1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 REPORTER'S TRANSCRIPT 8 JUNE 26, 2013 9 10 CUSTOMER SERVICES AND 11 ADMINISTRATIVE EFFICIENCY COMMITTEE 12 13 14 15 16 17 18 19 20 Reported by: Juli Price Jackson 21 No. CSR 5214 22 23 24 25 26 27 28 1 1 2 P R E S E N T 3 4 For the Board Michelle Steel of Equalization: Chair 5 6 Jerome E. Horton Member 7 8 Betty T. Yee Member 9 George Runner 10 Member 11 Marcy Jo Mandel 12 Appearing for John Chiang, State Controller 13 (per Government Code Section 7.9) 14 Joann Richmond 15 Chief, Board Proceedings Division 16 17 For Staff: Jaime Garza Deputy Director 18 External Affairs Department 19 Jeff McGuire 20 Chief, Sales and Use Tax Department 21 22 Susanne Buehler Chief, Tax Policy 23 Division, Sales and Use Tax Department 24 25 Todd Gilman Taxpayer Rights Advocate, 26 Taxpayers Right Advocates Office 27 28 ---oOo--- 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 JUNE 26, 2013 4 ---oOo--- 5 MR. HORTON: Ms. Richmond, what's our next 6 matter? 7 MS, RICHMOND: Our next item on today's agenda 8 is the Customer Services and Administrative Efficiency 9 Committee. 10 Ms. Steel is the Chair of that committee. 11 Ms. Steel. 12 MS. STEEL: I call the Customer Service meeting 13 to order. And we have two agenda -- two items on the 14 agenda. 15 And first one is for collection and levy 16 procedures. 17 MR. GARZA: Good morning, Madam Chair and 18 distinguished Board Members. I'm Jaime Garza, Deputy 19 Director of the External Affairs Department. 20 And with e today is Mr. Jeff McGuire, Deputy 21 Director for the Sales and Use Tax Department and 22 Ms. Susanne Buehler, Chief of Tax Policy Division. And 23 both Mr. McGuire and Ms. Buehler will be presenting an 24 overview of those two items. 25 Mr. McGuire. 26 MR. MC GUIRE: Good morning, I'm Jeff McGuire 27 again with Ms. Susanne Buehler. 28 The first report we wanted to provide is an 3 1 update on the collection program, specifically as it 2 relates to bank levies. This update was requested due 3 to some questions that arose on a recent tax case. 4 And, so, I just want to go over the process. 5 As you know, bank levies are one of the collection tools 6 that we use at the Board of Equalization to resolve an 7 outstanding tax debt. However, I do want to point out 8 that levies are only used when voluntary compliance has 9 been unsuccessful. This is consistent with our policies 10 as reflected in our Compliance Policies and Procedures 11 Manual which states, "Each taxpayer should be given a 12 chance to pay voluntarily." 13 Voluntary efforts include notices and 14 statements sent to taxpayers informing them of their 15 outstanding liability, as well as telephone contacts 16 with taxpayers to obtain payment in full or to arrange 17 for an installment payment agreement. 18 We also have a publication, No. 54, outlining 19 our collection process and procedures. And it's 20 designed to assist taxpayers in working through the 21 process with us. This publication is referenced in our 22 various notices and is available on our website or in 23 hard copy upon request. 24 In addition to the published information on our 25 collection process, staff is expected to work with 26 taxpayers and provide additional information about 27 potential collection actions should voluntary efforts be 28 unsuccessful. Involuntary collection actions, as you 4 1 know, can include things such as the bank levies we're 2 talking about, as well as liens, wage garnishments, 3 license suspensions and other similar actions. 4 When involuntary -- when voluntary efforts have 5 been unsuccessful and it is determined that a levy is 6 the appropriate course of action, the staff sends a 7 Notice of Levy to the bank or the other party holding 8 the taxpayer's funds and an additional copy is sent to 9 the taxpayer. The taxpayer's copy provides a list of 10 exemptions that may apply and the bank is required to 11 hold the funds for ten days so the taxpayer has an 12 opportunity to apply for any exemptions that may be 13 appropriate. 14 In summary, or summing it up, voluntary 15 compliance continues to remain the goal of BOE's 16 collection process. Involuntary collection actions, 17 such as bank levies, only occur when voluntary efforts 18 have been unsuccessful. 19 We are available to answer any questions that 20 you might have. 21 MS. STEEL: Thank you. 22 Mr. Runner? 23 MR. RUNNER: Yeah, just a follow-up in regards 24 to -- again, I -- I know and have experienced in our 25 office, you know how it is, it's certainly -- when 26 somebody's bank account has been levied, it really gets 27 their attention and moves them toward a path of trying 28 to figure out how to get through it. And I get that. 5 1 My concern is what kind of notification they 2 have beforehand, that is, in terms of the -- of the 3 knowledge that that is an option that may come upon 4 them? 5 One of the issues that I -- you know, I have a 6 copy of a delinquent notice here. And -- well, first of 7 all, let me -- you -- you referred to Publication 54. 8 MR. MC GUIRE: Uh-huh. 9 MR. RUNNER: When does the taxpayer get that. 10 MS. BUEHLER: Right now they are only 11 referenced to that publication. We stopped sending the 12 hard copies out in 2010 as part of a cost saving effort 13 on the Board of Equalization to reduce our publications. 