BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 450 N Street, Room 121 Sacramento, California REPORTER'S TRANSCRIPT APRIL 27, 2011 ITEM C6 SALES AND USE TAX APPEALS HEARINGS PETITION FOR REDETERMINATION filed by CYPRESS SEMICONDUCTOR PROCUREMENT, LLC (Case No. 445411 GH) Reported by: Beverly D. Toms CSR No. 1662 1 1 2 P R E S E N T 3 4 For the Board Jerome E. Horton of Equalization: Chairman 5 Michelle Steel 6 Vice-Chairwoman 7 Betty T. Yee Member 8 George Runner 9 Member 10 Marcy Jo Mandel Appearing for John Chiang 11 State Controller (per Government Code 12 Section 7.9) 13 Diane Olson, Chief Board Proceedings Division 14 15 For Board of David Levine Equalization Staff: Tax Counsel IV 16 17 Bradley Heller Tax Counsel 18 19 Robert Tucker Legal Department 20 Kevin Hanks 21 Sales and Use Tax Department 22 For Petitioner: Reed Schreiter 23 Representative PriceWaterhouse Coopers 24 Dave Gaul 25 Vice-President of Tax Cypress Semiconductor 26 Corporation 27 28 ---OOO--- 2 1 2 3 Sacramento, California 4 April 27, 2011 5 ---oOo--- 6 MS. OLSON: Our first matter today is 6C, 7 Cypress Semiconductor Procurement, LLC. Please come 8 forward. 9 Board Proceedings has received contribution 10 disclosure forms for this morning's hearings from the 11 parties, agents and participants. All forms were 12 properly completed and signed. All parties, agents and 13 participants are on the Alpha listing provided to your 14 office. 15 Each person sitting at the table will be asked 16 to introduce themselves and if necessary their 17 affiliation with the taxpayer for the record. 18 Ten minutes is allocated for the taxpayer's 19 opening presentation followed by ten minutes for the 20 Department's presentation and five minutes is allocated 21 to the taxpayer for rebuttal. 22 Mr. Horton. 23 MR. HORTON: Thank you, Ms. Olson. 24 Mr. Levine, please introduce the issues in the 25 case. 26 MR. LEVINE: Good morning -- 27 MR. HORTON: Good morning. 28 MR. LEVINE: -- Mr. Chairman, Members. David 3 1 Levine for the Appeals Division. The issue in this 2 petition of Cypress Semiconductor Procurement, LLC is 3 whether Petitioner made the taxable sale of the subject 4 equipment. 5 MR. HORTON: Thank you. Would the petitioners 6 please introduce yourself for the record. You have ten 7 minutes to make your presentation, at which time we will 8 allow the Department to make their presentation, as 9 well, and then return to you for rebuttal. 10 Please commence. 11 MR. SCHREITER: Good morning Mr. Chairman and 12 Honorable Board Members. 13 MR. HORTON: Morning. 14 MR. SCHREITER: Thank you for the opportunity 15 to appear before you today on this matter. My name is 16 Reed Schreiter. I'm with PriceWaterhouse Coopers and 17 I'm appearing on behalf of petitioner, Cypress 18 Semiconductor Procurement, LLC. 19 Also appearing with me today is Mr. Dave Gaul. 20 He is the Vice-President of Tax for Cypress 21 Semiconductor Corporation, which is the parent entity 22 for the Petitioner. 23 The issue in this appeal comes down to this, 24 under what authority is the Department asserting tax on 25 this transaction? To date the Department has fabricated 26 a transaction in order to assert the tax applies. 27 The transaction contrived by the Department 28 never occurred. There is no statute, regulation, case 4 1 law or annotation that supports the Department's 2 position. 3 Let's take a look at the facts. The first page 4 of the handout may assist you in understanding the 5 relationships and the transaction. Cypress 6 Semiconductor Corporation, which I will call Cypress, is 7 the parent entity. It was established in San Jose, 8 California in 1983 and continues to operate its 9 headquarters in San Jose today. 10 Cypress formed Petitioner, Cypress 11 Semiconductor Procurement, LLC, which I will call 12 Procurement, in 2004 to purchase wafer production 13 machinery and equipment and then to lease the equipment 14 to Cypress. 15 The operating agreement between Cypress and 16 Procurement provides that Cypress may execute contracts 17 on behalf of Procurement and that third parties may rely 18 on Cypress's authority to bind Procurement. 19 In 2007 Cypress negotiated to sell a wafer 20 production facility in Silicon Valley Technology Center, 21 or SVTC, as a turnkey operation to an unrelated third 22 party, Semiconductor Technology Services, or STS. 23 The terms of the contract between Cypress and 24 STS indicated that Cypress held the requisite power and 25 authority to execute, deliver and perform the sales 26 contract. Read together, the sales contract and the 27 operating agreement show that Cypress negotiated and 28 executed the sales contract for SVTC on behalf of itself 5 1 and Procurement. 2 When the sale occurred Cypress transferred the 3 land, building, machinery and equipment, tangible 4 personal property and all its rights, claims, 5 liabilities and obligations related to SVTC's 6 operations. 7 Procurement transferred the five pieces of 8 machinery and equipment at issue. 9 We recognize that Cypress and Procurement are 10 separate legal entities for Sales Tax purposes and do 11 not contend that Cypress owned or sold machinery and 12 equipment at issue. 13 The equipment is approximately 8 to 10 feet 14 wide and deep and about 6 to 8 feet high. The equipment 15 is bolted to special foundations and connected to 16 special cooling and electrical systems, other pieces of 17 wafer production equipment and special delivery and 18 recovery systems for the chemicals required in the wafer 19 production process. 20 The equipment is put in place and removed by 21 specialized equipment. To install or remove the 22 equipment the walls in the clean rooms of SVTC must be 23 knocked out and rebuilt. 24 Now that we have the facts in mind, let's take 25 a look at the guiding legal principles. Page 2 of the 26 handout helps to illustrate the relevant principles. 27 Sales Tax applies to the sales of tangible personal 28 property. However, Sales Tax does not apply to the sale 6 1 of realty or the sale of affixed property sold with 2 realty. 3 There are two ways that the transfer of 4 non-taxable affixed property can be made subject to 5 Sales Tax. One is Revenue and Taxation Code Section 6 6016.3 and two is Regulation 1596. We contend that 7 neither of these provisions makes the sale of the 8 affixed machinery and equipment at issue taxable. 9 However, before we look at the two provisions, let's 10 take a look at the definitions of the types of property 11 to make sure we have a common understanding of the 12 property we're discussing. These definitions are found 13 in Regulation 1521(a) and are generally used to define 14 the different types of property for Sales and Use Tax 15 purposes. 16 Page 3 of the handout reviews these 17 definitions. First we have tangible personal property, 18 which is personal property that may be seen, weighed, 19 measured, felt, touched or is otherwise perceptible to 20 the senses. Then we have fixtures, which are items 21 which are ness -- an access -- accessory to a building 22 and do not lose their identity as an accessory when 23 installed. 