1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 AUGUST 23, 2011 10 11 SALES AND USE TAX APPEAL HEARING 12 APPEAL OF 13 GURMAIL SINGH 14 NO. 487083 (AR) 15 AGAINST PROPOSED ASSESSMENT OF 16 SALES AND USE TAX 17 18 19 20 21 22 23 24 25 Reported by: Juli Price Jackson 26 CSR No. 5214 27 28 1 1 2 P R E S E N T 3 For the Board Jerome E. Horton of Equalization: Chairman 4 5 Michelle Steel Vice-Chairwoman 6 7 Betty T. Yee Member 8 9 George Runner Member 10 11 Marcy Jo Mandel Appearing for John 12 Chiang, State Controller (per Government Code 13 Section 7.9) 14 15 Diane G. Olson, Chief 16 Board Proceedings Division 17 18 For Board of David Levine Equalization Staff: Staff Counsel 19 20 For Department: Scott Claremon 21 Tax Counsel 22 Kevin Hanks Chief, Headquarters 23 Operations Division 24 Robert Tucker Legal Department 25 26 For Petitioner: Gurmail Singh 27 Taxpayer 28 ---oOo--- 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 AUGUST 23, 2011 4 ---oOo--- 5 MR. HORTON: Welcome, Members, the meeting of 6 the Board of Equalization is called back to order. 7 Ms. Olson, what is our next matter? 8 MS. OLSON: Our next matter is C3, Gurmail 9 Singh. 10 Please come forward. 11 MR. HORTON: Mr. Levine, please introduce the 12 issues in this case. 13 MR. LEVINE: Good afternoon, Chairman Horton, 14 Members. 15 MR. HORTON: Good afternoon. 16 MR. LEVINE: David Levine for the Appeals 17 Division. 18 The issue in this petition is whether 19 Petitioner is liable as a responsible person pursuant to 20 Revenue and Taxation Code Section 6829 for the tax debts 21 of Pizza Food Enterprises. 22 I note that the liability also includes 23 penalties that were imposed on the corporation that 24 Petitioner has not submitted a request for relief on 25 behalf of the corporation. 26 MR. HORTON: Thank you very much. 27 Would the taxpayer please introduce yourself 28 for the record? 3 1 You'll have ten minutes to make your 2 presentation, upon which time we will return for a 3 five-minute rebuttal. 4 MR. SINGH: Yes, sir. My name is Gurmail 5 Singh. And I brought this case back in 2006. 6 Me and my wife -- my wife name was Sachreet, 7 she passed away -- we decided to buy a business. It's 8 located in Bakersfield, California. 9 And when we were talking to this gentleman 10 named Dhillon, to buy the business from him, the 11 business was already under process because he was buying 12 from somebody else. 13 So, we came in between. And we made a deal 14 with Mr. Dhillon for a one million dollar in the sale, 15 in the total price of the business. And he was buying 16 this business for $845,000. 17 So, we signed the agreement. And I attached a 18 copy on this one for everybody. And then I'll go a 19 little bit like how he was agreeing, all that kind of 20 stuff. 21 He did register this Pizza Food Enterprise with 22 the State of California. There is -- next page comes 23 up, there is minutes for the meetings and all, like, you 24 know, there were another person involved in it, that's 25 Kulsharan Kaur. 26 And then I'm going to the next page, this is 27 something like, you know, to get Internal Services 28 number, federal ID number. 4 1 It all came under Mr. Dhillon's name. And it's 2 signed by his wife, Kamal Preet, I believe that's her 3 name. 4 And then I'll go to the next page, there is a 5 contract between Mr. Dhillon and the owner of the 6 business, sale -- I think you call it, it says, Sale and 7 Purchase Agreement and it has everything on it. 8 When I'm looking on the last page of this page, 9 it's been signed by Mr. Dhillon, as the President and 10 Vice President, then his wife, Kamal Preet Dhillon, as 11 the Secretary/Treasurer. And then it's the individuals 12 sign. And the owner did sign. 13 And this thing happened on -- there is a date 14 on it, it's 1-10-2006. So, they signed the contract. 15 And 'til that -- that's what everything was 16 turning. Then me and my wife, we came in between -- we 17 made a contract with them. And the deal came up like, 18 okay, this is the price you going to be paying. But 19 right now this business will go in escrow under 20 Mr. Dhillon's name but we have to provide all of the 21 financial needs and the like. The money and all kind of 22 come from our side. 23 That was our mutual agreement. And then we 24 start proceeding on it. And that there was escrow, 25 there's some escrow papers. The escrow get closed on 26 August 25th is showing up on this paper, the first page. 27 So, the -- that's whole thing signed by the previous 28 owner, sold the business. 