BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 450 N Street, Room 121 Sacramento, California REPORTER'S TRANSCRIPT SEPTEMBER 1, 2009 ITEM C4 SALES AND USE TAX APPEALS HEARINGS PETITION FOR REDETERMINATION filed by JAMES BASS SMITH (Case No. 353126) Reported by: Beverly D. Toms CSR No. 1662 1 1 2 P R E S E N T 3 4 For the Board Betty T. Yee of Equalization: Chair 5 Steve Shea 6 Acting Member 7 Bill Leonard Member 8 Michelle Steel 9 Member 10 Marcy Jo Mandel Appearing for John Chiang 11 State Controller (per Government Code 12 Section 7.9) 13 Diane Olson Chief, Board Proceedings 14 Division 15 For Board of David Levine 16 Equalization Staff: Tax Counsel IV 17 Andrew Kwee Tax Counsel 18 Robert Tucker 19 Legal Department 20 Kevin Hanks Sales and Use Tax Department 21 22 For Petitioner: Kai Mickey 23 Representative 24 James Smith Taxpayer 25 26 ---OOO--- 27 28 2 1 Sacramento, California 2 September 1, 2009 3 ---oOo--- 4 MS. OLSON: Our next item is C4, James Bass 5 Smith. Please come forward. 6 MS. YEE: Okay. Mr. Levine. 7 MR. LEVINE: The issue in this petition of 8 James Bass Smith is whether Petitioner has carried the 9 burden of establishing that his use of the subject 10 vessel qualified for the exemption for commercial deep 11 sea fishing. 12 MS. YEE: All Right. Thank you. 13 Good morning, gentlemen. 14 MR. MICKEY: Good morning. 15 MS. YEE: If you'll introduce yourselves for 16 the record. You have ten minutes for your presentation. 17 MR. MICKEY: Kai Mickey with the Sales Tax 18 Specialists here representing my client, Captain James 19 Smith. 20 MS. YEE: Okay. 21 MR. SMITH: James Smith, owner-operator, 22 fishing vessel California Dawn. 23 MS. YEE: Great. Thank you. 24 Please proceed. 25 MR. MICKEY: Madam Chair, Board Members, thank 26 you. We're disappointed that we find ourselves here 27 this morning but nonetheless we're here. I believe that 28 we're going to be able to present to you with some 3 1 information that's going to clear up some of the 2 questions that the Department has had in regards to my 3 client's purchase and use of the California Dawn, a 4 50-foot deep sea commercial fishing boat which we 5 believe has clearly been used in the manner required 6 allowing it to be exempt from California Use Tax under 7 the deep sea commercial fishing regulation. 8 The -- there's many things that have been 9 addressed. There's a supplemental D & R. There's a D & 10 R. There's letters. So we don't have the opportunity 11 to go through all of it but there's a couple key points 12 this morning that I want to bring to your attention. 13 I've provided you with several exhibits which I 14 will go over with you in just a second. But a couple 15 key points that I want to make mention of and bring 16 forth. My client is a commercial deep sea fisherman. 17 He has a 50-foot boat. He -- there are a lot of people 18 that do this type of commercial fisher type of exercises 19 and will do it in the Bay. My client is unique in the 20 fact that he has a larger boat which does allow him to 21 go farther out and spend more time out there. And that 22 has been his focus and that is his focus with the boat 23 that he has. 24 Now, for all of the trips that he has taken and 25 during that 12-month period and continues to take he 26 prepares what's called a fish ticket, a Department of 27 Fish and Game fish ticket. 28 In the audit you will see that there is 106 of 4 1 these fish tickets. The Department has for various 2 reasons, which I will cover in a minute -- has decided 3 and made the conclusion that they should not rely on 4 those fish tickets with some the information that's on 5 there, but they will rely on them for other bits of 6 information. 7 They have essentially disregarded the 8 information on the fish tickets that identifies where my 9 client was doing the commercial deep sea fishing. 10 There's a code -- a block code on there. 488 is in 11 California. 456 is outside of the California waters. 12 On those fish tickets that information is 13 listed there along with the number of persons that were 14 on the boat, the type of fish that was caught, the 15 primary catch of the fish. 16 There's 106 of these. Now, the Department has 17 noticed and rightfully so, we do -- we acknowledge that 18 there were some corrections made to a few of these 19 documents, where my client after the fact, for no other 20 reason other than it was a mistake at the time, realized 21 that the block code was incorrectly listed on the 22 original fish ticket, and so he made the corrective 23 changes. 24 It's important to note that those changes when 25 you look at them went both ways. There were corrections 26 from 456 to 488 and from 488 to 456. 27 The Department recognized those changes and 28 based upon that along with a couple of mistakes in the 5 1 dates where a date was put down with a non-corresponding 2 day of the week, or maybe there was a trip ticket that 3 was listed with the same date as another one back to 4 back where the wrong date was put down on there. 5 We don't -- we don't disagree that those took 6 place. Those are small, minor errors. They've been 7 addressed in the D & R, but that is the information that 8 the Department has used to rely upon a determination 9 that they should disregard all that information and go 10 to the secondary method of looking at some web site 11 information from the Department of Fish and Game, trying 12 to establish based on the primary catch where this boat 13 operated. And they basically disregarded all the 14 information that my client put on these forms. 15 My first point, as I've made in the -- in a 16 writing before the supplemental D & R, there's just -- 17 there's not justification for that. To disregard all 18 106 bits of information there doesn't seem justified 19 because of a few errors. 20 So, what I've prepared for you is three 21 exhibits. And I want to draw -- go to that right away. 22 I realize we have limited time here. 23 Exhibit A is just nothing more than a master 24 list of the 106 fish tickets that we have on file. And 25 I reference them to the BOE petition file and the order 26 in the D & R so you can make reference to them. And so 27 hopefully the Department can make reference to them, if 28 they ask for time to perhaps review this so that they 6 1 can make the same determination. 