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 12 13 14 15 FINAL ACTIONS 16 17 18 19 20 21 22 23 24 25 26 27 REPORTED BY: Kathleen Skidgel 28 CSR NO. 9039 1 1 P R E S E N T 2 3 For the Board Jerome E. Horton of Equalization: Chairman 4 5 Michelle Steel Vice-Chairwoman 6 7 Betty T. Yee Member 8 9 George Runner Member 10 11 Marcy Jo Mandel Appearing for John 12 Chiang, State Controller (per Government Code 13 Section 7.9) 14 Joann Richmond 15 Chief Board Proceedings Division 16 17 ---oOo--- 18 For Staff: Grant Thompson Tax Counsel 19 20 David Levine Tax Counsel 21 22 ---oOo--- 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 MAY 30, 2012 4 ---oOo--- 5 MR. HORTON: Okay. Ms. Richmond. 6 MS. YEE: Okay. Okay. 7 MR. HORTON: Oh, Okay. 8 Ms. Richmond. 9 MS. RICHMOND: Okay. Our first item that was 10 taken under submission was B3, Mervin L. George, Senior 11 and Laura Lee George. 12 ---oOo--- 13 B3 MERVIN L. GEORGE, SR. and LAURA LEE GEORGE 14 NO. 566204 15 ---oOo--- 16 MR. HORTON: Uh, Members, we are now on item 17 B3. Mr. Johnson is before us. 18 Is there a discussion? 19 Hearing none, is there a motion? 20 MS. YEE: Uh, move to deny the appeal. 21 MR. HORTON: Moved by Member Yee to deny the 22 appeal. 23 Is there a second? 24 MS. MANDEL: Is that, um, partly on abstention? 25 MS. YEE: Abstention grounds, yes. 26 MS. MANDEL: Okay. 27 Second. 28 MR. HORTON: Second by Member Mandel. 3 1 Without objection, such will be the order. 2 ---oOo--- 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4 1 MR. HORTON: Ms. Richmond. 2 MS. RICHMOND: Our next item is B4, Mehdi 3 Shahbazi and Fatemeh R. Shahbazi. 4 ---oOo--- 5 B4 MEHDI SHAHBAZI and FATEME R. SHAHBAZI 6 NO. 575095 7 ---oOo--- 8 MR. HORTON: Discussion, Members? 9 Is there a motion? 10 MS. STEEL: Uh, move to sustain the Franchise 11 Tax Board -- 12 MR. HORTON: Moved -- 13 MS. STEEL: -- with OIC. 14 MS. YEE: Second. 15 MR. HORTON: Moved by Member Steel to sustain 16 the Franchise Tax Board, with OIC. Second by Member 17 Yee. 18 Without objection, Members, such will be -- 19 MR. THOMPSON: I'm sorry. Could I ask for 20 clarification, with OIC? 21 MS. MANDEL: That usually -- that usually means 22 making sure they know about it and get referred to the 23 program, right? 24 MR. HORTON: Yeah. 25 MR. THOMPSON: We can do that. 26 MS. STEEL: Right, right. 27 MR. HORTON: Advise them, yeah. 28 Thank you, Mr. Thompson. 5 1 Without objection, Members, such will be the 2 order. 3 ---oOo--- 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6 1 MR. HORTON: Ms. Richmond. 2 MS. RICHMOND: Our next item is C2, Fence 3 America, Inc. 4 ---oOo--- 5 C2 Fence America, Inc. 6 No. 479354 (KH) 7 ---oOo--- 8 MR. HORTON: Discussion, Members? 9 MS. MANDEL: Yeah. Well -- sure. 10 Um, I -- I just have a sense that on these 11 freight, um, which sounded like it added up to a fair 12 amount of a deduction, uh, that -- that they might have 13 had some other documents that perhaps they showed to 14 Audit but that they think Audit wouldn't look at or -- 15 or what. And so, um -- 16 MR. HORTON: A 30 -- 17 MS. MANDEL: 30/30/30. But one of the problems 18 I sometimes see with the 30/30/30s is that the taxpayer 19 doesn't -- this seems pretty specific of what they ought 20 to be able to have, like the backs of the invoices or 21 whatever, as an example. And sometimes I see these 22 things come back and I feel like maybe they didn't -- 23 maybe they weren't so savvy on what it was they could 24 have come up with. And I don't -- 25 MR. LEVINE: We could just ask them, I would 26 think. 27 MS. MANDEL: Can you -- 28 MR. LEVINE: We need to know about common 7 1 carriage versus own delivery and any invoice -- 2 MS. MANDEL: Right. Right. 3 MR. LEVINE: -- terms. 4 MS. MANDEL: Because on the common carriage 5 when he said that the reason he had the dollars all 6 added up was that they got all the information from the, 7 uh, lumber -- the guy who sold them the -- the wood, I 8 kind of had a vague impression that that might have even 9 had some of the information. And two of the sample 10 invoices from two of the companies at issue specifically 11 have on them common carriers. 12 So, I think that he has a lot of the 13 information but maybe it hasn't been packaged quite the 14 right way. And I -- I -- so to the extent that someone 15 can talk to him or staff can go over it so that we just 16 don't, you know, wind up with something that's not -- 17 MR. HORTON: Yeah. 18 MS. MANDEL: -- as helpful as he might actually 19 have documents for. 20 MR. HORTON: Member Steel. 