1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 REPORTER'S TRANSCRIPT 8 MAY 25, 2011 9 ---o0o--- 10 ITEM N 11 CONSENT AGENDA 12 ITEM N3 13 PROPOSED REVISIONS TO AUDIT MANUAL CHAPTER 13 14 STATISTICAL SAMPLING 15 ---o0o--- 16 17 18 19 20 21 22 23 24 25 26 Reported by: Juli Price Jackson 27 No. CSR 5214 28 1 1 P R E S E N T 2 3 For the Board Jerome E. Horton of Equalization: Chairman 4 5 Michelle Steel Vice-Chairwoman 6 7 Betty T. Yee Member 8 9 George Runner Member 10 11 Marcy Jo Mandel Appearing for John 12 Chiang, State Controller (per 13 Government Code Section 7.9) 14 15 Diane G. Olson Chief, Board 16 Proceedings Division 17 18 For the staff: Geoffrey Lyle Business Taxes 19 Committee and Training Section 20 21 John Calzada Supervisor 22 Computer Audit Specialists 23 24 ---oOo--- 25 26 27 28 2 1 INDEX OF SPEAKERS 2 ---O0O--- 3 NAME PAGE 4 Geoffrey Lyle 4 5 Gus Rivera 6 6 Ricardo Rodriguez 8 7 8 ---o0o--- 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 MAY 25, 2011 4 ---oOo--- 5 MS. OLSON: Then N3, the staff has a comment 6 that they would like to make. 7 MR. HORTON: Okay, Members, we have Mr. Rivera, 8 I believe, that would also would like to make a comment, 9 Tax Manager, Co-Chair for the Tax Policy Committee of 10 Intel Corporation. 11 And as he comes, we would ask that staff 12 commence with their presentation and we will allow you 13 the opportunity to respond, if necessary. 14 ---o0o--- 15 GEOFFREY LYLE 16 BUSINESS TAXES COMMITTEE 17 AND TRAINING SECTION 18 ---o0o--- 19 MR. LYLE: Good morning, Chairman Horton and 20 Members of the Board. I'm Geoffrey Lyle and I supervise 21 the Business Taxes Committee and Training Section. 22 Amongst our duties is the responsibility for 23 maintaining and updating the audit manual. 24 I also have with me Mr. John Calzada. He's 25 Supervisor of the Computer Audit Specialists with the 26 Board and has extensive training and experience in 27 statistical sampling. 28 A proposed revision to Audit Manual, 4 1 Chapter 13, statistical sample -- sampling, is before 2 you for approval. The proposed revisions are intended 3 to clarify or update current statistical sampling 4 techniques and procedures. 5 The proposed revisions were completed last year 6 and have been posted to the Board's website since 7 October 2010 in order provide public comment -- the 8 opportunity for public comment. 9 This chapter was placed on the administrative 10 agenda earlier this month and information on it was sent 11 to all of your offices. 12 In preparation for this meeting, a member of 13 Mr. Runner's staff had reviewed the proposed revisions 14 and expressed concern regarding one section, that it 15 have not clear. That's the Section 1304.10, 16 unrestricted random sampling. 17 He worked with Mr. Calzada and they came up 18 with a revised version, acceptable to all of us. 19 Since that was just done late last week, we 20 were -- I was going to -- I'd like to put that out on 21 the website in order for the public to see it and for 22 also the other Board Members -- your staffs to have them 23 take a look at it before we ask for your approval for 24 it. 25 At that point, up until a few minutes ago, I 26 assumed that was all I was going to be asking you about 27 and if we could put that off and if you could vote to 28 approve as it is now and we would bring that one 5 1 paragraph later? 2 However, I understand that Mr. Rivera here has 3 additional concerns with one of the forms that we have 4 included in the audit manual chapter. It is BOE 472, 5 the audit sampling plan. He can go ahead and explain 6 what his concerns are, but what the -- this is a form 7 prepared by the Board. And we did -- it's an existing 8 form and we have just included it in this chapter. It 9 was updated also in October of 2010. 10 I am willing to let Mr. Rivera state his 11 concerns now. 12 MR. HORTON: Yeah, please. 13 Mr. Rodriguez would also be making a statement 14 as well, I believe. 15 Mr. Rivera? 16 ---o0o--- 17 GUS RIVERA 18 TAX MANAGER 19 CO-CHAIR TAX POLICY COMMITTEE 20 INTEL CORPORATION 21 ---o0o--- 22 MR. RIVERA: Good afternoon, Mr. Chairman and 23 Board Members. 24 My name is Gus Rivera and I'm with Intel 25 Corporation. And to my right is Ricardo Rodriguez, 26 who's also with Intel Corporation. 27 And today I'm here to speak on behalf of the 28 Silicon Valley Leadership Group, which is a trade 6 1 organization that represents more than 300 high tech 2 companies. And I happen to be the Co-Chair for their 3 Tax Policy Committee. 