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 27, 2012 10 11 SALES AND USE TAX APPEAL HEARING 12 APPEAL OF 13 RALPH LOUIS TOCCI 14 NO. 460529, 468214 (CH) 15 AGAINST PROPOSED ASSESSMENT OF 16 SALES AND USE TAX 17 18 19 20 21 22 23 24 25 Reported by: Juli Price Jackson 26 CSR No. 5214 27 28 1 1 2 P R E S E N T 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 Chief 15 Board Proceedings Division 16 17 For Board of David Levine Equalization Staff: Staff Counsel 18 19 For Department: Andrew Kwee Tax Counsel 20 Kevin Hanks 21 Chief, Headquarters Operations Division 22 Robert Tucker 23 Legal Department 24 25 For Petitioner/Claimant: Ralph Tocci 26 27 ---oOo--- 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 JUNE 27, 2012 4 ---oOo--- 5 MR. HORTON: Ms. Richmond, our next item. 6 MS. RICHMOND: Next is item C, Sales and Use 7 Tax Appeals hearings. 8 Our first hearing is C5, Ralph Louis Tocci. 9 Please come forward. 10 Board Proceedings has received contribution 11 disclosure forms for this morning's hearings from 12 parties, agents and participants. All forms were 13 properly completed and signed. All parties, agents and 14 participants are on the alpha listings provided to your 15 office. 16 Each person sitting at the table will be asked 17 to introduce themselves and, if necessary, their 18 affiliation with the taxpayer for the record. 19 Ten minutes is allocated for the taxpayer's 20 opening presentation, followed by ten minutes for the 21 Department's presentation and five minutes is allocated 22 to the taxpayer for rebuttal. 23 Mr. Horton. 24 MR. HORTON: Thank you. Mr. Levine, will you 25 please introduce the issues in this case? 26 MR. LEVINE: Good morning, Chairman Horton -- 27 MR. HORTON: Good morning. 28 MR. LEVINE: -- Members, David Levine for the 3 1 Appeals Division. This appeal, consisting of a petition 2 and claim for refund of Ralph Tocci, involved three 3 disputed sales of vessels. The Department has informed 4 me that it concedes one and a half. And I understand 5 that the taxpayer has been informed of this. 6 MR. HORTON: One and a half? 7 MR. LEVINE: On the claim for refund -- more 8 than one and a half. On the claim for refund that 9 involved one disputed transaction, which the Department 10 has concluded was tax paid by the purchaser and 11 recommends that be granted, the claim for refund. 12 As to the petition, there are two remaining 13 disputed sales, one of them to Tim Kelly. The 14 Department has determined that the purchaser has now 15 paid $15,856 of the tax due with respect to that sale 16 and the Department, therefore, recommends a credit of 17 that amount against the determination. 18 Thus, the issue is whether an adjustment is 19 warranted to the remainder of the tax assessed, which is 20 for one transaction in full and the remainder of the 21 Kelly transaction. 22 MS. MANDEL: Which is the one transaction 23 that's left, by name? I have them by -- 24 MR. LEVINE: Harris. 25 MR. KWEE: Harrison. 26 MR. LEVINE: Harrison. 27 MR. RUNNER: And just to clarify, the -- is it 28 that we don't know if the payment due was the total owed 4 1 or that it was an -- that the payment made by that 2 second payment was incomplete? 3 MR. LEVINE: My understanding -- and the 4 Department can explain more fully -- is that probably is 5 what the purchaser reported and the Department believes 6 that the purchase price was a little bit more. 7 MR. HORTON: Okay, Members. We will now go to 8 the taxpayer, who will have ten minutes to make their -- 9 make its presentation and we would ask that you begin 10 with your introduction for the record. 11 MR. TOCCI: Thank you. My name is Ralph 12 Tocci. 13 MR. HORTON: Please come a little closer to -- 14 MR. TOCCI: My name is Ralph Tocci and I'm the 15 owner of Tocci Yachts and have been the owner and yacht 16 broker for forty years. We handle the sales of 17 California registered vessels and federal documented 18 vessels. 19 The tax requirements are that all California 20 state registered vessels, the sales tax is collected and 21 paid. Our policy through Tocci Yachts is that we 22 collect the sales tax on all California state vessels. 23 We pay that sales tax directly to DMV, so that the sales 24 tax is recorded on the registration to prove the sales 25 tax is paid. 26 Now in the case of federal documented vessels, 27 the State requires us not to collect sales tax on 28 federal documented vessels. We do not collect sales tax 5 1 on federal documented vessels. The chain of command on 2 a situation of all documented vessels is that we use 3 a -- a title company, a bonded title company. So, when 4 we complete our transaction on the sale of a federal 5 documented vessel, that transaction goes to Trident 6 Marine Documentation. She fills out the bill of sale 7 forms and notifies the Coast Guard. When the Coast 8 Guard receives these forms and they process their 9 transaction and transfer, that form then gets to BOE. 10 When BOE receives that form, then they notify the client 11 and say, "Congratulations, you purchased a vessel, you 12 owe the sales tax." 13 We do not collect the sales tax. We have -- we 14 talked to all of our clients when they purchase a boat 15 from us and state that and we have them all sign that we 16 did not collect the sales tax, that the State will bill 17 the sales tax. 18 In the case of financing on the boats, the 19 banks want to see total purchase price, including sales 20 tax and documentation fees. This is in relations to the 21 downpayment. The downpayment is 20 percent of the total 22 purchase price of the boat. In the end of our 23 transaction, we have an addendum, signed by the client, 24 saying that we do not collect the sales tax, that the 25 State will bill you for the sales tax. 26 Now our paperwork and transactions have never 27 changed since the day we first started this until we've 28 had to close down our financing. We don't know the 6 1 percentage, but we're going to guess that 90 percent of 2 our sales have gone through flawlessly. But somewhere 3 some of these clients have fallen through the cracks. 4 Once they go to the documentation office, we have no way 5 of knowing. But the majority of our clients have been 6 billed. Fortunately, of all of our work of trying to 7 solve this problem, somebody in the State is starting to 8 bill these people. So, I think that somebody is 9 starting to work for it. Somebody is starting to bill 10 Swihart and billed the other ones. 11 So, I don't know how to -- I can prove beyond a 12 shadow of a doubt that we do not collect the sales tax 13 because we're not required to. It's a good system that 14 you have if you bill the folks. But every bill of sale 15 that goes through our -- our sales goes through Trident 16 Marine Documentation to the bill of sale and then 17 that -- the BOE is notified that Mr. So-and-So has 18 purchased that boat and he's to bill them. 19 Unfortunately, there is a flaw in the system 20 there. And even as much as last week -- now, as of now, 21 we -- my name is on nothing, we won't put on our name on 22 any of that transaction -- but we had a client come in 23 just last week and said that your broker has the sales 24 tax. 25 This has happened several times that we have 26 clients call BOE and say, "We want to pay our sales tax. 27 We haven't got a bill," as we've instructed them to do. 28 And, even now, BOE is telling these clients, "Your 7 1 broker has the sales tax." 2 We do not collect the sales tax on documented 3 vessels because in the event -- and we tried this, we -- 4 No. 1, we tried to collect the sales tax and pay it and 5 we -- when we did, it became a credit to our account. 