BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 450 N Street, Room 121 Sacramento, California REPORTER'S TRANSCRIPT AUGUST 24, 2010 ITEM B3 FRANCHISE AND PERSONAL INCOME TAX HEARING APPEAL OF BRENT C. WELLING and VIKI LEE WELLING (No. 348029) AGAINST PROPOSED ASSESSMENT OF ADDITIONAL TAX Reported by: Beverly D. Toms CSR No. 1662 1 1 2 P R E S E N T 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 Olson Chief, Board 13 Proceedings Division 14 For Board of Amy Kelly 15 Equalization Staff: Appeals Division 16 17 For Franchise Tax Raul Escatel Board: Tax Counsel 18 Bill Hilson 19 Tax Counsel 20 For Appellant: Minna C. Yang 21 Attorney at Law 22 Brent Welling Taxpayer 23 Viki Welling 24 Taxpayer 25 ---oOo--- 26 27 28 2 1 2 Sacramento, California 3 August 24, 2010 4 ---oOo--- 5 MS. OLSON: Board Proceedings has received 6 contribution disclosure forms for this afternoon's 7 hearings from the parties, agents and participants. All 8 forms were properly completed and signed. All parties, 9 agents and participants are on the Alpha listing 10 provided to your office. 11 Each person sitting at the table introduce 12 themselves and if necessary their affiliation with the 13 taxpayer for the record. 14 For this case we have given 15 minutes is 15 allocated to the taxpayer's opening presentation 16 followed by 15 minutes for the Franchise Tax Board 17 presentation and five minutes is allocated to the 18 taxpayer for rebuttal. Excuse me. 19 Ms. Yee. 20 MS. YEE: Thank you very much, Ms. Olson. 21 Members, we're on item B3, Brent C. Welling -- Welling, 22 excuse me, and Viki Lee Welling. 23 And let me have Appeals introduce the issues in 24 this matter. 25 MS. KELLY: Good afternoon, Madam Chairwoman, 26 Members of the Board. The issues in this appeal are 27 whether Appellants were residents of California during 28 1998, 1999 and 2000; 3 1 Whether Appellants had a California filing 2 requirement for those years. And if so, whether there 3 was reasonable cause for Appellants' failure to file 4 timely California returns; 5 Three, whether Appellants complied with 6 Respondent's demands for for information. And if not, 7 whether there was reasonable cause for such failure; 8 And, four, whether Respondent's position with 9 respect to residency is without merit, so that 10 Appellants are entitled to attorney fees under R&TC 11 Section 21013. 12 MS. YEE: Okay. Thank you very much, Ms. 13 Kelly. 14 Good afternoon 15 MS. YANG: Good afternoon. 16 MS. YEE: And if you could introduce yourselves 17 for the record, you have 15 minutes for your 18 presentation. And perhaps you can begin by describing 19 what we've just received in front of us. 20 MS. YANG: Thank you. Minna Yang for the 21 taxpayers. I have with me Brent Welling and Viki 22 Welling. And -- and with reference to the binder that 23 you received it's some exhibits and supplementary 24 pictorial graphics addressing the issue of the various 25 residences that were owned during the -- the period 26 involved. 27 MS. YEE: Okay. And have these been presented 28 in some form prior to today? 4 1 MS. YANG: The -- they're ask -- actually -- 2 this -- this submission was that previously -- that was 3 previously provided to the Board on the 19th, correct? 4 MR. WELLING: That's correct, yes, I -- I 5 provided this for the Board after reading Mr. Charles 6 Potter's summary for the Board, where on -- specifically 7 certain pages, page 17 and so forth he felt that the 8 Appellants should be willing to discuss and identify 9 certain times and positions and -- and what they were 10 doing in California and so forth. 11 I provided this -- this binder with some 12 graphics and I was hopeful -- you know, there isn't any 13 brief -- briefing information in here. 14 MS. YEE: Okay. I was just trying to determine 15 whether there was anything new here that hadn't been 16 seen before. Franchise Tax Board, you have a copy -- 17 or a set of the exhibits? 18 MR. ESCATEL: Yes, we do. 19 MS. YEE: Okay. All right. Very well. 20 Please proceed. You have 15 minutes. 21 MS. YANG: Thank you. This -- similarly, as 22 indicated, is a residency but more importantly it is a 23 domicile case. So, Mr. and Mill -- Mr. and 24 Mrs. Welling were audited by the Franchise Tax Board for 25 the periods 1998, '99 and 2000. 26 Taxpayers' position is essentially that they 27 changed their domicile actually in 1996. And so 28 although the object -- you know, the various 13 5 1 objective factors were analyzed through the course of 2 the -- the discussions between the Franchise Tax Board 3 and the taxpayer, the utilization of those factors have 4 resulted in -- in a conflict in terms of the result. 5 To go back to background, you know, Appellants 6 did move to California in 1975. Mr. Welling was an 7 executive of -- with National Semiconductor, and 8 ultimately ended up at a startup company by the name of 9 Linear Technology Corporation. 10 Those efforts did end up resulting in an 11 IPO and in a semi-retirement state. From the years 1987 12 through 1996 Mr. Welling was an instructor at San Jose 13 State. Okay. 14 In 1991 the taxpayers did acquire a property in 15 Aptos, Santa Cruz, with the intention of that ultimately 16 being their retirement home. For -- for various 17 reasons which I will allow Mr. Welling to elaborate on, 18 they did make a decision in about 1995 to relocate to 19 Nevada. 20 In 1995 they acquired a 3500 square foot home 21 in Incline Village, intending to make it their permanent 22 residence. And actually did occupy that home until the 23 year 2000 and purchased yet another home in the area of 24 Nevada, which was even larger there. 25 I'm going to stop right there and turn the 26 floor over to Mr. Welling because it appeared during the 27 scope of the audit that -- that the nature of these 28 residences were at issue. There was a concern that 6 1 because the taxpayer had previously owned a small 2 condominium used for skiing, which had a value of about 3 $80,000 that -- that these acquisitions of property in 4 Nevada were not intended to be permanent residences. 5 So on that point I would turn that over to 6 you. 7 MR. WELLING: Yes, I believe one of the more 8 important years for us was 1986, when in fact the -- in 9 1981 myself and three colleagues did something that 10 California wishes everybody would do right now, we 11 started a company. And which was very -- was quite 12 successful; still is. Presently that company does about 13 a billion dollars in sales and employs 4,000 people. 14 In 1986 because we had founder shares in -- in 15 the company we were financially able to retire but that 16 was not in my wife and I's mentality. I chose to pursue 17 something I always wanted to do, which was teach school. 18 And my wife went back and graduated number one in the 19 nursing class at San Jose State and became a -- a home 20 health care nurse. 21 The importance of 1986 is this is ten years 22 prior to our decision to move to Nevada for a number of 23 reasons that I will -- I'll explain. It isn't as if we 24 had just discovered that we had the winning powerball, 25 you know, Lottery tickets and were going to abandon 26 California and go to a more tax haven State. New 27 Hampshire or Texas or some place. We decided to stay 28 here. We liked California. 7 1 Then in 1990 with all of our children -- we 2 have three daughters -- had left the nest and were in 3 college and so forth, we thought it would be very 4 appropriate for us to move out of the South San Jose 5 area and find a place more suitable for a -- a long-term 6 retirement. We spent about a year and a half looking in 7 the Monterey/Santa Cruz area and finally just out of 8 a -- a miracle we discovered what we thought would be 9 our -- our home forever. I apologize for the -- this -- 10 I believe this is one of the photos you have in your -- 11 in the handout. 12 Up here in the -- yours has a circle around it, 13 is the home that we found about 200 yards from a bluff 14 overlooking Monterey Bay with a panorama view from 15 Monterey Bay area this way down to Capitola -- Santa -- 16 Santa Cruz. 17 MS. YEE: Mr. Welling, I'm going to ask you to 18 try to speak into the microphone. I know that's 19 challenging, but -- we're not picking it up. 20 MR. WELLING: Thank you. I didn't know we were 21 such high tech. or I would have -- 22 MS. YEE: And you could probably leave that on 23 the easel to the extent we have that in front of us in 24 our binder. 25 MR. WELLING: Okay. 26 MS. YEE: Thank you. 27 MR. WELLING: Well, with a panorama view, 28 quiet, sunsets, so forth, we felt this was probably the 8 1 place we wanted to remain forever. We purchased the 2 house for about $640,000, but since it was built in 3 1970s it had needed a lot of remodeling, up -- upkeep, 4 repairs and so forth. And so although we bought the 5 property in July of 1991 we spent an awful lot of money 6 and didn't move in until April of 1992. 7 Unfortunately, as is another plight -- 8 unfortunately, a year later, much to our surprise and 9 disappointment Santa Cruz County and the California 10 Coastal Commission allowed a resort to be built on the 11 bluffs right across from our house. And the -- in your 12 view that you have in your binder there's a street 13 called Sumner. Sumner was at one time -- it still is, 14 but it dead-end -- dead-end street into a farmer's field 15 on the far right-hand side. 16 But in 19 -- in April of '93, a year after we 17 had moved in they bulldozed all the cypress pines, all 18 the oak trees. They reconstructed the whole bluff. 19 They took out everything. And at the -- within a year 20 and a half, when the resort was completed, which as also 21 in your binder -- if you observe the upper right-hand 22 corner of that photograph you'll barely be able to make 23 out our house that was still on Sumner. Every property 24 owner on Sumner across from the resort in the next 18 25 months sold their house. 26 That would probably have been okay for those 27 that purchased their house ten years earlier and -- for 28 70 or $80,000 and sold them for maybe a half million 9 1 dollars, but that was not okay for us who had just 2 invested more than $750,000 in this house, and we 3 couldn't afford all of a sudden to live there, or sell 4 the property. 5 And our view from the back of the resort was 6 looking at a barracks. A parking lot, Safeway type 7 parking lights, that shined into our Master bedroom. 8 Because the architect's drawing showed that there was 9 a -- a crossroad there and it was depicted as a 10 emergency vehicle entrance and passenger -- and 11 pedestrian walkway, the Utility Commission required that 12 they put in the clanging red lights when a train would 13 go by, which was bad enough but, you know, even the 14 alarm system, itself, would go off all by itself. We 15 spent at one time two days listening to that alarm right 16 directly across the street. Car alarms going off all 17 night. The skateboarders found it very convenient to 18 use the -- the lighting to skateboard all night until we 19 complained and called the Sheriff and so forth. 20 And so the resort was required to put in some 21 people in little motorized carts that would drive around 22 all night and chase the skate -- the boarders off. 23 The bottom line is we said this has not -- this 24 has not worked out how we -- how we wanted. We started 25 looking for another place to live. And in -- found a 26 wonderful home in December 1995, which we purchased and 27 then returned -- I resigned my teaching position in San 28 Jose State. There's an affidavit from the Chair of the 10 1 Electrical Engineering Department saying that we -- I 2 resigned my position effective after the Spring 3 semester, which would be January through May -- roughly 4 May 15th of 1996. I taught that semester. And then we 5 backed the U-Haul trailer up and packed in all of our -- 6 the valuable things, our personal property, Christmas 7 decorations, whatever, and we moved up to Incline 8 Village. 9 The -- in your handout you'll see there is a 10 picture of the house we purchased in Incline Village. 11 These are not condos. These are stand-alone units -- 12 this one happened to be about 3500 square feet, 13 three-car gar -- heated three-car garage. Three floors, 14 with a view of the Lake Tahoe from each floor. 15 On the right-hand side of the photograph you'll 16 see a -- a white vertical -- that is an elevator, an 17 elevator that went to each of the three floors. 