1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 REPORTER'S TRANSCRIPT 8 AUGUST 24, 2010 9 10 11 ITEM H TAX PROGRAM NONAPPEARANCE MATTERS - ADJUDICATORY 12 ITEM H1 LEGAL APPEALS MATTERS 13 14 15 16 17 18 19 20 Reported by: Juli Price Jackson 21 No. CSR 5214 22 23 24 25 26 27 28 1 1 2 P R E S E N T 3 4 For the Board Betty T. Yee of Equalization: Chair 5 Jerome E. Horton 6 Vice-Chair 7 Barbara Alby Acting Member 8 Michelle Steel 9 Member 10 Marcy Jo Mandel Appearing for John 11 Chiang, State Controller (per 12 Government Code Section 7.9) 13 Diane G. Olson 14 Chief, Board Proceedings Division 15 16 17 For the Board: David Levine Tax Counsel 18 19 ---oOo--- 20 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 AUGUST 24, 2010 4 ---oOo--- 5 MS. YEE: Okay, moving on to H1, Legal Appeals 6 matters - adjudicatory. 7 Shall we take these up individually? 8 MS. KELLY: Yes. 9 MS. YEE: Okay, sub item 1, we have John Ray 10 James Ford. 11 MS. OLSON: They've been pulled from the 12 calendar. 13 MS. YEE: Oh, I'm sorry. 14 MS. OLSON: That's okay, they requested an oral 15 hearing yesterday. 16 MS. YEE: Oh, yes. Thank you. 17 Okay. Then we have sub items 2a and 2b, 18 Elizabeth Wardley Kwong and Raymond Wah Kwong. 19 ---o0o--- 20 H1 2a ELIZABETH WARDLEY KWONG 21 NO. 316054 (AP) 22 H1 2b RAYMOND WAH KWONG 23 NO. 316055 (AP) 24 ---O0O--- 25 MS. YEE: Is there a motion? 26 MS. STEEL: We're going to B1? 27 MS. YEE: Item H1, Legal Appeals matters, 28 sub items 2a and b. 3 1 MR. HORTON: Let's adopt staff recommendation. 2 MS. YEE: Okay, motion by Mr. Horton to adopt 3 the staff recommendation on sub items 2a and 2b. 4 Is there a second? 5 MS. ALBY: Second. 6 MS. MANDEL: Second. 7 MS. YEE: Second by Ms. Alby. 8 Discussion? 9 Okay, hearing none, without objection, that 10 motion carries. 11 ---o0o--- 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4 1 MS. YEE: Next item, sub item 3, Medical 2 Equipment & Supplies Discount Center, Incorporated.. 3 ---o0o--- 4 H1 3, Medical Equipment & Supplies 5 Discount Center, Incorporated 6 NO. 400764 (EH) 7 ---o0o--- 8 MS. YEE: May I have a motion, please? 9 MR. HORTON: Move to adopt staff 10 recommendation. 11 MS. YEE: Motion by Mr. Horton to adopt the 12 staff recommendation. 13 Is there a second? 14 I will second that motion. 15 Discussion? 16 Ms. Steel? 17 MS. STEEL: Actually, taxpayer provided the 18 intake sheets for those two scooters by the -- actually, 19 two Kaiser patients sale of two scooters. 20 So, if I can make substitution motion that move 21 that the sale of scooters to two Kaiser patients should 22 be allowed because patient intake sheet and N. P. I. 23 numbers provided by the Petitioner and then adopt the 24 rest of it by Appeals recommendation. 25 MS. MANDEL: Are those the ones that were 26 allowed post hearing or are those additional? 27 MS. STEEL: No, it was not allowed, but they 28 provided those numbers. 5 1 Mr. Levine -- 2 MS. YEE: Mr. Levine, do you want to give us 3 the summary? 4 MR. LEVINE: What Petitioner has provided, if 5 you are talking about the very last submission, which 6 was not authorized, which is why it was not distributed 7 to Members, but I understand Petitioner submitted it 8 directly, is just a printout from a couple of months ago 9 of the N. P. I. number, which doesn't go to the issue, 10 which is did the doctor -- was there actual 11 communication between Petitioner or Petitioner's office 12 and the doctor's office? That's what it takes to have 13 an oral prescription. 14 The Department was very lenient in this case. 15 Wherever there was -- the intake form that showed the 16 N. P. I. -- at the time it was the other number -- the 17 Department assumed that Petitioner must have called up 18 the doctor to get the number, even though we know that's 19 not necessarily true, but that was the standard the 20 Department used. So, they accepted every sale that was 21 supported by an intake sheet with the N. P. I. number. 22 This is not -- as I understand it, there were a 23 couple of intake sheets for the Kaiser transactions, but 24 they were not complete, they didn't have the N. P. I. 25 number. 