1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 FEBRUARY 24, 2010 10 11 SALES AND USE TAX APPEAL HEARING 12 APPEAL OF 13 YOUNG LIFE 14 NO. 270405 (KH) 15 AGAINST PROPOSED ASSESSMENT OF 16 SALES AND USE TAX 17 18 19 20 21 22 23 24 25 Reported by: Juli Price Jackson 26 CSR No. 5214 27 28 1 1 P R E S E N T 2 For the Board Betty Yee of Equalization: Chair 3 Jerome E. Horton 4 Vice-Chair 5 Bill Leonard Member 6 Michelle Steel 7 Member 8 Marcy Jo Mandel Appearing for John 9 Chiang, State Controller (per Government Code 10 Section 7.9) 11 Diane G. Olson, 12 Chief Board Proceedings 13 Division 14 For Board of David Levine 15 Equalization Staff: Staff Counsel 16 Robert Tucker Tax Counsel 17 Kevin Hanks 18 Chief, Headquarters Operations Division 19 20 For Department: Robert Tucker Tax Counsel 21 Kevin Hanks 22 Chief, Headquarters Operations Division 23 24 For Petitioner: Terry Polley Attorney 25 26 Paul Sherrill Representative 27 28 2 1 INDEX OF SPEAKERS 2 3 NAME PAGE 4 Catherine Barankin 16 5 Roger Williams 17 6 Michele Branconier 20 7 8 ---o0o--- 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 FEBRUARY 24, 2010 4 ---oOo--- 5 MS. YEE: Okay, our next case? 6 MS. OLSON: Our next case is C5, Young Life. 7 Please come forward. 8 MS. YEE: Okay. Let me suggest this on this 9 case, I know there are several members of the public 10 that wish to comment. 11 I think, Mr. Polley, after your presentation, 12 if you could all move to the front row of the seats? 13 And then we'll just have you each come up. 14 And Mr. Levine, how about introducing the case? 15 MR. LEVINE: The issues in this petition of 16 Young Life are whether Petitioner's sales of meals to 17 campers were exempt sales of student meals and, 18 alternatively, whether the Petitioner was a consumer of 19 the meals. 20 MS. YEE: Okay, very well. 21 Good afternoon. Let me suggest this: What I'd 22 like to do, and Mr. Polley, I think you've assured me 23 previously that your presentation will not exceed ten 24 minutes, but I will -- let me allow 15 minutes. 25 That then will accommodate comments and input 26 from the public that brought. 27 MR. POLLEY: I was going to tell you that I was 28 recanting from that earlier statement, but not by much. 4 1 MS. YEE: Okay, very well. 2 MR. POLLEY: Just a little bit. 3 MS. YEE: Okay. If you'll introduce yourself 4 formally and who you have with you. 5 And please proceed with your 15 minutes. 6 MR. POLLEY: I am Terry Polley with Ajalat, 7 Polley, Ayoob & Matarese and representing the taxpayer. 8 And on my left is Paul Sherrill, who is from 9 Young Life from Colorado Springs and was glad to come 10 here and get out of the snow. 11 And on my right is Cathy Barankin. And Cathy 12 is with the YMCA, but also in the capacity of California 13 Collaboration for Youth, which is an umbrella 14 organization that has a loose association of the camps 15 in California. 16 If I might, who has the exhibits? 17 MS. YEE: We have -- we all have them now. 18 MR. POLLEY: Oh, you've got them already, okay, 19 good. 20 First, the question come up -- and we didn't 21 know the response was, Paul wasn't -- Mr. Sherrill 22 wasn't with us as to where the camp is located. 23 It's just north of Yuba City. 24 The question in this -- in this situation is an 25 attempt by the Department -- so far as we know, and we 26 don't have access to all of the records -- for the first 27 time to apply the sales tax to meals served in a summer 28 camp. 5 1 Let's just talk about this particular summer 2 camp. This summer camp is for -- specifically for 3 at-risk children. So, the camps may all -- may be 4 largely located in certain districts, but the people 5 that utilize the camps probably come from the other 6 districts. So, it involves all of the districts in 7 California. 8 The purpose of this camp is to inculcate 9 Judeo-Christian values into these at-risk kids. It's 10 really how to -- it's a training on how to live life 11 well. These kids typically do not have the skills 12 necessary to live life well. And, so, they are -- they 13 are -- this is the process by which they're trying to 14 pass along these values and systems. 15 The main part of the camp, or the first aspect 16 of the training, is the club. And that's every evening. 17 It's taught by people with graduate degrees. And it's 18 theology and the practical things that are included in 19 the Bible. 20 By the way, many of the kids bring their 21 bibles. Other kids -- the camp distributes bibles to 22 other kids. The Bible is the text for this particular 23 camp and class, obviously. 24 So, I looked at that club, where the professor 25 would teach, just like when I went to UCLA -- I hope 26 none of you are from USC -- but -- 27 MS. YEE: You're out of luck. 28 MR. POLLEY: Strike 1. 6 1 MS. YEE: Be very careful. 2 MR. POLLEY: But, anyway, we would go to this 3 large class and the professor would talk. And then -- 4 we would meet maybe two, three times a week, depending 5 upon which day of the week. 6 And then we would meet once a week with a 7 graduate student. 8 Well, after the evening sessions here, the 9 counselor would meet with these campers that were in the 10 cabin and they would discuss the issues that were raised 11 and the principles that were taught at that section. 12 The next thing -- and I didn't fully realize 13 it, and one of the Board Members had asked us about the 14 class and if you looked at some of the exhibits, there 15 was a schedule of classes, but it was sufficiently small 16 that nobody -- no human being could read it. 17 So, we asked Mr. Sherrill to take that schedule 18 and that's what this schedule is (indicating) and then 19 to describe what it was that the camp was trying to do 20 with each of the activities and classes that were there. 21 What we learned in this process -- that I 22 really didn't even know until that point -- is that you 23 have the training that goes on at night, the discussion 24 that goes on afterwards to talk -- see if the campers 25 are getting the principles that are trying to be 26 discussed, but then there are a series of activities -- 27 the obstacle course, the ropes course, even the battle 28 of the sexes. 7 1 The purpose of those activities is to bring up 2 real life situations that people have to deal with. 3 As you can imagine, an obstacle course, a ropes 4 course, these are things that cause real problems in 5 people's lives. 6 While they're doing those activities, or 7 thereafter, the counselors then will meet with the 8 students and show them how they could respond to this 9 adverse situation in a positive way from the principles 10 that they've learned. 11 And, basically, even times that indicated on 12 the schedule as "hot chocolate time," this is the time 13 when the counselors spend one-on-one, individual time 14 with the campers, again to discuss what they are, where 15 they are, are they getting what's being taught, are they 16 applying it to the situation? 17 So, probably more than most camps -- and I'm 18 not trying to make distinction between camps, because I 19 think -- although the quality -- the quantity may 20 change, the quality of each of the activities remains 21 the same in terms of deciding whether this is exempt 22 under the regulation. 23 But in this camp every activity from the time 24 they get up from bed is all geared to teaching these 25 kids principles of how to live life and, of course, 26 the -- like I say, these are kids that really don't have 27 a good sense of how to live life. They don't have the 28 skills and, hopefully, this camp will take them along 8 1 the way. 2 I'd like to just mention the Supplemental 3 Decision and Recommendation. I think the Board knows 4 that there was a Decision and Recommendation and then a 5 Supplemental Decision and Recommendation, which if I 6 remember, I'll probably refer to as SD & R and D & R, 7 for simplicity. 