BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 450 N Street, Room 121 Sacramento, California REPORTER'S TRANSCRIPT JULY 26, 2011 ITEM C1 SALES AND USE TAX APPEALS HEARINGS PETITION FOR REDETERMINATION filed by PAUL GLASSON (Case No. 482541 CH ) 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: Appeals Division 16 Andrew Kwee 17 Tax Counsel 18 Robert Tucker 19 Legal Department 20 Steven Sisti Audit Determination and 21 Refund Section 22 23 For Petitioner: John Glasson Certified Public Accountant 24 Paul Glasson 25 Taxpayer 26 27 ---OOO--- 28 2 1 Sacramento, California 2 July 26, 2011 3 ---oOo--- 4 MR. HORTON: Ms. Olson. 5 MS. OLSON: Our next item is C1. 6 MR. HORTON: Oh, Ms. Olson -- 7 MS. OLSON: Uh-huh. 8 MR. HORTON: -- one second. 9 Okay, please continue. 10 MS. OLSON: Okay, our next item is C1, Paul 11 Glasson. Please come forward. 12 MR. HORTON: Mr. Levine, would you please 13 introduce the issues in this case. Thank you. 14 MR. LEVINE: Good morning, Chairman Horton, 15 Members. 16 MR. HORTON: As the -- going once, as the 17 taxpayer comes forward, please. 18 MR. LEVINE: David Levine for the Appeals 19 Division. The issues in this petition of Paul Glasson 20 are whether adjustments are warranted to the disallowed 21 claimed non-taxable sales or to the audited unreported 22 sales. 23 MR. HORTON: Thank you very much. I would ask 24 that the appellant introduce themselves for the record. 25 You have ten minutes to make your presentation and we 26 will return after the Department makes their for five 27 minutes of rebuttal. 28 Thank you, sir. 3 1 PAUL GLASSON: Good morning, Board. My name is 2 Paul Glasson. I'm the -- 3 MR. HORTON: Good morning. 4 PAUL GLASSON: -- the taxpayer and I'm here in 5 regards to the appeal on what I believe to be an 6 excessive tax burden based solely on a quarterly block 7 test that resulted in four unaccepted out-of-state 8 sales, giving me a 70 percent error rate. 9 I have since given evidence -- documentary 10 evidence to support the four out-of-state sales that 11 included vehicle registrations out of state for all four 12 units, signed 447 BOE forms called Purchase Order 13 Contracts that shows that the car -- the Sales Tax was 14 not collected as well as some new evidence documents 15 that I sent -- brought in yesterday or faxed over to Ms. 16 Boring to be given to the Board. 17 MR. HORTON: One second, sir. 18 Mr. Levine, Department, are we in receipt of 19 these documents referenced? Okay. Thank you. Please 20 continue. 21 PAUL GLASSON: Okay. I want to explain a 22 little bit about what I do. I am not an Amazon.com. 23 I'm a one-man operation. Essentially, I'm an auto 24 broker. My entire enterprise is based on capital -- 25 about $80,000 where I sell one car at a time. 26 That's -- this is the sole -- this is the only 27 way that I support my family; my wife and my three 28 children. 4 1 And I recently went through a second Sales Tax 2 audit '07 through '09 where I'm sure it was based on the 3 results of this first one. They came into my office. 4 They went through all my documentation. Every bank 5 statement. Every stock jacket. And they -- Ms. Chang 6 asked me questions and we went through everything and 7 there was no determination. I think I ended up paying 8 4,000 or 5,000 dollars on it but it was a very minimal 9 difference. 10 This I feel is extremely excessive and it's 11 based on only those four vehicles which every time I've 12 given them documentation they say they want more. I -- 13 I did not collect the Sales Tax on it. The cars were -- 14 were taken out of state. They have been proven they 15 have never been registered in the State of California. 16 And I -- I think essentially on two of the vehicles 17 because I don't have the Bills of Lading that prove they 18 were delivered out of the state that they're getting me 19 on that technicality. And that was -- I mean, 20 admittedly my recordkeeping -- this was my first audit. 21 Sometimes you have to go through your first audit to be 22 able to know exactly what the State is required of you. 23 And I've since -- done much better on doing my 24 accounting and keeping track of everything and -- and so 25 forth. 26 I put in a much better system to implement 27 that. But it took this first audit to be able to 28 understand what was expected of me in that regard. 5 1 The second issue at hand was -- was solely 2 based on the differences in Federal income tax versus 3 Sales Tax returns. And they took -- essentially the 4 State auditor took my Federal income tax returns gross 5 sales and -- and subtracted the amount reported to the 6 State and made the difference assuming that all that 7 difference was taxable. 8 Well, when my wife and I did our taxes for our 9 accountant, essentially we included everything in gross 10 sales, which included consignment sales which we did -- 11 was not taxable, wholesale sales that was not taxable, 12 tax collected -- it was gross income and that's what was 13 reported. So that was overstated in a sense of the 14 Federal income tax versus the Sales Tax returns. 15 So the numbers were inflated in that and to 16 assume that all of that is taxable is -- is wrong. I've 17 been in business for 12 years. I have a lot of repeat 18 customers. I've always paid my taxes on time. If like 19 any retail sale I collect the Sales Tax and I pay it on 20 a monthly basis and then it -- on a quarterly basis it's 21 gone through, and I've been doing that for years without 22 a problem. 23 So I hope the -- the Board will take into 24 account that, a, this is a life-changing event for me. 25 This kind of money will put me out of business. I mean, 26 I can't survive when I've got a capital of $80,000 and 27 the State's telling me that I owe them with interest 28 over $140,000. And that they take into account the 6 1 documentation that I provided. I've -- I've had to go 2 through so much to get that documentation and -- and -- 3 and still continue to try and work as I'm a one-man 4 operation, I can't -- I don't -- don't have any 5 employees. I can't sit down and have somebody help me 6 with that stuff. 7 So that's my contention at this point. 8 Thank you. 9 MR. HORTON: Thank you very much. 10 The Department has ten minutes to make their 11 presentation commencing with their introduction. I 12 would ask that you take the new information under 13 consideration in order to indicate that you have -- need 14 additional time to do so. 15 Thank you. 16 MR. KWEE: Sure. Good morning, Mr. Horton and 17 Members of the Board. I am Andrew Kwee with the Board's 18 Legal Department. With me today are Bob Tucker, also 19 from the Legal Department, and Steve Sisti sitting to 20 his right. And we'll be representing staff. 21 Petitioner is a used car dealer and the 22 petitioner disputes the disallowance of deductions taken 23 on Sales and Use returns. 24 And the petitioner also believes that 25 additional adjustments are warranted with respect to 26 unreported vehicle sales. 27 First regarding the disallowed deductions on 28 the returns, Sales Tax applies when the vehicle is 7 1 delivered to the purchaser within the State even if the 2 purchaser subsequently intends to take it outside the 3 State or register the vehicle outside the State. 4 Petitioner has provided evidence of vehicle 5 registration. We did look at all the additional 6 documents provided today, actually. Most of this was 7 already previously provided at the time of the appeals 8 conference. There are three new documents. 