1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 MARCH 21, 2012 10 11 12 13 14 15 FINAL ACTIONS 16 FOR MARCH 20, 2012 17 18 19 20 21 22 23 REPORTED BY: JULI PRICE JACKSON 24 CSR NO. 5214 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 Michelle Steel 5 Vice-Chairwoman 6 Betty T. Yee Member 7 George Runner 8 Member 9 Marcy Jo Mandel Appearing for John Chiang 10 State Controller (per Government Code 11 Section 7.9) 12 Diane G. Olson Chief, Board 13 Proceedings Division 14 15 For Appeals Division: David Levine Tax Counsel 16 17 ---OOO--- 18 19 20 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 MARCH 21, 2012 4 ---o0o--- 5 MR. HORTON: Ms. Olson, what's our next 6 scheduled item? 7 MS. OLSON: Those matters that were taken under 8 submission yesterday. Our first one is B1, Ali Amidy 9 and Guiti Nahavandi. 10 ---o0o--- 11 B1 ALI AMIDY and GUITI NAHAVANDI 12 NO. 524954 13 ---o0o--- 14 MS. MANDEL: Okay. This is the one where we 15 had concessions by the Franchise Tax Board before the 16 hearing on 110,000 and at the hearing they made a 17 further concession about an $8,000 check, cashier's 18 check. 19 MR. HORTON: Is there a motion in there? 20 MS. MANDEL: I was just doing a -- 21 MR. HORTON: Summary? 22 MS. MANDEL: -- recap. 23 MR. HORTON: Good. 24 MS. MANDEL: A friendly recap. 25 MR. HORTON: Thank you. Discussion, Members? 26 Mr. Runner. 27 MR. RUNNER: Yeah, you know, as again we 28 started going through this, my frustration was that as 3 1 that $8,000 issue came up, then that was one that was 2 dealt with. 3 At least -- you know, I've seen lists or I've 4 got a list of other items that I think need to be looked 5 at. You know, I -- I'm -- I -- at this point I would 6 feel more comfortable with, uh, the taxpayer, FTB and 7 our Appeals folks going back through some of these items 8 to identify if, indeed, some of them do correspond. 9 MR. HORTON: Let's see if we can have staff 10 come forward? 11 The recollection is they had reviewed them, 12 only found one, but I think we discussed with the 13 taxpayer the possibility that he may be able to come up 14 with additional information and that FTB would share 15 with him what that information might look like and then 16 collectively they would share with the Department, 17 possibly -- 18 MR. EPOLITE: My understanding that Appeals met 19 with Mr. Amidy and the Franchise Tax Board at the 20 conclusion of the hearing yesterday. 21 And the plan going forward was that FTB 22 would -- I'll let Mr. Thompson take it from here. 23 MR. THOMPSON: My apology, I didn't realize 24 that we were going to get this at this time. 25 We did talk with the taxpayer and FTB 26 yesterday. And they had -- there was some feeling they 27 might be able to have some productive discussions. 28 So, we would propose, as one possibility, a 4 1 30-30-30. 2 MR. HORTON: Okay. Mr. Runner will move -- 3 moves, Ms. Mandel seconds. 4 Without objection, Members, such will be the 5 order. 6 Thank you very much. 7 ---o0o--- 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 1 MR. HORTON: Ms. Olson? . 2 MS. OLSON: Our next matter is B2, Tim Barth 3 and Teri Barth. 4 ---o0o--- 5 B2 TIM BARTH and TERI BARTH 6 NO. 562294 7 ---o0o--- 8 MR. HORTON: Discussion, Members? 9 Ms. Mandel. 10 MS. MANDEL: I don't -- I don't have a friendly 11 update for this, but I -- you know, I would support the 12 Franchise Tax Board on this, not -- not that someone can 13 never show that -- that they didn't receive something, 14 but that this one was sent to the correct Carmichael 15 address. And all of -- all of the exhibits and 16 discussion about problems with mail had to do with mail 17 addressed to the Sacramento city zip combination, not 18 that they weren't getting mail with the Carmichael. 19 So, I mean, it's -- so, that's -- you know, 20 he -- so, what he's left with, I think, is that he says 21 he didn't get it. And I guess it's kind of that that's 22 where FTB had said, I think, that their -- that the mere 23 statement that you didn't get it wasn't really enough to 24 show you didn't get it. 25 We didn't -- I didn't hear about problems 26 getting -- generally with the mail on the Carmichael 27 city zip, so, that's why. 28 MR. HORTON: Ms. Mandel moves to sustain FTB. 6 1 Second by -- 2 MS. YEE: I'll second. 3 MR. HORTON: -- Member Yee. 4 MS. STEEL: Objection. 5 MR. HORTON: Objection by Member Steel. 6 Need for further discussion? 7 Hearing none, Ms. Olson, call the roll. 8 MS. OLSON: Mr. Horton? 9 MR. HORTON: Aye. 10 MS. OLSON: Ms. Steel? 11 MS. STEEL: No. 12 MS. OLSON: Mr. Runner? 13 MR. RUNNER: No. 14 MS. OLSON: Ms. Yee? 15 MS. YEE: Aye. 16 MS. OLSON: Ms. Mandel? 17 MS. MANDEL: Aye. 18 MS. OLSON: Motion carries. 19 ---o0o--- 20 21 22 23 24 25 26 27 28 7 1 MR. HORTON: Ms. Olson, next item. . 2 MS. OLSON: Our next item is B3, Michael J. 3 Klemp. 4 ---o0o--- 5 B3 MICHAEL J. KLEMP 6 NO. 568733 7 ---o0o--- 8 MR. HORTON: Discussion, Members? Is there a 9 motion? 10 MS. YEE: Move to sustain the Franchise Tax 11 Board. 12 MR. HORTON: Member Yee moves to sustain the 13 Franchise Tax Board. Member Mandel seconds. 14 Objection, Members? 15 Hearing none, such will be the order. 16 ---o0o--- 17 18 19 20 21 22 23 24 25 26 27 28 8 1 MR. HORTON: Ms. Olson. 2 MS. OLSON: Our next item is C1, David A. 3 Bartel. 4 ---o0o--- 5 C1 DAVID A. BARTEL 6 NO. 518470 (KH) 7 ---o0o--- 8 MR. HORTON: Members? 9 MS. STEEL: I move the Petitioner is personally 10 liable as a responsible person only for fourth quarter 11 and that $200,000 of escrow payment has be applied to 12 the fourth quarter as taxpayer requested. 13 MR. RUNNER: I'll second that, at least for the 14 sake of the discussion. 15 So, the motion is to go ahead and recredit the 16 payment to the fourth quarter? 17 MS. STEEL: Uh-huh. 18 MR. RUNNER: Which then then satisfies, in 19 essence then, the claim against this taxpayer? 