1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 JUNE 23, 2011 10 11 12 13 14 15 FINAL ACTIONS 16 17 18 19 20 21 22 23 REPORTED BY: JULI PRICE JACKSON 24 CSR NO. 5214 25 26 27 28 1 1 P R E S E N T 2 3 For The Board Jerome E. Horton of Equalization: Chairman 4 Michelle Steel 5 Vice-Chairwoman 6 Betty T. Yee Member 7 George Runner 8 Member 9 Marcy Jo Mandel Appearing for John Chiang 10 State Controller (per Government Code 11 Section 7.9) 12 Diane G. Olson Chief, Board 13 Proceedings Division 14 15 ---OOO--- 16 17 For Staff: David Levine Tax Counsel 18 19 ---o0o--- 20 21 22 23 24 25 26 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 JUNE 23, 2011 4 ---o0o--- 5 MR. HORTON: Ms. Olson? 6 MS. OLSON: Our next item would have been C11, 7 Housewares, International. They have contacted Board 8 Proceedings and the representative is ill -- sounds very 9 ill. 10 So, we've postponed it 'til October. 11 So, we can take those matters under submission, 12 if you care to. 13 MR. HORTON: Members? 14 MS. YEE: Yes. 15 MR. HORTON: Okay, let's give it a shot. 16 MS. OLSON: Okay, our first item is C1, Boris 17 Khodzhoyan. 18 ---o0o--- 19 C1 BORIS KHODZHOYAN 20 NO. 405900 (AP) 21 ---o0o--- 22 MR. HORTON: Is there a motion, Members? 23 MS. YEE: Move to adopt the staff 24 recommendation. 25 MR. HORTON: Motion by Ms. Yee to adopt the 26 staff recommendation. 27 Second by Ms. Mandel. 28 Discussion, Members? Objection? 3 1 Hearing none, such will be the order. 2 ---o0o--- 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4 1 MR. HORTON: Ms. Olson? . 2 MS. OLSON: Next item is C3, James Alan 3 LaBarge. 4 ---o0o--- 5 C3 JAMES ALAN LaBARGE 6 NO. 422110 (UT) 7 ---o0o--- 8 MR. HORTON: Is there a motion, Members? 9 MS. YEE: Move to adopt the staff 10 recommendation. 11 MR. HORTON: Move to adopt staff recommendation 12 by Ms. Yee. Second by Ms. Mandel. 13 MS. YEE: And that reflects the offset, right? 14 MR. LEVINE: Yes. 15 MS. STEEL: Objection. 16 MR. RUNNER: Object. 17 MR. HORTON: Objection by Member Steel and 18 Member Runner. 19 Ms. Olson, please call the roll. 20 MS. OLSON: Mr. Horton? 21 MR. HORTON: Aye. 22 MS. OLSON: Ms. Steel? 23 MS. STEEL: No. 24 MS. OLSON: Mr. Runner? 25 MR. RUNNER: No. 26 MR. HORTON: Ms. Yee? 27 MS. YEE: Aye. 28 MS. OLSON: Ms. Mandel? 5 1 MS. MANDEL: Aye. 2 ---o0o--- 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6 1 MS. OLSON: Our next item is C4, Frank Allen Randazzo. 2 ---o0o--- 3 C4 FRANK ALLEN RANDAZZO 4 NO. 421497 (UT) 5 ---o0o--- 6 MR. HORTON: Is there a motion, Members? 7 MS. MANDEL: Move staff recommendation. 8 MS. YEE: Second. 9 MR. HORTON: It's moved by Ms. Mandel to adopt 10 staff recommendation, second by Ms. Yee. 11 Objection, Members? 12 Hearing none, such will be the order. 13 ---o0o--- 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7 1 MS. OLSON: Our next item is C6a, Jeff's Exotic Fish, 2 Incorporated, C6b, Jeff's Exotic Fish, Costa Mesa, LLC 3 and C6c, Jeff's Exotic Fish, Costa Mesa, Incorporated. 4 ---o0o--- 5 C6a JEFF'S EXOTIC FISH, INC. 6 NO. 484114 (AS) 7 C6b JEFF'S EXOTIC FISH, COSTA MESA, LLC 8 NO. 484115 (EA) 9 C6c JEFF'S EXOTIC FISH, COSTA MESA, INC. 10 NO. 48116 (EA) 11 ---o0o--- 12 MR. HORTON: Is there a motion, Members? 13 MR. RUNNER: We were going to -- I think there 14 was a number that we might want to try to find that at 15 least I asked for? 16 MR. LEVINE: Yes. The numbers -- if 43 percent 17 were applied to stores 2 and 3, and I am going to look 18 to Mr. Hanks for a nod just in case I get this wrong, 19 because he -- but for store 2, that would result in a 20 reduction to the measure of 471,618 and for store 3 a 21 reduction of the measure by 303,971. 