BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 450 N Street, Room 121 Sacramento, California REPORTER'S TRANSCRIPT JANUARY 26, 2011 ITEM C2 SALES AND USE TAX APPEALS HEARINGS CLAIM FOR REFUND filed by DAVID HAROLD JOHNSON (Case No. 451147 KH) Reported by: Beverly D. Toms CSR No. 1662 1 1 2 P R E S E N T 3 4 For the Board Jerome E. Horton of Equalization: Chairman 5 Michelle Steel 6 Vice-Chairwoman 7 Betty T. Yee Member 8 Senator George Runner 9 (Retired) Member 10 Marcy Jo Mandel 11 Appearing for John Chiang State Controller 12 (per Government Code Section 7.9) 13 Diane Olson, Chief 14 Board Proceedings Division 15 For Board of David Levine 16 Equalization Staff: Tax Counsel IV 17 Scott Claremon Tax Counsel 18 Robert Tucker 19 Legal Department 20 Kevin Hanks Sales and Use Tax Department 21 22 For Petitioner: Barbara Halperin Representative 23 David Johnson 24 Taxpayer 25 26 ---OOO--- 27 28 Sacramento, California 2 1 January 26, 2011 2 ---oOo--- 3 MR. HORTON: Ms. Olson, what's the next 4 scheduled matter? 5 MS. OLSON: Our next item is C2, David Harold 6 Johnson. Please come forward. 7 MR. HORTON: Mr. Levine, would you please 8 introduce the matter. 9 MR. LEVINE: The issue in this claim for refund 10 of David Harold Johnson is whether claimant is liable or 11 is a responsible person under Revenue and Taxation Code 12 6829 for the tax liability incurred by Chemtron 13 International, Inc. 14 I note that although the penalties were not 15 paid and thus are not technically part of the claim for 16 refund, we have addressed the penalties for purpose of 17 efficiency and we have recommended that the late payment 18 penalty not be relieved and that the amnesty interest 19 penalty be relieved subject to the usual payment 20 conditions. 21 MR. HORTON: Thank you, Mr. Levine. To the 22 taxpayers, please introduce yourselves for the records. 23 You will have ten minutes to make your presentation. 24 After the Department has made their presentation you 25 have five minutes to rebut. 26 MR. JOHNSON: David Johnson. And I've asked 27 Barbara Halperin to help me with this matter. 28 MR. HORTON: Welcome. 3 1 MS. HALPERIN: Thank you. My name is Barbara 2 Halperin and I'm representing David Johnson as a friend 3 and domestic partner. 4 Mr. Johnson has come to the realization that in 5 all probability there is no basis to prevail in his 6 claim for a refund in this matter. I'd like to read 7 just a short statement of some extenuating issues that I 8 wanted to present to the Board and possibly have further 9 consideration. Okay. I'm going to take my -- I can 10 read better without my glasses. 11 In Mr. Johnson's request for relief from 12 penalty which he submitted on January 10, 2010, 13 paragraph 4, he requested the Board to consider the fact 14 that when he heard about the amnesty program he 15 misunderstood this program 16 Mr. Johnson in fact thought in order to qualify 17 for amnesty this required the taxpayer's ability to pay 18 the full amount as a prerequisite and not have that 19 ability during this time period. 20 Mr. Johnson had a number of pressing financial 21 issues and had lost his employment in the field of 22 pipeline rehabilitation, for which he worked for over 20 23 years and thus had to reinvent himself in another 24 career. 25 Ms. -- Suzanne Brown indicated if Mr. Johnson 26 accepted the decision and recommendation and timely pay 27 the interest or enter into a qualifying installment 28 payment agreement within 13 months he would be entitled 4 1 to a $2,929.23 amnesty credit. 2 Mr. Johnson has paid the principal tax in full 3 and is asking the Board Members to consider directing 4 future collection efforts exclusively to the other party 5 involved and that during this time period furthermore 6 his amnesty rebate will continue to apply towards any 7 personal future liability. 8 To elaborate, I want to point out that 9 Mr. Johnson endured significant financial hardship and 10 personally paid $17,466 towards this liability. 11 Mr. Johnson complied with every requirement of the 12 State's collection process, including paying the tax in 13 full. 14 When Mr. Johnson became aware of the appeal 15 procedure he paid the principal balance of the tax in 16 order to begin the appeal process. 