1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 5 6 REPORTER'S TRANSCRIPT 7 OCTOBER 19, 2010 8 CORPORATE FRANCHISE AND PERSONAL INCOME TAX HEARING 9 APPEALS OF 10 EDMUND (CHAD) SIVA (DECEASED) 11 NO. 384247,390860, 401330, 401331 12 HAROLD T. RIGGS, JR. 13 NO. 449373, 474423, 504746 14 WAYNE L. HAUSE AND KELLY R. HAUSE 15 NO. 467603 16 AGAINST PROPOSED ASSESSMENT OF 17 ADDITIONAL INCOME TAX 18 19 20 21 22 23 24 25 26 Reported by: Juli Price Jackson 27 CSR No. 5214 28 1 1 P R E S E N T 2 For the Board Betty T. Yee of Equalization: Chair 3 Jerome E. Horton 4 Vice-Chair 5 Barbara Alby Acting Member 6 Michelle Steel 7 Member 8 Marcy Jo Mandel Appearing for John 9 Chiang, State Controller (per Government Code 10 Section 7.9) 11 Diane G. Olson Chief 12 Board Proceedings Division 13 14 For Board of Anthony Epolite Equalization Staff: Staff Counsel 15 Amy Kelly 16 Staff Counsel 17 For Franchise Tax Natasha Page 18 Board: Tax Counsel 19 Bill Hilson Tax Counsel 20 21 For Appellant: Keith A. Shibou Representative 22 23 24 25 ---oOo--- 26 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 OCTOBER 19, 2010 4 ---oOo--- 5 MS. YEE: Next matter, please, Ms. Olson? 6 MS. OLSON: Our next matter is B3, Edmund 7 (Chad) Siva, deceased. 8 MS. YEE: Okay, Members, we're on item B3, 9 Edmund (Chad) Siva. 10 Appeals, please introduce the matter. 11 MR. EPOLITE: Appellant, who is deceased, was a 12 member of the Agua Caliente tribe. Appellant resided in 13 Section 19 in Palm Springs. 14 For tax years 2001 to 2005, the issues before 15 the Board are, first, whether Appellant resided in 16 Indian country during the years at issue, so that his 17 reservation-sourced income is not subject to California 18 tax; second, whether Appellant's reservation-sourced 19 income is exempt from California tax, even if he did not 20 live on reservation land; and, third, whether Appellant 21 has shown reasonable cause for abatement of the late 22 filing penalty. 23 MS. YEE: Thank you, Mr. Epolite. 24 Good morning. 25 MR. SHIBOU: Good morning, Keith Shibou on 26 behalf of the Appellant. 27 Before you put the clock on me, I have two 28 subsequent cases and the issues are identical -- 3 1 MS. YEE: Okay. 2 MR. SHIBOU: -- in the cases of Riggs and 3 Hause. 4 And if I, perhaps, could be allowed an extra 5 two or three minutes on my presentation on this one, I 6 would not have to repeat myself on the next two cases, 7 it would save the Board some time this morning. 8 MS. YEE: Okay. So, you'd like to -- 9 MR. SHIBOU: Consolidate. 10 MS. YEE: -- make your presentation 11 consolidating items B3, B4 and B5? 12 MR. SHIBOU: Yes. 13 MS. YEE: Okay. Mr. Epolite, any problem with 14 that? 15 MR. EPOLITE: If I might just introduce those 16 matters -- 17 MS. YEE: Please? 18 MR. EPOLITE: -- to some extent? 19 MS. YEE: Yes, item B4, Harold T. Riggs, Jr., 20 please? 21 MR. EPOLITE: Appellant in this matter is also 22 a member for the Agua Caliente tribe and resided in 23 Section 9 in Cathedral City. 24 For tax years 2003 to 2005, the issues before 25 the Board are whether Appellant resided in Indian 26 country during these years, so that his 27 reservation-sourced income is not subject to California 28 tax; and, second, whether Appellant's 4 1 reservation-sourced income is exempt from California tax 2 even if he did not live on the reservation land. 3 And, finally, in Member -- last matter Hause? 4 MS. YEE: Yes, item B5, Wayne L. Hause and 5 Kelly R. Hause? 6 MR. EPOLITE: Appellant is also a member of the 7 Agua Caliente tribe and resided in Section 15 in 8 Cathedral City. 9 For tax year 2004, the issues are whether 10 Appellants resided in Indian country during that year so 11 that the reservation-sourced income is not subject to 12 California tax and whether Appellants 13 reservation-sourced income is exempt from California 14 tax, even if they did not live in Indian country during 15 that year. 16 MS. YEE: Okay. Thank you, Mr. Epolite. 17 Mr. Shibou, let me give you 15 minutes on all 18 three cases. 19 MR. SHIBOU: Thank you, I appreciate that. 20 MS. YEE: Okay. 21 MR. SHIBOU: The words "Indian country" are the 22 key words which I am asking you to focus on here today. 23 As a brief history, I previously appeared 24 before your Board regarding a definition of Indian 25 country. 26 In the matter of Sauble (verbatim) you provided 27 a nonprecedential letter ruling in favor of Appellant, 28 agreeing that even that even though located on a fee 5 1 land, taxpayer's residence was within the outermost 2 boundaries of the Agua Caliente reservation. 3 Accordingly, his residence location met the requirements 4 of 18 USC 1151a, which defines Indian country. 5 In a subsequent case, your Board, however, 6 decided that your decision may have required your 7 interpretation of a constitutional matter and, 8 accordingly, abstained from reversing the Franchise Tax 9 Board. 10 My understanding is that your Board will only 11 rule on what it considers to be a constitutional issue 12 if the specific issue has previously been decided by an 13 appellate or higher court. 14 The definition of Indian country, when applied 15 to a checkerboard-style reservation, has been 16 adjudicated by the US Supreme Court in several cases, 17 including Seymour versus Superintendent of Washington 18 State Penitentiary, as specifically cited by your staff 19 in the hearing summary, as well as cited in the US 20 District Court of Columbia, Circuit Court of Appeals, 21 No. 981196 in January of 2000, which has not previously 22 been cited. 23 The United States Congress has plenary and 24 exclusive powers over Indian affairs. Your staff so 25 agrees, on page 5, line 7 of the hearing summary. 26 The United States Department of the Interior 27 has repeatedly defined, "The outermost boundaries on the 28 Agua Caliente reservation," and once again reiterated 6 1 the federal government's position by their letter dated 2 October 15th, 2010, a copy of which I provided today. 