BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 450 N Street, Room 121 Sacramento, California REPORTER'S TRANSCRIPT JULY 13, 2010 LEGISLATIVE COMMITTEE Reported by: Beverly D. Toms No. CSR 1662 1 1 2 P R E S E N T 3 4 For the Committee: Jerome E. Horton Chair 5 Betty T. Yee 6 Member 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 Joann Richmond Board Proceedings Division 14 Board of Equalization 15 Staff: Margaret Shedd Legislative and Research 16 Division 17 Jeff McGuire Sales and Use Tax Department 18 Lou Felleto 19 Property and Special Taxes Department 20 21 ---oOo--- 22 23 24 25 26 27 28 2 1 2 INDEX 3 PAGE 4 SUB-ITEM I - 2010 LEGISLATIVE PROPOSALS 4 5 SPEAKER: 6 JAY McKEEMAN 7 7 DEBORAH MATTOS 11 8 9 SUB-ITEM II - 201- LEGISLATIVE BILLS 32 10 SPEAKER: 11 GINA RODRIGUEZ 34 12 ---oOo--- 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 1 SUB-ITEM1 2 LEGISLATIVE PROPOSALS 3 Sacramento, California 4 July 13, 2010 5 ---oOO--- 6 MS. YEE: And our next item, Ms. Richmond. 7 MS. RICHMOND: Okay, our next item is the 8 Legislative Committee. And Mr. Horton is the Chair of 9 that committee. Mr. Horton. 10 MR. HORTON: Thank you, Madam Chair and 11 Members. Members, before us in the Leg. Committee is 12 two items. The first item focus on adding Section 13 6880-10 to the Revenue and Tax Code. 14 Second item deals with an item that came before 15 us at the last meeting, SB 884. Both of these items 16 were put on at the request of our Chair, Madam Betty 17 Yee. So I'm going to ask Ms. Shedd to introduce the 18 items and -- and seek the input from Member Yee. 19 MS. SHEDD: Thank you, Mr. Chair, Members at 20 the Board. My name is Margaret Shedd with the 21 Legislative and Research Division. 22 The first item on the Legislative Committee 23 agenda is Business Tax suggestion number 3-7. It adds 24 Section 6480.10 to the Revenue and Taxation Code to 25 allow specified suppliers and wholesalers of motor 26 vehicle and diesel fuel a credit for their costs in 27 complying with the Sales and Use Tax and Fuel Tax laws. 28 Specifically, the proposal would authorize a 4 1 fuel supplier or fuel wholesaler to claim a credit of 2 two and a half percent up to a maximum credit of $75,000 3 annually of the total Excise Tax and Sales Tax 4 prepayments paid by the supplier or wholesaler to 5 compensate them for their compliance cost. 6 Of the various taxes and fees administered by 7 the Board a credit for a taxpayer/feepayer's cost to 8 comply is allowed under three programs. These are the 9 California Tire Fee law, the Electronic Waste Act of 10 2003 and the Cigarette and Tobacco Products tax. Under 11 the California Tire Fee law authorizes a retailer to 12 retain one and a half percent of the fee as 13 reimbursement for collection costs. 14 Under the Electronic Waste Act it imposes an 15 e-waste fee on the consumer and is required to be 16 collected by the retail seller. 17 Under that program a retail seller is 18 authorized to retain three percent of the fee as 19 reimbursement for collection costs. And under the 20 Cigarette and Tobacco Tax Products law, it provides that 21 the cigarette stamp -- tax stamps are sold to the 22 licensed distributor at a discount of .85 percent of the 23 denomination -- denominated value, which us intended to 24 help defray the costs of leasing the equipment and labor 25 costs to the distributor for affisic -- affixing the 26 stamps. 27 I have with me Lou Feletto from the Special 28 Tax -- Property and Special Taxes Department, and Jeff 5 1 McGuire from the Sales and Use Tax Department to answer 2 any questions. 3 And I know that Jay McKeeman from CIOMA is here 4 to speak in support. 5 MS. YEE: Okay. 6 MR. HORTON: Members, we also have -- and I 7 would ask that they come forward, Ms. Deborah Mattos and 8 Gina Rodriguez, who are here to testify on the item. 9 MS. YEE: Okay. 10 MR. HORTON: And let's commence with 11 Mr. McKeeman -- 12 MR. McKEEMAN: McKeeman, yes. 13 MR. HORTON: -- in behalf of the item. 14 ---oOo--- 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6 1 JAYMcKEEMAN 2 MR. McKEEMAN: Thank you. I'm Jay McKeeman 3 with the California Independent Oil Marketers 4 Association. We represent approximately 200 fuel 5 wholesalers and distributors in the State. Our 6 membership is made up primarily of small family-owned 7 business. And we are the conduit between the refinery 8 and the customer for fuels in the State. 9 I'm -- I really apologize for having to be here 10 this morning. In -- in all normal situations we would 11 have been able to work with the Legislature in 12 addressing concerns that -- that occurred as a result of 13 the recently imposed tax swap, but that legislation was 14 passed basically without committee hearings and without 15 involvement of the regulated community. 16 And so we're having to build a proposal here 17 from the ground up. We wanted to bring it to the Board 18 first because obviously you are the tax experts in the 19 State and -- and it's very important to have support 20 from the Board for a concept like this as we try to move 21 forward and -- in the Legislature in attempting to get 22 this legislation put into law. 23 Let me give you a couple of reasons why we 24 think it's very important that this -- that this 25 proposal be supported by you and ultimately enacted into 26 law. 27 Your staff report did an excellent job of 28 outlining the problems that we have encountered with the 7 1 tax swap. It's really taken tax calculation and tax 2 administration for fuel taxes from algebra to calculus. 