1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 JUNE 26, 2012 10 11 12 13 14 15 BUSINESS TAXES COMMITTEE 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 Committee: Betty T. Yee Chair 4 5 Michelle Steel Member 6 7 Jerome E. Horton 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 For the Board of Susanne Buehler Equalization: Chief, Tax Policy Division, 18 Sales and Use Tax Department 19 Phil Bishop Business Tax Specialist III, 20 Property and Special Taxes Department 21 Stephen Smith 22 Staff Counsel IV Legal Department 23 24 ---oOo--- 25 26 27 28 2 1 INDEX 2 PAGE 3 Action Item 1 4 4 (No speakers for this item.) 5 Action Item 2 7 6 Speaker: Steven K. Alari SEIU Local 1000 8 7 8 Action Item 3 33 9 Speaker: Steven K. Alari SEIU Local 1000 34 10 11 ---oOo--- 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 JUNE 26, 2012 4 ---oOo--- 5 ACTION ITEM 1 6 ---oOo--- 7 MR. HORTON: Ms. Richmond, what is our next 8 item? 9 MS. RICHMOND: Our next item on today's agenda 10 is the Business Taxes Committee. Ms. Yee is the Chair 11 of that committee. 12 Ms. Yee. 13 MS. YEE: Thank you, Ms. Richmond. 14 Uh, we have one item under the Business Taxes 15 Committee, and that is proposed Regulation 4801 and 16 amendments to Regulations 4601, 4603, 4604 and 4605 17 under the Cigarette and Tobacco Products Licensing Act. 18 We have one speaker on this item. Let me have 19 him come forward and -- while the staff introduces the 20 issue. 21 Good morning. 22 MS. BUEHLER: Good morning. 23 I am Susanne Buehler with the Sales and Use Tax 24 Department. And with me today are Stephen Smith from 25 our Legal Department and Phillip Bishop from the 26 Property and Special Taxes Department. 27 We have one agenda item for your consideration 28 this morning involving three action items affecting the 4 1 Cigarette and Tobacco Products Licensing Act 2 regulations. We will take each action item separately 3 before moving to the next. 4 In Action Item 1 we ask that the Board approve 5 and authorize for publication proposed amendments to 6 Regulation 4601, Service of a Notice of Violation or 7 Warning Notice, as agreed upon by staff and interested 8 parties. Over the course of administering the 9 provisions of a Licensing Act, staff has identified a 10 number of notices requiring service. 11 The proposed amendments would provide a uniform 12 service mechanism for all notices required under the 13 Licensing Act and its regulations. 14 We have one speaker today, after which we are 15 happy to answer any questions you may have on this 16 action item. 17 MS. YEE: Thank you, Ms. Buehler. 18 Uh, let me have the speaker introduce himself 19 and -- 20 MR. ALARI: Oh, sure. 21 Steven Alari, with SEIU Local 1000. I'm 22 President of our Labor Council 782 and also a Senior 23 Investigator at the Board. But I'm here on behalf of 24 the SEIU Local 1000. 25 But Action Item Number 1, I don't have a 26 comment on that one. 27 MS. YEE: Okay. All right. 28 MR. ALARI: Thank you. 5 1 MS. YEE: Um, can you just give me a sense of 2 what item you're going to be speaking about? 3 MR. ALARI: Uh, Action Item Number 2, the 4 transferring of the cigarette and tobacco products, and 5 also Number 3, regarding the penalties. 6 MS. YEE: Okay. Very well. Thank you very 7 much. 8 Uh, Members, discussion on, uh, Item Number 1? 9 Okay. Are we prepared to take action on that? 10 MR. HORTON: Move adoption of the staff 11 recommendation. 12 MS. YEE: Okay. 13 Motion by Mr. Horton to adopt the staff 14 recommendation. Second by Mr. Runner. 15 Without objection, that motion carries. 16 ---oOo--- 17 18 19 20 21 22 23 24 25 26 27 28 6 1 ACTION ITEM 2 2 ---oOo--- 3 MS. YEE: Okay. Ms. Buehler. 4 MS. BUEHLER: In Action Item 2 we ask that the 5 Board approve and authorize for publication either 6 staff's recommendation to publish proposed regulation 7 4801, Transfers of Cigarette and Tobacco Products 8 Between Retail Stores Owned by the Same Person. This 9 regulation would provide for transfers of cigarettes and 10 tobacco products between retail stores owned by the same 11 legal entity that are supported by a transfer log or 12 similar document and copies of invoices to be maintained 13 at each location participating in the transfer. 14 Alternative 1 is embraced by the retailers of 15 cigarette and tobacco products with multiple locations 16 and formalizes the Board's current policies regarding 17 documentation requirements for the transfer of 18 cigarettes and tobacco products between retail stores 19 owned by the same person. 20 Or, approve the California Distributor 21 Association's and SEIU Local 1000's alternative. This 22 alternative provides that any proposed regulations to 23 prohibit the transfer of cigarette and tobacco products 24 between any retail stores regardless of the ownership. 25 Language was not submitted by the interested parties for 26 this alternative. 27 And, again, we have one speaker, after which we 28 are happy to answer any questions you may have. 7 1 MS. YEE: Okay. Thank you very much. 2 Mr. Alari -- 3 MR. ALARI: Yes. 4 MS. YEE: -- on this item. 5 ---oOo--- 6 STEVEN K. ALARI 7 ---oOo--- 8 MR. ALARI: Well, thank you, Madam Chair and 9 Members of the Board. 10 As I say, my name is Steven Alari. I'm 11 speaking on behalf of Local 1000 and our President, 12 Yvonne Walker, who had sent a letter which is included 13 in your packet. 14 Uh, we represent the Business Tax, uh, 15 Specialists, as well as Business Tax Compliance 16 Specialists who are your investigators, inspectors out 17 conducting the inspections out in the field, trying to 18 combat the underground economy, as well as help 19 administer the program of cigarette and tobacco, uh, 20 products out there, and licensing, as well as making 21 sure that people have their licenses, as well as that 22 they've paid taxes on their cigarette and tobacco 23 products. 24 We support -- we support Alternative Number 2 25 and a bright line test, that it should not -- on behalf 26 of the union, uh, supporting having a test where people 27 cannot transfer cigarette and tobacco products. 28 The law, uh, AB 71 says that you -- uh, 8 1 retailer must buy from a licensed distributor/wholesaler 2 and have that invoice. On those invoices, it has the 3 retailer's cigarette and tobacco license number, retail 4 license number, as well as their information and what 5 the products they purchased. 