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 ITEM F PUBLIC HEARINGS 16 ITEM F1 17 BUSINESS TAXPAYERS' BILL OF RIGHTS HEARINGS 18 19 20 21 22 23 24 25 26 27 REPORTED BY: Kathleen Skidgel 28 CSR NO. 9039 1 1 P R E S E N T 2 3 For the Board Jerome E. Horton of Equalization: Chairman 4 5 Michelle Steel Vice-Chairwoman 6 7 Betty T. Yee Member 8 9 George Runner Member 10 11 Marcy Jo Mandel Appearing for John 12 Chiang, State Controller (per Government Code 13 Section 7.9) 14 Joann Richmond 15 Chief Board Proceedings Division 16 17 For the Board: Todd Gilman, Taxpayers' Rights Advocate 18 19 20 ---oOo--- 21 22 23 24 25 26 27 28 2 1 INDEX OF SPEAKERS 2 NAME PAGE 3 Jesse McClellan 5 4 Myron Sidie 13 5 ---oOo--- 6 7 8 9 10 11 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 MR. HORTON: Let us reconvene the meeting of 6 the Board of Equalization. 7 Ms. Richmond, what is our next item? 8 MS. RICHMOND: Our next item is F1, Business 9 Taxpayer Bill of Rights Hearings. 10 MR. HORTON: Thank you. 11 Welcome, Mr. Gilman. 12 MR. GILMAN: Thank you, Chairman Horton and 13 Members. 14 Todd Gilman, Taxpayers' Rights Advocate with 15 the BOE. 16 This is the Business Tax Taxpayer Bill of 17 Rights for June 26, 2012 in Sacramento. 18 Um, I would like to thank those individuals in 19 the audience today that have taken the time to come to 20 Sacramento and testify at the Taxpayers' Bill of Rights. 21 The purpose of the hearing is to provide 22 individuals the opportunity to present their ideas, 23 concerns, and recommendations regarding legislation, the 24 quality of agency services, and other issues related to 25 the Board's administration of its tax programs, 26 including sales and use tax, environmental fees, fuel 27 taxes, excise taxes, as well as any issues identified in 28 the Taxpayers' Rights Annual Report. 4 1 We have three business tax speakers that are 2 signed up to speak today. Our first speaker is 3 Mr. Kelley Clark. 4 Mr. Clark, if you're in the audience, please 5 come up now. 6 (Pause.) 7 MR. GILMAN: We can come back to Mr. Clark if 8 you wish, if he shows up. 9 MR. HORTON: Please. 10 MR. GILMAN: Okay. Our next taxpayer scheduled 11 to speak is Mr. Jesse McClellan. 12 Mr. McClellan, please. 13 ---oOo--- 14 JESSE McCLELLAN 15 ---oOo--- 16 MR. McCLELLAN: Hello. 17 MR. HORTON: Welcome, Mr. McClellan. 18 MR. McCLELLAN: Thank you for the opportunity 19 to address the Board today. 20 Um, the purpose of -- of me being here today is 21 to address the issues related to audit transfers into 22 Sacramento. 23 Historically, there's been a large volume of 24 taxpayer audits that have been transferred to Sacramento 25 from Board of Equalization districts from throughout the 26 state, and also the out-of-state districts. Uh, the 27 propensity stems, in part, from a high volume of 28 taxpayer representatives in the area and taxpayers' 5 1 desire to hire such representatives for various reasons. 2 Um, hiring representatives in the area provides 3 benefits to the taxpayers and their representatives 4 because it provides them with ready access to key Board 5 personnel, appeals conferences and hearings, the 6 rulemaking process, and access to other relevant State 7 entities such as the legislature and the Franchise Tax 8 Board and other entities. 9 Having ready access provides a benefit to 10 taxpayers and their representatives since it increases 11 the efficiency by which matters can be handled and 12 reduces the costs that would otherwise be associated 13 with a need to travel long distances. 14 We believe audits being performed in Sacramento 15 provides a mutual benefit to the State, as well, in the 16 form of an increased efficiency, uh, and a reduced cost 17 for performing the audits. 18 By having audits come to the Board as opposed 19 to the auditor traveling to the taxpayer, the auditors 20 are not required to travel long distances and, as a 21 result, are able to dedicate more of their time in any 22 given day to performing audit-related functions. 23 Reducing the amount of travel also reduce -- reduces the 24 costs associated with travel reimbursement and per diem 25 for food and lodging. 26 With few exceptions, we believe that the Board 27 should generally welcome a taxpayer's willingness to 28 have their audits performed in Sacramento. 