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 31, 2012 10 11 ---oOo--- 12 ITEM P OTHER ADMINISTRATIVE MATTERS 13 P3 SALES AND USE TAX DEPUTY DIRECTOR'S REPORT 14 2. NO CASH PILOT UPDATE 15 ---oOo--- 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 19 For Staff: Jeff McGuire Deputy Director 20 Sales and Use Tax Department 21 Susanne Buehler Chief, Tax Policy Division 22 Sales and Use Tax Department 23 24 ---oOo--- 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 MAY 31, 2012 4 ---oOo--- 5 MR. HORTON: Ms. Richmond. 6 MS. RICHMOND: Our next item is P3, Sales and 7 Use Tax Deputy Director's Report, P3.2, No Cash Pilot 8 Update. 9 MR. HORTON: Thank you. 10 Welcome. 11 MR. MCGUIRE: Good afternoon, Chairman Horton 12 and Members. 13 MR. HORTON: Good afternoon. 14 MR. MCGUIRE: I'm Jeff McGuire with the Sales 15 and Use Tax Department. And with me this afternoon is 16 Susanne Buehler of our Tax Policy Division. 17 Today I'm excited to provide you with an update 18 on our No-Cash Pilot. I'd first like to start by 19 thanking the Board for your support of us attempting 20 this pilot and also for our three initial pilot offices 21 which were San Diego, Ventura and Oakland, and thank 22 them for taking the risk to actually try this new office 23 of the future approach and concept. 24 I'd also like to acknowledge our taxpayers who 25 actually have, very willingly and seamlessly, switched 26 over to the no-cash in those offices that they have done 27 that in. 28 To be honest with you, a lot of us in our 3 1 department, including myself, were rather skeptical of 2 discontinuing cash payments and only accepting cash, 3 money orders, credit cards and electronic payments, um, 4 when we started this and wondering what the impact would 5 be on our program. But I am here today to say that I am 6 a believer now in this approach based upon the results 7 of this pilot. 8 Just a recap, the -- the goal of the pilot was 9 to reduce the risk of loss, improve the staff safety, 10 reduce wait times, encourage businesses to establish 11 bank accounts, and discourage the underground economy. 12 Taxpayers in the -- in the impacted offices 13 were notified by posters in the offices 30 days before 14 we started the no-cash. Staff, in any of their contacts 15 with taxpayers made sure that they mentioned that; our 16 800-number call center mentioned that to taxpayers if 17 they had questions about payments; and we also posted 18 information on our website. 19 Um, in addition to that, each office located 20 local businesses and banks that could convert cash for 21 taxpayers to money orders or cashier's checks so that 22 anyone that did bring in cash could be directed to a 23 place that they could convert their cash. 24 During the initial 90-day test period we 25 tracked every cashiering transaction in those pilot 26 offices to evaluate the taxpayer response. In addition, 27 we modified our "How Are We Doing" survey to get 28 feedback from our taxpayers on the no-cash pilot. 4 1 During that test period, those pilot offices 2 processed 12,000 cashiering transactions. When 3 taxpayers showed up with cash only, staff directed the 4 taxpayers how to convert it, and then we tracked those 5 people that, um, initially came with cash. 6 Um, the results found that out of 702 taxpayers 7 who came with only cash, um, to our offices and weren't 8 immediately able to convert to an electronic payment or, 9 um, writing a check, that of those, only 15 didn't come 10 back that same day and make their payments. Of that 15, 11 14 actually came back the next day. And then one 12 actually didn't come back for six weeks, but did 13 eventually come back and make their payment. 14 Um, in addition, less than one percent of the 15 "How Are We Doing" surveys indicated dissatisfaction 16 with the no-cash payments. It is also important to note 17 that the number of dissatisfied survey responses that we 18 received decreased substantially after the first month. 19 The first month we had 45 dissatisfied, the second month 20 17, and the third month of the pilot only 14. 