6 So, we said, no, no, we can't put our name on 7 anything that goes to sales tax. When they asked me 8 about paying their sales tax early, I'm afraid that if 9 you purchase a boat and you have an $8,000 sales tax and 10 you send your $8,000 in before the Coast Guard does the 11 bill of sale and sends it to BOE, I don't know where 12 that sales tax would go. You folks are, obviously, more 13 knowledgeable about that than me, but that's when I tell 14 my clients, 15 "Wait til BOE sends you your letter. And 16 that way you are in their system. Then you 17 fill out your form. Put your sales tax with it 18 and send it in." 19 I believe 90 percent of our sales this happens 20 because, you know, these people have all paid their 21 sales tax and they want to pay their sales tax. But 22 some of these have fallen through the cracks, beyond my 23 control. We have never changed anything in our 24 paperwork. 25 Because of this happening, now, you know, my 26 bank accounts have been emptied, my business has been 27 liened, my home has got a lien on it, my credit rating 28 went from 800 down to 647. My yacht and ship broker's 8 1 bond was cancelled last month because of my credit 2 score, even though I paid my credit religiously on all 3 other payments. 4 This has devastated me and ruined me and it's 5 not my fault. I just don't know what else to tell you. 6 We are not required to collect the sales tax on a 7 documented vessel. Thank you. 8 MR. HORTON: Thank you very much. We'll now go 9 to the Department. The Department will have ten minutes 10 to make their presentation. We would ask that they 11 begin with their introductions for the record. 12 Then, sir, we will return to you on rebuttal 13 and allow you five minutes. 14 MR. TOCCI: Thank you. 15 MR. KWEE: Good morning, Chairman Horton and 16 Members of the Board. I am Andrew Kwee on behalf of the 17 Board's Legal Department. And with me today are Robert 18 Tucker, also with the Legal Department, and Kevin Hanks 19 with the Sales and Use Tax Department. And we will be 20 representing staff this morning. 21 Petitioner disputes that it must remit the tax 22 that it collected to the State. Pursuant to Revenue and 23 Taxation Code Section 6202, subdivision (b), when a 24 person purchases a vessel through a broker, if the 25 broker collects an amount as sales or use tax on the 26 sale, the broker is statutorily liable for that amount 27 and it must be remitted to the State. 28 It is undisputed that the Petitioner is a yacht 9 1 broker and that the use tax applies to these 2 transactions. During the audit period Petitioner had a 3 seller's permit. Petitioner's sales contracts and 4 Petitioner's security agreement note and disclosure 5 statements itemize and collect taxes on the two 6 transactions remaining at issue. These contracts are 7 attached as Exhibit 2, page 2, for the Harrison case and 8 Exhibit 3, pages 1 and 2, to the Decision and 9 Recommendation. 10 For the purchase by Mr. Harrison, the 11 Petitioner remitted the funds to another broker. This 12 is attached as Exhibit 2, page 5 of 6 to the Decision 13 and Recommendation, and has the check payment to another 14 broker. 15 In the second transaction, the Kelly case, the 16 Petitioner paid the tax to the purchaser and the 17 Department made an adjustment for the amount of tax paid 18 by the purchaser to the State. The payment to the 19 purchaser is attached to Exhibit 3, page 7 of 11, to the 20 Decision and Recommendation. The amount of tax 21 remaining at issue on the Kelly case is $806.50. The 22 remaining amount -- the total remaining amount at issue, 23 which is approximately, 7,300 in tax, the amount in 24 controversy is about $7,330 in tax -- that has not been 25 paid to the State. 26 Therefore, pursuant to Revenue and Taxation 27 Code Section 6204, this -- it specifies that the tax 28 collected constitutes a debt owed to the State, 10 1 therefore, we concur with the Decision and 2 Recommendation as amended by our adjustments that David 3 just mentioned. 4 MR. HORTON: Thank you very much. 5 On rebuttal? 6 MR. TOCCI: We did not collect the sales tax. 7 As required, as I said earlier we have the borrower's 8 statement showing that we did not collect the sales tax 9 by trust account. And I have all ten years of trust 10 account here showing that not once has a sales tax 11 transaction gone through our disbursement sheets. So, 12 we did not collect the sales tax. 13 The bank wants to see total purchase price, 14 including tax and license. Our closing statement and 15 our -- if it's a financing, our borrower's statements 16 states that we did not collect the sales tax. And every 17 transaction on our books shows the sales tax was not 18 collected because it's a federal documented vessel. 19 We did not collect it and we can show beyond a 20 shadow of a doubt that these were never collected 21 because the State bills on the sales tax. 22 MR. HORTON: Thank you very much. Discussion, 23 Members? 24 Mr. Runner. 25 MR. RUNNER: Yeah, quickly to the Department. 26 Can you walk through these two different kinds of 27 transactions, I guess, in terms that the -- that the 28 taxpayer's talking about -- the idea of the documented 11 1 vessel or the documented vessel and the registered 2 vessel? 3 MR. KWEE: Well, on these cases, the US Coast 4 Guard had -- 5 MR. RUNNER: "In these cases," which one are 6 you referring to? 7 MR. KWEE: I'm am not familiar with the -- 8 MR. TOCCI: They're all documented, sir. 9 MR. RUNNER: Oh, they're all -- okay, all those 10 are documented? 11 MR. TUCKER: Correct. 12 MR. RUNNER: Okay. 13 MR. KWEE: Right. In these cases the US Coast 14 Guard had forwarded us -- 15 MR. RUNNER: Okay, excuse me, you mean all the 16 ones before us are documented? 17 MR. KWEE: Right. 18 MR. RUNNER: Okay. The ones before us are the 19 documented sales? 20 MR. KWEE: Right. 21 MR. RUNNER: Okay, gotcha. 22 MR. KWEE: And, so, in these cases the US Coast 23 Guard had forwarded to us leads, which indicated that a 24 sale had occurred that the broker had a seller's permit. 25 So, then when that occurred, the lead was forwarded to 26 the CUTS and CUTS saw that there was a permit and 27 forwarded it -- these transactions to the District 28 office to investigate further. 12 1 The District office then determined, based on 2 the documents which I mentioned in the presentation and 3 which are attached to the Decision and Recommendation, 4 that the sales tax had been collected, that an amount 5 itemized as taxes had been collected on these 6 transactions and had not been paid to the State. And, 7 therefore, these amounts were billed. 8 MR. RUNNER: Okay, okay. So, again going back 9 to the taxpayer, I thought I heard you say that in 10 certain -- these certain kinds of sales you are not 11 allowed to collect the sales tax? Did I miss that? 12 MR. TOCCI: Yeah, federal documented vessels. 13 And these are the only -- 14 MR. RUNNER: Okay. 15 MR. TOCCI: -- cases we're talking about. 16 MR. RUNNER: Okay. So, these were federally 17 documented vessels before us? 18 Okay, and the taxpayer's position is that you 19 say are not allowed to collect the sales tax on these? 20 MR. TOCCI: Yes, that's correct. We're not 21 allowed to collect the sales tax on a federally 22 documented vessel. That is billed through the State 23 once the Coast Guard notifies BOE and BOE notifies the 24 client. 