1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 REPORTER'S TRANSCRIPT 8 MARCH 25, 2010 9 ITEM P OTHER ADMINISTRATIVE MATTERS 10 P3 SALES AND USE TAX DEPUTY DIRECTOR'S REPORT 11 1 UPDATE ON UNAPPLIED REMITTANCES PROJECT 12 13 14 ---o0o--- 15 16 17 18 19 20 21 Reported by: Juli Price Jackson 22 No. CSR 5214 23 24 25 26 27 28 1 1 2 P R E S E N T 3 4 For the Board Betty T. Yee of Equalization: Chair 5 Jerome E. Horton 6 Vice-Chair 7 Barbara Alby Acting 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 G. Olson Chief, Board 14 Proceedings Division 15 16 17 ---oOo--- 18 19 20 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 MARCH 25, 2010 4 ---oOo--- 5 MS. OLSON: Our next item is P3, Sales and Use 6 Tax Deputy Director's report. 7 MS. HENRY: Randie Henry, still in the Sales 8 and Use Tax Department. 9 At the November 19th, 2009 Board meeting, 10 Mr. Leonard requested a sample of the unapplied 11 remittances that were refunded without credit interest. 12 Today I have Dario Romano, Administrator of our 13 Return Analysis and Allocation Section, to provide a 14 brief update and Randy Ferris, Assistant Chief Counsel, 15 who will be available for any questions. 16 Okay? 17 MR. ROMANO: Dario Romano for the Sales and Use 18 Tax Department. 19 A sample of the number and amount of refunds of 20 unapplied remittances without credit interest was 21 requested at the November 19th, 2009 Board meeting. 22 Sales and Use Tax Department staff have 23 compiled the total number and amount of unapplied 24 remittance refunds without credit interest from a recent 25 unapplied remittance project. 26 The project resulted in 5,897 refunds, totaling 27 approximately $688,000. Staff estimated the credit 28 interest to be approximately $182,000 if the -- that 3 1 would have been paid on these refunds if credit interest 2 was allowed under statute. 3 Currently staff is reviewing all unapplied 4 remittances in a timely manner. Taxpayers are contacted 5 at the time of review if staff is unable to determine 6 where to apply the unapplied remittance or is unable to 7 issue a refund. 8 In addition, we're in the process of 9 implementing a new semiannual notice to taxpayers of 10 unapplied remittances. This notice will contain 11 unapplied remittances that have not been assigned to 12 staff for review. 13 We anticipate the first notices will be mailed 14 in May 2010. The new notice will insure taxpayers are 15 aware of the unapplied remittances on their account and 16 allow them to assist in the timely resolution of these 17 unmatched funds. 18 And I'm available to answer any questions you 19 may have. 20 MS. YEE: Thank you very much. 21 Questions, Members? 22 MS. STEEL: Question? 23 MS. YEE: Yes, Ms. Steel? 24 MS. STEEL: You know, there is -- there is 25 three projects resulted in and then refund request was 26 done by taxpayers for $687,000. That's okay. 27 But the other two, what's the difference 28 between, one, bad addresses for that going to go to 4 1 State Controller's office for 351 unapplied remittances 2 and between no responses of 11,823 taxpayers? 3 MR. ROMANO: Okay, the 351 accounts are 4 totaling around $17,000, that -- those funds -- we sent 5 the letter. The letter came back in the mail due to a 6 bad address. We researched, attempted to find a better 7 address, if we could, we'd -- 8 MS. STEEL: What kind of research -- 9 MR. ROMANO: We used -- 10 MS. STEEL: -- would you find that? 11 MR. ROMANO: -- used Accuron (verbatim), the 12 internet and Board records. 13 MS. STEEL: And then nothing? 14 MR. ROMANO: We were unable for the 351 to 15 locate a better address. So, we have already 16 transferred those funds to the sheet revenue account and 17 we're working with the State Controller's Office to post 18 that as unclaimed property. 19 MS. STEEL: Okay. So, there is no answer or no 20 responses for 11,000 taxpayers? 21 We send it out semiannual notes to them that 22 try to remind them that you have money that -- you know, 23 we have money for you. 24 What do we do other than that? 25 MR. ROMANO: Are the -- 26 MS. STEEL: Just the semiannual notice going 27 out that that's it? 28 Or -- 5 1 MR. ROMANO: Well, these 11,000 taxpayers, this 2 is part of the cleanup of these unapplied remittances. 3 We have this group that we notified the Members of in 4 July of 2008 that these -- so, we sent a letter out to 5 them that stated we were unable to find where you 6 intended to pay this liability -- or this amount of 7 money. 8 And the letter said that if you want it 9 returned, just request it. If you know which liability 10 that the funds should be applied to, then let us know. 11 And the letter also said that if we received no 12 response, we would assume that you intended to pay this 13 as a tax or fee due to the Board. 14 MS. STEEL: But you don't know which tax is due 15 and -- if they don't owe any taxes, then what we do with 16 that money? 17 Are we just return it to them? Or -- 18 MR. ROMANO: These are the amounts that we are 19 going to apply. 20 MS. STEEL: I understand that when they owe us 21 taxes. 