1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 SEPTEMBER 23, 2009 10 11 SALES AND USE TAX APPEAL HEARING 12 APPEAL OF 13 ELUFA CORPORATION 14 NO. 350440 (AA) 15 AGAINST PROPOSED ASSESSMENT OF 16 SALES AND USE TAX 17 18 19 20 21 22 23 24 25 Reported by: Juli Price Jackson 26 CSR No. 5214 27 28 1 1 2 P R E S E N T 3 For the Board Betty Yee of Equalization: Chair 4 5 Bill Leonard Member 6 Michelle Steel 7 Member 8 Marcy Jo Mandel Appearing for John 9 Chiang, State Controller (per Government Code 10 Section 7.9) 11 Diane G. Olson, 12 Chief Board Proceedings 13 Division 14 For Board of David Levine 15 Equalization Staff: Staff Counsel 16 Robert Tucker Tax Counsel 17 Kevin Hanks 18 Chief, Headquarters Operations Division 19 20 For Department: Cary Huxsoll Tax Counsel 21 22 For Petitioner: Jimmy Kha Taxpayer 23 James Twanmoh 24 CPA 25 26 ---oOo--- 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 SEPTEMBER 23, 2009 4 ---oOo--- 5 MS. YEE: Let's reconvene the meeting. 6 Ms. Olson, our next matter? 7 MS. OLSON: Our next item is C9, Elufa 8 Corporation. 9 Please come forward. 10 MS. YEE: Mr. Levine? 11 MR. LEVINE: Petitioner has established that 12 further adjustments are warranted for disallowed claims 13 sales for resale, whether interest should be relieved 14 and whether the amnesty interest penalty should be 15 relieved. 16 MS. YEE: Thank you very much. 17 Good afternoon. 18 MR. KHA: Good afternoon. 19 MS. YEE: If you could state your name for the 20 record? 21 And pull that microphone right up in front of 22 you. 23 Thank you. And you have ten minutes for your 24 presentation. 25 MR. KHA: Okay. My name's Jimmy Kha, K-H-A. 26 MS. YEE: Okay. 27 MR. KHA: Last name. 28 MR. KHA: I am here to appeal this case due to 3 1 the fairness and it's not work. 2 The auditor was not informed to us about the 3 amnesty and all the stuff since Day 1 of the auditing go 4 until we asked them the question then she said -- she 5 said that, "Oh, it's just expired." 6 I say, "How can it expire when this was never 7 offered to us?" 8 And they just say, "It's expired. So, you can 9 not do anything to it." 10 And also another case -- another thing is I 11 asked her how could she come up with all kind of 12 ridiculous numbers in regionally and she say she 13 assumed -- she assumed -- she used the word "assume." 14 I say that auditing is supposed to look at the 15 number, but not assume. And then see we face with it 16 her manager or supervisor. 17 So, most of the case is actually the customer, 18 my client is say that they using for resale and all this 19 stuff. I have two client -- three client, one of them 20 is Line 1 Laboratory, one of them is American Latex. 21 They claim on their XYZ letters that they use it for 22 resale on other products that I print for them or 23 whatever do for them. 24 And also on -- and then the -- the auditor did 25 not take that as a consideration. They just say, "Oh, 26 we won't believe them." 27 I say, "Not that I told you that, the customer 28 tell you that, you supposed to go out with the customer, 4 1 but not me." And they say that I supposed to policing 2 it, the whole case. 3 And I told them that, "How can I policing it 4 when the customer doesn't want pay me, but they already 5 say that they -- they use it for resales?" 6 And they even do the -- what is that, the 7 resale -- resell permit, they even sign that and also 8 submit it to the auditor for that. 9 And also I have a client name Koran, I charge 10 them a die charge and plate charge order stuff. I 11 charging them but I never -- I did not give them the 12 plate or give them the dies. So, that mean three's 13 nothing intangible it's changing hands on the dies or on 14 the plate. 15 But the auditor was tell me there is something 16 tangible was changing hands and I say, 17 "Yes, I print something for them for them to 18 put into the package, go with the products. 19 It's not -- it's not the plate that I'm 20 selling it to the customer. And I am doing 21 service for the customers so that they have the 22 package." But they just keep on denying on 23 that. 24 And let's get back to Line 1 and American 25 Latex. Every time I appeal another stuff they minus 26 some number, some number I say, "You either take it out 27 or charge me because you are not supposed to just like 28 that because I am not doing anything wrong on this." 5 1 So, that's why they just keep on hassle me to 2 pay for all these stuff. 