18 We purchased this property. It took a while to 19 do the furnishing. We furnished it completely. And 20 registered our cars, driver's license, got all our 21 insurances from the Nevada. It's required in Nevada 22 that before you can register your cars you must show 23 proof of car insurance by an approved Nevada licensed 24 insurer. 25 Bank accounts. Forwarded all the -- our mail 26 at the suggestion of Ann Gagney, who's also signed an 27 affidavit on our behalf, she is the postal worker 28 that -- that not only sorted the mail at the Post 11 1 Office, but she also delivered the mail to our area. 2 And she suggested that I remove -- physically remove the 3 mailbox from the home delivery so that it would be junk 4 mail and flyers and stuff available to be put in the 5 house. Cancelled newspaper subscriptions. Did 6 everything that you have to do between roughly June 1 7 and October 1. 8 We registered to vote the end of September. 9 During those months being up there I became very good 10 friends with the other homeowners and at the beginning 11 of September 1996, was elected to the Board of Directors 12 of the homeowners association, a two-year position 13 which -- which I, you know, gratefully accepted. 14 And, again, affidavits from the neighbors up 15 there saying that I was a terrific Board member, 16 attended all the meetings and we were there. 17 Bottom line to me is if they had never built 18 that resort across the street from our house, we would 19 never have moved. But from the photographs in your 20 handouts you can see that our view and -- and that -- 21 that place was just destroyed. We have no intent, no 22 desire, to return at all. 23 MS. YANG: So, the -- our concern was with the 24 Franchise Tax Board's audit and case presentation, there 25 was little effort and dedicated to the issue of intent. 26 And particularly that the fact that the -- that the 27 domicile had changed in years period -- prior to the 28 audit period. 12 1 During -- you know, we have in our various 2 briefings provided declarations, evidence that, you 3 know, unlike the scenario discussed earlier this 4 morning, these people purchased this house in 1995 and 5 took substantial steps to ready the house. They 6 purchased furniture. They, you know, made that house 7 ready. Started to pull all of their personal effects 8 out of the Aptos property. 9 And until they had taken all the adequate steps 10 off, basically, evidenced by the registration to vote in 11 Nevada in -- in September, October of 1996, continued to 12 file a -- a California tax return. 13 So in 199 -- they filed a -- a tax return for 14 the year 1996 in April of 1997. And that return did 15 appropriately indicate Nevada as the residence on -- on 16 that return. 17 MS. OLSON: Time has expired. 18 MS. YEE: Let us give you time on rebuttal but 19 let me -- I -- I feel compelled to ask one question. 20 Mr. Welling, you went through kind of the -- I guess the 21 list of indicators that we generally go through. 22 Speak to us a little bit about the homeowner's 23 exemption and where -- 24 MR. WELLING: The homeowner's exemption, if 25 you asked everybody in this room to -- to write down ten 26 things that you have to do when you move, I doubt that 27 anybody would think, oh, yeah, that's right, I have to 28 contact the -- the County Assessor's to remove the home 13 1 -- the homeowner's exemption. 2 15 months prior to the Franchise Tax Board's, 3 audit in March of 2000, I received a -- a letter from 4 the Santa Cruz County Assessor's office that said, Gee, 5 Brent, it's come to our attention that this is no longer 6 where you live. Okay. And as a result it's not your 7 principal residence, as a result you're not eligible for 8 the -- the homeowner's exemption. 9 In Santa Cruz County that exemption is $7,000. 10 Now, that sounds like a lot of money. But if your house 11 is appraised at $7,000 -- let's say $707,000 instead of 12 taxing you on the $707,000 they tax you on $700,000. 13 It amounted to a tax savings of about $70 per year. 14 I contacted the Assessor's office, talked to 15 the people and she said that -- the lady I talked to 16 said, look, just don't worry about it, it happens quite 17 often. I'll just remove the exemption from -- from our 18 property tax year 2000. And that is what is signed on 19 the corner of that exemption. 20 They also acknowledged that they had received 21 from me in '96 and again in '98 a notice of address of 22 change which when you do pay -- pay your property taxes 23 in Santa Cruz, it's December and April, I believe, 24 there's a place on the back that you fill out the form 25 and -- and tell them your address has changed. They 26 acknowledged that they had received that. In fact, the 27 notice that I received from the -- the Santa Cruz 28 Assessor's office was addressed to our Incline address. 14 1 They said, oh, just don't worry about it, it 2 happens all the time. The grand sum total it would have 3 saved us is $70 a year. It's obviously not an intent to 4 defraud Santa Cruz County, it was just an oversight. 5 MS. YEE: Okay. Thank you very much. 6 Franchise Tax Board, please. 7 MR. ESCATEL: Good morning -- or afternoon, 8 Board Members. My name is Raul Escatel, representing 9 Respondent, Franchise Tax Board, along with my 10 co-counsel, Bill Hilson. 11 Ms. Yang, I -- I agree with Ms. Yang, this case 12 is a domicile case. And as Ms. Yee intimated earlier, 13 in the earlier case, domicile requires two things, 14 intent and actions that reflect that intent. 15 Is it -- is there feedback? 16 MS. MANDEL: It's too close to the mike. 17 Sorry. 18 MR. ESCATEL: So we're looking at here is did 19 Mr. and Mrs. Wellings change their domicile when they 20 claimed to have done so? Does the intent and the 21 connections in this case reflect that? 22 First of all, I will address briefly the Aptos 23 home. Mr. Welling has -- has told us all here about how 24 that would have been his permanent home had they not 25 done development, yet a curious fact is that Mr. and 26 Mrs. Welling still own the Aptos home. And in fact 27 during the audit and protest part of this -- of this 28 case, a lot of the contacts -- there was a lot of 15 1 assertions made by Mr. Welling about how Aptos was a 2 home where they got together for holidays, where they 3 spent family times. And in fact a lot of purchases were 4 made around the Aptos area during the years at issue in 5 this case. 6 But going back to the domicile issue, itself, 7 so as was -- as was expressed earlier intent -- we 8 can't go into somebody's head and determine intent. 9 What we have to do is look at the actions and do those 10 actions actually express the intent. It's the old 11 adage, actions speak louder than words. 12 So let's look at the -- let's look at the 13 issues here. Let's look at the contacts that Mr. and 14 Mrs. Welling had throughout the years at issue. 15 We have -- we have a chart here. One thing 16 that Respondent's auditors tend to do is something 17 called a presence chart. Based on documentation 18 provided by the taxpayers we construct a chart 19 determining what days taxpayers are in California and 20 outside of California in another jurisdiction. I 21 believe you all have a copy of the presence chart in 22 your possessions. 23 What we have here is -- the first chart we have 24 is for the -- oh, first we'll discuss the amount of days 25 and then I'll get into the specific contacts, to put it 26 all into context. 27 So the first here we have Mrs. Welling's 28 presence chart. I said the red indicates days in 16 1 California. The blue indicates days in Nevada. We have 2 the white indicating unknown days, and the yellow 3 indicating other days. 4 As you can see so for the 1998 tax year 70 5 percent of Mrs. Welling's days were spent in California. 6 70 percent. That is not an insignificant number. 7 And if we look at -- let's look at the next -- 8 the following year of 1999. As you can see, we have no 9 blue days are for Nevada; all we have is red. And 10 white. And yellow. But no blue. 11 And if you look at the predominant color there 12 is red indicating California. That is a lot of days for 13 someone who has moved to Nevada. And in fact we don't 14 see any Nevada days on this chart. 15 And, finally, for the last year at issue, 2000, 16 once again we see the predominant -- the majority of 17 days here, 77 percent of the days for the year 2000 were 18 spent by Mrs. Welling in California. 77 percent. 19 We're not talking about close calls here, we're 20 talking about -- these are significant numbers. And I 21 might add before I go into Mr. Welling's presence chart 22 that these charts weren't based on our -- on our own -- 23 just -- independently. Through the audit and protest we 24 attempted to collaborate with Mr. and Mrs. Welling in 25 terms of creating these charts. The auditor would 26 create a chart and then send it to Mr. and Mrs. Welling 27 to -- how does -- you know, to get their opinion and -- 28 and documentation for any days that they think they 17 1 might have been mistaken. There was a lot of back and 2 forth through audit and protest to determine a presence 3 chart. 4 And one thing that should be noted in here is 5 that this information wasn't -- wasn't -- wasn't 6 provided willingly. There was a lot -- I mean, this 7 case was a very complicated case for the auditors 8 working on it and we had to subpoena most of the 9 documents because Mr. and Mrs. -- Mr. and Mrs. Welling 10 refused to provide the information for this -- on this 11 case. 12 And one thing that should be noted is -- and in 13 fact -- well, let's go to Mr. Welling's chart, then I'll 14 get into the contacts. 15 So we saw Mrs. Welling's days. As we can see 16 from Mr. Welling's presence chart, there are 17 significantly more Nevada days showing. However, for 18 someone who is now -- who now contends that they are a 19 Nevada domiciliary, there are still a lot of days here 20 in California. And in fact looking at this chart here 21 we have the month of August -- January -- July -- and by 22 the way one thing that should be mentioned here is that 23 Aptos is over five hours away from Incline Village. 24 So, we're not just talking about going over the border 25 to, you know -- you know, a ten-minute drive. These 26 are long distances. And that should be noted here in 27 this -- when we start talking about the contacts in 28 California. 18 1 Yet -- for this we have 52 per cent of the days 2 are in California. That's more than half. For someone 3 who claims to have changed domicile in 1996, mind you. 4 This is already 1998. This is not -- you know, usually 5 we -- we would expect -- and I consulted with audit 6 about this. One thing we asked for is the year prior to 7 the year at issue because we -- you know, to give the 8 benefit of a doubt to say -- because, well, you know, 9 maybe it takes a little while to establish a domicile 10 like I said earlier, to get furniture, to get things 11 kind of set up. 12 We don't have this case here. These are 13 case -- these are years -- two years after Mr. Welling 14 contends that he changed domicile. 15 So, let's go to 1999. As you can see here 16 once again these -- the days in California aren't as 17 high as Mr. -- as Mrs. Welling's. However, there's 18 still -- that's 37 percent all the days for that year 19 were spent in California. I'm sorry, 52 -- 50 -- right. 20 52 per cent of them in California and 39 percent of them 21 were in Nevada. For -- like I said earlier, we did not 22 make the assertion that he became a domiciliary in 1996. 23 He did. And these -- but this present charge (sic), 24 these are -- this is from information that's been 25 subpoenaed. 26 So this is not something that we, you know, 27 pulled out of thin air. These are -- this is -- this is 28 factual information from transactions made. And not 19 1 transactions made, like I said, right over the border; 2 transactions made near the Aptos residence for the years 3 at issue. 4 Okay. And finally for the year 2000, here -- 5 although only 40 percent of the days for this -- for 6 this year were in California that still outnumbers the 7 days that were in Nevada. 40 to 36 percent. 