20 MS. STEEL: No, actually about $30,000, that's 21 what I heard -- 22 MR. RUNNER: About -- 23 MS. STEEL: -- for him. Mr. Levine? 24 MR. LEVINE: He has -- 25 MR. RUNNER: -- can we just clarify what the -- 26 MR. HORTON: Members, there's a motion on the 27 table by Member Steel that is two-fold, bifurcated. 28 The first motion is to sustain the Franchise 9 1 Tax Board -- 2 MS. MANDEL: Staff. 3 MR. HORTON: -- the Department, my apologies, 4 on the responsible person person aspect of it. 5 The second motion is to -- three motions, my 6 apologies is to hold that the responsible party is just 7 fire the fourth quarter. 8 And the third part of the motion is to redirect 9 the $200,000 payment to cover the fourth quarter as 10 requested by the taxpayer. 11 Discussion, Members. 12 MR. RUNNER: Well, yeah, I'd like to find out 13 again what that -- what that delta is, what does that 14 mean in regards to -- 15 MR. HORTON: Mr. Levine, possibly you could 16 share some information on the redirection first? 17 MR. LEVINE: Okay. I haven't run the numbers, 18 but just looking at what we show as remaining amount, 19 281,000, the $200,000 payment was applied to third 20 quarter, which we've already recommended removing the 21 liability for third quarter on the nonremittance return. 22 So, I believe that would leave $80,000. I 23 can't guarantee that, but that's what I think would 24 happen. 25 MR. HORTON: Okay. 26 MR. LEVINE: I heard -- I heard the taxpayer 27 mention something about 17,000 left. I don't know where 28 that came from. 10 1 MR. HORTON: Okay. 2 MR. RUNNER: The reason I -- I'd support the -- 3 the discussion or the motion in that direction is it was 4 clear to me in this discussion that the -- the taxpayer, 5 at some point felt that they -- I think, believed they 6 were in a negotiation at that point, did not realize 7 that there would be a liability when all this was then 8 accomplished that would come back to him. 9 I do believe would he have negotiated a 10 different kind of a process since he was one of the 11 negotiators -- negotiators in the settlement -- in the 12 deal, I should say, not the settlement -- in the deal, 13 in the escrow, if indeed he understood at that point 14 that he would have that third quarter liability. 15 So, I -- that's why I believe it's a good 16 agreement or a good -- a fair settlement on the part of 17 the taxpayer. 18 MR. HORTON: Okay. There's a second to the 19 motion by Member Runner. 20 Discussion, Members? 21 MS. YEE: Just objection. 22 MR. HORTON: Objection noted. 23 Members, I sort of have to share that the 24 negotiation process was a sale, really was not in a 25 position to negotiate a settlement without the Board of 26 Equalization being at the table to re-negotiate. 27 The other concern, in redirecting the funds, I 28 believe it exposes the State of California to a 11 1 potential loss -- don't know if we have the -- we 2 certainly have authority as a body, but want to stay 3 consistent with our policies and procedures that are 4 adhered to by our staff relative to the allocation of 5 funding in the absence of direction. 6 And, so, we have a third party now allocating 7 funding based on the desire of a third party, not the 8 party engaged -- somewhat of a concern. 9 Those are my concerns. 10 MR. RUNNER: But on that issue, I guess, on the 11 issue that of the negotiation, the BOE wasn't at the 12 table. 13 I mean, you're right, if it was just a sale 14 away from the BOE, but through our discussion the BOE 15 was actually engaged in the negotiation and put together 16 then the items that would be dealt with in escrow. 17 So -- again, I realize it wasn't officially the 18 settlement unit or something, but it was, indeed, the 19 BOE that was but actually engaged in -- in that -- in 20 that discussion. 21 MR. HORTON: Yeah, I acknowledge that. I think 22 my -- mistakenly probably should have elaborated a 23 little more as it relates to in a settlement capacity. 24 And, so, if they're not there in a settlement 25 capacity, I would have to conclude that no such 26 discussions would have taken place on the part of the 27 BOE relative to saying, you know, give us what you can. 28 We will settle. We will accept that in this process. 12 1 But, you know, like in many cases we are 2 dealing with circumstantial, after the fact evidence and 3 that's the best we have to deal with. 4 Member Yee. 5 MS. YEE: Thank you, Mr. Chairman. I would 6 agree with your comments, I just don't want us to lose 7 sight of the fact that Petitioner, and this is an 8 unfortunate situation, but I think to the extent that we 9 are looking at a responsible person situation, certainly 10 the evidence suggests that he had, really, plenty of 11 authority for the disbursement of funds during that 12 fourth quarter so -- and there were available funds 13 certainly to satisfy the liability but other decisions 14 were made with respect to the use of those funds. 15 MR. HORTON: Okay. There's a motion and a 16 second, Ms. Olson, objection noted by Member Yee. 17 Ms. Olson, please call the roll. 18 MS. OLSON: Mr. Horton? 19 MR. HORTON: No. 20 MS. OLSON: Ms. Steel? 21 MS. STEEL: Aye. 22 MS. OLSON: Mr. Runner? 23 MR. RUNNER: Aye. 24 MS. OLSON: Ms. Yee? 25 MS. YEE: No. 26 MS. OLSON: Ms. Mandel? 27 MS. MANDEL: No. 28 MS. OLSON: Motion fails. 13 1 MR. HORTON: Subsequent motion, Members? It 2 appears that we may want to make a motion on the 3 responsible person and -- and then maybe separate it, 4 but -- 5 MS. MANDEL: Well, the staff -- the staff 6 recommendation is responsible person, but only for the 7 fourth quarter. 8 MS. YEE: Yeah. 9 MS. MANDEL: Right? 10 MR. LEVINE: Correct. 