14 And they're online as part of our online E-services. 15 MR. RUNNER: So -- so, in the past we've -- 16 the -- in the past the taxpayer would have actually 17 gotten this publication, which in the publication it's 18 pretty clear and gives pretty good explanations in 19 regards to levy, what happens with those processes, but 20 right now the taxpayer doesn't get that unless they go 21 through the process of going onto the website and 22 looking at it? 23 . 24 MS. BUEHLER: Or requesting it in hard copy and 25 we will send it to them. 26 MR. RUNNER: Or requesting a hard copy. So, 27 they can call up and say, "Send me that." 28 MR. MC GUIRE: Uh-huh. 6 1 MR. RUNNER: Okay. I have a delinquent notice 2 here and I guess this is what I'm am trying to get to in 3 regards to how clear this process is -- the delinquent 4 notice that I have here, that somebody has provided, 5 basically says, "Collection -- or collection action may 6 include the filing of a lien." 7 Okay. Again, I don't think the average person 8 understands that a lien and levy could be two separate 9 things or that somehow -- you know, but it says nothing 10 about a levy in this letter. 11 And it says, "For more information, visit our 12 website," but it does not give information in regards to 13 the publication nor direct them at that point. 14 Is -- is there -- is there another piece of 15 notification that I'm missing? 16 MR. MC GUIRE: There is a number of different 17 notices that we send to taxpayers. Some specifically 18 make a reference to the website and Publication 54. 19 Some have references, like you're saying, 20 regarding the lien. The lien reference is required 21 under the Taxpayers' Bill of Rights, we're required to 22 actually notify the taxpayer specifically in writing of 23 that. 24 MR. RUNNER: Right. 25 MR. MC GUIRE: That's why that blurb is 26 actually on that notice. 27 MR. RUNNER: Okay. So, so -- so, some notices 28 do not include a reference of the tax collection 7 1 procedures? 2 MS. BUEHLER: That is correct. 3 MR. RUNNER: So, how -- how would they know 4 that such a publication exists? 5 MR. MC GUIRE: Again, there is several notices 6 that are sent, between two and four, to every taxpayer 7 before we even make a contact with them or attempt to 8 contact by telephone with them. 9 And one of those notices will have a reference 10 to Publication 54. 11 MR. RUNNER: Oh, I'm am sorry. I thought you 12 said -- just told me that sometimes they didn't have a 13 reference or that you could have a taxpayer that didn't 14 have a reference. 15 MR. MC GUIRE: No, I think my -- what I meant 16 -- and I apologize -- is that not every notice has a 17 reference to Publication 54, but taxpayers receive more 18 than one notice from us before we actually start, you 19 know, active collection action with them. 20 MR. RUNNER: I guess I'd like to see the series 21 of -- of -- of publications or letters that we do 22 because, again, the one I have here doesn't. It just 23 says, "For more information, visit our website or call." 24 So, that's, I guess, one concern I have. 25 The other concern I have is actually a 26 decision -- how was the decision made? At what -- who 27 makes the decision that somehow it's more -- it's cost 28 effective for us to not send out a taxpayer publication? 8 1 And I guess I'd like to know if Taxpayer 2 Advocate's Office was aware that that publication was no 3 longer being mailed out to taxpayers. 4 MS. BUEHLER: It was discussed internally 5 Taxpayer Rights Office was included in that discussion. 6 They are typically included in our clearances. And this 7 would go through clearance as far as adding the bill 8 notes to the notice. 9 MR. RUNNER: Okay. Let me have the Taxpayer 10 Advocate come out and explain what -- 'cause I -- I 11 mean, I'm just concerned that again we have a pretty 12 serious process here of collection, to which we don't 13 actually send -- put something in the hands of the 14 taxpayer. 15 So, let me go back to the Taxpayers' Advocate 16 Office. Then you all then were supportive of the idea 17 of not putting that in the hands of the taxpayer? 18 MR. GILMAN: Todd Gilman, Taxpayers' Rights 19 Advocate. 20 Members, no, that's not correct, Senator 21 Runner. We advised against it. We felt that it was 22 important for the taxpayer to receive that 23 publication. 24 MR. RUNNER: So, there was an internal 25 clearance going on and you objected to that item not 26 being mailed? 27 MR. GILMAN: Correct. 28 MR. RUNNER: Well, help me understand how 9 1 internal clearances work then. 2 When -- when there is an internal -- when there 3 is an issue before the -- internally and you have an 4 office like the Taxpayers' Advocate's Office, who 5 objects to the idea of the taxpayers not getting that, 6 who then makes the final decision over the objection of 7 the Taxpayer Advocate? 8 MR. MC GUIRE: Just to explain our clearance 9 processing, anyone that -- internally in our clearance 10 process that has a suggested modification or change that 11 then the party that's actually clearing -- they're 12 creating that item will then contact those people who 13 had those comments and say either -- if we're not 14 incorporating those, why we're not incorporating those. 15 Ultimately if the TRA, or anybody else within 16 the agency, kind of -- if we had some internal 17 disagreement, we would need to elevate that to the 18 Executive Director at that time. 19 MR. RUNNER: And was this issue elevated? 