26 And Petitioner's arguing the Department 27 couldn't find the number. I don't know why. Petitioner 28 has now found the number. 6 1 But there was never any doubt that these -- 2 these persons who were identified as doctors at Kaiser 3 were doctors at Kaiser, even the Department said they 4 were doctors at Kaiser. They confirmed they were 5 doctors at Kaiser. 6 We still don't have evidence of any oral 7 communication between the doctors' office and Petitioner 8 at the time of the sale. 9 MS. STEEL: Well, I think the Department was 10 lenient because that they didn't really do the thorough 11 job that -- my office got involved and we called and 12 tried to get those numbers. That's the reason that we 13 found those numbers, that we dropped those, you know, 14 from the taxpayers. 15 So, these two -- actually, our Department said 16 that it's not acceptable because Kaiser is not giving 17 oral prescriptions, but we found out that other 18 patients, when they are insisting that they going to get 19 it and they got it, that's the way Petitioner provided 20 those two invoices. 21 So, that's why I asked that, you know, why 22 don't we just give to the taxpayers because there's 23 exceptions? 24 And some of the patients, they are getting oral 25 prescriptions. 26 MR. LEVINE: Just for the record, that was not 27 the basis of Appeals' recommendation. 28 I agree there is evidence that we have a policy 7 1 that Kaiser doctors are not supposed to give to 2 prescriptions, but there are exceptions to that. And 3 where that was proven the Department allowed it. 4 The question isn't, to me, whether some Kaiser 5 physicians violate the rules, they do. The question is 6 whether these particular doctors called or were called 7 by Petitioner at the time of the sale, not after the 8 fact, proving that they had N. P. I. number. 9 We know they had an N. P. I. number, they had 10 to because they're doctors. 11 MS. STEEL: Mr. Levine, that's not just 12 violations of doctors from Kaisers because they have -- 13 there is exceptions means they can do it, it's not a 14 violation that they are giving out the prescriptions. 15 MR. LEVINE: Well, whatever word -- whether -- 16 even if it's not authorized to call, the only issue is 17 whether they did, not whether they could or would 18 because there is evidence that some Kaiser doctors do. 19 And, for all I know, there is evidence that these 20 particular doctors had called in for other 21 transactions. 22 MS. STEEL: Totally understand that, Members, 23 that I am doing this because I want to show that 24 Department can do better job when they go after the 25 taxpayers. That's the only reason I am making this 26 motion. 27 MS. YEE: Okay, thank you, Ms. Steel. 28 Would you restate your motion again so I can 8 1 see if there's a second, it's the substitute motion? 2 MR. HORTON: I would suspend the motion. 3 MS. YEE: Okay, you want to withdraw your 4 motion, Mr. Horton? 5 MR. HORTON: As a courtesy, sure. 6 MS. YEE: Okay. Do you want to restate your 7 motion, Ms. Steel? 8 MS. STEEL: I do move the sale of scooters to 9 two Kaiser patients should be allowed because patient 10 intake sheets and N. P. I. numbers were provided by the 11 Petitioner and adopt the Appeals recommendation for the 12 other issue. 13 MS. YEE: Okay, very well. Motion by Ms. Steel 14 to allow the scooter sales but otherwise redetermine as 15 recommended by Appeals. 16 Is there a second? 17 MS. ALBY: Second. 18 MS. YEE: Second by Ms. Alby. 19 Further discussion? 20 MS. MANDEL: Can I -- 21 MR. LEVINE: For further clarification -- 22 MS. YEE: Yes. 23 MR. LEVINE: -- so I understand. 24 This was a projected liability. So, if I 25 understand you correctly, it's not just to allow these, 26 but to take these and project them the way the 27 assessment was calculated? 28 These total -- there is like 1500 and 1300, but 9 1 they work out to something more -- 2 MS. YEE: Okay, Ms. Steel -- 3 MR. LEVINE: -- once they're projected out. 4 MS. YEE: -- that's your intent, yes? 5 MS. STEEL: Uh-huh. 6 MS. YEE: Okay. Thank you for the 7 clarification, Mr. Levine. 8 Please call the roll. 9 MS. MANDEL: Can I -- 10 MS. YEE: Oh, I'm sorry, Ms. Mandel? 