BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 450 N Street, Room 121 Sacramento, California REPORTER'S TRANSCRIPT JULY 26, 2011 BUSINESS TAXES COMMITTEE Reported by: Beverly D. Toms No. CSR 1662 1 1 2 P R E S E N T 3 4 For the Committee: Betty T. Yee Chair 5 Michelle Steel 6 Member 7 Jerome Horton 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 Board of Equalization 15 Staff: Randy Ferris Legal Department 16 Bradley Heller 17 Legal Department 18 Susanne Buehler Sales and Use Tax Department 19 20 --oOo--- 21 22 23 24 25 26 27 28 2 1 INDEX 2 3 Page 4 ITEM 1 4 5 Speaker: 6 Alex Cleghorn 5 7 8 ITEM 2 9 9 Speaker: 10 Rebecca Madigan 11 11 12 ---oOo--- 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 1 ITEM 1 2 Sacramento, California 3 July 26, 2011 4 ---oOo--- 5 MR. HORTON: Ms. Olson. 6 MS. OLSON: Our next item is Business Taxes 7 Committee. Ms. Yee is the Chair of that committee. Ms. 8 Yee. 9 MS. YEE: Thank you very much, Ms. Olson. Good 10 morning, Members. We have two items before the Business 11 Taxes Committee. Why don't we take up the first one, 12 which is Proposed Amendments to Regulation 1616, related 13 to Sales to Governments of Officially Recognized Indian 14 Tribes. And I'll ask Mr. Heller to introduce the issue. 15 MR. HELLER: I'm going to go ahead and -- and 16 defer to the Department. 17 MS. BUEHLER: Good morning. I'm Susanne 18 Buehler with the Sales and Use Tax Department and with 19 me today is Bradley Heller from our Legal Department. 20 For agenda item 1 we're asking that you approve 21 either staff recommendation to amend Regulation 1616, 22 Federal Areas Regarding Sales to Governments of 23 Officially Recognized Indian Tribes; or approve 24 Alternative 2, to not make changes to the regulation. 25 In Alternative 1 we are asking the committee to 26 approve and authorize publication of proposed amendments 27 to provide a limited exemption from tax for sales to and 28 purchases by the tribal governments of officially 4 1 recognized Indian tribes of tangible personal property 2 for use in tribal self-governance. 3 The limited exemption applies if the tribal 4 government does not have a reservation to conduct tribal 5 government business; the reservation lacks a building in 6 which tribal government can meet or the reservation 7 lacks essential utility services or mail service from 8 the United States Postal Service. 9 The property is purchased for use in tribal 10 self-governance and delivery and ownership of the 11 property transfers to the tribal government at the 12 principal place in which it meets to conduct its 13 business. 14 I believe we may have a speaker on this item 15 and we'd be happy to answer any questions you may have 16 after their presentation. 17 MS. YEE: Thank you very much, Ms. Buehler. 18 Let me ask the public speaker who has signed up for this 19 item to come forward, Mr. Alex Cleghorn. 20 MR. CLEGHORN: Good morning. 21 MS. YEE: Good morning. If you'll take a seat 22 here. Introduce yourself for the record, please, and 23 you have two minutes for your presentation. 24 MR. CLEGHORN: My name is Alex Cleghorn and I'm 25 a Directing Attorney at California Indian Legal 26 Services. And I participated in -- in this process over 27 the last six to nine months, and very briefly I just 28 want to reiterate my support for the staff's 5 1 recommendation here. I think that they've been very 2 deliberate in -- in learning about the issue. I think 3 they've been responsive to the concerns that have been 4 raised. And really recognizing the practical reality of 5 tribes in California, there are many tribes in 6 California that do not have a land base or have a land 7 base that does not have mail service, does not have 8 phone service and are therefore placing their government 9 offices outside of Indian country or outside of the 10 reservation. 11 I think the proposed changes recognize that and 12 will be workable. 13 MS. YEE: Okay. Thank you very much, Mr. 14 Cleghorn. 15 MR. CLEGHORN: Thank you. 16 MS. YEE: Let me make one comment on this if I 17 may. I want to extend my appreciation to the staff and 18 to members of the tribal communities throughout this 19 State for participating in our interested parties 20 process. 21 It began with the discussions over the 22 publication but certainly as additional issues were 23 identified I have appreciated the ongoing dialogue. And 24 what I wanted to just make my colleagues aware on the 25 dais is that I think what these proceedings have 26 actually indicated to me is that -- is the necessity for 27 some sort of a body, and maybe we call it for lack of a 28 better term a tribal advisory council that really is 6 1 about a government to government ongoing interface about 2 these issues that come up. 3 I have not liked the fact that we sometimes 4 think about our tribal communities as an afterthought. 