3 The Franchise Tax Board and Appellant agree on 4 all the other facts related to these cases. Appellant, 5 until his decease, was an enrolled member of a federally 6 recognized tribe. His income was derived from the tribe 7 of which he was a member. And there was no disputes as 8 to the physical location of his residence. 9 And the Franchise Tax Board provided a location 10 map, today's date, showing Appellant's address 11 surrounded by the checkerboard outermost boundaries of 12 the Agua reservation. 13 Appellant, to be exempt from State income tax, 14 it is now only necessary for your Board to agree that he 15 resided in Indian country of the tribe of which he was a 16 member as opined by the US Supreme Court in the seminal 17 case of McClanahan versus Arizona State Tax 18 Commission. 19 We agree with the Franchise Tax Board that 20 Appellant did not reside on specific reservation land. 21 But the courts have ruled that the requirement for tax 22 exemption is only -- is only that he resided in Indian 23 country as defined by 18 USC 1151, which can be fee land 24 owned by non Indians and does not have to be on specific 25 reservation land. 26 Accordingly, all that is required for your 27 Board is to follow the presidential rulings -- 28 precedential rulings of the courts with regards to the 7 1 definition of Indian country and the formal opinion of 2 the Department of the Interior that his residence was 3 located within the outside boundaries of his tribe's 4 reservation. We are not asking for your interpretation 5 of a constitutional matter. 6 18 USC 1151a defines Indian country as all land 7 within the limits of any reservation which is under the 8 jurisdiction of the United States Congress, 9 notwithstanding the issuance of any patent and including 10 right of ways running through the reservation. 11 The Franchise Tax Board has somehow repeatedly decided 12 that they have the unilateral authority to preempt the 13 decisions of the US Supreme Court, the US Appellate 14 Court and the US Congress by adopting the position that 15 the outside boundaries of the Agua reservation are not 16 that as defined by the Department of the Interior, but 17 rather constitute a series of individual boundaries 18 related to the checkerboard-style reservation. 19 They have also adopted the position that Indian 20 country can only be part of the land originally set 21 aside for a reservation. Their interpretation would 22 change Congress's definition of Indian country by 23 substituting the word "reservation" for the words 24 "Indian country." 25 The improper preemptive position is an exercise 26 of authority far and above any granted to the State and, 27 if allowed by your Board, would have the effect of 28 allowing the State to overrule the US Congress, the US 8 1 Supreme Court and US Court of Appeals. 2 The concept of a checkerboard definition being 3 applied to Indian country has been condemned -- 4 condemned by the Supreme Court as an impractical way of 5 enabling Indian tribes, together with State and federal 6 governments, of administering land areas within the 7 "outside boundaries of reservations." 8 In Seymour v. Superintendent, the Supreme Court 9 ruled, and I quote, 10 "Even if the land upon which the alleged 11 offense was committed was held by non Indian 12 under a patent in fee, a different conclusion 13 would not be required." 14 In the previous case heard by your Board, I 15 cited a number of agreements that the Agua Caliente had 16 entered into with the City of Palm Springs and Cathedral 17 City relating to the joint administration of fee lands 18 encompassed within the "outside boundaries of the 19 reservation." 20 At that time, I believe it was Mr. Leonard, who 21 asked the question as to whether the Agua Caliente had a 22 "unilateral right to administer the fee land within 23 the reservation boundaries, which right did not 24 require an actual agreement between the tribe and 25 the Cities."? 26 In response I can now say that the answer is an 27 unequivocal yes. By decision dated May 5th, 2000, the 28 United States Court of Appeals for the District of 9 1 Columbia Circuit, No. 98-1196, addressed the issue as to 2 whether Congress had expressly delegated to Native 3 American nations authority to regulate air quality on 4 all lands within reservation boundaries, including fee 5 land held by private land owners who are not tribe 6 members. They unanimously concluded that the tribes had 7 such authority. 8 The Arizona Public Service Commission 9 completely failed in challenging the right of Native 10 American tribes to have the unilateral authority to 11 regulate privately-owned fee land located within 12 reservation boundaries. 13 The Court stated, referring to 4D2 -- 42 USC 14 Section 7601, 15 "The statute's clear distinction between areas 16 within the exterior boundaries of the 17 reservation and other areas within the tribe's 18 jurisdiction carries with it the implication 19 that Congress considered the areas within the 20 exterior boundaries of a tribe's reservation to 21 be, per se, within the tribe's jurisdiction." 22 The Court went on to say, 23 "Thus, EPA, Environmental Protection Agency, 24 correctly interpreted Code Section 7601d to 25 express Congressional intent to grant tribal 26 jurisdiction over nonmember owned fee land 27 within a reservation without the need to 28 determine on a case specific basis whether a 10 1 tribe possesses inherent sovereign power." 2 The Court further opined, 3 "Accepting Petitioner's -- that's Arizona 4 Public Safety Commission's -- interpretation 5 would result in a checkerboard pattern of 6 regulation within a reservation boundaries that 7 would be inconsistent with the purposes and 8 provisions of the Act." 9 Indeed, the Supreme Court has condemned such an 10 approach in Moe versus Confederated Salish and Kootneai 11 Tribes, which rejecting the checkerboard approach in 12 interpreting Section 6 of the General Allotment Act, 13 also 25 USC, Seymour versus Superintendent of 14 Washington, terming it impractical, a pattern of 15 checkerboard jurisdiction under 18 USC 1151. 16 The Appellate Court and the Supreme Court have 17 spoken to the very heart of the issue defining Indian 18 country. 