6 By allowing the transferring of product -- 7 we've seen this confusion. I know the Board put out the 8 new Publication 78 which kind of explained to people 9 this transferring process. But our inspectors and 10 investigators -- all across the state there's confusion 11 about being able to do this. 12 First, when we adopted the law, it was clear we 13 weren't allowing transfers. And then when the Board put 14 out guidance that people could transfer, there were a 15 lot of folks -- and we've had a lot of seizures where 16 people, "Oh, I didn't know there was transfer 17 regulations," or -- or they try to create the transfer 18 document as you're -- they're traveling from one store 19 to the other store to bring it to you, to try to, uh -- 20 there are those bad characters out there. There are 21 good folks out there. 22 The big -- the big stores, the gas station 23 chains, they don't transfer. They just buy it from 24 their suppliers and keep it at their location. It's a 25 lot of the little stores where we're finding the issues 26 out there. 27 With a clear, bright line that you cannot 28 transfer, it's real -- it would be much simpler and, uh, 9 1 we believe it would also, uh, provide more revenue to 2 the state because there are those places where you have 3 a couple stores where, uh, allows -- when you do 4 transferring, it allows for blending. You could have an 5 invoice for five boxes of Swisher Sweet, regular flavor, 6 at store number one. You go to store number two and 7 store number two says, "Oh, I have a transfer document 8 here from store number one that we have, uh -- we 9 bought -- transferred three boxes of Swisher Sweets." 10 Well, then we have to run over to store number 11 one to make sure they don't have those, uh -- that 12 product at the original store because, uh, you could do 13 a transfer document and you slip in three boxes at the 14 second location. You have paperwork, but it allows 15 the con -- the opportunity for people to slip in untaxed 16 tobacco products. And, as you know, the state loses 17 $90 million in un -- in untaxed tobacco products. 18 Now cigarettes have the tax stamp. That's -- 19 we know the tax has been paid. It's the tobacco 20 products where there's issues out there. 21 And then, also, even like the transfer log and 22 the information, the sample trans -- uh, excuse me, 23 Exhibit Number 7 which is included in the packet, 24 example on the first transfer it shows five boxes of 25 Romeo and Julieta cigars, 25 each. Well Romeo and 26 Julieta cigars, there's seven different product lines 27 under Romeo and Julieta; and under that, there's a total 28 of 44 different types of Romeo and Julieta cigars. 10 1 And, uh, it makes it very hard for the 2 inspectors and investigators to, uh, know that tax has 3 been paid on those products. Because you could have an 4 invoice for Romeo and Julieta cigars, but it could be 5 one of the 44 different types of cigars there. 6 Um, so we would encourage that you adopt 7 Alternative Number 2, making it real clear to the 8 taxpayers, they're just not transferring, and I believe 9 it would ensure better compliance out in the field. 10 Thank you very much. 11 MS. YEE: Thank you, Mr. Alari. 12 Uh, I know Ms. Steel has a question. But 13 before, um, I turn to her, uh, you raised a question 14 that I want to ask Mr. Smith. And that is, um, do we 15 have statutory authority to move in this direction? 16 MR. SMITH: I believe we do. There's no 17 express statutory authority for prohibiting transfers 18 between stores owned by the same person. There's also 19 no statutory authority that expressly allows such 20 transfers. 21 I think, um -- I think a regulation is 22 important because, as Mr. Alari said, there's confusion 23 all over about what's going on here. 24 I think we are also only authorized to seize 25 product when there is, uh, not evidence that tax was 26 paid on the product. And staff believes that if these 27 documentary -- if they followed the regulation, we would 28 have adequate support to establish the tax was paid and 11 1 we're not authorized to, uh, seize product if it's, 2 uh -- once tax has been paid on the product. 3 MS. YEE: Mm-hmm. Okay. 4 Uh, and then to the Department, is it true the 5 large retailers don't transfer product? 6 MR. BISHOP: Well, that's, uh, not necessarily 7 what I'm hearing from the large retailers. And, uh, I 8 think we received, uh, support from Chevron which has a 9 number of service stations throughout the state, and 10 they sell cigarettes and tobacco products. And they 11 were very supportive of the proposed regulation because 12 they identified a number of instances that were 13 business-friendly in terms of the need to transfer. 14 And one that was extremely important was if a 15 store is abandoned, what do you do with the product? Do 16 you leave it there, do you return it to the distributor, 17 or do you move it to one of your other locations? 18 Um, so it -- it is occurring with the larger 19 stores. Again, Chevron did provide support for it and I 20 have received some phone calls -- they did not submit 21 anything in writing, but -- from other large retailers 22 that also encountered those similar positions or those 23 situations when a store is abandoned or sold. 24 One of the other, um, situations -- and, again, 25 it's identified in the issue paper -- is the vending 26 machine operator. Vending machine operators, each 27 vending machine location is a licensed location, and 28 it's typically not owned by that particular retailer. 12 1 The location isn't, but the vending machine is. So, how 2 do they take delivery at a vending machine? 3 I think the Licensing Act envisioned transfers, 4 does not require that the item be delivered to the 5 license location. It only says that the license -- that 6 a license location -- uh, the license of a location be 7 on the invoice. 8 Um, one instance is a cash-and-carry situation. 9 If you are unable to transfer product, how would you do 10 a cash-and-carry, say at a Costco or something like that 11 where you're buying for multiple locations? You would 12 have to buy, this is going to this location, this is 13 going to another location. Typically this businessman 14 is going to buy in bulk and move it to the various 15 locations. 16 So long as he's provided Costco with a licensed 17 location, that he is a licensed retailer, Costco is, 18 um -- has satisfied their invoicing requirements. And, 19 um, that licensed retailer then is able to move that 20 product to the location in which they plan on selling 21 it, so long as they have evidence that tax was paid on 22 it, which would be a copy of that invoice. And 23 according to the reg., we also want to see a transfer 24 log, to further document the sale. 25 MS. YEE: Okay, uh, thank you. 26 Uh, Ms. Steel, please. 