1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 SEPTEMBER 1, 2009 10 11 12 13 14 15 FINAL ACTIONS 16 17 18 19 20 21 22 23 REPORTED BY: JULI PRICE JACKSON 24 CSR NO. 5214 25 26 27 28 1 1 P R E S E N T 2 3 For The Board Betty Yee of Equalization: Chairwoman 4 5 Steve Shea Acting Member 6 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 G. Olson Chief, Board 14 Proceedings Division 15 16 ---OOO--- 17 18 19 20 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 SEPTEMBER 1, 2009 4 ---o0o--- 5 C3 WERTHER INTERNATIONAL, INC. 6 NO. 290751 (OH) 7 ---o0o--- 8 MS. OLSON: Okay, we have two items under 9 submission. 10 And the first item is C3, Werther 11 International. 12 MS. YEE: Okay, hang on one second. 13 MS. MANDEL: Do we have information back? 14 MR. LEVINE: Yes. You asked the parties to go 15 out and review a letter. 16 Mr. -- Petitioner did have a letter. It's not 17 in the files, so, it was sent to Texas. So, perhaps it 18 was misdirected and never got in the file. 19 It does list several trips into California. I 20 count seven clear business trips into California, total 21 of 26 days in the State for business purposes through 22 the audit period. 23 And this is what I would call nexus aplenty. 24 He although says in the letter that he comes twice a 25 year. Admittedly, it's not a lot, but it's standing 26 ready to come into California as needed and that has 27 been our consistent view of coming within the 6203. 28 MS. YEE: Okay, thank you. 3 1 So, on item C3, Werther International, 2 Incorporated, is there a motion? 3 MR. SHEA: I'll move the staff recommendation. 4 MS. YEE: Okay. Motion by Mr. Shea to adopt 5 the staff recommendation. 6 Is there a second? 7 Let me second that motion. 8 Discussion? 9 Ms. Mandel? 10 MS. MANDEL: Yeah, I'd just like for this time 11 things to be made clear to the taxpayer. I can 12 understand from everything that I had heard today and 13 learned before the hearing, and ever so vaguely 14 remembered from the 2000 hearing, why he thought what he 15 thought. 16 I understand. I can see the 6596 is 17 questionable in the case, but I do understand he got a 18 Notice of Redetermination that said he did not have 19 nexus. 20 So, it should be made really clear to him. I 21 understand why he fought it all of the way up to here, 22 but there appear to have been facts that -- for this 23 audit period that the Department was not aware of if 24 they were, in fact, the same for the prior audit period 25 and he didn't cancel the permit, even after the 26 discussion at the prior hearing that -- that that was 27 going to create a continuing problem for him. 28 But I understand why he thought what he 4 1 thought. So -- and next time, if you ever have a next 2 time, hopefully, the Appeals attorney assigned to the 3 case will actually look at the prior -- 4 MR. LEVINE: I will be relaying your comments 5 to all of the conference holders. 6 MS. MANDEL: Okay. I was very disappointed in 7 that. 8 MS. YEE: Thank you very much, Ms. Mandel. 9 Thank you, Mr. Levine. 10 We have a motion and a second on this matter. 11 Please call the roll. 12 MS. OLSON: Madam Chair? 13 MS. YEE: Aye. 14 MS. OLSON: Mr. Leonard? 15 MR. LEONARD: Aye. 16 MS. OLSON: Ms. Steel? 17 MS. STEEL: Aye. 18 MS. OLSON: Mr. Shea? 19 MR. SHEA: Aye. 20 MS. OLSON: Ms. Mandel? 21 MS. MANDEL: Aye. 22 MS. OLSON: Motion carries. 23 MS. YEE: Okay. 24 ---o0o--- 25 26 27 28 5 1 MS. OLSON: Our next item is C4, James Bass 2 Smith.. 3 ---o0o--- 4 JAMES BASS SMITH 5 NO. 353126 (UT) 6 ---o0o--- 7 MS. YEE: Okay. 8 MS. MANDEL: Do we have information? 9 MS. YEE: Do we have enough data on this? 10 MR. LEVINE: I have no update. 11 MS. YEE: Okay. 12 MS. MANDEL: Mr. Hanks is -- 13 MR. HANKS: A member of our staff did meet with 14 the Petitioner and we examined the documents that were 15 supplied today. 16 If one were to look at the compilation of the 17 tickets, the fish tickets that were supplied in an 18 analysis the Petitioner presented, it looks like the 19 majority vote would go to the Petitioner and that there 20 was satisfactory evidence shown for use of the vessel 21 outside the territorial waters. 22 However -- however, the Department doesn't 23 believe that that's the end of the story. The 24 Department believes that another integral part of this 25 piece is actually the habitat from which the fish 26 reside. 27 We believe that the evidence indicates that the 28 majority of that fishing occurred within the territorial 6 1 waters and for that reason the exemption would not 2 apply. 