5 1 And then the next page it tells like how the 2 money came to that escrow. So, there's a list from the 3 escrow company and it's showing up like 50,000 came in, 4 25,000 came in, another 25 came in. 5 This is the money I borrowed from my friends 6 and we put into the escrow under his name. 7 Then there is the money came in like 366,000 8 and 800. And there was a loan came from the Mission 9 Bank, located in Bakersfield. That loan was under me 10 and my wife. We both were on the loan, but it went in 11 that account. 12 And then Mr. Dhillon, he put two checks in 13 there, one for 35,000 and one for 10,000. So, in other 14 words, the total money he put in was $45,000, the rest 15 we put it in ourselves. 16 Then there was some unpaid balance with the 17 previous owner. Then Mr. Dhillon, his wife, and the 18 previous owner, they put everything and called it a 19 promissory note to be paying in future, signed by 20 Mr. Dhillon on it and his wife, as well, and by the 21 previous owner. 22 On the last page, Mr. Dhillon did put on it the 23 President and the 100 percent shareholder on this. 24 Then the next page is from the Mission Bank, 25 this says that the loan was approved by Mission Bank 26 under my and my wife's name to putting in there. 27 Then the next page is -- is just a tax paper, 28 Mr. Dhillon, help us to get the loan from the Mission 6 1 Bank, showing up the previous owner tax paper. 2 Later on we find out that this was not the real 3 paper. I don't know where he got it, but I have a copy 4 of this. And I do have those two -- I'm sorry, just -- 5 just so the paper give it to us. 6 The next page is the -- is the -- like rentals 7 and lease and all. Everything's transferred by the 8 previous owner to Mr. Dhillon and Mr. Dhillon signed all 9 those paper and the way it's supposed to be. 10 And they went through the escrow and 11 everything. It has all the leases signed. There was 12 more than one restaurant, there was five total. So, 13 that's why this bundle is a little bigger. 14 What happened -- so, over here, the escrow got 15 closed. We came in, between me and my wife, and we 16 talked to Mr. Dhillon. And we agree on it that we had 17 to wait on a little bit. There's a promissory note and 18 there is all the leases under his name. 19 Once everything is sorted out, then he will 20 transfer the business to our name. So, by the time -- 21 term he get transferred, he has to get involved. 22 In other words, we have a bank. We have a 23 loan. We have promissory note. So, he is the one who 24 has to take care of everything for us. 25 And I was -- I came in. I started working as 26 a manager, as a District manager, as a -- you know, just 27 managing all the stores, from place to place. 28 And my wife was doing the accounting in the 7 1 office. And -- but there was instructions from 2 Mr. Dhillon on every transaction, what we need to do. 3 So, whatever he tell us, "Okay, you send the 4 payment here." We write the check. 5 "You take the payment here. You do this thing 6 and this thing." Everything was coordinated by him. 7 Then the next page comes in here, there's some 8 money we've been depositing in this account owned by, 9 you know, (unintelligible). So, there's some here. I 10 know I didn't copy it, but I have the original one here. 11 There is some -- I -- just that's all I can 12 find. 13 Then the next page comes in, Mr. Dhillon came 14 that he -- I need to bring in somebody who is going to 15 put like kind of warranty type because I didn't have any 16 property under my name to make sure everything was fine. 17 Then I asked my uncle. So, he signed the paper 18 and he notarized, whatever he wants to put it, we did 19 own it. 20 Now the things was going. I was running 21 business, my wife doing was accounting. He's 22 controlling everything -- all the financial datas, where 23 everything to fill up this farm or go here and there, 24 pay this tax and that's all. We -- we've been doing it. 25 There's -- in between there was some problem 26 with the lease, the landlords. So, there is some 27 letters that came under his name saying the -- you know, 28 the rent is behind or whatever, you know. 8 1 So, there's quite a bit of copies on it written 2 from one landlord. So, I stapled all those together. 3 There is like, I believe, five or six. It was under -- 4 all attention to him. 5 Now up to here, you know, I've been talking to 6 him, 7 "Hey, you need to transfer the business to my 8 name so, you know, we can have control on all 9 of the financial end and we can make more 10 decisions and all." 11 It didn't happen. In between what he did, he 12 saw the business is doing so good, so, he went to the 13 different bank, he used to call San Joaquin Bank. And 14 he refinanced the whole business. 