BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 450 N Street, Room 121 Sacramento, California REPORTER'S TRANSCRIPT SEPTEMBER 1, 2009 ITEM D1 SPECIAL TAXES APPEALS HEARINGS PETITION FOR REDETERMINATION filed by SUKHWANT S. SEKHON and K. SEKHON (Case No. 491719 ET) 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 Monica Silva Tax Counsel 18 Robert Tucker 19 Legal Department 20 Kevin Hanks Sales and Use Tax Department 21 For Petitioner: Sukhwant S. Sekhon 22 Taxpayer 23 Amarjit K. Sekhon Taxpayer 24 25 ---OOO--- 26 27 28 2 1 Sacramento, California 2 September 1, 2009 3 ---oOo--- 4 MS. OLSON: Our next item is D1, Sukhwant S. 5 Sekhon and Amarjit K. Sekhon. 6 MS. YEE: Okay. Thank you. 7 Okay. Mr. Levine. 8 MR. LEVINE: The issue in this petition is 9 whether the seized tobacco products remaining in the 10 Board's custody were properly seized and should be 11 forfeited, or whether Petitioners have established that 12 the products were tax paid. 13 MS. YEE: Okay. Thank you. Good morning. 14 SUKHWANT SEKHON: Good morning. 15 AMARJIT SEKHON: Good morning. 16 MS. YEE: Thank you for your patience. If 17 you'll introduce yourselves formally for the record. 18 You have ten minutes. 19 SUKHWANT SEKHON: Yeah. My name is Sukhwant 20 Sekhon. 21 MS. YEE: Okay. 22 AMARJIT SEKHON: And I'm Amarjit Sekhon, and I 23 go by Ann. 24 MS. YEE: Okay. 25 AMARJIT SEKHON: And I'll speak for Right. 26 MS. YEE: Great. 27 AMARJIT SEKHON: This incident started April 28 7th of this year, which is amazing after hearing all 3 1 this the other stuff. 2 But we had people come in and they checked our 3 cigarettes and everything and they checked our tobacco. 4 A couple of items that were there were not on -- listed 5 on an invoice. And with talking to the person that day, 6 we explained that, you know, we buy everything from the 7 McLane's Company, which is owned by Wal-Mart, which 8 serves 7-Eleven. 9 7-Eleven buys our product for us. They -- they 10 negotiate the costs. And they give us recommended 11 vendors. McLane's Company is the only recommended 12 vendor for us. 13 So, anyway, the invoice in question, if you go 14 to page -- after page 1 in this little book I've given 15 you, there's only two items on this whole complete 16 invoice that's there that were bought, and they were -- 17 the one we're talking about is this 60 Swisher Sweet 18 cigarillos, and what we had ordered was five-packs. 19 Five times 60 is 300 cigars. 20 What they shipped us in error is 300 singles. 21 They sent us packs of 60. They sent us five of those 22 singles instead, which totals $600 or 300 cigars. 23 What -- what it is I've -- on the front of 24 this invoice it tells you that the cigarette tax has 25 been paid on, and the OTP tax has been paid, Other 26 Tobacco Taxes have been paid. It's on the invoice. 27 It also states that no credit is issued after 28 21 days. So we've been talking to the investigation 4 1 back and forth and in here I'm also providing after 2 number 2, is there's three invoices in there that show 3 that the McLane's Company on these dates, January 1st, 4 6th and 7th had no product. This product that we were 5 buying is Swisher Sweets. 6 So, after investigating -- talking with 7 McLane's Company, going through our invoices, talking to 8 other franchisees we have determined and we told them on 9 the spot, is that on January 9th this invoice on the 10 first page, we were shipped the wrong product. The 11 taxes on it have been paid because they're similar. 12 They're the same item only packaged differently. 13 Okay. In Section 3 of here, what I got was 14 from 7-Eleven are sales. And the sales for singles, we 15 basically sell little to no singles and that's why they 16 were sitting in there from January till April. 17 What we sell is five packs of cigarillo Swisher 18 Sweet cigars. 19 And so, I've gotten that. I've also gone to 20 the McLane's Company and gotten our -- what in Section 4 21 is what we've ordered. These 60 packs of singles that 22 are in question that have not -- were not on an invoice, 23 we never ordered. We never ordered them from them. 24 But McLane's Company is the company that we buy 25 our tobacco and cigarettes from. 26 We did a lot of investigating. We went 27 through -- we even went to -- I went to our local Costco 28 and got a receipt for January 6, 2009, we purchased two 5 1 five-packs of cigarillos. Single -- not singles, but 2 five-packs. So the invoice is there. That's a one-time 3 transaction. That was an emergency because we were out. 4 And then also I've provided Pitco where on 5 9-24-08 we picked up Optimo, peach. 6 We went back, five packs is what we bought. We 7 don't buy singles. We really don't sell singles. 8 So, anyway, after that in number 6 I have some 9 invoices in there that show that the amount of tobacco 10 taxes that we do pay. So, what I'm saying here is I've 11 talked to the McLane's Company, talked -- asked them 12 could this happen. We talked to them on the very day 13 that it did happen, called them and they said mistakes 14 happen. There is a possibility that there was a 15 mis-pick. Okay. 16 We confided that to the person that was in our 17 store, who to us says, "Well, okay, but I still got to 18 do this." Okay. 19 Investigations has also talked to Richard 20 Cromar, who is the V. P. of McLane's Company and who has 21 told them that mis-picks happen. 22 So, what we're here saying is, hey, the taxes 23 on this product are paid. They're the only people that 24 we buy our product from. 25 We want our product back. McLane's Company is 26 saying that they made a mistake. Our error is that we 27 didn't check the invoice real, real carefully so that 28 they matched. 6 1 I've asked McLane's Company to provide me with 2 an adjusted invoice. They don't do that. If I have a 3 mis-set or a mis-pick sent to my store, what I do is I 4 let them know and they will give me an -- a credit. 5 They will give me a credit for the product that I was 6 supposed to get. And then they will take whatever I 7 have back. 8 But this is so far down the road, number two, I 9 don't have the product, that there really isn't anything 10 I can do. 11 The McLane's Company is a really, really big 12 company. They don't just serve 7-Eleven. They do the 13 A.M./P.M.s and Shell's, et cetera. 