9 Again, the -- the new documents don't discuss 10 or they don't pertain to the delivery to a common 11 carrier or delivery by the facilities of the purchaser 12 outside the State, which would say that Sales Tax -- 13 would be to say that Sales Tax is inapplicable. 14 So, as noted in the Decision and Recommendation 15 the Petitioner simply has not provided necessary type of 16 documentation to support that Sales Tax does not apply 17 to these vehicle sales that were disallowed as 18 deductions on its returns. 19 On the second issue, the gross receipts from 20 sale that Petitioner reported on its Federal income tax 21 returns exceeded those sales reported on the Sales and 22 Use Tax returns by over $700,000. 23 Petitioner notes that he reported everything 24 whether or not it was taxable or non-taxable as the 25 gross receipts on Federal income tax returns. 26 For example, he claims that approximately 27 $375,000 of this difference pertains to resale 28 transactions and approximately $230,000 pertained to 8 1 sales that Petitioner believes it shouldn't have to pay 2 tax on. 3 However, the adjustments are not allowable 4 because despite numerous requests the Petitioner still 5 has simply been un-- unable or unwilling or just hasn't 6 provided the documentation to establish that these 7 amounts were actually reported on the Federal income tax 8 returns or that these are tied to the Federal income tax 9 returns. That is the -- the amount that he's claiming 10 should be reduced in the audit. 11 So, basically, even after taking this into 12 consideration the documentation that was provided does 13 not support the amounts of the claimed adjustments. 14 First, 26 of the 43 claimed resale transactions included 15 in Petitioner's calculation of the $375,000 amount they 16 actually identify the Petitioner as the purchaser of the 17 vehicle as opposed to the seller of the vehicle. 18 Similarly regarding the copies of the 18 checks 19 which were used to calculate the $230,000 amount, there 20 isn't even sufficient information to establish whether 21 the Petitioner was the purchaser or the seller for most 22 of these payments, let alone to establish whether the 23 Sales Tax is inapplicable. 24 So, therefore we concur with the Appeals 25 Division's recommendation because the Petitioner has not 26 been unable to support his claimed deductions or to 27 document that further adjustments are warranted. 28 MR. HORTON: Thank you very much for your 9 1 presentation. 2 On rebuttal, please. 3 PAUL GLASSON: On rebuttal. It -- it seems to 4 me that when you're dealing with Goliath as the State 5 that there's a chain of different people here. And when 6 you say something to one person, by the time it gets 7 through to the end it's a completely different document 8 because he's obviously -- I've never worked with this 9 gentleman on any of the issues. He's reading off of 10 the -- the forms that were presented to him. 11 First of all, in the new documents I have 12 given, one of them is a consignment sales agreement that 13 specifically says the vehicle was being sold as a 14 private party unit, wasn't in my dealership, it was 15 consigned. 16 In fact, I even put the phone number of the 17 gentleman who consigned it because he's a personal 18 friend of mine. I sold it for him for a small fee. It 19 was never in my inventory and a private party/private 20 party sale with documentation of a consignment form 21 shows that it's not taxable. That is -- that is known 22 in the industry. If you're selling for someone, you 23 have a consignment form, you don't take it into 24 inventory, that it -- there is no sales tax to it. 25 It's the person who then registers it -- if 26 they buy it for use in California they register it in 27 their name, then they have to pay Sales Tax at the DMV. 28 This particular unit was taken out of state. 10 1 And -- and that proof is right there. 2 The second one, on the Twin MR2, I included a 3 Bill of Lading that shows that it was shipped out and 4 delivered in Massachusetts. I've also shown that in 5 Massachusetts it was registered there. It's been 6 registered there since the day I sold it, once it was -- 7 was shipped there. 8 So a Bill of Lading is clearly what they asked 9 for, as -- as well as the 447. So how does he come 10 about saying it's not proper documentation? It -- it 11 just blows my mind that -- that I provide the 12 documentation and then I'm told that it -- it's no good 13 or it's -- it's not acceptable. 14 It -- this is -- this is very, very important 15 to me. This is my livelihood. This is my family. I 16 would like everything to be taken in account and get a 17 fair shake. 18 I have proven that -- from my last audit that I 19 have implemented new recordkeeping. I will do my best 20 to make sure everything is -- is proven accordingly and 21 done to the Court of law like it should be. But I need 22 some help in -- in taking it into consideration for 23 this -- this particular audit that it -- it may not be 24 100 percent correct. I mean, I -- I admit that my 25 recordkeeping was -- was not the best at the time. I 26 have made changes. 27 But I would like the State to please take in 28 account the new information and give me a little bit 11 1 benefit of the doubt. 2 Thank you. 3 MR. HORTON: Thank you. Member Steel. 4 MS. STEEL: Question to the taxpayers. The 5 Federal tax return, I'm asking -- Federal tax return is 6 different than State tax return. What happened? And 7 did you do amendment? Did you file? 8 PAUL GLASSON: No. well, I'm not an 9 accountant. I don't understand the numbers. All my 10 wife and I did is the -- our accountant who does our 11 Federal tax returns asked for -- they give us a -- a 12 form to fill out. And then they take that and then they 13 implement it into the system to generate our Federal 14 income tax returns. 15 My wife took all the stock jackets, all the 16 bank deposits. She took all the bank deposits, added 17 them up, so that included everything we've ever 18 deposited in the business account. 19 Then she added the consignment sales, 20 everything we sold via consignment and reported that as 21 total gross income. 22 MS. STEEL: Okay. So -- 23 PAUL GLASSON: Now, consignment sales were -- 24 we -- we maybe made $500 on a deal, but it was reported 25 at $20,000 if the car sold for $20,000. So it was 26 over-inflated and then deducted out as expenses to give 27 us our gross income -- our -- our net income. Our net 28 income is approximately $70,000 a year. 12 1 So essentially the Federal income taxes were 2 overstated because those numbers shouldn't have been 3 added -- 4 MS. STEEL: Did you file -- 5 PAUL GLASSON: -- in there. 6 MS. STEEL: -- the amendment? 7 PAUL GLASSON: No. 8 MS. STEEL: No. So -- okay. 9 So all those -- right now we have a problem 10 with those four car sales. 11 PAUL GLASSON: Correct. 12 MS. STEEL: So those you already provided all 13 the documents that what Department was asking and -- 14 PAUL GLASSON: Correct. They -- two of them I 15 have solid proof, one was a consignment. That's the -- 16 MS. STEEL: Right. 17 PAUL GLASSON: -- GMC. The second -- 18 MS. STEEL: That's the GMC. 19 PAUL GLASSON: -- I -- I have received the Bill 20 of Lading. 21 MS. STEEL: Right. 22 PAUL GLASSON: The other two, all I have is 23 proof that they went out of the state, they were never 24 registered in California. I never collected Sales Tax 25 on it. 26 It's not like I collected it and I didn't pay 27 it. I never collected it. 28 But I don't have proof that it was delivered 13 1 out of the State. 