25 MR. RUNNER: Okay. So -- so, the dispute here 26 -- and, so, then they go through the process, the -- the 27 Coast Guard notifies the BOE through this process. And 28 then, at least what we're saying here, is because -- at 13 1 least what I'm hearing -- is because he has a seller's 2 permit, then we go back to him and say, "Where's the 3 sales tax?" 4 MR. KWEE: Well -- 5 MR. RUNNER: Because the other choice we could 6 go for is once we're identified we could go back to the 7 buyer and say, "Where's the sales tax?" Correct? 8 We could go to either one of those places? 9 MR. HANKS: Mr. Runner, if I could add -- 10 MR. RUNNER: Yes. 11 MR. HANKS: -- I think there might be some 12 confusion too regarding -- the transactions that we're 13 looking at and whether or not we're considering those 14 transactions as subject to sales tax or use tax. 15 For our purposes, for audit purposes, it 16 doesn't make a difference if we're looking at a 17 documented or undocumented vessel. If there's a retail 18 sale of either of those, those -- that property in 19 California, we're going to treat that as a taxable 20 retail sale. So, for our purposes, it doesn't make a 21 difference that these were documented vessels. 22 Now we do collect information from the Coast 23 Guard that identifies sales of yachts. 24 MR. RUNNER: We collected or it automatically 25 comes to us because of the nature of these kinds of 26 sales? 27 MR. HANKS: It automatically comes to us. 28 MR. RUNNER: Okay. We don't go out and find it 14 1 from them and they get it to us? It's a part of the -- 2 it's part of the agreement that we have that -- that -- 3 that we get this information in regards to these sales? 4 MR. HANKS: Correct. 5 MR. RUNNER: Okay. 6 MR. HANKS: Correct. And typically what we're 7 doing with in our Consumer Use Tax Section is looking at 8 Coast Guard information, and particularly for sales of 9 yachts or boats that are made to California residents or 10 the sale originated outside the state. Those are the 11 types of transactions that are going to be subject to 12 use tax. And those are the transactions where our 13 Consumer Use Tax Section might issue a use tax inquiry 14 or billing, if that's necessary, to those purchasers. 15 Now, if, on the other hand, our Consumer Use 16 Tax Section looks at these transactions and identifies 17 that there's a seller involved in these transactions, as 18 is the case with our taxpayer this morning, if they have 19 a seller's permit, the presumption's going to be made 20 that those sales were subject to sales tax, not use tax. 21 MR. RUNNER: And how do -- in the audit, how 22 many -- how many -- how many of these transactions did 23 we start with? 'Cause we -- we had three last week. Now 24 we're down to what appears to be really just one we're 25 disputing on an amount, there's really only one there. 26 MR. HANKS: I think there are 11 27 transactions. 28 MR. RUNNER: Okay. Of these 11 transactions 15 1 through this process we've come and let -- I want to ask 2 the taxpayer, were all 11 of these transactions done in 3 this same manner? 4 MR. TOCCI: Exactly. 5 MR. RUNNER: Okay. So, of the 11 transactions 6 that were done in this manner, the taxpayer said, 7 "Hey, look, I didn't collect the sales tax. 8 The financing may have included the sales tax, 9 but it went it to the -- but it went to the -- 10 it went to the buyer. And the buyer's 11 responsible for paying 'cause I was not 12 collecting it. And because these are 13 documented sales, I have -- I don't -- I'm not 14 responsible for collecting it." 15 MR. TOCCI: If I may say so -- 16 MR. RUNNER: Hang on just a minute. 17 And, so, we started with 11 and now we're down 18 to one. So, can I assume that of those 11 -- of the ten 19 minus one that's a little bit in dispute 'cause of the 20 amount -- that we did, indeed, find that the sales tax 21 was paid? 22 MR. KWEE: There were about five of them in -- 23 I'm sorry, there were about five of them in which the 24 statute of limitations had expired. So, then the tax 25 had not been paid. 26 MR. RUNNER: Okay. Forget those five. 27 Hold it, did we know that tax wasn't paid or 28 did we just stop looking? 16 1 MR. KWEE: At the audit the auditor had 2 initially ruled out cases where the tax had been paid. 3 There are maybe about ten more in which tax had been 4 paid and which we did not pursue him. 5 We had thought the remaining ones, all the 6 tax -- were only cases where tax had not been paid, but 7 there are about five of those in which the statute of 8 limitations had expired. So, we did not pursue them. 9 MR. RUNNER: We didn't pursue them? We didn't 10 see if the tax wasn't paid, we just didn't pursue them? 11 Is that fair? 12 MR. KWEE: I understood it was because, A, 13 first, the tax hadn't been paid by the purchaser, but 14 then, B, so, then we -- 15 MR. RUNNER: So, we know that they actually 16 looked at every one of those to determine whether or not 17 the tax was paid, even though the statute of limitations 18 was -- was -- was -- was run out? 19 MR. KWEE: Mr. Runner -- 20 MR. RUNNER: The reason I ask -- the reason I 21 ask is because I know, for instance, on the -- on the 22 Swihart particular one that we -- all the way through we 23 thought the tax hadn't been paid and, ultimately, we 24 discovered it did, after we started actually 25 investigating it. 26 So, my question is, did we actually investigate 27 those? Or did we just assume it wasn't paid because the 28 statute of limitations had run out? 17 1 MR. KWEE: I'm -- I'm not certain. 2 MR. RUNNER: Okay, well, that's fine. It's 3 okay not to be certain. I just want to be careful 4 because you -- the statement you made was that the tax 5 hadn't been paid. 6 MR. KWEE: Right. 7 MR. RUNNER: Right? So, we don't know if the 8 tax hadn't been paid? 9 MR. KWEE: Right. There are about ten in which 10 we know the tax had not been paid. The ones that -- 11 there were additional five which I am not certain 12 about. 13 MR. RUNNER: Okay, okay. Let me keep bugging 14 you on this because you just told me once again that tax 15 hadn't been paid. 16 So, do we know for sure that the tax hadn't 17 been paid or did we just stop looking? 18 MR. KWEE: It was -- for audit item 1, we know 19 for sure that the tax has been paid. 20 For audit item 2, I'm not certain. 21 MR. RUNNER: I'm talking -- not talking about 22 those, I am talking about the other ones that are not 23 before us. 24 MR. KWEE: Right. 25 MR. TUCKER: I think the correct answer is 26 we're not certain. 27 MR. TOCCI: Thank you. 28 MR. RUNNER: That's all I need. That's a good 18 1 answer. 2 MR. HANKS: Mr. Runner, typically we would not 3 look at transactions that were outside the statute. 4 So -- 5 MR. RUNNER: I appreciate that. The only -- 6 the only reason I was going down that path is because 7 the testimony given said the tax hadn't been paid. 8 That's all. That's the only reason. If we 9 don't know, then that's fine, we don't know. And I get 10 that. 11 Okay. So, now we're down to the -- so -- so, 12 we started with all these and, so, now we're down to 13 this one and maybe -- and disputing the amount. 14 Let me ask the taxpayer, my understanding is 15 that what's brought this to the -- that is different 16 about these than all -- than a lot of the other 17 transactions that you do is that these were -- these 18 were financed. And, as a result of the bank's request 19 in regards to how they do the financing, they asked that 20 the sales tax -- let me see if I can get this right -- 21 not -- you know, they asked for the sales tax to be 22 itemized -- 23 MR. TOCCI: Right. 24 MR. RUNNER: -- as a result of their financing? 25 MR. TOCCI: Right, yes, total purchase price. 