14 So, I mean this is an incident that has 15 happened. We -- we know we've paid the taxes on it. 16 I'm here because we've paid the taxes on it and I feel 17 that we really haven't done a wrong. We've made a 18 mistake that these invoices should have matched. We 19 should have turned around right away and sent it back. 20 We didn't realize that we did. 21 But to say that, you know, like the State taxes 22 on it haven't been paid, that doesn't -- it doesn't ride 23 with me because I know they have. 24 When I contacted the McLane's Company to say, 25 hey, could you please give me in writing that you've -- 26 you know, that a mistake has been made and that this is 27 happening or whatever, they -- they wouldn't give me 28 anything in writing. They came back to me and they 7 1 said, well, the front of this invoice -- every invoice 2 you get tells what kind of State taxes we pay. And they 3 tell you what the credit policy is and everything. 4 So, that's why I'm here. And we are not -- 5 we're 7-Eleven. We own two stores. We've been -- 6 checked in our other store. All our invoices, 7 everything was in track. We had absolutely no problem. 8 That was a year ago. 9 Nobody has been back since and hopefully 10 they'll come back because everything is still in track. 11 We're not one of these people that buy from I 12 don't know where -- where else I could get it that -- we 13 are in business to make money. We buy from the McLane's 14 Company. Because 7-Elevens are a big company, we get a 15 negotiated cost of goods. We get a good cost of goods. 16 So, it would not behoove me to buy from 17 anywhere else unless there was an emergency and I'm out, 18 and that's why two different times in a whole year, one 19 time we went to Pitco and one time we went to Costco. 20 Also, an interesting situation happened to us 21 because I was talking to Investigations and they want to 22 tell me, well, this is an ongoing situation. It is not 23 an ongoing situation. It's an incident that has 24 happened and they wanted to come back with me at some 25 dates or something. 26 And if you look on the very two last invoices 27 in your package here, and I've highlighted them, they're 28 Black and Mild cigarettes, dated 8-4, and 8 1 another invoice dated 8-18. 2 I have the invoice for this. But if you look 3 at the dates on these -- where is that? 4 SUKHWANT SEKHON: There's one is on '08, one is 5 old. 6 AMARJIT SEKHON: One is dated 2008 and the 7 other box is dated 2009. So, I don't know what to tell 8 you. 9 We -- we're law-abiding people, you guys. We 10 do the right thing. 11 SUKHWANT SEKHON: I have a few things to say if 12 our ten minutes haven't gone yet. A few minutes before 13 we are talking about $40,000, $50,000, millions of 14 dollars. On the same date I was thinking why. Our case 15 is $200 some dollars. They've come up with 600 some 16 dollars. I don't know where they got the figures. It 17 was some cigars. 18 But I calculate it as about $250 -- $260, the 19 whole thing we are talking about. 20 We came here only one reason, the principle. 21 We did nothing wrong and we don't want to be penalized. 22 Yes, we -- we are the victim of mis-pick and 23 otherwise we are not going to run here for two or three 24 hundred dollars and fight for it. That's the only 25 reason we came here, our principle. 26 I want to give a little background on my 27 family. I have -- 28 MS. OLSON: Time has expired. 9 1 MS. YEE: Please complete your thought. 2 SUKHWANT SEKHON: I have three kids. One is a 3 Police Officer. One is a doctor. 4 I'm Right. 5 MS. YEE: That's all right. 6 SUKHWANT SEKHON: It's okay. 7 MS. YEE: Okay. We'll come back to you on 8 rebuttal. 9 Department. 10 MS. SILVA: Good morning. Monica Silva. To my 11 right is Mark Edwards from the Investigations Division. 12 And to his right is Steven Smith from the Legal 13 Department. We're here representing the Department 14 today. 15 As recommended by the Appeals Division, this 16 petition for release of the property should be denied. 17 The Board staff properly seized the tobacco products at 18 issue and it's undisputed that at the time of the 19 inspection and the seizure Petitioner did not have 20 invoices to substantiate the product that was seized. 21 Petitioner contends that because it only 22 purchases from an approved 7-Eleven supplier the only 23 way the seized products arrived at the location was by 24 error in delivery by the supplier. 25 Petitioner contends that they ordered and were 26 invoiced 60 five-packs but instead received five boxes 27 of 60 single cigarillos. The licensing act specifically 28 provides that it shall be presumed that the tax has not 10 1 been paid to the Board on tobacco products in possession 2 of the retailer until the contrary is established, by 3 proof of payment to the Board or by an invoice that 4 shows the retailer paid the tax-included purchase price 5 under the types of invoices that are required by 6 distributors. 7 The statute specifically provides that the 8 burden of proof for the tax has been paid is on the 9 retailer and that the tobacco products seized shall be 10 deemed forfeited unless the seizure was not proper. In 11 this case the seizure was proper. 12 To date, unfortunately petitioner has not been 13 able to provide invoices to substantiate the product 14 that was seized. The Board has recognized the 15 possibility of an -- excuse me, the Department has 16 recognized a possibility of an error and by letter to 17 the Petitioner requested corrected invoices from 18 Petitioner's supplier to substantiate Petitioner's 19 alleged mis-delivery and to show tax paid. 20 Petitioner has replied reiterating the error in 21 the delivery but providing the same invoice that 22 continues to not substantiate the products that were 23 seized. 24 Staff has reviewed all the provided invoices 25 and the seized product is not listed. Without a 26 purchase invoice to establish the tax has been paid on 27 the seized tobacco products, the seized products cannot 28 be returned and the petition should be denied. 11 1 The Department did also contact Petitioner's 2 supplier to inquire about its order and delivery 3 process. And Petitioner's supplier did admit that 4 mistakes may occur, but when asked if it was possible 5 for an order of 60 five-packs to be filled with five 6 boxes of cigars, Petitioner's supplier indicated it 7 would be rare. 8 Further, it would be highly unlikely for a 9 mis-pick of the same products for the same store to 10 happen repeatedly. And staff has seized eight boxes. 