8 And like I said, this information was a back 9 and forth with -- with Mr. and Mrs. Welling. We try to 10 cooperate here in terms of getting the -- the right 11 presence chart. But like I said one of the big issues 12 in this case was a lack of cooperation in terms of 13 providing documentation. So we basically had to go off, 14 you know, the documents that were subpoenaed. And we 15 couldn't get all the documents, mind you, which might 16 explain some of the days that are unaccounted for in 17 these charts. 18 So, we said, you know, one thing -- it's a 19 little cheesy, but we -- so the way I kind of understand 20 domicile is an auditor -- one of Respondent's auditors 21 said domicile is where the heart is. It's basically -- 22 it's an intangible. It's where is home. Where do you 23 feel home -- where do you want to come back to? 24 And the contacts that Mr. and Mrs. Wellings -- 25 and I don't even find contacts because they never left 26 California. It's the activities and Mr. and 27 Mrs. Welling had in California clearly evidence that -- 28 their heart was in California, not in Nevada. 20 1 All their shopping was done in California, from 2 groceries -- and in fact, one of the interesting facts 3 in looking at the receipts for -- credit card receipts 4 was the purchases made at a little grocery store near 5 the Aptos residence called Deluxe Market in -- in Aptos 6 area. And for -- you know, for someone that didn't 7 want to remain there, these are during the years at 8 issue. That's -- that -- that one just kind of came to 9 mind. 10 Also, the fact that all the -- all the travel 11 was done not out of the Reno Airport, but out of SFO, 12 which is five to seven hours away, depending on traffic. 13 Yes, granted, San Francisco International 14 Airport is much larger than Reno's, but a lot of the -- 15 I actually checked flight availability for these years. 16 And for most of the flights except for one international 17 flight, all those flights could have been taken out of 18 Reno. 19 We have family. It's been argued that the 20 family should not be used as a contact against Mr. and 21 Mrs. Welling because they're adult children. But when 22 we look at the time spent in California, with Mr. and 23 Mrs. Welling's daughters, there was -- and there was 24 monumental events during this time. There was births. 25 There was weddings. 26 Michelle, the middle child, was chronically 27 ill, which Mrs. Welling had to take care of for long 28 extended periods of times as evidenced by the presence 21 1 chart. 2 We have -- all the health care providers were 3 in Aptos -- were in California, I'm sorry. We have -- 4 the -- this one kind of struck at me, too, because I 5 have a pet, and the pet was boarded -- Mr. and Mrs. 6 Welling's pets were boarded in Aptos. And I thought of 7 myself, would I want to board my pet five hours away 8 from where I live, where I reside? And that just kind 9 of struck me as everything was done in California. 10 And in fact, the dogs -- one of the reasons 11 they were actually left at the Aptos residence, because 12 it was a fenced-in backyard. And I'll -- I'm going to 13 address the Incline Village condominium in a second. 14 What other contacts? Yes, all -- there are 15 some factors that kind of do evidence -- might evidence 16 that Mr. and Mrs. Welling might have taken steps to 17 sever ties with California, such as registration, voter 18 information. Licenses. However, when looking at -- 19 let's look at the cars, for example. 20 All of the -- all of the -- all of the expenses 21 for the car -- the overwhelming majority, it's -- it's 22 in the briefings was done in California from maintenance 23 to gasoline -- everything was done in California. 24 So when we look at intent, when we look at 25 domicile we need intent and the actions. And the 26 actions here specifically show that Mr. and Mrs. Welling 27 were in California. Their heart was in California. 28 Their family was here. Their health care providers were 22 1 here. All their shopping was here. 2 And -- okay. So, let's look at the homes real 3 quickly. They made a -- Mr. Welling provided this chart 4 regarding change of residences. One thing he failed to 5 mention, as I said earlier, he still owns the Aptos 6 residence. And we contend that for the Incline Village 7 home purchased, one thing that was not disclosed during 8 his presentation was that they already owned a cabin, a 9 vacation cabin in -- during -- around the Donner Lake/ 10 Truckee area. And in fact when they were looking at 11 purchasing the Incline Village condominium, they 12 actually had put an offer on another property near 13 the -- the property they already owned, the Donner cabin 14 that they had already -- that they purchased in 1982. 15 That was never in any of these -- in this chart showing 16 the change of residence. 17 So in fact there was a residence that they 18 already had around that area that they used for 19 vacations. 20 And they needed a bigger residence because 21 their family was growing. Their daughters were having 22 children. They -- they would spend time at the -- at 23 the cabin at Donner. This was just basically a 24 replacement for their vacation home that they had -- 25 they already had. 26 These are objective facts here, and that's one 27 thing we look at. When we look at domicile we look at 28 the intent is very important, granted, but we also -- 23 1 the actions have to meet, you know, the -- the wanting 2 to change domicile. And here we have everything shows 3 that they never left California. 4 And Mr. and Mrs. Welling, they worked hard. 5 They're retired now. They traveled a lot. They did. 6 And -- but did they ever leave California? That is a 7 question that's before this Board. 8 And the -- the information clearly is no. And 9 like I said, this information was gathered through 10 subpoena and through -- through a lot of work. This was 11 not information that was given freely by Mr. Welling. 12 And in fact, the information that -- at 13 sometimes some of the information we couldn't even 14 gather because the banks did not have it that long. 15 However, we had asked for it in plenty of time that the 16 banks could have provided that information if it were 17 not for the fact that they discard documents after seven 18 years. 19 So -- and this information is -- is in our 20 opening brief regarding just the differences in 21 transactions, the amounts in each state. 22 So, I mean, that -- that's all in there. What 23 we're looking at here is just look at the contacts and 24 ask yourself, did they in fact leave California? And I 25 think -- I'll answer any questions, so -- by the Board. 26 MS. YEE: Thank you very much, Mr. Escatel. 27 Let -- let's hear the Appellants on rebuttal and we'll 28 open it up for discussion. Ms. Yang. 24 1 MS. YANG: Board Members, thank you. The 2 physical presence analysis that the FTB has put forward 3 was based upon credit card transactions. You know, the 4 FTB's statement that we failed to disclose is completely 5 incorrect. I apologize, time is short here, but all of 6 the facts that they recited are clearly presented in our 7 original brief as well as our reply brief. And quite 8 frankly, we're not disputing many of the facts. 9 In 1998 through the year 2000 the Wellings were 10 present in the State of California for quite a bit of 11 time. Attached to our -- our brief, Exhibit N, is a 12 summary as well as detailed analysis indicating the 13 number of days that the Welling -- either Brent or Viki 14 was in or around the Aptos property and in California 15 all together. 16 You know, quite frankly, with respect to Brent, 17 the days determined by the FTB do not vary all that much 18 from the information that we provided. You know, for 19 example, FTB says 190 days in 1998 and Brent's 20 documentation indicates 160. Clearly, we were there. 21 Viki was in fact in -- in the State of 22 California for more days than that. The days on the 23 FTB schedule we do take the position that they're 24 substantially overstated. Viki does not hit 270 days in 25 any of the given years. 26 So, you know -- so, clearly we -- the taxpayer 27 has provided all documentation in the -- in the volumes 28 of paperwork that have been exchanged over the last two 25 1 to three years in -- in this case. 2 Additionally, the -- we have provided 3 additional analysis of the credit card activity 4 indicating -- segregating out the transactions in and 5 about Aptos and in California. So, FTB is correct, . 6 A. The -- the taxpayers' adult children continue 7 to reside in the State of California. They -- the 8 taxpayers freely admit that they made a number of trips 9 returning back here, including Disneyland and San Diego, 10 as well as visits to the Pleasanton area to aid their 11 ill daughter. That many of the expenditures on the 12 credit card were actually incurred for the benefit of 13 her family and ultimately reimbursed by that family. 14 All of that information has been provided and 15 freely admitted to. Okay. 16 Like the case this morning, also, the FTB 17 points out that there is quite a continual use of 18 medical care providers in California. That is a true 19 statement. Notwithstanding the Wellings went to great 20 effort to locate medical care providers in and around 21 the Incline area. 22 As to the pets, there are expenditures in both 23 states, but there is substantial expenditures in Nevada, 24 also. Okay. 25 So, -- so, we're not -- like we are not 26 disputing many of the facts. What we are taking the 27 position is that, again, that -- that they -- they -- 28 they more than manifested the intent. And this is an 26 1 interesting case because this is a gentleman going into 2 retirement. So he does not have an economic connection 3 with California any more. He's not seeking employment. 4 He's not doing a -- you know, major -- investing or -- 5 or reasons for him to come here for an economic gain in 6 this state. 7 To the extent that he does engage in some 8 activities, he has some involvement with the type of 9 Angel or Incubator fund, but that's located in Nevada. 10 Okay. 11 So -- so there are, you know, various 12 connections that the connections that we do have in 13 California are indicative of their presence and that 14 they are leaving. You know, they are not newly 15 created -- created connections. 16 So, I -- I understand that the audit process 17 was difficult on both parts, but even if we utilize 18 the -- you know, a majority of the presentation of the 19 facts with the Franchise Tax Board, if domicile is 20 established in 1996 the issue becomes whether or not the 21 Wellings' presence in California was other than a 22 temporary or transitory purpose. 23 Okay. And -- and, you know, we -- or whether 24 or not we get over 270 days. And we do not. 25 MS. YEE: Okay. Thank you. 26 Mr. Welling. 27 MR. WELLING: Yes, could I clarify the -- the 28 information about the Tahoe Donner condo? That seems to 27 1 be an issue the Franchise Tax Board has not understood 2 at all. We purchased that condo in 1982 for $70,000 3 completely furnished, two bedroom with a loft, as a 4 rental property. We did it on a 1031 exchange for a 5 rental property we had in Phoenix, Arizona. 6 The condo was -- and we have an affidavit from 7 the -- the realtor who helped us not only purchase but 8 also was looking for a home for us when we decided to 9 leave Aptos. 10 The condo was a short-term rental condo. We 11 did not use it as a vacation condo. The -- it was sold 12 in May 1996 and the full depreciation and -- was -- we 13 recaptured, and if the Franchise Tax Board would like to 14 go look at their -- my 1996 tax form 540, which I -- 15 which I paid that year, even though we moved, they'll 16 find that that condo was -- has been declared since 1982 17 as a rental property expenses, and it was not for our 18 personal use. 19 MS. OLSON: Time has expired. 20 MS. YEE: Okay. Thank you very much. 21 We I'm sure will have plenty of questions, but 22 let me just start. I think it was just a little over 23 three years ago that this case was first before us and I 24 recall that there were concerns about determining the 25 physical presence of the Wellings in 1997. And 26 certainly some -- I think disappointment with respect to 27 the Franchise Tax Board not verifying that during the 28 audit process, but I thought that one of the reasons for 28 1 requesting a continuation of the matter was to try to 2 retrieve some records as it related to the 1996 and 1997 3 years, and that I believe were in archive somewhere. 