1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 REPORTER'S TRANSCRIPT 8 APRIL 26, 2011 9 10 BUSINESS TAXES COMMITTEE 11 12 13 14 15 16 17 18 19 20 21 Reported by: Juli Price Jackson 22 No. CSR 5214 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 Member 7 George Runner Member 8 Michelle Steel 9 Member 10 Marcy Jo Mandel Appearing for John 11 Chiang, State Controller 12 (per Government Code Section 7.9) 13 Diane G. Olson 14 Chief, Board Proceedings Division 15 16 17 ---oOo--- 18 ITEM 1 STAFF 19 Susanne Buehler Sales and Use Tax 20 Department 21 Cary Huxoll Legal Department 22 Kevin Hanks 23 Sales and Use Tax Department 24 Lynn Whitaker 25 Sales and Use Tax Department 26 27 28 2 1 ITEM 2 STAFF 2 Susanne Buehler Sales and Use Tax 3 Department 4 Kevin Hanks. Sales and Use Tax 5 Department 6 Steven Mercer Budget Section 7 Bradley Heller 8 Legal Department 9 Joe Fitz Research and Statistics 10 11 ---o0o--- 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 1 SPEAKERS ITEM ONE 2 ---o0o--- 3 NAME PAGE 4 Johan Klehs 14 5 Robin Sturdivant 15 6 Christy Bouma 18 7 Eric Myers 20 8 Bob Cendejas 22 9 10 SPEAKERS ITEM TWO 11 ---o0o--- 12 NAME PAGE 13 Rob Gutierrez 88 14 15 ---o0o--- 16 17 18 19 20 21 22 23 24 25 26 27 28 4 1 450 N Street 2 Sacramento, California 3 April 26, 2011 4 ---o0o--- 5 MR. HORTON: Let us call the Board of 6 Equalization meeting to order. 7 Ms. Olson, what is our first matter? 8 MS. OLSON: Our first matter -- our first 9 matter -- can you hear me? 10 MS. MANDEL: Not really. 11 MR. HORTON: Testing, 1, 2, 3. 12 MS. OLSON: Thank you. 13 Our first order of business today is the 14 Business Taxes Committee. 15 Ms. Yee is the Chair of that Committee. 16 Ms. Yee? 17 MS. YEE: Thank you very much, Ms. Olson. Good 18 morning, Members. 19 We have two items before the Business Taxes 20 Committee this morning. The first item is the proposed 21 changes to Regulations 1807 and 1828. 22 We'll have the parties come forward. I know 23 there are several speakers to speak on this particular 24 item. I'm going to have you all, if you will, just take 25 turns and be respectful of those speaking after you. 26 Okay. Let me have the staff introduce the 27 issue. 28 Good morning. 5 1 MS. BEUHLER: Good morning. I am Susanne 2 Beuhler with the Sales and Use Tax Department. 3 With me today are Cary Huxsoll from our Legal 4 Department and Kevin Hanks and Lynn Whitaker from Sales 5 and Use Tax. 6 We have two agenda items for your consideration 7 this morning. Agenda item 1 includes one action item 8 for vote and one informational item. 9 In the action item we ask that the Board 10 approve and authorize for publication proposed 11 amendments to Regulation 1807, Petitions for 12 Reallocation of Local Tax, and 1828, Petitions for 13 Distribution and Redistribution of Transactions and Use 14 Tax. 15 Staff and interested parties have worked 16 together and reached agreement on several issues, some 17 involving future revisions to the Board's procedural 18 manuals and some involving regulatory change. 19 We prepared a PowerPoint overview of the local 20 tax appeals process, highlighting the regulatory 21 changes, including the alternatives before you this 22 morning and the areas where staff and interested parties 23 disagree. 24 Before we get into the presentation, however, I 25 wanted to address an informational item on the agenda 26 regarding holding local tax distributions in suspense 27 while a suspected misallocation is investigated. 28 During the interested parties process and in 6 1 written submission, the HdL Companies commented that 2 that procedures should be included in the BOE procedure 3 manuals, explaining when distributions can be held. 4 Staff does not believe it is necessary to 5 develop formal procedures for holding distributions or 6 requesting that distributions be held. These cases are 7 rare. And we believe staff must evaluate the facts and 8 circumstances surrounding each case to determine if it 9 is necessary to hold local tax distributions. 10 This issue does not involve regulatory 11 amendment and does not require Board action. It is 12 included for informational purposes only. 13 We have speakers on agenda item 1 and we would 14 be happy to answer any questions you may have after the 15 PowerPoint presentation. 16 I'm going to turn it over to Lynn Whitaker now 17 for that presentation. 18 MS. YEE: Okay. Please, good morning. 19 MS. WHITAKER: Good morning. I'm Lynn Whitaker. 20 I'm with the Sales and Use Tax Department. 21 Since this is a complicated issue, we prepared 22 an overview of the local tax petition process to explain 23 the alternatives before you. 24 Alternative 1 are amendments proposed by staff. 25 These revisions have a prospective application and 26 include an explanation of the extension request process 27 with regards to the Local Revenue Allocation Unit 28 notices, a mechanism allowing the Petitioner to request 7 1 the Allocation Group issue its supplemental decision and 2 notification of potentially affected jurisdictions 3 beginning at the Appeals Division level. 4 Alternative 2 are amendments proposed by 5 Mr. Klehs and supported by the HdL Companies. In 6 addition to the extension request procedure and 7 notification at the Appeals level, this alternative 8 includes additional time limits to issue decisions and 9 schedule conferences and hearings at the Allocation, 10 Appeals and Board Member levels. 11 Alternative 3 are amendments proposed by 12 Muniservices. In addition to the extension request and 13 notification at the Appeals level, these revisions 14 include new processes at the Allocation level that 15 include specific time frames and meetings between staff 16 and the Petitioner, a limit on the acceptance of post 17 Appeals conference submissions and a new process 18 requiring Board Members to rule on the admissibility of 19 new factual information provided with the request for 20 hearing. 21 Muniservices' recommendation includes 22 Alternatives 3.1 and 3.2 because Muniservices proposes 23 two choices for making the revisions prospective. 24 The petition process begins when the Allocation 25 Group receives the petition. The information is 26 verified and Allocation issues its decision. 27 There isn't a time limit for Allocation to 28 issue its decision, however, if the Allocation does not 8 1 issue a decision within six months, the Petitioner may 2 request a decision and Allocation will issue one within 3 90 days of the request. 4 Muniservices recommends a new process. They 5 propose that Allocation has 270 days to issue its 6 decision. At the end of this time if Allocation has not 7 issued a decision, Allocation will meet and confer with 8 the Petitioner within 30 days to discuss the scope and 9 timeline of further investigations. 10 At any time after the meet and confer meeting, 11 the Petitioner may ask Allocation to issue its decision 12 within 90 days. 13 If no objection is received in response to 14 Allocation's decision, the decision is final. 15 If an objection is received, Allocation will 16 consider the objection, including any new information or 17 evidence presented, and issue a supplemental decision. 18 The current regulation doesn't have a defined 19 time limit at this step and this is an area where staff 20 agreed with interested parties that revision was needed. 21 Staff proposes that if Allocation does not issue a 22 supplemental decision within six months, the Petitioner 23 or notified jurisdiction may request Allocation issue a 24 decision and Allocation will issue one within 90 days -- 25 a process similar to that with the first decision at the 26 Allocation Group level. 27 Mr. Klehs and HdL proposed that Allocation has 28 90 days to issue their supplemental decision. 9 1 Muniservices proposes that Allocation has 2 90 days to issue their supplemental decision. If no 3 decision is issued, Allocation will meet and confer with 4 the Petitioner. At that time -- any time after the meet 5 and confer meeting, the Petitioner may request 6 Allocation to issue its supplemental decision within 7 30 days. 8 If no objection is received to Allocation's 9 supplemental decision, the decision is final. 10 If an objection is received, Allocation sends 11 the file to the Appeals Division. 12 After the file has been sent to the Appeals 13 Division, Petitioner, notified jurisdiction and the 14 Sales and Use Tax Department are notified at least 15 45 days before the conference. 16 One of the changes that was initially proposed 17 by Mr. Klehs, but staff and the other interested parties 18 agreed to, is to expand notification of the Appeals 19 conference to any jurisdiction that would be 20 substantially affected if the petition were granted. 21 Currently this isn't done until a petition reaches the 22 Board Member level of appeal. 23 As with general sales and use tax appeals, 24 there is currently no time requirement of when an 25 Appeals conference may be scheduled. Mr. Klehs and HdL 26 propose that the Notice of Conference be sent within six 27 months of the Appeals decision -- excuse me, Appeals 28 Division receiving the file. 10 1 After a file is transferred to the Appeals 2 Division, the Petitioner or notified jurisdiction may 3 continue to discuss the issue with the Allocation staff. 4 Based on that investigation, Allocation may issue a 5 second supplemental decision. 6 If that decision is issued and there is no 7 objection, the decision is final. 8 If there is an objection, the Appeals 9 conference is scheduled. Mr. Klehs and HdL propose 10 establishing a 60-day time limit to issue the second 11 supplemental decision. And if an objection is filed, 12 require that the Notice of the Appeals Conference be 13 sent within 90 days. 14 Next the Appeals conference is held. If during 15 the Appeals -- if during the conference a participant 16 asks to submit additional information, they are allowed 17 up to 30 days to provide additional written argument or 18 documentary evidence. And other participants are 19 allowed 15 days to respond. 20 Staff and interested parties agree to simplify 21 this by allowing 30 days for each. 22 Muniservices proposes that the Appeals Division 23 may not accept argument or evidence beyond these 30-day 24 deadlines, except upon agreement by all participants. 25 Within 90 days of the Appeals conference or 26 final submission of additional information, the Appeals 27 Division will issue its Decision and Recommendation. 28 The Chief Counsel may approve an additional 11 1 90 days to prepare the D & R upon request by the Appeals 2 Division. Mr. Klehs and HdL recommend shortening this 3 extension request to 30 days. 4 The Petitioner and notified jurisdictions may 5 appeal a Decision and Recommendation or a Supplemental 6 Decision and Recommendation by submitting a request for 7 Board hearing. 8 A decision may also be appealed by submitting a 9 request for reconsideration to the Appeals Division. 10 And the Appeals Division may issue a Supplemental D & R 11 in response. 12 Mr. Klehs and HdL propose eliminating the 13 request for reconsideration and Supplemental D & R 14 processes. 15 If there is no timely request for a Board 16 hearing or request for reconsideration, the D & R or 17 SD & R is final. 18 If a request is received and additional factual 19 information is sent with the Board hearing request, 20 Muniservices proposes a new process requiring the 21 request include justification of why that information 22 was not provided at the Appeals conference and that 23 Board Members will rule on the admissibility of that 24 additional information no later that 75 days before the 25 hearing is set. 26 If a request for a Board hearing is received, 27 the Notice of Hearing is sent at least 75 days before 28 the hearing. 12 1 Mr. Klehs and HdL propose adding the 2 requirement that a Hearing Notice be sent within 90 days 3 of the request for hearing. 4 There is one final issue to consider with 5 regard to the proposed amendments, it has to do with 6 making the application of the revisions prospective. 7 During the preparation of the issue paper, 8 staff realized that the operative date language in the 9 regulation was specific to the 2008 revision and that we 10 needed to clarify that any new amendments would be 11 added -- would be applied prospectively. 12 On April 4, we sent our proposed revisions to 13 the interested parties that had submitted regulatory 14 language for the issue paper. 15 Mr. Klehs and HdL didn't submit any further 16 revisions. And if the Board does approve Alternative 2, 17 staff recommends revising Subdivisions 1807(g) and 18 1828(f) to include language to make the revisions 19 prospective and that can probably be done during the 20 public hearing process. 21 There was an additional subdivision -- excuse 22 me, submission from Muniservices, although they agree 23 the proposed revisions should apply prospectively, they 24 had concerns with staff's language. 25 Muniservices proposes two options for the Board 26 to consider, Alternative 3.1, which would retire current 27 Regulations 1807 and 1828 and adopt new Regulations 28 1807.1 and 1828.1, which include their proposed 13 1 amendments and prospective language. 2 As an alternative, Muniservices offers 3.2, 3 which would amend Regulations 1807 and 1828 to provide 4 that the amendments adopted by the Board on or about X 5 date would have no retroactive effect. 6 And that concludes our PowerPoint. 7 MS. YEE: Thank you very much, Miss Whitaker. 8 Questions at this point, Members, before we 9 hear the speakers? 10 Okay. Why don't we turn to the public comment? 11 If you'll introduce yourselves for the record, you each 12 have three minutes. 13 ---o0o--- 14 JOHAN KLEHS 15 City of Livermore 16 ---o0o--- 17 MR. KLEHS: My name -- excuse me, my name is 18 Johan Klehs. I represent the City of Livermore. I've 19 been working with HdL on this and they will speak from 20 their own perspective. 21 We want to, first of all, thank the staff for 22 doing a very diligent job in putting together an 23 excellent presentation with the appropriate charts. 24 Our main argument is that the Regulation 1807 25 process has an absence of several key deadlines that we 26 think should be placed in the process. 27 Right now there are a host of applications that 28 go back as far as 12 years. The process which allocates 14 1 sales tax monies to the appropriate local agencies 2 should take, frankly, less time than a two-year 3 legislative session. Having cases drag on for 12 years, 4 seven years or, in the case of one that I was involved 5 in, a fast track case taking three years, is simply too 6 much time. 7 The staff's position has been that in order to 8 get the right answer that they need to have as much time 9 as possible. 10 Our position is that we would also like to get 11 to the right decision, but we believe that if as much of 12 the deadlines are placed in the process, certainly in 13 the Allocation Group level, that we will get to the 14 right decision in a faster period of time. And the 15 sales tax monies will be allocated to the right local 16 agency in the appropriate manner. 17 And we'd be happy to comment on each of the 18 various deadlines that we're recommending. 19 Thank you. 20 MS. YEE: Thank you, Mr. Klehs. 21 Next speaker, please? 22 ---o0o-- 23 ROBIN STURDIVANT 24 The HdL Companies 25 ---o0o--- 26 MS. STURDIVANT: Good morning, my name is Robin 27 Sturdivant and I'm with the HdL Companies. And I 28 appreciate the opportunity to participate in today's 15 1 proceedings. 2 During this process we were asked how much the 3 Board of Equalization collects in administrative fees 4 for the local tax programs. And I have given some 5 exhibits to Board Proceedings this morning that show 6 that, according to the 2008-09 BOE annual report, the 7 Board of Equalization withheld over $60 million from 8 local sales tax for administrating the local tax program 9 and over 43 million for the special transaction or 10 District taxes. 11 Our goal at HdL is to see that the local tax 12 investigations are completed as quickly and as 13 accurately as possible. And we're certain that the 14 Board Members and the Board staff share that goal. 15 And I'd like to start with some facts to give 16 you an overview of HdL's case inventory. We submit an 17 average of 4500 petitions to the Board of Equalization 18 each year. We have 3,633 open or unresolved petitions 19 in front of Board staff. Of those petitions, 1,140 are 20 over two years old. The oldest dating back to 1998. Of 21 the older cases, only three petitions involving two 22 taxpayers are currently with the Appeals Division. The 23 remainder are still at the first level of review, which 24 is the Allocation Group. 25 The most recent issue paper says that the 26 Allocation Group received 6,651 petitions in fiscal 27 '09-'10 and cleared almost as many, about 340 less. And 28 that's a great number if you are just trying to keep up. 16 1 But that pace won't do anything to clear our current 2 backlog. 3 The majority of our older petitions, those over 4 two years old, were submitted in 2007. So, that's four 5 years in the system with no resolution. 6 The issue paper suggests that part of the 7 problem lies with the quality of the petitions and I 8 have to take exception with that. And I'd like remind 9 everyone that taxpayers are not obligated to provide 10 information to a local government agency or a 11 consultant. 