15 So, what happened, like our loan got paid, 16 whatever it was, $366,000, and the rest, you know, he 17 took the money from the bank. And he say, "That's how 18 I'm going to run it." 19 So, financially whatever we put it in is all 20 gone from there. 21 And we've been -- we start thinking it's not 22 going good, something's wrong here because we don't know 23 what he's trying to do. 24 In the beginning he was very nice because of 25 the paperwork we got from the previous owner, the 26 business was not doing good. 27 But when I came in and my wife came in and we 28 work hard and we brought this business really good. We 9 1 save lot of money on it for him. 2 And then he changed to -- the whole loan he 3 changed to a different bank. And then, you know, 4 something happened, like really terrible, under stress 5 my wife passed away on this. And -- sorry. 6 There was a -- there was a number 2007 and 7 after that I could not do anything there. I was 8 myself -- and big responsibility for the business, I was 9 doing the same thing. 10 He came up because he was like family thing and 11 he says, 12 "You can't handle the business. So, you need 13 to leave it. I'm going to have somebody else 14 to run this business." 15 And I left from there in the month of December 16 in 2007. And the day I left, he called the banks 17 because he was with me on all the accounts, I was with 18 him, I was following, as I mentioned earlier, his 19 instructions on it. 20 He took my name out of the banks. And I tried 21 to get a copy from the bank, but they say they won't 22 give me unless I have a confirmation from him. He 23 didn't provide it. 24 But I have a copy -- it's the San Joaquin Bank. 25 They changed in -- their name, it's Citizens Business 26 Bank now. It tells like what date it was closed. 27 MS. OLSON: Time has expired. 28 MR. SINGH: Oh, okay. 10 1 MR. HORTON: Thank you. 2 MR. SINGH: Sorry. 3 MR. HORTON: We will return and allow you an 4 opportunity to rebut the Department. 5 MR. SINGH: Yes, sir. 6 MR. HORTON: I kind of think there'll be a few 7 questions as well. 8 Would the Department please introduce yourself 9 for the record? 10 You have ten minutes and please commence. 11 MR. CLAREMON: Good afternoon, Chairman Horton, 12 Members of the Board. 13 MR. HORTON: Good afternoon. 14 MR. CLAREMON: I'm Scott Claremon from the 15 Legal Department. 16 With me are Robert Tucker and Kevin Hanks, also 17 representing staff. 18 We concur with the recommendation of the 19 Appeals Division that Petitioner is liable under 20 Section 6829 for the unpaid liabilities of Pizza Food 21 Enterprises, Inc. from the fourth quarter of 2006 to the 22 fourth quarter of 2007. 23 Four conditions must be met for personal 24 liability to attach under Section 6829. The corporation 25 must be terminated. It must have collected sales tax 26 reimbursement. The person must have been responsible 27 for the payment of sales tax. And the person's failure 28 to pay must be willful. 11 1 Here the corporation ceased operation as of 2 December 31st, 2007, when its seller's permit was closed 3 out. 4 Also it's undisputed that the corporation 5 collected sales tax reimbursement during the period at 6 the issue. 7 With regards to the third element, Petitioner 8 signed the tax returns from the periods at issue, as 9 well as the corporation seller's permit. Petitioner 10 also signed numerous other corporate documents as CEO, 11 President or owner. 12 With regard to the fourth requirement, 13 Petitioner had knowledge that the tax was due, as 14 evidenced by his signing the tax returns and based on 15 his position in the corporation. The company made 16 significant payments to other creditors and employees 17 during this period. And Petitioner either signed or 18 arranged for -- arranged for those checks to be paid. 19 In fact, Petitioner acknowledges that he was responsible 20 for paying the day-to-day costs of the business. 21 In sum, all of the requirements for liability 22 under Section 6829 have been met and the petition should 23 be denied. 24 Thank you. 25 MR. HORTON: Thank you very much. 26 On rebuttal, sir? 27 MR. SINGH: The thing in the signing the 28 documents, as I mentioned earlier, like we were in -- in 12 1 between taking over the business. And I was trying to 2 get as much I can, whatever he was just saying, "Okay, 3 do this paperwork and I will sign here," because I was 4 hoping end of the day, the business will come to us. 5 And that's why I was doing all of those. 