11 MS. YEE: Uh-huh. 12 MS. MANDEL: Yeah, so -- 13 MR. HORTON: Does that -- 14 MS. MANDEL: -- that's, uh-huh. 15 MR. HORTON: -- Member Mandel moves to adopt 16 staff recommendation, responsible person only for the 17 fourth quarter. 18 Is there a second? 19 MS. YEE: I'll second and I'd like to also be 20 sure that we inform Petitioner of the 21 Offers-In-Compromise program. 22 MR. HORTON: So be it. 23 Objection, Members? 24 MS. STEEL: Objection. 25 MR. HORTON: Objection noted by Member Steel. 26 Ms. Olson, please call the roll. 27 MS. OLSON: Mr. Horton? 28 MR. HORTON: Aye. 14 1 MS. OLSON: Ms. Steel? 2 MS. STEEL: No. 3 MS. OLSON: Mr. Runner? 4 MR. RUNNER: No. 5 MS. OLSON: Ms. Yee? 6 MS. YEE: Aye. 7 MS. OLSON: Ms. Mandel? 8 MS. MANDEL: Aye. 9 MS. OLSON: Motion carries. 10 ---o0o--- 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15 1 MR. HORTON: Ms. Olson? 2 MS. OLSON: Our next item is C3, A-Plus Storage 3 Containers, Incorporated. 4 MR. HORTON: No, that's not the next item -- 5 just kidding. You got to have some fun. 6 Ms. Olson, next item. My apologies. 7 MS. OLSON: Is C3, A-Plus Storage Containers, 8 Incorporated. 9 ---o0o--- 10 C3 A-PLUS STORAGE CONTAINERS, INC. 11 NO. 511088, 511095 (KH) 12 ---o0o--- 13 MR. HORTON: Discussion, Members? 14 MR. RUNNER: I would move to grant for the 15 Petitioner. 16 MR. HORTON: Moved by Mr. Runner to grant. 17 Second by Member Steel to grant. 18 Discussion? 19 MR. RUNNER: Yeah, just again the -- the fact 20 that there was such confusion on behalf of our staff, 21 given direction at one point, it is -- again, I think we 22 had some confusion at the dates at that point, what was 23 done and what was done, it's at least clear to me that 24 once he got the clear direction from the Board, the 25 change from the Board, that he did, indeed, then change 26 his practice and collection. 27 That -- so, all of the issues that we're -- 28 that he -- that the -- that we're dealing with were 16 1 issues when there was still this very clouded direction 2 from the Board. 3 I think it's our responsibility to give clear 4 direction and when we don't, I don't think we should 5 hold the taxpayer liable. 6 MR. HORTON: Thank you. 7 Member Yee. 8 MS. YEE: Yeah, thank you, Mr. Chairman. 9 This one is, again, another difficult 10 situation, but I appreciated the discussion we had 11 yesterday with respect to how the lack of good faith 12 does not necessarily constitute bad faith. 13 And I think -- one of the things that I would 14 say, perhaps, is lacking in our work with taxpayers is 15 really encouraging taxpayers in this particular types of 16 situation to get their advice in writing. 17 And this is something that I oftentimes find 18 that is not often encouraged or even identified as an 19 option. But I think this all could have been prevented 20 if, um -- particularly with our District staff, I really 21 want that to be a tool that we offer a little bit more 22 freely so that that advice can be given in writing and 23 then could guide what the taxpayer decides to do. 24 MR. HORTON: Further discussion, Members? 25 Objection noted. 26 MS. MANDEL: There was -- 27 MS. STEEL: Was there objection? 28 MS. YEE: That is an objection. 17 1 MS. MANDEL: Well -- 2 MR. HORTON: Member Mandel. 3 MS. MANDEL: -- okay, further discussion then. 4 I -- my understanding of the amount that's left 5 in dispute was that it's for the period before -- it's 6 for the stuff that he had partial certificates for that 7 -- and -- and where the Department told him to file the 8 claim, the refund claim, on the day that they told him, 9 "You should be getting this partial exemption." 10 MR. HORTON: Mr. Levine. 11 MS. MANDEL: So, that's why I thought we were 12 still in the good faith -- um, the issue of good faith 13 acceptance of the certificates. 14 MR. HORTON: Okay. 15 MR. LEVINE: That is the issue. The period in 16 dispute is the period for which there's is no arguable 17 reliance on Board advice. The advice was given and 18 undone, but the Department already granted a little bit 19 more relief than the statutes technically specifies 20 because there wasn't a writing, but the Department 21 already agreed with that. 22 MS. MANDEL: Right. So -- 23 MS. MANDEL: While there's a whole complication 24 because it was claim for refund -- 25 MS. MANDEL: -- right, but -- 26 MR. LEVINE: -- that they told them to do. It 27 was for transactions that had already occurred. 28 MS. MANDEL: And for which he would have had 18 1 partial exemption certificates because if he didn't have 2 partial exemption certificates, then he'd have collected 3 the full amount of the tax. They would have told him he 4 had excess tax reimbursement, he had to -- 5 MR. LEVINE: That's correct. 6 MS. MANDEL: -- send back. 7 MR. LEVINE: So, I assume -- my understanding 8 is that the taxpayer collected the partial sales tax -- 9 MS. MANDEL: Right. 10 MR. LEVINE: -- and not the exempt amount. 11 MS. MANDEL: And then -- and then reported on 12 the full. 13 MR. LEVINE: Apparently, mistakenly -- 14 MS. MANDEL: Right. 15 MR. LEVINE: -- after thinking it -- 16 MS. MANDEL: So, it's -- so, it's an issue of 17 whether looking at these -- this regulation and 18 considering it applies to tangible personal property, 19 which is movable stuff, not -- not kind of like a 20 structure structure, which seems more like a building 21 but has -- but isn't really a full building or is a hen 22 house or, you know, whatever, that -- that he would have 23 concluded, and in good faith, taken those certificates 24 at that time, which was ultimately what staff concluded 25 the first day. 26 So, we're still in the good faith acceptance -- 27 MR. LEVINE: Right. 28 MS. MANDEL: -- period? 19 1 MR. LEVINE: Technically the -- the staff 2 advice is irrelevant. 3 MS. MANDEL: Okay. 4 MR. LEVINE: Because the events in question 5 occurred before that advice. 