1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 MAY 30, 2012 10 11 SALES AND USE TAX APPEAL HEARING 12 APPEAL OF 13 LOUIS JOHN BONACICH, JR. 14 NO. 493991, 568375 (KH) 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 21 Dario Romano Sales and Use Tax 22 Department 23 Robert Tucker Legal Department 24 For Petitioner: Louis Bonacich 25 Taxpayer 26 Patricia Waldon Representative 27 28 ---oOo--- 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 MAY 30, 2012 4 ---oOo--- 5 MR. HORTON: Ms. Richmond, out next item. 6 MS. RICHMOND: Our next item is C4, Louis John 7 Bonacich, Jr. Please come forward. 8 MR. HORTON: Mr. Levine, as the taxpayer comes, 9 would you please introduce the issues in this case? 10 MR. LEVINE: The issues in this administrative 11 protest and claims for refund are whether adjustments 12 are warranted to taxable sales, including for sales for 13 resale, and whether taxpayer was neglected. 14 MR. HORTON: Thank you very much. The taxpayer 15 will be allowed ten minutes to make your presentation. 16 We would ask that you commence with your introductions 17 for the record. 18 MR. BONACICH: I'm Louis Bonacich. 19 MR. HORTON: Sir, would you bring the mike a 20 little closer? 21 MR. BONACICH: Excuse me, I'm Louis Bonacich. 22 MR. HORTON: Thank you. 23 MR. BONACICH: Taxpayer. 24 MS. WALDON: And I'm Patricia Waldon, 25 bookkeeper and tax preparer representing him for the -- 26 in this matter. 27 MR. HORTON: Welcome. 28 MS. WALDON: Yes. I'll start -- most of the 3 1 issues that we still have with and the reason that we're 2 here are with procedural issues and accepting of 3 information provided to the auditors and through the 4 appeal process. 5 The audit report states rather emphatically 6 that Mr. Bonacich was a -- very familiar with the sales 7 tax procedures and requirements because he previously 8 owned a liquor store, this was for a number of years 9 before he started the manufacturing of outdoor furniture 10 equipment and that is true. 11 However, there are some differences which led 12 to some of his problems. 13 The liquor store uses a cash register to record 14 every single sale. It has a fixed location. There is 15 no need for receipt numbers to be on various receipts to 16 prove the sale and the recording of the items. 17 Whereas with his outdoor furniture 18 manufacturing business, he attended home shows. In the 19 years of audits, he attended three of them in 2004, two 20 in 2005 and one show in 2006. There is no fixed 21 location. He created orders to record the sales and the 22 orders with the colors and the specifications of the 23 potential buyers. These order slips did not have 24 numbers on them. This is one of the big contentions 25 with the auditors. 26 The -- Mr. Bonacich I do not believe was 27 negligent. During the audit period he was able to match 28 all the supply documents for each of the years in the 4 1 audit. And he matched them within a couple thousand 2 dollars of his bank records and his tax returns for the 3 business. 4 Mr. Bonacich also has a number of rental 5 properties and there was a mixing of receipts in the 6 bank account with rental income and business income on 7 this. 8 The auditor refused to accept as proof and 9 excepted copies of the lease, the copies of checks from 10 the renters that were deposited into the common account. 11 And, so, those are included in some of the figures and 12 the adjustments, which is why the adjustments and the 13 discrepancies are so large. 14 The other item is that the auditor, which 15 appear at his business location asking for various 16 documents in the audit with no advanced information and 17 Mr. Bonacich did not have the documents present there 18 and said that he would present them to him and he would 19 appreciate the phone call. 20 And he was told that, you know, to go head and 21 sign the request to extend the process, that this will 22 take care of it for the interim and just mail me the 23 documents and information when you have it. 24 Mr. Bonacich contends that he was never told 25 during this whole time that if he was to pay the 26 disputed tax amount up front that he would could get 27 refund of it at a later date. So, that's why there was 28 not then initially -- when he finally realized that, he 5 1 made payments on it because he didn't have the funds 2 available that he would have had several years earlier. 3 The other item for confusion in this whole 4 process is the former bookkeeper provided a complete 5 listing of all sales that were made for the years in 6 audit and it included items -- all items that were 7 ordered, but not necessarily the delivery dates. So, 8 we're mixing apples and oranges in one respect because 9 Mr. Bonacich was able to tie everything to the order 10 delivery dates. And that's what his sales tax reports 11 were based upon was when the items were delivered. 