BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 5901 Green Valley Circle Culver City, California REPORTER'S TRANSCRIPT JUNE 17, 2010 ITEM C5 SALES AND USE TAX APPEALS HEARINGS PETITION FOR REDETERMINATION filed by MAHERALI, INC. (Case No. 343758 KH ) Reported by: Beverly D. Toms CSR No. 1662 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 Member 8 Michelle Steel 9 Member 10 Marcy Jo Mandel Appearing for John Chiang 11 State Controller (per Government Code 12 Section 7.9) 13 Diane Olson Chief, Board Proceedings 14 Division 15 For Board of David Levine 16 Equalization Staff: Tax Counsel IV 17 Scott Lambert Hearing Representative 18 Kevin Hanks 19 Sales and Use Tax Department 20 Chris Schutz Legal Department 21 22 For Petitioner: Indervir Randhawa Representative 23 Sukhjinder Singh Gill 24 Taxpayer 25 ---OOO--- 26 27 28 2 1 Culver City, California 2 June 17, 2010 3 ---oOo--- 4 MS. OLSON: Our next matter is C5, Maherali, 5 Incorporated. Please come forward. 6 MR. HORTON: Thank you. 7 MS. YEE: Mr. Levine. 8 MR. LEVINE: The issue in this petition is 9 whether further audit adjustments are warranted. 10 MS. YEE: Okay. Thank you very much. 11 Good morning, gentlemen. 12 MR. RANDHAWA: Good morning. Good morning. 13 MS. YEE: If you will -- oops. 14 MR. RANDHAWA: Get closer here. 15 MS. YEE: Get comfortable, okay. If you'll 16 introduce yourself for the record, and you have ten 17 minutes for your presentation. 18 MR. RANDHAWA: Good morning. My name is 19 Indervir Randhawa. 20 MS. YEE: Okay. 21 MR. RANDHAWA: I'm the accountant. And this is 22 Mr. Gill, the president of the company. 23 MS. YEE: Okay. Please proceed. 24 MR. RANDHAWA: Ten minutes is going to be 25 quick. 26 Really quickly, the records that we provided to 27 you recently, I was not the accountant at the original 28 audit. 3 1 MS. YEE: Okay. 2 MR. RANDHAWA: I was hired afterwards. 3 MS. YEE: Let -- let me just ask the 4 Department, have you seen these previously? 5 MR. LAMBERT: Well, we have them. 6 MS. YEE: Okay. 7 MR. LAMBERT: And I've taken a brief view of 8 them, so -- 9 MS. YEE: Okay. 10 MR. LAMBERT: I don't know if I understand 11 completely, but -- 12 Okay. Okay. I think then what might be 13 helpful, can you maybe walk us through what you've 14 provided us? 15 MR. RANDHAWA: Yes. 16 MS. YEE: Okay. 17 MR. RANDHAWA: Basically, the Exhibit number 1, 18 it's a summary of -- is computer -- monthly end computer 19 sheets. 20 The taxpayer gave that to his accountant and 21 basically the accountant used those numbers to present 22 that to do sales tax. 23 At the time of the audit for some reason they 24 were not there and the auditor did not see them. 25 We try to collect the best we could and I've 26 got the actual copy behind it to show you all the -- all 27 that we have at the time or at the time of the thing. 28 The number 2 is basically a summary of -- and I've got a 4 1 copy which is a lot of copy summarized, and I've got 2 them here, the original. 3 This taxpayer keeps daily records of his 4 transactions. He has inside sales, outside sales, 5 gasoline gallons, over, understated, cash paids out, 6 money orders and deposits. Those are detailed records 7 that he keeps. 8 So, we took the pains of entering every single 9 one and Exhibit number 2 is a summary of that. 10 Now, I'll go through all this. Exhibit Number 11 3 is basically taking the computer sheets that we have 12 and the handwritten sheets to make a comparison, can we 13 accept the handwritten sheets. And for that period that 14 comparison was done for what we have, the error is less 15 than half a percent. 16 If you look at the gallons, it's negative 17 point -- half percent. And for sales it's .62 percent. 18 Less than one percent. To show that the handwritten 19 sheets are quite accurate and the computer sheets are 20 quite accurate. 21 The other exhibits, Number 4 and Number 5, are 22 reported to recorded comparison. Number 4 is basically 23 if you take for the period that we have computerized 24 sheets, it shows a credit error. 25 If you take number 5, which is the actual 26 handwritten sheets for the audit period it will be a 27 credit error. Those sheets are just to show that if you 28 look at reported to recorded overall the taxpayer has a 5 1 credit error. 