11 The invoice in question that has been provided several 12 times is for five boxes. 13 The manufacture dates on the products also 14 indicate that there would have had to be multiple 15 mis-deliveries. 16 With respect to the argument that the taxes 17 have been paid, the taxes certainly have been paid on 18 the product that -- and the invoice is proper for the 19 product that is listed on the invoice. The problem here 20 is that the product that was seized is not listed on the 21 invoice that is proper. So, there isn't anything wrong 22 with the invoice that's been provided or the invoices 23 that have been provided. The problem is the product 24 that is seized is not on the invoices that have been 25 provided. 26 We did receive this packet of information 27 today. It's the first time I've had to take a look at 28 it this morning, and over all, I mean seeing if -- to 12 1 verify if these are -- are correct records. I've gone 2 through them and I still -- we don't see anything that 3 would support the product that has been seized and in 4 fact it seems to show that this product has not been 5 purchased very often and certainly if they don't buy 6 this product allegedly very often that certainly they 7 should have found the mis-delivery. It just seems very 8 highly unlikely given the low percentage rate of error 9 by the manufacturer and this looks like it might have 10 occurred several times. 11 Also, the product is not -- is as delivered in 12 those boxes likely less expensive than the package 13 documents, which also may indicate -- or should indicate 14 to the purchaser that there may be a problem, that 15 they've paid for more than they purchased. 16 With respect to the argument that -- also that 17 taxes have been paid, the taxes on the distributor is 18 based on the wholesale cost and it's unlikely that 19 wholesale cost of theses different products are even the 20 same to show that the taxes have been paid. 21 But in any event, the licensing act is 22 certainly very clear that the burden is on the 23 Petitioner to provide the evidence at the time of the 24 seizure that the tobacco products were taxed by showing 25 payment to the Board or a proper invoice. 26 So, this burden has not been overcome. Staff 27 properly seized the tobacco products. They must be 28 forfeited and the petition should be denied. 13 1 MS. YEE: Thank you very much. 2 MS. MANDEL: May I? 3 MS. YEE: Ms. Mandel, yes. 4 MS. MANDEL: Did you -- are you speculating 5 that the wholesale price or cost of a single cigarillo 6 is less than or different than the pricing on a -- on a 7 five-pack? 8 MS. SILVA: Yeah, I mean, that's -- if you look 9 at their invoices here they have some singles that -- 10 that they purchased and I think they were $1.39 each. 11 Whereas the packages are in the range of $4. So, those 12 items -- the -- and that's the sale price. Because 13 presumably when you back -- back into it you're still 14 going to end up with potentially lower -- the singles in 15 and of themselves suffer -- 16 MR. LEVINE: I have not done a comparison but I 17 think perhaps we have an apples and oranges comparison. 18 Logic dictates that normally five singles would cost 19 more than one pack of five. And we're talking 300 20 cigars here -- 300 singles versus 60 packs of five. And 21 I would expect that 300 singles to cost more. 22 So, I think it's -- they got -- if their 23 explanation is true, they Right 24 MS. MANDEL: More valuable -- 25 MR. LEVINE: Got more -- 26 MS. MANDEL: -- product than -- 27 MR. LEVINE: -- more than they paid for. But 28 if they weren't selling it's still -- you'd think it 14 1 would stand out. 2 MS. MANDEL: That was just confusing to me. I 3 didn't mean to interrupt the flow, but I -- 4 MS. YEE: Mr. Leonard 5 MR. LEONARD: I want to interrupt on the same 6 point. I'm just astonished on the speculation on 7 something that's in McLane's catalog. The Department 8 should know the exact number that -- 9 SUKHWANT SEKHON: Exactly. 10 MR. LEONARD: -- McLane charges for each of 11 these products and could testify to it. I do not like 12 this "likely" and "it could be" kind of testimony before 13 us. 14 I mean, Ms. Mandel's question is totally 15 accurate and does -- does hinge on the whole case 16 whether it was an honest mistake of a swap of products 17 or whether there was something of different value even 18 though tax might be the same -- something of different 19 value that was substituted. 20 It's -- it's -- it's the whole -- the only 21 question I had coming here today. And you didn't look 22 at it. 23 MR. SILVA: I'm sorry, Mr. Leonard, what 24 question did I not -- 25 MR. LEONARD: What does McLane charge 26 retailers. What's the wholesale price of these 27 two different packages of cigarillos? 28 MR. EDWARDS: I do not know the price of the 60 15 1 count box. They have different prices. The 2 Petitioner has provided invoices which shows the 3 Impulse, which is a Right. 4 MR. LEONARD: You don't have McLane's catalog? 5 MR. EDWARDS: Right. 6 MR. LEONARD: They're almost in every case we 7 get. Don't you have them on speed dial? 8 MR. EDWARDS: No. 9 MR. LEONARD: Excuse me, Madam Chair. 10 MS. YEE: That's all right. 11 MR. LEONARD: I'll be quiet. 12 SUKHWANT SEKHON: If they don't know, I can 13 tell them. 14 MS. YEE: That's okay. Why don't you take five 15 minutes for rebuttal right now. 16 SUKHWANT SEKHON: Okay. 17 Okay. Regards on that is 59 cents. And that 18 is six-pack exact is same, 56 to 59 cents. If he make 19 this like 60 pack the price is basically same, cost. 20 AMARJIT SEKHON: This is 100 -- 100 cigars. 21 Okay. What we were ordering was 100 -- not -- what we 22 were ordering was this. We got -- we got five -- 23 instead of this -- three of these we got five boxes of 24 the other. 25 SUKHWANT SEKHON: Singles. 26 AMARJIT SEKHON: Okay, of singles. How we 27 didn't see it, okay, everybody has been in a 7-Eleven 28 before. We have employees who work for us. They're not 16 1 computer engineers. A lot of them -- when you go up to 2 them you have to, "Could you give me that one? Could 3 you give me that one?" When our supplies come in they 4 take the groceries and they put them up. 5 We have cubicles for back rooms and if it gets 6 put in the wrong place, kind of behind something, you 7 don't see it. When it comes to the dates I swear I got 8 this just two weeks ago. This is 2000 -- dated 2008. 