1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 REPORTER'S TRANSCRIPT 8 MARCH 20, 2012 9 10 F1 PUBLIC HEARING 11 PROPOSED ADOPTION OF AMENDMENTS TO 12 REGULATION 1685.5, 13 CALCULATION OF ESTIMATED USE TAX - USE TAX TABLE 14 15 16 17 18 19 20 21 22 Reported by: Juli Price Jackson 23 No. CSR 5214 24 25 26 27 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 Staff: Bradley Heller Tax Counsel IV 19 Tax and Fee Division Legal Department 20 21 ---oOo--- 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 MARCH 20, 2012 4 ---oOo--- 5 MR. HORTON: Ms. Olson, what's our next item? 6 MS. OLSON: Our next item is F1, Proposed 7 Adoption of Amendments to Regulation 1685.5, Calculation 8 of Estimated Use Tax -- Use Tax Table. 9 MR. HORTON: Discussion, Members? 10 Hearing, is there a motion? 11 MR. RUNNER: I've got -- I think we have a 12 presentation, right? 13 MR. HORTON: All right, Mr. Heller. 14 MR. HELLER: Good evening, Chairman Horton and 15 Members of the Board. Again I'm Bradley Heller from the 16 Board's Legal Department. And I'm just here to request 17 that the Board vote to adopt the proposed amendments to 18 Sales and Use Tax Regulation 1685.5, Calculation of 19 Estimated Use Tax - Use Tax Table, that the Board 20 authorized for publication back in December. The 21 proposed amendments update the manner in which the Board 22 shall annually calculate the estimated amount of use tax 23 due according to a person's adjusted gross income and 24 make such amounts available to the Franchise Tax Board 25 in the form of a use tax table for calendar year 2012 26 and subsequent years. 27 And I just wanted to briefly note that we did 28 receive one public comment from someone who -- who 3 1 misunderstood the proposed amendments and believed that 2 they were imposing a use tax payment requirement or an 3 estimated use tax payment requirement on taxpayers who 4 don't -- have not made any purchases subject to use tax 5 and don't have any use tax liability. And I just wanted 6 to emphasize that that's not correct and that the use 7 tax table is fully optional and no taxpayer has to use 8 it at all. And if -- and only taxpayers who actually 9 have a use tax liability should use it and that will be 10 explained. 11 MR. HORTON: Thank you very much. 12 Discussion, Members? Mr. Runner. 13 MR. RUNNER: Yeah, help -- the -- the -- the 14 formula that's used to kind of help create the -- the 15 table, what impact did we apply AB 155 to that formula 16 for -- in light of the fact that when AB 155 passed, we 17 were now going to be -- have this additional collection 18 of use tax, therefore, my assumption would be that, 19 therefore, the -- the -- it would be reduced, I guess, 20 the -- you know, to some degree. The scales would be 21 reduced because there will be a higher collection of use 22 tax as a result of AB 155. 23 So, how does that apply to this particular 24 issue? 25 MR. HELLER: Well, let me -- first off, the 26 staff -- let me remove -- explain AB 155. 27 AB 155 expanded retailers' use tax collection 28 obligations. And it will become effective either 4 1 September 15th of 2012 or January 1, 2013, depending on 2 federal legislation and there's still time for that to 3 happen. And staff is not a clear whether or not -- or 4 what the effective date of that legislation will be. 5 In addition, staff has really no way of 6 estimating what retailers' behavior will specifically be 7 or what consumers' behavior will be when that 8 legislation becomes effective. And we have absolutely 9 no data at all to estimate what the -- what the amount 10 of consumers' purchases from unregistered, out-of-state 11 retailers will necessarily be after the legislation 12 takes effect. 13 We've been monitoring retailers' behavior and 14 we have not seen an increase in retailer registration at 15 this point. If we do see one, we'll do our best to 16 estimate the changes in consumers' and retailers' 17 behavior once we have actual data. But right now we 18 don't have any new data to rely on. So, we haven't made 19 any changes for 2012 and we're sure that there will be 20 any legislative change for 2012 or that retailers -- 21 MR. RUNNER: When we're talking about 2012, 22 we're talking about tax year 2012, right? 23 MR. HELLER: Yes, I'm sorry, for calendar year 24 2012, correct. 25 MR. RUNNER: Yeah. 26 MR. HELLER: And, so -- so, at this point we 27 haven't recommended any changes. These were the same 28 ones that we prev -- that we recommended to the Board 5 1 back in December. 2 And, so, at this point we don't have any new 3 data and nothing to base any -- 4 MR. RUNNER: So, if -- 5 MR. HELLER: -- adjustments on. 6 MR. RUNNER: -- so, if, indeed -- at least 7 as -- as -- at least I was under the impression, is that 8 under -- under AB 155, that certain retailers, 9 particularly one really large one, was going to begin to 10 collect the sales tax at that point -- use tax at that 11 point. 12 We're not factoring that in to take place in 13 September then? 14 MR. HELLER: I would say we -- we have no data 15 all to factor in. 16 MR. RUNNER: Okay, that's -- I don't -- 17 MR. HELLER: But -- but if we did, we would. I 18 mean -- 19 MR. RUNNER: Yeah. 20 MR. HELLER: -- if we had concrete data about 21 what will actually happen, we would -- 22 MR. RUNNER: Okay. So, let -- 23 MR. HELLER: -- do our best. 24 MR. RUNNER: -- ask you this: If, indeed, we 25 get to September 1st, 'cause I mean I'm -- I'm one who 26 does not hold out how much hope for a federal solution, 27 you know, in terms -- one that would be acceptable to 28 many, many states, including California. 