3 And then also the penalty and the taxes and 4 interest and other stuff, I asking them to take them off 5 because I was never offered that. Then you don't assume 6 me -- that I'm guilty and then just tell me that, "You 7 have to pay up everything here." 8 And then we set up appointment meeting at West 9 Covina office and you were request to speak to the 10 auditor, also with the manager, with the supervisor, 11 everybody there so that way we could question and I 12 could show them all the samples we have. I bought 13 samples there. And the customer, Arthur Kellogg and 14 brochure, the customer have prices on there that they 15 use it for resale and then they still don't believe me. 16 But the auditor never showed up. We was there 17 three time. And the first time they say, oh, that the 18 auditor was sick or something. Then we said, "Oh, next 19 time we would like to request for the auditor to be 20 there so we could question and make sure everything go 21 okay." But, she never showed up. 22 So, that's my case. I think I got discriminate 23 against. So -- but the auditor -- the auditor just 24 doesn't even the -- put anything in consideration. 25 MS. YEE: Thank you very much, Mr. Kha. 26 We'll give you some time on rebuttal after the 27 Department, okay? 28 Department? 6 1 MR. HUXSOLL: Good afternoon, Madam Chair, 2 Members of the Board. I am Cary Huxsoll from the Legal 3 Department, along with Robert Tucker and Kevin Hanks, 4 representing staff. 5 We concur with the recommendation of the 6 Appeals Division. No further adjustments are warranted 7 for disallowed claimed sales for resale. 8 Petitioner operates a printing shop. This was 9 Petitioner's first audit. At issue in this petition are 10 sales to four separate customers that Petitioner claims 11 were for resale. Petitioner made sales of catalogues to 12 American Latex Company and Line 1 Laboratories, two 13 related companies, two sales to each of these companies 14 are at issue. 15 Petitioner did not obtain valid resale 16 certificates for these sales. The certificates did not 17 describe the property to be purchased under the 18 certificates. American Latex and Line 1 Laboratories 19 both provided XYZ letters stating that the catalogues 20 were, quote, "for resales that go along with the 21 products." 22 The auditor contacted these customers to 23 discuss the information in the XYZ letters. Based on 24 the information the auditor acquired in these 25 discussions, the auditor disallowed 50 percent of the 26 sales. This was later adjusted to 25 percent at the 27 Appeals conference. Petitioner claims that 28 sales of dies, plates film and similar items used by 7 1 Petitioner to make printed matter for sales to Koran 2 Company Incorporated were sales for resale. These sales 3 can not be sales for resale. Under Regulation 4 1541, these items are special printing aids which 5 Petitioner used in the manufacturing process. In order 6 for these sales to be sales for resale, Petitioner 7 would have had to separately state the sales price of 8 the printing aids in an amount not less than the sales 9 price to Petitioner and also accept a timely and valid 10 resale certificate stating that the printing aids were 11 purchased for resale. This did not occur. Therefore, 12 this sale is a retail sale subject to tax. 13 The amnesty interest penalty is applicable in 14 this case. Petitioner requested relief claiming that it 15 was not informed of the amnesty program and that the 16 Department told Petitioner that it missed the deadline 17 during the audit. 18 Additionally, Petitioner notes the audit wasn't 19 completed by the March 31st, 2005 deadline. However, 20 the Department provided its schedules of questioned 21 sales on December 30th, 2004 and sent an amnesty 22 pamphlet to Petitioner and its CPA on February 1st, 23 2005. 24 Petitioner, nonetheless, did not apply for 25 amnesty. 26 Thank you. 27 MS. YEE: Thank you very much, Mr. Huxsoll. 28 Mr. Kha, you have five minutes on rebuttal. 