20 MR. MC GUIRE: I'm not aware that it was. 21 MR. RUNNER: Any reason why it wasn't elevated? 22 If you had an objection from the Taxpayer Advocate's 23 Office, any reason why this wasn't elevated to the 24 Executive Director? 25 Or was it? Maybe it was? 26 MR. MC GUIRE: I wasn't aware that it was 27 elevated. 28 MR. RUNNER: Was it elevated? Do you know? 10 1 MR. GILMAN: Not to my knowledge. 2 MR. RUNNER: Okay. So, let me go back again. 3 Why wasn't it elevated if, indeed, there was an 4 objection by the Taxpayer Advocate's Office? 5 MS. BUEHLER: I actually don't know. I know it 6 was discussed with then Deputy Director Randie Henry. I 7 don't know where it went after that but we were given 8 direction to proceed. 9 MR. RUNNER: Okay. You know, at this point, I 10 am a bit concerned that clearly we had a change of 11 policy, there was objection by the Taxpayer Advocate's 12 Office and I tend to feel like -- again, I'd be 13 interested in seeing the rest of the notices, but 14 certainly the notice I have, this issue is very hidden 15 in regards to this issue. 16 I would assume it was the Board's original 17 direction that sent -- I mean, at some point did the 18 Board decide that this -- that this tax collection 19 procedure publication was sent to taxpayers? 20 Did the Board ever -- 21 MR. MC GUIRE: I think that was a Department 22 decision. 23 MR. RUNNER: Okay. 24 MR. MC GUIRE: That was made within the 25 Department to do that. 26 MR. RUNNER: Okay. So, the Board never -- 27 okay, was the Board ever made aware that it was stopped? 28 MR. MC GUIRE: Well, it -- again, whether we 11 1 stopped mailing the hard copy or stopped still 2 referencing, because we still provide the information so 3 taxpayers can have access to that information. 4 It was really just whether you include the hard 5 copy or not. And I don't believe that that was brought 6 before the Board. 7 MR. RUNNER: Okay. I'm still not convinced 8 that that may be as clear as we think it is. Because I 9 need to see the other -- the other -- the other 10 notifications. 11 MS. STEEL: Thank you. 12 MR. RUNNER: Okay, yeah. So, I mean -- I -- at 13 this point I think we need to decide what we need to do 14 in order to clarify this particular situation. 15 MS. STEEL: That's why staff right here. And, 16 you know what, we love to see all those copies going out 17 to the taxpayers. And please provide those. 18 Then we want to see what's really going out. 19 Member Yee. 20 MS. YEE: Thank you, Madam Chair. 21 It seems to me there's a little bit of tension 22 here and, that is, I can imagine that part of the 23 Department's -- and certainly part of the consideration 24 going through the internal clearance process -- takes 25 into consideration issues like cost and production, 26 workload may be associated with it. And that's not to 27 say that it's not meritorious to think about providing 28 taxpayers, you know, consistent notice on this. 12 1 I mean, I would hope that Publication 54 is 2 made -- taxpayers are made aware of it and know that 3 it's available as a resource to them when they come and 4 apply for a seller's permit. 5 I mean, it just seems to me if we want to -- as 6 part of compliance, we want to kind of have taxpayers be 7 completely aware of, you know what -- what they can 8 expect, you know, throughout this whole process of 9 being compliant taxpayers. 10 But I also think that as the Taxpayer Rights 11 Advocate's Office, you have independence to really put 12 into place things that are going to help taxpayers. 13 That, I think, should be irrespective of having 14 departmental procedures. I mean, you're looking out for 15 the taxpayers to be sure they know every avenue that's 16 available to them, understand the rules ahead of time. 17 And -- and, if there's a tension there, I'm a little 18 concerned because I want to be sure the Advocate 19 continues to be independent with respect to knowing what 20 resources and identifying what resources ought to be 21 made available, irrespective of these considerations 22 made by the Department and the internal clearance 23 process. 24 So -- and we can deal with some of these cost 25 issues. Maybe there's another way to put that 26 information out there. I'd like to see the information 27 be provided to the taxpayer at the very front end, as 28 early as possible, so there is an expectation set, 13 1 hopefully, taxpayers will never get to that point to 2 have to be able to be fully aware of what the procedures 3 are because they're going to be compliant with their 4 requirements. 5 MR. RUNNER: Right. 6 MS. YEE: But I want to -- I want to have 7 assurance that the Advocate's Office has independence to 8 exercise, you know, some judgment about what materials 9 need to be out there. 10 And for you, as an office and as an entity 11 independent of the institution, to begin to think about 12 how to get that information out to taxpayers that you 13 believe is going to be effective. 14 So, I wanted to highlight that because it's -- 15 and I hope this is not indicative of other areas, but 16 there is a degree of independence that I expect from the 17 Advocate's Office to be able to -- 18 MR. GILMAN: Communicate. 