1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 DECEMBER 15, 2009 10 11 12 13 14 15 FINAL ACTIONS 16 ITEM H1 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 Jerome E. Horton Vice-Chair 6 Bill Leonard 7 Member 8 Michelle Steel Member 9 Marcy Jo Mandel 10 Appearing for John Chiang State Controller 11 (per Government Code Section 7.9) 12 Diane G. Olson 13 Chief, Board Proceedings Division 14 15 ---OOO--- 16 17 18 19 20 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 DECEMBER 15, 2009 4 ---o0o--- 5 MS. YEE: Next item we've taken under 6 submission is on the H1 calendar, Legal Appeals Matters. 7 We have sub item 1, Main Street California. 8 ---o0o--- 9 H1.1 MAIN STREET CALIFORNIA 10 NO. 224746 (OH) 11 ---o0o--- 12 MS. YEE: Is there a motion? 13 MS. STEEL: Move to grant the rehearing. 14 MS. YEE: Okay. We have a motion by Ms. Steel 15 to grant the rehearing, is there a second? 16 MR. HORTON: Second. 17 MS. YEE: Second by Mr. Horton. 18 Discussion? 19 I guess a question of the maker of the motion, 20 then Mr. Horton. 21 Aside from the witness that the gentleman 22 referred to who could now be made available, I'm not so 23 sure I heard anything new relative to this case. 24 Did I miss something? 25 MS. STEEL: I heard that they can bring the new 26 employee that what their practice is, at least, and then 27 we can hear about it. 28 MR. HORTON: Madam Chair? 3 1 MS. YEE: Yes, Mr. Horton? 2 MR. HORTON: I really didn't hear anything that 3 would have changed my mind -- even the subsequent 4 testimony relative to this case. I think the law's 5 pretty clear. 6 But the part that concerned me a little bit was 7 is that -- and maybe staff can bring some clarification 8 to it -- is that the taxpayer testified that they were 9 denied an opportunity to present their case. 10 And, for some reason, I took exception to that 11 and said that even -- that the taxpayer should never be 12 denied an opportunity to present the case. 13 The other part that kind of went the other way 14 is that they should do that before coming before us. 15 The Appeals section should be made to -- should be privy 16 to the testimony. 17 So, at a minimum, Members, possibly we can 18 minimize this by just asking that that testimony be 19 presented to the Appeals section in writing and they 20 take it under consideration and bring it back for our 21 discussion. 22 But I say all that to say, you know, it's more 23 giving them their day in court, if you will, that 24 sounded as if though it may have been denied to some 25 degree. 26 But I, for one, don't see that I would rule in 27 favor of the taxpayer and particularly the law's very 28 clear. 4 1 And the other part is that the taxpayer, 2 clearly under the law, has an option just to modify 3 their documents, you know, take the mandatory language 4 out. 5 So, there's the logic. 6 MS. YEE: Okay, thank you, Mr. Horton. 7 We have a motion by Ms. Steel, second by 8 Mr. Horton to grant the petition for rehearing. 9 Please call the roll. 10 MS. OLSON: Madam Chair? 11 MS. YEE: No. 12 MS. OLSON: Mr. Leonard? 13 MR. LEONARD: Aye. 14 MS. OLSON: Ms. Steel? 15 MS. STEEL: Aye. 16 MS. OLSON: Mr. Horton? 17 MR. HORTON: Aye. 18 MS. OLSON: Ms. Mandel? 19 MS. MANDEL: No. 20 MS. OLSON: Motion carries. 21 MS. YEE: Okay, that motion carries. 22 ---o0o--- 23 24 25 26 27 28 5 1 MS. YEE: Our next item under submission is sub 2 item 4, Universal City Studios, Incorporated. 3 ---o0o--- 4 H1.4 UNIVERSAL STUDIOS, INC. 5 NO. 373822, 378248 (AC) 6 ---o0o--- 7 MR. LEVINE: May I correct one -- 8 MS. YEE: Yes, Mr. Levine? 9 MR. LEVINE: -- thing I told you? 10 I gave you a number based their number, but 11 looking at this again, I believe that their number is 12 based -- I'm sorry, on the gift cards. 13 I believe that their requested adjustment is 14 for the entire -- every single event. And I gave you a 15 number assuming that their number was limited to the 16 nonfood events. 17 So, that -- if you agreed that tax had been 18 paid with respect to the gift cards, our recommendation 19 would be to grant a lesser amount than what I told you 20 and I don't have the figure. 21 It would be -- 22 MS. MANDEL: Okay. Your recommendation would 23 be a lesser -- can you run that one by me again? 24 MR. LEVINE: Okay. 25 MS. MANDEL: And you based your 1.62 percent 26 on -- 27 MR. LEVINE: On the -- we recommended to tax 28 4 percent -- 6 1 MS. MANDEL: Right. 2 MR. LEVINE: -- on the nonfood events. And 3 they're looking for an adjustment to take out the gift 4 cards. 5 MS. MANDEL: Right. 6 MR. LEVINE: And to take -- and that -- what 7 that would do is leave the amount for merchandise in our 8 six tests. 9 MS. MANDEL: Right. 10 MR. LEVINE: And that's 2.38 percent. 11 So, I'm subtracting 2.38 percent for the 12 merchandise from the 4 percent that we -- 13 MS. MANDEL: And that gets you 1.62? 14 MR. LEVINE: That's true. And then -- 15 MS. MANDEL: And that's on the six test 16 events -- 17 MR. LEVINE: -- that's correct. 18 MS. MANDEL: -- which was then -- the 19 methodology was then used in the test events against 20 everything, right? 21 MR. LEVINE: That's right. 22 MS. STEEL: Am I missing something here? 23 MS. MANDEL: But then -- yeah. 24 MS. STEEL: I didn't get that part. 25 So, when they give out the gift cards, they use 26 it at the store at the Universal Studios, then they pay 27 taxes when they use that, right? 28 MR. LEVINE: That's what we don't know. 7 1 MS. STEEL: So, that's for -- 2 MS. MANDEL: He -- 3 MR. LEVINE: But, clarification, the question 4 we were talking about wasn't that, because, as I said, 5 if you find that tax was paid out, we would recommend an 6 adjustment. 7 I was just trying to correct the number that I 8 said we would recommend. Petitioner is asking for an 9 adjustment as if gift cards were taxed on -- in all 10 events, the food events and the nonfood events, but they 11 weren't. 12 MS. STEEL: Okay. 13 MR. LEVINE: Appeals did this in -- when we 14 took out the nonfood events from the -- the ratio -- the 15 45 percent was applied to everything and we took out the 16 nonfood events and we said, "Wait a minute, we know that 17 there were some sales of property, so, we're going to 18 add back an adjustment for that." 19 MS. MANDEL: Okay. So, you took -- you had 20 45 percent was like the starting and you took out 21 nonfood events? 22 MR. LEVINE: The 45 percent imposed on the 23 nonfood events. 24 MS. MANDEL: So, the nonfood events went off to 25 the side? 26 MR. LEVINE: Right. 27 MS. MANDEL: And then you had 45 percent 28 against food events and you said but some of that had 8 1 merchandise? 2 MR. LEVINE: No. 3 MS. MANDEL: Okay. Can you just -- 4 MR. LEVINE: We kind of alluded to that in the 5 analysis, but that's not the methodology the 6 Department -- 7 MS. MANDEL: Okay, just -- how did the numbers 8 go so that if the Members want to make this adjustment 9 on the cards -- 10 MR. LEVINE: Our adjustment -- 11 MS. MANDEL: -- okay. 12 MR. LEVINE: -- was to take -- basically, was 13 to reduce the 45 percent imposed on the nonfood events 14 to a percentage for nonfood merchandise, which was 15 included. 16 And we reduced it to 4 percent. 17 MS. MANDEL: Okay. 18 MR. LEVINE: And if Petitioner's argument were 19 right, then we should have reduced it -- we should have 20 reduced it to 2.38 percent, an additional 1.68 percent. 21 MS. MANDEL: Okay, can I -- 22 MR. LEVINE: -- .62 percent. 23 MS. MANDEL: -- can I stop you there to see if 24 I got it? 25 So, you split the universe into food events and 26 nonfood events? 27 MR. LEVINE: Correct. 28 MS. MANDEL: And on nonfood events you said you 9 1 can't use 45 percent because it's nonfood, but we want 2 to look at taxable merchandise, which we think is 3 4 percent? 4 So, you applied a 4 percent taxable ratio on 5 the nonfood events. So, if for the non -- if this card 6 issue, if the Members believe that they used the cards 7 and it was all incorporated in the audit and they paid 8 tax on the cards that were used at the facilities 9 there to pay for things, then you're saying for the 10 nonfood events subtract something from the 4 percent? 