8 The SD & R said -- concluded that Petitioner's 9 camp is typical of most summer camps. I think that's 10 right. And also concluded that this determination will 11 impact most summer camps. 12 So, what the Board is being asked to do is 13 decide how most summer camps are going to be taxed in 14 the future. Like I said, up to this point, so far as 15 we're able to ascertain, based upon our access to the 16 taxpayers and surveys that were taken, this is the first 17 time that the Department has asserted in an audit that 18 meals served to children at summer camp are subject to 19 the tax. 20 Also the SD & R came to the conclusion that 21 activities such as swimming classes and horseback riding 22 can be qualifying classes as well. I don't think that's 23 a big issue in this particular case, but I just note it 24 in passing. 25 Miss Barankin, as part of the California 26 Collaboration for Youth, did a survey of all of their 27 members -- got about a 45 percent response to that 28 inquiry. As a result of that, virtually every camp 9 1 treats meals served to their children campers as exempt. 2 In every other case where there was an audit, 3 so far as we know, the Department has allowed an 4 exemption. This is the only case that we're able to 5 find, out of all of the camps that were surveyed, where 6 the Department has denied the exemption. 7 Just -- so, that was the survey that was taken. 8 That's the facts as we -- best as we can determine. 9 The summary for today's case said that 10 apparently the 1967 letter, which we'll get to in a 11 moment, does not reflect the actual practice of the 12 Department. Based upon the facts that I just told you, 13 that's not true. 14 As we know, the 1967 letter says, "almost all" 15 and in one place it says, "All summer camps for children 16 are exempt." 17 So, it looks to me that it's clear that as a 18 matter of practice what they actually did -- not some 19 policy, not some statement, not some annotation of what 20 they're applying or not applying, but what they actually 21 did, the Department has allowed the exemption in every, 22 every case. 23 The existing regulation, the one which 24 determines the taxability or nontaxability of -- in this 25 situation, states that, 26 "Camps qualify for the student meals if they 27 have regularly scheduled classes, mandatory 28 attendance, taught by qualified professors." 10 1 The Decision and Recommendation said yes, the 2 classes are mandatory, but for purposes of this 3 regulation, they are not regularly scheduled. They're 4 not taught by qualified instructors. 5 The SD & R came back and rejected each and 6 every ground that the Decision and Recommendation had 7 cited as why the Petitioner's camps does not qualify. 8 Further -- I just note this -- the Supplemental 9 Decision and Recommendation did not criticize, let alone 10 reject, a single point that was raised by Petitioner in 11 its brief other than, of course, the ultimate 12 conclusion, which is whether or not the meals are 13 taxable. 14 The Supplemental Decision and Recommendation, 15 if you read it as a whole, says there's no meaningful 16 difference between the Petitioner's regularly scheduled 17 classes and regularly scheduled classes that qualify for 18 the exemption. 19 Additionally, reading the Supplemental Decision 20 and Recommendation as a whole, there is no meaningful 21 difference between the Petitioner's qualified 22 instructors and qualifying qualified instructors for 23 purposes of the regulation. 24 So, if you read the Supplemental Decision and 25 Recommendation, it appears to me anyway, that the -- 26 that it holds that the Petitioner literally has met all 27 three requirements the regulation requires in order to 28 have exempt meals at summer camps. 11 1 By the way, just as noting, the Department has 2 agreed to accept the Decision and Recommendation. They 3 incorporated it in their brief. So, technically, they 4 have accepted the findings of the Decision and 5 Recommendation as their official position -- meaning all 6 of the things that we've said that the Supplemental 7 Decision and Recommendation have found as a fact, they 8 now of incorporated into their position. 9 Okay. Take -- I want to take a look at the 10 second handout, which is up here (indicating). We did 11 it in big so I could read it because I went to UCLA, I 12 have to have big, slow words, I guess. 13 But we have on the left -- we have on the left 14 the current regulation. And then we have on the right 15 my interpretation of what the Supplemental Decision and 16 Recommendation suggests the regulation ought to be. 17 So, I just want to go through the one on the 18 left, current regulations. Title of the section, 19 "Summer Camps." 20 "To qualify as a school or educational 21 institution for purposes of this regulation --" 22 for purposes of this regulation, "the camp," not the 23 school, not the education, but, 24 "the camp must do three things: Conduct 25 regularly scheduled classes with required 26 attendance in charge of qualified instructors." 27 The Supplemental Decision and Recommendation's 28 proposed regulation, I think probably incorporating all 12 1 of those, but then adds the fourth requirement, 2 "The camp must operate in a manner of a school 3 or educational institution in a camping setting 4 and not as a summer camp with educational 5 aspects." 6 Now, I -- so, I'm reading that. And I am 7 trying to see, well, what does it mean, "in the manner 8 of a school"? 9 And the only thing that I could come out is the 10 regulation -- the regulation says, "What is the manner 11 of a school?" 12 The manner of the school is have regularly 13 scheduled classes with required attendance in charge of 14 qualified instructors. That was the holding of the 15 Supplemental Decision and Recommendation, that there was 16 regularly scheduled classes, was required attendance and 17 in charge of qualified instructors. Albeit then we add 18 the last requirement -- that's not in the regulation, 19 but is being proposed -- to operate in the manner of a 20 school. 21 But I still come back to, well, what is the 22 manner of a school? Well, it's these three 23 requirements. So, that -- that's where we -- we differ. 24 The basis of the conclusion, how the SD & R 25 reached that conclusion was a statement to the fact that 26 the Board, back in 1969, when they adopted this 27 particular regulation, certainly did not intend for it 28 to be as broad as is currently being interpreted and 13 1 applied by the Department. 2 Well, what's the basis for that? I've looked. 3 I haven't found any -- and there was no suggestion of 4 that, other than the conclusion that it must not apply, 5 but there was a letter in 1951. If you read the letter 6 it -- it looks likes it's a response from a camp saying 7 that, 8 "We have heard that it's a policy of the Board 9 that all summer camps are exempt on the student 10 meals." 11 The response is, 12 "Well, that's not true totally. We do grant 13 the exemption for student meals for student 14 camps, provided that," 15 I will read it specifically, it says, 16 "We have regarded as schools or educational 17 institutions those camps conducting regularly 18 scheduled classes with required attendance in 19 charge of qualified instructors." 20 So, the '51 letter that was a response to this 21 inquiry, set forth the three-pronged requirement for 22 granting the exemption for meals. 