3 It's -- it's created a very dynamic situation for fuel 4 taxes, which have normally been very steady and -- and 5 stable. So, our members have had to go out and talk to 6 their software accounting people and their invoicing 7 people and their customers and try to figure out how to 8 make this all work. Because both the Sales Tax and the 9 Excise Tax are adjusting differently for fuels at 10 different times, and there are a number of carve-outs 11 for various kinds of fuels it's created a big problem in 12 terms of addressing the issues that have been created by 13 this. 14 Primarily, the -- the issues are the -- the 15 fact that we have -- you know, software costs that have 16 to be incurred, we've -- based upon a survey from our 17 membership it's 5 to 20 thousand dollars per company. 18 That's a one-time cost but then we're going to have to 19 incur separate costs next year, 5 to 10 thousand dollars 20 for the -- the diesel swap, and then we'll have ongoing 21 software adjustments that have to be made depending on 22 how the Excise Tax is adjusted each year by the -- by 23 the Board of Equalization. 24 Beyond the tax swap complexities there are 25 other issues that are just inherent embedded in the tax 26 law in this State. One of the primary expenses our 27 members incur on behalf of the State is bad tax debt. 28 What happens is our members pay Excise Tax and 8 1 prepayment of Sales Tax at the time they purchase the 2 fuel from the loading rack. Then they take that fuel 3 and resell it to customers. 4 If a customer decides not to pay for the fuel 5 our members incur the tax debt for that. The State 6 already has the tax because it was paid at the rack. 7 Our members have no way of getting that -- that bad debt 8 erased from -- from their -- from their books. They 9 have to take it as a business loss. And that's -- 10 that's a very expensive proposition for us. Especially 11 in times like this when you have a number of customers 12 that are -- that are not willing to pay. 13 There are other complexities below the rack 14 that we encounter. California has developed a -- a 15 very intricate number of specialized taxing requirements 16 for fuels. Gasoline and diesel. Off road use of diesel 17 and gasoline. Use of gasoline and diesel for 18 specialized farming practices. Those are all exempt 19 from the -- the tax swap. So what that means is you 20 have to set up different tax categories for those 21 products and maybe even have to set up some additional 22 storage to make sure that those products that are taxed 23 separately are -- are stored in -- accounted for in a 24 segregated manner. 25 MS. RICHMOND: Time has expired. 26 MR. McKEEMAN: Time -- oh, I'm sorry, I didn't 27 know there was a time limit. 28 MR. HORTON: Thank you sir. I believe Ms. 9 1 Mattos can probably pick it up. If not, we will allow 2 additional time for you to conclude. But if you want to 3 wrap it up -- summarize, please do so. 4 ---oOo--- 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10 1 DEBORAHMATTOS 2 MS. MATTOS: Yes, Deborah Mattos, representing 3 California Independent Oil Marketers. As Jay was saying 4 this is -- we apologize for coming late. Normally we 5 would have gone to the Legislature on this kind of an 6 issue first, come to you for support on our proposal, 7 which we've done many times in the past. But because of 8 the timing when this happened in March and it fell upon 9 you really quickly and us, we're trying to -- we've 10 worked very well with your staff. 11 You've had excellent workshops throughout the 12 State with our members trying to get everybody to 13 understand the issue. We have talked with tax staff at 14 the Legislature so we're coming to you for some kind of 15 position, support hopefully, so that we can take this to 16 the Legislature and hopefully they will see our need for 17 the small family businesses. 18 These are not big corporations and they're 19 really trying to come to the forefront to get this to 20 happen appropriately. 21 MR. HORTON: Thank you very much. Any other 22 comments? 23 I believe Ms. Mattos has -- excuse me, Ms. 24 Rodriguez -- Ms. Mattos has a little more time so 25 did -- did that cover your presentation? 26 MS. MATTOS: Yes. 27 MR. HORTON: Okay. Thank you very much. 28 Ms. Rodriguez. 11 1 MS. RODRIGUEZ: Mr. Horton, I'm on the next 2 bill, SB 884. 3 MR. HORTON: You're not interested in this 4 bill? 5 MS. RODRIGUEZ: No. 6 MR. HORTON: Okay. Thank you very much. 7 Given the testimony and support I'm presuming 8 that there -- no one in the audience in opposition. 9 Seeing and hearing none -- Members, are there any -- 10 first, Member Yee. 11 MS. YEE: Thank you, Mr. Chairman. And thank 12 you for agreeing to put this item on the Legislative 13 Committee agenda. 14 And the reason for doing so was really to 15 highlight the potential compliance challenges that we 16 may have associated with the fuel tax swap that the 17 Legislature did enact as part of the budget agreement. 18 And let me just say at the outset, I'm not prepared to 19 necessarily support the proposal today. And it really 20 was to essentially put some light on what are -- what I 21 believe are going to be some fairly significant 22 administrative hurdles for the wholesaler community. 