26 MR. RUNNER: Okay. And, so, that's what took 27 place in all of these that are under dispute, even the 28 one -- even the ones that -- not the ones before us, but 19 1 the ones that you -- previously that were in dispute and 2 now they discovered the tax was paid? 3 MR. TOCCI: This is not just related to 4 financing. All of our -- not just for these deals, 5 every -- we have -- we were agents for Key Bank and 6 Wells Fargo Bank. So, we were actually -- we processed 7 the -- we did the paperwork for them. We drew up the 8 contracts and our client signed it. 9 So, 90 percent of our sales were in-house 10 sales. Occasionally we would do an outside financing 11 for a client that we personally knew. But the majority 12 of our sales are in-house sales and those contracts are 13 written the same. So, it isn't just related to a 14 financed boat that we did for somebody else. There is 15 -- 90 percent of our sales have gone with the exact same 16 paperwork and BOE has billed the clients. 17 So, there's -- you know, there's -- there's 150 18 sales out there that we assume BOE collected money 19 for. 20 MR. RUNNER: Okay. Let me he ask you that. 21 What -- what -- I guess what's peculiar to me 22 is that we have all these sales. We, even in this 23 audit, started with a larger amount that we've shrunk 24 down to basically one, I know we're in dispute on the 25 number, but basically one, and what we've discovered is 26 the use tax or -- at that point, was actually paid. Not 27 by -- not by the broker, not by the owner or the 28 company, not by the taxpayer, but by the individual 20 1 buyers, just as he testified is his system. 2 So, the process that we have observed is 3 exactly the way the taxpayer says it takes place in all 4 of the cases we found minus one. 5 So, let me ask you this minus one case, this 6 Mark Harrison, what -- what -- have we -- what has been 7 the Department's contact to this individual in regards 8 to whether or not he believes he owes the tax? 9 MR. HANKS: I could tell you that we checked 10 with our Consumer Use Tax Section in connection with the 11 Harrison case and no amounts have been reported by the 12 purchaser. 13 Now in the other case that we're talking about 14 with Kelly -- 15 MR. RUNNER: Okay, okay. 16 MR. HANKS: -- Kelly made a payment of 17 $15,856 -- 18 MR. RUNNER: Right. 19 MR. HANKS: -- which we're allowing as a credit 20 offset -- 21 MR. RUNNER: Right. 22 MR. HANKS: -- against the -- the taxpayer's 23 liability. It's a sales tax liability but because the 24 purchaser did self report these amounts, we're offering 25 this credit. 26 I think the difficulty in this audit is our 27 taxpayer can wear one of two different hats. They can 28 wear -- they can be a retailer with one transaction or 21 1 they can be a broker with another -- with -- with them 2 not being responsible for payment of sales tax. And it 3 changes per transaction. 4 So, if -- if the -- if the taxpayer operates in 5 strictly a brokered situation, where he is not accepting 6 title to the property, he's not transferring title to 7 that property, he's not collecting sales tax 8 reimbursement, we'd regard that as a nontaxable 9 brokerage-type transaction. 10 On the other hand, if he's collecting sales tax 11 reimbursement and has that -- 12 MR. RUNNER: Okay, but again my point -- my 13 question was, what do we know we have done in terms of 14 contacting Mark Harrison in regards to his tax 15 liability? 16 MR. HANKS: We've gone through all of our 17 computer systems to identify whether any payments were 18 made -- 19 MR. RUNNER: Okay. 20 MR. HANKS: -- by Mr. Harrison. 21 MR. RUNNER: So, we've -- so, basically, what 22 we've done is just identified to see if a payment was 23 made? 24 MR. HANKS: Correct. 25 MR. RUNNER: We haven't done anything in 26 regards to determining -- sending him a -- checking with 27 him if he believes the way he made this transaction that 28 he might owe the tax? 22 1 MR. HANKS: We've not because -- 2 MR. RUNNER: Okay. 3 MR. HANKS: -- we believe it's a sales tax -- 4 MR. RUNNER: Okay. So, we haven't done that? 5 MR. TOCCI: Could I clarify something on -- 6 MR. RUNNER: Hang on just a minute, let me -- 7 I'm going to come back to you. 8 Okay. So -- so, in this case, when we say we 9 get this list from the -- from the Coast Guard -- hang 10 on guys -- guys, thanks. 11 When we get this list from the Coast Guard then 12 do we -- we automatically then go ahead and bill or do 13 we automatically go after the -- a taxpayer like this or 14 the broker if, indeed, they have a sales tax permit? 15 That's -- that's what our default is? 16 MR. HANKS: What -- what we would typically do 17 in a situation like that is refer the case out to the 18 District. Because typically in a brokerage situation we 19 don't have a broker having a seller's permit number. 20 MR. RUNNER: Okay. 21 MR. HANKS: They're typically not retailers. 22 They're not responsible for collection and payment of 23 sales tax. 24 So, in our Consumer Use Tax Section we would 25 refer those types of purchases out to the District if 26 that broker had a seller's permit because in those 27 instances it appears as though that broker is acting as 28 both a retailer for some transactions and a retailer in 23 1 others. 2 MR. RUNNER: So, going back to my question 3 then, we always -- when we -- we always, when we get 4 this information from the Coast Guard that says the 5 transaction had taken place and there was either a 6 broker or retailer involved, are we saying we 7 automatically go that direction in terms of collection? 8 We don't make any attempt to go after the individual 9 who -- 10 MR. HANKS: That's correct. 11 MR. RUNNER: Okay. 12 MR. HANKS: That's correct. 13 MR. RUNNER: We don't make any attempt? 14 MR. HANKS: Yes. 15 MR. RUNNER: Any Coast Guard that comes into 16 us, any -- any kind of Coast Guard or documented -- so, 17 what's it called, a -- any documented sale that comes 18 in, we don't go -- we don't go -- we don't go after the 19 individual, we always go after the broker or retailer? 20 MR. HANKS: You can't always say "always," 21 however -- 22 MR. RUNNER: Okay. 23 MR. HANKS: -- what typically happens is the 24 referral would be made from our Consumer Use Tax Section 25 out to the District. The District would investigate 26 that transaction, determine if it's a sales tax 27 transaction. If so, the District would handle that in 28 their audit or their review of the taxpayer's accounts. 24 1 If, on the other hand, in that review the 2 District determines that, indeed, this was a brokerage 3 transaction, it was not a sales tax transaction with the 4 sales tax being owed, then that referral can be bumped 5 back to our Consumer Use Tax Section. 6 MR. RUNNER: And that's when we would go after 7 the individual? 8 MR. HANKS: And then that's when we would go -- 9 MR. RUNNER: Okay. Let me go to the taxpayer 10 then. With that as an explanation, why -- why is it 11 that they are incorrect in assuming that you collected a 12 sales tax? 13 MR. TOCCI: Okay. Let's just say that 90 14 percent of the transactions have all been billed to the 15 client, 90 percent. We have no knowledge -- 16 MR. RUNNER: When you say "90 percent," you 17 know that the BOE has, instead of going after you for 18 these sales, they have -- they have basically gone after 19 the individuals? 20 MR. TOCCI: Absolutely, absolutely, 100 percent 21 they have gone after the client -- like they're supposed 22 to do -- 90 percent. I'm just using that as -- 23 MR. RUNNER: Now let me ask again, how can that 24 be the case? 25 He's -- if he -- if we're saying the reason we 26 went after him this time is because he had a seller's 27 permit, right? 