4 And I was a little disappointed not to see any 5 of those records provided. Can you speak to that, 6 because I really -- I mean, for me, that's kind of my 7 jumping off point, and I really want to understand how 8 to look at how the ties were severed with California. 9 MR. WELLING: The -- to the best of my 10 knowledge, and we looked back through whatever records 11 we have, the -- our total 1997 in California was 12 approximately 120 days. 13 Now, in 1997 I must tell you that Viki -- Viki 14 had accepted a -- a position on the Board of Trustees at 15 Grace Cathedral up in San Francisco, which required her 16 to be there in California at least three days a month 17 for the meetings on the third Thursday. First day 18 travel down there. She -- we -- she usually stayed with 19 our daughter who lived in San Francisco. The next day 20 was a meeting with the Board of Trustees. Then she was 21 also asked to be the -- the Chairperson of the gift 22 shop, which she did. So she stayed the next night and 23 met for lunch with the gift shop committee and so forth, 24 and traveled back to Incline the next day. 25 So there were three days a month that she was 26 required by her obligation from '97, '98 and '99 to be 27 in San Francisco. Not in Aptos. 28 In 1997, we did a considerable amount of 29 1 travel. We -- as a result we did fly out of LAX Airport 2 to Hawaii. We did fly out of San Francisco because 3 there are, quite honestly, no non-stop flights from Reno 4 to Athens, Greece. We flew out of San Francisco. 5 We also flew out of San Francisco with another 6 couple, our friends in San Jose, and spent three weeks 7 in Germany. We also spent approximately three weeks in 8 China. 9 So, the amount of travel we did in 1997, there 10 were very few days. So I believe the total is 11 approximately 118 to 125 days, roughly, that we were in 12 California in 1997. 13 MS. YANG: Brent, to respond to the issue on 14 the document request, we were requested, as I recall, to 15 see if we could retrieve some telephone type of records, 16 as well as some banking records, and attempts were made 17 to procure those and we were told that those records 18 were no longer available. 19 MR. WELLING: There is -- there's one item that 20 was shown to the Franchise Tax Board auditor that did 21 not seem to sit very well, and that is in July of 1997 22 we had installed an automatic call intercepting -- 23 telephone interception that automatically transferred 24 all the calls up to Incline Village. The -- the auditor 25 was aware of this but in her summary it stated that 26 this -- this was probably okay because I went through 27 all the information I had about it, but since we did not 28 provide a -- information as to when it was installed 30 1 they summarily just dismissed this. 2 I spent a considerable amount of time and money 3 in the bowels of Pacific Bell and the software people 4 and was able to recover that information and the date 5 that it was installed, and that was provided to the -- 6 to the Franchise Tax Board. 7 Additionally in 1997 we bought and purchased a 8 brand new Toyota Landcruise (sic) in Nevada and 9 registered in Nevada. Nevada was clearly our place of 10 domicile in those -- during those years. 11 MS. YEE: Okay. Thank you very much. 12 Questions, Members? 13 Ms. Steel, please. 14 MS. STEEL: Madam Chair. 15 MS. YEE: Yes. 16 MS. STEEL: It is really interesting to see two 17 domicile issues -- cases today, one this morning they 18 say intentions are much more important than actions; now 19 an action is very important here. All saying that -- 20 that this taxpayer that had a problem with her 21 daughter's sickness that she had to go through 22 chemotherapy and all these bedridden, so she had to stay 23 in California. 24 I thought as a mother that that reason that 25 action has to be taken to stay in California near her 26 daughter and how can you explain that? Because they had 27 a intention to move out but she couldn't do it because 28 she had to stay here. 31 1 So, you know, let's go that one at a time 2 because every case is so different so we cannot really 3 put the checklist together and then, you know, domicile 4 issue said, you know, well, we going to go and well, we 5 not going to go for it. 6 But as a personal reason that she couldn't go 7 out but they already bought the house. They already had 8 the furniture because the other Franchise Tax Board 9 attorneys were saying that you didn't have any furniture 10 means that you didn't quite move there. But they had 11 it. 12 So, how you going to explain that? 13 MR. ESCATEL: Well, first of all, it's a 14 contact. It's one contact amongst many. And that's 15 something -- it's a factor we have to consider because, 16 I mean, this is during the years at issue. 17 And our argument isn't that she came from 18 Incline Village to take care of her daughter. She was 19 here. She just drove from Aptos down to Pleasanton to 20 take care of her daughter. 21 And, yes, I don't want to -- and, you know, 22 that was one of the things during audit and protest is 23 using this contact against her. No, it's a factor to be 24 considered. And, right, we talked about intent but, 25 Mrs. Steel, we have to look at is like, yes, it's one 26 thing to -- to intend to do something but do the actions 27 reflect that? 28 I'm not saying that a mother shouldn't take 32 1 care of her child. That's not what we -- what we're 2 saying at all. What we're saying is that where is -- 3 where is their life at? Where is Mr. and Mrs. 4 Welling -- where is their social contacts, their 5 providers, everything. All the contacts that I shared 6 with you today show that they were here in California 7 and never severed those ties. 8 MS. STEEL: Then how about those factors, the 9 driver's license, voters registration and car 10 registration and address changes? All those are the 11 factors, too. 12 MR. ESCATEL: Right. 13 MS. STEEL: So there is not just one factor 14 that they're counting on it. 15 MR. ESCATEL: Right. 16 MS. STEEL: But there's other factors, all -- 17 so how you going to count that then? 18 MR. ESCATEL: Absolutely, yes. One thing, 19 those -- and your Board has intimated in cases that the 20 formality factor is right, the changing registration to 21 vote, driver's license, car registration. 22 It's funny, I consulted a lot with audit -- 23 residency auditors regarding this case to kind of get a 24 feel of what these -- you know, how this thing is done. 25 And one of the jokes is that, you know, in -- in 26 purchasing an Incline Village residence you -- you go 27 out one day, change -- you do all -- you change -- you 28 go to -- on one trip and change all your registrations 33 1 and then come back to California. 2 But as to the registration for a vehicle -- 3 MS. STEEL: Maybe if they want to come back to 4 California why they have to change all these addresses 5 just because of tax matter? 6 MR. ESCATEL: I -- I can't answer that 7 question, Ms. Steel. What I can answer is what the 8 evidence showed. Let's -- let's look at the -- let's 9 look at some of the factors you -- you -- you stated. 10 Let's look at the car registration. If we look at where 11 most of the purchases were for the years at issue, for 12 car -- for gasoline, for maintenance, most of the -- 13 overwhelming amount of contacts were made in California. 14 The receipts have -- and mind you, the -- the 15 numbers we state are based on information that we had to 16 subpoena because we on many occasions tried to get Mr. 17 Welling to help us in terms of constructing these 18 presence charts. Look, we have in 1998 103 19 transactions. In 1999, 104 transactions. This is in 20 California for their vehicle that they registered in 21 Nevada. 22 And in 2000, 117. Now, let me give you the 23 Nevada numbers. In Nevada we have 29, in '98. 29 in 24 1999. And 35 in 2000. 25 If you look at the numbers, I mean they -- they 26 speak volumes. And like I said, we're only using the 27 numbers that we can -- that we -- we could obtain, 28 not -- not the information that still hasn't been 34 1 provided. 2 MS. STEEL: But she came back to take care of 3 her daughter so you have to go to market and you have to 4 go to take care of gas and you have to take care of your 5 car there. So I don't know that's really issue but 6 what's this thing that Incline Village, every taxpayers 7 move to Incline Village, they have come to the Board 8 to -- you know, to determine that, you know, what's 9 wrong already? 10 MR. ESCATEL: No, and -- and that's -- and that 11 was addressed. In fact, earlier I think it was 12 addressed before in the regs. under 17014 about, you 13 know, indefinite stays. Indefinite stays. And where 14 illnesses -- and I think it was mentioned during the 15 pregnancy or something that, you know, when you stay 16 here for indefinite periods that -- that doesn't 17 constitute, you know -- yeah, a temporary or transitory 18 contact. 19 This -- she was here. But we contend further 20 that she was here, anyways. It wasn't that she came 21 from Incline Village to -- to take care of Michelle in 22 Pleasanton, that she went from Aptos, their home, to 23 Pleasanton. 24 MS. YEE: Ms. Steel. 25 MR. ESCATEL: And we -- we argue -- 26 MS. STEEL: It seems like -- I think it's 27 depends on the -- you know, how you look at -- that the 28 other side. If they changed all the addresses and they 35 1 changed everything and then they bought the house, they 2 already moved, and then they came -- came back to 3 California to visit their -- her children -- child, to 4 take care of, I thought that's actually temporary and 5 transitory visit, here in California even they stayed 6 most of dates here. 7 So that's the -- well, it's depends on how you 8 look at it. 9 MR. ESCATEL: Correct. 10 MS. STEEL: So, yeah. Thank you. 11 MS. YEE: Ms. Steel, let me ask Mrs. Welling to 12 comment. I mean -- 13 MRS. WELLING: Oh, thank you very much. I -- I 14 wanted to say something. I wanted to address the Board. 15 First of all, I want to say that their dates 16 are inaccurate. They are total lies. We provided 17 information correcting those dates and they have put up 18 old information. That was from before they actually had 19 the facts on the case. 20 I did not go care for my daughter from Aptos. 21 I came from Incline. Many of the gas receipts were in 22 California, yes, but where were they in California? 23 Kings Beach. Sacramento. Northern California. Most of 24 the money I spent was not around Aptos, and they know 25 that. And we tried to show them that and they ignored 26 it. 27 Those years after we had intended to move to 28 Incline, thought we were retiring, were a nightmare. We 36 1 had four grandchildren born; that was not the nightmare, 2 although two of the births were. We had four 3 grandchildren born. We had a wedding. 4 Our daughter -- our youngest daughter graduated 5 from two U. C. schools, and a third, Hastings, with her 6 law degree. We went back all times for celebrations. 7 Then she was married. I had planned a whole, very 8 large formal wedding. It took a year to plan it. She 9 was married in Grace Cathedral in San Francisco and I 10 could not plan it from Incline. I went back frequently 11 to help her plan this wedding. 12 But more than that -- more than that, our 13 oldest daughter was put on bed rest before her children 14 were born. Her house was being remodeled during this 15 time. I went to help her while she was on bed rest get 16 the house put back together before the twins were born. 17 The middle daughter, the one that has 18 rheumatoid arthritis and severe migraines, she became 19 pregnant in March. This is in '98. I went back to help 20 her. She already had a child that had been born in '95. 21 Her husband was seldom around, he's an airline pilot. 22 In April of '98 we had three chil -- grandchildren 23 baptized. We went back for that. From June to August 24 were all the frequent visits for Jenelle's wedding, 25 meeting the fiance's family who came to California from 26 the East -- East Coast to meet Jenelle and meet all of 27 us. 28 I cared for the twins in July. In September 37 1 Michelle, the middle daughter, was hospitalized with a 2 life threatening condition. She remained in the 3 hospital until the child was born. 4 She was hospitalized September 27th. The child 5 was not born until October 14th. It was placenta previa 6 complete. They both could have died at any time. They 7 were trying to get the baby's lungs mature enough that 8 he could survive. He was in neonatal ICU until October 9 20th. That was from September 27th until October 29th. 10 They also had another child that had to be 11 cared for. 12 September through November I stayed at the 13 hospital and stayed with Michelle until after the birth. 