1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 JULY 14, 2010 10 11 12 13 14 15 FINAL ACTIONS 16 17 18 19 20 21 22 23 REPORTED BY: JULI PRICE JACKSON 24 CSR NO. 5214 25 26 27 28 1 1 P R E S E N T 2 3 For The Board Betty T. Yee of Equalization: Chair 4 Jerome E. Horton 5 Vice-Chair 6 Barbara Alby Acting Member 7 Michelle Steel 8 Member 9 Marcy Jo Mandel Appearing for John Chiang 10 State Controller (per Government Code 11 Section 7.9) 12 Diane G. Olson Chief, Board 13 Proceedings Division 14 15 ---OOO--- 16 17 18 19 20 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 JULY 14, 2010 4 ---o0o--- 5 MS. OLSON: So, our next items are those that 6 have been submitted for decision. 7 MS. YEE: Okay, C10 has been postponed. 8 Members, do we need a break or are we okay to 9 go? 10 Go, go, go. Okay, we'll go back to the 11 beginning of our day today. The first item taken under 12 submission is, I believe, C1, Propeller Portable 13 Computer Products, Incorporated. 14 ---o0o--- 15 PROPELLER PORTABLE COMPUTER PRODUCTS, INC. 16 NO. 158412 (OH) 17 ---o0o--- 18 MS. YEE: Waived appearance matter? 19 MS. MANDEL: Yeah I had -- you know, I had a 20 question and I'n not sure should I ask my question now. 21 Let me just say how I understand it. What I 22 understand is that the measure of tax is a total amount, 23 including what -- what it turns out -- 24 MR. ANGEJA: An amount labeled as tax? 25 MS. MANDEL: An amount labeled as tax, which 26 was not known in the Propeller case. 27 But I also understand that in the Propeller 28 case the recommendation is to delete the failure to file 3 1 penalty, which is a 10 percent penalty. 2 So, again, based on what the taxpayer in the 3 Propeller case said, without benefit of the facts as 4 developed in the other case, right? 5 MR. ANGEJA: (Whereupon Mr. Angeja nods head.) 6 MS. MANDEL: Okay. So, then, you know, 7 considering all that, I guess the ultimate tax -- the 8 ultimate liability figure -- I'm not unhappy with the 9 ultimate liability figure. 10 MR. HORTON: Move to adopt staff 11 recommendation. 12 MS. YEE: Okay, motion by Mr. Horton to adopt 13 the staff recommendation for item C1, Propeller Portable 14 Computer Products, Incorporated. 15 Is there a second? 16 I will second that motion. 17 Discussion? 18 MS. STEEL: So moved to adopt the staff 19 recommendation means that we are saying that Propeller's 20 tax was use tax instead of sales tax? 21 MR. ANGEJA: It's holding Propeller liable for 22 the use tax collection obligation. 23 MS. YEE: Right. 24 MS. STEEL: So, if Propeller is -- has the 25 obligation after we vote then that means that Oracle is 26 not responsible for that, even it's a separate case? 27 MR. ANGEJA: That's for you to decide. 28 MS. YEE: Yeah, we can. 4 1 MS. STEEL: So, we have two issues here: One 2 is that we are asking Propeller to pay us taxes and one 3 is we are admitting for -- it's a use tax? 4 Can we both -- 5 MS. MANDEL: Yeah, I mean -- I guess, you know, 6 what -- the issue that I am -- I think, you know, 7 considering everything, I'm okay with the liability 8 amount. 9 MS. STEEL: Right. 10 MS. MANDEL: And I -- I -- it's -- it's hard 11 because, you know, they weren't, they're separate cases. 12 But I'm not necessarily saying what the 13 characterization of the tax is, we haven't decided the 14 other case yet where the characterization of the tax is 15 at issue. 16 So -- and, you know, if -- 17 MR. ANGEJA: Staff recommendation is that it 18 use tax and that Propeller had a use tax collection 19 obligation. 20 MS. MANDEL: Yeah, I understand that. 21 I've also had these discussions with David in 22 the past about what does it mean when the Board moves to 23 redetermine? And are we just voting the number? Or are 24 we actually picking up every little -- 25 MR. HORTON: Nuance? 26 MS. MANDEL: -- nuance, which, you know, 27 Members may or may not collectively -- and I just don't 28 remember. 5 1 I mean, I think in the past he's told me not 2 worry, I am not picking up every little nuance, but 3 she's basically raised the question. 4 MS. STEEL: There's two things: Yes, Propeller 5 collected those taxes, they owe us those taxes. But 6 that's the different matter. 7 But if we admitting because of that it's a use 8 tax, they called -- they collected as a sales tax there. 9 So, then I have a problem here. 10 So, is there any way possible we can two ways 11 or do we have to do that or forget about the use or 12 sales tax? 13 And we just voting for only for the amount that 14 they owe us? 15 MR. ANGEJA: The -- I believe with what David 16 has had, you could move to redetermine and it could just 17 the number rather than the characterization. 18 MS. STEEL: Okay. So, Mr. Horton's motion, 19 it's just for numbers? 20 MR. HORTON: Yes. 21 MS. STEEL: Okay. 22 MR. HORTON: Although I will say that in this 23 case -- whether the evidence bear out that it's sales 24 tax or use tax, Propeller has liability by virtue of its 25 actions, in my perspective. 26 So, I think we ought to -- there is clear 27 liability there. They've collected a tax that they 28 referenced and categorized as sales tax, which, in fact, 6 1 could be interchangeable -- could be a mistake there. 