6 MS. MANDEL: Right. The only -- the only -- 7 well, the relevance of the staff advice would be that 8 it's sort of, you know, shows that -- that other people 9 might have read the same thing and come to the same -- 10 okay. 11 MR. LEVINE: I guarantee that -- 12 MS. MANDEL: I just wanted to make sure, I was 13 so -- 14 MR. LEVINE: -- on every transaction someone is 15 confused. 16 MS. MANDEL: Right. 17 MR. LEVINE: Even at the Board, unfortunately, 18 because we have a lot of people. 19 MS. MANDEL: Yeah and I know you're talking 20 about me. 21 MR. RUNNER: Thank you. Just to -- 22 MS. MANDEL: Okay. 23 MR. RUNNER: Just to -- can I just clarify? 24 The issue of the staff advice being irrelevant 25 is because it was not in writing? 26 MR. LEVINE: No, no. 27 MR. RUNNER: Oh. 28 MR. LEVINE: The Department's -- it's -- 20 1 technically there is no reliance because the events that 2 occurred, the acceptance of the certificates, were 3 before the advice. 4 The taxpayer made the decision to accept these 5 certificates and not collect tax reimbursement on that 6 5 percent before any communication -- 7 MS. MANDEL: Yeah, I'm okay. 8 MR. LEVINE: -- between the taxpayer and -- 9 MR. RUNNER: Yeah. 10 MR. LEVINE: -- the Department. 11 MR. RUNNER: Again that's -- okay. 12 And, again, part of the discussion is that it 13 revolves around this idea of the interpretation of the 14 taxpayer who does not think what he has that he is 15 selling is -- is a structure or a building. 16 MS. MANDEL: Right. And that's why I'm focused 17 on the good faith acceptance and, you know, the -- 18 the -- relevance is the issue of how probative it is. 19 But I -- you know, I read those regulations and 20 I -- I could see where somebody in -- might say, "Hey, 21 it's tangible property and it's movable." And it's not 22 really a barn, milking barn or whatever. 23 So, that -- that's why I was a little confused 24 by the -- by the objection. 25 But I'm okay on the good faith acceptance of it 26 for that period. 27 MR. HORTON: Okay. 28 MS. MANDEL: So, if he needs a second -- 21 1 MR. HORTON: That's helpful. I mean, it really 2 was. 3 MS. MANDEL: Okay. 4 MR. HORTON: Just -- Mr. Levine, I'm going to 5 ask you to sort of summarize what you've heard here, so 6 make sure that we're all -- 7 MR. LEVINE: I'm not sure what Ms. Mandel's 8 position is, but she doesn't -- 9 MR. HORTON: No, not the position, I mean as 10 far as -- 11 MR. LEVINE: The issue is -- 12 MR. HORTON: -- the issue? 13 MR. LEVINE: -- and I don't know if they're 14 still arguing that it does qualify, but, of course, 15 that's one arguable issue of whether it qualifies and 16 assuming you agree with us that it doesn't qualify for 17 the exemption, then the next issue is whether the 18 exemption certificates were accepted in good faith. 19 MR. HORTON: And, so, without any -- any advice 20 from the Board of Equalization, we're really not in a 21 position to infer that the taxpayer was misled by the 22 Board? 23 MR. LEVINE: There was no mis -- there is no -- 24 as far as I know, there's no even argument that there 25 was no misleading, but there is no misleading in the 26 record. 27 MR. HORTON: So, we're -- we would be speaking 28 to -- that the taxpayer was just confused about the law. 22 1 MR. LEVINE: Yes. 2 MR. HORTON: And as result of that confusion, 3 he accepted the document in good faith. 4 MS. MANDEL: Yeah, and -- 5 MR. LEVINE: It goes -- 6 MS. MANDEL: -- and the -- and the part that I 7 guess, you know, if -- the -- if he hadn't paid the full 8 amount with his return, even having accepted partial 9 certificates, you wouldn't have the sort of -- that 10 makes it maybe a little more muddy. 11 But I don't know why, you know, he reported in 12 full or not, but -- but if it's just a question of good 13 faith on the certificates, if it that sort of -- if 14 that's where you have to go, whether it was good faith 15 for accepting the certificates. 16 MR. LEVINE: Ultimately it goes to the question 17 of what is the responsibility -- what do you believe the 18 responsibility of the retailer is to make these 19 decisions? 20 MR. RUNNER: Can -- can I get a clarification? 21 What was the date of the -- of the staff 22 advice? 23 MR. LEVINE: I believe it was in December, late 24 December -- 25 MR. RUNNER: Of? 26 MR. LEVINE: -- my recollection is. 27 MR. RUNNER: Of? 28 MR. LEVINE: 2007, this is -- I'm sorry. 23 1 MR. RUNNER: So, aren't these -- 2 MS. MANDEL: 2008 -- 3 MS. YEE: 2008. 4 MS. MANDEL: -- I thought. 5 MR. LEVINE: 2008, I believe. 6 MR. RUNNER: And what are the times of dispute? 7 MS. STEEL: It doesn't -- 8 MR. LEVINE: Although we list -- I think the 9 summary isn't accurate because we list both. 10 And my understanding is that the only thing in 11 dispute was through 2008. But perhaps this is a case 12 where I'm confused. 13 MR. RUNNER: I mean I think I -- my 14 understanding is that all of this was -- was after the 15 staff advice. 16 MS. MANDEL: It originally was involving both 17 and then right before the hearing, like the night 18 before, we got something saying they were conceding -- 19 MR. RUNNER: Yeah. 20 MS. MANDEL: -- something, which I -- that's 21 why I was going through that two period, three period. 22 MR. RUNNER: Well, then I guess the other issue 23 that's kind of -- again, regardless, I guess, of when 24 the advice came, the point would be if you -- again, my 25 issue would be the taxpayer did act in good faith and 26 it's almost reinforced by the fact that there was 27 confusion on the part of the Board too -- and the Board 28 staff, whether it came before or after. 24 1 MR. HORTON: Yeah. As a matter of policy it is 2 difficult to -- to have a member of our -- of the Board 3 be confused and conclude that the correct guidance is 4 not available within the agency. 