19 In conclusion, the Appellant is not asking this 20 Board to interpret a constitutional issue. The 21 Appellant is simply asking this Board to concur with the 22 well-defined definition of Indian country, based upon 23 the opinion of, firstly, the United States Congress and 24 the Department of the Interior, which created the Agua 25 reservation, is responsible for the administration of 26 same and has clearly opined time and again as to what 27 they consider to be the exterior boundaries or outermost 28 limits of the Agua Caliente reservation. 11 1 Secondly, the US Supreme Court, which has 2 condemned the impractical approach of using a 3 checkerboard interpretation of Indian country. 4 And, thirdly, the US Court of Appeals, which 5 has clearly and unequivocally defined Indian country and 6 tribal authority over same in accordance with 7 18 USC 1151a to encompass all fee land within the 8 exterior boundaries of the reservation, regardless as to 9 when or how created or as to the form of ownership. 10 In an unprecedented showing of audacity, the 11 FTB has applied their own definition of Indian country 12 solely for the purpose of obtaining tax revenues. Their 13 position has no merit whatsoever. 14 Your Board has the authority to rule in this 15 matter. 16 Individually in the case of Siva, not in the 17 case of Riggs or Hause, there was a penalty. And in the 18 case of Siva, the FTB had applied a late filing penalty 19 against an individual who spent his last three years of 20 life battling a terminal illness and, accordingly, was 21 incapacitated for extended periods of time due to 22 illness and chemotherapy treatment. 23 We feel that is reasonable cause, if ever there 24 is reasonable cause. All we ask is that your Board 25 confirms the State does not have the authority to 26 overrule the opinion of this country's highest courts 27 and reverse the assessment. 28 Thank you. 12 1 MS. YEE: Thank you very much. We'll give you 2 time on rebuttal. 3 MR. SHIBOU: Thank you. 4 MS. YEE: Franchise Tax Board, please? 5 MS. PAGE: Good morning, Madam Chairwoman, 6 Members of the Board. I'm Natasha Page of the Franchise 7 Tax Board. 8 With me is Bill Hilson. 9 Members of tribes in California are exempt from 10 taxes if they meet two other requirements: Those are 11 that they receive their monies from the tribe of which 12 they are a member and that they live on the tribal lands 13 of that tribe. In the case of these members of Agua 14 Caliente, they do not live on Agua Caliente Indian 15 country. 16 I have given you each a color map of Agua 17 Caliente lands. This is the Indian country of Agua 18 Caliente. This map was created by Agua Caliente. 19 As you can see, the light-colored yellow boxes 20 are marked on the map as off reservation. They are -- 21 these boxes were marked by Agua Caliente as off 22 reservation. They are also non Indian country. 23 The definition under 1151 of the United States 24 Code defines Indian country. A, of 1151, defines Indian 25 country as all land within the limits of an Indian 26 reservation. 27 Limits does not mean the outermost boundary. 28 The word "limits" means -- I believe it means limits as 13 1 in jurisdictional limits. Nowhere in these -- in this 2 definition does it say "outermost boundary." 3 However, the BIA has provided a letter to 4 Mr. Shibou talking about the outermost boundary. I 5 believe that that informs Agua Caliente as to how large 6 this map needs to be. It is telling Agua Caliente, and 7 anyone else, how large they need to draw this map 8 because this is informing how large or how -- how large 9 their reservation is. It does include a large -- a 10 number of off reservation sections. 11 Why do they have nonreservation sections within 12 their reservation? Because prior to the creation of the 13 Agua Caliente reservation, the US government had 14 patented these sections to the railroad. In the 1860s 15 the US government had contracted with the railroads to 16 create it. And the way that they paid for the railroads 17 was to give them sections, alternating sections, to pay 18 for it. 19 Then in the 1870s, they -- and this is all also 20 in the BIA letter provided -- they paid -- they created 21 the reservation by giving them the sections that 22 remained. Agua Caliente recognizes this in the map that 23 they have created of their reservation. 24 Mr. Siva, Mr. Riggs and the Hauses live on the 25 sections that remain. And they do not live on the 26 reservation. 27 Indian country is further defined as other 28 properties that might be under tribal control. That 14 1 requires that they are under federal superintendents. 2 That means that all of this land is held by the United 3 States for the benefit of the Agua Caliente tribe. It 4 doesn't mean that there -- it's surrounded by other 5 Indian country. Only the government -- the Congress or 6 the President can create Indian country. It isn't 7 created just by being surrounded by. It isn't created 8 by custom or because it seems like it should be Indian 9 country. It's created by executive order, like this was 10 originally created. It's created by Congress. 11 Similarly, it can only be removed by executive 12 order or Congress. 13 So, if you look at this letter from BIA, you'll 14 see that they, just as Mr. Shibou asked -- he asked what 15 are the outermost boundary? 16 The BIA responded, "This is the outermost 17 boundary." 18 However, nothing in the statute that defines 19 Indian country says anything about outermost boundary. 20 So, it's, unfortunately, not very helpful. 21 And Agua Caliente's own maps inform us that the 22 sections on which these taxpayers live is not Indian 23 reservation land and there is no other Indian country 24 that Agua Caliente has by statute. 25 The United States -- or the District Court of 26 Appeals decision from Arizona is not binding. It's -- 27 it's -- it doesn't play into our information here in 28 California when we're trying to determine how these 15 1 taxpayers should be taxed. 