4 And looking at the changes that were being 5 proposed for Chapter 13, industry certainly didn't have 6 any issues around a lot of the changes in the words -- 7 wordsmithing and correction of grammar, spelling and 8 such. However, there was an additional change made of 9 one of the exhibits that -- that is in Chapter 13 and 10 that's form BOE 472, which is the audit sampling plan. 11 And this is -- this audit sampling plan is 12 something that is prepared by the auditor before they 13 enter into an audit sample and is required to be signed 14 by the taxpayer. So, because of this, I think this -- 15 the changes that are being made, they're getting rid of 16 two questions: Question No. 1, which is asking the 17 auditor the objective of the test that's going to be 18 sampled; and No. 11 is the other section, where if 19 there's any unique type of sampling that needs to be 20 done, that's -- that gives the -- both the taxpayer and 21 the auditor an area where they can go ahead and put 22 those parameters in there. 23 We -- so, we don't have any questions really or 24 any concerns really regarding the language in 13, but 25 this change in the form, since it's signed -- has to be 26 signed by the taxpayer, we would urge that that be taken 27 under consideration and through the interested parties 28 meeting process, so that you'd be able to get all of the 7 1 taxpayers' concerns addressed. 2 MR. HORTON: Okay. Mr. Rodriguez? 3 ---o0o--- 4 RICARDO RODRIGUEZ 5 US SALES TAX MANAGER 6 INTEL CORPORATION 7 ---o0o--- 8 MR. RODRIGUEZ: I just kind of wanted to echo 9 the same sentiments as Gus. 10 I think those two questions are paramount to 11 this document. The first one has the auditor clearly 12 identify what they're trying to accomplish. And I think 13 that's important for both the taxpayer and the State in 14 making sure that audits run smoothly. But there's less 15 points of contention. And then also that your samples 16 are going to evaluate properly in the end, eliminating 17 duplication of work. 18 And the other one -- the other just kind of 19 provided a catchall, where unique situations might 20 arise, kind of like the case you had earlier today about 21 the bar sample where you don't know where to put 22 something, this provided a specific place where either 23 the State or the taxpayer can place their concerns or 24 unique situations for their business. 25 So, I think they go a long way in helping both 26 the State and the taxpayer and should be left in. 27 MR. HORTON: Those concerns seem to be 28 consistent with GAAP. 8 1 Is their input from the Department? 2 MR. LYLE: As I mentioned, this was a recently 3 revised form. We were simply adding to the audit manual 4 chapter. 5 However, they have expressed concerns about it 6 and I can certainly say that the -- my Division can meet 7 with them and it would be an interested parties meeting, 8 not necessarily of the Business Taxes Committee variety, 9 but just to meet with them and come to an agreement on 10 what the content of the form would be for both of our 11 perspectives and then bring that particular form back 12 and add it to the audit manual when it is -- we have got 13 an agreement on how -- what the form should -- its 14 contents should be. 15 MR. HORTON: All right, so be it. 16 Members, anything contrary? 17 All right, thank you. Such will be the request 18 of the Board. 19 MR. LYLE: And in concerning the audit manual 20 chapter, would like to approve that as-is now or with 21 that particular form -- with the prior version of it in 22 there? Or bring the entire matter back later? 23 MR. HORTON: You know, the debate over those 24 two questions could -- could actually impact the rest of 25 it, but generally not. 26 And I don't -- you know, either way, I'm okay, 27 but I think it advisable to bring the all back -- 28 MS. YEE: Yeah, I agree. 9 1 MR. HORTON: -- at one time. 2 MS. YEE: I agree. 3 MR. HORTON: Okay, so, let's -- 4 MR. LYLE: We'll withdraw it from this agenda. 5 MS. YEE: Yeah, I think to Mr. -- 6 MR. HORTON: Let's put it over and bring it 7 back. 8 MS. YEE: To the Chair's point, as the form is 9 being revised, if you could just be sure that it doesn't 10 affect other sections of the manual, so, we can see it 11 come back. 12 May I make -- just make one comment? I 13 appreciate the comments by our speakers today because I 14 think -- I mean I'm still thinking about the recently 15 adopted audit reg that we put in place and I think just 16 in terms of full transparency, disclosure about, you 17 know, what the particular objectives are of getting any 18 kind of information or sampling done, that all parties 19 are clear. 20 So, I appreciate the concerns raised. Thank 21 you. 22 MR. HORTON: All right, further discussion, 23 Members? 24 All right, thank you so very much, appreciate 25 it. 26 MR. LYLE: Thank you. 27 ---o0o--- 28 10 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 MAY 25, 2011 I recorded verbatim, in shorthand, to the 10 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 11 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: July 13, 2011 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 11