1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 SEPTEMBER 15, 2010 10 11 12 13 14 15 FINAL ACTION FOR 16 SEPTEMBER 14, 2010 17 18 19 20 21 22 23 REPORTED BY: JULI PRICE JACKSON 24 CSR NO. 5214 25 26 27 28 1 1 P R E S E N T 2 3 For The Board Betty T. Yee of Equalization: Chair 4 Jerome E. Horton 5 Vice-Chair 6 Barbara Alby Acting Member 7 Michelle Steel 8 Member 9 Marcy Jo Mandel Appearing for John Chiang 10 State Controller (per Government Code 11 Section 7.9) 12 Diane G. Olson Chief, Board 13 Proceedings Division 14 15 ---OOO--- 16 17 18 19 20 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 SEPTEMBER 15, 2010 4 ---o0o--- 5 MS. OLSON: The next items is C7, Community 6 Flavor, LLC. 7 ---o0o--- 8 C7 COMMUNITY FLAVOR, LLC 9 NO. 469262, 483974 10 ---o0o--- 11 MS. YEE: Oh, yes, yes. Members, this is the 12 matter held over from yesterday, Community Flavor, LLC. 13 It's related to the marijuana dispensary. 14 Yes, let's flip back to this, item C7. 15 (Inaudible.) 16 MS. YEE: Just one sec, Ms. Alby. 17 MR. HORTON: Madam Chair, if I may? 18 MS. YEE: Mr. Horton, yes? 19 MR. HORTON: Thank you. 20 First I want to thank the Chair for indulging 21 me with an opportunity to return home and sort of check 22 on father-in-law. 23 Since then I have had an opportunity to review 24 the testimonies and it was quite interesting to see what 25 my colleagues were asking about this, what with the 26 response was. 27 So, I am prepared to vote on this item at this 28 time, after careful consideration of all of the 3 1 testimony, both the taxpayer and my colleagues. 2 I did see that there was much exchange from the 3 point in which I actually listened to the taxpayer and 4 the Department. So, thank you very much for that 5 opportunity. 6 MS. YEE: All right, thank you, Mr. Horton, 7 you're welcome. 8 Ms. Alby, you want to bifurcate the issues? 9 MS. ALBY: I do, thank you. 10 MS. YEE: Okay. Do you want to make a motion 11 on the first issue relative to whether the sales were 12 exempt sales? 13 MS. ALBY: Let's -- I move that to -- I move 14 the staff's recommendation on Issue 1. 15 MS. YEE: Okay. Issue 1, Ms. Alby moves the 16 staff recommendation, which is Petitioner's sale of 17 marijuana does not qualify as exempt sales of medicine. 18 Is there a second? 19 MS. MANDEL: Second. 20 MS. YEE: Second by Ms. Mandel. 21 Discussion? 22 MS. STEEL: I have a statement to say. 23 MS. YEE: I'm sorry? 24 MS. STEEL: I have a statement. 25 MS. YEE: Okay. 26 MS. STEEL: I will go for staff 27 recommendations, but marijuana is federally illegal and 28 I don't think state has to charge sales taxes on it. 4 1 So, this is another example of California law 2 that's out of sync with the rest of nation. But -- I 3 just go with California law. So, I go with Ms. Alby for 4 staff recommendation. 5 MS. YEE: Okay, thank you, Ms. Steel. 6 Mr. Horton? 7 MR. HORTON: Only because I've -- I've -- I 8 mean this is an area that I am very much interested in 9 having focus enforcement in order to address the 10 potential illegal distribution and the negative impact 11 it has on our community, the illegal activity. 12 But I do want -- I do want to sort of either 13 state my position that this is also -- would be subject 14 to federal income tax because the transaction is illegal 15 does not make it not subject to tax. 16 It's one of the -- one of the -- I think, one 17 of the realities of history is is that in the times of 18 prohibition and other illegal activities, the one thing 19 that has remained constant throughout our history is 20 that illegal activity has been subject to taxation. 21 So, when one -- staff or the public to think 22 that otherwise, even though I -- so, I concur with my 23 colleague relative to the fact this is subject to tax 24 even if it's illegal. 25 MS. YEE: Okay. Thank you Mr. Horton. 26 Motion by Ms. Alby, second by Ms. Mandel to 27 adopt staff recommendation as it relates to Issue No. 1. 28 Without objection, that motion carries. 5 1 Okay, Issue 2? 2 MS. ALBY: Issue 2, if I may, move to grant the 3 taxpayer's petition. 4 MS. YEE: Okay, Issue No. 2, whether 5 Petitioner's sales of marijuana cookies qualify as 6 exempt sales of food products, Ms. Alby moves to grant 7 for the Petitioner. 8 Is there a second? 9 Okay, motion dies for lack of a second. 10 MS. STEEL: What happens if they warm up the 11 cookies? 12 MS. YEE: I just hope it's documented in the 13 next audit. 14 MS. ALBY: They become rum cake. 15 MR. HORTON: Depends on how they consume the 16 fumes. 17 MS. YEE: All right, Ms. Alby, made a motion to 18 grant for Petitioner on the issue, Issue No. 2. 19 Motion dies for lack of a second. 20 May I have another motion, please? 21 MS. MANDEL: Move to -- move to redetermine on 22 Issue 2 and -- 23 MS. YEE: Okay. Motion by Ms. Mandel to 24 redetermine on Issue No. 2 as it relates to the 25 marijuana cookies. 26 Is there a second? 27 MR. HORTON: Second. 28 MS. YEE: Second by Mr. Horton. 6 1 Please call the roll. 2 MS. OLSON: Madam Chair? 3 MS. YEE: Aye. 4 MS. OLSON: Ms. Alby? 5 MS. ALBY: No. 6 MS. OLSON: Ms. Steel? 7 MS. STEEL: Aye. 8 MS. OLSON: Mr. Horton? 9 MR. HORTON: Aye. 10 MS. OLSON: Ms. Mandel? 11 MS. MANDEL: Aye. 12 MS. OLSON: Motion carries. 13 MS. MANDEL: There's another issue? 14 MS. YEE: Yes. And then the final issue here 15 is whether Petitioner is entitled to relief of tax and 16 interest based on reliance on erroneous advice from the 17 Board. 18 Is there a motion? 19 MS. ALBY: Deny the petition on item No. 3, the 20 reliance on erroneous -- do I -- that's good enough 21 right now. 22 MS. YEE: Okay, that's a motion by Ms. Alby 23 to -- is this staff recommendation? 24 MS. MANDEL: Uh-huh. 25 MS. YEE: To adopt the staff recommendation. 26 Is there a second? 27 MR. HORTON: Second. 28 MS. YEE: Second by Mr. Horton. 7 1 Discussion? 2 MS. ALBY: I want to -- this -- the taxpayer 3 says that he was relying on erroneous written advice, 4 but I was persuaded he not understand the law. And that 5 is not the same as erroneous advice. 6 MS. YEE: Thank you. 7 Ms. Steel? 8 MS. STEEL: Oh, we going to refer to 9 Offers-In-Compromise? 10 MS. YEE: Yeah, I do think that would be 11 appropriate. 12 So, we'll move to redetermine and direct the 13 Petitioner to the Offers-In-Compromise program. 14 Okay, it's a motion by Ms. Alby, second by 15 Mr. Horton. 16 Without objection, that motion carries. 17 18 19 20 21 22 23 24 25 26 27 28 8 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, JULI PRICE JACKSON, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 SEPTEMBER 15, 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 pages 1 13 through 8 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: September 29, 2010 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 9