1 2 3 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 4 450 N STREET 5 SACRAMENTO, CALIFORNIA 6 7 8 9 10 REPORTER'S TRANSCRIPT 11 NOVEMBER 17, 2010 12 13 ITEM H1 14 ---o0o--- 15 LEGAL APPEALS MATTERS 16 ADJUDICATORY 17 18 19 20 21 22 23 24 25 26 REPORTED BY: CAROLE W. BROWNE 27 CSR NO. 7351 28 1 1 P R E S E N T 2 3 For The Board Betty T. Yee 4 Of Equalization Chair 5 Jerome E. Horton Vice-Chair 6 Barbara Alby 7 Acting Member 8 Michelle Steel Member 9 Marcy Jo Mandel 10 Appearing for John Chiang State Controller 11 (Per Government Code Section 7.9) 12 Diane G. Olson 13 Chief, Board Proceedings Division 14 15 ---o0o--- 16 17 18 19 20 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 NOVEMBER 17, 2010 4 ---o0o--- 5 MS. YEE: Okay. Let us reconvene the Board of 6 Equalization meeting. 7 Ms. Olson, what I think I'd like to do, we have 8 some speakers that are here. I don't want to -- I want 9 to be sensitive about everyone's time. Why don't we move 10 to the nonappearance adjudicatory matters. So beginning 11 with H1. 12 MS. OLSON: Okay. Our first item is H1, Legal 13 Appeals Matters. 14 MS. YEE: Mr. Horton, yes. Actually, let me do 15 this. Let me -- let me bring the speakers up on these 16 items and hear from them, and we may need more time to 17 deliberate after we hear from the speakers, so why don't 18 we do that. 19 Yes? 20 MS. STEEL: I have a question. On this H1, 1, 21 item 1, subitem 1. 22 MS. YEE: Uh-huh. 23 MS. STEEL: Is coming up actually the personal 24 liability person is coming tomorrow. Is that -- what's 25 the best way to do it? Can we put this one set aside 26 until tomorrow for hearing or we just decide today? 27 MR. LEVINE: Two things. One of these cases has 28 already been postponed. I think it was notified. My 3 1 understanding is the other -- on the 6829, my 2 understanding is perhaps the other one is also going to 3 ask for a postponement that I think Board proceedings 4 will grant if asked. 5 It's my opinion there's no reason to hold this 6 up, but certainly you can. Practically speaking, if you 7 uphold our recommendation in this case, which in this 8 case they didn't ask for a Board hearing, and then 9 later -- and then that would go -- we would issue a 10 redetermination, it would be final, which is the way 11 the -- the way the 6829 cases normally come up with 12 everything final as to the corporation. 13 When the individuals come up before you later, 14 if the Board decides that there should be an adjustment 15 as to the corporation, we adjust the corporation's 16 liability even if the Board had already upheld the 17 liability, because you've, in effect, revised your 18 decision in the individuals' cases. 19 So if you uphold our recommendation here, it's 20 not going to preclude you from hearing the argument on 21 the merits when you actually have people in front of you 22 to make the argument. 23 It just simplifies things to not worry about the 24 timing when -- when someone hasn't asked for a hearing. 25 That's my opinion. That's why we normally just put these 26 on the calendar and ask you to decide them. 27 MS. STEEL: So one of two cases has been 28 postponed -- 4 1 MR. LEVINE: So far. 2 MS. STEEL: -- or just one? I mean, what I'm 3 saying, at least we can hear about it. 4 MR. LEVINE: Yeah. 5 MS. STEEL: That's why I said, you know, what's 6 the best way to do it? 7 MR. LEVINE: I -- my recommendation is to leave 8 the nonappearance matter on the calendar and to decide 9 it. 10 MS. STEEL: Mm-hmm. 11 MR. LEVINE: But certainly you can put it over. 12 MS. MANDEL: He thinks that the other person is 13 going to ask for a postponement so that they'll both -- 14 both -- 15 MS. OLSON: We received a phone call from 16 Mr. Moylan but have not received anything in writing. So 17 Board proceedings doesn't do anything verbally. We have 18 to -- 19 MS. STEEL: So by the phone they already request 20 it. 21 MS. OLSON: By the phone he already requested 22 it. 23 MS. MANDEL: But as to the company, when they -- 24 when the two individuals do come for their hearing, if 25 they say anything that persuades you that the company's 26 liability was established too high, staff says they 27 automatically make that reduction in the company's 28 liability anyway, so that's why they -- 5 1 MR. LEVINE: So like if you decided in one 2 person's 6829 case on -- if you relieved a penalty in one 3 -- against the corporation, it's relieved for everyone, 4 corporation and -- 5 MS. MANDEL: So that's why you don't think it 6 needs to -- anyway . . . 7 MR. LEVINE: I think it gets really confusing if 8 we try and join them up, because, practically speaking, 9 you always get the administrative calendar first, so when 10 they're on the same calendar, you always decide these 11 first anyway. 