12 And having said that, we make every effort to 13 ensure that the petitions we submit are accurate and 14 contain as much information as possible. In addition to 15 the name, phone number and address, we often include 16 maps, photos, copies of web pages, County Assessors' 17 information. We make purchases to show receipts, 18 shipping and tracking information. 19 I can give you specific examples where 20 petitions were submitted to the Allocation Group and had 21 20, 30 and 40 pages of documentation and yet they still 22 take years to get resolved. 23 In the cases where the taxpayer will not 24 provide information to a consultant, we must rely on the 25 Allocation Group to complete a timely and accurate 26 investigation. To insure a timely investigation, we 27 need deadlines, timelines and goals. 28 In 2006 the US Bureau of Labor and Statistics 17 1 published a 25-year study showing that Americans change 2 jobs, on average, every two and a half years. That 3 means that the contact person I list on the petition I 4 submit today will probably be not working at that firm 5 three years from now. 6 When petitions age, information becomes stale, 7 facts change, businesses close. Time is of the essence. 8 We need to work with Board staff to find a way to move 9 these petitions through the process in a more expedited 10 manner. 11 Thank you. 12 MS. YEE: Thank you, Miss Sturdivant. 13 Next speaker, please? 14 ---o0o--- 15 CHRISTY BOUMA 16 Muniservices 17 ---o0o--- 18 MS. BOUMA: Madam Chair, Members, Christy Bouma 19 representing Muniservices. 20 I just wanted to come before you, first of all, 21 to thank the Chairwoman and the Board for moving these 22 issues to the interested parties process. I think our 23 company believes that it was a very robust discussion 24 and what -- one thing that we discovered that we had 25 unanimity around during the discussion was that having, 26 you know, a process that is effective and efficient with 27 good data, everybody was focused on making sure that 28 when you ultimately end up before you and we are arguing 18 1 cases, that we should be arguing over the law and not 2 disputing what the facts are. And, so, everybody 3 continued to refocus on how do we get better facts? 4 So, while deadlines were central to some of the 5 communications and I think those are pivotal to 6 providing a timely process, we also saw the value in 7 trying to come up with options or alternatives to insure 8 that good data is being investigated, reviewed before 9 these cases either come up to your level, which means 10 that a lot of time has passed, or that they get disposed 11 of quickly as they should. 12 And so, to that end, Muniservices appeared 13 frequently in the slide show with many alternatives and 14 I would, frankly, just suggest to you, that because of 15 the quality of the interested parties' process, 16 particularly the second discussion generated a lot more 17 discussion about fact finding, and as active and 18 cooperative participants to allow you to deliberate on 19 what is the best way for you to conduct your business, 20 we thought it was at least our duty to continue to 21 provide alternatives, options, "How do we make sure that 22 the parties are discussing the facts that are before 23 them and how can they discover -- or continue to 24 retrieve the data that's necessary to come to a good 25 legal decision on an issue?" 26 And that is why you have lots of options before 27 you. 28 And graciously and thankfully, Eric Myers will 19 1 come in behind me to speak more specifically about any 2 of those should you have any questions. 3 Thank you. 4 MS. YEE: Thank you very much. 5 Okay, if you'll relinquish your seats and we'll 6 have the next set of speakers. 7 Thank you. 8 Good morning. Please? 9 ---o0o--- 10 ERIC MYERS 11 Muniservices 12 ---o0o--- 13 MR. MYERS: Madam Chair, thank you, Members of 14 the Committee. 15 My name is Eric Myers and I'm here on behalf of 16 Muniservices. You just heard from Christy on, I think, 17 the central point in our -- our proposal. I'd like to 18 touch briefly on the -- our proposal regarding the 19 prospective application of this -- of the amendments. 20 We agree with staff conceptually that the 21 changes to the amendments should be prospective. Our 22 concern with staff's language centers around making two 23 points clear. 24 The first is that the transition rules be 25 stated in the past tense, in this case, the past 26 perfect, and I think we agree with staff on that. I 27 think our language is essentially the same as theirs. 28 The second is to make sure that no mischief is 20 1 caused by language that's extraneous. In the staff's 2 proposed language amendments to Subsection (g), they 3 have characterized the 2008 amendments as being a repeal 4 and readoption of Regulation 1807. 5 We don't see the need for that language. We 6 don't see that it adds any benefit. And from our 7 perspective it invites some mischief. And, so, we would 8 ask that that language be stricken. 9 We are also, at this point, although we had 10 proposed two options, which one was to effectively 11 sunset or retire Regulation 1807, which is our 12 Option 3.1, we're more than happy to have the Board 13 proceed with just considering Option 3.2, which is an 14 amendment without the retirement of Regulation 1807. 15 And then, finally, just to note, part of what 16 we understood this interested party process to be about 17 was not a criticism of staff, but an opportunity to look 18 at ways we might improve the process. 19 While we appreciate and thank staff for their 20 diligent efforts in looking into what could be revised 21 in the process and we agree with staff as far as they 22 go, we think that there might be a missed opportunity 23 here if we don't go a little farther. 24 And that opportunity is to -- to make sure that 25 facts are developed more fully earlier in the process 26 and that we create a process that has incentives for 27 staff, who has the tools -- they have the sticks and the 28 carrots -- and to make sure that those tools are used 21 1 early to develop the facts fully. 2 Thank you. 3 MS. YEE: Thank you very much, Mr. Myers. 4 ---o0o--- 5 BOB CENDEJAS 6 Cities of Long Beach, Ontario, et al. 7 ---o0o--- 8 MR. CENDEJAS: Good morning, Mr. Chairman and 9 Members of the Board. I'm Bob Cendejas. I'm 10 representing Long Beach, Ontario and some other cities. 11 First I want to commend the staff for 12 conducting meetings that fully developed the issues and 13 for being very objective during the process. As your 14 staff has probably reported to you, they're always 15 well-conducted meetings. 16 I also want to commend Mr. Klehs, who, after 17 listening to the concerns of the City, withdrew his 18 proposal to impound disputed City revenue during the 19 appeal process. That was of utmost concern to the 20 cities I represent and other cities I heard from. 21 However, I have to break from my colleagues, I 22 support staff's alternative. The way I see it is the 23 Board collects and distributes to the cities the cities' 24 imposed local sales tax for which it charges a fee. 25 Therefore, the Cities are the Allocation 26 Group's client. And the Allocation Group's goal should 27 be to do everything it can to accommodate both sides to 28 the City dispute to arrive at the correct answer the 22 1 first time. 2 It should not merely kick the dispute to the 3 next level. If it is -- because it's running out of 4 time. Providing the wrong answer at this level creates 5 additional problems for each side of the dispute. As 6 you can imagine, these -- a city to get what later is 7 determined to be the wrong answer and realizes it can't 8 spend revenue or it thinks it's getting revenue that 9 it's not going to get, presents some big problems for 10 it. 11 Also at this time the staff really has limited 12 resources. It has a high number of new disputes each 13 quarter. And it has fluctuating workloads. You know, 14 this regulation being a good example. Therefore, at 15 this time, I do not believe it's prudent to impose 16 additional deadlines or eliminate procedures that would 17 help to arrive at the correct answer the first time. 18 I think Robin mentioned that we'd like it to be 19 speedy and accurate. I think most important one is 20 accurate. I think we have to get the right answer. We 21 have to get it early. We don't want it to continue with 22 bad facts. 23 So, unfortunately, sometimes that takes longer 24 than a lot of us would like. But I -- I think the most 25 important thing, considering the limited resources staff 26 has, is to make sure we get the facts right first, even 27 if it does take longer than we all would like to see. 28 Thank you 23 1 MS. YEE: Thank you very much, Mr. Cendejas. 2 Other speakers? Other public comment on this 3 item? 4 Okay, hearing none, Members, I wanted to first 5 compliment the staff for the thorough work that they've 6 done on this petition. I really appreciate the clarity 7 of certainly eliminating the current process and the 8 proposed changes. 9 And I wanted to see if I could maybe set the 10 stage for the discussion on this issue. 11 I was supportive of this petition in terms of 12 entertaining the deadlines just because, as you know, 13 many of the cases that this Board hears are dated. And 14 I think particularly at a time such as this, where the 15 State and local governments are so pressed for resources 16 that we really do have to examine whether there is more 17 that we can do to try to resolve these cases and the 18 proper allocation occurs. 19 Having said that, I'm mindful of limited 20 resources that this agency has. And certainly I think 21 the discussion that did take place with respect to how 22 these types of matters -- local allocation matters -- 23 compare to other business tax matters that come before 24 the Board and associated time frames relative to those 25 other tax matters actually peaked my curiosity. Because 26 what I found myself thinking was, "We ought to be doing 27 better in those other business tax matters with respect 28 to having, hopefully, some better resolution, more 24 1 timely." And if it is a resource issue, I'd like to 2 focus it as a the resource issue. 3 But, frankly, I'd like to think about being in 4 the parties' shoes who have to rely on this -- on the 5 Board's decision on these matters and what makes sense. 6 And I think I'm -- I'm very supportive of 7 imposing some sort of time frame deadlines and 8 timelines, but I also want to address the resource issue 9 as well. 10 And I'll have questions to the staff as it 11 relates to what our current cost model provides for 12 relative to staffing. 13 But having said that, let me entertain 14 questions and discussion, Members? 15 Mr. Runner? 16 MR. RUNNER: Yeah, my observation is, I think, 17 along the same lines. And I'd like to hear some of that 18 discussion in regards to whether or not we have a 19 resource problem in the sense of staff not assigned, not 20 enough staff to deal with these issues in a -- in a way 21 that moves them through in a period of time that's 22 reasonable or whether or not we truly had any deadlines 23 in order then to make those decisions and move those up 24 into the process. 25 So, I do have questions in regards to, I guess, 26 both sides of that, No. 1. 27 If we go through some of these deadlines and 28 apply some of these deadlines, what is the cost? What 25 1 is the -- what are staff requirements going to be in 2 that regard? 3 But backing up to that, I also want to at least 4 hear from -- and maybe from both sides on that issue -- 5 in regards to these are services to which these local 6 governments do pay for. 7 So, I have a basic question and that is, do 8 they pay enough? Do they pay too much? Are they 9 getting -- are they basically getting the services to 10 which they are reimbursing the BOE for? 11 Because, you know, if -- if, indeed, the model 12 is something like they pay enough, but we don't hire 13 enough people in order to fill the -- for the revenues 14 that we are receiving, then that seems to be a staffing 15 problem that we have to address. 16 And, so, I'm interested in kind of some 17 observations, I think, in that regard. And it seems to 18 me that so much of what we're dealing with and some of 19 these differences all revolve around the issue of 20 deadlines. I think that is going to be the core part of 21 some of this discussion from my perspective. 22 MS. YEE: Maybe staff can respond to that 23 question with -- speaking about currently what the cost 24 model provides for relative to the amount of resources 25 we have to deal with these types of matters. 26 MR. HUXSOLL: We have Steven Mercer here from 27 budget. 28 MS. YEE: Okay. 26 1 MR. HUXSOLL: If you have specific questions on 2 the cost -- 3 MS. YEE: Sure. 4 MR. HUXSOLL: -- model. 5 MS. YEE: Okay. Good morning. 6 MR. MERCER: Good morning, Chair, good morning, 7 Members. 8 My name is Steven Mercer and I'm with the 9 budget section here. 10 MS. YEE: Okay. 11 MR. MERCER: Currently the sales and use tax 12 allocation model looks at things at a very high level. 13 And by doing so, when you get into these fine details, 14 it doesn't necessarily address it. 15 But during the -- but in that allocation model 16 the Bradley-Burns and the special taxing jurisdictions 17 do pay for approximately one-third of the cost of the 18 sales and use tax program. The State pays the other 19 two-thirds. 20 Now, if the workload associated with the -- the 21 local governments and special taxing jurisdictions went 22 away and we lost one-third of our funding, we could not 23 maintain the current level of program activities for the 24 sales and use tax program because the State and the 25 locals both share a lot of costs together. 26 So, I think it's a mutually beneficial 27 allocation model where both pay for shared costs. But 28 we just don't get down to these direct activities to -- 27 1 when you're looking at these, you know, detailed cost 2 shifts. 3 MS. YEE: Okay. Can you maybe just elaborate 4 on whether that one-third cost share from the local 5 jurisdictions, what does that actually support? 6 MR. MERCER: It supports all of the sales and 7 use tax program, the registration of taxpayers, the 8 auditing of taxpayers, the returns processing, 9 collection activities -- you know, all of those, and 10 also all of the administration component of the Board as 11 well that's associated with the program. 12 MS. YEE: Okay. Ms. Mandel? 13 MS. MANDEL: So, what -- I think what you're 14 saying is that the direct cost of the petition for 15 reallocation of local sales tax process is not a 16 separate nugget in there, it's part of the overall 17 administrative -- everything is just -- it's a one-third 18 across the Board? 19 MR. MERCER: That's correct, at a very high 20 level. 21 We look at those -- each of those four 22 activities -- the registration, returns processing, 23 collections and auditing -- and we -- for the three of 24 those -- the registration, collections and auditing -- 25 we look at the revenue associated with each of those 26 activities. And based on that percentage, we allocate 27 the cost of those activities to the State and the 28 locals. 28 1 For the returns processing part -- portion of 2 it, we go a little bit further, we do a little bit of 3 workload activity. We look at what's on the return and 4 how many lines of the return are associated with the 5 State and with the local entities and we also factor the 6 revenue in that a little bit as well. 7 And then we allocate the cost of that element 8 to the State and the locals. Overall it comes out to be 9 about two-thirds, one-third, but each individual 10 activity may vary. 11 MS. YEE: And this particular, I guess, 12 activity, the local allocation piece of it, that is 13 funded out of the return processing element? 14 MR. MERCER: Yes, that's associated with the 15 returns processing. 16 MS. YEE. Okay. And my understanding is that 17 that element or local allocation is paid -- what is 18 it -- or is it return processing? 19 What's the 4753 stand for? 20 MR. MERCER: That's the returns processing. 21 MS. YEE: Okay, return processing, okay. 22 So, within that element and with respect to the 23 current workload of the Allocation Unit, are we 24 sufficiently funded? 25 MR. MERCER: I believe the allocation is fair. 26 I can't tell you exactly, you know, if they're getting 27 the bang for their buck. 28 But I believe -- 29 1 MS. YEE: I guess the question I'm driving at 2 is, is the absence of deadlines and timelines now and 3 the way in which local allocation works, in response to 4 the available support and funding? 5 Or I guess what's driving? And then when we 6 overlay the proposed timelines and deadlines, I want to 7 know then what the impact will be? 8 MR. KLEHS: May I just interject briefly? 9 MS. YEE: Let me have -- let me see if you can 10 answer, then I'll get to you. 11 MR. MERCER: That's a very hard question to 12 answer. 13 MS. YEE: Okay, all right. 14 MR. KLEHS: So, I was going to assist you with 15 the question where, you know, there is one person who 16 handles all of these tax cases. It's an exceptional 17 lawyer, highly qualified, does a great job. 18 MS. YEE: Yes. 19 MR. KLEHS: But, perhaps, the question to ask 20 is should there be more money allocated -- 21 MS. YEE: Well -- 22 MR. KLEHS: -- for two or three people? 