11 MR. LEVINE: Right, it should have been 12 2.38 percent. 13 And, so, we'd would recommend a reduction of 14 1.62 percent applied to the nonfood events. 15 MS. MANDEL: Okay. Now, why -- 16 MR. LEVINE: The gift cards never factored into 17 the food events. 18 MS. MANDEL: -- okay, that's the loop closer. 19 So, you're are saying gift cards were never 20 involved in food events, so, you don't have to make an 21 adjustment on the food events? 22 MR. LEVINE: That's correct. 23 MS. MANDEL: For that issue? 24 MR. LEVINE: Right. 25 MS. MANDEL: And you just don't know what the 26 dollar figure -- before you gave me 250,909 -- you just 27 don't know what the dollar figure is because that 28 250,909 was on everything, not just -- 10 1 MR. LEVINE: On their number, which I think is 2 on all events, not the food events. 3 We can figure it out, I just don't have the 4 number. 5 MS. MANDEL: So, if somebody -- if the Members 6 wanted to make this adjustment, it would be a 1.62 -- 7 reduce the 4 percent by 1.62 on the nonfood events -- 8 MR. LEVINE: That's correct. 9 MS. MANDEL: -- percent? 10 MR. LEVINE: That's correct. 11 MS. YEE: Okay, thank you for that 12 clarification. 13 MR. HORTON: It was helpful. 14 MS. YEE: Okay, Members, is there a motion? 15 MS. STEEL: I want to move the taxpayer's 16 revised adjustment for contracts, that would ignore 17 alcohol sales -- that's the first. 18 And second one was 10 percent adjustment for 19 food sales prior to the Globe Theater opened. 20 And third one is adjusted gift cards according 21 to Mr. Levine in nonfood events for 2.38 percent. 22 Am I right for that? 23 MR. LEVINE: Well, it would be -- if -- 1.62 24 reduction. 25 MS. STEEL: 1.62 percent reduction from 26 4 percent. 27 MS. YEE: Okay. So, we have a motion by 28 Ms. Steel to -- yes? 11 1 MR. HORTON: Madam Chair? 2 MS. YEE: Mr. Horton? 3 MR. HORTON: Ms. Steel, could you repeat that 4 motion? 5 MS. STEEL: Okay. There is three things 6 that -- one is the revised adjustment for contracts with 7 no alcohol they served. 8 And second one is 10 percent adjustment for 9 food sales prior to Globe Theater open. 10 And third one is adjusted gift cards in nonfood 11 events is 4 percent minus 1.62. 12 MR. LEVINE: 2.38. 13 MS. STEEL: 2.38. 14 MR. LEVINE: Just for clarification, so, your 15 motion to is accept their requested reductions for 16 the -- 17 MS. STEEL: First two, yes. 18 MR. LEVINE: -- alcohol and -- 19 MS. STEEL: Yes. 20 MR. LEVINE: -- and non Globe -- 21 MS. STEEL: Right. 22 MR. LEVINE: -- and then -- 23 MS. STEEL: And then adjust that. 24 MR. LEVINE: -- our calculation -- 25 MS. STEEL: Yes. 26 MR. LEVINE: -- for the third? 27 MS. YEE: Right, okay. 28 MR. HORTON: Question, Madam Chair? 12 1 MS. YEE: Yes, Mr. Horton? 2 Let me second that motion just to put the 3 motion on the table. 4 Okay, Mr. Horton? 5 MR. HORTON: The -- the base -- the 45, the 6 taxable ratio, how would this affect the initial taxable 7 ratio if the nonalcohol sales would be -- would have 8 been taken under consideration at that point? 9 MR. LEVINE: It seems that the -- they're 10 asking for a reduction of almost 5 percent. So, if I 11 understand correctly, it would have reduced the ratio to 12 40 percent. 13 And then the other event, 1.72 percent, would 14 have reduced it further to a little over 38 percent. 15 So, if I understand these correctly, it would 16 reduce the ratio applied to the food events to about 17 38 -- a little over 38 percent. 18 MR. HORTON: And your initial argument was 19 that you somehow took this under consideration? 20 MR. LEVINE: The number the Department -- 21 MR. HORTON: Because the numbers were 22 conservative? 23 MR. LEVINE: -- the Department made a couple 24 errors in favor of the taxpayer when it calculated the 25 52 percent and then it reduced that 52 percent by over 26 10 percent using -- it applied to 52, reduced it by 27 7 percent to 45 percent. 28 So, yes, that these were taken into account by 13 1 the adjustments made by the Department to be 2 conservative, not specifically. 3 MR. HORTON: It was never mentioned? 4 MR. LEVINE: No, not specifically, but this is 5 -- and I am sure you know better than me -- that this is 6 the way the Department makes adjustments to account for 7 things that they're not aware of at the time of the 8 audit. 9 MR. HORTON: Yeah. You know, the auditor -- 10 nonalcohol sales is pretty standard in the industry. I 11 mean, there are people just don't want alcohol at their 12 events and so forth. 13 So, it seems to me that it should have been 14 taken into consideration from the onset. And that then 15 that makes -- that makes a subsequent consideration a 16 condition subsequent to the original deliberation on the 17 issue, which makes it a little complicated for us to 18 say, you know, that it has absolutely no merit. 19 MR. LEVINE: I have to say, I think that the 20 Department's use of $12 was -- I don't have it in front 21 of me -- but I think that the auditor had to 22 specifically consider why would you choose the lowest 23 possible number for an alcohol event if you are not 24 accounting for nonalcohol events? 25 So, I think that they did. I can't tell you 26 100 percent that that was in their mind, but when I look 27 at that, I can't think of any other reason for using 28 that low of a number. 14 1 MR. HORTON: So, maybe they -- the number that 2 they used relative to the beverage was nonalcohol? And 3 they took the number that represented soft drinks? 4 MR. LEVINE: No, no, no. they used $12, which 5 was the minimum -- the minimum hour for -- 6 MR. HORTON: $12 is standard, I mean, so, at -- 7 when the $12 was originally developed, it took all of 8 that into consideration. 9 MR. LEVINE: Well, there was a $15 option and a 10 $17 option and also the second and third hours were 11 about half of the original hour. 12 So, if someone did two hours, that would be 150 13 percent of the 1 hour rate and there was a well and a 14 premium well for 15 and 17. 15 So, certainly, some -- we know some of these 16 events had the higher charges. I think Oracle or one of 17 them liked to give their employees or guests premium 18 drinks. 19 So, you're right. Some -- some don't want any 20 alcohol and some want the best alcohol and some want it, 21 I guess, all night long -- hope they have, you know, 22 designated drivers, but -- 23 MR. HORTON: The bar package that I'm looking 24 at for $12, it says, "host beer, wine and soda." 25 MR. LEVINE: That's right. That's the generic 26 beer, wine and soda, no hard liquor. And that's the 27 minimum price that I'm aware of for any event that had 28 alcohol was $12 for the first hour per person. 15 1 MR. HORTON: What's the minimum price, would 2 you say, if it had absolutely no alcohol? 3 There is no -- 4 MR. LEVINE: Well, we don't know if it was zero 5 and they regarded the soft drinks as incidental because 6 they had to have some drinks or if there was a charge. 7 You heard Mr. Andal say that he didn't object 8 if you accepted his argument to add a little bit for 9 beverages. 10 But I have no idea. Maybe they charged nothing 11 for an event with just soft drinks. Maybe they figured 12 it was included in the price. I just don't have that 13 information. 14 MR. LEONARD: Madam Chair? 15 MS. YEE: Mr. Leonard? 16 MR. LEONARD: Is that information obtainable? 17 MR. LEVINE: I don't know because we're -- 18 MR. LEONARD: I'm uncomfortable with so many 19 facts in dispute here -- whether the adjustment was even 20 made or not, and if not made, how much was made. 21 I'm just -- I have a real discomfort. The 22 argument the taxpayer is making in several of the points 23 have some merit. But I hear the Department and Appeals 24 seem to be saying that we already took care of that. 25 And I -- I can't have it both ways. I'd like 26 to know, if it's possible. I don't want to prolong the 27 agony if it's not possible. 