28 But he says, 25 1 "Hey, I've got a long history dealing with 2 the BOE. They don't come -- they don't come 3 after me for it. They go after the individual 4 who bought the boat because that's the nature 5 of the transaction." 6 MR. HANKS: If it's determined by the District 7 to be a use tax transaction, then that transaction would 8 be referred back to Headquarters and our Consumer Use 9 Tax Section would then explore the purchase with the 10 purchaser. 11 MR. RUNNER: What you're telling me is what the 12 process is, I guess. I guess maybe that's what the 13 question is. 14 But I'm trying to ask you in this case, doesn't 15 that seem inconsistent? Doesn't it seem -- what I think 16 I heard you say is that almost in all the cases if the 17 individual has a seller's permit you go and bill him? 18 MR. HANKS: No. 19 MR. RUNNER: Did I miss that? 20 MR. HANKS: No, we don't bill him. We refer 21 the matter back to the District. So, the District can 22 talk to the taxpayer, determine what type of 23 transaction -- 24 MR. RUNNER: Right. 25 MR. HANKS: -- is it subject to sales tax? Is 26 it subject to use tax? 27 MR. RUNNER: Right. 28 MR. HANKS: And depending on that 26 1 determination, it's handled differently. 2 MR. RUNNER: But he's saying in -- in 90 3 percent of the transactions that he's done with the BOE 4 that has been determined. So, I am trying to figure out 5 why this one is so unique, if -- if, indeed -- if all of 6 the other ones that he's done -- and we're now down to 7 one transaction -- why do we not believe that, indeed, 8 he didn't collect the sales tax, it was just, indeed, 9 a portion of the way that the finance -- or the way the 10 -- the documents had to be done, he didn't ever collect 11 it, it never -- I guess we can ask you if any of the 12 money ended up in his accounts, I believe the answer is 13 no to that. 14 MS. YEE: No. 15 MR. RUNNER: None of the money ever ended up in 16 his accounts. And, again -- and we know that's the case 17 on all of the -- lots of -- I guess literally almost 18 scores, if not a hundreds of transactions and now we're 19 just down to one. It seems -- 20 MR. HANKS: We're down to a couple of 21 transactions. And the fact that the purchaser made this 22 one payment in this one instance, we're going to allow 23 credit for that, but it's -- 24 MR. RUNNER: Wouldn't the -- isn't the only 25 reason -- 26 MR. HANKS: -- a taxable transaction. 27 MR. RUNNER: -- isn't the only reason that that 28 individual would have made payment is because he knew he 27 1 owed it? I mean, if he believed that -- if he believed 2 that he paid sales tax to this individual, right, if 3 he -- if he believed he paid sales tax when he bought 4 that boat to this individual, he wouldn't be writing us 5 a check. He'd only be writing us a check because he 6 knew he didn't pay sales tax to this individual. And 7 that's why he needs to pay it, right? I mean, unless 8 he's a really nice guy, I guess. 9 MR. KWEE: Right. And to clarify, in 10 Mr. Kelly's case, when we contacted him he had said that 11 the sales tax was refunded by Mr. Tocci to Mr. Kelly and 12 that's why he had paid it to us. 13 MR. RUNNER: He said it was refunded? 14 MR. KWEE: And that is attached. And the check 15 was actually attached as Exhibit 3, page 7 of 11, that's 16 the check payment from Mr. Tocci to Mr. Kelly. 17 MR. RUNNER: Let me ask you about that. 18 MR. TOCCI: Yeah. We do not collect sales tax 19 for boats. The amount that we refunded him is a 20 different amount than what the sales tax would have been 21 but because we do not collect sales tax on a vessel, we 22 gave him the money on his overpayment and told him, 23 "When the sales tax bill comes, you pay it. We do not 24 collect sales tax on federal registered vessels -- 25 documented vessels." 26 So, we put -- we're doing what you've told us 27 to do -- do not collect sales tax on documented vessels. 28 So, if there is an overpayment, we will give that money 28 1 to the client and tell the client when the sales tax 2 bill comes, pay the bill. 3 MR. RUNNER: Okay, thank you. 4 MR. TOCCI: Can I clarify? 5 MR. RUNNER: Just real quick, real quick, then 6 we're done. 7 MR. TOCCI: The only thing is he mentioned 8 about the -- because the sales tax is shown on the 9 contract. We also finance registered vessels. 10 Now State registered vessels the sales tax is 11 showed and at that point we do collect the sales tax on 12 a State registered vessel and pay it to DMV. So, we do 13 collect sales tax on California registered vessels, but 14 not documented vessels. And the bank contracts are the 15 same. 16 MR. RUNNER: Okay, thank you. 17 MR. HORTON: Member Yee. 18 MS. YEE: Thank you, Mr. Chairman. I want to 19 just say to Mr. Tocci, I'm very sorry that you are 20 caught between a rock and a hard place here, but I want 21 to see if I can try to tease this out. 22 MR. TOCCI: Appreciate that. 23 MS. YEE: I had hoped that during the audit 24 there could have been some distinction made between the 25 various types of transactions. 26 Clearly Petitioner has been in this business 27 for decades, understands when he has the responsibility 28 to collect tax and remit it. 29 1 With respect to these three transactions, there 2 is certainly evidence that he may have acted in a broker 3 capacity. But when you look further into the -- whether 4 it's the loan documents or the security agreement or 5 even the buyer's closing statement, the treatment of 6 tax, I think, is pretty clear in terms of what needs to 7 happen in these types of transactions. 8 And I feel like what we're ending up doing is 9 not really providing clear guidance to the purchasers 10 with respect to their responsibility in paying the tax. 11 And I want to be sure that we're going to address that 12 at some point. 13 But here we have is the Petitioner has acted 14 as -- I'll say broker, for lack of a better term -- but 15 he receives the loan proceeds. I find it really hard to 16 believe that there was any treatment of tax relative to 17 the loan proceeds 'cause, by and large, those amounts 18 were smaller than even the purchase price. And even 19 though the tax was separately stated in terms of the 20 total purchase cost, the buyer's statement specifically 21 shows that tax would be State billed. So, you've been 22 doing been doing business like this for decades? 23 MR. TOCCI: Forty years. 24 MS. YEE: Okay. But as you said, for 25 California registered vessels, you know to collect the 26 tax, remit it to the DMV and, so, those are treated 27 differently. 28 MR. TOCCI: Correct. 30 1 MS. YEE: I'm just wondering if we may have 2 missed something here but really what I'm concerned 3 about is if we're not looking at the -- if we're not 4 distinguishing between these types of transactions -- 5 and, more importantly, if the purchaser isn't clear that 6 they may have a responsibility to remit the tax -- I 7 just don't want there to be any kind of escape there. 8 I -- I think the Petitioner here, really in 9 acting, really, as the recipient of the loan proceeds in 10 this transaction and really not having anything to do 11 with the tax, and yes, you hold a seller's permit and 12 you I did act in kind of a broker capacity, but -- I 13 mean, the tax got paid by two of the three purchasers. 14 And, so, I'm just -- I want to just see kind of where 15 this loophole is that we can kind of close. 