2 Exhibit B -- now this is an important one. One 3 of the other keys that the Board -- that the Department 4 has relied upon is that even if we are able to satisfy 5 them and you that the fish tickets are accurate and that 6 they should be relied upon, as we believe they should, 7 they have concluded that we cannot establish a total use 8 of the boat, therefore they can't do the percentage -- 9 the 50 percent requirement because they don't have total 10 use. 11 Exhibit B is providing you with a basis to -- 12 to go away from that conclusion and reach the conclusion 13 that the 106 items are substantially complete. There 14 are two items. We will acknowledge that according to 15 the Department of Fish and Game report there were two 16 tickets that we didn't have --- my client didn't have. 17 Those are towards the end of the year. 18 But I'm going to show you how that's not going 19 to affect this analysis. 20 Exhibit B is -- is an analysis where you take 21 each of the trip tickets, the fish tickets, and they all 22 list the number of people that were on those trips. We 23 have taken and we have multiplied the number of guests 24 on the trip times the rate that was in effect for those 25 trips, and if you go to page 3 and you look at the 26 yellow -- or the orange number there, 160,800, this is 27 the amount of revenue that is calculated by taking the 28 106 fish tickets that we have, multiplying the number of 7 1 people by the rate, and you get 160,800. 2 My client had already provided the Board of 3 Equalization the Schedule C for the year 2004, which 4 show -- for this operation, which showed 161,117 in 5 revenue. 6 You will see that looking at the 106 fish 7 tickets that we have, the revenue that was generated 8 from those fish tickets is almost exactly equal to the 9 revenue that was put on the income tax return for the 10 year 2004. 11 The point behind all of this is that we believe 12 that shows you that the 106 fish tickets plus you add in 13 the two from the Department of Fish and Game, you would 14 be very close to what was on the -- on the revenue -- 15 Federal income tax return, which shows that the 16 information that we have is complete. It's all there. 17 The other point there is this is not a 18 recreational vessel. This is a 50-foot fishing boat 19 that costs a lot of money to take out. There is no 20 personal use of this vessel. The only personal use that 21 was used, and it's referenced in the D & R, is a 22 nine-day trip that my client had, and that was really 23 not a personal use trip; that was a trip from the point 24 of purchase in Newport Beach up to Martinez, where he 25 had to bring the boat up. And he did do some fishing 26 early on for that. 27 Other than that there was a couple whale 28 watching trips, and I'll talk about those in a minute. 8 1 Whale watching tickets are included in here. They're 2 revenue driven. 3 This boat is not used for anything other than 4 revenue-producing activities. And we've shown you that 5 the trip tickets that we have are equatable to the 6 revenue that was reported for the year 2004. 7 So, based on that we ask you to consider that 8 our information is complete. All right. Once you are 9 able to establish that the information is complete, I 10 ask you to look at Exhibit C. 11 Exhibit C is an analysis of the operational use 12 of the vessel based on the fish tickets. Now what I've 13 done here for the sake of showing that it doesn't matter 14 about the minor errors, and I want -- it's very, very 15 important that we all understand this, we are not saying 16 that the clerical changes that took place on these fish 17 tickets are errors. Okay. We believe that the clerical 18 change that took place was made to accurately reflect 19 what actually took place. 20 So, if it changed from 488 to 456, that's 21 because my client realized that it should have been 456, 22 and that's why it was put there. 23 But for the sake of showing you that even if 24 you take the position that the Department has taken and 25 disregard those trans-- those fish tickets that had an 26 error on them, whether it was a date error or a change 27 in this block error -- if you take all of those and you 28 put those on the side of the equation for non deep sea 9 1 commercial fishing, and you take only those trans -- 2 those fish tickets that were unchanged and pure, and you 3 put those on the side of commercial deep sea fishing, 4 you'll see, if you go to page 4, that 56 percent -- 56.6 5 percent of the fish tickets that we have that we've 6 shown you are complete -- 7 MS. MANDEL: I'm sorry, page 4 of what? 8 MR. MICKEY: Page 4 of Exhibit C. 9 MS. YEE: C. 10 MS. MANDEL: Oh, Exhibit C. Okay. 11 MR. MICKEY: Exhibit C. That you'll see the 12 yellow. I've got these color coded so I could quickly 13 explain without row numbers. 14 So, the yellow in the days vessel operated 15 outside, 56.6 percent represents the 60 fish tickets of 16 the 106 that had no changes to them, whatsoever, and 17 showed the fishing having taken place in code 456, which 18 is outside the territorial waters of California. 19 All the other ones, including the errors you'll 20 see in row 107, you'll see in the fifth column, number 21 8, there were eight transactions where there was a -- 22 some sort of a discrepancy, a minor error, in the date 23 and there were 13 where there was a correction that had 24 been made to the block code. 25 All 21 of those I have put in the column of non 26 deep sea commercial. Okay. We don't believe that's 27 where they belong. But for the sake of establishing 28 that even if you put them there, my client still 10 1 qualifies. 2 Now, if go further down you will see that we've 3 even gone one step further. The Department has 4 rightfully recognized that there was a -- some number of 5 days at the early onset of this when my client was 6 bringing a boat from Newport Beach up to Martinez that 7 there was some operation use outside deep sea commercial 8 fishing. 9 My client had explained that he thought that 10 was seven days. Somehow in the D & R it ended up at 11 nine days. So if it really gets down to -- I've used 12 the nine days here, being conservative, to just try to 13 establish that it doesn't matter -- taking those nine 14 days, removing three of those days for non-operational 15 use, because it took him three days to stay in a harbor 16 as he came up up the coast -- so there are three days 17 when it was not being operationally used, and I added in 18 the two fish tickets that were shown by the Department 19 of Fish and Game, to get eight additional days that we 20 put on the equation -- side of the equation for non deep 21 sea commercial. 