21 Again, due to the surprising success of the 22 pilot, we now have six additional offices which include 23 San Francisco, Van Nuys, Norwalk, Culver City, Riverside 24 and Irvine who begin no-cash piloting in their offices 25 this month. 26 So far the feedback from them is that it is 27 going smoothly and they are have -- experiencing kind of 28 the same things that the initial three offices did 5 1 experience. 2 In addition to the benefits noted, the 3 efficiencies created for our staff will allow our staff 4 to work more outstanding small dollar balances and 5 delinquencies, resulting in more revenue. We will also 6 avoid the cost of armored car services and some of the 7 banking charges that we currently incur processing, um, 8 cash payments locally, um, versus going through our 9 headquarters cashiering and banking processes. 10 So what we'd like to do today is actually ask 11 for your support, and we have three options for you. 12 One is that -- the one recommended by staff is that we 13 continue the pilot to further evaluate the impact that 14 this pilot is having now that we've established six more 15 offices moving to this. 16 The second option would be that we just move 17 completely to taking no cash in all of our offices 18 immediately. 19 And the last option would be if we wanted to 20 just abandon this and go back to taking cash in all of 21 our offices. 22 And we're here to answer any questions that you 23 might have. 24 MR. HORTON: Question or discussion, Members? 25 MS. STEEL: That's funny. You want to go back? 26 MR. MCGUIRE: No, we don't. But that's always 27 an option. 28 MS. STEEL: That can't be option here. 6 1 I like the first one because eventually -- 2 MS. YEE: Same here. 3 MS. STEEL: -- expand. 4 MS. YEE: Yeah. 5 MS. STEEL: It's not going to shock the 6 taxpayers. 7 MS. YEE: Yeah. 8 MS. STEEL: So some people still bring the 9 cash. We going to just educate them and then, you know, 10 eventually then we going to close down. 11 MS. YEE: Yeah. And maybe not a significant 12 issue anymore, but certainly safety concerns for our 13 employees. 14 MS. STEEL: Right. Mm-hmm. 15 MR. HORTON: From a safety perspective, have we 16 had any problems? 17 MR. MCGUIRE: We have had theft of cash in our 18 offices before. 19 MR. HORTON: By the employees? 20 MR. MCGUIRE: Yes. 21 MR. HORTON: And what happened? 22 MR. MCGUIRE: Um, then there's an investigation 23 and adverse action is taken. 24 MR. HORTON: Okay. 25 Uh, but anyone -- has any of the offices been 26 robbed? I mean, someone came in? 27 MR. MCGUIRE: I'm not aware of any during my 28 years with the Board that we've actually had an external 7 1 robbery. 2 MR. HORTON: So the threat to the employees is 3 internal. 4 MR. MCGUIRE: Well, there's always a potential, 5 if you have lots of cash, that you could be a target. 6 MR. HORTON: Okay. I've got -- I've got a 7 couple of concerns. Uh, one is the added cost of -- and 8 the concerns primarily go to, uh, some of the taxpayers 9 who cannot necessarily afford to have a bank account 10 given all the fees that they have today. And certainly 11 there's an argument if you're in business you should 12 have a bank account, which is probably indicative or 13 reflective of the numbers wherein you have 700 plus 14 individuals who came in with cash and most of them were 15 able to convert it immediately by writing a check. 16 But to the, uh, 15 who were not, there's an 17 added cost of them having to go and get a money order 18 and, uh -- and, uh, get a check or a cashier's check. 19 So all of a sudden we're adding an additional cost to 20 them complying with the law. And then there's an 21 additional delay of the State actually receiving the 22 funds, even if that delay is just a day. 23 And so, given that the number of individuals 24 who seem to have had a challenge is so minute, um, it 25 seems to appear as if though the conversion -- the 26 majority are able to convert it automatically, and only 27 15 of them were not. But to the extent that that 28 occurs, I have a real concern about turning a taxpayer 8 1 away from paying their liability because they either 2 don't have a checking account or, for some reason, can't 3 seem to convert it into paper. 