23 And I guess what I wanted to explore with the 24 staff, and I have a suggestion as to how we may want to 25 move forward is -- I know the focus with respect to the 26 two people here who have testified is really with 27 respect to the wholesalers, but we probably have even a 28 broader community that we can certainly attest may have 12 1 similar administrative issues with the fuel tax swap I 2 guess on down the chain, but could you comment on that? 3 Are we -- is it a potentially larger universe than just 4 the wholesalers that -- 5 MR. McGUIRE: I believe the -- the main impact 6 is to the supplier distributors because they're dealing 7 with both the Excise and the Sales Tax prepayment -- 8 MS. YEE: Okay. 9 MR. McGUIRE: -- while the retailers also -- 10 it's just kind of a pass through for them. So their 11 rates -- again, their prices would fluctuate each year 12 as we adjust the Excise Tax to -- to make it revenue 13 neutral with the anticipated Sales Tax rate. 14 MS. YEE: Uh-huh. 15 MR. McGUIRE: I think CIOMA is the -- you know, 16 has made a pretty good statement that they're the 17 primarily impacted group kind of stuck in between the -- 18 the rack and the -- the retailers. 19 MS. YEE: Okay. And then is the revenue impact 20 that's noted on our agenda the $57 million annual 21 General Fund loss that is attributable to the 22 compensation that would be provided for the wholesalers 23 only? 24 MR. McGUIRE: Yeah, that would be probably the 25 maximum based upon about seven hundred impacted 26 taxpayers. 27 MS. YEE: Okay. And this is what gives me 28 pause obviously with trying to move a proposal like this 13 1 forward given our State's fiscal constraints is the $57 2 million price tag. However, I would venture to guess 3 that given the compliance complexities that there is 4 going to be some revenue loss associated with the -- the 5 fuel tax swap proposal, itself. 6 And, Mr. Chairman, what I'd like to explore, 7 and -- and I would like to hear from my colleagues 8 about, just the sentiment of trying to provide some 9 assistance to the wholesalers who have to deal with the 10 compliance challenges, and that is -- and I'm happy to 11 facilitate this, but a dialogue with the administration 12 going forward because I think this is probably more 13 properly considered as a budget proposal and not as a 14 Legislative proposal. I don't want to get into the bad 15 habits of the Legislature and try to sneak this in at 16 the -- at this late stage of the Legislative year. 17 But to just have a very open, honest dialogue 18 about what some of these problems are. And I'm happy to 19 try to convene a meeting with the administration and 20 certainly our staff and -- and the wholesaler community 21 to discuss what some options might be. 22 And to the extent that you're seeing some real 23 practical compliance issues and implementation issues 24 administratively, if those could be brought forward so 25 that there's a good sense of, you know, where we're 26 having some -- some problems. 27 MR. McKEEMAN: I'd be happy to do that. 28 MR. HORTON: Thank you very much, Madam Yee. 14 1 Member Steel, I believe. 2 MS. STEEL: When this is going to be 3 introduced? 4 MS. YEE: I think that's -- 5 MS. STEEL: You're going to just sneak in this 6 year or it's coming on next year? 7 MS. YEE: Well, I -- I think part of the 8 challenges that -- we're recognizing the problem now. 9 We also recognize that it's fairly late in the 10 legislative year. And I know our representatives from 11 the wholesaler community have been speaking with members 12 of the Legislature, and I guess my view of it is that I 13 really don't want to be -- I want this Board to 14 certainly acknowledge that there are compliance 15 complex -- complexities, but I certainly don't feel like 16 it's a responsible thing to try to sneak it into a bill 17 at this late stage of the process and to really look at 18 this given the potential General Fund impact as a budget 19 proposal going forward. 20 So that -- that would be my suggestion in terms 21 of the timing of when this would be before the 22 Legislature. 23 MS. STEEL: Well, I -- when I read this 24 proposal I thought that this is a great deal and it's 25 going to really help. 26 I really -- even people call me that I'm a tax 27 collector that I really don't care about that budget 28 proposal because if we help taxpayers then we can get -- 15 1 we can collect more money. 2 This is -- I think this is really good 3 compensation. It's just helping a little bit of a cost, 4 you know, for independent -- not just independent but 5 oil -- the suppliers. 6 So, I thought it's really great idea and I 7 thought we going to vote today. That's why I am here. 8 And I just want to know that if we can put it in on 9 this -- onto any bills this year I think it's going to 10 be great. 11 So, that's why I asked you that, you know, when 12 this is going to go in. I mean, not asking you, 13 Betty, -- 14 MS. YEE: Yes. 15 MS. STEEL: -- but, you know, for -- to the 16 staff. 17 MS. YEE: Right. 18 MS. STEEL: This is going to be just really 19 small, how -- I mean under the recession everybody is 20 doing really bad. And this is just little compensation 21 out of that really bad bill that, you know, it just went 22 through and then suddenly these companies, that they 23 have to change from one tax to another. I thought that 24 was -- you know, really ridiculous to the company. 25 So, this cost helping -- this is a really great 26 idea. So, you know, if we can put it in this year, I 27 think it's really -- 28 MR. HORTON: Well, I think we -- Member Steel, 16 1 if I may, I think we have to defer the response to that 2 to the representatives of the CIOMA as to their strategy 3 relative to the Legislative process. 