28 MS. YEE: Well, I really don't want to prolong 16 1 the agony. Because I think that what the Appeals staff 2 was doing -- and this is where, I think -- I mean, in my 3 mind, adjustments were made with respect to the question 4 that Mr. Horton has asked, and that is the low standard 5 for alcoholic beverages was applied across the board. 6 And that would take into account those events 7 that didn't have alcohol served, which was a very small 8 ratio of the events. 9 And then on the -- and then there was also an 10 adjustment made downward for contracts that didn't 11 include the serving of food and beverages. 12 Now, I think where I'm troubled by the three 13 adjustments that are coming in now is that we are 14 looking at adjustments that are -- I mean, this is the 15 problem we've had all along, we've been looking at this 16 with respect to a limited universe of contracts and then 17 trying to apply it universally with respect to all of 18 the events during this period. 19 And, I mean, I think if we were to go back and 20 actually try to look at whether anything forms a basis 21 for these adjustments, we're kind of back to where we 22 started. I just don't see where it's going to get any 23 better in terms of cracking open every single contract 24 and being able to get substantiation of these 25 adjustments. 26 I mean, where I would rather have had the 27 Petitioners come back in, frankly, today was to refute 28 the staff's recommendation so that we can kind of 17 1 continue on that line of thought. 2 But I just feel like this getting turned on its 3 head again to where we're not going to get any better 4 feel than what we've got at this point. 5 I mean, I don't know whether -- I didn't get a 6 sense that -- 7 MR. HORTON: Madam Chair? 8 MS. YEE: Mr. Horton. 9 MR. HORTON: Madam Chair, could we ask staff to 10 repeat their position on the taxpayer's requests, item 11 No. 3, non Global (sic) Theater events? 12 MR. LEVINE: I don't think I can do much 13 better. 14 The 45 percent number, just to -- it is 15 interrelated because it's the same concept, the alcohol 16 minimum amount was $12, but once the Department reduced 17 from 52 to 45, they really calculated just over $10 per 18 person for alcohol per hour for per event. So, one hour 19 at the minimum rate, below one hour for the minimum rate 20 without any gratuity. So, we have a big deficit there 21 from what they should have assessed. 22 And then just the reduction from 52 to 45, even 23 on the rest of it for the food, we think compensates for 24 the Globe Theater. 25 Again it's a shot in the dark. We're 26 comfortable that the number we've recommended is not 27 higher than the net deficiency by Petitioner. But, you 28 know, we're -- as the Chairwoman says, we're looking at 18 1 six events. 2 You know, we -- they may be high, they may be 3 low. The parties have agreed that they're 4 representative, but just because they're representative 5 doesn't mean the numbers produce a representative 6 figure. But we're doing the best we can based on what 7 we have. 8 MR. HORTON: Yeah. 9 MS. YEE: Okay. 10 MR. HORTON: Members -- 11 MS. YEE: Mr. Horton, please? 12 MR. HORTON: I just looked at item No. 2, the 13 food, but not alcohol, the $12, the adjustments -- I 14 concur with staff relative to that item that the 15 ultimate use of the lower number and then the subsequent 16 adjustment. 17 I would only say to the -- so, I -- it appears, 18 just looking at the numbers, that if you offset the two 19 adjustments that, you know, you come up with a net win 20 to the taxpayer on that particular item. 21 I'm a little concerned about the Global Theater 22 and what its impact is, but here again, I mean, we're 23 being asked to -- we're being asked to -- to do an audit 24 without records. And I don't know that we should 25 actually be put in that position. 26 The gift cards has merit. As you calculate 27 through that, I think staff is probably closer to the 28 actual number relative to that. 19 1 So, I mean, I just -- No. 2, I don't think 2 there should be any adjustment for that. 3 No. 3, I honestly don't know because we're 4 dealing with a lot of hypotheticals here. So -- and I'd 5 have to go back and kind of make a calculation to see 6 what the overall impact of this adjustment would be if 7 it was originally included. And I almost have to argue 8 that it would be nominal, wouldn't really make that big 9 of a difference. 10 But to the taxpayer, if we went back and re-did 11 the audit all over again and developed a taxable ratio, 12 you might end up with a 52 percent taxable ratio after 13 you net out the various non -- let's call it the non 14 occurring events, which seems to be where the 15 taxpayer -- where the Appeals section went. 16 MS. YEE: Okay, thank you, Mr. Horton. 17 MS. STEEL: Just -- 18 MS. YEE: Ms. Steel? 19 MR. HORTON: So, it's hard to recommend 20 numbers. 21 MS. STEEL: Well, it is really hard. And both 22 sides came out with reasonable numbers started from 23 third quarter of 1996, but I give them credit for the -- 24 I mean, give them some adjustment on events food without 25 alcohol because it's Universal Studios. There is a lot 26 of kids events, not just those big corporations that are 27 asking premium drinks. 28 So, I thought that was reasonable that they 20 1 came out with the 11.7 percent and on non Globe Theater, 2 that after they built was a sitdown menu and before that 3 it was more of the sandwiches that, you know, kind of 4 like a brown bag kind of lunch or dinner. So, I thought 5 that was reasonable. 6 But at the same time, the gift cards that -- I 7 thought when you get the gift cards, usually you have a 8 redemption of that gift card to the stores, usually you 9 pay sales tax there. 10 So, actually I don't mind giving them 4 11 percent, but I tried to give a little bit to the staff, 12 that's why I just got -- you know, agreed with the staff 13 recommendation. 14 That's why that was my motion. 15 MR. HORTON: Well, you know, on the -- Madam 16 Chair? 17 MS. YEE: Yes, Mr. Horton? 18 MR. HORTON: On the Petitioner's document it 19 says, "hosted beer, wine and soda." "Soda" implies that 20 there may be an occasion where you could have all three 21 or there is an occasion where you may have one of the -- 22 one of the three or even none of the three. 23 But, clearly, if I was being charged $12 per 24 person -- and, I mean, I have had a lot of nonalcoholic 25 events on purpose, typically because my kids were 26 attending or other kids were attending and I just didn't 27 want the stuff in the house. And, so, that option is, 28 obviously, there. 21 1 How do you measure it is the question. So -- 2 but the option -- such that the option is there, they 3 took the $12 per person and I would say that that's 4 incorporated in the overall segregation numbers. And 5 that makes perfectly good sense to me. 6 And that the auditor took the number and 7 extrapolated over the entire -- I mean, he could have 8 taken 17. And then, had they taken 17, then -- which 9 just says, "premium bar," then the argument would have 10 had merit or "well bar," the argument would have had 11 merit that what about when they are only selling soda or 12 no alcohol at all? 13 So, I think that, again, that that's taken into 14 consideration in the original numbers. 15 The other two give me a little heartburn. I 16 don't know what the numbers are on that. I kind of 17 would like to have staff and the taxpayer get their 18 heads together come up with something definite. 19 MS. YEE: Well, I guess -- let me ask 20 Mr. Levine. 21 Both Mr. Leonard and Mr. Horton have made a 22 case for some additional time for the parties to get 23 together. 24 What's your sense of what -- 25 MS. MANDEL: Well, I can't hear you, both what? 26 MS. YEE: Both Mr. Horton and Mr. Leonard have 27 made the case -- or, at least, have suggested that we 28 give the parties additional time to come together and 22 1 try to reconcile the numbers. 2 Are we likely to get anything productive? 3 MS. MANDEL: Well, there's -- there's, I 4 guess, three things on the table. 