4 Uh, and so, I don't know if we can address that 5 by implementing some professional judgment, uh, as to at 6 what point do we turn a taxpayer away and say we're not 7 going to accept the cash. I mean, I wouldn't publicly 8 say that, uh, a taxpayer comes in with cash to make 9 their tax payment, I'm not going to accept it. Or the 10 Board is not going to accept it. I would have some 11 concerns, uh, in us doing that. 12 So, maybe there's a modified way -- and this is 13 just my concerns. But maybe there's a modified way that 14 we can -- we can accomplish the -- the efforts of, uh -- 15 of improving the system, improving the flow of cash and 16 so forth and encourage individuals to, uh -- to -- to 17 pay but with a check or at the time -- and at the same 18 time interject some professional judgment. If the 19 taxpayer says, well, that's going to require me to go 20 get a money order, uh, and that's going to add a -- in 21 some cases, 10 percent. That's an additional 10 percent 22 fee to go and get a check. Uh, those that are using 23 the, uh -- what do they call those places? 24 MS. MANDEL: The check cashing. 25 MS. STEEL: Check cashing. 26 MR. HORTON: Check cashing places and so forth, 27 it's pretty expensive. Um, and so, inadvertently, we've 28 increased the tax by increasing the cost of compliance. 9 1 Um, so maybe we can come up with a way -- I 2 mean, that's just my opinion. 3 MR. MCGUIRE: We do -- just to clarify on the 4 cost for, um, taxpayers to convert -- because I can -- I 5 have the data from Van Nuys, Irvine and Norwalk. Um, 6 small merchants that, you know, will convert money to 7 cash for them, you can get a thousand-dollar money order 8 for $1. 9 So, it does cost a little bit, but it's not a 10 significant amount. If you do go to a bank and get a 11 cashier's check -- which then those don't have unlimited 12 amounts because a money order can only go up to a 13 thousand -- they do charge a percentage fee sometimes, 14 and sometimes those fees can go up to $20 for a single, 15 um, cashier check. 16 MR. RUNNER: For what amount of dollars? 17 MR. MCGUIRE: That's an unlimited amount. 18 So, they -- they have a range, um, for some of 19 the -- like in the Irvine, the range for the local banks 20 for them for an unlimited amount on a cashier's check is 21 between six and $20. 22 So, again, our largest taxpayers do have to pay 23 via EFT. So, again, these are -- tend to be smaller 24 amounts, but still we have sometimes, you know, thousand 25 dollars and plus payments that we receive in our field 26 offices. So someone could get a money order at, like, a 27 local check-cashing place for a dollar for a 28 thousand-dollar money order. 10 1 MR. HORTON: Yeah. When we implemented EFT, 2 uh, we were cognizant at the time that, uh, there was a 3 savings to the larger taxpayers, uh, by virtue of 4 staffing, timing and so forth. For them to be able to 5 process it was a significant savings to them. 6 Um, here, we're talking about individuals that, 7 uh, may not have a bank account as -- as indicative 8 of -- of your study. Individuals, in this case, uh, 15 9 that didn't have a bank account and a loss of 10 interest -- a one-day loss of interest to 14. If we 11 took that and -- and extrapolated that, I don't know how 12 much of a loss that would be to the State of California, 13 but certainly a loss. And then the six months there is 14 another, uh, loss. 15 If there's a way that we can accommodate 16 individuals who may fall into this category, uh, I would 17 certainly ask that we attempt to do so. 18 MR. MCGUIRE: As we continue the pilot, I think 19 what we can do is kind of look for what is that option. 20 You know, how do we kind of solve that dilemma, I guess, 21 for those that absolutely only have cash and cannot 22 convert. 23 MR. RUNNER: Question. 24 MR. HORTON: Mr. Runner. 