23 So, in 1967 an attorney for the State Board of 24 Equalization, writing an opinion to the American Camping 25 Association -- and we're not suggesting that that letter 26 is binding on this Board -- what we're saying is that 27 that letter represents what the policy has been in the 28 State of California, I think, probably since the Sales 14 1 Tax Act came in 1933, but at least since 1951 and, 2 certainly, since 1967, interpreting the standard that 3 was enunciated in the '51 letter. 4 Looking at those words, "mandatory, regularly 5 scheduled classes, mandatory attendance, qualified 6 instructors," and concluded two conclusions, it's a long 7 letter, but the relevant language is, 8 "Almost all children's camps have a sufficient 9 educational program to qualify under this 10 exemption." 11 Then again -- 12 MS. OLSON: Time has expired. 13 MR. POLLEY: -- as stated -- 14 MS. YEE: Go ahead, complete your thought, 15 Mr. Polley, and then I'm going to really ask that we 16 move on because I want to hear from the others who are 17 here. 18 MR. POLLEY: As stated above, the meals -- the 19 sale of the meals to children by camps organized for 20 children are exempt. 21 So, in 1969 -- what the Supplemental Decision 22 and Recommendation asks us to believe is that two years 23 after this letter was written, which purports to say 24 that under the applicable standard that virtually all 25 meals served to children at summer camps is exempt, that 26 the Board intended to limit the exemption to a very 27 narrow class, not including the typical summer camp, and 28 having adopted the standards that have been in place 15 1 since 1951, I think, clearly the intention of the Board 2 back then would have -- had they wanted to limit it, 3 would have made a specific finding in the regulations 4 negating what was the announced policy. 5 That letter, by the way, has never been 6 withdrawn, has never been repudiated, it has -- it has 7 never been in any way criticized or critiqued by the 8 State Board or the Department. 9 MS. YEE: Very well, thank you. 10 Let me see if Mr. Sherrill has any comment at 11 this point relative to the appeal? 12 MR. SHERRILL: Not at this time. 13 MS. YEE: Okay. Then, Ms. Barankin, do you 14 want to -- I'm going to give your group probably no more 15 than four minutes to try to just kind of -- 16 MS. BARANKIN: Thank you, Madam Chair, that 17 will be quite sufficient. 18 ---o0o--- 19 CATHERINE BARANKIN 20 ---o0o--- 21 In fact, in consideration of your time, we do 22 have a lot of camps in the audience. And rather than 23 have them take up your time, I'm just going to ask them 24 to raise their hand if they're here in support of the 25 Petitioners. 26 Thank you. 27 Wasn't that better than -- 28 MS. YEE: I appreciate that. 16 1 MS. BARANKIN: I do have two people who will 2 speak from the Camping Association very briefly, but I 3 think that the main point that I want to make to you 4 today is that this exemption has afforded our camps the 5 ability to scholarship kids, to make sure at-risk kids, 6 who would never have the opportunity to attend camps, 7 have that opportunity. 8 And, so, it's not something that we're using as 9 a game for our camps, but rather that we can expand the 10 opportunities to young children in California. 11 So, with that, I will turn it over Mr. Roger 12 Williams, who will indicate his affiliation with the 13 Camping Association. 14 MS. YEE: Very well. 15 ---o0o--- 16 ROGER WILLIAMS 17 ---o0o--- 18 MR. WILLIAMS: Madam Chair, Members of the 19 Board, thank you very much for your thoughtful 20 consideration of this matter, which is of great 21 importance to our camping community. 22 My name is Roger Williams and I am the 23 spokesman today of the more than one hundred Christian 24 camps throughout the State of California. 25 I'm also a hands-on camp director. I've been 26 doing this for more than 30 years. In fact, my wife 27 made me dress up in this this outfit today rather than 28 my blue jeans and flannel shirt because she knew the 17 1 people I was going to be with. 2 I -- I've also had the privilege of being the 3 Director of Mount Herman, which is a Christian camping 4 organization located in the Santa Cruz mountains. We 5 were founded in 1905. We've been providing camping 6 experiences for children in the State of California for 7 105 years. 8 And I haven't been there all 105, but I can 9 assure you that in the years that I've been there that 10 we have never been asked or never been required to pay 11 meals -- or taxes on meals served to campers. 12 I really think it's important to note, just 13 want to -- I'm sure you're getting this -- but important 14 to note that at the heart of camping experiences are 15 intentional teaching and mentoring sessions. This is 16 not said to put a kind of a wallpaper over the issue 17 here. We impart knowledge. We teach skills. We model 18 and discuss life principles. We provide spiritual 19 grounding and, frankly, it's an incredible laboratory to 20 learn social skills and appropriate civil behavior. And 21 we work with children and these experiences become life 22 transforming. 23 And the reason I know about that is I am one. 24 The direction of my life was forever changed because I 25 went to camp as a child. 26 Now, how does all this relate to the matter at 27 hand right now? Here's the issue, access to camp 28 experiences is often determined by the fees charged. As 18 1 fees go up, access goes down. And the children that 2 most need these camp experiences and the children that 3 benefit most from these camp experiences are the ones 4 most impacted by rising fees. Consequently -- and I 5 would love to have all these camp directors back here 6 talk to you about this -- we work strenuously to keep 7 fees as low as possible. And we have to supplement 8 those with donations to even break even. 9 We don't really know the meaning of margin. 10 We've never had any. My five camps are all nonprofit 11 and, I might add, very nonprofit given the economic 12 climate today. 13 And reversing this exemption would have a 14 tremendous impact on what we do. In fact, it could only 15 be covered by one of two things: either we have to 16 raise fees or we have to reduce scholarships -- 17 raise fees, reduce scholarships. Either of those 18 options would strike at the very heart of what we're all 19 about, which is trying to provide these experiences for 20 as many kids as possible. 21 And who are those kids? These are kids that 22 come from inner city environments, children of migrant 23 workers, children of incarcerated parents, children of 24 single parent families, kids who desperately want and 25 need this experience. In fact, these are the kids that 26 do odd jobs all year to get some money, beg their 27 parents for a little help and then apply for our 28 scholarships so that they an come to camp because camp 19 1 is the single most important week of their year. It's 2 the single most beneficial thing that they do. Why am I 3 saying this? Because I have listened to hundreds and 4 hundreds of those stories from camp kids. 5 So, today I urge you to retain this exemption, 6 this more than 60-year exemption on sales tax on meals 7 served to campers and, in so doing, you will keep camp 8 as available and as accessible to as many of the 9 children in this state as possible. 10 Thank you. 11 MS. YEE: Thank you very much, Mr. Williams. 12 Please, next speaker? 13 ---o0o--- 14 MICHELE BRANCONIER 15 ---o0o--- 16 MS. BRANCONIER: Good afternoon. I'm Michele 17 Branconier and I'm the Executive Director for ACA in 18 Southern California and Hawaii. 19 And Madam Chair and Board, thank you for 20 listening to us today. I work with more than 300 camps 21 statewide. 