2 The case that we need to rely on is McClanahan 3 and those are the three criteria that I told you about. 4 And we need to rely on Section 1151. I believe that you 5 can make a factual determination here by looking at this 6 colored map. And I believe that you can factually 7 determine that these three taxpayers do not live on Agua 8 Caliente Indian country. 9 However, if you believe that you need to 10 interpret Section 1151 and, I believe, and you need to 11 interpret the outermost boundaries or you need to 12 interpret how these EPA statutes might play in, in that 13 case I would ask you to remember that 1151 is a criminal 14 statute under the United States Code and that it informs 15 our tax statutes. And I would ask you to continue to 16 apply your abstention policy and allow us to have our 17 opportunity as well as the taxpayer to have an 18 opportunity to have the courts determine these -- these 19 fine nuances in the Code. 20 But I do believe that you may, in this case, be 21 able to look at Agua Caliente's map and see that these 22 taxpayers are, indeed, on the light yellow boxes. 23 As for the Seymour decision, I think that's 24 important because Seymour was not talking about Agua 25 Caliente. There are not very many reservations that lie 26 over railroad land. Seymour was talking about a 27 different checkerboard-type of land. 28 Agua Caliente is actually a checkerboard on top 16 1 of a checkerboard. And you can see it if you look at 2 this colored land. Some of these other boxes are very 3 mottled and that was the kind of box that Seymour was 4 dealing with. Those boxes are mottled because they have 5 been allotted out. They still remain reservation land, 6 which is why the sections -- if you look at the legend 7 at the bottom, they still have red numbers on them 8 because they're still reservation sections, because, as 9 I said, only Congress can remove them from reservation, 10 but they may be privately held. So, they still are 11 reservation sections, but they are privately owned. 12 And those were the kinds of sections that 13 Congress -- that Seymour addressed and said we can not 14 have them not be reservation and be privately held. We 15 can't have police officers running, chasing a potential 16 criminal through backyards and trying to figure out if 17 they still have jurisdiction. That was what Seymour was 18 addressing when they said that checkerboard jurisdiction 19 can not be tolerated. 20 It's not the same as this railroad-type of 21 checkerboard jurisdiction. So, there are two types of 22 checkerboard jurisdictions. 23 Seymour also does not apply here because tax 24 jurisdiction is not the same thing as police officers 25 chasing someone. It is not imminent, fast 26 determinations being made. Taxes is slow. We can look 27 up the jurisdiction. We can find out what -- what -- 28 who owns the property and figure out whether or not the 17 1 person living there is subject to our jurisdiction. 2 So, Seymour is very different than the cases 3 that we're dealing with and does not apply in this case. 4 So, I ask you to look at the map that Agua Caliente has 5 made, see that they have called this off reservation and 6 remember that in the end the reason that we do not tax 7 tribal members living on tribal lands is because we 8 respect the jurisdiction of the tribe. We respect Agua 9 Caliente's jurisdiction. And here they have said these 10 are not reservation sections. 11 Thank you. 12 MS. YEE: Ms. Page, can you speak to the 13 penalty issue? 14 MS. PAGE: Yes. Mr. Siva has -- he had, 15 actually, two penalties initially. We have waived his 16 failure to furnish penalty. That penalty arose during 17 his illness because we asked him for documents and 18 things like that while he was sick and he did not 19 promptly provide them. 20 And we determined why that happened. And, so, 21 we -- we have waived those. 22 However, he also filed his initial returns late 23 and those were not during his initial illness and those 24 are standard. 25 MS. MANDEL: What was not during his initial 26 illness, the filing of the returns or the filing date of 27 the return or what? 28 MS. PAGE: The due date of his return. 18 1 MS. MANDEL: Was not while he was sick? 2 MS. PAGE: Right. 3 MS. MANDEL: And how late was the return? 4 MS. PAGE: Oh, gosh, bear with me a moment. 5 MS. MANDEL: Well, your point is just that he 6 did not file -- 7 MS. PAGE: He did not -- 8 MS. MANDEL: -- that the extended due date of 9 the return was a period when he wasn't yet ill? 10 MS. PAGE: Right. 11 MS. MANDEL: Is your contention? 12 MS. PAGE: We waived his failure to furnish 13 information -- 14 MS. MANDEL: The demand? 15 MS. PAGE: -- penalties, we reviewed those. 16 But we also reviewed his original failure to 17 timely file his return penalties. 18 MS. MANDEL: Okay, then Mr. Shibou can address 19 that on rebuttal, potentially. 20 Because you're just saying he wasn't ill at 21 that time, so, you didn't think that was -- that he had 22 stated a reason for the late filing? 23 MS. PAGE: Right. 24 MS. MANDEL: Okay. 25 MS. YEE: Okay. Mr. Shibou, you can address 26 that on rebuttal. 27 MR. SHIBOU: Okay, briefly on the penalties, 28 Mr. Siva was ill. Unfortunately, he passed away. For 19 1 about three years prior to his decease, I think the 2 filing periods for those returns fell within that three 3 year period. 4 I don't have medical records of Mr. Siva to 5 produce here today. 6 That said, the Franchise Tax Board continues on 7 an ongoing basis to try to make a distinction between 8 the reservation and Indian land. 9 Yes, A, I agree with the map. The map shows 10 very clearly that the residence of Appellants are 11 surrounded by reservation squares, that they are within 12 the exterior limits of the reservation. 13 Let us presume, for example, that a line was 14 drawn down the center here. On that side (indicating), 15 Ms. Yee was living on a reservation square and I, also a 16 member of the Agua Caliente, was living on a quote, 17 "nonreservation square." 