6 1 The high volume of audits transferred into the 2 area has historically caused strains on the local staff 3 due to a relative lack of overall volume in high level 4 field audit positions. 5 Somewhat recently that strain came to a 6 breaking point and it created a need to limit the number 7 of audits that were transferred into the area. 8 Based on discussions with various staff 9 members, it is believed that some changes to the current 10 staffing model should be considered by the Board so the 11 available benefits to having audits conducted in the 12 area can be maximized. Two such recommendations are 13 follows: 14 Transferring field auditor positions from other 15 district offices from throughout the state to 16 Sacramento. We believe that such transfers would be 17 justified because Sacramento actually performs audits of 18 taxpayers from every district in the state. 19 The other alternative would be creating new 20 field auditor positions in Sacramento. 21 Um, under either scenario, we believe it's, 22 uh -- it's necessary to make certain positions added to 23 Sacramento or of a higher level. It's generally 24 well-known that auditors from Sacramento tend to 25 transfer to headquarters because there's opportunities 26 for higher-paying positions. It's natural for a person 27 to make that transfer when that opportunity exists. 28 If there's higher level positions within, uh, 7 1 the field audit level, that would provide, in our 2 opinion, a long-term sustainable solution because there 3 would be a higher likelihood for auditors to stay in 4 that position. 5 Um, and in summary, again, we believe that 6 having audits performed in Sacramento provides a mutual 7 benefit to the Board of Equalization and to taxpayers. 8 And that in order to maximize those benefits that are 9 available, uh, we believe that some changes to the 10 current staffing model is necessary. 11 Thank you. 12 MR. HORTON: Uh, thank you very much. 13 Mr. Gilman, do you have any thoughts on that? 14 MR. GILMAN: Thank you, Chairman Horton. 15 Um, Mr. McClellan and I have talked about this 16 in the past. Um, at this time I brought this to the 17 attention of the Sales and Use Tax Department as well as 18 our Tax Policy Division. 19 Um, the plan at this point going forward is to 20 have Mr. McClellan work with the Sales and Use Tax 21 Department to hopefully address this issue. 22 My hope is that some kind of common ground 23 could be found to resolve this. 24 MR. HORTON: Uh, Members. 25 Mr. Runner. 26 MR. RUNNER: Yeah -- yes, since, yeah, this all 27 revolves around, uh, my district and our district office 28 out there in Sacramento, we are concerned about it. 8 1 Um, we've had some conversations, and I think 2 one of the -- at least some of the numbers that I have 3 is that, uh, right now since, uh, July 1st, 2009, uh, 4 there have been about 1849 transfer audits, of which 88 5 percent of them have transferred into, um, the 6 Sacramento district office. 7 So it clearly -- and, again, I think what we 8 needed to do is step back and I am anxious to have staff 9 take a look back to see maybe we're missing something. 10 Maybe there's other transfer audits that are going 11 elsewhere. But at least the numbers that we're seeing 12 right now, there's a large proportion, a vast majority 13 of those are transferring into, uh, Sacramento. 14 And my understanding is that the current 15 staffing models do not allow for any kind of adjustment 16 for transferring audits. Uh, and, again, what puts 17 pressure on our office -- and let me just give you these 18 numbers, uh, in -- in the differences and why I think 19 it's particularly a pressure then for the second 20 district. And that is, counting auditors and 21 collectors, in the first district there are 448, in the 22 third district there are 475, in the fourth district 23 there's 457, and in the second district there's 285. 24 Um, and so I think what we have is -- is 25 multiple problem. I think multiple problem is the fact 26 that over, generally speaking, the second district has 27 less. But then on top of that we have the additional 28 pressure of these audits that are wanting to transfer 9 1 in. 2 And I think the reality is that the transfer-in 3 audits are at the convenience and choice of the taxpayer 4 at that point. And I think we ought to figure out 5 models that then appreciate that. 6 So, uh, I would appreciate the ongoing 7 discussions, and we'll certainly engage in those, too, 8 about what the assumptions are on the staffing models 9 and what we can do to try to create then that 10 opportunity. 