BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 450 N Street, Room 121 Sacramento, California REPORTER'S TRANSCRIPT JANUARY 26, 2010 FINAL ACTIONS Reported by: Beverly D. Toms No. CSR 1662 1 1 2 P R E S E N T 3 4 For the Board Betty Yee of Equalization: Chair 5 Jerome E. Horton 6 Vice-Chair 7 Bill Leonard Member 8 Michelle Steel 9 Member 10 Marcy Jo Mandel Appearing for John 11 Chiang, State Controller (per Government Code 12 Section 7.9) 13 Diane Olson Chief, Board 14 Proceedings Division 15 16 ---oOo--- 17 18 19 20 21 22 23 24 25 26 27 28 2 1 ITEM C1 2 Sacramento, California 3 January 26, 2010 4 ---oOO--- 5 MS. YEE: Our next item. 6 MS. OLSON: That concludes our oral hearings 7 for this afternoon and we do have all the items that 8 were submitted. 9 MS. YEE: Okay, Members, let's go back to the 10 items that were placed under submission, beginning with 11 the hearing from this morning, item C1. This is the 12 local tax reallocation hearing related to the City of 13 Irvine. 14 Is there a motion? 15 MR. LEONARD: This is in the category of top 16 five cases I hate or -- 17 MS. YEE: Yeah. 18 MR. LEONARD: Local government reallocations. 19 I move the Appeal's recommendation. 20 MS. YEE: Okay. 21 MS. MANDEL: Second. 22 MS. YEE: Okay, I have a motion by Mr. Leonard, 23 second by Ms. Mandel to adopt the Appeals staff 24 recommendation with -- on item C1, City of Irvine. 25 Without objection, that motion carries. 26 Thank you. 27 ---oOo--- 28 3 1 ITEMC2 2 MS. OLSON: The next item is C2, Internet 3 Support and Services Corp. 4 MS. YEE: Okay. Next item is C2. This is 5 Internet Support and Services Corporation. 6 Is there a motion? 7 MR. LEONARD: Members -- Madam -- Madam Chair. 8 MS. YEE: Yes, Mr. Leonard. 9 MR. LEONARD: Any interest in reducing the 10 liability to the out-of-pocket costs of roughly $10,000 11 as opposed to the contract amount? Further discussion 12 we'd have. That their actual expenses to buy the 13 business was $10,000 before they stopped. 14 MS. YEE: I don't think we have authority to do 15 so. 16 MR. HORTON: I don't know how to frame that. I 17 mean, I -- we were trying to get the -- I was trying to 18 get the taxpayer or staff to see if there was a 19 correlation between the sales price and the condition 20 subsequent to the contract and I just didn't hear it. 21 So, maybe staff can help by -- is there a legal -- I 22 don't -- 23 MR. LEONARD: I thought there was -- I thought 24 we all agreed that it -- to the extent it was a contract 25 that was executed it was -- it was -- it was never 26 implemented and there was no liability that accrued to 27 the purchasers. That is if -- if the seller had sued 28 them for the full $40,000 he wouldn't have got it. 4 1 MS. MANDEL: Well -- 2 MS. YEE: And I think that's -- 3 MR. HORTON: Well, I mean another argument -- 4 another position might be, and -- and I say this because 5 I really want some input from staff, is that such that 6 there was fraud that the transaction in itself under 7 civil law, if that was the case, tracks -- a transaction 8 in itself would not be a valid transaction. There was 9 fraud. There was misled. So the -- it wouldn't be a 10 sale. They would say it's not a valid transaction. 11 I don't know the -- I question the correlation 12 on transaction law, you know. I mean, this is Sales Tax 13 which is just a whole different animal in establishing 14 the selling price and corresponding successor liability, 15 which is tied into the transaction as opposed to civil. 16 MR. LEVINE: Well, that is exactly Petitioner's 17 argument. From our point of view this is a failure of 18 Petitioner at the moment of the sale. That's what the 19 law says. The purchaser is required to get a tax 20 clearance certificate or an amount due and withhold the 21 purchase price. And if they fail to do that then they 22 owe the liability. 23 MR. HORTON: I don't think we're arguing that. 24 We --- 25 MR. LEVINE: Well, the problem is we have a 26 disconnect here because we apply the law as written 27 based on purchase price as if there is -- like $40,000 28 as if there's $40,000 there ready to be withheld, and 5 1 the exact same analysis applies even if the contract 2 were for nothing down and a balloon payment in one year. 3 They would be required to withhold the $40,000 sale 4 price on Day One and the purchaser's argument would be I 5 don't even have to pay it to the seller until a year 6 from now, how can I withhold it. Yeah, that's a 7 problem. That's how the law is written. 8 MR. HORTON: But I don't think -- I don't think 9 that's the -- the argument. I -- I agree that existing 10 law says that they would be required to withhold the -- 11 the full amount. That there is successors liability. 