23 MS. YEE: Yeah, I am -- we'll get there. 24 Part of the problem is that we're working 25 within a cost model that is not flexible. 26 And, so, we have that challenge and I think we 27 can talk about kind of what the workload need will be if 28 we were to adopt these revisions with -- to impose 30 1 timelines and deadlines. 2 I'm trying to get a sense of the current lay of 3 the land with respect to what's driving the current 4 workload and staffing. Is it because -- are we working 5 up to kind of what's available relative to the resources 6 for local allocation from this return processing 7 element, I guess, is really -- 8 MR. MERCER: We don't set like targets. 9 MS. YEE: Okay. 10 MS. MANDEL: Is that a question for the budget 11 guy or a question for the staff that handles it? 12 Because I had the impression he was from the 13 budget office. 14 MS. YEE: Yeah. 15 MS. MANDEL: So, I'm am a little confused. 16 MS. YEE: But I guess to the extent that we are 17 tracking, kind of, these expenditures from each of these 18 elements, I didn't know quite how to account for -- 19 MS. MANDEL: Okay. 20 MS. YEE: -- the expenditure, but I'm open to 21 hearing it from both. 22 Mr. Hanks, do you have a view? 23 MR. HANKS: Yes. Ms. Yee, I could offer the 24 staffing model that we've have got in the Allocation 25 Group and I think that's the majority of the work that 26 we're talking about here, where we've got the active 27 petitions, we've got a group of approximately ten 28 individuals that are actively engaged in working the 31 1 petitions that the consultants are talking about this 2 morning. 3 We believe that we have sufficient staffing, 4 actually, to handle the work flow that is given to us. 5 We actually process a number of these petitions. We're 6 actively engaged in doing that each month. We might 7 receive 500 of these cases a month. We might process as 8 many as 600 of these cases a month. 9 Now, we do have -- as has been noted 10 previously, we have approximately a thousand open 11 inquiries that are over two years. However, what's 12 significant about that is that 60 percent of those only 13 relate to six accounts, six taxpayer accounts. And, so 14 they're complicated cases that are, consequently, taking 15 more staff time to investigate and determine whether or 16 not a misallocation has occurred. 17 We're very mindful of the dates of knowledge 18 that we're operating with. We want to ensure that the 19 local tax is allocated correctly. And I think that's -- 20 that's probably what leads to some of the time frames 21 that we're talking about. 22 That said, we think that there is sufficient 23 triggers, however, within the statute that can be pulled 24 that identify when our Allocation Group needs to make a 25 decision. We're mindful of that. I know that the 26 consultants would like to recommend different timelines 27 or stricter timelines, but, actually, I think when you 28 look at the current regulations, actually the time 32 1 frames within the current regulation are somewhat 2 parallel to some of the time frames that have been 3 suggested this morning. 4 With regard to processing more of the active 5 petitions in our Appeals Division, we have only -- we 6 have less than ten active cases in the Appeals Division. 7 A majority of the cases that are under review are 8 actually being worked and handled by our Allocation 9 Group. We're mindful of that. 10 We are in a position where we ought to 11 investigate further whether or not a misallocation has 12 occurred, whether or not we need to recommend 13 reallocations. We're mindful of that. 14 And just transferring these cases to the 15 Appeals Division after -- if we haven't thoroughly 16 investigated these cases, it isn't going to be to the 17 benefit of the locals, certainly it's not going to be 18 advantageous for our Appeals Division staff, looking at 19 undeveloped cases. So, I think that explains why some 20 of these cases are taking longer than expected. 21 But with that said, however, I've got an 22 inventory listing that identifies a number of these 23 petition cases that we close on a month to month basis. 24 In March of this year we closed 361 cases. The 25 month prior we closed 560 cases. The month before that 26 we closed 950 cases. 27 And I note that over time, actually, that 28 inventory of -- ending inventory of petition cases that 33 1 we have in the Allocation Group is gradually 2 diminishing. It's gradually getting smaller because 3 we've got more people now actively engaged in working 4 these petitions. 5 As the Board Members and everyone's mindfully 6 aware, there were times for nine months when we couldn't 7 retain a supervisor, even, for the Allocation Group. We 8 couldn't hire to -- to fully staff that section. 9 Now we can and the Allocation Group is staffed. 10 And we're actively involved in processing and clearing 11 these cases. 12 MS. YEE: Okay. I assume -- I'm sorry, 13 Mr. Runner, I'll be back to you, we're kind off on a 14 tangent. 15 I assume the cases you are able to clear each 16 month are the ones for which you have a lot of 17 information. They probably are, maybe, lower dollar 18 items, although not necessarily, but that -- but that 19 information is much more readily available that will 20 allow you to get rid of those cases. 21 MR. HANKS: That's correct. I'm not certain 22 about the dollar value -- 23 MS. YEE: Okay. 24 MR. HANKS: -- but I think, actually, the 25 information component is another critical factor. 26 What we have determined in looking at just some 27 of the recent petitions that have been filed, within the 28 last several weeks, we note that many of those petitions 34 1 come to us with insufficient information for us to make 2 a determination on whether a reallocation needs to 3 occur. 4 We would comment to the consultants especially 5 that many times the cases and petitions that they're 6 processing with us are filed with us in an incomplete 7 manner. 8 And what we need is three informations, really, 9 to determine whether or not a misallocation or 10 reallocation is needed. We need the amount of the 11 transfer. We need to know who's getting the funds. We 12 need to know where the funds are coming from. 13 Oftentimes that information isn't fully 14 developed for our staff to identify that a reallocation 15 is necessary. 16 MS. YEE: Okay. 17 MR. HANKS: When that information is deficient, 18 we have to investigate and that leads to additional time 19 by staff. 20 MS. YEE: Okay. I think that it's probably 21 fair to say you see a variety of degrees of completion 22 when these petitions are filed. 23 MR. HANKS: That's correct. 24 MS. YEE: Okay. And I would think imposing the 25 timelines and deadlines would put all parties' feet to 26 the fire in terms of being sure that there's complete 27 information submitted. 28 And my last question is, elaborate a little bit 35 1 on the complexity of the cases and kind of how you 2 assign staff resources to them. 3 And I understand that when they're focused on, 4 perhaps, one single large taxpayer and it can be 5 complex, but those generally might be -- and I don't 6 know, just hypothetically say -- probably involve larger 7 dollar or maybe more jurisdictions? 8 MR. HANKS: Correct. 9 MS. YEE: So, how do we kind of work through 10 those, because those do tend to be the ones that are 11 dated that come before the Board and you've got many 12 jurisdictions, obviously, that are waiting for the 13 outcome -- 14 MR. HANKS: Right. 15 MS. YEE: -- the proper allocation. 16 MR. HANKS: Right. We do analyze the cases 17 when they're first submitted to us. We review them, try 18 and determine their complexity, determine whether or not 19 we're looking at a taxpayer that is engaged in multiple 20 or all jurisdictions within California. 21 The simpler cases are handled by the staff that 22 have the requisite knowledge and experience to handle 23 those cases. The more experienced auditors are handling 24 the more difficult and complex cases. 25 Recently we've been involved in the one case, I 26 believe, that Mr. Klehs was discussing, extremely 27 complex matter involving different issues that we 28 haven't necessarily had to review before. We've got 36 1 revenue agreements that have been drafted with cities 2 that add even more complexity. We have got multiple 3 jurisdictions involved. 4 Those types of cases are handled by our more 5 senior auditors. They typically involve investigations 6 where we'll send staff from our Allocation Group out 7 into the field, out into the Districts, to observe the 8 sales activities of the businesses that are allegedly 9 involved in new business operations in new locations. 10 So, those do entail more effort, more staff time, 11 certainly more consultation with their supervisors. 12 We've just retained a new supervisor within our 13 Allocation Group, he's only been on the staff for a few 14 months now. We're very happy to have him. He's a very 15 seasoned and experienced auditor. And I'm thrilled that 16 we're able to retain him for working in our Allocation 17 Group. And I think under his stewardship that -- that 18 we're going to be working these cases and our inventory 19 is going to decrease even from the level that we see 20 today. 21 MS. YEE: Okay, all right. And any difference 22 in terms of how you work cases where the taxpayer's no 23 longer in operation? 24 MR. HANKS: Those are very difficult cases for 25 us to look at. Oftentimes we consult with our auditors 26 in the field. They are involved in doing these types of 27 investigations for us. 28 If the businesses have closed, it's extremely 37 1 difficult for us to obtain information from -- from any 2 of the employees, of course, they're not available to 3 talk to. Oftentimes the documentation is nonexistent at 4 that point. It's very difficult for us to obtain 5 information for businesses that have either closed or 6 just sold their operations or have relocated to new 7 locations elsewhere, out of state, in some cases. So, 8 those are particularly difficult for us to work. 9 MS. YEE: Although for those types of cases, at 10 some point, the information you have is the information 11 you have and -- 12 MR. HANKS: Correct. 13 MS. YEE: -- you proceed more expeditiously? 14 Okay, Mr. Runner, I am very sorry for going off 15 on a tangent. 16 MR. RUNNER: Back up a little bit to some of 17 the finance issues just real quick. 18 MS. YEE: All right. 19 MR. RUNNER: From an overview, the 20 administrative charge that is coming in from the local 21 governments covers about a third? 22 MR. MERCER: Of the cost of the sales and use 23 tax program. 24 MR. RUNNER: Of the sales and tax -- 25 MR. MERCER: Program. 26 MR. RUNNER: -- program. 27 MR. MERCER: Yes. 28 MR. RUNNER: And we don't -- well, let me -- as 38 1 opposed to, for instance, we don't have a connection 2 between what their costs are, what their -- what their 3 administrative charge is and the whole process of the 4 appeal and the distribution side of that? 5 MR. MERCER: Correct. We do not go down to 6 that level of detail. 7 MR. RUNNER: Let me just ask, I guess, some 8 local government reps or at least people who -- is 9 that -- is that the understanding that you have with the 10 administrative charge, that the administrative charge 11 would not be connected to the cost of the administration 12 of the allocation program? 13 MS. STURDIVANT: Well, it's the understanding 14 of the local government agency that the fee that's 15 withheld to cover the administrative costs of the sales 16 and use tax program is to cover that local tax portion, 17 the amounts that the cities get back and they use to 18 fund their vital services -- police and fire. 19 And again from the 2008-2009 annual report, 20 that that amount was combined $100 million. 21 MR. RUNNER: Okay. 22 MS. STURDIVANT: So, if it's a third, it's only 23 funding a third, So, that program in its entirety, I 24 guess, we're saying is a $300 million program? 25 MR. MERCER: That's correct. 26 MR. RUNNER: We believe that the allocation 27 program is a $300 million program? 28 MR. MERCER: I'm sorry, not -- that's the sales 39 1 and use tax program. 2 MR. RUNNER: The whole -- oh, okay, the 3 whole -- but we don't know what the cost is? 4 MR. MERCER: Specifically of the allocation 5 portion of it, no. 6 MR. RUNNER: Is that -- I guess I don't 7 understand how we don't know. 8 And I don't know whether I go to the program 9 people or the budget people. 10 Do we not know how many people work in that 11 area, what the -- you know, what the costs are? How do 12 we not know what a function like that costs us? 13 MR. HANKS: Senator Runner, we certainly know 14 what the staff cost within our Allocation Group, we know 15 the number of individuals that are in that section. 16 MR. RUNNER: Right. 17 MR. HANKS: I don't have the particular numbers 18 in front of me because I thought we're speaking more in 19 terms of a global budget for handling local tax matters. 20 MR. RUNNER: Okay. Well, I guess the point -- 21 MR. HANKS: Definitely it's -- 22 MR. RUNNER: -- a point, I guess, I'd make is 23 that it seems to me it is appropriate if you are going 24 to have a customer out there and you're collecting a fee 25 from these customers to provide a service, we ought to 26 know what the cost of that service is so that we know 27 whether they're paying enough or too much. 28 Seems reasonable to me at that point, is that, 40 1 at least as I would understand, maybe the relationship 2 isn't that. 3 Let me go back to issue of the covering the 4 third. So, when you say it covers a third of the total 5 program, help me understand the distribution of that 6 sales tax in terms of where it ends up going. 7 Because not a third of that sales tax goes to 8 local governments. 9 MR. MERCER: A third of the tax collected -- 10 well, currently, not -- it doesn't currently now because 11 of the additional 1 percent tax that was added to the 12 State legislation -- or the legislation was put in to 13 exclude that 1 percent revenue from the cost allocation 14 model. 15 But with -- without that 1 percent, 16 approximately one-third of the revenue goes to local 17 governments, the special taxing jurisdictions. 18 And then there is also the local or local 19 revenue fund and public safety fund, which also goes to 20 local governments as well. 21 MR. RUNNER: But not the new -- not the 22 1 percent, the additional 1? 23 MR. MERCER: The additional 1 percent is 24 excluded. 25 MR. RUNNER: Okay, okay. I don't know. I'm 26 just getting a feeling like, actually, local 27 government's overpaying a bit for what it is -- the 28 services that they're receiving, just my general feeling 41 1 here. 2 And I guess it's unfortunate that we don't 3 exactly have that number. 4 Let me just ask then the specific question 5 because it is an issue to me, again, for service for 6 what people are paying for. 7 And in many of the discussions, as Mr. Klehs 8 has brought up, that it has come down to one of the 9 examples is a single attorney in the Appeals process at 10 that point, as an example. 11 Let me just ask, is it the opinion that -- of 12 staff that if they had more -- an additional person 13 there that we could shorten the time process that we 14 have or does it merely, in the opinion of staff, not 15 make any difference? 16 MR. HUXSOLL: There's -- in analyzing the cases 17 in Appeals right now there is adequate staffing in 18 Appeals to prevent a backlog from occurring. 19 As far as the numbers go, since 2008 Appeals 20 had an inventory of 1552 petitions with only 540 21 taxpayers. And currently all that's left in inventory 22 are cases involving 18 taxpayers. There are currently 23 only five cases that remain to be set for Appeals 24 conferences. 25 And Appeals anticipates that all the 26 conferences will be set by the end of the year. 27 And in the last three years -- in 2009, Appeals 28 received three cases. In 2010, one case to went to 42 1 Appeals. And in 2011 there have not been any cases that 2 have been forwarded to Appeals. 3 So, there is adequate staffing at the Appeals 4 level to handle this. 5 MR. RUNNER: Let me go back and ask the folks 6 at the other side. 7 In terms of -- do those who are in the Appeals 8 process or before the Board in certain levels feel like 9 there's adequate staff at that point? 10 MR. KLEHS: Well, speaking for the City of 11 Livermore and what I've observed in the process so far 12 and looking at the number of cases that are going back 13 to 13 years, a case shouldn't go back 13, 12 or five 14 years. It just -- it doesn't make a lot of sense. 15 And it also doesn't make a lot of sense if you 16 have one person handling all of these appeals going back 17 as far as 13 years. So, that's enough people to handle 18 the workload. 19 You would think that the Appeals Division would 20 have more than one person doing this. Because what if 21 the person got sick? Or what if they go on vacation? 22 Or what if something else happens? Then you have nobody 23 handling this. 24 It just seems -- it's a good idea to have more 25 than one person doing this job 26 MR. RUNNER: Okay. 27 MR. KLEHS: And Senator Runner, you and I were 28 both in the legislature. We know that process takes two 43 1 years, right? 2 But it seems to me that you can go from the 3 beginning to the end of one of these processes in about 4 a two-year period where you get as much accurate 5 information as possible for the Allocation Group, the 6 Appeals Division and the Board to make an accurate 7 decision and have the money go to the right 8 jurisdiction. 