1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 OCTOBER 28, 2011 10 11 12 13 14 15 FINAL ACTIONS 16 FOR OCTOBER 27, 2011 17 18 19 20 21 22 23 24 REPORTED BY: JULI PRICE JACKSON 25 CSR NO. 5214 26 27 28 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 G. Olson Chief, Board 14 Proceedings Division 15 For Appeals Division: David Levine Tax Counsel 16 17 ---OOO--- 18 19 20 21 22 23 24 25 26 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 OCTOBER 28, 2011 4 ---o0o--- 5 MR. HORTON: Okay. 6 MS. OLSON: Our next item is C1, RC Marketing, 7 Incorporated. 8 ---o0o--- 9 C1 10 RC MARKETING, INCORPORATED 11 NO. 377842 12 ---o0o--- 13 MS. MANDEL: Oh, this was the cabinets? 14 MR. HORTON: Yes. 15 MS. STEEL: Yeah. 16 MR. HORTON: Discussion, Members? 17 MR. RUNNER: I think -- 18 MS. STEEL: Grant the petition. 19 MR. RUNNER: Oh, go ahead, go ahead. 20 MS. STEEL: Make the motion first on this? 21 MR. HORTON: Yes, please. 22 MS. STEEL: Grant the motion -- motion -- grant 23 the petition. 24 MR. HORTON: It's been -- 25 MR. RUNNER: Second. 26 MR. HORTON: -- moved to grant the petition by 27 Member Steel, second by Mr. Runner. 28 Discussion, Members? Is there an objection? 3 1 MS. YEE: Yes. 2 MR. HORTON: Objection noted, Member Yee. 3 Discussion? 4 MS. MANDEL: Yeah, I think that there -- there 5 is to -- well, I can't remember how much of it's 6 protested, but I thought there was at least an admission 7 as to some part of what was picked up in the audit. 8 MS. YEE: Yeah. 9 MS. MANDEL: And I don't know if that's 10 particularly with respect to the -- the bunk beds and 11 that there was some level of installation. 12 So, I -- I don't know if -- if the -- I don't 13 know how -- I don't know how that plays into the motion 14 the way the motion was -- was made, because it seemed 15 like -- 16 MR. RUNNER: The motion was to -- 17 MS. MANDEL: -- they acknowledged there was 18 some level of -- of -- well, I'm -- this is this 19 construction contract stuff. 20 MS. YEE: Right. 21 MR. RUNNER: Right. 22 MS. YEE: I know, so, let's -- 23 MS. MANDEL: They -- they would have to have -- 24 they would have to meet the overall percentage for 25 everything to be cut loose, right? 26 MR. RUNNER: Well, I think -- 27 MS. STEEL: I think you can make substitute 28 motion. 4 1 MS. MANDEL: No, I'm just trying to get clear 2 what's -- this is a construction contract and I get a 3 little -- 4 MS. STEEL: Right, right. 5 MS. MANDEL: -- mixed up which way it runs. 6 So -- 7 MR. RUNNER: My notes on this said -- 8 basically, were the fact that there seemed to be a 9 reasonable argument for the -- an increase -- 10 MS. MANDEL: Yes. 11 MS. STEEL: -- in the amount of installation 12 specifically on the issue of the cabinetry. 13 MS. MANDEL: I'm looking at the wrong papers. 14 MR. RUNNER: Uhmm, I think as -- I think there 15 was -- the assumption was that there was a -- there was 16 a different amount of effort that was needed on the 17 cabinetry issue and installation as opposed to the bed 18 portion of it. 19 MS. MANDEL: Right, right. 20 MR. RUNNER: So, my issue with it was to see if 21 there was a way to do some kind of percentage increase 22 in regards to the -- the installation on the -- on the 23 cabinet side -- 24 MS. MANDEL: Right. 25 MR. RUNNER: -- in order to readjust the -- 26 MS. MANDEL: The numbers? 27 MR. RUNNER: -- the numbers. 28 MR. LEVINE: I do have some figures. 5 1 MR. RUNNER: Well, there you go. 2 MR. LEVINE: I asked the -- the -- my 3 understanding is the taxpayer did not -- they petitioned 4 the whole determination, so, what's before us, a grant 5 would eliminate the deficiency. 6 The deficiency is for the difference between 7 treating it as materials and treating it as fixtures, 8 which is the 90 percent target. 9 The Department's calculations were based on a 10 50-50 split of the job site labor -- 50 percent 11 installation, 50 percent fabrication. 12 The taxpayer had said that when it's just a 13 bed, it's 75 fabrication and 25 installation, but when 14 it's cabinets, it's much higher. And most of these have 15 cabinets. 16 MR. RUNNER: Uh-huh. 17 MR. LEVINE: There were 39 contracts, two of 18 which the Department, using its 50-50, were treated as 19 materials. So, those are not at issue. 20 Of the 37, if you moved up the overall 21 percentage from the Department's 50 percent to 60 22 percent, that would increase the two treated as 23 materials to 10. 24 If it were increased to 70 percent 25 installation, 16 contracts would be materials. 26 And if you increased it to 75 installation, 27 which is my understanding of Petitioner's argument, that 28 the overall percentage should have been 75-25, that 20 6 1 of the 39 contracts would have been considered 2 materials, meaning 18 of the contracts in dispute would 3 have been materials. 4 So, based on the Department's review of the 5 records using the most favorable to the taxpayer, it 6 would still have 19 contracts as fixtures. 7 I don't have dollars amount, but I think this 8 gives you a general idea. 9 MR. RUNNER: But you'd apply the percentages -- 10 yeah, and then it would fall out to however way they -- 11 MS. STEEL: 19 contracts out of how many? 12 MR. LEVINE: I'm sorry? 13 MS. STEEL: 19 contracts out of? 14 MR. LEVINE: Out of 37 in dispute. 15 MR. RUNNER: And that's using the 75 percent 16 that the taxpayer -- 17 MR. LEVINE: That's correct. 18 MS. STEEL: Well, I can make substitute motion. 19 Then I withdraw my original motion and I make 20 that motion for 17 contracts being granted. 21 Are you listening? 22 MR. HORTON: Yes. There's a -- moved by 23 Member Steel to accept the 75 percent ratio, second by 24 Mr. Runner. 25 Objection, Members? 26 Hearing none, such will be the order. 27 ---o0o--- 28 7 1 MS. OLSON: Our next item is C2, HFAS, 2 Incorporated and C2b, Thomas Earl Symonds. 3 This was a waived appearance. 4 ---o0o--- 5 C2a 6 HFAS, INCORPORATED 7 NO. 335691 (EH) 8 C2b 9 THOMAS EARL SYMONDS 10 NO. 335692 (EH) 11 ---o0o--- 12 MR. RUNNER: I don't think I remember hearing 13 that. 14 MR. HORTON: Okay. Is there a motion, Members? 15 MS. YEE: Move to adopt -- 16 MS. MANDEL: It was a waived appearance? 17 MS. YEE: -- it was, yes, move to adopt the 18 staff recommendation. 19 MR. HORTON: Moved by Member Yee to adopt the 20 staff recommendation. 21 Second by Mr. Runner. 22 Objection, Members? 23 Hearing none, such will be the order. 24 ---o0o--- 25 26 27 28 8 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 OCTOBER 28, 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 8 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: NOVEMBER 4, 2011 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 9