22 We still end up with 54 days of non-commercial 23 deep sea and 60 days of commercial deep sea, and we are 24 still qualifying for the exemption. 25 MS. OLSON: Time has expired. 26 MS. YEE: Mr. Mickey, let me give you time on 27 rebuttal. 28 MR. MICKEY: Thank you. 11 1 MS. YEE: Thank you. Department. 2 MR. KWEE: Good morning, Madam Chairwoman and 3 Members of the Board. I am Andrew Kwee from the Board's 4 Legal Department. To my right is Bob Tucker, also from 5 Legal. And to his right is Kevin Hanks from the Sales 6 and Use Tax Department. 7 The petition should be redetermined in 8 accordance with the Appeals Division's recommendation 9 because the vessel was purchased for use in California 10 and was not used primarily in deep sea fishing 11 operations during the test period. 12 The issue in dispute is whether Petitioner, an 13 operator of a commercial passenger fishing vessel, used 14 his vessel in a manner such that the Petitioner's 15 purchase qualified for the commercial deep sea fishing 16 exemption. 17 As to this exemption, tax does not apply to the 18 sale or use of a vessel used in commercial deep sea 19 fishing operations outside this State by persons who are 20 regularly engaged in such operations, if for the first 21 12 months after the first functional use of the vessel 22 the vessel is principally used in such operations 23 outside the State. 24 All operational use of the vessel was included 25 in its calculation even if the vessel was being used for 26 non-fishing related activities. Here, the test period 27 started on December 4, 2003 and the applicable tax is 28 the Use Tax. 12 1 Petitioner is also regularly engaged in 2 commercial fishing activities for profit. In response 3 to our request for documentation concerning the 4 operational use of -- of the vessel, Petitioner had 5 submitted a copy of the Department of Fish and Game's 6 records plus 106 fish tickets. 7 As indicated, fish tickets are forms which are 8 required by the Department of Fish and Game to be filled 9 out at the completion of every fishing trip. The 10 original must be submitted to the Department of Fish and 11 Game and a copy must remain on the vessel in the 12 skipper's log book. 13 These forms are available only to persons 14 licensed with the Department of Fish and Game and are 15 provided by the Department of Fish and Game as booklets 16 with each ticket being sequentially numbered. 17 Now, the Department noted many inconsistencies 18 and found the fish tickets unreliable with respect to 19 the days, dates and the time. For example, the 20 inconsistencies as we discussed were that multiple 21 all-day fish tickets were issued for the same dates. 22 Dates were provided which didn't match the day of the 23 week. And the tickets which had fishing blocks not 24 supporting the exemption were overwritten with blocks 25 that did support the exemption. And in addition there 26 were gaps in the numbering systems for the fish tickets 27 provided. 28 Further, the Department of Fish and Game 13 1 records showed that only fish -- only 15 fish tickets 2 were even reported to the Department of Fish and Game 3 and two of these 15 were for fish tickets that were not 4 provided to the Department, and which did not support 5 the exemption. 6 Therefore, the Department determined that the 7 most reliable method to determine whether the exemption 8 applied would be to look at each individual fish ticket 9 and rely upon habitat and fishing statistics for the 10 fish caught. 11 The -- DFG's web site indicates that the 12 habitats for California halibut, striped bass, leopard 13 shark and sturgeon are Bay environments or shallow sandy 14 environments. Statistical information for this time 15 period at issue further shows that in 2004 one hundred 16 percent of sturgeons, 98 percent of California halibuts 17 and 93 percent of striped basis were caught within 18 California waters. 19 The Department therefore reclassified these 20 fishing trips where all or almost all of the fish caught 21 were these species as inside California waters. On this 22 basis we determined that 62 of the 108 reported trips 23 occurred in California waters. Therefore the vessel was 24 not used -- therefore the vessel was used at least 57 25 percent of the time in non-qualifying activities. 26 What the Petitioner requests us to do is to 27 ignore the fish tickets where fish were -- where we had 28 reclassified it as being inside California waters and 14 1 only look at the ones that contained no errors, but then 2 we do not believe that this would be consistent and that 3 we should rely upon what we believe is the most reliable 4 information, which is the fishing statistics and the 5 habitat information. 6 Further, we do note that the 57 percent figure 7 does not even include additional non-qualifying uses 8 indicated to us by Petitioner. 9 Further, for example, the Petitioner had 10 provided a business card stating that he performs 11 individual and group charters, night trips, private 12 parties and tours and informed us that additional 13 trips included whale watching, nature trips, a nine-day 14 trip to Newport Beach, all of which he claimed he was 15 not legally required to report and therefore was unable 16 to provide us records documenting such additional usage. 17 These would, of course, be non-qualifying uses 18 for purposes of the claimed exemption. Therefore, the 19 petition should be redetermined in accordance with the 20 Appeals Division's recommendation. 21 MS. YEE: Thank you very much, Mr. Kwee. 22 You have five minutes on rebuttal. 23 MR. MICKEY: Thank you. A couple things, real 24 quickly. 25 First of all, we already acknowledge that there 26 are some minor errors on those tickets. We've talked 27 about those. 