9 MR. RUNNER: Let me just ask one other question 10 then in terms of -- has there been any analysis done 11 then by staff if, indeed, these dates were implemented, 12 what would be the cost requirements, the staffing 13 requirements, in order to meet the deadlines as have 14 been presented in some of the alternatives? 15 MR. HUXSOLL: I'm not aware of that analysis. 16 MR. RUNNER: We could we put these deadlines to 17 get this done faster and it wouldn't take any more 18 staff? 19 MR. HANKS: Senator Runner, I don't believe 20 that the issue is a bottleneck of cases within our 21 Appeals Division, first and foremost. 22 I think -- I'm respectful of Mr. Klehs's 23 concern that there is only one individual currently 24 handling these cases, but I am certain that the Appeals 25 Division also has contingencies. If that attorney were 26 unavailable, the workload, of course, would be 27 reassigned. 28 MR. RUNNER: You know, I assume there's people 44 1 cross trained for that too, but maybe just ask that. 2 Now I'm a little confused. You mean we could 3 actually implement these deadlines, which would speed 4 the process, and there wouldn't be any staff 5 requirements on our part? 6 MR. HANKS: I think the result from my 7 Allocation Group would be if there are stricter 8 deadlines than what are currently available, I would 9 guess that probably we wouldn't be spending the 10 requisite time that we believe is necessary to 11 thoroughly investigate these cases. 12 And as a result, we would be transferring to 13 the Appeals Division cases that are likely undeveloped. 14 We could certainly deny more of these cases, 15 but that's not our intention. We're probably guilty in 16 the sense of holding some of these cases open too long. 17 But we're only mindful that we're trying to do the 18 correct thing to make sure that the local tax is 19 appropriately allocated. 20 However, when there is -- there is no 21 additional information that's coming to our Allocation 22 Group from the consultants, we do deny the petitions. 23 And it's at that point then the consultants 24 are -- 25 MR. RUNNER: So, what I'm hearing -- 26 MR. HANKS: -- working the cases. 27 MR. RUNNER: -- so, what I'm hearing is that 28 the decision would be to maintain at the current 45 1 staffing levels and then just move items based upon 2 these deadlines and, therefore, the concern on the 3 staff's part would be they would not have the adequate 4 review and the quality of what would be done would be 5 less? 6 Is that a fair summary? 7 MR. HANKS: That's correct. 8 MR. RUNNER: Okay, I have just a couple -- one 9 or two other questions I want to get to just in regards 10 to the aspect of what slows down the process and the 11 issues of reports and responses and if deadlines really 12 accomplish anything. 13 But I'll let somebody else, I think, answer -- 14 ask a couple of questions first. 15 Take a little time here. 16 MS. YEE: Thank you, Mr. Runner. 17 Mr. Horton? 18 MR. HORTON: Thank you, Madam Chair. 19 I just wanted to -- let me ask a couple of 20 questions first. 21 What is the history of the backlogs, the reason 22 for the backlogs -- and in an effort to identify what 23 the problem is, whether or not this is a systemic 24 problem, an institutional problem or whether or not it 25 is a problem that requires deadlines? 26 So, can you give us somewhat of the history of 27 why these backlogs occurred in the first place? 28 I think we're all concerned about when it takes 46 1 13 years or an exorbitant amount of time. Even given 2 the complexity of the transaction, that seems to be a 3 little longer. 4 So, can you share with us the history of why 5 the original backlogs occurred and where we are now 6 relative to backlogs? 7 MR. HANKS: Absolutely. 8 Mr. Horton, I think part of the difficulty that 9 our Allocation Group had was during the time of the 10 budget freeze when we couldn't hire additional staff 11 members within our Allocation Group. We were short 12 staffed. We didn't have a supervisor over the section 13 It was at that time, I think, that we had a 14 ramp up of the number of unworked cases. That was just 15 a matter of those times. 16 Fortunately, we've passed beyond that. 17 We're -- now we're staffed within the Allocation Group. 18 We have a new supervisor that's very mindful of the 19 inventory that he's got within his database. He's 20 mindful that we need to tackle that -- that history and 21 inventory of cases. 22 We currently have 4300 cases that are shown in 23 inventory. I do note, however, that the opening 24 inquiries that we have that are older than two years old 25 really relate only to six accounts, 60 percent of that 26 backlog relates to six accounts where we've got very 27 complex transactions involving multiple jurisdictions 28 throughout the State. 47 1 Another matter complicating our completing 2 these cases in a more timely manner is just the lack of 3 cooperation at times, frankly, from taxpayers. 4 They recognize that the local tax is a shifting 5 of the 1 percent tax from one jurisdiction to another. 6 There -- there is no impetus for the taxpayers 7 necessarily to cooperate with us and identify where 8 these sales transactions occurred because they're still 9 paying the 1 percent regardless of whether the local 10 tax goes to Sacramento County or Los Angeles County. 11 So, that's that's another difficulty that's posed in 12 completing these cases even quicker than we have today. 13 Another factor is the consultants giving us 14 inquiries where they suspect there might be a 15 misallocation, but they're not exactly sure if that 16 allocation exists. 17 So, oftentimes they will give us incomplete 18 petitions that we need to go and examine and investigate 19 to see whether or not a misallocation has occurred and 20 whether or not we recommend a reallocation. 21 For large transactions where there is 22 special -- a special allocation to the jurisdiction, 23 where the use is made for $500,000 and above type 24 transactions, we're finding that the consultants will 25 hand us paperwork showing that these sales were made for 26 amounts in excess of $500,000. 27 Well, there is no evidence that the 28 jurisdiction that received that local tax money should 48 1 be reallocated to another jurisdiction. I think 2 sometimes the -- the jurisdictions are just mindful of 3 that Schedule F being filed with us and they suspect 4 there is a misallocation. 5 But, again, there's lack of complete 6 information coming to our Allocation Group to really 7 explore some of these cases to determine whether or not 8 a reallocation is necessary. 9 So, I think those are all of the factors that 10 really come together to -- to slow down this process a 11 bit. Although at the same time I want to be mindful 12 that we are clearing between 300 and 900 cases a month. 13 And we are slowly decreasing the amount of the petition 14 workload that we have within our Allocation Group. 15 MR. HORTON: Thank you. 16 So, given that the personnel matters, the 17 budget, allocation of staff and all of that has been 18 resolved, the backlog itself has been taken care of, for 19 the most part, and staff believes that they can project 20 that these backlogs won't occur as long as we keep the 21 same -- the current level of staffing, is that an 22 accurate summation? 23 MR. HANKS: Mr. Horton, I think that that's 24 accurate. 25 I mean, I would love to say that I would like 26 to have the Allocation Group double in size and we'd 27 have twice the number of staff working these cases, but 28 I don't think that it's necessary. 49 1 I think that if we -- if we are able to target 2 these petitions, these open petitions, working the old, 3 backlogged cases, especially, I think we can reduce the 4 backlog to a manageable level within the current 5 staffing model we have today. 6 MR. HORTON: What can be done to address the 7 front load, the front end, where you're not receiving 8 information timely, you're not receiving adequate 9 information in order to make the decision? 10 Why not deny the petition? And I am not 11 suggesting that you do, I'm just really asking, why 12 don't we deny the petition? 13 Or why not set a deadline on the time that it 14 takes to receive the information, otherwise the petition 15 is denied or some action is taken? 16 I got to share that the concern of shifting the 17 workload from this department to the Appeals Department 18 and then ultimately to the Board and then ultimately 19 back to a 30-30-30 situation if the information is not 20 adequate, does not appear to be the solution, in my 21 mind. 22 But possibly on the front end is there anything 23 that the staff would recommend or the taxpayer's 24 representatives can recommend to address that? 25 MR. HANKS: Mr. Horton, I think that's an 26 excellent suggestion. And that's something that I'm 27 discussing with the Section supervisor as well as our 28 Local Allocation Group supervisor. 50 1 What I think we need to do is to revise the 2 procedures that we have for acknowledging petitions as 3 they're filed with the Allocation Group. I think within 4 the first 30 day window especially that we receive these 5 petitions, we need to review them for their 6 completeness. 7 And if they aren't complete, we need to refer 8 them back to the jurisdictions and have them submit 9 complete information that we can use to explore further 10 whether or not a reallocation is necessary. And those 11 are procedures that we're looking into today. 12 MR. HORTON: So, let's ask the representatives 13 about that 30-day deadline and that procedure. 14 MS. STURDIVANT: Again, I'd like to remind 15 everyone that a taxpayer is not obligated in any way to 16 provide information to a third party consultant. 17 Oftentimes a taxpayer considers that 18 information proprietary. And they will confirm to us 19 that there is an error on the return, that there was a 20 misallocation, there was a large use tax transaction, 21 but they're not comfortable releasing that information 22 to a third party. But they will, however, release it to 23 the Board. 24 In recent months we've been asked by the 25 Allocation Group, 26 "Could you get the amended schedules from the 27 taxpayer? Could you get a copy of the invoice? 28 Could you get a copy of the shipping 51 1 documents?" 2 We can certainly try, but again they're not 3 obligated to give that information to us. So, we don't 4 have the authority of the Board of Equalization behind 5 us to request that information. 6 So, to say that a petition is not complete 7 because I don't have a copy of the invoice, because the 8 taxpayer is not required to give that to me, is a little 9 unfair. 10 We need some -- we need some compromise. We 11 need some work from the Allocation Group. 12 MR. HORTON: So, let's ask the more global 13 question then, why not submit to the Board of 14 Equalization all of the information that you have, as 15 well as delineate the information that you believe is 16 necessary that is -- that you don't have the authority 17 to acquire? 18 And why can't the Board of Equalization, at 19 that point, seek out the information in order to be able 20 to answer the question whether or not there is a proper 21 allocation to get to the best answers? 22 And can that be accomplished within a timeline? 23 And what would that timeline be? And would there be a 24 requirement for additional staff on the front load in 25 order to accomplish that? 26 MS. MANDEL: Could I -- 27 MS. YEE: Ms. Mandel, please? 28 MS. MANDEL: Because it seems -- I don't know 52 1 what these things say when they come in, but in the 2 scenario that was just mentioned where the taxpayer says 3 they -- where the consultant tried to get it but the 4 taxpayer says, "I'm not comfortable," that sounds like 5 the sort of thing that ought to be laid out in the 6 petition -- 7 "That we did seek this information, we are 8 informed that the -- that the taxpayer has the 9 information. But the taxpayer is not 10 comfortable providing it to a third party and 11 that's why it's not included with this 12 petition." 13 MS. STURDIVANT: Ms. Mandel? 14 MS. MANDEL: And I don't know, maybe that's 15 what you do say now. 16 MS. STURDIVANT: In those cases, we'll -- you 17 know, in the case of -- 18 MS. YEE: Hold on. Mr. Horton? 19 MR. HORTON: One second -- I think that global 20 question, if it got answered it would answer my -- both 21 my question as well as -- 22 MS. YEE: Right. 23 MR. HORTON: -- Ms. Mandel's elaboration on 24 that. 25 So, possibly let's see if staff can answer the 26 question as a starting point. 27 MR. HANKS: Mr. Horton, we would welcome the 28 information that's been described if we knew who that 53 1 contact person was at the taxpayer's place of business 2 that the consultant was talking to, the date of that 3 conversation, specifically, you know, addressing the 4 type of transaction that's in question, I think that 5 that would speak volumes toward giving us a more 6 complete file and allowing us to investigate our cases 7 sooner. 8 But what I'm mentioning and what I'm hearing 9 from the Allocation Group is that oftentimes that level 10 of detail isn't there. And it just necessitates more -- 11 more work for our Allocation Group to do these 12 investigations. 13 MR. HORTON: Well, I don't want to interrupt 14 you, but I think we all acknowledge that there are 15 situations where the level of detail isn't there. 16 So, the question is what is the solution in 17 order to get us there as quickly as possible or get us 18 to a point that we can make a decision that the 19 information is not available and we can't obtain it, the 20 Board of Equalization doesn't have the authority to 21 obtain it for whatever proprietary restrictions might 22 exist, and we either deny or begin to work on the case? 23 And the -- and the follow-up to that was, is 24 there a cost associated? Do we need additional staffing 25 on the front end? 26 And what would be a reasonable deadline to 27 provide to the taxpayer in order to give that -- provide 28 that information to the Board, given the subjective 54 1 ability to extend that deadline, which we all know will 2 occur? 3 MR. HANKS: Right. Mr. Horton, I'm mindful of 4 what Ms. Mandel has mentioned. And I think if that 5 level of detail were supplied in the petitions that 6 we're receiving, we'd be very happy to contact the 7 taxpayer and to thoroughly investigate the claims that 8 local taxes need to be reallocated. 9 I don't believe that we need additional 10 staffing to necessarily do that. I think that within 11 the first 30 days after acknowledging a petition that we 12 can examine the case that's been filed with us, we can 13 make a determination whether or not we need sufficient 14 -- we need additional information. And, if so, we 15 can -- we can return the petition to the consultant for 16 this additional information. 17 But I think if the consultant is mindful that 18 we need to have that level of detail as Ms. Mandel 19 described, that would be important for us. 20 MS. MANDEL: Mr. Horton? 21 MR. HORTON: Sure. 22 MS. MANDEL: I think what I'm hearing Mr. Hanks 23 answer to be is that if staff would develop more -- I 24 don't know what they are because I haven't ever filed 25 one of these petitions -- but more clear, exacting 26 guidelines as to what people should put in the petition 27 so that they may be worked promptly, then staff, 28 presumably, hopefully, will get what Mr. Hanks is 55 1 talking about. 2 MR. HORTON: Or, at a minimum, be able to 3 identify -- or the taxpayer to be able to identify the 4 information that they can not obtain -- 5 MS. MANDEL: Right, meaning the consultants. 6 MR. HORTON: -- in negotiations. 7 MR. MYERS: If I may comment very quickly in 8 response -- 9 MS. YEE: Mr. Myers, quickly. 10 MR. MYERS: -- to that? 11 Thank you, Madam Chair. 12 The regulation already requires us to provide 13 seven pieces of information when we file a petition in 14 order to establish a date of knowledge. 15 Included among those are the specific reasons 16 and evidence why the taxpayer's allocation is 17 questioned. 18 So, when we file the petition, we're already 19 required to produce what we have. 20 We remain more than open and willing to work 21 with staff if there's a process whereby we can identify, 22 you know, further information that is needed, that they 23 might immediately proceed to try to acquire that because 24 they have authority that we don't have. 25 So, if we know that there's a report but the 26 taxpayers told us -- I don't think -- I am not speaking 27 for HdL, but I think we'd be more than happy to work 28 with staff on that. 56 1 The concern that I have is the description that 2 these are incomplete petitions. Now, the definition of 3 a petition is already set forth in the regulation. What 4 I hear staff saying is, "If you gave us more information 5 we could do our investigations faster." 6 Well, staff, No. 1, has the regulatory to do 7 the investigation. Once we provide the initial 8 information to set forth a petition and establish a date 9 of knowledge, then staff's duty is to do the 10 investigation under the regulation. 