19 MR. RUNNER: -- do that, yeah. 20 MS. STEEL: Thank you, Member Yee. 21 MR. MC GUIRE: Thank you. 22 MR. GILMAN: Thank you. 23 MS. STEEL: Let's -- you know, when you see 24 those complaints from the taxpayers -- and we love to 25 see them -- and then if those policies are wrong, or, 26 you know, we are trying to save money so we are not 27 sending enough documentations to the taxpayers, then I 28 think we to have correct that. 14 1 I think that's why we have Customer Service 2 here and we are meeting. 3 I have just couple of questions. One is the 4 holding funds for ten days from the bank, when they 5 hold, taxpayer cannot use that money? 6 MR. MC GUIRE: That's correct. Those funds are 7 frozen for ten days. 8 MS. STEEL: Okay. And then I have another 9 concern is spouse's account that we are levying from the 10 spouse. 11 And then when those spouses didn't have a clue 12 that, you know, why they were -- their money was taken 13 by BOE. And a lot of times they ask BOE. And BOE say 14 you have to get updated from your husband. But we are 15 taking money from spouse. What kind of policy change 16 that we have to do to let them know and spouse knows 17 before we take money out from spouse's account. 18 MS. BUEHLER: Right now the way it works is 19 it's as Mr. McGuire explained earlier, the notice goes 20 to the bank and also to the -- in this case, to the 21 spouse at the same time. So that they are aware that 22 that -- well, it's not at the same time, it's shortly 23 thereafter, so, they're aware that they have the ten 24 days to come back and express that this shouldn't have 25 been levied. 26 MS. STEEL: But spouse don't -- when spouses 27 call BOE, then why you taking money out, we have to 28 explain to them without any declaration from the husband 15 1 that okay to release those tax, you know, matters? 2 MS. MANDEL: Do you understand what she's 3 saying? 4 MR. MC GUIRE: Yeah, we have a dilemma where -- 5 MS. STEEL: We have -- 6 MR. MC GUIRE: -- you know, disclosing 7 confidential information about a taxpayer. So, if the 8 spouse is a sole proprietor and then the spouse -- the 9 other spouse, you know, isn't on the account for us to 10 discuss that specific tax matter, we're required to 11 have, right, an okay from the other spouse. 12 But on the flip side, which is the issue that 13 is creating the problem, is we have a community property 14 state. So, therefore, when they're married to someone, 15 the assets are commingled and joined together and, so, 16 it creates kind of this dilemma or Catch 22 where you 17 can potentially be responsible because of the community 18 property, but yet our confidentiality statutes, you 19 know, require approval of the other spouse before we can 20 talk to them about the tax debt. 21 MS. STEEL: I'm not talking about the account 22 owned by both taxpayer and the spouse. We talking about 23 just spouse's account that we going after. 24 And then when spouses don't have a clue that 25 why their money is gone and then we really have to do 26 something about that. 27 MR. GILMAN: Member Steel, I'm going to 28 exercise my independence. We are working on something 16 1 like this. 2 MS. STEEL: Okay. 3 MR. GILMAN: It's an issue in our annual 4 report. It's in one of our emerging issues. I've been 5 working with the Tax Policy section and the Sales and 6 Use Tax Department. 7 And, yes, we have had issues like this. So, 8 it's definitely -- 9 MS. STEEL: Working on? 10 MR. GILMAN: -- something we're focusing on, 11 yes. 12 MS. STEEL: I want to get involved with that 13 discussions too. 14 And then another thing is for the lien -- after 15 the lien's been filed and then the payment plan was 16 made, so, when they start making payment plan, is that 17 any way possible that we can lift -- remove the lien so 18 taxpayer can run the regular business without any lien 19 on it? 20 Because as soon as we put lien on it, it's 21 going to affect the credit record, you know, for those 22 taxpayers. 23 So, do we -- what do we have to do to change 24 that policy? 25 MR. MC GUIRE: That would -- we would need to 26 address that change in policy because on lien filing, 27 which is separate from levies, liens are, you know, 28 filed in the county and then they potentially attach to 17 1 real property owned by the taxpayer and they do become a 2 public record. So, they do affect someone's credit 3 report. 4 And, so, once we've filed that lien, because 5 liens are first in time, first in line, that if we 6 released a lien while we still have an outstanding 7 liability, then we put the State at jeopardy if the 8 payment plan didn't follow through. 9 And then we filed a lien again, we would get, 10 you know, further back in line if there were other liens 11 filed against that -- that taxpayer. 12 So, that's been a policy decision in the past 13 is that we don't release the lien until the payment's 14 made in full on -- in those situations. 15 MS. STEEL: Is it possible that we can be a 16 little more flexible, that after six months or one year 17 that they made the payment plan on time, then maybe we 18 can lift those lien up because that lien means that 19 their credit records. In America, without good credit 20 records, it's very, very tough to do any businesses 21 there. 22 So, you know what, let's go through that 23 discussions later, you know, through the Customer 24 Service. 25 Mr. Chairman? 