1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 JANUARY 27, 2011 10 11 12 13 14 15 FINAL ACTIONS 16 17 18 19 20 21 22 23 REPORTED BY: JULI PRICE JACKSON 24 CSR NO. 5214 25 26 27 28 1 1 P R E S E N T 2 3 For The Board Jerome E. Horton of Equalization: Chairman 4 Michelle Steel 5 Vice-Chairwoman 6 Betty T. Yee Member 7 Senator George Runner 8 (Retired) 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 For Board of Equalization: David Levine 16 Tax Counsel IV 17 Cindy Chiu Tax Counsel 18 19 20 21 22 ---OOO--- 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 JANUARY 27, 2011 4 ---o0o--- 5 MR. HORTON: What's our next scheduled matter? 6 MS. OLSON: That concludes our administrative 7 session. 8 And, if you would like, we'll take those 9 matters that were taken under submission this morning. 10 MR. HORTON: Yes. 11 MS. OLSON: Our first item that was taken under 12 submission -- 13 MS. YEE: Why don't you give us some time -- 14 SEN. RUNNER: A moment to catch up here real 15 quick. 16 MS. OLSON: Okay. 17 There is just two -- there is just two. 18 Our first one is C5, William -- 19 MR. HORTON: One second, Ms. Olson. 20 MS. OLSON: Okay. 21 MS. OLSON: Let me make sure -- I see pages are 22 still flipping, so -- thank you. 23 First item? 24 MS. OLSON: Our first item is C5, William Brett 25 Corbin. 26 ---o0o--- 27 WILLIAM BRETT CORBIN 28 NO. 434956 (EA) 3 1 ---o0o--- 2 MR. HORTON: Is there a motion, Members, for 3 discussion purposes? 4 MS. YEE: Move to adopt the staff 5 recommendation. 6 MR. HORTON: Is there a second? 7 I second in that. 8 Discussion, Members? 9 MS. STEEL: Objection. 10 And the Department provided the incorrect 11 verbal advice and that was on the record and on our 12 side. 13 And if we didn't do that, I know that MTM 14 Technology paid for it, even late payment penalties too. 15 So, I don't think this taxpayer is really 16 liable for that portion. 17 MS. MANDEL: May I ask Mr. Levine a question 18 since you are Appeals? 19 MR. HORTON: Sure. 20 Ms. Mandel? 21 MS. MANDEL: There was some discussion about 22 whether there might be something in the agreement or 23 might be these general ledger books and granted, you 24 know, it's been all this time and -- this is the first 25 case we're, you know, taking up. 26 We haven't had that little what's a 30-30-30 27 discussion, but if they -- if -- if they could have had 28 the penalty paid under the terms of their agreement but 4 1 then it's not paid as a result of oral advice documented 2 in the Board record -- we don't have those missing 3 pieces. 4 And I'm just wondering if we ought to see if 5 they have those missing pieces or if it just doesn't 6 make a difference in your legal judgment? 7 MR. LEVINE: We would not have affirmatively -- 8 I don't know what the conference holder was thinking. 9 But we would not necessarily have affirmatively 10 have asked for that information because there's no legal 11 basis for relieving the penalty based on advice about 12 payment of penalty. 13 The legal basis for relieving the penalty is if 14 you were to find that there was a reasonable basis 15 related to payment of tax. 16 So, for example if you concluded that the 17 problem with the County of LA in paying its bills led to 18 a reasonable basis for the -- 19 MS. MANDEL: That I understand. 20 MR. LEVINE: -- so, that's -- 21 MS. MANDEL: But I -- what I am hearing out of 22 -- in this ear is kind of a 60 -- 6596 approach to the 23 ultimate payment of the penalty in the fall. 24 MR. LEVINE: Correct. And 6596 does not cover 25 that. 26 Certainly, if the Board wants -- 27 MS. MANDEL: Okay. 28 MR. LEVINE: -- us to get that information, we 5 1 will try and seek that information and -- 2 MS. MANDEL: 6596 also goes to you didn't pay 3 the tax -- 4 MR. LEVINE: You didn't pay the tax. 5 MS. MANDEL: -- and with that comes whatever 6 interest and penalty was on that tax, but it's about not 7 paying the tax. 8 MR. LEVINE: That's correct. 