28 The gaps -- there were some gaps, but that does 15 1 not mean that there were other fish tickets that were 2 used. These could have been lost. They could have been 3 misplaced. They could have been damaged, whatever it 4 was. 5 We've shown you that they're complete based on 6 the revenue. Again, even if you want to take the 7 position that there are some of these missing, you can 8 still add some into this equation and my client still 9 passes. Okay. 10 So that the point being we -- we -- and one 11 clarification, we do not ask the Department to ignore 12 the ones that have mistakes and just take the ones that 13 don't. That's not what we have asked. 14 We've asked that because they have taken the 15 position that they're going to ignore them all. We 16 believe that the fish tickets are accurate the way they 17 sit. 18 I'm giving you the examples here of even if you 19 take the position that the ones that have errors on them 20 are errors against my client, that my client would still 21 pass. Okay. 22 My client is a deep sea commercial fisherman. 23 His boat -- 50-foot boat was purchased to be used 24 outside the territorial waters predominantly. We've 25 never claimed -- he's never claimed that it happened 26 hatched 100 percent. But it happened way more than a 27 lot of similar type businesses do, because this is the 28 nature of his business. Okay. 16 1 A couple things. The habitat; they make these 2 statistical claims about these fish being caught. These 3 fish are not only caught inside the Bay. In fact, my 4 client informs me that drag fishing of -- halibut, 5 right? 6 MR. SMITH: Correct. 7 MR. MICKEY: -- of halibut takes place outside 8 the three miles territorial water. 9 So despite these statistics that the sport 10 fisherman catch most of it inside the Bay is not an 11 accurate conclusion to make that they're all caught 12 inside the Bay. So to turn around and tell my client 13 that despite what you said on your fish tickets and 14 where your people -- your persons wanted to go fishing 15 that we're going to put you back into the Bay is not an 16 accurate statement. Okay. 17 They cannot -- they should not be able to do 18 that. That is no more accurate than my client's records 19 with the minor errors in it. And we believe that the 20 records tell the story. 21 I'm merely suggesting to you that if you -- if 22 you feel that you must disregard all of it, then I 23 don't -- then I have no answer to that. 24 I'm showing you that you don't. It's not 25 proper. The majority of these fish tickets were 26 accurately prepared. Others were corrected to 27 accurately reflect what happened. And that's being held 28 against my client. 17 1 They make a mention they -- if you read the 2 D & R it's as if the -- the Department believes that 3 these things were altered to make this pass. I give you 4 this, there are -- there are corrections in there from 5 territorial waters outside California into California. 6 Why would those have been made? They were made because 7 they were simply trying to correct the errors that had 8 been made. 9 What the Department of Fish and Game had -- 10 second point. What the Department of Fish and Game has, 11 that's not my client's responsibility. These were 12 prepared, they were filed with the DFG. He has no 13 explanation nor does the DFG have an explanation why 14 they don't have them. But the fact of the matter is 15 they were prepared. They accurately reflect what took 16 place. The revenue generated from them has been 17 reported as income. Okay. 18 So, they are there. To rely on the Department 19 of Fish and Game, who's obviously made some errors in 20 their recording of some of these, okay, and then to go 21 to their web site and say that this habitat is more 22 controlling than what my client actually did, that 23 doesn't make any sense to us. 24 I'm here to tell you again that the operational 25 use of this -- this vessel from the time it was 26 purchased to the end of the 12-month period, 27 acknowledging whale watching trips which are in here, on 28 the negative side, acknowledging a trip where no fish 18 1 was caught, which they called -- they said it was a 2 non-fishing trip, it was just a trip where there was no 3 fish caught. There's people on the boat. It wasn't a 4 personal trip. Okay. Acknowledging the nine-day trip, 5 which was actually seven days, closer to seven days -- 6 we've used the nine days, we've added that in. We've 7 taken the two trip tickets -- or fish tickets that the 8 DFG has, we've added those in. 9 We have addressed everything to show you that 10 even if you address those things and you look at the 11 rest of the records in light of what they represent, 12 which is an accurate reflection, my client still passes 13 the test. 14 And to do anything other than to acknowledge 15 that is to simply say that these -- these boat fishing 16 people that are doing this and living by the rules of 17 that regulation, okay, when they make some small 18 mistakes, they get thrown out. And that's what's 19 happened here. 20 So we're asking you to consider the totality of 21 everything, not just the minor mistakes and throw out 22 everything. We're asking you to look at what was done, 23 what was truth -- actually factually done, what was 24 corrected to factually represent what took place. 25 Don't hold that against my client. And then 26 acknowledge that his documentation with minor errors in 27 it -- ideally those wouldn't have been there -- but is 28 accurate, complete and shows the proof of the exemption 19 1 for deep sea commercial fishing. 2 MS. YEE: Okay. Thank you, Mr. Mickey. 3 Mr. Smith, do you have any comments to make at 4 this point? 5 MR. SMITH: Yeah, I just want to add one thing 6 here. Included with the State's case, there are a few 7 tickets included stating that I was fishing inside the 8 Bay on salmon trips. We all know salmon live in the 9 ocean. So I just want to make that clear, that they're 10 pointing this out, that I'm salmon fishing supposedly in 11 the Bay, as well. 12 MS. YEE: Thank you. 13 MS. STEEL: Question. 14 MS. YEE: Yes. Ms. Steel. 15 MS. STEEL: I have two questions. One, during 16 the appeals hearing that there's only 57 corrected 17 documents and then now today that you said 60 of them. 18 So can you explain those three? 19 MR. MICKEY: Well, I wasn't -- I was not part 20 of the appeals conference. I came on board after the 21 appeals conference when the case was previously 22 scheduled for a Board hearing. I came in late in the 23 game. 24 Now, at that time there were some discrepancies 25 in the D & R as well, where -- and some of them were 26 corrected in the Supplemental D & R. 27 What I did is I -- and I originally, when I 28 filed my first letter for the Supplemental D & R, 20 1 I was using information that was in the D & R to come up 2 with my numbers, and I put together the -- the paragraph 3 explanation about the errors. 