27 MS. STEEL: You know, I like this proposed, uh, 28 regulation because this is very much business-friendly 13 1 and flexibility for small stores. I'm not really 2 concerned about big stores because small stores, you 3 know, they cannot have big inventory there. Sometimes 4 they are short. They can move, under same owner, to 5 another store. I mean, you know, I just really want to 6 go for that. 7 But having said that, those transfer documents, 8 that what kind of -- are required by BOE? You know, 9 what kind of things that they have to, um, document that 10 when they transfer from one store to another? 11 MR. BISHOP: Well, it's identified in the 12 regulation. It's the license location in which it was 13 purchased under. So if -- um, so that would be the, 14 like the receiving store, and then the license location 15 of where it's being transferred to, and a full 16 description of the product, um, and the invoice number 17 and an invoice copy. 18 And to -- to Mr. Alari's comment regarding it's 19 very difficult to specifically identify the product 20 that's being transferred because they are so detailed 21 and there are -- there are such a variety of products 22 out there, that's true. But in looking at some of the 23 invoices coming in from the distributors, um, those 24 invoices have a description so you would -- you would, 25 in essence, put the description that's on that 26 invoice. 27 MS. STEEL: So as long as you have invoice 28 there, then that description is right there -- 14 1 MR. BISHOP: Correct. 2 MS. STEEL: -- that exactly what's been 3 transferred. 4 MR. BISHOP: It should match what's on the 5 shelf -- 6 MS. STEEL: Okay. Thank you. 7 MR. BISHOP: -- what's being transferred. 8 MS. YEE: Okay. Mr. Runner, please. 9 MR. RUNNER: Uh, there's no doubt that -- that 10 we've had confusion on this issue -- uh, on these issues 11 coming before the Board. Um, and, uh -- and that it's 12 an issue that -- that needs -- needs resolution. 13 Let me just ask, the concerns that have been 14 brought up, uh, in regards to, uh -- you know, even 15 with -- with transferred documentation, that somehow 16 there could be this -- this difficulty in -- in escaping 17 tax, do you believe that the regulations that are 18 being -- being put in place, uh, along with the, uh, the 19 required documentation's going to be there, uh, protects 20 California taxpayers in regards to this issue, in 21 regards to escaping tax? 22 MR. BISHOP: Well, we drafted this regulation 23 in conjunction with the Investigations group and with 24 their management. And their management is in on board 25 with the proposal and the proposed reg. and has provided 26 their input so that they can fully document and verify 27 the tax paid status of the product. 28 And that is what the Licensing Act requires, is 15 1 that the tax -- that any retailer be able to prove that 2 the tax was paid on that product. And we -- we believe, 3 along with, uh, ID that, uh, this regulation satisfies; 4 that it does add a bit of a burden to the investigators, 5 but, uh, from what we've been told, that's an absorbable 6 cost. 7 MR. RUNNER: One of the concerns that I have -- 8 and I think, again, we need to bring clarity. There 9 was -- there was certainly a lot of confusion which -- 10 which I think was difficult then for both the inspectors 11 and then also for businesses out there. And so that's 12 why I think this step is -- one of these two are 13 important for us to bring in order to bring that 14 clarity. 15 Uh, and I -- and I find myself supportive of 16 the -- of the, uh, the action and recommendation by 17 the -- by the Department at this point, uh, because I 18 think the other side of this is -- is -- is even though 19 I get the fact that there might be the additional 20 follow-up work that might be a little more difficult for 21 inspection at that point in the field, the fact is, 22 these are still businesses out there, that I'm trying to 23 figure out how it is that, again, if you've got product 24 over in store A and you need this product over in store 25 B, um, and you need to do it over the weekend because 26 you just found out the inventory -- you know, you got to 27 get inventory over there, to not have then that business 28 have that inventory over in that store, uh, it seems to 16 1 be putting that business at a disadvantage. 2 Particularly if you're a smaller business, where a large 3 business can handle those issues or a larger -- again, 4 some of the Chevron and when we talk about large, but 5 I'm talking about even in that case, you've got 6 individually owned franchises at that point that need to 7 move product back and forth. Whereas, being the larger 8 stores, the retailers -- the large retailer and whatnot 9 may not have to worry about that. Some of those smaller 10 retailers, even if they are part of a franchise chain at 11 that point, may need to just be able to move -- have the 12 flexibility of moving product about. 13 So, I guess my concern is that if the -- if the 14 Department's secure enough, that we're able then to 15 document that well enough for both the protection of the 16 taxpayer and clear trails for the investigator, it seems 17 to me we've gone a long ways to accomplish something 18 that -- that will be beneficial. 19 MS. YEE: Thank you, Mr. Runner. 20 Mr. Horton. 21 MR. HORTON: Thank you, Madam Chair. 22 Um, you know, I share the investigator's 23 concern about the commingling of the -- of the, uh, 24 legitimate tax paid product with product that -- where 25 there is no tax paid. And it's, uh, often done -- I 26 mean, you'll find, even on the containers, when they 27 bring in the containers, on the front end of the 28 containers will be legitimate product that is properly 17 1 stamped and so forth, indicating all that. But on the 2 back end is where all the fraudulent, uh, product is and 3 the same thing happens. 4 But there is a concern that we need to address, 5 and that's the concern of legitimate operators being 6 able to, uh, make corrections in their inventory when 7 that is necessary, be it as a result of an abandoned 8 store, vending machine, the examples that you brought 9 forth. 