3 MR. TUCKER: In essence, the Department did not 4 find the fish tickets credible. There should have been 5 some other corroborating evidence, such as a ship's log 6 or something else to support them. 7 MS. MANDEL: Just curious, because, you know, I 8 haven't looked at a map and maybe it's -- how close were 9 these two? 10 There was a big dispute about the two different 11 blocks. How -- were these like near each other or far 12 away from each other, if you were to look at mariner's 13 chart? 14 MR. LEVINE: The example, there was one on one 15 side of the peninsula that blocks off the bay, and the 16 other -- 17 MS. MANDEL: I just -- 18 MR. LEVINE: -- on the other side. 19 MS. MANDEL: -- thought about the discussion of 20 where the fish go. 21 I was just curious. 22 MR. HANKS: I believe that we have -- we have 23 copies of the fishing grids that identify where these 24 locations are. 25 MR. KWEE: I believe I have a copy of the maps. 26 MS. STEEL: Right here is bay (indicating) and 27 this is outside of bay right here (indicating). 28 MS. MANDEL: How big are the grids? Are they 7 1 like, you know, like a section, 160 acres? 2 MR. LEONARD: Good question. 3 MS. MANDEL: Taxpayer is still here? 4 MR. HANKS: We do have a copy of the map. I 5 don't know if the Members have the same type of listing 6 in your materials, but I do note that the grid 7 identified is -- 8 MS. YEE: Hang on one second. Since we're 9 discussing this, Mr. Mickey, you want to come forward 10 with Mr. Smith. 11 MS. MANDEL: I will ask Mr. Smith. 12 MR. MICKEY: Thank you. 13 MR. HANKS: So, the grid that we're looking at 14 that's within the California territorial limit is 15 identified as grid No. 488. 16 And our picture that's shown it is just outside 17 of Marin County and in this territory right off the 18 coast (indicating). 19 The other grid that's identified is 456. And 20 that's outside the territorial limits. We note that 21 that's -- that's a route going toward the Farallon 22 Islands, but outside the three-mile limit. 23 And the evidence that -- the permit Fish & Game 24 has supplied indicates that the majority of the habitat 25 that Petitioner was involved in catching was caught 26 within that three-mile limit. 27 So, we're relying on that information, on -- to 28 give us an indication where the majority of the fishing 8 1 and the use of the vessel occurred. 2 MS. YEE: Okay. Mr. Mickey, Mr. Smith, 3 response? 4 MR. MICKEY: Just once again, what the 5 Department of Fish and Game is saying is that the fish 6 are caught in both places. More fish may be caught in 7 the inland, or the 488, but it is not saying that all of 8 the fish that is caught in the 488. Those fish are also 9 in the 456 grid, their next door neighbors. 10 Like we said, the fish aren't limited to that 11 area. We have explained that the drag -- the dragging 12 for the halibut takes place outside the three-mile 13 limit. That's further evidence that those fish are not 14 just in the 488. 15 My client was fishing for those fish in the Bay 16 and in the three-mile and outside the three-mile, as the 17 fish tickets both -- as they state. 18 We're not saying that it took place all 19 outside. We're saying it took place where the fish 20 ticket said it took place, which is in both, primarily 21 in the 456. 22 The staff is trying to say that it all took 23 place in 488 and it's not the facts for my client. 24 I don't know how else to respond to that. The 25 fish are in both places. There may be boats that are 26 down in the charter that only fish in the Bay, okay. 27 Captain Smith is not one of them. 28 I don't know what else -- 9 1 MR. SMITH: A couple of our prime areas 2 borderline 456 -- 456 borderlines 488 -- basically a 3 stone's throw away when we are fishing 456. But 456 is 4 prime fishing area for us. 5 MS. YEE: Okay. Mr. Leonard? 6 MR. LEONARD: I appreciate the Department's 7 re-examination of the fish tickets and the recalculation 8 and -- but I'm disappointed in this reliance on habitat 9 statistics without any further testimony or 10 corroboration. 11 The Fish the Game website is not sufficient for 12 me. And by your own numbers, although the percentages 13 were high, unlike your statistical samples of retailer 14 shelves or something, certainly some of these fish were 15 caught elsewhere. And it could be Mr. Smith that did 16 it. 17 So, to me that -- the habitat analysis doesn't 18 do anything. And I totally agree with Ms. Steel, the 19 idea that fish stay within certain boundaries as 20 dictated by the Fish and Game website is just -- just 21 laughable. 