24 Some simple examples include air conditioning 25 and heating systems, elevators and windows. 26 Machinery and equipment is property used in 27 production, manufacturing or processing of tangible 28 personal property that can be attached to realty without 7 1 losing its identity as a particular piece of equipment. 2 Examples include printing presses and drill presses. 3 This is the type of property at issue in this 4 case. An example of property that is not machinery and 5 equipment is fixtures. So the rules make clear that 6 fixtures and machinery and equipment are not the same 7 type of property. The Department never contends that 8 machine -- excuse me, that the machinery and equipment 9 at issue does not meet the definition of machinery and 10 equipment we've just reviewed. 11 Let's go back to the rule that the transfer of 12 affixed property is not taxable and the two exceptions 13 to the rule. 6016.3 on its face applies to fixtures. 14 So it does not apply in this case because fixtures, as 15 we have just seen, are different than machinery and 16 equipment. 17 1596. If you turn to page 4 of your handout 18 you can follow along as I read the relevant portion of 19 1596(c). It states, "The transfer in place of affixed 20 fixtures, machinery and equipment or draperies is 21 taxable as a sale of personal property when removal of 22 the fixtures, machinery and equipment or draperies by 23 the seller or purchaser is contemplated by the contract 24 of sale." 25 There are, as you can see, three requirements 26 under 1596(c) for subjecting the affixed machinery and 27 equipment at issue to Sales Tax. One, a transfer in 28 place. Two, of affixed machinery and equipment. And, 8 1 three, the contemplation of removal of the affixed 2 machinery and equipment by the seller or purchaser in 3 the contract of sale. 4 Looking at page 5 of the handout we can review 5 the three requirements as applied here. We meet the 6 first two requirements. We have a transfer in place of 7 affixed machinery and equipment. But there is no 8 contemplation by the seller or purchaser in the sales 9 contract to remove the affixed machinery and equipment. 10 In fact, the machinery and equipment is still 11 in place and still in use in SVTC. 12 We don't meet the third requirement. 1596 does 13 not make the sale of the affixed machinery and equipment 14 at issue taxable. 15 Until the reply brief the Department seemed to 16 assume that the affixed machinery and equipment was 17 tangible personal property because it never cited any 18 authority for that position. 19 Then in the reply brief the Department cited 20 6016.3 to support its position that the property should 21 be tangible personal property and its transfer taxable. 22 As we've seen, however, 6016.3 applies to fixtures, not 23 to machinery and equipment and therefore it does not 24 apply in this case. 25 6016.3 is significant to this case for another 26 reason, however. Its existence shows that the 27 Legislature considered the issue of whether the transfer 28 of realty and affixed property by two sellers should be 9 1 taxable. The result is that the Legislature chose to 2 make the transfer of leased fixtures taxable but not the 3 transfer of leased -- leased machinery and equipment. 4 If a taxpayer was looking for guidance in this 5 area, they would not find it in the statutes, other than 6 6016.3, which provides limited guidance. In case law or 7 in annotations the best guidance they will find is in 8 1596(c) and the first sentence of that provision does 9 not make the sale of affixed property in conjunction 10 with the sale of realty taxable because it involves two 11 sellers. 12 As we've seen, there are three requirements 13 under 1596(c) and that is not one of them. Throughout 14 the audit and appeals process leading up to today the 15 Department and the Appeals Division apparently concluded 16 that the affixed machinery and equipment at issue was 17 tangible personal property and that the sale of the 18 affixed machinery and equipment in conjunction with the 19 sale of the realty was therefore taxable. 20 The only way the Department and Appeals have 21 justified this conclusion is to make up a transaction 22 that did not occur and the evidence does not support or 23 to cite to an inapplicable statute. 24 The Department fails to cite any applicable 25 authority for its position. 26 If the Department's position is so clearly 27 established by rule then the Department should be able 28 to cite the authority for it without making up a 10 1 transaction. 2 In conclusion we ask that the Board grant 3 Procurement's petition for redetermination. We will 4 gladly answer any questions you have and thank you for 5 your consideration. 6 MR. HORTON: Thank you. The Department will 7 now have ten minutes to make their presentation. Please 8 begin with a formal introduction. Thank you. 9 MR. HELLER: Good morning. Good morning, 10 Chairman Horton and Members of the Board. I'm Bradley 11 Heller from the Board's Legal Department. I'm here with 12 Robert Tucker from the Legal Department and Kevin Hanks 13 from the Sales and Use Tax Department. We're all 14 representing the Sales and Use Tax Department in the 15 petition. 16 First of all, I just want to point out that the 17 Petitioner has basically mischaracterized the burden of 18 proof here. And then essentially there was a sale of 19 tangible personal property and that taxpayer has the 20 burden to show that there's some sort of exemption or 21 exclusion and it's not the burden of the Department to 22 have to go out and cite authority to them to basically 23 say that a sale of tangible personal property is 24 taxable. 25 However, in addition I would just say that the 26 facts are not in dispute in this case, and that in 2004 27 the petitioner purchased millions of dollars in 28 manufacturing equipment ex-tax, meaning that they did 11 1 not pay any Sales or Use Tax on that purchase, and the 2 petitioner leased the equipment under the terms of a 3 lease that expressly provided that the petitioner had 4 the right to remove the equipment from the lessee's 5 premises at the termination of the lease and then the 6 lessee -- and then the Petitioner reported Use Tax on 7 its lease receipts. 8 Therefore, clearly characterizing the equipment 9 as tangible personal property for purchases -- 10 purposes -- purposes of the lease as well as the 11 purchase. 12 And then in 2007 the Petitioner sold the 13 manufacturing equipment to a third party for $16.9 14 million while it was still affixed to the lessee's 15 premises subject to the taxable lease and -- and 16 characterized as tangible personal property by Reven -- 17 Revenue and Taxation Code Section 16 -- excuse me, 18 6016.3, which specifically says that leased property -- 19 excuse me, leased property -- or affixed leased property 20 is still tangible personal property if the lessor has 21 the right to remove it on termination of the lease. 