22 In all of my years in this industry -- and I 23 started out as a camper and then a camp director and now 24 I am also the mother of children who go to camp -- I 25 haven't had knowledge of camps paying meal tax for meals 26 served to children. I can ascertain that camps do 27 provide a life changing experience. I'm a product of 28 that. 20 1 And ACA currently works with camps throughout 2 the state to raise money to send low income children to 3 camp each summer. And this year we raised enough money 4 to send about a hundred kids to camp locally. And the 5 average family of four had less than $20,000 a year in 6 income. And, so, when we tell you that these children 7 wouldn't have the opportunity by instituting a meal tax 8 would take away more opportunity. 9 Camp is fun. It's -- it's an amazing 10 experience. But at the same time, it also provides 11 children the opportunity to increase their 12 self-confidence, their resilience. They make friends 13 that they would never make anywhere else. And they also 14 try things that they wouldn't have the opportunity try 15 anywhere else. 16 And in this very electronic environment that 17 we're raising our children in today, I can say as a 18 parent and as a person of this organization, I think 19 camp is imperative to the full development of children. 20 Thank you. 21 MS. YEE: Thank you very much. 22 Okay, we'll give you time on rebuttal, 23 Mr. Polley. 24 Okay, Department, we're going to give you time 25 and take 15 minutes. 26 I wanted to see also if you could address the 27 issue, I think a couple of our offices have posed to you 28 with respect to why are we seeing this as kind of for 21 1 the first time and what findings you may have come 2 across with respect to audits of other camps relative to 3 this issue. 4 MR. TUCKER: Thank you, Madam Chairwoman. 5 Members of the Board, I am Bob Tucker from the Board's 6 Legal Department, along with Kevin Hanks, representing 7 the Sales and Use Tax Department. 8 We concur with the analysis and the 9 recommendation of the Appeals Division that Petitioner's 10 sales of meals to campers are not exempt sales of 11 student meals. 12 Section 6363 provides an exemption for the 13 sales of meals furnished or served to students of a 14 school by public or private schools, school districts, 15 student organizations and parent teacher associations. 16 Regulation 1506, subdivision h, interprets 17 Section 6363 as it applies to summer camps. This 18 regulation states the rule that tax generally applies to 19 sales of meals sold at a summer camp, however, if a camp 20 qualifies as a school or educational institution, the 21 sales of meals are exempt. 22 To qualify as a school or educational 23 institution, as was mentioned earlier, the camp must 24 conduct regularly scheduled classes with required 25 attendance and be in the charge of qualified 26 instructors. 27 However, the regulation provides no detail on 28 what elements are necessary to qualify for a class. As 22 1 is clear in this case, application of this regulation as 2 it's written can be quite difficult. The regulation 3 clearly contemplates that the sales of meals at summer 4 camps are taxable. But if the term "class" is read too 5 broadly, then it appears all summer camps would be 6 school camps. 7 We concur with the analysis of the Appeals 8 Division that in order for a camp to qualify for the 9 student meals exemption, the camp must operate in the 10 manner of a school. 11 Nearly all summer camps have some educational 12 aspects and if the exemption was intended to be applied 13 to all of them, then this would be contrary to the 14 stated purpose of Regulation 1506. 15 This is a very close case. In applying 16 Section 6363 and Regulation 1506 to the activities of -- 17 at the Petitioner's camp, the auditor concluded, and 18 Appeals confirmed, that Petitioner's summer camp does 19 not qualify as a school or educational institution. 20 The auditor noted that the camp's activities 21 were primarily recreational in nature. 22 The Department recognizes that there must be a 23 consistency in the application of the tax law. The 24 Department investigated this issue and has concluded 25 that it has been consistent with the application of tax 26 to the sales of meals at summer camps. 27 Accordingly, we ask that you redetermine in 28 accordance with the Appeals recommendation. 23 1 Thank you. 2 And Mr. Hanks will address your next issue. 3 MS. YEE: Okay. 4 MR. HANKS: Ms. Yee, Members, this is certainly 5 an issue that's -- that's come to your attention and 6 grown strong interest in all of your offices, 7 yourselves and the Department. 8 I'm very mindful that the Board Members 9 especially have an interest in communicating to 10 nonprofit organizations how tax applies to those 11 organizations. 12 With that said, we looked at whether or not the 13 Department was consistent in applying these rules as 14 Mr. Tucker has outlined to other camps that are 15 similarly situated in California. 16 What we found is that we only have a few of 17 these camps, in fact, only 18 taxpayers or camps were 18 audited over the history of our IRIS system that 19 identifies the audits that were conducted of these 20 camps. 21 Now, the Members are probably also aware that 22 we only have 200 or so permits that are held by these 23 types of organizations, that are held by nonprofit 24 organizations as well as another business category 25 called "summer camps." 26 The Board also has 850,000 plus permits that 27 we've issued to taxpayers throughout the State. So, the 28 occurrence of these audits, naturally, are very, very 24 1 low. 2 The only audit that I could find that related 3 to the issue at hand today, whether or not the sales of 4 meals to kids attending these camps would be taxable was 5 one other audit within this group of accounts that -- 6 where we have audited these businesses. 7 Now, for the most part, where we have seen the 8 records of books and records for the camps that we have 9 audited, these camps are reporting taxable sales of 10 meals in connection with the meals served to children. 11 Okay, we have seen that with some of the camps that 12 we've reviewed. 13 Mr. Polley has indicated that he's conducted a 14 survey of other camps where -- where, apparently, our 15 policy's inconsistent in this area. I haven't seen the 16 details for that analysis, so, I can't really comment 17 which camps he was looking at. 18 But I can tell you of the audit information 19 that the Department's collected and certainly mindful of 20 the accounts that we have audited. And we only have 200 21 of these accounts that are even registered and have 22 sellers' permits with the Board of Equalization 23 currently. And we only have the one where this wasn't 24 an issue, where we had -- we had ruled differently in 25 that situation, actually, than we have in the current 26 case. 27 MS. YEE: Okay. 28 MR. HANKS: So, we have the two audits where 25 1 this was an issue. 2 MS. YEE: Okay. And I guess in the -- I just 3 want to clarify. 4 So, of the cases that were audited and where 5 there was a deficiency determined, was that deficiency 6 specifically related to the meal? 7 MR. HANKS: Only in this case. 8 MS. YEE: Only in this case. 9 MR. HANKS: In the other cases where we 10 actually had deficiency determinations, those 11 deficiencies are related to other areas, unrelated to 12 the sales of meals. 13 MS. YEE: Other tangible personal property? 14 MR. HANKS: Yes, other tangible personal 15 property was sold and not recorded. 16 MS. YEE: All right. Okay, that's helpful. 17 Thank you. 18 Mr. Polley, five minutes on rebuttal. 19 MR. POLLEY: Okay. I think -- I think the 20 findings of the Board are -- I mean the Department, are 21 fairly consistent with our -- with our own findings. 