2 MS. STEEL: But you had BOE 447 form -- 3 PAUL GLASSON: Correct. 4 MS. STEEL: -- it's been signed by -- 5 PAUL GLASSON: The 447 form, the -- the 6 purchaser signed that, but I don't -- that's where I 7 feel like I've been -- I felt I was doing everything 8 correctly but then the State came back and told me, 9 well, you -- if you delivered out of state you're 10 responsible for making sure that you have proof that it 11 got there. And that's where I didn't know at the time 12 that I had to do that. 13 I -- I thought the -- once the -- the 14 taxpayer -- or the buyer signed the form saying that 15 they were taking -- it was going out of the State and it 16 would be registered out of the State I neglected to get 17 the proper paperwork to show that it was delivered out 18 of the State. 19 MS. STEEL: So you don't have any documents 20 that it was delivered outside of the State? 21 PAUL GLASSON: Not on those two. 22 MS. STEEL: Just -- 23 PAUL GLASSON: On the other -- 24 MS. STEEL: -- the other two you do? 25 PAUL GLASSON: -- two, I do, yes. 26 MS. STEEL: Okay. So, what kind of documents 27 we need more? It seems like I always ask the Department 28 and Mr. Hank is not sitting there. I see the name. 14 1 But it seems like we keep raising bars to these 2 taxpayers. It seems like out of four cars really sure 3 it was delivered outside of California, and -- I know, 4 Mr. Kwee, you want to talk about it, but it's -- it's 5 very frustrating process these taxpayers has to go 6 through that, you know, every each level of, you know, 7 auditors to all the staff are asking more and more and 8 more raising bars that I don't know where to stop at 9 this point. 10 But what do you exactly need? Out of those 11 four cars it seems like two sure that it's been 12 delivered outside of California. Is that included one 13 consign -- consigned sales or not? 14 PAUL GLASSON: Correct. The one --- the 15 consigned sale essentially was driven out of the 16 State -- or delivered out of the State but it was a 17 consignment so it's -- it wasn't in my inventory, it's 18 not -- 19 MS. STEEL: So you got -- 20 PAUL GLASSON: -- I'm not supposed -- 21 MS. STEEL: -- your commission there that you 22 had -- 23 PAUL GLASSON: -- to collect -- 24 MS. STEEL: -- had that, okay. 25 PAUL GLASSON: -- the Sales Tax on 26 consignments -- 27 MS. STEEL: Got it. 28 PAUL GLASSON: -- if they're private parties. 15 1 I'm supposed to show a consignment form that -- 2 that it wasn't owned by me. And the documents clearly 3 show that it was never owned by me, it was never in my 4 dealership, it was a straight private party/private 5 party sale -- 6 MS. STEEL: Got it. 7 PAUL GLASSON: -- facilitated by me as the 8 consignor. 9 MS. STEEL: So, Mr. Kwee, please answer, what 10 they have to prove more here? 11 MR. KWEE: Right. Well, there's two things. 12 The first thing was the documentation that we typically 13 require. 14 MS. STEEL: What kind of documentation? 15 MR. KWEE: And generally we would want a BOE 16 448, which is a statement of delivery outside the State. 17 MS. STEEL: What's 447 then? 18 MR. KWEE: That's the statement of intent to 19 use the vehicle outside the State. So, to establish 20 that Sales Tax does not apply we would want the 448 to 21 show that it was delivered outside the State, or in 22 absence thereof they could also provide documentation 23 that it was actually delivered by facilities of the 24 purchaser outside the State such as gas receipts, 25 lodging or meal receipts. Or they could also provide 26 documentation that it was delivered by the seller to a 27 common carrier for delivery outside the State. 28 However, in this the Bill of Lading Inspection 16 1 Report that they provided, it actually didn't -- it 2 didn't indicate that it was picked up -- it didn't 3 indicate where the vehicle was picked up. It listed the 4 Massachusetts as the point of origin and the point of 5 destination. And it was signed five days after the sale 6 took place by the buyer. 7 MS. STEEL: Which one you're talking about, 8 Toyota MR2? 9 PAUL GLASSON: Yes. 10 MR. KWEE: And also that -- that was the sale 11 to John Walker 3-2-05. 12 And also with respect to the claim about the 13 consignment sales, we actually believe that the 14 consignment sales at issue are taxable as explained 15 pursuant to Regulation 1569 and publication 114 -- 114, 16 which generally explains that the -- when the purchaser 17 has -- or, I'm sorry, when the retailer has the ability 18 to transfer title and possession of the vehicle that -- 19 that's taxable. 20 MS. STEEL: But retailer never had that 21 position. It was just transferred one person to another 22 and then he got the commission between that. 23 So how he -- that title can be changed there? 24 MR. KWEE: Well -- well, actually, if you skip 25 over to the form that he provided it indicated that the 26 consignee -- that the -- well, I mean -- I'm sorry, that 27 the retailer has the -- has the possession of the 28 vehicle, and it also says that they have the -- it also 17 1 indicates that he has the ability to sell the vehicle 2 without any further action from the buyer. So that's 3 the basis pursuant to Regulation 1569. 4 MS. MANDEL: What -- what are the words in 5 the -- because I'm looking at that document. What are 6 the words in the document, because he thinks this 7 document protects him. So what -- where is it that -- 8 that -- that he has that power to transfer the 9 vehicle -- 10 MR. KWEE: Right. 11 MS. MANDEL: -- without any further action by 12 the consignor? 13 MR. KWEE: I'm sorry. So, it says towards the 14 bottom that upon -- 15 MS. STEEL: Which page -- could you tell me 16 what -- which documents are you talking about here? 17 MR. KWEE: This -- this is -- I'm sorry, 18 there's no page number, it's just approximately towards 19 the center and it starts off with the -- 20 MS. STEEL: They're advertising Denali -- 21 MR. KWEE: -- GMC Denali. 22 MS. STEEL: Okay. Okay, got it. 23 MR. KWEE: Okay. So towards the bottom it -- 24 it says that upon payment of the monies due to the -- 25 the retailer the -- upon payment of the monies due to 26 the consignor, the consignor agrees to furnish the 27 consignee the documents necessary to transfer the 28 ownership of the vehicle. 18 1 It also states that -- two paragraphs above 2 that the retailer has the purchase -- has the right to 3 purchase the above vehicle for the amount at any time 4 during the consignment. And it also discusses towards 5 the very beginning at -- where it says At the 6 termination of the agreement the vehicle shall be 7 returned. So it -- 8 MS. STEEL: Returned to whom? 9 MR KWEE: To the consignor. Or at the option 10 of both the consignor and consignee. 11 MS. STEEL: It's not the dealer is getting that 12 vehicle back? 13 MS. MANDEL: Who -- who's the consignor and 14 who's the consignee? 15 MS. STEEL: Who's the consignor here? 16 MR. KWEE: I -- I understand the consignee is 17 the -- the -- 18 MS. STEEL: Seller. 19 MR. KWEE: Right. Right, the retailer and the 20 consignor is the one that -- it's giving the vehicle 21 over to the retailer. 22 MS. STEEL: Mr. Tucker, you are -- you are 23 nodding. I -- 24 MR. TUCKER: I'm just agreeing with -- 25 MS. STEEL: I -- I don't know -- 26 MR. TUCKER: -- Mr. Kwee. 27 MS. STEEL: Okay, I don't understand what he's 28 talking about here. So, consignor is the seller, right? 