22 And then in addition, as the -- as the 23 Petitioners pointed out, this case has been briefed and 24 you already know that we agree with the Appeals Division 25 that the sale of the equipment was subject to Sales Tax 26 because the petitioner has not identified any authority 27 at all that would exclude or -- exempt or exclude that 28 from tax. 12 1 Therefore, I don't plan to rehash our brief 2 today, but I just want to mention that the Department 3 did go through the rulemaking file for Regulation 1596 4 subdivision "c" which the taxpayer does appear to be 5 relying on reading improperly this morning, and I can 6 say that it does not support the Petitioner's argument 7 in any way, shape or form. Instead the rulemaking file 8 indicates that the subdivision was adopted to codify the 9 Court of Appeals holding in the case of Standard Oil 10 Company of California versus State Board of 11 Equalization, which was a case where the Board's 12 assessment of a tax on a sale of affixed -- affixed 13 equipment was upheld by the California Court of Appeal. 14 In that case the Court said the sale of affixed 15 equipment is subject to Sales Tax when the equipment is 16 subject to the terms of a lease that permit the owner to 17 remove the equipment from the real property to which it 18 is affixed at the end of the lease, as was the case 19 here. 20 I also want to mention that the Petitioner's 21 interpret -- interpretation of Regulation 1596 22 subdivision "c" is contrary to the Court of Appeals 23 decision also in United States Lines, Incorporated 24 versus the State Board of Equalization, which was 25 another case where the sale of affixed machinery -- 26 excuse me, the -- the Board's assessment of tax on the 27 sale of affixed machinery was upheld again. And in that 28 case the -- the Court said that the transfer of affixed 13 1 tangible personal property are taxable when the seller 2 does not own and does not transfer the real property to 3 which the tangible personal property is affixed. 4 And in this case the -- the Petitioner did not 5 own any real property or transfer any real property in 6 the transactions at issue here. So we do believe that 7 United States Lines is directly applicable and good law 8 and it's clearly a Court -- a binding Court of Appeal 9 precedent that the -- that the Department can cite as 10 authority for taxing this transaction. 11 Therefore, the Department wants to emphasize 12 that the Petitioner's sale of affixed equipment was 13 taxable because the equipment was subject to the same 14 type of lease -- lease as the affixed equipment in 15 Standard Oil and also because the Petitioner transferred 16 the affixed equipment to the third purchaser by itself 17 and without any real property, just like the retailer in 18 United States Lines. 19 Therefore, we do believe that the assessment is 20 valid and we can answer any questions if you have them. 21 MR. HORTON: Thank you very much. On rebuttal. 22 MR. SCHREITER: Thank you, Mr. Chairman. The 23 Department makes a number of arguments. The first one 24 which has been raised for the first time is the burden 25 of proof. So they're saying it's tangible personal 26 property and therefore we have to say why it isn't. 27 Well, first of all, again that's the first time it's 28 been raised, but we had an event where the -- the 14 1 property is affixed to real property. It is -- as we 2 described, it has been put into SVTC. It is affixed 3 machinery and equipment. No one has questioned that up 4 to this point. 5 In fact, in the facts throughout the appeals 6 process that we've gone through, the Department and 7 Appeals have always said no one contends these facts are 8 undisputed. It's attached. It's affixed. It's bolted 9 into the foundations. It's hooked into special air 10 conditioning and -- and cooling systems and electrical 11 systems, so on and so forth. That's affixed machinery 12 and equipment. 13 So now to come back and say, oh, gee, it's 14 tangible personal property and you haven't shown a 15 burden of proof, the first time up and I don't think 16 that holds water because it is affixed machinery and 17 equipment; nobody has questioned it. 18 Secondly, they bring up the idea that the lease 19 characterizes it as tangible personal property and 20 therefore that controls. Again, first time it's been 21 raised at this point, but the lease characterizes the 22 property as tangible personal property between Cypress 23 and Procurement. There is nothing that we have found 24 that says it is -- that that characterization is binding 25 on third parties. That's between those two parties. 26 And a third party is not bound by a contract by two 27 other unrelated parties. 28 So, our -- we contend that the -- the lease 15 1 does -- the lease characterization does not control and 2 in fact there is -- there is a line of cases, they're 3 property line -- property tax -- excuse me, property law 4 cases that suggest that -- the very contention we make, 5 that the third parties are not bound by -- by the 6 contract of two unrelated parties. 7 Again, the Department raises 6016.3 -- excuse 8 me, 6016.3 and the -- that statute uses the term in 9 particular fixtures. Fixtures are specifically defined. 10 We're not talking about fixtures in this case. It 11 doesn't say property. It doesn't say machinery and 12 equipment. It says fixtures. So it just on its face 13 does not apply. 14 The Department again for the first time goes to 15 Standard Oil and U. S. Lines. Interesting cases. 16 Standard Oil in particular -- first of all I would say 17 it -- I think its continued application is questionable. 18 1596(c) and 6016.3 were promulgated or enacted 19 after Standard Oil to address the issues raised by 20 Standard Oil. Therefore, the rules in Standard Oil have 21 been superceded by the regulation in the statute. 22 Secondly, the Court, if you look at -- if you 23 read it carefully the Court stated that the transfer of 24 affixed property should be taxable. And 1596 changed 25 that, because the Court was going -- the Court went 26 through and said, well, gee, if unaffixed property to be 27 affixed or if un -- affixed property to be unaffixed is 28 taxable we can't see why affixed property intended to be 16 1 affixed indefinitely would be taxable -- should not be 2 taxable. 3 So, the -- the rule actually changed a little 4 bit. Then the Standard Oil is the second sentence of 5 1596(c). We're talk -- we're looking at the first 6 sentence. The second sentence deals with leased real 7 property and there was never a transfer of real property 8 in that case. In our case we do have a transfer of real 9 property. We have a transfer of affixed machinery and 10 equipment in conjunction with that real property 11 transfer. 