2 Now, in the audit the -- the taxpayer mentioned 3 to the auditor that he had complained to his accountant 4 that the accountant was using tax included sales to 5 report the gasoline. So, therefore he over-reported his 6 sales -- or the sales tax on top of that. 7 And if you look at recorded to reported that 8 comes out. When the auditor took the segregation test, 9 took the consumption, took the shrinkage and also the 10 markup, came up with a negative sales for 2003 and 2004, 11 they accepted it. 12 So, basically what the -- at the hearing was, 13 all right, we have an error in 2002 but, you know, we 14 have a credit error in 2003 and '4. We're not going to 15 adjust those, so we're just going to pick up and -- you 16 know, pick up the audit. 17 The method used by the Board is a markup audit. 18 A markup audit is used when you disallow the -- the 19 records of the taxpayer. In the audit comment they 20 accepted the records. There were General Ledgers, 21 income tax returns. They accepted income tax returns. 22 What they did was they either quick indicated 23 markup and markups look low for one -- one year, and the 24 auditor went to a full blown markup audit. 25 If you had -- if the taxpayer -- I mean, I'm 26 sorry, if the auditor had adjusted tax included for fuel 27 sales the taxable sales would have gone up for the 28 store. But she didn't do that. 6 1 So, you know, when you start the assumption of 2 an audit based on not complete records you don't get 3 this. But after all this stuff is said and done, the 4 Board came back and said, you know what, we're gonna 5 accept the error rate for 2002 but we're not going to 6 give you any credit for 2003 or '4. 7 And that's the end -- and my -- my choice is 8 you've got actual records, detailed records, of what the 9 taxpayer did. And here the Board's using a method which 10 is a markup, segregation test for a small period of a 11 window, consumption and comes up with the error. 12 The third very important is in the audit on 13 Schedule 12C there's a line that says food -- hot food 14 sales per taxpayer's records. $122,000. 15 You've got this detailed audit that the auditor 16 did. That 122,000, where did it come from? 17 In her comments, at hot food sales, she goes 18 the taxpayer rung it -- rung up separately. But the 19 records I gave you on the -- the computer sheets, if you 20 look at the second sheet there are two pages where the 21 hot food is rung up on the computer -- on the computer, 22 you know, monthly closing. So how can it be rung 23 separately? It's included in all the sales. 24 My point is if you take out the hot food sales, 25 adjust the audit by one percent -- if you take shrinkage 26 by one percent, you take segregation test, reduce -- 27 reduce it by one percent, if you reduce the markup 28 factor by one percent from 28 to 27 the audit error 7 1 overall is only one percent. 1.45. That's on 2 numbers -- number -- sheet number 7. 3 So my point is here's a person who's reported 4 over $3 million in sales on an actual basis, kept actual 5 sheets. Unfortunately his accountant didn't give it to 6 you at the time. And the auditor went to a full blown 7 markup audit. Except for the fuel. Fuel is our largest 8 sale. 9 70 percent is taxable sales. We're looking at, 10 you know, three quarters -- an error rate on three 11 quarters -- for three quarters only, 2002, and that's 12 it. So that's one point, quickly. 13 Last is, if the Board -- Members do not adjust 14 anything, what I'm requesting is adjustment on interest. 15 And the reason is this person -- the determination was 16 in October 5th of 2005. Petition for redetermination 17 was done in February 23, '06. We didn't have an appeals 18 conference till February 11, 2009, three years later. 19 But the Board memo, if you have a determination, if you 20 don't give a letter in 30 days, if you don't petition 21 the audit in 30 days, you have to pay the full tax and 22 file for a claim for refund. 23 Here the Board had a petition for 24 redetermination. It took three years for a hearing? 25 So if you guys do no adjustment then I would 26 like the Board to consider adjusting the interest, 27 please. Thank you. 28 MS. YEE: Thank you very much. 8 1 Mr. -- Mr. Gill, do wish to make any comment at 2 this time? 3 MR. GILL: No, that's fine. 4 MS. YEE: Okay. 5 MR. GILL: Thank you. 6 MS. YEE: All right. We'll give you time on 7 rebuttal. 8 Department, please. 9 MR. LAMBERT: Good morning, Madam Chairwoman 10 and Members. My name is Scott Lambert and I'll be 11 representing the Sales and Use Tax Department. To my 12 right is Kevin Hanks, and to -- also with the 13 Department. And to his right is Chris Schutz with the 14 Legal Department. 