11 MS. MANDEL: -- ask a question? 12 MS. YEE: Yes. 13 MS. MANDEL: Are -- I know that there was 14 something that was allowed after the hearing. So -- 15 MR. LEVINE: Yes, the first one here that the 16 Petitioner's arguing should be allowed was allowed, 17 that's the -- 18 MS. MANDEL: That was the -- 19 MR. LEVINE: -- the Conoco. 20 MS MANDEL: -- motorized wheelchair. 21 MS. MANDEL: So, that -- well -- 22 MR. LEVINE: Exhibit B1. 23 MS. MANDEL: Okay. So, there's only the -- as 24 to wheelchairs, there's only the two then left? 25 MR. LEVINE: No, there were seven total left. 26 MS. MANDEL: Oh, okay. 27 MR. LEVINE: One was conceded. Two were the 28 Kaiser scooters and four are ones that had no intake 10 1 sheets. And I don't know which ones those were. 2 MS. STEEL: And then there is other issues, the 3 lift and other stuffs that they already have. 4 So, I'm not talking about that they have to pay 5 taxes on it. I'm talking about out of seven there is 6 one they already consented. So, there's six more 7 chairs -- 8 MS. MANDEL: Yeah. 9 MS. STEEL: -- and two from the Kaiser intake. 10 That's the ones -- that's the two I'm talking about. 11 MS. MANDEL: And we had a lot of discussion at 12 the hearing about these doctor numbers because they -- 13 my recollection was that the whole discussion about the 14 doctor numbers came up because, supposedly, the absence 15 of the doctor number was what resulted in the 16 disallowance. 17 MR. LEVINE: The absence is of the numbers from 18 the intake forms because the Department regarded those 19 numbers as showing that Petitioner must have called up 20 the doctor to confirm the prescription and received 21 those numbers from the doctor's office. 22 MS. MANDEL: Right. And there was so much 23 discussion as though the numbers could not be found 24 because that's why I was looking them up at the time. 25 MR. LEVINE: I think it was a red herring. I 26 don't think we did a good job explaining the exact 27 relevance of those numbers. 28 MS. MANDEL: And the relevance of the numbers 11 1 was -- as was viewed toward -- 2 MR. LEVINE: A form of verification. 3 MS. MANDEL: -- that -- that -- that they 4 actually spoke with the doctor at the time they did the 5 intake. 6 MR. LEVINE: We, obviously, have a problem with 7 wheelchairs, as I tried to explain in the analysis, 8 because there's no independent verification like we'd 9 have with regular medicines, which you can not buy 10 without a prescription. F. D. A. is regulating that and 11 they have a system for verifying oral prescriptions, but 12 we don't have that with wheelchairs. 13 MS. MANDEL: And the testimony was that they 14 called the doctors? 15 MR. LEVINE: The original statement -- 16 MS. STEEL: Actually, my office started calling 17 and got the numbers. 18 MS. MANDEL: Oh, I understand that on getting 19 the numbers, I meant on the practice at the taxpayer's 20 location for preparing the intake sheet. 21 MR. LEVINE: By the time of the hearing, that 22 was what Petitioner stated, yes. 23 MS. MANDEL: By the time of the hearing? 24 MR. LEVINE: Yes. 25 MS. YEE: Further questions, Members? 26 MR. HORTON: Yes, question. 27 MS. YEE: Mr. Horton, please? 28 MR. HORTON: Any evidence that a prescription 12 1 was actually issued? 2 MR. LEVINE: That's what we're discussing. 3 There was definitely not a written prescription or else 4 we wouldn't have any doubt. 5 The issue is whether the Petitioner called the 6 doctor's office to verify or the doctor's office called 7 Petitioner to order the purchase or order the 8 prescription. 9 MR. HORTON: So, in the previous audit and 10 hearing process, it was established, I'm presuming, that 11 the fact that the doctor's identification number was on 12 the intake sheet was an indication that he had called it 13 in? 14 MR. LEVINE: That's what the Department 15 accepted, yes. 16 MR. HORTON: And subsequent evidence -- did we 17 identify the doctor's identification number? Or was -- 18 and we're now placing that on the intake sheet or was it 19 on the intake sheet from the onset? 20 I'm trying to understand if this is a condition 21 subsequent to the verification. 