12 The -- that's -- and the other thing is that I 13 have been doing, you know, the bookkeeping and tax 14 returns for Mr. Bonacich for the last four or five years 15 and he is very diligent and conscientious about 16 preparing accurate returns and bookkeeping. And, so, he 17 is not an individual that within the last four or five 18 years I would judge as somebody who would be wanting to 19 avoid taxes and pay what is owed. 20 It's a matter of that through some ignorance 21 and not completely understanding and some improper 22 guidance that he didn't have receipts and order slips 23 that were numbered so that the auditor could tell, yes, 24 he had all of them. But it didn't take a whole lot of 25 orders either to complete with his sales because he only 26 did a very limited number of home shows. 27 And the decision to close the business was made 28 in -- during 2005, when the sales were becoming less and 6 1 less and that's why there was only one show in 2006. 2 Louis? 3 MR. BONACICH: Yes. I started with the phone 4 call from Mr. To Lee. He asked us if we could provide 5 him with all of the sales that were done for those three 6 years. My tax accountant, Mark Moman, sent him all of 7 the sales that was done for those three years. When he 8 calculated the sales, he said that owed X amount of 9 dollars based on the sales. 10 And I looked at the invoices and those were the 11 sales, those weren't the deliveries. So, those products 12 were never delivered. About 30 percent less of those 13 sales were actual products that were produced and then 14 delivered to the end user. And as soon as the product 15 is delivered to the end user at their home by our 16 facility or if the end user comes to our facility and 17 picks up the product at our warehouse, then we record 18 the sale and pay our sales tax. 19 And that's what I was trying to explain to 20 Mr. To Lee, that you asked for all of the sales. You 21 didn't ask for the delivered sales and what was -- what 22 we paid tax on, you just asked for all the sales. So, 23 when Mark Moman produced the receipts, it was just for 24 total sales. And some of the sales weren't even paid in 25 full, some were paid in half, some were paid in quarter 26 deposits and so on and so forth. 27 I tried to explain to him that I can get you 28 the rest of the receipts, I'll get you the delivered 7 1 receipts. He said that he didn't want the delivered 2 receipts because there is no invoice, there is no 3 numbers on the delivered receipts and it doesn't prove 4 that that's what delivered or not delivered. 5 He would come one day and ask if -- for X, Y 6 and Z. I would say okay, let me get this for you. I 7 would ask him, please, can you send me a letter asking 8 what you would want before you come or what you would 9 like and then I can have it ready for you when you're 10 here or I could give you copies of it. 11 This -- he would come to a warehouse that was 12 closed down. This business had been shut down, wasn't 13 operating, I wasn't in business doing the same thing I 14 was doing before. So, he would come to an office that 15 was empty. It was basically nothing there. That was 16 the old building we did the business in. 17 So, I asked him to please send me a letter, let 18 me know what he wants and I'll have it to him or I'll 19 give it to him right away. 20 Then he would proceed to say, "Oh, that's okay. 21 I'll tell what you need now. Please send that to me 22 and -- but please sign this extension so we can extend 23 your audit." 24 I said, "Okay. Will that hurt me in any way or 25 is that okay for me to do?" 26 He said, "Yeah, that's no problem. You're just 27 extending the audit." 28 So, I did that about three or four times and 8 1 then I come in Christmas of one year and all my bank 2 accounts are drained with no money in any of my 3 accounts. And I'm wondering what's going on here. 4 And they say, "Well, you missed a form that you 5 mailed in or you sent wasn't on time and we concluded 6 the audit or said it was the have final something stage 7 of the audit and we took the money that you owed." 8 And I said, "Well, okay, don't I get 9 notification of this? Or don't you tell me what I need 10 to sign or to send in or a letter beforehand?" 11 No, no, this is just what we do. I said, 12 "Okay. Well, what can I do to rectify this?" 13 They said, "Well, you can set up a payment of X 14 amount of dollars and we'll refund a little bit of your 15 money so you'll have a little bit of money and then 16 start paying on this -- this amount that we say that you 17 owe." 18 So, I was kind of stuck -- no money in my 19 accounts, any account that I had, hundreds of dollars 20 for each different account that I had for the bank levy 21 fee they applied for each account that they took the 22 money out of. And I was stuck there signing these 23 papers saying, okay, I agree to this and I'll pay you 24 $250 a month until whenever we can get done with this 25 audit or whatever needs to be done. 26 And that's how I agreed to doing this $250 a 27 month and, I guess, it says here that I agreed here to 28 accept those terms. I didn't agree to that, I was 9 1 forced to do that. I had no other choice. I either had 2 no money or I accepted those terms. 