12 Standard Oil didn't have that. There was no 13 transfer of real property. 14 With U. S. Lines it's the same thing. It's the 15 second sentence of 1596(c), which deals with leased 16 property. There was never a transfer of real property 17 in U. S. Lines. It was transfer of the affixed 18 property, but not of the real property. 19 So, again, it's a different case. 20 So, unless you have any other questions that's 21 our response. 22 MR. HORTON: Thank you very much. Before I 23 open up for discussion, Members, I want to share with 24 the Department we certainly understand and appreciate 25 the burden of proof. However, it's still incumbent upon 26 the Department to prove their case, irrespective of 27 that, to the extent that it's our position that a 28 liability exists pursuant to our investigation. And I 17 1 would just caution the Department to presume innocence 2 first and then build your case to support the position 3 of the agency. 4 Discussion, Members? 5 MS. YEE: Question. 6 MR. HORTON: Member Yee. 7 MS. YEE: Thank you very much, Mr. Chairman. I 8 wanted to -- maybe continue along the lines of where 9 Mr. Schreiter was going with respect to 1596. And I 10 think it has to do with --- maybe it's a question to the 11 Department about how you would reconcile the first and 12 second -- second sentence in that particular -- 13 MR. HELLER: Well, basically I would just say 14 that they're -- they're -- they're totally different 15 scenarios. 16 MS. YEE: Uh-huh. 17 MR. HELLER: The second scenario is dealing 18 with -- with property that's subject to a specific type 19 of lease. The other scenario would be one where that 20 lease doesn't exist, otherwise you really wouldn't even 21 need that sentence. If the lease was the same as the 22 one in the second sentence then it would be covered by 23 the second sentence. 24 The first sentence deals with the situation 25 where there's no lease and that there's a sale of 26 affixed property by the person who I'm assuming would 27 also be the owner of the real estate to which it's 28 affixed to, and if that's sold in a contract where the 18 1 buyer and the seller both contemplate that the property 2 will be removed from -- or I should say that the -- that 3 the affixed property will be removed from the real 4 property then the first sentence applies and says it's 5 taxable. 6 However, neither sentence provides when tax 7 does not apply as the tax -- as the tax -- or I should 8 say the Petitioner is trying to read them. They both 9 just say when tax applies, and basically the Courts have 10 held other situation -- have ruled on other situations 11 where tax applies, and we don't believe that the 12 regulation's completely exhaustive of every situation. 13 And -- and especially we don't really think it was 14 designed to cover the scenario where the transferor 15 doesn't own any real property at all. Doesn't -- and 16 basically isn't the -- isn't -- I should say isn't the 17 owner of any real property and isn't transferring any 18 property that it's affixing to its own -- to something 19 that it's leased. 20 And I think then basically if you look at the 21 second sentence it's really for the scenario where 22 you're a lessee of property who's affixed it to real 23 estate that you're leasing and then you as the lessee 24 have the right to remove that property from the premises 25 at the termination of your lease so that the landlord 26 doesn't become the owner of it. 27 This scenario is kind of somewhat outside of 28 it, although if any part of it probably applies it still 19 1 would be the second sentence because the lease here is 2 identical to the type of lease that we're talking about 3 in that second sentence. 4 However, in this case the lessor is the one who 5 has the right to remove the property because the lessor 6 owns it and it's affixed to the lessee's real estate in 7 this particular case. 8 And basically we still think that if the 9 transferor doesn't own any real estate that there's 10 no -- no way that this property itself can be treated as 11 real property. The -- the transferor has to own or at 12 least lease the real property to which the -- the 13 property at issue is affixed in order for that affixed 14 property to become part of the real estate for Sales and 15 Use Tax purposes. At least that's how the Department 16 sees it -- sees the case law and the regulation. 17 MS. YEE: All right. Mr. Schreiter, anything? 18 MR. SCHREITER: Sure. I thought it was 19 interesting he used the word "assuming" and that was 20 part of our point. They have assumed that this is 21 tangible personal property without any real authority to 22 back that up. 23 He also said that 1596(c) doesn't apply. 24 That's our point, it doesn't apply, it doesn't make this 25 transaction, which is a non-taxable transaction, 26 taxable. 27 He also in the discussion is -- is saying that 28 it's -- that it's not applicable which, you know, we 20 1 agree with. 2 He says has to own. He was saying that the -- 3 the owner of the real property has to own -- or, excuse 4 me, the owner of the tangible personal property has to 5 own the real property. Again, I don't see that in the 6 language of 1596. I don't see it in the language of 7 6016.3, at least that applies to fixtures. We haven't 8 seen it anywhere and that's our point, is given that and 9 the fact that we have this affixed machinery and 10 equipment transferred with real property in this 11 transaction, why is it taxable? And no one has seemed 12 to cite that authority for us. 13 MS. YEE: Okay. Mr. Heller. 14 MR. HELLER: Thank you, Ms. -- thank you, Ms. 15 Yee. 16 I just wanted to mention that, you know, we 17 didn't presume that the property is tangible personal 18 property. It was purchased separate and apart from real 19 estate when it was originally purchased, and I don't 20 think there's any doubt here that it was defined as 21 tangible personal property at the time of the purchase 22 by the Petitioner. No question. And that tax would 23 have applied to that purchase if the property was going 24 to be consumed by that entity but they entered into a 25 taxable lease and that they treated the property as 26 tangible personal property for three years and reported 27 Use Tax instead of paying Sales or Use Tax on the 28 purchase. 21 1 So clearly both the -- both the Department and 2 the Petitioner both thought that this was tangible 3 personal property and didn't just presume anything but 4 realized that it was purchased completely separate from 5 real estate, from a retailer, and it was tangible 6 personal property at the time it was purchased, and they 7 both -- and it's clearly tangible personal property 8 while it was leased. 9 And the real issue is just whether or not it 10 somehow turned into real estate, like, poof, at the last 11 second when it was sold. Because it was clearly subject 12 to Use Tax as tangible personal property up to that very 13 second. 