22 So, I -- I agree with you. I wish there were 23 more. But I -- but I also think that the standard that 24 there ought to be some kind of a G. P. S. log that you 25 can just hit a button and you can get a whole record of 26 which fishing zone the fish and the fishing boat was in, 27 is -- is not yet required, not yet expected and may 28 still be impossible to do, although, theoretically, 10 1 there. 2 I also don't know how reliable the Fish and 3 Game is on these tickets. It may be like the DMV, where 4 they just use it for statistical studies and analysis of 5 overfishing and they don't really care if the numbers 6 are accurate, it's the sum of the numbers that they're 7 concerned about. 8 So, the idea that one boat doesn't turn them 9 all in or that it's just the best guess of a captain as 10 put out the ticket, I don't know what it's used for. 11 It's -- it doesn't appear there's revenue associated 12 with it, doesn't appear there is any any other obvious 13 use from a tax perspective to it, just the habitat one 14 just -- just is -- you guys usually do better. 15 MS. YEE: Okay, thank Mr. Leonard. 16 Other comments, Members? 17 Okay. 18 MS. MANDEL: I have one. How big is ten 19 minutes square? 20 MR. SMITH: Ten minutes square is ten miles. 21 MS. MANDEL: Thank you. 22 MR. LEONARD: Madam Chair? 23 MS. YEE: Mr. Leonard? 24 MR. LEONARD: Lee Williams and I looked over 25 the data that the taxpayer submitted and it struck us 26 that if the federal tax returns could be squared to the 27 fish tickets, which is the new submission made by the 28 representative, that that that would then lend evidence 11 1 that the fish tickets themselves as a whole are valid. 2 And I wonder if perhaps we should explore that 3 area and get away from habitat to see if those numbers 4 coincide. 5 Looking at his federal tax return to see if the 6 fish ticket revenue really equals all of the revenue 7 that he submitted on his tax return from the California 8 Dawn. And we might want to review that direction in 9 more depth. 10 MS. YEE: Okay. Mr. Shea? 11 MR. SHEA: I think, that's a good idea. 12 My earlier concern was that the fish tickets 13 were not produced by Fish and Game. They weren't 14 returned to them. So, there was a question about their 15 credibility. 16 MR. LEONARD: Right. 17 MR. SHEA: And there was no logbook that, you 18 know, you might expect to be kept. 19 So, I think that if they did match up with the 20 federal tax return, that would, perhaps, satisfy the 21 credibility issue with respect to the fish tickets. 22 And we could bring it back on a nonappearance 23 calendar then. 24 MS. YEE: Okay. 25 MR. MICKEY: Exhibit A, I think addressed -- 26 our exhibit, yeah, A -- B, Exhibit B. 27 MR. LEONARD: If -- 28 MS. MANDEL: Someone might want to look at 12 1 that. 2 MS. YEE: Do you have the actual returns? 3 MR. MICKEY: It's the file. 4 MS. YEE: Okay. 5 MR. MICKEY: That came out of the petition 6 filed, the income tax return. 7 MR. LEONARD: The federal income tax return has 8 already in the hands of the Department? 9 MR. MICKEY: Yes, the Board has that. I pulled 10 that number directly out of there. 11 MR. LEONARD: No, no. 12 The returns themselves? 13 MR. MICKEY: Yes. 14 MR. LEONARD: Complete return? 15 MR. MICKEY: Yes. 16 MS. YEE: Okay. 17 MR. LEONARD: We have them? 18 MR. MICKEY: Yes. And I have them. 19 MR. LEONARD: Could you give it to them again? 20 Because they're all looking quizically. 21 MR. MICKEY: They're in the file. 22 MR. HANKS: Does that correlate the 23 information, though, that Mr. Leonard is referring to? 24 Can we look at the fishing tickets and see what -- what 25 income was derived from those trips? 26 MR. MICKEY: Well, you'd have to do the 27 analysis like I did, where you took the number of 28 passengers times the rate that was in effect, calculate 13 1 it out and compare it to the actual gross receipts on 2 the income tax return. 3 That's what I did for the year 2004. That's 4 what that what exhibit is. The income tax return figure 5 on that exhibit, which is the second figure, came 6 directly from that income tax return that is in the 7 file. 8 MR. LEONARD: That's what gave me the idea. 9 MR. MICKEY: I don't think -- I don't believe 10 they will have anything more to show the revenue from 11 that other than the calculations from the fish tickets 12 that that's -- that those are the records that we have. 13 MR. HANKS: That was part of my question, as 14 well, whether or not there are actual receipts that 15 correlate to the income that we're talking about? 