15 Maherali, Inc., doing business as Bob's Tiny 16 Mart, operates a gas station with mini-mart. The 17 business started November 1999. The audit covers the 18 period April 2002 to March 2005. This was the 19 taxpayer's first audit. 20 And initial review of the income tax returns 21 indicated that the markups were lower than what the 22 Department would expect for this type of business. 23 The Petitioner uses the keys from the cash 24 register to report. A purchase segregation test was 25 performed for the period June 2004 to December 2004. 26 The purchase segregation indicated that 74 percent of 27 purchases were of taxable items. 28 Next the shelf test was performed using sales 9 1 and costs from May 2005. The taxable markup was 2 established as 29 percent. 3 After the Appeals Conference the Petitioner 4 provided the Department with both computer generated and 5 handwritten daily ledgers for the entire audit period. 6 Based on the records provided the Department considered 7 the gasoline sales to be properly and the taxable 8 mini-mart sales to also be properly reported, other than 9 for the year 2002 and some differences between recorded 10 and reported taxable sales for the third quarter of 2004 11 and the first quarter of 2005. 12 Therefore, the only issue is the reporting of 13 taxable mini-mart sales for 2002. The markup of record 14 is near cost for 2002. The Petitioner concedes that 15 there is a significant -- or did concede there was a 16 significant understatement of recorded and reported 17 taxable sales for 2002. 18 To establish taxable mini-mart sales for 2002 19 the Department took mini-mart purchases and multiplied 20 it by the taxable purchase percentage of 74 percent 21 obtained from the purchase segregation test, which 22 developed the taxable cost of mini-mart cost of sales. 23 Next, the Department deducted two percent for 24 pilferage and $525 a month for self-consumption. The 25 adjusted taxable mini-mart purchases were marked up 29 26 percent to arrive at audited taxable mini-mart sales for 27 2002. 28 Food stamp sales used for taxable items were 10 1 then deducted. Then to this figure was added audited 2 gasoline and hot food sales. Reported taxable sales 3 were subtracted from audited taxable sales to obtain the 4 unreported taxable sales. 5 A percentage of error of 20 percent was 6 established. The unreported taxable sales is measured 7 at $138,000. 8 The Petitioner would like an inventory 9 adjustment of $39,000 to reduce the cost of goods sold 10 for 2002 which would lower the audited taxable sales. 11 The audit allowed for a 39,000 inventory adjustment for 12 the year 2004. The auditor found a large supply of 13 cigarettes and liquor in the back office storage area. 14 Because there was a lot of dust on the 15 merchandise, the auditor assumed that the merchandise 16 was purchased in 2004. 17 The Department believes that they have been 18 very generous in allowing the inventory offset in 2004. 19 No documentation has been provided to indicate when this 20 inventory was purchased. 21 The income tax returns do not reflect an 22 increase an inventory during the audit period. There is 23 no evidence that the inventory gathered dust at the 24 petitioner's location. Basically, the Petitioner has 25 provided no evidence that the allowed amount of 26 inventory increase occurred in 2002 rather than 2004 or 27 whether there was in fact an actual increase in 28 inventory at all. 11 1 The petitioner states that they purchased the 2 inventory in bulk to obtain a volume discount. It is 3 difficult to believe the petitioner would purchase a 4 large amount of inventory in order to get a discount on 5 each item and then in turn leave $39,000 in inventory 6 for three years. What is more believable is that the 7 inventory came from a distribution company owned by the 8 petitioner named Gill's Wholesale Distribution. 9 The inventory was physically verified by the 10 auditor to be in Bob's Tiny Mart storage on May 31, 11 2005. 12 Gill's was closed effective December 31, 2005 13 and did not report any sales for the business for all 14 2004 and 2005. 15 During a June 2, 2004 conversation with an 16 Investigation Division's inspector the Petitioner stated 17 that he closed his wholesale business at the end of 18 December 2003. Therefore, it is possible that this 19 inventory was transferred to Bob's Tiny Mart at this 20 time. 21 A contention against the Petitioner's request 22 is that if you move the inventory from 2004 to 2002 23 there will be a problem with 2004's markup of record. 