14 So it's not that we're just pulling it out of 15 thin air and -- and just trying to run around and find 16 things that are attached to real estate and call them 17 tangible personal property. 18 It's basically we're just tracking tangible 19 personal property from the time it was purchased through 20 its lease 'til its eventual sale to its ultimate 21 consumer. 22 MR. SCHREITER: Again, I go back to, yes, the 23 lease characterized it as tangible personal property. 24 That was a contract between Cypress and Procurement. 25 And at the same time the property had been affixed and 26 no one questioned that it was affixed to the real 27 property; no one has questioned that it's machinery and 28 equipment and so there is this -- lack of a better term, 22 1 affixation event. And so for everyone else other than 2 the two parties to that contract, Cypress and 3 Procurement -- as to everybody else it's affixed 4 machinery and equipment. 5 MS. YEE: Okay. I'm -- I'm going to stop 6 there. 7 Mr. Levine, can you kind of help tease this out 8 for us? 9 MR. LEVINE: Yes, if that were -- 10 MS. YEE: If they had some -- 11 MR. LEVINE: If that were correct then, as Mr. 12 Heller said, Petitioner would have owed Use Tax. 13 MS. YEE: Uh-huh. 14 MR. LEVINE: It is the joinder of ownership 15 between the -- the machinery and equipment and the real 16 property that triggers this treatment which is an 17 aberration to the rule that machinery and equipment 18 maintains its identity as TPP, period, which is why the 19 fixture rule is in -- 6016.3 just applies to fixtures. 20 That was 1965. 21 This reg. made an exception for certain affixed 22 machinery in 1970. It was not abrogating the rule about 23 leases. 24 Petitioner leased this property as TPP and paid 25 tax on rentals. If Petitioner is saying that it was 26 real property at that time then Petitioner actually owed 27 Use Tax at the moment of affixing. But that's not true. 28 Whether -- whether they treated it as real property or 23 1 not, the only way we would agree that it was real 2 property is if the lease agreement said the lessor 3 cannot remove it. 4 We would say, well, once you put that provision 5 in you really sold it. At that point you owe tax. 6 So, whenever a lessor sells affixed equipment 7 to the lessee we say you owe tax because it's TPP until 8 you transfer title. Then it's real property for these 9 purposes. 10 Here we agree with Mr. Heller. This 11 maintain -- it's not an assumption that it was TPP. It 12 was TPP until the moment of joinder of real property 13 ownership and equipment ownership. 14 MS. YEE: Okay. Thank you very much. Thank 15 you, Mr. Chairman. 16 MR. HORTON: Mr. Runner, I believe. 17 MR. RUNNER: Yeah, just -- just a couple of 18 questions. When -- Mr. Heller, the idea that said, you 19 know -- I think, you know, you described that then this 20 is a -- personal tangible property, and then I think you 21 said, poof, it became real -- real property. 22 In fact, that can take place, correct? Isn't 23 the financing mechanism the question here? The fact 24 that it was leased? 25 MR. HELLER: No, not -- well, in this 26 particular case the fact -- the manner of the lease -- 27 MR. RUNNER: Well, let me give you an example. 28 MR. HELLER: -- made sure that -- 24 1 MR. RUNNER: For instance -- 2 MR. HELLER: -- the property -- 3 MR. RUNNER: Let me give you an example. 4 For instance, if they would have bought the 5 equipment, not leased it -- 6 MR. HELLER: Okay. 7 MR. RUNNER: -- paid the Sales Tax on it, then 8 at that point at the transfer -- 9 MR. HELLER: Uh-huh. 10 MR. RUNNER: -- it would have not -- it would 11 not have been tan -- it -- at that point it could have 12 been then equipment included in -- in the property sale? 13 MR. HELLER: If the property was bought by 14 the -- by the entity that actually owned the real estate 15 and that entity affixed it to its real estate -- 16 MR. RUNNER: Uh-huh. 17 MR. HELLER: -- and it sold all the real estate 18 with the affixed equipment -- 19 MR. RUNNER: Right. 20 MR. HELLER: -- then it would -- it would -- we 21 would not be here asking for -- 22 MR. RUNNER: Okay. So in a sense -- 23 MR. HELLER: -- tax. 24 MR. RUNNER: -- it went poof. 25 MR. HELLER: But it's because -- no, it's in 26 part -- no, it's not -- 27 MR. RUNNER: Right. 28 MR. HELLER: -- that it goes poof. 25 1 MR. RUNNER: Oh -- well, it changed. It 2 changed from -- 3 MR. HELLER: It can -- it can change. It -- 4 MR. RUNNER: It can change, right? 5 MR. HELLER: Basically, as Mr. Levine said, 6 when there's a unity of ownership -- 7 Ownership the actual equipment and the real estate -- 8 MR. RUNNER: Right. Right. So -- 9 MR. HELLER: -- then it can -- it can be 10 converted. But originally the idea is, though, that 11 there is this -- there is a tax due up front by the 12 consumer of the property. 13 MR. RUNNER: Okay. 14 MR. HELLER: And in this case we don't feel 15 like that was ever paid here because basically the State 16 did not get the payments on the original purchase price, 17 just on about three months worth of lease payments and 18 then we're now getting denied on the sale. 19 MR. RUNNER: Okay. Again, my -- my -- my -- my 20 only -- again, so it was the financing mechanism, the 21 fact that it was a lease? 22 MR. HELLER: No. 23 MR. RUNNER: No? 24 MR. HELLER: I don't believe it was -- well, 25 let me -- 26 MR. RUNNER: Was it -- was it -- 27 MR. HELLER: -- let me rephrase, if it was -- 28 MR. RUNNER: If it was purchased -- 26 1 MR. HELLER: -- Mr. Runner, it's not -- let 2 me -- I think no's a little strong, but it's really that 3 there's not a financing mechanism here. What really 4 was -- was done was there was a -- basically a Sales and 5 Use Tax transaction arranged where they decided that 6 they wanted -- they didn't want to do a direct purchase 7 of -- of this property and pay Sales and Use Tax -- 8 MR. RUNNER: Right. 9 MR. HELLER: -- up front. 10 MR. RUNNER: Right. 11 MR. HELLER: What they did is they -- they set 12 up a -- a buying company -- 13 MR. RUNNER: Right. 14 MR. HELLER: -- that could purchase the 15 property without paying tax up front and then do a 16 taxable lease where it would then just report tax based 17 on the lease payments over time without having to make a 18 payment up front -- 19 MR. RUNNER: Okay. 20 MR. HELLER: -- on this very substantial 21 purpose. So that's really the transaction that's -- 22 that's critical here and not that -- I don't think this 23 is really a financing thing because it -- we really 24 aren't at issue about how they got the funds to purchase 25 the property or not. It's really just how they decided 26 to set up their transaction for Sales and Use Tax 27 purposes, I believe. 28 MR. RUNNER: So -- so you described the fact 27 1 that they only paid three months worth of payments? 