22 So, that reduces them both by about half. 23 MR. HORTON: Is that the period under 24 consideration, I think February to the end of the audit 25 period? 26 MR. HANKS: Yes. 27 MR. LEVINE: This covers every -- the entire 28 audit period. 8 1 MR. HORTON: Is there a Motion, members? 2 MR. RUNNER: Yeah, I would move to recalculate 3 the tax redetermination to reflect those -- that 4 adjustment. 5 MS. STEEL: Second. 6 MR. RUNNER: Does that work? 7 MR. HORTON: Mr. Runner makes a motion to 8 extrapolate the 43 percent for the period January 2nd 9 through the end of the audit period on store No. 2 and 10 3. 11 MS. MANDEL: I thought that was -- was that -- 12 I am sorry. 13 I thought it was -- I thought the numbers that 14 they were talking about was for the entire time because 15 during the entire time 100 percent was disallowed as to 16 stores 2 and 3, but had the entire time not been 17 separate incorporations, but -- 18 MR. HORTON: The -- 19 MS. MANDEL: -- divisions, it would have been 20 applied. 21 I thought it was the 43 percent -- I thought 22 the numbers -- I thought it was across the board. 23 MR. HORTON: The challenge was the taxpayer 24 testified that store No. 2 and 3 did not reflect that 25 type -- that business model. 26 MS. MANDEL: Okay, well, what -- 27 MR. HORTON: Had no -- none of the sales for 28 resales during that period, that all their sales were 9 1 retail sales. 2 MR. LEVINE: This does cover the whole audit 3 period. 4 MR. HORTON: It does? 5 MS. MANDEL: Yeah. 6 MR. LEVINE: This is not just from the change 7 of business plan. 8 MS. YEE: Yeah. 9 MR. LEVINE: This is for the entire thing. 10 MR. HORTON: Okay, very good. 11 MS. MANDEL: Okay. 12 MS. YEE: Okay. 13 MR. HORTON: Discussion, Members? 14 The motion by Mr. Runner, second by Ms. Steel. 15 Objection? 16 Hearing none, such will be the order. 17 ---o0o--- 18 19 20 21 22 23 24 25 26 27 28 10 1 MR. HORTON: Ms. Olson? 2 MS. OLSON: Our next item is C7, City of 3 Los Angeles-Controller. 4 ---o0o--- 5 C7 CITY OF LOS ANGELES - CONTROLLER 6 NO. 489155 7 NO. 509958 (AA) 8 ---o0o--- 9 MR. HORTON: Members, I'd like to recommend a 10 30-30-30 to allow the taxpayer to consider their 11 options. 12 MS. STEEL: Is that a motion? 13 MR. HORTON: It's a motion. 14 MS. STEEL: Yeah. 15 MR. HORTON: Second by Ms. Steel. 16 Objection, Members? 17 MS. YEE: No objection, I have a question, 18 though. 19 MR. HORTON: Question? 20 MS. YEE: Do we have a statute of limitations 21 issue here without -- 22 MR. HORTON: Mr. Levine? 23 MR. LEVINE: There -- yeah, by about an hour. 24 The Notice of Determination was issued less 25 than three years ago. So, had this been done yesterday 26 or earlier today and the Department did a re-audit -- 27 MS. YEE: Exactly. 28 MR. LEVINE: -- and got a bigger number, they 11 1 could have asserted an increase. 2 But an increase must be asserted by the time -- 3 no later than the Board hearing. I believe -- I don't 4 think this counts as the Board hearing and you don't 5 have a number anyway. So, it's too late. 6 MS. YEE: Okay. 7 MR. LEVINE: So, the City can't do worse. 8 MR. HORTON: It can't go up? 9 MR. LEVINE: It can't go up at this point. 10 Also just -- if you're doing a 30-30 and you're 11 suggesting that if the City came up with documents and 12 the Department agreed to look at more, I think it might 13 take longer. 14 So, I would ask for leeway if they're actually 15 doing some full-blown re-audit work. 16 MR. HORTON: I would agree. 17 MS. YEE: Okay. 18 MR. HORTON: So, the 30-30-30, with the 19 discretion of the Department to extend it, contingent 20 upon the decisions to expand the audit period. 21 Okay, motion by Horton, second by Ms. Steel. 22 Without objection, Members? 23 Such will be the order. 24 ---o0o--- 25 26 27 28 12 1 MS. OLSON: Our next item is C9, Karen Renee 2 Cullinane. 