12 The question is, is that -- and that the 13 existing law says upon the consummation of the 14 transaction and the staff has established that that 15 occurred at a particular date and time. The dispute 16 would be does that occur -- did it occur that particular 17 date and time or was there subsequent negotiations tied 18 into the original contract of sale and that negotiations 19 would be reflected -- and I'm stretching here -- it 20 would be reflected by -- I think it was Exhibit 6, which 21 indicated in October of 2007 that they were continuing 22 to negotiate the sales price and that the transaction 23 was not closed. MR. LEVINE: I don't 24 think that letter says what they say it does because for 25 the -- they're arguing mutually exclusive things. The 26 seller got a great deal because he -- I believe the 27 technical term is he screwed them. And why would -- he 28 didn't want to negotiate further. He was happy with 6 1 that deal. So they were trying to get some adjustment 2 but he wasn't agreeing. 3 But the -- the point of my comment about you 4 fix it at the date of sale is that's it. The failure is 5 at the date of sale, and if later they make an argument 6 that it was rescinded or there was fraud, under the 7 Sales and Use Tax law they've already failed to do what 8 the law required, which is withhold the purchase price. 9 And to be quite honest, in many of these deals 10 if they were to ask -- like had a good attorney or even 11 perhaps called our program people and started talking 12 back and forth, they'd say, well, I can't make this deal 13 if I have to withhold the purchase price because the 14 seller won't let me give it to you. 15 And the answer is often, this is not a good 16 deal to make. 17 MR. HORTON: That's part of the problem. I 18 mean -- 19 MR. LEVINE: And it's unfortunate they didn't 20 have that advice. 21 MR. HORTON: Yeah. 22 MR. LEVINE: They wouldn't have made this deal. 23 MR. HORTON: Part of the problem is to rule in 24 favor of the taxpayer creates a -- somewhat of a 25 methodology to subsequently get out of jail free. 26 That's the only concern that I have. 27 I think they were -- there's fraud and would 28 love to be able to go after the perpetrator -- direct 7 1 perpetrator. And even to offer some -- maybe under the 2 offer -- not Offer in Compromise but the Taxpayers 3 Bill -- something. 4 MR. LEVINE: Well -- 5 MR. HORTON: A payment plan. 6 MR. LEVINE: -- we used to have -- we used to 7 have the Victims -- I can never remember the new name. 8 MS. MANDEL: VCGC, Victims Compensation and 9 Government Claims Board. 10 MR. LEVINE: Used to just be the Claims Board 11 and when the Board felt really bad about things it would 12 say, you know, if they file a claim we'll support it and 13 there was a process, and I bet you voted on it. I think 14 it was still going on where it would -- the 15 appropriation would have to be approved every year by 16 the Legislature. But then they changed the rules and 17 made it much harder. I think it comes out of our budget 18 or something. The Board has not, that I know of, made 19 any recommendation on that since the rules have changed 20 and we've stopped suggesting that you do so because it 21 just isn't feasible any more. 22 But there was -- they've eliminated that 23 possible remedy. 24 MR. HORTON: I mean, here's the other concern. 25 We've got a taxpayer -- 26 MR. LEONARD: We did one. 27 MR. HORTON: -- that sort of -- 28 MS. YEE: Yeah. 8 1 MR. HORTON: -- I mean as we speak to the 2 equity of the -- of the transaction separate and apart 3 from the Sales and Use Tax law, do we ever collect this? 4 I mean, I know that's not -- not a point of adjudication 5 relative to law, but I would suggest after you make this 6 call that the Board, if there is an arm that can begin 7 to have conversations about payment, payment plans and 8 so forth, that -- and at the same time about aggressive 9 action going after the seller. 10 MR. LEVINE: It would be -- and it's not 11 uncommon for the Board -- the Board said, you know, hold 12 off collecting for a year, go after the guy who's really 13 at fault. This is not really not a good candidate for 14 that because the Department's already done I think 15 probably its best and it sounds like they're still 16 trying. But the chances of getting anything else from 17 the seller seems slight. So I wouldn't recommend that. 18 But it is a possible -- it is something that 19 the Board does when it sounds like maybe more can be 20 received from the seller. 21 MR. HORTON: No, I would never recommend not to 22 collect. But to establish a payment plan -- 23 MR. LEVINE: That certainly is -- 24 MR. HORTON: -- that enhances collection -- 25 MR. LEVINE: -- something that can be offered. 26 MR. HORTON: -- and help -- helps in the 27 collection process is something that I would recommend 28 that we consider. 