5 They are legitimate governments that -- who exist in our 6 State and I will be working with the tribal communities 7 in bringing back to this Board a recommendation for 8 establishing such a council in the future. Okay. 9 Mr. -- Mr. Horton. 10 MR. HORTON: Thank you, as well, Member Yee, 11 for your efforts and outstanding work in this area. As 12 many of you know, I chaired the Government Organization 13 Committee that oversaw tribal relations and for many 14 years the greatest challenge that we faced was just the 15 understanding of sovereignty within the State of 16 California, having a sovereign nation within the State 17 of California and the tax implications, which are a 18 little bit different on the Federal level versus the 19 State level, and much like an ambassador from other 20 countries wherein an ambassador -- and where the 21 ambassadors resides is another nation within the State 22 of California. 23 I mean, we have several nations within the 24 State of California; China, Japan, Europe and so forth, 25 and we acknowledge those because it's part of our 26 history. 27 But the sovereign nations and Indian country is 28 not necessarily something that everyone is conscious of 7 1 in our organization. 2 And so it's very pleasing to see that from the 3 top down we have communicated our sensitivity to these 4 issues in our awareness of the law. 5 So let's just continue along those lines and I 6 think we'll have great success. 7 MS. YEE: Thank you very much, Mr. Horton. 8 Other comments, Members? 9 Ms. Mandel. Nothing? Okay. 10 Others? 11 Very well, hearing none, is there a motion? 12 MR. HORTON: So moved. 13 MS. MANDEL: Then I'll second -- 14 MS. YEE: Okay. 15 MS. MANDEL: -- staff recommendation. 16 MS. YEE: Motion by Mr. Horton to adopt the 17 staff recommendation. Second by Ms. Mandel. 18 Without objection, that motion carries. Thank 19 you very much. 20 ---oOo--- 21 22 23 24 25 26 27 28 8 1 ITEM 2. 2 MS. OLSON: Our next item is Amending 3 Regulation 1684, Collection of Use Tax by Retailers. 4 MS. YEE: Okay, Members, we are on the second 5 item of the committee, amending Regulation 1684 related 6 to collection of Use Tax by retailers. 7 Ms. Buehler. 8 MS. BUEHLER: Randy Ferris from our Legal 9 Department is joining us for this item. 10 MS. YEE: Okay. 11 MS. BUEHLER: For this item staff seeks your 12 approval to begin an interested parties process to 13 discuss the need for rulemaking to implement, interpret 14 and clarify the provisions of ABx1 28, Statutes 2011, 15 Chapter 7. 16 ABx1 28 amended Revenue and Taxation Code 6203 17 which requires retailers that are engaged in business in 18 California to collect Use Tax and remit it to the Board. 19 We believe that it may be helpful to retailers if the 20 Board amended Regulation 1684 to define relevant 21 statutory terms, such as substantial nexus, commonly 22 controlled group and combined reporting group. 23 It may also be helpful if the regulation was 24 amended to explain when a retailer does not have a 25 substantial nexus with California under Section 6203 as 26 amended by ABx1 28, and provide examples of retailers 27 that are and are not required to register with the Board 28 to collect and remit Use Tax. 9 1 If you approve this item and we follow the 2 standard time line for the interested parties process we 3 anticipate holding the first set of interested party 4 meetings in October 20, 2011. 5 We plan on having meetings with the interested 6 parties in northern and southern California to get input 7 from as many parties as possible. 8 As the interested party process begins the 9 Department will also be continuing its implementation 10 plan for ABx1 28. As you are aware, we plan to utilize 11 our existing processes for registering out-of-state 12 retailers. More specifically, we will be sending 13 internet retailers a questionnaire which is being 14 modified to include questions specific to the new law. 15 Based on the retailers' responses to the questions we 16 will notify them if they need to register with the 17 Board. 18 The first group of questionnaires will be sent 19 to the top 500 internet retailers that are not currently 20 registered with the Board. And second group to the top 21 1,000 retailers. And the third group to the combined 22 reporting taxpayers identified by the Franchise Tax 23 Board. 24 Our implementation plan also includes posting 25 additional information and frequently asked questions on 26 the Board's web site and updating our publications. 27 At this time I would like to turn it over to 28 Mr. Ferris to provide you with more information related 10 1 to ABx1 28. 2 MS. YEE: Thank you very much, Ms. Buehler. 3 Mr. Ferris, good morning. 4 MR. FERRIS: Good morning. I actually didn't 5 have any prepared remarks with respect to this. I'm -- 6 MS. YEE: Okay. 7 MR. FERRIS: I'm here just to help answer 8 questions. 9 MS. YEE: Thank you very much. 10 I believe we have one speaker on this item. 11 Let me have Ms. Madigan come forward before we have the 12 Board discuss the matter. 