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 APRIL 26, 2012 10 11 SALES AND USE TAX APPEAL HEARING 12 APPEAL OF 13 UNION OUTLET, INC. 14 547465 (AS) 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 Joann Richmond Chief 15 Board Proceedings Division 16 17 For Board of David Levine Equalization Staff: Staff Counsel 18 19 For Department: Scott Lambert Tax Counsel 20 Kevin Hanks 21 Chief, Headquarters Operations Division 22 Robert Tucker 23 Legal Department 24 25 For Petitioner: Elias Aziz Lavi Representative 26 27 28 ---oOo--- 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 APRIL 26, 2012 4 ---oOo--- 5 MR. HORTON: Ms. Richmond, our next matter? 6 MS. RICHMOND: Our next is C20, Union Outlet, 7 Inc. 8 Please come forward. 9 MR. HORTON: Mr. Levine, as the taxpayer comes, 10 would you please introduce the issues in this case? 11 MR. LEVINE: The issues in this petition are 12 whether the adjustments to the audited deficiency are 13 warranted for sales for resale, exempt sales in 14 interstate commerce or otherwise, and whether Petitioner 15 was negligent. 16 MR. HORTON: Thank you very much. 17 The taxpayer will have ten minutes to make your 18 presentation. We will return to you and allow five 19 minutes on rebuttal. 20 Please commence with your introduction for the 21 records. 22 MR. LAVI: Good morning, Mr. Chairman and 23 Members of the Board. 24 MR. HORTON: Good morning. 25 MR. LAVI: My name is Elias Aziz Lavi. I'm the 26 representative of the taxpayer, Union Outlet. 27 I have a very brief statement to make. The 28 taxpayer is a small business engaged in wholesale 3 1 distribution of T-shirts. And the -- it's run by the 2 100 percent shareholder and one assistant. 3 We request that a re -- re-audit be done 4 because we have all the documents available to present 5 to the agent. And we would like to make this request 6 that we are going to be as cooperative as possible. 7 And the fact of the matter is that the 8 taxpayer's sells less than half a million dollar per 9 year and the determination, which was assessed to 10 $158,000, which clearly makes the taxpayer insolvent. 11 Therefore, we request this re-audit. 12 MR. HORTON: You learn quickly. 13 To the Department. 14 MR. LAMBERT: Good morning, Chairman Horton. 15 MR. HORTON: See if they learned as quickly. 16 MR. LAMBERT: My name is Scott Lambert with the 17 Sales and Use Tax Department and to my right, Kevin 18 Hanks and Robert Tucker, representing staff. 19 In this particular case the taxpayer reported 20 all sales as being exempt from tax. So, they 21 basically -- well, they haven't reported any taxable 22 sales. 23 When they provided information to us, they 24 provided partial sales invoices for 2007, customer 25 purchase orders and shipping documents. That was the 26 extent of it. 27 There was no summary records provided. There 28 was no sales journal. There were no bank statements or 4 1 resale certificates. 2 The taxpayer claims that they report their 3 sales using the bank statements, but yet they did not 4 provide them for audit. 5 Accordingly, the Department used what 6 information that they had in order to conduct the audit. 7 There appeared to be a substantial amount of invoices 8 that were missing based on the invoice numbers on the 9 sales invoices. 10 It also appears that they they do sell to 11 customers -- retail customers. There are sales made by 12 their business location, by their catalogues, by 13 telephone and by the internet. Payments can be made in 14 either cash, credit card, check, PayPal -- basically all 15 different forms of payment. 16 So, the Department's concerned that the 17 taxpayer is making taxable sales and not reporting any 18 of those sales. Recently, in 2010, they moved to what 19 appears to be a larger warehouse with numerous doors 20 that open to the street, that any person off the street 21 can come to -- which is similar to their previous one, 22 except this one, based on the Google Earth map, appeared 23 to be quite active with customers or cars out in front 24 of the business. 25 So, the Department doesn't have so much a 26 concern with conducting a re-audit, what the Department 27 has a concern with is that the taxpayers's going to have 28 the information that's available in order to allow -- 5 1 allow the Department to actually perform a re-audit. 