1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 REPORTER'S TRANSCRIPT 8 MAY 30, 2012 9 10 BUSINESS TAXES COMMITTEE 11 12 13 14 15 16 17 18 19 20 21 Reported by: Juli Price Jackson 22 No. CSR 5214 23 24 25 26 27 28 1 1 2 P R E S E N T 3 4 For the Board Betty T. Yee of Equalization: Chair 5 Michelle Steel 6 Member 7 Jerome Horton Member 8 George Runner 9 Member 10 Marcy Jo Mandel Appearing for John 11 Chiang, State Controller 12 (per Government Code Section 7.9) 13 Joann Richmond 14 Chief, Board Proceedings Division 15 16 For the Staff: Susanne Buehler Chief, Tax Policy 17 Division Sales and Use Tax 18 Department 19 Cary Huxsoll Tax Counsel 20 Tax and Fee Division Legal Department 21 22 ---oOo--- 23 24 25 26 27 28 2 1 INDEX OF SPEAKERS 2 Name Page 3 Joseph Vinatieri 5 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 3 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 MAY 30, 2012 4 ---oOo--- 5 MR. HORTON: Ms. Richmond, what is our next 6 item? 7 MS. RICHMOND: Our next item on today's agenda 8 is the Business Taxes Committee. 9 Ms. Yee is the Chair of that committee. 10 Ms. Yee. 11 MS. YEE: Thank you very much, Ms. Richmond. 12 Members, we have one item before the Business 13 Taxes Committee, it's proposed revisions to Audit 14 Manual, Chapter 4, General Audit Procedures. 15 We'll have Ms. Buehler introduce the item. 16 MS. BUEHLER: Good morning, I am Susanne 17 Buehler with the Sales and Use Tax Department. And with 18 me is Cary Huxsoll from our Legal Department. 19 We have one agenda item for your consideration 20 this morning. Staff requests your approval of the 21 proposed revisions to Section 0411 through 00411.25 of 22 the Audit Manual, Chapter 4, General Audit Procedures 23 regarding United States government supply contracts. 24 The proposed revisions simplify and update the 25 manual to incorporate the changes to the federal 26 acquisition regulation and current audit procedures. 27 Related amendments to Regulation 1618, United 28 States government supply contracts, were approved 4 1 March 20th, 2012 Business Taxes Committee meeting. 2 Staff and interested parties agreed to the 3 proposed revisions. We have one speaker today, after 4 which we would be happy to answer any questions you may 5 have. 6 MS. YEE: Thank you very much. 7 Mr. Vinatieri. 8 ---o0o--- 9 JOSEPH VINATIERI 10 ---o0o--- 11 MR. VINATIERI: Thank you. Good morning, 12 Members of the Board. 13 I bring you glad tidings. I have something 14 very positive to say and, that is, we want to tell the 15 Board, on behalf of the Aerospace Industry Association, 16 AIA, that we very much appreciate the staff's work in 17 putting together this particular proposal that is now in 18 front of you. 19 I was looking back at my notes when -- I think 20 it was 2009 when we first became aware of an issue 21 relative to the audit of aerospace contractors and 22 defense industry in general. 23 I very much appreciate the support we've had 24 from the Board Members' offices, commencing with 25 Mr. Horton's office. This has been truly a 26 collaborative effort. I will just say to you, I've been 27 doing this since Mr. Dronenberg was elected 1979 and I 28 don't ever recall the federal government, the State 5 1 government and an industry association coming together 2 to deal with a problem and to then -- to come up with a 3 very good way of dealing with that problem that has 4 culminated in what you see here. 5 So, I want to say not only thanks to the staff 6 for this, but I also want to say thank you to the 7 aerospace contractors, as well as the defense contract 8 management, agency and the defense contract audit 9 agency -- who are both located back in the 10 Washington, D. C. area and actually came to California 11 twice to work through this as we had to deal with 12 changes in the federal acquisition regulations, as well 13 as the aerospace case itself and how to audit 14 confidential, proprietary contracts. 15 So, with that, we very much appreciate the 16 staff and the Board's consideration of this. And we are 17 full steam ahead in terms of our view of what's in front 18 of you today. 19 Thank you. 20 MS. YEE: Thank you very much. 21 Questions or comments, Members? 22 MR. HORTON: Yes, Madam Chair. 23 I just want to commend the Chair. This is a 24 classic example of government efficiency where both 25 public and private agencies coming together to find an 26 effective way to address the challenges that we face as 27 an agency, as well as the challenges faced by the 28 private entity. 6 1 I want to, Madam Chair, also encourage staff to 2 use this opportunity to begin to cross train our team 3 members that are working on the aerospace -- in the 4 aerospace industry. Part of the challenge is is that 5 you have one individual that has been trained, 6 authorized and so forth and when that individual 7 retires, then -- then all of a sudden, the audit is 8 delayed and there are some challenges there. 9 The other thing I would encourage us to take a 10 look at is enhancing or expanding on -- on team audits 11 so that -- that cross training opportunity does exist. 12 Because we're conducting these audits as a team, where 13 you have three or four individuals that are there, it 14 will expedite the process, bring greater resolution. 15 And the other technique that I -- or strategy 16 that I would ask that we consider, since we have 17 everyone at the table, is just projecting, to the extent 18 that we can verify the consistency and the error rate 19 and considering projecting that. And there's mutual 20 agreement on all of the parties to minimize the exposure 21 and time as it relates to the audit. 22 So, thank you, Madam Chair. 23 MS. YEE: Thank you, Mr. Horton. 24 Hearing no further comments, is there a motion? 25 MS. STEEL: So moved. 26 MS. YEE: Moved by Ms. Steel, to adopt the 27 staff recommendation. 28 MR. HORTON: Second. 7 1 MS. YEE: Second by Mr. Horton. 2 Without objection, such will be the order. 3 Thank you very much. And that concludes the 4 Business Taxes Committee. 5 MR. VINATIERI: Thank you. 6 ---o0o--- 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 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 MAY 30, 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 8 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: JUNE 19, 2012 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 9