19 1 MR. TUCKER: Consignor is actually the owner of 2 the property. 3 MS. STEEL: Right, exactly. So when this sales 4 doesn't happen it's going to go back to the consignor? 5 MR. TUCKER: Correct. How -- 6 MS. STEEL: So this retailer doesn't have 7 anything to do with it at that point? You -- you -- 8 explain to me right now, it sounds like that when the 9 sales doesn't go through that he's going to take this 10 car back, but it's not. 11 It goes straight back to consignor, that's 12 what -- you know, I want to make it clear here that who 13 is the seller and who's the buyer and who's inside here 14 try to just connect but not sales. 15 So this -- is this car went straight to 16 California? He was the just only the broker for sales. 17 Is this registered -- is this car registered in 18 California? 19 MR. KWEE: Right, it originally was registered 20 but it was sold -- subsequently sold and it was -- 21 MS. STEEL: Uh-huh. 22 MR. KWEE: -- thereafter registered -- 23 MS. STEEL: Then it went -- 24 MR. KWEE: -- outside the State. 25 MS. STEEL: -- outside of, okay. 26 MR. KWEE: After the sale. 27 MS. STEEL: Okay. So if -- okay, forget about 28 other three cars. For this car then why consignor is 20 1 not paying for the Sales Taxes? 2 MR. TUCKER: Well -- 3 MS. STEEL: If -- if consignor sold this car to 4 the buyer in California then consignor is responsible 5 for Sales Taxes, not for the dealer. 6 MR. TUCKER: That's correct, Ms. Steel. 7 However, in this case it's the consignee who happens to 8 be the Petitioner before us today, the taxpayer who made 9 the sale and caused that title to be transferred. 10 And pursuant to Regulation 1569 the consignee 11 is regarded as the retailer in that transaction. 12 MS. STEEL: So you bought this car from the 13 consignor and then you sold it? 14 PAUL GLASSON: No. 15 MS. STEEL: That's not what I heard. 16 PAUL GLASSON: I never purchased the car. It 17 was never in my inventory. It was never owned by me. 18 MR. TUCKER: The consignee does not purchase 19 the -- the property, they merely transfer the title on 20 behalf of the consignor. 21 MS. STEEL: But this title never transferred to 22 this dealer, it just went straight to the buyer. 23 MR. TUCKER: Correct. And that's typically how 24 transactions are done in a consignment sale. 25 MS. STEEL: Then that sales is -- has nothing 26 to do with this taxpayer here. 27 MR. TUCKER: But for the fact we have a 28 regulation that states that the consignee is the 21 1 retailer. 2 MS. STEEL: Give me exact regulation, what they 3 are stating. Just can you read it for me? 4 MR. TUCKER: Yeah, it's a little convoluted. 5 Regulation 1569. "A person who has possession of 6 property owned by another and also the power to cause 7 title to that property to be transferred to a third 8 person without any further action on the part of its 9 owner and who exercises such power is the retailer, when 10 the party to whom the title is transferred is a 11 consumer, tax applies to his gross receipts from such a 12 sale." 13 And then it goes on to say, "pawn broker, 14 storage men, mechanics, artisans and others selling the 15 property to enforce a lien thereon are retailers with 16 respect to the sales of the property to consumers, and 17 tax applies to receipts from such sales." That's it. 18 MS. STEEL: Okay. Mr. Levine, can you explain 19 to me the first part of -- of that law? It seems like 20 for me -- let's make really simple. 21 MR. LEVINE: If this retailer had the power -- 22 the purchaser comes in and says, "I'll give you $20,000 23 for it." He says, "Okay, that's what I want," and he 24 makes the deal, then he had the power to make the deal 25 and if -- and if he -- all he has to do is complete the 26 documentation, then under our regulation he is the 27 retailer. 28 One example would be if he has to send the 22 1 purchaser, okay, now that we've got the deal you got to 2 go to the seller, tell him what the price is and he 3 signs off, then it would be the owner would be regarded 4 as the seller. 5 MS. STEEL: Right. 6 MR. LEVINE: Here my understanding is the 7 retailer completes all the paperwork, transfers 8 possession of the vehicle to the purchaser. Under our 9 regulation if those are the facts this taxpayer is the 10 retailer of that vehicle. 11 MR. HORTON: Ms. Steel, if I may. 12 MS. STEEL: Yes. 13 MR. HORTON: Maybe we can ask the appellant to 14 give us some clarity on the fact pattern. It seems to 15 be different than the one presented by the Department. 16 On the consignment sale. 17 PAUL GLASSON: On the consignment sale I showed 18 the vehicle for Mr. Merrick. Once the -- we -- the 19 gentleman determined that he would purchase the car 20 Mr. Merrick came down, signed off of the title and 21 presented it to the -- the owner. Then he took the 22 vehicle. 23 So, I merely facilitated showing the vehicle. 24 But I did nev -- in no -- I mean, that's how I 25 understood it to be, speaking to Cash For Cars and some 26 of these other places that facilitate consignment sales. 27 They said as long as you are a consignor, don't own the 28 vehicle that it is the responsibility of the buyer 23 1 because it's a private party/private party transaction. 2 That's how I understood it. That's how I dealt with 3 consignment sales. 4 MS. STEEL: That was my understanding was, too. 5 I just don't understand here that what -- what this 6 taxpayer is responsible for this car because it was just 7 transferred from one to another and still the law that 8 you just cited was not really -- I mean, you know, that 9 has not -- I mean, well, if you can put it on this 10 taxpayer, yes, but you know when you make it very clear 11 here then it's not really on him, either. 12 So, you know, I really -- you -- you can see it 13 both ways actually here. So, I'm not really sure 14 exactly that what his role was here, that try to sell 15 the car for his friend and just show the car and he got 16 $500 out of it. And then this car was not even 17 registered here in California. 18 And I don't know how much that he has to prove 19 more. 20 And then let's go back to another cars, too, 21 because there is four. So if they -- the buyer signed 22 BOE form 447 then after they bought it they have to sign 23 another form 448? 24 So, if this -- 25 MR. KWEE: Yes. So the 448 is signed upon 26 delivery outside the State to establish that a Sales Tax 27 is inapplicable because it was delivered to the 28 purchaser outside the State. 24 1 MS. STEEL: So why they have to sign the 447 2 then? 3 MR. KWEE: That pertains -- 4 MS. STEEL: If it's just intent then you -- you 5 don't even have to sign that, you can just move on to 6 448 directly or two paperworks has to be done? 7 MR. TUCKER: There are actually -- Ms. Steel, 8 there are actually two pieces to the equation. 9 If you're a California purchaser Section 6247 10 presumes that the property is purchased for use in this 11 State. And that's the purpose of the BOE 447, is by 12 signing that form then you are stating that you 13 purchased it for use outside of the State. 14 MS. STEEL: That 4 -- okay. 15 MR. TUCKER: And then the second compotion -- 16 ponent is 448 that says it was actually delivered 17 outside the State. 18 MS. STEEL: So if that -- this taxpayer provide 19 the 448 from the buyer then is he off from this tax 20 side? 21 MR. TUCKER: Assuming he had done so at the 22 time, absolutely, because it -- 23 MS. STEEL: Not now? 24 MR. TUCKER: -- provides a section where you 25 can get a notarized and -- and quite often they are 26 notarized when they're delivered across the border. 