9 1 Quick question. The value here seems to be 2 centered around the telephone number and the goodwill 3 established there. It's just from a collection 4 perspective is there any way for us to identify that? 5 That number is still out there being used maybe, huh? 6 MR. LEVINE: I don't know that and I don't 7 think he owns it. 8 MS. STEEL: They sold the number to another 9 business. So, somebody else is using that number. 10 You know, I agree that they have -- you know, 11 if they went through escrow then, you know, they didn't 12 have any problem to begin with. But this contract 13 itself, I don't think it was valid because they said 14 that, you know, one of the tax lien that it's -- it has 15 not -- does not exceed $20,000 and it was much more than 16 that. 17 So, you know, I think that this contract was 18 never actually happen because -- and then after that 19 that this former owner took the telephone number out and 20 then sold it to another person. That's -- that's one. 21 And second thing is you said no -- it's very 22 hard to collect from the seller, but we been collecting 23 a few thousand dollar already from the seller, so we are 24 working on that. 25 So maybe we can just put, you know, for a few 26 months for this taxpayer to pay. I think that's totally 27 reasonable, too. 28 MR. LEVINE: That's an option -- 10 1 MS. STEEL: If we think that agreement is -- 2 yeah. 3 MR. LEVINE: That's always an option to tell -- 4 as part of your order tell us how long to wait before 5 collecting. 6 MS. STEEL: But I like Mr. Leonard -- the 7 motion better. 8 MS. YEE: Okay. Do we have a motion? 9 MS. STEEL: I thought that was the motion. 10 MS. YEE: That was a question. 11 MR. LEONARD: I put it in the form of a 12 question. 13 MS. YEE: Okay. 14 MR. HORTON: Is there a motion on the table? 15 MS. YEE: No, there is not. 16 MR. HORTON: Oh. 17 MS. MANDEL: I guess then move staff 18 recommendation. 19 MS. YEE: Okay. Motion by Ms. Mandel to adopt 20 the staff recommendation. 21 MR. HORTON: If Ms. Mandel would accept a 22 friendly amendment that would give staff direction to 23 evaluate the financial ability of the Petitioner and 24 determine if there is -- that it is -- if it is 25 reasonable to establish a payment plan. 26 MS. MANDEL: Always -- always advised -- 27 MR. HORTON: As needed by the Board. 28 MS. MANDEL: -- is there a payment plan and 11 1 other options. Not everybody is aware of things. 2 That's certainly -- 3 MR. HORTON: And then, you know, I would 4 suggest to staff that maybe you ought to meet with 5 the -- with the successor. They might have some ideas 6 on how to -- how to assist us in collecting from the 7 seller. 8 MR. LEVINE: They may want -- not want to tell 9 us too much if that would disclose that they would 10 qualify as a successor, too. 11 MR. HORTON: Yeah. Yeah. Complicated. Thank 12 you. 13 MS. YEE: Okay. Motion by Ms. Mandel with the 14 modification suggested by Mr. Horton. Is there a 15 second? 16 MR. HORTON: Second. 17 MS. YEE: Second by Mr. Horton. 18 Any objection? 19 MR. LEONARD: Oh, yeah. 20 MS. STEEL: Objection. 21 MS. YEE: Okay. Please call -- please call the 22 roll. 23 MS. OLSON: Madam Chair. 24 MS. YEE: Aye. 25 MS. OLSON: Mr. Leonard. 26 MR. LEONARD: No. 27 MS. OLSON: Ms. Steel. 28 MS. STEEL: No. 12 1 MS. OLSON: Mr. Horton. 2 MR. HORTON: Aye. 3 MS. OLSON: Ms. Mandel. 4 MS. MANDEL: Aye. 5 MS. OLSON: Motion carries. 6 MS. YEE: Okay. 7 ---oOo--- 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13 1 ITEM C3. 2 MS. OLSON: Our next item is C3, Irving Paul 3 Berman. 4 MS. YEE: Okay. Item C3, Irving Paul Berman. 5 Is there a motion? 6 MS. STEEL: I have a motion. 7 MS. YEE: Uh-huh. Ms. Steel. 8 MS. STEEL: Move the staff recommendation but 9 abate the negligence penalty. 10 MS. YEE: Okay. 11 MS. STEEL: Because it's -- you know, they went 12 out five years that they closed down, and it took five 13 years to send the Notice of Determination. And that's 14 not really fair for the taxpayers to pay everything, so 15 we are giving them a little bit of a break. I don't 16 know exactly how much that will be. 17 MS. YEE: The negligence penalty, is that the 18 867? 19 MS. STEEL: Yeah -- it was something. 20 MS. YEE: Okay. All right. 21 Motion by Ms. Steel. Is there a second? 22 MR. LEONARD: Second. 23 MS. YEE: To adopt the staff recommendation, 24 but to abate the negligence penalty. 25 MR. LEVINE: That's the revised recommendation, 26 right, relief of the amnesty interest penalty. 27 MS. YEE: Yes. 28 MS. STEEL: Yeah. 14 1 MS. YEE: Yes. Okay, please call the roll. 2 MS. OLSON: Madam Chair. 3 MS. YEE: No. 4 MS. OLSON: Mr. Leonard. 5 MR. LEONARD: Aye. 6 MS. OLSON: Ms. Steel. 7 MS. STEEL: Aye. 8 MS. OLSON: Mr. Horton. 9 MR. HORTON: No. 10 MS. OLSON: Ms. Mandel. 11 MS. MANDEL: No. 12 MS. OLSON: Motion fails. 13 MS. YEE: Okay. Another motion? 14 MS. MANDEL: Move the revised staff 15 recommendation. 