13 MS. MADIGAN: Thank you. 14 MS. YEE: Good morning. 15 MS. MADIGAN: Good morning. 16 MS. YEE: If you'll state your name for the 17 record, and you have two minutes for your comments. 18 MS. MADIGAN: Thank you. My name is Rebecca 19 Madigan, and I am Executive Director of the Performance 20 Marketing Association. 21 And I represent affiliate marketers. And these 22 are the web site owners that had their incomes 23 devastated when this law went into effect immediately. 24 Unfortunately, online retailers didn't have 25 time to comply with being able to even collect sales tax 26 on their web sites; there wasn't enough time. So they 27 had to terminate affiliates. 28 There is a clause within ABx1 28 that allows 11 1 for a retailer to work with an affiliate if the 2 affiliate commits to not soliciting that retailers can 3 be exempt from Sales Tax collection. Excuse me. 4 So, I wanted to ask that their -- that process 5 be prioritized because it will help affiliates get back 6 into business very quickly. 7 MS. YEE: Thank you very much, Ms. Madigan. 8 MS. MADIGAN: Thank you. 9 MS. YEE: Mr. Ferris, can you address that 10 particular provision? 11 MR. FERRIS: Yes, I think that she may be 12 referring to processes that are similar to what New York 13 has in place with respect to their similar put through 14 nexus bill. 15 MS. YEE: Uh-huh. 16 MR. FERRIS: And there definitely is a -- 17 tension is probably not the right word but there's an 18 issue with respect to how ABx1 28 is written with 19 respect to distinguishing contracts that are advertising 20 contracts versus contracts that are with affiliates of 21 the kind that will cause nexus to exist with the 22 taxing -- with California. 23 And so, part of what would need to happen in 24 any kind of rulemaking exercise with respect to this 25 bill would be to -- to provide more guidance as to how 26 do we distinguish between these contracts, both of which 27 may be paid on a per completed sale basis. What -- what 28 kind of contracts are advertising contracts and what 12 1 kinds of contracts are these types of affiliate 2 contracts that -- that create nexus. And the -- and 3 depending upon how that -- how that gets distinguished 4 it affects who has the burden with respect to showing 5 whether or not an extra act of solicitation has 6 occurred. 7 MS. YEE: Uh-huh. 8 MR. FERRIS: If it's the -- if it's the kind of 9 contract that the Legislature intends to create nexus 10 then the burden is on the out-of-state retailer to show 11 that their in-state affiliates do not solicit. 12 If the contract is -- based on whatever 13 interpretation and -- and guidance we can help give, if 14 it's construed to be an advertising contract I think the 15 way the bill is written the burden becomes more on the 16 Board to establish that there is some extra act of 17 solicitation going on. 18 MS. YEE: Uh-huh. Okay. Very well. 19 MS. STEEL: Question. 20 MS. YEE: Discussion on this point? 21 Ms. Steel. 22 MS. STEEL: I was against this internet tax to 23 begin with. But further interest parties, what we are 24 seeking from the interest parties? It's more of 25 educational that, you know, let people know the -- they 26 have to collect the sales taxes or what -- what we are 27 looking for from here? 28 MS. BUEHLER: Well, I think part of the process 13 1 is to find out where there is need for clarification 2 from an interested party perspective. Something that 3 may seem very black and white to the Board of 4 Equalization is not necessarily the same from their 5 perspective. 6 So we really need to open up that dialogue and 7 find out how they're interpreting things as they read 8 the bill versus how we're interpreting them and make 9 sure we come to a common understanding in the 10 regulation. 11 MS. STEEL: So clarification -- 12 MS. BUEHLER: Yes. 13 MS. STEEL: -- that, you know, what you -- 14 okay. And then second thing is maybe, Mr. Ferris, that 15 if it's going to be on the ballot next year, June, then 16 what happen? If it -- I don't know which it's going to 17 go but if people voted that this is illegal, then what 18 happen? 19 MR. FERRIS: Well, for sure, I think something 20 that would be beyond dispute is that the law would be 21 ineffective from the date of the election forward, if -- 22 if the voters vote it down. So that -- that part is 23 certain. 24 There are opinions out there that, for example, 25 the Leg. Counsel has issued an opinion suggesting 26 that -- that they -- they believe that it would become 27 ineffective upon certification of the referendum, as 28 well. 14 1 So there -- there are a variety of issues 2 related to effectiveness. The one thing we know for 3 certain is it is effective now and for sure it will not 4 be effective if the voters vote it down. 5 MS. YEE: Right. 6 MS. STEEL: Thank you. 7 MS. YEE: Okay. Mr. Runner. 