12 MS. STEEL: No, I'm not, you know, asking for 13 join them. I just want to hear that -- their side of 14 story about this company, because they are not really 15 putting on appearance, you know, the hearing, and, you 16 know, it's like nonappearance, so they had some chance to 17 talk about it, but I didn't know they were, you know, 18 asking for a delay, so . . . 19 MS. YEE: Okay. Okay. Members want to take 20 each of these subitems up individually then? 21 MS. STEEL: Yes. 22 ---o0o--- 23 H1.1 - SKIERS QUEST, INC. 24 NO. 361773 25 ---o0o--- 26 MS. YEE: Okay. So on H1, subitem 1, what is 27 the desire of the members of the Board? Skiers Quest, 28 Incorporated. 6 1 I'll move to adopt the staff recommendation. Is 2 there a second? 3 MS. MANDEL: Second. 4 MS. YEE: Second by Ms. Mandel. 5 Further discussion? 6 MS. STEEL: I just want to ask Mr. Levine, so 7 they're not asking any reductions, they just admitted 8 that they're not really -- 9 MR. LEVINE: They are in the individual cases -- 10 MS. STEEL: Right now. 11 MR. LEVINE: -- but they did not -- 12 MS. STEEL: Not for this company itself. 13 MR. LEVINE: I don't know why they didn't come 14 to hearing on the case, but yes, they are -- for the very 15 amount that we're asking you to uphold, the individuals 16 are arguing that it's too high in their individual cases. 17 MS. STEEL: Oh, I see. But they're not doing 18 for company itself. They are just letting it go, but 19 they're -- 20 MS. YEE: Yeah, they didn't respond to hearing 21 notice for the corporation. 22 Okay. Motion by me, second by Mandel to -- 23 MS. STEEL: Just one more question. Sorry. 24 MS. YEE: No, that's okay. 25 MS. STEEL: Mr. Levine, so when we decide when 26 appearance calendar, that when they show up and we decide 27 that that tax is really high, then it goes automatically 28 with this company that it goes down with; right? 7 1 MR. LEVINE: Yes. If you find it's too high as 2 part of your order, then we reduce it on the company's 3 books, too. 4 MS. STEEL: Okay. 5 MR. LEVINE: Your -- your later decision will 6 trump this decision. 7 MS. STEEL: Perfect. Thank you. 8 MS. YEE: Okay. Motion and second. Is there 9 objection? Hearing none, that motion carries. 10 ---o0o--- 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8 1 H1.2 - MACROMEDIA, INCORPORATED 2 No. 461946 3 ---o0o--- 4 MS. YEE: Next item is subitem 2, Macromedia, 5 Incorporated. May I have a motion, please? 6 MR. HORTON: Move to adopt staff recommendation. 7 MS. YEE: Motion by Mr. Horton to adopt staff 8 recommendation. Is there a second? 9 MS. MANDEL: Second. 10 MS. YEE: Second by Ms. Mandel. Discussion? 11 MS. STEEL: Actually, objection. 12 MS. YEE: Uh-huh. 13 MS. STEEL: Because one of the CD that -- the 14 invoice here that -- one of invoice that they didn't 15 include CD on, then BOE gave them the -- the reduction 16 from the total tax amount, but there was another one big 17 one didn't include any CDs there. Somehow BOE was not 18 consistent giving them credit or not. So can you explain 19 that? Because both of them don't have CDs. One they 20 give them credit back and one they didn't, so how we 21 going to explain that? 22 MR. LEVINE: On the one that listed CDs, I 23 concluded that we should give petitioner the benefit of 24 the doubt and regard the -- only the line items 25 associated with the line items where CDs were provided as 26 being sales of TPP. 27 On the big transaction it's true they have no 28 line items for CDs, but that does not seem to be their 9 1 consistent pattern. They do have a charge for freight. 2 They have a -- what seems to be a line for a bill of 3 lading that the UC person I talked to doesn't know what 4 that is, but it's a bill of lading, BOL. It's a bill of 5 lading, that number. And based on the freight charge and 6 the bill of lading number I conclude it was more likely 7 than not a sale of tangible personal property. 8 We're basically making the best guess we can 9 based on the records. The petitioner's argument is just 10 it's got to be a mistake. 11 MS. STEEL: I wish we had a little more 12 consistency with those assumptions than we have every 13 invoices. 14 And my second question is the -- under statement 15 of -- for 1.379 percent for reported total sales and the 16 company self told us that they were ready to close down 17 so that's why their sales went down. And they had 18 11 years audit straight and they didn't have any change 19 until the last -- the current audit. Why we didn't count 20 that? Because, you know, if -- if we had those 11 years 21 of audit that, you know, there is a different every year, 22 I understand that they're underreporting, but they didn't 23 do any underreporting until current audit, and current 24 audit that they explain that why their amount is much -- 25 sales amount is much smaller than before, because they 26 were ready to close down. Why did -- we didn't count 27 that? 28 MR. LEVINE: I don't have anything more to add 10 1 than was argued before, because this was not part of the 2 30/30/30 and it wasn't addressed post-hearing. I believe 3 this is the use tax thing and they didn't have records to 4 show, and so the Department made its calculation, it made 5 an adjustment by taking the -- I think the last year of a 6 three-year period. 