4 We can certainly provide you some input from 5 our perspective collectively and -- and individually. 6 But maybe you can respond to Member Steel's inquiry 7 about your strategy -- your legislative budget strategy 8 going forward. 9 MR. McKEEMAN: You bet. I'm happy to do that. 10 Jay McKeeman with CIOMA. 11 Again, this was -- this is an unusual situation 12 since we're already well into the mainstream of the 13 Legislative session. Obviously the budget is a vehicle 14 that this -- something like this could be considered in. 15 But once -- you know, during our -- our discussions at 16 the Legislature the -- the first question that's 17 normally asked is how does the BOE feel about this. 18 So, the purpose for bringing it up at this -- 19 you know, before we even had a bill number was to get 20 just a -- a test of sentiment or -- or a sense of 21 direction from the Board so that when we go over and try 22 to find a -- a vehicle for this -- I mean we're -- we're 23 anxiously working with the -- with the Legislature in 24 trying to get something introduced. Whether it's in the 25 budget or as a separate bill is still open to debate. 26 But this was -- we felt this was the first step in -- in 27 the stairway to -- to try to get something put into -- 28 into action over there. MR. HORTON: Thank you. 17 1 Member Yee. 2 MS. YEE: I appreciate the diligence of the -- 3 of the industry to try to push this forward. I guess I 4 just want to kind of just introduce some practical 5 reality here and that is the Legislature is trying to 6 close a budget for a fiscal year that's already begun. 7 To the extent that this has a General Fund impact I 8 don't believe it will be positively entertained by the 9 Legislature as part of the budget process. 10 If it's in legislation it will not contain an 11 appropriation so there will be no funding for it, and I 12 would suspect and I don't know this for sure, but if an 13 appropriation were to survive the legislative process, 14 and I don't know how it would given the appropriations 15 process -- and get down to the Governor, that this would 16 probably be a pretty good candidate for a veto on the 17 appropriation piece of it. 18 What I'm suggesting is kind of slowing this 19 down a bit and really taking the time in the fall -- and 20 I'm happy to facilitate this because I'm sympathetic to 21 the challenges that the wholesalers are going to face 22 with compliance and really want to sit down with the 23 administration and even with members of the Legislature 24 or their staff to talk about what might be feasible 25 relative to, you know, some type of compensation in this 26 regard. 27 I -- I just think the practical reality is that 28 it's -- it's not going to be positively received and I 18 1 for one as a Member of this Board don't feel very 2 responsible about advancing it at this point given our 3 fiscal challenges. 4 MR. HORTON: Ms. Alby. 5 MS. ALBY: Thank you, Mr. Chair. I do think 6 this is a very good idea. It's a a good bill for small 7 business, family businesses. And I guess keeping with 8 the -- with the concerns of Ms. Yee, we have put forward 9 ideas on bills before with -- we approve the concept. 10 Would it be possible to do that today, to -- for this 11 Board to make the statement that we recognize the -- the 12 burdens out there on the small companies and if we could 13 send this back? I mean, we don't decide what's going on 14 in that budget or the legislation that goes before 15 the -- both houses, but we can certainly state that as a 16 body that we do support the concept of this bill. That 17 would be my request. 18 MR. HORTON: Members, I would share that during 19 the process of the tax stamps for cigarettes we sort of 20 faced the same challenge in how to ensure that the 21 administration of the program is facilitated and to get 22 the maximum benefit on the return of the revenue we had 23 to make sure that there was a method in which to 24 facilitate not only the development of the stamp, the 25 issuance of the stamp and so forth. And we recognize 26 the cost that was involved. 27 That in and of itself was a laborious process 28 and required us -- a number of interested parties 19 1 meetings in order to really determine the actual cost, 2 determine the impact, determine if there was an offset. 3 There was discussions relative to the offset, whether or 4 not it was in and of itself a tax increase or a tax 5 credit or administrative adjustment. 6 And so those were part of our challenges and as 7 we deliberated the issue and may face this concept as 8 well, and those challenges had to be flushed out either 9 by the legislation -- Legislature or the office of the 10 Governor. 11 In our case we dealt directly with the 12 administration, addressed the concepts and then moved 13 the legislation to the Legislature prior to. And that 14 may be a process that you want to consider. 15 The challenge of -- of supporting it from my 16 perspective conceptually is, is that we have to flush 17 out the concept and the integral part of the -- of the 18 concept. 19 And maybe to the Department, if -- just a quick 20 question -- inquiry, if you will, the $53 million price 21 tag, does that -- does that include an assessment of the 22 potential benefit of collecting the tax as a result of 23 expediting the process, or was there just a presumption 24 that whether this administrative adjustment tax 25 credit -- I don't even know what to call it, but for the 26 sake of discussion we'll call it administrative 27 adjustment -- would have occurred whether the State 28 participated or not in -- in minimizing or offsetting to 20 1 some degree the cost of administration -- administering 2 the program? 