27 They're -- 28 MS. STEEL: How about now? 25 1 MR. TUCKER: It would -- it would be 2 problematic because it's not contemporaneous. We would 3 look typically, as Mr. Kwee explained earlier -- we 4 look for receipts, we look for something to show that 5 that's where delivery actually took place. 6 MS. STEEL: But something to show that it was 7 never registered in California. It's so odd that, you 8 know, we are asking them to pay Sales Tax is something 9 that they -- these cars are not in California. And if 10 they was registered once after he sold it then I totally 11 understand. But it was never even registered in 12 California. 13 So, you know, we make all these 14 documents and -- very complicated and then, you know, 15 you miss just one out of hundreds of documents then I 16 gotcha. 17 That kind of deal that, you know, I'm looking 18 at it here. So, I really don't know how far we can go 19 so give me just one answer. If -- how he can be off the 20 hook from you -- from our Department? What does he have 21 to do now? 22 MR. TUCKER: We would need to see documentation 23 showing that either he delivered the property outside 24 the State or that it was shipped at the time of sale 25 by -- 26 MS. STEEL: But outside of California that it's 27 been registered. So I don't know how -- you know, if 28 it's registered here -- we just keep going back and 26 1 forth, circling, so stop me. I'm keep repeating myself 2 but, you know, they never registered in California. So 3 it was totally not in California -- these cars are not 4 in California. 5 So how can prove more than what we already see 6 from the -- you know, Department? 7 MR. TUCKER: I -- my understanding is that he's 8 shown us all the documentation he has. I'm not sure 9 there is anything more that he could show us that -- 10 MS. STEEL: Still he's -- 11 MR. TUCKER: The problem is if the customer 12 took the car -- took delivery on the lot and drove it 13 outside the State, that transaction would be subject to 14 tax. 15 MS. STEEL: But -- 16 MS. MANDEL: Question. 17 MS. STEEL: Thank you. 18 MR. HORTON: Aft -- 19 MS. STEEL: I'm done, thank you. 20 MR. HORTON: Mr. Runner and then Ms. Mandel. 21 MS. MANDEL: Thank you. 22 MR. RUNNER: Yeah. Let me just kind of get 23 clarity in regards to some of these transactions. 24 The 447 then you fill out on all four of these 25 vehicles. 26 PAUL GLASSON: Correct. 27 MR. RUNNER: The 448, who is the party that's 28 responsible for filling and signing a 448? 27 1 MR. KWEE: Generally the buyer and the person 2 that delivers it to the buyer would both sign that. And 3 then that would be returned to the seller and they would 4 keep it in there to support their contention. 5 MR. RUNNER: Okay, go back through that again, 6 Mr. Kwee. What was that? 7 MR. KWEE: Oh, yes. 8 MR. RUNNER: That who -- who is responsible? 9 MR. KWEE: So, the -- the person that delivers 10 it and the buyer. 11 MR. RUNNER: The person who delivers it, so 12 that would be like the transportation company? 13 MR. KWEE: Right, it would be certified. 14 MR. RUNNER: Okay, so that's -- that's a 15 transportation company, that's not the -- that's -- 16 that's not the retailer here? 17 MR. TUCKER: If you don't mind I'll -- I'll 18 take this. 19 MR. RUNNER: Okay. 20 MR. TUCKER: Typically it's a 448. If you were 21 using a transportation company then typically there 22 would be a Bill of Lading. The 448 is more often used 23 when the delivery is made by the seller, the retailer. 24 And so if you have a car dealership that actually has 25 one of their employees driving it -- 26 MR. RUNNER: Right. Right, right, right. 27 MR. TUCKER: -- then under those circumstances 28 that's when they would typically retain a 448. 28 1 MR. RUNNER: Okay. But he didn't do that. 2 MR. TUCKER: No, he did not. 3 MR. RUNNER: So -- so I'm trying -- that's what 4 I'm trying to get through, he didn't do that. 5 MR. TUCKER: No, he didn't. 6 MR. RUNNER: So I'm trying to figure out why he 7 would be responsible for doing the 448. 8 MR. TUCKER: Because it's used to document that 9 the retailer is delivering the property outside the 10 State. It's -- it's -- in essence it provides -- 11 MR. RUNNER: He sells a car. Okay, just help 12 me get through this. 13 MR. TUCKER: Uh-huh. 14 MR. RUNNER: He sells a car to somebody who 15 then signs a 447. 16 MR. TUCKER: Correct. 17 MR. RUNNER: The person who he sells it to -- I 18 don't know if this took place, I should -- probably 19 should check -- arranges the transportation to get their 20 car back to -- where was it? Massachusetts? Is that 21 where one of them went? 22 PAUL GLASSON: Yes, that's -- that's correct. 23 MR. RUNNER: Okay. -- makes their own -- makes 24 their own transportation arrangements to get their car 25 back to Massachusetts. Okay. 26 What is his responsibility to do and deal with 27 the 448? 28 MR. TUCKER: If that were the circumstance then 29 1 we're looking at a different scenario. Here, under 2 those circumstances in order for the exemption to apply 3 it has to be sold and delivered in interstate commerce 4 pursuant to the contract of sale. So the contract of 5 sale would have said that delivery is going to take 6 place outside this State. 7 Then if shipment is arranged by the purchaser 8 then it would have been picked up on the lot and the 9 common carrier or contract carrier would have delivered 10 it outside the State pursuant to that contract of sale. 11 MR. RUNNER: Okay. Tell me how this -- this 12 particular issue took place then. Who made the 13 arrangements for the transportation of that vehicle back 14 to Massachusetts? 15 PAUL GLASSON: The -- the seller -- or the 16 buyer made the -- the -- he made all the arrangements. 17 I just brought it to the dock. I brought it to the dock 18 in San Leandro and then he made the arrangements to get 19 it to Massachusetts. 20 But if you read the 447, and that's why I -- I 21 felt I was covered, it says, "The good faith acceptance 22 by the retailer, seller, of a full and complete 23 statement from the purchaser will relieve the retailer 24 of any liability for failure to collect Use Tax from the 25 purchaser." 26 "The seller must retain the original statement. 27 If the seller in good faith does not collect the Use Tax 28 from the purchaser and it is determined that the 30 1 vehicle's reap (phonetic) was purchased for use in 2 California the purchaser must pay the applicable Use 3 Tax -- 4 MR. RUNNER: Okay. 5 PAUL GLASSON: -- directly to the State Board 6 of Equalization. 7 MR. RUNNER: Okay. That's -- that's good. 8 That's good. Let me go back to the question then. 9 Okay, he sold the car. He had the buyers fill out the 10 447, said it's not -- I'm not going to use it here in 11 California. He delivers it to the -- to the transport. 12 And the transport then apparently takes it to 13 Massachusetts. 14 Now, again, who -- who is -- who would have 15 been responsible for doing the 448? 16 MR. TUCKER: 448 is -- in essence the 448 17 has -- serves a different purpose. The 448 is used when 18 the seller actually delivers the property outside of 19 California. 20 MR. RUNNER: One of them -- okay, so -- okay. 21 MR. TUCKER: This -- and this goes back years 22 ago, historically, where it was difficult for retailers 23 to document -- 24 MR. RUNNER: Okay. Okay. 25 MR. TUCKER: -- transactions. 