6 The payments, making payments, I used to get a 7 phone call from the gentleman and he used to guide me 8 like, write a check to whom. So, everything was under 9 his hand because he was on bank accounts. He was able 10 to see to where we paying, where we not paying on those. 11 Cost of business, same thing, you know, he was 12 not -- wasn't the thing that there is no money. The 13 money was there. It's not that the -- because the 14 business was doing good. And that's one of the reason 15 he took over the business from us, because he saw the 16 money is there. And, but -- again, I to have follow all 17 of the instructions from this -- whatever he's saying, 18 we were just following it up, just with the hope that 19 end of the day will come under my name. That's why I 20 sign all the tax paper or whatever. And that's why we 21 did it. 22 But financially we were not getting -- I was 23 just getting my salary paid. I was not getting any 24 profit sharing, nothing, just the salary. That's about 25 it. 26 Thank you, sir. 27 MR. HORTON: Thank you very much. 28 Discussion, Members? 13 1 MS. STEEL: Just a question -- 2 MR. HORTON: Member Steel? 3 MS. STEEL: -- to the Department. 4 Petitioner was telling us the business was not 5 really terminated. And the -- it was just bought by 6 another party, the officer of that -- the other -- the 7 restaurant. 8 So, if they just closed down the license and 9 then they get the new licenses, then there is just -- we 10 still assume that that business is just closed? 11 MR. TUCKER: We look to the -- pardon me, this 12 is Robert Tucker on behalf of the Legal Department. 13 We look to the cessation of the business 14 activities. So, the merely closing out the seller's 15 permit in that circumstance would be regarded as the 16 termination, dissolution or abandonment. 17 MS. STEEL: So, we have other officers or 18 owners and we are going after? 19 So, one person started paying it there. 20 MR. TUCKER: Right. 21 MS. STEEL: So, are we really aggressively 22 going after that person? Or, you know, it's like a 23 dual, we are going after both of them and this taxpayer 24 plus that the other officers or whoever signed the 25 checks and whoever gave them order what to do? 26 And how we are working on it right now? 27 MR. CLAREMON: We do have a final determination 28 against Mr. Dhillon. And we are collecting against 14 1 Mr. Dhillon. And he has made payments. 2 MS. STEEL: Okay. So, he's been making 3 payments? 4 MR. CLAREMON: Yes. 5 MS. STEEL: Okay, okay. So, we have documents 6 that this taxpayer, Mr. Singh, was -- signed some of the 7 tax returns, and -- okay -- 8 MR. CLAREMON: Yes. 9 MS. STEEL: -- okay, thank you. 10 MR. HORTON: Thank you very much. 11 Further discussion, Members? 12 Mr. Runner? 13 MR. RUNNER: The -- thank you. 14 The -- you said that at some point -- and give 15 me the date again that it is that you said that the -- 16 that in your opinion the owner came in and removed you? 17 MR. SINGH: There was something end of the 18 December 2007. 19 MR. RUNNER: December 2007? 20 MR. SINGH: Yes, sir. 21 MR. RUNNER: Okay. And in terms in terms of -- 22 in terms of what the audit period is, that's -- 23 that's -- that's the end of the audit or the liability 24 period, right? 25 MR. TUCKER: Correct. 26 MR. RUNNER: So, we're not -- 27 MR. TUCKER: Yes. 28 MR. RUNNER: -- we're not -- we don't have any 15 1 discussion of holding him liable for any of those issues 2 after that date? 3 MR. TUCKER: We -- pardon me, in the Appeals 4 D & R they asked for some sort of contemporaneous 5 evidence to show when he was removed. 6 MR. RUNNER: Right. 7 MR. TUCKER: Unfortunately, there wasn't any 8 provided. 9 MR. RUNNER: But if he could -- I'm trying 10 to -- 11 MR. TUCKER: If we could establish -- 12 MR. RUNNER: -- but if he was removed the end 13 of -- in December 2007 -- 14 MR. TUCKER: Correct, if he was removed. 15 However, unfortunately, we haven't seen any evidence to 16 see that that was actually -- or something that actually 17 occurred. 18 MS. MANDEL: But -- but -- 19 MR. RUNNER: But the -- 20 MS. MANDEL: -- finish your sentences to 21 that -- if he was -- if he had corroborating evidence of 22 his removal, that does what to the liability? 23 MR. RUNNER: What was the liability? What 24 would -- what does that do to his liability? 25 MS. MANDEL: Some of it would go away, right? 26 MR. RUNNER: Yeah. 27 MR. TUCKER: Correct, if he was un -- if he was 28 removed before the end of the quarter and was unable to 16 1 pay the liability, which would have been the case, then, 2 arguably that one quarter -- 3 MR. RUNNER: That one quarter? 