2 MR. HELLER: No, no, three years. 3 MR. RUNNER: Three years, okay. 4 MR. HELLER: No, three years. 5 MR. RUNNER: Okay, three. I think -- I think 6 you said three months. 7 MR. HELLER: Oh, I -- I stand corrected on 8 that. 9 MR. RUNNER: Yeah, okay. 10 Well, let me go back -- let me -- let me go 11 back to the taxpayer then at that point. In regards to 12 that issue, that seems to be the contention and that is 13 this is potentially a scheme that tried to create a 14 financing mechanism instead of purchasing it to avoid 15 the payment of tax, Sales Tax. 16 MR. SCHREITER: Right. And let me -- I'd like 17 to -- Mr. Gaul to explain the transaction. I mean, he 18 can speak for the company as to why they were doing -- 19 handling the transaction this way. 20 MR. GAUL: So, certainly, in the industry in 21 which we operate cash is -- is very critical. Certainly 22 even to this day we continue to lease equipment because 23 the cash outlay for buying equipment up front and all 24 the costs associated with that is something that we as a 25 company just are very mindful of. And not just our 26 company. 27 In the semiconductor industry, which is very 28 capital intensive, we are constantly looking for ways to 28 1 not avoid schemes or, you know, create anything undue, 2 but just to -- to manage our cash flow so that we can 3 main -- remain competitive in the industry. 4 And that certainly nothing unusual about a 5 leasing transaction of capital equipment in the 6 semiconductor industry. 7 MR. RUNNER: What was the terms of this lease? 8 I mean, how far into the lease -- how much payment was 9 made? How much tax was paid in regards to this lease? 10 MR. GAUL: The -- 11 MR. SCHREITER: Go ahead. 12 MR. GAUL: I'm sorry. On the -- the lease 13 stream with these five pieces of equipment we paid in 14 roughly $670,000 worth of Use Tax over the three plus 15 years worth of the lease stream. 16 MR. SCHREITER: Right, the lease was structured 17 for -- there was a master lease agreement and then there 18 was an exhibit attached which would identify the 19 property subject to the lease. And each piece of 20 property was set up on a 16-month lease period with 21 one-year renewals. 22 The -- and so some of the property had come in 23 a little bit later. You know, the longest period was 24 about three years and then some was a little bit less 25 than that. 26 MR. RUNNER: Okay, thank you. 27 MR. HORTON: Member Steel. 28 MS. STEEL: Mr. Chairman, I want to do the 29 1 follow-up question. So when this sem -- Semiconductor 2 Technology Services, when they bought it, that's became 3 equipment -- the machinery and equipment? Because it's 4 attached to the factory and they bought it together. 5 MR. HELLER: After the sale, once -- once 6 the -- once the buyer had acquired both the land and all 7 of the affix -- all the fixtures in the manufacturing 8 plant, then in the hands of that buyer all of the 9 property would be real -- all of the fixtures and the 10 real estate would be real estate for -- for Sales and 11 Use Tax purposes. 12 And that's because there would be a unity of 13 ownership between -- with one entity owning both the 14 land and the fixtures to which -- that are -- 15 MS. STEEL: But that's the same machinery and 16 equipment then. 17 MR. HELLER: It is the same machinery and 18 equipment but it's in the hands of a -- a different 19 owner. 20 MS. STEEL: So, if that -- 21 MR. HELLER: And there would be different 22 facts. 23 MS. STEEL: -- when CSC, when they -- not CSC, 24 but the Cypress Semiconductor Procurement, when they 25 bought it, when they didn't lease it -- so when they 26 bought the company, they -- if -- I'm just assuming 27 here -- so when they bought it with that equipment was 28 there, then you count as not personal tangible items so 30 1 that, you know, it's not taxable at that point. And 2 it's a machinery and equipment. That's what you are 3 saying? 4 MR. HELLER: Ms. Steel, I think -- are you -- 5 you're meaning when Semiconductor Technology Services 6 purchased it? 7 MS. STEEL: The company who leased to other -- 8 MR. HELLER: Oh, okay. Well, when -- when 9 Semi -- Cypress Semiconductor Procurement, the 10 Petitioner, purchased the property it was clearly 11 tangible personal property, it wasn't affixed to 12 anything at that time. 13 MS. STEEL: No, if they -- 14 MR. HELLER: Right. 15 MS. STEEL: -- had it before, when they bought 16 the company together it's the same thing when -- 17 MR. HELLER: What -- 18 MS. STEEL: -- Semiconductor Technology 19 Services, when they bought it -- 20 MR. HELLER: Okay. 21 MS. STEEL: -- you said suddenly it became 22 machinery and equipment, then that's together with 23 the -- whatever they bought whole company. 24 I just want -- 25 MR. HELLER: I'm -- I'm just trying to 26 understand the question, I'm sorry. 27 MR. HORTON: Well, sir -- 28 MS. STEEL: I'm -- 31 1 MR. HORTON: Excuse me, Ms. Steel. 2 You might want to wait until the question is 3 asked completely. 4 MR. HELLER: I'm sorry. Excuse me. 5 MS. STEEL: I want to know that, you know, you 6 are saying it's a fixture so it's taxable, and then 7 suddenly that this new technology company is that they 8 bought it and then it became the machinery and equipment 9 so it's not fixture no longer after that. That's what 10 you just said. 11 MR. HELLER: In the -- correct. 12 MS. STEEL: That's -- you know, I -- I just 13 want to know that, you know -- 14 MR. HELLER: That's correct. 15 MS. STEEL: -- you said suddenly that this 16 become non-taxable when -- when they bought it, the new 17 company when they bought it, that it's non-taxable 18 because it became equipment and machinery, that's what 19 you said. 20 MR. HELLER: Ms. Steel, can I respond now? 21 MS. STEEL: Yeah. 22 MR. HELLER: Oh, thank you. 23 Well, I think maybe I can -- can answer it a 24 little bit with -- with a -- kind of a time line. And 25 basically what the issue would be is if there was a 26 subsequent sale of that plant by Semiconductor 27 Technology Services after it's purchased both the real 28 estate and all the affixed equipment and machinery, then 32 1 at that time it would be real property for Sales and Use 2 Tax purposes, absolutely. 3 And I -- I think that's a yes to what your 4 question was. But for purposes of a sale while it's 5 owned by Cypress Semiconductor Procurement, the 6 Petitioner, it -- it was not real property at that time. 7 MS. STEEL: Though we are talking about the 8 same machine here. 9 Let me explain -- let me ask the taxpayer's 10 side that, so that this equipment, it's removable? 11 MR. SCHREITER: Yes. 12 MS. STEEL: And then somebody can use it? 13 MR. SCHREITER: Yes, it -- it could be removed. 