9 This one is dated 2009. So, it's -- one of their people 10 came into my store they would tell me I've had it 11 sitting in my store for a year. It's not true. Okay. 12 So, what we're here saying is, hey, guess what, 13 McLane's Company buys this product. We get it from 14 them. We've paid for this product. They've put 15 the taxes on it. We don't go out and buy from anybody 16 else, so those cigars did not have babies in my back 17 room. 18 So, I don't know how else to put it to you 19 guys, is after seeing all this this morning, I don't 20 understand it. I've talked to them and I've talked to 21 them, like, look, we are not doing -- this is not done 22 intentionally. We -- you know, we're a victim of 23 mis-picks from McLane's. 24 I've also asked them to call -- we have an 25 association, call our president. You can call 7-Eleven 26 stores and they will tell you stories of mis-picks from 27 the vendor. 28 Okay. Sometimes these things are caught. 17 1 Sometimes they're not. And a lot of the reasons that 2 these mis-picks are not caught is because of our 3 employees. It's not an excuse, but, hey, it's a 4 reality. And I don't know -- I don't know what else I 5 could give you guys. What I could do, McLane's Company 6 will not give me anything in writing. I do not buy this 7 product from anybody else. 8 The two that -- the five-packs that we bought 9 from Pitco and Costco, we paid the taxes on that, too. 10 And we've been in business for 17 years. We have never 11 had an issue like this before. 12 Like I said, our other store was checked last 13 year. We had absolutely no problem. So, what I -- what 14 I'm here for is, hey, guess what, don't penalize me. It 15 was an honest mistake. I would like my product back. 16 And the State taxes have been paid. 17 MS. STEEL: Question. 18 MS. YEE: Yes. Thank you very much. 19 Ms. Steel. 20 MS. STEEL: Even Department said that there is 21 several times that they made a -- I mean, they said they 22 delivered it and it never happened. 23 How many times are we talking about here? 24 MS. SILVA: Well, it looks like based on the 25 manufacture dates of the products that we could 26 determine that the product went back through June of 27 2008. There are eight boxes and we have a June 2008, 28 September 2008, October 2008, December 2008 and January 18 1 2009. 2 The invoice where they provide for the one 3 mis-delivery allegedly is for five boxes. And a -- I 4 mean, we can't have that all -- 5 MS. STEEL: There's only one other time. 6 MS. SILVA: There's eight other boxes. 7 MS. STEEL: Only one time you found 2008 8 merchandise. That's what you said. 9 MS. SILVA: There's June 10 -- 10 MS. STEEL: That's why you assume that it was 11 several times. 12 MS. SILVA: There's one, two, three, four 13 different 2008 dates. 14 And with this particular product, McLane, 15 unlike the Black and Milds that she's saying have maybe 16 different manufacture dates than invoice dates, we're 17 not talking about Black and Milds and we did check with 18 McLane about what their turnover rate is in this 19 particular type of product, the Swisher -- the Swisher 20 Sweets and the flavored Swisher Sweets, and they said 21 that that product turnover rate is about one month and 22 even a couple weeks on the flavored products. 23 So it would be unlikely based on McLane and 24 their delivery that they would have this old product. 25 The Black and Milds may be a different -- I mean, some 26 of this is apples and oranges in the way that they're 27 describing these. We're not -- we don't know the Black 28 and Milds -- Black and Milds aren't an issue here, with 19 1 respect to their turnover rate. 2 MS. STEEL: McLane said sometimes mistakes 3 happen, that they admitted that sometimes it happen that 4 it's not going to be enough proof that wholesale 5 distributor said that, you know, it happens. And then 6 taxpayer said, you know, what it was mistake. 7 So, it -- it's not going to be enough proof 8 that distributor says that they make mistakes. 9 MS. SILVA: Certainly, and if they can provide 10 the invoice that shows that this happened, then it would 11 be covered under the statute as to overcoming the 12 burden. But it's unlikely that this mistake happened, 13 but even if we want to say that it happened, then, you 14 know, why wasn't a corrected invoice. She's saying 15 there was other errors with her -- 16 MS. STEEL: Well, that -- 17 MS. SILVA: -- employees, but that does -- 18 MS. STEEL: Let me ask -- 19 MS. SILVA: You know, they weren't able to 20 Right 21 MS. MANDEL: She -- she -- 22 MS. STEEL: Let me ask the taxpayer just one 23 thing, that -- you said that they not going to give you 24 new invoice. But if there is a mistakes happen, then 25 they give you credit. So you can get credit for that. 26 Do you have new invoice after April of this -- this year 27 that you have any new invoice they gave you credit? 28 AMARJIT SEKHON: Okay. The product was seized, 20 1 number one. We've been in business with McLane's for 2 17 -- over 17 years. When an item is mis-sent to me and 3 I re-send it back to them, what they do is issue me a 4 credit. 5 MS. STEEL: Right. 6 AMARJIT SEKHON: The credit will read for the 7 product that was written on this invoice. If I got dog 8 food in place of something else, even the -- I mean, 9 it's not going to happen, but they're going to give me a 10 credit for the dog food and the amount that I was 11 supposed to get. They're not going to give me a credit 12 -- 13 MS. STEEL: But you supposed to return it. 14 AMARJIT SEKHON: Yeah. 15 MS. STEEL: To get credit. 16 AMARJIT SEKHON: Yeah. They will return -- 17 they will return the product, they will take the product 18 back, but they give me credit for what I was supposed to 19 have get -- gotten. 20 MS. STEEL: But you were -- 21 AMARJIT SEKHON: They do not issue -- 22 MS. STEEL: -- the product was seized before 23 you get credit for that. 24 AMARJIT SEKHON: Right. And -- 25 MS. STEEL: That's what I'm saying. You didn't 26 even know. 27 AMARJIT SEKHON: Okay. If -- if I took -- 28 okay, say this was mis-sent to me today, okay, I would 21 1 call them up and say, hey, guess what, you guys sent me 2 the wrong box. I was supposed to get something -- I was 3 supposed to get Swisher Sweet grape but you sent me 4 this. 5 What they would do is look at the invoice, they 6 will write me a credit for what is written on the 7 invoice. It was supposed to be Swisher Sweet, whatever, 8 this is the amount. And they will be returning this. 9 They will take this back. They -- they don't give 10 you -- you can call McLane's, they do not give you 11 another invoice. They do not give you a corrected 12 invoice. They will credit you for what you were 13 supposed to get and take this back. 14 MR. SHEA: So, do we have evidence that they 15 credited you for the -- 16 MS. MANDEL: They can't -- 17 MR. SHEA: -- the 60 five-packs? 