26 MR. RUNNER: Let -- let me ask then, okay. 27 So -- so that's typically when it would take place 28 but -- but at least what I'm hearing the -- at least 31 1 from -- from the Department's point of view is the 2 reason why didn't -- we -- we -- we discounted this is 3 because there was not a 448. Now, I thought -- 4 MR. TUCKER: Well -- 5 MR. RUNNER: -- that's what I heard. 6 MR. TUCKER: Well -- 7 MR. RUNNER: I heard I thought they said there 8 was 447s but no 448. 9 MR. TUCKER: Correct. There -- there was no 10 448 nor were -- not were there shipping documents to 11 establish that it was shipped pursuant to the contract 12 of sale outside of California. 13 MR. RUNNER: Well, let me ask, which shipping 14 documents did you indicate or show that showed that this 15 car went back to Massachusetts? 16 PAUL GLASSON: I have a Bill of Lading provided 17 by the shipper. 18 MR. RUNNER: Okay. Now, again help me through 19 that one. 20 MR. TUCKER: Okay. And -- 21 MR. RUNNER: Help me help through that one 22 then, okay. 23 PAUL GLASSON: Right. 24 MR. RUNNER: All of a sudden he's -- you know, 25 he's got a car. He's -- the people buying it say "I'm 26 not going to drive it here in California." He delivers 27 it to the transportation. He then provides the shipping 28 la -- or shipping laden, you know, that says it's going 32 1 to be go -- going -- going back to Massachusetts. 2 MR. TUCKER: And here the problem's -- the 3 problem's with the document he provided. 4 MR. RUNNER: Okay. 5 MR. TUCKER: One, it's -- the or -- address of 6 origin and the address of destination are one and the 7 same. So it doesn't show from what -- 8 MR. RUNNER: I don't know what that -- 9 remind -- 10 MR. TUCKER: Okay, the address -- 11 MR. RUNNER: Tell me what that is. 12 MR. TUCKER: The address of origin, like where 13 the vehicle was picked up -- 14 MR. RUNNER: Right. 15 MR. TUCKER: -- is the same as the address of 16 destination. They're both -- 17 MR. RUNNER: And when you say the same, tell me 18 where they are. 19 MR. TUCKER: Is it Brookton bought -- somewhere 20 in Massachusetts. So it doesn't say that it was picked 21 up at a California location and shipped to a 22 Massachusetts location. 23 MR. RUNNER: And how much -- how many days 24 after the sale was this? 25 MR. TUCKER: Five days. 26 MR. RUNNER: Five days. 27 MR. TUCKER: Well, it's -- actually, it's -- 28 the sale was listed as taking place on March 2nd. 33 1 MR. RUNNER: Uh-huh. 2 MR. TUCKER: He signed this inspection report 3 March 5th. 4 MS. MANDEL: Who's he? 5 MR. TUCKER: He meaning the Petitioner. 6 MR. RUNNER: Uh-huh. 7 MR. TUCKER: Or -- or, excuse me, the 8 purchaser. 9 MS. MANDEL: No. 10 MR. TUCKER: I'm sorry. I'm sorry. 11 MS. MANDEL: Again. 12 MR. RUNNER: The purchaser. 13 MR. TUCKER: The purchaser of the vehicle 14 signed it on March 5th and the driver's signature is on 15 the 7th. 16 MR. RUNNER: The driver. 17 MR. TUCKER: Of the vehicle who -- it was 18 transported via one of these auto transports. 19 MR. RUNNER: Oh, okay. Okay, the driver of 20 the -- 21 MR. TUCKER: So -- 22 MR. RUNNER: -- the transport driver. 23 MR. TUCKER: Correct. 24 MR. RUNNER: Okay. 25 MR. TUCKER: And so the sale is on the 2nd. 26 It -- the customer who purchased the vehicle signs it on 27 the 5th. 28 MR. RUNNER: Signs what on the 5th, tell me? 34 1 MR. TUCKER: This Bill of Lading Inspection 2 Report. And -- and it's signed by the driver on the 3 7th. 4 So it's -- it's just -- unfortunately it's not 5 entirely conclusive that it was -- took place at the 6 lot. 7 MR. RUNNER: Do we -- do we doubt that this 8 vehicle went back and operated in Massachusetts? 9 MR. TUCKER: I don't think there's any doubt -- 10 MR. RUNNER: Okay. 11 MR. TUCKER: -- that it went to Massachusetts. 12 The question is, was it subject to Sales Tax, which -- 13 MR. RUNNER: Okay. I just want to clarify 14 that. 15 MR. TUCKER: Yeah -- no. 16 MR. RUNNER: There's no doubt that this went -- 17 MR. TUCKER: I don't think anybody has 18 questioned that. It's just -- 19 MR. RUNNER: Okay. 20 MR. TUCKER: -- whether or not it was subject 21 to -- if -- unfortunately -- 22 MR. RUNNER: Here's the -- here's the problem I 23 have. I get -- 24 MR. TUCKER: Uh-huh. 25 MR. RUNNER: I get that. And I get the fact. 26 MR. TUCKER: Uh-huh. 27 MR. RUNNER: So, you know, and this is kind of 28 an -- I mean, you know, gee, the -- all the forms were 35 1 done correctly. But there's no doubt that this vehicle 2 actually did make it back to -- to Massachusetts, all 3 that. 4 And now my problem is we're applying this error 5 rate then to all of his sales. Okay. And that's where 6 I'm -- I'm having a hangup here. 7 Okay. This is a paperwork problem and now 8 we're applying this paperwork problem -- because no one 9 doubts -- nobody doubts that -- that it went to -- to -- 10 and I get the fact that if indeed it was bought in 11 California and driven back to -- to -- to Massachusetts 12 then we -- the owner did that, he would have to pay 13 California Sales Tax except, well, no, I'm not convinced 14 of that because the -- the buyer filled out the 447. 15 MR. TUCKER: Mr. Runner, the 447 is designed 16 when a purchase is made and it goes back to Section 6247 17 of the -- 18 MR. RUNNER: Uh-huh. 19 MR. TUCKER: -- the law that says if I am a 20 California purchaser, I'm a California resident and I 21 buy something and take delivery outside the State then I 22 owe Use Tax on that. And it's presumed that I purchased 23 it for use in this State. 24 MR. RUNNER: Okay. 25 MR. TUCKER: Unfortunately, the 4 -- if this is 26 made by someone who actually is a Massachusetts resident 27 the 447 is inapplicable. It's -- what he needed was 28 proof that the delivery actually took place outside the 36 1 State. 2 If I had made that purchase and I walked into 3 his lot and I drove it back to -- either I'm in an 4 apartment, a hotel or a home -- 5 MR. RUNNER: Yeah. 6 MR. TUCKER: -- if I drive it back there and 7 then ship it, that's where the whole problem arises. 8 MR. RUNNER: Here -- here's I guess the 9 question I'm having, and that is -- a couple things. 10 MR. TUCKER: Uh-huh. 11 MR. RUNNER: Number one, help me understand. 12 If -- if they could demonstrate that the vehicle then 13 was -- was -- that the correct tax was paid, say, back 14 in Massachusetts, what would that demonstrate to us in 15 regards to our application of Sales Tax? Nothing? 16 MR. TUCKER: Nothing. It's be -- unfortunate 17 because this was a sale that was subject to Sales Tax 18 here at the time that the title was transferred. 19 It's -- it means that it simply -- 20 MR. RUNNER: Well, let me ask you this -- okay. 21 MR. TUCKER: Let me -- if we were to -- 22 MR. RUNNER: Okay. 23 MR. TUCKER: -- look at it in reverse -- 24 MR. RUNNER: Yeah. 25 MR. TUCKER: -- typically we would provide an 26 offset. If -- if you -- 27 MR. RUNNER: Right. That's where -- that's 28 what I guess I'm getting to. 37 1 MR. TUCKER: But it's -- it's done in the 2 reverse transaction, not -- 3 MR. RUNNER: Right. 4 MR. TUCKER: -- under -- 5 MR. RUNNER: Right. Right. 6 MR. TUCKER: -- this scenario. 7 MR. RUNNER: So, let me ask about this, your -- 8 your buyer, did your buyer register your car and pay the 9 Sales Tax in -- in Massachusetts? 10 PAUL GLASSON: Absolutely. And -- 11 MR. RUNNER: Do you have any documentation on 12 that? 13 PAUL GLASSON: Just the history reports that 14 show that it was -- it's been registered for the last 15 five years in Massachusetts. At every year according to 16 the history report it shows the date it was 17 re-registered. 