22 But if they don't owe us any taxes and they're 23 not responding, then what we do? 24 MR. ROMANO: Then we were going to make the 25 assumption that it was intended to pay tax. 26 MS. MANDEL: But she's -- 27 MS. STEEL: No, no, no, what I'm saying is 28 there no tax owed. 6 1 Then what do we do? 2 MS. MANDEL: If you look at taxpayer John 3 Jones -- 4 MR. ROMANO: Okay. 5 MS. MANDEL: -- and you didn't get a response 6 from John Jones, but you have an unapplied remittance 7 for $1,000. 8 And you go to John Jones's account on the BOE 9 system and there is no liability, it's a big zero -- we 10 have -- you would have nothing to apply it against. 11 MR. ROMANO: Correct. 12 MS. MANDEL: And you're saying you would just 13 assume that it was somehow owed? 14 That's what she's asking. 15 MR. ROMANO: Right. 16 MS. MANDEL: If there's nothing to apply it 17 against, technically on John Jones's account, what are 18 you going to do with that money? 19 MR. ROMANO: We are going to create a liability 20 and apply -- 21 MS. MANDEL: They're going to keep the money. 22 MR. ROMANO: -- we're going to keep the money. 23 MS. STEEL: Why we doing that if we -- if that 24 taxpayer doesn't owe us anything, why we keep that money 25 for? 26 Why don't we just send the money, you know, 27 what they -- 28 MR. FERRIS: These are with folks where we feel 7 1 certain that we made effective contact with them, 2 explaining the process. 3 And the fact that they're not responding 4 saying, "Return that money to me, it was a mistake. I 5 didn't mean to give that to you." 6 MS. STEEL: So, unless taxpayer asks BOE that I 7 want to get those money back, we are not returning it 8 but we -- somehow we are keeping it? 9 MR. FERRIS: Right, but what we're -- yeah, the 10 assumption here is that by them not responding, they're 11 saying, "Yeah, I know. I owed that money. I can't 12 remember exactly all of the details about it, but I know 13 I owed it. That's why I sent it in." 14 And, so, in a sense, we're treating that amount 15 as effectively a return -- a self-assessed liability, in 16 a sense. 17 MS. STEEL: So, out of 11,000 -- 18 MR. FERRIS: And, so, we're creating a 19 liability. 20 MS. STEEL: -- so, out of 11,000 taxpayers 21 that -- what's the percentage of people that they don't 22 owe us anything? 23 Do you know? 24 MR. ROMANO: Well, those 11,000, we would not 25 have established liabilities on their account for any of 26 those because we offset. 27 If there was a liability, we would have already 28 applied the money. 8 1 MS. STEEL: So, all 11,000 people, they don't 2 owe us anything? And then they're not responding and -- 3 MR. ROMANO: We have no self-reported or known 4 liabilities. 5 MR. FERRIS: There are no Board-assessed 6 liabilities. 7 MS. STEEL: So, no liability? 8 MR. FERRIS: There are no Board-assessed 9 liabilities on our records, but we're treating these 10 payments as self-assessed liabilities. 11 MS. STEEL: But we can not find that they owe 12 us anything? 13 MR. FERRIS: Well, we have a record that they 14 paid us, suggesting that they -- 15 MS. STEEL: Right, they paid us but -- 16 MR. FERRIS: -- right. 17 MS. STEEL: -- you don't know where to -- you 18 know, where this money has to go because all the taxes 19 up to date? 20 I think we have to study a little more about 21 it, that, you know, how we going to return this money 22 back to the taxpayer -- especially under the recession 23 and bad economy, that they really need those few 24 pennies. 25 And that why we are sitting on it that we know 26 that they don't owe us at this point? 27 So, we really have to reach out to them little 28 more or we're going to just give them refund. 9 1 And then if they owe us anything, they are the 2 one gave us money, but if it doesn't go to any accounts 3 that -- that we cannot find the accounts that they owe 4 us, then I think it's better that we return these money 5 back to the taxpayers. 6 MR. ROMANO: They -- once the amount is 7 applied, they could still request a refund within six 8 months of the application if we notified them again 9 that -- because we've already sent them one or more 10 letters asking them to respond to us and we haven't 11 received anything back. 12 MS. STEEL: No, my question is why we are 13 hoarding the money that, you know, -- 14 MR. ROMANO: Okay, these amounts originally -- 15 it's a group of remittances that were received that, at 16 the time, were considered before the July 2008 legal 17 opinion were considered out of statute. 18 So, they've been sitting while we were focusing 19 our energies on resolving all of the payments that were 20 considered in statute at the time. 21 So, we were under the impression that we could 22 take no action on those payments and that's why they 23 were there. 24 And when we received the legal opinion that 25 allowed us to take some action, that's when we sent the 26 letters to the taxpayers. 