7 And again, it's the Department's best judgment, 8 and we think it's reasonable, and petitioner didn't come 9 up with anything to counter it, so it's a matter of -- 10 they didn't have the records to show. 11 MS. STEEL: I understand that part, but when you 12 are closing down the -- you know, the shops, then their 13 total sales always goes down because inventory goes down. 14 That's exactly what happened to my mom, you know, when 15 she was ready to close down and then she ended up paying 16 those taxes. 17 So I think we should really make adjustment that 18 accordingly for the -- what taxpayer is saying that they 19 were ready to close down, that's why sales went down. 20 But we didn't do it and we just put that with the average 21 of for last 11 years. I don't think that's really fair 22 to the taxpayers. 23 MR. LEVINE: Okay. This was use tax, not sales. 24 That's tax purchases. 25 MS. STEEL: Taxable total. 26 MR. LEVINE: And I believe it was based on their 27 sales. So it would have taken into account their reduced 28 sales, because that's what the calculation was based on. 11 1 MS. STEEL: Okay. What's the procedure here, 2 Madam Chair? I want this one to actually go back. Is 3 that possible to do that or not? 4 MS. YEE: Well, we have a motion on the table. 5 Why don't we dispense with the -- 6 MR. HORTON: Go ahead. 7 MS. YEE: Motion by Mr. Horton, second by 8 Ms. Mandel to adopt the staff recommendation. 9 Mr. Horton, do you want to entertain that? 10 MS. STEEL: The assumption -- sorry about 11 that -- but assumption is good, but, you know, not fair 12 assumption to taxpayers not really good. So there's two 13 items that really bothers me about this case, and 14 taxpayer is not coming up, but I think we have to look a 15 little more in depthly for this case than just because 16 taxpayer is not here, they just consider. 17 MS. YEE: I guess -- let me suggest this. If 18 there are specific issues that you would like to have 19 reviewed further, I think we should articulate what those 20 are. We did not grant a 30/30/30 in this matter, I don't 21 believe. 22 MR. LEVINE: Not on this point. 23 If I could just add a little bit more? I don't 24 think more time is going to -- to change anything. I 25 understand your point, and it's a good point. It's -- 26 it's a close question. It can be argued either way. We 27 have in the summary that -- that petitioner's arguments 28 made sense. We were hung up on no records. And 12 1 that's -- petitioner is not going to do -- make any 2 better argument than it did, and Appeals isn't going to 3 change our conclusion that we're not inclined to 4 recommend a change to the Department's conclusions 5 without some documentation. But we certainly recognize, 6 oh, maybe -- maybe petitioner's right, but they just 7 don't have the documentation. 8 MS. STEEL: Well, no record means because they 9 closed down. That's another thing, too. But, you know 10 what? If we had a motion on the table, I'm fine with it, 11 but I just go for now. 12 MS. YEE: Okay. Mr. Horton? 13 MR. HORTON: Madam Chair, I mean, Member Steel 14 has a concern. Is that in -- is that concern in the 15 absence of evidence still have some -- is there a basis 16 in which to take that under consideration? 17 MR. LEVINE: Well, if you want to think about it 18 more. Otherwise, if you disagree with the Department's 19 figure, you can either eliminate the deficiency, and I 20 don't know if I have the exact -- you can eliminate the 21 deficiency and the measure of that was $1.4 million. I 22 don't know whether that's far related to this one 23 percentage, you could reduce it, split the baby or 24 whatever seems right. I just don't -- unless you have 25 some specific questions for us to investigate. If it's 26 just look at it further, I think we're going to be in the 27 same position. We're going to get the same information 28 from petitioner and the Department. 