2 There's so much information that's not 3 available, but it is clear that Propeller has a 4 liability here, be it sales tax or use tax and I believe 5 we ought to expedite the collection of the liability and 6 protect the interests of the State in that regard and 7 every way that we can, immediately -- unless they take 8 some action to cause us to have a delay. 9 But in this case my preference would be to 10 establish the situation where the option is to pay the 11 liability, file the claim for refund, go to court. 12 How do we accomplish that? 13 MR. ANGEJA: Make the motion to redetermine. 14 It becomes final within 30 days, unless they file a 15 petition for rehearing. 16 And once it's final, then collection actions 17 can follow. 18 MR. HORTON: So moved. 19 MS. YEE: That is your motion. 20 Yes? 21 MS. STEEL: Just numbers? 22 MS. YEE: Yes. 23 So, we have a motion by Mr. Horton, second by 24 Yee, to adopt the staff recommendation as to the 25 dollars of the amount at issue. 26 Without objection? 27 MS. MANDEL: Can I ask a follow-up question 28 just on Propeller? 7 1 MS. YEE: Sure. 2 MS. MANDEL: Have you looked at or has the 3 Department looked at responsible person liability? 4 MR. ANGEJA: I'm not aware of that and my 5 understanding, I could be wrong, is that it's not yet 6 ceased operations, in which case 6829 liability wouldn't 7 accrue as to an individual until all four elements are 8 satisfied. 9 The latest point at which that could happen is 10 when the corporation ceases operations. I thought they 11 were still operating. 12 MS. YEE: Yeah, I think they are. 13 Look beyond the period to issue the 14 determination. 15 Okay, motion by Mr. Horton, second by Yee to 16 adopt the staff recommendation. 17 Without objection? 18 That motion carries. 19 Thank you. 20 ---o0o--- 21 22 23 24 25 26 27 28 8 1 C2 ORACLE CORPORATION 2 NO. 217113 (BH) 3 ---o0o--- 4 MS. YEE: Next item is C2, Oracle Corporation, 5 is there a motion? 6 MS. MANDEL: Hum -- 7 MS. YEE: Ms. Mandel? 8 MS. MANDEL: I have a question on this one 9 that's similar to the question I had on the other one. 10 MS. YEE: Uh-huh? 11 MS. MANDEL: Which is the measure of tax that 12 is in here with respect to purchases from Propeller. I 13 am not saying, you know, which way the case goes on 14 Propeller, my understanding is that the measure of tax 15 was the total amount paid to Propeller, not the total 16 amount net of what was paid as sales tax. 17 MR. ANGEJA: That's correct. 18 MS. MANDEL: And should the sales tax have been 19 treated as tax? 20 MR. ANGEJA: We don't -- the measure should not 21 include amounts labeled as tax. The parties understood 22 that to be -- I'm not saying sales or use -- they 23 understood that to be tax reimbursement, so, it ought 24 not -- 25 MS. MANDEL: So, then, the measure, standing 26 alone, before anything else, the measure is too high 27 because it includes the amounts that were designated as 28 sales tax in the records? 9 1 MR. ANGEJA: That's correct. 2 MS. MANDEL: Okay. 3 So, is -- without regard to anything else, is 4 that an adjustment that Appeals would recommend? 5 MR. ANGEJA: We could support that adjustment. 6 MS. MANDEL: Okay. 7 MR. ANGEJA: My only hesitation is you haven't 8 decided that you're going to assess that. 9 MS. MANDEL: No, but I'm just saying, you know, 10 I just always like to hear those magic words as, you 11 know, a preliminary matter. 12 Okay, I don't know how the Members feel 13 generally about the case, but from my standpoint, I 14 would be holding the case over but -- 15 MR. HORTON: Madam Chair? 16 MS. YEE: Yes, Mr. Horton? 17 MR. HORTON: You know, there are -- I mean, we 18 have questions of form over substance, where the burden 19 of liability falls, whether or not there is a resale in 20 factor or not. 21 And it seems to me that we have an opportunity 22 to drill down on these issues and identify what actually 23 happened. The purchaser, as it relates to sales for 24 resale, is still around, viable, you know, and the 25 seller, Propeller, still around as a result of our 26 ruling on the Propeller case, they're now going to be 27 subject to a liability and certainly would want to, if 28 they could relieve themselves by indicating that the 10 1 shipment of the product was out of state and, therefore, 2 should be classified as use tax, if they believe that to 3 be the case, I would like to allow some additional time 4 for the Department to work with the taxpayer and see if 5 we can obtain this information, at a minimum an XYZ 6 letter, possible documentation on how the FOB 7 information title clause, that type of data, to have a 8 better understanding. 9 And the taxpayer indicated that they -- their 10 access to records were limited. But in both of these 11 cases we're talking about third party verification that 12 hasn't taken place, that, at a minimum, should take 13 place. 14 So, I would put this over to allow either -- 15 depending on the discretion of the Members, a 30-30-30 16 or somehow put it over to allow the Department and the 17 taxpayer to work together to see if they can exhaust 18 those third party verification efforts. 19 And, in the meantime, let's see if we can 20 expedite the collection of the outstanding tax. 21 MS. YEE: Okay. 22 MR. HORTON: Liens, jeopardy. 23 MS. YEE: Mr. Angeja, do you have an opinion on 24 this approach? 25 MR. ANGEJA: For one -- whatever the Board 26 decides. 