16 MS. YEE: Okay. Motion by Ms. Mandel to adopt 17 the revised staff recommendation. Is there a second? 18 MR. HORTON: Second. 19 MS. YEE: Second by Mr. Horton. Please call 20 the roll. 21 MS. OLSON: Madam Chair. 22 MS. YEE: Aye. 23 MS. OLSON: Mr. Leonard. 24 MR. LEONARD: No. 25 MS. OLSON: Ms. Steel. 26 MS. STEEL: No. 27 MS. OLSON: Mr. Horton. 28 MR. HORTON: Aye. 15 1 MS. OLSON: Ms. Mandel. 2 MS. MANDEL: Aye. 3 MS. OLSON: Motion carries. 4 MS. YEE: Okay. 5 ---oOo--- 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 16 1 ITEM D1. 2 MS. OLSON: Our next item is D1, Eyad Ariekat 3 and Aiman Abuhamdieh -- Abuhamdieh, excuse me. 4 MS. YEE: Okay. Item D1, Eyad Ariekat and 5 Aiman Abuham -- Abuhamdieh. Is there a motion? 6 MR. HORTON: Move to adopt the staff 7 recommendation. 8 MS. YEE: Okay. Motion by Mr. Horton to adopt 9 the staff recommendation. 10 Is there a second? 11 MS. MANDEL: Second. 12 MS. YEE: Second by Ms. Mandel. 13 MR. LEONARD: Madam Chair. 14 MS. YEE: Discussion? Yes, Mr. Leonard. 15 MR. LEONARD: I'm assuming that we don't have 16 a legal authority to grant the petition subject to a 17 payment of some large amount of money. 18 MS. NIENOW: There is no provision available 19 that would allow that. 20 MR. LEONARD: Thank you. 21 MS. YEE: Okay. 22 MS. MANDEL: And -- and as I think I indicated, 23 I -- I understand how it happened to them in their 24 business but it's -- 25 MR. LEONARD: Yeah. This is also a case where 26 our hands are tied. 27 MR. HORTON: Yeah. 28 MS. YEE: Exactly. 17 1 MR. LEONARD: Thank you. 2 MS. YEE: Okay. 3 MR. HORTON: Madam Chair, if you will, though. 4 MS. YEE: Yes, Mr. Horton. 5 MR. HORTON: I would like to -- I mean I 6 thought I heard her testimony that the out-of-state 7 retailer was not required to register because of the 8 lack of physical nexus in California. I mean, my 9 instinct or gut is telling me that -- I can't remember 10 the basis for this, but I do want to put it out there 11 for consideration and hopefully we can drill down on it, 12 is that whenever there is a public health and safety 13 issue, the Constitution allows the State to regulate and 14 control those products. And would require us -- allow 15 us to actually control out-of-state -- out-of-state 16 retailers operating and selling those products in 17 California. 18 So separate and apart from the -- 19 MR. LEONARD: I agree. 20 MR. HORTON: -- the Quail Act -- I mean the 21 Quail case, you would find that we actually do have 22 nexus. It's not the physical nexus, but by virtue that 23 there is a large issue here, health and safety, in 24 regulating a product that has a negative impact or 25 theoretically negative scientifically, whatever, on your 26 constituents in your State, you can actually regulate 27 that and control it. 28 So I'm not asking that we have that discussion 18 1 today, but at some point I'd like to -- for us to drill 2 down on that because as we begin to tell out-of-state 3 companies that we can't regulate the distribution of 4 guns and other things that we feel have a greater issue 5 or greater impact on the health and safety I believe we 6 can. So -- 7 MR. LEONARD: Mr. Horton -- Madam Chair. 8 MS. YEE: Yes, Mr. Leonard. 9 MR. LEONARD: Mr. Horton is correct, it's the 10 Jenkins Act and the Federal government has done there 11 for tobacco what they have not done for tangible 12 personal property. And I was astonished at the 13 response, also. 14 We have authority with the Federal Jenkins Act 15 and our law to stop tobacco products from entering the 16 State and inspect them, to look for manifests in trucks 17 entering the State. The -- the whole nexus thing is 18 thrown out the window. Anybody that sells product in 19 this State is subject to our regulation. 20 So I don't know -- we could -- I guess we could 21 just ask for a legal opinion on the question to our 22 Chief Counsel and -- and just -- and see if our practice 23 squares with that authority. 24 MR. HORTON: Because it's the Jenkins Act tied 25 into the Quail case and Federal cases. I mean, I would 26 be okay in -- depending -- I mean, I would follow the 27 counsel of our legal counsel, but -- to consider maybe 28 getting the A. G. to -- 19 1 MR. LEONARD: We can't wait that long. Let's 2 have our good attorneys look at it. 3 MR. HORTON: Yes. 4 MS. CAZADD: Kris Cazadd. We'll be happy to 5 provide you with an opinion. 6 MR. HORTON: Thank you. Thank you very much. 7 MS. YEE: Okay. Great. Thank you. 8 MS. STEEL: Mr. -- Mr. Horton, under your 9 motion -- you know, this case that they paid taxes on 10 the top of that -- you know, Department seized the -- 11 the product. So is it any way that you can mention 12 about those tax that -- you know, recommend or, you 13 know, taxpayer has to go through the process for refund 14 or anything. Because this is not really right. 