8 1 MR. KHA: Me and my CPA never received the 2 amnesty booklet -- pamphlet, whatever they call it. We 3 never receive it until that when we got the -- we sit 4 down with the auditors you that's when I ask. 5 I say, "Oh, there's an amnesty something out 6 there and other stuff that what I heard of?" 7 And then she told me that, "Oh, it was 8 expired." 9 I say, "How can this expire when we was never 10 told there was an amnesty thing to we feel to file?" 11 And she say, "Oh, it's just expired." 12 I say, "What day was that supposed to be 13 expired?" 14 And she just say, "It's just expired." 15 So, I say, "How come that we don't know that? 16 And it was never given to us." 17 Even my CPA did not receive that, not just only 18 me that did not receive it. And I asked them, "How do 19 you guys send it? By mail? Any signature on there?" 20 They say, "No, we just sent it to you by 21 mail." 22 I said, "We did not receive it. It's 23 impossible for two people did not receive it." 24 So, that's why I was arguing with the auditor 25 about that in front of the supervisor. But the 26 supervisor just say, "Oh, we send it to you." 27 I said, "Oh, we did not receive it. If we 28 receive it, I would filled it out." 9 1 And then my CPA will advise me to fill it out. 2 That we did not receive it, that's all we said. 3 Just nothing I could prove we did not receive 4 it because there's no signature in the mail or anything, 5 they just say they just sent it in the mail. So, it's 6 hard to prove. 7 My CPA is right next to me. 8 MS. YEE: Okay. 9 MR. KHA: That's all my questions. 10 MS. YEE: Okay, thank you very much, Mr. Kha. 11 Questions, Members? 12 MS. STEEL: I have a question. 13 MS. YEE: Ms. Steel? 14 MS. STEEL: We asked taxpayer to provide the 15 customers XYZ letters and -- for resale. 16 And after we receive it, why we have to call 17 confirm that those sales? If we don't believe those XYZ 18 letters, why we even ask taxpayers to provide them. 19 MR. TUCKER: Ms. Steel, the law provides that 20 when a taxpayer obtains a resale certificate, that is an 21 absolute protection for them when it's a valid timely 22 resale certificate. 23 Regulation 1668 gives -- and I am looking for 24 it now -- it specifies that an XYZ letter does not 25 provide the same protection that a resale certificate -- 26 MS. STEEL: Then why we even asking? 27 MR. TUCKER: Because it's -- generally it's 28 strong evidence that it may or may not have been 10 1 purchased. 2 When we have an XYZ letter and we can confirm 3 the statements made on the XYZ letter, then we accept 4 it. It is one of the means that we use to confirm that 5 a transaction was a sale for resale. 6 But it -- because it isn't a resale -- a timely 7 and valid resale certificate, it's not accepted as if it 8 were. It's subject to the verification and 9 corroboration by staff. 10 MS. STEEL: Just -- if -- since the only 11 returned documentation from American Latex and Line 1 12 states the items were for resale and then we -- how do 13 we know that what verbal information was provided by the 14 customer that made the auditor disallowed a portion of 15 that after we got the written? 16 MR. HUXSOLL: The auditor contacted the 17 customer in order to verify it as Mr. Tucker discussed 18 under -- 19 MS. STEEL: But there was just conversation, 20 but we already have written documentation here. 21 MR. HUXSOLL: It's written from the same 22 customer that the auditor spoke to, who then called that 23 customer to verify the information that was contained -- 24 MS. STEEL: But how can we verify that that 25 conversation was more strong proof than these written 26 documents? 27 That's what I want to know. 28 MR. HANKS: Ms. Steel, it's not atypical for 11 1 the audit staff to contact. 2 MS. STEEL: Even after we got the letter 3 from -- 4 MR. HANKS: Correct, correct, because -- 5 MS. STEEL: Why is that? 6 MR. HANKS: -- because oftentimes or 7 occasionally the XYZ letter statements are incomplete. 8 You might have an XYZ letter statement that is signed by 9 the purchaser, but the appropriate boxes aren't filled 10 in or we've got the descriptions of perhaps different 11 transactions on the XYZ letter statement than the ones 12 that we wanted information on. 13 MS. STEEL: Those letters right now that you're 14 looking at it? 15 MR. HANKS: We have some, we do. 16 MR. LEONARD: What's the flaw in these? 