27 My understanding from today was that it's been 28 four or five years worth of Appeals process. And for 11 1 Appeals conferences and documentation, to the extent 2 that it's out there, my expectation as a conference 3 holder would have been by this point in the game it 4 would be in the record, if it were available. 5 But we heard today that they hadn't done the 6 XYZ letters. 7 MR. HORTON: I mean, here's what happened over 8 those four or five years: They were arguing a point of 9 law and the Petitioner approached this from a 10 perspective that you had a person engaged in business 11 and, therefore, at least from my understanding and other 12 conversations, you have person engaged in business and, 13 therefore, responsible for the collection of the sales 14 tax, actually billed and collected the sales tax. 15 And then today we have discussions about 16 Regulation 1628, title clause, shipment, whether it's a 17 use tax transaction. And then the Department -- we had 18 conversations on the sale for resale. 19 So, there was a legal debate that was going on 20 and over the whether or not the form of a resale card 21 was valid or not valid when, in fact, we interject 22 that -- well, it could be a resale in fact, irrespective 23 of those documents, so, why are we -- why are we not 24 pursuing whether or not it was resale in fact? 25 And I think the testimony was that we did 26 not -- we did not seek XYZ letters. The taxpayer did 27 not seek to have that verification. 28 So, we've entered into a different realm 12 1 despite -- quite frankly, I would have loved for this to 2 have happened within the first year or so forth, but 3 that's the nature of our operation. That's how things 4 work for now. 5 MR. ANGEJA: I guess to clarify, we're 6 certainly not opposed to this approach. 7 MS. YEE: Okay, all right. 8 Other thoughts, Members? 9 Okay, Mr. Horton, you want to propose a motion 10 here? 11 MR. HORTON: Let me ask staff for some advice. 12 What happens if we put it over? 13 MR. ANGEJA: It would come back on the -- 14 MR. HORTON: Timeline, come back when? 15 MS. OLSON: We can schedule it if that's what 16 you want. 17 MR. ANGEJA: The usual case that I'n familiar 18 with is when the Board puts something over, usually they 19 specify which calendar they'd like it to go on. 20 And it comes back as an adjudicatory 21 nonappearance matter, at which point the Board can 22 rediscuss and revote. 23 MS. MANDEL: Well -- 24 MR. HORTON: I think then maybe the 30-30-30 25 might be most appropriate. 26 But I would kind of defer to the Department. 27 They can't say anything right? 28 MS. MANDEL: Right, because the taxpayer's not 13 1 here. 2 MR. HORTON: Okay. Well, I -- 3 MR. ANGEJA: If you were wanting to extend it 4 further and put it over -- 5 MR. HORTON: Not further, the length of time is 6 not an issue. 7 MR. ANGEJA: Okay. 8 MR. HORTON: The resolution of the problem is 9 my concern. 10 And, so, there seems to be extenuating 11 circumstances. 12 Why don't I do, this, my motion would be a 13 30-30-30 to allow that to happen. Seems that there -- 14 that provides greater opportunity for interaction and 15 discretion of the Board. 16 MS. YEE: Okay. Mr. Horton proposes a 30-30-30 17 on this matter of Oracle Corporation. 18 Let me second that motion for purpose of 19 discussion. 20 Ms. Mandel? 21 MS. MANDEL: Well, I've -- you know, as I said, 22 I was going to ask to put it over on -- I don't know 23 where the rest of the Board is on the matter, but I hear 24 Mr. Horton is talking mostly, really, about the resale 25 certificates, as I understand it. 26 MR. HORTON: Yeah, I'm actually concerned about 27 whether or not we -- I believe that the Department has 28 appropriately made the presumption that this was a use 14 1 tax transaction, that every retailer consuming in the 2 State of California is subject to the use tax 3 transaction. 4 The concern that I have is that we have a tax 5 that was collected and reported. And the tax was 6 categorized as sales tax, when, in fact, we don't know 7 if it was an error, could have been, and certainly the 8 two taxes are interchangeable. 9 The premise of the burden on the -- on -- 10 what's the name of the taxpayer, on the taxpayer 11 Propeller, is the fact that they're operating in the 12 State of California and that the merchandise traveled 13 from outside the State of California to California, 14 therefore, making it a use tax transaction. 15 The taxpayer argues that FOB, in and of itself, 16 is not sufficient, that they have some evidence that 17 there was installation and training and so forth that 18 might imply that the merchandise could have come from 19 somewhere in California and, therefore, making it a 20 retail sale and sales tax being appropriate. 21 It just was a lot of different -- conflicting 22 information. And when we're looking at form over 23 substance, it has a tendency to distort the legal 24 perspective and the legal arguments. And it appears 25 that that's taken place. 26 And we need -- if we can get through a third 27 party confirmation this, which never took place, that 28 information within the next 30 days or so. 15 1 I think it's incumbent upon us to provide the 2 taxpayer the opportunity to defend themselves after 3 hearing the views of the -- of the Members. 