18 AMARJIT SEKHON: They can't credit me for 19 something they didn't get back. 20 MS. MANDEL: They were seized. That was 21 seized. 22 MR. SHEA: Oh, okay. 23 MS. MANDEL: That's her point. 24 MR. SHEA: So you had to return that. 25 MS. MANDEL: She had to return it. 26 MS. STEEL: Can I just ask one more -- 27 MS. YEE: Yes. 28 MS. STEEL: Is this your first time that 22 1 ever -- 2 AMARJIT SEKHON: Ever. Ever. In 17 years. 3 MS. STEEL: Thank you. 4 MS. YEE: Ms. Mandel. 5 MS. MANDEL: This is -- it's interest -- this 6 is the -- we've had these seizure cases and we never had 7 anybody go and get all this kind of documentation, you 8 know, from McLane, is that they've never ordered and -- 9 you know, usually when we're talking about the dates on 10 the packages it's because somebody has an invoice that 11 precedes the date on the packages of the stuff that was 12 seized. 13 This is a very -- I mean, this is a case with 14 a lot of different kind of evidence that -- that we 15 don't usually have. And does the -- does the way that 16 the law is written and the regulations, is it so 17 specific that it says you must have an invoice? 18 I mean, the reason she brought this in about 19 what I got from McLane's, that they -- I never have 20 ordered this kind of thing was to -- to try to show that 21 it had to have been a mistake. And -- and I understand 22 her to have done that because McLane's is like, well, we 23 don't do a corrected invoice and besides you're not 24 giving us the stuff back and whatever. And it could 25 have happened. We don't know if it happened, and all of 26 that. 27 So I'm just wondering how -- you know, they've 28 come up with all these things to try to substantiate the 23 1 words that they've been saying, and I understand about 2 how there was eight boxes and only five on the 3 particular invoice. 4 But -- but, you know, what -- what do we do 5 with all of this stuff? Is the law very specific and 6 says you must have an invoice that shows -- 7 MS. SILVA: It says -- the law provides in the 8 licensing act that to overcome the presumption of the 9 tax not being paid that the statute specifically 10 provides for they must have proof of payment to the 11 Board or a purchase invoice in compliance with 22978.4 12 showing tax included. And part of that section that is 13 the invoicing requirement requires that the -- there 14 would be an itemized listing of the tobacco products. 15 And then in order to have the tobacco products 16 returned it has to be shown that there was some sort of 17 erroneous or illegal seizure. And in this case there's 18 nothing to show that it was erroneously or illegally 19 shown. There's not proper invoicing to support. 20 Now, certainly the Department tried working 21 with Petitioner to see if we could come up with that 22 information. The piece about all of this information 23 certainly can be used in the parallel citation hearing 24 with respect to any type of action or penalty on the 25 license. This is just simply for the actual product 26 that the law is very strict about it being -- 27 MS. MANDEL: Well, I heard -- 28 MS. SILVA: -- basically seized, but certainly 24 1 any type of action on their license, there may be 2 mitigating circumstances which reduce -- and although 3 this being it the first time an alleged mis-pick that 4 may reduce their penalty on the citation end of it with 5 respect to the licensing act for the retailer's license. 6 MS. MANDEL: Okay. And when I heard you say 7 what the law says, you said proof of payment or -- I 8 mean, it -- it sounded like you said "or" before you 9 said "invoice". 10 MS. SILVA: Or a purchase invoice. And -- 11 MS. MANDEL: So, the purchase invoice, which is 12 what we almost always rely on because that's really the 13 best evidence, isn't the only evidence to -- possible to 14 show payment, is that -- 15 MS. SILVA: Well, and the reason why we -- we 16 do focus on that, I do agree there's two, but this is in 17 the retailer section. It's unlikely -- the retailer's 18 not the taxpayer -- 19 MS. MANDEL: Right. 20 MS. SILVA: -- in this program. So the 21 retailer doesn't pay the tax. 22 MS. MANDEL: Right. 23 MS. SILVA: So certainly if tax has been paid 24 in compliance with the invoice, it shows the tax has 25 been paid in compliance with the invoice. 26 MS. MANDEL: Right. 27 MS. SILVA: Unfortunately, this is not an 28 invoice that's compliant. It does not show that these 25 1 particular products had tax paid, because they're not on 2 the invoice. 3 MS. MANDEL: Okay. And I understand that five 4 and eight box thing. Let's say we only had five boxes, 5 because that's what's on our invoice. 6 SUKHWANT SEKHON: It was five boxes. It wasn't 7 eight boxes. No, we -- 8 MS. MANDEL: Well, they're saying that the 9 eight boxes were seized. 10 SUKHWANT SEKHON: No, it wasn't eight boxes. 11 They -- they seized when I was there. 12 MR. LEVINE: There are 356 sticks of the 13 cigarillos that were seized, which is equivalent to six 14 boxes minus four. So it has to be -- 15 SUKHWANT SEKHON: 60 -- 60 pack in a box. So, 16 figure out. 17 MR. LEVINE: Six boxes, there would have to be 18 a minimum of six boxes to account for -- 19 MS. MANDEL: And that's of the Swisher -- 20 MR. LEVINE: -- Right. 21 MS. MANDEL: -- Sweets and then there's the 22 Optimo. 23 MR. LEVINE: Right. 24 MS. SILVA: Right. 25 MS. MANDEL: Okay. Well, let's just for -- I 26 mean, I'm trying to understood this evidence that they 27 have here. So, assume there was five -- we're talking 28 about five boxes. I mean, if you -- if you want to say, 26 1 well, they don't have anything here that addresses -- 2 their -- their one invoice that they had only addresses 3 five so therefore, you know, forget about the other 4 ones, but -- but on five, if they -- what I understand 5 them to be arguing from this evidence is we never order 6 and McLane records show we never order singles from 7 them. We only buy from McLane's. We had these two 8 occasions when I had to run out because we didn't have 9 anything, and I know people come to the store, whatever 10 her reason was for running -- I don't think she gave a 11 reason, just emergency. 