16 I am very sympathetic to the Petitioner. He's 17 been doing these transactions for 40 years. At the same 18 time, we've had purchasers that have stepped up and paid 19 on their own. Sounds like we don't, as a matter of 20 course, bill the purchasers until it's clear that that's 21 what we need to do. 22 So, there is kind of a gap in the process here. 23 And I don't believe it ought to lie or reside with the 24 Petitioner. 25 But Mr. Levine, you're -- I mean, from a 26 practical standpoint, that's kind of how I see it. 27 MR. LEVINE: I think Petitioner, perhaps, has a 28 40-year misunderstanding. 31 1 The distinction between documented and 2 undocumented vessels has to do with when the purchaser 3 owes use tax, who the purchaser pays it to. As far as 4 Petitioner is concerned, there is no difference between 5 documented and documented. The difference is whether he 6 is the seller or a broker. If he's the seller, then he 7 makes -- and he's in the business of selling and is 8 required to hold a permit for those sales, which I 9 believe is the case, then it's a sales tax transaction, 10 period. 11 If he acts as a broker, a true broker, and does 12 not collect -- and does not show an amount as tax, then 13 it's a use tax. If acts as a broker, it's a use tax 14 transaction. The purchaser owes the tax. 15 Several years ago, because many purchasers were 16 paying brokers tax and then we'd bill them, we sponsored 17 a change to 6202 giving relief to purchasers if they 18 paid the tax to the broker. So, that's part of the 19 argument here. 20 If Petitioner acted as a broker and did not 21 collect the tax, whether it's documented or 22 undocumented, he's not liable. 23 If he acted as a broker and collected tax, then 24 he is liable for the tax that he collected -- whether 25 it's documented or undocumented. 26 And if he acted as a seller, he's liable for 27 sales tax. 28 MR. TOCCI: I can answer that very clearly. 32 1 MS. YEE: Mr. Tocci. 2 MR. TOCCI: We are discussing between 3 California registered vessels and documented vessels. 4 When the -- when a California registered vessel 5 is -- we do collect the sales tax and we transfer the 6 tax. Proof of payment on the sales tax is through DMV. 7 We pay our sales tax directly to DMV. And it's recorded 8 on the registration showing the tax was paid. 9 Now in the event of a documented vessel, if we 10 collect the sales tax and send it in, John Doe paid 11 $8,000 in sales tax, if that gets sent to BOE, BOE don't 12 know who John Doe is. That's why it's set up that the 13 bill of sale gets transferred -- goes to BOE. Now BOE 14 has a name and that gets billed to the client. And that 15 shows, okay, John Doe owes $8,000. Here he is. 16 But if we paid the 8,000 early, how do they 17 know what it's for? And that was my understanding with 18 BOE, let the State -- let BOE bill you because otherwise 19 if you paid me $8,000 and I paid it to BOE, but BOE has 20 no record of that transaction, where does that money go? 21 I mean, I've tried to analyze this with what's 22 going on, but that's why the system is set up the way it 23 is. Because now you've got a name with a transaction. 24 If the transaction is paid prior to that, you 25 have no name for that transaction, so, you don't know 26 where that money goes. 27 Am I clear enough? 28 MS. YEE: Any response? 33 1 MR. HANKS: I was just thinking from an 2 administrative standpoint, though, that makes it very 3 difficult for the Board. Because instead of collecting 4 tax from the retailer in this case, then we would have 5 to try to determine who all those purchasers were or 6 assume that all those purchasers were going to declare 7 those amounts with the Board and declare them for the 8 correct amount or that we were going to receive the 9 Coast Guard information and that that was going to 10 capture, you know, some of -- some of these 11 transactions. 12 Now for documented vessels, it should be on a 13 Coast Guard transcript. But for undocumented vessels, 14 there is no listing. We don't receive a listing of 15 undocumented vessels. 16 So, just from an administrative standpoint, 17 it's -- it's a lot easier for us to collect from one 18 taxpayer that is assigned one seller's permit number 19 rather than collecting from all the customers. 20 As a case in point, with the Kelly transaction 21 we had $215,000 boat sale in this case. We've got a 22 security agreement that identifies the tax associated 23 with that was $17,737. Well, Mr. Kelly, at some point, 24 voluntarily prepared a Consumer Use Tax return, filed 25 that with our Consumer Use Tax Department and said that 26 the tax associated with this purchase was $15,856. But 27 the tax that he had paid was 17,737, which comes from 28 the security agreement. Well, that tax was refunded to 34 1 Mr. Kelly. And yet Mr. Kelly's return, Consumer Use Tax 2 return with us, is asking for an $1800 overpayment 3 credit. He's asking for a refund from us for $1800 when 4 we haven't collected any of the -- we didn't collect one 5 dollar in tax on that transaction. We didn't collect it 6 from the seller in this case, Mr. Tocci, and Mr. Kelly 7 hadn't reported any of that tax either. 8 So, if we accepted this return at face value, 9 we would have sent Mr. Kelly a $2,000 refund for a 10 transaction that was never taxed to begin with. 11 And, so, that -- that really exemplifies the 12 difficulty in allowing the purchasers to handle what 13 they need to do in reporting these amounts to the Board. 14 MS. YEE: Yeah, I can appreciate the 15 administrative difficulties. Was this a first time 16 audit of the Petitioner? 17 I can't believe this has been happening for 40 18 years. 19 MR. TOCCI: This just came up a few years ago 20 and in that time we've had seven audits. 21 MS. YEE: Okay. And was -- can the Department 22 speak to that in terms of whether this issue had come up 23 previously and kind of close this gap? 24 MR. KWEE: In the most recent prior audit, 25 there was this broker issue. The D & R noted that it 26 was slightly different because there was no evidence 27 that he held title to the vehicles in that prior audit. 28 In this case -- I'm sorry, vessels. And in this case 35 1 the Coast Guard report showed he had title immediately 2 prior to the transaction transfer. 3 MR. TOCCI: You want me to answer that? 4 MS. YEE: Just briefly. 5 MR. TOCCI: Okay. Being a lender of a boat and 6 being responsible for a large amount of money for the 7 bank, the bank has asked us to guarantee title. 8 So, in that one page transaction it shows the 9 purchaser, Tocci Yachts, Tocci Yachts, to the seller to 10 Tocci Yachts to the purchaser. That gives the bank a 11 legal bind that we're responsible for transferring the 12 title of that vessel. 13 So, the bank puts me in the loop to make sure 14 I'm responsible for the transfer. The end result -- the 15 end purchaser is the client's name that goes to BOE. 16 And BOE, with that name, bills that client. 17 MS. YEE: So, you're holding title -- 18 MR. TOCCI: We never held title. 19 MS. YEE: -- for the purposes of the financing? 20 MR. TOCCI: We never held title. We passed 21 title guarantee that we're -- we put ourselves in the 22 middle to make sure the bank got title. 23 MS. YEE: Okay. 24 MR. TOCCI: We never held title. We never 25 purchased the boat. 26 MR. HORTON: That's the other -- 27 MS. YEE: Okay. All right, thank you, 28 Mr. Chairman. I'm going to stop there. 36 1 MR. HORTON: Further discussion, Members? 2 MR. RUNNER: Just a quick comment. 3 I guess I heard Mr. Levine say that there's -- 4 this was a 40-year misunderstanding. And I guess I am 5 little concerned by that in light of the fact that I 6 would assume that you've had the BOE in dealing with you 7 through those 40 years? 