10 From an audit perspective, I do think that the 11 regulation needs to put forth more internal controls, 12 uh, as it relates to inventory control. I don't -- I 13 haven't had a chance to review it again. But, uh, would 14 like to have that opportunity, Madam Chair, and commit 15 to review the regulation, work with the investigators 16 and so forth. 17 Uh, my concern would be, when you transfer 18 product in between stores, you do have that opportunity 19 to commingle because part of the -- part of the -- the 20 objective of the fraudulent activity is to produce a 21 product that you cannot distinguish from the legitimate 22 product. Uh, and even in some cases actually produce a 23 tax stamp that you can place on it that looks the same. 24 And so, uh, therein is part of the challenge. 25 And then you have the distribution or the ultimate sale 26 of the product. And so the investigators are coming in 27 after the fact and trying to control this inventory. 28 And you've got this, uh, self-serving document, for the 18 1 most part, identifying product being transferred, and 2 you're auditing one store versus the other. 3 And -- and in some cases the stores may very 4 well have different permits, so you may not even be 5 auditing, unless the regulation specifically restricts 6 the transfer between, uh, stores or locations that have 7 the same, uh, permit. 8 MR. BISHOP: Same ownership. 9 MR. HORTON: Same owner -- well, same -- same 10 permit preferably, but not necessarily ownership. There 11 is a distinction often times. 12 Uh, but the concern would be commingling 13 inventory. Are there any recommendations on how we can 14 control that inventory? Uh -- 15 MR. BISHOP: Well, I think, uh -- and I tried 16 to address it in the issue paper itself, but I think, 17 uh -- 18 MR. HORTON: No, in -- in the regulation. Does 19 the regulation address the concern about commingling 20 inventory? 21 MR. BISHOP: And again -- 22 MR. HORTON: Requiring -- one second. 23 MR. BISHIP: There's a -- 24 MR. HORTON: I'm trying to help. 25 MR. BISHOP: Sure. 26 MR. HORTON: Requiring some form of inventory 27 control, uh, so that you show the depletion of inventory 28 on one side, increase of inventory on one side, total 19 1 inventory, we reconcile the -- the both -- the two 2 and -- and we're able to make that verification. 3 MR. SMITH: I think the way the regulation 4 language helps prevent blending is that the records have 5 to be contemporaneous. They have to be in the store 6 when we go in the store. They can't be produced after 7 the fact. 8 And blending is undoubtedly a real problem. 9 But blending can also occur even when there is not a 10 transfer of inventory between stores. 11 Um -- 12 MR. HORTON: I don't think the fact that 13 they're contemporaneous -- that simply means that 14 they're smart enough to do it in advance. Uh, that 15 really doesn't address the challenge of commingling 16 inventory. 17 It may be some inventory control requirements 18 where you're required to, uh -- to maintain the 19 inventory controls on both stores that reflects the 20 increase and decrease in inventory as it relates to this 21 particular product. Uh, so that the front-line 22 investigators can now have the -- the flow of 23 information and the documents in order to reconcile the 24 two. 25 Madam Chair, if I may -- 26 MS. YEE: Yes. 27 MR. HORTON: -- uh, address the, uh -- the 28 witness. 20 1 MS. YEE: Yes. 2 MR. HORTON: Uh, any thoughts in that regard? 3 MR. ALARI: Uh, I have to look at it more -- 4 uh, more closely, Mr. Chair -- or Mr. Chairman. 5 MR. HORTON: Okay. 6 MS. MANDEL: Member Yee? 7 MS. YEE: Yes. Ms. Mandel. 8 MS. MANDEL: Um, certainly what I'm hearing is 9 a -- is a desire to study the regulatory language more 10 closely. I think, um, what Mr. Smith was maybe 11 referring to is that there is a reference to, um, 12 keeping the logs and the invoices at both locations, um, 13 which maybe goes a little bit -- 14 MR. HORTON: Gets close. 15 MS. MANDEL: A little bit to what you were 16 talking about. 17 Um, but I -- and -- and the one thing that I 18 heard, too, was whether the log, the sample log as 19 reflected in the regulation -- because my understanding 20 is the sample log is part -- 21 MR. BISHOP: It's actually just an -- an 22 exhibit which will be, uh, like a document that we'll -- 23 that we'll identify on our website as an example. 24 MS. MANDEL: Okay. But if the example is 25 not -- if the specificity -- if the required specificity 26 is not in the face of the sample log itself but is, by 27 virtue of the attachment of the invoices, then you'd 28 want them -- if -- if it went for -- if this went 21 1 forward, you'd want to make sure that the sample log was 2 explicit enough, um, you know, because you don't -- you 3 don't want to set up something where you're trying to 4 be -- make sure that you have all the specific 5 information in both locations so it can totally be 6 tracked as best as it can with something that's 7 unstamped, uh, and then find that you've created traps 8 for the unwary retailer or, um, have created something 9 where you're going to have retailers coming forward and 10 saying I was somehow -- I was in substantial compliance 11 with what you wanted and, you know, under general 12 administrative practice for certain types of things -- 13 and I don't know if it would apply here, but that 14 that's, you know, sort of good enough. 15 So, if you're trying to really tie them down to 16 exactitude, then you're going to have to go out and -- 17 and educate them about the exactitude that's required. 18 And when you mentioned the, um, larger 19 retailers that have multiple locations, and there was a 20 reference here about many of them might be franchises, 21 what I saw in that e-mail was a reference to, um -- uh, 22 if the BOE prohibits transfer from one legal entity to 23 another, it will negatively impact us. And then here's 24 a list of our retail operation concerns about transfers 25 from store to store. 26 I thought that the way the regulation was 27 drafted was you might have two loc -- two or more 28 locations, business locations -- and of course our 22 1 licenses are all tied to a location -- but that all of 2 those locations would be in the single ownership, single 3 legal entity. And -- and your large operators, even if 4 they're corporate-owned stores, they may have them all 5 in separate legal entities for other purposes. 