3 That's pretty much it. 4 MR. HORTON: Okay. Thank you very much. 5 We will return to allow you five minutes on 6 rebuttal. 7 The Department has ten minutes to make your 8 make presentation. Please commence with your 9 introductions for the record. 10 STAFF@@: Thank you, Chairman Horton and 11 Members, my name is Scott Lambert. To my right is 12 Robert Tucker and to his right is Dario Romano, all 13 representing staff. 14 In this particular case the taxpayer 15 manufactures and sells outdoor patio furniture. We were 16 unable to determine how or what the taxpayer reported in 17 terms of taxable sales. We were unable to identify the 18 source of those amounts. 19 The taxpayer provided records for 2004 and 20 2006. Based on those records, we compared the sales on 21 those -- those two years to the sales that were 22 reported, assessed the difference for those two years, 23 came up with percentage of error and applied that to the 24 year of 2005. 25 Subsequently the taxpayer provided records for 26 2005. The Department was unable to accept those records 27 because the sales amounts were below what had been 28 reported and the Department could not verify then, in 10 1 fact, that those were fact all of the sales that were 2 reported. 3 I do note from the sales that were reported for 4 2004 and 2006 and although we gave credit for all of the 5 amounts that were reported, for the year 2006 the 6 taxpayer reported $28,000. But on the sales that they 7 provided to us, the last taxable sale for 2006 was 8 April 8th of 2006. And in -- and most of the sales took 9 place in the first quarter of 2006, in which the 10 taxpayer reported zero taxable sales. 11 So, there appears to be significant 12 discrepancies between what was provided to us and what 13 was actually reported. And the same analysis can be 14 made for the year of 2004. 15 A negligence penalty was applied in this 16 particular case. And the reasons for that were that the 17 taxpayer previously operated a liquor store in which 18 they were audited were not found to owe any money. 19 So, although we just had the one sheet, it 20 appears that their records were adequate at that 21 particular time. And no way can the records be 22 considered adequate in this particular case. 23 The Department was able to find one customer 24 where the sale didn't take place. That sale was removed 25 from the determination. 26 Accordingly, the Department concurs with 27 Appeals Division's and decision and recommendation. 28 MR. HORTON: Thank you very much. 11 1 On rebuttal, please. 2 MS. WALDON: Yes. Addressing the 2006 issues, 3 he attended the home show at the end of January and 4 merchandise was not sold there. He took orders with 5 deposits. 6 Then he manufactured the items. They were 7 delivered later in the year. This is evidence of the 8 confusion throughout the whole thing, is that they were 9 working off of the report that the then bookkeeper had 10 provided listing all of his order requests and what he 11 was working with, which his actual deliveries on this. 12 That's best way can I describe it. 13 Louis? 14 MR. BONACICH: How that works is that the home 15 show sale was at the Northern California Home and Garden 16 Show in January at Cal Expo where the people would come 17 in, look at the product, say, "Oh, yes, I like this 18 table. I would like to order one of these, but I'd like 19 the colors to be green and rosa color with a beige trim 20 on it." 21 No problem, put down a 25 or a 50 percent 22 deposit and we make the table, manufacture the table and 23 then we deliver it at a different date -- maybe be 24 April. They may say, "Hey, you know, we're having our 25 backyard re-landscaped, we're having new decks put in, 26 we're having a pool put in. So, please can you hold 27 this delivery or can you hold this? We really would 28 like it, but can you hold it 'til July or August when 12 1 our pool is done or our back yard landscaping is 2 finished?" 3 A lot of times, more than 25 percent of the 4 times, they would call and cancel the order, they say 5 their backyard's not getting done, they ran out of 6 money, they don't -- they no longer want the product and 7 would cancel the orders. And we wouldn't deliver the 8 thing. But when -- we didn't deliver the item. But 9 when -- that's why there is a discrepancy. If you look 10 at your -- the 2004, 2005 and 2006, you look at the 11 sales, you look in January and February, there is hardly 12 any sales. The sales actually commenced when we 13 delivered the product, the final product, to the 14 customer's house, which we delivered. But that wasn't 15 until the third quarter or sometimes even the fourth 16 quarter of that year. And that's when I reported the 17 sales on the sales portion. 