3 MS. SHEDD: I believe that it's simply the two 4 and a half percent calculation -- 5 MR. HORTON: So they -- 6 MS. SHEDD: -- which is the cost. 7 MR. HORTON: So nothing was attributed to -- to 8 a potential benefit of having this administrative cost 9 offset to accelerate the implementation of software, 10 hardware and the other things they needed? 11 MS. SHEDD: I don't believe so. 12 MR. HORTON: Is there -- was there any 13 discussions about an offset relative to offsetting a 14 debit to a credit where -- where offsetting -- I'm 15 believing that that proposal is, is to take some of the 16 existing revenue -- well, it says it here, and provide 17 a -- a credit of some sort. Would that trigger a tax -- 18 a two-thirds vote or is that something that can be done 19 with a majority vote? 20 MR. McGUIRE: It's a majority. We believe it 21 will be a majority vote. 22 MS. YEE: Majority vote, yeah. 23 MR. HORTON: Majority vote. 24 MS. STEEL: Yeah, it's not raising taxes, so 25 yeah. 26 MS. YEE: It's not a tax increase. It's not a 27 tax levy. 28 MR. McGUIRE: Not an increase. 21 1 MR. HORTON: Causes a tax levy? 2 MS. YEE: It's not a tax levy. 3 MR. HORTON: Okay. I think that there is some 4 additional work that we need to do and I want to commend 5 Member Yee for willing to take this on and champion this 6 issue from the Board of Equalization. That in and of 7 itself I think gives you a leg up. For us to 8 collectively preempt that effort in my mind would not be 9 wise at this point, given the legislative budget 10 administrative challenges that we may face. 11 So, I would recommend that at the earliest 12 possible point in time that we reconsider this and 13 whether that is prior to legislation or subsequent to 14 legislation is open for debate at this point. 15 But I think there are -- there are other things 16 that need to be flushed out before I would be supportive 17 of the concept, and those are matters that have to be 18 taken under consideration by the legislative body, 19 either the Executive or the Legislative branch. And so, 20 I would defer to that -- 21 MS. STEEL: Chair -- 22 MR. HORTON: -- preliminary process. Madam 23 Steel. 24 MS. STEEL: You know, thank you very much for 25 Ms. Yee brought this out and thank you very much 26 bringing for Legislative Committee for this potential 27 bill. 28 What are you going to give -- Mr. Horton, are 22 1 you going to give staff that what kind of direction that 2 they have to take and what's further study that -- you 3 know, what -- what has to be done for this? 4 Because I think it's really urgent matter, I 5 think then, you know, we really have to move on. And I 6 wish we can vote today to support because the bill, 7 itself, is going to be made not just by ourselves but 8 it's going to make with other legislators that, you 9 know, they going to introduce it. We are just 10 supporting from here. 11 So, if you going to give certain specific 12 directions to the staff that what we have to do unless 13 we don't have that then I'd rather vote today. 14 MR. HORTON: Okay. Well, I mean, based on the 15 comments of the members thus far, it seems that the -- 16 the most appropriate way, from my perspective for us to 17 proceed would be to ask staff to develop a analysis of 18 the recommendation and the concept and the benefits, as 19 well. I believe that there are some benefits in the 20 con -- in the concept. 21 The other part that I'm just he tad bit 22 concerned and I sort of hesitate to interject this, but 23 it is a concern, is that when -- if we as a body take a 24 position of providing a -- such a credit for the 25 administration of a tax program, there are other 26 California taxpayers who face the same burden. Whether 27 or not that burden was imposed upon them legislatively 28 or whether or not there's an offset -- could have been 23 1 an offset or a balancing that could have or should have 2 taken place in the Legislative process and can we now 3 correct that -- I actually introduced legislation in 4 2002 to provide a one percent -- or a credit to all 5 California taxpayers for -- who had to administer the 6 Sales and Use Tax law, Bradley-Burns and property tax 7 and so forth because of the -- when there was an 8 extenuating circumstances that required them to incur an 9 expense beyond the norm. 10 And of course it was real challenging. We 11 weren't able to get it through the Legislature. 12 So, at this point my recommendation would be 13 to -- for us to -- for staff to take a look at these 14 different concerns expressed by the Members of the 15 Board, complete an analysis, submit the analysis to -- 16 to the Board and then we would move such an -- or 17 interface with Member Yee, who has decided to champion 18 this issue and then submit the analysis to the Board and 19 we can move that analysis through the process and I 20 think that will -- the analysis in and of itself will -- 21 will articulate the concerns of the Board and the 22 benefits of this proposal and this concept and give you 23 a -- give -- provide you with a document that is 24 independent, objective and coming from the Board of 25 Equalization. 