4 For this analysis what I did is I went back 5 through the 106 documents that I got out of the Board's 6 petition file and I analyzed them myself. 7 MS. STEEL: Okay. 8 MR. MICKEY: And so, to be -- I was trying to 9 be conservative to establish that the notice -- the 10 notices that they have found don't matter. And so, I 11 may have found a couple of others in there that look to 12 me like they might have been slightly changed, so I put 13 them on the -- on the other side to -- to equate that. 14 MS. STEEL: Second question is Department of 15 Fish and Game, that they have only like 15 documents 16 that they have. Did taxpayer went back to Department of 17 Fish and Game -- Department of Fish and Game that ask 18 for why they have, you know, only less than 15 instead 19 of whatever he filed? 20 MR. MICKEY: I'll let him answer that but he -- 21 we've talked about that and my understanding is he did, 22 and they -- he just didn't get anywhere with them. 23 MR. SMITH: Yeah. Unbeknownst to me, I had no 24 idea that the Fish and Game did not receive my package 25 for -- 26 MS. STEEL: How do you file it? You just send 27 them them -- I mean send them by mail or -- 28 MR. SMITH: Just regular mail in an envelope. 21 1 MS. STEEL: So you just don't have any clue? 2 MR. SMITH: I don't know where this paperwork 3 went to, ma'am. I know that it was sent and I have no 4 personal gain from it not going there. Just -- and 5 that -- 6 MS. STEEL: Did you call and try to find out 7 that what was going on with them, or -- 8 MR. SMITH: You know what, until this came up I 9 had no idea that the paperwork was actually missing. 10 They don't send any notices saying, "We've got your 11 paperwork." They don't send any kind of track record. 12 They don't send any kind of notice. We don't send it 13 Certified Mail, we just send it standard mail. 14 MS. STEEL: Okay. To the Department, did you 15 see the documents that they provided today? 16 MR. KWEE: I received it just a few minutes 17 before I arrived here this morning. 18 MS. STEEL: So, you agree with these -- most of 19 it or you just don't have a clue yet? 20 MR. KWEE: Well, I haven't looked at it in too 21 much detail, but right off the bat I'd note that we had 22 108 trips because two of them -- there were two 23 additional trips that were reported to the Department of 24 Fish and Game which weren't included in here, and they 25 both -- 26 MR. MICKEY: They're in the bottom. I added 27 them in the bottom number. In the brown -- the two 28 Department of -- I don't mean to interrupt, but the 22 1 two Department of Fish and Game I added in at the 2 bottom. 3 MR. TUCKER: Ms. Steel, we were handed this 4 just minutes -- literally one or two minutes before the 5 hearing started, so -- 6 MS. STEEL: You want to look at it? But at the 7 same time that, you know, habitat, it's just so 8 interesting that you are going -- not going through just 9 regular paperworks, but going after the fish. 10 Fish doesn't know where the wall is, that 11 three-mile zone. So I think they can move back and 12 forth. So, that's most not reliable document. I mean, 13 you know, document that you can go after. 14 Not only that, they are talking about global 15 warming, global cooling. There's just no way fish is 16 going to stay just in one spot. 17 So, I understand that you going to looking at 18 that. It's just one of the proof, but you cannot really 19 document that and this fish has to be caught in this 20 zone. 21 I mean, that's just totally ridiculous that I'm 22 listening today. And if you go after each paperworks 23 and there's a mistake on dates, there's a mistakes on 24 zone, and there's a -- you know, changes on it, then I 25 understand that part. But you going to habitat, it's 26 just totally not, you know, reliable sources that, you 27 know, you are trying to get the proof today. 28 MR. TUCKER: We're using the information that 23 1 we received from Department of Fish and Game and we're 2 using that based on experience, based on the Fish and 3 Game's experience where these are caught. 4 But I can bring out one other point. I went to 5 the web site for the California Dawn and on the 6 California Dawn there's a question and answer section, 7 and one of the questions is, "Will I get seasick?" And 8 it says, "Seasick is never an issue for fishing in the 9 bays. If you're worried about getting sick, you should 10 take Dramamine or" -- looks like Bonine "for sickness. 11 Take it the night before so your body can adjust to the 12 pill." 13 And then it goes on to say, "Our charter fishes 14 most of the time, winter through Spring, in the Bay" -- 15 or, pardon me, let me read this again. "Our charter 16 fishes the Bay most of the time, winter through Spring, 17 and we go out in the ocean in the summer months when the 18 weather is better." 19 So by their own admission on their web site 20 they're doing most of their fishing in the Bay. 21 MS. STEEL: So did you see the dates that it 22 went out most of summer months are on the listed here? 23 Or -- 24 MR. TUCKER: Well, they fish throughout the 25 year. 26 MS. STEEL: Yeah, I understand that part. 27 But -- can you explain that? 28 MR. MICKEY: We never -- my client has never 24 1 claimed they don't fish in the Bay. Okay, my client has 2 said that they predominantly fish outside the 3 territorial water, and what he just said supports that. 4 A lot of these transactions are in the summer 5 months where they fish outside. They cannot fish in one 6 place all year long. It's never been said that that 7 took place. 8 So that is not indicative of anything contrary 9 to what this -- these fish tickets and what the 10 documentation shows. 11 MS. STEEL: It seems like it's very closer 12 here, like 40 some percent versus 50 some percent. Is 13 that any way possible that we can ask them to look at 14 this paperwork that they just received and that they can 15 come back? 16 MS. YEE: Hmm-hmm. I think that would be 17 helpful. Okay. Let me get out all the questions and I 18 think we do want to allow time for the staff to take a 19 look at the -- the recent submissions. 