13 1 MS. STEEL: My specific question is here that 2 when they were ready to close down, they're, you know, 3 they don't have any records, but we should find something 4 like deposit or others, you know, whatever that they have 5 and then, you know, we can go through and then we can 6 just have assumption there that how much the taxable 7 sales went down, the use tax, so we can really figure it 8 out, not same as for 11 years average of taxables, you 9 know. So that's what I'm asking here. 10 So if they can provide -- if -- Mr. Horton, if 11 you don't mind for, you know, changing your motion that 12 we go ask taxpayers that, you know, whatever they can 13 provide and then we can just look at one more time. 14 Plus, another thing is, you know, that invoices 15 that we were not really consistent with what giving them 16 credit and one not, so we going to go through that one 17 more time and -- 18 MR. LEVINE: If I may on that? That was -- I 19 did the analysis. I understand your point, but my 20 analysis on that would remain the same. I spent a lot of 21 time on it, and there was -- as it ended up to no 22 adjustment because it was an error that the Department 23 made, and I only discussed the one that -- that ate up 24 the adjustment I recommended. 25 I don't even know if making the -- taking the 26 big invoice and allowing that, if that would have made -- 27 if we'd have a net adjustment in favor of the taxpayer, 28 we'd have to send it back to the Department and run some 14 1 numbers. But my opinion, it's going to remain the same. 2 I understand your point. I did my best to -- to 3 get the right result. I think our recommendation is 4 right. But it's not something that I could say 5 100 percent, no doubt about it. There's just no way. 6 MS. STEEL: Well, Mr. Levin, I didn't want to 7 blame you on this, but I want to just look at it, because 8 same invoices, one with the CD, one -- I mean, both of 9 them without CDs, and then one was credit back to the -- 10 you know, made adjustment and one, the other, you know, 11 never made the adjustment. Especially for big one you 12 didn't make adjustment. If you can look at one more 13 time, I think that's really fair for taxpayers, because 14 if I don't understand why they get credit for one small 15 part and then big invoice that they didn't, and then I 16 think taxpayer has exactly same questions and 17 frustrations here. I was looking at the cases. I got 18 really frustrated for this case. 19 MR. LEVINE: I'm not going to be able to do any 20 better than to point to they made a $10 charge, they 21 didn't refund it, there's no correspondence indicating 22 it's a mistake, and they have a line item on there that 23 is consistent with the charge for a shipping -- for a 24 shipping, and there is no information in the invoice 25 showing that any CD provided was only for part of it, 26 which would give me a basis to conclude that we should 27 say the CDs were only for part of it, because they don't 28 have that information. Again, it's a -- it's missing 15 1 information. 2 MS. STEEL: I thought CD was only part of it, 3 but . . . 4 MR. LEVINE: No. 5 MS. YEE: Mr. Horton. 6 MR. HORTON: So, Mr. Levine, you would need 7 additional information in order to -- in order to take 8 this under further consideration? I mean, the -- 9 MR. LEVINE: We'll take it under further 10 advisement. 11 MR. HORTON: I would definitely need to -- go 12 ahead. I'm sorry. 13 MR. LEVINE: Obviously, if the Board says take 14 it under consideration, we will, but as far as more -- we 15 would -- we would need more information to change 16 Appeal's recommendation. 17 MR. HORTON: Right. 18 MR. LEVINE: And I -- I got the information from 19 Mr. Wandrey, who is the contact. I talked to him a 20 couple more times. I sent him a couple of follow-ups. 21 And -- 22 MR. HORTON: Did you -- did you specifically ask 23 Mr. Wandrey for the information described by Member 24 Steel? 25 MR. LEVINE: On the -- not on the use tax, but 26 only -- we were only talking about the three disputed -- 27 Mr. Wandrey is a purchaser from petitioner. 28 MR. HORTON: Mm-hmm. 16 1 MR. LEVINE: He is UC. They're the ones with 2 the three disputed purchase invoices for software that 3 the question is whether it was delivered electronically 4 or not. And yes, I asked him -- we went back and forth. 5 He would say, "It can never happen, because this is the 6 only way that we ever do it is electronically," and then 7 when I talked to him he says, "Well, yeah, some -- some 8 of our groups, the university sections take money out of 9 a different area and buy it and want the CD and I just 10 don't know why they want the CD," so -- but then when I 11 asked him again he says it can't happen. But it does. 12 He -- he said it does. 13 And he doesn't know what the BOL number is, bill 14 of lading, so he concludes it has to be a mistake, which 15 I understand that, if you think it was electronic and no 16 bill of lading was issued, it must be a mistake, but I 17 don't think it was. 18 MS. STEEL: Madam Chair, is it that hard to just 19 send it back and then you can just review one more time? 20 And I'm asking too much questions. And then if those 21 invoices you went through and you review and you not 22 going to budge anything in -- we have Ms. Chiu sitting 23 here -- somebody else can review it -- is that too much 24 asking that, you know, I'm asking here? Because just 25 fairness. This is a fairness to the taxpayers. And I'm 26 asking just to look at one more time. Taxpayer is not 27 even here to defend themselves. 