17 MS. STEEL: Yeah? 18 MR. LEONARD: I'm curious, what's the flaw on 19 the XYZ letter that prompted the auditor to further 20 research? What was the red flag? 21 MR. LEVINE: I don't know, but I would suggest 22 when it comes in printing and you have catalogues, it's 23 always a problem because many -- many purchasers will 24 think they're buying it for resale because they stick it 25 in a box of goods that they're selling -- things that 26 you buy and you get a catalogue of "We have these other 27 things." 28 The manufacturer might think they are reselling 12 1 that catalogue, but they're not. They're using it as a 2 sales message that they include in the package. 3 The manual that's purchased for resale, but not 4 sales solicitation. 5 So, we do get XYZ letter responses that will 6 indicate that they're reselling it, but other facts in 7 there or that the auditor knows indicates that this 8 isn't the type of product that's normally resold. 9 An even more substantial problem would be any 10 special printing aids. 11 MR. LEONARD: I understand that. 12 My point is we have written documentation. For 13 some reason the auditor is alerted to something else and 14 now we have hearsay. 15 MR. LEVINE: That's true. 16 MR. LEONARD: We have no written documentation 17 from the company or the auditor, we just have some notes 18 that say, "In talking to them, I found out that what 19 they wrote in the letter didn't mean what it sounded 20 like it meant." 21 And how are we to judge that, if I could follow 22 up on Ms. Steel' questions? 23 MR. HANKS: Right, right, that's a valid 24 question, absolutely. 25 I'm looking at a copy of the XYZ letter 26 statement in front of me. This is from Line 1 27 Laboratories and the items -- items sold is important 28 too, we're looking at price list, we're looking at 13 1 business cards, business cards, time cards -- items that 2 typically aren't resold. 3 But, more significantly, in the area of the XYZ 4 letter statement where the purchaser is supposed to 5 identify how this property was used, none of those boxes 6 are checked. 7 And, so, I think that's what prompted our audit 8 staff then to contact -- 9 MR. LEONARD: The XYZ letter is not valid? Is 10 that your statement? 11 MR. HANKS: It was incomplete. I wouldn't say 12 it wasn't valid, it was just incomplete. 13 And, so, that raised a question in the 14 auditor's mind, well, is this exempt? Would it be 15 exempt or not? 16 And that's what prompted their inquiry then to 17 the company. 18 MS. YEE: Other questions, Ms. Steel? 19 MS. STEEL: I'm done. 20 MS. YEE: Okay. 21 Ms. Mandel? 22 MS. MANDEL: No. 23 MS. YEE: Okay. 24 MR. KHA: May I say something? 25 MS. YEE: Yes, Mr. Kha? 26 MR. KHA: On the XYZ letters for Line 1 27 laboratory, the customer at the common -- common area 28 for resales that go along with the products is say that. 14 1 It's not -- it's not complete or whatever even on their 2 own handwriting. 3 If you don't believe it, you can have the 4 handwriting expert to check on that, what that signature 5 and everything. 6 MR. HANKS: That's accurate, that's accurate. 7 But the appropriate boxes weren't checked and 8 it looked as though the type of property sold wouldn't 9 be the type that would be resold. 10 And that's what prompted the staff's inquiry. 11 MR. KHA: And to us -- 12 MS. YEE: Yes, respond to that, Mr. Kha and 13 then Mr. Leonard. 14 Mr. Hanks' statement about the appropriate 15 boxes not being checked and then the type of property 16 that actually -- 17 MR. KHA: Yes, the -- the client might not know 18 what to check, but they write it on there, black and 19 white on their own handwriting and also on their 20 catalogue and stuff. That is pricing on there also. 21 I also showed it to the auditor. You guys 22 should have copy of that. Your auditor have a copy of 23 the of -- of the back of the catalogue, there pricing on 24 there. 25 MS. MANDEL: Pricing for the -- 26 MR. KHA: Of the catalogue how much they charge 27 the customer. 28 MR. HUXSOLL: The catalogue has a retail sales 15 1 price on it, much like you would find on a book or -- it 2 says, "Catalogue $10." 3 MR. KHA: I point all those stuff out to the 4 auditor. The auditor told me I have to enforce those 5 rules. 