25 MR. RUNNER: Yeah, it -- it seems to me that 26 our challenge is -- at a particular office you're either 27 all in or all out. Um, you know, I don't -- either 28 you're taking some cash or you're not taking cash. Um, 11 1 it seems to me very difficult to say, well, under 2 circumstance -- certain circumstances we will take your 3 cash. 4 Um, so I -- it's -- I'm not sure how you find 5 the middle ground. And -- and I guess I'd point out 6 that, again, we've already run the project in a couple 7 of locations, what, three or four? 8 MR. MCGUIRE: Mm-hmm. 9 MR. RUNNER: Um, and in -- and in those issues, 10 we've run them, they seem to have been successful. The 11 fact is, people always had an alternative to go to 12 another office, but it cost far more to drive to the 13 other office, most likely, than it does to go down and 14 get your cashier's check or whatever it is that you're 15 going to do. 16 Uh, so in that sense, even if we -- if we 17 decided that certain offices were going to do it, we've 18 indeed created cost for the individual because they're 19 going to have to then drive to some other office that's 20 farther away. 21 Um, you know, I -- I -- again, I -- I think 22 that the businesses that we have are having to deal, 23 often times, with other kinds of transfer of those cash 24 dollars into other kind of financial instruments, 25 whether it's how they pay their federal income tax, I 26 mean, does the FTB -- well, does -- can you pay 27 California State Income Tax with cash? 28 MR. MCGUIRE: In some Franchise Tax Board 12 1 offices you can. 2 MR. RUNNER: They take cash? Okay. 3 Um, and I don't know, can the -- can you pay 4 your IRS with cash? 5 MS. BEUHLER: That, I don't know. 6 MR. MCGUIRE: I -- I don't know that for 7 sure. 8 MR. RUNNER: Okay. 9 MR. MCGUIRE: I know they have four field 10 offices. 11 MR. RUNNER: I just -- I just find -- you know, 12 I just think this is just a -- you know, the fact is 13 people who are in these businesses know how to function 14 outside the cash when they have to function outside of 15 cash. And I just have no difficulty with us proceeding 16 in an orderly way, um, going to a, uh -- to a non cash 17 policy. 18 MR. HORTON: Okay. 19 I am, uh -- well, um, I'm okay if that happens 20 in, uh, the district that Mr. Runner represents. But 21 let me be clear, I know of no entity that will not 22 accept cash. Uh, and I don't know of any real 23 circumstances, unless there is some serious security 24 risk and so forth. 25 Certainly, you know, taxpayers are becoming 26 increasingly sophisticated, and I'm certainly conscious 27 of that. And to the extent that they are sophisticated, 28 uh, they willingly will comply with this because it's in 13 1 their best interest to do so. 2 It increases the accountability. It creates a, 3 uh -- checks and balances. I mean, it's just in their 4 best interests to accommodate and to comply with this. 5 But in the district that I represent, there 6 happens to be taxpayers who, you know, may -- are not 7 that large. And some of them are relatively small. 8 And -- and in my district there are some cultural issues 9 that exist as it relates to their sense of security, uh, 10 with the system and the checking and so forth and so on. 11 I even have constituents that won't necessarily 12 register to vote because of their concern of becoming a 13 part of the system. Yet, still, they have a business 14 and they're operating that business and they're 15 complying and so forth. And their business is a cash 16 business. They don't necessarily have the benefits and 17 the luxuries, uh, that some of the other more 18 sophisticated businesses do. 19 So, um -- 20 MR. RUNNER: Under that scenario -- 21 MR. HORTON: However -- however, you know, 22 as -- as I -- as I willingly do, I will, uh, follow the 23 lead of the majority of the body. But let it be known, 24 uh, that that's my position. 25 MR. RUNNER: Well, let me ask, in -- in terms 26 of what you presented, I don't know if it was in terms 27 of intention -- you know, in terms of an intentional 28 direction. But I don't have any trouble deciding that 14 1 in -- within each district, Members can decide how to 2 expand the, uh -- the, um -- the pilot. 