3 ---o0o--- 4 C9 KAREN RENEE CULLINANE 5 NO. 470168 (EH) 6 ---o0o--- 7 MR. HORTON: Is there a motion, Members? 8 MR. RUNNER: You know, I'm going to find -- I 9 would make a motion in favor of the Petitioner for 10 purposes of discussion, at least. 11 MR. HORTON: There's a motion to -- 12 MS. STEEL: Second. 13 MR. HORTON: -- in favor of the Petitioner. 14 MS. MANDEL: And it's on the not willful theory 15 that she had -- she had a plan to pay and he interfered 16 with the plan to pay? 17 MR. RUNNER: Well, yeah, I mean, we -- I am -- 18 I am talking about it now, it seems to me clearly in 19 this setting -- and I don't know how we can find -- get 20 our way there, if we try to find a path that doesn't -- 21 MS. MANDEL: I think that's what I heard from 22 Mr. Levine as a factual potential path. 23 Was that right? 24 MR. LEVINE: If you find that she did not 25 willfully fail to pay, then -- then you should grant. 26 MR. RUNNER: Right. And I think the evidence 27 to that is the fact that she was in escrow, that she 28 clearly had the State -- the goal was take care of the 13 1 State's responsibility -- her State responsibility at 2 that point. 3 And that, once again, a husband, who had 4 already abused her, was abusing her continuous in a 5 financial way at that point. 6 And, so, I just -- I'm -- seems to me that this 7 was not willful on her part, she clearly had a plan and 8 it was the husband that interfered once again. 9 MR. HORTON: Oh, boy, you know, I'm very 10 sympathetic. The -- the escrow is subsequent to actual 11 payments to other vendors, prior to paying the people of 12 the State of California, therefore, subject to incurring 13 the liability. 14 MR. RUNNER: Right, but her circumstance was 15 the fact that she ended up acquiring those as a result 16 of, again, the abuse -- no -- absolutely no knowledge of 17 what the situation was, trying to do the right things in 18 terms of trying to get control of the business. 19 And then finding herself, you know, unable to 20 do that, so doing the right thing, which was to sell the 21 business and then she couldn't control that. 22 So, again I don't -- the willfulness at that 23 part -- she had -- she had a clear plan to take care of 24 it. 25 MR. HORTON: Further discussion, Members. 26 Hearing none, there's a motion and second on 27 the floor. 28 MS. YEE: Was there a second? 14 1 MS. STEEL: Me. 2 MR. HORTON: No, I'm sorry. 3 MS. MANDEL: You said questions and there was a 4 second. 5 MS. STEEL: We didn't discuss it without 6 second. I already seconded that. 7 MS. YEE: Okay. 8 MR. HORTON: All right. 9 Ms. Olson, please call the roll. 10 MS. OLSON: Mr. Horton? 11 MR. HORTON: No. 12 MS. OLSON: Ms. Steel? 13 MS. STEEL: Aye. 14 MS. OLSON: Mr. Runner? 15 MR. RUNNER: Aye. 16 MS. OLSON: Ms. Yee? 17 MS. YEE: No. 18 MS. OLSON: Ms. Mandel? 19 MS. MANDEL: No. 20 MS. OLSON: Motion fails. 21 MR. HORTON: Subsequent motion, Members? 22 MS. YEE: Move to adopt the staff 23 recommendation. 24 MR. HORTON: Ms. Yee moves to adopt the staff 25 recommendation. Second by Ms. Mandel. 26 MS. STEEL: Can we just do the tax return then, 27 you know, count from when she took over -- 28 MS. MANDEL: Oh, that's -- 15 1 MS. STEEL: -- February 15th, so -- 2 MS. YEE: The timing? 3 MS. STEEL: So, she's liable from February 15th 4 on. 5 MR. HORTON: Ms. Yee rescinds her motion. 6 MS. STEEL: Plus -- oh, I see. 7 MR. HORTON: I think. 8 Mr. Levine? 9 MS. YEE: Yeah, let's get it clear. 10 MR. HORTON: Let's get some clarity on the 11 timelines. 12 I recall that not -- that the period in which 13 the liability is due, that the period -- that that 14 period has already been taken out of the equation. 15 MR. LEVINE: Well, it -- 16 MR. HORTON: But -- 17 MR. LEVINE: -- depends how you count. 