5 And accepting of a resale certificate or even 6 exemption certificate in good faith it's always a 7 difficult thing to -- to support. So, I certainly 8 understand my colleagues' interpretation in that regard. 9 It is just difficult to conclude good faith 10 without some evidence of the taxpayer actually executing 11 during that particular period of time, taking some 12 steps, some affirmative steps. 13 So, I've got some challenges with that. 14 MS. YEE: Yeah. 15 MR. HORTON: Maybe you guys can help. 16 Member Yee. 17 MS. YEE: I really want to go back to this 18 concept of encouraging taxpayers to get their advice in 19 writing because there were a couple of things I thought 20 was happening -- that I thought were happening here with 21 respect to this particular Petitioner. 22 The amended returns were filed for the period 23 preceding the period before us. And I think it was 24 really -- and the staff, our staff, engaged the 25 Petitioner, you know, with those amended returns. 26 But I think it was -- wasn't it some later 27 point there was some unrelated account that was reviewed 28 that then brought into question the issue of the 25 1 shipping containers qualifying for the exemption? 2 And, I mean, this is the -- we've heard cases 3 as a Board where we've had brought right before us the 4 issue of what qualifies for exemptions and what don't. 5 And I just would think that for something like this that 6 whenever District staff or any of the Board staff 7 engages a Petitioner that -- um, there is some potential 8 ambiguity about the -- um, any of this property 9 qualifying for an exemption that that ought to be 10 something that we encourage the Petitioner to try to get 11 some advice in writing about. 12 And -- because I don't know that -- 13 unfortunately, this Petitioner, I think, was kind of 14 caught in the middle because there was this unrelated 15 account that I think brought the question into focus 16 about whether the containers actually qualified for the 17 exemption. They had had the interface with the District 18 staff with respect to the amended returns. And I think 19 it did create a lot of confusion. 20 And -- but -- but I also think that this could 21 set -- I always think about, you know, kind of what this 22 sets in place in terms of, you know, our practice and 23 any precedents for practices as we relate to taxpayers 24 and try to assist them. 25 And, so, I'm really kind of focused on that, 26 not so much -- I mean, it's unfortunate this confusion 27 took place, but I'm also troubled by -- and this is a 28 tough one for me because I'm also troubled by this 26 1 presumption of good faith and that there's a presumption 2 that good faith was exercised unless there's some 3 finding from the Department that -- that's otherwise. 4 And, so, I don't know, Mr. Levine, if that -- 5 if that kind of -- if there's anything that kind of 6 plays into that aspect of -- the presumptions and 7 what -- 8 MR. LEVINE: I don't think the presumption 9 means anything because we always presume good faith. 10 MS. YEE: Yeah. 11 MR. LEVINE: But, again, it -- it depends on 12 the level of responsibility you find the retailer has. 13 The way we've always interpreted this is that 14 the retailer is responsible for knowing things within 15 its personal knowledge. 16 A seller of medicine is responsible for knowing 17 if it's a medicine and can't rely on a certificate 18 and -- but the retailer gets to rely on the certificate 19 to the extent that it's a certification of how the 20 property will be used when use is a condition for the 21 exemption, which it often is. It's the very reason why 22 a sale in interstate commerce can not be supported by an 23 exemption certificate because the retailer has 24 responsibility for everything. 25 Again, it goes to the question of good faith 26 and the level that the Board decides the retailer -- the 27 level of responsibility for finding things out within 28 its knowledge of its product that the Board believes a 27 1 retailer has. 2 MS. YEE: Yeah, okay. 3 And -- and all I want is for us not to -- I 4 mean, I never want a taxpayer to be caught up in a 5 gotcha situation. 6 On the other hand, I think we don't fully offer 7 the tools that we have for those taxpayers who may not. 8 Know -- who may not know whether the use of certain type 9 of property does qualify for an exemption. 10 And, so, I do want there to be some offer of at 11 least getting that advice in writing. 12 MR. RUNNER: Just a -- just, again to help me 13 understand, again, how our citizens inter -- interact 14 with -- with BOE staff on a local level. 15 So, when our constituent goes in, talks to BOE 16 staff about, "Hey, what is the law here? How does this 17 apply?" And they give them some direction, are we 18 really prepared to say that our -- I mean, is it -- is 19 it then the -- the assumption of us that then the 20 Board -- but that the staff should then say, "Oh, but 21 listen, you don't want to listen what I'm telling you, 22 you want to write this down so that you can have it in 23 writing."? 24 MS. YEE: Actually, I could give you an example 25 because I see it my District all of the time. 26 MR. RUNNER: Uh-huh. 27 MS. YEE: When a taxpayer presents at a 28 District office, and in this case, I think, really, the 28 1 staff most of the time are equipped to provide 2 assistance in terms of how to complete a return. 3 MR. RUNNER: Right. 4 MS. YEE: With respect to the individual unique 5 situation of a Petitioner and/or business, that's kind 6 of a secondary consideration. And they generally want 7 to get more information. But when they're presented 8 with returns, that's the focus, how to complete the 9 return. And -- I mean, and my District staff are pretty 10 good about referring Petitioners to the available 11 resources as it relates to their particular business. 