believe it's been argued at length. We know it's 10 been briefed at length. We are -- knowing that our 11 briefs had a fairly extensive history -- not willing to 12 go into the history, we again urge the Board to -- if 13 need be, review that history. 14 But there was a lengthy process to get to this 15 point. We are grateful that Pomona has this opportunity 16 and Los Gatos. 17 As to the argument that the regulations at the 18 time did not support this misallocation, we -- we note 19 again that the regulations were retroactively clarified. 20 As we've argued in our briefs, we believe that the law 21 has been applied to support this misallocation since 22 1993 and, hence, the reason for us continuing to pursue 23 this misallocation. 24 And as to the retroactivity in 7051, we think 25 7051 and cases interpreting similar language have 26 clearly held that the administrative body has the right 27 to have these retroactive regulations and the National 28 versus Modesto case, which was the case relied on quite 29 1 extensively in the brief by Mitchell Abbott, Mr. Abbott 2 and the City of Palmdale, is dealing with the burden on 3 a taxpayer, which is not the issue here. 4 The taxpayer doesn't have to come back and pay 5 additional taxes. In all of the misallocations that 6 this Board deals with on a local tax level, the monies 7 have generally been received and spent. That's 8 generally true. 9 And, so, we urge the Board to accept the 10 reallocation as requested by both Pomona and Los Gatos. 11 Thank you. 12 MS. YEE: Thank you. Mr. Mancia? 13 MR. MANCIA: No, that's it. Thank you, Madam 14 Chair. 15 MS. YEE: Okay, thank you very much everyone. 16 Discussion or comments Members? 17 MS. STEEL: Just question. 18 MS. YEE: Ms. Steel? 19 MS. STEEL: Why it took so long? 20 And there's any statutes or, you know, any 21 general practice that how long is supposed to taken? 22 Why we going back 1993? 23 Carole? 24 MS. RUWART: When a local tax allocation 25 petition is filed, it establishes a date of knowledge 26 beyond which going back more than two quarters from that 27 filing of the petition, two or three quarters, depending 28 on which way you define it, we just call it the three 30 1 quarter rule, essentially you can't reallocate any 2 further back than that when you file the petition. 3 When you go through the allocation process it 4 is -- when the -- when the appeal becomes final, at 5 whatever stage that occurs, then the reallocation occurs 6 from the quarter in which that matter becomes final all 7 of the way back to the -- the reallocation allowed by 8 date of knowledge plus the two quarters. 9 In this case you could look at it in the number 10 of different years. You could say the original 11 misallocations occurred in 1993, that is 15 years ago. 12 The final denial by Board Management occurred in the 13 year 2000. And the Department had considered the matter 14 closed six months after that. 15 So, one other way to look at it is to say that 16 the appeal would have lain dormant for nine years. 17 Another way to look at it is the amendments -- 18 the warehouse rule that allowed these allocations to be 19 made to Pomona occurred in -- effective December -- 20 effective in 2006. So, it -- the appeal has only lain 21 dormant for two years, between 2006 and 2008. 22 It just depends on how you actually look at it. 23 I am not sure that exactly answers your question. 24 But terms of a process of how -- how fast it's 25 supposed to take, the four or five years that it took to 26 originally reach the Board Management level and then six 27 months after, which is what the Department had 28 considered the appeal being closed, was not untypical of 31 1 the more difficult cases in that time frame. 2 MR. WILS: That was about average at that time, 3 about four years. 4 MS. STEEL: So, when we went back all of the 5 way to 1993, it means that it was misallocated from 6 1993? 7 MS. RUWART: Correct. 8 MR. WILS: At the time, though, the way the 9 regulation read it was not misallocated, it was 10 allocated correctly. 11 It was only the change -- 12 MS. STEEL: What they are -- 13 MR. WILS: Yes. 14 MS. STEEL: -- what they are requesting? 15 MR. WILS: Yes. 16 MS. STEEL: Okay. 17 MS. YEE: Questions, Members? 18 Let me pose a question to Appeals. The issue 19 about whether this matter is time barred and when the 20 Board last had this matter before us to allow the 21 hearing to proceed, can you speak to the -- 22 MS. NIENOW: Yes. 23 MS. YEE: -- time barred issue? 24 MS. NIENOW: At the time the Petitioners came 25 forward and requested the hearing, it was our 26 understanding that the Board, when it granted the 27 request for hearing, ruled that the appeal was open. 28 And, so, that was our position at the time. 32 1 But if you're asking what our opinion is with 2 respect to the time barred issue, it would have to be 3 what our opinion was back when we did the analysis in 4 December and that is that the appeal's closed. 