6 I say, "How can I enforce those rules? I am 7 just doing a business. Is that you or the auditor or 8 the Board supposed to enforce it but not me?" 9 They want to put the whole auditing thing to me 10 that I have to enforce every single one of my clients 11 that, "Oh, these stuff are not for sale, how many is for 12 sale? How many is not for sale?" 13 How can I know? So, that's why I'm very 14 distracted with these kinds auditing and then I think 15 it's very unfair that they got paid for auditing and all 16 those stuff and then they just want us, the citizen, to 17 enforce all the rule that they have a whole thick book 18 of regulation and law. 19 Even in front here, they have to go to the book 20 to found out what rule and what law at what sections 21 that we don't have that and they want us to enforce it. 22 MS. YEE: Okay, Mr. Leonard? 23 MR. LEONARD: Can we follow this one backwards? 24 The XYZ letter itself was prompted because 25 something in the resale certificate triggered the 26 auditor's mind. What was flawed in that that it 27 couldn't be accepted as presented? 28 MR. HUXSOLL: It did not list the property that 16 1 was being purchased to be resold. 2 MR. LEONARD: Wasn't attached to a receipt or 3 an invoice or anything? 4 MR. HUXSOLL: No. 5 MR. LEONARD: Any idea what the sale was linked 6 to? I mean, was there a date on it or -- 7 MR. LEVINE: The -- 8 MR. LEONARD: I'm not sure what it means. 9 Do we really -- for a wholesaler has to write 10 down on the certificate itself for the customer to sign 11 everything that's purchased? 12 MR. TUCKER: Mr. Leonard, the regulation 13 requires -- there are basically two ways you can do 14 this. 15 You can either include on that resale 16 certificate a description of the property that you are 17 purchasing. If you have someone who purchases multiple 18 products and a large variety, often they'll say, "See 19 the specific purchase order." So, there are, in 20 essence, a couple of different ways that they can handle 21 it. 22 But the regulation is explicit in that it 23 requires the purchaser to state the type of property 24 that they're purchasing. 25 MR. LEONARD: This one didn't state anything? 26 Just that it was -- 27 MR. TUCKER: They left it blank. 28 MR. HUXSOLL: Okay. 17 1 MR. KHA: I think that's false. 2 Right here on American Latex, there's invoice 3 number and amounts, which is the auditor send this to us 4 for all these stuff. 5 I think -- 6 MR. TUCKER: The XYZ letter. 7 MS. YEE: Let's -- 8 MR. KHA: The XYZ letter is already --MR. 9 HUXSOLL I'm asking on the resale certificate itself? 10 MR. KHA: The resale certificate is only have 11 one line, one line you can -- MR. HUXSOLL Well, that's 12 what I was -- 13 MR. KHA: -- download it. How can people have 14 all the detail of the PO of everything? 15 MR. LEONARD: But they tell me it was -- the 16 one line was left blank. 17 MR. KHA: It's -- 18 MR. LEONARD: It would have helped to have in 19 that one line the invoice number that is now being 20 referred to. 21 MR. KHA: It can't because when the -- when we 22 do business with the customer, we ask the customer to 23 fill out this resale certificate. 24 The certificate have only one line, one line 25 only for people to fill out what kind of products they 26 might buy from us. 27 So, they just put down the best of the their 28 knowledge what they going to buy from us. 18 1 But down the line they going to buy something 2 else from us, but it's related to the things. One of 3 the sentence it say, one of line it say, "printed 4 material." Printed material is very vague. So, 5 and then they auditing me because all these is printed 6 material. The definition of printed material -- 7 anything that is printed. 8 So, they wanted get it on me. So, I don't 9 understand. 10 MR. LEONARD: I've been bothered by the resale 11 certificates with that one line encourages abbreviations 12 and less than more. 13 When we come for an audit we want very 14 detailed, explicit products purchased for resale and to 15 look at them, is it the kind of product that this 16 company would resell? 17 That is an appropriate question. But the form 18 itself doesn't lend itself for that complete story. 