27 MS. STEEL: Okay. I didn't get -- 28 MR. ROMANO: It isn't -- 10 1 MS. STEEL: -- that part. So -- 2 MR. ROMANO; -- it isn't the normal practice to 3 hold. We immediately -- 4 MS. STEEL: Why that has to be normal practice 5 when you are hoarding the money that doesn't belong to 6 BOE? 7 That's the bottom line for me. 8 MR. FERRIS: Well, it's our understanding that 9 this money does belong to the BOE. 10 MS. STEEL: No, it doesn't because they don't 11 owe any taxes to BOE. 12 So, how can you saying that that belongs to 13 BOE? Because you already checked that 11,000 people, 14 that they don't owe us anything. 15 And the money's sitting there. You send just 16 letter out, just print letter that, you know, every six 17 months. 18 And, you know, why don't we just return this 19 money that it doesn't belong to BOE? I don't think it 20 really belongs to BOE because they don't owe us any 21 taxes at this point because we already checked those 22 11,000 people. 23 So, why we are hoarding? 24 MS. YEE: So, just as a matter of 25 clarification, the universe of 11,000, we have -- there 26 is no liability, self-assessed or otherwise, against 27 which we can apply the remittance? 28 MR. FERRIS: Other than they paid us and -- 11 1 MS. YEE: No, no, I understand where it came 2 from. 3 To Ms. Steel's question, I just want to be 4 clear. 5 MR. FERRIS: There's no Board-assessed 6 liability. 7 MS. YEE: What about self-assessed liability? 8 MR. FERRIS: It depends on how you view that 9 payment. 10 MS. STEEL: But sometimes -- 11 MS. MANDEL: Explain -- I'm sorry, Ms. Yee. 12 MS. YEE: All right. 13 MS. MANDEL: Explain -- I mean I think 14 understand what you're saying. 15 MS. YEE: Yeah. 16 MS. MANDEL: But you need to explain a little 17 bit more how a payment, you know, I file my taxes with 18 the Board of Equalization and sometime later I'm like -- 19 (unintelligible) and I send them a check because I'm 20 like -- oh, I can't sleep at night and I send them a 21 little extra check. 22 And I think that's maybe what you're calling 23 self-assessment. A return hasn't come in. It's not 24 like there's an underpayment showing on the account 25 anywhere, which is what is being focused on that there 26 is no liability from a deficiency notice. So, there's 27 no Board-assessed liability. There's no underpayment on 28 a return liability. But they did send in money. 12 1 And you're basically saying, they sent in 2 money. They thought they owed us money for something, 3 so, that's the self-assessed -- 4 MR. FERRIS: Right. 5 MS. MANDEL: -- liability. 6 MR. FERRIS: And we've contacted them saying, 7 "Hey, what -- what's this money for? If you 8 don't contact us, we're assuming that you 9 really did mean to send it to us, that you're 10 really saying you really do owe it to us, even 11 though you may not have reported it --" 12 MS. STEEL: But what kind of -- 13 MR. FERRIS: "-- on a return." 14 MS. STEEL: -- letter is going out every six 15 months? 16 MR. ROMANO: That's a separate -- the notice 17 that we're talking about the every six months is the -- 18 is going to be implemented in May, in a couple of 19 months. 20 And that's just to notify taxpayers that we 21 have these unapplied amounts on their account, just so 22 they're aware of their -- you know, how much -- because 23 we send semiannual notices if they have a balance. 24 Now we're going to start sending them the 25 notice saying that you have an unapplied remittance on 26 your account. 27 MS. MANDEL: But that -- if -- when you start 28 doing that, that's not going to apply -- 13 1 MR. ROMANO: These would not be included -- 2 MS. MANDEL: -- to these? 3 MR. ROMANO: -- on those. 4 MS. HENRY: I would like to add that these 5 aren't necessarily 11,000 loose payments that came to 6 us. 7 A lot of them are like -- might have came with 8 a return and the person may have thought this is what 9 they owed, but they didn't fill out their return quite 10 correct and so the bottom of the return is different 11 than the check. 12 A billing -- many of the accounts were closed 13 out by tax reps after they called and didn't get an 14 answer and they cleared delinquencies with other means. 15 But payments came in for what might appear to 16 be delinquencies that tax reps cleared. 17 So, they're not just necessarily like loose 18 payments that just, you know, flew into the mail. And 19 many of these started when we went to IRIS. 20 We had the old A15 and we had these leftover 21 payments. And until we got this, you know, legal 22 rolling, we didn't even have a vehicle to send any money 23 back to the taxpayers. 24 Fortunately, we're able to send a lot of money 25 back to the taxpayers and clean up things that we 26 thought were aged payments that we just didn't have 27 any way to handle. 28 MS. STEEL: Maybe that's the reason that 14 1 taxpayers are not claiming, because sometimes they're a 2 couple of days late. 3 And then a lot of times when I went through our 4 mail floor, that, you know, it's sitting there for 5 another month and then they got second notice, even they 6 paid it. 7 So, that was the second things, that's why they 8 attached those receipts. So, they said that, you know, 9 Board of Equalization is asking you to get refund, they 10 ignore it because they already got the second notice and 11 they didn't know they paid it before. And then they 12 send it out. 13 So, a lot of times even they attached to the -- 14 to the tax request from BOE, they might be double pay -- 15 you know, double payment, or that might be something 16 that -- that's why I'm asking you -- 17 MS. HENRY: You're correct, Ms. Steel. 