BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 450 N Street, Room 121 Sacramento, California REPORTER'S TRANSCRIPT MARCH 23, 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 B1 2 Sacramento, California 3 March 23, 2010 4 ---oOO--- 5 MS. OLSON: Our next items are those items 6 taken under submission. 7 MS. YEE: Okay. 8 MS. OLSON: B1, Granite Rock Company. 9 MS. YEE: Okay, Members, back to the items 10 taken under submission. Our first item is B1, a through 11 h, Granite Rock Company, et al. Is there a motion? 12 MS. STEEL: Grant the petition. 13 MS. YEE: Okay. We have a motion by Ms. Steel 14 to grant the -- grant for the Appellant. 15 Is there a second? 16 MS. ALBY: Second. 17 MS. YEE: Second by Ms. Alby. 18 Discussion? 19 Without objection, that motion carries. 20 ---oOo--- 21 22 23 24 25 26 27 28 3 1 ITEM B2. 2 MS. OLSON: Our next item is B2, Walter B. 3 Elcock and Laura K. Elcock. 4 MS. YEE: Okay. Item B2, Walter B. Elcock and 5 Laura K. Elcock. Is there a motion? 6 MR. HORTON: Move to sustain the Franchise Tax 7 Board. 8 MS. YEE: Okay. Motion by Mr. Horton to 9 sustain the Franchise Tax Board. Is there a second? 10 MS. ALBY: Second. 11 MS. YEE: Second by Ms. Alby. 12 Discussion? 13 Hearing none, without objection, that motion 14 carries. 15 ---oOo--- 16 17 18 19 20 21 22 23 24 25 26 27 28 4 1 ITEM B3. 2 MS. OLSON: Our next item is P3, Kenneth 3 Pillay. 4 MS. YEE: Okay. Item B3, Kenneth Pillay, the 5 Appellant did not appear before us today. It is 6 properly before us. Is there a motion? 7 MR. HORTON: Move to sustain FTB. 8 MS. YEE: Okay. Motion by Mr. Horton to 9 sustain the Franchise Tax Board. Is there a second? 10 MS. MANDEL: We're on B3, right? 11 MS. YEE: B3, Kenneth Pillay, yes. 12 MS. MANDEL: Second. 13 MS. YEE: Second by Ms. Mandel. 14 Discussion? 15 MS. ALBY: I might have something. 16 MS. YEE: Ms. Alby, please. 17 MS. ALBY: I was actually going to move earlier 18 if we heard from the taxpayer, is to -- there really 19 doesn't seem to be any frivolous appeal penalty that's 20 warranted here. 21 I mean, he is -- 22 MS. MANDEL: I'm sorry, I missed the -- does 23 not or does? 24 MS. ALBY: There -- yes, I don't believe that 25 this qualifies for that. 26 MS. MANDEL: Okay. 27 MS. STEEL: Was that B3? 28 MS. MANDEL: I don't think there was one in 5 1 your motion. 2 MS. YEE: No, there was not. 3 MR. HORTON: No, there wasn't. 4 MS. MANDEL: He didn't put one in his motion. 5 So, we're okay on that. 6 MS. ALBY: All right. 7 MS. YEE: Is your -- yeah, the motion does not 8 include the imposition of a frivolous appeal penalty. 9 MS. ALBY: It does not? 10 MS. YEE: Does not. 11 MR. HORTON: No. 12 MS. ALBY: Good. 13 MS. YEE: Okay. All right, we have a motion by 14 Mr. Horton, second by Ms. Mandel. 15 Without objection, to sustain the Franchise Tax 16 Board, that motion carries. 17 MS. YEE: Okay. 18 ---oOo--- 19 20 21 22 23 24 25 26 27 28 6 1 ITEM B4. 2 MS. OLSON: Our next item is B4, Clovis M. 3 Sykes. 4 MS. YEE: Okay, item B4, Clovis M. Sykes, is 5 there a motion? 6 MS. KELLY: Madam Chair. 7 MS. YEE: Yes. 8 MS. KELLY: Can I just clarify that there were 9 two concessions by FTB in this case. They've reduced 10 the tax for 2001 and 2004 and they've conceded the 11 demand penalty. 12 MS. YEE: Okay. 13 Okay, is there a motion? 14 Let me -- I'll put a motion on the table to 15 sustain the Franchise Tax Board as modified -- the 16 recommendation as modified. 17 MR. HORTON: Second. 18 MS. YEE: And -- and -- 19 MR. HORTON: Second that, too. 20 MS. YEE: -- impose a frivolous appeal penalty 21 of $375 for each tax year. 22 MR. HORTON: Second. 23 MS. MANDEL: Oh. 24 MR. HORTON: Discussion? 25 Okay, hearing none. Without objection? 26 Without objection, that motion carries. 27 ---oOo--- 28 7 1 ITEM B1 (CONTINUING). 2 MS. YEE: Okay. I want to revisit an issue, if 3 I could, Members, B1, on Granite Rock. There had 4 been -- and I just -- for discussion only, some taught 5 about the appropriateness of the formal opinion here. 6 MS. KELLY: Oh, okay. 7 MS. YEE: Okay, can you discuss that, Ms. 8 Kelly? 9 MS. KELLY: Certainly. The decision today was 10 a factual termination based on what this particular 11 Appellant is doing at this site in San Benito County. 