24 The $39,000 inventory adjustment in 2004 the markup of 25 record is 27 percent. The shelf test was 29 percent. 26 The reported taxable 2004 sales was accepted because the 27 two markups were so close. 28 If the inventory is moved out of 2004 the 12 1 markup of record for 2004 would be 16 percent, which is 2 below the 29 percent markup established by the shelf 3 test. 4 Also 2002 would still be underreported because 5 the $39,000 inventory adjustment would not fully explain 6 the 137,000 understatement in 2002. 7 The bottom line. If the Petitioner is 8 successful in their argument and the inventory is moved 9 from 2004 to 2002 the Petitioner will end up owing more 10 tax than what they currently owe. 11 In regards to amnesty. The petitioner sent a 12 letter to -- the Department sent a letter to the 13 Petitioner in January 2005 notifying them of the amnesty 14 program. On February 17, 2005 the auditor sent the 15 Petitioner an amnesty letter and package notifying them 16 of the amnesty program. 17 For these reasons, the Department concurs with 18 Appeals' decision -- Division's decision and 19 recommendation. 20 And just to add in regards to the hot food that 21 was made by the Petitioner, in the comments in the audit 22 it says, "hot food sales are taken from taxpayer's cash 23 reports given to the bookkeeper. The bookkeeper has 24 separate sales figures but combines the figures on the 25 profit and loss statements." 26 And so I am assuming that's why you don't see 27 it in the records that have been presented by the 28 Petitioner at this time. 13 1 MS. STEEL: Okay. Mr. Lambert, anything 2 compelling or that we didn't -- 3 MR. RANDHAWA: Well, I totally disa -- 4 MS. YEE: No, no. Wait, wait, wait, wait. I 5 will call on you when we get back to you. I just wanted 6 to see if -- given the exhibits that we have here today, 7 anything compelling that you -- 8 MR. LAMBERT: I don't see -- other than -- what 9 I see is that we did do or try to attempt to audit by 10 doing the markup. 11 MS. YEE: Right. 12 MR. LAMBERT: And then -- because we did not 13 have the records. Subsequently the records were 14 provided. We've accepted the gasoline sales. We've 15 accepted the mini-mart sales for 2003 and 2004. The 16 only sales at issue are the mini-mart from 2002. And 17 the taxpayer admitted when we were out there that there 18 was a problem with the 2002 mini-mart sales. And I 19 believe that -- that's undisputed. 20 The figures that have been provided for 2002 21 other than that inventory adjustment of $39,000 and 22 the -- and not including the hot food sales are 23 consistent with the records that we have. 24 MS. YEE: Okay. Okay. And then -- all right. 25 Thank you. 26 Okay. Why don't you take five minutes on 27 rebuttal. 28 MR. RANDHAWA: All right. Really quickly, on 14 1 the original audit, Schedule 12-I, the indicated markup 2 on total sales was 10 percent, if I can read this right. 3 25 percent -- oh, excuse me, 1 percent, 25 percent, 25 4 percent. 5 The indicated markup on gasoline was 22 6 percent, 39 percent, 82 percent. I would love to see a 7 gas station getting 82 percent on gasoline. Therefore, 8 the markups on store sales were negative 8, 22 percent 9 and 11 percent. That's the reason why the auditor did 10 the markup on -- for the markup. 11 But if you adjust the sales tax included it's 12 going to lower the gasoline sales and therefore make the 13 markup on taxables go up. That's one factor. 14 But the Board agreed on 2003 and '4. My point 15 is on 2002, which is Exhibit number 8, the last one, 16 that Schedule 12B was given to the auditor. 17 You look at the audit, it says 97,000 18 understatement based on the error rate. Reported 19 record -- negative credit of 50,000 overall 46. We 20 agree to that. The -- yes, there is an error. If you 21 want to mark that up at 14 percent error rate, we'll 22 accept it. But give us the credit because in the audit 23 and in the comment read that, it says, yes, tax -- 24 gasoline sales were tax included. But the Board has not 25 adjusted that. The Board says we're not going to give 26 you that. Because, yes, you're not going to give us 27 that because it's on a markup basis. The Board does not 28 give a credit on a markup basis. 