4 MS. YEE: Okay, thank you, Mr. Horton. 5 Other comments, Members? 6 Okay. 7 Ms. Steel? 8 MS. STEEL: I guess I'm just keep repeating 9 myself. 10 There is a proof of all of the invoices that 11 Propeller charged the sales taxes and Propeller is the 12 one liable for the sales tax. 13 And Oracle is kind of -- if Propeller didn't 14 charge any sales taxes, they paid use taxes. That's 15 what I believe here. 16 And if we asking Oracle to pay means that it's 17 double taxation here. So, I thought it's very clear 18 that -- and not only that, but their salesperson was 19 inside of Oracle, that they were doing all the sales 20 that it was done and it was done inside of California. 21 It was very, very clear to me that Oracle was the 22 innocent party. 23 But if it goes on 30-30-30, I don't know 24 exactly what we going to find out more about it, you 25 know. I -- seems like just if we going to just keep 26 going on, their interest keep going up. 27 It's depends on how we going to vote, but -- 28 MR. HORTON: Well -- 16 1 MS. STEEL: -- I'd just -- I'd rather not just 2 put it off for another few months to coming back. 3 If you want to look at that Propeller, it's 4 going to pay it, and you want to wait until then, that's 5 different. 6 So, you know, either way I can go but, you 7 know, I see it that how frustrated this company was 8 because they already paid taxes and then BOE is going 9 after them for, you know, for additional taxes. 10 So, I can go for, you know, 30 days, but I 11 don't know exactly what we're going to find out because 12 we know Propeller already took the tax money from the 13 Oracle. 14 MR. HORTON: Madam Chair, just -- I mean, 15 here's one of those unique situations where both parties 16 are liable. And that is, it exists in our -- it exists 17 in law and the preponderance of the evidence, as we 18 heard today, supports that both parties are liable. 19 And Oracle, therefore, has the liability. They 20 certainly have the burden of proof that that liability 21 does not fall on them. 22 Have we provided them an opportunity to shift 23 the liability? No, I don't think so. 24 Can they shift the burden of proof? I think 25 they can. I think if they came up with an XYZ letter 26 indicating that the tangible personal property was, in 27 fact, sold to the US government and they -- then they're 28 no longer liable for the sales for resale. 17 1 If they can come up and substantiate that the 2 transaction between them and the Propeller was, in fact, 3 a retail sale, subject to the sales tax and that just if 4 the -- if the shipping documents said destination 5 freight, that product title is passed upon destination 6 and they have active nexus in the State of California, 7 and, somehow, there was participation in that, then, 8 okay, we've got ourselves a sales tax transaction. 9 Oracle is no longer liable. 10 Has that information come forth now? Will it 11 ever? I don't know. The taxpayer seems to imply that 12 they would like that opportunity, so -- 13 MS. MANDEL: Madam Chair? 14 MS. YEE: Yes, Ms. Mandel? 15 MS. MANDEL: As to the Propeller situation, I'm 16 not saying today one way or another is it sales tax or 17 use tax. That is the main reason why I would be looking 18 to hold the case over. 19 So, we are not saying one way or another that 20 Oracle is liable or Oracle is not liable for that today. 21 As to the resale certificates, there may be a 22 question, particularly -- and I heard a little different 23 things today than maybe, you know, was in the D & R, I'm 24 not quite sure, but there was an assertion made today 25 that the only reason these particular resale 26 certificates were pulled out was because they were US 27 government contractors and that, at audit, the auditor 28 thought you had to prove that there was an actual sale 18 1 to the federal government and that other resale permits 2 that looked just like these that weren't to the US 3 government contractors, were upheld as okay. 4 I don't know if that happened but that may be a 5 neither here nor there kind of thing because we are, 6 right now, sitting here with these resale certificates 7 in front of us and they have been disallowed. 8 There was not -- if the Board were to decide 9 that the resale certificates on -- or have a question 10 about whether the resale certificates were valid, 11 taken -- you know, able to be taken in good faith back 12 in 1995 under the circumstances in 1995, as was noted 13 there was no XYZ process used, government contractors 14 and the federal government are, you know, generally 15 pretty protective of that situation that they have. 16 You know, the federal government is not going 17 to want to pay sales tax unless it really has to through 18 its contracts. 19 They have not been through that process because 20 there was -- and I think as Mr. Horton has said -- there 21 was a lot of legal arguments made about the resale 22 certificates as well as on the other things. 23 But I want to be very clear that we are not 24 taking the -- we're not taking a position today about up 25 or down sales or use, but if use, you know, is the 26 receipt good and all that kind of stuff. 27 That's the main reason I was looking to hold 28 the case over. 19 1 MS. YEE: Yeah, thank you Ms. Mandel for that 2 clarification and I would concur with that. 3 Other comments, Members? 