14 I cared for the other grandson. 15 Also in November there was a car accident that 16 my husband and I were involved in in Aptos. We had to 17 stay there for ten days while the car was repaired. 18 In '99 Michelle's husband had his very first 19 back surgery. I stayed for two weeks to help the family 20 then because Michelle was on chemo and she was very 21 sick. 22 From April until May -- well, in April there 23 were bridal showers for our other daughter. April to 24 May I was finalizing the wedding. Family came to stay 25 with us. The wedding was the end of May. We had people 26 there until in June, and then -- the first week in June 27 and then we went back to Aptos. 28 September to October Michelle was put back on a 38 1 new chemo. November, Michelle was taken off the chemo 2 because she was pregnant again with her third child. I 3 would help for a few days at a time whenever I could and 4 I always drove from Incline. I did not drive from 5 Aptos. I drove from Incline. I always went back to 6 Incline. 7 In 2000 I went to help care for the twins so 8 their parents could have a break. They went to Hawaii 9 for a week. 10 In March a very close friend, they're like 11 family to us, he was in ICU. He was diagnosed with 12 cancer. We went to San Diego. We were involved in San 13 Diego back and forth until he died. 14 In May is when Jenelle graduated from Hastings. 15 There was a huge party. People came from all over. 16 May 24th Michelle was placed on total bed rest 17 with I.V. medications. She then had two kids to take 18 care of. She was on bed rest with the third. Two of 19 those kids had chicken pox, a severe case of chicken 20 pox. Yes, I stayed from May 24th. 21 June 20th she was admitted to the hospital. In 22 July the baby was born prematurely at seven and a half 23 months by C-section. He was in neonatal ICU until July 24 10th. Yes, I was there all that time. I was not in 25 Aptos. Once in a while I would go to Aptos to get a 26 break while her husband came home for three days. I 27 could not go clear to Incline, it was too long a drive 28 if they needed help. 39 1 He would fly out again; I would go back up and 2 take care of her. I would leave for two or three days 3 to give them some privacy while he was home. 4 That was the only time I drove from Aptos to 5 care for her. All the rest of the time I was driving 6 back and forth from Incline. 7 In October of 2000 Mark, her husband, had his 8 second back surgery. So, again, I'm trying to help -- 9 help Michelle. We're now taking care of three kids and 10 Mark with his back surgery. I was there for 11 approximately two weeks. 12 In October of that same year our oldest 13 daughter had a breast biopsy. I went to help her. 14 I spent considerably a lot of money on credit 15 cards, all around the Pleasanton area because I totally 16 ran their household. I ran their household. I bought 17 everything they needed from food to items for the house, 18 clothes for the kids when -- when the -- Michelle was in 19 the hospital. She didn't know she was going in. I had 20 to buy all the preemie clothes for the baby. 21 Yes, I ran that entire household. Yes, there 22 were a lot of credit card charges. And on top of that 23 when I was in California and I knew Christmas was coming 24 or somebody's birthday was coming I took the chance to 25 shop, because quite frankly where I live there is not a 26 lot of shopping. 27 But our home was Incline. We tried to make it 28 Incline. I would have been happy to stay in Incline. 40 1 Those years were a nightmare. And many of the -- much 2 of what they show I was not -- I was in Incline far more 3 than what they show. 4 I think that -- I hope -- I know there are 5 other charts because we spent hours and hours and hours 6 providing them with charts with information which they 7 would simply say, oh, it doesn't matter, or they would 8 ignore us. 9 MS. YEE: Okay. 10 MRS. WELLING: Thank you. 11 Thank you very much, Ms. Welling. I want to 12 get some clarification with respect to these presence 13 charts and the basis for them, the information on them. 14 Credit card receipts. Anything else? 15 MR. ESCATEL: Yes. As I stated earlier, the -- 16 the presence charts were made on -- part of it was -- 17 remember, we -- during audit and protest they were going 18 back and forth. In fact, this is a presence chart at -- 19 I believe at the -- the last hearing, that was at the 20 last one because no additional information was provided 21 to -- to change it. 22 So, these -- and, remember, this -- this -- 23 these charts was in our initial opening brief -- were 24 sent back to Mr. and Mrs. Welling and no additional 25 information was provided at that time. 26 MS. YEE: Okay. Stop right there. Mr. and 27 Ms. Welling, what -- what new information was provided 28 since we've seen this last? You made reference to -- 41 1 MR. WELLING: I believe there's been -- 2 MS. YEE: -- what data information? 3 MR. WELLING: -- maybe four or five rounds. I 4 believe this information is the original auditor's 5 information which statistically is a sham. If you say 6 70 percent of the time when you -- if you discount all 7 the white squares where if you didn't make a credit card 8 transaction some place it didn't count. They didn't 9 know where we were. 10 This involves also credit card transactions 11 where physical presence was not required. We belonged 12 at the time to several Napa and Sonoma wine clubs. And 13 they charge our credit card whenever they ship product 14 to you. 15 MS. YEE: Help us, in terms of what -- 16 MR. WELLING: Let me clarify -- 17 MS. YEE: -- new or updated information was 18 provided since. 19 MS. YANG: Can I try a little bit on that 20 for -- for example -- 21 MS. YEE: Because I -- I think aft -- I mean, 22 we certainly understand that you don't need to be 23 physically present in a location for -- or that the 24 physical location doesn't necessarily match up with what 25 the credit card -- 26 MS. YANG: And I'm -- I'm a little con -- 27 confused, too, in terms of where the -- I mean, I am 28 familiar with these again, but these were prepared on -- 42 1 for credit card activity very, very early in the 2 process. 3 MS. YEE: Okay. But tell us what happened 4 subsequently. 5 MS. YANG: And then, again, attached to our 6 opening -- our brief is an exhibit and that provided 7 schedules with indication of what days they were present 8 in California and for what purpose. And we went as far 9 as to identify the dates that they were in Aptos versus 10 other places in California. And even to summarize when 11 they were actually together. 12 And then I have footnotes on my schedule that 13 says that, for example, for 1998 the FTB's position was 14 214 days, which is greater than even the presence chart 15 that's summarized in the summary for today's hearing. 16 My understanding -- yeah, when I provided you with an 17 indication that our number of days were not actually all 18 that far off from the FTB's I was referring to the 19 summary chart that's contained in -- in your -- in your 20 hearing summary prepared by Ian Foster. 21 So I have -- I'm very concerned that this 22 information is extremely stale even from the FTB's 23 standpoint. 24 MS. YEE: Okay. Let -- let me -- let me have 25 you stop there. 26 Ms. Kelly, can you enlighten us? 27 MS. KELLY: Well, the figures provided on 28 petition for rehearing are included in the latest 43 1 rehearing summary. And Appellants provided figures for 2 presence in California for Brent Welling for California 3 days, Nevada days and other days. And as mentioned, 4 the -- until you get to Ms. -- Mrs. Welling in 5 California days, that's where there's the greatest 6 discrepancy between FTB and Appellants. 7 And I think that's what FTB is trying to show 8 on the chart. For example, for Mrs. Welling, California 9 days 1998 were 257 and a half -- and half a day. In 10 1999, 300 California days. 300.5 California days. And 11 for 2000, 297.5 California days. 12 Whereas Appellants have Mrs. Welling in 13 California for 193, 233 and 165 respectively. So 14 there's quite a bit of difference. 15 MS. YEE: All right. Mr. Escatel. 16 MR. ESCATEL: I'll try to clarify. One -- one 17 of the things that in reading and going over all the 18 documentation was that -- like I said, this was an 19 exhaustive audit and in going over the numbers our -- 20 our auditor told me that for some of the figures that 21 were like -- some of the discrepancies were due to if 22 Mr. Welling did not remember where he was at, it was 23 a -- considered a Nevada day. 24 I'd be more than happy to go over and look at 25 the numbers. However, that doesn't really -- I mean, 26 we're really not that far apart in the numbers. And if 27 you look at the contacts, the contacts is what we're 28 looking at here and the intent. 44 1 But I mean, I'd be more than happy to go back. 2 But, however, that doesn't take away from everything 3 else. 4 MS. YEE: Uh-huh. 5 MR. ESCATEL: I mean, days are one factor. 6 Children are another factor, but these are factors and 7 we have to look at -- and in fact your Board, itself, 8 has stated in -- in -- in its cases that this is a 9 situation where we have -- it's a domicile case where 10 the taxpayer has two abodes; one in California and one 11 in another jurisdiction. The test is where are the 12 closest connections at. 13 And I have yet to hear one connection in 14 Nevada. The connections we've talked about here are all 15 in California. Mrs. Welling's involvement in Grace 16 Cathedral, and I apologize if I've, you know, upset 17 you -- 18 MS. YEE: Well -- 19 MR. ESCATEL: -- because that's not my intent. 20 MS. YEE: No, and I'm going to have you stop 21 there. 22 MR. ESCATEL: Okay. 23 MS. YEE: Because this is -- I want to be 24 sensitive. 25 MR. ESCATEL: Okay. 26 MS. YEE: But I -- I want to pursue that 27 thought and I really appreciate Mrs. Welling, you know, 28 describing for us what occurred with the family during 45 1 the years in question. 2 I guess my question to Mr. Welling is can you 3 elaborate more with respect to your ties to Nevada, to 4 Incline Village. Because that to me is the missing 5 piece. I mean, I think -- and this is not -- I mean, we 6 can argue about days. I think we can probably get to a 7 point of where we're very close with respect to, you 8 know, days in California, days in Nevada. 9 But -- and I think we also can understand 10 the -- and I'm very sympathetic to Mrs. Welling's 11 experience with respect to the children and her caring 12 for the children. But I think what's missing for me is 13 what ties were actually established in Nevada that 14 speaks to the change in domicile. 15 MR. WELLING: Well, the Franchise Tax Board 16 would -- would call these formalistic, the fact that we 17 registered to vote and voted in every election we've -- 18 and -- and -- 19 MS. YEE: I'm going to stop you right there 20 because those are kind of the objective things that we 21 look for, but talk about community connections -- 22 MR. WELLING: Oh. Oh. 23 MS. YEE: -- social things or -- 24 MS. YANG: Items in here that they're more 25 interested in. 26 MS. YEE: Business activity. What -- 27 MR. WELLING: Of course I was on the -- the 28 homeowner's association Board of Directors. 46 1 MS. YEE: And what did that entail? 2 MR. WELLING: That entailed month -- monthly 3 meetings to -- to determine what the -- you know, the 4 community -- this is a community that has tennis courts, 5 a swimming pool, clubhouse and so forth for our 6 enjoyment. And the -- the homeowner's association 7 basically made the rules and supervised all the -- all 8 the homeowners in that -- in that section. Right. 9 MS. YEE: Okay. So that's once a month meeting 10 as a Board member, okay. What else? 11 MR. WELLING: Joined the Men's Club -- the Golf 12 Club for the Men's Club up there. I was a member of 13 what they call the Sierra Angels, which is a -- a 14 Friend -- step above Friends and Family Financing for 15 startup companies. 