5 And, so, one question would be whether 6 anybody -- whether there's -- whether that concern is 7 mostly over the non -- and, you know, it's been so long, 8 I forgot Mr. Leonard's comment -- but whether that was 9 -- whether the gift card issue was one of those issues 10 that people are -- you know, whether people are pretty 11 copacetic with the gift card issue and that this was a 12 general -- you know, that it was coming off of the audit 13 of their operations and that that -- and whether that 14 adjustment -- if you wanted to do that, you didn't have 15 to send everything, if there's an adjustment that 16 Members are comfortable with. 17 See, what I'm saying? You don't have to -- if 18 you are inclined to kick it, you don't have to kick the 19 whole thing if -- if -- you know, if the general view is 20 that there was -- there was an audit of their 21 operations, these were monetary gift cards that get used 22 at their various retail establishments and, so, 23 that any -- any tax, you know, for -- if the gift card 24 was used for taxable stuff, was collected at that time. 25 You know, the -- now -- yes, Mr. Levine? 26 MR. LEVINE: I don't have the number now, but 27 it's just a mechanical thing. We have the number. It's 28 based on an error factor, so, I have to go back in and 23 1 recalculate. 2 But we have the number if -- if you are making 3 adjustment for gift cards at nonfood events, reducing 4 the tax that we offset measured by -- at 4 percent, 5 reducing it to 2.38 percent, if you just order that, 6 very easy for us to mechanically do it and get the 7 number. 8 We don't need to consult with the taxpayer. 9 And, to be honest, I hope that -- I prefer to see you do 10 that than to send it back because I don't think there's 11 much more we can do. 12 Consulting with the taxpayer will just 13 accomplish further disagreement. 14 MS. MANDEL: Well, I think that the one reason 15 that all this stuff came in late was because they saw 16 the hearing summary -- the post hearing summary and they 17 were like, "Oh, well, you know, if we had been talking, 18 we would have, you know, pointed out some things 19 that --," I think that's why it came in. 20 MR. LEVINE: And I understand that. It's a 21 matter of when an adjustment is made, picking at the 22 adjustment -- and I'm not saying I wouldn't do that if I 23 were on their side, I would. 24 But our number was based on an overall 25 circumstance that we're just trying to get a number that 26 is reasonable and won't overassess. 27 MS. MANDEL: Right. 28 MR. HORTON: I mean, part of the -- Madam 24 1 Chair? 2 MS. YEE: Yes, Mr. Horton? 3 MR. HORTON: Part of the counter argument is 4 that the staff could come back and argue, well, there's 5 a percentage that should have been allocated to the 6 hosted premium bar and the hosted well bar, which would 7 drive it up a little bit. 8 I mean, in the legislature we pull rabbits out 9 of the hat all of the time, so, I'm certainly 10 comfortable with doing that, considering the overall 11 equity of the situation, that is. 12 MS. YEE: Okay. Let's see if we can dispense 13 with the motion on the table. 14 We have a motion by Ms. Steel to rule in favor 15 of the Petitioner with the revised adjustments per the 16 Appeals Division with respect to the gift card issue. 17 I have seconded that motion, just to have a 18 motion on the table. 19 Why don't we call the roll on that motion? 20 MS. OLSON: Madam Chair? 21 MS. YEE: No. 22 MS. YEE: Mr. Horton? 23 MR. HORTON: I'm sorry, I wasn't following 24 that. 25 MS. YEE: Okay. 26 MR. HORTON: My apologies. 27 MS. YEE: We have a motion on the table by 28 Ms. Steel, to which I seconded just so we could have the 25 1 discussion, to rule in favor of the Petitioner and with 2 respect to these three adjustments with a revised 3 adjustment relative to the gift card issue pursuant to 4 the Appeals Division recommendation. 5 MR. HORTON: Okay. 6 MS. OLSON: Mr. Leonard? 7 MR. LEONARD: No. 8 MS. OLSON: Ms. Steel? 9 MS. STEEL: Aye. 10 MS. OLSON: Mr. Horton? 11 MR. HORTON: No. 12 MS. OLSON: Ms. Mandel? 13 MS. MANDEL: No. 14 MS. OLSON: Motion fails. 15 MS.YEE: Okay. Is there another motion or 16 suggestion? 17 MR. HORTON: I mean, I would make a motion to 18 accept the gift card adjustment. 19 And, I mean, I think No. 2 and No. 3, if you 20 drill down on the actual data, wouldn't make that big of 21 a difference. 22 And if we went back and -- by virtue that we 23 start from the premise that we're using a segregation 24 number, percentage, that's been adjusted down and that 25 we've utilized the most conservative numbers and if you 26 apply that to both pre and post Global Theater, I don't 27 know that the variables that distinguish the two would 28 have adjusted, and particularly since we're looking at a 26 1 1.72 percent overall adjustment. That, in itself, says 2 that it's not really that big of a distinction between 3 the two. 4 And the other concern is is that if we do go 5 back and do a re-audit, I'm sure that the taxpayer would 6 want only these three items opened up for consideration 7 for that very reason, that if you opened up the entire 8 audit, you are going to end up with a higher segregation 9 percentage, which is going to offset, we don't know to 10 what degree, these various adjustments. 11 In and of itself, it says that the numbers did 12 take that into consideration. 13 So, I would give the item No. 1 to the 14 taxpayer, but would -- 15 MS. MANDEL: With the way Mr. Levine has -- 16 MS. YEE: With the revision as suggested by 17 Appeals? 18 MR. HORTON: By Appeals, right. 19 I'd like to hear from the rest of my colleagues 20 on that. 21 MS. YEE: Ms. Steel? 22 MS. STEEL: Why don't we send this back and 23 then bring it out the Board of that what kind of 24 adjustment that really gave, you know, from the BOE and 25 then, you know, what this number came out from the 26 taxpayer side? 27 And we can just look at and comparing to it and 28 then, you know, we going to vote for next hearing. 27 1 MR. HORTON: Madam Chair? 2 MS. YEE: Mr. Horton? 3 MR. HORTON: I mean, that's -- that's a gamble 4 for the taxpayer that -- looking at the numbers alone. 5 I mean, I don't know that I'm comfortable 6 opening up the can partially. You know, if we're trying 7 to get to the fairness and equity of the overall 8 assessment, we ought to do that and not evaluate these 9 incrementally. And, so, we have to look at it 10 collectively. 11 If we do that, it sounds to me, based on the 12 calculations that I've been able to do up here, that the 13 overall percentage is going to be adjusted and you would 14 end up with a higher percentage on one end of the Global 15 Theater, possibly a lower percentage on the other end, 16 washing out because of the term and the periods of time. 17 And on the nonalcoholic -- I mean, I think 18 legally we're going to fall back to the $12 and 19 ultimately end up adjusting on the higher end. 20 So, I don't know that -- I don't know if we can 21 hear from the taxpayer, but I don't know if the taxpayer 22 really wants to open up that can of worms. 23 But if we go that direction, that would be my 24 recommendation. 25 MS. YEE: Okay, Ms. Steel? 26 MS. STEEL: We have to be reasonable and this 27 is from 1996. And there is just no way that when BOE 28 came out, it was all the assumptions. So, we have to be 28 1 reasonable here. 2 And then right now what taxpayer is asking is 3 very reasonable because before Globe Theater that they 4 didn't have any sitdown food means that they have brown 5 bag and so that has to be adjusted. 6 And second thing is, as I said, that for the 7 nonalcoholic events that that has to be adjusted too. 8 So, I thought that came out with those numbers 9 were very reasonable here. So, that's why I made a 10 motion. 11 But if it's not, then I really want to see that 12 how much credit that BOE gave to the taxpayers that, you 13 know, Mr. Levine was keep saying from 52 percent to 14 47 percent, but it seems like I was looking at the 15 number for 57 percent and 10 percent is going to be 16 going down to 52 percent. 17 So, the number is totally confusing at this 18 point that, you know, what Mr. Levine's been talking. 