11 But we're more than happy to work with them on 12 trying to expedite that. But my recent experience has 13 been that that's not -- the issue hasn't been that you 14 look at a petition and don't know what to do next, but 15 that staff will give extensions after extensions to 16 taxpayers during an investigation. 17 And at the end of the day -- and this is not 18 meant as a black mark on staff at all -- but they'll 19 give extension after extension after extension to a 20 taxpayer who keeps saying, "I'll get you the documents. 21 I'll get you the documents. I'll get the documents." 22 I watched this happen for six months in a 23 recent matter. And, at the end of the day, the taxpayer 24 didn't produce the documents. 25 MS. YEE: Okay, I'm going to have you stop. 26 MR. MYERS: Yeah, okay. 27 MS. YEE: Mr. Horton? 28 MS. STURDIVANT: If I could add to that real 57 1 quickly? 2 MS. YEE: Ms. Sturdivant, let me get all of the 3 questions out because I think we're starting to hear 4 some things that we want to try to coalesce into how we 5 move next. 6 Mr. Horton? 7 MR. HORTON: The question of the Budget 8 Director, shall I say, I just wanted a little clarity on 9 the variables that are involved in not only verifying 10 the Bradley-Burns local tax, but also collecting and 11 administering and the whole compliance effort. 12 I don't want us to walk away perceiving that 13 this element of dealing with the local tax is the only 14 cost that the Board has. 15 I mean, this began from the beginning of 16 filling out the return -- I mean applying for a permit. 17 The taxpayer first comes in is coded and, theoretically, 18 the local tax is coded properly and goes to the right 19 place or it may not go to the right place. A number of 20 decisions are made. 21 Auditors will go out and conduct audits and may 22 very well look at the local tax allocation at that point 23 and cause a reallocation. 24 It could be very much part of the Appeals 25 process. It's certainly part of the process of the 26 Board reviewing it. 27 So, when you look at the costs associated with 28 that, it is a combination of all of the activity that 58 1 the Board participates in that gets us to a point where 2 we can actually begin to deliberate over whether or not 3 this information is correct. 4 And that, in and of itself, which goes on the 5 appeals to the Board, is part of the cost? 6 MR. MERCER: That is correct. 7 MR. HORTON: Okay. All right, I am -- let me 8 hear from the consultants their recommendation on how to 9 deal with the front end of -- given -- what I'm 10 presuming I'm hearing from staff is that we're really 11 dealing with the exception and not the rule. 12 And, so, I'll -- as a former legislator, I have 13 a challenge sometimes changing the law for the 14 exception, not the rule, and particularly when staff has 15 indicated that there is no backlog. They have caught -- 16 they have caught up. Personnel issues have been 17 addressed. 18 But we still have those issues on the front end 19 where the taxpayer is allowed to have these delays. And 20 that, it itself causes ultimate delay. 21 So, your advice to us? 22 MS. STURDIVANT: Well, if I submit a petition 23 and include all of the information that Miss Mandel has 24 suggested, including the contact name, the return 25 period, the dollar figure, but the phone call -- the 26 first initial phone call isn't made to that taxpayer 27 until two or three years after the day I submitted that 28 petition, of course, the taxpayer is going to ask for a 59 1 delay. They've got to go pull that information out of 2 an archive file or it's a different taxpayer. 3 You know, oftentimes we'll contact the Board 4 and say, "Okay, we submitted this petition in 2006. We 5 haven't heard anything from you. Can we get an update?" 6 And we'll hear, "Well, you know, we're working 7 working on it." Or, "We've sent a letter." 8 If you send me a letter and say, "Could you 9 call me?" And not give me the reason, I'm probably not 10 going to call. 11 MR. HORTON: Not to interrupt you, but I think 12 -- at least I understand the problem, I'm asking for 13 your advice on what the solution might be on the front 14 end. 15 MS. STURDIVANT: I think maybe better training 16 within the Allocation Group. It's very difficult to 17 cold call someone and be able to extract that kind of 18 propriety information. 19 Training on how to do that, guidelines, 20 perhaps, in the CC or CPPM -- this is your first step, 21 this is your second step, this is what you do next if 22 that doesn't work. You know, maybe it gets forwarded to 23 a supervisor. 24 Something so that they have a guideline. I 25 think that each auditor sort of works petitions in their 26 own way and I am not aware that there is any sort 27 uniform procedures in place on how to handle these 28 petitions. 60 1 MR. HORTON: Okay. Staff, your recommendations 2 on how to address the front? 3 MR. HANKS: Mr. Horton, I like Ms. Mandel's 4 suggestion that we really modify the information that 5 we're requesting from the consultants and through the 6 interested parties process, actually, we've had 7 discussions where -- where we've made the suggestion 8 that we want to modify the short form that we're talking 9 about, modify the type of information that we're 10 attempting to obtain from the consultants. 11 Now, being mindful, though, that many of the 12 cases that the consultants provide us are complete. 13 They are complete, we have the requisite information we 14 need to determine if reallocation is necessary. 15 So, we're only talking about the cases where 16 that information is deficient. 17 It's been mentioned that we don't have a 18 procedures manual for handling these types of inquiries. 19 Actually, we do. We've got an ADRS Procedures Manual 20 for the Allocation Group that discusses this process and 21 discusses some of -- some of the procedures that you go 22 through. 23 I don't know that it's as detailed as 24 identifying that this is what you do in all of these 25 circumstances, I don't believe that it's that detailed. 26 But we do have a policy and procedures manual for 27 addressing these types of inquiries. 28 MR. HORTON: You know, Madam Chair, if I may? 61 1 MS. YEE: Yes, Mr. Horton? 2 MR. HORTON: You know, I want to get to what 3 the solution is. I think I understand that there's -- 4 there's a procedure manual here. 5 I really understand that there is an exception 6 and that we're dealing with the exception and not the 7 rule. And I am very mindful of the inherent danger of 8 making a law or rule around the exception, particularly 9 when it's more of a systemic or personnel matter, 10 possibly some management issues. 11 But -- and I want to say this as well, is that 12 I don't want to -- I don't want to shift the 13 responsibility to the consultant when the Board has a 14 level of responsibility, a level of compensation, in 15 order to address these exceptional transactions. 16 So, I haven't really heard a solution, but I am 17 prepared to make a recommendation without hearing one 18 from someone. 19 MR. KLEHS: May I just -- 20 MS. YEE: Hold on. 21 MR. HORTON: But I'm -- I'm -- at this point 22 that concludes my -- 23 MS. YEE: You want to put something on the 24 table, Mr. Horton? 25 MS. MANDEL: Ms. Yee? 26 MS. YEE: Ms. Mandel? 27 MS. MANDEL: When Mr. Horton first started 28 talking, I thought we might get an answer to a question 62 1 that I had because I thought it was the kind of the 2 question he asked. 3 I mean, I don't know how much of what is 4 generating the complaints are because of things that 5 happened sometime ago, that the staffing up sounds like 6 it's handling. 7 But cases may have, in the past, taken a long 8 period of time, I don't know what they're taking now. 9 What I heard being asked at the up -- at the start was 10 something about do we know -- for cases that we have 11 now, do we know what's holding them up? 12 I mean like when we have cases deferred on our 13 docket, we know that it's deferred because there's 14 litigation. We know that it's deferred because it went 15 off to settlement or whatever. We know what's holding 16 the case up. So that if a Member were to ask, "Why do 17 we have all these cases in inventory?" We -- we know 18 why and where they are. 19 And I thought that in trying to get at 20 potential systemic issues in the handling of these types 21 of cases that that was the question was that being 22 asked. Because there may be different categories. It 23 may be that a lot of cases are getting closed because 24 incredibly simple, obvious things are coming in and 25 they're all boom, boom, boom and, you know, there's more 26 complex ones and I just -- it's hard to know. 27 I know that there were a couple of cases, or 28 one or two maybe or some big case that people were upset 63 1 about and were mindful of not, you know, not letting the 2 last ride govern how we are going down, you know, this 3 line but staff is proposing some changes in the timing. 4 But I don't know if there are systemic types of things 5 from these cases, aside from what you've just identified 6 as some percentage of them maybe, if you had more meat 7 or more something on the front end, you'd be better off. 8 And in terms of -- in terms of things that -- 9 where the taxpayer says, "Yeah, I'll get it to you. 10 Yeah, I'll get it to you." I -- backing up, I don't 11 know, you know, how quickly now the contacts are being 12 made or if it's -- or if it's old news that the 13 taxpayers were contacted, you know, a year or two down 14 the road. 15 And where the taxpayer is putting the 16 Allocation Group off, I don't know at what point there 17 is an executive decision made, you know, that the 18 taxpayers -- we're just never going to see this stuff 19 and we've exhausted our ability to try to get it. 20 I don't know what contact there is with the 21 person who filed the petition saying, "You know, the 22 guy's -- it's been like four months and we are not 23 getting any warm fuzzies that we're actually going to 24 see this stuff, what do you want to do with your 25 petition?" 26 But it was the systemic grouping that was first 27 asked about that I thought would sort of inform whether 28 something more really needs to happen. 64 1 MR. KLEHS: Ms. Mandel, I think the numbers 2 speak for themselves. 28 of the cases that HdL has 3 enumerated here go back to before Ms. Yee was on the 4 Board. 5 MS. MANDEL: But I don't know why. 6 MR. KLEHS: Let me finish the number. 7 MS. MANDEL: I don't know why. 8 MR. KLEHS: Another 57 go back before Ms. Steel 9 was on the Board. 10 MS. YEE: Yeah. 11 MR. KLEHS: And Mr. Hanks genuinely believes 12 that the entire backlog will be cleaned up and the best 13 way to see if that's going to happen is to schedule a 14 meeting exactly one year from today and see if the 15 numbers have changed all that much. And I bet they will 16 not have that much. 17 MS. YEE: Mr. Klehs -- 18 MR. KLEHS: So, that's why we're advocating for 19 more deadlines. 20 MS. YEE: Ms. Mandel? 21 MS. MANDEL: No, but that -- 22 MR. HANKS: Ms. Mandel, if I could comment? 23 I think everything that's been discussed today 24 I think will go great lengths to reduce the number of 25 cases that we're processing now. 26 I don't think there is a single solution, I 27 think it's a multi-pronged approach that's really going 28 to work this -- this inventory to a more manageable 65 1 level. 2 I think if we're receiving more complete short 3 forms from the jurisdictions, that's going to assist us 4 work these faster. If we have tax information bulletins 5 that identify the importance of a taxpayer's identifying 6 to us when they change locations, I think that that will 7 help. 8 We have guidelines now that we give to new 9 registrants about the importance of communicating to us 10 when they move to new jurisdictions. That isn't 11 repeated to them over time, however. I think we need to 12 get that type of information out to the public. 13 If we have 30 day reviews, we're acknowledging 14 and reviewing these petitions as they come in and 15 returning them, if necessary, for additional 16 information. I think that will speed the process. 17 I think having new staffing within our 18 Allocation Group is going to assist quite a bit. 19 And then also I would recommend that -- that we 20 have more frequent consultant meetings. The consultants 21 actually do telephone us. We meet with them quite 22 regularly. But perhaps that could be be made more 23 frequent as well where we can -- we can get together and 24 discuss their concerns regarding specific cases. 25 MS. YEE: I want to make a comment here. 26 I'm -- I guess I'm frustrated that we're hearing some 27 things maybe for the first time today about the workload 28 and how workload is addressed in Local Allocation. 66 1 I continue to be a proponent of the timelines 2 and the deadlines, but here's what I would like to 3 suggest: This conversation reminds me an awful lot of 4 the audit regulation that we recently had promulgated 5 relative to timely furnishing of records. 6 And I think there is a real disconnect 7 between -- a real disconnect in terms of what the 8 expectations are of the parties with respect to these 9 matters of the local jurisdictions, their 10 representatives, of the Board staff and Local 11 Allocation, of the taxpayer. 12 I mean, the fact that we're now talking about 13 putting tax information bulletins out to taxpayers 14 informing them of what they ought to be doing when they 15 change jurisdiction, we should be doing that anyway. 16 So, I think, in large part, this is -- this 17 is -- this encompasses a number of management issues 18 that I think -- I am certainly not willing to 19 memorialize a solution in a regulation, but there has 20 got to be something stronger than just kind of what you 21 just articulated, Mr. Hanks. 22 There has got to be some clear expectation of 23 what Petitioners, local jurisdictions, taxpayers can 24 expect in allocation petition matter. 25 And I don't know how you memorialize that, but 26 with -- and in terms of what the steps are, I mean, it 27 is unacceptable, at least in my view, that if a petition 28 is filed that the taxpayer isn't even contacted for two 67 1 years. That's just unacceptable -- regardless of how 2 much information was provided upfront. 3 We know who the taxpayer is, there ought to be 4 some contact made. 5 6 MR. HANKS: I don't know any case where we've 7 waited two years. 8 MS. YEE: That's okay, it's maybe a 9 hypothetical, but you get the gist. 10 I don't think any of us sitting up here thinks 11 that that's something that we would tolerate. 12 But I do think that there's got to be some -- 13 and maybe it's guidelines coming out of your unit, but I 14 think that we've got to just be very clear about what 15 the process is, what the expectations are of a completed 16 petition. 17 And I know that the representatives believe 18 that they are filing completed petitions, but I also 19 know that they are going to be limited in terms of how 20 complete it can be because of their inability to get 21 information from the taxpayer in question. 22 So, is there -- what's the best mechanism for 23 making those expectations clear for each of the parties 24 involved in a matter like this? 25 And I want to have that articulated and come 26 back to the Board so that we have the confidence that 27 the workload is being worked through on a timely basis 28 and that there are no ambiguities with respect to what 68 1 to expect when a petition is filed, what to expect in 2 terms of response from the staff and what to expect with 3 response -- with respect to how a taxpayer is approached 4 and then, hopefully, will respond with information. 5 MS. MANDEL: And -- 6 MR. RUNNER: Mr. Runner, then Ms. Mandel. 7 MR. RUNNER: Just real quick. I mean, I think 8 those are certainly important. I guess part of my 9 question would be -- and even some of the suggestions I 10 heard about getting together, having conversations, I'm 11 thinking, why didn't we do that before? 12 We're building up -- we clearly are building up 13 a backlog. It takes this discussion in order for us to 14 say, "Hey, maybe we ought to meet more often."? 15 MS. YEE: All right. 16 MR. RUNNER: So, I am a bit perplexed with that 17 as kind of a solution coming from staff. 18 Let me just ask, I guess -- against -- it's 19 interesting both with the Muniservices and HdL in the 20 sense that you have clients on both sides of this 21 issues. So, this isn't an issue to where, you know, 22 you've got winners and losers as to who you represent. 23 You have clients on both sides of the issues. 24 MS. STURDIVANT: Absolutely. 25 MR. RUNNER: Which is -- which is very helpful 26 to me because then it's not an issue where you're saying 27 I want to do this to benefit Client A or Client B, 28 you're just trying to figure out what the process is, 69 1 whether you benefit from it -- from -- sometimes from it 2 or whether you don't benefit sometimes from it. 3 Let me ask, you heard the staff's response in 4 regards to, well, if we use these deadlines, we're going 5 to have a concern with the quality of information that 6 we're going to have as this moves through the process. 7 Let me ask you -- both of you as 8 representatives of your clients, is that a concern for 9 you or your clients? 10 MR. MYERS: Sure, Mr. Runner. We -- we 11 definitely want accurate decisions. But we think that 12 some reasonable deadlines give staff a tool to use. 13 MR. RUNNER: Let me rephrase it. Let me 14 rephrase that. 15 MR. MYERS: Yes, sir. 16 MR. RUNNER: Rather than asking that, I will 17 ask more specifically. 