1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 REPORTER'S TRANSCRIPT 8 NOVEMBER 15, 2011 9 ITEM F PUBLIC HEARINGS 10 ITEM F2 11 PROPOSED ADOPTION OF AMENDMENTS TO 12 REGULATION 1807 13 PETITIONS FOR REALLOCATION OF LOCAL TAX 14 REGULATION 1828 15 PETITIONS FOR DISTRIBUTION OR REDISTRIBUTION 16 OF TRANSACTIONS AND USE TAX 17 18 19 20 21 22 23 24 25 26 Reported by: Juli Price Jackson 27 No. CSR 5214 28 1 1 P R E S E N T 2 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 13 Government Code Section 7.9) 14 15 Diane G. Olson Chief, Board 16 Proceedings Division 17 18 For the Board: Bradley Heller Legal Department 19 20 ---oOo--- 21 22 23 24 25 26 27 28 2 1 INDEX OF SPEAKERS 2 ---o0o--- 3 4 NAME PAGE 5 6 Robin Sturdivant 5 HdL Companies 7 8 Johan Klehs 6 Klehs & Company 9 10 11 ---o0o--- 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 NOVEMBER 15, 2011 4 ---oOo--- 5 MR. HORTON: Ms. Olson? 6 MS. OLSON: Our next item is F2, Proposed 7 Adoption of Amendments to Regulation 1807, Petitions for 8 Reallocation of Local Tax, and, Regulation 1828, 9 Petitions for Distribution or Redistribution of 10 Transactions and Use Tax. 11 We have two speakers. 12 MR. HORTON: Members, we have Mr. Johan Klehs, 13 with the Klehs & Company, President, CEO, CFO, CEA and 14 Robin with local government advocates, the HdL Company. 15 I'm going to hear from the Department, then 16 I'll go to you and then back to the Department. 17 Is that okay? 18 All right, thank you. 19 MR. HELLER: Thank you, Chairman Horton, 20 Members of the Board. 21 Again, I'm Bradley Heller from the Board's 22 Legal Department and I'm here with Kevin Hanks, from the 23 Board's Sales and Use Tax Department. 24 We're here to request that the Board adopt the 25 proposed amendments to Local Sales and Use Tax 26 Regulation 1807, Petitions for Reallocation of Local Tax 27 and Transactions and Use Tax, Regulation 1828, Petitions 28 for Distribution or Redistributions of Transactions and 4 1 Use Tax that the Board authorized for publication during 2 its August 23rd, 2011 Business Taxes Committee meeting. 3 The proposed amendments are intended to improve 4 the Board's review of Local and District tax petitions. 5 And I understand that we have received written public 6 comments from Robin Sturdivant of the HdL Companies and 7 also Albin Koch. 8 And staff can answer any questions regarding 9 the regulation and those comments, whatever the Board 10 desires. 11 MR. HORTON: Thank you very much. 12 Ms. Sturdivant. 13 ---o0o--- 14 ROBIN STURDIVANT 15 HdL COMPANIES 16 ---o0o--- 17 MS. STURDIVANT: Good morning, Mr. Chair and 18 Board Members. I'm Robin Sturdivant with the HdL 19 Companies. 20 And I had recently submitted -- and Ms. Olson 21 confirms that they were distributed -- some sort of late 22 changes to the regulation, to both 1807 and 1828. 23 And these suggestions were made in response to 24 just a couple of issues we've had with some -- some 25 recent older petitions. 26 And what we're proposing is that in certain 27 spots throughout the regulation to change the wording 28 from "Allocation Group" to "Sales and Use Tax 5 1 Department" in a couple of different places. 2 We're not suggesting a change in the process, 3 but rather clarifying that the decision that's issued in 4 response to a petition is the position of the Sales and 5 Use Tax Department rather than the position of the 6 Allocation Group or the Local Revenue Allocation Unit. 7 And to avoid confusion, we suggest that the 8 responsibilities of each group be outlined in a CCPM. 9 And I understand that we're going to public meetings for 10 those coming up very soon. 11 And the changes that we've suggested just 12 seemed to make the regulation a little more consistent. 13 The first half of the regulation refers to the 14 Allocation Group, the latter half refers to the Sales 15 and Use Tax Department. So, just to kind of make it 16 more consistent. 17 Thank you. 18 MR. HORTON: Thank you very much. 19 Mr. Klehs? 20 ---o0o--- 21 JOHAN KLEHS 22 KLEHS & COMPANY 23 ---o0o--- 24 MR. KLEHS: Representing the City of Livermore, 25 we support the regulation, as we participated in 26 drafting it. 27 And we have no objections to the suggestions by 28 HdL. 6 1 MR. HORTON: Thank you very much. 2 Department, any follow-up comments? 3 MR. HELLER: Real briefly. 4 Staff has reviewed HdL's suggested changes and, 5 essentially, it's -- it's just a matter of word choice. 6 And staff still thinks that the Allocation Group 7 reference is correct because it's -- at least from 8 staff's point of view, that is the portion of the Sales 9 and Use Tax Department that's supposed to be making 10 those decisions at issue in the regulation. 11 And that's still how staff would, essentially, 12 be reading the regulation if we do change it to Sales 13 and Use Tax Department since the Allocation Group would 14 still be the portion -- part of the Sales and Use Tax 15 Department doing this review and making the decisions, 16 but, again, it's a word choice issue. 