20 Other questions or comments? Mr. Leonard. 21 MR. LEONARD: I just had one. Do you have a 22 ship's log? 23 MR. SMITH: That is my ship's log. 24 MR. LEONARD: The fish tickets are the entire 25 log? How do you -- how do you -- how do you book trips 26 that aren't fishing trips? 27 MR. SMITH: Just like you'd make a reservation 28 at a -- at a restaurant. 25 1 MR. LEONARD: I mean in terms of operation of 2 the boat, how do you record -- do you record engine 3 hours? Do you have a GPS that charts where you go? 4 MR. SMITH: Yeah. Yeah. But that's a -- 5 that's a daily record internal. I can't record every 6 movement on the GPS for year after year. That's just an 7 impossible feat. 8 But on a daily basis we decide where we're 9 going to fish. And people call in, just make 10 reservations just like you would at a restaurant. 11 MR. LEONARD: Would that be reflected in a 12 different engine hour operation for that day, if you 13 fished outside territorial waters versus in a bay? 14 MR. SMITH: Yes and no. But as far as engine 15 hours, I mean we have just the standard average amount 16 of hours that we operate a year. 17 MR. LEONARD: I'm with Ms. Steel, Madam Chair. 18 I -- I think the evidence before us is so weak on both 19 sides. I wish there was something -- 20 MS. YEE: Yeah, I mean what -- I guess -- 21 MR. LEONARD: -- better. 22 MS. YEE: -- a follow-up question to the 23 Department, what kind of documentation generally would 24 be appropriate so that we could figure out how to 25 allocate -- 26 MR. LEONARD: Right. 27 MS. YEE: -- the amount of time that was in -- 28 MR. HANKS: Right. Ms. Yee, typically in these 26 1 situations there -- there is a log of the type that Mr. 2 Leonard is -- is asking for, because that's really what 3 the -- the Captain would rely on in -- in knowing when 4 to do his periodic maintenance on his engines, 5 especially. It's -- it's something that's important as 6 well for people -- future purchasers of -- of the 7 vessel. They want to know how -- how often the vessel 8 has been used, how many hours have been used on the 9 engine, where -- where it's fished. 10 So, typically we wouldn't just see fishing 11 tickets to -- to evidence the use of -- of a vessel. 12 There's -- there's ordinarily a log, and especially for 13 an expensive vessel, the -- the type we're looking at 14 here. 15 Also I wanted to point out that -- that I know 16 in the 20 years that -- that I've been around it's -- 17 it's typical, actually, for the audit staff to look 18 to -- to look to see what type of species of fish are 19 being fished, because oftentimes -- oftentimes 20 particular species of fish, especially crustaceans, for 21 instance, are only found within that three-mile limit. 22 So, I know along the coast of -- of California it's very 23 typical for -- for the auditors to -- to try and look at 24 the type of vessel -- 25 MS. STEEL: I understand that. But you know 26 what, I was looking at it. It's the same fish. The 27 size difference, it's been caught in certain area. 28 But, you know what, they go back and forth. I 27 1 mean, you know, they don't know that three-mile zone is 2 right there and then you draw the line and have a wall. 3 So -- and it's been changing. Last 20 years it's been 4 changed, the law, so you cannot really depend on the 5 what -- you know, they are -- they are providing here. 6 So, that's what I'm trying to say. Because 7 sometimes you can caught something in -- inside or 8 sometimes, you know, outside of the zones. 9 MR. HANKS: Correct. 10 MS. STEEL: That's what I -- 11 MR. HANKS: Certainly that happens. And -- and 12 I think looking at the species is just some indication 13 that the auditor might -- might look at to -- to see 14 where the vessel's primarily used. 15 But primarily we're -- we're going to focus on 16 looking at the documentation, looking at those fishing 17 tickets to identify what grid the -- the activity is 18 taking place. 19 MS. STEEL: It's just indication it's good, but 20 try to prove it with that, it's not really -- I mean, 21 it's wrong. That's what I'm saying. 22 MR. MICKEY: May I -- may I add to that, 23 please? 24 MS. YEE: Mr. Mickey. 25 MR. MICKEY: There -- I was looking for it here 26 in my file, and don't have it flagged, but there's a 27 letter from the original Appeals -- or petitions person 28 that addressed that and -- and it said something to the 28 1 effect it addresses whether auditors routinely look at 2 the fish habitat. And the statement that was made in 3 this memorandum, which I can -- I have somewhere, was 4 that they normally look at what the -- the fish tickets 5 say. But in this case because they found errors they 6 felt like they had to look at the habitat. 7 So they weren't necessarily going to look at 8 the habitat in this one until they found the minor 9 errors on the fish tickets. 10 Again, my point being the habitat is not as 11 reliable as the fish tickets. 12 MS. YEE: I'll -- well -- 13 MS. MANDEL: If -- 14 MS. YEE: I guess fish tickets have their 15 limitations, as well. So, it's -- we don't have 16 anything beyond that that tells us more about where 17 the -- where the activity actually took place. 18 Ms. Mandel. And then Mr. Shea. 19 MS. MANDEL: It's kind of a follow-up really to 20 Mr. Leonard's and I know that there's always this focus 21 on the fish tickets. And -- and I did have a question I 22 guess for staff, why you would ignore a fish ticket, 23 although I understand you put it in your brown part, 24 where there was no fish caught. 25 I mean, maybe he had a bunch of unlucky people 26 on the boat that day, if they were -- if they -- if 27 there's no other issue with that particular fish ticket. 28 You know, like if it showed that they went to an out of 29 1 California block, the fact that they don't -- there's no 2 fish recorded as having been caught, I'm not sure that 3 that -- why the Department would ignore that fish 4 ticket. 