18 The reason we upheld the first quarter is 19 because she came into control in the middle of the 20 quarter. And when it was due April 30th, she was in 21 control. 22 Now, if she could show that she didn't have 23 enough money at that time, but by the time it was due, 24 she had three months worth of tax reimbursement that was 25 collected. So, it would be pretty hard to show. 26 But, anyway, that's the theory for why we 27 recommended upholding because she was -- we've 28 recommended upholding and the Board's agreed even after 16 1 the end of the quarter when someone comes in before the 2 due date. 3 MS. STEEL: She couldn't even get into the 4 store because of her husband and get -- got the key was 5 February 15. So, how can we know that she had money 6 because he already took all the money beforehand? 7 MR. HORTON: Okay. So, there are extenuating 8 circumstances which were beyond her control to pay the 9 bill in January. 10 And the motion, I believe, is to pick it up -- 11 MS. STEEL: February 15th. 12 MR. HORTON: February 15th to -- 13 MS. YEE: I'll second that. 14 MR. HORTON: Okay, rescind the first and second 15 by Ms. Yee and Ms. Mandel. 16 Now the subsequent motion, which takes 17 precedence, I've learned -- thanks, Mr. Runner -- is by 18 Ms. Steel and -- 19 MS. YEE: Second. 20 MR. HORTON: -- second by Ms. Yee. 21 Without objection, Members? Such will be the 22 order. 23 ---o0o--- 24 25 26 27 28 17 1 MR. HORTON: Ms. Olson? 2 MS. OLSON: Our last item for today is C10, 3 Edmundo Gonzalez. 4 ---o0o--- 5 C10 EDMUNDO GONZALEZ 6 NO. 470281 (FH) 7 ---o0o--- 8 MR. HORTON: Is there a motion, Members? 9 MS. YEE: Move to adopt the staff 10 recommendation. 11 MR. HORTON: Moved by Ms. Yee to adopt staff 12 recommendation. 13 Second by -- 14 MS. MANDEL: I'll second. 15 MS. STEEL: It's the one that moved to the 16 corporation asset and -- is that the case? 17 MS. MANDEL: Yeah. 18 MS. YEE: Yeah. 19 MS. STEEL: So, go after the asset and who took 20 that asset first and then we can go after this taxpayer. 21 And if we do that then before him to -- 22 MS. YEE: That's sufficient? 23 MR. LEVINE: Yeah, the Department can't go 24 after the individual -- 25 MS. YEE: Right. 26 MR. LEVINE: -- except to the extent that it 27 will hurt him if they take assets he thinks are his. 28 MR. HORTON: Yes, put a lien on it or 18 1 something? 2 MS. STEEL: Yeah. 3 MR. LEVINE: Maybe a nominee lien, I am not 4 sure -- maybe not in real estate, but -- 5 MS. MANDEL: You'll figure it out. 6 MS. YEE: Yeah. 7 MR. LEVINE: They'll have to figure it out. 8 So, if I understand the motion, it's to attempt 9 to collect, if possible, against any assets that are 10 available from the company. 11 MR. HORTON: They can't file late, it's after 12 5:30, so -- further delay. 13 So, there is a motion by -- 14 MS. YEE: Me. 15 MR. HORTON: -- Ms. Yee, second by Ms. Steel. 16 Without objection, Members, such will be the 17 order. 18 MS. OLSON: That concludes our business for 19 today. 20 MR. HORTON: Thank you, Members, we will recess 21 until tomorrow. 22 ---o0o--- 23 24 REPORTER'S CERTIFICATE 25 26 State of California ) 27 ) ss 28 County of Sacramento ) 19 1 2 I, JULI PRICE JACKSON, Hearing Reporter for the 3 California State Board of Equalization certify that on 4 JUNE 23, 2011 I recorded verbatim, in shorthand, to the 5 best of my ability, the proceedings in the 6 above-entitled hearing; that I transcribed the shorthand 7 writing into typewriting; and that the preceding pages 1 8 through 19 constitute a complete and accurate 9 transcription of the shorthand writing. 10 11 Dated: July 5, 2011 12 13 14 ____________________________ 15 JULI PRICE JACKSON 16 Hearing Reporter 17 18 19 20 21 22 23 24 25 26 27 28 20