16 The -- we were not -- well, we -- we joined the 17 church up there. We were not members of Grace Cathedral 18 when we contributed a lot of time and -- and efforts to 19 their -- their causes. But we became members of the 20 church up there. Lots of friends we played -- you know, 21 played golf with and -- and several affidavits attesting 22 to that. 23 We melded into the community as -- as quickly 24 as you usual -- as you normally can. 25 MRS. WELLING: I'm a member of AAUW, Northern 26 Nevada chapter. I have been for years. I've been 27 active in fundraisers, in social activities with AAUW, 28 American Association -- are you familiar with AAUW -- 47 1 MS. YEE: American -- 2 MS. MANDEL: University -- 3 MS. YEE: -- University of Women, yes. 4 MRS. WELLING: Yes. I'm a member of Teesters, 5 which is the women's golf club up there. I played golf 6 quite a bit with that group when I was home. And I was 7 home far more than is indicated on that chart. 8 I -- I didn't have as active a life as I wanted 9 but I did have an active life when I was home and I was 10 home far more than that chart shows. 11 And I drove back and forth a ton. I would be 12 there for a few days and back home in Incline for a few 13 days. And during those few days I had a life. 14 MS. YEE: Okay. Thank you very much. 15 Questions, Members? 16 Ms. Mandel. 17 MS. MANDEL: Has the FTB in putting together 18 your charts and looking at the information about 19 California days -- what is the -- what consideration did 20 you give to things like where the gasoline is purchased 21 and all these other types of items? I mean, she's been 22 very -- strongly stated that she was coming and going 23 from Incline Village. The events may have taken long 24 periods of time to deal with all of the events but in 25 terms of explaining the purchases kind of where's the -- 26 where's the hook? 27 MR. ESCATEL: Well, I guess from speaking to 28 the auditor who worked on this case, one of the -- it 48 1 was, from what I understand, kind of a contentious 2 audit. And one of the -- 3 MS. MANDEL: I don't know if they were 4 represented during the audit and -- and residency audits 5 can be very difficult for -- 6 MR. ESCATEL: Correct, yes. 7 MS. MANDEL: -- people to deal with. 8 MR. ESCATEL: Well, and I think it was actually 9 stated in the opening brief -- actually, it was kind of 10 sprinkled around all of our briefings, but one of the 11 issues is obtaining information to help the Wellings 12 explain certain contacts. 13 And it was basically -- it wasn't -- I mean, it 14 was -- 15 MS. MANDEL: Right. But that's the audit and 16 we're here today. So -- 17 MR. ESCATEL: No, that -- that was given 18 consideration. And -- and the fact that Mrs. Welling 19 took care of her daughter. 20 But, you know, that's one, that's a factor. 21 But we have many factors. And how are they -- how are 22 the rest of them explained? 23 One -- one thing that I want to address quickly 24 that might help clarify is, remember, the Wellings 25 contend that they changed their domicile by '96, 26 correct? Well, in '97, three years ago your Board asked 27 for what's happening with the '97 year. 28 I got a chance to speak to the auditor and what 49 1 happened was that, yes, there was -- there was a -- an 2 administrative decision not to pursue the audit because 3 of the tax -- it was less -- it was -- it was nominal, 4 it was not -- it was not much. 5 However, one of the things that we did send 6 documents to the tax -- to the taxpayers and I quote 7 here from the auditor, Ms. Dangerfield who worked on the 8 case. They asked in their information document 9 review -- and I can make a copy of this for the Board 10 after -- is, "Please include complete copies of the 11 moving or shipping invoices from the relocation of your 12 household goods from California to Nevada. This was for 13 the '97 year." 14 Response. "The Wellings say they did not move 15 any items from Santa Cruz because they still use the 16 Santa Cruz home." Aptos is right next to Santa Cruz. 17 And that was -- and in fact during the actual 18 audit the taxpayers were asked, "Please, give us 19 documents." If you can show that you were in Nevada in 20 '97 there was going to be nothing further, because they 21 didn't want -- because of the -- they did not want to 22 intrude any more than they had to because residency -- 23 residency audits are very sensitive. 24 So this was from the '97 tax year. And they 25 had not yet moved their items yet. Mr. and Mrs. Welling 26 contend they changed their domicile in '96. Coupled 27 with everything else I -- you know, I think -- 28 MS. YEE: Ms. Mandel, anything further? 50 1 MS. YANG: Can I -- can I speak to that issue, 2 please? 3 MS. YEE: Uh-huh. 4 MS. YANG: Okay. Again, we provided our brief 5 in 2006, and attached to the brief was copies of 6 invoices relating to the furniture indication they -- 7 yeah, they did not move the furniture in Aptos. They 8 purchased all new. That the personal effects were moved 9 by U-Haul. And there was -- I -- again, understand that 10 the audit was difficult but we are -- even in 2006 have 11 provided a volume of information. And we are -- you 12 know, we've had conversations with the Franchise Tax 13 Board. It was my understanding that -- that it was 14 acknowledged that these numbers were not going to be 15 accurate. And I'm concerned that they have not 16 considered bringing us into 2010 the information that 17 has been attached to our two briefs, because we would 18 have entertained any inquiries as to the credibility or 19 nature of that evidence. 20 MS. YEE: Okay. Mr. Welling. 21 MR. WELLING: Just let me please speak to that, 22 also. In 1997 I received notice from the Franchise Tax 23 Board that said basically, gee, Brent, did you file -- 24 forget to file your -- your taxes. And I contacted the 25 people and it was resolved very easily. I said, well, 26 we're no longer residents of California and they sent me 27 a little letter that said that based upon the 28 information you've provided you're free to go to your 51 1 room. 2 This occurred again in 2000 -- in 1999. Again 3 in 2000 they sent me information saying you're free to 4 go to your room. 5 So when the residency audit came up and -- and 6 I asked the auditor both in writing and verbally, why 7 aren't you challenging '97? Okay. Why aren't you 8 asking for information for '97? Do you have some 9 information, because they didn't -- wouldn't tell me why 10 the audit. Do -- we paid taxes in '96. You sent me a 11 request for information with regard to '97. I complied 12 with that. You did it again in -- is there some -- some 13 reason that you believe that we moved in '96, you didn't 14 challenge '97, but do -- is there some information that 15 you -- that we moved back in '98? 16 Because the challenge that they presented to me 17 in '97 and also -- in '98, was based upon a 1099-I, 18 interest income for a note that -- because we had loaned 19 some money to Grace Cathedral and they -- and they sent 20 a 1099 to -- to Franchise Tax Board. 21 That's what triggered the audit for those years 22 and it was handled very -- very quickly and very, very 23 easily. 24 But I knew that that note had been since repaid 25 to me and there wasn't any 1099, so I just wanted to 26 know is there a -- is there a W-2 or a 1099 or something 27 I don't know about going on the side. Why didn't -- why 28 don't you challenge '97? The answer I got in writing 52 1 was whether we include 1997 or not is our prerogative. 2 They didn't ask for information. The only time 3 anybody asked for any information was the Appeal Officer 4 Challe, who suggested in 2005, hey, maybe you ought to 5 supply some information about 1997. 6 Well, that's just about eight years too late to 7 get any information. 8 MS. YEE: Okay. Franchise Tax Board, any 9 comment? 10 MR. ESCATEL: That's not the -- that's not what 11 I have, and these are based on reported contacts. 12 And like I said, I'd be more than happy to 13 provide the -- that information to the Board. 14 And in fact what I -- what I did read was that, 15 yes, information was requested for '97. And in order 16 to -- like I said earlier, in order to basically close 17 this audit for any subsequent years, however when no 18 information was provided and we started digging a little 19 deeper it's when we start finding a lot of these 20 contacts. 21 MS. YEE: Okay. 22 MR. ESCATEL: Yes. And I clarified, I think, 23 in '97 it was an administrative decision not to pursue 24 the audit because of the -- the very, very low tax that 25 was going -- I mean the -- even issuing an NPA would 26 have been more expensive than the resulting tax. 27 MS. YEE: Okay. Thank you. 28 Other questions, Members? 53 1 Ms. Alby. 2 MS. ALBY: Yes, thank you. I have -- I have 3 two questions. 4 MS. YEE: How about a microphone for Ms. Alby. 5 MS. ALBY: Working? Good. I had two 6 questions. One is where does your dog live? I mean, 7 it's kind of silly, but when you said -- when you -- 8 when FTB mentioned that earlier that you board your dog 9 in -- in Santa Cruz County, that -- it took me back a 10 bit. 11 And I think I know the answer, but I -- 12 especially hearing continued discussion here, but don't 13 want to assume that I do, so if you could speak to that 14 I would appreciate it, why you boarded the dog in Santa 15 Cruz. 16 And the second one is relative to the failure 17 to furnish penalty, if you'd talk about that. FTB's 18 talked about having to subpoena credit card records and 19 what not. So the second question is would you just 20 explain that a bit, what happened there? 21 Thank you. 22 MR. WELLING: With regard to the dogs, during 23 the years at issue we had three dogs. And in fact 24 although we did have some credit card expenditures in 25 Santa Cruz for the -- for the vet there, we had more 26 than that number of -- from the veterinarian up in 27 Incline Village. But it was paid by check or cash and 28 so forth. And that information we have. 54 1 What is valuable to know is that during the 2 years of issue we had -- had to put three dogs down. 3 They were all put down by the veterinarian up in Incline 4 Village. 5 Our normal operandi was if we were going to be 6 gone for a couple of days, we boarded our dogs -- 7 there's a -- in Reno, in Carson City and in Truckee. If 8 we were going to be out of town and on a -- on an 9 extended trip we would drive the dogs down to Aptos 10 because we had -- we've had the same maintenance yard 11 man since 1998 and he would come and -- our house is 12 fenced down there, and he would take care of the dogs 13 and take them to the beach for a walk and so forth. And 14 take care of -- and we paid him to take care of the dogs 15 while we were on extended vacations. 16 With regard to the -- gather information, I -- 17 I honestly feel like I provided every piece of 18 information that they -- they wanted. I informed them 19 in writing during the audit there were some things that 20 they were requesting I didn't have in my possession. I 21 don't keep credit card statements every month. I 22 don't -- I balance my checkbook and I -- I trash the 23 checks. 24 I didn't have the information. And when I 25 could see this was unraveling and going very poorly, in 26 February of 2002 I invited the two members -- the audit 27 members, to come up to Incline Village to -- to show 28 that this was not some kind of a ruse. I mean, this is 55 1 not a -- a P. O. Box and a condo. 2 And during that meeting -- they agreed to come 3 up, I offered them check registers. I offered to give 4 them copies of the 1040 tax returns that they had been 5 requesting, but I knew they already had copies of 6 because they told me with the information that was on 7 there. I offered all of this information to them and 8 they refused it. They didn't take it. Okay. 9 All I had was cash -- was my check registers. 10 In 2007, the last time we were in front -- here at the 11 Board meeting, we said, okay, let me do the -- the leg 12 work. I will take all of those check registers and I 13 will provide reams and reams of all the information, who 14 the checks were written to and so forth. That's -- I 15 didn't -- didn't have a lot of the information or any of 16 the information that they are saying I refused to 17 provide. 