4 The motion before us, motion by Mr. Horton, 5 second by Yee, to approve a 30-30-30 on this matter, 6 Oracle Corporation. 7 Without objection? 8 That motion carries. 9 ---o0o--- 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 20 1 C3 ROBERT CHARLES HERZOG 2 NO. 381897 (EH) 3 ---o0o--- 4 MS. YEE: Next item is C3, Robert Charles 5 Herzog. 6 May I have a motion, please? 7 MR. ANGEJA: Madam Chair? 8 MS. YEE: Yes? 9 MR. ANGEJA: One quick clarification. 10 In our -- one of the SD & Rs we had recommended 11 $8800 reduction to the measure that I don't know is 12 included on the face of the hearing summary. 13 MS. YEE: All right. 14 MR. ANGEJA: So, whatever order the Board 15 reaches, we would sure that a reduction is included. 16 MS. YEE: Very well, thank you. 17 MS. STEEL: Which reduction? 18 MR. ANGEJA: It was the, I believe it was the 19 second supplemental D & R, David Levine wrote the second 20 supplemental -- the supplemental D & R to which I refer. 21 And upon looking at the audit work papers, the 22 estimated sales, based on the missing ROS forms, we find 23 24 sales rather than 26. So, the reduction shows taking 24 out two sales. 25 MS. STEEL: Okay. 26 MS. YEE: Okay, very well. May I have a motion 27 please? 28 MS. MANDEL: We're on C3? 21 1 MS. YEE: C3, yes, Robert Charles Herzog. 2 I'll move the Appeals staff recommendation. Is 3 there a second? 4 MR. HORTON: Second. 5 MS. YEE: Okay. 6 Without objection? 7 MS. STEEL: This was the first audit that -- is 8 it possible we can update the negligence penalty because 9 some of missing records were stolen. 10 MS. YEE: Mr. Angeja, you want to speak to the 11 negligence penalty? 12 MR. ANGEJA: Looking at it, we -- this one did 13 have the missing records and even without the missing 14 records we still showed -- sorry, excluding the error 15 reporting from the -- the misreported transactions that 16 were structured as leases, that were actually sales at 17 inception, taking that error out, because that's a 18 common error to make -- we still had an understatement 19 of 81 percent. The percentage of error is high enough 20 that the Appeals recommendation would be that it's still 21 negligence. 22 MS. STEEL: Maybe they didn't know how to run 23 the business because that was the first audit. 24 MS. YEE: Okay. 25 MR. HORTON: Madam Chair? 26 MS. YEE: Mr. Horton? 27 MR. HORTON: I think it's pretty close to 28 fraud. I mean, back it down a little bit, so, let's 22 1 just say he was not as significantly negligent, 2 definitely negligent recordkeeping, negligent in 3 liability, negligent in responsibility -- it would be 4 close to a fraud case in my mind. 5 But that's auditor in me, in my time I was paid 6 to be suspicious. 7 MS. MANDEL: Inquisitive. 8 MR. HORTON: Yeah. 9 MS. YEE: Okay, Mr. Horton. 10 Okay, motion by Yee, second by Horton to adopt 11 the Appeals staff recommendation. 12 Please call the roll. 13 MS. OLSON: Madam Chair? 14 MS. YEE: Aye. 15 MS. OLSON: Ms. Alby? 16 MS. ALBY: Aye. 17 MS. OLSON: Ms. Steel? 18 MS. STEEL: Aye. 19 MS. OLSON: Mr. Horton? 20 MR. HORTON: Aye. 21 MS. OLSON: Ms. Mandel? 22 MS. MANDEL: Aye. 23 MS. OLSON: Motion carries. 24 MS. YEE: Thank you. 25 ---o0o--- 26 27 28 23 1 ---o0o--- 2 C6 J & E HOLDINGS, LLC 3 NO. 430091 (BH) 4 ---o0o--- 5 MS. YEE: The next item, Members, is item C6, 6 J & E Holdings. 7 May I have a motion, please? 8 MS. STEEL: You know, this one was amazing, go 9 actually. You know, this taxpayer did their own audit 10 for six months. December is different. 11 They are asking just a little bit. So, you 12 know, instead of 34 percent, why don't we just give them 13 what he came out with, 5 months period, 33.6 percent. 14 It's a .4 percent we're talking about here. That's my 15 motion. 16 MS. ALBY: Second. 17 MS. YEE: Okay. We have a motion by 18 Ms. Steel, second by Ms. Alby to -- 19 MS. MANDEL: And that's for two -- they used 20 that for two years? 21 MS. YEE: Two years, yes. 22 MS. STEEL: Yeah, the third year is different, 23 I think 32 percent for what Department, so, I -- 24 MS. MANDEL: They didn't -- okay, I had a hard 25 time figuring -- remembering what was still in dispute. 26 MS. YEE: Okay. So, this is to basically adopt 27 the Petitioner's -- 28 MS. STEEL: 33.6 percent. 24 1 MS. YEE: -- percentage of taxable sales. 2 MS. STEEL: Then 2004 is 32 percent. 3 MS. YEE: Okay. 4 MS. STEEL: That's the staff recommendation. 5 MS. YEE: Okay. 6 Okay, further discussion? 7 Without objection? 8 MR. ANGEJA: Just for clarification? 9 MS. YEE: Yes, Mr. Angeja, please? 10 MR. ANGEJA: If you allow, I can get numbers -- 11 not here, but I can have the Notice of Board Action 12 reflect actual numbers so that your recommendation is 13 down to a number rather than trying to order a re-audit 14 to implement these numbers. 15 MS. YEE: Yes, that would be great, thank you. 16 Okay, good. Without objection, that motion 17 carries. 18 ---o0o--- 19 20 21 22 23 24 25 26 27 28 25 1 C7 MOHAMMAD RAOUF 2 NO. 464805 (JH) 3 ---o0o--- 4 MS. YEE: Okay, our next item is item C7, 5 Mohammad Raouf. 6 May I have a motion, please? 7 MS. STEEL: Go for it. 8 MS. MANDEL: I was going to say adopt the staff 9 recommendation. 10 MS. STEEL: That's fine, I just want to say 11 something. 