19 So, I'd rather look at those numbers before 20 then we vote because this has to be reasonable and we 21 can not just really have assumptions and who's right and 22 who's wrong, we have to really looking at the numbers 23 here. 24 MS. YEE: I want to just respond to 25 Mr. Horton's motion first. 26 Was that a motion, by the way? 27 MR. HORTON: I put it on the table for 28 consideration. 29 1 MS. YEE: Okay. Well, I would support that. 2 And the only reason is that, you know, the 3 focus up until this point has been what do we allocate 4 for the taxable portion? 5 And now to come in and actually now begin to 6 look at, kind of, the -- the revenue aspect of this 7 really is troubling to me because I think so much of the 8 adjustment down to 45 percent took into account kind of 9 the Globe versus non Globe events. 10 And unless the taxpayer's ready to crack open 11 every darn contract and we're going to go back -- I 12 mean, I really feel like we're going to start back at 13 square 1 if we go back and do this, but I'm just really 14 loathe to think that we're going to keep piling on. 15 And I would agree with Mr. Horton, I think at 16 the end of the day, given the adjustments that staff has 17 made, I'm not sure that the Petitioner comes out better. 18 But I don't know. And I think in order to go 19 back, I'm not comfortable with just having them look at 20 these three proposed adjustments in and of themselves 21 and then begin to extrapolate them across the entire 22 universe. 23 MR. HORTON: Could -- Madam Chair, could I ask? 24 MS. YEE: Mr. Horton, then Mr. Levine. 25 MR. HORTON: Mr. Levine, it seems to escape me, 26 but can you differentiate between the dates and time 27 relative to the audit when the Globe opened? 28 What are we talking, the period? 30 1 MR. LEVINE: The Globe opened in '99. I don't 2 remember the specific day, but about halfway through. 3 The audit went from July of '96 through the end of April 4 '02, so, we're talking about three years before, three 5 years after. 6 MS. YEE: The Globe opened in -- 7 MR. HORTON: Half of the audit period the Globe 8 was open? 9 MS. YEE: Looked like November '99 was when the 10 Globe opened. 11 MR. LEVINE: That's a little bit more than 12 three years on -- before it opened. 13 MR. HORTON: And the segregation test was done 14 when? 15 MR. LEVINE: The Department's -- the Department 16 used contracts given by -- 17 MR. HORTON: All over? 18 MR. LEVINE: -- the test was, I believe, based 19 on when the Globe was opened. So, it was either in the 20 late part of the audit. 21 I'm not sure exactly. 22 MR. HORTON: So, Global was open when the test 23 was done? 24 MR. LEVINE: Well, when they calculated the -- 25 their number, the Globe was open. 26 MS. MANDEL: When the audit was done? 27 MR. LEVINE: When the audit was done, the Globe 28 was open because the audit was done after the audit 31 1 period. 2 MR. HORTON: Okay. 3 MR. LEVINE: One thing I wanted to add, your 4 extended discussion has allowed me to calculate what we 5 would -- if -- on the gift cards, if you accept that 6 they were tax paid when redeemed, we'd recommend a 7 reduction of -- from our number of 59 in measure, 8 59,508, which accounts for the gift cards that were 9 included in our calculations as taxable. So, it would 10 remove them from our calculations. 11 MS. YEE: Mr. Horton, any further thoughts or a 12 motion? 13 MR. HORTON: No, I'd -- 14 MS. STEEL: If we not going to go back -- 15 MS. YEE: Ms. Steel? 16 MS. STEEL: -- for Globe Theater opened, can we 17 divide by the dates, so a little more for before, so, it 18 should be discounted on -- 19 MR. HORTON: Madam Chair? 20 MS. STEEL: -- food? 21 MS. STEEL: Mr. Horton? 22 MS. YEE: I'm sorry, Ms. Steel, could you 23 repeat that? 24 So, you want to go back on the -- 25 MS. STEEL: So, July 1996 to April 30th, '02 26 and Globe Theater was opened November '99, so, we just 27 divide by the month or dates when opened that we going 28 to give them 10 percent discount on that side of the 32 1 food before 1999 Globe Theater. 2 MS. YEE: Oh, I see. So, you want to discount 3 the -- 4 MS. STEEL: Right. 5 MS. YEE: -- a 10 percent discount for the 6 period prior to the November '99 opening of the Globe 7 Theater? 8 MS. STEEL: Right. 9 MS. YEE: Okay. 10 MR. HORTON: I would -- Mr. Levine, can you 11 calculate -- I mean, that's -- strike that. 12 I mean, I don't think the numbers should really 13 matter, I think we ought to deal with the equity of the 14 law. 15 So, that seems to make sense. I mean, I didn't 16 know from the onset that we were -- 50 percent of the 17 period, the Globe was not open and a sitdown restaurant. 18 And the audit was done during the time that the Globe 19 was opened, and, presumingly (sic), there is absolutely 20 no way the auditor could have known. 21 And because of the, you know, distinction in 22 sales -- well, let me see -- yeah, I mean, sitdown -- 23 typically a sitdown restaurant is going to have a higher 24 taxable ratio than a non sitdown restaurant, just -- if 25 for no other reason, anything sold not to go, you don't 26 have the cold food to go and so forth. 27 And, so, maybe we just split the baby. 28 MS. YEE: Okay, is there a motion? 33 1 MR. HORTON: Move to accept the Petitioner's 2 adjustment, given the staff's modification of item 1; 3 item 3 during the period -- 10 percent adjustment for 4 the period in which the -- 5 MS. YEE: Prior to the Globe Theater opening? 6 MR. HORTON: -- prior to the Globe Theater. 7 MS. YEE: Okay. We have a motion by Mr. Horton 8 to rule in favor of Petitioner with respect to -- 9 MR. HORTON: Any other thoughts on that? I 10 imagine -- 11 MS. YEE: Well, let's -- 12 MS. STEEL: How about events with the food 13 without alcohol? 14 MR. HORTON: What do you think, Marcy? 15 MS. MANDEL: I understand the argument on the 16 events without alcohol, but, as we discussed, the price 17 lists seemed a little -- 18 MR. HORTON: I think I excluded that -- 19 MS. MANDEL: Yeah. 20 MR. HORTON: -- without alcohol. 21 MS. YEE: Yeah. 22 MS. MANDEL: Disturbing. 23 MS. YEE: So, Mr. Horton's motion is just to 24 allow for adjustments with respect to the gift card 25 issue at the -- 26 MR. HORTON: At the rate -- 27 MS. YEE: -- per the Appeals Division revision 28 and then also to allow for a 10 percent discount 34 1 relative to the non Globe events to reflect the period 2 prior to the Globe Theater opening. 3 MR. LEVINE: Just for clarification, so, is 4 this motion to accept the 238407? 5 If I understand this number correctly, and I'm 6 not sure I do, it is for periods before the Globe 7 opened, which I think is -- 8 MS. YEE: Is that what Petitioner is looking 9 for? 10 MR. LEVINE: -- that's the way I read this 11 because it says it's accepting the numbers for after the 12 Globe opened. 13 MS. YEE: Okay. 14 MR. LEVINE: Even though they didn't always -- 15 MS. MANDEL: Oh, wait, let's see. 16 MR. HORTON: Let me read it again. 17 MS. YEE: That's the Petitioner's request for 18 adjustment as to 238407 on the non Globe event issue. 19 MR. HORTON: I don't think I'm prepared to do 20 that. 21 MS. YEE: Well, Mr. Horton, I'm going to just 22 reiterate this, I really believe that the staff 23 adjustment down to 45 percent really took that issue to 24 heart. 25 It was the core of the issue that we talked 26 about in the prior hearing. 27 MR. HORTON: You know, here's -- here's my 28 challenge, the reason I was prepared to go there was 35 1 because I sort of presumed that someone had did some 2 calculations and had taken into consideration that the 3 overall period when Globe was open, Globe wasn't open. 4 But now it's been brought to light that that's 5 not the case -- that these numbers only reflect the 6 adjustment during the period in which the Globe was not 7 open. 8 And something should be given here, but in the 9 absence -- I mean, here's the challenge, I've often said 10 that, you know, we can't -- we can't -- we can't defend 11 the taxpayer's case in the absence of a case. 12 So, I mean, as part of the challenge here, is 13 it has logic, it has a lot of logic that something 14 should be done there. But in the absence of some 15 documented evidence to support that logic, I can't go 16 there just yet. 17 So -- 18 MS. MANDEL: Okay. So -- 19 MS. YEE: I'll make a motion. 