3 MR. HORTON: For the -- I mean, we are -- I 4 would say the same thing on behalf of the people of the 5 State of California. I don't think my district is 6 unique. I think it's a philosophical perspective. And 7 so, I'm just not really comfortable with telling the 8 people of the State of California that I will not 9 accept, under any circumstances, a cash payment for your 10 tax liability. 11 Uh -- and, uh -- but to the extent that I can 12 protect the individuals that I happen, uh, to directly 13 represent, I -- I certainly intend to do that. 14 Further discussion, Members? 15 MS. MANDEL: I -- I thought that part of -- I 16 mean, some of the big offices down south volunteered. 17 But -- and I appreciate the concern. Some of that 18 information would come out in the course of the pilot. 19 I mean, if you start having people walk into 20 Culver City and Norwalk and they're, like, you know, I 21 don't -- I don't -- I don't do any of that kind of -- I 22 mean, you're not going to wait three months to let us 23 know that -- that the offices are running into some kind 24 of issue with people having -- you know, being seriously 25 unbanked and not wanting to, and not having the -- 26 not -- not, you know, "What do you mean I got to go pay 27 two bucks up the street to the guy on the corner?" 28 And wasn't there some thought given to the 15 1 possibility of, um, cash somewhere for the -- for the 2 seriously unbanked people? 3 MR. MCGUIRE: Yeah. I mean there -- there's 4 always an option to leave one office regionally. 5 Because again, I think, like Mr. Runner mentioned, that 6 if you take cash, then you're taking cash and it's hard 7 to -- you know, all the controls and all the issues that 8 go with taking cash happen whether you take a little bit 9 or a lot. 10 And so we could have regional offices that were 11 at the cash office and others maybe not taking cash. I 12 mean, those -- there's definitely a number of options. 13 Um, we are, as Mr. Horton pointed out, you 14 know, that there's some regional differences. I know, I 15 think our biggest concern was the Norwalk office because 16 it seems to have the most non-English-speaking visitors. 17 It's the highest visitor traffic and probably does 18 receive the most cash payments. 19 They have started this month on the pilot, and 20 we will learn a lot from -- over the next 90 days what 21 happens with them and how viable long-term really this 22 is as an approach on a larger scale. 23 Um, again, the success has been good in the 24 offices that we have done it in. But we realize there 25 was still a lot of offices that were accepting cash so 26 that alternative was is still available to people who 27 would want to spend a few dollars to drive to another 28 office. 16 1 MR. HORTON: I mean, one of the variables that 2 we have to take into consideration, very -- most people 3 are -- uh, they -- they're going to comply with the 4 State Board of Equalization, Internal Revenue, and so 5 forth. And they're going to perceive that that's -- 6 there's a legal basis for that requirement. 7 And so therefore, they see themselves as 8 complying with the law or complying with, uh -- with the 9 government entity, the system, if you will. Uh, so -- 10 but the reality is, is that that challenge exists. I 11 mean, the challenge of, uh, having to pay an additional 12 cost, uh, to comply, or the reality of just rejecting a 13 cash payment for your tax liability. 14 Um, I don't even know if we can legally do 15 that. But, uh, certainly I would ask if we can turn a 16 taxpayer around legally and say, uh, we're not -- here, 17 I want to render payment of my debt. I'm not going to 18 accept it because it's not in the form prescribed by the 19 Board of Equalization. But I will, in the interest of 20 time, not continue to debate. 21 But that's my, uh, position. 22 MR. RUNNER: Well, at this point I guess we 23 need to create some direction. Um, because right now, 24 as we stand, we have had a number of offices that have 25 been on a pilot. We have now entered into how many more 26 offices that have entered into the pilot? 27 MR. MCGUIRE: Six additional offices. 28 MR. RUNNER: Six additional offices. 