18 MR. RUNNER: Okay. Let me ask -- the -- the 19 other issue I'm having a hangup with on this particular 20 issue is, again, this unique sale and issue was now used 21 as part of the formula. And I guess what I'm thinking 22 of is there were -- just were not that many transactions 23 in the audit period. And so I'm trying to figure out 24 how we got to this unique sale that was very different 25 and -- and, you know, maybe the right paperwork wasn't 26 filed, but then we decided to go ahead and use that in 27 our formula as opposed to saying let's just toss this 28 one out, and let's maybe go to another one. 38 1 Oh, let's go ahead -- I mean, I think the total 2 sale inventory during the whole audit period is only -- 3 how many -- I mean, it's like 50 vehicles? 4 MR. KWEE: Well, during the two quarters that 5 we tested at an actual basis there were 36 transactions 6 for those two quarters and of those -- six of those 7 transactions were claimed as deduction -- were deducted 8 on the Sales and Use returns. 9 MR. RUNNER: Okay. But -- but the -- again, 10 I'm -- I'm going back to the issue of this unique 11 situation with this one and -- and the formula applied 12 then against all of the -- the -- the -- the audit 13 period. 14 Let me just follow up with one -- just one 15 other thought in regards to the -- the issue in regards 16 to the consignment sale issue. 17 PAUL GLASSON: Yes, sir. 18 MR. RUNNER: How many vehicles do you sell on 19 consignment? 20 PAUL GLASSON: Typically on any given year 21 between 10 and 20. 22 MR. RUNNER: And how many vehicles do you sell 23 in any given year? 24 PAUL GLASSON: Total, average 60 to 70. 25 MR. RUNNER: Okay. Okay. What else would he 26 need to have provided on the consignment sale? 27 MR. TUCKER: Well, there are a couple issues 28 regarding those transactions. One, we were looking at 39 1 the difference between what was reported on the Federal 2 income tax returns and that on the Sales and Use Tax 3 returns. We don't have any way to reconcile those two 4 figures. His subsequent explanation was that these are 5 consignment sales or that he believes that those made up 6 that. 7 We would want to be able to look at whatever 8 documents were used to determine those Federal income 9 tax amounts. 10 However, the problem with the consignment sales 11 is the documentation he's provided tends to -- would 12 lead us to believe that he was the retailer of these 13 vehicles. 14 MR. RUNNER: Okay, let me go back. And where 15 was that consignment sale -- where was that -- was that 16 vehicle out of State or was that in -- in California? 17 PAUL GLASSON: The consignment sale ultimately 18 ended up out of state. It was sold and registered in 19 Oregon. 20 MR. RUNNER: When you say "ultimately," I don't 21 know what that means. 22 PAUL GLASSON: Well, I think it was five days 23 after he purchased it -- 24 MR. RUNNER: Okay. 25 PAUL GLASSON: -- it was registered in 26 Oregon. 27 MR. RUNNER: Okay. Okay, five days. 28 PAUL GLASSON: And it's been in Oregon, Grants 40 1 Pass and Medford, Oregon, ever since as the history 2 shows. 3 MR. RUNNER: Okay. Okay, thank you. 4 MR. HORTON: Ms. Mandel. 5 MS. MANDEL: Thank you. On a consignment sale 6 I understand we have a regulation that talks about if 7 the property -- if the -- if the retailer has the 8 property and can transfer title to the property without 9 any further action by the seller there -- the retailer 10 who's the consignee, is the retailer for Sales Tax 11 purposes and the Sales Tax. And it's a general 12 regulation, right? 13 MR. TUCKER: Uh-huh. 14 MS. MANDEL: So, you know, when I go to the 15 consignment shop, which I don't do, you know, and buy a 16 new -- buy myself a suit to come to the Board meetings 17 that someone else decided, you know, they wanted to shop 18 more and give their older clothes to the consignment 19 shop but they did it on consignment -- 20 MR. HORTON: Over the internet. 21 MS. MANDEL: Yeah, whatever -- there's -- 22 there's no -- you know, there's nothing else that has to 23 be done. 24 We're talking about transferring a car and 25 there's paperwork, you know, pink slips and other things 26 that the current owner of the car has to sign to 27 transfer title to somebody else. And the -- the 28 consignment agreement says that when the consignor, 41 1 which would be the guy who owned the car, Daniel Merrick 2 in this case, gets the money, then he agrees to furnish 3 the consignee, our Petitioner here, documents necessary 4 to transfer ownership of the vehicle to the purchaser. 5 But if the documents on -- what he's saying is he -- our 6 Petitioner, he never had the -- he never -- when he 7 says, "I never owned the car," I take that to mean he 8 never -- he never even for a nanosecond held any kind of 9 of title to the car. So unlike, you know, getting a 10 suit or something else in a storefront that was being 11 held by that store on consignment, this is a vehicle 12 where Daniel Merrick had to sign the Bill of Sale over 13 to Burt Heiser. 14 So I -- I understand we have a general 15 regulation and we have general consignment shops and -- 16 that are out there in the world and I'm just a little 17 bit -- I won't -- I haven't seen this personally in 18 terms of vehicles, and so since the actual current, you 19 know, guy who owns the car has to sign the bill of sale 20 and signs it over not to our Petitioner but to Burt 21 Heiser, who's the guy who wanted the car up in Oregon, 22 then how -- how is our Petitioner transferring the 23 vehicle without any further action required by the 24 consignor? 25 Is there something in the regulation that says, 26 oh, yeah, and vehicles, too, because what the Petitioner 27 is saying is he -- he -- you know, he thought that these 28 types of consignments agreements -- and it may be it's 42 1 just only peculiar with vehicles. I mean, he can't be 2 the only guy who's -- 3 MR. TUCKER: This is -- 4 MS. YEE: -- doing this, I'm -- I'm imagining 5 but -- 6 MR. TUCKER: This is the first time I've seen 7 such transactions. You -- and you are absolutely 8 correct, the regulation is designed for general 9 consignment transactions. It -- it does not 10 specifically address vehicles. 11 But we look to this case and here's the 12 individual who's making the sale causing the title to be 13 transferred. 14 MS. MANDEL: But how does he cause the title to 15 be transferred without any further action by the 16 consignor if the consignor must sign the bill of sale, 17 the DMV Bill of Sale, and he signs it to the guy 18 who's -- wants the car up in Oregon? I mean, that -- 19 that's -- I'm just -- 20 MR. TUCKER: Yeah. 21 MR. KWEE: Well, it's -- I think the way we 22 were looking at it is that it's because pursuant to this 23 consignment agreement that the -- the seller -- the -- 24 well, the Petitioner has the ability to make the sale 25 and then after he makes the sale the buyer just has to 26 deliver the documents over to complete the sale. But 27 the buyer can't say, no, don't sell it because the 28 consignment agreement says that he has the ability to 43 1 sell it for up to the price listed on the consignment 2 agreement, which I understand was 27,680. He could make 3 that sale for 27,680 without having to obtain permission 4 from the buyer -- from the -- well, the person that had 5 the -- the -- oh, I guess the owner of the -- the car. 6 And I guess we also have some annotations at 7 the 185.0060, around that area, discussing -- 8 MS. MANDEL: Could -- could you say that more 9 slowly, please? 