26 And at this point in time that may be the 27 best -- that would probably -- in my mind would be a 28 better approach than just arbitrarily saying we support 24 1 or we don't support conceptually the concept. Because I 2 would -- I would venture to say that not only would 3 everyone here support the concept, that everyone in the 4 Legislature would support the concept, the Governor 5 would support the concept of -- of providing every 6 California taxpayer an opportunity or some type of 7 either financial or some sort of compensation for the 8 efforts that they put forth in assisting the State of 9 California in collecting taxes. 10 So, -- and so I think you want to -- you want 11 to be conscious of that as we develop this proposal and 12 as we go forward so we can isolate it and build a case 13 for isolating it specifically to this particular 14 industry. 15 And that's my thoughts. Madam Yee. 16 MS. YEE: Actually, Ms. Steel, uh-huh. 17 MR. HORTON: Ms. Steel. 18 MS. STEEL: Mr. Horton, we have time line here? 19 Are they -- staff is going to bring it back next month 20 or -- next month meeting or -- 21 MR. HORTON: I don't -- I don't -- personally, 22 I -- I would allow the -- the two parties, see -- to -- 23 to sort of work with our staff. The time line is 24 restricted only by the taxpayer's proposal and their 25 plans to move the concept through the process and 26 identifying specifically how they want to accomplish 27 that. 28 MS. STEEL: Can I ask staff, so if we bring it 25 1 back and study it then it's never going to go on this 2 year's bill? It has to be next year? 3 MS. YEE: Yeah. 4 MS. SHEDD: That's correct, it's very late in 5 the session to introduce this. I'd -- is that your 6 plan, too? 7 MS. STEEL: So we still have time that how -- 8 how much time do we have to introduce it? It's -- 9 MR. McGUIRE: Well -- 10 MR. HORTON: Why don't we direct that to the 11 taxpayer. It's -- it's -- I mean, I don't want to 12 burden you with a time line. I'd like to hear from you 13 as to what your concepts are -- I mean what your 14 thoughts are as far as introducing this to the 15 Legislature. 16 Are you intending to have a discussion with -- 17 with the Governor and Governor's office? 18 MR. McKEEMAN: All parties. 19 MR. HORTON: Okay. And so -- 20 MR. McKEEMAN: I mean we -- 21 MR. HORTON: -- what's your time line? You 22 want to -- would -- are you interested in -- in getting 23 this done this session? 24 MR. McKEEMAN: Well, let me -- let me just be 25 real pragmatic about what the situation is right now. I 26 mean we're there -- there is an opportunity -- possibly 27 an opportunity to -- to put this into the budget. We 28 have had some preliminary discussions with key budget 26 1 staff over in the Legislature. They recognize the 2 problem that was created by the tax swap. They 3 recognize there were inequities and burdens that were 4 established and that we didn't really have a chance to 5 participate in -- in the process of having that 6 legislation enacted. 7 How far that sympathy takes us I don't know. I 8 mean, honestly, it's a -- we are -- we're talking to 9 people. They are interested. They understand there's a 10 problem. But I -- I -- you know, if I had to take a -- 11 you know, try to handicap this it's a 50-50 chance that 12 we could get something done. 13 But the -- and -- and correctly noted that 14 there's a $57 million hit to the General Fund and we're 15 part -- we're, you know, competing with a lot of other 16 interests in -- in how that money is allocated. 17 So I think Chair Yee really hit the nail on the 18 head in the sense that we've -- we've got a tough road 19 to hoe. That doesn't mean that we're not interested 20 in -- in at least advancing the idea and talking to 21 people over there and seeing how far we can get. But 22 we're very interested in -- I don't want to -- to 23 minimize the interest that we have in working with the 24 Board in crafting a specific idea. And the best 25 solution in my mind is if it takes us another few months 26 to -- to get together and -- and do some due diligence 27 in terms of exactly what a proposal should look like, 28 and we come out with a endorsement from the Board of 27 1 concept, that's -- that's really important to us. 2 So, I think -- we're willing to do that. At 3 the same time we're going to continue our discussions 4 over in the Legislature because it just is -- you know, 5 that's what we have to do to see if there is an 6 opportunity this year to get something done. 7 MR. HORTON: Members, if I may, considering the 8 open endness of this process, possibly we can direct 9 staff to work with the taxpayer and in trying to -- 10 providing advice, guidance, research, analysis that will 11 help facilitate this process, and -- and report back to 12 us periodically. 13 I mean, we'll just keep it on the Legislative 14 Committee so they can come back at any given time once 15 the taxpayer has notified us and the staff has notified 16 us that they've gotten to a point where they've actually 17 solidified the concept and they have something that is 18 going to move forward and -- and the staff is now in a 19 position to share with us the potential -- not only 20 Legislative impact, budgetary impact and the impact that 21 would be on other constituents that we represent. 22 And given that information we should be in a 23 better position to make a decision about the concept 24 because now it's been formalized to -- at least to a 25 greater extent than -- than where we are now. 26 Member Yee. 27 MS. YEE: Thank you, Mr. Chairman. I'm -- I'm 28 trying to grasp what's -- realistically possible I guess 28 1 within the next month and a half. The Legislature will 2 be out of session at the end of August and so really if 3 anything comes back to this Board it would be our August 4 meeting, and that is very, very late in terms of trying 5 to put anything into the legislative process for this 6 particular session. 