15 1 Furthermore, you state that -- the taxpayer 2 says the hot food -- on December 2, and I didn't make 3 all the copies -- the second page, if you look at it 4 it's got hot deli, line number 10, included. So where's 5 the separate ring-up? 6 And there's no place in the audit where she 7 came up with those numbers. No place. But if you look 8 at the audit, everything else has detail. Your 9 segregation is that large, you've got a markup that fat, 10 but 122,000 in sales there's no place recorded? Not 11 even on a copy. 12 It just says, "per taxpayer records." 13 That's -- that's all it says. So if you take that out 14 of 2002 you don't have a large error. And that's what 15 my point is. 16 MS. YEE: Okay. Thank you very much. 17 Mr. Levine, did we -- we had -- you had -- can 18 you run through some of the adjust -- or the adjustments 19 that you had recommended. Following the -- 20 MR. LEVINE: Just repeating what we have -- 21 MS. YEE: Yeah. 22 MR. LEVINE: -- we recommended an adjustment 23 of 73,000, reducing it from 211,000 to 137,000 and 24 establishing a separate audit item for the difference 25 between recorded and reported sales of 21,000. That was 26 it. 27 So our total recommended reduction was of -- a 28 measure of $52,110 from 230,305 to 178,195. 16 1 MS. YEE: Okay. 2 MR. RANDHAWA: Madam, could I say something? 3 MS. STEEL: Madam Chair. 4 MS. YEE: Yes. Ms. Steel. 5 MS. STEEL: Mr. Levine, that there is 21,576 6 that -- from the audit that they -- the -- the BOE said 7 that it was accurate, the over-payment of 22,000 that's 8 not reported. Maybe that's not the right number but 9 22,000 that Appeal Division took that out. Do you know 10 why? 11 MR. LEVINE: We didn't believe that it -- that 12 they underreported the tax. Or that they over-reported 13 tax. 14 MS. STEEL: Why is that? There's any evidence 15 that, you know, why -- Mr. Lambert. 16 MR. LAMBERT: Why -- they gave him -- I think 17 what happened was is the auditor tried to do the audit 18 on a markup test. 19 MS. STEEL: Uh-huh. 20 MR. LAMBERT: And so what they did is they 21 applied the markup test and it came up with a negative 22 figure. And so the auditor was going to use that. When 23 the Appeals -- Appeals Division looked at it they said, 24 well, don't use the markup test, just use the actual 25 records instead of the markup because Appeals' opinion 26 was that our markup was probably not quite accurate. In 27 other words, it was probably too lenient because of some 28 of the adjustments that we allowed. 17 1 And so if you took the taxpayer's records 2 instead of the markup that's why that credit was not 3 allowed. 4 And if -- and if I didn't explain that quite 5 clear enough I can attempt again. 6 MR. LEVINE: I think that the bottom line is we 7 just didn't accept that they -- 8 MS. STEEL: So you used on the mark -- 9 MR. LEVINE: -- over-reported tax. That is 10 just not a common mistake and we just didn't accept. 11 That's the bottom line. 12 MS. STEEL: So our auditor used markup test and 13 then it was minus. 14 MR. LAMBERT: For the one year. 15 MS. STEEL: For one year. 16 MR. LAMBERT: Yeah. 17 MS. STEEL: Right. And then we brought it back 18 because -- 19 MR. LAMBERT: We had -- they provided -- 20 MS. STEEL: -- that we have to use other 21 evidence than markup? 22 MR. LAMBERT: They provided records at that 23 time. 24 MS. STEEL: So you were looking at those 25 documents that taxpayer provided. 26 MR. LAMBERT: That's correct. And we accepted 27 those. And -- instead of -- 28 MS. STEEL: Then when you figure that one 18 1 out -- 2 MR. LAMBERT: -- our markup test. 3 MS. STEEL: -- with those evidence and those 4 receipts then it didn't match what overpayment, is that 5 what you are saying? 6 MR. LAMBERT: That is correct. 7 MS. STEEL: Okay. 8 MR. RANDHAWA: Totally inaccurate. And I tell 9 you why. First of all, generous. I would like to see a 10 gas station/mini-mart with a segregation test of 74 11 percent. If -- if that's not industry average. And a 12 markup of 28 percent is lenient? And this store is in 13 Porterville, a small little town which is about six 14 hours from here. I would love to see a Board average 15 that will dispute what you found. 16 And -- and the second, yes, they got the 17 credit. Report -- reported to recorded was a credit, 18 but they don't want to give the credit. But if you look 19 at the comments year 2005 reported the recorded, they 20 picked that error up. 21 So, yeah, okay, let's take the first quarter, 22 reported or recorded, we'll pack -- pick that up error 23 and we'll adjust 21,000. But, you know, reported to 24 recorded in 2003 is the credit, we're not going to give 25 you the credit. And even the markup came up with the 26 credit, oh, we're not going to give you the credit. 