12 And the invoice for five does show tax paid 13 presumably on five boxes of -- of five-packs. So, I 14 guess that -- 15 MS. SILVA: No, 60 boxes. 60 five-packs. 16 MS. MANDEL: 60 five-packs, which is one box. 17 SUKHWANT SEKHON: No. 18 MS. MANDEL: Five boxes. Okay. And -- 19 MR. EDWARDS: No, how -- 20 MS. MANDEL: I mean -- I mean what I think what 21 she's trying to show by this is I never order the stuff. 22 I never order singles. This is an invoice I'm relying 23 on, which does not show singles, but it does show tax 24 paid on what it says on the invoice. And so, if I never 25 order singles and I had singles in my inventory because, 26 you know, nobody saw it when it came in and it's up on 27 the shelf or whatever -- assuming all that at face value 28 then there is an invoice from McLane's that's not been 27 1 tied to any product in my inventory, and you can tell me 2 if that's -- maybe that's wrong, but this is what I'm 3 taking them to argue -- not been tied to product in my 4 inventory, I think this is the invoice that has to do 5 with this stuff and they sent me the wrong thing. And 6 tax has been paid -- some level of tax has been paid. 7 Does this get back to your speculation earlier 8 that -- that even if that tax was paid that it's -- that 9 it's not -- it might not be the right amount of tax for 10 this? 11 Do you see -- 12 MS. SILVA: Well, it may not be because they're 13 different -- 14 MS. MANDEL: They're trying to tie all these 15 documents together to say tax was paid. I only buy from 16 McLane. McLane pays taxes. It's always reflected on my 17 invoice. McLane must have sent me the wrong thing. 18 They paid tax, it's this invoice. 19 MS. SILVA: They -- and some of their -- and I 20 see what their argument is. Some of these invoices that 21 I only had time to look at this morning show that they 22 do in fact buy some singles. And it actually looks like 23 they've sold more singles than McLane has -- has 24 invoiced to them. 25 So, it all just doesn't quite fit into this was 26 one mis-pick. And certainly if they don't sell very 27 many singles then presumably they would have noticed it 28 at the time. And we're talking several months later 28 1 when apparently McLane doesn't think at this point to 2 provide the difference. So -- 3 MS. MANDEL: Well, McLane is not going to -- I 4 mean, McLane is not going to -- I mean, she's testified 5 that unless she gives them the stuff back, which we 6 have, McLane is not going to give her the difference. 7 So -- 8 AMARJIT SEKHON: Even then they're going to 9 argue it's over 21 days. My sales records show that I 10 don't -- I don't sell singles, you guys. 11 MS. YEE: Which tab -- which -- 12 AMARJIT SEKHON: Every -- if you go to Section 13 3. 14 MS. YEE: Okay. 15 AMARJIT SEKHON: Section 3 -- this is the sales 16 records from January to April of this year. These are 17 the singles that we sell. We don't -- everything has to 18 be scanned. If you took and opened this pack right here 19 or if anybody is a cigar smoker, if you look at the 20 cigars, the singles have a bar code on it. You must 21 scan that bar code for a price to come on it. 22 This was the only invoice that we could key in 23 on that a mistake happened because if you -- in here I 24 put in invoices where McLane's was out -- in section 2 25 they were out on January 1st. They were out on January 26 6th of the 60 cigarillos, right. And Right 27 MS. MANDEL: That's under the "remarks" column 28 on the left? 29 1 AMARJIT SEKHON: Yeah, this -- this was -- it's 2 in number 2. If you go and look at those invoices in 3 number 2 and you kind of scoot it over a little bit, it 4 will tell you all of their outs. They were out the 1st. 5 They were out the -- the 6th. They were out the 7th. 6 On the 9th I got this product. That's the only place 7 that we figure this mistake happened. 8 I've been trying to get these guys to accept 9 the fact that we got -- we got switched. We got 300 10 cigars versus 300 cigars. We got -- instead of getting 11 five-packs, we got singles. They amount to the same. 12 Okay. 13 The other one, you know what, it could have 14 been a different invoice but you know what, I -- I can't 15 even get them to accept the fact that that happened on 16 that date. 17 So, I'm just like I'm lost. And, seriously, we 18 are not buying from anybody else. It's the McLane's 19 Company. And they wouldn't send me anything just to -- 20 they could make an item error sending the singles 21 instead of the five-packs. I assure you this company is 22 going to -- the -- the taxes have been paid. 23 And this is the conversations I have with them, 24 is, "Ann," -- I don't understand why they're doing 25 this, I don't know. But they won't step up to the 26 plate, either. They won't say, hey, you know, they -- I 27 mean on the phone for somebody to admit that, yes, a 28 mistake could happen, what else do you need? 30 1 I mean, I know that -- I can't provide a 2 corrected invoice. I'm at a loss. But I know we didn't 3 do it -- this is an innocent mistake but we didn't 4 knowingly, you know, do something wrong. And -- and 5 they're implying we're -- did something wrong, 6 purposely. 7 MS. YEE: Okay. Mr. Shea. 8 MR. SHEA: I just have one comment in terms of 9 what else we need. You know, the question of law is 10 Business and Professions Code Section 22974.3(b) 11 provides when any person holds tobacco products for 12 which tax is due, but such tax has not been paid, 13 they're subject to seizure and forfeiture and the 14 Petitioner bears the burden of proving the applicable 15 sales tax has been paid. 16 So, if you need to prove it to satisfy the 17 burden of proof, you need to produce evidence. And, 18 unfortunately this situation due to the problems of the 19 invoices, you don't have any evidence other than your 20 testimony that can't be substantiated and statements 21 such as mistakes happen, and that's unfortunate but if 22 that was the standard that -- if that was adequate 23 evidence for -- for meeting this burden of proof, then 24 the Board could never collect tax under any circumstance 25 where there was an appeal and the Appellant were to say 26 that, well, there was -- there's just no evidence, there 27 was a mistake in the invoices and -- and, you know, we 28 paid the tax, that statement, that testimony, would be 31 1 adequate for meeting the burden of proof but then it 2 would be very hard to administer the tax system. 