14 Of course as we've described that would -- it would be 15 an expensive process and involve, you know, tearing down 16 a wall to take it out. 17 So -- and to sell it to somebody else 18 individually or to bring something in. But it can be 19 removed, yes. 20 MS. STEEL: Then somebody is going to buy it? 21 MR. SCHREITER: No, I don't think anybody is 22 going to buy that piece of equipment without the -- the 23 factory that it's affixed to, or the production facility 24 it's affixed to. 25 MS. STEEL: Okay. Okay, I'm done. 26 MR. HORTON: Further discussion, Members? 27 Ms. Mandel. 28 MS. MANDEL: Oh. So, what I just heard was 33 1 that to remove the machinery and equipment would involve 2 substantial expense and some destruction of the real 3 property facility. 4 MR. SCHREITER: Yes. I couldn't speak to the 5 actual amount of cost to that but, yes, to do that you 6 would need to tear down a wall, pull it out and that 7 would involve special -- certain, you know, special 8 equipment to move it and do that sort of thing. 9 MS. MANDEL: Okay. That -- I mean, that -- 10 that makes it sound -- I'm now following a little better 11 the affixed machinery and equipment as opposed to if we 12 were sitting here having a fight with the U. S. 13 construction contractor about what was put in, whether 14 it was machinery and equipment and a -- or a fixture 15 because a fixture involves, you know -- that there would 16 be some -- if it stays machinery and equipment under 17 that kind of -- this sort of appendix it's usually -- 18 stays machinery and equipment, I think, because you can 19 easely swap it in or out and it doesn't work as a 20 unified whole with the real property as real property. 21 And so when you say that it -- it involves 22 tearing down walls and spending money, I -- Mr. Levine, 23 you kind of -- 24 MR. LEVINE: Yeah, it's more just the nature of 25 the item, not how it's attached. There's much machinery 26 and equipment under the reg. -- 27 MS. MANDEL: Yeah. 28 MR. LEVINE: -- for U. S. Government purposes 34 1 that you're not going to want to be taken out unless 2 it's busted like a generator in the middle of a 3 hospital. I don't know where they put it but if they 4 put it in the middle of the hospital where -- for backup 5 emergency purposes where you'd have to tear down walls, 6 it's still machinery -- I'm sorry, that's a fixture 7 because it's -- a conveyor belt -- 8 MS. MANDEL: Right. 9 MR. LEVINE: -- would be machinery and 10 equipment. A -- 11 MS. MANDEL: I mean, that -- that -- 12 MR. LEVINE: -- ancillary to the building is 13 fixtures, something that makes something. A drill 14 press -- 15 MS. MANDEL: Right. 16 MR. LEVINE: -- no matter where it is, no 17 matter how hard it is to get out, that's machinery and 18 equipment. This is machinery and equipment for -- for 19 the reg. purposes. No one's argued that -- 20 MS. MANDEL: Okay. 21 MR. LEVINE: -- and the reason is because it's 22 making stuff, it's not -- it's not necessary to the 23 building. The building might be necessary to it. But 24 it's -- 25 MS. MANDEL: Oh, okay. 26 MR. LEVINE: -- making stuff. 27 MS. MANDEL: Okay. 28 MR. LEVINE: So it's -- 35 1 MS. MANDEL: Okay. 2 MR. LEVINE: -- function of the item that is 3 more important than how much -- 4 MS. MANDEL: So it's really the co -- 5 MR. LEVINE: -- damage. 6 MS. MANDEL: -- co-extensive ownership of the 7 building, ownership of the equipment, that's viewed as 8 critical to getting -- excuse me, under the first 9 sentence in 1596(c). 10 MR. LEVINE: And timing of title, passage 11 from -- from our point of view. 12 MS. MANDEL: Okay. Sorry for adding confusion 13 but you made my brain click on that. Thanks. 14 MR. HORTON: Member Steel. 15 MS. STEEL: Know what? Actually, I'm done. 16 MR. HORTON: Okay. 17 I do want to entertain Mr. Runner's inquiry. 18 Given that we're talking about transaction tax, it's 19 always confusing because you can -- you get into this 20 notion of double taxation because of the appearance that 21 the same item is being taxed more than once based on the 22 transaction, itself. And so, it might -- I'm -- I'm 23 going to ask the Department to sort of take us through a 24 sce -- the scenario of when the tax is triggered and 25 what tax is triggered and at what point of adjoining 26 where the property could have been adjoined and what tax 27 would have been triggered if that was the case. 28 So the initial purchase of the equipment, 36 1 that's a point of decision to decide whether or not it's 2 taxable or not? And then at that point who has that 3 decision-making authority to decide whether to pay tax 4 on it or not? And then the subsequent lease to another 5 party, what's -- what -- how does that apply and what 6 law applies there? And then when the property is then 7 transferred to a third party, why is it that all of a 8 sudden -- not all of a sudden, why is it that that 9 transfer is taxable and under what circumstances would 10 it have continued to be exempt if in fact the purchaser 11 and the -- well, let me use the terms here. Cypress and 12 the Procurement, LLC, the transaction between them, had 13 that transaction originally been a transfer of title to 14 Cypress and so now Cypress actually owned the equipment 15 and the land and then sold the equipment in place with 16 the land to the third party? 17 Can you take us through that? 18 MR. HELLER: Certainly. 19 MR. HORTON: Was I clear enough? 20 MR. HELLER: Yes, I -- I believe so, and please 21 feel different. 22 Well, I will do my best and if I appear to be 23 getting off track, please steer me back because I do 24 want to do my best to answer your question. 25 But essentially, the -- like you said, at the 26 original purchase of the -- the tangible personal 27 property there is an issue as to whether or not Sales 28 and Use Tax should apply at that time. If the purchase 37 1 is from a California retailer then it would be Sales 2 Tax. If this was purchased for -- from an out-of-state 3 unregistered retailed and brought into the State for use 4 here we would have a Use Tax liability. 5 Assuming that -- the purchaser, Cypress 6 Procurement -- or, excuse me, Semiconductor Procurement, 7 LLC, the Petitioner, was purchasing it for its own use. 8 Now, in this particular case they were purchasing it for 9 resale and if you purchase property for resale that -- 10 that provides an exclusion from -- 11 MR. HORTON: Did they actually resell it? I 12 don't think they resold it, I think they subsequently 13 leased it. 14 MR. HELLER: They did subsequently lease it 15 and -- and under the terms of the Sales and Use Tax 16 law -- 17 MR. HORTON: It's a -- 18 MR. HELLER: -- a lease is a continuing sale -- 19 MR. HORTON: -- continuing sale. 20 MR. HELLER: -- and purchase. 21 MR. HORTON: Okay. 22 MR. HELLER: And so it's -- it's suitable -- a 23 lessor -- 24 MR. HORTON: Got it. 25 MR. HELLER: -- like a large -- like a leasing 26 company for a fleet of cars, for instance, can purchase 27 those cars with -- ex-tax and then lease them and -- and 28 then -- 38 1 MR. HORTON: It's a -- 2 MR. HELLER: -- what happens in the lease -- 3 MR. HORTON: -- continuing sale. 4 MR. HELLER: Right, and those are continuing 5 sales -- 6 MR. HORTON: I think that term is important in 7 your -- that you share that. 8 MR. HELLER: And then -- and then -- so in this 9 case that's why no tax applied to the original purchase 10 because it was a purchase for resale and then when 11 there's the lease of the property a Use Tax applies to 12 the lease. 