27 That's my thing. You want to pick up the 28 dollars here on a markup basis but you don't want to 19 1 give a credit. You have a credit here based on reported 2 to recorded, you accepted the records for 2000 -- 2003, 3 but you don't want to give a credit. 4 And the auditor made a comment that those are 5 tax included, the fuel sales were tax included for a 6 time period. 7 My question is, what records do you want me to 8 prove to the Board if these handwritten sheets and these 9 computer sheets for that period are not accurate 10 records? And your markup shows this is a credit. 11 So if your markup shows there's a credit and 12 the reported to recorded is a credit, what other basis 13 do you need to give a credit? 14 MS. YEE: Okay. 15 MR. RANDHAWA: I will provide those documents 16 that the Board needs to give a credit for that period. 17 MS. YEE: Okay, let -- let me stop there. 18 MS. STEEL: Let me just ask Department one more 19 things. When we did the markup test and then we are 20 using markup method, you know, for this audit, and then 21 we are changing to other method, that -- how we can -- I 22 mean, you know, I mean number comes out totally 23 different there, that you know, we had take that 22,000 24 away. How we doing this? 25 I mean, you know, when -- a lot of the stores 26 that coming in, we do a lot of markup test and, you 27 know, we go by, you know, markup test for all these 28 audits. And then sometimes we go with all the receipts 20 1 for this, that when you go markup test we have to give 2 them 22,000 credit. But when we do a paper test, how -- 3 how we can do this? I mean, you know, when you change 4 this method. 5 MR. LAMBERT: Well, what happened in this 6 particular case is that we did a shelf test, and we 7 were in the Department's opinion lenient in numerous 8 areas. One being the amount of self-consumption that we 9 allowed. We allowed $525 a month, which turned out to 10 be -- part of it was fuel that was being used by the 11 taxpayer and we deducted that from the mini-mart 12 purchases which we consider lenient because, you know, 13 the fuel is not in the mini-mart purchases. 14 MS. STEEL: Right. 15 MR. LAMBERT: But what happened is, is we 16 will -- this is not uncommon for the Department to do. 17 In other words, we do a test. We establish a taxable 18 measure and the taxpayer comes up with records later on, 19 if the taxpayer's records look appropriate, we're 20 gonna -- 21 MS. STEEL: So that records has to be backing 22 for this markup, is that what you are saying? 23 MR. LAMBERT: Well, it comes up pretty close. 24 I mean, relatively, when you're looking at 20 something 25 thousand for the year, the -- I mean the test is pretty 26 close. 27 MS. STEEL: But that's a lot of money for the 28 taxpayers. 21 1 MR. LAMBERT: Well, it's -- it's on tax -- and 2 I understand that, but that's taxable measure. But the 3 same thing is, you know, you can have an -- an 80 4 percent shelf test, and if you have the taxpayer ringing 5 up tax on every sale that they're making, you know, and 6 we did a shelf test, we're going to come up that you owe 7 80 percent of your sales as taxable. Whereas if you 8 actually look at the record you realize, oh, no, it's a 9 hundred percent of the sales that are taxable. 10 So, just doing a shelf test, although it's 11 reliable, if the taxpayer's records appear to be 12 accurate we're going to accept those instead of our 13 shelf test. 14 MS. STEEL: Okay. Thank you. 15 MS. YEE: Thank you. 16 MR. RANDHAWA: Could I make a statement? 17 Sir just made a comment that we'll accept the 18 recorded information, but in this audit they didn't do 19 that. 20 MS. YEE: Okay. Just hold on. Let me -- 21 Department, do you have a response to the inquiry about 22 what else may be provided that a -- at least get to a 23 point of where additional credit might be allowed? I 24 mean -- or Mr. -- 25 MR. LAMBERT: I can't think of any. I mean 26 what they've provided, you know, if they want a credit 27 based on a test instead of the actual basis for that 28 year, that's something that, you know, isn't -- we're 22 1 not going to do that. 2 MS. YEE: Right. 3 MR. LAMBERT: We're going to accept the actual 4 records for that period. 