BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 5901 Green Valley Circle, Room 207 Culver City, California REPORTER'S TRANSCRIPT JUNE 18, 2010 ITEM M CHIEF COUNSEL MATTERS OTHER CHIEF COUNSEL MATTERS 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 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 Olson Chief, Board 14 Proceedings Division 15 Board of Equalization Staff: Richard Moon 16 Tax Counsel 17 18 ---oOo--- 19 20 21 22 23 24 25 26 27 28 2 1 2 INDEX OF SPEAKERS 3 4 Speaker: Page 5 ROBERT QUON 6 6 JAMES C. HARMON 7 7 MARIE A. LA SALA 9 8 ---oOo--- 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 1 Culver City,California 2 June 18, 2010 3 ---oOO--- 4 MS. YEE: Our next matter, please. 5 MS. OLSON: Our next matter is M1, Request for 6 Authorization to File Amicus Curiae Brief. 7 MS. YEE: Members, we're on Item M1. This is 8 the Request for Authorization to file an Amicus brief 9 aircraft. 10 Let me have Mr. Moon introduce the issue, and 11 we have three speakers before us on this matter. 12 MR. MOON: Good afternoon. My name is Richard 13 Moon with the Legal Department. We're here before you 14 to request the Board's authorization to file an amicus 15 brief in cases involving fractional aircraft. 16 With us we have the Acting L. A. Assessor. And 17 then the Deputy County Counsel from Santa Barbara and 18 Orange County. So I will go ahead and let them speak. 19 MS. YEE: Okay. Great. Thank you. 20 Good afternoon. 21 MR. QUON: Good afternoon. 22 MS. YEE: Introduce yourselves for the record. 23 You each have three minutes. 24 MR. QUON: Robert Quon, Los Angeles County 25 Assessor. 26 JAMES HARMON: James Harmon, Deputy County 27 Counsel on behalf of the Orange County Assessor. 28 MS. LA SALA: Marie LaSala, Deputy County 4 1 Counsel for the Santa Barbara County Assessor. 2 MS. YEE: Okay. 3 ---oOo--- 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 1 ROBERTQUON 2 MR. QUON: It's -- Robert Quon speaking. It 3 was my understanding that at the last meeting of this 4 Board the question came up as to whether California 5 Assessors Association or the Los Angeles County 6 Assessors office would also be fIing an amicus brief. 7 And the answer is a positive yes, we will be filing a 8 brief and this -- the California Assessors Association 9 is fully supportive of -- of both the Santa Barbara and 10 Orange County defense of SB 87, which was the law -- or 11 which is the law in question. 12 We believe that if -- that if the law were 13 overturned that the fractionally-owned aircraft, which 14 is generally described as a time share in private jets, 15 would be overturned and consequently would escape 16 assessment. 17 There are substantial revenues involved but 18 that's not why we're here. It's because of the fact 19 that it would otherwise escape assessment as opposed to 20 their competitors, the charter jets and the commercial 21 aircraft, which would in turn be assessed. 22 That concludes my remarks. 23 MS. YEE: Thank you, Mr. Quon. 24 Next speaker. 25 ---oOo--- 26 27 28 6 1 JAMES HARMON. 2 MR. HARMON: Madam Chairwoman, Members of the 3 Board, we ask the Board to authorize the filing of an 4 amicus brief for three main reasons. 5 Number one, to support the Legislature. Number 6 two, to support local assessors. And then finally to 7 support your staff. And should this Board authorize the 8 filing of an amicus brief, we think the amicus brief 9 from this Board would not only be welcomed by the Court, 10 but in fact would be persuasive. 11 First in supporting the Legislature, the 12 Legislature on the recommendation of this Board passed 13 Senate Bill 87 by more than a two-thirds vote. And in 14 doing so, according to plaintiffs' expert opinions, the 15 Legislature was relieved of some burden when it came to 16 Prop. 98 funding by the revenue that was raised under 17 Senate Bill 87. 18 Local assessors are now responsible under 19 Senate Bill 87 for implementing it. And in fact in this 20 case it's fallen by plaintiffs' choice on the Orange 21 County and Santa Barbara assessors to defend Senate Bill 22 87 statewide. So the costs and burdens of defending 23 Senate Bill 87 have been borne by the Orange County and 24 Santa Barbara County, and on a resource level we're 25 certainly out-gunned by the resources that the 26 fractionally-owned aircraft companies and the law firms 27 that they've hired have. 28 So we've had to use our staff to counter their 7 1 attack on what the Legislature has passed. 