15 You know, we got the merchandise and then we 16 got the tax and that's way too selfish. 17 MR. HORTON: I mean, I -- I thought the 18 testimony was that the unpaid taxes was on the 19 portion -- I mean the -- the seizure was on the portion 20 that the taxes were not paid. 21 MS. STEEL: No. 22 MR. HORTON: No? 23 MS. MANDEL: No, I think that -- that 24 discussion came up when -- when we were talking about -- 25 when they -- 26 MR. LEONARD: Right. 27 MS. MANDEL: -- were trying to clarify what -- 28 if they wanted to claim a refund. 20 1 MR. LEONARD: What was -- 2 MS. MANDEL: That perhaps they might be wise 3 not to claim a refund on things they'd already sold. 4 But the -- the way that the law is written, as I 5 understand, it is that there are sort of two parts to it 6 and one part is that you're a retailer and you have 7 untaxed product in your possession it is subject to 8 seizure. And that's why it was seized. 9 And then the other part of the law which 10 applies to -- to the act of distribution, which is -- 11 which is viewed as a separate category from sitting 12 there being a retailer that taxes due on the first 13 distribution, which occurred when the gentlemen put it 14 in their stock. 15 So they don't have a distributor's license at 16 the time, they have -- they have a retailer's license, 17 they have untaxed. 18 MR. HORTON: Yeah. 19 MS. MANDEL: You know, so that's the -- yes. 20 MS. YEE: Mr. Leonard. 21 MR. LEONARD: I -- I concur with Ms. Mandel's 22 characterization of the law. It does strike me that 23 there is a prospect that if a product -- a tobacco 24 product is held for sale, which -- which means that the 25 tax has to have been paid at that point, which is the 26 situation here that it was not, there are provisions, 27 though, when a tax is paid and the product's taken off 28 of the shelf for sale and destroyed, there are legal 21 1 provisions of how to destroy it with BOE witnesses, and 2 I believe your taxes are refunded. 3 Can we -- question -- the question is can 4 seizure be equated to a destruction of the product, 5 since it's going to be destroyed, since they're not 6 going to get it back. And can they get their refund of 7 taxes paid. 8 MR. LEVINE: No. It is -- 9 MR. LEONARD: Oh, I need a longer answer. 10 MR. LEVINE: -- seized because it's in 11 violation at the moment of seizure, and that's a done 12 deal, which is why your hands are always tied in these 13 cases because the -- if they can prove that it was tax 14 paid at the time of seizure, ID gives it back and 15 everything's fine. They may have some -- some 16 violations for not having invoices -- 17 MR. LEONARD: Right. 18 MR. LEVINE: -- but that's not part of this 19 proceeding. 20 Similarly, by the time ID seizes it, the 21 distribution has already occurred. The first 22 distribution. And the tax has already been incurred. 23 So -- 24 MR. LEONARD: But isn't there a process for 25 destruction prior? 26 MR. LEVINE: If it -- on the -- yes, on pure 27 destruction if your hands were not tied and if you could 28 give the product back to the feepayer, and if they said 22 1 this stuff is so old I can't sell it any more, I at 2 least want my tax back that I ran and -- and that I 3 paid, you verified that I paid it, then, yes, the -- 4 there are the procedures where the Board staff worked 5 with them to verify that they've destroyed it. That 6 works with cigarettes. I'm sure it's the same -- we 7 haven't had that with cigars, but I assume it's the same 8 rule with tobacco products that -- that Excise verifies. 9 MR. LEONARD: Because that -- if there's no -- 10 if there's no remedy at all, then the question arises, 11 is what did our counter people do in even accepting the 12 money. Did they imply to this business that the 13 acceptance of the money would allow them to get their 14 product back? 15 Certainly they were hoping that. Whether they 16 were told that or not, they were -- they were advised to 17 get a distributor's license, it sounds like. 18 MR. LEVINE: No, I think what happened is when 19 they went in to pay, only a distributor is allowed to 20 have that circum -- that situation where they have 21 untaxed product -- 22 MR. LEONARD: Right. 23 MR. LEVINE: -- and only a distributor pays 24 that tax. And it's similar to an arbitrary number 25 that's assigned to someone who's making a one-time 26 payment. We always need a number to have them pay. And 27 here the number we needed was a distributor's license. 