8 MR. TOCCI: Never. 9 MR. RUNNER: Never? You've never had a BOE 10 audit? 11 MR. TOCCI: Never -- not until -- not until 12 just a few years ago. 13 MR. RUNNER: Okay. So, that's when it started? 14 MR. TOCCI: Yes. 15 MR. RUNNER: And then the first audit that you 16 had identified these issues or didn't identify these 17 issues? 18 MR. TOCCI: Did not identify these issues. It 19 was an audit on a transaction with another broker that 20 we paid that was on SCOOPA list. That's how my name 21 came up. 22 But our records are 100 percent, 1000 percent 23 every file. 24 MR. RUNNER: And then yours -- the Department 25 is saying, well, it didn't come up that time because of 26 the issue of he -- the fact on those other transactions 27 he never held title? 28 MR. HANKS: Correct, correct. 37 1 MR. RUNNER: Can you -- holding title, is that 2 like -- do you -- I don't know. 3 MR. TOCCI: We don't hold title, we're a yacht 4 broker. 5 MR. RUNNER: Okay, okay. Hang on. 6 I don't -- I'm not -- I don't own a boat, so, I 7 don't really know what holding a title on a boat means. 8 I know what holding title on a car means. I register 9 the car. I'm on title. 10 What is -- when you say he held title, did he 11 have to register? Did he have to -- how does 12 somebody -- how does somebody get title to a boat at 13 that point? 14 MR. TUCKER: We have records from the Coast 15 Guard that show the abstract of title that lists a 16 seller, a buyer, being Mr. Tocci, and then Mr. Tocci 17 selling to the ultimate purchaser. 18 And that's on -- 19 MR. RUNNER: So, we -- again -- again, we just 20 -- again, I am getting educated here. 21 We're assuming because he was the seller, he 22 had title? 23 MR. TUCKER: Yes. 24 MR. RUNNER: Okay. Let me ask the taxpayer. 25 Is that the same? 26 MR. TOCCI: No, no. It was just a passage of a 27 guarantee to the bank. We never held title. The 28 documents were never in our name. 38 1 MR. RUNNER: Who owned these boats? 2 MR. TOCCI: They're brokerage transactions. 3 So, you could own the boat and sell it to him and I'm 4 the broker. 5 MR. RUNNER: Okay. So, somebody else had -- 6 any of these boats where they're saying that you had 7 title? 8 MR. TOCCI: Never. 9 MR. RUNNER: But they're saying you did? 10 MR. TOCCI: Yes. 11 MR. RUNNER: Is there some piece of paper out 12 there that says somebody else owned this boat? 13 MR. TOCCI: Yes, yes. It shows the purchase -- 14 the seller of the boat and then it shows me in there, in 15 the middle, but it's all on one page. 16 MR. RUNNER: Right. 17 MR. TOCCI: But the document -- 18 MR. RUNNER: But the name of somebody else that 19 actually title to the boat is also on there? 20 MR. TOCCI: -- yeah, the principal held the 21 title and he sold it to seller B. I'm in the middle 22 just as a guarantee of the passage for the bank. 23 We have never had any document put in our name 24 at all, period. 25 MR. RUNNER: Okay. 26 MR. TOCCI: It's a passage of title. 27 MR. RUNNER: Is there a differentiation between 28 what he's explaining and what you guys are assuming? 39 1 MR. TUCKER: We're looking at the actual 2 abstract of title that's listed on Exhibit 2, page 3 of 3 6, and this is for the Harrison transaction. 4 MR. RUNNER: Uh-huh. 5 MR. TUCKER: And it shows that there is a -- 6 this is why staff is conflicted because it shows a 7 seller, a buyer, Ralph Tocci -- 8 MR. RUNNER: Uh-huh. 9 MR. TUCKER: -- and then a second transaction 10 with a seller. And it's blocked out and I'm assuming 11 it's -- 12 MR. RUNNER: The name of somebody? 13 MR. TUCKER: -- Ralph Tocci and then it looks 14 like it was highlighted. And then the buyer being Mark 15 Harrison. So, in this chain of title, as in buying and 16 selling, he's listed as a buyer and a seller. 17 MR. RUNNER: And you're saying that you never 18 are, you are just basically a broker holder? 19 MR. TOCCI: Right, we're just guaranteeing 20 title for the bank. The bank wants us in the 21 transaction. 22 MS. YEE: Well -- 23 MS. MANDEL: When -- for the -- what you are 24 calling the sale from Domingo Rivera to Mr. Tocci is for 25 a peppercorn of a dollar? 26 MR. TUCKER: Correct. 27 MS. MANDEL: So, that would seem to support his 28 argument that he's in there somehow as protection for 40 1 the bank, not that he's buying it. 2 MR. RUNNER: Did you ask about the dollar? 3 MS. MANDEL: Yeah, I just asked about the 4 dollar. 5 MR. HORTON: Members -- 6 MS. MANDEL: So -- I'm sorry. 7 MR. HORTON: -- want to direct your questions 8 to -- 9 MR. RUNNER: I'm sorry, just -- we're going 10 down the same path. 11 MS. MANDEL: So -- 12 MR. TUCKER: My understanding and my experience 13 has been that typically these transactions list -- list 14 the amounts as a dollar plus other valuable 15 consideration. Rarely have I seen where they list the 16 actual sales price. 17 MS. MANDEL: What do you mean, "these types of 18 transactions"? 19 'Cause what he's -- what the gentleman's 20 arguing is that he's the broker. He also happens to -- 21 MR. TOCCI: Fill in. 22 MS. MANDEL: -- facilitate the -- the -- the -- 23 the bank making a loan and that the bank, you know, 24 wants him in the middle somehow so that -- 'cause the 25 money's running through his trust account, I guess. 26 But when you say "these," I mean, I know, you 27 know, people sometimes maybe don't want to show on 28 public record that they paid $300,000 for a boat, so, 41 1 they might sort of say it that way themselves. 2 But are you talking about true broker 3 transactions or a true sale transaction? 'Cause 4 you're -- you're portraying this now as a true sale 5 where he is the retailer as opposed to what I thought we 6 were talking about when he came in, which was he was a 7 broker and you thought he collected the sales tax, which 8 are -- which are different types of transactions. 9 So, now -- 10 MR. TUCKER: I'm not disputing the way that we 11 first characterized this, I'm am simply saying that 12 that's the way it's presented. And his explanation that 13 it is -- he's merely acting in the capacity to guarantee 14 the true transfer, I guess probably more likely what I'm 15 saying is this is a complication that staff was faced 16 with because it appears that he is acting as a seller in 17 the transaction. 18 His explanation -- as he described it, it 19 appears that he's more of a broker rather than the 20 seller. 21 MR. TOCCI: Every contract is backed by an 22 authorize -- an offer to purchase, a sales agreement and 23 an offer of -- an offer to purchase sales agreement 24 listing the vessel and us as a yacht broker, an offer to 25 purchase and acceptance agreement showing that we are 26 the broker acting in that transaction and then the 27 closing statements go in behind that. 28 So, they're clearly defined that these are 42 1 brokerage transactions, not purchases by Tocci Yachts. 2 MS. MANDEL: Could -- we're down -- let me look 3 at Kelly for a second, 'cause I guess that's the issue 4 of how much the purchase was for or how much -- with the 5 collection -- if he's a broker -- 6 MR. TUCKER: Uh-huh. 7 MS. MANDEL: -- the collection of use tax is 8 the issue? 9 MR. TUCKER: Correct. 10 MS. MANDEL: Ms. Yee pointed out that the 11 documents -- there's documents in here that showed that 12 the loan was less than the actual purchase price, it 13 wasn't 100 percent loan on the boat. 14 My understanding is the loan -- the loan monies 15 go through your trust account? 16 MR. TOCCI: That's correct. 