28 MR. LEVINE: I'm just trying to be honest with 17 1 you. We're not going to change our conclusion. But you 2 have obviously -- 3 MS. STEEL: Well, you're not going to change, 4 but, you know -- 5 MS. YEE: Ms. Steel -- Ms. Steel, please. 6 Let's do this. Mr. Horton, do you want to 7 withdraw your motion and -- 8 MR. HORTON: Yes, why don't we -- 9 MS. YEE: Want to put this matter over and have 10 Appeals look at it one more time and -- 11 MS. STEEL: Thank you. 12 MS. YEE: -- let's -- let's just kind of be 13 sensitive about the tenor of the discord here. 14 I think Mr. Levine is just trying to paint some 15 reality here in terms of what's missing. 16 And, Ms. Steel, you want another review 17 potentially by different eyes. I think that's the will 18 of this Board. So we will put this matter over for that, 19 in order for that to happen. 20 MR. LEVINE: Okay. Just to be clear, are you 21 asking me to assign this to someone else for a -- a new 22 analysis? 23 MS. STEEL: Especially those invoices, yes. 24 MR. LEVINE: Is that what the Board would like? 25 We'll have someone else represent Appeals for this if 26 that's what you'd like, and we'll just reassign it. 27 MS. YEE: Mr. Levine, I think Ms. Steel's 28 comfort would be to have another set of eyes actually do 18 1 the analysis here. Okay. 2 MR. LEVINE: On the -- and on the use tax, do 3 you want us to look at that again? That wasn't part of 4 the original 30/30. 5 MS. MANDEL: What is the issue? 6 MS. YEE: I think -- 7 MS. STEEL: I'm asking actually both, invoices 8 and use tax. Yes. 9 MS. YEE: Okay. All right. For both. Okay. 10 All right. And if you'll just communicate in terms of 11 when that might be appropriate to come back before the 12 Board. You don't need to do that today, but just-- 13 MR. LEVINE: Okay. 14 MS. YEE: Okay. Thank you. 15 All right. Subitem 2 has been put over then for 16 further review by Appeals. 17 Subitem 3a and 3b. 18 MR. HORTON: Move to adopt staff recommendation. 19 MS. YEE: Hold on one second. We have a speaker 20 on this matter. Let me call the speaker up first, 21 please. 22 MR. HORTON: My apologies. 23 MS. YEE: Is Mr. Balyan here? 24 MR. BALYAN: Yes. 25 MS. YEE: Please come forward. 26 He's here to speak on behalf of subitems 3a, 27 Woodland Hills Carwash, and 3b, Bhupinder Singh Mac. 28 ---o0o--- 19 1 2 ---o0o--- 3 H1.3a - WOODLAND HILLS CAR WASH, INC. 4 NO. 299486 5 H1.3b - BHUPINDER SINGH MAC 6 NO. 299487 7 ---o0o--- 8 MS. YEE: Thank you for making the trip up here. 9 I -- your time is somewhat limited, though. We're going 10 to give you three minutes. 11 MR. BALYAN: Okay. Could I provide Board some 12 documentation? 13 MS. YEE: I'm sorry? 14 MR. BALYAN: Could I provide Board some 15 documentation, please? 16 MS. YEE: Fine. And then you have three 17 minutes. 18 MR. BALYAN: Okay. 19 MS. YEE: So please use your time efficiently. 20 MR. HORTON: Madam Chair -- 21 MS. YEE: Mr. Horton. 22 MR. HORTON: -- I would suggest that -- oh, I 23 thought he was going to bring it up here himself. 24 MS. YEE: No. 25 MR. BALYAN: I have my copies for you. 26 MS. YEE: Okay. Please proceed. 27 MR. BALYAN: Okay. My name is Moti Balyan. I'm 28 an employee of Bhupinder Mac dba Mac Chevron & Carwash. 20 1 I have few points to make: That we disagree 2 with the Department for manufacturing discount rebate 3 that constitute taxable sales. The agreement we have 4 with the cigarette manufacturer is that they take the 5 aggregate sale price and display that and they should -- 6 this is the taxable income, not sale. The manufacturer 7 has issued us a 1099, and I -- that's a copy and it says 8 number one. 9 And number -- then State of California 10 Department of Food and Agriculture, Division of 11 Measurement Standard, we are required to display the 12 price. And violation of that is punishable. And we have 13 been punished. And I attach a copy of that. We follow 14 the law to display the price and sell the price. 15 Third, manufacturer pay rent to us for putting 16 their 30- to 40-feet display of their cigarette so we can 17 stay competitive. They pay us for serving their product, 18 providing them space and keeping their product. 19 Currently manufacturer is giving us this price 20 reduction on supplier invoices, because of this issue, we 21 requested them and they agree with us. I attach a copy. 22 It says item 3. It's a reduction of cost. It's not a 23 rebate. 