16 In other words, receipts -- guest receipts that 17 the Petitioner would have maintained for the charges he 18 made to take out parties to conduct the fishing. 19 MR. TUCKER: It's not information we would 20 necessarily have relatng to the food sales, et cetera. 21 MS. YEE: Mr. Smith, do you have such receipts? 22 MR. SMITH: You mean like basically the full 23 audit of my year? Is that what you are asking me? 24 MR. LEVINE: Receipts you've -- 25 MR. LEONARD: The question is like credit card 26 receipts or receipts you paid to -- you gave to the 27 customer when they paid you money for the trip? 28 MR. SMITH: We don't -- we don't give receipts 14 1 like that on the boat. 2 I do have some credit card -- you know, when we 3 scan a credit card, but that's about it, that extent. 4 MR. MICKEY: We looked at this already. That's 5 why the analysis that I did is -- what we did was base 6 it on the number of -- we couldn't come up with a way to 7 show total revenue from there then we realized that the 8 number of people were on there, so, we took the rate. 9 MR. LEONARD: I see. 10 I guess the third piece of paper may be bank 11 deposits. Do you take that cash and those credit card 12 receipts directly to your bank? 13 MR. SMITH: Yeah. 14 MR. LEONARD: And you put it all in there? You 15 don't buy gas out of it first or anything? It goes in 16 there and then you -- 17 MR. SMITH: Yeah, that's just -- 18 MR. LEONARD: Okay. So, if you did bank 19 deposits and tax returns and fish tickets and if they 20 all square, then we might have a higher level of 21 confidence, theoretically. 22 MS. YEE: Okay. You have bank deposit records 23 for the period? 24 MR. SMITH: You know what, I am sure I do. But 25 I think I can go back and contact my bank for them -- I 26 think. I don't know. 27 I've never thought of having to research 28 looking for bank deposits from 2004. 15 1 MR. LEONARD: You want 30 days to try? 2 MR. SMITH: Yeah, if it's deemed necessary. 3 MS. YEE: Yeah. 4 MR. SMITH: If -- if I was hiding any -- any -- 5 I'd be really proud to make anything my first year in 6 business with the fishing boat. 7 I mean, our industry is so depressed now. We 8 have no salmon season. We lost 100 percent of that. We 9 lost 60 percent of our cod season. And now my -- 10 L. P. A. has closed down 11 percent of the waters where 11 we fish 100 percent in. -- or not 100 percent, but a 12 significant amount of area has all been shut down now. 13 So, we're definitely a dying industry. But I 14 could probably produce some more records if you feel 15 it's necessary. 16 MS. YEE: I think it will be. 17 So, as Mr. Leonard has described, we do want to 18 look the the -- using those three sources to essentially 19 reconcile -- which are the fish tickets, the federal 20 income tax return and the bank deposits. 21 You can -- 22 MR. SMITH: You have two -- two of those items 23 you've already asked -- 24 MS. YEE: Yes. 25 MR. SMITH: So, just bank statements at this 26 point? 27 MS. YEE: Yeah. And I would suggest that you 28 spend some time witht the staff to just to verify that 16 1 they have those. 2 MR. MICKEY: I'll make sure. The income tax 3 returns are in their files. 4 MS. YEE: Okay. 5 MR. MICKEY: But I'll make sure they have them 6 and we'll look at the bank and then I'll do a submission 7 with the bank deposits -- 8 MR. LEONARD: Thank you. 9 MR. MICKEY: -- and reconciling it to the two. 10 MS. YEE: Okay. Then, with that is there a 11 motion for 30-30? 12 MR. MICKEY: You have the tax returns? 13 MR. TUCKER: Yeah. 14 MR. LEONARD: So move. 15 MS. YEE: Mr. Leonard moves 30-30-30. 16 A second by Ms. Steel. 17 Without objection, that motion carries. 18 If you'll just go ahead and confer with the 19 staff? 20 MR. MICKEY: Thank you very much. 21 MS. YEE: Show them what you have. 22 Thank you. 23 ---o0o--- 24 25 26 27 28 17 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, JULI PRICE JACKSON Hearing Reporter for the 8 California State Board of Equalization certify that on 9 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 pages 1 13 through 17 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: September 25, 2009 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 18