5 But in terms of your sort of business 6 operations, which is kind of what Mr. Leonard was asking 7 after and taking reservations, engine logs, that sort of 8 thing, when people call up and you said something about, 9 well, we figure out where we're going to take them 10 because it depends what they want to -- you know, what 11 they want to catch and that sort of thing -- I mean what 12 other types of business records do you have that would 13 show that these people on a particular trip were 14 intending to go -- you were intending to take them out 15 to sea rather than in the bay? 16 Can you think of how -- you know, how you do 17 your sort of everyday business and what you might have 18 that would be supportive of your position or -- maybe 19 it's not supportive of your position, but what kind of 20 records you keep. 21 MR. SMITH: Well, the first thing is you're 22 talking about engine records since '04. I'm on my third 23 set of motors. The first two sets are probably beer 24 cans or new vehicles by now. So, getting engine records 25 from those would be virtually impossible. 26 Secondly -- secondly, I was a single father at 27 the time, so me managing records and raising a child is 28 virtually impossible. I run my daily trips. I send my 30 1 log books into the Department of Fish and Game. At the 2 end of the year I go through stacks of papers. I'm 3 trying to make sense of everything as far as tax 4 purposes. 5 But as far as a second set of records, you're 6 looking at all my records. 7 MS. MANDEL: Okay. 8 MR. SMITH: The only other set of records is, 9 of course, the people that I took fishing who could 10 support -- possibly support the dates if -- if need be. 11 Now, it would be a lot of work to try and subpoena, you 12 know -- yeah, 1,000 people -- 13 MS. MANDEL: You -- 14 MR. SMITH: -- and ask them for where they 15 fished. But certainly that could be supported. 16 MS. MANDEL: Do you keep any kind of calendar, 17 you know, where you make notes or anything when people 18 call and six -- six people want to go out and get -- I 19 don't know, some big fish? 20 MR. SMITH: Unfortunately, we don't -- we don't 21 fish at Safeway, so you can't call me and say, "Well, I 22 want to catch a big fish at this spot." I mean, we're 23 subject to weather -- 24 MS. MANDEL: Right. 25 MR. SMITH: -- we're subject to where the fish 26 are. Are they in the Bay? Are they out in the ocean? 27 Are we going to the Farallon Islands? I can't tell you 28 day to day. I can't tell you where I'm going to fish 31 1 next week. 2 I can tell you that the general draw for my 3 business is deep sea because we have a large boat and 4 people do tend to want to go out into the ocean to fish 5 for larger fish. And we make every accommodation for 6 that on a daily trip. 7 But as far as a log book of who wanted to go 8 where and do what, we just don't keep those kind of 9 items. 10 MS. MANDEL: Yeah. How big is that boat, 11 again? 12 MR. SMITH: It's a 50-feet Delta. 13 MS. MANDEL: Okay. 14 MR. SMITH: It's a 38 ton boat. 15 MS. MANDEL: Yeah. 16 MR. SMITH: It's really large. 17 MS. MANDEL: Yeah. Okay, thanks. 18 MS. YEE: Mr. Smith, do you -- oh, I'm sorry. 19 Mr. Shea. 20 MR. SHEA: I just have one question, really for 21 the Department. Before we move into the direction of 22 just having the Department further examine the fish 23 ticket records that were produced today by the 24 Petitioner, my concern is that the fish tickets are 25 supposed to be issued by the Department of Fish and 26 Game, filled out and returned to the Department of Fish 27 and Game, and yet in this instance the Department of 28 Fish and Game only has records of 15 fishing trips, not 32 1 106. 2 And if in fact the Petitioner is relying on 3 these records of the fish tickets that they've produced 4 today to satisfy the burden of proof that the Department 5 was incorrect in the assessment, this is the evidence 6 they're relying on, the fact that it can't be 7 independently verified by Department of Fish and Game 8 and therefore there's not evidence that they were 9 actually completed and returned to the Department of 10 Fish and Game but rather were only produced for this 11 hearing, and also apparently could not be independently 12 verified by a log book that one would expect also to be 13 maintained, is there a fundamental problem with relying 14 on this evidence, I guess is my -- my question for you. 15 MR. HANKS: Mr. Shea, I -- I understand your 16 concerns. I had similar concerns, actually, when I was 17 looking at the case and I noted that Department of Fish 18 and Game had only received 15 of -- of the tickets. 19 I think that these are much like controlled 20 forms that we have at the Board where -- where these 21 things are -- are accounted for. 22 Certainly, it's something that Fish and Game is 23 going to look at closely because they need to monitor 24 how much of the habitat is being fished off the coast of 25 California. Of course that's even more critical today. 26 So, I had concerns about that, as well. Still 27 the Petitioner has produced the -- the other tickets. 28 To the extent that -- that those -- those didn't get to 33 1 Fish and Game, for whatever reason, we -- we were still 2 amenable to reviewing those tickets and evaluating them 3 to -- to see if the Petitioner qualified for the 4 exemption, even -- even assuming that -- that those 5 tickets were valid and for whatever reason didn't -- 6 didn't arrive at the Department of Fish and Game. 7 Through our analysis we still determined that 8 the exemption criteria wasn't met in this case. And so 9 we have really come to the -- the same conclusion had we 10 just reviewed the 15 tickets or -- or the hundred plus 11 tickets that -- that Petitioner supplied to us. 12 So our determination wasn't any different. 13 MS. STEEL: Well, Mr. Hanks, but, you know, all 14 these documents that provided by the taxpayers were 15 chronological orders. So all these numbers are right 16 here. 17 So Fish -- Fish and Game, even they lost all 18 the paperworks, you cannot really -- I mean, you cannot 19 really rely on that -- that Department. 20 But at the same time, when you found only less 21 than 15, did anybody contact them, that why it's been 22 lost, from our side? I mean, I understand that burden 23 of proof is on taxpayers but, you know, we couldn't ask 24 so much different. 25 And I thought when our auditor was counting all 26 these documents because it numbers that -- you know, you 27 see that all these here. 28 MR. HANKS: Andrew, do you know if -- if we 34 1 contacted -- 2 MR. KWEE: I -- I did contact the Department 3 of Fish and Game, and I asked them if there would be any 4 explanation why records would not be provided to the 5 Department -- would not be in the Department of Fish and 6 Game's log book but would have been provided to them. 7 And they said that they keep electronic records and the 8 hard copy backup of every form that's provided to them 9 with respect to the fish tickets, and they would have no 10 explanation why their log book would not contain all the 11 tickets that were -- 12 MS. STEEL: So we cannot rely on them. But we 13 have all the documents here by the different numbers. 