17 Therefore, Mr. Johnson is respectfully 18 requesting the Board Members consider two facts. One, 19 the lack of collection from the other party previously 20 involved in the appeal process for several years who has 21 already been determined to be responsible and had a 22 final Notice of Determination issued and, number two, 23 that his payments totaling 17,466 be considered as part 24 of this overall situation. 25 Mrs. Saito and her husband have an accounting 26 business in Fresno and are regularly accustomed to 27 dealing with these types of issues which neither Mr. 28 Johnson or myself have ever had to deal with in the 5 1 past. They therefore had the advantage of knowing how 2 to proceed to protect their interests and delay the 3 collection process on their behalf. 4 On the other hand, Mr. Johnson willingly and 5 conscientiously made every effort to pay off this debt. 6 Thank you. 7 MR. JOHNSON: Thank you, Barbara. 8 MR. HORTON: Thank you very much. There's 9 additional time, sir, would you like to share any 10 information? 11 MR. JOHNSON: I think that well covers it. I 12 will just simply say I had been in that business for -- 13 pushing 30 years and have always paid all of my taxes 14 all the time without fail. And we were caught up 15 ultimately in the events of September 11, which our 16 business was directed solely towards public works 17 construction. The entire industry pretty much collapsed 18 and we were definitely a victim of that. I've done 19 everything I can to remedy that, but this is where I am. 20 MR. HORTON: Thank you very much, sir. 21 To the Department, please introduce yourself 22 for the record and commence with your presentation. 23 In that process if you could respond to the 24 specific concerns and particularly the -- the collection 25 activity on the other successor. Thank you. 26 MR. CLAREMON: Good afternoon, Chairman Horton 27 and Members of the Board. I'm Scott Claremon with the 28 Legal Department. And to my right is Robert Tucker with 6 1 the Legal Department, and to his right is Kevin Hanks 2 with the Sales and Use Tax Department. 3 As I understand it the claimant is not 4 disputing that the -- his liability as a responsible 5 person and accordingly we agree that -- we concur with 6 the recommendation of the Appeals Division that he is a 7 responsible person under Section 6829 and the claim for 8 refund should be denied. 9 With regards to the collection efforts I note 10 that collections against Ms. Saito have been stayed 11 pending this matter. As of this time I don't know of 12 any priority that's been given to collecting against 13 either party. 14 MR. HANKS: That's correct, Mr. Horton. We're 15 currently pending status with respect to any collection 16 on the final liability with respect to Ms. Saito. And 17 we're waiting the outcome of -- of this case, of course, 18 to determine whether or not collection action should -- 19 should occur in this matter with respect to claimant. 20 MR. HORTON: All right. Thank you very much. 21 Mr. Levine. 22 MR. LEVINE: For clarification, that was the 23 Board's order in -- 24 MR. HORTON: I recall. 25 MR. LEVINE: -- the Saito case -- 26 MR. HORTON: Yeah. 27 MR. LEVINE: -- to hold off until this. So, 28 the Department hasn't had a choice, they didn't really 7 1 think about it, they just labeled the -- 2 MR. HORTON: Followed the orders of the Board. 3 MR. LEVINE: The code, right. 4 MR. HORTON: Got it. 5 MS. HALPERIN: Just one comment on that issue 6 would be that I know I read somewhere in this -- in this 7 file that when a final Notice of Determination was 8 issued that within 30 days the collection process was to 9 initiate. And I understand that now we're saying 10 that -- that it was stayed, that collection was stayed 11 pending Mr. Johnson's appeal process and it seems a 12 little unusual to me that the collection process was 13 pending his Notice of Final Determination because this 14 tax goes back to 2001. And their determin -- notice of 15 Final Determination I believe was in either '05 or '08. 16 MR. HORTON: Thank you very much for sharing 17 your concern. During the discussion period possibly one 18 of the Members will ask -- bring clarification to your 19 concern. 20 Questions, Members? 21 SEN. RUNNER: I have a question. 22 MR. HORTON: Mr. Runner. 