10 MR. KWEE: Oh, there are some annotations -- 11 MS. MANDEL: Yeah. 12 MR. KWEE: -- in the Business Taxes Law Guide 13 around 185.0060 -- 14 MS. MANDEL: 0060. 15 MR. KWEE: -- discussing -- 16 MS. MANDEL: Okay, thank you. 17 MR. KWEE: -- discussing the -- well, I guess 18 obtaining and delivering the Bill of Sale to the -- 19 to the buy -- to the purchaser. 20 MS. MANDEL: Did -- did that involve a car or 21 just -- just talk about a Bill of Sale? 22 MR. KWEE: Oh, it -- it's talking about a Bill 23 of Sale. It doesn't specifically reference a vehicle in 24 the -- 25 MS. MANDEL: Okay. Because -- 26 MR. KWEE: Okay. 27 MS. MANDEL: You know, I buy a horse, some day 28 maybe I'll do it again, and I usually ask for a Bill of 44 1 Sale just so that I have one, but it's not required, I 2 don't think, for me to walk away with that animal. 3 MR. KWEE: It -- 4 MS. MANDEL: But in the car thing it's just -- 5 that's what I'm just kind of curious about. Okay. 6 But I -- I understand what you're saying is 7 that -- that you think the contract between the 8 consign -- Mr. Merrick, the consignor, and the 9 Petitioner requires Mr. Merrick if the Petitioner 10 cuts -- makes a deal with someone to give him -- to -- 11 for the money within the price that they've agreed is 12 kind of the -- where he want -- Mr. Merrick wants money, 13 that if Petitioner gets someone to agree to that price 14 and gets the money and hands the money to Mr. Merrick, 15 that Mr. Merrick is obligated to sign the documents. 16 And you think that that's -- that the contract makes it 17 somehow -- I'm just hung up on this without any further 18 action -- piece that you read from the regulation. 19 Okay. I -- I under -- I understand what you're 20 saying. 21 MR. HORTON: Further discussion, Members? 22 Question of the Department. Mr. Runner's point 23 of the nature of the transaction caused me to pause a 24 little bit, in that -- and to -- to ask this question. 25 Would it make -- I mean, the consignment sales are 26 unique in the population and we're able to apparently 27 isolate that out of the entire universe. 28 Is that true? 45 1 MR. TUCKER: I'm not sure that's entirely true. 2 I think -- what we've been looking for is some sort of 3 reconciliation explanation. They have provided figures 4 that I believe -- 5 MR. HORTON: Question of the appellant. Are 6 you able to identify all of your consignment sales 7 during the audit period? 8 PAUL GLASSON: If I went back through past 9 boxes then I should have documentation of -- of all 10 consignments, yes. 11 MR. HORTON: Okay. I don't know if this is 12 beneficial but when looking at testing a universe and 13 you identify within the universe some uniqueness in the 14 universe, you can isolate that. And so you 15 theoretically could take all of the consignment sales, 16 identify that population, take the tested period, the 17 errors, and apply that percentage of error to those 18 consignment sales. 19 Don't know the net effect of doing that, 20 pulling it out. And then take the out-of-state sales 21 and apply those to the balance of the universe because 22 that universe has some similarities. 23 I would like to know of the Department if that 24 in -- in effect would have any -- not now. I mean 25 through whatever channels you can communicate to us 26 before the end of the day, whether that has a benefit to 27 the taxpayer. 28 If I knew the numbers I could probably guess 46 1 whether that would have a benefit of isolating that out. 2 Speculating I would because -- that it would have a 3 benefit because theoretically you're not in the business 4 of doing consignment sales. And to pull two 5 transactions out of a test period and apply it to a 6 smaller universe theoretically it would be beneficial. 7 But I don't want to take that presumption but I 8 would certainly encourage us to take a look at that. 9 The -- the other part is to -- as simple as 10 this may appear to the Department and the Board of 11 Equalization, as I listen to the debate it gets a little 12 complicated. 448, 447, Sales Tax, Use Tax, tie the Bill 13 of Lading and so forth, I understand how the taxpayer is 14 a little confused about all of this. 15 And so, we need to -- to the extent we can 16 provide some clarity at some point about how this 17 applies and how you can go forward in determining this. 18 Part of the challenge is, is that you are a 19 registered dealer -- dealer -- 20 PAUL GLASSON: Uh-huh. 21 MR. HORTON: -- therefore required to some 22 extent to participate in the sale. You're required to 23 fill out a consignment document to indicate the 24 consignment as a -- as a way of controlling the 25 inventory from a DMV perspective and so you are required 26 to participate in your -- the consignment sales unlike 27 if you were not a registered dealer. You could just put 28 two people together and one guy could pay you a 47 1 commission and the Sales Tax implications would be 2 different. 3 PAUL GLASSON: Yeah. 4 MR. HORTON: But by virtue that you are a 5 registered dealer you're required to fill out certain 6 documents to indicate that the consignment took place 7 and to facilitate that transaction. 8 And the other complexity here is the 9 inconsistency in logic, that if the Department is asking 10 did the property -- was the property shipped out of 11 state, the logic is if it was shipped out of state, 12 irrespective of who did it then therefore it should be 13 exempt. 14 And this is something that we run into when 15 we're dealing with Sales Tax being a transaction tax, 16 and double taxation conversation that every time a 17 transaction occurs, ding, the tax is due. 18 And then if another occurs, the tax is due on 19 the same vehicle again. And if the -- if a Use Tax 20 transaction occurs, well, the Use Tax is due, also. And 21 that's the whole double taxation that you get into when 22 you're talking about transaction tax. 23 So if that's helpful to the -- to the -- to the 24 taxpayer -- I believe it will be, I could see the logic 25 of isolating the universe from a test period and would 26 argue that it probably should have been done -- could 27 have been done from the onset in developing the audit 28 plan and not doing it after the fact. But -- 48 1 And so, I'd ask the Department just to give me 2 their thoughts on that presumption on my part. 3 MR. SISTI: We'll definitely try to look at his 4 information, and I'll talk to him. 5 This consignment information just came up 6 today, so the auditor at the time was not aware -- 7 MR. HORTON: Okay. 8 MR. SISTI: -- of the consignment sales in the 9 audit, so -- 10 MR. HORTON: All right. 11 MR. SISTI: But we can look at it for sure. 12 MR. HORTON: Further discussion, Members? 13 Hearing none, is there a motion? 14 MS. YEE: Move to take the matter under 15 submission. 16 MR. HORTON: It's been moved by Ms. Yee to take 17 the matter under submission. Second by Mr. Runner. 18 Without objection, such will be the order. 19 Sir, thank you so very much for your 20 presentation here today in coming before us. The Board 21 will take your matter under consideration later on this 22 evening and send you a written report of our 23 conclusions. 24 Thank you. 25 PAUL GLASSON: Thank you so much for your time. 26 ---oOo--- 27 28 49 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 49 13 pages constitute a complete and accurate transcription 14 of the shorthand writing. 15 16 Dated: August 20, 2011. 17 18 19 ____________________________ 20 BEVERLY D. TOMS 21 Hearing Reporter 22 23 24 25 26 27 28 50