18 And in those cases, Atrio's staff -- they have 19 worked them by hand. 20 And if it's clear that they -- somebody paid 21 $313 on a penalty and interest and we can see where 22 they've already paid $313, that's -- 23 MS. STEEL: No, but interest is different -- 24 MS. HENRY: -- that's easy to send that back. 25 MS. STEEL: -- there. So, amount is not 26 always same, when it goes next month, that's totally 27 different amount because we charge interest. 28 MS. HENRY: You're right, that happens. 15 1 MS. STEEL: So, you cannot really do the same 2 amount there. 3 What I'm asking is if these taxpayers don't owe 4 us anything, just return it. 5 Why that's so hard here? Because if you cannot 6 apply any tax matters in BOE, you have to return it, 7 that's what I'm asking. 8 So, 11,000 people, they -- you know, that the 9 other -- the 351 we understand because we cannot find 10 them, we cannot locate them, we cannot find these 11 taxpayers. 12 But the other 11,800 that we know where they 13 are and we know that they don't owe us any taxes, so, 14 that's why I'm asking you that we have to return this 15 money. 16 Because it doesn't belong to us. 17 MS. YEE: And there's a mechanism for doing 18 that? 19 MS. STEEL: Well, we have to make it if we 20 don't have it. 21 MS. YEE: Well, I'm am asking? 22 MR. ROMANO: We give -- 23 MR. HORTON: Madam Chair? 24 MR. ROMANO: -- that's the -- 25 MS. HENRY: I mean, well, we didn't have this 26 on the calendar for, you know -- it was discussion only 27 and -- 28 MS. YEE: That's all right. 16 1 Let me just get all of the questions out and 2 then I think we've got some direction back to you for a 3 follow-up report. 4 Ms. Alby and then Mr. Horton. 5 MS. ALBY: Thank you, Madam Chair. 6 Now, I'm going to beg your indulgence, friends, 7 because I'm new. 8 But I'm sitting here listening to this and it 9 feels like I'm talking to a taxpayer who doesn't want to 10 pay us. 11 When we hold their money and they don't owe it, 12 it's kind of like them saying, "I didn't know I owe it, 13 so, I didn't send it to you." 14 It's kind of the other side of that. It's a 15 two-edged sword here. 16 So, I really want to associate my comments with 17 what Member Steel said. If they don't owe it, they get 18 it back from us. 19 And the other question I have is have we ever 20 discussed -- I don't remember ever talking -- hearing 21 the Board talk about interest for these folks that we -- 22 when we -- that deserve refunds, we're holding their 23 money, we're certainly going to charge them well, if 24 they owe us. But there doesn't seem to be parity when 25 we owe them. 26 It would take legislation to do that, correct? 27 MS. YEE: The statutes don't provide. 28 MR. FERRIS: Yeah, we have discussed it a 17 1 couple of times previously before the Board. 2 The -- even though we've been throwing around 3 the word "refund," what is -- as kind of a loose term 4 here, what's really going on is we're just returning 5 some -- a remittance that we received that we received 6 in error. 7 We're not refunding under our refund statutes. 8 The refund statutes only come into play when there has 9 been a payment that's been applied to a liability. 10 And, so, technically these aren't refunds that 11 we're giving, we're just returning money that was sent 12 to us in error. 13 And because the refund statutes aren't operated 14 by this legal interpretation, there is also no credit 15 interest that's associated with it because it was never 16 a payment to begin with. 17 If it was a payment, most of these would be 18 outlawed and we couldn't return them at all. 19 MS. STEEL: So, it's a returning? 20 MR. FERRIS: We're just -- 21 MS. STEEL: That's fine. 22 MR. FERRIS: -- we're just returning the 23 remittance, yeah. 24 MS. YEE: Okay, Mr. Horton? 25 I'm sorry, Ms. Alby, were you -- Mr. Horton? 26 MR. HORTON: It sounds as if there are -- we 27 sort of have to look at this on a case by case basis 28 and -- because some of the situations that were 18 1 described create a self-assessment by virtue that it's 2 in conjunction with the return. 3 And if I -- if I'm hearing you properly -- 4 correctly, the legal determination is that -- was the 5 receipt of the check, in and of itself, was a 6 self-assessment of a liability? Is that so? 7 MR. FERRIS: Because -- because of the letter 8 we sent them saying, 9 "We don't know why you sent us this payment. 10 If you don't respond to what we're asking 11 about, we're going to assume that you really 12 did intend to send to it us. And you really 13 owe it to us." 14 It's because they didn't respond to our letters 15 saying, 16 "Please ask for it back if you didn't mean to 17 send it to us." 18 That's -- that's why we're making the 19 assumption that it's a self-assessed liability. 