7 I guess I would ask consideration for a couple 8 of things. One -- and part of the reason I put this on 9 the agenda was really obviously to have the discussion 10 that we're having now about the proposal and I think I'm 11 hearing, you know, a lot of receptivity certainly to the 12 issue -- the -- the compliance complexities that the 13 wholesaler community is facing with the fuel tax swap. 14 Acknowledging that, however, I will be the 15 first to say that the proposal before us I don't even 16 believe has been fully flushed out. I think there are 17 questions with respect to the level of allowance that we 18 want to provide potentially to the wholesalers. There 19 is the outstanding legal question with respect to 20 whether this needs to be a General Fund cost. Or 21 whether the allowance could be taken out of the 22 transportation proceeds, themselves. 23 I think it's been suggested there are some 24 constitutional -- potentially some constitutional 25 prohibitions with doing that, but I think that's a 26 question that needs to be fully flushed out. 27 We also then have the issue of the -- the -- 28 well, the level of compensation, the funding source, and 29 1 then our own obviously administrative issues for the 2 Board -- the Board of Equalization. 3 So, those things all still need to be fully 4 flushed out and considered. So, I would say, you know, 5 realistically for this particular legislative session I 6 don't know that we're going to be prepared to flush all 7 those things out by -- by then. 8 Part of what I wanted to do in terms of 9 facilitating a dialogue, and this really does have to be 10 a dialogue between the Executive Branch and the 11 Legislature. Since they both enacted the fuel tax swap 12 I think what CIOMA has found is some sympathy to the 13 issues that they've raised relative to what their 14 members are going -- going to have to be faced with in 15 terms of compliance. 16 But I also -- in looking at this dialogue with 17 both branches hopefully we'll get some of these 18 questions that are still outstanding resolved. I don't 19 know how the Executive Branch feels about having this 20 come out of the General Fund. And maybe there has been 21 discussion -- there have been discussions about actually 22 having -- the possibility of taking any costs associated 23 with a proposal like this out of the transportation 24 proceeds. I don't know. 25 MR. HORTON: Yeah. 26 MS. YEE: But those -- and those are the types 27 of questions that I think we can fully explore when we 28 have the benefit of time. And I think the time will 30 1 then culminate either into a legislative proposal coming 2 back before this Board late in the calendar year as we 3 normally would consider legislative proposals or a 4 budget proposal that this Board either can support or 5 certainly the administration will entertain. And albeit 6 a new administration going forward, but I -- I really 7 want us to take the time to look at this. 8 I'm sympathetic to what you mentioned, Mr. 9 Chairman, and that is why this program. We've had other 10 programs where we've certainly had a need to look at 11 potentially providing an allowance for -- whether it's 12 the distributor community in terms of our tobacco Excise 13 Tax program, cigarette Excise Tax program, where these 14 similar issues have come up. They have not been 15 entertained. I'm not suggesting that because we -- 16 those efforts have not been successful in the past. 17 This one may not be, but I think we really do need to 18 take the time and look at this and -- and really try to 19 fashion a proposal that is responsible and that also 20 includes the best input from both branches. 21 MR. HORTON: Thank you, Members. 22 Any other comments from the Members? Well, to 23 the representatives of CIOMA, thank you so very much for 24 the comments today and bringing this forward. And we 25 look forward to working with you through this process 26 and addressing the concerns as articulated by the 27 Members of the Board. 28 MR. McKEEMAN: We appreciate the opportunity to 31 1 bring it forward to you. And especially thank 2 Chairwoman Yee for her assistance in this matter. 3 MR. HORTON: Great. Fabulous. 4 ---oOo--- 5 SUB-ITEM II 6 2010 LEGISLATIVE BILLS 7 MR. HORTON. Members, the next item before us 8 is item number II. Ms. Shedd, please introduce the 9 matter. 10 MS. SHEDD: Okay, that is a recommendation for 11 a Board position on SB 884, as proposed to be amended by 12 the Senate Rev. and Tax Committee in June. 13 As you're aware under current law the qualified 14 purchasers who have gross receipts from business 15 operations of at least $100,000 annually are required to 16 register with the Board, file an annual Use Tax return 17 and report their purchases subject to Use Tax by April 18 15th. 19 This bill would specify for the reporting 20 periods on or after January 1, 2010 Article 1, Chapter 5 21 of the Sales and Use Tax law will apply to these 22 qualified purchasers' return and payment due dates. 23 The bill also authorizes the Board to grant an 24 extension to these qualified purchasers of up to six 25 months for filing a return, but not for paying tax due 26 for the 2009 reporting period as specified. 