2 And finally, your staff has implemented your 3 recommendation and gone forward and recommended forms to 4 implement Senate Bill 87 and has also been subpoenaed 5 and has been subject to deposition and discovery demands 6 when it comes to plaintiffs' challenges. 7 So we think that the Board authorizing then 8 filing an amicus brief on your behalf would lend support 9 to their efforts on your behalf. 10 Finally, we believe that an amicus brief from 11 this Board would be persuasive by the Court and welcomed 12 by the Court because really only this Board can speak on 13 taxation on a statewide level, and bring in that voice 14 from the authority that this Board has under the 15 Government Code on statewide taxation issues. 16 And for those reasons we don't believe that the 17 Board should remain silent when it in fact supported 18 Senate Bill 87, asked the Legislature to support it, the 19 Legislature supported it, and we'd ask for your 20 continued support at this point. 21 Thank you. 22 MS. YEE: Thank you, Mr. Harmon. 23 Ms. La Sala. 24 ---oOo--- 25 26 27 28 8 1 MARIE A. LASALA 2 MS. LA SALA: I'm Marie A. La Sala. 3 I'm representing the Santa Barbara Assessor in 4 the litigation along with my co-counsel, Mr. Harmon. 5 You're probably familiar with SB 87, but it's a 6 very important statute to bring some fairness into the 7 realm of taxing aircraft. 8 As -- as you probably know, commercial airlines 9 are already taxed in California and all over the 10 country, and they're taxed based on how much time they 11 spend in each state. The value is allocated to make 12 sure that each state secures its fair share of the 13 taxes. 14 For private aircraft, those aircraft are taxed 15 based on the home base where the aircraft is normally 16 kept. And if it's kept in a California county those 17 private jets are taxed and have always been taxed at 18 their full market value. 19 The only category of aircraft that is escaping 20 taxation are the fractionally owned. It's unfair to tax 21 of course the commercial airlines and the private 22 aircraft and to let one major segment go untaxed. 23 The reason it happened is pretty simple. 24 Fractional aircraft are heavily utilized by all the 25 different owners. So instead of having an easily 26 recognizable home base these jets are always on the 27 move. 28 Because they're always on the move for the past 9 1 15 years or so, while they were developing the industry, 2 they simply were not paying tax anywhere. They were not 3 claiming a home base, even though they were taking off 4 and landing in California tens of thousands of times 5 each year using our airspace, our -- all of the 6 facilities at our airports, our emergency services, 7 fire, Sheriff. 8 So they're using California resources, paying 9 absolutely no tax. 10 The only states to tax the fractionals right 11 now it's Washington State and California. We're using a 12 similar approach. We simply tax them based on how much 13 time -- their take-offs and landings in California. 14 It's the same basic approach that we use for commercial 15 airlines. 16 Washington had a challenge to their law, as 17 well. One of these same aircraft companies challenged 18 the new Washington law and the State Attorney General in 19 Washington defended the lawsuit and won at the Court of 20 Appeal. 21 Heidi Garcia is the Assistant Attorney General 22 in Washington and she's sharing her briefs and 23 collaborating with us. We were hoping that we can 24 defend the California law in a similar way on a 25 statewide basis with the Board's permission and 26 authorization to file an amicus brief. 27 And if you have any questions, any specifics 28 about the lawsuit or why we need your help, we're here 10 1 to answer those question, as well. 2 MS. YEE: Great. Thank you, Ms. La Sala. 3 Questions, Members? 4 Ms. Mandel. No? 5 MR. HORTON: Comment. 6 MS. YEE: Mr. Horton. 7 MR. HORTON: Thank you, Madam Chair. Let me 8 thank you all for coming. And particularly my Assessor 9 of Los Angeles, Mr. Quon. I appreciate your input. 10 I would -- I would motion that we support the 11 filing of an amicus brief. The -- the only hesitation 12 in the past was that -- to make sure that all of the 13 players were on board, and that the Board of 14 Equalization was not out front by itself. 15 And during the time that the information was 16 brought forward to us we were not aware of the 17 information that you've shared today. 18 So, thank you, and it's very helpful. We 19 appreciate your confidence in our staff, as well, and 20 our ability to win. 21 So with that, Madam Chair, I move that we 22 authorize the filing of the amicus brief. 