24 The next item is that the -- I have attach for 25 you is -- it's item 4. The Board has issued four letter 26 to us. It's their precedent. That letter is dated April 27 29, 1996, January 24, 1997, February 14, 1997, and 28 February 25, 2002. 21 1 In these Board has accepted our tax returns 2 without any recommendation on any issue. These audit -- 3 in these audit Board took this manufacturer money as a 4 cash discount or cost -- cost reduction, which is not 5 taxable. 6 Now Board has attached a copy, Exhibit 1, from 7 1996. They have provided you, but they never provided us 8 and never inform us. 9 The Board has cited two cases. One is Riley 10 case in 1950. That case I think almost is 60 year old. 11 It -- it involves an issue that authorize to conduct the 12 audit based upon the information furnished by the 13 appellant do not contain the books and record. And Board 14 determine that the books and record were in agreement 15 with each other, but they did not reflect the taxable 16 sale nor disclose the correct amount of tax liability. 17 That's not an issue here. 18 And in the Maganini case the discrepancy existed 19 between the amount of merchandise purchased by the 20 appellant and the gross amount of sale reported by the 21 Fairfax Buffet, and the actual sale were unknown and 22 unrecorded and they were missing records. That's not the 23 case here. 24 In a footnote 9 the Board is mentioning 25 California Code Regulation, Title 18, section 1671.1, 26 subdivision C(3)(a). Each application starting on 27 October 2007, and Board never -- they start -- we start 28 paying the tax on all the money in 2005, and Board never 22 1 asked any recommendation on this issue before they 2 decided it. 3 The current law, the Revenue & Tax Code section 4 6596 provided relief from the tax interest penalty 5 charges due on a transaction if Board determined that the 6 taxpayer failed to pay taxes because it reasonably relied 7 on erroneous written advice from the Board. And we rely 8 on the Board because they issued four letter that they 9 agree with us. 10 Department is saying that they destroy all the 11 records of the 1996 audit in 2001, but they attach the 12 audit sheet for Board to review it. I don't know why the 13 Board is providing some documentation but not -- not the 14 complete audit of 1996. And I provided every 15 documentation to the Board, but they still considering 16 that I did not fulfill that requirement. 17 MS. OLSON: Time is expired. 18 MS. YEE: Okay. Mr. Balyan, let me see if we 19 have questions from the members. 20 I guess, first and foremost, Mr. Levine, have we 21 seen these documents previously? 22 MR. LEVINE: I cannot tell you if we've seen 23 them. 24 MS. YEE: Okay. 25 MR. LEVINE: The first document, the -- I don't 26 think it changes anything, because the question is 27 whether they are rebates within the meaning of the 28 regulation, and the question isn't whether it was any 23 1 lack of compliance in the law of displaying the sale 2 price within the meaning of that law. It's only whether 3 the company received payments from the manufacturer and 4 whether -- whether it had to reduce the prices 5 accordingly. 6 MS. MANDEL: Madam Chair? 7 MS. YEE: Ms. Mandel. 8 MS. MANDEL: When I heard the gentleman talk 9 about payments for display rental, it was my 10 understanding that the portions that were determined to 11 be for display and advertising rather than that those 12 were excluded. That's my notes were, that that portion 13 was excluded. 14 MR. LEVINE: That's correct. And petitioner was 15 invited to provide any further evidence that might show a 16 greater amount was for display but did not. 17 MS. MANDEL: Right. Okay. And then this is a 18 document from this year. It's behind the 1099s. And I 19 think he was trying to use this to show that he got a -- 20 that they got a cost -- that it was a cost reduction, 21 that it was some -- you know, so that he would fall under 22 the cost reduction. But I -- this is a 2010 document, 23 and I'm not completely sure that it relates back to this 24 earlier period. 25 MR. LEVINE: Which ones? 26 MS. MANDEL: It's -- it's like a sheet. It's 27 from McClain. It's right after the -- oh, I'm sorry. 28 It's the third document, after the 1099s and the County 24 1 of LA invoice document. There's a single sheet from -- 2 that says Payee McClain and it has a retail price, retail 3 extension and deal and unit cost. 4 And I understood him to be presenting this as 5 trying to show that they got a purchase price reduction. 6 It is a 2010 document, if you look at the top right. But 7 that -- that's what he was trying to use it for is he's 8 arguing that it's purchase price, but it's not from the 9 time period, and -- 10 MR. LEVINE: And if I recall correctly, under 11 the new reg, which dropped the distinction between 12 secondhand and -- 13 MS. MANDEL: Correct. 