12 And so they have a very particular mining and asphalt 13 manufacturing operation, and the conveyor belt -- that 14 the issue here is, you know, the factual determination 15 of whether it was used in manufacturing. 16 And so my concern with a formal would be that 17 it would be of limited use. It would be helpful to 18 other taxpayers doing the exact same thing with the 19 exact same type of equipment. 20 So, my concern is that it would have limited 21 use. 22 MS. MANDEL: And we don't have a MIC any more, 23 last I looked? 24 MS. KELLY: Right, it repealed by its own terms 25 January 1, 2004. 26 MS. YEE: Although are there carryover 27 provisions that still may apply? 28 MS. KELLY: I'm not sure. 8 1 MS. MANDEL: Yeah, you -- 2 MS. KELLY: The MIC would need to be a claim 3 for equipment prior to January 1, 2004. 4 MS. YEE: Okay. 5 MS. KELLY: Put in -- placed into service prior 6 to January 1, 2004. 7 MS. YEE: Okay. All right. 8 And nothing that we heard today would suggest 9 that a formal would be appropriate? I'm thinking about 10 the discussion we had about the waste removal. 11 MS. KELLY: Right. The thing is that 12 the decision doesn't have broad implications for waste 13 removal, per se. Really it goes to what was this 14 conveyor belt used for. And the factual determination 15 was that it was used in manufacturing. 16 So, it would have limited use for other types 17 of waste removal. Appellants could look at it and say, 18 well, using in that particular process the Board 19 determined that that was a conveyor belt that was used 20 in manufacturing, and therefore the fact that it was 21 being used to remove waste was not determinative. The 22 fact is that it was used in manufacturing. 23 So, I'm thinking limited application unless the 24 other taxpayer has a similar setup. 25 MS. YEE: Well, and I'm also thinking about the 26 concept about incorporating the waste products back into 27 the manufacturing process. 28 MS. KELLY: Oh, the recycling? 9 1 MS. YEE: Yean. And then -- and whether a 2 distinction needs to be made with respect to that 3 because that really fell into the recycling. 4 MS. KELLY: Yeah, I think the Appellants agreed 5 that they weren't doing recycling. 6 MS. YEE: No, they weren't. Right. 7 MS. KELLY: And I think FTB was using that just 8 to demonstrate how their position of how the MIC statute 9 was set up. Then if you were going to be doing 10 something other than manufacturing well perhaps it would 11 fit under this definition. And if it was something else 12 then it didn't qualify for the MIC. 13 MS. STEEL: I thought the taxpayer was going to 14 go for recycling because they use those rest of it that 15 they use it for the landfill. But, you know, they -- 16 they said agreed for the Franchise Tax Board so I didn't 17 say anything about -- 18 MS. KELLY: That was part of the confusion in 19 the first oral hearing. 20 MS. YEE: Uh-huh. 21 MS. STEEL: Yeah. 22 MS. YEE: Right. Right. Mr. Horton. 23 MR. HORTON: I -- I mean, I think the Board 24 properly interpreted the law. So, I don't know that we 25 need to go beyond that. 26 It -- from my perspective it was an integral 27 part of the manufacturing process and therefore I 28 concluded that it was part of the use in the 10 1 manufacturing process. 2 I mean, the waste disposal could be or could 3 not be, depending on how it fits into the process. 4 So -- 5 MS. KELLY: Uh-huh. Exactly. 6 MR. HORTON: -- I wouldn't want to isolate 7 that. 8 MS. YEE: Okay. Any other thoughts? 9 Okay. I just want to be sure we had a 10 discussion of that, that we weren't missing -- 11 MS. KELLY: Yes. 12 MS. YEE: -- the appropriateness of developing 13 a formal in any respects relative to this case. 14 Okay. Very well, Members. Ms. Olson, anything 15 else? 16 MS. OLSON: Nope. That concludes our business 17 for today. 18 MS. YEE: Okay, Members, we are recessed until 19 9:30 tomorrow morning. 20 Thank you. 21 ---oOo--- 22 23 24 25 26 27 28 11 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 March 23, 2010 I recorded verbatim, in shorthand, to the 10 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 11 13 pages constitute a complete and accurate transcription 14 of the shorthand writing. 15 16 Dated: April 2, 2010. 17 18 19 20 ____________________________ 21 BEVERLY D. TOMS 22 Hearing Reporter 23 24 25 26 27 28 12