11 MR. HORTON: Further discussion, Members? 12 Mr. McClellan, um, the transfers -- um, may be 13 a question of the Department -- the transfers, are they 14 generally to conduct the audit or for the purposes of 15 presenting the -- or defending the audit before the 16 Board? 17 MR. McCLELLAN: It, uh -- it's a combination of 18 both. 19 MR. HORTON: Okay. 20 MR. McCLELLAN: This -- I think this issue 21 primarily pertains to the, uh -- the actual audit -- 22 MR. HORTON: Mm-hmm. 23 MR. McCLELLAN: -- which occurs on a consistent 24 basis. 25 Um, at the appeals level I would say that the 26 benefits are the same because you're not having 27 individuals from the Appeals Division travel. UM, 28 again, it would be a situation where they can hold the 10 1 conferences here and hopefully resolve any issues that 2 come here. And at the same time, if it -- if it goes up 3 to an elevated level, to the Board level hearing, uh, it 4 would reduce the costs that would be associated with 5 traveling to attend the hearing, either here or 6 potentially in Culver City. 7 MR. HORTON: Okay. I mean, for me, it's 8 understandable on the appeals level. 9 MR. McCLELLAN: Mm-hmm. 10 MR. HORTON: And I'm actually an advocate of 11 localizing the decision-making process, to centralize 12 the decision-making process as close as possible to the 13 taxpayer's business itself. 14 MR. McCLELLAN: Mm-hmm. 15 MR. HORTON: Uh, and to have the, uh, cognizant 16 attitude -- uh, perspective of that business 17 environment. 18 In rural California there's certain, uh, 19 perspectives that only the auditors who are actually 20 working that area has -- may have a greater sensitivity 21 to. 22 MR. McCLELLAN: Mm-hmm. 23 MR. HORTON: Uh, and in conducting markups, uh, 24 resale examination -- examinations that require on-site, 25 uh, investigations and so forth -- 26 MR. McCLELLAN: Mm-hmm. 27 MR. HORTON: -- and direct interaction with the 28 taxpayer, not necessarily their representative. Uh, it 11 1 is certainly my perspective that the problems are easier 2 to resolve, uh, by having that direct access as opposed 3 to dealing with an auditor that is based miles away from 4 your business. 5 MR. McCLELLAN: Mm-hmm. 6 MR. HORTON: But I -- I can appreciate the 7 concern about the transfers in as it relates to the 8 appeals and whether or not the audits being transferred 9 is a result of advertising or marketing strategy as 10 opposed to the actual need. 11 Uh, but as an advocate of localizing the 12 decision so that the decision is made as soon as 13 possible and that the individuals that are directly 14 interacting with the business, in that business 15 environment, are the ones that are making the decision. 16 Too often we have appeals that come before us 17 and the individuals who are actually, uh -- uh, 18 discussing the position of the taxpayer often times may 19 not be fully aware of the environment in which they 20 operate. And it typically works against the taxpayer 21 because the subsequent adjustment, in many of those 22 audits, is based on the environment, based on the market 23 in that particular area, uh, and so forth. 24 But certainly supportive of the Department 25 taking a look at it and making sure that the staffing 26 levels are there to provide the support to the 27 taxpayers, no matter where they are. 28 MR. McCLELLAN: Mm-hmm. 12 1 MR. RUNNER: Right. 2 MR. HORTON: Further discussion, Members? 3 Thank you very much for your presentation. 4 MR. McCLELLAN: Thank you. 5 MR. HORTON: Mr. Gilman, are there other -- 6 MR. GILMAN: Yes. 7 MR. HORTON: -- witnesses? 8 MR. GILMAN: Thank you. Our next speaker is 9 Mr. Myron Sidie. 10 Mr. Sidie, if you're here. 11 MR. HORTON: Well, Mr. Gilman, why don't we ask 12 them -- there's another speaker that you called earlier? 13 Maybe they can come forward as well. 14 MR. GILMAN: Oh, I'm sorry, okay. 15 Mr. Kelley -- 16 MR. HORTON: Mr. Sidie, please -- please have a 17 seat, sir. Come forward. 18 The other? 19 MR. GILMAN: Mr. Kelley Clark. 20 MR. HORTON: Mr. Clark, are you -- 21 Okay. Uh, we will check the halls to see if 22 he's in the halls. 23 MR. GILMAN: Okay. 24 ---oOo--- 25 MYRON SIDIE 26 ---oOo--- 27 MR. HORTON: Sir, please introduce yourself for 28 the record. 13 1 MR. SIDIE: My name is Myron Sidie. 