8 MR. RUNNER: Yeah, just -- let's -- let's -- 9 I'd like to follow up a little bit more on that. It 10 seems to me that some of the discussions we're having in 11 regards to first interested parties meetings and what 12 not sound like they're going to be in October. 13 MS. BUEHLER: That's correct. 14 MR. RUNNER: When do we estimate that the 15 surveys would be going out? 16 MS. BUEHLER: The surveys are anticipated to go 17 out in about 30 days. 18 MR. RUNNER: About 30 days. And that would be 19 the first set. The second set of surveys would go out 20 when? 21 MS. BUEHLER: We don't have a specific time 22 line, but we would expect it sometime after that. Maybe 23 two or three weeks. 24 MR. RUNNER: Okay. Here -- here's my concern 25 in this process. We do know that there's an active 26 referendum process going on right now. Signatures are 27 actively being collected for this particular issue. I 28 believe the deadline for this particular item, for the 15 1 turning back in, I believe is September 27th or 6th or 2 something, in -- in that neighborhood. 3 I -- I realize there's been different 4 discussions about what it is that this -- how the law 5 would be applied once those signatures have been -- been 6 gathered. And I know we have an opinion from Leg. 7 Counsel that the law be paused at the time -- I think 8 actually her opinion -- their opinion actually said at 9 the start of the certification process as -- as -- as 10 it's being certified. 11 Let me ask you, has anybody had any written 12 opinion that the law actually continues during that 13 time? 14 MR. FERRIS: I'm not aware of any written 15 opinion. 16 MR. RUNNER: Okay. So the only written opinion 17 we really have is from Leg. Counsel saying that the law 18 basically is suspended during -- during that time. And 19 on top of that I think we actually have -- at least I've 20 seen the letter from the proponents of the Prop 28 21 issue, which is -- which is the basis of this 22 discussion, that also said that it was not intended to 23 undermine the referendum process or make a bill not 24 referendable. 25 MR. FERRIS: Oh, Proposition 25? 26 MR. RUNNER: Yeah, 25, excuse me. 27 MR. FERRIS: Uh-huh. 28 MR. RUNNER: So I'm trying to figure out -- you 16 1 know, trying to weigh the evidence, if you will, in 2 regards to what we have in terms of a written opinion by 3 Leg. Counsel; what we have by the authors of Prop. 25, 4 and I'm just trying to weigh that against what somebody 5 might have said in a press conference. 6 It seems to me that -- that the legal opinion 7 in terms of -- in terms of actually those that have gone 8 to paper, reviewed the law, have all been over here that 9 the law is suspended. 10 So, I guess that's where I would believe we 11 would be because there's no opinion on this other side 12 over here. 13 So let me follow up on that. Then if -- if 14 indeed the law is suspended during that period of time 15 what authority do we have to convene or to continue to 16 convene public interest -- public information meetings 17 or discussions or talk about regulations on a bill that 18 has basically been suspended? 19 Do we -- what -- what authority would we have 20 if the bill is actually suspended? 21 MR. FERRIS: I think it's -- it's important to 22 take into account that we -- we kind of do rulemaking in 23 two phases. 24 MR. RUNNER: Uh-huh. 25 MR. FERRIS: You know, one phase, which is what 26 we call informal rulemaking where we're just having 27 discussions with interested parties, but it's not the 28 kind of rulemaking that is under the Administrative 17 1 Procedures Act that leads to for -- what we call formal 2 rulemaking. 3 So usually there's an initial phase where we're 4 just discussing and sometimes -- and then it eventually 5 comes to the Business Taxes Committee. Sometimes the 6 Board in the past has decided, you know, we don't want 7 to do formal rulemaking on this, we're suspending this; 8 we had some initial informal discussions and we're done, 9 we're tabling this. That's occurred. 10 Or sometimes they say, "We do want to go 11 forward with actual formal rulemaking" and then a public 12 notice is given. And then the -- the actual rulemaking 13 process begins. 14 So the kinds of discussions we could have if 15 the Board so directed would be of an informal nature, it 16 would not be the kind of rulemaking public hearings that 17 are under -- 18 MR. RUNNER: So, the idea of our rulemaking 19 would be informal potentially? 20 MR. FERRIS: Uh-huh. 21 MR. RUNNER: Would -- would that mean that we 22 would assume that the -- in that informal rulemaking 23 would it be predicated on the assumption that AB 28x was 24 going to be law, or is going to be law, or is law? 25 MR. FERRIS: I think it would be probably 26 premised on the assumption that if it were to be 27 validated by the voters, assuming that the referum -- 28 referendum qualifies -- if it were to be affirmed by the 18 1 voters, how should the Board implement it. 2 MR. RUNNER: Is it -- wouldn't that be similar 3 to us -- maybe we've done this. Maybe you could point 4 out where we've done this -- a bill that's over in the 5 Legislature running through committees to where we would 6 begin doing rulemaking based upon a bill that's running 7 through committees? 