22 I'd be interested -- of the 18 audits, how many 23 were reporting on student meals? We had indicated in 24 our survey that there were a couple, but only just a 25 couple out of 180 responses. Most of the 180 responses 26 said they have treated the meals as exempt, but they 27 have now -- the Department confirmed what I was telling 28 you earlier, this is the only audit that's resulted in 26 1 an assessment against the camps for meals served to 2 children. 3 The Supplemental Decision and Recommendation 4 says that whatever is decided here should be applied to 5 all camps. So, in that particular case, of the 18 6 audits, according to the Supplemental Decision and 7 Recommendation, if they adopt that position, all 18, 8 practically -- maybe there is one who has special 9 facts -- but basically all 18 should have received an 10 assessment for meals served to children. 11 The Department or -- I am sorry, whoever made 12 the argument about the class, how do you define the 13 class? 14 Well, the Supplemental Decision and 15 Recommendation went through on a quite detailed basis of 16 saying that the -- our classes, the classes at this camp 17 this Petitioner has, are not different from a qualifying 18 class. So, what -- and if the -- if the Department had 19 adopted the conclusions of the Supplemental Decision and 20 Recommendation, you'll have to conclude, I mean, the 21 Supplemental Decision and Recommendation, that these 22 classes are qualifying classes for purposes. 23 The thing that distinguishes the Supplemental 24 Decision and Recommendation is this additional 25 requirement to operate in the manner of a school or 26 educational institution. How do you do that? 27 Well, I think you just have to go back to the 28 regulation. And it defines it. You have to have these 27 1 three requirements. We have those requirements. The 2 '67 letter, again, was in place and stated that 3 virtually all meals at summer camps for children were 4 exempt. The regulation that came in '69 didn't change 5 that. 6 What we have is -- according to the surveys we 7 got and I don't think the Department has found something 8 different from this -- almost all summer camps treat the 9 meals as exempt. Some do, but very few of the ones we 10 have seen. 11 The Petitioner is the only camp the Department 12 has set up an audit. Why discriminate against this 13 camp? To our knowledge, the Department has allowed the 14 exemption in every other situation. 15 And I think their testimony confirms this 16 morning -- this afternoon confirms that. 17 So, it's -- it seems like for the last 40 years 18 the Department has followed the policy of exempting the 19 meals served to children, consistent with the '67 20 letter. To now retroactively change that position, a 21 letter that was sent to the American Camping 22 Association, a letter on which most camps relied, either 23 directly or indirectly, I'm not sure they all had 24 knowledge of it, but they were -- they filed 25 consistently with that. 26 And now to retroactively impose a tax on them 27 would create a significant amount of undue burden when 28 the law, I think, is clear and should be determined to 28 1 be the other way, i.e., no taxation of student meals 2 where these three requirements are met, which they are 3 in this particular case. 4 MS. YEE: Thank you very much, Mr. Polley. 5 Any further comment, Mr. Sherrill? 6 MR. SHERILL: No, ma'am. 7 MS. YEE: Well, I guess I would agree with you 8 on the one hand, I do think there is kind of a 9 fundamental fairness issue here with respect to this 10 case being before us and no one else. 11 On the other hand, I'm not so sure I agree with 12 you that the law is all that clear, given -- certainly 13 how we're looking at this three-prong test and how we 14 really are interpreting that three-prong test. 15 But let me entertain questions from the Members 16 and I have a suggestion to make. 17 Questions, discussion? 18 Ms. Steel? 19 MS. STEEL: I have one question -- 20 MS. YEE: Ms. Steel. 21 MS. STEEL: -- to the Department. 22 Did you see the schedule that they just gave 23 out? 24 MR. TUCKER: Yes, we did. 25 MR. HANKS: Yes. 26 MS. STEEL: For -- you know, according to 27 your -- the response that you said it was very close 28 and -- but there is educational aspect is less. 29 1 It's not -- it didn't meet for the regulations, 2 that's why. But I didn't see exactly where that you can 3 find it from the schedules -- all those three 4 requirements under the regulations. 5 MR. HANKS: Ms. Steel, I'm sorry, I'm not 6 following your question. 7 MS. STEEL: Okay, Mr. Tucker said that, you 8 know, it was very close case. 9 MR. HANKS: Yes, yes. 10 MS. STEEL: So, you can prove it or you cannot 11 prove it if the meal is taxable or not taxable. 12 But under the regulations there is the three 13 things, right? I thought they all met when you are 14 looking at these schedules you just got today. 15 But what's -- where is the lack of those that, 16 you know, what you said? Because Mr. Tucker didn't make 17 it very clear that exactly what didn't meet to, you 18 know, satisfy that regulations? 19 MR. TUCKER: I think, Ms. Steel, ultimately 20 what it comes down to -- and it's one of the principles 21 that was stated in the Supplemental D & R, it's that 22 here we're looking at what qualifies as a class. 23 MS. STEEL: Right. 24 MR. TUCKER: And that's ultimately what this 25 comes down to. 26 MS. STEEL: Exactly. 27 MR. TUCKER: And it's very subjective. And 28 it's a very difficult call. 30 1 When -- staff did not have the benefit of 2 anything like this up until just a few hours before. 3 MS. STEEL: So, now when you read it and this 4 is going to make the requirements or not? 5 That's what I'm asking? 6 MR. TUCKER: I think we would -- 7 MS. STEEL: Seems like there is three things, 8 right -- regular class -- scheduled classes is already 9 met. And there is a required attendance, yeah, those 10 kids going to be there so they going to check every kids 11 because the kids are not freely going out there outside 12 of the camp every day. And, 3, in charge of qualified 13 instructors and most of them you said accept UCLA 14 graduates, but -- but having that they are having 15 graduate degrees or other qualified people there -- 16 sorry, I'm from USC, so -- 17 MR. POLLEY: Sorry I brought it up. 18 MS. STEEL: You should not have. 19 So, you know, all three things met there. So, 20 when I'm looking at this schedule just got today and I 21 said, yeah, they met all those requirements. 22 But Mr. Tucker said no, they didn't. 23 So, what part was not met? That's what I'm 24 asking here? 25 MR. TUCKER: I think, Ms. Steel, at this point 26 there's still some question on whether or not staff 27 would regard this as a class. 28 MS. MANDEL: What -- oh, sorry. 31 1 MS. STEEL: What staff? I mean, I think you 2 are digging your own hole there. 3 MR. TUCKER: I have done it before. 4 Ms. Steel, in general what the -- the three 5 elements are very simple, at least they appear that way 6 on the face. 7 And the first question is regularly scheduled 8 classes. If we assume that these are classes, then I 9 would say that they have -- 10 MS. STEEL: These are classes, I mean, these 11 are classes. 12 MS. MANDEL: Sorry, I -- I mean, I think her 13 question -- no, I'm not -- 14 MS. STEEL: But you know what, I'm just looking 15 at it and -- 16 MS. MANDEL: No, I agree with you. I agree 17 with you. 18 I'm having a hard time -- 19 MS. STEEL: This just doesn't have -- 20 MS. MANDEL: -- seeing why -- what -- what 21 is -- what -- if you want to say that these things are 22 not classes or that even the club, which they described 23 and was one of the two that they were relying on before 24 is not a class -- 25 MS. STEEL: Right. 