20 And we're going to create something in IRIS for 21 bookkeeping purposes so that we can apply it. 22 And to the extent that they later figure out, 23 oh, that was a mistake, I didn't owe that, they would 24 still have a refund -- a claim for refund that they 25 could file with us and get it back. 26 MR. HORTON: So, that was my second question. 27 In doing it this way, does that bar the statute 28 of limitations? 19 1 MS. MANDEL: For them to get it back? 2 MR. HORTON: For them to be able to file a 3 refund? 4 MR. FERRIS: It would start the statute of -- 5 MR. HORTON: It starts? 6 MR. FERRIS: -- limitations. So, they -- 7 right, yes. 8 MR. ROMANO: As soon as we apply it, they would 9 have -- 10 MR. HORTON: As soon as you apply it, it 11 starts? 12 MR. ROMANO: -- six months. 13 MR. HORTON: So, they have, at that point, a 14 period of time to file the claim for refund and then 15 they lose it altogether? 16 MR. FERRIS: Correct. 17 MR. HORTON: Okay. Are we notifying the 18 taxpayer that they have that right? 19 Once we've gone through this process, once 20 we've created this liability through IRIS on the 21 presumption that it's a self-assessment, are we now 22 notifying them that, "You could be entitled to a claim 23 for refund" -- 24 MR. ROMANO: We have. 25 MR. HORTON: -- if, in fact, you later on learn 26 that this liability was -- you did not intend to report 27 this amount of tax to the Board of Equalization? 28 MR. ROMANO: We could send a letter at the 20 1 time -- we haven't applied any of these 11,000 payments, 2 they're still sitting unapplied on the system. 3 So, we could send them -- 4 MR. HORTON: Is that part of the -- 5 MR. ROMANO: -- a letter to -- 6 MR. HORTON: -- thought process to -- to do 7 that as well? 8 MR. ROMANO: We've been contemplating to send 9 them a notice, you know, to send them a letter, saying 10 that, "Now you have six months to respond," if that's 11 the avenue that we take. 12 MS. STEEL: And is it possible that I can look 13 at the letter before it goes out -- 14 MR. ROMANO: Sure. 15 MS. STEEL: -- on May, what kind of letters are 16 going out to these people? 17 Is that okay? 18 MS. YEE: Sure. 19 MR. ROMANO: Yeah. 20 MR. HORTON: What happens in the event that we 21 return the money, all of it, irregardless of the case by 22 case or the situations for different cases -- which I 23 understand that there are certain -- I don't know how 24 much or how many and so forth, but if it's associated 25 with a return, it might be very, very difficult for us 26 to legally return those monies. 27 But, let's say there are some that aren't -- 28 there isn't evidence that the funds were associated with 21 1 the filing of the return and no intent to self-assess, 2 or within a cycle or period of time in which a return 3 should have been filed -- I don't want to get into the 4 intricacies of the various different transactions. 5 But let's say there is a group that meet that 6 criteria, just to -- the check that did randomly come 7 here, if we return those funds and later on find that 8 there is -- or we return all of these funds and we 9 subsequently find that there was a liability, is there 10 any exposure? 11 MR. FERRIS: No, because it's not a refund. 12 So, it's not an erroneous refund either. 13 But if the statute was still open on that, a 14 Notice of Determination could be issued. 15 But with these, the statute is not going to be 16 open. 17 MR. HORTON: The statute's not open, so, we 18 can't. 19 MR. FERRIS: Right. 20 MR. ROMANO: And the average amount's around 21 $57, if we -- 22 MR. HORTON: What does that mean? 23 MR. ROMANO: I'm just saying that they're small 24 amounts, so, we would -- I don't know that we would -- 25 MS. HENRY: Based on materiality, we probably 26 wouldn't bill them again if we gave them -- returned 27 their payments. 28 MR. HORTON: I think what he's saying is it 22 1 wouldn't be cost -- 2 MR. ROMANO: Cost effective. 3 MR. HORTON: -- cost effective. 4 MR. FERRIS: But legally, we -- 5 MS. STEEL: But that's -- 6 MR. FERRIS: -- under the law and legal 7 analysis -- 8 MR. HORTON: That's a relative term. 9 MR. FERRIS: -- we couldn't do it any way 10 because these aren't refunds. 11 We're just returning money that we -- 12 MS. STEEL: Returning the -- what taxpayer 13 deserved to get paid. 14 And $57 doesn't mean anything. If we have 15 something, that -- you know, we have one penny on each 16 taxpayers, then more than what they owe, then we have to 17 return it. 18 And postage that we do bulk mail, right, so, 19 it's going to be less than 41 cents. 20 So, why you even mention $57 average, it 21 doesn't mean anything. 22 MS. HENRY: No, we were saying that we wouldn't 23 go -- if we returned the payments to the taxpayers, we 24 wouldn't ask them later for the $57 back if we found out 25 they still owed it. 26 We were answering his question. 27 MS. STEEL: Well, we already know that they 28 don't owe us taxes at this point, 11,000. You couldn't 23 1 find anything on these people. 2 So, we -- they don't owe us anything because 3 you already went through it and that's what exactly here 4 that they don't owe us. -- 5 I mean, why it's so tough that something that 6 it doesn't belong to us that we are returning to the 7 taxpayer? 