18 To the Franchise Tax Board, Ms. Yee is exempt 19 from tax, she's on a reservation square, I am not. 20 But now let's presume I call Ms. Yee and in a 21 moment of gratitude and generosity, she agrees to sell 22 me 20 feet of her land. So, now my parcel land is on 23 both a nonreservation square and a reservation section. 24 How would you determine whether -- for -- and 25 how would the Franchise Tax Board determine that I am 26 exempt or not exempt for tax? Mass confusion. 27 And it is that very reason that the Supreme 28 Court said that interpreting Indian country and applying 20 1 a checkerboard pattern to the interior squares is an 2 impractical way. They were not just addressing to 3 criminal issues, they were addressing to all issues. 4 And I would like to briefly read a letter from 5 the senior attorney from the US Attorney's Office in 6 Minnesota. On March 14th, 2005, Sidney Shaw, Senior 7 Attorney, provided an opinion letter on behalf of the US 8 Attorney for Minnesota and Commissioner of the Minnesota 9 Department of Public Safety to the National Indian 10 Gaming Commission Acting General Counsel. The issue 11 was, can the State of Minnesota regulate pull-tabs sold 12 on fee land owned by nontribal members within the 13 exterior boundaries of the White Earth reservation? 14 The answer was no. The State of Minnesota has 15 no jurisdiction over gaming on White Earth reservation 16 because the gaming takes place, 17 "Within the exterior boundaries of the 18 reservation, and is, therefore, Indian gaming 19 under the Indian Gaming Regulatory Act, which 20 preempts State jurisdiction. 21 Due to the history, the land within the White 22 Earth reservation today is owned in several 23 ways, creating a checkerboard pattern of land 24 ownership. Only 9 percent of 77,000 acres of 25 the reservation is tribally owned. In addition 26 to trust land, some land is owned in fee by 27 tribal members, some in fee owned by nonmembers 28 and some even owned by the State of Minnesota." 21 1 The question was then whether IGRA applied on 2 fee lands within the exterior boundaries of the 3 reservation? 4 Following the definition of 18 USC 1151a, the 5 State concluded that they need only examine one issue, 6 whether the land is within the limits of the 7 reservation? 8 The conclusion was that the land is Indian 9 lands because it is within the exterior boundaries of 10 the reservation. 11 The Franchise Tax Board continuously and 12 repetitiously is trying to eliminate the words "Indian 13 country" and substitute for the words "reservation." I 14 agree, Congress created the reservation, only Congress 15 can take it away. 16 But subsequently USC 1151a, the United States 17 Supreme Court, the appellate courts, have all ruled that 18 Indian country is an area within reservation boundaries 19 or limits. And you can not exclude an individual from 20 his rightful tax exemption because he does not live on 21 specific reservation land as long as he lives in the 22 Indian country of the tribe of which he was a member, 23 which was ruled in McClanahan. 24 McClanahan said the individual must live in the 25 Indian country, not the reservation, the Indian country 26 of the land of which -- of the tribe of which they were 27 a member. 28 Thank you. 22 1 MS. YEE: Thank you, Mr. Shibou. 2 Questions, Members? 3 Ms. Steel? 4 MS. STEEL: I just ask for just that there is 5 two requirements that live in the Indian country, so we 6 have a problem here Indian country is a boundary or not. 7 And then I'm looking at that US Code 1151 8 states Indian country means all lands within the limits, 9 it's not just limits, but within the limits of any 10 Indian reservations. 11 That means that that boundary goes -- the 12 limits of the boundary, that's Indian land. That's the 13 way I interpret it by the law. 14 And, at the same time, you are talking about 15 Seymour case -- about that -- you know, that's based 16 upon the railroad track, but they didn't mention 17 anything about it. That -- just only thing mentioned 18 was once boundaries of the reservations are established, 19 all tracts remain a part of reservation until separated 20 by the Congress, means that it doesn't really matter 21 that Agua Caliente versus other Indian reservations 22 under the tract, I think it's all same thing because 23 still looking at it, that all outside boundary seems 24 it's equal to, you know, country, Indian country. 25 But you just mentioned about the taxes versus 26 police chase are different. I just don't understand 27 that, you know, how it can be tax versus -- you know, 28 police chases are different. 23 1 If you set that boundary is Indian land, no 2 matter it's tax or other matters, it has to be treated 3 same. So, that's not really -- I don't think that's 4 really right reasons that you have to exclude those 5 checkerboard and outside of, you know, that area. 6 But I still think both cases, the Seymour cases 7 and, you know, that US Code 1151, both of them are 8 saying that all the land within the limits of Indian 9 reservations. 10 For me, I am translating actually both Seymour 11 case is really fit into this case, plus that, you know, 12 US Code 1151, both of them saying that boundary itself 13 is Indian lands, that's way I interpret it. 14 So, can you explain a little more about that 15 part? 16 MS. PAGE: Okay, couple things. 17 If you look at this map (indicating) you'll see 18 that those sections that are really mottled are still 19 reservation sections. So, it doesn't matter how cut up 20 they become, they're still reservation sections. So, 21 that explains item C in 1151, that it says, 22 "All Indian allotments, the Indian titles which 23 have not been extinguished, including Indian 24 rights of way running through the same." 25 Okay, so, that says, basically, if it's -- if 26 it's an allotment, it's still Indian country, it doesn't 27 matter what's happened in between. 28 And that also fits with No. -- with letter A, 24 1 all land within the limits of an Indian reservation. 