28 So they gave him a distributor's license and cancelled 23 1 it. They didn't charge him $1,000, I don't think, so it 2 was just in order -- 3 MR. LEONARD: Before they cancelled it they 4 accepted the check for the tax. 5 MR. LEVINE: Yes, it was so they could take it 6 because -- I can only guess. I don't think we have any 7 further information. But it's exactly what you -- you 8 figure. They thought that if they paid the tax they 9 could get it back. They run in and they paid the tax. 10 The people at the counter, trying to -- they 11 say they owe the tax. Maybe they called up Excise and 12 say, do they owe tax if they have ex -- you know ex-tax 13 stuff and it's, oh, yeah, they owe the tax. So they 14 take the check. It was due. It was really due. 15 MR. LEONARD: Right. 16 MR. LEVINE: Technically what -- and I don't 17 think they do it -- technically Excise should be billing 18 every person who comes before you on a case that you 19 uphold, because that means you found it was not tax 20 paid. 21 MR. LEONARD: Good point. 22 MS. MANDEL: Here's just one other thing off 23 this case, the publication that -- that they had, which 24 I understand it's a publication to give the retailer the 25 decal to warn the customers, you know, if you buy on the 26 internet we get names. And so if you buy -- you know, 27 it's really more -- that's 660, I think. It's really 28 more directed at retail customers who might, you know, 24 1 leave the store and think, well, you know, he charges a 2 lot for whatever and I can buy it on the internet. It's 3 kind of like a warning. 4 And they saw that and that's what, you know, 5 apparently made them think that as long as they 6 ultimately paid the tax, the sort of unfortunate thing 7 was that they, you know, didn't call the Excise Tax 8 number right away to find out what they do or whether 9 they could, and then there's the Pub. 78. But when we 10 write the publications we're writing them with our 11 mindset of who we think the audience is, and then we 12 hand it over to a retailer to post. 13 And I don't know what goes with it or 14 whether -- you know, that's the decal that they're going 15 to put up, whether in the material that goes to the 16 retailer in that publication maybe there just ought to 17 be some little legend so that they don't get, you know, 18 too distracted by it. 19 MR. LEVINE: We'll pass that along. I agree 20 with you, I think when you look at it, especially with 21 all the other stuff these retailers get, it's pretty 22 clear this is so that they can post in their -- 23 MS. MANDEL: Right. 24 MR. LEVINE: But still it could be clearer. It 25 could have a little legend saying -- 26 MS. MANDEL: Yeah. And then, you know -- 27 MR. LEVINE: -- this does not mean you. 28 MS. MANDEL: And it would have been nice, you 25 1 know, if they had called, but I can totally understand 2 why they were relying on their accountant and thinking 3 Board of Equalization is quarterly. Because that's what 4 their life was, was Sales Tax. 5 MR. LEVINE: Practically speaking, it seems to 6 me an experienced even bookkeeper would at least call 7 the Board before the quarter passes -- 8 MS. MANDEL: I don't think probably -- 9 MR. LEVINE: -- especially when it comes to 10 cigarette and tobacco products because there's been -- 11 MS. MANDEL: Yeah. 12 MR. LEVINE: -- you know, Mr. Horton's been on 13 the job. 14 MS. MANDEL: I'm sure they've had a 15 conversation with the guy. 16 MR. LEVINE: And they know about it. 17 MR. LEONARD: No, because they're all -- 18 you pay them through the distributor. Nobody knows 19 that. None of these guys do. 20 MR. LEVINE: Except that their client 21 supposedly brought the invoice and said, "We got this 22 ex-tax from out of state and we know we have to pay 23 tax." 24 MS. MANDEL: Right. 25 MR. LEVINE: At least take care of it. 26 MS. MANDEL: Right. But it came with all of 27 the paperwork for their quarter. You know, they were 28 going to do their Sales Tax filing here in April when 26 1 perhaps the guy's also either doing or just been 2 exhausted doing income tax returns. Who knows. 3 Here's all my stuff for my business. Here's 4 my, you know, open check, we used to call it, you know, 5 where they don't fill in the number, he needs to fill in 6 the number. Here's my check. 7 By the way, in the stack of stuff for the 8 quarter there's this invoice where we're going to have 9 to pay some kind of tax. So can you make sure you like 10 deal with everything. 11 And, yeah, the guy just decided that he didn't 12 owe it and he was going to pay it later. I never had 13 the impression that they took that invoice at the time 14 that they got it and gave it to their guy and said, 15 "Help us figure it out." I think everything went with 16 all their quarterly work when he was supposed to do the 17 Sales Tax return. 18 I mean, if you -- they seem, you know -- 19 MS. YEE: Yeah. 20 MS. MANDEL: Everything taken at its face and 21 they seem like pretty earnest guys. I think that's 22 what -- what happened and how they got caught up in it. 23 MS. YEE: Mr. Horton. 