13 Now -- 14 MR. HORTON: Could they have opted to treat it 15 otherwise? 16 MR. HELLER: I don't -- well, excuse me, yes, 17 the -- the purchaser, the Petitioner in this case, could 18 have made an election to report and pay Sales or Use Tax 19 on the purchase price of the equipment when it was 20 originally purchased. And if they do that then the -- 21 it would basically be what we call a tax paid lease and 22 Use Tax would not apply to the stream of lease payments. 23 Although that wasn't the case in this -- in this 24 scenario. 25 But that is an option that all lessors have. 26 And then essentially while the property's being 27 leased it's still tangible personal property subject to 28 Sales or Use Tax if there's a subsequent transaction, 39 1 which would be the case if you're like leasing an 2 automobile, paying Use Tax on your lease payments, then 3 at the end of the lease you decide to buy the whole car 4 for the -- the residual. Then again tax applies to that 5 sale. 6 I guess after my understanding was is if they 7 did sell it, though, to -- to the lessee so that the 8 lessee owns it, then in that case -- at that point, at 9 least under the facts we have here, where it would be 10 affixed to the -- the now owner's real estate, a 11 subsequent sale of that property wouldn't be subject to 12 tax because it would be -- we would view that affixed 13 property as real estate for purposes of a subsequent 14 sale. 15 And I think -- does that answer all the 16 different subs? 17 MR. HORTON: It does. 18 So the -- in other words, I think along the 19 lines of Mr. Runner's question that the transaction 20 could have been arranged where the ultimate sale was a 21 sale in place, the property was adjoined to real estate 22 and therefore that transaction would have been exempt. 23 Question of the Petitioner, Cypress is -- is -- 24 that's a holding company or is the LLC a holding 25 company? Can you tell me their relationship? Is that 26 wholly owned? Is the LLC wholly owned by the 27 corporation and all of the decisions are made by the 28 corporation for the LLC or is there a rela -- 40 1 relationship there you can -- 2 MR. SCHREITER: Right. 3 MR. GAUL: So, certainly, Cypress itself is -- 4 is a fully functional manufacturing design company. It 5 has a -- this -- but the Petitioner was a leasing 6 company to go out and buy large pieces of equipment at 7 more than just our facility here in California. So it 8 has a -- you know, and it was effectively itself a 9 business unit of Cypress to acquire multi-million dollar 10 pieces of equipment. 11 MR. SCHREITER: To continue that, Cypress, the 12 parent corporation -- the Procurement is a single member 13 LLC. And the corporation is the single member of the 14 LLC, okay. 15 So, for corporate purposes the corporation can 16 control LLC. The -- 17 MR. HORTON: So the corporation had the right 18 to transfer the property. 19 MR. SCHREITER: It was -- based on the 20 operating agreement between the corporation and the 21 LLC -- 22 MR. HORTON: Uh-huh. 23 MR. SCHREITER: -- the corporation could 24 execute -- negotiate and execute contracts on behalf of 25 the LLC. 26 I don't know if their Boards of Directors were 27 identical, that sort of thing, but the corporation is 28 the single member of the LLC. So it's a hundred percent 41 1 owner. 2 MR. HORTON: Without being able to look at the 3 contractual relationship would you interpret that 4 relationship such that the corporation actually owned 5 all of the assets of the LLC? 6 MR. SCHREITER: For -- this is where there's 7 attention maybe in -- in the income tax law versus Sales 8 and Use Tax law. For Sales and Use Tax purposes they 9 are separate entities. Procurement held title to the 10 machinery and equipment at issue. 11 For income tax purposes the LLC is treated as a 12 division of the corporation. 13 MR. GAUL: And I might add to that, for -- for 14 what we call D&O insurance, Director and Officer 15 insurance, for fire insurance, hazard insurance, all 16 other insurance purposes, all of their legal contractual 17 returns the LLC is -- effectively, it -- it stands 18 alone. I mean, it is liable for the equipment and any 19 activities that take place within its -- within its 20 organization. 21 MR. HORTON: Okay. Thank you very much. 22 Further discussion, Members? 23 MR. RUNNER: Just a real quick question. 24 On the consummation of the sale, the sale took place in 25 what year? 26 MR. SCHREITER: This was 2007. 27 MR. RUNNER: 2007. So clearly there's been no 28 dispute in regards to after the sale that the equipment 42 1 was inc -- was clearly a part of the sales deal. 2 MR. GAUL: Absolutely. 3 MR. SCHREITER: No -- no question at all. 4 MR. RUNNER: Transfer of title was there. 5 MR. SCHREITER: Yes, there was -- the -- when 6 the transaction occurred both corporation and 7 Procurement transferred what they owned and STS got 8 everything. They were able to operate SVTC without -- 9 without any question. And there was no disagreements 10 along the way, OD didn't transfer. 11 So, all this haze over here in regards to the 12 Procurement and the company operating and the sale 13 creates kind of a haze in our discussion right now, but 14 it certainly created no -- no -- there was nothing 15 unclear at the sale time in regards to that clear 16 transfer of -- of -- 17 MR. SCHREITER: Absolutely. 18 MR. RUNNER: Okay. 19 MR. SCHREITER: Correct. 20 MR. RUNNER: Thank you. 21 MR. HORTON: Is there a motion, Members? 22 MS. YEE: Move to take the matter under 23 submission. 24 MR. HORTON: Moved by Ms. Yee to take the 25 matter under submission. Second by Ms. Mandel. 26 Without objection, such will be the order. 27 Thank you very much for appearing before us 28 today and providing us some insight to your position. 43 1 The Board will take it under consideration later on this 2 evening and send you a written report of our decision. 3 Thank you again. 4 ---oOo--- 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 44 1 . 2 REPORTER'S CERTIFICATE 3 4 State of California ) 5 ) ss 6 County of Sacramento ) 7 8 I, BEVERLY D. TOMS, Hearing Reporter for the 9 California State Board of Equalization certify that on 10 April 27, 2011 I recorded verbatim, in shorthand, to the 11 best of my ability, the proceedings in the 12 above-entitled hearing; that I transcribed the shorthand 13 writing into typewriting; and that the preceding 44 14 pages constitute a complete and accurate transcription 15 of the shorthand writing. 16 17 Dated: May 21, 2011. 18 19 20 ____________________________ 21 BEVERLY D. TOMS 22 Hearing Reporter 23 24 25 26 27 28 45