19 And in order -- I don't remember if it even 20 says it's acceptable to put in invoice numbers or 21 purchase order numbers or actually -- 22 MR. HANKS: That is an acceptable -- 23 MR. LEONARD: I understand it is acceptable, 24 but it's not in the instructions, it's not -- I don't 25 remember it being in the -- on the form itself to again 26 encourage whoever is filling it out to be explicitly 27 detailed. 28 It makes for messes here that we really don't 19 1 know what occurred. 2 MR. KHA: Yeah, I got the resale certificate, I 3 just downloaded and printed this morning. It's just one 4 sheet. 5 MR. LEONARD: Right, I have seen it before. 6 MR. KHA: It's just nothing that help people 7 to put detail, word by word, product by product, invoice 8 by invoice and every single detail description. 9 And how can we enforce that if the auditor, 10 even the attorney right here, everybody don't know 11 what -- how to enforce it. 12 MS. YEE: Okay. Mr. Levine, did you have an 13 observation on this? 14 MR. LEVINE: I believe that the Department 15 would accept printed matter for catalogues and for 16 things that are printed. 17 It would not -- correct me if I'm wrong -- it 18 is a short thing and it's to cover the general like 19 offices supplies or general office supplies might not 20 cover computers. One thing that printed matter would 21 not cover, which is special printing aids, which is very 22 specific in the regulation drafted to help printers, but 23 to get the second sale for resale they have to be very 24 specific. 25 But I believe that printed matter certainly 26 catalogues -- cover catalogues, they don't need to list 27 the specific catalogues, the numbers, et cetera. 28 MS. YEE: Right. Department? 20 1 MR. TUCKER: Just one -- and this probably 2 points to the reason that the XYZ letter was even 3 questioned in the first place. 4 One of the items that they state that they're 5 purchasing for resale is -- there are a couple of 6 different things, one would be business cards and time 7 cards. 8 And typically those -- that's not something 9 that this business would be reselling. 10 MS. YEE: Mr. Kha? 11 MR. KHA: That's not me to enforce because they 12 say it right here, they say, okay, business cards, time 13 card, envelope and other stuff and right here it say, 14 "for resales," that would go along with the products. 15 The customer write it, not me. And then all 16 these stuff was written by the auditor, not by me or by 17 the client, but this word right here (indicating), this 18 sentence right here (indicating), it say it's writed 19 (sic) by the -- 20 MS. YEE: We understand, Mr. Kha. 21 We just want to kind of clarify what's 22 acceptable in terms of what information is provided. 23 Mr. Tucker, to the extent that that 24 information is provided by the -- 25 MR. TUCKER: If he had had a valid and timely 26 resale certificate, he wouldn't have -- and it said 27 "printed matter," arguably that would have been 28 included. But there wasn't a valid and timely 21 1 resale certificate and that's where we -- when we look 2 at the XYZ letter, that's why under certain 3 circumstances we may be questioning what that property 4 is. 5 Because the time cards are not things that his 6 customer would typically resell. 7 MR. KHA: We have -- we have the resale 8 certificate to the auditor. We did provide it on the 9 date that they was requested, even we went to the West 10 Covina office. They have it. 11 MS. YEE: We don't have any record of one? 12 MR. TWANMOH: Allow me to say something? 13 MS. YEE: Introduce yourself for the record. 14 MR. TWANMOH: My name is James Twanmoh. 15 MS. YEE: Thank you. 16 MR. TWANMOH: Okay, I'm the company CPA. In 17 fact, I was signing the statements. I'm supposed to 18 appear today for this panel. 19 I have some -- some points. I'm not saying to 20 fully agree with the panels, but we having hard time to 21 convince when we go to the audit with the Department. 22 Because the XYZ letter, we thought it was 23 another alternative to verify the substance of that 24 transaction which is subject to sales tax or not. But 25 the Board always to say it is at their discretion, even 26 the XYZ letters come -- returned with the response valid 27 for resale, but the Board still have -- the auditor can 28 make a discretion or decision whether is accepting that 22 1 XYZ letter or not. 2 Our -- I've been an auditor for many years, but 3 I just -- you know, it's also confused, what's the -- 4 what's the sense of sending a XYZ letter and the 5 validity of those letters or the response was subject 6 to, you know, resale or not. 7 But it's -- the Board saying we having trouble 8 with the Board to, you know, asking why they would not 9 accept these. 