3 And so that's really the problem here, it's -- 4 in terms of what else we need. We need evidence that 5 the tax has been paid. Documentation, yes. 6 MS. YEE: Other questions, members? 7 MS. STEEL: Well, I think Board of Equalization 8 seized the product so they cannot return it, so they 9 cannot get any credit out of it. So only proof that 10 they have is McLane said that, yes, we make mistakes 11 here, and I don't know how taxpayer can prove more than 12 that at this point because, you know, unless we going to 13 return the product and then they going to return it and 14 get the credit right now and that their hands been tied 15 and they cannot do anything. Because product's been 16 seized already and there is nothing that they can do 17 except our Department actually went out, called them 18 and, yes, they said they can make mistakes. 19 And you know what, I think it was innocent 20 mistake. But they cannot really prove it other than 21 they made a phone call and they already heard from the 22 distributor said that, yes, they are making mistakes. 23 And other than that, I mean I really don't know how to 24 prove that without that merchandise. 25 So maybe we can just return it and ask to get 26 credit and then, you know, we going to just trade 27 everything out. That's the only bottom line here. 28 MS. SILVA: But I believe McLane's already 32 1 said -- my understanding is that within your 2 conversation with McLane, I mean at this point I think 3 Petitioner said that they're not going to do anything at 4 this point. This is some time after. And what I was 5 explaining was that at the time it was highly unlikely 6 that this was a mis-delivery or that no prudent business 7 might have not caught the delivery -- the mis-delivery. 8 And so, it's unlikely that that's even going to 9 occur at this point and the seizure was proper at the 10 time. It was not illegal and it was not erroneous. The 11 product does not have the support of a proper invoice as 12 required under the licensing act. 13 So I think it would be -- I don't think that's 14 going to happen, the credit. And I mean, if -- well, 15 they presumably wouldn't have had the product if they 16 had saw the mis-delivery and asked for a credit. They 17 would have returned it and gotten a credit -- a credit, 18 and it wouldn't have been there for us to see. 19 But this was four, you know, months later after 20 this alleged mis-delivery. And -- and I would just like 21 to say that when we look at some of these invoices here, 22 or some of these things that she's providing today, I 23 mean she says they sell very few singles and she has 24 this -- this spreadsheet on Exhibit 3 that shows -- it 25 looks like four of the Swisher Sweets and two of the 26 strawberry singles were sold, but when we seize boxes 27 there were partial boxes of 36 and 20. That would have 28 meant that 28 singles would have had to have been sold 33 1 in one box and 40 would have been sold in another box. 2 And there doesn't appear to be any record that those 3 were sold. 4 So, we're not seeing that -- that it makes 5 sense. 6 AMARJIT SEKHON: I don't know. 7 MS. YEE: Ms. Steel. 8 MS. STEEL: Can I ask just one -- 9 MS. YEE: Hold on a minute. 10 MS. STEEL: -- last question. When merchandise 11 comes in that your employees put to the -- the shelves 12 or they just sit it at the -- the storage room -- 13 AMARJIT SEKHON: Usually -- 14 MS. STEEL: -- until you come? 15 SUKHWANT SEKHON: Storage room. 16 AMARJIT SEKHON: Storage -- 17 SUKHWANT SEKHON: They put it on the storage. 18 AMARJIT SEKHON: They put it in the back. 19 MS. STEEL: So, when it's in the storage room 20 that you don't check. 21 SUKHWANT SEKHON: That's what happened. It -- 22 it came and they put in the storage room. Nobody 23 checked it Right 24 MS. STEEL: Who put those on the shelves? 25 SUKHWANT SEKHON: Our manager and the other 26 guys, you know, whoever is -- 27 MS. STEEL: So you -- you are not doing it -- 28 SUKHWANT SEKHON: No, we are not. 34 1 MS. STEEL: -- but your staff -- your employees 2 are doing it. 3 AMARJIT SEKHON: Our employees are doing it. 4 SUKHWANT SEKHON: Right. 5 AMARJIT SEKHON: I -- I'm not understanding 6 where she's coming from. But like I say, we're -- we're 7 buying -- 8 MS. STEEL: Can I just ask one more thing to 9 the Department. 10 SUKHWANT SEKHON: Sure. 11 MS. STEEL: McLane collects tax on their 12 distributions, so McLane can confirm those bar code, 13 what we seized, then they know their -- their products 14 the tax has been already collected or not. 15 MS. SILVA: They have to -- they have to pay 16 the tax that's due based on their distributions. 17 Whether or not they pass that tax along, presumably they 18 do because it's a cost of doing business. But it's not 19 a collection off the retailer as -- 20 MS. STEEL: But McLane's pay taxes. 21 MS. SILVA: But we usually see a sales tax. 22 Certainly McLane pays taxes. 23 MS. STEEL: Yeah. So if they -- 24 MS. SILVA: So that's on our -- 25 MS. STEEL: -- already have a bar code, those 26 cigars belong to them means they had it. 27 MS. MANDEL: Are -- are you following what 28 she's asking? 35 1 MR. LEONARD: Yeah, she's asked a good 2 question. 3 MS. MANDEL: Yeah. You know, kind of like they 4 can trade -- they can trade -- 5 MR. LEONARD: Can you take the -- 6 MS. MANDEL: -- they know the cigarette -- 7 yeah. 8 MR. LEONARD: Can you take the seized product 9 to McLanes and can they verify it came out of their 10 warehouse? 11 MS. STEEL: Yeah. 12 MS. SILVA: Based on like the U.P.C. code or 13 something, is that what -- 14 MS. STEEL: Uh-huh. 15 MR. LEONARD: Yup. 16 MR. EDWARDS: Don't know. 17 MS. SILVA: I suppose we could. 18 MR. EDWARDS: I'd have to ask. 19 MS. SILVA: We've not thought of that. 20 MS. STEEL: That's going to prove that they 21 bought those cigars from them. Yeah. Cigars or 22 cigarettes or whatever they're called. Just -- 23 MS. SILVA: Certainly if the Board wants us to 24 take a look at this more fully, we will do that. 25 MS. YEE: It seems like a logical thing to do. 26 MS. SILVA: If that's something that -- you 27 know, we'll approach McLane if that's the Board's -- 28 MS. YEE: I think that seems like the logical 36 1 thing to do given that no other documentation has been 2 provided. It seems to be getting -- just any kind of 3 resolution. 