24 MR. HORTON: Well, I think we've had a very 25 healthy debate on the subject matter. My -- my suggest 26 is that we sort of ask staff to see if there is any 27 recommendations on how we might address the perceived 28 inequity in the policy, possibly regulation, keeping in 27 1 mind that the -- we're interested in making sure that 2 the product stays off the streets and that tax is paid 3 and it's a controlled element. 4 You know, the purpose of establishing the 5 three-tier in the tax scheme was to control the sales 6 and distribution of the -- of the product. 7 So -- so maybe, you know, it's been a real 8 healthy discussion, there's a copy of the tape, we can 9 take a look and see if staff can come back to one of the 10 committees if it be Taxpayer -- Customer Relations or 11 the Leg. Committee -- 12 MS. YEE: Business Taxes. 13 MR. HORTON: -- Business Taxes, whatever. 14 Madam Chair, I would defer to you in that -- 15 MS. YEE: Okay. 16 MR. HORTON: -- process. 17 MS. YEE: Thank you. We have a motion by Mr. 18 Horton, second by Ms. Mandel to adopt the staff 19 recommendation. 20 Please call the roll. 21 MS. OLSON: Madam Chair 22 MS. YEE: Aye. 23 MS. OLSON: Mr. Leonard. 24 MR. LEONARD: No. 25 MS. OLSON: Ms. Steel. 26 MS. STEEL: No. 27 MS. OLSON: Mr. Horton. 28 MR. HORTON: Aye. 28 1 MS. OLSON: Ms. Mandel. 2 MS. MANDEL: Aye. 3 MS. OLSON: Motion carries. 4 MS. YEE: Okay. 5 ---oOo--- 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 1 ITEM D2. 2 MS. YEE: Next item. 3 MS. OLSON: Next item is D2, Brentwood 4 Emporium. 5 MS. YEE: Okay. Item D2, Brentwood Emporium. 6 Is there a motion? 7 MR. HORTON: Move to adopt staff 8 recommendation. 9 MS. YEE: Motion by Mr. Horton to adopt the 10 staff recommendation. 11 Is there a second? 12 MS. MANDEL: Second. 13 MS. YEE: Second by Ms. Mandel. 14 Discussion? Yes. 15 MS. MANDEL: Just -- no, I -- I haven't been on 16 any kind of ride-along on any of these inspections and 17 the gentleman was, you know, clearly distressed at 18 the -- you know, leave aside appearance, but at the 19 treatment that he felt he got in front of his customers 20 from the investigator. I don't know, you know, what 21 happened and I don't know how, but I think what the 22 comments were and all of that, but I just hope that 23 people are sort of sensitive and not unnecessarily 24 aggressive when they -- they come in and -- it is 25 troubling that they left a copy of the citation for a 26 completely different taxpayer with this taxpayer, and 27 I'm not quite sure how that occurred. But hopefully 28 that's not -- people just a little more careful with 30 1 what they're doing. 2 MR. LEVINE: It's not clear what happened 3 and -- and that's unfortunate mistakes happen. But I'm 4 sure the Investigations Division heard the case and has 5 heard your comments -- 6 MS. MANDEL: Okay. 7 MR. LEVINE: -- and will ensure the demeanor is 8 correct. 9 MR. HORTON: Here -- Madam Chair. 10 MS. YEE: Yes, Mr. Horton. 11 MR. HORTON: I mean here's a concern of mine 12 relative to his comments, mindful not passing judgment 13 as to whether or not they are true or not. The fact 14 that they exist and says to me that I would presume that 15 he's been making that argument all along during the 16 process. It's a presumption. 17 And presuming that that argument has been set 18 forth during the process, someone other than us should 19 have addressed that concern to say that if that did 20 exist we will address that particular issue from a 21 training or whatever -- from some process, if it did 22 exist. 23 Possibly it did happen and -- but I was tempted 24 to sort of ask him -- the Petitioner, had he set forth 25 that argument with staff at some point in the process. 26 I only hesitated because I didn't want him to say yes, 27 and then to have to turn around and say, well, did staff 28 -- what was staff's response and to hear that there was 31 1 none. 2 But to the extent that we can -- 3 MR. LEVINE: I think you're right, you know, 4 someone in that circumstance you can see it as being 5 very hostile when it's not because it's just an 6 unfortunate situation. I personally don't like to be 7 pulled over for a traffic ticket, though it hasn't 8 happened for a long time, but that's the same type of 9 thing. The -- the officials can be acting entirely 10 properly -- 11 MR. HORTON: Right. 12 MR. LEVINE: -- but it can feel oppressive. 13 But I think -- I don't know if it was raised in the 14 petition. If we see something like that in a future 15 petition that's clear that they're upset, we'll pass it 16 along to Investigations and ask them at least to make a 17 courtesy call -- 18 MR. HORTON: Yeah. 19 MR. LEVINE: -- to touch base -- 20 MR. HORTON: Yeah. I mean mindful of -- 21 MR. LEVINE: -- and soothe feelings to the 22 extent possible. Sometimes it's not, but -- 23 MR. HORTON: I mean mindful that our staff is 24 one of the greatest in the world, in my opinion. And 25 they are generally very -- they have a certain level of 26 empathy when it comes to taxpayers, which is a good 27 thing to be, so -- but even when we're right we can 28 certainly offer up some -- some condolences or some -- 32 1 some -- we can address it somehow. 