6 So, um -- and maybe even a little guy does, you 7 know, I don't know. But maybe he's just renting space, 8 so maybe he doesn't have the same kind of issues. But 9 the restriction to single legal entity, because we want 10 to make sure it's really the same owner, they may be 11 supportive because they think it covers them and it may 12 in fact -- 13 MR. HORTON: Not. 14 MS. MANDEL: -- not cover them. 15 So, again, that's another one where I'm not 16 saying it should be broader if you do it. I'm just 17 saying you might be -- it might -- with all these 18 different issues, is it going to create -- everyone's 19 going to have to know what -- absolutely, if it goes 20 forward, how it really works and how it applies and that 21 come to find out, oh, it doesn't apply to me, I did all 22 these transfers or I closed a store and moved the 23 inventory to another store. But because I have them in 24 separate legal entities, even though I have beautiful 25 documents, it's not going to work. 26 If you do it, people have to know how it really 27 works and that they're going to lose the product 28 otherwise or they need to send it back to the 23 1 distributor or something. 2 But that was the one thing -- disconnect I 3 noticed between the e-mail that you had from the large, 4 uh, company and the words that are in -- in the reg. 5 And I don't know if you guys discussed that in 6 interested parties at all because a lot of this, um -- 7 the attachments were prior to the last interest -- 8 second interested parties meeting. 9 So, do you have a thought? 10 MR. BISHOP: I think when, um, the large 11 retailer Chevron that -- that chimed in, um, they 12 have -- obviously they have franchise locations, but 13 they also have corporate-owned locations. And they 14 were -- I believe they were talking about their 15 corporate-owned locations. 16 So, I -- and I also believe that the regulation 17 is fairly clear that it states that it has to be the 18 same -- the same legal entity must, um, own both 19 locations. Let's just talk about two as an example. 20 And then it further goes on to state that, you know, 21 sales between locations are bought, you know, between 22 non-owned retailers are in -- 23 MR. HORTON: Illegal. 24 MR. BISHOP: There's a statute that prevents 25 that, that is -- 26 MS. MANDEL: Right. 27 MR. BISHOP: And so -- 28 MS. MANDEL: Right. I just -- the large 24 1 retailer, he may have corporate-owned locations, but 2 they're corporate-owned because, you know, the big 3 corporation at the top, they're corporate-owned. I 4 don't know -- you know, I don't know their business. I 5 don't know -- 6 MR. BISHOP: Right. 7 MS. MANDEL: -- if every single one of their 8 corporate-owned locations is technically in the same 9 legal entity or not. And, um, you know, with the 10 different types of liabilities that might come to pass 11 at -- at a, um, gasoline station, I might suspect that 12 they're not. 13 But that's their problem, not my problem, how 14 they own their stuff. But if they, uh -- so you're 15 saying if they actually had them in separate corporate 16 subsidiaries, that's not the same legal entity for our 17 purposes. 18 MR. BISHOP: Correct. 19 MS. MANDEL: Okay. 20 MS. YEE: Mr. Horton. 21 MR. HORTON: Yeah, I would agree with 22 Ms. Mandel in that regard. I think we may need just a 23 tad bit of clarification, um, as it relates to defining, 24 uh, legal ownership. Certainly there are a number of 25 other bodies of law that describe it differently, and 26 where you could actually have a holding company that is 27 the legal ownership of all the different entities. 28 So when you're -- but based on my experience 25 1 in -- in dealing with this as the author of the 2 legislation, as well as dealing with it as a Member of 3 the Board, the larger corporations, they sort of get it. 4 Uh, and they certainly need to be able to transfer the 5 product; that is a challenge. 6 But, uh, we have to be able to control the 7 illegal activity as well, the underground activity. And 8 I think the requirements that, uh -- that will address 9 that wouldn't be a burden on the larger companies and 10 shouldn't be a burden on the smaller companies. Most of 11 them will be required by GAAP, the Generally Accepted 12 Accounting Principles and certain levels of -- there 13 needs to be certain, uh -- uh, levels of inventory 14 control. Irrespective of what the regulation says, it's 15 just inherent in the business practice. 16 So to require that, shouldn't be that, uh, much 17 of a burden on even the smaller taxpayer because 18 arguably they would want to control the inventory so 19 that they're able to treat each location as a separate 20 call center, as well as manage -- manage their -- uh, 21 their needs, uh, as far as the demands that are placed 22 on the marketing, purchasing, and so forth. 23 So, we might want to take a look at that and 24 engage the investigators directly. I appreciate the -- 25 the participation of management and the participation of 26 staff as well. But often times the individuals in the 27 warehouse can tell you how to move the product just a 28 little bit better or how to protect the product just a 26 1 little bit better. 2 And, uh, Madam Chair, if it's okay with the 3 Members, I will commence, spend a little time in -- in 4 that process. 5 MS. YEE: Okay. 6 Uh, Mr. Alari, any thoughts? 7 MR. ALARI: Yeah, I just wanted to add one more 8 point. 9 On Section (D) of the proposal, I think it's a 10 really good language about that, uh, if they try to 11 create the log after the seizure or citation, that we're 12 not going to accept them. And they can't be used for 13 return of the seized product. 14 One thing that if you do really look at it or 15 for future regulation changes, you might want to 16 consider if they create the, uh -- create during the 17 inspection or provide it after the seizure, because 18 we've had people who -- from our investigators have 19 dealt with people who are trying to create the log while 20 you're there or, uh -- or on their way to the location. 21 So that would be helpful; if they don't have 22 the log prior to you coming in to do your inspection, 23 then we won't accept it. But just something to look at 24 if we relook at this issue in the future. 25 But it's a very good language now, but if we 26 could make it a little better, we'd suggest. 27 MS. YEE: Okay. 28 MR. ALARI: Thank you. 27 1 MS. YEE: Further discussion, Members, on this 2 particular action item? 3 Okay. It appears that, um, there is interest 4 in deferring this, uh, to allow staff to work with 5 Investigations further on refining the language and, uh, 6 taking into consideration some of the concerns Mr. Alari 7 has expressed. But I think we can do that by tightening 8 up some of the -- the language in the -- in the reg. 9 Mr. Runner. 