23 SEN. RUNNER: It just -- a couple of -- just 24 some observations. I -- my assumption was that it was 25 stayed because we knew that there was another affected 26 party coming forward. And so, for that reason in order 27 to -- I guess be fair they wanted to get a determination 28 on all parties that might be included. Is that a fair 8 1 observation or -- 2 MR. HORTON: Pretty good for the new kid, huh? 3 SEN. RUNNER: Okay. 4 MR. HANKS: Yes, I believe that's what 5 happened. 6 SEN. RUNNER: Okay. So -- so let me just ask 7 then on that, I assume that it was done that way because 8 it would be unfair then to go after the party who just 9 went first. And so therefore you wanted to wait for the 10 determination on this particular act. That being said 11 then it seems to me that I was confused by, Mr. Hanks, 12 your response when you're trying to see -- when 13 you're -- I think your comment was whether or not 14 determination should move forward against Ms. Saito. 15 Was that -- did you mean should or you're not 16 clear it should or -- it seems to me pretty clear that 17 it should move forward, that the stay was only until 18 this particular case came before us. 19 MR. HANKS: Mr. Runner, I think what -- what 20 the Department was awaiting is -- is the Board's 21 direction with respect to continuing collection action 22 with respect to either of these parties would be open to 23 the Board's direction to -- to initiate collection 24 action against one or either party simultaneously. 25 SEN. RUNNER: So you need an additional action 26 from this Board to collect on Ms. Saito? 27 MR. HORTON: No. 28 MR. HANKS: No. 9 1 SEN. RUNNER: Okay, I just wanted you to 2 clarify that because it sounded again like you were 3 waiting to determine whether or not we could both go 4 forward. Okay. 5 And, again, the issue of, again, fairness, I 6 guess was the idea of waiting for this other one. 7 So the assumption would -- I guess would be in 8 terms of fairness to determine whether or not Ms. Saito 9 should go first now in order to create equity in regards 10 to the dual responsibility that's been -- that may be 11 established here? 12 MR. HORTON: What we might do is ask Mr. Levine 13 to just bring some clarity as it relates to the issues 14 of determination and when the collections can start, and 15 then maybe the Department can speak to the amount that's 16 already been paid. Was that paid pursuant to a 17 determination, actions of the Board of Equalization and 18 so forth. 19 Mr. Levine. 20 MR. LEVINE: Yes. I can't tell you what the 21 Board Members were actually thinking, but based on my 22 experience it's normal that we like to decide all the 23 cases together or hold them up and then sometimes the 24 Board will think one person is bad, worse than the 25 other, and say make collection efforts against this 26 person first. 27 So, whether it's because you want a balance, 28 which it sounds like what you're talking about balance 10 1 of payments, or because you decide Mr. Johnson is more 2 liable or Ms. Saito is more liable, you might direct 3 staff to take collection action against one or the 4 other. And I believe that's probably what the Members 5 were thinking, just hold up, wait till we get 6 Mr. Johnson, and then we'll have the whole picture to 7 make a decision. 8 It's common for the Board -- 9 SEN. RUNNER: Okay. 10 MR. LEVINE: -- to direct one of the other or 11 just to say to the Department use your best judgment. 12 SEN. RUNNER: Okay. Just to clarify again 13 then, in light of the fact that -- that there could be a 14 decision then finding that a Notice of Determination on 15 both of these parties, that the Board can then 16 prioritize based upon payments that already had been 17 received as to which party they might want to go after 18 first to finish it? 19 MR. LEVINE: Right. 20 SEN. RUNNER: Okay. 21 MR. LEVINE: What's going to happen based on 22 the last Board's order is if the Board says nothing 23 about it here and just act on this claim, then the 24 Department will use its best judgment and probably just 25 try and collect the money from either or both. 26 SEN. RUNNER: Okay. 27 MR. HORTON: Well, let me just add to that, but 28 before I do that, Member Yee. 11 1 MS. YEE: Oh, thank you, Mr. Chairman. I was 2 just going to say the -- it's -- we haven't been able to 3 get these parties, you know, kind of on the same agenda 4 for various reasons, but I think in this particular 5 case, and I'll just speak for myself because I was a 6 little concerned about trying to get the Department to 7 comment on where the Board was going with its direction, 8 but we had the -- this petition of Mr. Johnson, this 9 claim for refund by Mr. Johnson, pending. Mr. Johnson 10 was the CEO and President of the company and it seemed 11 to me -- and also had responsibilities for tax matters. 