18 But when you take the order, then that's what 19 To Lee asked for. He said he wanted a copy of all of 20 orders, the sales, the orders. So, that's what the 21 accountant gave him -- a copy of all of the orders and 22 the dates of the sales. They're totally different. The 23 sale date is January, February or March, the beginning 24 of the year, when the home and garden shows are on and 25 the delivery dates are throughout the rest of the year. 26 That's what the big discrepancy and the big 27 problem was with -- with the orders. 28 And then when did I provide them, I said, well, 13 1 if I don't -- if I can't give you something I don't 2 have. So, I can't give you another sales order if I 3 don't have it, but I can give you a delivery order that 4 shows the customer signing the order once it was 5 delivered. And I gave him all those. 6 And he said, "Well, those don't match." I 7 said, "Well, of course, they match, but they're not all 8 the -- I can't give you the delivered order on a sales 9 order that I never delivered. I can only give you the 10 sales order and then the ones that I delivered, I can 11 give you the delivered order." 12 And that's why there was a difference in prices 13 because total sales, let's say, is 100 thousand, but we 14 only delivered $62,000 worth of product. We don't pay 15 sales tax on the $38,000 discrepancy, we only pay it on 16 the parts that were delivered on the time of delivery, 17 or when the customer came to the warehouse and picked it 18 up and we loaded it into their vehicle. 19 That's it. 20 MR. HORTON: Thank you. 21 Discussion, Members? Member Steel. 22 MS. STEEL: Why we are not looking at the 23 deliver order? Why don't we match it with the sales 24 order and deliver order together and then match it, then 25 we going to come up with the sales tax that how much he 26 owes? 27 MR. LAMBERT: Right. That's the first time I 28 heard of the different orders and sales. 14 1 MS. STEEL: That's what taxpayer's been talking 2 about it here -- 3 MR. LAMBERT: Right. 4 MS. STEEL: -- all the way through. 5 MR. LAMBERT: Well, I understand -- 6 MS. STEEL: It seems like we really never study 7 it. 8 MR. LAMBERT: What I would say is his 9 description doesn't seem to match what's taken place. 10 In other words, on his -- if his orders -- he wanted -- 11 he gave us the orders for 2006. The last order on here 12 would be April 8th, 2006. He reported, in the fourth 13 quarter of '06, $28,000 in sales and from my 14 understanding, it was he took orders during that time 15 but didn't -- 16 MS. STEEL: Deliver. 17 MR. LAMBERT: -- didn't deliver them until the 18 next year. 19 Well, if that's case, how come the orders don't 20 show up in the fourth quarter of 2006? There's nothing 21 that shows up. The last sale takes place April 8th of 22 2006, so -- 23 MS. STEEL: So, you have a shop. So, people 24 coming in too? It's not just that you go to the shows 25 and just get orders? 26 MR. BONACICH: No, just to the shows. Only -- 27 MS. STEEL: So, you just go to the shows? 28 MR. BONACICH: -- sell at the shows. 15 1 MS. STEEL: So, many times you have shows that 2 you show up and get orders? 3 MR. BONACICH: So, an example, like the January 4 show was the last show we did, the Northern California 5 Home and Garden Show. We did that sale in January -- I 6 think it's the last weekend, 28th, 29th, 30th, the last 7 weekend of January. 8 Well, we only sold two tables at that show. 9 And we delivered one of those tables in April. That was 10 it. 11 MS. STEEL: So, some quarters -- 12 MR. BONACICH: I know. And then all the other 13 shows that tables that showed up for sales in the 14 January order was from 2005. We delivered the tables 15 from 2005 in the first quarter of 2006. 16 MS. STEEL: So, let me ask you -- 17 MR. BONACICH: Yes. 18 MS. STEEL: -- BOE side is telling you that 19 fourth quarter of one of the year, tax -- 20 MR. LAMBERT: 2006. 21 MS. STEEL: -- audit period 2006 that you 22 didn't have any orders, means that you never got any 23 orders of the furniture making? 24 MR. BONACICH: In 2006 -- 25 MS. STEEL: 2006, fourth quarter. 26 MR. BONACICH: -- we -- fourth quarter, no, we 27 didn't do any more shows. 28 The only show that we did was January of 2006, 16 1 then we quit because we'd go to the shows and these 2 booths are 6, $7,000 to use and then we sold one table 3 and we're like -- 4 MS. STEEL: Okay, I got it. So, why we -- he 5 didn't have any orders. 6 MR. LAMBERT: He reported $28,000. 7 MS. STEEL: Because that was the previous 8 orders that he got and he sold that, delivered it. So, 9 that's why he reported. 10 MR. LAMBERT: Okay. But in the third quarter 11 of '06 he reported zero. Something just doesn't make 12 sense. 13 MS. STEEL: 'Cause he couldn't deliver it, 14 because there is no orders. 