26 MR. HORTON: Thank you, Madam Chair. 27 Mr. McGuire, is it possible just to modify the 28 exit conference discussion statements that we may 18 1 provide to the taxpayer and incorporate information in 2 there relative to the lien, as well as the Notices of 3 Deficiency where we just simply add a line and say -- 4 reference them to the website for more detail on the 5 collection policies and procedures of the Board of 6 Equalization? 7 Is there a way -- 8 MR. MC GUIRE: In audit situations we can 9 definitely include some information, which I think we do 10 in a lot of cases, about the collection process or how 11 to resolve the debt. 12 But we definitely make sure that we do a little 13 bit more on that specifically so taxpayers can have full 14 disclosure as they move into the process, whether to go 15 into appeal or whether just, you know, work towards 16 paying in full. 17 MR. HORTON: As well on the compliance side, as 18 well, when the notice goes out referencing the 19 deficiency, it's an existing notice, it's not going to 20 cost us anything to modify that. Over a period of time 21 we deplete our existing inventory and then began to use 22 the new form and taxpayer would have been notified at 23 the point -- they're notified that there's a bill and 24 notified that there's a potential liability. 25 MR. MC GUIRE: Based on the comments today, 26 we're definitely going to take another look at all of 27 our notices and the different statements that we put on 28 each one of those to ensure that we have the relevant 19 1 information for taxpayer so they get full disclosure 2 without sometimes being overwhelmed by not understanding 3 what our notices actually mean. 'Cause there's too much 4 information on them and we're always trying to kind of 5 balance between those two things. 6 But based on comments we've heard today, 7 clearly we want to make sure that people understand the 8 collection process and their rights during that process. 9 And we're going to make sure that that's included on all 10 of our notices. 11 MS. STEEL: Thank you. 12 Miss Yee. 13 MS. YEE: I wanted to just ask a question. 14 The exemptions that a taxpayer may claim -- 15 MR. MC GUIRE: Uh-huh. 16 MS. YEE: -- when is that disclosed? Is that 17 in the publication? I don't know that that -- 18 MR. MC GUIRE: That is actually -- it's a -- 19 no, it's actually a copy that goes with the -- to -- 20 with the taxpayer's copy of the levy to the taxpayer. 21 It's -- actually, I have it here, it's two 22 pages of possible exemptions. 23 MS. YEE: Can you talk about what those are? 24 MR. MC GUIRE: Mostly they're benefits, like 25 Social Security benefits, insurance benefits, certain 26 types of claims, like lighthouse keeper widow benefits. 27 I mean I've never heard of those before, but those are 28 there and certain type of military benefits that someone 20 1 would be receiving, certain types of unemployment 2 claims, other things like that. 3 So, there is a number of possibilities. It's 4 two pages organized in -- like, so you can find it 5 alphabetically in different groups. So, I think it 6 duplicates some as I was reading through it, but there 7 is a lot of potential exemptions. 8 MS. YEE: Okay, thank you. 9 MS. STEEL: Any more comments? 10 MR. RUNNER: I have a follow-up, real quick. 11 Just to clarify then, in terms of -- of opinion 12 of the Taxpayer Advocate's Office, you would believe it 13 would be best for taxpayers to get in their hands a copy 14 of this publication? 15 MR. GILMAN: That's what I recommended. 16 We would like to see them have a copy of -- 17 you're talking about 54, right, sir? 18 MR. RUNNER: Yes, yes. 19 MR. GILMAN: Yes, correct. 20 MR. RUNNER: Okay. My observation is -- is 21 that and in going through the material, it is very well 22 done and gives an array of options and issues. 23 And I would -- I will actually believe, it's an 24 interesting issue of cost, that the sooner people 25 understand what their alternatives are in trying to 26 figure their way through the collection process, the 27 sooner we can resolve their -- the issue. 28 And, you know, at this point I'm just concerned 21 1 that people don't understand what all those issues are 2 and what those options are. And at that point it may 3 actually drive us farther into the collection process 4 before there is resolution. So, I -- 5 MR. GILMAN: Yeah. 6 MR. RUNNER: Go ahead. 7 MR. GILMAN: I think one of the great things 8 about the document is that it does tell the taxpayer 9 that this is what's going to happen if you -- if you 10 don't pay, which is, these are the powers that the Board 11 of Equalization has. 12 So, it really gives them information as to 13 what's going to happen next. 14 MR. RUNNER: Right. 15 MR. GILMAN: And what their rights are too. 16 But it gives them everything they need. 17 MR. RUNNER: Yeah, an array of issues -- 18 MR. GILMAN: Correct. 19 MR. RUNNER: -- that they're facing. 20 MR. GILMAN: Right. 21 MR. RUNNER: Okay. I guess my question is 22 where do we go from here? Because certainly we want to 23 see these notices, but yet -- I'm still not unconvinced 24 that we shouldn't be putting this in the hands of 25 everybody. 26 I'm always a little concerned about the fact 27 that we leave a website. There is a certain segment of 28 our population that just -- that they don't -- that 22 1 doesn't get them anything. 