26 MS. MANDEL: -- when everything could be a 27 class, from teaching a kid how to swim to teaching 28 them -- doing exercises that teach them leadership 32 1 skills, team building, self-reliance, anything else. 2 So, what Ms. Steel is asking you is she's 3 looking at it. She's looking at the schedule. It sure 4 looks it meets all three requirements and you are just 5 saying, "We're not sure these are classes." 6 So, I think she's saying, "Well, then what you 7 do think a class is?" 8 MS. STEEL: No, actually, as an Asian woman, we 9 think that math and English and other like classes -- 10 classes from school that, you know, we always push, but, 11 you know, when I'm looking at this, this is perfect 12 classes during the summer time. Because you cannot put 13 kids just math and English classes every day. 14 So, I really don't get it because that's really 15 simple. I mean, you know, maybe I'm thinking very 16 simple way this, but I'm not an attorney, so, I try to 17 read that as simple language. 18 So, I thought that just met exactly. I mean, 19 I'm not going to put you in the corner any more, you 20 know, so, I'm just stopping at this point, but, I mean, 21 that's way I feel. 22 MR. TUCKER: I understand completely. I 23 honestly do. 24 MS. YEE: Okay. Let me go to Mr. Leonard and 25 then Mr. Horton. 26 MR. LEONARD: Thank you, Madam Chair. 27 First of all, I've always thought that both 28 UCLA and USC were youth camps. So, I didn't know there 33 1 was that distinction. 2 Second of all, Madam Chair, you're totally 3 right. The regulation is itself not as clearly defined 4 as we all see now that it could be. 5 I raise a procedural objection, given the 6 notice that the Department's now received, that this is 7 such a precedential case and you answered the 8 Chairwoman's question that every camp in California 9 would be subject to this new standard, that at least I'm 10 not sure what it is, but the new standard. 11 The big change here is a change in practice. 12 The rules haven't changed. They're still as vague as 13 they always were but our practice appears to have 14 changed. 15 I would much prefer that the Department had 16 come to us in the regulatory process and gave all of 17 these people here a chance to participate in interested 18 parties. 19 And perhaps there are better definitions, 20 perhaps there is clarification, perhaps there is some 21 kind of youth camp which is so unlike an educational 22 program with mandatory rules and qualified people that 23 it -- I'm not sure what, I guess it could be just a 24 resort -- that the sales tax on meals is entirely 25 appropriate. 26 That I would suggest that the Department call 27 retreat. And if there's really an issue here, let's 28 bring it up in a rule change. 34 1 The other thing I would argue is it's really 2 unfair in terms of audits to go back retroactively and 3 it's clearly a surprise from all of the people I've 4 talked to that the interpretation is now being applied 5 differently. 6 So, to do it retroactively is really a failure 7 to notice. If we're going to make a rule change and 8 adopt it, it should be prospective only -- everybody 9 have a clear chance to get their input on these 10 definitions. 11 MS. YEE: Thank you. 12 MR. LEONARD: Don't you agree? 13 MR. TUCKER: I -- absolutely, Mr. Leonard, I 14 absolutely agree. 15 MS. YEE: Mr. Levine, did you have an 16 observation? 17 MR. LEVINE: Well, I would definitely think if 18 you're going to go prospective only, the best way is 19 regulation. 20 MS. YEE: Yes. 21 MR. LEVINE: And I think all of the Members 22 understand, the author of the SD & R was so concerned 23 about setting the record straight from the SD & R, he 24 left out a couple of steps, which is to -- although it 25 quotes the reg, it didn't point out the reason for the 26 conclusion is the start of the reg -- 27 MS. YEE: Right. 28 MR. LEVINE: -- which says, summer camps are 35 1 generally taxable. 2 If we're going to find that the wording about 3 these exemptions says that all summer camps are exempt, 4 then why we do have that first sentence in there? 5 And if -- if the Board -- 6 MR. LEONARD: Ms. Mandel always gave the thing, 7 when you do these regs, you need to give an example of 8 what doesn't qualify. 9 And that's -- 10 MR. LEVINE: Definitely. 11 MR. LEONARD: -- and she is right, that's not 12 there. 13 MR. LEVINE: If the Board were to conclude that 14 the proper rule really should be basically all summer 15 camps, with maybe some rare exception you can think of, 16 are exempt, it would be preferable to put it on hold -- 17 put this on hold, update the reg and then this would go 18 away under the new reg. 19 Or state whatever the rule is more clearly and 20 then, perhaps, finish this case. 21 MR. HORTON: Well, I -- 22 MS. YEE: Mr. Horton? 23 MR. HORTON: -- I differ a little bit. I mean, 24 I -- I believe to make an all inclusive statement would 25 be tantamount to drafting legislation -- and that's 26 coming from a legislative perspective. 27 But I also believe that the regulation and the 28 historical interpretation is relatively clear and that 36 1 most of the camps that I've heard here actually meet 2 that criteria. 3 Conducting -- conducting regularly scheduled 4 classes, well, it's innate in the camps. 5 Required attendance, you really can't go 6 anywhere, you know. 7 In charge of qualified instructors, well, we 8 sort of hope so. 9 But, I mean, I think it goes to the intended 10 purpose. Is the purpose of the camp to provide 11 educational, instructional, you know, opportunities? 12 And I think it is. 13 I think the challenge here is the -- maybe the 14 general interpretation of a class. And I'm -- I just 15 want to provide to the Board and to the staff a couple 16 of personal experiences, if you will. 17 The other day my wife came to me and she said, 18 "Jerome, I'm going to take a cooking class." I said, 19 "Is that a class?" 20 You know, and then she -- you know, and then 21 she -- 22 MR. LEONARD: Wrong answer. 23 MR. HORTON: Yeah, that was my point. 24 MR. LEONARD: Sorry. 25 MR. HORTON: No, no, I am with you, I am with 26 you, Mr. Leonard, I'm with you. 27 And did I make a mistake? 28 I was always going to say that she clearly 37 1 pointed out that it was a class. 2 But -- but here's the experience, I mean, this 3 is a real personal experience, my children -- my son is 4 18, my daughter's 23, but when they were little lads, 5 they attended Pacific Montessori Schools. And, so, my 6 first experience with this school was to go in and sit 7 in on a class. 8 And the class was outside. They were walking 9 around, holding hands and playing and so forth. And I 10 said, "Well, when is -- when is the instruction going to 11 take place?" 12 MR. LEONARD: When does the bell ring? 13 MR. HORTON: Then they came inside and they had 14 a pizza. It was split into 12 pieces and they were 15 instructed to share, make sure each of the four kids at 16 the table got a piece -- the same number of pieces of 17 the pizza. 18 And I'm still trying to figure out where are -- 19 you know, what's instructional about this thing? And, 20 so, they divided this 12 pieces of pizza between four 21 kids and they each got three a piece. And then the 22 instruction came in. 23 Now, my daughter, I think, was like 4 and they 24 asked her -- they said, "You have four friends, 12 25 pieces of pizza, how many pieces did each of your 26 friends get?" And she said, "3." 27 And then she said, "Well, what -- 12 divided by 28 by 4 is what?" "Three." 38 1 So, before she left -- I mean, by the age of 5 2 she was dividing, multiplying and had this thing called 3 the numbers roll and so forth. 