20 MS. MANDEL: -- that's where we are right 21 now. 22 MR. HORTON: Let's do, this, Madam Chair, if I 23 may? 24 Let's take No. 1 off the table, seems to be a 25 consensus there. 26 And I'm prepared to move item No. 1 and we take 27 the other two under consideration and let staff take a 28 look at item No. 3. 36 1 I am not prepared to adjust for No. 2. And I 2 don't think there's any additional information that 3 would get me there necessarily. 4 MS. YEE: And your suggestion about staff 5 taking a further look would mean -- 6 MS. MANDEL: What -- I'm sorry, can you give me 7 again what the confusion then became on the Globe 8 Theater -- non Globe Theater? 9 Because if -- was it what their number 10 represents or -- 11 MR. HORTON: They're asking for a 10 percent 12 discount on pricing from 57 percent of the non Global 13 events. I don't know the basis for that at all. 14 So, I'm just dealing with the logic that you 15 have two distinct operations and that one is a sitdown 16 restaurant, the other is not. And, therefore, 17 theoretically, there would be a different relationship 18 there. 19 MS. YEE: The -- 20 MR. HORTON: So, it -- Madam Chair, if I may? 21 MS. YEE: Yes. 22 MR. HORTON: So, it had some merit that it 23 wasn't considered in the original adjustment, was not 24 considered in the original adjustment, even though we 25 took the lowest -- lowest numbers and the most 26 conservative approach. 27 Had this been there, what the auditor would 28 have done is separated the test and had two separate 37 1 periods if this was that material -- and it appears that 2 it is, I don't know. 3 So, here's what the recommendation is is it 4 seems like we've got concurrence on item No. 1; seems 5 some concurrence on item No. 2, that it was included in 6 the original segregation and no further adjustment 7 necessary; item No. 3, possibly what those numbers are, 8 we don't know. 9 MR. LEVINE: Mr. Horton, if you send it back to 10 Appeals without specific directions, our recommendation 11 will remain the same because we think that's exactly 12 what the audit staff did. 13 They knew the Globe Theater opened halfway 14 through. If I recall correctly, they took low items 15 from the menu, which is not always the case, and then 16 they reduced it by more than 10 percent, which is 17 exactly what you are asking for. So -- 18 MR. HORTON: All right. 19 MR. LEVINE: -- I don't think we could change 20 our recommendation. 21 MR. HORTON: I'm good to go. I didn't know 22 that that was the case. 23 The auditor knew that the Globe opened in the 24 middle of the audit? 25 MR. LEVINE: I don't know that for a fact, but 26 I can't imagine -- they had to know. 27 MR. HORTON: I mean, I go to Universal Studios 28 all the time and I don't know what was there the last 38 1 time I was there. I'll be will honest with you. 2 So, I don't know that "They had to know," is 3 sufficient. 4 MS. YEE: Well -- 5 MR. LEVINE: The Department's nodding that they 6 knew, but it's just inconceivable that -- they would 7 have asked for menus and they would have gotten it from 8 the Globe and been told that this is when it opened. 9 I just can't imagine how the audit -- and I'm 10 sure it's in the record, I just don't remember. So, I 11 don't want to misrepresent that I know. 12 MR. HORTON: I mean, I would presume that if 13 the auditor knew, they adjusted for it because it is 14 material and that -- if not material in numbers, 15 certainly material in concept, conceptually you have to 16 do something when you see that distinguishable of a 17 difference and so that makes sense. 18 But we don't know if the auditor knew. 19 MS. STEEL: Mr. Horton, Mr. Levine just said 20 that they took the lowest price menu -- from the menu 21 out from the -- after they opened the Globe Theater. 22 That's not really right approach to make here 23 because the price -- you can not just pick one price up 24 from the menu. I don't know what they picked. And I 25 didn't look at the menu because it was not included. 26 So, I don't know -- what taxpayer's asking is 27 that they divide by those months. So, it's a -- they're 28 looking at Globe Theater opened in November 1999, audit 39 1 period was 70 months, so, 40 divided by 70 months is 57 2 of the audit period. 3 So, it's not from the menu, but what they did. 4 And then they are just asking 10 percent from only that 5 57 percent of that Globe Theater before they opened. 6 So, that's what they were asking. Is that 7 right? 8 MR. LEVINE: Again, based on their wording, if 9 I understand correctly, the 43 percent and 57, they're 10 saying -- 11 MS. STEEL: That's -- 12 MR. LEVINE: -- we're not -- I think they're 13 asking for 10 percent of everything before the Globe 14 opened and they're saying after the Globe opened not 15 every event was catered through Globe, but we'll accept 16 that. 17 So, I think that's where the 57-43 comes in, 18 it's after the Globe opened. And they're saying we're 19 -- that taxpayer's willing to disregard it. 20 So, they're only really asking for something 21 before the Globe opened everything -- everything before 22 the Globe opened and nothing after the Globe opened. 23 MR. ANDAL: That's correct. 24 MS. STEEL: That's it? That's why there is the 25 57 versus 43 percent out of the 70 months? 26 MR. LEVINE: It's just an example of -- from 27 their perspective of how they're not over requesting an 28 adjustment. 40 1 They're not asking for an adjustment after the 2 Globe opened for the non Globe events, they're only 3 asking for non Globe events before Globe opened -- which 4 is everything. 5 MS. STEEL: Which is exactly what they're 6 asking, just before -- 7 MR. LEVINE: Right. 8 MS. STEEL: -- not after. 9 MS. YEE: Mr. Horton? 10 MR. HORTON: Mr. Levine, is there any merit to 11 an argument from staff that they should not have used 12 the 12 percent consistently through -- the $12 13 consistently throughout the audit, that that should have 14 been sort of -- obviously, there are times you have 15 premium bar, host bar and so forth, is there an argument 16 that they should have -- 17 MR. LEVINE: I can just tell you that if they 18 would have used a higher number, it probably would have 19 passed muster with Appeals. 20 But, again, the Department -- 21 MR. HORTON: Wouldn't they have used somewhat 22 of a weighted average or something? 23 MR. LEVINE: Well, perhaps. 24 But sometimes they pick what they think is the 25 lowest number to take into account the non events here, 26 the nonalcohol things. 27 There is different ways to do it. And had they 28 done a weighted, I think they would have come up to a 41 1 higher number. But I don't think they had enough 2 documentation to do a pure weighted. And they agreed to 3 work off of -- you know, to develop a number and then 4 work off the six events. 5 MR. HORTON: So, they gave -- 6 MR. LEVINE: There are different ways to do it. 7 And what you're suggesting would have been certainly an 8 appropriate way to do it. 9 MR. HORTON: Yeah. 10 MS. YEE: Okay, Mr. Horton, are you prepared to 11 make a motion? 12 MR. HORTON: Yeah, I am prepared to accept the 13 taxpayer's -- the adjustment for item 1. 14 Item No. 2 I would not recommend an adjustment 15 for -- item No. 1, given the Appeals modification. 16 Item No. 3, I absolutely have no idea what 17 impact that has and whether or not that was taken into 18 consideration, so, I wouldn't do anything with it until 19 I could be provided that information. 20 MS. YEE: Okay. So, Mr. Horton, your motion is 21 to adopt the -- well, to make the adjustment requested 22 by Petitioner as relates to item No. 1 about the gift 23 cards, as modified by the Appeals Staff Division and 24 reject the other two adjustments at this point? 25 MR. HORTON: Without further evidence, yes. 26 MS. YEE: Okay. I'll second that motion. 