5 MS. YEE: Okay. 6 MS. NIENOW: Does that answer your question? 7 MS. YEE: Yes, yes. 8 Other questions, Members? 9 Ms. Mandel? 10 MS. MANDEL: I don't think I have a question. 11 I'm just remembering the December discussion, which was 12 on the warehouse cases that the Controller had said, "Go 13 fix the reg and come back." 14 That's -- 15 MS. YEE: Okay. Mr. Shea, anything? 16 MR. SHEA: Thank you. 17 Well, it obviously is a very difficult case, as 18 we all know. I wanted to explore perhaps a different 19 approach of -- an analytical approach that I don't think 20 has come up yet, but my understanding is it has been 21 used in cases in the Appeal of the City of Santa Monica 22 in 2004, in Appeal of Laguna Hills in 2003. 23 And that had to do with -- and I'll address 24 this to you, Miss Ruwart -- had to do with the Board's 25 authority to reallocate under Section 7209 of the 26 Revenue and Taxation Code, that even if the Board for 27 instance in this circumstance would agree that Appeals 28 recommendation correctly applies the applicable 33 1 regulations, if the Board finds that the facts here 2 justify a different result, the Board has the discretion 3 to reallocate a lesser amount than staff's 4 recommendation, including no reallocation at all. 5 And given that the -- if the affected 6 jurisdictions and their representatives have made 7 primarily equitable arguments about the passage of time 8 and how this is unfair and how they sat on their appeal 9 rights, but at least in my own opinion they haven't 10 refuted the analysis of the Board's regulations and the 11 law as presented by the Petitioner and supported by 12 Appeals, it -- at least in my opinion it makes sense to 13 explore this other avenue of analysis as to the 14 equitable arguments. 15 What I am saying is that there are two ways -- 16 there are two things at issue here, one is whether the 17 regulation is being correctly applied in the appeal by 18 the Petitioner and as supported by the Appeals staff in 19 their recommendation, but, secondly, how do we approach 20 this equitable issue given, you know, the hardships that 21 are being demonstrated by the affected jurisdictions. 22 I don't want to say that they haven't made any 23 legal arguments, that's not correct. But I think they 24 focused primarily on these equitable arguments, the 25 affected jurisdictions. 26 The one that they did raise that is something 27 we don't have the authority to address and that is the 28 constitutionality of the retroactive provisions. And 34 1 that ultimately could wind up in court. 2 But, in any event, what -- what would be the 3 framework? And what would be the prior cases in terms 4 of how the Board could look at these -- its authority 5 under 7209 with respect to this case? 6 MS. RUWART: As you stated, the Appeals 7 Division correctly states the general framework is that 8 under Section 7209 the Board has the discretion to grant 9 the petition in its entirety, to adopt the 10 recommendation of the Appeals Division, which involves 11 one quarter of denial of the petition, reallocate a 12 lesser amount than recommended or no reallocation at 13 all. 14 The mechanism of how that is accomplished, we 15 believe that the soundest legal basis for doing that 16 would be based on the Board's discretion under 7209 and 17 in terms of -- I guess I'm not understanding which more 18 detail you would like. 19 Because the Board -- we could certainly -- 20 well, I will just ask for a little more clarification to 21 make sure I actually answer your question. 22 MR. SHEA: I don't think you could answer that 23 right now. And we're not going to entertain a motion, I 24 think, at this juncture, but we will later today. 25 But I think that -- I guess my concern is that 26 I see, you know, both sides of the argument here and -- 27 but the argument that the petition is primarily 28 concerned is the appropriate application of the 35 1 regulation. And that's fine. 2 But there is this whole other sphere of 3 analysis that hasn't really been developed at the staff 4 level and, frankly, would probably require some sort of 5 dialogue and negotiation between the Petitioner and the 6 affected parties going forward. 7 I don't think -- I don't think we could resolve 8 that today in a thoughtful way. But I'm wondering if it 9 would be possible at the staff level to provide some 10 guidance or framework for such a negotiation going 11 forward and have a final resolution at some point in the 12 near future? 13 MS. RUWART: All right. So, may I understand 14 you to just be speaking, perhaps, of a motion by the 15 Board that is a partial reallocation but not a complete 16 reallocation? 17 In other words a change -- somehow changing the 18 recommendation of the Appeals Division in terms of the 19 allocation of the tax and what framework that might -- 20 would be best to accomplish that? 21 MS. MANDEL: Are you wondering how -- how it 22 happened in the Santa Monica case. 23 MR. SHEA: Well, that's -- 24 MS. MANDEL: Is that the question? 