12 And so it just seemed appropriate to hear this matter 13 before we then decide how to proceed with the prior 14 petition. 15 MR. HORTON: Okay. The one matter that I 16 wanted to point out, Mr. Runner, is that it's not just 17 the payment that will make that determination. There 18 there other factors. And so the goal here is to have 19 continuity in judgment and to try to look at this in its 20 entirety. And -- and there are -- there are occasions 21 that the facts may -- the facts in the subsequent case 22 may actually influence our ultimate order as it relates 23 to the initial case. 24 Further discussion, Members? 25 MS. STEEL: I just have a question for Mr. 26 Levine, that -- 27 MR. HORTON: Ms. Steel. 28 MS. STEEL: -- the Petitioner pays interest 12 1 amount in 13 months that you said that amnesty penalty 2 is going to be waived -- abated. But how about the late 3 penalty? 4 MR. LEVINE: Our recommend -- Mr. Johnson 5 commented on why he didn't pay but the penalty is 6 imposed on the corporation and that's whose failure 7 needs to be justified. And it hasn't been. We don't 8 think that there's a valid reason for the corporation to 9 have failed to make a timely payment. So that's why we 10 have not recommended granting it. That's just our 11 recommendation. 12 MS. STEEL: Okay. Thank you. 13 MR. HORTON: Thank you very much. Is there a 14 motion, Members? 15 MS. HALPERIN: May -- may I have one final 16 comment then, please? 17 MR. HORTON: Of course, ma'am. 18 MS. HALPERIN: So, what -- just to be sure what 19 we're asking -- what we're requesting the -- of the 20 Board and the others here is this, that they recognize 21 the fact that the 17,000 was paid by Mr. Johnson 22 exclusively because he didn't know how to do the appeal 23 and didn't know there was even -- what the -- the 24 process was. I mean, it was not able to delay that and 25 therefore went into years of paying $400 a month from -- 26 I think it was 2005 to 2007, and then his tax refunds 27 were garnished and then he also paid the principal in 28 full in order to initiate this hearing process. 13 1 And that we would like to be considered and 2 also if the Board would respectfully grant Mr. Johnson's 3 request to have that amnesty credit continue for at 4 least a period of time so that we wouldn't feel that -- 5 we feel it would be unfair if we had to go -- if we had 6 to say, "Here's a check for $12,000 to get the amnesty 7 credit of 2929," which represents a great amount of 8 money to us. We would ask that that somehow would be 9 extended 'til we have some resolution on what this 10 collection process will entail. 11 MR, HORTON: Thank you very much, ma'am. 12 MS. HALPERIN: Thank you, Mr. Horton. 13 MR. HORTON: Thank you. Further discussion, 14 Members? 15 Hearing none, is there a motion? 16 MS. YEE: Move to take the matter under 17 submission. 18 MR. HORTON: It's been moved by Ms. Yee -- 19 MS. MANDEL: Second. 20 MR. HORTON: -- second by Ms. Mandel. Without 21 objection, such will be the order. 22 Thank you very much for appearing before us 23 today. We will take your matter under consideration 24 later on this evening and send you a written report on 25 our decision. 26 MS. HALPERIN: We appreciate your time, thank 27 you. 28 MR. JOHNSON: Thank you -- 14 1 MR. HORTON: Thank you. 2 MR. JOHNSON: -- Mr. Chairman, and the Board. 3 ---oOo--- 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15 1 REPORTER'SCERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, BEVERLY D. TOMS, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 January 26, 2011 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 15 13 pages constitute a complete and accurate transcription 14 of the shorthand writing. 15 16 Dated: February 16, 2011. 17 18 19 ____________________________ 20 BEVERLY D. TOMS 21 Hearing Reporter 22 23 24 25 26 27 28 16