2 That means that it was -- it was a reservation, so, it's 3 always going to be a reservation, notwithstanding the 4 fact that it's -- that it was patented out, doesn't 5 matter that it was allotted out because it's -- it's -- 6 notwithstanding the issuance of a new patent, including 7 rights of way running through. 8 So, that means that once this was reservation 9 land, it stays reservation land, even though it may be 10 fee simple, it may have been passed on, may have been 11 sold, anything else, it's still reservation land, okay. 12 So, that talks about those little pieces that 13 are all cut up. They're still reservation land even 14 though they may not be held any more in the name of the 15 United States for the benefit of Agua Caliente. They're 16 still reservation land, okay. 17 So, that's A and C. 18 And also C might be a piece of land way out 19 somewhere else that was held as an allotment for an Agua 20 Caliente member that never stopped -- it was an 21 allotment, which means it was never part of the 22 reservation, it was part of the allotment act, and it 23 was given to Mr. -- you know, Mr. Agua Caliente, but not 24 the band itself but by the United States government for 25 his benefit and it hasn't extinguished out of his -- 26 that trust relationship. 27 So, that's Indian country. It might be outside 28 the reservation altogether. That's C. 25 1 But if we focus on the word "limits," which is 2 part of what you were talking about, you will notice it 3 does not say "geographical limits." It doesn't say 4 "exterior limits" and it doesn't mean that it's within 5 geographical or it doesn't mean that -- it could mean, 6 and I believe it does mean -- jurisdictional limits or 7 ownership limits. 8 This was never part of Agua Caliente's 9 ownership or their jurisdictional limits. Remember, it 10 belonged to the railroads. So, I don't think it was 11 ever within the limits of the Indian reservation under 12 the jurisdiction of the United States government because 13 it belonged to the railroad. 14 So, I think if we were to go to court, we would 15 have to really focus on the words of that -- what the 16 meaning of the word "limits" is. 17 When they wrote 1151 they did not say, "All 18 land within the geographical limits." How could it be 19 if it belonged to the railroads? 20 So, I think that the word "limits" does not 21 mean geographical limits or exterior limits or outermost 22 boundary limits, I think it means jurisdictional limits. 23 MR. SHIBOU: If I might respond? 24 First of all -- 25 MS. YEE: Yes? 26 MR. SHIBOU: -- Counsel is absolutely 199 27 percent wrong with regards to her history lesson on the 28 creation of allotments. 26 1 The Agua reservation was originally created by 2 two executive orders. Subsequently, the General 3 Allotment Act was created by Congress to take away some 4 of the original reservation land and give it to 5 individual Indians as their allotted parcel in order to 6 assist in assimilation of the Indian tribes. 7 So, that they could create an allotment some 8 place hell and gone, excuse my language, was absolutely 9 incorrect. 10 Allotments could only arise from original 11 reservation land. It could not be just arbitrarily 12 given, it had to be taken away from the tribe and given 13 to allotment. 14 The purpose of 1151 and the rulings by the 15 courts, both the US Supreme Court and the Appellate 16 Court in the US District of Columbia, in drafting it was 17 to protect the outer limits by saying, 18 "After a portion of the land was taken away 19 from the tribe and given as a specific 20 allotment, they did not want that to destroy 21 the geographic boundaries, the outside limits." 22 And that was the purpose of the entire wording 23 of 1151. 24 So, that's why the allotment, the Section C was 25 included in 1151 was to protect the boundaries. 26 The same with C, C is not applicable -- I am 27 sorry, B, independent community, independent Indian 28 communities is not applicable in this case and I don't 27 1 think it should properly be discussed. 2 But, again, the fallback here is that -- I am 3 being repetitious, I'm sorry -- is we are not dealing 4 with reservation land as the only area that entitles an 5 individual to be exempt, it is Indian country. The 6 courts have ruled on that time and time again. 7 We don't want to go back 50 years prior to the 8 enactment of 1151 and the courts' rulings. 9 Thank you. 10 MS. YEE: Thank you very much. 11 Okay, thank you, Ms. Steel. 12 Other questions, Members? 13 MS. MANDEL: Can I? 14 MS. YEE: Ms. Mandel, please? 15 MS. MANDEL: I have a question for Mr. Shibou, 16 just on his exhibit. 17 Because I don't have -- you know it's a copy 18 and there's two pages that are attached behind the 19 letter. 20 And the second attached page looks to be a 21 blowup of the bottom left of the first attached page, 22 but there's something additional because someone has 23 drawn in blacker ink around what's on the official plat 24 for the Agua Caliente reservation. 25 And I'm just wondering who -- do you see what 26 I'm talking about? How it's -- 27 MR. SHIBOU: I can see what you're referring 28 to. And I just provided this exactly as was given to me 28 1 by the Department of the Interior. 2 MS. MANDEL: Okay. 3 MR. SHIBOU: Okay. I don't know who drafted 4 the reservation, but you are looking at this -- 5 MS. MANDEL: Yeah, I was wondering -- 6 MR. SHIBOU: -- small, little -- 7 MS. MANDEL: -- so, they -- 8 MR. SHIBOU: -- reservation boundary was 9 section -- was section of interest highlighted. 