8 I just don't understand why you keep fighting 9 that something doesn't belong to us. Our job is we 10 collect the taxes -- that amount that we -- they owe us, 11 but not something that, you know, we have excess of 12 money that we collect and are just hoarding on to it. 13 Why were you doing that? So, I am not 14 requesting something that, you know -- 15 MS. YEE: Yeah, it sounds like, Ms. Steel, this 16 universe of 11,000 of unapplied remittances have not 17 been worked through to the extent that we know whether 18 there is a liability against which they could be 19 applied. 20 I mean conclusively, anyway. 21 MR. FERRIS: Right, we haven't sent auditors 22 out to -- 23 MR. HORTON: Yet. 24 MS. YEE: So, in the event that we are looking 25 to return these payments back to the payee, there is a 26 potential that a liability will be identified. 27 And the statement I think Miss Henry was making 28 was that to the extent that the average payment per each 24 1 of these 11,000 is about $57, we probably would not look 2 to pursue that $57 to apply against that liability that 3 we identify subsequently. 4 MR. FERRIS: And it would be outlawed anyway. 5 MS. YEE: Yeah, okay. 6 Mr. Horton and then I think I want to see 7 whether we can give some direction back to the staff 8 about what we want to see next. 9 Thank you. 10 MR. HORTON: Well, just as a suggestion, One, I 11 think we should certainly make the taxpayer aware that 12 they can file a claim for refund. 13 Two, given the potential uniqueness of the 14 transaction, maybe we ought to categorize them and then 15 have Legal take another look at a situation if the 16 situation exists, I don't know, where a check was 17 arbitrarily -- was sent and it's not in conjunction with 18 a return or -- or not within a period in which a return 19 could have been filed. 20 I mean, you could actually have a situation 21 where the return is due and all you received was a 22 check. And, so, when you reconciled it, you had no 23 return, no liability and all you received was a check. 24 So, there is some unique transactions out 25 there. Maybe we ought take a look at those and have 26 Legal give us their insight on if the check -- if there 27 is no evidence that the check is associated with a 28 return or a period in which a return should have been 25 1 filed, that we can make the presumption the other way. 2 I don't know. I'm actually looking for your 3 advice. 4 MR. FERRIS: Right. And I think that there's a 5 distinction with how we're dealing with these really 6 aged things, some of them which go back 30 years, maybe 7 more, you know, it's been there because we didn't -- 8 MS. STEEL: You mean you were holding -- 9 MR. FERRIS: -- versus what we're doing on a 10 going forward basis now. 11 Like if today somebody sends in a check and 12 we're not sure what it's for -- 13 MR. HORTON: Right. 14 MR. FERRIS: -- there is procedures in place to 15 -- so that this situation never can occur again where we 16 end up with these aged things that we don't know what to 17 do with. 18 MS. YEE: This is a finite universe we're 19 talking about. 20 MR. FERRIS: Right and I don't know if it's 21 relevant now to talk about what we're doing -- 22 MR. HORTON: I mean -- 23 MR. FERRIS: -- today when something comes in 24 like that versus how we're dealing with this special set 25 of circumstances from the past. 26 MR. HORTON: Well, a follow-up, Madam Chair? 27 When you -- when you shared that the taxpayer 28 didn't respond and, in some cases, I presume, you got a 26 1 return mail that, "not at this address"? 2 MS. YEE: These -- 3 MR. HORTON: Is that right? 4 MS. YEE: Not of these. 5 MR. ROMANO: That was the other accounts. 6 The 351 are the ones that came back with -- 7 that eventually we were unable to locate. We had a -- 8 maybe 2,000 that came back -- of the original 9 mailings -- that came back with bad addresses. 10 MR. HORTON: There is a group that you were 11 able to locate? 12 MR. ROMANO: Right. 13 MR. HORTON: And they -- there was a negative 14 response or no response? 15 MS. MANDEL: No response, absence of 16 response. 17 MR. HORTON: No response whatsoever after 18 sending a couple of letters? 19 MR. ROMANO: We sent one or more letters. 20 It depends, if the first letter didn't come 21 back in the mail, we didn't send a second letter. 22 If the -- 23 MS. STEEL: Well, letter goes out every six 24 months? 25 MR. ROMANO: No, that's the new process. It 26 doesn't relate to this. 27 MS. STEEL: So, what kind of letters went out 28 for these people then? 27 1 MR. ROMANO; It was -- it was a specific letter 2 that went out just addressing this specific issue. 3 MS. STEEL: You said 30 years, what's -- 4 MR. ROMANO: No, the oldest payment was in 5 2001, it wasn't -- 6 MS. STEEL: For this -- 7 MR. FERRIS: I misspoke, I apologize. 8 MR. ROMANO: It's still old, but it's not -- 9 but it wasn't 30 years ago. 10 MR. HORTON: And the letter came from the 11 agency? 