8 Wouldn't that be similar? I mean, because 9 basically it's -- it's a bill that is basically in 10 suspense. Its outcome is going to be determined by the 11 public at a vote then February -- most likely June. Do 12 we have a history of actually doing rulemaking while a 13 bill is basically not law? 14 MR. FERRIS: I think we have had interested 15 parties meetings with respect to pending legislation 16 before. 17 MR. RUNNER: Okay. Let me ask you, again, 18 the -- the -- the other part of this discussion is have 19 we gotten any -- have we got any -- any appropriation in 20 order for us to go down this path? 21 MR. FERRIS: We received $1,000. 22 MR. RUNNER: And that $1,000 would go how far 23 in helping us proceed with this interested parties 24 process? 25 MR. FERRIS: Probably our time in this 26 discussion right now. It's true, though. 27 MR. RUNNER: So basically what we would end up 28 doing is reaching into other aspects of our budget in 19 1 order to do rulemaking -- potential rulemaking on a bill 2 that's in suspense and taking then our -- 3 MS. YEE: The bill -- the bill's been signed, 4 Mr. Runner. 5 MR. RUNNER: What's that? 6 MS. YEE: The bill's been signed. 7 MR. RUNNER: Oh, no, no. I'm talking about 8 if -- I'm talking about right now if the bill actually 9 is in suspense as a result of the referendum. 10 So the -- and, again, the -- the dis -- the 11 issue here is that as I was hearing the time line that 12 these processes were going to take place after the bill 13 would be in suspense, if indeed the signatures were 14 gathered. 15 So that's -- that's the crux of the timetable 16 that -- that I'm dealing with. 17 So basically we'd be taking prog -- monies away 18 from other programs that we do have authority to do that 19 are a part of what it is that we do as our core of 20 business here at BOE and putting it into a discussion 21 with interested parties -- and let me think, these 22 interested parties are people who are doing a referendum 23 to repeal the law -- I just don't know what kind of 24 cooperation we're going to get during that period of 25 time. 26 MS. YEE: It's a broader -- it's a broader 27 community than that, Mr. Runner. 28 MR. RUNNER: Well, right, but I don't -- there 20 1 certainly is a broader community but I'm -- what I'm 2 talking about is that certainly that portion of the 3 community would certainly be of concern in regards to 4 why it is they're participating, what the authority is 5 for them, and quite frankly why should they -- they 6 should spend any time on it, they're just going to wait. 7 Now, let me just follow through in regards to 8 see if I got the timing of this clear. And that is if, 9 indeed, the referendum does take place and the bill is 10 on suspense, like I said there's -- all legal so far in 11 written opinion have said the bill is -- would be in 12 suspense. 13 Let's say -- let's go down a couple of 14 scenarios, the first scenario being the public agrees 15 with the act -- act of the Legislature and so the bill 16 goes into effect. What's the effective nate -- date 17 then of that bill based upon the public vote? 18 MR. FERRIS: Well, you're -- you're asking a 19 question -- what lawyers call a matter of first 20 impression. 21 MR. RUNNER: Uh-huh. 22 MR. FERRIS: There's never been -- to -- to my 23 knowledge there's never been a bill that was immediately 24 effective that was also subject to referendum. 25 MR. RUNNER: Uh-huh. 26 MR. FERRIS: And so we -- Prop 25 has created a 27 new creature that -- at least according to the Leg. 28 Counsel, is a bill that's immediately effective and is 21 1 subject to referendum. 2 And so, I don't think anyone can give a -- a 3 definitive opinion on this at this point. It probably 4 will get litigated at some point. 5 MR. RUNNER: Well, why don't you help me 6 understand what the -- what the various options could be 7 of interpretation. 8 MR. FERRIS: Well, one -- 9 MR. RUNNER: Again, I'm assuming -- and, again, 10 I understand. I'm coming down the path that is saying 11 that the legal -- written legal opinions are all on the 12 fact that the bill has indeed been -- would be 13 referendable. 14 MS. YEE: Mr. Runner, I -- excuse me for 15 interrupting. I -- I think this discussion is -- is 16 speculative, at best. And our legal authority will 17 reside with the opinion of the Attorney General. And we 18 have a -- a bill that is current law. Out of respect to 19 those who are affected immediately by the bill, Ms. 20 Madigan is here asking us to focus on a particular 21 provision of the bill. 22 All we want to do with this interested parties 23 process is to begin to bring the parties -- and they are 24 going to be the ones that, yes, are behind the 25 referendum, but they also are going to be in-state 26 retailers to get a sense of, you know, what this new 27 landscape is going to look like relative to collection 28 of Use Tax. 22 1 But it's a broader community and we have an 2 obligation to enforce the law, to implement the law. 3 MR. RUNNER: Mad -- Madam Chair, if I could 4 continue with my thoughts and discussion on this, 5 please. 