9 MS. MANDEL: Okay, thank you. 10 I think I've forgotten more than I once knew. 11 SEN. RUNNER: Just a quick question in regards 12 to, again, that. 13 My -- at least from my -- again, very beginning 14 understanding of some of the issues, some of this 15 discussion, you know, the fact is that if, indeed, 16 the -- having that material in regards to an agreement 17 going into the sale was or was there, it wouldn't 18 necessarily change the law in regards to the fact that 19 the individual owed the tax. 20 However, it seems to me that it could very much 21 help us understand whether or not we inadvertently 22 participated in putting the individual taxpayer at a 23 risk he didn't intend. 24 And, so, for that reason, I wouldn't -- I would 25 not be able to vote today in order to do this, I would 26 certainly look at an option in regards to giving him 27 additional time to provide that documentation, to which, 28 unfortunately, he wasn't even sure he could find, but at 6 1 least give him the additional time on a 30-30-30, in 2 order to provide it. 3 And it seemed to me that if he can provide it, 4 then, indeed, it would show, potentially, that we 5 inadvertently, during a really critical time in his 6 financial dealings there, provided some wrong 7 information which created then an obligation to which he 8 would think would not have to be paid if it -- if we had 9 responded correctly. 10 So, that would be my thought. But right now I 11 would not be able to support the issue. 12 MR. HORTON: Thank you very much. 13 Members, there's a week delay in them being 14 notified of the correct application of law, one week. 15 It's been moved and seconded. 16 Ms. Olson, please call the roll. 17 MS. OLSON: Mr. Horton? 18 MR. HORTON: Aye. 19 MS. OLSON: Ms. Steel? 20 MS. STEEL: No. 21 SEN. RUNNER: No. 22 MS. OLSON: Ms. Yee? 23 MS. YEE: Aye. 24 MS. OLSON: Ms. Mandel? 25 MS. MANDEL: Aye. 26 MS. OLSON: Motion carries. 27 ---o0o--- 28 7 1 MS. OLSON: Our next item is D1, Jeff & Amy Incorporated. 2 ---o0o--- 3 JEFF & AMY INCORPORATED 4 NO. 547450 (ET) 5 ---o0o--- 6 MR. HORTON: Is there a motion, Members? 7 MS. YEE: Move to adopt the staff 8 recommendation. 9 MR. HORTON: It's been moved by Miss Yee, 10 second by -- 11 MS. MANDEL: I'll -- I'll second. 12 MR. HORTON: -- Ms. Mandel. 13 SEN. RUNNER: Just a quick question. 14 MR. HORTON: Discussion, Members? 15 SEN. RUNNER: Just a quick question. 16 MR. HORTON: Senator? 17 SEN. RUNNER: We actually had an item on our 18 leg agenda, which I was interested enough discussing 19 today, which would have applied to this particular 20 issue. And it's -- again, I guess I use this time to 21 talk about that. 22 And, that is, I just -- it's interesting to 23 me. 24 MR. HORTON: We'll bring the leg item back. 25 SEN. RUNNER: Well, let me just -- that the 26 amount of -- well, I think it was taken off. 27 But the point would be that it's interesting to 28 me that we -- that, A, we spend that much time, the 8 1 taxpayer spends that much time and the bottom line on 2 what we're trying to deal with was less than $500. 3 And the issue that was before -- potentially 4 before us, which I think is a policy we ought to look 5 at, and that is that in certain amounts of items that 6 are below a certain dollar, that we -- that we basically 7 try to go down a path of some kind of a fine, which 8 then, at least it seems to me, A, the State actually 9 receives some dollars, because the State's not going to 10 receive any dollars from this particular endeavor; the 11 taxpayer, obviously, doesn't have the product. And, as 12 a result of that, I don't know what the cost was to the 13 State to go after and deal with this, what is what now 14 $412. 15 So, I am -- you know, I am not prepared -- I am 16 prepared to vote for the -- for the recommendation here, 17 but I just think it's a bit silly and we ought to look 18 at more efficient ways, it seems to me, to deal with 19 this. 20 MR. HORTON: Thank you very much. 21 Any further discussion? 