12 MS. YEE: Yes, okay. 13 We have a motion by Ms. Mandel, second by 14 Ms. Steel? 15 MS. STEEL: Sure. 16 MS. YEE: Okay, to adopt the staff 17 recommendation. 18 MS. MANDEL: Thank you so very much. 19 MS. STEEL: Actually, this market owner, I 20 think we should -- the auditors should do better -- I 21 mean a better job about self-consumptions. 22 Seems like every time tax agencies asking 23 something, they get so scared. And, you know, he has 24 four kids. They must drink a lot of sodas and -- if 25 they don't smoke, I mean -- 26 MS. MANDEL: Sounded like he didn't like them 27 drinking soda. 28 MS. STEEL: You know six people, we give them 26 1 $50 per month, that's very low and he was like, "No, no, 2 we don't drink." 3 You know, I think because the reason that they 4 got scared. So, if auditors can explain a little better 5 that if you eat more, it's better for you. I mean, kind 6 of like it's explaining to them so clearly so, they not 7 going to say, "Oh, no, no, no, we just don't do 8 anything." 9 I think -- because, you know, just pick up Coke 10 and 7up, you know, kids going in there and pick it up. 11 So, $50 is very low comparing to their family size. 12 So, next time when this kind of small markets, 13 we can just give them a little more allowance by the 14 numbers of the family and, you know, that's -- because 15 we see that all the time. 16 MR. ANGEJA: I'll relay that to the Department. 17 MS. STEEL: Thank you. 18 MS. YEE: Thank you very much. 19 Okay, motion by Ms. Mandel, second by Ms. Steel 20 to adopt the staff recommendation. 21 Without objection? 22 That motion carries. 23 Actually, I had a question on this particular 24 item. Is this a potential candidate for the expanded 25 Offer-In-Compromise Program? I am just -- 26 MR. ANGEJA: This is the market that you just 27 voted on? 28 MS. YEE: Yes, uh-huh. 27 1 MR. ANGEJA: I'm a bit rusty. I think they no 2 longer have to be out of business. 3 MS. YEE: They don't have to be out of 4 business. 5 MS. MANDEL: But there's still that issue of 6 collecting tax, isn't there? 7 MS. YEE: Yeah, but did he -- but -- that's 8 right. 9 MR. ANGEJA: This was the difference -- 10 MS. YEE: That's right, okay. 11 MR. ANGEJA: Total sales -- 12 MS. HENRY: The one before was. 13 MS. MANDEL: I'm sorry? 14 MS. HENRY: The one before was, C6 was. 15 It was (inaudible). 16 MS. YEE: Okay, no. And I am specifically 17 referring to C7, only because he was talking about the 18 financial hardship. 19 MS. MANDEL: Payment plan, if not. 20 MS. YEE: Okay. 21 MS. MANDEL: Maybe they could, at least, look 22 and see whether he might be eligible for the OIC -- the 23 revised OIC. 24 MS. YEE: Yeah. 25 MS. ALBY: Is Ms. Simpson here? 26 MS. MANDEL: Can you come refresh our memory by 27 about what the rule is? 28 MS. YEE: Actually, Ms. Henry reminded me that 28 1 would be a good direction also for the prior case as 2 well. 3 MS. MANDEL: Yeah. 4 MS. SIMPSON: Good afternoon, Laureen Simpson 5 for the Taxpayer Rights Advocate's office. 6 If the business is continuing and the liability 7 has become final, we would look to see if the liability 8 included sales tax reimbursement. 9 MS. YEE: Reimbursement, okay. 10 MS. SIMPSON: If there is no sales tax 11 reimbursement, then they could be eligible for the OIC. 12 MS. YEE: Okay. 13 Can we explore that for this particular 14 Petitioner as well as the prior, J & E Holdings, and 15 then, if not, to the extent payment plans are -- 16 MS. SIMPSON: Certainly we can help facilitate 17 getting them together with the Offers-In-Compromise 18 Section. 19 MS. YEE: Okay, very well. 20 MS. ALBY: Which case numbers are we -- 21 MS. YEE: I was actually making an inquiry with 22 respect to C7, Mohammad Raouf, but I was reminded that 23 J & E Holdings actually may be a more appropriate 24 candidate for the OIC program expanded. 25 So -- but I think with both, if you could -- 26 MS. SIMPSON: Ms. Henry and I already talked to 27 the C6 case. 28 MS. YEE: Yes. 29 1 MS. SIMPSON: -- in regard to the possibility 2 of Offers-In-Compromise. 3 MS. YEE: Okay, very well. 4 Thank you, Ms. Simpson. 5 MS. SIMPSON: You're welcome. 6 ---o0o--- 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 30 1 C8 KERRY MICHAEL LAWRENCE 2 NO. 439774 (KH) 3 C9 ROBERT A. SCHIMPF 4 NO. 437280 (KH) 5 ---o0o--- 6 MS. YEE: Our next item is the consolidated 7 hearing on Kerry Michael Lawrence and Robert A. Schimpf. 8 May I have a motion, please? 9 MS. STEEL: Can we give this 30-30-30 so that 10 Mr. Schimpf said that he can bring some of the documents 11 that Miss Ybarra was controlling the company. 12 If they can prove that, then Miss Ybarra is 13 still responsible. 14 MS. YEE: I don't have any problem with that if 15 that is the likelihood. And I hope it is. 16 Members, any thoughts here? 17 MR. HORTON: I think they're both guilty. 18 MS. STEEL: Mr. Horton? 19 MS. MANDEL: I don't -- 20 MS. OLSON: I don't know that there is going to 21 be anything that's going to relieve them of that 22 liability. 23 Certainly maybe incriminate the other party, 24 but I have a situation where one -- one of the parties 25 has, Miss Gudrin, has stepped out of the operation, 26 totally out of operation, they all concur that she 27 stepped totally out of the operation. 