12 But that is something that they don't generally, at 13 least my staff, don't take ownership of, that is really 14 the responsibility of the taxpayer. 15 MR. RUNNER: To -- I'm sorry. 16 MS. YEE: To refer that taxpayer to the 17 resources that will provide the guidance. 18 MR. RUNNER: So, we don't necessarily look at 19 our staff as the resource? 20 MS. YEE: I think with respect to completing 21 the return and what's required in terms of that aspect 22 of compliance, yes. In terms of the rules specific to a 23 particular business or industry or taxpayer, it is then 24 identifying the resources that are available to, not 25 just the taxpayer, but to the staff as well. They're 26 not experts. 27 MR. RUNNER: Right. Does that -- I guess I'm 28 confused hearing that. Does that mean every taxpayer 29 1 who has a question about anything has to put it in 2 writing? 3 MS. YEE: No, I would hope that they'd be 4 really familiar with what's required of them in their 5 particular line of business. 6 MR. RUNNER: Well -- well, and isn't that the 7 core of this issue? 8 They -- they would believe they are because 9 they would believe what they're selling is not a 10 structure or building. 11 MS. YEE: Uh-huh. 12 MR. RUNNER: So, that's exactly what took 13 place. They -- they -- they were familiar with their 14 business. 15 MS. YEE: Yeah. 16 MR. RUNNER: And they believed what they were 17 selling was not a structure or a building. 18 MR. HORTON: Members, I'm going to go to 19 Mr. Levine, just to -- for a point of clarification, if 20 you will, relative to the timing on the advice. 21 I don't even know -- I mean, if -- I don't -- 22 Mr. Levine. 23 MR. LEVINE: Well, as the summary explains that 24 it initially found in February 2009 that the exemption 25 should apply. And that is the period for which the 26 Department recommended the relief, which was the first 27 two quarters during the period the taxpayer may have 28 relied on that advice. And that is on the 511095, which 30 1 covers the entire -- most of the liability period. 2 MR. HORTON: So, the Department has already 3 self corrected, without -- 4 MR. LEVINE: That's right, even though -- they, 5 the Department felt this was an appropriate case. 6 MR. HORTON: -- the authority to do so, 7 actually -- but I don't know that they had authority to 8 do so, but I'm glad they did. 9 MR. LEVINE: Well, it's -- it's a -- everything 10 is a recommendation at this point because the Board -- 11 the Board's decision will approve or disapprove of that 12 adjustment. 13 MR. HORTON: That adjustment's before us? 14 MR. LEVINE: Technically, yes, the Board 15 doesn't normally overrule a favorable result, but 16 it's -- yes, it's up to you to approve it because 17 it's -- 18 MR. HORTON: I mean to that extent I actually 19 concur with Mr. Runner, to the extent that we've given 20 some advice out there and we're talking about good 21 faith. That would certainly alter one's mindset to what 22 their responsibilities are, if they're even told. 23 MR. LEVINE: There's a written record too. 24 MR. HORTON: Yeah, but I don't know that that's 25 the period in question, though. 26 And I'm -- and I'm equally concerned about the 27 precedents that may be set because once we -- you know, 28 we establish this, you have other individuals that will 31 1 accept resale certificates and so forth and so on. 2 And we just never know whether or not the 3 verbal direction was actually given, unless we have the 4 team member that gave that advice come before us, under 5 penalty of perjury, swear that they gave it or something 6 of that nature. 7 Therein is the -- 8 MR. RUNNER: But, no one disputes that the 9 advice wasn't given on this case. 10 MR. HORTON: They -- it seems to me that 11 they -- they acknowledged that the advice was given. 12 MR. RUNNER: Right. 13 MR. HORTON: They announced the timeline in 14 which it was given. 15 MR. RUNNER: Right. 16 MR. HORTON: And actually self corrected and 17 offered -- uh, gave the taxpayer the benefit of the 18 doubt. 19 MR. RUNNER: Yeah. 20 MR. LEVINE: For -- the February 2009 advice 21 can not change what happened earlier. There was no 22 reasonable reliance on that advice for transactions that 23 occurred before the advice. 24 I would like to answer your question -- 25 MR. RUNNER: Uh-huh. 26 MR. LEVINE: -- as far as do they have to get 27 it in writing? 28 Yeah, that -- I believe it's almost second 32 1 nature for most -- I know in the very old days when I 2 gave advice, I would say, 3 "I'm pretty sure this is right. But you 4 can't rely on without putting it in writing. 5 If you want to be able to rely on this, you 6 need to put it in writing. And we'll be happy 7 to do that." 8 And I believe that that is ingrained in our 9 staff people who give advice and the Department can tell 10 you for sure. 11 MR. RUNNER: But not in this case for this 12 staff member? 13 MR. LEVINE: I'm not sure what advice you're -- 14 did they argue that there was advice before this? 15 Because we have the February advice and they've 16 already gotten all possible relief from that advice that 17 would possibly be appropriate. 18 MR. RUNNER: No, no. I guess the point, 19 though, would be that the advice shared -- there was 20 confusion whether or not then the taxpayer was actually 21 interpreting his role or his -- his thought in that -- 22 in terms of this taxable item. 23 He went ahead and then handled it as a tax 24 exempt -- or as a partial exemption. Then on -- and 25 that's how he operated. 26 And then they did get the advice, which -- 27 which then reinforced his interpretation of -- of this 28 structure -- or what he's selling is not a structure or 33 1 building, right? 2 I mean it -- all's I'm saying is that 3 there's -- all's I think is that there's confusion on 4 this issue. 