22 MS. MANDEL: Well, sort of and sort of. 23 I mean, this is a tobacco seizure, right? 24 MS. CHIU: Yes, it is. 25 MS. MANDEL: Right. And, so, part of that 26 whole tobacco law was regulatory, in a sense. 27 But I have a question and after we vote -- I 28 will just ask them, because in this case the taxpayer, 9 1 the Petitioner, when she sat here she said -- and I -- 2 she said that this store -- the one store that she said 3 she had transferred the product to had, I guess, too 4 small an order, so, her explanation of why she did what 5 she said was the inter store transfers was the store was 6 too small, the distributor wouldn't deliver there, so, 7 she claimed to take all her deliveries at the main 8 store. 9 And it's my understanding that it's -- is it 10 okay for them to transfer from one store to another as 11 long as they keep adequate records so they can 12 demonstrate the transfers? 13 MS. CHIU: Well, based upon the Investigations 14 procedures, it's not -- 15 MS. MANDEL: They're not supposed to -- 16 MS. CHIU: -- encouraged, but -- 17 MS. MANDEL: -- they're not supposed to, but if 18 they do it, they should have -- 19 MS. CHIU: Records. 20 MS. MANDEL: -- records to show the transfer? 21 MS. CHIU: Yes, contemporaneously prepared. 22 MS. MANDEL: Right. 23 Okay, so, that's kind of -- but -- kind of a 24 little of a Catch 22. 25 And what I was going to say was that if -- if 26 there is such a thing out there where your store's so 27 small that you can't get people to deliver to you, which 28 they are smiling at me from far away, so, I am not sure 10 1 if that's -- that's a thing that happens, but I was just 2 wondering, sort of education wise -- it's in our 3 materials, right, that people should keep transfer 4 records if they don't have the right -- the invoices 5 from the other stores? 6 MR. HAAS: Ms. Mandel, Gil Haas from the 7 Investigations Division. 8 Currently there is no regulation that's out 9 there. We're in the process of trying to develop one 10 for transfers. But, as you had said, it is allowed. We 11 do allow people to do the transfers because there are 12 individuals and sometimes some conglomerates that -- 13 like larger stores, like 7-11s that will purchase in 14 bulk to get the discounts and then transfer out to 15 individual stores. 16 We do require that they maintain documentation 17 at that point to substantiate it. And in the case of 18 these transfers for individual stores who are owned by 19 the same individuals, not a corporation versus an 20 individual -- 21 MS. MANDEL: Right. 22 MR. HAAS: -- to allow them to maintain records 23 that demonstrate that those properties have gone out, we 24 then just compare to the invoices, the original 25 invoices. 26 MS. MANDEL: Right. 27 And, you know, sometimes people say they do itI 28 and I'm not so sure if they -- you know, some people -- 11 1 anyway. 2 But I -- just so that, you know, if she's -- if 3 it's okay for her to do this -- that kind of transfer 4 that she talked about in the future, as long -- she 5 needs to understand what she needs to keep and write 6 down so that she doesn't lose product in the future. 7 MR. HAAS: And I believe, according to staff, 8 they have had discussed it. 9 Part of the procedure when our staff are out 10 there and they do run across this situation, they do 11 explain to them how the process works and how to 12 document -- 13 MS. MANDEL: Okay. 14 MR. HAAS: -- for future. 15 MS. MANDEL: Okay, thanks. 16 MR. HORTON: Thank you, Members for the 17 discussion. 18 It's been moved and seconded. 19 Without objection, such will be the order. 20 ---o0o--- 21 22 23 24 25 26 27 28 12 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 JANUARY 27, 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 pages 1 13 through 12 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: FEBRUARY 10, 2011 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 13