14 MR. LEVINE: -- two-party and three-party, even 15 if this was a cost reduction from his vendor, if it was 16 in consideration of a reduction in -- a specific 17 reduction in price at rebate, but . . . 18 MS. MANDEL: It's still an issue. And this 19 document doesn't relate to the time period of the case, 20 which is -- 21 MR. LEVINE: Right. 22 MS. MANDEL: -- '01 to '04. 23 MR. LEVINE: And my understanding, if this is 24 McClain, it would be a wholesaler, not the manufacturer. 25 And my understanding, and this top document seems to 26 confirm, that we are talking about payments by the 27 manufacturer in the case before us today. 28 MS. MANDEL: Okay. Thank you. Those are my 25 1 questions on these. 2 MS. YEE: Thank you, Ms. Mandel. 3 MR. BALYAN: Can I answer that? 4 MS. YEE: Mr. Balyan. Yes. 5 MR. BALYAN: Yes. The intent of the 6 manufacturer is the reduction of cost. Because of this 7 dispute, we lobby heavily to the manufacturer. 8 Manufacturer do not supply directly this goods. They 9 supply through the supplier, McClain. So because they 10 reducing the cost previously, also, and to have the same 11 intent, they start reducing the cost on the invoice of 12 the supplier. 13 Now, that's why the -- the 1099 attached was 14 whatever they supply, the money paid to us was a 15 reduction of cost of goods, and it was confirming the 16 audit four time. And it same intent there. 17 Now, because of this issue they started 18 reduction -- reducing that cost on the invoice of the 19 supplier -- the wholesaler. 20 MS. MANDEL: Right. Now. Today. Yeah. 21 MR. BALYAN: Previously also it was same, but 22 they were not reducing on the invoice, because they were 23 paying the money. 24 MS. MANDEL: They were paying -- right. But 25 then the issue is and I guess what staff had found and 26 what had been discussed at the hearing was that it was -- 27 that then there was a -- it was -- the purchase -- the 28 sale price of the cigarettes had to be reduced 26 1 accordingly. Right? 2 MR. LEVINE: That's our understanding. 3 MR. BALYAN: And same right now here, because 4 they reduce the cost, so we reduce the price. 5 MS. MANDEL: It's a -- it's a contract issue. 6 MR. BALYAN: Yes. 7 MS. YEE: Okay. All right. Mr. Horton, please. 8 MR. HORTON: I was actually ready to make a 9 motion. 10 MS. YEE: Okay. Any other questions? 11 Okay. Mr. Balyan, I think, given what you've 12 just provided us, we'd like to take the time to review 13 the documents and we will discuss your matter later today 14 and decide it. 15 MR. BALYAN: You want me to wait here? 16 MS. YEE: Uh, it's up to you, but it's going to 17 be a fairly long afternoon, so it will be towards the end 18 of the day. 19 MR. BALYAN: Before five or after five? 20 MS. YEE: I can't tell you with any certainty, 21 sir. We have other appeals that we're going to be taking 22 up. But you've just submitted additional documents here. 23 We want to take a look at them and then -- before we 24 decide the matter. 25 MR. BALYAN: My flight is at five, so I want to 26 see if I can wait or . . . 27 MS. YEE: Well, pleasure of the Board? Probably 28 want to review these. I can't say with any certainty, 27 1 sir. You will be notified in writing. 2 MR. BALYAN: Okay. Thank you, Chairman. 3 MS. YEE: Thank you. 4 Okay. Members, let's put this matter over so we 5 have additional time to review what's just been provided 6 to us. 7 ---o0o--- 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 28 1 ---o0o--- 2 H1.4 - JASON R. PRIDMORE 3 NO. 421508 4 ---o0o--- 5 MS. YEE: Subitem 4, subitem, Jason R. Pridmore. 6 Is there a motion, please? 7 MR. HORTON: Move to adopt staff recommendations. 8 MS. YEE: Okay. Motion by Mr. Horton to adopt 9 the staff recommendation. Is there a second? 10 MS. ALBY: Second. 11 MS. YEE: Second by Ms. Alby. Discussions? 12 MS. STEEL: Objection. 13 MS. YEE: Okay. Any discussion, Ms. Steel? 14 MS. STEEL: Well, he didn't have intention to 15 bring this RV and his teammates brought it in California 16 without his approval when he was in the hospital, so I 17 believe that he didn't have any intentions to bring it. 18 MS. YEE: Okay. All right. 19 Other discussions? 20 Motion by Mr. Horton, second by Ms. Alby to 21 adopt the staff recommendation. 22 Please call the roll. 23 MS. OLSON: Madam Chair. 24 MS. YEE: Aye. 25 MS. OLSON: Ms. Alby. 26 MS. ALBY: Aye. 27 MS. OLSON: Ms. Steel. 28 MS. STEEL: No. 29 1 MS. OLSON: Mr. Horton. 2 MR. HORTON: Aye. 3 MS. OLSON: Ms. Mandel. 4 MS. MANDEL: Aye. 5 MS. OLSON: Motion carries. 6 MS. YEE: Okay. Moving on to subitem 5, 7 Maherali, Incorporated. 8 May I have a motion, please? 9 MR. HORTON: Move to adopt staff recommendations. 10 MS. YEE: Motion by Mr. Horton to adopt staff 11 recommendation. Is there a second? 