2 So, if the taxpayer can convince you that they 3 have the information that would allow us to come to a 4 different conclusion than what we've reached -- that 5 we've seen to date, the Department wouldn't have an 6 objection with taking a look at that information. 7 MR. HORTON: Thank you very much. 8 On rebuttal, let me encourage you to delineate 9 the records that you believe are now available for the 10 benefit of the Members. 11 MR. LAVI: We have all the bank statements. We 12 have all the invoices, shipping documents and resale 13 certificate cards. 14 And we are going to cooperate -- be as 15 cooperative as possible. And we would like to have this 16 opportunity to present our case. 17 MR. HORTON: Thank you very much. 18 Discussion? Member Steel. 19 MS. STEEL: Just quick comments. 20 That -- did you go into the internet for this 21 company? 22 MR. LAMBERT: Uh-huh, yes. 23 MS. STEEL: Okay. They said that man's solid 24 cargo pants for -- they're selling pre-pack for -- six 25 colors for 72 pieces. 26 How many cargo pants you need per your life? I 27 mean, how you going to buy 72 of them each time? 28 And all these -- the internet, all wholesale 6 1 here. 2 MR. LAMBERT: Right. 3 MS. STEEL: So, I really want you to go through 4 it when we re-audit that, if we approve that today, 5 other Board Members. 6 So, go through it. And then, you know, how 7 many really they are selling. 8 And you can check their invoices too, they're 9 really selling one, but, you know, when I'm looking at 10 it, like -- how many people buying 72 to wear, you know, 11 all your life at the same time. 12 So -- 13 MR. LAMBERT: Can I make a comment? 14 MS. STEEL: No, this is just my comment. 15 MR. LAMBERT: Okay. 'Cause I could -- 16 MR. HORTON: Mr. -- please. 17 MS. STEEL: Okay, just go ahead. 18 MR. HORTON: Further discussion, Members? 19 Ms. Mandel. 20 MS. MANDEL: I'm -- I'm just curious where 21 these documents were before and how come -- I mean, what 22 we had before was that there were no retail certificates 23 provided. 24 And, you know, I'm just wondering where you 25 found the documents and why they weren't available 26 before? 27 MR. LAVI: I'm not sure how the line of 28 communication was, but at one time the auditor got 7 1 directly in touch with the client, with the taxpayer. 2 And I was under the understanding that the 3 taxpayer is providing all requested documents. It 4 didn't go through my office. And I was not involved. 5 And all of a sudden we received this 6 determination and that's why we are asking for 7 re-audit. 8 MS. MANDEL: Oh, and there was no appearance at 9 the Appeals conference? 10 MR. LAVI: No. 11 MS. MANDEL: Okay, thank you. 12 MR. LEVINE: I do note our experience is when 13 we get a representative involved sometimes -- 14 MS. MANDEL: Records appear? 15 MR. LEVINE: Yeah. 16 MS. MANDEL: Okay. That's why I was asking. 17 MR. LEVINE: But a re-audit is more useful. 18 MS. MANDEL: Okay, thank you. 19 MR. HORTON: Further discussion. Mr. Runner. 20 MR. RUNNER: Move re-audit. 21 MR. HORTON: Moved by Mr. Runner to conduct a 22 re-audit. Second by Ms. Mandel. 23 Without objection, such will be the order. 24 Thank you very much for appearing before us. 25 The Department will explain to you what the re-audit 26 process will entail. 27 We certainly encourage you to fulfill your 28 commitment to the Board to provide all that 8 1 information. 2 MR. LAVI: Thank you, sir. 3 MR. HORTON: Thank you. 4 MR. LAVI: Thank you, Chairman. 5 ---o0o--- 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9 1 . 2 REPORTER'S CERTIFICATE 3 4 State of California ) 5 ) ss 6 County of Sacramento ) 7 8 I, JULI PRICE JACKSON, Hearing Reporter for the 9 California State Board of Equalization certify that on 10 APRIL 26, 2012 I recorded verbatim, in shorthand, to the 11 best of my ability, the proceedings in the 12 above-entitled hearing; that I transcribed the shorthand 13 writing into typewriting; and that the preceding pages 1 14 through 9 constitute a complete and accurate 15 transcription of the shorthand writing. 16 17 Dated: MAY 18, 2012 18 19 20 ____________________________ 21 JULI PRICE JACKSON 22 Hearing Reporter 23 24 25 26 27 28 10