14 So that's why. 15 MR. MICKEY: May I clarify just one thing 16 there, too? 17 MS. YEE: Yes, Mr. Mickey. 18 MR. MICKEY: On a question that was asked. I 19 just want to make it clear that the -- what I've given 20 you today wasn't prepared for just -- the 106 fish 21 tickets have always been in the file, from the very 22 beginning. So all I did today for this hearing was 23 prepare the summary of those fish tickets. Those 24 weren't -- those weren't pulled together for today. 25 The fish tickets, themselves. 26 I just wanted to clarify that. 27 MS. YEE: All right. Thank you. Ms. Mandel. 28 MS. MANDEL: Before I ask that, could you -- 35 1 can you just answer about why you would ignore a -- 2 assuming -- the fish tickets where nothing was caught, 3 if -- if those fish tickets showed a block -- you know, 4 why isn't that just a day where nobody caught anything? 5 MR. MICKEY: I can answer that. It -- it was 6 ignored, I don't mean that. It wasn't ignored. It was 7 treated as a non-fishing promotion. 8 MS. MANDEL: Well, in your analysis of -- 9 MR. MICKEY: No, in there -- in there. They -- 10 they had those. They treated them as -- I may have 11 misspoken. 12 MS. MANDEL: Yeah. I -- 13 MR. MICKEY: They're not in my brown, either. 14 They're up top in my -- in my schedule. 15 MS. MANDEL: Okay. But why -- why are -- well, 16 were those -- did those show that they went to a block 17 inside California? I remember reading something that 18 said that they -- that at the end -- maybe I just 19 misread it, that staff was tossing out the non -- two 20 ones where fish weren't caught. Is that -- did I 21 misunderstand that? 22 MR. KWEE: The 57 percent figure that I 23 provided did include those two tickets, the non-fishing 24 tickets. One of them was within California. 25 MS. MANDEL: Oh. And one was out. 26 MR. KWEE: One was out of California. 27 MS. MANDEL: Oh, okay. Okay, so I just misread 28 that. 36 1 Do we have an issue with Fish and Game like we 2 had with DMV and the ROS slips? I mean, is Fish and 3 Game supposed to keep track of these books? Are they 4 numbered slips? Are people supposed to return them? 5 Are people -- is there some -- 6 MR. KWEE: Well, these forms are only made 7 available to persons licensed with the Department of 8 Fish and Game. They're all sequentially numbered and at 9 the -- by the tenth day of the month following the 10 fish -- the landing, they must be returned to the 11 Department of Fish and Game. 12 So, we have no explanation why that Department 13 of Fish and Game's log book would not contain these 14 records if they were provided to the Department of Fish 15 and Game. 16 MS. MANDEL: Okay. And then just the last time 17 a little bit if I may, I understand there were some 18 tickets that were -- where they had -- would be more 19 than one trip on the same day. Are those -- how are 20 those accounted for on your sheet? 21 MR. MICKEY: They -- you'll see in the -- 22 Exhibit C, in the column that has -- it's the fifth 23 column over, minor and insignificant error in date -- 24 MS. MANDEL: Yeah. 25 MR. MICKEY: -- those will all show up with a 26 "Y" there. And for my -- our purposes here, even though 27 we don't agree, okay -- for our purposes here they will 28 all show up in non deep sea commercial -- 37 1 MS. MANDEL: Okay. So you're -- 2 MR. MICKEY: I'm treating them as an error. 3 MS. MANDEL: Okay, so you're just -- 4 MR. MICKEY: I just -- they're not. I mean, we 5 believe they're not. 6 MS. MANDEL: How long does it take you to get 7 out -- outside the limit in that boat? 8 MR. SMITH: Roughly about 50 minutes. 9 MS. MANDEL: Yeah. And -- and do people sign 10 up for a half day -- 11 MR. SMITH: 50 minutes to an hour. 12 MS. MANDEL: -- usually or a full day, or 13 what's your usual stint? 14 MR. SMITH: Typically it's a full day trip. 15 It's a 6:00 a.m. to 4:00 p.m. trip. 16 MS. MANDEL: But sometimes you -- you might go 17 out more than once? 18 MR. SMITH: Generally not. Generally not. 19 MS. MANDEL: Okay. 20 MR. SMITH: That's a -- that's a long trip. 21 MS. MANDEL: Yeah. Okay. But you did treat 22 them for this analysis as inside if they were both in -- 23 if there were two trips in a day or three trips in a day 24 on the tickets they were all treated as inside -- 25 MR. MICKEY: Yes. 26 MS. MANDEL: -- California? 27 MR. MICKEY: In addition to those that it just 28 had a date that didn't match the day -- 38 1 MS. MANDEL: Right. 2 MR. MICKEY: -- we just treated those as -- 3 MS. MANDEL: Okay. 4 MR. MICKEY: -- theirs, as well. 5 MS. MANDEL: All right. Thanks. 6 MS. YEE: Very well. Thank you very much. 7 Other questions, Members? 8 Hearing none, is there a motion? 9 MS. MANDEL: Take it under submission. 10 MS. YEE: Okay. A motion by Ms. Mandel to take 11 this matter under submission. 12 Is there a second? 13 MR. SHEA: Second. 14 MS. YEE: Second by Mr. Shea. Without 15 objection -- and again in this matter if I could ask the 16 Department to get together with Mr. Mickey and Mr. Smith 17 just to be sure there's a clear understanding of what 18 these exhibits represent. 19 MR. HANKS: Yes. We'll do that. 20 MS. YEE: Without objection that motion 21 carries. 22 Thank you very much, gentlemen. We will 23 discuss your matter later today -- 24 MR. MICKEY: Thank you. 25 MS. YEE: -- and send you a written notice of 26 our decision. 27 ---oOo--- 28 39 1 REPORTER'S CERTIFICATE 2 State of California ) 3 ) ss 4 County of Sacramento ) 5 6 I, BEVERLY D. TOMS, Hearing Reporter for the 7 California State Board of Equalization certify that on 8 September 1, 2009 I recorded verbatim, in shorthand, to 9 the best of my ability, the proceedings in the 10 above-entitled hearing; that I transcribed the shorthand 11 writing into typewriting; and that the preceding 39 12 pages constitute a complete and accurate transcription 13 of the shorthand writing. 14 15 Dated: September 30, 2009. 16 17 18 19 ____________________________ 20 BEVERLY D. TOMS 21 Hearing Reporter 22 23 24 25 26 27 28 40