10 MS. MANDEL: Correct. And, so, what you're 11 saying is when you got the letter from the Department of 12 Interior both these pages were attached and it had 13 that -- that darker marking on the second page? 14 MR. SHIBOU: Yeah, I think -- I wouldn't swear 15 this is 100 percent the reason, but, at one time, the -- 16 what happened is the Department of the Interior, 17 together with the City of Palm Springs and Cathedral 18 City, did an analysis as to the possessory -- not 19 possessory -- possessory interest taxes and transient 20 occupancy taxes and they were -- outlined certain 21 sections that were occupied and they were trying to 22 determine the tax revenues that came from these areas 23 and that's the -- you know, but because when I see this 24 Geographical Information Systems, I remember they were 25 the people who supplied that at the time. 26 MS. MANDEL: Yeah, I was wondering who made 27 the -- who did that -- who did that extra sort of 28 highlighting on the blown up portion and you're saying 29 1 that's how it came to you from -- 2 MR. SHIBOU: That's just -- that's just how it 3 came to me and it could have been -- 4 MS. MANDEL: -- yeah, I don't -- I just wanted 5 to make sure it wasn't -- 6 MR. SHIBOU: Yeah. 7 MS. MANDEL: -- that it wasn't that you had 8 done it. 9 MR. SHIBOU: No, no, it wasn't us. It wasn't 10 us. 11 I would have just -- if it was us I would have 12 just put a solid black pattern to the whole thing and I 13 wouldn't have had any highlighted lines there for 14 something. 15 But -- no, we just referred to the reservation 16 boundary or something there. I believe what it does is 17 really just reflects all the sections of land within the 18 entire boundary. 19 I think that's -- 20 MS. MANDEL: Yeah, it looked a little like it 21 was an interpretation of the -- 22 MR. SHIBOU: The sections? 23 MS. MANDEL: -- the -- you know, what's on the 24 original legend, that someone was marking it for 25 purposes of going with the letter or whatever. 26 And I was just curious about that. 27 MR. SHIBOU: I think it just shows all the 28 sections within the outside boundaries of the tribe 30 1 there. 2 MS. YEE: Anything else, Ms. Mandel? 3 MS. MANDEL: No. 4 MS. YEE: Okay, other questions? 5 MR. SHIBOU: Could I just -- one last -- one 6 last comment? 7 MS. YEE: Yes. 8 MR. SHIBOU: The fact that this reservation -- 9 some of the sections were originally given to the 10 railway as an encouragement to develop out west, so to 11 speak, I don't think that has any different bearing 12 whether it was given to Joe Smith or Harry Jones or 13 whoever, to encourage them to develop the west. 14 The reservation was laid out, at one time, over 15 that entire area and that is the reservation boundaries. 16 When the reservation was created, it included 17 an area which encompassed both fee and, you know, and 18 tribal lands. So, I know -- reservation -- whether it's 19 railway or anyone else, I don't think there's a 20 distinction there. 21 MS. YEE: Thank you. Okay, other questions, 22 Members? 23 Ms. Alby? 24 MS. ALBY: Could you -- could you help? Is 25 there any reasonable cause that you could maybe find if 26 we gave you some time for the abatement of the penalty? 27 MR. SHIBOU: Well, unfortunately, Mr. Siva -- I 28 think the best cause I can give you is to reverse the 31 1 assessment and then we would eliminate the penalties. 2 But Mr. Seesman (verbatim) -- you know, 3 Mr. Siva is deceased. We have no way of getting medical 4 records at that point of time. 5 Although the fact that he is deceased must be 6 indicative in itself that there was a problem. He died 7 from medical reasons, that much I know. I know he was 8 battling cancer, liver cancer. And I knew he was taking 9 treatments. 10 You know, all I can do is give you my own 11 knowledge of that. 12 MS. MANDEL: And what -- I'm sorry, Ms. Alby. 13 He passed away in 2 -- 14 MR. SHIBOU: January, I believe, of '08. 15 MS. MANDEL: '08? And this is an '05 return 16 and the extended due -- well, the -- 17 MR. SHIBOU: It was due in late '06 would be 18 the extended due date would be of late '06, October of 19 '06. And I'm sure that was well within his period of 20 illness. 21 He was ill for, as I recollect, slightly 22 around -- approximately three years, give or take a 23 month or so. 24 MS. MANDEL: Let me ask you another question. 25 Did you know Mr. Siva personally? 26 MR. SHIBOU: Absolutely, yes, I did. I acted 27 for Mr. Siva for a number of years. 28 And, you know, we also know his wife, Cory 32 1 Siva, quite well, and his two children. 2 We acted for Mr. Siva's estate when his estate 3 tax return was filed with the United States government 4 as well. 5 MS. MANDEL: Okay. So, was this return a -- 6 were these joint returns with the wife? 7 MR. SHIBOU: It wasn't -- Mr. Siva's 8 relationship with his wife, unfortunately, was on and 9 off. 10 And I can't recollect whether one or two of 11 those early years he actually had filed separately with 12 his wife or not. But -- 13 MS. MANDEL: Do you -- 14 MR. SHIBOU: -- the return was not a complex -- 15 well, the return was complex in the sense that in 16 addition to Mr. Siva's only taxable income coming from 17 his per capita distributions from the Agua Caliente, 18 which is the income which we are discussing, he also had 19 a significant amount of land rent coming from a allotted 20 allotments which he received and the determination in 21 getting the records relating to that land rent, that was 22 somewhat problematic. 23 And we normally filed a declaration attached to 24 the individual's return claiming his exemption from the 25 tax on land rent because sometimes the payors issue 26 forms 1099 and there's no way of a tax authority from 27 knowing whether it's taxable or not taxable. 28 MS. MANDEL: I guess what I was -- I appreciate 33 1 that. 2 I guess what I was getting at was his 3 relationship with his wife at this time that the 4 return -- 5 MR. SHIBOU: They were -- 6 MS. MANDEL: -- sometimes there is an issue of 7 whether if one person is very, very ill and 8 incapacitated, whether the spouse should have filed 9 anyway or something like that. So, that's what I 10 thought. 11 MR. SHIBOU: All I can I say is I know 12 period -- there was a period of time -- they own two -- 13 (Unintelligible voice from audience.) 14 MR. SHIBOU: Yeah, as my just reminded me, they 15 were living in different -- they did have different 16 residences about a half a mile from each other. 17 I believe, actually, the wife's residence was 18 on a reservation section too. They had it reversed in 19 their in their relationship. 20 MS. PAGE: If I can address briefly -- 21 MS. YEE: Ms. Page? 22 MS. PAGE: -- the 2001 and 2002 returns were 23 filed and then -- on time. And then they were amended. 