2 And, you know, so, I'm just concerned that 3 we'll -- again, you know, when we weigh the cost versus 4 the benefit, I guess I'd like to know exactly what we 5 had -- how that was done, why we thought it was more 6 cost effective and, basically, again, the goal should be 7 to bring them into compliance. 8 And it seems to me giving them more information 9 helps us get them there, not less. So, I don't know 10 what the -- at this point, I'm -- I'd like to have us 11 come back and deal with this more specifically and have 12 the recommendations from the Taxpayer Advocate's Office. 13 And, again, if the Taxpayer's Office -- the 14 Taxpayer Advocate's Office is saying, "Hey, this should 15 be in taxpayer's hands," going back to the independence 16 of the office at that point, I think we're -- you know, 17 we need to be deciding then if, indeed, we wants to give 18 the ability for the Taxpayer's Advocate's Office to be 19 independent so that they are protecting the rights and 20 not necessarily then delivered first as is this cost 21 effective or not. 22 MS. STEEL: Member Yee. 23 MS. YEE: Seems to me there's probably a of the 24 two. 25 MR. RUNNER: Right. 26 MS. YEE: And that is, I think the Advocate's 27 Office, certainly in consultation with the Department -- 28 I don't think the issue is that we're not providing the 23 1 publication, it's really do we do it more broadly, as 2 kind of a sweep effect -- where we provide it to 3 everyone and it may or may not apply to the taxpayer's 4 situation? 5 Or do we look at what are strategic points, 6 during which the taxpayer is interacting with this 7 agency makes sense to give then the publication? 8 MR. RUNNER: Right. 9 MS. YEE: I think when they apply for a 10 seller's permit they ought to get it. 11 They ought to get it. 12 MR. RUNNER: Yeah, but -- 13 MS. YEE: It's back end, but at least gives 14 them -- 15 MR. RUNNER: -- and I agree. But the problem 16 is that their audit may be ten years later. 17 MS. YEE: No, no, that's true, that's true. 18 But -- 19 MR. GILMAN: You're talking about the upfront 20 process. You're talking about why -- when they get the 21 permit's when they should get that publication. 22 MS. YEE: Yeah. 23 MR. GILMAN: Right? 24 MS. YEE: I think that's kind of the first 25 point of contact. 26 MR. GILMAN: Right. 27 MS. YEE: And, yes, they may not be subject to 28 audit for a period of time, but, I think if you could 24 1 look along the spectrum of, you know, when we touch 2 taxpayers, certainly when they're in the middle of an 3 audit and after the audit is completed and there's a 4 determination, that seems to be another likely point. 5 But if you could, Mr. Gilman, just kind of look 6 through that entire process and see what are strategic 7 points in time, if that makes sense, I think it will 8 help deal with the cost issue. I think it will target 9 who needs to get the publication. 10 And then also be mindful of Mr. Runner's point 11 and that is, you know, some taxpayers we may not touch 12 for a period of a decade and, so, how do we kind of keep 13 people informed? 14 MS. STEEL: But when they're asking for permit, 15 I don't think they know that they are going to be 16 delinquent some day. I think they want to be 17 successful, so they not going to even look at those 18 forms. 19 So, what I want to do, Customer Service, what I 20 want to do, I want to see all those letters. And I want 21 to see the process that the step-by-step that what's 22 really going on and then what kind of letters going out 23 on which day and, you know, how many letters really 24 going out? How many publications been attached or 25 what's been mentioned? 26 So, maybe next week -- I want to see those and 27 then we going to do -- if we have to do the policy 28 change, then we're going to make that. 25 1 Chairman Horton. 2 MR. HORTON: Members, I just want to share that 3 the documents that taxpayers receive in starting and 4 running a business could fill this room. 5 MR. RUNNER: That's right. 6 MR. HORTON: So, let's be -- 7 MS. YEE: Right. 8 MR. HORTON: -- cognizant of that. 9 I agree with Member Yee relative to key points 10 within the line, two points that I sought to identify 11 was audit, because that's when you know there is a 12 liability; delinquency, that's when you know you owe 13 something. If you don't pay it, then these are the 14 steps that the Board of Equalization will take. 15 So -- but I agree with Madam Chair and look 16 forward to the results of that deliberation. 17 MS. STEEL: Member Mandel. 18 MS. MANDEL: Thank you. I don't have a copy of 19 the notice in front of me so I don't know how specific 20 you are in the notice when you tell people to go to the 21 website. Aside from the people who may or may not have 22 ready access to the internet, just telling someone to go 23 to the website might -- even if you give them the 24 publication number -- might not be -- 25 MR. HORTON: Sufficient. 26 MS. MANDEL: -- really sufficient or adequate 27 for them. We have a huge -- I mean, even for people 28 with English as a first language, it might not be 26 1 adequate for them. We also have a huge population of 2 permit holders for whom English is not their first 3 language. 