2 The -- the other opportunity that was presented 3 in this comment, if you will, was a potential 4 opportunity for training, if it was true. And that is 5 the statement that, "Well, my supervisor told me that I 6 had to do this." 7 I would have preferred an explanation that 8 said, "The law says." My personal interpretation, I 9 would prefer is to have -- for the staff person to feel 10 empowered enough to be able to make her judgment call or 11 to be able to articulate a judgment call based on law, 12 policy and procedure. 13 MR. LEVINE: I think you've hit it on the head. 14 If that really happened then it's a matter of a little 15 bit insecurity, maybe feeling like maybe this guy didn't 16 deserve it, but if that's the decision, that's the 17 decision. And the person goes through the appeals 18 process. But -- 19 MR. HORTON: So the opportunity here is to 20 provide that additional training to -- to staff. 21 MS. YEE: Okay. 22 MR. LEONARD: I -- 23 MS. YEE: Mr. Leonard. 24 MR. LEONARD: If I may add on to that. 25 MS. YEE: Yes. 26 MR. LEONARD: I think one of the awesome powers 27 of government is government never has to say they're 28 sorry. It would not have compromised this case for the 33 1 supervisor of those agents to have said, "I understand a 2 mistake was made. The wrong citation was left. We've 3 corrected that. I've spoken to everybody. On behalf of 4 the Department I apologize." 5 It just -- it would go a long ways. And I 6 don't -- I don't think it's our practice and -- and we 7 do make mistakes and when we do we should admit them. I 8 don't -- I don't think it compromises our -- our tax 9 collection matters to -- to say and to do that. And I'd 10 recommend it. 11 MS. YEE: Thank you, Mr. Leonard. 12 We have a motion by Mr. Horton, second by Ms. 13 Mandel to adopt the staff recommendation on Item D2, 14 Brentwood Emporium. 15 Please call the roll. 16 MS. OLSON: Madam Chair. 17 MS. YEE: Aye. 18 MS. OLSON: Mr. Leonard. 19 MR. LEONARD: Aye. 20 MS. OLSON: Ms. Steel. 21 MS. STEEL: Aye. 22 MS. OLSON: Mr. Horton. 23 MR. HORTON: Aye. 24 MS. OLSON: Ms. Mandel. 25 MS. MANDEL: Aye. 26 MS. OLSON: Motion carries. 27 ---oOo--- 28 34 1 ITEM D3. 2 MS. YEE: Next item. 3 MS. OLSON: Our next item is D3, Mikhail 4 Dorghalli -- I'm sorry, I'm tired -- Dorghalli. 5 MS. YEE: Okay. Item D3, Mikhail Dorghalli. 6 Is there a motion? 7 MS. MANDEL: Move staff recommendation. 8 MS. YEE: Okay. Motion by Ms. Mandel to adopt 9 the staff's recommendation. Is there a second? 10 I will second that motion. 11 Discussion? 12 Okay. Hearing none, please call the roll. 13 MS. OLSON: Madam Chair. 14 MS. YEE: Aye. 15 MS. OLSON: Mr. Leonard. 16 MR. LEONARD: Aye. 17 MS. OLSON: Ms. Steel. 18 MS. STEEL: No. 19 MS. OLSON: Mr. Horton. 20 MR. HORTON: Aye. 21 MS. OLSON: Ms. Mandel. 22 MS. MANDEL: Aye. 23 MS. OLSON: Motion carries. 24 ---oOo--- 25 26 27 28 35 1 ITEM D4. 2 MS. OLSON: Our next item is D4, Asal Melody 3 Iranpour. 4 MS. YEE: Okay. Item D4, Asal Melody Iranpour. 5 Is there a motion? 6 MR. HORTON: Move to adopt staff's 7 recommendation. 8 MS. YEE: Motion by Mr. Horton to adopt the 9 staff recommendation. Is there a second? 10 MS. MANDEL: Second. 11 MS. YEE: Seconded by Ms. Mandel. 12 Discussion? 13 Hearing none, call the roll, please. 14 MS. OLSON: Madam Chair. 15 MS. YEE: Aye. 16 MS. OLSON: Mr. Leonard. 17 MR. LEONARD: Aye. 18 MS. OLSON: Ms. Steel. 19 MS. STEEL: No. 20 MS. OLSON: Mr. Horton. 21 MR. HORTON: Aye. 22 MS. OLSON: Ms. Mandel. 23 MS. MANDEL: Aye. 24 MS. OLSON: Motion carries. 25 ---oOo--- 26 27 28 36 1 ITEM D5. 2 MS. OLSON: Our last item for today is D5, A2Z 3 Associates, Inc. This was a waived appearance. 4 MS. YEE: Okay. Item D5, A2Z Associates, 5 Incorporated. Waived appearance. Is there a motion? 6 MS. MANDEL: Move the staff recommendation. 7 MR. HORTON: Second. 8 MS. YEE: Motion by Ms. Mandel to adopt the 9 staff recommendation. Seconded by Mr. Horton. 10 Discussion? 11 Hearing none, objection? 12 Hearing none, that motion carries. 13 MS. OLSON: That concludes our business for 14 this afternoon. 15 ---oOo--- 16 17 18 19 20 21 22 23 24 25 26 27 28 37 1 REPORTER'S CERTIFICATE. 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, BEVERLY D. TOMS, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 January 26, 2010 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 38 13 pages constitute a complete and accurate transcription 14 of the shorthand writing. 15 16 Dated: February 10, 2010. 17 18 19 20 ____________________________ 21 BEVERLY D. TOMS 22 Hearing Reporter 23 24 25 26 27 28 38 1 2 3 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 39