18 Do the deadlines that are proposed create for 19 you a feeling that you will have your clients 20 disadvantaged with bad information? 21 MS. STURDIVANT: I'll take a shot at that. 22 MR. MYERS: Go ahead, Robin. 23 MS. STURDIVANT: No, because when you present a 24 petition with information, you want the Allocation Group 25 to get back to the taxpayer while that information is at 26 till fresh, while the person that you spoke to that 27 provided you the information still holds that petition, 28 where they can still access that recent sales and use 70 1 tax return to get the backup to provide that to Board 2 staff. 3 A longer investigation doesn't ensure better 4 investigation. And you -- what we hope, from having 5 clients on both sides, is for the losing jurisdiction 6 you want to minimize that loss. So, rather than -- you 7 know, just a year or two of back adjustments rather than 8 ten years of back adjustments. 9 MR. MYERS: And I would -- if I may, 10 Mr. Runner? 11 MR. RUNNER: Yeah. 12 MR. MYERS: Just add to that slightly -- with 13 the assumption that the investigation is starting at the 14 date of knowledge and going through the deadlines don't 15 trouble us. Maybe they could be a little bit longer. 16 We, on behalf of our clients, are flexible 17 about does it need to be 90 days? If it needs to be a 18 little bit longer, that's fine, as you saw in our 19 proposal. But we do think the deadlines give a good 20 tool. And if that needs to be done at CPPM, which I 21 know we have one coming up, in order to address this 22 front-end type of issue and what the expectations will 23 be, then we would welcome moving it to the CPPM, that's 24 fine with us too. 25 But we we need to -- you know, we're not 26 concerned that not having five years to investigate is 27 going to hurt our clients. 28 MR. RUNNER: Okay. I guess -- I guess based 71 1 upon -- again, knowing that we have folks here, 2 advocates who represent both sides of the issue and 3 hearing from staff in regards to what their concern is 4 with the dates, you know, I'm compelled to feel like 5 putting deadlines will, indeed, be a better process for 6 us. 7 So, quite frankly, I'm not -- I would be one 8 that would be open to dealing with some -- dealing with 9 these deadlines. And, you know, at that point I guess 10 we will learn, in a year or two, what we accomplished 11 and things can be tweaked at that point. 12 But I am -- again, if the advocates 13 representing both sides of the client over here think 14 that the deadlines do not disadvantage their clients -- 15 and again that's theoretically who we're trying to deal 16 with and protect -- then it seems to me those deadlines 17 should be something we should consider. 18 MS. YEE: Thank you, Mr. Runner. 19 Mr. Horton? 20 MR. HORTON: Well, I don't know if that's a 21 fair assessment. 22 If you're on the side that is losing the 23 revenue, it's in your interest to delay the transaction 24 as long as you possibly can because you want to hold 25 on to that revenue. And, so, oftentimes they delay it. 26 And, I mean, it's just inherently natural. I 27 mean, if we were talking to city managers and we said, 28 "Well, if you know you are going to lose and 72 1 you are going to have to allocate $20 million 2 out of your general fund to another city, 3 how cooperative are you going to be in doing 4 that expeditiously?" 5 I would beg to differ if the answer would be, 6 "Very, very cooperative and we are prepared to 7 cut that $20 million check as soon as this 8 resolved." 9 And, so, we have mixed interests here. Even 10 though you may be representing one side or the other, 11 when you're on the winning side, you have a different 12 charge. When you're on the losing side, you have a 13 different charge. And to that degree I guess there is 14 some commonality. 15 But let me just ask the question of staff and 16 the consultants. Let's say that -- we -- you have 17 shared with us the process by which a case could be 18 denied expeditiously -- not receiving information, not 19 having enough information, conducting a timely 20 investigation to get as much information as you possibly 21 could. 22 Is there a situation where you could actually 23 allow the case, because of the lack of cooperation on 24 the side of the jurisdiction not providing information? 25 MR. HANKS: Certainly, certainly, if -- 26 MR. HORTON: I mean, does that exist in the 27 CPPM? Or is there any legislative authority for the 28 Board to say, 73 1 "We have enough information. The consultants 2 have provided enough information that indicates 3 that there is an allocation. We can quantify 4 it based on the information that we do have. 5 However, we'd like to have the rest of this 6 information. But if we don't get we're 7 prepared to allow this."? 8 And then what that does, it drives the -- the 9 person that -- or the entity, if you will, that seeks to 10 delay the process, for whatever reason, it drives them 11 into an appeal environment to say, "Well, let me get 12 this information so that I can appeal this case." 13 And that may be a good thing on certain 14 transactions. 15 MR. HANKS: Mr. Horton, I would just comment 16 that if we have got sufficient information that a 17 reallocation needs to be processed, we'll certainly make 18 that recommendation. 19 If there's information coming from whatever 20 source that indicates that it should not, then we're 21 very comfortable in denying. 22 MR. HORTON: No, the question -- the question 23 is more along the lines if you are conducting a sales 24 tax audit -- let me draw a parallel, if you will -- and 25 the taxpayer fails to cooperate. 26 So, you know, we will issue a jeopardy 27 determination and say, "Here is how much you owe based 28 on the liability." 74 1 And what that does, it causes the taxpayer to 2 cooperate because they're now in a position of every 3 disputing an exact amount that is of concern to them. 4 So, in this case do we have that authority, in 5 the absence of sufficient information, not necessarily 6 from the consultants, but from the interested parties 7 after we've requested the information, we gave -- we 8 give them 30 days to comply and if they fail to comply, 9 are we in a position to now allow the -- or at least 10 notify them that we're going to allow the reallocation? 11 MR. HUXOLL: Mr. Horton, in order to -- for 12 staff to issue a reallocation, they would have to 13 demonstrate that by a preponderance of the evidence, 14 whether provided by the Petitioner or Board staff, shows 15 that there was a misallocation. 16 So, there has to be evidence that a 17 misallocation did occur, it has to be shown by a 18 preponderance of the evidence. 19 MR. HORTON: So, is the information that we 20 currently request from the consultants, is that 21 sufficient enough of information for us to make that 22 call? 23 MR. HUXSOLL: Well, as Mr. Hanks discussed 24 earlier, certainly there are cases where we receive 25 information from the consultants. He may be able to 26 speak to this more, but it outlines all of the details 27 of the -- 28 MR. HORTON: Let's say they're in full 75 1 compliance with what we have asked them to provide. 2 They have provided all eight items, hypothetically. 3 And is that -- would -- given that that 4 information is sufficient, is that enough information 5 for us to make a determination? 6 MR. HANKS: That would be, Mr. Horton, yes, 7 yes. 8 MR. HORTON: And, so, would it be inappropriate 9 for us to notify the other party, let's say, that the 10 Board is prepared to make a determination and reallocate 11 this unless you have evidence to the contrary? 12 And can we do that expeditiously? 13 MR. HANKS: We do do that with any of the 14 substantially affected jurisdictions, they would be made 15 aware of our intention to reallocate. 16 And they'd be given a time deadline as the 17 regulation currently allows for them to either agree or 18 disagree with that decision. 19 MR. HORTON: So, so, so -- so, it sounds -- I 20 mean, just to have another analogy, it sounds like 21 the -- it sounds like the stop signs are there, the 22 police officers are there, but they're still running the 23 stop signs, they're still speeding. And that is because 24 we're not enforcing our existing policy and procedure? 25 And there's more of a management issue here, 26 which makes it -- which -- what happens is when you get 27 into this environment and what concern -- I mean, you 28 end up with Prop. 34. You end up with -- I don't want 76 1 to get into all the legislation, but you end up with 2 term limits, you end up with all these other things that 3 is not necessarily the real problem. 4 And I'd like for us to get to where the real 5 problem is. 6 MS. YEE: Mr. Horton, let me take a shot at 7 something? 8 MR. HORTON: Sure. 9 MS. YEE: Because I know we've spent a bit of 10 time on this. 11 I think all of the parties, including those of 12 us sitting up here, are committed to reaching a decision 13 where we're making the proper and correct allocation. 14 I think what I've heard today -- and I have to 15 concur with Mr. Runner, I still am not off the deadline 16 timeline issue yet because it suggests to me, at least 17 what I have heard today, there are some internal 18 management issues and internal judgment call issues. 19 I think the fundamental question is what 20 constitutes sufficient evidence? And it's a judgment 21 call. 22 MR. HORTON: Yeah. 23 MS. YEE: And I don't know if it's -- you know, 24 whether we need to look at that question and staff can 25 establish some comfort around that? 26 And it's a balance. And I know I personally, 27 as a Member of this Board, don't want the balance to be 28 at the expense of time, where we're seeing this, you 77 1 know, a decade from now. I don't think any of us wants 2 that. 3 And, so, I am not prepared to adopt the 4 revisions before us today. I'd like to have the staff 5 go back and really clearly articulate the expectations 6 of all parties in local allocation matters, from the 7 Petitioner representing the jurisdictions, the 8 jurisdictions, the taxpayer, the Local Allocation staff, 9 Appeals -- and really coming back with just what are 10 expectations once we receive the petition and what do 11 you want to see in that petition. 12 Because, frankly, at the end of the day, we may 13 end up, in my mind, with a situation of where not only 14 are we clarifying it in the CPPM in terms of what we 15 want, I still may want to impose deadlines. 16 MS. MANDEL: Madam Chair? 17 MS. YEE: Ms. Mandel? 18 MS. MANDEL: You know, we're -- we're open to 19 the idea of deadlines. This aging report is concerning. 20 And when I say to Mr. Klehs, yeah, those are numbers, 21 but I don't know why, that's my question for staff. 22 But even when staff says we're -- you know, 23 we're getting so many in per month and we're clearing so 24 many per month, so, it's all going to, you know, be 25 happy, I still don't know why -- someone said up here 26 that could -- or maybe Mr. Klehs said it -- that could 27 be that they are clearing the easy ones and the hard 28 ones are still hanging around for a long time. 78 1 So, it would be nice to know what the plan is 2 to process. And this is just an aging report from HdL, 3 so, I don't know what else is out there, but is there a 4 plan to move and process what, you know, these 5 delayed -- if you want to call them delayed -- or 6 petitions over -- let's say petitions over two years 7 old, is there a plan to get them through the system and 8 get them out? 9 MR. RUNNER: At this point -- 10 MS. YEE: Mr. Runner? 11 MR. RUNNER: -- again, it sounds like we're 12 going to ask staff to go back review and deal with some 13 of these issues with, I think, a clear understanding at 14 least there are a number of Members who -- who don't 15 have a passion against deadlines. 16 But let me just say that I think the front end 17 is an important issue, but some of the other deadlines 18 are deadlines in the process also. And, so, I think 19 those all -- I am not going to be satisfied with just 20 saying, how can we -- how can we help the intake side? 21 I think there is some other processes -- 22 MS. YEE: Yeah. 23 MR. RUNNER: -- here that we go from 90 to 24 45 -- 25 MS. YEE: Yeah. 26 MR. RUNNER: -- there's 60 to 30 that I think 27 are reasonable also. 28 MS. YEE: Yeah, and Mr. Runner, I think my 79 1 direction to staff in terms of articulating what the 2 expectations are really relate to the entire process, 3 from receipt of petition to Appeals. So that we can 4 see, you know, just what the expectations are at each 5 stage of the process. 6 And when it comes back, hopefully, have a 7 little better sense and tagging on Ms. Mandel's inquiry 8 about why we've got so many of these cases that are aged 9 that aren't moving through and then, at that point, 10 maybe having us here, the five Members of this Board, 11 decide whether the imposition of hard deadlines makes 12 sense or not. 13 Mr. Horton? 14 MR. HORTON: Let me clarify. I am supportive 15 of deadlines. It's just where do you place those 16 deadlines? 17 I am supportive of stop signs, the question is 18 where do you place them? 19 And then the other concern is professional 20 judgment. I believe in professional judgment. I 21 believe in managerial oversight. And I believe those 22 two components can address this issue to some degree. 23 And, so, the question that I have that I'd like 24 for us to -- for staff to consider, what happens if you 25 don't meet the deadline? You extend it? You -- I mean, 26 there is just one point, deny and accept, unless you've 27 accepted it. 28 Once you've accepted the case, it goes through 80 1 the process. So, you know, and there is no penalty. 2 But you're still back to professional 3 discretion, managerial oversight and those types of 4 things that will get us to where we need to be. 5 MS. YEE: Yeah, they have to exercise that. 6 MR. HORTON: So -- 7 MS. YEE: Okay. 8 MR. KLEHS: Perhaps the question of the staff 9 should also be how long do they think a case should 10 take? 11 MS. YEE: Yeah, I mean I think some of the 12 qualitative questions that the Members have posed today 13 really are trying to tease out, you know, what are some 14 of the reasons for the delays? 15 And if there are some discrete reasons that are 16 common, that come up all of the time, I think we can 17 have a flavor as to how those are handled. But -- I 18 mean I think we all can appreciate that not every 19 petition is the same. Some are more complex than 20 others, but I think really -- at least, the 21 appropriateness I feel about the discussion that we've 22 had this morning is that the expectations aren't clear 23 within the unit and, certainly, outside the unit with 24 other parties and certainly with the taxpayer affected. 25 Do you have enough guidance to come back with 26 the -- okay. 27 MR. HANKS: I believe we do. 28 MS. YEE: Looking at the entire process from a 81 1 receipt of petition to Appeals, what the expectations 2 are of all parties. 3 And let me just talk about time frame for a 4 minute -- when's our next meeting? 5 MS. OLSON: The next meeting is May 24th. 6 MS. YEE: Okay. So, the PAN would be the 14th? 7 MS. OLSON: Uh-huh. 8 MS. YEE: It's not enough time. And June we're 9 in -- 10 MS. OLSON: Culver City. 11 MS. YEE: Okay, maybe for the July Sacramento 12 meeting? 13 MS. OLSON: Our July, the PAN is the 15th and 14 the meeting is the 26th. 15 MS. YEE: Okay. 16 Mr. Chair, any objection to having this be a 17 Culver City item? 18 MR. HORTON: No, other than assuring that the 19 consultants and everyone can be available that is 20 currently participating in the discussion. 21 MS. YEE: Do you prefer it up here? 22 MS. STURDIVANT: I won't be in the country 23 during that Culver City meeting. 24 MS. YEE: Okay, well then July then. Why don't 25 we move it to July then? 26 MS. STURDIVANT: Thank you, I appreciate 27 that. 28 MS. YEE: Okay. Let me also suggest this, I 82 1 wouldn't wait until the July meeting if there's 2 something that you've drafted that you want to 3 circulate, please come see my office and the Committee 4 will make available any drafts that the staff wishes to 5 share. 6 MR. HORTON: Madam Chair, would it be advisable 7 or appropriate for the parties to meet outside of the 8 interested parties process so that they can share 9 their perspectives with each other? 10 MS. YEE: Okay. Let me work with the staff on 11 a calendar. 12 It sounds like there might be some schedule 13 conflicts coming up. 14 MR. HORTON: Okay. 15 MS. YEE: But we'll work it out to where 16 there's some -- there is some back and forth. 17 MR. RUNNER: And I would assume that certainly 18 in this discussion time that it would be ongoing 19 discussions with staff and those that are interested in 20 seeing the process. 21 MS. YEE: I think I'd like staff just to kind 22 of go back and really hunker down on kind of what -- 23 what does this process look like? 24 Because we've heard a lot today. And as you 25 have pointed out, Mr. Runner, I think there are things 26 that we thought in the natural were already happening 27 but there are suggestions that are just being made 28 today. And, so, I will encourage and facilitate the 83 1 back and forth. 