4 So, I think that's probably what needs to 5 change here. This is pretty clear that instructional 6 activity is taking place. 7 Now, the -- I don't know if we can go as far as 8 to say generically every camp qualifies. Therein we're 9 embarking upon legislation, in my opinion. 10 But I think every camp that meets this specific 11 criteria and then the general criteria of having a 12 purpose of education incorporated in your mission 13 statement or something along those lines -- for those 14 who don't share the same perspective -- and that it is 15 substantially the purpose of the operation, I think you 16 qualify for the exemption. 17 MS. YEE: Okay, thank you, Mr. Horton. 18 Well, it sounds like we've got concurrence with 19 respect to all these -- and correct me if I'm going down 20 a wrong path -- to really look at this in the Business 21 Taxes Committee and really try to clarify the 22 regulation. 23 I mean I guess from my perspective where we 24 kind of went afoul of the regulation -- and I can 25 certainly see where staff looked at this -- is really 26 how do we look at the three-prong test within the 27 Regulation 1506 (h)? 28 And I think some would view the regulation as 39 1 being self-contained and others would view it otherwise. 2 But -- and, so, it's really -- for purposes of this 3 three-prong test contained in the regulation, whether 4 it's necessary or sufficient for purposes of the student 5 meal exemption. 6 I'm not ready to go so far as to say every 7 summer camp is a school. But I do think that the 8 three-prong test certainly provides us with some 9 guidance with respect to how we ought to look at what 10 these camps do, which -- and if they do adhere to the 11 three-prong test that certainly they should qualify for 12 the exemption. 13 But also take a look at the opportunity to 14 revise the regulation to also then look at whether we 15 need to just clean up what we've had in place in the 16 past -- whether it's the annotations, letters, but let's 17 kind of take a look at that. 18 But I don't want to go so far as to exceed our 19 authority through the regulation process to where then 20 we are making interpretations of statute that really 21 aren't within our purview. 22 Okay, Ms. Mandel? 23 MS. MANDEL: So -- I mean, I think that the 24 regulation accurately reflects what is in the '67 25 ruling, which is that almost all probably have some 26 educational component, that doesn't mean that they don't 27 have to show that they have the required components. 28 And I don't know what your thinking is about a 40 1 motion on this case, it seemed as though they had shown 2 they had the components, that it was really -- the way I 3 took the SD & R was that the SD & R just didn't seem to 4 think that that could possibly have been what the Board 5 intended way back when, that something that was in 6 the -- in someone's perception, oh, it's a summer camp 7 versus it's educational. 8 The regulation seems to define what is an 9 educational institution in the context of a summer camp. 10 So, are you proposing to not to act on this 11 case today? Is that what you are thinking? 12 MS. YEE: I am -- I could go either way with 13 respect to this case. 14 I'm actually -- just based on the practice of 15 the staff -- I'm ready to rule on this case today. 16 MS. MANDEL: Okay. 17 MS. YEE: And then defer the matter of revising 18 the regulation to the Business Taxes Committee. 19 MR. POLLEY: I would strongly ask the Board to 20 go ahead and rule on this case today because they've 21 paid under -- under amnesty. 22 MS. YEE: Yes. 23 MR. POLLEY: And those are all -- every dollar 24 is a kid -- 25 MS. YEE: Every dollar counts. 26 MR. POLLEY: -- that can't go to camp. 27 MS. YEE: We're very sensitive to that. 28 Mr. Levine, any down side to that? 41 1 MR. LEVINE: Just perhaps you want to -- if 2 you're going to make a motion, for example, to grant, 3 perhaps you want to put a little more in it. 4 A motion to grant alone will likely be 5 understood by all the camps as being -- that they're 6 winners and I think, perhaps, staff and Appeals needs a 7 little more guidance because just a decision -- a pure 8 decision on this case is just a decision on this case. 9 I wouldn't want all these camps to be misled 10 and -- 11 MR. HORTON: I will give a shot at it. 12 MR. LEVINE: -- I guess I'd like a little more. 13 MS. MANDEL: I mean, that -- 14 MR. HORTON: I would -- 15 MS. YEE: Mr. Horton? 16 MR. HORTON: I would move that the Petitioner 17 has met the three criteria of conducting regularly 18 scheduled classes, required attendance, in charge of 19 qualifying instructors and that they have established 20 that the purpose of their operation is educational, at 21 least to a point that it's substantial enough to qualify 22 as a school. 23 And, therefore, I would rule in favor of the 24 Petitioner. And move that we -- 25 MR. LEONARD: You mean qualify as a summer camp 26 under the reg? 27 MR. LEVINE: Serving student meals? 28 MR. HORTON: No, qualify as schools, the term 42 1 summer camp is -- 2 MS. YEE: I'm going to have heartburn over that 3 motion. 4 I guess here's -- here's what I -- let me 5 second the motion for purposes of discussion. 6 What I'd like to do is to decide this case 7 today and also then send direction to staff that we are 8 seeking a change in the regulation. 9 And until we have the change in the regulation, 10 the law, as it stands today, is still unclear. I know 11 that with all of you here today representing different 12 camps, there is an interest to get this clarified and we 13 certainly want you to continue what you're doing. And 14 we appreciate you doing what you're doing. 15 But it also stands to me that there is even 16 some additional components that I want to put into the 17 direction to the staff and, frankly, to the camp 18 community. 19 There are a couple of other things that really 20 were kind of a burr of concern to me and, that is, I 21 don't think all of the camps actually are permit holders 22 and you may all need to be permit holders for other 23 purposes. 24 And also I think just some outreach once we get 25 the regulation clarified would be very helpful in terms 26 of better understanding the application of tax. 27 But I would say, Mr. Levine, deciding this case 28 and really holding any others in question in abeyance 43 1 pending the outcome of the regulation. 2 MR. LEVINE: I think that's sufficient warning 3 to the camping community and, probably, staff. 4 MS. YEE: Okay. 5 MS. MANDEL: And I guess I'm just not clear on 6 what -- what part of the reg is unclear? 7 But -- 8 MR. LEVINE: I'll tell you my major problem. 9 MS. MANDEL: Oh, no, that's -- 10 MR. LEVINE: It's just the way it starts. 11 MR. HORTON: I'd like to hear. 12 MR. LEVINE: It says the general rule and in 13 practice as the SD & R -- I guess, the purpose of the 14 SD & R was to -- 15 MS. MANDEL: They're relying -- 16 MR. LEVINE: -- set the record straight and 17 basically, this is a tough case that's best decided by 18 the Board rather than the Appeals Division and not have 19 ever come to the Board. 20 MR. HORTON: Is that a hint? 21 No, just kidding. You don't have to answer. 22 MR. LEVINE: Well -- 23 MR. HORTON: Not under our control. 24 MR. LEVINE: The Department cannot appeal an 25 Appeals decision to the Board. 26 So, sometimes it's good for the Board to make 27 the decision rather than for Appeals to take it out of 28 your hands. 44 1 But that's the problem. In practice, it's 2 hard -- I mean, my memory is vague, but I went to a 3 summer camp. It wasn't life changing, I had a good 4 time. 5 But I think everything was structured, but it 6 was not anything like this. But I don't think I had any 7 choice. 