4 So, it could get down to the issue of what one 5 quarter of that -- not one quarter of the total, but one 6 -- that last quarter? 7 MR. TUCKER: Right, if he were removed before 8 the end of the quarter. 9 MR. RUNNER: Okay. 10 MR. TUCKER: Correct. 11 MR. RUNNER: And to the taxpayer, you don't 12 have any -- anything that you can provide that shows 13 that you were removed? 14 MR. SINGH: I can provide because I move from 15 here to Seattle in Washington. 16 MR. RUNNER: Right. 17 MR. SINGH: And then I have some proof for over 18 there. I can get it because I rent a place. I -- I 19 open account with the bank down there. 20 So, I'll be able to get that because -- 21 MR. RUNNER: So, what you can can provide is 22 proof that you no longer lived in California? 23 MR. SINGH: Yeah. 24 No. 2, in the bank we can get it like when was 25 the last signed check they got from me? Because that's 26 what I was doing, I was just managing the business. 27 But what they telling me I have to get some 28 kind of documentation saying from the Department that 17 1 this is a legal issue to get it. 2 So, if I have something like this, I'll be able 3 to provide something, yes, sir. 4 MR. RUNNER: Let me ask the Department again, I 5 mean, what are the kinds of things that he -- that the 6 taxpayer could provide that would help to understand 7 that he was removed and may not have liability for that 8 last quarter? 9 MR. CLAREMON: He could provide proof of other 10 employment after the date he says that he stopped 11 working for the corporation. 12 MR. RUNNER: Other employment? So, simply 13 moving would not be able to accomplish that, moving 14 out of state? 15 MR. TUCKER: Just to follow up -- 16 MR. RUNNER: Okay. 17 MR. TUCKER: -- to know that he moved out of 18 state, we'd want to see that -- that he -- it wasn't 19 just a one day trip and back. 20 MR. RUNNER: Correct. 21 MR. TUCKER: Things that would have been 22 helpful would have been like employment records, 23 paystubs, something that -- 24 MR. RUNNER: Utilities? 25 MR. TUCKER: -- utilities, perhaps. 26 MR. RUNNER: Utilities for out of state? 27 MR. TUCKER: Uh-huh. 28 MR. RUNNER: Okay. 18 1 MR. TUCKER: Something to -- something that 2 could corroborate the fact that he was no longer in 3 California. 4 MR. RUNNER: Okay, okay. 5 MR. TUCKER: Something contemporaneous would be 6 best. 7 MR. RUNNER: Okay, can you -- do you have any 8 of those kind of documents that would demonstrate that? 9 MR. SINGH: Yes, sir, I can -- I can bring 10 something, yes. 11 MR. RUNNER: That would show that you had -- 12 MR. SINGH: Yes, there was one -- first week of 13 the December I left from Bakersfield, yeah. 14 MR. RUNNER: Well, you left. 15 But can you -- can you demonstrate with some 16 material that you actually paid rent up there? 17 MR. SINGH: Yes, sir. 18 MR. RUNNER: That you had utility bills that 19 you paid? 20 MR. SINGH: I'll -- 21 MR. RUNNER: That you took a job up there? 22 MR. SINGH: Well, it took me a while to get the 23 job. 24 MR. RUNNER: Right, I -- 25 MR. SINGH: I didn't have -- 26 MR. RUNNER: -- get that part. 27 MR. SINGH: Yes. 28 MR. RUNNER: That's why I'm thinking utility 19 1 bills -- 2 MR. SINGH: I have -- 3 MR. RUNNER: -- and rent. 4 MR. SINGH: I'll be able to get -- because I 5 rent a place there (unintelligible), I'll be able to 6 find that stuff, yes. 7 MR. RUNNER: Okay, thank you. 8 MR. SINGH: Thank you, sir. 9 MR. HORTON: Further discussion, Members? 10 Is there a motion? 11 MS. YEE: Move to take the matter under 12 submission. 13 MR. HORTON: It's been moved by Ms. Yee to take 14 the matter under submission. 15 Second by -- 16 MS. MANDEL: Second. 17 MR. HORTON: -- Ms. Mandel. 18 Without objection, Members, such will be the 19 order. 20 Thank you so very much for appearing before us 21 today. We'll take your matter under consideration later 22 on this afternoon and send you a written report of our 23 decision. 24 Thank you. 25 MR. SINGH: Thank you. 26 ---o0o--- 27 28 20 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, JULI PRICE JACKSON, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 AUGUST 23, 2011 I recorded verbatim, in shorthand, to 10 the best of my ability, the proceedings in the 11 above-entitled hearing; that I transcribed the shorthand 12 writing into typewriting; and that the preceding pages 1 13 through 20 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: September 9, 2011 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 21