15 Because he doesn't have store that somebody 16 walks in and they order. So, some quarters they don't 17 have any orders, but even without orders he still pays 18 sales tax because he delivered it. 19 So, delivered order is mostly important part 20 here how much he really made the sales and fully got the 21 price. And then he's reporting it to the BOE. 22 So, why we didn't check the delivery order and, 23 you know, I just don't understand because -- and, you 24 know, we really have to check that how much he really 25 sold is the most important part here. 26 MR. LAMBERT: I agree. 27 MS. STEEL: Right. 28 MR. LAMBERT: But when you take a look at what 17 1 he's saying and what the facts are, it's -- it doesn't 2 make sense and not only is it confusing, but it doesn't 3 make sense. 4 MS. STEEL: Mr. Lambert, some times, some 5 businesses, it doesn't make sense, but that's the way 6 they run the business. 7 MR. LAMBERT: No, I understand that, yeah. 8 MS. STEEL: And then second thing is -- the -- 9 the cancelled, you have any proof so that when they make 10 25 percent deposits -- 11 MR. BONACICH: Correct. 12 MS. STEEL: Then you keep that deposit when 13 they cancel? 14 MR. BONACICH: Correct. 15 MS. STEEL: So, when do you report to BOE for 16 sales tax for that 25 percent? 17 MR. BONACICH: There would be no sales tax 18 because there was no sales done. 19 MS. STEEL: How about that 25 percent of 20 deposit that you got? 21 MR. BONACICH: That goes to the commissioned 22 salespeople that go out and sell at the home and garden 23 shows, that first 25 percent is for their -- 24 MS. STEEL: Oh, you don't even get that? The 25 25 percent goes to the commission? 26 MR. BONACICH: Correct. 27 MS. STEEL: So, you have a record of those? 28 MR. BONACICH: Correct. 18 1 MS. STEEL: That how much you paid to inquiry 2 salespeople? 3 MR. BONACICH: Correct. 4 MS. STEEL: And second thing to BOE is he got 5 audited when he owned the liquor store. And then this 6 is the first audit. 7 Don't we -- don't you think that we are pushing 8 little too hard to have a negligence penalty because of 9 that first audit was liquor store but now it's a 10 furniture shop, I mean furniture making -- 11 MR. BONACICH: Correct. 12 MS. STEEL: -- that we pushing little too hard 13 for these penalties? 14 MR. LAMBERT: I don't believe -- 15 MS. STEEL: It's totally different business 16 here. 17 MR. LAMBERT: It is -- it is a different 18 business. 19 MS. STEEL: Mr. Lambert, you always agree and 20 you don't agree after that. 21 So, you know, just make it really clear from 22 the beginning. 23 MR. LAMBERT: Well, I agreed with your 24 statement that it is a different business. 25 MS. STEEL: Right. 26 MR. LAMBERT: But really the reason that the 27 penalty is here is because he is an experienced business 28 person. 19 1 MS. STEEL: No, liquor store is different than 2 furniture making, I mean it's totally different. 3 MR. LAMBERT: That's true. But he does own 4 real estate. And, you know, it's a matter -- the reason 5 they got the penalty is because of the shape of the 6 records. 7 MS. STEEL: No, he said he's going to show you 8 all the delivered, you know, the receipts. 9 But we are not the one. We -- BOE is the one 10 didn't really check it and didn't match it with the 11 sales order. So, it's partially your fault. It's not 12 like he didn't provide any documents here. 13 So, I think that was little too harsh. 14 And third question here, without notice we just 15 start taking money out from people's account? I mean, 16 we used to do that from spouse and I hope that that 17 practice is going to be stopped by now, but do we do 18 that? 19 MR. LAMBERT: I -- I don't believe we do. And 20 I don't know the background of this particular 21 circumstance other than he didn't file a timely 22 petition. 23 MS. STEEL: Seems like Mr. Tucker knows -- 24 MR. TUCKER: I'm just reading -- 25 MS. STEEL: -- about this case. 26 MR. TUCKER: -- I apologize. 27 This is an administrative protest, which means 28 that Petitioner -- or the taxpayer did not file, as 20 1 Mr. Lambert was pointing out, a petition for 2 redetermination. 3 So, at this point the liability's gone final 4 and then it would be appropriate for staff to -- 5 MS. STEEL: So, after redetermination is final, 6 then, without letting taxpayers know, and then we just 7 start taking money out? 8 What's the practice? Give me the exact 9 practice that, you know, what happens. 10 MR. LAMBERT: Dario -- 11 MS. STEEL: After you -- where is your third 12 person, three musketeers, here that Mr. Kevin Hanks is 13 missing. 14 MR. LAMBERT: He needed a break. 15 MR. TUCKER: Yeah. Initially they would have 16 been sent the Notice of Determination that establishes 17 the liability. 18 And at that point they would know they have a 19 liability. Unfortunately, they didn't respond and file 20 a petition for redetermination. So then 30 days later 21 the liability becomes final. 