18 The -- the only knowledge I have about the 19 subpoenas is that I know that the -- when we first got 20 up there, we set up bank accounts with First Interstate, 21 which was then acquired by Wells Fargo in 1997. And 22 when they served the subpoena on Wells Fargo the copies 23 of this information that I didn't have in my possession, 24 Wells Fargo refused the subpoena. 25 MS. ALBY: Well, the fact that you have a 26 penalty, it implies to me that you -- you were hostile 27 to the request and that's what I wanted to understand. 28 MR. WELLING: I blame that on my high school 56 1 civics teacher who -- who told me that I was innocent 2 until proven guilty and I had the right to know that -- 3 what I was being accused of and so forth. 4 And when they sent me the first letter 5 requesting information, escrow statements, insurance 6 information on cars and houses and so forth, it took 7 three or four weeks to round all that information up, 8 but I provided every bit of that. 9 And in fact, sometime between July 27th, when I 10 provided the information and September, the Franchise 11 Tax Board ran a Lexis Nexus search for a Brent C. 12 Welling, and they discovered, my gosh, there's anoth -- 13 there's a Brent C. Welling. It wasn't me, but someone 14 that lives in -- in Lafayette, who in 1994 graduated 15 from Cornell in Ithica, New York, and was involved with 16 startups around the Silicon Valley area. And they 17 thought it was me. 18 And I think that misinformation caused them -- 19 you know, I was busy with my own startup in 1984. But 20 I -- I provided everything I possibly could. And when 21 they ignored information I provided that was supportive 22 of our position, I became very suspect of -- of what was 23 going on. And I asked them what triggered the audit. 24 I wanted three very simple things. I think in fact the 25 Franchise Tax Board now has a form, a 10 -- I think it's 26 a 1071 or something like that, that you have the right 27 as the taxpayer to know what information they're 28 requesting. Why are they requesting it? Who will have 57 1 this information and how will it be protected? 2 Those are the four questions. And what will 3 happen if I don't provide it? Those are all the things 4 I wanted to know. 5 They only answered one of them, if you don't 6 provide it we're going to give you a 25 percent penalty. 7 I -- I thought that was bullying. But I provided 8 everything that I had in my possession as soon as it was 9 requested by the Franchise Tax Board. 10 MS. YEE: Okay. Thank you, Mr. Welling. 11 Thank you, Ms. Alby. Other questions? 12 Mr. Horton, please. 13 MR. HORTON: Question of the FTB. At any time 14 did the taxpayer indicate that they would not provide 15 the documents, or that the documentation was not 16 available, and they -- or could not provide it? 17 MR. ESCATEL: Right. In the -- in our opening 18 brief Mr. -- Mr. Penfield, who wrote the brief, 19 there's -- cite several conversations between Mr. 20 Welling and the Franchise Tax Board regarding Mr. 21 Welling's refusal to provide documentation. That's what 22 actually prompted the -- us to issue a formal notice and 23 demand for the information that we had been trying to 24 have for -- trying to get since the inception of this 25 audit. 26 So, there's -- I mean they're in the op -- in 27 our opening brief. 28 MR. HORTON: What actions did you take prior to 58 1 issuing a subpoena for the records? 2 MR. ESCATEL: Oh, no, we sent that. That's -- 3 that's the last resort. We ask -- we send letters, 4 infor -- they're called IDRs, Information Document 5 Requests. Many were sent, and then phone calls. 6 MR. HORTON: When you say many, what does -- 7 what does "many" mean? 8 MR. ESCATEL: Well, there's a (inaudible) 9 procedure. It's -- 10 MR. HORTON: And where were they sent? 11 MR. ESCATEL: They were sent to -- I believe 12 they were sent to his Incline Village residence. 13 That's because at that time -- 14 MR. HORTON: They were sent there? 15 MR. ESCATEL: Pardon? 16 MR. HORTON: Where -- where did you send them? 17 MR. ESCATEL: They sent them with a -- I 18 believe they were sent to the -- actually, I'm not -- 19 I'm not all together sure about that. 20 MR. HORTON: Okay. 21 MR. ESCATEL: Because several letters were 22 sent, that's how -- I mean, over years. But we do know 23 that the formal demand notice was received by 24 Mr. Welling. 25 MR. HORTON: Mr. Welling, did you receive these 26 various notices? 27 MR. WELLING: I remember receiving one set of 28 documents I believe in July of 2003 from auditor 59 1 Dangerfield. And there was also a request in there that 2 I thought was unreasonable. I didn't respond to any of 3 the documents. The request that was unreasonable was in 4 my -- and then she said, "Would you please send us a 5 picture of your Aptos house." I said, now, wait a 6 minute. I'm up here in Incline Village. You want me to 7 drive down there, take a picture of -- of the house, go 8 over to have it developed and -- and see if it's -- I 9 send it to you, or I can get on the phone and call a 10 professional photographer and have them go out and take 11 the picture and then send it to me so I can send it -- 12 basically, I said if you want a picture of the house, 13 don't you have an office down there some place that 14 could go take a picture? It's a -- it would be three 15 additional days that I would have credit card receipts 16 for -- from gasoline charges in California. 17 But, yes, I did receive the documents. I 18 didn't understand them being formal demand notices. 19 They requested information that I didn't have possession 20 of. And I told them that in writing during the audit 21 and in -- and verbally. I don't have this information. 22 MR. HORTON: So you -- you sent them a letter 23 indicating that you didn't have the infor -- 24 MR. WELLING: Yes, I -- I -- you know, I had 25 three auditors during this period of time and I sent a 26 letter to Ms. Catapon (phonetic) and also -- Jiminez, 27 Tommy Jiminez, saying you keep requesting this 28 information and you're saying I'm not responding. I -- 60 1 you just don't understand my response is I don't have 2 this information. 3 MR. HORTON: I thought you -- you testified 4 that -- well, this is a separate question. The -- they 5 attempted to subpoena the records from the bank, and I 6 thought I heard that that subpoena was not complied 7 with. Was it or was it not? 8 MR. ESCATEL: No, there was one subpoena 9 that -- those subpoenas were, yes. In fact, most of the 10 subpoenas were. There were some that were -- for 11 example, the -- was mentioned earlier when we tried to 12 subpoena records Mr. Welling's account in Nevada, but 13 for jurisdiction reasons they would not comply and we 14 did not pursue that one. 15 And there was another subpoena request for bank 16 records, but I -- I believe it's because it was past 17 seven years that they did -- no longer had the records. 18 But subpoenas for other information from the 19 credit cards was -- was obtained. 20 MR. HORTON: At any point was the taxpayer 21 notified that the FTB's action would be to subpoena the 22 records? 23 MR. ESCATEL: We notified Mr. Welling in the 24 formal notice and demand for information. That was -- 25 that's kind of what triggers a penalty in here. It's -- 26 and it's after several requests for information. 27 MR. HORTON: Is it still customary for the 28 banks to notify the -- the customer -- their customer? 61 1 MR. HILSON: Mr. Horton, I believe under the 2 California Code of Civil Procedure if you're issuing a 3 subpoena for personal information, including financial 4 information, you have to notify the account holder that 5 the subpoena is being issued so that the account holder 6 has an opportunity to come in and quash the subpoena or 7 seek protective orders from the Court, should they so 8 desire. And believe that effect -- that change went 9 into effect in the late '80s. 10 MR. HORTON: Yeah, I thought so. So, the bank 11 would have notified Mr. Wellings, as well? 12 MR. HILSON: I believe that would be true. 13 MR. HORTON: (Inaudible). 14 MR. WELLING: I was never notified by the bank 15 that there was a subpoena potential. 16 MR. HORTON: Okay. 17 The FTB seems to be relying pretty heavily on 18 this presence chart and the activity -- credit card 19 activity, but yet the taxpayer asserts that there's 20 information that contradicts this chart. 21 Do you have that information in your presence, 22 FTB? 23 MR. ESCATEL: Well -- 24 MR. HORTON: And did you take it under 25 consideration? 26 MR. ESCATEL: Yes. What it comes down to, Mr. 27 Horton, is -- like I said earlier, it's -- and I think 28 it was asked, it's where are the closest connections in 62 1 this case. And it was asked -- 2 MR. HORTON: No, I get that. But the chart's 3 there for a reason. And so -- 4 MR. ESCATEL: Right. 5 MR. HORTON: -- in and of itself -- 6 MR. ESCATEL: To show presence in California, 7 yes. 8 MR. HORTON: I mean -- so that's -- the 9 question is germane to the chart. I mean, I -- I 10 understand the -- you know, the summation of your 11 thought, but the chart, is the chart right or is it 12 wrong? 13 MR. ESCATEL: Well, from the information I have 14 in the documents, I used the very last chart that was -- 15 MR. HORTON: The chart before us, is that -- 16 does that chart reflect all the recent information 17 provided by the tax -- I mean, most of your testimony 18 relative to this was the chart. I mean for quite a bit 19 of it. 70 percent. 77 percent. 20 MR. ESCATEL: Right. 21 MR. HORTON: So evidently there was some 22 reliance on the presence chart. 23 MR. ESCATEL: You know, yes, there was reliance 24 on the presence chart. And as it pertains to the new 25 information provided I -- I guess my question is 26 there -- what is the new information provided to change 27 the contacts or -- and the presence that we have before 28 us today. 63 1 Because nothing -- nothing that's been 2 presented contradicts the -- the transactions -- 3 MR. HORTON: I -- I don't -- 4 MR. ESCATEL: -- the credit card transactions 5 or the connections. 6 MR. HORTON: You don't mean to -- to answer my 7 question with a question? 8 MR. ESCATEL: No, I -- and I apologize. 9 Because I'm -- I'm -- 10 MR. HORTON: Oh, I -- possibly -- possibly 11 what -- what you're getting at is that you've reviewed 12 the information they provided. 13 MR. ESCATEL: Yes. 14 MR. HORTON: And it's your belief that that 15 information does not substantiate the fact that they had 16 credit card purchases outside of that period in time? I 17 mean, Ms. Wellings has indicated that she drove from out 18 of State to California and that her credit cards 19 indicates that she purchased gas in Nevada and so forth 20 and so on. 21 MR. ESCATEL: Correct. 22 MR. HORTON: I'm presuming she provided you 23 with that information and -- and so, at this point 24 you're saying that information didn't have any 25 significance to your -- 26 MR. ESCATEL: Oh, absolutely, Mr. Horton. I'm 27 sorry, yes, I understand the question. Yes, and we -- 28 one -- one of the things we did, and it's actually in 64 1 our opening brief, Mr. Penfield, who was the attorney 2 who worked on this case, showed the comparisons between 3 transactions in general between California and Nevada. 4 And when you look at the opening brief, there is -- 5 there's not even -- I mean the -- the transaction -- and 6 these are all transactions that were at our disposal 7 from all documents subpoenaed, the transactions in 8 California far outweigh the transactions in Nevada. And 9 that -- that was -- that weighed heavily in terms of 10 kind of painting the picture of -- as to where the -- 11 where the majority of the time and contacts were in 12 California. 13 And the later infor -- and any information 14 that's been provided has not -- does not -- has been 15 taken into consideration. However, and in taking that 16 in consideration we look at -- I mean it kind of 17 goes back to the -- am I kind of getting -- 18 MR. HORTON: No, you're not. 19 MR. HILSON: Mr. Horton, if I understand the 20 question, what you're asking us to the extent the 21 presence chart by FTB was put together prior to the time 22 that the taxpayer submitted subsequent information did 23 we take the subsequent information into consideration, 24 and if we did, did it -- did it manifest its way in 25 changes to the chart. 