21 MS. STEEL: And I want to add just one more 22 that Mr. Lambert told us that -- that if -- maybe you 23 did -- talk to the vendor about the letter -- no, I 24 think Mr. Lambert told me. It was a long day, so I 25 don't remember. 26 MR. HORTON: Someone did. 27 MS. STEEL: So someone did. 28 MR. HORTON: I re -- yeah. 8 1 MS. STEEL: That, uh, from the Capital Lumber, 2 that letter was proven, then I think we should give them 3 the credit for that. 4 MS. MANDEL: Oh, the one where the -- where the 5 writer said all of our sales to him were -- 6 MR. LEVINE: -- common carriers. 7 MS. MANDEL: -- were common carrier, were. 8 Yeah. 9 MS. STEEL: So -- 10 MR. HORTON: Okay. 11 MR. RUNNER: I think the concern, at least in 12 that discussion, that -- that -- that I heard from 13 Appeals was, um, is -- is that okay or isn't it okay? 14 And I think -- I think, you know, at this point um, you 15 know, I'm hoping -- I mean at least from my perspective 16 if some guy's got a letter that says all my sales to 17 this guy was by common carrier, it seems to me that's a 18 pretty good indication that all the sales are by common 19 carrier. 20 MR. HORTON: Well -- 21 MR. LEVINE: My experience is if I tell you 22 something that happened five years ago, my memory isn't 23 as good as it used to be. 24 MR. RUNNER: Well -- 25 MS. STEEL: But they're still in business. 26 MR. RUNNER: Yeah. 27 MS. STEEL: So -- 28 MR. RUNNER: Yeah, but if that's your -- 9 1 MR. LEVINE: But we don't have the records. 2 MR. RUNNER: I guess if that's your best -- if 3 that's your practice of business, though, you're not 4 talking about memory. 5 MS. STEEL: Right. 6 MR. RUNNER: You're talking about your practice 7 of business. Right? 8 MR. LEVINE: It -- I guess my point is, I just 9 would want a little more information if I could get 10 it. 11 MR. RUNNER: Okay. Yes. 12 MR. LEVINE: Talk to them and find out. I 13 agree generally if that's their practice, that's their 14 practice. 15 MR. HORTON: Okay. Um, I mean I would share, 16 Mr. Levine, that in and of itself, for me, would not be 17 sufficient. I need to see, uh -- I would presume a 18 practice would also be supported by, uh, source 19 documents and so forth. 20 The other item I would like some information 21 on, uh, without being presumptuous of the position of 22 the Board, uh, was the spoilage item. 23 MS. MANDEL: Mm-hmm. 24 MR. HORTON: I mean, I actually, uh, believe if 25 we can record that there are sales and there's -- in 26 that the regulation isn't specific, we're relying on -- 27 on audit policy, and in this case a couple of 28 annotations that I do recall. But the annotations are 10 1 directional for us. 2 Uh, and so in the sense that their acquisitions 3 are in excess of what they normally use for construction 4 contract activity, there has to be some presumption that 5 those items are for resale. So -- 6 MR. LEVINE: I don't think there's any doubt 7 that these -- that Fence America sold a small amount and 8 intended to. They -- they always intended to sell some 9 of -- 10 MR. HORTON: Some of that. 11 MR. LEVINE: Some. And if you're saying do a 12 prorate for the spoilage -- 13 MR. HORTON: Yes. Yes. 14 Okay. Um, and so possibly staff can also 15 review the tape to hear the concerns of the Board 16 Members. 17 So there's a motion by Member Mandel for a 18 30/30/30. Second by Member Runner. 19 Uh, without objection, such will be the order. 20 ---oOo--- 21 22 23 24 25 26 27 28 11 1 MR. HORTON: Ms. Richmond. 2 MS. RICHMOND: Our next item is C3, Bay Area 3 Fence and Deck, Inc. 4 ---oOo--- 5 C3 Bay Area Fence & Deck, Inc. 6 No. 443761 (GH) 7 ---oOo--- 8 MR. HORTON: Sounds like we're going down the 9 same yellow brick road, Members. 10 MR. RUNNER: Did you get the impression, 11 though, that they had information? I mean, that's why 12 I'm struggling with this particular one. Um, or if 13 there was just -- 14 MR. HORTON: I would be supportive of a five 15 percent adjustment to the spoilage which the taxpayer 16 requested as a plan B. 17 Member Steel? 18 MS. STEEL: Mm-hmm. 19 MR. HORTON: Moved by Member Steel. Second by 20 Member Yee. 21 Without objection, Members, uh, such will -- 22 Oh, strike that. There's a motion for a five 23 percent adjustment on the spoilage, which I believe 24 comes to somewhere around $33,000 in adjustment, if my 25 memory serves me right. Uh, and the motion is by Member 26 Steel. Second by Member Yee. 27 Without objection, such will be the order. 28 ---oOo--- 12 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, KATHLEEN SKIDGEL, 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 12 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: June 6, 2012 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 13