10 So, on these letters response, we have the 11 copies. They made a remark to say it's not accepting 12 this XYZ letter. 13 Also on these two customers, American latex and 14 the 1 Line, we showed the catalogue has a suggested 15 retail price imprinted. The response was giving a 16 50 percent, we don't know why. They said because the 17 telephone or the correspondence or they find out 18 actually these companies sometimes give it away, 19 sometimes selling it, but on our end of it, when we 20 perform our work -- and by putting suggested retail 21 price on the catalogue, we have no control over whether 22 the -- our customers give it away or sell it. And we 23 have been penalizing it. 24 Of course, they're trying to compromise, 25 saying -- giving 50 percent. We don't know what basis 26 of 50 percent. 27 Is it -- it appears to be arbitrarily they 28 decide? Because I don't think there is any way they can 23 1 find out how many catalogue they give it away or how 2 many catalogue they actually selling. 3 So, that's where we having trouble with it, 4 okay? 5 MS. MANDEL: I have a question? 6 MS. YEE: Yes, Ms. Mandel. 7 MS. MANDEL: I saw -- I thought the 50 percent 8 was cut to 25, was it? 9 MR. TUCKER: I think it was increased to 75. 10 MS. YEE: 75. 11 MS. MANDEL: Oh, increased, oh, it went the 12 other way? 13 MR. TUCKER: Yes, yes, the other way. 14 MS. MANDEL: No -- the ones that -- 15 MR. LEVINE: The allowance of resales was -- 16 MS. MANDEL: Okay, yeah, we're on the same 17 page. 18 So, is this American Latex Company's -- I mean, 19 did you check to see whether they paid use tax on 20 catalogues they may have given away? 21 MR. HANKS: No. 22 MS. MANDEL: You're all looking at each other 23 is that a no or -- 24 MR. HANKS: We're -- 25 MS. MANDEL: -- or you don't know? 26 MR. HANKS: We've looked to one another -- 27 MR. KHA: You ask -- 28 MS. YEE: Mr. Kha, hold on, let me -- let's get 24 1 this question resolved. 2 MR. HANKS: I haven't looked and that's why I 3 was looking at Mr. Huxsoll. 4 MR. HUXSOLL: I didn't see any reference. 5 MS. MANDEL: You didn't see any reference that 6 someone has checked? 7 MR. LEONARD: Right. 8 MR. KHA: May I ask? 9 MS. YEE: You'll have your turn. 10 MS. MANDEL: Hang on a second. 11 So, they gave a resale certificate that didn't 12 have anything on the line, they buy catalogues that have 13 an imprinted suggested retail price, they fill out the 14 XYZ letter and say -- is that the one that said, "We 15 give it to the customers," that you were reading, Mr. 16 Kha? MR. KHA: No, it say for resales -- 17 for resale that go along with the products. 18 MS. MANDEL: Okay. And then -- then the 19 auditor calls and finds out or has prior information or 20 somehow they had information that some of them are given 21 away? 22 But we don't know whether there was any inquiry 23 to or check on whether American Latex and the other 24 companies -- Mr. Levine, paid use tax on their -- we 25 don't know? 26 MR. LEVINE: I have no idea. I would not 27 expect a company that believes it's reselling them along 28 with the products to report use tax. 25 1 MS. MANDEL: Use tax? 2 MR. LEONARD: That would be consistent. 3 MS. MANDEL: Yeah, that would be consistent. 4 MR. TWANMOH: From our understanding, if I may 5 speak, the auditor was -- 6 MS. YEE: Hold on -- let me call on you. I 7 want to kind of get this line of thought so we're clear 8 in our mind about what -- 9 MR. TWANMOH: I'm sorry. 10 MS. MANDEL: Maybe I misheard, but Mr. Leonard, 11 did you say that would be inconsistent or consistent? 12 MR. LEONARD: That would be consistent. 13 MR. LEVINE: Yeah, for the company. 14 MR. LEVINE: Inconsistent for the company to 15 report use tax. 16 Maybe again we're on the same page. 17 MS. MANDEL: Right, I think you are -- I think 18 you are, yeah, okay. 19 MR. LEONARD: They believe they're reselling 20 them. 21 MR. LEVINE: Right, correct. 22 MS. MANDEL: Okay, thank you. 23 MS. YEE: Okay, Mr. Kha and Mr. -- 24 MR. TWANMOH: When went through the audit, the 25 auditor tell us this is very small shop. We have a 26 meeting after meeting, at least three meeting dealing 27 with their supervisor in West Covina office. 