17 1 So I guess it would be fair to say we are on a 2 path to no cash. 3 MR. MCGUIRE: We are moving that way. 4 I think the second group is really kind of our 5 bigger pilot to really see because, again, in the past 6 it seemed like people always had like a local option 7 they could still drive to with cash, so -- 8 MR. RUNNER: Again, I don't have any issue 9 saying continue on down that path. And if a Board 10 Member has an objection within certain parts of their 11 district, then that office should not be a part of the 12 plan. 13 Um, I have an issue with the regional issue 14 because so many of my district offices are regional. 15 MR. MCGUIRE: It's more difficult for -- 16 MR. RUNNER: Uh, and so if you try to do a 17 regional approach, every one of my offices, by 18 definition -- 19 MR. MCGIRE: Yes. 20 MR. RUNNER: -- will end up taking cash. And I 21 don't think they should. 22 MR. HORTON: Further discussion, Members? 23 Hearing none, thank you very much for your 24 presentation. 25 MR. RUNNER: Uh, hang on. I still think we 26 need to give some direction. 27 MS. YEE: I think there's a direction, yeah. 28 MR. RUNNER: Uh -- 18 1 MR. HORTON: Um, I would say let's, uh, 2 continue to pilot. Take into consideration the comments 3 of the Members in that process, uh, and report back to 4 us. Unless there's a desire to expand this throughout 5 the entire district. 6 Any other comments, Members? 7 MS. YEE: Do you think we'll be able to glean, 8 um -- 9 MR. MCGUIRE: Yeah, I think now with six 10 additional offices this will really determine kind of if 11 it's long-term viable or, you know -- 12 MS. STEEL: I think eventually we have to 13 expand to every offices. 14 And then I totally understand of your concern 15 about the cost. But most of those small businesses that 16 they do cash business, like a small liquor stores, they 17 do actually their money orders, and they make their own 18 in their office. So it's going to cost less than $1. 19 And I think it's the right, you know, direction to move. 20 But I think definitely we have to do some 21 educational outreach to the people that, you know, we 22 are changing it. So that's why we are doing it, you 23 know, gradually, not just doing everything at once. 24 So, totally understand. Yes, um, you know -- 25 MR. HORTON: Mm-hmm. 26 MS. STEEL: -- understand those small business 27 owners. But it's not really costing much other than 28 dollar, you know. It's a -- it's a small tax we're 19 1 talking about. Big taxpayers, usually they bring their 2 check. And sometimes they bring their credit card and 3 paying it. 4 So, I don't think there's any problem. 5 Eventually we really have to -- 6 MR. HORTON: Yeah. 7 MS. STEEL: -- close out all the cash. 8 MR. HORTON: Okay. 9 Further discussion, Members? 10 MS. YEE: So -- so clarify. Is that a 11 continuation or an expansion? 12 MR. HORTON: Uh, expanding the pilot program. 13 It's already there. 14 MR. MCGUIRE: I guess what we -- what I 15 understood -- I guess I should let you know what I 16 understood -- was that we are continuing with the 17 three -- 18 MR. HORTON: To ratify what we've already 19 done. 20 MR. MCGUIRE: -- the three initial offices and 21 the six that we started this month. 22 MS. YEE: Yeah. 23 MR. MCGUIRE: Then we would come back and 24 report to you -- 25 MS. YEE: Okay. 26 MR. MCGUIRE: -- the results of that -- 27 MS. YEE: Okay. 28 MR. MCGUIRE: -- before we went to any 20 1 additional offices. 2 MS. YEE: Good. Okay. That's good. 3 MR. RUNNER: That's reasonable. 4 MR. HORTON: Yeah, I'd like staff to report 5 back on the legality of it. I presume we can because we 6 did with EFT. 7 I'd like to also know whether or not, uh, 8 taxpayers have -- that are economically challenged, 9 whether or not we can absorb the costs as an agency of 10 them having to incur the additional cost. 11 Uh, thank you very much. 12 MR. MCGUIRE: Thank you. 13 ---oOo--- 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 21 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 31, 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 21 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: June 7, 2012 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 22