8 I think that the people who were -- you know, 9 they were called counselors, maybe there's a difference 10 if you're called counselor or teacher or whatever, but, 11 you know, things were structured. 12 There is certainly an educational aspect. It's 13 hard to imagine a summer camp that wouldn't qualify if 14 you're going to say generally summer camps qualify when 15 you have the reg that says, "Generally summer camps are 16 taxable and here's the reason they're not." 17 If that introduction wasn't in the reg, at 18 least it would present less of a conflict. 19 MS. YEE: Right. 20 MR. HORTON: Well, I mean that's holds true in 21 a number of the regulatory cases. 22 1620, you know, generally this is considered 23 for use in the State of California unless -- I mean, 24 it's inherent in the legislation. 25 I think this is -- I mean, I'm prepared to go 26 through the regulatory process, but I think it's 27 relatively clear. 28 It says -- gives a general statement and then 45 1 gives you the criteria which has to be met in order to 2 meet the exemption. And that seems to be consistent in 3 form, as well as in practice from a legislative 4 perspective. 5 But -- 6 MS. YEE: Mr. Horton -- 7 MR. HORTON: -- I mean, I would defer to you, 8 Madam Chair. 9 MS. YEE: -- I mean, one of the -- and I 10 believe it may have been Mr. Polley and Ms. Barankin -- 11 no, I am sorry, it's the Department, when you looked at 12 some of the other camps, some have self reported -- 13 MR. HANKS: Absolutely -- 14 MS. YEE: -- taxable meals? 15 MR. HANKS: -- hundreds of thousands of dollars 16 every quarter. 17 MS. YEE: And, so, even within the camp 18 community we've got some major confusion going on here. 19 So, it's not clear. And I really want it to be 20 clear. I think, you know, they have made a very 21 compelling case about really wanting to have every 22 scarce dollar that's available to them to go towards 23 the camp activities. 24 So, I -- and I think that's the crux of the 25 problem, is how do you -- how do you interpret that 26 regulation in terms of how you do the three-prong test? 27 MR. HORTON: Well, Madam Chair, the confusing 28 part for me is, let's say we go through the regulatory 46 1 process, what are we going to change? 2 Are we going to say that camps are not always 3 considered taxable or they're -- instead of using the 4 word "generally," are we going to change that? 5 Or are we going to establish specific criteria 6 in which a camp would meet the statute and be qualified 7 for an educational operation that's providing training, 8 that meets these three criteria? 9 MR. LEVINE: Sometimes the best example is the 10 negative and I'd agree with Mr. Leonard here, because of 11 the nature of this issue and the way it seems like the 12 Board's leaning, I'd like to know what summer camp 13 doesn't qualify. 14 I think that would be worthwhile to have in. I 15 mean, if you -- if the rule is most summer camps are 16 going to qualify, why not say that in the reg? 17 The 1967 letter, what's wrong with that we 18 wrote? That's a letter with regulatory effect. It's 19 okay for the Board, in the regulation, to make a finding 20 that generally summer camps will qualify as schools. 21 MR. HORTON: Then we're going say "except"? 22 MR. LEVINE: And then put -- I mean, if that's 23 your finding, that's a perfectly acceptable regulatory 24 finding, it's -- that's not really proper for staff to 25 make a broadbased finding like that letter, because 26 that's basically what it says. 27 That's something -- that's your job, not our 28 job -- to do that by formal regulation that's passed 47 1 through OAL. 2 And I think that the -- unless you are going to 3 say all summer camps qualify, I mean, if we can't come 4 up with an example of what doesn't qualify, maybe that's 5 the answer. 6 MS. YEE: That's what it is. 7 MR. HORTON: Can we -- well, let me -- I think 8 the exercise in itself will be very valuable, not only 9 to the Department, but also to the community. 10 And I think it's wise that we establish the 11 criteria that we have seemed to set forth here and rule 12 in favor of the taxpayer, given the potential subsequent 13 conditions. 14 So, I don't think we can lose by going through 15 a regulatory process, but I have to say, it seems to me 16 all we really have accomplished is inverting the 17 existing and establishing a presumption that all are 18 exempt and if that's the direction we want to go, I'm 19 supportive of that. 20 MS. YEE: Okay. Mr. Horton, you had made a 21 motion and I seconded it and would you entertain -- 22 MR. HORTON: I withdraw the motion -- 23 MS. YEE: -- okay. 24 MR. HORTON: -- Madam Chair. 25 MS. YEE: All right. Let me then make the 26 motion to grand for the Petitioner. 27 MR. HORTON: I second it. 28 MS. YEE: And -- 48 1 MS. MANDEL: Can we just -- 2 MS. YEE: Let me go through. 3 Further the issue of revising -- actually, 4 grant for the Petitioner, direct staff to hold in 5 abeyance any further review of additional camps relative 6 to the meal exemption issue, refer the issue of 7 clarifying the regulation to the Business Taxes 8 Committee and and I will reiterate this when the 9 regulation -- the proposed regulation is back before the 10 Board, but also direct staff to look at outreach 11 activities with respect to the need for camps to hold a 12 seller's permit, as well as just general information 13 about the application of tax in all their activities. 14 Is there a second? 15 MR. HORTON: Second. 16 MS. YEE: Second by Mr. Horton. 17 Discussion? 18 Hearing none, without -- Mr. Horton? 19 MR. HORTON: Madam Chair, just out of 20 curiosity? 21 MS. YEE: Yes. 22 MR. HORTON: Is the intent of the motion to 23 hold off outreach until the regulatory process is 24 concluded? 25 MS. YEE: I think certainly -- 26 MR. HORTON: Hold everything in abeyance? 27 MS. YEE: Well, definitely hold the review 28 of -- any further review of camps relative to this meal 49 1 exemption issue in abeyance. 2 MR. HORTON: Okay. 3 MS. YEE: And I think the outreach with respect 4 to the meal exemption will probably take place after the 5 regulation becomes -- is approved. 6 We want to see what the actual regulation says. 7 But with respect to the issue about whether 8 camps need to hold a seller's permit, we can start that 9 process right now. 10 I'm concerned about that. We certainly don't 11 want you to get into any more problems. 12 MR. POLLEY: I agree. The only -- until we 13 clarify these people are going to be taxed on the meals, 14 we're going to have a hard time getting them to register 15 because of the potential exposure, but I agree with 16 everything that the Chairman (verbatim) has said. 17 MS. YEE: Okay. And we'll look at the timing 18 on the outreach relative to the seller's permit, but it 19 did concern me that there have been self-reporting of 20 certainly the meals being subject to tax, but also, more 21 importantly, there is other tangible personal property 22 that the camps are involved in. 23 Okay. We have a motion by Yee, second by 24 Horton -- Mr. Horton, without objection, that motion 25 carries. 26 Thank you to all of you in the camp community 27 for coming forward on this issue. And we look forward 28 to working with you. 50 1 MR. POLLEY: Thank you, Madam Chair and Board 2 Members. 3 MS. YEE: Thank you. 4 ---o0o--- 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 51 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, JULI PRICE JACKSON, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 FEBRUARY 24, 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 pages 1 13 through 51 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: March 9, 2010 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 52