4 So, if you -- you know, even if on the piece of 5 paper, if what you wound up doing was directing them to 6 the website, if you had -- you know, if -- I mean, we 7 call it a link, but they aren't going to be able to link 8 from, you know, hard copy, but the actual thing that 9 they could sit and type it in and find it in the right 10 language or whatever -- I mean, if we're going to just 11 refer someone to a website and you're referring them to 12 a website for a specific thing, then be as specific as 13 you can, I would think, in trying to get them there. 14 MS. STEEL: Okay. Any more comments? 15 Let's move on to the second item. It's going 16 to be little shorter here, an overview of Customs 17 program and process improvements. 18 MR. MC GUIRE: All right, I'll move on. 19 This update was requested in response to the 20 Jay Newman case in Culver City, as you'll recall, where 21 Mr. Newman had requested relief of interest due to delay 22 in contacting him about his artwork purchase that was 23 subject to use tax. 24 So, this morning I wanted to just give a quick 25 overview of the program and some changes we're exploring 26 to improve both the timeliness and the outreach about 27 use tax. 28 The current program uses Customs -- US Customs 27 1 data on commercial shipments into California ports of 2 entry. 3 This is different -- I want to make a 4 distinction because we've previously had a program where 5 we actually got data on hand carried item by travelers 6 coming back into the US. That program is no longer 7 active because we do -- we no longer get that data for 8 the hand carried items. So, this is really just 9 involving shipments into our commercial ports of entry. 10 This current program did begin in 2005. It was 11 a pilot program with just one staff person. And then in 12 2007 we got an actual permanent augmentation for 16 13 staff to work this program. Later, in 2009, we actually 14 developed a new computer program and database that helps 15 us evaluate this data quicker because there's over 65 16 million actual transactions per quarter we receive from 17 US Customs. 18 So, as a result of the many leads that we had 19 when we finally got the computer program, we were 20 actually going back a number of years, which kind of 21 lead to that situation that Mr. Newman was in, where we 22 had actually gone back five years on a purchase of his. 23 Currently under the program we send about 5000 24 contact letters each year to potential purchasers that 25 they may owe use tax on their purchase. We currently 26 only contact individuals and businesses that are not 27 registered with BOE already. And the initial contact 28 letters are sent in the second half of the calendar year 28 1 for transactions of the prior calendar year or earlier 2 periods. 3 So, in response to Mr. Newman's case, which 4 again involved looking back five years, you requested 5 that we provide an update and look for ways that we can 6 change the program to get information to taxpayers more 7 timely and improve our outreach. 8 So, as a result, we've identified the following 9 changes that we're looking at doing on a going forward 10 process. Again, based on the improvements we've been 11 able to make with our computer program and our database, 12 we will now be able to make two specific improvements. 13 First, we're going to be able to send initial 14 contact letters sooner, so, taxpayers will have an 15 opportunity to report their use tax before the April 16 15th filing deadline on their FTB return. So, as we get 17 the data each quarter, we'll be able to actually sent 18 out notices each quarter so people will be aware and can 19 do that on their FTB return. 20 Secondly, we will now be able to generally 21 limit our look back period to three years, based on 22 we're catching up on the data. And there's potentially 23 some exceptions occasionally, but, generally, generally 24 we'll only be looking back three years. 25 On the education and outreach front, we're 26 looking at pursuing two additional efforts. We're 27 actually going to start sending notices to, actually, 28 our registered businesses as well, just to remind them 29 1 and help educate them about use tax since, even though 2 they're registered with us, sometimes they still don't 3 fully understand use tax. 4 And then the other thing is we're exploring 5 with the US Customs and customs brokers about providing 6 use tax educational materials. So, when people actually 7 pickups of their merchandise, they can get some 8 information about use tax and be aware of it right at 9 that time that they actually receive the merchandise. 10 So, those are the changes that we're making. 11 That's kind of a really quick overview of the program. 12 We're available, again, to answer any questions 13 that you might have. 14 MR. RUNNER: Yes. In that list the issue of 15 contacting folks, did I -- did I hear you say that we're 16 going to go on and contact people who do -- who -- 17 including those who do have a seller's permit? 18 MR. MC GUIRE: Yes. 19 MR. RUNNER: Okay. So, it's the broader group 20 that we're going -- 21 MR. MC GUIRE: Right. Initially we excluded 22 them, but -- 23 MR. RUNNER: Right. 24 MR. MC GUIRE: -- just for the educational -- 25 MR. RUNNER: Again -- again, I think it's very 26 wise to do that. 27 Let me ask the other question I have, that is 28 threshold. Do we have a threshold currently where -- 30 1 that' we're part of in terms of notification? 