28 The operation had to continue to run and to 31 1 function in order for them to be compensated if they're 2 just looking out for their own vested interests. 3 She certainly structured it in a way to shift 4 some burden and some liability to them by changing the 5 bank account and titles and presidencies and forcing 6 them -- or having them -- I'm just being facetious when 7 I said forcing them to sign tax returns and things of 8 that nature. 9 This is an ongoing concern. A lot of -- a lot 10 of questions -- a lot of questions have to be answered. 11 A lot of decisions have to be made. These two 12 individuals are making those decisions from their 13 testimony. 14 And I attempted to try -- anyway, and, so, I 15 don't see any way in which they could ever remove 16 themselves. 17 And then there was the act of admitting 18 guilt -- whether you presumed that there was a 19 proportionate liability by virtue of your willingness to 20 pay the liability and coming to an implied verbal 21 agreement that we all share in this liability and so, 22 that, therefore, we all should -- should put in -- 23 should contribute to the resolution of the problem. 24 But because one party decided not to doesn't 25 eliminate the guilt that was associated with the 26 ultimate decision to participate in paying for it. 27 So, I mean, the evidence seems to just imply 28 otherwise what they said, for me, I am just -- 32 1 MS. STEEL: Mr. Horton, I totally agree with 2 you, but my only concern is they are missing some of 3 liable people here. 4 Because those two people, they signed it 5 without knowing what they were doing and they -- but I 6 want to see that -- why we just dropped somebody who was 7 more responsible there. 8 If they can bring it, then we can go back to 9 another person that -- who was liable bigger than the 10 other -- than these two. 11 MS. MANDEL: Yes. 12 MS. STEEL: So, that's the only reason that I 13 wanted to do 30-30-30, to bring the documents if they 14 can retrieve some of them from their computers. 15 I am not saying that they're totally innocent, 16 but they are innocent somehow because they didn't know 17 what they were doing it. 18 But, you know, they are responsible people. 19 But at the same time, I think that we should find out 20 others too. 21 MS. MANDEL: The main person that they were 22 saying told them what to do, even though she had gone to 23 some other job and they were saying that she was really 24 still pulling the strings from the outside, is the 25 person that has already been through a petition and 26 appeal process and been relieved of liability. 27 And I don't remember -- I think there might 28 have been some other people that the Department looked 33 1 at and thought they could not impose liability on. 2 With the respect to the person, Gretchen Ybarra 3 McKelvin -- McKelvin-Ybarra, who was the main focus of 4 these Petitioners' discussions, I don't know if -- well, 5 first, you would have the amount of time that's gone by, 6 in any event, as to whether there would still be time to 7 pick up any additional officers. 8 But I don't know if -- if you could -- I mean, 9 you can -- I don't know if you could issue -- could 10 we -- would it -- assuming that the statute of 11 limitations had not run, when someone's already been 12 through the process -- 13 MR. ANGEJA: You're thinking res judicata? 14 MS. MANDEL: Are we able to even -- would we 15 even be able to issue a second notice on the same -- you 16 know, it's not like you found, oh, there is more taxable 17 gross receipts and so our initial Notice of 18 Determination wasn't high enough and we can -- we still 19 have time to do an increase or we still have time to 20 issue a Second Notice of Determination within the 21 statute, it's already been determined in her favor. 22 I -- now, I guess the presumption of Ms. Steel 23 is that we would be learning new facts, additional facts 24 that we didn't know no at that time. 25 So, I guess then it just creates an issue. 26 MR. ANGEJA: One that I'd like to research 27 before giving an answer. 28 MS. MANDEL: Just creates an issue. It creates 34 1 an issue. 2 I thought when you were asking him, Ms. Steel, 3 if he could find anything, I thought that -- and I think 4 he may have thought -- that what the focus of the 5 questions were was that if these people -- if the 6 gentlemen who were here today were being told what they 7 could do, albeit from somebody who was not on site, but 8 who, you know, supposedly, according to them, took 9 another job to help, you know, finance this company or 10 help get it more business or whatever she was doing, 11 that if they were really doing everything at the 12 direction of somebody else, that that would go to 13 whether they, in fact, were liable as responsible 14 officers. 15 That's kind of what I understood. 16 Yeah? 17 MR. ANGEJA: Perhaps I can clarify. 18 We have had cases where we have, if you will, a 19 puppetmaster pulling strings, so, that otherwise on the 20 surface they look responsible because they are signing 21 returns, but it's at the behest of a kingpin. 22 MS. MANDEL: Yeah. 23 MR. ANGEJA: That's usually a matter of fact 24 and we have made those factual findings, as opposed to 25 situations where there is more than one person who 26 shared responsibility. 27 MS. MANDEL: Right. 