5 MR. LEVINE: To the extent that you think that 6 shows confusion, it -- then it does. 7 But that's a different question from whether -- 8 there is no dispute about the advice. 9 MR. RUNNER: Right. 10 MR. LEVINE: So, for that point it doesn't 11 matter whether it was in writing or not. And they've 12 already gotten relief. 13 MS. MANDEL: So, for -- for the period which is 14 everything that's at issue, as I understand it, and the 15 dollars that are on here look bigger than the stuff that 16 was just a credit. 17 MR. LEVINE: The 9,700 shown for -- 18 MS. MANDEL: Right, that's the credit? 19 MR. LEVINE: -- 511088, which is shown for 20 2009, actually was incurred in 2008. 21 MS. MANDEL: I understand. So, that's the 22 credit, that's -- 23 MR. LEVINE: That's -- 24 MS. MANDEL: -- the credit. 25 MR. LEVINE: -- the amount. 26 MS. MANDEL: -- but the other -- the other 27 period still has a deficiency, which -- 28 MR. LEVINE: Because that is part of the 34 1 assessment for -- apparently not all of it was 2 credited. 3 MS. MANDEL: Okay. So, that -- but that's 4 still prior to the -- 5 MR. LEVINE: Prior to 2000 -- 6 MS. MANDEL: -- when he walked in the office -- 7 MR. LEVINE: Right. 8 MS. MANDEL: -- and they did the amended 9 returns? 10 The question -- the question, you know, unless, 11 you know, the sort of most narrow question -- because to 12 me the -- "Hey, are these things exempt?" are a much 13 broader question -- but the narrow question for this guy 14 would be whether as a retailer exercising reasonable 15 judgment, would he know that the containers used to 16 store the farm equipment and chemicals do not 17 constitute -- which are not -- farm equipment pursuant 18 to the reg? 19 Would a reasonable person -- would the retailer 20 exercising reasonable judgment know that? 21 And unless -- you know, and that's -- that's 22 why I'm kind of on the good faith, 'cause unless you're 23 going to say that every single time somebody has to ask 24 for advice in writing, which, you know, is their best 25 step, just reading the reg -- and I went through it for 26 this hearing, I'd like to think that I'm, you know, have 27 reasonable judgment -- I don't know, that's why I'm on 28 the -- that's why I'm on the good faith, because -- and 35 1 it's all for the period. 2 There is -- to me there is some relevance of 3 what staff might do, but, otherwise we're saying you're 4 never going to have good faith where later we question 5 something if you didn't ask for advice upfront, when 6 it's a reasonable judgment standard. That's -- 7 MR. LEVINE: I think I agree with everything 8 you said. I would just point out -- 9 MS. MANDEL: Waiting for the "except" or the 10 "but." 11 MR. LEVINE: -- that the certificate is 12 irrelevant for the point you're talking about because 13 still you're talking about knowledge of the retailer. 14 MS. MANDEL: Well, he has to have -- yeah, the 15 retailer -- but that's -- I'm just just reading from the 16 D & R of what the standard is for figuring out if he 17 accepted in good faith -- unless you can tell me that 18 that D & R didn't say the right standard. 19 MR. LEVINE: I think it does state the right 20 standard. And, again, what we focused on in the 21 certificate is certifying what it is that the purchaser 22 knows and the seller does not. 23 That's how I would view it. 24 MR. HORTON: Do -- Member Mandel. 25 MS. MANDEL: But -- but -- but even if they 26 both know what the use of this property is for, he still 27 has to exercise a reasonable judgment, have -- you have 28 to be able say he would absolute -- he would know, he 36 1 would know -- exercise reasonable judgment, he would 2 know that a Ferrari is not going to be used in the 3 nonadministration part of farming operations. He would 4 know. 5 But he would have to know that the stuff was -- 6 was not farm equipment under the reg. If he pulled out 7 that reg and read it, he would have to know, using 8 reasonable judgment. 9 And I guess I'm not, you know, trying to say 10 that the Appeals thing was an unreasonable way of 11 getting to that it's not, but we would have to think 12 that a guy exercising reasonable judgment would know. 13 That's -- 14 MR. HORTON: Okay. Mr. Levine, is there any 15 indication how the inquiry came about? 16 Did the taxpayer seek advice? I mean, that 17 would speak to -- I mean, I would take it a step further 18 than a reasonable person because reasonable person's a 19 high standard to meet. I mean, reasonable person means, 20 you know, the majority of 100 people would -- that are 21 in this business would know. 22 And, so, you know, if 10 or 15 of them wouldn't 23 know, well, then they're not reasonable, they should 24 know, they're in the business and so forth. 25 But this particular person, it might be 26 indicative of this person's mindset if they actually 27 sought advice and said, 28 ""I'm confused. I don't know what this 37 1 thing is -- whether it is or not. Let me go 2 down to the Board of Equalization and amend the 3 tax returns, see what they think and so forth." 4 That would be reflective of their mindset prior 5 to receiving the advice, if they're the ones that 6 initiated it. 7 MR. LEVINE: Well, I'm not sure how they 8 initiated it. But I would say that's exactly how we've 9 always viewed these things, this is someone who's 10 selling storage containers and if -- if it wants to 11 protect itself, it gets it in writing rather than just 12 read the reg and say, "Well, I think it's here." 13 And often you see what you want to see and it's 14 reasonable because we all do it. 15 MR. HORTON: Yeah, okay, all right. 16 There is a -- Member -- I'm trying to remember 17 who made the motion, but -- 18 MS. YEE: Mr. Runner -- 19 MR. RUNNER: I did. 20 MS. YEE: -- second by Mr. -- Ms. Mandel. 21 MS. MANDEL: The order -- I actually had Steel 22 second. 