10 MR. RUNNER: Just procedurally, uh, as that 11 discussion goes on, how do we -- since this went through 12 an interested parties meeting -- 13 MS. YEE: Mm-hmm. 14 MR. RUNNER: Or -- or discussion, how do we -- 15 do we actually -- I mean, do -- do they end up coming 16 back and seeing then whatever the product is that comes 17 out of these next level of discussions? Or, just 18 procedurally, just wondering how that works since this 19 grew out of an interested parties to which all these 20 people were a part of. 21 MS. YEE: Mm-hmm. Mm-hmm. Yeah. 22 MR. RUNNER: And now we're saying, "Okay, we 23 want to go back and talk to some more." 24 MS. YEE: Yeah. I think staff will -- well, 25 you can describe the process. 26 MR. RUNNER: Okay. 27 MS. YEE: But, um, they'll confer with 28 Investigations. Any, uh, recommended changes will then 28 1 be drafted, circulated again for comment. 2 MR. RUNNER: Okay. 3 MS. BUEHLER: Right. 4 MR. RUNNER: That's all. That's -- thank you. 5 MS. YEE: Yeah. Okay. 6 Uh, Ms. Mandel. 7 MS. MANDEL: Uh, I was just wondering about 8 timing. 9 MS. YEE: Yeah. Um, let's see, we are in June. 10 Possibility of bringing this back by August? 11 MR. BISHOP: Uh, this particular regulation, 12 that would require -- were you thinking an interested 13 parties meeting? 14 MS. YEE: No -- well, no. Back to the Board. 15 I don't know -- I mean, this -- the issues are discrete. 16 I think it's really looking at the proposed language 17 and, uh, the Department conferring with Investigations 18 with respect to how to tighten up some of the provisions 19 in the discussion today. 20 MR. BISHOP: Yeah. I'm a little -- I'm not 21 really clear on how to shore up an inventory situation 22 either, um, in a regulation. 23 MS. YEE: I'm sorry, repeat that. 24 MR. BISHOP: In terms of a -- what -- what 25 Mr. Horton was suggesting regarding inventory 26 controls -- 27 MS. YEE: Mm-hmm. 28 MR. BISHOP: -- I'm not necessarily sure how to 29 1 get that into a regulation form. Um, I just don't know 2 how that would -- how that would play out. 3 MR. HORTON: If I may, Madam Chair. 4 MS. YEE: Yes, Mr. Horton. 5 MR. HORTON: Um, it may not be just in the 6 reg -- in the regulation. We may have to address this 7 in the audit manual. Um, but certainly there is a way 8 to do it. 9 In the construction industry the auditors are 10 required to do a, um -- a cost accountability test in 11 order to identify. And the situation is similar because 12 you have short ends and you have other product that's 13 not necessarily sold or not necessarily consumed on 14 the -- and so they have to go in and do a cost 15 accountability test. And therein there are certain 16 inventory documents that are required to be available. 17 And if they're not available, then of course the measure 18 of tax is -- ends up being higher than what it really 19 may be. 20 So there are plenty of examples on how to 21 accomplish this objective, and I'd be more than willing 22 to share those with you given a little more time. 23 MR. BISHOP: So those go on the -- on the audit 24 side, not so much on the inspection side? Because I 25 don't think inspectors actually do audits when they're 26 out there, they just look at what's on the shelf and -- 27 and -- 28 MR. HORTON: No, what I'm sharing is that there 30 1 are examples within the audit manual. And of course the 2 audit manual does govern the actions of the investigator 3 as well, uh, when they're conducting their 4 investigations and coming up with this. 5 So, um, I'm just, uh -- although, I -- Madam 6 Chair, I don't necessarily think this is the venue in 7 which to solve this problem, but I do, uh, differ with 8 staff's, uh, opinion that they can't solve it. 9 MS. YEE: Yeah. 10 MR. HORTON: I believe they can, and I believe 11 they have the fortitude, the ability, and intellectual 12 capacity to address this and come up with a solution. 13 MS. YEE: Uh, I would agree. And let me just 14 say, I'm happy, as Chair of the committee, to continue 15 working with the staff. But I think the direction here 16 is to have, um, certainly further consultation with the 17 Investigations Division, uh, on the issues that we've 18 raised today, looking at tightening up the provisions 19 that were of concern to the Members. And, uh, I think 20 we utilize, uh, further tools with respect to the either 21 the audit manual or office memos to really, um, provide 22 further clarification. 23 I would agree, a lot of this probably doesn't 24 belong in a reg., but, uh, just to be clear with respect 25 to what the expectation is, okay. 26 Um, let's go ahead and do that. I would like 27 to see an accelerated process. Um, and if we can get 28 this back by August, terrific. If not, let's stay in 31 1 close contact and see what works. Okay. 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 32 1 ACTION ITEM 3 2 ---oOo--- 3 MS. YEE: Uh, while everybody's convened, I'd 4 like to just take up the penalty issue, uh, if there's 5 any public comment on that as well. 6 Uh, Ms. Buehler, do you want to introduce that? 7 MS. BUEHLER: Certainly. In Action Item 3, we 8 ask that the Board approve and authorize for publication 9 either staff's recommendation to amend Regulation 4603, 10 Penalties for Licensed or Unlicensed Retailers; 11 Regulation 4604, Penalties for Licensed or Unlicensed 12 Wholesalers and Distributors; and Regulation 4605, 13 Penalties for Licensed or Unlicensed Manufacturers and 14 Importers. 15 This recommendation provides staff with a 16 five-day suspension period in addition to the current 17 zero-day, 10-day and 20-day suspension periods that may 18 be imposed when mitigating circumstances are present, 19 including the recommended technical corrections. 20 Or, staff's alternate proposed amendments to 21 the regulations as recommended at the first interested 22 parties meeting, provide staff with a range of 23 suspension periods between zero days and 20 days that 24 may be imposed when mitigating circumstances are 25 present, including the recommended technical 26 corrections. 27 Although staff is no longer recommending 28 adoption of these amendments, the alternative language 33 1 is being provided for your consideration. 2 Again, we have one speaker, after which we are 3 happy to answer any questions you may have. 4 MS. YEE: Okay. Thank you, Ms. Buehler. 5 Mr. Alari. 