27 Discussion? Any further discussion? 28 Please call the roll. 42 1 MS. OLSON: Madam Chair? 2 MS. YEE: Aye. 3 MS. OLSON: Mr. Leonard? 4 MR. LEONARD: Aye. 5 MS. OLSON: Ms. Steel? 6 MS. STEEL: No. 7 MS. OLSON: Mr. Horton? 8 MR. HORTON: Aye. 9 MS. OLSON: Ms. Mandel? 10 MS. MANDEL: Aye. 11 MS. OLSON: Motion carries. 12 MS. YEE: Thank you very much. 13 ---o0o--- 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 43 1 H1.5 SUKHWANT S. AND AMARJIT SEKHON. 2 NO. 491719 (ET) 3 ---o0o--- 4 MS. YEE: Next item, sub item, is sub item 5, 5 Sukhwant S. Sekhon and Amarjit Sekhon. 6 Is there a motion? 7 MR. LEONARD: Madam Chair? 8 MS. STEEL: I move to grant. 9 MS. MANDEL: What one are we on? 10 MS. YEE: Mr. Leonard? 11 MR. LEONARD: This is one of these cases, I 12 just want to bring the attention of Mr. Horton, as both 13 our legislative chair and is the author of so many of 14 these bills, the penalty just far outweighs the crime 15 here. 16 And we're not getting any tax revenue. We're 17 going to destroy $619 of tobacco on the grounds that the 18 tax wasn't paid or she doesn't have the proper receipts 19 and the proper manner to prove that the tax was paid. 20 If -- I wish we had an alternate measure here 21 that we could return the product back to her and her 22 stores, if and when tax is paid, or the proper receipts 23 are produced, plus a reasonable penalty, that we get the 24 product back into circulation to collect the tax that we 25 really need on that rather than this procedure we have 26 now. 27 I've -- on the facts of the case, I'm really 28 torn. I think she has a reasonable explanation, but 44 1 regarding the mixup in receipts and all, nevertheless, 2 the law is very clear that without the receipts, it 3 really doesn't matter. 4 So, I'm -- I'm torn on how to go. But I think 5 law should be corrected to reflect situations like this, 6 with the goal being to collect the tax and not simply 7 confiscate the product. 8 MS. YEE: Mr. Horton? 9 MR. HORTON: Well, I -- that sort of makes good 10 sense, Mr. Leonard. 11 Part of the concern would be is that the -- in 12 the original drafting of the legislation, the concern 13 hinged more on illegal cigarettes being sold and how do 14 we control that? 15 And then the quality of the product -- not that 16 any of it's any good for anybody, to be honest with 17 you -- but the quality of the product as well that was 18 entering the market. 19 And, so, the concern was to get the 20 smuggling -- cigarettes that are being smuggled into 21 California. 22 MR. LEONARD: Thanks to your law, we have 23 eliminated the cigarette problem to a very large degree, 24 almost all of these cases we've had are other tobacco 25 products -- where there aren't the stamps, where there 26 is a whole different paper trail than the massive system 27 we've set up on cigarettes. 28 And it's difficult for everybody -- 45 1 investigator, retailer and this Board. 2 MR. HORTON: But non tobacco products share the 3 same -- I mean, things that are being smuggled into the 4 State of California certainly are not limited to 5 cigarettes -- I mean, non tobacco products, computers, 6 Gucci bags, Viagra. 7 MR. LEONARD: I just thought our duty was to -- 8 MR. HORTON: But -- 9 MR. LEONARD: -- collect the tax, not be the 10 consumer protection agency. 11 MR. HORTON: Well, it may have been broadened a 12 little bit to insure that -- that the taxes are 13 ultimately paid. 14 Because what happens is is when these products 15 are smuggled into the State of California illegally, we 16 don't always have the benefit of catching them. They 17 actually end up being not paid and there are no 18 invoices, it's not included in the markup test, 19 therefore, not included in the sales, therefore, not -- 20 no tax ever paid on it. 21 But, I mean, I think there's merit, though. I 22 they we ought to go back and when there are -- when 23 there are situations where, clearly, it is a mechanical 24 accounting error, and not due to fraud or illegal 25 smuggling of tobacco products and so forth, that 26 possibly we should be able to return it, if we can make 27 that assessment and then just apply a penalty. 28 So, I would -- I would welcome that as part of 46 1 the legislative discussion. 2 MR. LEONARD: Thank you. 3 MS. YEE: Do we have a motion? 4 MS. STEEL: I move to grant the petition. 5 Actually, I thought that their problem was that 6 they bought it or not from the licensed distributors 7 here that they bought it from McClain, actually they -- 8 McClain sells this kind of product. 9 At the same time, McClain admits that they make 10 errors. 11 So, I buy their admission here, so, I just move 12 to grant the petition. 13 MS. YEE: Okay. Motion by Ms. Steel to grant 14 the petition. 15 Is there a second? 16 MR. LEONARD: Second. 17 MS. YEE: Second by Mr. Leonard. 18 Further discussion? 19 Mr. Horton? 20 MR. HORTON: Yeah, Members, this is a nominal 21 amount, you know. 22 Could there have been a mistake? It seems like 23 there could have been. 24 For some reason the taxpayer was convincing in 25 her argument. I mean, we've got a taxpayer that is 26 spending a lot of her personal time just because of what 27 she perceives as the merit of the issue. 28 Then again, it's one of those situations where 47 1 the law is law, but -- I don't know, it's troubling me a 2 little bit. 3 MS. YEE: Okay. Other comments? 4 Okay, motion by Ms. Steel, second by 5 Mr. Leonard to grant the petition. 6 Please call the roll. 7 MS. OLSON: Madam Chair? 8 MS. YEE: No. 9 MS. OLSON: Mr. Leonard? 10 MR. LEONARD: Aye. 11 MS. OLSON: Ms. Steel? 12 MS. STEEL: Aye. 13 MS. OLSON: Mr. Horton? 14 MR. HORTON: No. 15 MS. OLSON: Ms. Mandel? 16 MS. MANDEL: No. 17 MS. OLSON: Motion fails. 18 MS. YEE: Okay. See, if I can -- I'm not sure 19 what we would have if we were to move to deny the 20 petition, but I'll give it a shot. 21 I'll move to deny the petition. Is there a 22 second? 23 MS. MANDEL: Second. 24 MS. YEE: Second by Ms. Mandel. 25 This is one of those -- it's an unfortunate 26 case with the laws. 27 MR. HORTON: Is there a penalty or something we 28 can remove? 48 1 Are we going to pass a law? 2 MR. LEONARD: We need a law. 3 MS. YEE: Motion by Yee, second by Mandel to 4 deny the petition. 5 Please call the roll. 6 MS. OLSON: Madam Chair? 7 MS. YEE: Aye. 8 MS. OLSON: Mr. Leonard? 9 MR. LEONARD: No. 10 MS. OLSON: Ms. Steel? 11 MS. STEEL: No. 12 MS. OLSON: Mr. Horton? 13 MR. HORTON: Aye. 14 MS. OLSON: Ms. Mandel? 15 MS. MANDEL: Aye. 16 MS. OLSON: Motion carries. 17 ---o0o--- 18 19 20 21 22 23 24 25 26 27 28 49 1 H1.6 CITY OF POMONA 2 NO. 469261 3 ---o0o--- 4 MS. YEE: Okay. And our last item under 5 submission, sub item 6, City of Pomona, is there a 6 motion? 7 MR. LEONARD: Madam Chair? 8 MS. YEE: Mr. Leonard? 9 MR. LEONARD: I just had a comment, it's been 10 bothering me since the people all testified that I think 11 inappropriately characterized the struggle this Board 12 has gone through since before my time with the issue of 13 how to properly allocate sales tax to a business that's 14 a warehouse, not a typical retail location. 15 The Board has heard these cases for a number of 16 years, I'm told, and has kind of gone all over the map. 17 And then our procedures we -- we found just a 18 few years ago to be a bit deficient and it wasn't clear 19 what Appeals rights a city had if they were denied their 20 petition at a staff level and -- nor was there any 21 statute of limitations on any of those either. 22 And, so, our regulations that existed, I think, 23 compounded part of the issue, but, nevertheless, they 24 brought it to a head where we were trying to deal with 25 some particular warehouse situations. 26 During that time period, staff, with Appeals, I 27 understand, and with my support, asked all petitioners 28 to hold up their appeals to us until we developed a 50 1 regulation that would give some clear guidance. 2 We did that finally. It was adopted finally. 