22 MR. LEVINE: Yes, it is. My understanding is 23 that the two disputed Kaiser sales did not have the 24 numbers on the forms, which is the problem. 25 The Department regarded them as having not 26 contacted the doctor's office because they didn't have 27 that verification feature on the intake sheet. 28 MR. HORTON: Are any of the parties willing or 13 1 have they testified -- written or orally -- that this 2 occurred? The doctor, in particular? 3 MR. LEVINE: I don't think so. 4 Certainly the Petitioner will tell you that 5 he -- I assume the Petitioner will tell you that his 6 office called the doctor. 7 I don't think -- if the customer testified to 8 it, I'd say that's worthless because how would the 9 customer know unless he was standing right there and 10 heard? 11 So, it would have to be the doctor. I'm not 12 aware that there's been any attempt to contact the 13 doctor. I don't think the Department did. I don't know 14 whether they'd be able to reach the doctor, or if they'd 15 remember. 16 MR. HORTON: That'd be nice to know what 17 happens when something happens after the fact, but that 18 would be nice to know. 19 MS. MANDEL: So, do I understand that correctly 20 that -- that there were ones allowed through the process 21 with this taxpayer where the original intake sheet 22 originally didn't have a number, but a number was 23 subsequently found? 24 MR. LEVINE: No, I don't think so. 25 MS. MANDEL: No, it was just that the efforts 26 that were made were to insure that the intake sheet 27 could be used? 28 I am getting a yes from Mr. Shah, so, I'll take 14 1 that as a yes. 2 Thank you, Mr. Shah. 3 MR. HORTON: That motion, we rest. 4 MS. MANDEL: Well, I just wanted to 5 understand -- remember what happened before and with the 6 work that was done by Ms. Steel's office. 7 And, thank you. 8 MS. YEE: Thank you. 9 We have a motion and a second on the floor. 10 Please call the roll. 11 MS. OLSON: Madam Chair? 12 MS. YEE: No. 13 MS. OLSON: Ms. Alby? 14 MS. ALBY: Aye. 15 MS. OLSON: Ms. Steel? 16 MS. STEEL: Aye. 17 MS. OLSON: Mr. Horton? 18 MR. HORTON: No. 19 MS. OLSON: Ms. Mandel? 20 MS. MANDEL: No. 21 MS. OLSON: Motion fails. 22 MS. YEE: Do we have another motion? 23 MR. HORTON: Move to adopt staff 24 recommendation. 25 MS. YEE: Okay, motion by Mr. Horton to adopt 26 the staff recommendation. 27 I'll second that motion. Please call the roll. 28 MS. OLSON: Madam Chair? 15 1 MS. YEE: Aye. 2 MS. OLSON: Ms. Alby? 3 MS. ALBY: No. 4 MS. OLSON: Ms. Steel? 5 MS. STEEL: No. 6 MS. OLSON: Mr. Horton? 7 MR. HORTON: Aye. 8 MS. OLSON: Ms. Mandel? 9 MS. MANDEL: Aye. 10 MS. OLSON: Motion carries. 11 ---o0o--- 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 16 1 MS. YEE: Next item is -- sub item, is A Realty 2 Publications, Incorporated, sub item 4. 3 ---o0o--- 4 H1 4 A REALTY PUBLICATIONS, INCORPORATED 5 NO. 343231, 373181, 379332, 391653 (EH) 6 ---o0o--- 7 MS. YEE: May I have a motion, please? 8 MS. MANDEL: Not participating in this item. 9 MS. YEE: Okay, Ms. Mandel not participating on 10 this item. 11 MR. HORTON: Move to adopt staff 12 recommendation. 13 MS. YEE: Notion by Mr. Horton to adopt the 14 staff recommendation. 15 Is there a second? 16 I will second that motion. 17 Discussion? 18 Hearing none, please call the roll. 19 MS. OLSON: Madam Chair? 20 MS. YEE: Aye. 21 MS. OLSON: Ms. Alby? 22 MS. ALBY: Aye. 23 MS. OLSON: Ms. Steel? 24 MS. STEEL: No. 25 MS. OLSON: Mr. Horton? 26 MR. HORTON: Aye. 27 MS. OLSON: Motion carries. 28 ---o0o--- 17 1 2 REPORTER'S CERTIFICATE 3 4 State of California ) 5 ) ss 6 County of Sacramento ) 7 8 I, JULI PRICE JACKSON, Hearing Reporter for the 9 California State Board of Equalization certify that on 10 AUGUST 24, 2010 I recorded verbatim, in shorthand, to 11 the best of my ability, the proceedings in the 12 above-entitled hearing; that I transcribed the shorthand 13 writing into typewriting; and that the preceding pages 1 14 through 17 constitute a complete and accurate 15 transcription of the shorthand writing. 16 17 Dated: DECEMBER 16, 2010 18 19 20 ____________________________ 21 JULI PRICE JACKSON 22 Hearing Reporter 23 24 25 26 27 28 18