5 MS. YEE: Okay. Okay. 6 MR. RANDHAWA: I agree with him. Number 8 -- 7 number 8 -- Exhibit number 8 says, "taxable sales based 8 on reported to recorded." If they accept that $50,000 9 credit I have no problems. 10 MS. YEE: Okay. Let -- let -- we'll take that 11 into consideration. 12 Other questions, Members? 13 MS. MANDEL: Question. 14 MS. YEE: Ms. Mandel, please. 15 MS. MANDEL: So what's the story, Department, 16 on tax included in fuel sales? 17 MR. LAMBERT: We obtained the actual records -- 18 MS. MANDEL: Yeah. 19 MR. LAMBERT: -- for -- for those periods and 20 tied them out to the records, to -- to the sales. 21 MS. MANDEL: That they were tax included. But 22 what -- 23 MR. LAMBERT: There were -- there's no question 24 that those sales were tax included. 25 MS. MANDEL: Okay. But then what he's -- what 26 I thought they were saying was that taxable sales as 27 reported on the return was the dollar figure of tax 28 included fuel sales, and I take it that then they're 23 1 saying there was -- they must be saying that there was 2 not a deduction somewhere on the return to show -- to 3 back out the tax that was included in the fuel sales. 4 MR. LAMBERT: Right. 5 MS. MANDEL: And they're saying, "We did not 6 get credit for the tax" -- you know, that the tax on the 7 return wound up being tax that was on a measure of tax 8 included. That's what I heard him say, and I know that 9 the paperwork when it came here was that the only thing 10 that was in dispute was the mini-mart, but he's talking 11 about the fuel sales. So -- 12 MR. LAMBERT: Right. 13 MS. MANDEL: Did I get right what you were 14 saying? 15 MR. RANDHAWA: Exactly. For example -- 16 MS. MANDEL: Okay. Okay. All right. 17 MR. RANDHAWA: Got it. 18 MS. MANDEL: So -- so help me out with -- I 19 know you just thought it was mini-mart sales -- 20 MR. LAMBERT: Yes. 21 MS. MANDEL: -- but he's talking about the 22 fuel. 23 MR. LAMBERT: Right. If you take a look at our 24 schedule what -- what you'll see is, is that there's no 25 question that the gasoline sales are a tax included. 26 They come out of the pump and, you know, that's just the 27 way things are done. 28 MS. MANDEL: Right. 24 1 MR. LAMBERT: So when they filed their returns 2 they did not take a deduction for sales tax included. 3 MS. MANDEL: Okay. 4 MR. LAMBERT: All right. So we're along 5 line -- but what we found is they netted that out of 6 their sales. And how you can tell that is we had their 7 actual sales figures. We deducted -- backed out the tax 8 from there, added our mini-mart sales and than taxable 9 food sales and then compared that to what they reported. 10 And -- and the only year that we did that on 11 was 2002. We didn't do that for the other years. We 12 accepted what was reported for those other years. 13 MS. MANDEL: Okay. And let me -- he's getting 14 a little excited here. We have a taxpayer who has a new 15 representative for the hearing. The taxpayer said that 16 his accountant or bookkeeper, whoever did the reports -- 17 so they're just -- I mean, I hear what you're saying and 18 I hear what he's saying. He doesn't -- if he's looked 19 at the schedules he doesn't see it. That almost sounds 20 like a -- you need to go over there and explain it to 21 him so that he can see whether you did what you said and 22 that -- that the tax included portion for fuel is not 23 getting taxed -- you know, extra taxed. Because he 24 doesn't think that's how the paperwork looks. 25 MR. LAMBERT: True -- 26 MS. MANDEL: That's -- 27 MR. LAMBERT: And we can do that. That's not 28 a -- 25 1 MR. RANDHAWA: Sure. I'll -- I'll show -- 2 MS. MANDEL: I mean and then maybe you'll say, 3 oh, yeah, okay, I see what they did, or maybe you'll go 4 uhhh, and -- and they'll say, yeah, it's -- I see what 5 he's saying. 6 So I -- because we're not going to be -- it's 7 just what's on the paper and how they did the math. 8 They think they took care of it; you don't think they 9 did. If they didn't take care of it it's not -- it's 10 something that they would take care of. So it's not -- 11 MR. LAMBERT: Right. 12 MS. MANDEL: Right? 13 MR. HANKS: Right. 14 MS. MANDEL: Thank you. 15 MS. YEE: Thank you. Okay, other questions? 16 Okay, hearing none may I have a motion, please. 17 MS. MANDEL: Take it under submission, but I'd 18 like -- are you on the next case? 19 MR. LAMBERT: Yeah. 20 MS. MANDEL: All right. I'd like -- you guys 21 have a long drive but I'd like maybe some resolution on 22 that fuel tax if you guys are able to. 23 MR. HANKS: Actually, we do have a worksheet 24 that identifies how that adjustment was made for sales 25 tax included. And I believe the Petitioner has a copy 26 of the audit working papers. 