6 ---oOo--- 7 STEVEN K. ALARI 8 ---oOo--- 9 MR. ALARI: Yes, Steven Alari, representing 10 SEIU Local 1000. 11 In our letter, our President's letter to you, 12 Yvonne Walker's letter, it said it's very important that 13 we have a deterrent for those who wish to violate the 14 law. And we supported, uh, in keeping the current 15 regulation. 16 But looking at the two alternatives, uh, we 17 would support Alternative 1 versus Alternative 2 because 18 our -- our members are the ones who are required to go 19 out and do the undercover buy to see if the people are 20 following the suspension or -- and not selling during 21 those periods. And to have zero to 20, you know 1, 2, 22 3, 4 days, that would be hard. 23 My territ -- the members who I represent in -- 24 up this area, we have 19 counties. And to be able to 25 get up to Modoc County or Siskiyou County, with one 26 two-day suspension would be unreasonable, we believe, on 27 behalf of our members to be able to do a hundred percent 28 inspections. And we believe five days minimum is -- is 34 1 much better than having zero to 20. 2 MS. YEE: Okay. 3 MR. ALARI: Thank you. 4 MS. YEE: Thank you. 5 Discussion, Members? 6 Ms. Steel. 7 MS. STEEL: You know, um, when staff came up 8 with five days and I was really happy about it because 9 it was taxpayers friendly. But I was thinking about it 10 that after an inspection, that actually 44 percent of 11 the taxpayers getting zero suspension days, um, but 12 still it's violation. But after we put five days, I am 13 concerned those 44 percent might get, instead of zero 14 days, it's going to be five days now because five days 15 less than 10 days. So how we going to, uh, practice 16 this after -- if we vote this today? 17 MR. BISHOP: Well, staff currently has, as 18 you -- as you noted, the 10- and the 20-day and the zero 19 day -- 20 MS. STEEL: Right. 21 MR. BISHOP: -- when there's mitigating 22 circumstances. Um, there's two levels of appeal, and 23 most of the suspension periods are reduced at that first 24 level. 25 MS. STEEL: Right. 26 MR. BISHOP: Which is when staff -- program 27 staff is actually, um, handling the appeal. 28 Two things can occur. There -- there may be 35 1 some of the zero days that would rise to the level of a 2 five-day and -- but there may be some of the 10-day 3 suspensions that will drop to the level of a five-day. 4 And so it's hard to say if there will be more as a 5 result of it or if it's going to be fairly constant 6 figure. Um -- 7 MS. STEEL: So, my question is, so 10 days to 8 five -- reduced to five days we might going to have 9 more? Or the staff are going to be much tougher now, so 10 zero days to five days they getting, it's going to be 11 much more. That's what I'm asking. 12 MR. BISHOP: Yeah. I don't believe staff's 13 going to be -- 14 MS. STEEL: Bottom line is, that's what I'm 15 really concerned about. 16 MR. BISHOP: -- more tough in terms of -- I 17 think they're going to evaluate each case on its own 18 merits. And today there's -- you know, they look at 19 volume of the, uh -- of sales versus the amount that's 20 being seized. If there's been prior inspections that 21 did not result in any sort of, uh, seizure, they look 22 at, um -- if there has been prior violations, they look 23 to, you know, how -- how new the -- is it -- is it a new 24 operation? Um, because that individual may not have 25 invoices for everything on the shelf. 26 MS. STEEL: Okay. 27 MR. BISHOP: And it's sort of a -- and they -- 28 they do what they call a peer review within their group, 36 1 um, so that they're consistent with their treatment. 2 And there -- there could be some more lenience. Um, I 3 don't -- in all honesty, I don't think we're going to 4 see an increase. They'll exercise their judgment on 5 these cases. But, uh, five days -- I think in many 6 cases five days will replace the 10-day suspension 7 period. 8 MS. STEEL: Okay. 9 MR. BISHOP: And, uh -- 10 MS. STEEL: So there's -- you're looking at the 11 inventory and then how much violation they have. So 12 your staff are going -- going to go out there and they 13 going to do the same practice. 14 MR. BISHOP: Yes. 15 MS. STEEL: So a lot of times you think that 10 16 days were too tough, and then it can be five days. But 17 those zero days, the first violation, that that's going 18 to be staying as is. 19 MR. BISHOP: I think -- uh, well, I think there 20 will be some zero days -- 21 MS. STEEL: Some, but -- 22 MR. BISHOP: -- that will rise to five. 23 MS. STEEL: Okay. 24 MR. BISHOP: And looking at the sheer numbers, 25 um, it may be one or two a month additional. 26 MS. STEEL: Okay. Thank you. 27 MR. BISHOP: I mean that was the guess 28 anyway. 37 1 MS. YEE: Okay. Thank you, Ms. Steel. 2 Mr. Runner. 3 MR. RUNNER: Just remind me, what was -- what 4 was -- what was the problem we were wanting to solve 5 here? 6 MR. BISHOP: The problem was 10 days was -- was 7 a rather harsh penalty. 8 MR. RUNNER: Okay. 9 MR. BISHOP: And there's occasions when it -- 10 10 is almost two weeks of being shut down. 11 MR. RUNNER: Mm-hmm. 12 MR. BISHOP: And so -- but it -- 13 MR. RUNNER: But yet it rose to -- 14 MR. BISHOP: -- will require -- 15 MR. RUNNER: But it rose to more than zero. 16 MR. BISHOP: But it rose to more than zero, and 17 they needed some sort of deterrent. So staff would like 18 to have the five days with which to have that middle 19 ground on. 20 MR. RUNNER: Mm-hmm. 21 MR. BISHOP: Um, and again, getting back to 22 Ms. Steel's -- about the numbers. It's hard to say if 23 there will be more, um, suspensions of a five-day versus 24 a zero as a result -- well, not of a zero, but zeros 25 that will increase the number of -- 26 MR. RUNNER: Mm-hmm. 27 MR. BISHOP: -- suspension periods. Um, but 28 granted some of the 10 will be -- 38 1 MR. RUNNER: Right. 2 MR. BISHOP: -- will come down to five, so it 3 could be a wash. 4 MR. RUNNER: So in terms of adding then the 5 five-day, was there -- what was the industry's concern 6 out there? Or was there a concern? 7 MR. BISHOP: I think it was staff's -- it was 8 more staff's concern with the harshness of the 10-day 9 penalty. And they needed to put -- or 10-day 10 suspension. And they needed a suspension period because 11 the violation may have been the second violation, so 12 they had to go to some step, even though it was a small, 13 um -- small dollar amount that was seized, it may have 14 been the second, uh -- 15 MR. RUNNER: Okay. 16 MR. BISHOP: -- instance. 