3 A number of -- everybody was given the opportunity to 4 appeal that had been denied. A number chose not to take 5 advantage of that. A number chose to take advantage of 6 that. And I remember one kind of mass hearing on like a 7 nonappearance calendar where we voted mostly to deny 8 appeals to petitioners because the facts just weren't 9 there, that they had been properly denied before and 10 there was nothing to consider on it and granted, in some 11 cases with a split vote, Madam Chair, to grant appeals 12 to some cases that seemed to have some evidence that 13 under our -- under the law and our regulations as they 14 interpreted the law that they had some substance and 15 were worthy of an oral hearing. 16 I don't know if this is the last of these cases 17 to come before us, but I would hope it is, but it's 18 certainly one of the larger dollar volumes, which I 19 think has made it more contentious than the others in 20 terms of affected parties, obviously, being -- being 21 financially discomforted by the matter. 22 But that's what's before us today. I think we 23 have the duty to consider the facts of the case and 24 ignore arguments made about due process and procedures. 25 I think everybody was given `every opportunity 26 and chance to perfect their claim for reallocation 27 before this Department and this Board and that we should 28 really consider the facts of the case before us and as 51 1 those facts apply to our regulations and the law 2 regarding sales tax allocation for warehouses. 3 MS YEE: Thank you, Mr. Leonard. 4 Other discussion? 5 Hearing none, is there a motion? 6 MR. HORTON: Well -- Madam Chair? 7 MS. YEE: Mr. Horton? 8 MR. HORTON: Members, first let me commend all 9 of the previous Boards for -- Members and staff -- for 10 taking this on. I see the complexity of this. 11 But, in -- so, I have to ask myself, what would 12 I have done from the onset, given, you know, the issue 13 of public policy? And how do we look at all of these 14 different transactions collectively? 15 And from the onset, even though the Tax Code 16 provides that there is no statute of limitation, I, for 17 one, from a legislative perspective, believe that there 18 has to be some limitation on our assessment of the law 19 and that these cases that go on for years, in my mind, 20 would have been barred from the onset from future 21 determination. 22 However, irrespective of how we decide today, 23 it's quite obvious that these matters will be decided by 24 someone ultimately -- ultimately decided by someone 25 other than us. And, so, I will look forward to that 26 ultimate resolution. 27 But I can't -- I don't see the -- it's 28 difficult for me to move forward in this case without 52 1 taking all of them into consideration -- irrespective 2 some were denied, some weren't denied, and so forth. 3 Had I looked at them collectively, I would have 4 denied them all. And -- or I would have said, "Let's 5 figure this out. And now that we have this new 6 regulation as a result of 2006, we've done everything 7 possible, humanly possible, to make that perspective," 8 and just made an adjustment from that period forward 9 since we have made some decisions, to some degree, that 10 the taxpayers have relied on over the years. 11 So, there's my 20 cents for the day. 12 MS. YEE: Thank you, Mr. Horton. 13 Other comments, Members? 14 MR. LEONARD: Just to get it started, let me 15 make the motion. 16 I move to grant the petition by the City of 17 Pomona, per their latest offer of compromise as 18 announced today, the 25 percent reduction of claim and 19 the mitigation over -- the frontloaded mitigation over 20 the -- 21 MS. YEE: Eight quarters? 22 MR. LEONARD: Yes. 23 MS. YEE: Okay, very well. 24 MR. HORTON: Discussion, Members? 25 MS. YEE: Okay, let me repeat the motion and 26 entertain a second. 27 Motion by Mr. Leonard to grant in favor of 28 Pomona's latest offer, which is the 75-25 split, 53 1 modified by -- with the eight quarter frontloaded 2 mitigation. 3 Let me second that motion. 4 Discussion? Mr. Horton? 5 MR. HORTON: "Mitigation" typically implies 6 that there's been some intentional wrongdoing here. I 7 don't know that that's the case necessarily. 8 Seems to me that we've got a situation where 9 neither party knew exactly what was going on, despite 10 the fact that I think it was barred from the onset. 11 MR. LEVINE: I agree, mitigation normally 12 implies that, but this is a tax agency and we use weird 13 terms. 14 And here mitigation is simply a term we use for 15 paying -- for reallocating over time rather than up 16 front. 17 It normally -- barring a Board directive, it 18 requires agreement of the party who's entitled to the 19 reallocation. 20 The jurisdictions worked together and know that 21 each is being hurt and they're -- in other cases, one 22 city who's entitled to a reallocation may well say, "We 23 understand the other jurisdiction's going to be hurt, 24 we'll let them pay it over eight quarters." And we call 25 that mitigation. 26 It really doesn't imply any value judgement at 27 all, it just describes the process. 28 MR. HORTON: Well, in this case, maybe I 54 1 misheard, there is an 18 percent mitigation? 2 MS. YEE: Eight month. 3 MR. HORTON: Eight month? 4 MR. LEVINE: Eight quarters. 5 MS. YEE: Eight quarters, I'm sorry. 6 MR. LEVINE: In other words, it would be paid 7 over eight quarters rather than the next -- I am not 8 sure when they would do it, but if there was no 9 mitigation, it would be like in the next distribution. 10 MR. LEONARD: It's now. 11 MR. HORTON: Okay. 12 MR. LEVINE: So, now this will be over eight, 13 and if you accept that, and the first two would be -- 14 MR. HORTON: That sounds fair. 15 MR. LEVINE: -- higher to Pomona than the last 16 six. 17 MR. LEONARD: It mitigates the adverse impact 18 on the cities. 19 MR. HORTON: I got it. I still -- I got it, 20 thank you. 21 MS. YEE: Okay. Motion by Mr. Leonard, second 22 by Yee. 23 Please call the roll. 24 MS. OLSON: Madam Chair? 25 MS. YEE: Aye. 26 MS. OLSON: Mr. Leonard? 27 MR. LEONARD: Aye. 28 MS. OLSON: Ms. Steel? 55 1 MS. STEEL: Aye. 2 MS. OLSON: Mr. Horton? 3 MR. HORTON: No. 4 MS. OLSON: Ms. Mandel? 5 MS. MANDEL: Oh, it doesn't matter -- aye. 6 MS. OLSON: Motion carries. 7 MS. YEE: Okay, Ms. Olson, does that conclude 8 our -- 9 MS. OLSON: That concludes our -- 10 MS. YEE: -- calendar for today? 11 MS. NIENOW: Sorry, I don't think there was a 12 motion on the table for Los Gatos. 13 MS. YEE: Oh, I'm sorry, we didn't -- 14 MR. LEONARD: I'm sorry, I meant to include 15 that. 16 MS. YEE: Okay. 17 MR. LEONARD: It was to grant the Los Gatos 18 petition. 19 MS. YEE: Okay. Is that incorporated in the 20 motion? 21 MR. LEONARD: And it's part of my motion, if no 22 one objects? 23 MS. YEE: Okay. Without objection, the vote 24 will so reflect. 25 MR. HORTON: Same vote. 26 MS. YEE: Okay. 27 MS. NIENOW: And just one more clarification. 28 Mr. Leonard, did you mean to include Long Beach 56 1 in the 25 percent motion? 2 MR. LEONARD: I said I was proposing Pomona's 3 final offer. 4 Did they include Long Beach in it? 5 MS. NIENOW: Long Beach had accepted Pomona's 6 20 percent offer prior to, so, if you meant to include 7 Long Beach then -- 8 MR. LEONARD: I meant to include Long Beach. 9 Thank you. 10 MS. YEE: Okay, very well. 11 MS. OLSON: That concludes our business for 12 today. 13 We'll reconvene tomorrow morning at 9:30. 14 MS. YEE: Yes. Thank you very much, Members, 15 we are recessed until 9:30 tomorrow. 16 Thank you. 17 18 19 20 21 22 23 24 25 26 27 28 57 1 . 2 REPORTER'S CERTIFICATE 3 4 State of California ) 5 ) ss 6 County of Sacramento ) 7 8 I, JULI PRICE JACKSON, Hearing Reporter for the 9 California State Board of Equalization certify that on 10 DECEMBER 15, 2009 I recorded verbatim, in shorthand, to 11 the best of my ability, the proceedings in the 12 above-entitled hearing; that I transcribed the shorthand 13 writing into typewriting; and that the preceding pages 1 14 through 57 constitute a complete and accurate 15 transcription of the shorthand writing. 16 17 Dated: January 14, 2010 18 19 20 21 ____________________________ 22 JULI PRICE JACKSON 23 Hearing Reporter 24 25 26 27 28 58