2 MS. BUEHLER: Current threshold is $3,500. 3 MR. RUNNER: What -- what -- if the issue is 4 just notification that a use tax is due, what is the 5 purpose of having the threshold? 6 MR. MC GUIRE: Really the threshold is for us 7 actually pursuing it further because we send an initial 8 notification to the taxpayer, but usually there's a lot 9 of, kind of follow-up questions and other things. 10 So, from a cost effective perspective, we 11 wouldn't pursue anything under that threshold. 12 If your question -- and you can correct me if I 13 am wrong -- is related to more just because you are 14 providing kind of the outreach, would we consider just 15 sending, again, some notification for the ones under the 16 threshold -- 17 MR. RUNNER: Right. 18 MR. MC GUIRE: -- just so people are aware? 19 That's something that we can definitely consider. 20 MR. RUNNER: I mean, I assume -- 21 MR. MC GUIRE: Based on volume. 22 MR. RUNNER: -- again, I guess the -- I guess 23 the -- I see those as two different issues. 24 One is the issue of knowledge and the contact 25 and then -- so, you know, there's that effort. And then 26 there's the practical effort then of follow up to that. 27 I get -- I think I get the idea of the 28 efficiency of setting a number for follow up. I mean, 31 1 how much money do we want to spend to follow up? 2 On the other side of that, it seems to me, that 3 there ought to -- I don't quite understand if the tax is 4 due, why we wouldn't go ahead and give them 5 notification -- for two reasons. No. 1, just for the 6 sake of education. No. 1, it's due, why don't we -- we 7 should tell them. No. 2, oftentimes I was assuming that 8 the folks who are engaged in this kind of buying 9 probably do it -- many of them -- I shouldn't -- many of 10 them probably do it more than once. It's -- they're -- 11 they're buying things and they're used to going though 12 Customs and whatnot. Oftentimes that might be a segment 13 of people who do it more than once. 14 So, in one sense we may be educating them to 15 their next purchase, not only that, but even if we're 16 not going to follow up on them, we may get some of those 17 dollars simply because they're notified. 18 So, I -- I would have us rethink the issue of a 19 -- of a -- you know, of a -- you know, some kind of 20 level that we go. And if we're going to do it, make it 21 a much more -- much farther down. 22 I mean, you can pick the $800 number, which, 23 again, is at least a number that somehow makes sense 24 somewhere that you carry stuff in. But something that 25 would then be a point of education of use tax. 26 Because, again, we know that there's a lot of 27 confusion, and I think particularly over the issue of 28 use tax and imports there is a lot of confusion. 32 1 And, so, to me, I just see it as part of our 2 education issue. And I think some of those people will 3 actually write the checks and we don't have to follow up 4 on them. 5 So, I would suggest we relook at particular 6 issue in regards to threshold. 7 MS. STEEL: The threshold for the amount of 8 3500, that how many letters going out per year? 9 MR. MC GUIRE: We send about 5,000 letters a 10 year. 11 MS. STEEL: So, if we going to get rid of that 12 threshold amount, how many we talking about? 13 MR. MC GUIRE: That I don't know off the top of 14 my head, but we can definitely explore that and look at 15 that. 16 I mean, again for the educational purpose, it 17 just seems like a good idea at the cost of, again, one 18 notice. 19 MR. RUNNER: I'd like you guys to consider it? 20 MS. STEEL: Out of the 5,000 letters going out, 21 how much we collect actually? 22 MR. MC GUIRE: I think it's about $14,000,000 a 23 year. 24 MS. STEEL: Okay. Mr. McGuire, you said that 25 contact letter goes out sooner, what does this "sooner" 26 mean? How fast we talking about? 27 MR. MC GUIRE: Well, again, currently we 28 actually send out the contact letters, again, in the 33 1 second half of the calendar year for purchases from the 2 prior year or the earlier years. 3 And what we're going to try to do now is -- 4 again based on our database and we can actually do the 5 matching quicker -- is send out letters quarterly to 6 taxpayers for purchases during that prior quarter. 7 MS. STEEL: Okay. 8 MR. MC GUIRE: So, they will know like in maybe 9 the summer something they purchased in the first quarter 10 that they can report it on their FTB return for that 11 year. 12 MS. STEEL: Okay. Thank you very much for all 13 that grilling. 14 And before any more comments, questions, this 15 concludes the Customer Service Committee. 16 MR. GILMAN: Thank you. 17 ---o0o--- 18 19 20 21 22 23 24 25 26 27 28 34 1 . 2 REPORTER'S CERTIFICATE 3 4 State of California ) 5 ) ss 6 County of Sacramento ) 7 8 I, JULI PRICE JACKSON, Hearing Reporter for the 9 California State Board of Equalization certify that on 10 JUNE 26, 2013 I recorded verbatim, in shorthand, to the 11 best of my ability, the proceedings in the 12 above-entitled hearing; that I transcribed the shorthand 13 writing into typewriting; and that the preceding pages 1 14 through 34 constitute a complete and accurate 15 transcription of the shorthand writing. 16 17 Dated: JULY 9, 2012 18 19 20 ____________________________ 21 JULI PRICE JACKSON 22 Hearing Reporter 23 24 25 26 27 28 35