6 MS. YEE: Actually, I'm gonna -- I'm gonna stop 7 you with respect to questionings about the referendum -- 8 MR. RUNNER: I -- 9 MS. YEE: -- and focus on kind of the -- the 10 question that's before us -- 11 MR. RUNNER: I -- I appreciate that that would 12 be your -- your desire. But I believe that my position 13 and role here as a Board Member is appropriate for us to 14 talk about what is the appropriate role for the Board of 15 Equalization to actually involve its staff in its 16 discussions on a potential of a bill that may be in 17 suspense, and that our timetable that were laid out is 18 potentially putting our resources toward implementing a 19 reg. -- implementing a regularta -- a regulatory process 20 when a bill could be in suspense. And then the 21 appropriateness for us and our authority as a body to do 22 that. That is an perfect -- perfect application for 23 this discussion at the moment. 24 MS. YEE: Okay. Mr. Runner, I will let you 25 proceed but I will couch the response as -- because I 26 don't believe our Legal Department are experts on the 27 referendum process -- but I will couch the response as 28 being speculative. 23 1 MR. RUNNER: Well -- and that's exactly what I 2 actually asked. I asked for different opinions. So I 3 didn't -- I didn't ask for an opinion, I said, well, 4 what are the different opinions out there, and so I'll 5 go back to my question, and that is what are the 6 different opinions that are out there in regards to if 7 indeed the voters then voted to uphold the Legislature 8 in regards to when it would be that this -- this law 9 would go into effect. 10 MR. FERRIS: So -- so they vote to affirm the 11 law? 12 MR. RUNNER: Yeah, let's say -- yes, that would 13 be the first question. 14 MR. FERRIS: Okay. One -- one possible 15 interpretation of this is that because this is a -- a 16 new creature it -- it -- it became effective, in a sense 17 the bell has been rung -- 18 MR. RUNNER: Uh-huh. 19 MR. FERRIS: -- right -- that the bell 20 continues to ring until such time as the voters stop it. 21 And if they don't stop it it just continues to ring. 22 That's one way to look at it. 23 Another opinion would be reflected by the Leg. 24 Counsel opinion, which would be that it could -- the 25 bell could ring, then it could stop ringing, and then it 26 could start ringing again. 27 MR. RUNNER: Uh-huh. 28 MR. FERRIS: If the -- and in that sense the 24 1 voters would hit the bell a second time. 2 MR. RUNNER: Okay. 3 MR. FERRIS: Those are the two basic -- 4 MR. RUNNER: And -- and has there even been any 5 legal opining on that second alternative, in terms of a 6 written opinion? 7 MR. FERRIS: On the -- where there would be a 8 suspension of the operation of the statute? 9 MR. RUNNER: Uh-huh. 10 MR. FERRIS: The only written opinion I'm aware 11 of is the Leg. Counsel opinion. 12 MR. RUNNER: Okay. Okay, let me -- and if, 13 indeed, the public uphold -- or -- or the vote was to go 14 ahead and uphold or was to disagree, I guess, would be 15 the way that it would come across -- disagree with the 16 Legislature and overturn that, what would -- at that 17 point would -- are there different opinions as to what 18 the -- what would happen? 19 MR. FERRIS: Again, I think -- well, it's -- 20 it's hard to say because a lot of people are holding 21 back, I think stating -- people that might be interested 22 in litigating are -- are not going to the press stating 23 what their litigation positions might be. 24 But there would be the -- the same kinds of 25 options available for people to argue. Again, because 26 these are -- this is a matter of first impression this 27 is a -- a unique creature of law, you can -- you can 28 assume that reasonable arguments can be made on both 25 1 sides of the issue. 2 MR. RUNNER: Okay. Let me -- let me just say 3 in closing then on -- on this, again I'm -- I'm pretty 4 well convinced that -- again, that we've got one legal 5 opinion opined by the Legislature and we -- by the -- by 6 the Leg. Counsel. We have the authors of the -- of the 7 bill to -- which seems to be the center of this issue, 8 have written their intent, which is pretty important 9 when it comes down to legal interpretations. 10 As the -- as the -- as the Chair of the 11 committee has pointed out that -- that we oftentimes go 12 back to -- to the Attorney General for our opinion. 