12 MR. ROMANO: Yes. 13 MS. YEE: And when did that go out for -- 14 MR. ROMANO: We sent them out in three groups. 15 We started in August 2008 and the last group was mailed 16 in May of 2008. 17 We put about one-third at a time. 18 MS. YEE: Okay. 19 MR. HORTON: You know, just out of curiosity, I 20 wonder how would the taxpayer greet a note from the 21 Board of Equalization 30 years later -- 22 MS. YEE: It hasn't been 30 years. 23 MR. HORTON: -- after they have closed -- 24 MR. FERRIS: I was wrong. 25 MS. YEE: It's not 30 years. 26 MR. HORTON: Well, how many years is it? 27 Five years? 28 MR. ROMANO: Nine years is the oldest. 28 1 MR. HORTON: Are they still active, these 2 people -- any of these? 3 MR. ROMANO: Some were active. Many were 4 closed out. 5 MR. HORTON: So, they're closed out, they get a 6 notice from the Board of Equalization. They're no 7 longer doing business. That goes in the round can -- 8 MS. YEE: Yeah. 9 MR. HORTON: -- seems to me. 10 MS. STEEL: And, you know, that's -- that's 11 really interesting. 12 They already closed those stores. So, they 13 don't owe us anything and we cannot find them. 14 Why we keeping it for nine years? 15 MS. YEE: Okay. 16 MS. STEEL: Send them a check. I mean -- 17 MR. HORTON: Well, let's -- 18 MS. YEE: Hold on, hold on -- 19 MR. HORTON: -- let's -- 20 MS. YEE: -- hold on, Mr. Horton. 21 MR. HORTON: -- continue the thought. 22 MS. YEE: I am going to ask you to do this: I 23 want to get to an outcome where we're giving the staff 24 direction to come back with a process. 25 It sounds like there is some agreement among us 26 to look at a procedure for returning these payments made 27 in error. 28 So, I want to get to that outcome. 29 1 So, Mr. Horton, continue, but let's move to 2 that. 3 MR. HORTON: Okay. Now, mindful, I am not 4 necessarily advocating -- 5 MS. YEE: Well, I want to hear what the 6 proposal is too. 7 MR. HORTON: -- sorry, but I am if it's due. I 8 mean if it's improperly collected and assessed and I 9 think we ought to. 10 I'm just curious of what would happen if we 11 tried again and the notice actually came from the 12 Taxpayer's Bill of Rights -- I mean the Taxpayer's 13 Advocacy Office, as opposed to the taxing agency itself. 14 And I know there's no real distinction, but in 15 my mind that's a document that I might open. Or if the 16 document actually said, "You my be entitled to a refund, 17 open this document," I might open that as well. 18 So, it could be just the marketing. 19 The other thing, just to consider in your 20 deliberation, is to -- possibly we can hold this in 21 abeyance for a period of time and notify them that there 22 is a period of time that we would hold these funds in 23 abeyance -- I don't know what the legal ramifications of 24 that is -- in order to insure that we do a couple of 25 things -- that we protect the interests of the taxpayer 26 and we protect the interests of the State of 27 California. 28 I mean, this is a double-edged sword here and I 30 1 want to make sure that we're conscious of the fact that 2 we have a responsibility to all of the taxpayers of the 3 State of California to protect their interests, to 4 insure that if there is a liability that we collect 5 those funds as well, even if it's a self-assessed 6 liability. 7 And then the taxpayers in this unique case, 8 where, you know -- so, it sounds -- Madam Chair, if you 9 will, it just sounds like there's a couple of things. 10 One, we have not -- we may need to do 11 additional outreach, this universe of individuals and 12 additional research from a legal perspective to give 13 some additional legal direction on when we can presume 14 and return it, as we're doing now. 15 Sounds as if it's been corrected and we're 16 handling it properly now. And that should give us some 17 insight in how to handle these historical cases. 18 MS. YEE: Okay, thank you, Mr. Horton. 19 Ms. Mandel? 20 MS. MANDEL: Just as a sort of anecdotal 21 follow-up on Mr. Horton's comments, these were letters 22 that went out that said, 23 "We have some money you sent us and it might be 24 yours and it might be ours. And if you don't 25 tell us it's yours, it's ours." 26 And this is just anecdotal. You know, the 27 IRS -- well, I mean it's anecdotal in a sense, but it's 28 based on facts I was told by IRS. 31 1 IRS has a program called Earned Income Tax 2 Credit. And you've probably read in the papers that 3 there is a -- not a very good take-up rate and that in 4 California there's a lot of people who don't file the 5 return or claim the credit on their return. 6 Every year IRS, if you file a return and you 7 are -- you don't claim the credit but it looks like you 8 might be entitled to the credit, IRS sends a notice to 9 those people. 10 Now, this may not be, you know, the broad 11 universe of people who could be entitled because there 12 are a lot of people who don't file a tax return who 13 could be entitled, but if you actually file an income 14 tax return with IRS, don't claim this credit, but look 15 like -- from what you put on the return -- that you 16 might be entitled to it, they send you a notice. 