2 And I kind of considered hiding in the hall, 3 too, when I saw how you all are dressed and how I'm 4 dressed. But when I read this in the Bee this 5 morning -- 6 MR. HORTON: Our preference is to be in your 7 shoes. 8 MR. SIDIE: Yes. It was hard at the gym today, 9 uh, at my age. 10 But I took it out of the Bee today and I 11 thought this was going to be an opportunity to just ask 12 someone about the sales tax. 13 And, uh, with the modern banking the way it is, 14 at one point I had a half-a-million-dollar credit line. 15 Now I don't have a half-a-million-dollar credit line. 16 When my sales tax is due in a bar, we 17 collect -- you know, we figure at 18 seven-and-three-quarters or whatever it is, or my people 19 do, of what we take in. 20 It used to be that it was $50,000 before it was 21 an automatic take-out of your bank. Then it went down 22 to 25,000 automatic take-out, now it's down to $10,000. 23 Uh, I can't put it on a credit card if I'm 24 having a tight month. If I do, I have a six percent 25 penalty, which I didn't know for almost a year. But, 26 you know, sometimes they accept it and they don't 27 penalize you, but sometimes they do. 28 I'm wondering why, as long as the State gets it 14 1 on the time they're supposed to get it, why I can't put 2 it on my credit card or write them a check? Anybody 3 else, you know, can write a check and they might have a 4 two- or three-day leeway and get through a weekend and 5 have that extra money. 6 It's all about money in the banks right now, 7 and small businesses are having a hard time with money. 8 And my sales tax bill is about 15 to $18,000 a month. 9 And at this point I'm current, for the last 28 years. 10 So, it's just not easy. And I apologize again 11 for coming from the gym. If I had more sales tax money, 12 maybe I'd buy a new suit. 13 MR. HORTON: Thank you, uh, for sharing your 14 thoughts. 15 Mr. Gilman, any input? 16 MR. GILMAN: Well, I think that, um, you might 17 be referring to a -- an individual payment arrangement, 18 but I'm not sure. 19 I haven't had a chance to speak with Mr. Sidie 20 yet to find out all the details. But he meets the 21 threshold requirement for the money to be automatically 22 taken out of his account. And I think that's what's 23 causing him some difficulty, because the money's 24 automatically taken out. 25 Is that what I'm hearing from you? 26 MR. SIDIE: Right. Right. 27 MR. GILMAN: So that's causing you the -- the 28 difficulty in having the funds? 15 1 MR. SIDIE: Sometimes. 2 MR. GILMAN: Right. 3 MR. SIDIE: Sometimes. 4 MR. GILMAN: But we could certainly work with 5 our program area and find out what exactly, you know, 6 the options are available to a taxpayer in this 7 situation. 8 But I know he meets the threshold. I mean 9 those thresholds are set based on dollar amounts that 10 are brought in as far as taxes are concerned. The 11 money's automatically taken out of the account. 12 But I'd love to sit down with him and chat with 13 him more about the issue and find out what we can do for 14 him. 15 MR. HORTON: Okay. 16 Discussion, Members? 17 Hearing none, thank you very much for appearing 18 before us. 19 MR. SIDIE: Thank you all. 20 And you -- 21 MR. GILMAN: Yeah, my staff. 22 All right. Thank you. 23 MR. HORTON: Let's try one more time, Mr. 24 Gilman. 25 MR. GILMAN: Okay. Mr. Kelley Clark, please 26 come forward. 27 Okay. 28 MR. HORTON: All right. Please continue. 16 1 MR. GILMAN: That concludes two of the 2 individuals that we had that were scheduled to speak. 3 Um, at this moment, as I normally do, Chairman 4 Horton, that if there's anybody in the audience that 5 would like to come forward now and make comment at the 6 Taxpayers' Bill of Rights Hearing for Business Taxes, 7 with your permission, allow them to come forward now. 8 MR. HORTON: Of course. 9 (Pause.) 10 MR. GILMAN: Okay. With that -- 11 MR. HORTON: You got to give them a little more 12 time. I'm trying -- I didn't get through the audience 13 first. 14 Okay. No one's standing. 15 MR. GILMAN: Twenty seconds. 16 MR. HORTON: All right, Mr. Gilman. 17 MR. GILMAN: Okay. Um, that concludes the 18 business tax portion of the taxpayer bill of rights. 19 ---oOo--- 20 21 22 23 24 25 26 27 28 17 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 17 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: July 3, 2012 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 18