6 1 So, if, indeed, though, that we do see that the 2 policy changes and that there is a clear pattern of then 3 collection, as I think was the assumption under AB 155, 4 starting in September 15th -- or whenever that date was, 5 I forgot what it was -- would we then come in and adjust 6 this? 7 MR. HELLER: Assuming this all happened and we 8 saw retailers' behavior change in -- in mid-September of 9 2012. 10 MR. RUNNER: Uh-huh. 11 MR. HELLER: It would be too late to go and do 12 any changes at that time. We would have already done 13 the use tax table and submitted it to the FTB. And the 14 FTB would have already sent it off for publication and a 15 the materials for its instructions to the 2012 income 16 tax returns. 17 And, honestly, at that point we still wouldn't 18 really necessarily have any data that we could make an 19 adjustment on. 20 We would really to have see -- after we 21 actually saw how everybody behaves, let's say, for a 22 full quarter or more, we would be able to see whether or 23 not the additional retailers registered and, in fact, 24 collected additional use tax or maybe changed their 25 business model so now that they were making sales tax 26 transactions, we'd have to factor that in. 27 And we'd also have to look at what consumers' 28 behavior is. So, let's say I'm always buying from a 7 1 particular retailer because they aren't registered and 2 I'd prefer not to pay tax -- 3 MR. RUNNER: Okay. 4 MR. HELLER: -- which isn't me, but let's say 5 it was -- 6 MR. RUNNER: I'm -- obviously wouldn't be you. 7 MR. HELLER: Right. Well, or -- you know, if 8 I -- 9 MR. RUNNER: Right. 10 MR. HELLER: -- if they -- let's say I cannot 11 find my product elsewhere, then I would report my own 12 use tax. 13 MR. RUNNER: Okay. 14 MR. HELLER: But -- but even still, if I'm a 15 person who's looking at that bottom line and I don't 16 want to pay use tax to the retailer -- 17 MR. RUNNER: Uh-huh. 18 MR. HELLER: -- then I may switch retailers 19 after the one that I'm -- I'm used to purchasing from 20 now registers, assuming that happens. 21 So -- so, staff's kind of at a loss at what 22 adjustment to make. 23 MR. RUNNER: Is most of the exposure then that 24 we would be dealing with then probably then a -- what 25 would it be, just a -- well, it'd be the third quarter? 26 Basically, it'd be the third quarter that all 27 of a sudden some of the larger retailers did do what 28 they said they were going to do, it would be just 8 1 basically applied to the third quarter and -- anyhow? 2 Is that -- 3 MR. HELLER: I would say -- well, it should 4 only have -- assuming retailers wait until the law 5 becomes effective, then they would be registering like 6 in the last couple of days of the third quarter -- 7 MR. RUNNER: Uh-huh. 8 MR. HELLER: -- and then would be registered 9 for all of the fourth quarter of 2012. 10 MR. RUNNER: Excuse me, fourth, I meant fourth 11 quarter, right. 12 MR. HELLER: And then it would just depend on, 13 you know, as to the consumers themselves, it would just 14 depend on when they're making their purchases whether or 15 not that retailer's registered and how it would impact 16 -- impact, you know, how would you calculate 17 (unintelligible) -- 18 MR. RUNNER: We would assume, though, then -- 19 then at some point in the future if indeed then that 20 that is the -- the anticipated effect of AB 155, let me 21 phrase it that way -- 22 MR. HELLER: Uh-huh. 23 MR. RUNNER: -- is fulfilled, that we would see 24 a reduction in the table? 25 MR. HELLER: Absolutely. 26 MR. RUNNER: Okay. 27 MR. HELLER: And staff's trying to track that 28 data right now. 9 1 MR. RUNNER: Okay. 2 MR. HELLER: And if we see a change, we will 3 recommend changes for 2013. 4 MR. RUNNER: Thanks. 5 MR. HORTON: Further discussion, Members? 6 Mr. Heller, thank you very much for your 7 presentation. 8 MS. YEE: I'll move adoption. 9 MR. HORTON: Moved adoption by Member Yee, 10 second by Member Steel -- 11 MS. STEEL: Objection. 12 MR. HORTON: -- objection noted by 13 Member Steel, second by Ms. Mandel. 14 Ms. Olson, please call the roll. 15 MS. OLSON: Mr. -- Mr. Horton? 16 MR. HORTON: Aye. 17 MS. OLSON: Ms. Steel? 18 MS. STEEL: No. 19 MS. OLSON: Mr. Runner? 20 MR. RUNNER: Not voting. 21 MS. OLSON: Ms. Yee? 22 MS. YEE: Aye. 23 MS. OLSON: Ms. Mandel? 24 MS. MANDEL: Aye. 25 MS. OLSON: Motion carries. 26 MR. HORTON: Thank you. 27 MR. HELLER: Thank you. 28 ---o0o--- 10 1 REPORTER'S CERTIFICATE 2 State of California ) 3 ) ss 4 County of Sacramento ) 5 6 I, JULI PRICE JACKSON, Hearing Reporter for the 7 California State Board of Equalization certify that on 8 MARCH 20, 2012 I recorded verbatim, in shorthand, to the 9 best of my ability, the proceedings in the 10 above-entitled hearing; that I transcribed the shorthand 11 writing into typewriting; and that the preceding pages 1 12 through 11 constitute a complete and accurate 13 transcription of the shorthand writing. 14 15 Dated: April 3, 2012 16 17 18 ____________________________ 19 JULI PRICE JACKSON 20 Hearing Reporter 21 22 23 24 25 26 27 28 11