26 MR. HORTON: Yes. 27 MR. HILSON: And I believe the answer to that 28 is that no significantly different information was 65 1 provided, and in fact after the commencement of the last 2 proceeding what was produced was not responsive to the 3 Board's request in the way of the additional information 4 as to what they were doing in 1997. 5 And so the -- it didn't even -- the additional 6 information really didn't go into the years in question, 7 but we put considerable time into putting the presence 8 chart together before submitting it to you folks for 9 review and consideration. It is our best effort to get 10 to the truth. 11 MR. HORTON: All right. So we are -- we're 12 focusing on the presence charts which, you know, there's 13 some dispute there. What -- what are the objective 14 facts that the FTB relied on to establish the intent of 15 the Wellings to reside or have domicile in California? 16 MR. ESCATEL: Well, the first and foremost -- 17 MR. HORTON: Without referring me back to the 18 briefs. 19 MR. ESCATEL: Okay, the first and foremost was 20 keeping the Aptos residence. 21 MR. HORTON: Okay. 22 MR. ESCATEL: And -- and that we think is 23 significant, especially in light of the assertion that 24 that home was no longer their home for -- you know, home 25 purposes, and yet they still have the house. 26 We have things like where they flew out of. 27 They flew out of -- our records show Mr. Welling -- Mr. 28 and Mrs. Welling flew a lot out of San Francisco 66 1 International Airport, San Jose Airport. That, as I 2 said earlier, is -- 3 MR. HORTON: Where they flew out of really 4 doesn't speak to their intent, state of mind or -- 5 MR. ESCATEL: No, right. And like we -- I 6 said -- 7 MR. HORTON: -- the objective facts. It 8 certainly does speak to the presence chart. But beyond 9 that, what are the objective facts there? 10 MR. ESCATEL: Well, we look where they did 11 their shopping. We look where their -- where all their 12 health care providers were. We look -- we look at their 13 home. We look at affiliations they have. 14 MR. HORTON: What -- what period -- 15 MR. ESCATEL: We look at the car maintenance 16 schedules that -- that I talked about earlier. 17 Shopping. We have dry cleaning bills. We have bills 18 for hair care, spa services, beauty supplies. 19 The pets were boarded here. Their children 20 were here. The amount of time spent here. 21 MR. HORTON: Children being here is not a 22 factor. 23 MR. ESCATEL: Okay. Well, that's not a factor 24 but the -- like -- 25 MR. HORTON: Visiting the children. 26 MR. ESCATEL: Right. And there was -- and 27 there's evidence to show that -- they spent a 28 substantial time here in California for their -- for 67 1 their adult children. 2 Affiliation to Grace Cathedral. And in -- and 3 in looking at those contacts, Mr. Horton, I think also, 4 you know, when we look at all that, what -- what -- what 5 do we have on the other side of the border to show that 6 there is any contact in Nevada that even comes near to 7 the contacts that were in California. 8 MR. HORTON: Yeah, I'm going to ask those 9 questions. 10 MS. OLSON: Mr. and Mrs. Wellington -- 11 Wellings, I'm sorry, is there a reason you kept the 12 residence in California? 13 MR. WELLING: In the first place, we couldn't 14 afford to sell it. And if the real estate market ever 15 comes back we probably will. But it is -- it's used by 16 our children. They -- they spend weekends down there or 17 whatever and some -- some occasion with friends. 18 But we -- we felt it was certainly our right to 19 be able to use the property because all of our -- all of 20 our children and grandchildren were within an hour and a 21 half of that property, yet four hours or more away from 22 Incline Village. 23 We planned on special family -- you know, 24 birthdays, Easter, Thanksgiving, Christmas and so forth, 25 it was much easier for us to be down there so they could 26 come to us than it was for these working people with the 27 small children to come -- to come up to Incline Village 28 and -- and drive back and -- and forth. 68 1 That was our intention. We couldn't afford to 2 sell it. If the real estate market ever comes back up 3 we probably definitely will. And in the -- and there 4 was no reason for us not to be able to use this 5 property. It was not where we wanted to domicile or 6 live forever. It was -- it was a disaster that happened 7 to us down there. 8 But we kept the property because we had 9 three-quarters of a million dollars invested in it 10 and -- and back to this little handout, you can see 11 where the -- in 1997 and 1998 even the County Assessor 12 reduced the value of this property down to $500,000. 13 MR. HORTON: So, am I correct -- 14 MR. WELLING: It wasn't -- 15 MR. HORTON: -- in understanding that you had 16 two reasons to maintain the property; one was financial, 17 the other was to -- 18 MR. WELLING: We could use it seasonally and 19 for temporary visits to see our -- our children and -- 20 and so forth. And our friends and our children on 21 occasion go down and use -- use the property and they 22 spend the weekends down there. 23 MR. HORTON: So, it was better for you to 24 maintain that property in order to maintain your 25 relationship -- I mean to further or make it more 26 convenient to -- to -- to have a relationship with your 27 children? 28 MR. WELLING: Sure, yeah. Yes. 69 1 And to the -- to the years of issue, I was just 2 thinking, you know, another thing that we did during 3 each of the years of the issue is we had Nevada 4 residency fishing licenses and California non-residency 5 fishing licenses. 6 MR. HORTON: Yeah. Okay. Health care 7 providers, why did you maintain California health care 8 providers? Or did you have both? 9 MRS. WELLING: We had both. 10 MR. HORTON: You had both. 11 MRS. WELLING: And when we moved to Incline 12 Village there -- there were very few doctors. Yes, 13 there's doctors in Reno. In Reno even a lot of doctors 14 weren't taking new patients. 15 True in Carson City, also, which is -- both are 16 about a 45-minute drive from Incline. Incline there 17 were very few doctors. There are now a lot more doctors 18 in Incline. 19 I, fortunately, just didn't need a doctor. I 20 am -- Brent had several issues and he had to go to 21 the E.R. at the little Incline Hospital. Otherwise, we 22 made appointments. I had a physical once a year. I 23 made an appointment with the doctors I had known for 24 years for my annual physical at times I knew I was going 25 to be back there. 26 We now have doctors there, but new doctors have 27 come in. 28 MR. HORTON: Hair care? 70 1 MRS. WELLING: I had had it done both -- I had 2 my hair done both places. 3 MR. HORTON: And you have receipts to -- that 4 you attempted to provide to the FTB? 5 MRS. WELLING: I could provide statements. You 6 know, in this little community when you go in to get 7 your hair done, things like that, you pay cash. 8 MR. HORTON: Right. That makes sense. 9 MRS. WELLING: But I have plenty of people 10 that -- that would write statements, beauty parlors I 11 went to, that that's where I got my hair done. Yes, if 12 I was down in California I got it done there. 13 MR. WELLING: And also, if I recall there in 14 the total credit card transactions I think there were 15 two hair care, and I think one was -- golly gee, we were 16 down there and I think Viki had her -- her hair done at 17 Easter before we went up to Grace Cathedral. It was our 18 normal family was go to Grace Cathedral and then go to 19 the Ritz Carlton down the street for brunch afterwards. 20 She had her hair done. 21 MR. HORTON: So -- 22 MR. WELLING: The other time was also just 23 before our daughter -- our daughter's wedding in -- in 24 May of of '99. 25 MR. HORTON: So what really kept you in 26 California was your children? I mean, the children -- 27 MRS. WELLING: The fact that there were so 28 many -- 71 1 MR. HORTON: -- their health care and 2 challenges and so forth. 3 MRS. WELLING: -- health issues and so many 4 children born and -- and then good -- a lot of good 5 things, too. Weddings. Graduations. 6 But it was really our daughter's health issues 7 that kept me there the longest. 8 MR. HORTON: Is it fair to say that at some 9 point a decision was made that it was better to maintain 10 the California base home because of those reasons? 11 MRS. WELLING: No. No. They -- that was 12 maintained really in hopes that it would improve in 13 value and also because our kids used it. It was a place 14 that we could go and not stay with the kids -- 15 MR. HORTON: And Mr. Wellings -- 16 MRS. WELLING: -- and still visit the kids. 17 MR. HORTON: -- had said something different 18 than that. 19 MR. WELLING: I'm -- I'm sorry. 20 MR. HORTON: Mr. Welling said something 21 different than that. 22 MRS. WELLING: That we would go and stay there 23 instead of staying with our kids during holidays. 24 MR. HORTON: No, he said there was two 25 reasons. One -- 26 MR. WELLING: Financial. 27 MR. HORTON: -- property value, financial. The 28 other was the children. 72 1 MRS. WELLING: Yes. Yes. 2 MR. HORTON: Okay. Thank you. 3 MS. YEE: Thank you, Mr. Horton. Other 4 questions, Members? 5 Ms. Alby, please. 6 MS. ALBY: I'd like to go back to the presence 7 chart for just a minute. Do I -- am I correct, and when 8 you saw a credit card bill in California if you saw an 9 expenditure on a certain day, boom, that was a 10 California day? 11 MR. ESCATEL: That would be correct unless -- 12 MS. ALBY: Is that correct? 13 MR. ESCATEL: -- it was, I think some were 14 for -- I believe wine purchases that were made. 15 MS. ALBY: Pardon me. What -- 16 MR. ESCATEL: Wine purchases. Because -- 17 MS. ALBY: Wine purchases? 18 MR. ESCATEL: Mr. Welling belonged to a wine 19 club, so -- 20 MS. ALBY: Got it. 21 MR. ESCATEL: -- yeah, that's over the -- and 22 transactions that could be, you know, shown that they 23 were over the internet or over the phone, that they 24 weren't really location-based purchases. 25 MS. ALBY: So, if one of them drove around the 26 corner to Kings Beach from incline and charged gas at 27 the Chevron, that was a California day? 28 MR. ESCATEL: No, I believe the auditor took 73 1 out any contacts that were, you know, within this 2 distance outside -- on the California border next to 3 Nevada. 4 MS. ALBY: Truckee. Northstar. 5 MR. ESCATEL: Yeah, there some -- yeah, there 6 were some that were -- that were, yeah, like ten miles 7 away or -- those were all taken out of the -- 8 MS. ALBY: You're for sure? 9 MR. ESCATEL: Yeah, I'm -- I think it's even 10 in the briefing. Yes, ma'am. 11 MS. ALBY: How about if they got in the car on 12 a Wednesday morning and drove down to the Galleria, 13 because I agree with Mrs. Welling, shopping is really 14 terrible there. 15 But what if they drove down to the Galleria on 16 Highway 80, real -- it's a simple drive. It will take 17 an hour and then back home, to shop. 18 MR. ESCATEL: I -- I can't speak to that, but I 19 can speak to the shopping that occurred in San 20 Francisco, and those were included on the presence 21 chart. 22 MS. ALBY: Okay. But -- so you can't tell me 23 when she went down to Sacramento, which she stated she 24 did upon occasion -- that that's not on that chart as a 25 California day; that's probably on that chart? 26 MR. ESCATEL: Yes. 27 MS. ALBY: If it's not a stone's throw from 28 Incline it's on the chart? 74 1 MR. ESCATEL: I -- I -- I believe so, yes. 2 MS. ALBY: Thank you. 3 MS. YEE: Thank you, Ms. Alby. Other 4 questions, Members? 5 Okay, hearing none, may I have a motion, 6 please. 7 MR. HORTON: Move to take it under 8 consideration. 9 MS. MANDEL: Second. 10 MS. YEE: Okay. Motion by Mr. Horton to take 11 the matter under submission. Ms. Mandel seconds. 12 Without objection, such will be the order. 13 Thank you all very, very much -- 14 MR. WELLING: Thank you. 15 MS. YEE: -- for your patience. We will 16 discuss your matter later today and send you written 17 notice of our decision. Thank you. 18 ---oOo--- 19 20 21 22 23 24 25 26 27 28 75 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 August 24, 2010 I recorded verbatim, in shorthand, to 10 the 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 75 13 pages constitute a complete and accurate transcription 14 of the shorthand writing. 15 16 Dated: September 24, 2010. 17 18 19 20 ____________________________ 21 BEVERLY D. TOMS 22 Hearing Reporter 23 24 25 26 27 28 76