13 Maybe I guess it would be appropriate for us to make a 14 request -- ask you to make a request of the Attorney 15 General to ask about when it is that this bill would 16 be -- what would be the consequence of this particular 17 bill if, indeed, the -- the referendum moves forward and 18 then determine from their opinion at the Attorney 19 General's office when it is that, quote, the clock 20 stops. 21 And, again, my position -- my concern would be 22 if, indeed, the Leg. Counsel's opinion is the clock 23 stops, the Attorney General could opine the authors have 24 determined the initiative said that it doesn't, I have 25 great difficulty then, Members, for us then to continue 26 a regulatory process on basically a bill and a concept 27 that indeed is on -- that is on pause. 28 And I just don't understand what our role and 26 1 our authority is, particularly then when it is that we 2 are using limited resources that we have on -- on 3 speculating on what it is the outcome is going to be. 4 So it can -- I'd like to get a -- I guess my 5 request specifically would be for our -- our counsel to 6 go ahead and retain a -- a Attorney General opinion on 7 this -- on this very issue. 8 MS. YEE: Mr. Horton, please. 9 MR. HORTON: Thank you. Members, someone once 10 said that it is -- that the public interest is -- is 11 best served by free -- the free exchange of ideas. And 12 the challenges that we face as an agency if we wait then 13 we're faced with having to notify the public of the 14 results and implement various rules and regulations and 15 so forth and the public be caught off guard. 16 It is in the best interests of the public and 17 this agency to be prepared. This is a -- a process of 18 evolution. It's -- that has been evolving for years. 19 And arguably we probably should have done -- or 20 conducted an interested parties meeting during the 21 legislative process, while the legislation was being 22 considered so that we would be better positioned today 23 to be able to address some of these concerns. 24 So relative to seeking the input from the 25 public and having public discussions about this and 26 where do we go and beginning to determine ourselves as 27 an agency how we believe the regulation -- I mean the 28 law should be interpreted, we should start that process 27 1 expeditiously and immediately. 2 And we should be informed, meaning that we 3 should seek the -- as I believe we're already -- have 4 already asked that we seek the opinion -- opinion of the 5 Attorney General, and I believe that is forthcoming as 6 to when the initiative is enacted and when it takes 7 place. 8 But irrespective of that, this will evolve. 9 This will take place. We cannot put on blinders and 10 pretend that this is not going to happen. 11 Relative to the cost benefit of this, it is 12 always beneficial to hear from the public, irrespective 13 of what the cost is. We would not have the testimony we 14 had today had we heard from the public and been able to 15 address those concerns prior to this particular hearing. 16 And so, we want to arm ourself with as much 17 information and insight to this problem as we possibly 18 can and I think that's just wisdom and appropriate. 19 MS. YEE: Thank you very much, Mr. Horton. 20 Let me try to frame the issue that is before us 21 today, Members, before the committee. And as Chair it 22 is my request that we begin discussions and convene 23 interested parties with respect to the application of 24 the provisions of AB 28x that will have implications 25 for, I'm sure, some of the existing provisions of 1684. 26 I believe our responsibility is not an end. 27 And, Mr. Runner, I appreciate where you were going in 28 terms of looking at what may have the potential of 28 1 stopping us in our tracks relative to continuing to 2 administer this newly enacted law. The assumption that 3 I make is that we have a law; it's in effect. It has 4 specific effects on a number of interested parties of 5 which one is represented here by Ms. Madigan. And these 6 are people's livelihoods that are actually affected 7 right now, and I think we have a responsibility to 8 understand what those issues are. 9 We have a responsibility to clarify any 10 provisions that so require so that it is clear how we're 11 going to administer this law appropriately and fairly. 12 And until the time that we are told, whether it's by the 13 electorate or by a Court or any other higher authority 14 that we should stop our proceedings in this fashion, I 15 believe we have a responsibility to basically uphold the 16 law. It is the law. We took an oath of office to 17 uphold the law. 18 And that's what I'm asking today. It is an 19 informal process. It is about convening of the parties 20 to understand the issues. There will be in addition to 21 what Ms. Madigan has brought us today and I believe and 22 I agree with Mr. Horton, that -- those proceedings 23 should begin as soon as possible. 24 MR. RUNNER: Quick question to the Chair. 