27 MS. MANDEL: Right. Or, Mr. Levine, do you 28 have a "help me out" here? 26 1 MR. LEVINE: Just what you're thinking, that it 2 would be good for them to get together before you decide 3 it so we can see if we can come to a resolution rather 4 than sending it back for more review. I think we should 5 confirm -- 6 MS. YEE: Yeah. 7 MR. LEVINE: -- the issue. 8 MS. YEE: Why don't we do it during the break, 9 if possible. Okay? We got one more matter to hear 10 after this and then if you will stay -- 11 MR. LEVINE: Stick around a little here. 12 MR. RANDHAWA: No problem. 13 MS. YEE: -- okay, then let's see if we can 14 reconcile that piece of it. Okay. 15 Okay. Thank you, Ms. Mandel. So, motion by 16 Ms. Mandel to take it under submission with discussion 17 between the Department and the taxpayer relative to the 18 fuel sales. 19 MR. HORTON: Madam Chair. In taking it under 20 submission, does that mean that we can't hear further 21 testimony? 22 MS. ALBY: Right. 23 MS. YEE: Correct. Did you have questions, Mr. 24 Horton? 25 MR. HORTON: It seems that they may come back 26 and want to share different additional information with 27 us. 28 MS. MANDEL: Yes. 27 1 MR. HORTON: Is there another method in which 2 to accomplish this? 3 MS. YEE: Well, we can put this over and just 4 revisit -- revisit it this afternoon. 5 MR. RANDHAWA: That's fine. 6 MS. YEE: Okay. 7 MS. MANDEL: But in the meantime, talk. 8 MS. YEE: Okay. 9 MS. MANDEL: Thanks. 10 MS. YEE: So, let's see what gets resolved or 11 at least understanding during the lunch hour and then 12 we'll hear back after we reconvene. Okay? 13 MR. HORTON: That sounds fine. 14 MS. YEE: Sounds good. Thank you. 15 Thank you, Mr. Horton. 16 ---oOo--- 17 18 19 20 21 22 23 24 25 26 27 28 28 1 P.M. SESSION. 2 MS. YEE: Let me reconvene the Board of 3 Equalization meeting. Ms. Olson, what I'd like to do is 4 bring back up -- let's see, Mr. Hanks and the Department 5 and -- 6 MS. OLSON: C5? 7 MS. YEE: Yes. 8 MR. LEVINE: Well, perhaps I could summarize 9 what happened -- 10 MS. YEE: Okay. 11 MR. LEVINE: -- which is nothing. I would 12 recommend -- this is -- this is confusing. 13 MS. YEE: Okay. 14 MR. LEVINE: They couldn't explain it to me in 15 language I can understand, which is not audit-ese. 16 And they can't agree except that I think we're 17 all in agreement that it should go back out in the field 18 so that Petitioner can sit down with the auditors and go 19 through again on the issue of tax included. 20 Though I understand that Petitioner is willing 21 to submit a number he thinks is appropriate and if the 22 Department agrees with it then they won't have to go out 23 in the field and we'll still bring it back for Board 24 approval. But otherwise they'll go out in the field and 25 I will ask my folks to look at it very closely when it 26 comes back, whichever way it goes. 27 And I'll be looking at it, too, to make sure I 28 can follow what happened. 29 1 MS. YEE: Okay. And in terms of going back out 2 into the field, how -- what's the scope of when -- 3 MR. LEVINE: I think we expect that it can be 4 done in a 30-30-30 unless the Department -- the 5 Department is to decide to do a full-blown 6 recalculation, markup, et cetera. 7 Can you still get it done in 30 days? 8 MR. HANKS: No. I -- I think we'd -- we'd 9 request additional time, given the fact that we'd have 10 to return it to the district. 11 MR. LEVINE: Well, perhaps the standard 30-30 12 subject to if the Department decides that we'll notify 13 Board Proceedings that we'll need more time. 14 MS. YEE: Okay. That's fine. 15 Members, any objection to that? 16 Okay. Would you like to entertain a formal 17 motion on that? 18 Motion by Ms. Steel for -- to move a 30-30-30 19 and obviously if more time is required we will allow 20 that and be notified of such. 21 MR. HORTON: Second. 22 MS. YEE: Second by Mr. Horton. 23 Without objection, that motion carries. 24 Thank you very much. 25 ---oOo--- 26 27 28 30 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 June 17, 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 30 13 pages constitute a complete and accurate transcription 14 of the shorthand writing. 15 16 Dated: August 11, 2010. 17 18 19 20 ____________________________ 21 BEVERLY D. TOMS 22 Hearing Reporter 23 24 25 26 27 28 31