12 MS. MANDEL: Second. 13 MS. YEE: Second by Ms. Mandel. 14 Discussions? Objections? Hearing none, that 15 motion carries. 16 ---o0o--- 17 18 19 20 21 22 23 24 25 26 27 28 30 1 ---o0o--- 2 H1.6 - MAS N. ZUL, INC. 3 NO. 434597 4 ---o0o--- 5 MS. YEE: Subitem 6, Mas N. Zul, Incorporated. 6 May I have a motion, please? 7 MR. HORTON: Move to adopt staff recommendations. 8 MS. YEE: Motion by Mr. Horton to adopt the 9 staff recommendation. Is there a second? 10 MS. MANDEL: Second. 11 MS. YEE: Second by Ms. Mandel. Discussion? 12 Without objections, that motion carries. 13 Subitem 7, D & H Service Station Corporation. 14 May I have a motion, please? 15 MS. STEEL: I have a motion. 16 MS. YEE: Mm-hmm. 17 MS. STEEL: Move to abate the negligence penalty 18 because there was a petitioner's first audit and adopt 19 a -- amend -- adopt the staff recommendations. 20 MS. YEE: Okay. 21 MS. STEEL: The revised penalty revisions. 22 MS. YEE: All right. There's a motion by 23 Ms. Steel to adopt the staff recommendation but to abate 24 the negligence penalty. Is there a second? 25 MS. ALBY: Second. 26 MS. YEE: Second by Ms. Alby. 27 Discussion? 28 MR. HORTON: Can we hear from staff? 31 1 MS. YEE: Yes. 2 Mr. Levine, on the motion? Any . . . 3 MR. LEVINE: Well, it's basically the amount of 4 the discrepancies. Sometimes 26 percent is substantial 5 and sometimes it's not. Depends on the type of business. 6 In this case we thought it showed negligence. 7 Your mileage may vary. 8 I think the main argument here was that the 9 business -- the ultimate owner of the business shares 10 changed, which we don't think if -- if -- that doesn't 11 matter. I -- I -- if you conclude that the business 12 wasn't negligent, then it should be removed, but it's not 13 because the spouse took over the business, because it was 14 the same business entity. The corporation is who we're 15 talking about. 16 MS. YEE: Mm-hmm. Okay. 17 MS. MANDEL: It was -- and the difference was 18 reported sales over recorded sales. 19 MR. LEVINE: Yes. The error was not reporting 20 all the sales -- 21 MS. MANDEL: That were recorded. 22 MR. LEVINE: -- that were recorded. 23 MS. MANDEL: And she had basically argued she 24 shouldn't be liable for her husband's negligence -- 25 ex-husband. Excuse me. 26 MR. LEVINE: Correct. 27 MS. YEE: Okay. All right. Other questions, 28 members? Okay. Motion by Ms. Steel, second by Ms. Alby 32 1 to abate the negligence penalty and otherwise redetermine. 2 Please call the roll. 3 MS. OLSON: Madam Chair. 4 MS. YEE: No. 5 MS. OLSON: Ms. Alby. 6 MS. ALBY: Aye. 7 MS. OLSON: Ms. Steel. 8 MS. STEEL: Aye. 9 MS. OLSON: Mr. Horton. 10 MR. HORTON: No. 11 MS. OLSON: Ms. Mandel. 12 MS. MANDEL: No. 13 MS. OLSON: Motion fails. 14 MS. YEE: Is there another motion? 15 MR. HORTON: Move to adopt staff recommendation. 16 MS. YEE: Okay. Motion by Mr. Horton to adopt 17 the staff recommendation. Is there a second? 18 MS. MANDEL: Second. 19 MS. YEE: Second by Ms. Mandel. Please call the 20 roll. 21 MS. OLSON: Madam Chair. 22 MS. YEE: Aye. 23 MS. OLSON: Ms. Alby. 24 MS. ALBY: Aye. 25 MS. OLSON: Ms. Steel. 26 MS. STEEL: No. 27 MS. OLSON: Mr. Horton. 28 MR. HORTON: Aye. 33 1 MS. OLSON: Ms. Mandel. 2 MS. MANDEL: Aye. 3 MS. OLSON: Motion carries. 4 ---o0o--- 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 34 1 ---o0o--- 2 H1.8 - KIL HWAN CHANG and MYONG JO CHANG 3 NO. 474045 4 ---o0o--- 5 MS. YEE: Okay. Subitem 8. Kil Hwan Chang and 6 Myong Jo Chang. I'm sorry. Is that still on there? 7 Yes. Is there a motion? 8 MS. MANDEL: Move staff recommendation. 9 MS. YEE: Okay. Motion by Ms. Mandel to adopt 10 the staff recommendation. Is there a second? 11 MR. HORTON: Second. 12 MS. YEE: Second by Mr. Horton. Discussions? 13 Objections? 14 MS. STEEL: Just question for -- 15 MS. YEE: Yes. 16 MS. STEEL: -- Mr. Levine. 17 This is actually license -- it was when this 18 taxpayer bought the store. This was stamped and it was 19 taxes been paid and Costco admitted that they actually 20 sold it, but they were not going to get the, you know, 21 the merchandise back, because it sold, so it's not really 22 subject to suspension of the store license; right? 23 MS. CHIU: That's correct, Ms. Steel. There's 24 no violation for which there would be a suspension. 25 MS. STEEL: All right. Thank you. 26 MS. YEE: Okay. Motion and second. Objection? 27 Hearing none, the motion carries. 28 ---o0o--- 35 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, CAROLE W. BROWNE, Hearing Reporter for the 8 California State Board of Equalization, certify that on 9 November 17, 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 35 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: December 6, 2010 17 18 19 _________________________________ 20 CAROLE W. BROWNE 21 Hearing Reporter 22 23 24 25 26 27 28 36