25 MS. YEE: Mr. Runner. Mr. Runner 26 MR. RUNNER: Just to follow up on it, I guess 27 I'm -- I guess this is a two-part observation. Number 28 one, is your suggestion that we continue this process 29 1 between now and -- well, starting now, and even if the 2 signatures are turned in and the law goes on pause that 3 we would continue an active implementation policy plan 4 of AB 28x? 5 MS. YEE: If there is an opinion that this 6 Board recognizes, and I would recognize an opinion by 7 the Attorney General or by a Court of law, but those 8 opinions so directed that the statute would -- 9 essentially become inoperative or cease to be operative, 10 then the interested parties process would cease. 11 MR. RUNNER: Okay. So -- so at this point then 12 what -- just to clarify, we -- we would I guess not 13 accept and -- and -- and agree with the opinion that has 14 come out from Leg. Counsel, not that we have to. 15 I mean, I -- I get the fact that we don't have to. 16 And so, at this point then we would believe 17 that we must seek our own opinion, and if what I'm 18 hearing you correctly then say is that if, indeed, the 19 Attorney General opinion comes out and agrees in concept 20 with the Leg. Counsel opinion and the authors of Prop. 21 25 that we would cease at that point active 22 implementation and discussions in regards to AB 28x? 23 MS. YEE: That would be my intent. 24 MR. RUNNER: Okay. Okay. How -- just to 25 follow up, and -- and how quickly do we think we will 26 hear back from the Attorney General's office? 27 MR. FERRIS: I -- I think that because this is 28 a matter of -- of -- of great public interest perhaps 30 1 they might be able to do it sooner, but usually it takes 2 six months -- 3 MR. RUNNER: Ooh. 4 MR. FERRIS: -- at a minimum. 5 MR. HELLER: Yeah. 6 MR. FERRIS: I think. 7 MR. RUNNER: Let me ask you, in regards to our 8 request of the Attorney General, oftentimes the Attorney 9 General we can -- we can get the Attorney Generals kind 10 of opine on their own or we can ask them to solicit and 11 take other opinions that have -- and -- and review other 12 opinions. 13 Is our assumption that at this point it might 14 be good for them to, for instance, consult and see what 15 the -- the Leg. Counsel has opined on that -- this 16 particular issue? 17 MR. FERRIS: Yeah, that -- that could be 18 appropriate to include that. 19 MR. RUNNER: Okay. 20 MR. FERRIS: It sounds like there -- there is a 21 consensus of the Board that we should inquire -- 22 MR. RUNNER: Okay. 23 MR. FERRIS: -- of the A. G. and we can send a 24 package over and that would include the Leg. Counsel 25 opinion. 26 MR. RUNNER: Okay, thank you. 27 MS. YEE: Thank you, Mr. Runner. 28 Other discussion, Members? 31 1 Mr. Horton. 2 MR. HORTON: Members, we might want to 3 bifurcate the issues -- 4 MS. YEE: Uh-huh. 5 MR. HORTON: -- so that there's some clarity 6 here. The implementation of the law versus the 7 preparation by the Board to begin to solicit input and 8 determine what the appropriate actions might be based on 9 the interested parties, those will be impacted by that. 10 I believe that we should start that process 11 immediately, irrespective of what the opinions are. And 12 that we won't know whether or not this takes place until 13 the voters direct us or until litigation takes place 14 prior to, which I don't think is going to happen. But 15 the direction on us preparing or not preparing will come 16 either from the court or public opinion via the election 17 process. 18 MR. FERRIS: Right. I agree, we don't need to 19 ask the Attorney General whether we can have informal 20 discussions. 21 MS. YEE: Right. 22 MR. FERRIS: What we need to ask the Attorney 23 General about is the effective date issues. 24 MR. HORTON: Right. Okay. 25 MS. YEE: Right. Right. 26 MR. HORTON: I'm good. 27 MS. YEE: Correct. 28 Okay. Other discussion, Members? 32 1 Hearing none -- any other comments by staff? 2 Very well. Hearing none, is there a motion? 3 MS. MANDEL: Move -- move the item to the 4 interested parties process. 5 MS. YEE: I have a motion by Ms. Mandel to move 6 this item to the interested parties process. Is there a 7 second? 8 MR. HORTON: Second. 9 MS. YEE: Second by Mr. Horton. 10 Please call the roll. 11 MS. OLSON: Madam Chair. 12 MS. YEE: Aye. 13 MS. OLSON: Mr. Horton. 14 MR. HORTON: Aye. 15 MS. OLSON: Mr. Runner. 16 MR. RUNNER: No. 17 MS. OLSON: Ms. Steel. 18 MS. STEEL: No. 19 MS. OLSON: Ms. Mandel. 20 MS. MANDEL: Aye. 21 MS. OLSON: Motion carries. 22 MS. YEE: Thank you very much. 23 That concludes our Business Taxes Committee. 24 Thank you. 25 ---oOo--- 26 27 28 33 1 REPORTER'S CERTIFICATE. 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, BEVERLY D. TOMS, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 July 26, 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 33 13 pages constitute a complete and accurate transcription 14 of the shorthand writing. 15 16 Dated: August 4, 2011. 17 18 19 20 ____________________________ 21 BEVERLY D. TOMS 22 Hearing Reporter 23 24 25 26 27 28 34