1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 5 6 7 REPORTER'S TRANSCRIPT 8 OCTOBER 20, 2010 9 PUBLIC COMMENT 10 JOHN FRANCIS KELLY 11 12 13 14 15 16 17 18 19 Reported by: Juli Price Jackson 20 No. CSR 5214 21 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 ---oOo--- 18 19 20 21 22 23 24 25 26 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 OCTOBER 20, 2010 4 ---oOo--- 5 MS YEE: Let's reconvene the Board of 6 Equalization meeting. 7 Ms. Olson, our next item, please? 8 MS. OLSON: Okay. We do have a public speaker. 9 So, I don't know when you would like to take that up. 10 MS. YEE: Okay. Does it relate to a particular 11 matter? 12 MS. OLSON: I believe, excise tax, yes. 13 MS. YEE: Okay. 14 MS. OLSON: But not on the agenda. 15 MS. YEE: Okay. Mr. Kelly, we've had taxpayers 16 on hold on our agenda. What's your time limitation? 17 MS. KELLY: Well, I've been waiting a long time 18 just for three minutes, very quick, very brief. 19 MS. YEE: Okay, come forward. 20 All right, come forward. 21 ---o0o--- 22 JOHN FRANCIS KELLY 23 ---o0o--- 24 MR. KELLY: Madam Chairman and Honorable 25 Members of the Board of Equalization, my name's John 26 Francis Kelly and I'm a lifelong California resident. 27 And I opened my business in 1979, when was 18 28 years old. I began selling cigars before -- there was 3 1 no excise tax here in California. And over the years 2 we've seen the excise tax grow through Proposition 89 3 and Rob Reiner's tobacco tax Prop. 10 and it's gotten so 4 huge. 5 There's a gentleman back in New Jersey by the 6 name of Lou Rothman who saw the opportunity to seize on 7 tapping in California gold and began marketing cigars 8 mail order. And he reached a point where he's such a 9 titan in the premium grade cigar business that he sells 10 more premium grade cigars to California cigar smokers 11 than all of the licensed tobacco retailers in California 12 combined. 13 Yet he's been able to continue on and get 14 larger and larger by being so competitive with price. 15 And in the cigar world, he's very well known. 16 And just recently, in 2009, he was purchased by 17 Altadist U.S. A., which is part of a European 18 conglomerate, the largest cigar distributor in the 19 world. And, so, that constitutes a nexus. And that's 20 the thing that he's always been able independently to 21 say that he has no nexus in California, no presence. 22 Altadist is registered with you in the State of 23 California, and I have been a customer of theirs. And I 24 have included in my package there an invoice. And on 25 that invoice there, grammatically incorrect, that I've 26 been listed on there as Kelly's Men's Store. 27 And when I returned home from a tobacco trade 28 convention in New Orleans, Louisiana, August 10th, I 4 1 received that solicitation in the mail from JR Cigar and 2 I have never purchased in my entire life a cigar from JR 3 Cigar. Yet the mailing address is Kelly's Men's Store. 4 And I've also included in that package for your 5 perusal, I invite your attention to the various 6 publications -- Smokeshop Magazine, Cigar Aficiando and 7 the Bloomberg Report that indicates that Altadis 8 U. S. A., in fact, bought out all of the interest of 9 JR Cigar. They have maintained him as the president and 10 CEO to put a beard on it, that it's still an autonomous, 11 independently owned thing and he has no net nexus here 12 in California. 13 So, I'm simply coming here today to ask you to 14 possibly agendize this for a future consideration, that 15 you would hire a forensic accounting firm or attorneys 16 to go in there and get down to the bottom of the 17 ownership of 1800JRCIGAR. 18 I've spent my whole life in the retailing of 19 cigars and I can no longer maintain competitive. Now, 20 you haven't gotten red cent -- a red cent out out of JR 21 in all these years. And it's become so difficult for me 22 make to living that I'll have to call it quits. 23 And, so, the State is being gypped out of, I'm 24 guesstimating, tens of millions of dollars in lost 25 revenue. 26 And the system, the way it's set right now, is 27 that JR Cigar, through Altadis, is making a lot of 28 crooked cigar smokers here in California. They're 5 1 cheating their fellow citizens out of all that excise 2 tax. 3 On that invoice, quickly, there is a -- at the 4 top of the invoice that I have, that was billed to me by 5 Altadis, there's a box of Teamo World Class Churchills 6 that was $36. And it's featured in the JR catalogue for 7 $37 -- and that's delivered right to a consumer's 8 doorstep, without paying any sales tax nor excise tax. 9 MS. OLSON: Time has expired. 10 MS. YEE: Mr. Kelly -- 11 MR. KELLY: Okay, thank you. 12 MS. YEE: No, thank you for coming forward. 13 A couple of things, I am going to refer this to 14 our Excise Taxes Division to take a look. 15 Then, I guess more importantly, do we have your 16 contact information, the correct contact information? 17 MR. KELLY: Yes, it's on my complaint letter 18 dated May 11th. 19 MS. YEE: Okay. 20 Okay, so, let us go ahead and do that. We will 21 have our Excise Taxes Division, which has jurisdiction 22 over cigarette excise taxes, take a look at this. 23 MR. KELLY: And since it was the -- the 24 takeover was in 2008, would it possible to go back 25 retroactively and -- 26 MS. YEE: I can't -- we -- I can't speak to 27 that right now. 28 We're going to have the Division take a look at 6 1 it and they'll be working with you and let you know what 2 they're able to do. 3 MR. KELLY: Very good. 4 MS. YEE: Okay. 5 MR. KELLY: Thank you for your time. 6 MS. YEE: Thank you very much. 7 ---o0o--- 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7 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 OCTOBER 20, 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 7 constitute a complete and accurate 15 transcription of the shorthand writing. 16 17 Dated: December 6, 2010 18 19 20 21 22 23 ____________________________ 24 JULI PRICE JACKSON 25 Hearing Reporter 26 27 28 8