27 The staff recommends support of the bill to 28 require these businesses to file their Use Tax return at 32 1 the same time as other Use Tax payers are required to 2 file, provide consistency in the law and to free 3 taxpayers from the pressure of multiple tax filings at 4 the same time. 5 By eliminating the April 15th due date and 6 referencing the Sales and Use Tax law, the Board would 7 have the authority to establish calendar year or State 8 fiscal year reporting bases for these qualified 9 purchasers, as the Board currently has for other Use Tax 10 payers. 11 And I know Ms. Rodriguez is here to speak. 12 MR. HORTON: Thank you, Ms. Shedd. Ms. 13 Rodriguez. 14 ---oOo--- 15 16 17 18 19 20 21 22 23 24 25 26 27 28 33 1 GINARODRIGUEZ 2 MS. RODRIGUEZ: Thank you, Mr. Horton, Members, 3 Gina Rodriguez. I'm the Sacramento Editor for Spidell 4 Publishing. 5 I'm here today to tell you that Spidell is 6 withdrawing its support for SB 884 as drafted with the 7 BOE's June 16th amendments that require calendar year 8 registered taxpayers to file Use Tax returns by January 9 31st instead of April 15th, as required under existing 10 law. 11 A January 31st due date will place a 12 significant burden on businesses, most of which are 13 service providers and sets them up for failure. These 14 taxpayers are not retailers, yet the Board wants to 15 treat them as retailers. 16 Spidell has been advocating for almost a year 17 now that we need a due date later than April 15th, not 18 earlier than April 15th. We've been advocating an 19 October 15th due date for calendar year taxpayers to 20 line them up with their FTB income and Franchise Tax 21 returns. 22 Our goal has always been to achieve the 23 greatest possible compliance for Use Tax liabilities and 24 we've been very supportive of the Board, educating 25 thousands of taxpayers about Use Tax compliance. 26 We are extremely disappointed in the process in 27 the mechanics of trying to fix this law that was forced 28 not only upon the Board but on thousands of taxpayers. 34 1 That said, we will continue teaching the Use Tax 2 registration law in our upcoming fall seminars and we 3 will continue listening to concerns and complaints of 4 practitioners, and we will be relaying that information 5 to Board staff. Thank you. 6 MR. HORTON: Thank you, Ms. Rodriguez. 7 Members, any comments, questions, concerns? 8 MS. YEE: Mr. Chairman, maybe a question -- 9 MR. HORTON: Ms. Yee. 10 MS. YEE: -- to the staff. Ms. Rodriguez's 11 point with respect to a due date late in the year, 12 October 15th, for calendar year filers, how does that 13 square up with what the proposed amendments suggest? 14 I just want to kind of understand where we're 15 going to end up here. 16 MR. McGUIRE: So the question is how does that 17 square up with the current income tax filing that allows 18 you to go out to October? 19 MS. YEE: No, with how the bill is going to be 20 amended. 21 MR. McGUIRE: The bill would basically put all 22 the taxpayers as far as reporting basis was have their 23 returns due at the end of the month following the 24 reporting period that they're filing for, which is how 25 all our other Sales and Use Tax returns are. 26 One of the differences made between Income Tax 27 and Sales and Use Tax is because we are collecting on 28 behalf of the local jurisdictions and the special taxing 35 1 jurisdictions. We actually need a return from the 2 taxpayer to know who is entitled to which parts of the 3 tax versus an Income Tax return that's just -- if it's 4 paid April 15th but there's no return till October the 5 money still goes into one fund, the General Fund, for 6 the income tax. Whereas we don't have a method to 7 allocate the tax. 8 We would estimate like we normally do but we 9 wouldn't have to -- we wouldn't really be able to true 10 up until we got the returns. 11 MS. YEE: I see. Okay. 12 MS. RODRIGUEZ: If I might, isn't that 13 currently the case for people who report Use Tax on 14 their FTB returns, you often don't get those till 15 October, and get the reports even much later than that? 16 So I'm not sure how the allocation takes place now. 17 MR. McGUIRE: Yeah. 18 MS. RODRIGUEZ: It would be the same situation. 19 MR. McGUIRE: She's right, there's that same 20 challenge, but that's a much smaller population of 21 people that actually report on the FTB line. 22 MS. YEE: Right. 23 MR. McGUIRE: And that was an alternative given 24 to taxpayers, you know, as an alternative to actually 25 filing directly with the Board. So -- 26 MR. HORTON: Any other comments from the 27 Members? Questions? 28 What's the pleasure of the Board? 36 1 MS. YEE: Mr. Chairman, I'd like to move to 2 adopt the staff recommendation of support. 3 MR. HORTON: It's been moved. Is there -- 4 MS. MANDEL: Second. 5 MR. HORTON: It's been moved and second to 6 adopt the staff recommendation. Any other -- Madam 7 Secretary, please call the roll. 8 MS. RICHMOND: Mr. Horton. 9 MR. HORTON: Aye. 10 MS. RICHMOND: Ms. Alby. 11 MS. ALBY: Aye. 12 MS. RICHMOND: Ms. Steel. 13 MS. STEEL: Aye. 14 MS. RICHMOND: Ms. Yee. 15 MS. YEE: Aye. 16 MS. RICHMOND: Ms. Mandel. 17 MS. MANDEL: Aye. 18 MS. RICHMOND: Motion carries. 19 MR. HORTON: Thank you, Ms. Shedd. I believe 20 that concludes the Legislative Committee meeting for the 21 day. 22 We will now turn it over to the Chair. 23 ---oOo--- 24 25 26 27 28 37 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 July 13, 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 37 13 pages constitute a complete and accurate transcription 14 of the shorthand writing. 15 16 Dated: August 17, 2010. 17 18 19 20 ____________________________ 21 BEVERLY D. TOMS 22 Hearing Reporter 23 24 25 26 27 28 38