25 MR. SHEA: You probably, that's right, I 26 think. 27 MS. MANDEL: I mean, my recollection is that in 28 the Santa Monica case the parties were told to go talk 36 1 about it. 2 And what came back was a -- do you remember 3 more -- a particular split and there was a motion on the 4 split, I'm not sure whether there was total agreement 5 necessarily, but that the -- there was some request that 6 the parties go try to see whether there was something 7 that they could agree to. 8 MS. RUWART: If I could use that as -- maybe 9 that provides me a little bit more clarification as to 10 what you might be looking for. 11 The Board -- 12 MS. MANDEL: I don't know what he's 13 particularly looking for. 14 MS. RUWART: In the past the Board has 15 accommodated compromises between jurisdictions by 16 endorse -- by either not taking action or by taking 17 action. 18 And when the Board has taken action, for 19 example, in the City of Santa Monica case, it appeared 20 from the public record that the parties presented the 21 Board with an agreed upon reallocation; that the Board 22 then made a motion on and the staff then implemented. 23 It is generally -- the soundest legal basis on 24 which to do that would be under the Board's discretion 25 as embodied in Section 7209 and in at a mechanical level 26 to allocate -- to make -- construct the motion quarter 27 by quarter rather than actual dollar amounts or actual 28 percentages. 37 1 MS. YEE: Mr. Levine? 2 MR. LEVINE: For the record, if the parties 3 here before we brought it to the Board came to us, to 4 Appeals, and said, "We've come to an agreement, we'll 5 settle with -- " Pomona said, "We'll settle for this 6 amount, and substantially affected jurisdictions said, 7 "We can live with that," that would have been our 8 recommendation. 9 Now we would have explained the reason maybe 10 under 7209, but Mr. Wils has always allowed that. I am 11 sure if the parties come to an agreement, then we 12 endorse it. 13 And if we need to ask the Board's approval, and 14 in this case we would need that, then we would do that. 15 As far as how to split it if the parties don't 16 agree and the Members have to, but you want to split it, 17 off the top of my head, the best thing -- the only way I 18 can think of is time. 19 You decide what time feels right, whether it's 20 2000 or '95 or 2003 and you say, 21 "Reallocate on and after that date, deny it for 22 the period before." 23 As far as quarter by -- I don't think we have 24 it quarter by quarter, it would just be everything 25 after -- if 2000, when Board Management, you said, 26 "Well, anything before that's just too old," 27 then that would be my recommendation on how to split is 28 just based on a time that you decide is appropriate. 38 1 MS. YEE: Okay. Other questions, Members? 2 Okay. 3 MR. SHEA: Well, thank you for that. 4 And we'll -- again we'll get to the motion and 5 we'll have a little bit of time to construct that and 6 have a dialogue of that sometime later this afternoon, 7 but I think in order to do that we would probably still 8 need some staff input. 9 I mean, ideally there would a negotiation 10 between the parties that would be -- that would resolve 11 this. That may not happen. I think we recognize that. 12 But it may be worth moving in that direction if the 13 Board Members were to feel that the regulation is 14 correctly applied in the petition as recommended by 15 Appeals. 16 But even to -- if the ultimate responsibility 17 for determining the matter of allocation were to be 18 decided by the Board itself because the negotiation 19 failed, I think the input of the staff in terms of the 20 rationale for different dates, if you're pointing to a 21 date or a quarterly, pros and cons and rationale and 22 having some of that material and a little bit more time 23 would be helpful in that regard. 24 MS. YEE: Very well, thank you. 25 Other discussion, Members? 26 Okay, hearing none is there a motion? 27 MS. MANDEL: Take it under submission. 28 MS. YEE: Motion by Ms. Mandel to take this 39 1 matter under submission. 2 Is there a second? 3 MR. SHEA: Second. 4 MS. YEE: Second by Mr. Shea. 5 Without objection, that motion carries. 6 Thank you all very, very much for coming 7 forward. 8 MR. MYERS: Thank you. 9 MS. YEE: We will discuss your matter later 10 today and send you written notice of our decision. 11 MR. LEVINE: If you come back with an 12 agreement real fast, let us know. 13 ---o0o--- 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 40 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 AUGUST 31, 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 pages 1 13 through 40 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: October 19, 2009 17 18 19 20 21 22 ____________________________ 23 JULI PRICE JACKSON 24 Hearing Reporter 25 26 27 28 41