28 We beginning to realize that the printing shop 26 1 is very, very complicated, even small. This audit was 2 triggered because audit -- American Latex was audit 3 first. So, that's why they'll go after Elufa, because 4 they got all the information. 5 So, when they came to audit, they already have 6 all of the information made available. So, they go 7 after us. 8 Actually there's such a small one, it doesn't 9 even get into the skill being audited, that was the 10 auditor's statement to us. 11 MS. YEE: Let me have you stop there. 12 This audit was triggered by the -- the audit of 13 one of these other companies? 14 MR. HANKS: I'm sorry? 15 MS. YEE: The Elufa Corporation? 16 MR. TWANMOH: What I'm saying the audit was 17 triggered by the American Latex, they audit American 18 Latex first and then trace all of the way to this small 19 shop at Elufa. 20 Because they got all of the information. When 21 they came, all of the information is made available, 22 you know, is already readily available when they walk in 23 there. It was very clear, you know, because we wondered 24 such a small shop, how come we get audit? 25 Okay, that's the situation, okay? 26 MR. HANKS: I'm not aware how this audit was 27 selected for audit. But it's not unusual for us to 28 select audits at random, particularly since the business 27 1 had never been audited before. 2 MS. YEE: First time, okay. 3 MR. KHA: May I speak? 4 MS. YEE: Mr. Kha. 5 MR. KHA: It's actually the audit was triggered 6 by either Line 1 or American Latex because I got 7 contacts by the Board to ask me about information about 8 Line 1 and American Latex job. 9 After that, a year after that, the Board of 10 Equalization audited me. And I say, "What is going on 11 here?" 12 And they say, "Oh, because of your relationship 13 with Line 1 and American Latex, that's why we have to 14 audit you." 15 So, we say that, "If you audit me, you supposed 16 to have everything that is from American Latex and Line 17 1 already. That's why when you come to all these kinds 18 of answer and question is to find out what we did for 19 them is true or false." 20 That's what they tell to the auditor, right? 21 But they just audit me -- everything. And then I tell 22 them everything is true and then they still don't 23 believe me and then they go back to Line 1 and American 24 Latex and then go back and forth and they -- that's how 25 they drop down from 50 percent to another 25 percent and 26 then to all those percentages. 27 Because I think there is nothing that they 28 could find that I am at fault, but they just want me to 28 1 pay them for something. 2 MS. YEE: I'm not sure -- 3 MR. TWANMOH: The other argument which we have 4 is if American Latex give way the suggested retail -- 5 the catalogue for their -- for free instead of charging 6 it, aren't they the one who is supposed to be obligated 7 to pay the sales tax and not -- not us. 8 Because we're the innocent, you know, party, 9 that we just made it and then they tell us, you know, 10 when -- when you imprint it's just retail price on the 11 catalogue, what do you think otherwise if it's not for 12 sale? 13 So, that's also our argument. And, you know, 14 somehow we just having trouble to accepting whatever the 15 re-audit and the adjustment made it, but that's the 16 reason we are up here today. 17 MS. YEE: Okay. Other questions, Members? 18 Hearing none, is there a motion? 19 MS. MANDEL: Take it under submission. 20 MS. YEE: Motion by Ms. Mandel to take this 21 matter under submission. 22 Is there a second. 23 MS. STEEL: Second. 24 MS. YEE: Second by Ms. Steel. 25 Without objection, that motion carries. 26 Thank you very much, gentlemen. We will look 27 at your case further and discuss it and send you written 28 notice of our decision. 29 1 MR. TWANMOH: Thank you very much. 2 MS. YEE: Thank you for your patience. 3 ---o0o--- 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 30 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 23, 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 30 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: October 22, 2009 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 31