2 MR. RUNNER: Yes. 3 MS. YEE: I don't know that it's necessarily 4 kind of a formalized interested parties meeting, but -- 5 MR. RUNNER: No, no, I don't think -- 6 MS. YEE: Certainly before it comes back in 7 July. 8 MR. RUNNER: -- I don't think it needs to be a 9 formalized -- 10 MS. YEE: Yeah. 11 MR. RUNNER: -- but I think there could be -- 12 MS. YEE: But certainly before it comes back in 13 July, we will have had the opportunity to be sure both 14 sides have taken a look at what the staff has put 15 together. 16 Other questions or comments? 17 Staff, anything else? 18 MR. HANKS: I don't believe so. 19 MS. YEE: Okay, anything else? 20 MR. MYERS: No, thank you, Madam Chair. 21 MR. KLEHS: Thank you. 22 MS. YEE: Okay, thank you very much -- 23 MS. STURDIVANT: Thank you. 24 MS. YEE: -- everyone for your patience. 25 I guess we are on the second Business Taxes 26 Committee item, which is proposed Regulation 1685.5, 27 this is the -- relates to the use tax table. 28 Mr. Heller, good morning. 84 1 MR. HELLER: Good morning. 2 MS. BUEHLER: For agenda item 2, staff seeks 3 your approval and authorization to publish proposed 4 Regulation 1685.5 to implement the use tax table 5 provisions of Revenue and Taxation Section 6452.1, added 6 by Senate bill 86. 7 The proposed regulation proscribes the use tax 8 table for calendar year 2011, which the Board is 9 required to forward to Franchise Tax Board by July 30, 10 2011 and proscribes the methodology the Board will use 11 to calculate the estimated amount of use tax due 12 according to a person's adjusted gross income. 13 Because Senate bill 86 was approved by the 14 Governor on March 24th, 2011 and the Board is required 15 to provide a use tax table to the Franchise Tax Board by 16 July 30th, 2011, staff was not able to hold an 17 interested parties meeting to discuss this item before 18 today. 19 I am proposing, however, that we soon begin an 20 interested parties process to discuss a use tax table 21 and potential revisions to the a regulation for 2012 and 22 subsequent years. 23 Bradley Heller has additional comments 24 regarding the rulemaking process and timeline. And we 25 would happy to answer any questions that you may have. 26 I believe we also have speakers on this issue. 27 MS. YEE: We have one speaker. 28 Let me have Mr. Heller, if you'll comment, and 85 1 then we'll move to the speaker. 2 MR. HELLER: Thank you, Madam Chair. 3 First of all, thank you very much for placing 4 this on the Business Taxes Committee's agenda so 5 quickly. As we indicated this was -- this legislation 6 was just enacted about a month ago. And staff's been 7 acting quickly to bring this to the Board's attention so 8 that you can give us proper direction. 9 Today -- or I should say, in addition, we've 10 also contacted the Franchise Tax Board and they have 11 indicated that they do need the format for the 2011 use 12 tax table by July 30th of this year. But that they 13 basically have a practical deadline for receiving the 14 actual use tax table of September 1st. 15 And, so, basically what we've outlined here is 16 a request for authorization to publish a proposed 17 Regulation 1685.5 and, as indicated, that would 18 prescribe the 2011 use tax table and the format for how 19 we would do the calculations for all of the subsequent 20 tables. 21 And if the Board authorizes publication today, 22 I will actually file the Notice of Action for the 23 proposed regulation with OAL today. So that the Board 24 can bring this back and hold the public hearing on the 25 proposed regulation during the -- excuse me, the June 26 meeting in Culver City. 27 Staff will then be able to submit the final 28 rulemaking file, including the June transcript, to OAL 86 1 by close of business on July 1st and OAL will have until 2 August 15th to review and approve the regulation and 3 file with the Secretary of State. 4 Furthermore, staff will forward the adopted 5 2011 use tax table to the FTB by July 30th and staff 6 will notify the FTB that the 2011 use tax table is ready 7 for publication as soon as it's approved by OAL and 8 filed with the Secretary of State. 9 Board staff has proposed this expedited process 10 due to the timeline for complying with the FTB's -- 11 basically with the statute and also with FTB's practical 12 deadlines. 13 And we are open to also meeting with the 14 interested parties between now and the June Board 15 meeting and then also discussing further with the FTB if 16 there's any way we can get any additional extension of 17 their practical deadline. 18 Basically, if we were to identify important, 19 substantive changes that could be made at the June Board 20 meeting and that could be accommodated by an extended 21 deadline from the FTB, then we would recommend those at 22 that time. 23 The Board could then make those changes and 24 send the regulation with the changes to the 15-day file 25 and then come back adopt the regulation in July -- or 26 the July Board meeting. And then we would be able to 27 still get OAL approval by, we think, about September 28 19th. 87 1 And, so, we're not sure if we'll be able to 2 make changes and still meet the FTB's practical 3 deadlines, but we're definitely still interested in 4 meeting with the interested parties to make sure we're 5 aware of any concerns they have and so that we can all 6 address them for the Board at the June meeting as 7 well. 8 MS. YEE: Thank you very much, Mr. Heller. 9 Let us hear from the speaker. 10 Good morning. 11 ---o0o--- 12 ROB GUTIERREZ 13 California Taxpayers Association 14 ---o0o--- 15 MR. GUTIERREZ: Good morning. My name's Rob 16 Gutierrez, I'm with the California Taxpayers 17 Association. 18 I'm just wondering if there's any way that we 19 could postpone the adoption of this and probably go 20 through an interested parties meeting a little bit 21 sooner -- just to hear from all of the public on this 22 issue and go forward with that? 23 In our short amount of time that we've had to 24 review the regulation, we have a number of policy 25 concerns that we would like to talk with staff about and 26 questions about how this will be enacted as far as 27 methodology and other things. 28 The use tax compliance is a major problem in 88 1 California. We recognize that. And SB 86 provided 2 taxpayers a tool that we can use to help improve 3 compliance. But the important thing is we need to get 4 this right. And we need to have the time to discuss 5 this, to deliberate it. And, to date, that hasn't 6 happened. 7 I talked to Sales and Use Tax staff almost a 8 month ago and they said this is probably something that 9 would rise to an interested parties meeting. But we 10 haven't had that yet. Hopefully, we can further discuss 11 this. 12 Thank you. 13 MS. YEE: Thank you, Mr. Gutierrez. 14 Comments, Members? 15 MR. RUNNER: Yeah, just a couple. 16 MS. YEE: Mr. Runner? 17 MR. RUNNER: Yeah, just a couple of 18 observations. Again I am going to use this as a 19 discussion to a broader discussion in regards to some 20 use tax challenges that I think we have, because I am 21 afraid that this is, to me, an example of what happens 22 with what I see as our kind of patchwork approach to 23 trying to deal with, explain and collect use tax. 24 And this is another example of a hurried up 25 issue because we have got to do something. A couple of 26 quick observations, of course, on this. The legislation 27 only required us to adopt a table, correct? 28 MR. HELLER: That is correct, each year. 89 1 MR. RUNNER: Not a regulation? 2 MR. HELLER: The Legal Department believes that 3 the way that the statute's written, the Board can -- the 4 Board would be required to adopt a regulation in order 5 to implement the provisions in that statute. 6 MR. RUNNER: As we would have to or FTB would 7 have to or -- 8 MR. HELLER: The Board of -- well, we believe 9 that the Board of Equalization needs to adopt a document 10 regulation in order to implement the terms of the -- 11 MR. RUNNER: Who's Legal? Is Legal here? Who 12 has that opinion? 13 MR. HELLER: I am here from the Legal 14 Department. 15 MR. RUNNER: Oh, okay. 16 MR. HELLER: Certainly. 17 MR. RUNNER: I'm sorry, I'm new here, okay. 18 MR. HELLER: Essentially -- 19 MR. RUNNER: And what basis is that opinion? 20 MR. HELLER: And, essentially, it just has to 21 do with the terms of the Administrative Procedure Act 22 and essentially, as far as we can tell, when you -- 23 well, let me first go -- a regulation is essentially 24 just a rule of general application. 25 MR. RUNNER: Right. 26 MR. HELLER: And, so, if the Board's going to 27 basically adopt a table that every taxpayer in the State 28 of California that's eligible can use to determine their 90 1 actual use tax liability, that would be a regulation 2 unless it's already prescribed by a statute. 3 MR. RUNNER: But this is not -- this is not 4 mandatory, right? This is -- 5 MR. HELLER: No, it's not mandatory. 6 MR. RUNNER: Okay, so, it's not mandatory, it's 7 just -- it's just a tool? 8 MR. HELLER: But it does allow them, basically, 9 to report their use tax based on that table. 10 MR. RUNNER: Right. 11 MR. HELLER: If they do, then they're relieved 12 of liability for their actual use tax. 13 And, therefore, we think it is a rule of 14 general application. And then, in addition in 15 particular case, there are circumstances where the 16 Board's required to do certain calculations or estimate 17 certain amounts, but the legislature generally does a 18 pretty good job of prescribing exactly what they want us 19 to do or I should say what the Board -- 20 MR. RUNNER: They do? 21 That's not my understanding usually, but that's 22 -- I'm glad you feel that way. 23 MR. HELLER: Usually we can at least decipher 24 some, you know -- 25 MR. RUNNER: Okay. 26 MR. HELLER: -- some substantive direction on 27 what we're supposed to do. 28 In this particular case -- and I think this 91 1 goes directly to CalTax's concerns as well, is that the 2 -- is that the statute itself just basically tells the 3 Board to estimate what somebody's use tax liability 4 would be based on their adjusted gross income. 5 MR. RUNNER: Right 6 MR. HELLER: And, essentially, that really 7 doesn't prescribe any sort of formula and different 8 minds could differ on how -- what even approach you 9 might take. 10 MR. RUNNER: Okay, I get -- here's where -- and 11 I guess -- 12 MR. HELLER: That's why we -- 13 MR. RUNNER: -- we can talk through -- I will 14 disagree at that point in the sense that -- and, again 15 the -- what drives me to that issue is the fact of the 16 timeline. 17 And -- because it's a much easier process, it 18 seems to me, to go through the process, go ahead and 19 adopt this -- I don't agree with it -- but this 20 guideline in regards to, you know, follow the chart, see 21 where you land because that's what the legislature has 22 asked us to do, as opposed to then going through the 23 regulatory process, which takes more time, effort and 24 that we're -- what worries me is we're driving through a 25 regulatory process without public input in the kind of 26 way it should be. 27 And, so, I -- I don't like that as a procedure. 28 Let me just -- I guess I will do that in the context of 92 1 what I think are the challenges that we have for the use 2 tax in general. 3 You know, we have, I think, four or five ways 4 to which people can identify their use tax right now. 5 And I think most people are very confused about that. 6 And I'm not sure a table helps them out very much, you 7 know, at that point. 8 Let me just see, it's -- and, quite frankly, 9 the other issue that we've got is the process that we 10 use, they can use their line on their income tax form, 11 right? And they can go ahead and put that out. 12 And, so far, we got -- I think my records show 13 that we collected about $10 million. That's grown to 14 that about -- that amount of money on the form. 15 Then the -- to help that out, we're going to 16 use a look up table in order to help people identify 17 what that amount could be. 18 But yet I'm interested in the fact -- and I'm 19 not sure who projected it, whether it was us or the 20 legislature -- but this is booked at an additional $10 21 million. 22 So, we're going through this whole process to 23 get another $10 million, which basically works out to, 24 as we look at what we think that is out there, a 1 25 percent compliance rate. 26 So, we believe getting this table is going to 27 actually move us up to a 1 percent compliance rate, 28 which to me talks about what the real core of the 93 1 problem is, and that is that people don't understand the 2 use tax. And to give them a table -- and even our best 3 suggestion at that point is this will move us to a 1 4 percent compliance rate, it seems to me doesn't answer 5 the core issue and, that is, people don't understand. 6 They don't understand what their obligations are or why 7 they have obligations there. 8 You know on top of that then we have the 9 qualified purchaser program, you know, that was put in 10 place. We did a few hundred thousand -- or 100,000 11 letters last year and just did 200,000 more or something 12 in that regard, for those businesses that, you know, 13 have $100,000 gross income. 14 And again we estimated in 2010 that we're going 15 to collect $81 million and we received $24 million. So, 16 again, not a lot of -- and that was going back three 17 years that the people could do that. 18 I tried to get figures for this year's and we 19 haven't been able to because somehow we've blended 20 information. And, so, up to January -- well, actually, 21 the budget for this particular year is $183 million that 22 we're supposed to collect with the qualified purchasers. 23 Up to January we had only received $2.4 million. 24 I asked yesterday if I could get an updated 25 figure and was told, well, now our numbers are all 26 blended together and we can't pull out individual 27 figures any more. It's going to take us a few weeks to 28 do that now. 94 1 So, we don't even know right now how successful 2 this program has been, actually, it's really not a level 3 of success, it's a level of failure in regards to the 4 amount of dollars that we have. 5 And the -- and the big issue there is people 6 are responding, it's just that most of them all put 7 zero. Now, that's compliance. It's zero. You may not 8 believe that they're doing it correctly, but they are 9 complying. And they are putting zero at that point, 10 Then the -- of course, then on that particular 11 issue, it's a e-file that has to be done by April 15th. 12 Now, we have other ways that people have to collect -- 13 or can do their -- their use tax filing and that's where 14 we really get confusing with people because they can use 15 certain forms now that have dates of January 31st due 16 dates. 17 And, in fact, we have an instruction that we 18 had that said it was due on June 31st (verbatim) in one 19 place and another place in that same material said 20 April 15th. So, we -- and the unfortunate thing -- 21 issue was that during that same period of time, we were 22 collecting penalties from people, even though we had an 23 April 15th due date. Even though people -- so, people 24 who filed on March 1st could have filed on April 15th, 25 we sent them a penalty -- we created a penalty for them 26 that they did it on March 1st. 27 MS. YEE: Many of which we're relieving. 28 MR. RUNNER: What's that? 95 1 MS. YEE: Many of which we're relieving. 2 MR. RUNNER: I have asked for them all to be 3 relieved. 4 And I was told that we can't do that. So, I 5 think -- I don't know why we would do some of them, we 6 ought to do all them. 7 MS. YEE: Mr. Runner, I want to -- I'm just 8 looking at the hour, can you -- can you -- do you have a 9 view about the proposal before us? 10 MR. RUNNER: Well, I know I want to -- again, 11 yes, in the context of the total discussion of use tax. 12 Because again I think we have to be able to 13 deal with use tax in its -- in the success of us helping 14 people understand use tax. And my -- my opinion is that 15 having a table, even our estimates the success of 16 putting a table in is a 1 percent compliance rate. 17 So, my point would be the table clearly isn't 18 done correctly or it doesn't help us with compliance. 19 And, in conclusion, I think what our goal 20 should be is this Board needs to figure out a way to 21 adequately educate people on their use tax requirements 22 and their -- and on the law. 23 I think the challenge that we have with use 24 tax -- and, again, if -- there has been lots of articles 25 written about use tax and issues and who should pay it 26 and I'll tell you one of the most fascinating issues for 27 me is when you see one of those articles, just read the 28 comments after the articles. Read the comments that the 96 1 readers are saying. 2 Because, see, here's our problem, our problems 3 is people don't even think they owe it. Because they 4 have this philosophy that says -- they have the thing, 5 oh, the internet's tax free. They don't understand the 6 issue between the difference between a transaction tax 7 that they have and a tax on the internet. 8 And, as a result of that, they think that there 9 shouldn't be a tax and that this is a new tax. They 10 don't understand the implication of the use tax and 11 their responsibilities at that point. 12 I believe it's an obligation for -- if we're 13 going to be successful at increasing the amount of use 14 tax collection, one of our primary responsibilities 15 should be education of that, of helping people 16 understand. 