4 Should we allow time for that, then? 5 Okay. You want to make a motion then? 6 MS. STEEL: My motion, give to -- how many 7 days? Three days. How it works, David? 8 MR. LEVINE: Hmm? 9 MS. STEEL: What's going to be my motion? 10 MR. LEVINE: I don't think they need much 11 time -- 12 MS. YEE: Right. 13 MR. LEVINE: -- right? But we wouldn't want to 14 bring it back before October, the soonest, because we 15 have -- we wouldn't want to bring it to Culver City. 16 MS. YEE: Right. 17 MR. LEVINE: We don't have adjudicatory on 18 that. And for October it would probably -- would be a 19 late distribution. But if you want to do that and get 20 it right back on October -- I -- 21 MS. YEE: Yeah. 22 MR. LEVINE: I think it's just a matter of 23 contacting McLane and asking them if they can tell from 24 looking at a U.P.C. If so, I'm sure someone can get it 25 over there, right? 26 MR. EDWARDS: Yeah, we can have staff visit 27 McLane. 28 MR. LEVINE: So, if you want him to rush it 37 1 right over, we can bring it back in October. 2 MS. STEEL: Okay. 3 MR. LEVINE: Or else they could -- 4 MS. STEEL: So bring this -- 5 MR. LEVINE: -- just walk and bring it back in 6 November. 7 MS. YEE: Okay. 8 MS. STEEL: Have to be done motion? 9 MS. YEE: Yeah. 10 MS. STEEL: Bring it back to the Board by 11 October for next meeting. 12 MS. YEE: Yeah. The October Sacramento 13 meeting. 14 MS. STEEL: Yeah. That's my motion. 15 MS. YEE: All right. We have a motion by Ms. 16 Steel to put this matter over until the next October 17 Sacramento meeting to allow time for staff to verify 18 the -- any kind of packaging codes with McLane on the 19 product seized. 20 Is there a second? 21 MR. LEONARD: I'll second. 22 MS. YEE: Second by Mr. Leonard. 23 Without objection, that motion carries. 24 Thank you for your patience. We will be back 25 in touch with you. 26 MR. LEONARD: Madam Chair -- 27 MS. YEE: Yes, Mr. Leonard. 28 MR. LEONARD: Through the Chair, to Appeals, to 38 1 raise the question in researching this case I found out 2 there was no Appeals Conference held, and it's the 3 policy of Appeals or the Department, I'm not sure which, 4 to -- to not do Appeals Conferences because these are 5 tobacco products that expire and the idea was that 6 they -- Appeals slows it down. Although I'm thinking 7 the other way, that we slow things down because we don't 8 meet every day that an Appeals Conference might expedite 9 in some of these cases. 10 Has anybody through the Chair looked at that, 11 as to -- 12 MR. LEVINE: We brought it to the Board. What 13 happened is originally -- I don't know if it was 14 Investigations or Excise, but Appeals was asked to 15 review the summaries. We weren't involved at all. 16 MR. LEONARD: Right. 17 MR. LEVINE: We were asked to review the 18 summaries and when we were asked to review the summaries 19 I was a little concerned, you're just tossing us in, 20 what authority do we have. 21 So, we brought it to the Board and asked 22 specifically what authority, and you granted us 23 authority basically -- 24 MR. LEONARD: Right. 25 MR. LEVINE: -- to call for an Appeals 26 Conference if we thought it was necessary. To be 27 honest, we asked for that, so we had the authority. 28 I really -- we normally work with ID. We -- 39 1 like in this case we said send it -- go back -- 2 please -- what would it take to convince you? Did you 3 relay that to the Petitioner? Please do so. 4 And maybe if this hadn't been scheduled for 5 conference -- for a hearing already and we didn't want 6 to delay it further because -- 7 MR. LEONARD: Okay. 8 MR. LEVINE: -- we can bring it right to you, 9 we may have done something more. If we ever got to a 10 point where we were not -- again, if it's scheduled for 11 a hearing and there -- a few are, to be honest, if we're 12 uncertain I would let it go to hearing because then we 13 get it all flushed out and it doesn't delay it any 14 further. 15 MR. LEONARD: So in those cases where it's 16 already scheduled for a Board hearing, it's faster to 17 let that happen than the -- 18 MR. LEVINE: It's faster. 19 MR. LEONARD: Okay. 20 MR. LEVINE: Otherwise, we go back -- if we 21 really had a problem where we weren't certain and it 22 wasn't scheduled for a hearing, we'd call for a 23 conference. If we just were not satisfied with 24 Investigations and we disagreed with them and felt we 25 had enough, we'd issue a D & R without a conference and 26 recommend granting, if they would not do it willingly. 27 MR. LEONARD: But Ms. Mandel correctly points 28 out, the facts here are so different from the typical 40 1 tobacco seizure where it's -- there's -- there's no way 2 that product ever came through the normal legal chain of 3 distribution. 4 MR. LEVINE: I think there's a good chance that 5 this could have been a conference had this not been 6 scheduled for a hearing. But -- 7 MR. LEONARD: Okay. 8 MR. LEVINE: -- it -- 9 MR. LEONARD: Thank you. 10 MR. LEVINE: -- it was and that's why I 11 didn't -- that was my decision to let it go forward 12 because I thought it would be faster. And I think this 13 has been useful for all of us. 14 MR. LEONARD: Thank you. Thank you, Madam 15 Chair. 16 SUKHWANT SEKHON: So, if -- if McLane says 17 it's -- it's their product, then it's a done deal? We 18 have to come back or what? 19 MS. YEE: Mr. Levine, the process? 20 MR. LEVINE: They won't have to come back. 21 Investigations will investigate. They'll bring it back 22 to us. We'll make a recommendation to the Board. The 23 Board will make its decision on what's called a 24 nonappearance calendar. So, you won't -- 25 MS. YEE: So -- 26 MR. LEONARD: But you should -- you should get 27 notice of that before the October meeting and if you 28 wish you can come here and you can make a statement as 41 1 to the recommendation that's been given to us. 2 SUKHWANT SEKHON: Okay. 3 MR. LEONARD: But there will not be another 4 hearing. 5 SUKHWANT SEKHON: Okay. 6 MS. YEE: Okay. Thank you both very much. 7 ---oOo--- 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 42 1 REPORTER'SCERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, BEVERLY D. TOMS, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 September 1, 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 42 13 pages constitute a complete and accurate transcription 14 of the shorthand writing. 15 16 Dated: September 24, 2009. 17 18 19 ____________________________ 20 BEVERLY D. TOMS 21 Hearing Reporter 22 23 24 25 26 27 28 43