28 MR. ANGEJA: The addition of extra -- any extra 35 1 person on that hook doesn't relieve the liability as to 2 anybody already on that hook. 3 MS. MANDEL: Right. Anybody on the hook, but 4 then if we had five people on the hook, the Board 5 sometimes says, you know, 6 "Go get that guy first, before you even think 7 about these people. Because he -- we think 8 he's -- the first guy is much more the bad guy 9 in the situation." 10 But I thought that the inquiry for whether -- 11 that Mr. Schimpf was saying that he would go search in 12 his files to see what could find was that he was going 13 to be looking for things where this Gretchen was giving 14 them direction and telling them, "You must do this and 15 you must do that," which would go to their liability. 16 And, he -- you know, he looked like he was 17 willing to take you up on the, "Let me go see what I 18 have in the boxes in my garage," kind of thing. 19 Which, you know, it seems to me when we make 20 those kinds of offers to taxpayers, if they're willing 21 to take us up on it and think, "Well, gee, maybe now 22 that I hear what you're saying, I should really go 23 scrounge and see if I have anything," that we ought to 24 let them have the opportunity to look further. 25 That's -- you know, but that's what I understood the 26 exchange to be it and sounds like you had a kind of 27 different view of it. 28 So, maybe for a different reason I'd let them, 36 1 you know, look in the boxes in the garage. 2 MR. HORTON: I thought we -- in another case 3 we've have already adjudicated whether or not there 4 is -- Mrs. Gretchen -- 5 MS. MANDEL: Right. 6 MR. HORTON: -- liability? 7 MS. MANDEL: Right. 8 MS. OLSON: It's been done. 9 MS. MANDEL: Right. 10 MR. HORTON: So, the only thing they can come 11 up with is to say that -- to contradict our previous 12 position or the Board's previous position? 13 MS. MANDEL: Yeah. Well, they could come up -- 14 I mean, if they had it and they were able to show that 15 she was actually the kingpin, as Mr. Angeja says, if 16 that was really what they were able to show, which, you 17 know, after all this time and everything and the 18 conversation, that's -- maybe they don't have anything. 19 Mr. Schimpf is willing to look, he thinks he 20 might. He doesn't know if he does, but he hasn't 21 looked, if they're able to show that, then what they're 22 showing is that they are not liable and, yeah, maybe 23 they're showing that we did not know everything that 24 there night have been to know in the other case. 25 But they're -- it's their liability which is 26 being adjudicated in this case. 27 MR. ANGEJA: The only other thing I would add 28 is it's academic whether we could go after her a second 37 1 time because the statute of limitations has -- 2 MS. MANDEL: The statute's gone anyway. 3 MR. ANGEJA: It's applicable now for NODs 4 issued after January 1 of 2009. 5 MR. HORTON: So, we can't -- I mean, this is a 6 lookout man syndrome situation, you know, what I mean, 7 situation? 8 Did he rob the bank? No. 9 Is he guilty for robbing the bank? Yes. 10 Does he go to jail? Yes. 11 So, and should we get him a get out of jail 12 free card until we catch the rest of them? No. Let's 13 collect the dough. 14 Whoops. 15 MS. MANDEL: Getting a little enthusiastic. 16 MS. YEE: Ms. Steel, okay, your motion is to 17 allow a 30-30-30 for the Petitioners here to produce any 18 other evidence with respect to the involvement of some 19 of the other parties? 20 MS. STEEL: Yes. 21 MS. YEE: Okay. 22 MS. MANDEL: If he has no documents, it will 23 come back very fast, won't it? 24 The Department won't have anything to say. 25 MS. YEE: Right. 26 MS. MANDEL: You won't have anything to write 27 up. You'll have one sentence that you'll add, 28 "He had no -- he had no more material." 38 1 MR. ANGEJA: Given these matters go through the 2 you know who review process, it would probably be more 3 than a sentence. 4 MR. HORTON: Are we passing the buck here? 5 MS. MANDEL: No, we're just getting punchy, I 6 think, at the end of the day. 7 MS. YEE: Okay. Why don't I -- 8 MR. HORTON: Is there a puppeteer around here? 9 MS. YEE: -- second that motion? 10 Without objection? 11 MR. HORTON: Objection, I'm a no. 12 MS. YEE: Okay. 13 MR. HORTON: I'm just kidding. 14 MS. YEE: Are you? 15 MR. HORTON: Yeah, I would be, but -- 16 MS. YEE: Give it a shot, give them a chance. 17 Okay, without objection, that motion carries. 18 Okay, I believe that concludes our items for 19 today. 20 MS. OLSON: That's correct. 21 MS. YEE: Thank you, Ms. Olson. 22 Okay, Members, thank you very much for today. 23 We will recess until 9:30 tomorrow. 24 Thank you. 25 ---o0o--- 26 27 28 39 1 . 2 REPORTER'S CERTIFICATE 3 4 State of California ) 5 ) ss 6 County of Sacramento ) 7 8 I, JULI PRICE JACKSON, Hearing Reporter for the 9 California State Board of Equalization certify that on 10 JULY 14, 2010 I recorded verbatim, in shorthand, to the 11 best of my ability, the proceedings in the 12 above-entitled hearing; that I transcribed the shorthand 13 writing into typewriting; and that the preceding pages 1 14 through 39 constitute a complete and accurate 15 transcription of the shorthand writing. 16 17 Dated: July 29, 2010 18 19 20 ____________________________ 21 JULI PRICE JACKSON 22 Hearing Reporter 23 24 25 26 27 28 40