22 MS. STEEL: Okay. Then? 23 MR. ROMANO: Then they would attempt to make 24 contact with them. And that's what I am not familiar 25 with. That's normally the practice that they would 26 attempt to contact the taxpayer from the last address of 27 record. And if they -- 28 MS. STEEL: You never got any notice from BOE? 21 1 MR. BONACICH: What had happened was I got a 2 notice and I faxed in a copy -- or I faxed in a notice 3 and mailed a notice to the Department that I did not 4 agree with it. 5 They said they never got it. And I said, 6 "Well --" 7 MS. STEEL: You have record for that? 8 MR. BONACICH: Yes. I have a record of the 9 letter that I sent them. So, I sent them another copy 10 of the letter. 11 And they said, "Oh, well, it wasn't timely, 12 we're still doing a finality thing that's final, but 13 we're not going to accept this." They go, "You need to 14 give us a copy of your fax machine that sent it in." 15 And I said, "Well, I don't know if I can go back that 16 many months and pull out a fax record of that. I will 17 look for it. But I can tell you the date that I sent it 18 because I wrote in on the same day that I sent it. 19 MS. STEEL: Right. 20 MR. BONACICH: And then I didn't have a copy, I 21 think, but I asked them in the office, I went down, I 22 said, "Hey, could you -- could I talk to a supervisor 23 and could you please check your fax record?" 24 MS. STEEL: Uh-huh. 25 MR. BONACICH: Because I'm sure that you have 26 an extensive fax machine that gets all these different 27 things in and you -- it would come from only one number 28 and I gave them the number. 22 1 And they said, "We don't have time to do that 2 and we can't do that." 3 And I was like, okay, then what do I do? And 4 they said, "This is all we're going to do." 5 And the next thing I know it's like right 6 before Christmas and I have zero money -- I mean zero, 7 nothing -- seven accounts they took everything out of 8 seven different accounts. Because I keep one account 9 for -- I have a bail bonds company. I keep one account 10 for my personal records. I keep one account for 11 rentals, so, that any money that comes in the rental -- 12 MS. STEEL: So, we didn't even call this 13 taxpayer? 14 MR. BONACICH: And I'm at the same place for 21 15 years with the same exact phone number. 16 MS. STEEL: I heard you. 17 So, when he called, he said, "I faxed that." 18 And he faxed it again. Now it's -- time's gone after 30 19 days, so, it's final. 20 And then what? We just start taking money out? 21 MR. LAMBERT: I don't believe it works that 22 way. I don't know the details. 23 MS. STEEL: Do we have a log -- 24 MR. LAMBERT: Yes. 25 MS. STEEL: -- of all the conversations between 26 taxpayers? 27 MR. ROMANO: Yes. 28 MS. STEEL: Where is that? 23 1 MS. MANDEL: It's in our ACMS notes. 2 MS. STEEL: Could you check that? 3 MR. LAMBERT: Sure. 4 MS. STEEL: Because I'm am really interested 5 and that's not really right for the taxpayers that, you 6 know what, taxpayer faxed it. There is no record. He 7 said he faxed it again with the same date that he 8 remembered exactly what date they send it in. 9 Then I think we should give them credit here. 10 You know, you cannot say that it's been over 30 days, 11 so, we just going to take money out from your account. 12 That's not really right things. 13 And, you know -- it's not really right for the 14 taxpayers. 15 MR. LAMBERT: I agree. I agree that you 16 shouldn't take it without notifying them. I don't know 17 what the facts of the case are. 18 I would have to look at. I would hope we 19 didn't do that, that -- 20 MS. STEEL: I hope not. 21 MR. LAMBERT: -- that's not what we normally 22 do. 23 I will say the finality penalty was removed. 24 And, so, there is no finality penalty and he was given 25 credit for the payments that were made. 26 But I -- I understand your concerns and we can 27 definitely -- 28 MS. STEEL: But, you know, if we take money out 24 1 from the account without letting taxpayers know and 2 sometimes when you go back and you try to do something 3 and suddenly you see the zero balance on your account. 4 I mean, you know, we -- we cannot really, you 5 know, run that kind of practice, even this is a tax 6 agency. 7 MR. LAMBERT: I would agree with you. 8 Hopefully, that was not done. 9 I'm not a collector myself, so, I can't -- 10 MS. STEEL: But I want you to check the log. 11 MR. LAMBERT: We will. 12 MS. STEEL: 'Cause what was going on. 13 MR. LAMBERT: Right. 14 MS. STEEL: And thank you for agreeing with me 15 for 50 percent of the time. 16 MR. HORTON: Mr. Runner. 17 MR. RUNNER: I think in regards to how money 18 comes out of an account, I think what we -- I think we 19 have correspondence that says these are the things that 20 may happen, could happen. And in that is that item, I 21 believe. 22 And then, at some point, then that is triggered 23 and I believe that we -- I think -- at least in working 24 with these before, that the BOE makes no specific 25 contact at that point. 