23 MR. HORTON: I think Ms. Steel seconded the 24 motion. 25 MS. YEE: All right. 26 MR. HORTON: Mr. Runner, can you restate the 27 motion in light of the fact that the relief provided by 28 the agency is also before us? 38 1 MR. RUNNER: Well, I -- the -- the motion is to 2 feel -- is to find in favor of the -- of the 3 Petitioner. 4 MR. HORTON: Period? 5 MR. RUNNER: Period. 6 MR. HORTON: Okay. There's a motion to find in 7 favor of the period by Mr. Runner, second by Ms. Steel. 8 Objection noted by Member Yee. 9 Ms. Olson, please call the roll. 10 MS. OLSON: Mr. Horton? 11 MR. HORTON: No. 12 MS. OLSON: Ms. Steel? 13 MS. STEEL: Aye. 14 MS. OLSON: Mr. Runner? 15 MR. RUNNER: Aye. 16 MS. OLSON: Ms. Yee? 17 MS. YEE: No. 18 MS. OLSON: Ms. Mandel? 19 MS. MANDEL: Aye. 20 MS. OLSON: Motion carries. 21 MR. HORTON: Thank you. 22 ---o0o--- 23 24 25 26 27 28 39 1 MR. HORTON: Ms. Olson, what is the next 2 item? MS. OLSON: Next -- next item is C4, 3 Jamshid Parivash.. 4 ---o0o--- 5 C4 JAMSHID PARIVASH 6 NO. 494295 (GH) 7 ---o0o--- 8 MR. HORTON: Discussion, Members? Is there a 9 motion? 10 Discussion? Is there a motion? 11 MS. YEE: I'll move to adopt the staff 12 recommendation. 13 MR. HORTON: Moved -- Member Yee moves to adopt 14 staff recommendation. 15 Is there a a second? 16 MS. MANDEL: Second. 17 MR. HORTON: Second by Member Mandel. 18 Objection? 19 MS. STEEL: I have -- I have a concern here 20 that taxpayer, right before that he testified was done, 21 he said that Board of Equalization took money out from 22 his wife's account. And we had a lot of cases like that 23 that without and then those wives or spouses, they ask 24 BOE that, you know, "Why you take my money out?" And 25 then they're asking -- BOE staff are asking why -- to 26 get the declaration or some permission from the 27 husband's side. So, these spouses that -- they don't 28 know that -- why BOE took the money out. 40 1 So, can we just look at that his account 2 with -- you know, wife's account, that, you know how 3 they can -- took the money? 4 MR. HORTON: um -- 5 MR. LEVINE: We'll have the -- 6 MR. HORTON: (Unintelligible) -- Members? 7 MR. LEVINE: -- Department look to make sure 8 that -- 9 MS. STEEL: Make sure, yes. 10 MR. LEVINE: -- everything was -- because 11 normally it would be community property share, but I 12 don't know any of the facts. 13 MS. STEEL: But I totally understand that part. 14 But when those spouses coming back to BOE, that why it 15 took money out, then they need the permission. 16 BOE never got the permission to take the money 17 out from spouse's account, but they need the permission 18 from the other spouse that -- who owes tax to -- you 19 know, from -- to BOE. 20 And then, you know, they let people know that, 21 you know, why they took the money out -- that why BOE 22 took the money out. 23 So, I want to look at that, how -- how they did 24 and they did everything properly and -- 25 MR. HORTON: Member Steel, how about -- which I 26 would supportive of -- if, in fact, that's an innocent 27 spouse, then give the money back. 28 MS. STEEL: No, it's not innocent spouse case 41 1 for this one. 2 MR. HORTON: Then there is no -- what do you 3 call it? 4 MS. STEEL: I just want to know that it's been 5 done or not. 6 MR. LEVINE: We'll confirm -- without knowing 7 any of the facts, innocent spouse applies if we're 8 taking the -- that spouse's money and there's no 9 community property. 10 But if we're talking about a community property 11 account, then it's liable for some or all of the -- 12 MR. HORTON: So, if it is a community property 13 account, what happens? 14 MR. LEVINE: It's at risk. He's got -- 15 MR. HORTON: If it's not, what would be the 16 action? 17 MR. LEVINE: If it were her separate property 18 account -- 19 MR. HORTON: Right. 20 MR. LEVINE: -- then it could only be taken for 21 her liability, which she's not, apparently, liable for 22 this. 23 MR. HORTON: If we find that we made a mistake? 24 MR. LEVINE: The Department would rectify it. 25 MR. HORTON: Without direction from the Board? 26 MR. LEVINE: Yes. 27 MR. HORTON: Okay. It's been moved and 28 seconded. 42 1 Objection? 2 None noted. Accordingly, such will be the 3 order. 4 ---o0o--- 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 43 1 MR. HORTON: Ms. Olson?. 2 MS. OLSON: Our next item is C5, Mohammad K. 3 Abukhdair. 4 ---o0o--- 5 C5 MOHAMMAD K. ABUKHDAIR 6 NO. 518237 (KH) 7 ---o0o--- 8 MR. LEVINE: May I? 9 I did get a request for relief of the finality 10 penalty. Appeals recommends relief, subject to the 11 standard payment condition of payment within 30 days of 12 your deci -- of notice of your decision. 13 MR. HORTON: Members, how about about a -- and 14 we can take that up now. 15 How about a motion on the relief of 16 penalties -- finality penalty? 17 MS. YEE: Just on that? 18 MR. HORTON: Just on that issue. 19 MS. STEEL: Just that? 20 MS. YEE: Move the staff recommendation. 21 MR. HORTON: It's been moved by Member Yee, 22 second by Member Steel. 23 Without objection, such will be the order. 24 The issue before us, Members, discussion? Is 25 there a motion? 26 MS. YEE: I'm going to move the staff 27 recommendation on this. 28 MR. HORTON: Moved by Member Yee to adopt staff 44 1 recommendation, second by Member Mandel. 2 Objection? 3 MS. STEEL: Can -- can we ask the staff to go 4 for O. I. C.? 5 MR. HORTON: Definitely, with the 6 recommendation to advise on O. I. C., without objection 7 such will be the order. 8 Thank you, Member Steel. 9 ---o0o--- 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 45 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 MARCH 21, 2012 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 pages 1 13 through 45 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: APRIL 3, 2012 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 46