17 And that means not sending them a notice. 18 Believe me, education by sending people who earn -- 19 gross $100,000 and say, "You now owe a use tax," isn't 20 education. Because they still don't know why. 21 So, I'm concerned that what we're doing is 22 doing piecemeal approaches that are going to get us very 23 little real money in the door that we have missed by far 24 the targets that we have even set for these. 25 And, so, those are my concerns. Let me speak 26 specifically to the table. Why did we pick the number 27 that we picked on the table? 28 MS. BUEHLER: Joe Fitz is joining us from the 97 1 Research and Statistics Section. 2 And he can comment on that for you. 3 MR. FITZ: Yes, the reason the 0.7 percent is 4 really the result of three calculations. One is we take 5 the percentage of electronic shopping and mail order 6 houses spending, collected by the Census Bureau, divide 7 that by income. That gives us a percentage of 2.2 8 percent for 2010. 9 Then we have estimated here at the Board in 10 prior research that approximately 37 percent of the 11 sales are purchases made by California households over 12 the internet and through mail order are from companies 13 that are -- that are not registered with the Board and 14 then we take our sales tax rate, which is a blended rate 15 of 8.61 percent statewide average, which includes 16 through June 30th and then after June 30th the rate 17 changes, as you know. 18 So, you take those percentages, multiply them 19 together and you get 0.7. 20 MR. RUNNER: How do you factor in drop 21 shippers? 22 MR. FITZ: I have not factored in drop 23 shippers. 24 MR. RUNNER: Because those would be individuals 25 who bought something in California, they were buying 26 from it an out-of-state and the out-of-state then uses a 27 California drop shipper then who pays the sales tax, 28 correct? 98 1 MR. FITZ: That's my understanding, yes. 2 MR. RUNNER: So -- so -- so, could that rate be 3 high then? If you don't factor in drop shippers? 4 MR. FITZ: Well, that's an individual 5 situation that I really don't have any data to be able 6 to estimate the drop shippers. 7 MR. RUNNER: So -- but there are drop shippers? 8 MR. FITZ: There are drop shippers. I do not 9 know -- 10 MR. RUNNER: We dl know that there are drop 11 shippers. You didn't recognize drop shippers, so, 12 wouldn't that make that number higher? 13 I realize you don't know how far to take it 14 down, but if you didn't factor in drop shippers, that's 15 an overestimate? 16 MR. FITZ: Yes. 17 MR. RUNNER: Okay, thank you. 18 MS. YEE: Thank you, Mr. Runner. 19 Other comments, Members? 20 MS. YEE: Let me say this, I am disturbed that 21 we didn't have sufficient time for an interested parties 22 meeting, that we are under the deadlines as proscribed 23 by the Franchise Tax Board. 24 I appreciate staff's recommendation about 25 establishing an interested parties process going forward 26 for the subsequent years and I would wholeheartedly 27 support that. 28 Mr. Runner, I would agree with you with respect 99 1 to use tax compliance. It is a very, very tough area 2 this Board has to deal with and I hope that each of us 3 as Members of this Board are doing our due diligence 4 with respect to outreach and education to taxpayers 5 about use tax compliance. 6 But I would maintain -- and you and I are on 7 different sides of this issue -- the only way we're 8 going to get really a great degree of compliance is to 9 have the online retailers be responsible for the 10 collection of the tax. 11 With that, I'd like to move the revised staff 12 recommendation that Ms. Buehler put forth. 13 Is there a second? 14 MR. HORTON: Second. 15 MS. YEE: Second by Mr. Horton. 16 Further -- 17 MS. MANDEL: It was to rebut? 18 MS. YEE: Well, it was to authorize 19 publication, but to -- 20 MS. MANDEL: -- oh, to have -- 21 MS. YEE: -- have interested parties meeting 22 going forward, right, so that we can still comply with 23 the immediate Franchise Tax Board deadline. 24 Okay. 25 MS. MANDEL: Can I ask one question? 26 MS. YEE: Ms. Mandel, please? 27 MS. MANDEL: You know, the tables -- a lot of 28 these things are legislatively mandated, so, you know, 100 1 we have to do them. 2 I assume you'll be writing instructions that 3 will go with the table in the booklet or wherever -- on 4 the web, wherever people are now getting the 5 information? 6 MS. BUEHLER: Ms. Mandel, yes, you're correct, 7 we are currently drafting those instructions. 8 MS. MANDEL: Okay. And in the course of the 9 interested parties meeting, will there be discussion of 10 the potential instructions? 11 I mean I -- I just happened to notice that if 12 this table had been in place this year and I had chosen 13 to use the table, you would have got less use tax from 14 me than the fact that I went through all those receipts. 15 But mine are not internet, mine are 16 out-of-state purchases brought back. And I don't know 17 if a regular person would have a sense of what these use 18 tax numbers equate to to decide whether they wanted 19 to -- and this would be one of the taxpayer's issues, 20 you know, they are protected if they use the table. 21 They are protected, which is a big benefit, even if -- 22 even if they might overpay by a dollar or two, it's a 23 big benefit. 24 But I -- and I don't know how tables are 25 portrayed in other states, whether they give an 26 indication of if you were at the -- you know, the use 27 tax liability level of X dollars, that's essentially 28 equivalent to X dollars of purchases. Because then the 101 1 taxpayer has, you know, the choice, do they want the 2 protection of the table or do they want to go through 3 all their receipts and find out that they really only 4 had $5 of tax that they owed? 5 So, I -- I don't want to suggest one way or 6 another whether that's the right way to do it or a wrong 7 way to do it, but if I would -- I was amused that I 8 would have been protected at a considerably lower level 9 and I also discovered that I spent way too much money 10 last year. 11 MS. YEE: To cancel you out, I might be paying 12 more, so -- 13 MS. MANDEL: Oh, okay, there you go, it's all 14 in the family then. 15 MS. YEE: All right. But I think the 16 instructions are going to be really really important to 17 guide the filing. 18 MS. BUEHLER: We agree. 19 MR. RUNNER: Just for my information, what does 20 it mean to be protected? 21 If somebody puts in $63 in that line item 22 because that's where they fall on the chart, what does 23 that mean that they're protected? 24 MS. MANDEL: That was my understanding, that 25 the -- that there was something in the statute. 26 MR. RUNNER: Well, I think no -- I think they 27 said that. 28 I just don't know what that -- and I'm kind of 102 1 trying to figure out what "protected" means. 2 MR. HELLER: Basically just means that if we 3 were to go and audit that taxpayer, which -- which based 4 on my answer we would not do -- but if we were, we 5 basically could not -- we could not assess them for 6 additional tax over the amount required by that chart. 7 MR. RUNNER: And how do we -- how do we audit 8 somebody on -- again, these are individuals, this isn't 9 a company. 10 So, how do you -- how do you audit an 11 individual in regards to -- when you are going to do an 12 audit, how -- what would you ask for if you were 13 auditing somebody on their online purchases? 14 What would you ask them to bring forth? 15 MS. BUEHLER: It would typically be their 16 purchase records. 17 MR. RUNNER: So, you think people out there 18 keep -- individuals, their purchase records? 19 MS. BUEHLER: Some individuals might, but we'd 20 also be using the data that we receive as far as our 21 normal data mining processes, the things that we would 22 find from other companies, where we can see the 23 purchases that are made by individuals. 24 MR. RUNNER: We have information that shows 25 individual purchases that they make on the internet? 26 MS. BUEHLER: I don't know that they would be 27 internet purchases, per se, no. 28 MR. RUNNER: Well, let me ask, we know 103 1 individual purchases that -- which people make that they 2 owe use tax on? 3 MS. BUEHLER: In some instances, yes. 4 MR. RUNNER: How do we get that data? 5 MS. BUEHLER: That data is obtained through our 6 sources that we have via audit of other companies. 7 In the past we have also subpoenaed companies 8 for information on equipment purchases. Farming 9 equipment, for example, was done previously. 10 MR. RUNNER: But this -- these are individuals 11 now, we're not -- I get the -- 12 MS. BUEHLER: Right, with the -- 13 MR. RUNNER: -- we're talking about just going 14 Joe Taxpayer out there now. 15 MS. BUEHLER: Right. 16 MR. RUNNER: Because we don't normally allege 17 do this, this is -- this is like a whole new area for 18 us, right? 19 MS. BUEHLER: Yes, internet -- 20 MR. RUNNER: We normally do businesses. 21 MS. BUEHLER: Right. 22 MR. RUNNER: So, this is a whole new area that 23 we're dealing with? 24 And, so -- again I am just -- so, what I'm 25 hearing you tell me is that what we will do is -- 26 actually, there was a little bit of distinction there, 27 one said we won't audit and it sounded like the other 28 one said we would audit. 104 1 MS. BUEHLER: We have not audited individuals 2 at this point. 3 MR. RUNNER: But I guess -- I guess if they 4 didn't put a number in there the answer to that is we 5 could audit them? 6 MR. HELLER: That is correct. 7 MS. BUEHLER: Correct. 8 MR. RUNNER: So, basically, what we're saying 9 you put a number in there, even if they put zero then we 10 won't audit them? They're protected? They put zero and 11 they're protected? 12 MR. HELLER: No, they're not -- we can -- if a 13 taxpayer reports zero and we were to audit them and 14 determine that they had a liability in excess of zero, 15 then we could audit -- we could go ahead and assess that 16 liability, because that amount wouldn't be from our -- 17 from the -- least the use tax table being recommended 18 today, which doesn't have a zero liability for anyone. 19 MR. RUNNER: Oh, okay. Since they didn't use a 20 number. 21 MR. HELLER: If they used one of the numbers 22 from the chart, though, then they would be protected 23 from being audited. 24 MR. RUNNER: So, the BOE believes that 25 everybody right now in the State of California should 26 keep all their purchase records for all their out of 27 state purchases? 28 Now, again, the problem is, as we talked about, 105 1 drop shippers -- the problem is that if they put the 2 wrong number down and one of their issues with a drop 3 shipper, our number's wrong for them, right? 4 Because we -- we have overestimated this chart, 5 correct? 6 MR. FITZ: Yes. 7 MR. RUNNER: why would do -- well, let me do 8 this -- why would we overestimate the chart? 9 Why would -- if we don't know the number, why 10 would we automatically assume that the number is zero 11 and charge people a higher tax? 12 MR. HELLER: Senator Runner, there was 13 definitely no plan to overestimate anyone's liability. 14 The real issue here, and one of the main 15 reasons we're in front of the Board today -- and this 16 wasn't just a mathematical calculation that Joe could 17 just go ahead and do and send off to the Franchise Tax 18 Board, is that we're really trying to get this estimate 19 of everyone in a certain class so that large groups of 20 people can use this to determine their estimated use tax 21 based on adjusted gross income. 22 And you can understand how there's probably 23 lots of people in the pool who may not have any 24 purchases where there was a drop shipper involved. 25 MR. RUNNER: Yeah. 26 MR. HELLER: There may be some that have every 27 purchase that's like that. 28 MR. RUNNER: And they don't know. 106 1 MR. HELLER: There's really no -- 2 MR. RUNNER: They don't know. 3 MR. HELLER: -- there's really no way -- we 4 still have to create an estimate that's sort of an 5 average. 6 MR. RUNNER: Okay. 7 MR. HELLER: And, so, I don't think it was an 8 intention to not account for it, it was, as Joe is 9 saying -- 10 MR. RUNNER: Yeah. 11 MR. HELLER: -- or as Joe was saying before, it 12 was really data that was going out. 13 MR. RUNNER: I get the problem. And I'm not -- 14 I wish -- I think we need to figure out how to solve it. 15 I'm -- I don't think it's solved. As the 16 Members said that we need to just go out there and do 17 ourselves, educate people. 18 I think we need to really review to see what 19 people even understand about the use tax. I think it 20 ought to be a total Board obligation, not an individual 21 Board Member obligation. 22 MS. YEE: I think it is. I hope it is. 23 MR. RUNNER: Well, but I haven't seen it. 24 We've never had a program. 25 MS. YEE: Oh, we have. 26 MR. RUNNER: No, we haven't. 27 MS. YEE: We have had public awareness 28 campaigns funded. You've put money in the budget to do 107 1 it, we've done it. 2 MR. RUNNER: But again -- 3 MS. YEE: This is where we are. 4 MR. RUNNER: -- again here -- no, but what 5 we've done is we've -- we've paid to tell people what 6 their obligations are, we have not done a program in 7 regards to helping people understand the issue of use 8 tax. 9 But to that -- just in closing, I think the 10 issue that -- that we deal with here is that all of this 11 effort, all of this issue about potential audits, all of 12 the issue about putting the number down, our goal is a 13 1 percent compliance rate. That's what we -- that's we 14 estimate, a 1 percent compliance rate. 15 MS. YEE: A lot of dollars, a lot of dollars. 16 MR. RUNNER: No, it's $10 million more. 17 MR. HORTON: Madam Chair, if I may? 18 MS. YEE: Mr. Horton? 19 Let me remind you, we do have a motion and a 20 second on the table. 21 MR. HORTON: Sure, the uniqueness of drop 22 shipping generally implies that it would actually go the 23 other way, in my opinion. 24 Because drop shipping is so unique, it would be 25 offset and probably have more taxpayers without drop 26 shipping than you do in this situation than you actually 27 do. 28 So, in that case, the number would actually be 108 1 higher if you put it in there. So, I would beg to 2 differ about the estimate, about it being lower. 3 And since our inception in 1879 ongoing 4 education has been the goal and objective. 5 I concur with Mr. Runner and Mrs. Yee that 6 there should be some formalized effort, how we define 7 that -- certainly, we should spend some time discussing 8 that and maybe we'll bring it back an agenda as item 9 somewhere down the road or set up a process to allow 10 that to happen. 11 The cost benefit analysis that measures success 12 is just that. In this case the revenue generated far 13 outweighs the actual cost of generating that revenue. 14 So, therefore, we're successful. 15 So, what staff and what the legislature is 16 doing, even though it's not generating billions, 17 10 million is a lot of money and it is a successful 18 project because of the cost benefit analysis. The 19 actual cost of doing this is minimal. 20 The other thing that I'd like for us to be 21 cognizant of is that the Board of Equalization is not a 22 -- is certainly perceived by some as a taxing agency, 23 but there are others who see the agency as a compliance 24 agency. 25 And if you look at the numbers, the majority of 26 the revenue generated by the Board of Equalization is 27 through compliance which -- which occurs as a result of 28 education, an element of enforcement, as well, and a 109 1 huge element of cooperation that exists. 2 And, so, you've got to have something in 3 play -- in place, a regulation in place, a chart of 4 some -- some sort of guidance in place in order to begin 5 to educate about -- the taxpayer in order to enhance 6 self-compliance. 7 The dollars generated by the Board of 8 Equalization conceivably would not be sufficient, I 9 believe the Board generates some $700 million relative 10 to historical $53 billion that it's collected. 11 So, it's a very small percentage of the money 12 that we actually generate. So, I would encourage us to 13 measure our success to include the compliance element. 14 It is unfortunate that -- that the chart 15 couldn't have been given more taxpayer's participation, 16 I mean -- but this is the intersection we find 17 ourselves, unfortunately. 18 MS. YEE: Okay. I think we want to balance 19 that, though, against not having this tool available 20 immediately, so -- 21 MR. HORTON: Yeah. 22 MS. YEE: -- we've had -- and I think Cal-Tax 23 actually has been a proponent of the tax table that -- I 24 would agree, I wish the time could have allowed for more 25 public input. 26 Thank you. We have a motion and second to 27 adopt the revised staff recommendation to publish -- 28 authorize publication, and to proceed with an interested 110 1 parties meeting for use of the tax table going forward. 2 Please call the roll. 3 MS. OLSON: Ms. Yee? 4 MS. YEE: Aye. 5 MS. OLSON: MR. Horton? 6 MR. HORTON: Aye. 7 MS. OLSON: Ms. Steel? 8 MS. STEEL: No. 9 MS. OLSON: Mr. Runner? 10 MR. RUNNER: No. 11 MS. OLSON: Ms. Mandel? 12 MS. MANDEL: Aye. 13 MS. OLSON: Motion carries. 14 ---o0o--- 15 16 17 18 19 20 21 22 23 24 25 26 27 28 111 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 April 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 pages 1 13 through 111 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: July 1, 2011 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 112