26 The bank can -- no, actually -- I am trying to 27 remember some of these cases -- and sometimes it's 28 difficult for the person to even find out from the bank 25 1 what happened in those cases too. 2 So, it is very difficult for the taxpayer when 3 it is -- when money has been taken out of their account. 4 But, let me just go back to the -- to this particular 5 issue. 6 I'm unclear in regards to -- to the 2006 end of 7 the year. Did we say that there -- there -- that he 8 had -- he had declared or he had identified some -- 9 some -- some sales At the end of 2006? 10 MR. LAMBERT: He had reported taxable sales. 11 MR. RUNNER: Of -- what was that? 12 MR. LAMBERT: 28 thousand -- 13 MR. RUNNER: $28,000? 14 MR. LAMBERT: -- $299. 15 MR. RUNNER: Okay. Let me go to the taxpayer. 16 What -- what did that constitute? What was -- 17 that was the -- 18 MR. BONACICH: We contacted all of the 19 customers and said we are no longer doing business. By 20 the end of this year you must take delivery of any and 21 all orders that you have. We're shutting down. We're 22 not going to be in business any longer. 23 MR. RUNNER: Okay. 24 MR. BONACICH: We did our final deliveries the 25 last quarter, which was -- let's see, last quarter would 26 be October, November, December of 2006 -- and then we 27 were done. 28 MR. RUNNER: Okay. 26 1 MR. BONACICH: And if you look at -- 2 MR. RUNNER: So, you did do sales in that -- I 3 mean, you -- 4 MR. BONACICH: No, no sales. 5 MS. WALDON: No. 6 MR. RUNNER: Maybe I'm getting -- 7 MR. BONACICH: We did deliveries. 8 MR. RUNNER: -- you did deliveries. You did 9 deliveries? 10 MS. WALDON: There's confusion. Yeah, I 11 think -- 12 MR. RUNNER: Let me make it -- see if I can get 13 through this. 14 You did deliveries -- 15 MR. BONACICH: Correct. 16 MR. RUNNER: -- okay. But, again deliveries at 17 that point was what it is that the -- the -- the sales 18 tax would have been -- 19 MR. BONACICH: Correct. 20 MR. RUNNER: At the delivery? 21 MR. BONACICH: Delivery date. 22 MR. RUNNER: Not at the sales? 23 MR. BONACICH: Not at the sales. 24 MR. RUNNER: Okay. But the delivery then, I 25 think by definition, is the sale. 26 Is that -- 27 MR. LEVINE: Unless the -- unless the agreement 28 was unusual, yes, the sale occurred upon delivery and 27 1 the transaction he's talking about, the sale, was the 2 taking of the order. 3 MR. BONACICH: Correct. 4 MR. LEVINE: The order, not the sale. 5 MR. RUNNER: Right. 6 MR. LEVINE: The sale was -- 7 MR. RUNNER: Again the language here is -- is 8 the taking of the order and then the sale. 9 MR. BONACICH: Correct. And the sale is 10 considered on the delivery date. 11 MR. RUNNER: Right. 12 MR. BONACICH: And that's what -- when -- what 13 had happened is we would do our shows and then -- 14 MR. RUNNER: So, when you say, "We had no 15 sales," and they say, "Oh, yes, you did. You had 28 -- 16 or $28,000 worth," what they're talking about is -- 17 MR. BONACICH: Delivery, right. 18 MR. RUNNER: -- delivery. And what you're 19 talking about is delivery -- 20 MR. BONACICH: Correct. 21 MR. RUNNER: -- on things that you had previous 22 orders for? 23 MR. BONACICH: Previous orders that we had 24 taken before, correct. 25 And that's why when they -- when Mr. To Lee 26 came and said, "Hey, we want a copy of all your sales," 27 my tax accountant immediately sent him a copy of all of 28 our sales. -- 28 1 MS. MANDEL: Which, in your world, is orders? 2 MR. BONACICH: Orders, correct, correct. 3 MR. RUNNER: And of which some of those orders 4 then were not -- ever -- would ever -- would ever 5 consummate to a sale -- 6 MR. BONACICH: Correct. 7 MR. RUNNER: -- because the person didn't pay 8 the rest of the balance, they decided they didn't want 9 the product? 10 MR. BONACICH: Correct. 11 MR. RUNNER: So, they never consummated to a 12 sale? 13 MR. BONACICH: Correct, correct and then -- -- 14 MR. RUNNER: Well, let me ask the Department, 15 did we factor in that at all? Or did we just -- did we 16 just use his language for sale and then assume that -- 17 all sales were then made as opposed to orders? 18 MR. LAMBERT: It appears what we did is took 19 the sales price that was made at the -- oh, I guess 20 show. 21 MR. RUNNER: The order? 22 MR. LAMBERT: Well, that transaction is, 23 appears what we used in order to come up with -- 24 MR. RUNNER: Okay. Then that transaction is 25 the order, correct? 26 MR. LAMBERT: The way he's describing it, it 27 wouldn't be, correct. 28 MR. RUNNER: That would be the order, not the 29 1 sale. 2 So, did we -- did we then -- is what we applied 3 then in terms of the taxable event then the order? 4 MR. LAMBERT: We took it at the show. So, if 5 that's the order, then that's when we took the sale. 6 MR. RUNNER: And how many of -- how much of 7 your sales -- how many of your orders never produced a 8 sale? 9 MR. BONACICH: About 30 percent. 30 to 35 10 percent -- 35 percent of our orders that we took at the 11 show never even materialized and people would say, "We 12 changed our minds." 