23 MS. YEE: Okay. We have a motion by Mr. Horton 24 to authorize the filing of the amicus brief in this 25 litigation. 26 Is there a second? 27 I will second that motion. Further discussion? 28 MS. MANDEL: Yeah. I -- now I had asked about 11 1 the CAA last time because it was a CAA-sponsored bill. 2 It was a budget trailer bill, came to the Board I 3 think -- you know, it was one of those late things in 4 the budget process. It came to the Board sort of at 5 that late period for a position and the Board -- 6 majority of the Board did support the bill. 7 And so I really wondered where is CAA? Why are 8 the counties coming to us; CAA should be supporting the 9 bill. And that's why we tried to reach you all but of 10 course it was very late in the day last time. So I'm -- 11 I'm glad you're here. 12 I had not heard until today that Board staff 13 has received subpoenas and deposition notices for this 14 case, which is kind of curious to me, but be that as it 15 may that, you know, puts us in it a little more. 16 My general feeling was last time that the -- 17 that it's atypical for the Board to come in at the trial 18 court level, and I also thought that a more typical case 19 for the Board to come in on amicus is where there was an 20 issue of uniformity of assessments or lack of uniformity 21 of assessments among the counties or some long-standing 22 interpretation of the law by the Board or a Board rule, 23 you know, being at stake and that sort of thing. 24 I hear what you're saying about the -- 25 statewide concern about the statute that would apply 26 probably any time in any of these -- this type of 27 lawsuit under this code section that they're bringing, 28 which is I think to invalidate a -- a statute. So that 12 1 presumably would always apply. 2 And than -- the other twist, I guess, on this 3 one is that it was a -- that the Board did support the 4 bill. 5 I'm not sure other than the Board's name what 6 the Board has in terms of additional arguments, but -- 7 to add to what you would have, but perhaps it's a 8 resource issue and -- but I'm glad to see that you're -- 9 you're here and that the CAA and L. A. County, because I 10 think this was a -- was particularly L.A. County -- that 11 they come before the Board when we were considering the 12 bill for support. 13 So, I was kind of missing that last time. 14 MR. QUON: Oh, we were unaware that -- by "we," 15 I mean both the CAA and Los Angeles County was unaware 16 that Santa Barbara County Counsel had made the request 17 of the Board for an amicus brief, and so we would have 18 been here sooner had we been aware of it. 19 MS. MANDEL: Okay. 20 MS. YEE: Thank you, Mr. Quon. 21 Yes, Ms. Steel. 22 MS. STEEL: Welcome, Mr. Quon. I think as 23 Assessor this is the first time you appear to the Board, 24 right? 25 MR. QUON: It's the first time I've appeared 26 as -- 27 MS. STEEL: Yeah, as the -- 28 MR. QUON: -- as an Assessor. 13 1 MS. STEEL: -- Assessor. Congratulations. 2 MR. QUON: I've had one or two embarrassing 3 moments here. As an Assessor employee, though, I have 4 to admit. 5 MS. STEEL: Well, welcome. You know, I voted 6 yes only the reason to adopt this form because statute 7 required the Board to implement the leg -- legislation, 8 but I voted last time no on amicus brief because it's 9 still -- I still believe that taxpayer's lawsuit about 10 the -- it's illegal and unconstitutional and I still 11 think that -- I don't think it's really good idea that 12 we really support this for -- I wish I can be on your 13 County Assessors side at this time, but I am -- I don't 14 believe that, you know, we have to really do that. 15 And if we pass this support to file amicus 16 brief then I want us to mention that, you know, I voted 17 no on it. Because I'm not going to support this. 18 MS. YEE: Mr. Horton. 19 MR. HORTON: Question of our legal 20 representative. The Board's been -- our staff has been 21 subpoenaed. By virtue of that we're drawn into the -- 22 into the lawsuit. 23 MR. MOON: Well, we're -- we're drawn into the 24 lawsuit in the sense that we have to answer the 25 subpoenas and they've -- they've issued two subpoenas. 26 One for two different employees. 27 One has had their deposition. One's upcoming 28 this coming week. But we're drawn in right now to the 14 1 extent that we have to answer those. 