17 And I think the Board Members can decide for 18 themselves which -- which language they think is more 19 clear for taxpayers. 20 MR. HORTON: Thank you. Discussion? 21 Member Yee. 22 MS. YEE: Thank you, Mr. Chairman. 23 I -- I think it's a little bit more than a word 24 choice change, but I think -- I want to look at it from 25 the perspective of what's in practice. 26 And I think with the change, at least the way 27 I'm reading it, is that it really captures that whatever 28 source a decision is issued within the Sales and Use Tax 7 1 Department, that it's considered a decision. 2 And it may be the Allocation Group within the 3 Sales and Use Tax Department, it may be somewhere else, 4 but I -- my understanding's that the genesis of this was 5 really a lack of clarity with respect to, you know, what 6 decision -- where decisions are made within the 7 Department. 8 Now with respect to these types of matters, I 9 would agree with you, I think they generally are from 10 the Allocation Group and that has been the practice. 11 But -- and we can certainly clarify it further 12 within the CCPM. But I think the intent here -- I don't 13 want to just cast it off as a word choice. It's 14 responding to something that actually took place that I 15 hope doesn't take place again. And it really does, I 16 think, crystallize for us that whatever decision comes 17 out of wherever within the Sales and Use Tax Department, 18 that it is an official decision relative to these 19 matters. 20 So, I just want to recharacterize what I think 21 the change means. 22 MR. HORTON: Okay. 23 MS. MANDEL: I don't know that -- uhm, uh-oh, 24 my mind just went blank -- I don't -- I'm not sure that 25 the information about what generated the proposed change 26 was in your hands because I can tell maybe from your 27 forehead scrunching it looked like you were not familiar 28 with the particular events that precipitated it -- or 8 1 maybe you were and you're just forehead scrunching. 2 MR. HELLER: Ms. Mandel, I have -- I was not 3 involved in any particular petition. I've been briefed 4 a little bit on the issues that HdL is concerned about. 5 So, I have some background. 6 MS. MANDEL: Okay. 7 MR. HELLER: And may -- maybe I was overly 8 broad in saying "word choice", I -- I know that, at 9 least from the perspective of HdL that it was intended 10 to address procedurals, issues that had happened in the 11 past, but I think in this case, the regulation's 12 amendments are going to be perspective only and 13 essentially, as -- as was intended previously and as I 14 think we would still read the regulation in the future, 15 that these petitions would still be assigned to the 16 Allocation Group, that they would essentially be the 17 ones that Sales and Use Tax Department would want to 18 speak for Department, deciding the petitions at the 19 initial review level. 20 And I think that's maybe why I kind of 21 overspoke in saying it was a word choice, but then it 22 may have some substantive impact in the future. 23 MS. YEE: Okay. 24 MR. HELLER: Sorry. 25 MR. HORTON: Mr. Runner. 26 MR. RUNNER: Yeah, just to -- just to clarify, 27 yeah, I -- yeah, I would -- I'd be a little concerned in 28 regards to the fact that -- that -- I guess to go back 9 1 to the idea that the words do have meanings and -- and 2 consequence and how they're looked at and viewed. 3 And, so, I'm going to go back to HdL a little 4 bit and just say, hey, I mean, it -- I would assume that 5 you would see this as more than just a word choice, that 6 it brings clarity -- 7 MS. STURDIVANT: Correct. 8 MR. RUNNER: -- to the local governments to 9 which you represent? 10 MS. STURDIVANT: Correct. And the particular 11 incident in question here, because of the -- I guess, 12 the lack of clarity in the regulation, we have a 13 petition that's now going to be delayed because it was 14 issued from the incorrect department or group or unit. 15 And, so, we've been basically told that the 16 first decision is invalid and we'll sort of go back. 17 And we'd like to avoid that in the future. 18 MR. RUNNER: Can somebody remind me right now 19 what the process -- as we deal with this now and if we 20 go ahead and accept that, then it's as a -- as a -- as a 21 substitution? 22 But what is the process we're in right now and 23 how would that -- how would that take place? 24 I'm not sure who it -- 25 MR. HORTON: Mr. -- 26 MR. RUNNER: -- yeah. 27 MR. HELLER: Senator, this is Bradley Heller -- 28 MR. RUNNER: Okay. 10 1 MR. HELLER: -- from the Legal Department. 2 MR. RUNNER: Yeah. 3 MR. HELLER: Senator Runner, well, first of 4 all, from a procedural standpoint -- 5 MR. RUNNER: Uh-huh. 6 MR. HELLER: -- just refer to the rulemaking 7 process. 