17 Their take-up rate on notices -- and all people 18 have to do is check all of the boxes to make sure that, 19 you know, it's like a decision tree type of boxes. They 20 just have to sign it and send it back and the IRS will 21 send them the money. That's what IRS has told me. 22 Their take-up rate on these notices, as well as 23 generally any kind of notice they send out, their 24 take-up rate's not very high, it's like 30 percent. 25 Well, this is a notice about, you know, sign 26 the form and send it back and we'll send you money. 27 And I've had discussions with IRS, just like 28 Mr. Horton was talking about, you know, what does the 32 1 envelope look like? People are afraid when they get an 2 envelope from the IRS. Because it's a, "We'll send you 3 money envelope," there is not a follow-up like there is 4 when it's a, "You owe us money." 5 And, so, I think that's the kind of thing where 6 people -- you know, they see the notice. Maybe they 7 don't open it. Maybe they, you know, put it aside. You 8 know, who knows what? 9 But just based on the experience of my 10 discussions with them about how to help increase the 11 take-up rate on that credit, they told me that about how 12 they do these notices. And yet, it's something where 13 they're trying to send someone money and the person 14 doesn't, you know, they're not -- they're just not 15 getting the responses back. 16 And they're presuming that at some level of 17 those people actually would be entitled to it if they 18 would just sign the form. 19 So, it's a little hard sometimes if it's 20 just -- 21 MS. HENRY: Well, we could discuss maybe -- 22 MS. MANDEL: -- a signal. 23 MS. HENRY: -- something that -- you know, a 24 lot of times we put an overspray on the envelopes to try 25 to attract people to open and we can work with 26 Ms. Gore's folks maybe for something more catchy, 27 that -- you know, so that people actually open the 28 envelope and look inside. 33 1 MS. YEE: Okay, very well. 2 Let me pose one more question. 3 MR. HORTON: The word "refund" would help. 4 MS. YEE: No, we're not going to use the word 5 "refund." 6 MS. HENRY: The attorneys won't let me use the 7 word "refund." 8 MS. YEE: Definitely a tax term of art. We're 9 not going to use. 10 Okay, my question relates to whether we know of 11 these 11,000 unapplied remittances, do any of them 12 relate to perhaps use tax, for which there may not be a 13 associated, and it's just a consumer, kind of in good 14 conscience paying? 15 MS. HENRY: You know, there could be, but 16 probably based on the age and before we were really, you 17 know, advertising use tax -- 18 MS. YEE: Not likely? 19 MS. HENRY: -- probably not. 20 MR. ROMANO: I think most of them would fall 21 into duplicate excess type payments where Ms. Steel 22 said -- where they paid maybe a subsequent notice. 23 MS. YEE: Okay. 24 MS. HENRY: Or they filled out their return 25 wrong or -- 26 MS. YEE: All right. 27 MS. HENRY: -- something like that. 28 MS. YEE: Let me suggest this: We have our 34 1 April Sacramento meeting in April. I would like to see, 2 for the Board's consideration, a procedure for how we 3 return these payments. 4 And I think that Mr. Horton's point, we 5 certainly have a -- we have our process and procedures 6 in place for how we deal with unapplied remittances 7 going forward. 8 And, hopefully, that can inform us in terms of 9 how we deal with these payments going back to the 10 taxpayer -- to the payee. 11 And with Legal's review with respect to whether 12 there are any hurdles that we need to overcome in terms 13 of getting these payments back to the payees. 14 Does that make sense? 15 MR. HORTON: Good, yeah. 16 MS. YEE: Okay. And if you could bring that 17 back to us for consideration? 18 I realize it's a short time frame before our 19 April meeting, but let's see what we can put together to 20 further this discussion. 21 Ms. Olson, when is the -- 22 MS. OLSON: Well, the PAN's next Friday, 23 materials were just due today, that's all. 24 MS. YEE: Well, I -- 25 MS. OLSON: That will be our exception. 26 MS. YEE: -- we will make an exception. 27 MS. HENRY: We can make the PAN Friday, but I 28 don't think we can make the materials today. 35 1 MS. YEE: No, let's put some thought into this 2 and bring it back for our April meeting. 3 MS. STEEL: But if I can see the letter, if you 4 can e-mail and I want to -- 5 MS. YEE: Okay. 6 MS. STEEL: -- see what kind of letter is going 7 out for these people. 8 MS. YEE: Okay. 9 MS. STEEL: So, we can -- you know, think about 10 that in the future, that how we going to reach out to 11 the taxpayers? 12 MS. YEE: Okay, very well. 13 Other discussion on this matter item? 14 Very well, we will return to this in April 15 then. 16 Thank you very much. 17 ---o0o--- 18 19 20 21 22 23 24 25 26 27 28 36 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 MARCH 25, 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 pages 1 13 through 36 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: APRIL 9, 2010 17 18 19 20 21 22 ____________________________ 23 JULI PRICE JACKSON 24 Hearing Reporter 25 26 27 28 37