13 It's a -- beautiful table, people walk up to 14 it, everybody wants it. 15 But then when they get home, they think, "Wow, 16 do we want to spend that?" 17 MR. RUNNER: Okay. I'm sure it's a great 18 table. 19 MR. BONACICH: They don't want it. 20 MR. RUNNER: But the point would be -- the 21 point would be of the -- of the -- of the orders, a 22 third of them did not result in a sale? 23 MR. BONACICH: Never, correct. 24 MR. RUNNER: In our audit of this we assumed 25 that every order resulted in a sale? 26 MR. LAMBERT: Every order that he provided us, 27 right. 28 MR. RUNNER: Okay. Do you -- I mean, do we 30 1 sense that there's an issue there between -- just in 2 terms of the definitions that have gotten a little 3 confused in this audit? 4 MR. LAMBERT: I was unfamiliar with those 5 definitions. 6 MR; RUNNER: Well, now -- now that we all are, 7 do you think there's some confusion? 8 MR. LAMBERT: Is that there's -- if he produced 9 the product at a later date that would be when the sale 10 took place. 11 MR. RUNNER: So, is he -- well, we don't -- he 12 had sales -- we don't necessarily believe that at the 13 events that took place that a table was then delivered 14 at that time to the consumer -- 15 MR. LAMBERT: Do we -- 16 MR. RUNNER: -- at the show. 17 MR. LAMBERT: -- I get -- it depends. 18 I -- I don't know exactly what the 19 circumstances were with that. 20 MR. RUNNER: We have no evidence that that took 21 place? 22 MR. LAMBERT: That's correct. 23 MR. RUNNER: Okay. We have no evidence that 24 took place. 25 What we have is the operating procedures and 26 business of the company, which just says, we have no 27 inventory. We just take an order and then we do a 28 delivery later. 31 1 MR. LAMBERT: Well, what we have is -- he 2 provided us with what he's classifying now as orders and 3 we used that in order to establish -- 4 MR. RUNNER: Yeah, I think -- I think we've all 5 pretty well established the fact that we've got 6 confusion in terms at this point, right? 7 MR. HORTON: So, is a 30-30-30 in order, 8 Mr. Runner? 9 MR. RUNNER: I -- yeah, I mean, I would -- I 10 would assume -- 11 MR. HORTON: I accept that as a motion. 12 Is there a second? 13 MS. MANDEL: Second. 14 MR. HORTON: Second by Ms. Mandel. 15 MR. RUNNER: You want to explain what just took 16 place to the poor taxpayer? 17 MR. HORTON: Without objection, 30-30-30. 18 MR. BONACICH: 30 minute lunch or something? 19 MR. HORTON: Mr. Levine, would you please share 20 with the taxpayer what just happened. 21 MR. LEVINE: Basically what it means is you 22 have 30 days to provide any extra documentation and the 23 Department has 30 days to respond. And then the Appeals 24 Division will have 30 days to make a recommendation. 25 I think in this case the Department's going to 26 need to talk with you -- right, Department? -- during 27 that period so that you can provide whatever 28 documentation you have to show cancellations or the -- 32 1 at least the nature of your business, some 2 documentation, something. 3 MS. MANDEL: Right and the deliveries. 4 MR. LEVINE: Yeah. 5 MS. MANDEL: Really to show them how the 6 business worked and when -- when a sale actually 7 happened. 8 MR. RUNNER: Yes. 9 MR. LEVINE: Like you never sold a table at the 10 end of the show? At the show? 11 MR. BONACICH: No, never. 12 MR. RUNNER: Yeah and that -- at this point 13 that's what you've got to clarify. You've got to 14 clarify at this point then your business practice -- 15 MR. BONACICH: Correct. 16 MR. RUNNER: -- at that point to -- to how the 17 Department figured it out and I think it's all this 18 confusion over the phrase "sale." 19 MR. HORTON: Members, we may be further 20 complicating -- why don't we ask the Department to meet 21 with the taxpayer -- 22 MS. MANDEL: Yes. 23 MR. HORTON: -- give him clear direction on the 24 type of documents and so forth? 25 I would also ask for a clarification on the law 26 as it relates to the deposits taken, but not -- not 27 consummated. 28 MR. RUNNER: Yeah. 33 1 MR. HORTON: Okay. 2 MR. RUNNER: Thank you. 3 MR. HORTON: Thank you very much for appearing 4 before us today. 5 MS. WALDON: Thank you for hearing us. 6 MR. HORTON: We look forward to the additional 7 documentation to support your position. 8 MR. BONACICH: Thank you. 9 MS. STEEL: And as Customer Service Chair, I 10 want to review the policy that -- how we taking money 11 out from the taxpayers without giving them notice. And 12 I want to review the practice. 13 MR. HORTON: Okay. Possibly reporting -- 14 MR. RUNNER: I think a report back to the Board 15 on levies would be interesting. 16 MS. STEEL: Report back to -- 17 MR. HORTON: Okay. 18 MR. BONACICH: Thank you very much. 19 ---O0O--- 20 21 22 23 24 25 26 27 28 34 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 34 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: JULY 18, 2012 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 35