24 2003 and 4 returns were not filed at all. 25 And then while they were seeking to have their 26 2001 and 2002 returns amended, they filed amended 27 returns for 2003 and 4, although original returns were 28 not filed. 34 1 MS. MANDEL: They used the amended form. 2 MS. PAGE: Yes. And then -- 3 MS. MANDEL: But we're talking about the 4 2000. 5 MS. PAGE: That's why we didn't -- that's why 6 we -- so, it was while they were amending their 2001 and 7 2 returns and seeking refunds and so the original 2003 8 and 4 returns were not filed until much later. 9 And, so, they then filed amended returns for 10 '03 and '04. And he filed single for '01, 2, 3 and 4 11 and it wasn't until '05 that they filed a joint return. 12 And that was also filed late. 13 So, that was why we have late returns for 3, 4 14 and 5. 15 MS. MANDEL: Right, but the penalty that we're 16 talking about, I think, was the -- 17 MS. PAGE: '03. 18 MS. MANDEL: -- for the '05. 19 MS. PAGE: '03, 4, 5. 20 MS. MANDEL: Okay, I thought it was the '05 21 year was the one that was really in dispute, when he 22 was -- 23 MS. YEE: Ms. Kelly? 24 MS. KELLY: There are late -- there are late 25 filing penalties for 2003, 2004 and 2005. 26 And can we have the parties clarify when the 27 540X forms for 2003 and 2004 were filed and when 28 Mr. Siva's illness began? 35 1 MR. SHIBOU: Mr. Siva's illness began, I 2 believe it was around January, February, March of '05. 3 MS. PAGE: On March 15th, '06 was when the '01 4 return was -- sought amendment and on August 15th of '06 5 was when they sought amendment of the '02 return. 6 And then they filed the '03 and '04 return 7 during the -- so, about December of '06. 8 MS. KELLY: So, Mr. Siva was ill at the time 9 that he filed the 540X form for 2003 and 2004 and he was 10 ill during the time that the returns were due, if that 11 was continuous, which what is Appellant, I think, was 12 asserting. 13 MS. YEE: Mr. Shibou, any family members have 14 access to medical records? 15 MR. SHIBOU: I'm sorry? 16 MS. YEE: Any family members have access to 17 Mr. Siva's medical records? 18 MR. SHIBOU: No, I don't believe so, I don't 19 believe so. 20 I -- Mr. Siva's records, his bill, he was a 21 member of the Agua Caliente and had an Agua Caliente 22 medical insurance plan. I believe his bills were 23 probably virtually 100 percent paid by the tribal health 24 plan. 25 And we've tried, in the past, to get records 26 from the tribe on different issues and it could take, 27 literally, two years. It just is not a simple matter. 28 We had a terrible time getting records to file 36 1 his estate tax return. And I just think Mr. Siva, the 2 last couple of years was just, you know, fighting for 3 his life. 4 I don't think he really cared too about his tax 5 issues. You know, depending upon his cycle of his 6 treatments, he would probably be either enthusiastic or 7 totally couldn't give a hoot and holler. It was just 8 very irregular. 9 MS. YEE: Okay. Ms. Alby? 10 MS. ALBY: I'm now -- I have another question 11 on follow-up here. 12 If his illness began in '05, that didn't impact 13 his ability to file his return in '03. 14 MS. KELLY: That's right. 15 And let me correct myself, I was just going 16 over that. For the 2003 return, that would have been 17 due April 15th, 2004 and he got ill six months later. 18 So, for the 2003 return he could have filed that timely, 19 the illness was not a factor in the timely filing there. 20 He became ill six months later. 21 MR. SHIBOU: Well, he may have, I mean that's 22 my knowledge of when I understood he was aware, but, you 23 know, he -- we're talking October -- if he filed an 24 extension, October of '04, you know, versus the filing 25 date and I am aware of his illness began three months 26 later. 27 I mean, maybe he was ill, maybe he got the 28 first word and just, you know, in October, that, "You've 37 1 got cancer," and boom, you know. 2 MS. YEE: But don't have any -- 3 MR. SHIBOU: But we -- I can't, you know, 4 definitively say. I'm just speculating to some 5 extent. 6 MS. MANDEL: Yeah, and I was focusing on the 7 '05 because I had thought the other ones hadn't been 8 objected to. 9 And I guess what Franchise Tax Board is saying 10 is that were some returns for other years that were 11 filed in that same time frame that you would have 12 expected the '05 return to be filed. 13 MR. SHIBOU: But if you look at the cycle, I 14 believe the '01, '02 -- he -- '01, '02, he did file 15 timely, he has a history of filing timely. 16 And then all of a sudden things seem to get 17 choppy, which seemed to correlate to his illness period 18 of time. 19 I mean, he doesn't have a history of not filing 20 twenty years returns that are delinquent or late or 21 something like that, he was pretty good about timely 22 filing up 'til '03. 23 MS. MANDEL: And did -- did you prepare -- your 24 office prepare the amended returns? 25 MR. SHIBOU: We prepared the amended returns, 26 yes. 27 MS. MANDEL: Okay. Did you -- do you recall 28 discussing with him at all his current filings, like -- 38 1 MR. SHIBOU: At the time, yes, but he was -- 2 Mr. Siva was non communicado (verbatim) sometimes for 3 two, three months at a stretch. 4 MS. MANDEL: All right, I'm not going to ask 5 any more thanks. 6 MR. SHIBOU: Thank you. 7 MS. YEE: Thank you, Ms. Mandel. 8 Other questions, Members? 9 Hearing none, may I have a motion on the three 10 cases, please? 11 MS. MANDEL: Take them under submission. 12 MS. YEE: Motion by Ms. Mandel to take the 13 matters under submission. 14 Is there a second? 15 MR. HORTON: Second. 16 MS. YEE: Second by Mr. Horton. 17 Without objection, such will be the order. 18 Thank you, Mr. Shibou. 19 MR. SHIBOU: Thank you very much. 20 ---o0o--- 21 22 23 24 25 26 27 28 39 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 OCTOBER 19, 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 39 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: NOVEMBER 23, 2010 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 40