8 If the Board does want to change the proposed 9 language, the Board can -- can authorize staff to make 10 the changes and issue a 15-day notice to make the public 11 aware of those changes and then we'll bring them back to 12 the Board for adoption at a later Board meeting, after 13 the 15-day notice and comment period's expired. 14 MR. RUNNER: So, this is -- this is not 15 substantial enough to be able to meet a 15-day notice at 16 that point? 17 MR. HELLER: Well, basically, we can do changes 18 that are substantially related if we do the 15-day 19 notice. 20 MR. RUNNER: Oh, okay. 21 MR. HELLER: And, so, this -- I think staff 22 believes these are substantially related to the prior 23 amendment. 24 MR. RUNNER: But it can be done on a 15-day 25 notice? 26 MR. HELLER: Correct. 27 MR. RUNNER: To be able to then be adopted at 28 the next meeting? 11 1 MR. HELLER: That's -- that's correct, yeah. 2 MR. RUNNER: Okay. 3 MS. YEE: Yeah. 4 MR. RUNNER: I certainly would be supportive of 5 that as a process. 6 MR. HORTON: Okay. Looks like there is support 7 for that. 8 MS. MANDEL: Can I ask one other question? 9 MR. HORTON: Sure. Ms. Mandel. 10 MS. MANDEL: Can you just address the comment 11 that we got this morning from Mr. Koch? 12 MR. HELLER: Yes, Ms. Mandel. 13 As we all -- as we discussed back at the, I 14 believe, the August Business Taxes Committee Meeting, 15 there are -- during the process of, quote, 16 "either amending or repealing 17 Regulations 1807 and 1828 back in 18 2008," 19 -- the Board's rulemaking documents did 20 indicate that the Board was in the process of amending 21 those regulations. 22 However, the actual text of what the Board did 23 was to strike out the entire text and titles of both 24 regulations and then adopt an entirely new underlying 25 text and titles of brand-new regulations. 26 When those were added to the California Code of 27 Regulations by the Office of Administrative Law, they 28 interpreted that as a repeal of the prior regulations 12 1 that were adopted in 2002 and adoption of the new 2 regulations in 2008. And that's the official notation 3 in the California Code of Regulations. 4 Board staff has just amended the transition 5 rules in Regulations 1807 -- or has proposed amending 6 them -- so that they indicate that the regulation was 7 repealed and reenacted or readopted in 2008. 8 And mainly just so that it's clear and in 9 conformity with what's -- the history notes in the 10 California Code of Regulations. 11 And Mr. Koch, to the extent that his statements 12 indicate that staff is trying to expunge the prior 13 record of what happened, that's not the case. 14 We're just trying to conform these amendments 15 with current history notes. And we're not trying to 16 change anything that happened in the past, all the 17 Board's records remain the same as they were, including 18 the minutes of all of the Board's meetings and the texts 19 of all of the rulemaking documents, which are all 20 official public records and available to the public on 21 request. 22 MS. MANDEL: And what about his proposal for -- 23 or is this proposed language have to do with that same 24 thing on this? 25 He proposes some clarifying language. 26 MR. HELLER: Ms. Mandel, I really have -- I 27 really could not follow where that went, to be honest. 28 It just kind of starts on the word "on" and I don't even 13 1 know where it goes, to be honest. 2 MS. MANDEL: The reg. 3 MR. HELLER: And I think it's -- I'm not so 4 sure that it's really clarifying in any respect. I 5 mean, it's -- I really can't even -- I was unclear about 6 where it went. 7 MS. MANDEL: Okay. 8 MR. HORTON: Further discussion, Members? 9 Mr. Heller is that sufficient enough for you to 10 be able to make the changes? 11 MR. HELLER: Well -- 12 MS. YEE: You need a motion. 13 MR. HORTON: I will. 14 MS. YEE: Okay. 15 MR. HORTON: I just want to make you 16 understand. 17 MS. YEE: Okay. 18 MR. HORTON: Okay, Ms. Yee. 19 MS. YEE: I'll move adoption of the amendments 20 to Regulation -- to these regulations as amended per our 21 discussion and sent to the 15-day file. 22 MR. HORTON: So moved. 23 Second by Member Steel. 24 Without objection, Members, such will be the 25 order. 26 Mr. Heller. 27 MR. HELLER: Chairman Horton, could I just 28 clarify? 14 1 I just wanted to make sure, HdL's comments 2 mostly just referred to Regulation 1807, but I just 3 wanted to make sure we're making conforming changes to 4 both regulations? 5 MS. YEE: Yes. 6 MR. HELLER: Correct? 7 MR. HORTON: Yes. 8 MS. YEE: Yes. 9 MR. HELLER: Perfect, I have all of the 10 information I need. 11 MS. YEE: Yep. 12 MR. HORTON: All right, thank you very much, 13 appreciate your time. 14 MS. STURDIVANT: Thank you very much. 15 MR. KLEHS: Thank you. 16 ---O0O--- 17 18 19 20 21 22 23 24 25 26 27 28 15 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 NOVEMBER 15, 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 15 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: NOVEMBER 17, 2011 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 16