2 MR. HORTON: So from a legal perspective such 3 that we -- we're drawn into it, we have -- we're 4 responding, we're participating, we endorse the original 5 set of legislation as a body. It seems to me that the 6 amicus brief would just give us a more significant 7 vehicle, a method of -- methodology, if you will, of 8 stating our case. Otherwise we're relying on the 9 deposition and inquiries through the -- through the 10 process of the normal process of the Court. 11 So, my further concern, though, is -- is to 12 assure that in filing the amicus brief it was just 13 making a friendly statement here and we're not pulling 14 ourself in as party to the -- to the -- to the legal 15 action. 16 So -- which I know an amicus brief is. But any 17 comments on that? 18 MR. MOON: Well, certainly to the extent that 19 we file an amicus we would be setting forth the Board's 20 position on -- on the legislation. And we would be 21 acting or intervening for that purpose only for filing 22 an amicus. 23 MR. HORTON: I know this has absolutely nothing 24 to do with this case. But I thought I should share this 25 at this time. 26 Mr. Moon did a fabulous job of representing the 27 Board of Equalization at a conference. He answered all 28 very difficult questions and just handled himself well. 15 1 Had the audience laughing at something they should be 2 crying about. 3 But at any rate, I want to commend you publicly 4 for that. 5 MR. MOON: Thank you. 6 MR. HORTON: Thank you, sir. 7 MS. YEE: Thank you, Mr. Horton. 8 Other comments, Members? 9 Ms. Alby. 10 MS. ALBY: Thank you, Madam Chair. I was -- I 11 have a question for Mr. Moon. What side has subpoenaed 12 us in this case? 13 MR. MOON: Well, it's been the -- the -- the 14 fractional aircraft taxpayers jointly. 15 MS. ALBY: So, they're asking? 16 MR. MOON: Yes. 17 MS. ALBY: Talking about. 18 I know I -- I can count votes so I'm not going 19 to belabor this, but I -- I actually -- no surprise, my 20 position hasn't changed, I don't think we should be 21 doing this. I don't -- budget constrictions and what 22 not. 23 At -- at the beginning and even without that, I 24 don't know what kind of novel argument we're going to be 25 making that the parties, themselves, can't be making on 26 their own. And it almost feels to me like we're turning 27 the trial Court into an interested parties meeting and 28 I -- so, I just think it would be wise for us to sit it 16 1 out, and I will be opposing the motion. 2 MS. YEE: Okay. Thank you, Ms. Alby. 3 Any further comments? 4 Ms. Mandel. 5 MS. MANDEL: Well, the Board supported the 6 bill. I kind of hope we don't see this every time the 7 Board supports a bill because, as I said, the -- you 8 know, the general standard that I think for the Board or 9 we think for the Board is where it's -- you know, under 10 the Board's role of ensuring uniformity of assessments 11 and the Board's -- anything where the Board -- where 12 we're -- you know, where a Board rule is in contention 13 or the Board long-standing interpretation of the law 14 that -- you know, this is I guess a little bit of an 15 unusual situation in terms of this particular law and 16 what it was trying to get at, which was that apparently 17 the properties were -- I'm sure the taxpayers would 18 disagree about escaping assessment only because they 19 probably think that it's not appropriate to assess and 20 that's why they're fighting, but from the State's 21 perspective, Legislature's perspective and the 22 Assessor's perspective property that should be assessed 23 was escaping assessment without this statute being in -- 24 being -- laying out something more clearly than perhaps 25 might have been in existence to be able to do that 26 before. 27 Hopefully I said that safely enough. 28 MR. QUON: Perfectly. 17 1 MS. YEE: Thank you, Ms. Mandel. 2 We have a motion before us by Mr. Horton to 3 authorize the filing of the amicus brief in this 4 litigation. Second by Yee. 5 Please call the roll. 6 MS. OLSON: Madam Chair. 7 MS. YEE: Aye. 8 MS. OLSON: Ms. Alby. 9 MS. ALBY: No. 10 MS. OLSON: Ms. Steel. 11 MS. STEEL: No. 12 MS. OLSON: Mr. Horton. 13 MR. HORTON: Aye. 14 MS. OLSON: MS. Mandel. 15 MS. MANDEL: Aye. 16 MS. OLSON: Motion carries. 17 MS. YEE: Thank you very much. 18 MR. HARMON: Thank you. 19 ---oOo--- 20 21 22 23 24 25 26 27 28 18 1 REPORTER'SCERTIFICATE 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 18, 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 17 13 pages constitute a complete and accurate transcription 14 of the shorthand writing. 15 16 Dated: July 19, 2010. 17 18 19 20 ____________________________ 21 BEVERLY D. TOMS 22 Hearing Reporter 23 24 25 26 27 28 19