17 MR. RUNNER: So I guess, what I think I heard 18 you say is that certainly there will be some of those 19 zeros that may go to five. But there certainly could 20 have been some of those tens that end up going back to 21 five then, too. 22 MR. BISHOP: Right. 23 MR. RUNNER: In terms of an array of choices. 24 MR. BISHOP: Right. 25 MR. RUNNER: Okay. Thank you. 26 MS. YEE: Thank you, Mr. Runner. 27 Ms. Steel. 28 MS. STEEL: I have one more question. 39 1 MS. YEE: Yes. 2 MS. STEEL: You know, the suspension always 3 starts from Friday, so that's going to hurt business on 4 Friday and weekend businesses. 5 Is there any way possible we can change the 6 program that suspension starts on Monday? I mean little 7 thing helps for the taxpayers here. 8 MR. HORTON: That could increase the time or 9 decrease the time. 10 MS. STEEL: No, it's not. But -- 11 MR. BISHOP: Well, it -- 12 MS. STEEL: It's five days, it stays five days. 13 MR. BISHOP: Currently it's, uh -- it's 14 system-generated. But that can be looked at and 15 modified. 16 MS. MANDEL: What do you mean system-gen -- 17 MR. BISHOP: Well, the notice is -- 18 MS. MANDEL: I mean, is it always Friday -- 19 MS. STEEL: It always starts Friday. 20 MS. MANDEL: -- the way she says? 21 MS. STEEL: Mm-hmm. 22 MR. BISHOP: Yes, when there's been an appeal. 23 And reason being, on Wednesday's the batch. They batch 24 all of these various, uh, notices that are going to go 25 out. Thursday they're reviewed to make sure that, uh, 26 they're correct. And Friday they're mailed. And then 27 two weeks out from that is the setting of the suspension 28 period. So that occurs on a Friday. 40 1 And so, to change the batch processing, um, 2 it's -- 3 MS. STEEL: You don't have to change batch 4 processing itself, but, you know, you can just give them 5 couple more days so it can start -- instead of two 6 weeks, you can do two weeks plus two days. I mean -- 7 MR. HORTON: What? 8 MR. BISHOP: Yeah. I mean, IRIS actually 9 enters the dates -- 10 MS. STEEL: Yeah. 11 MS. YEE: Yeah. 12 MR. BISHOP: -- based on that. So it's 13 hard-coded. It can be changed. 14 MS. STEEL: Thank you. 15 MS. MANDEL: Can I ask a follow-up? 16 MS. STEEL: I want that to be changed. 17 MS. YEE: Yes. 18 Ms. Mandel. 19 MS. MANDEL: Um, with respect to the five days, 20 um, is the suspension period of business, open days for 21 the business, or is it just calendar days? 22 MR. BISHOP: It's, um, five calendar days, and 23 it's only for cigarette and tobacco products, so the -- 24 MS. MANDEL: Right. No, I understand that. 25 Okay. Um, do -- are our guys working weekends? 26 MR. BISHOP: I don't think so. 27 MS. STEEL: No, most stores open. 28 MS. MANDEL: No, I understand that. But with 41 1 a -- with a five-day -- with a five-day suspension and 2 you're telling me they're always starting on Friday, 3 um -- 4 MR. BISHOP: So Monday or Tuesday would be 5 their opportune days for inspection. 6 MS. MANDEL: So, I think that sort of just adds 7 to the when -- when do inspections -- 8 MR. RUNNER: Or three days. 9 MS. MANDEL: -- start a little bit if we're -- 10 when we're going -- if we're going to have the five days 11 because -- I mean, I -- maybe it doesn't impact our 12 guy's ability to get in. 13 At first I was -- didn't realize there was this 14 Friday thing and I was, uh, a little concerned about 15 something like Thanksgiving where you'd have four days 16 in a row where our guys aren't on the street, you know, 17 doing inspections. But that only happens once a year 18 where we have four days in a row. Um, the most we ever 19 usually have, I guess, would be three with a Monday 20 holiday. 21 But in terms of implementation, if you get the 22 five days, that might fit, to give the inspectors the 23 most ability to get back in during -- I mean, you know, 24 I'm not a -- I'm the administrative side, but it just -- 25 MS. YEE: Yeah. 26 MS. MANDEL: -- sort of strikes me that if it's 27 always going on Friday and everyone knows our guys 28 aren't out on the weekend -- 42 1 MS. YEE: Right. 2 Mr. Alari. 3 MS. MANDEL: -- or on a holiday -- 4 MR. RUNNER: It gives you two free days, 5 doesn't it? 6 MS. MANDEL: Yeah. 7 MR. ALARI: Well, our -- our members do work on 8 weekends -- 9 MS. YEE: Okay. 10 MR. ALARI: -- when needed, and, uh -- and 11 we'll adjust our schedule if necessary. 12 MS. YEE: Okay. 13 MR. ALARI: But the Friday was an issue that 14 our members did raise; if it's a five-day, then it would 15 be tough. 16 MS. YEE: Mr. Alari, restate your position on 17 this. What's your position? 18 MR. ALARI: Oh, our position is we support -- 19 between the two options, we would support the 20 five-day. 21 MR. RUNNER: You just didn't like the zero 22 through 20 one or something, right? 23 MR. ALARI: Oh, I think zero -- the 20, 10 and 24 zero, we supported that. 25 MS. YEE: Yeah. 26 MR. ALARI: And that was the letter that came 27 to you -- 28 MR. RUNNER: Okay. 43 1 MR. ALARI: -- from our President. 2 MS. YEE: Mm-hmm. 3 MR. ALARI: Of the two alternatives before the 4 Board, we would prefer the -- the five-day -- 5 MS. YEE: -- five-day. 6 MR. ALARI: -- minimum. 7 MS. YEE: Okay. All right. Very well. Thank 8 you. 9 Further discussion, Members, on the penalty 10 amendments? 11 Okay. Uh, motion? 12 MR. RUNNER: I would move the staff 13 recommendation. However, I would like us to look at the 14 issue in regards to the starting dates, particularly on 15 the five-day. 16 MR. BISHOP: And -- and what would be the 17 preference in terms of starting date? 18 MS. STEEL: Monday. 19 MR. RUNNER: Well -- 20 MR. BISHOP: A Monday, if it's not a holiday? 21 MS. STEEL: Any day other than Friday -- 22 MS. YEE: -- Friday. 23 MS. YEE: -- and Saturday. 24 MR. RUNNER: Yeah. 25 MS. YEE: Yeah, okay. 26 Um, motion by Mr. Runner, uh, to adopt the 27 staff recommendation with the suggested amendment of, 28 uh, revising the starting day. Uh -- 44 1 MR. HORTON: Second. 2 MS. YEE: Second by Mr. Horton. 3 Objection? 4 Hearing none, okay, such will be the order. 5 Thank you. So we'll see that coming back to us 6 as well. 7 Okay. Mr. Alari, thank you. 8 MR. ALARI: Thank you. 9 MR. RUNNER: Thank you. 10 MS. YEE: Okay. Um, that concludes the 11 Business Taxes Committee. It is adjourned. Thank you 12 very much. 13 ---oOo--- 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 45 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 June 26, 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 45 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: July 11, 2012 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 46