17 MS. MANDEL: And if someone's making a -- I 18 think this one referred to a downpayment of some amount, 19 does that money also go through your trust account or 20 does that just go -- if you're a broker is everything 21 going through you? 22 MR. TOCCI: Everything goes through our trust 23 account except on a documented vessel, the sales tax. 24 The sales tax -- if we purchased -- if we did 25 the financing of a contract, his downpayment would be 26 less the sales tax. If the bank offered -- loaned 27 75,000, the purchase price was 100,000 and 9,000 was 28 sales tax, we would only collect the 25,000. We 43 1 wouldn't collect the 9,000 for sales tax because the 2 State is going to bill them. 3 So, his downpayment would less the sales tax 4 because the bank is loaning for total purchase price, 5 including sales tax, less the downpayment that they 6 decide. 7 So, our trust account in every one of them 8 shows that there is no -- no sales tax collected. All 9 balances are disbursed. And in his closing statement, 10 as you see, he acknowledges that the sales tax is not 11 collected and he's responsible for it. 12 MS. MANDEL: Let me see if I can restate that. 13 So, the monies that are going through your 14 trust account -- let me make it just simple numbers so I 15 can keep them in my head -- if it's $100,000 boat and 16 let's say it's a $10,000 sales tax -- which it wouldn't 17 be today, but let's just do it -- 18 MR. TOCCI: Okay. 19 MS. MANDEL: -- because my math is really 20 simple. So, you have 110 as your total, money that's 21 going to go somewhere, the hundred including whatever 22 your commission is, and the buyer was going to make a 23 $20,000 downpayment and borrow the rest, which would 24 mean he would want to be borrowing 90 overall to get to 25 110. You're saying that the 90 from the bank's going to 26 go into your trust account. The buyer was going to make 27 a 20,000 downpayment, but he really only gives you into 28 your trust account 10. 44 1 MR. TOCCI: Yeah. 2 MS. MANDEL: And then the trust account 3 disburses to you whatever your commission is and the 4 rest is going to the seller of the vessel and the guy 5 who bought the boat and said, "I'm making a 20,000 6 downpayment," but only put 10 into your trust account, 7 he has his 10 that was supposed to be the sales tax that 8 he's supposed to pay. 9 And you're saying your trust account records, 10 all those little books, show all that money going that 11 way? 12 MR. TOCCI: Right, every one of them. 13 MS. MANDEL: Can you address -- because that's 14 why -- 15 MR. TOCCI: You got it right. 16 MS. MANDEL: -- that's why he -- that's his 17 explanation of why he's saying he did not collect the 18 sales tax. 19 MR. KWEE: Right and just to clarify on the one 20 transaction, the Harrison transaction -- 21 MS. MANDEL: Uh-huh. 22 MR. KWEE: -- which is at issue, so, then, we 23 have the security agreement note and disclosure 24 statement, which is Exhibit 2, page 2 of 6. And that 25 does show like a $90,000 cash price and the taxes on 26 sale is 7,485. 27 And, so, the total amount due is -- 28 MS. MANDEL: Wait, wait, you're really faster 45 1 than I'm turning pages. What exhibit is that? 2 MR. KWEE: Oh, I'm sorry, Exhibit 2, page 2 of 3 6. 4 MS. MANDEL: Okay. 5 MR. KWEE: It says -- this is the security 6 agreement note and disclosure statement and it shows the 7 cash price of $90,000 and then it shows taxes on the 8 sale of 7,485. 9 MS. MANDEL: Right. 10 MR. KWEE: And then the total is 97. So then 11 if you subtract that $30,000 downpayment noted on item 12 9, the balance due is 67,995, which was financed. 13 And then if you skip to the Exhibit 2, page 4 14 of 6, you know that that amount of finance was paid 15 directly to Mr. Tocci, the 679 -- 16 MS. MANDEL: Right and he's not -- he's not -- 17 what he's talking about is that the -- that everybody is 18 making some level of downpayment. 19 MR. KWEE: Right. 20 MS. MANDEL: And we're talking about one 21 particular tail. There was some level of downpayment in 22 the financing document, "I'm going to pay," in my 23 example, 20,000 downpayment. 24 But what he's saying is what actually happened 25 on the books with dollar money is that I would only give 26 him 10, that the sales tax amount was whatever the sales 27 tax amount would be on the entire transaction. The 28 buyer withholds that amount from what he would put in to 46 1 the pot. 2 MR. KWEE: Right. And he hasn't provided 3 documentation to show that he hasn't collected it and, 4 basically -- 5 MS. MANDEL: Okay. Did you look at -- did you 6 review his trust account records to see the money flow? 7 MR. KWEE: Right and we don't have -- 8 MS. MANDEL: Is that a yes or a no? 9 MR. KWEE: No, that's not -- 10 MS. MANDEL: Okay. I don't -- no, well, they 11 didn't -- his argument is that that money -- that money 12 for that -- and I understand money's fungible -- so, 13 everybody's describing how he has it set up and he's 14 saying the money didn't flow through his trust account. 15 So, for -- an amount of money that represents 16 the sales tax did not flow through his trust account. 17 So, assuming that's what his documents say, 18 which you're telling me you didn't look at yet, do you 19 have an answer for that? 20 'Cause that's the crux of his -- why he's 21 saying, "I didn't collect it." 22 MR. HANKS: Ms. Mandel, it was my understanding 23 that he did collect it and he was receiving -- 24 MS. MANDEL: That's -- 25 MR. HANKS: -- that tax reimbursement so that 26 that differs from what he's saying today. 27 We'd be happy to -- to look at his records and 28 determine if that's the case. If -- if -- if what he's 47 1 saying is accurate, that he's not collecting that tax 2 reimbursement, then it would be more an indication of a 3 brokerage transaction. 4 But it was my understanding that he's 5 collecting that tax. 6 MS. MANDEL: That's why the case is here 7 because that's what you guys thought was happening. 8 MR. RUNNER: Correct. 9 MS. MANDEL: Yeah. 10 MR. RUNNER: Yeah. 11 MS. MANDEL: Can we have them go look at the 12 books? 13 MR. HORTON: Yeah, I think so. 14 Just a couple of questions of the Department. 15 The -- are you -- in this specific transaction, the 16 Harrison transaction, are you viewing the taxpayer as 17 the broker? 18 MR. KWEE: That's correct. 19 MR. HORTON: And was tax ever paid -- was this 20 a taxable transaction? 21 MR. KWEE: Right. And the use tax applies to 22 this transaction. 23 MR. HORTON: Was tax ever paid to the State? 24 MR. KWEE: No, no tax was paid to the State on 25 the Harrison case. 26 MR. HORTON: Was tax ever paid to anyone? 27 MR. KWEE: Well, based on the documents it 28 appeared that the tax was paid, that the total amount 48 1 was paid to the New Era Yachts, but then if he was able 2 to supply documentation otherwise, we just haven't been 3 provided that. 4 MR. HORTON: As the broker, who is liable for 5 the tax -- 6 MR. KWEE: Huh -- 7 MR. HORTON: -- under the law? 8 MR. KWEE: -- under the law, under 6202 (b), 9 since he's broker and since -- based on the documents 10 that we have, it appears that he collected the tax and 11 he would be statutorily liable for the amount 12 collected. 13 MS. MANDEL: But if he did not collect the tax 14 as a broker? 15 MR. KWEE: If he did not collect the tax, then 16 he would he not liable for it. 17 MR. RUNNER: Yeah. 18 MR. HORTON: Okay. All right, is there further 19 discussion, Members? 20 MR. RUNNER: Just a quick question. 21 There was a levy of an account in this case? 22 Just want to ask procedurally. 23 MR. HANKS: There was a final liability that 24 became final sometime ago and, so, yes a levy was 25 issued. 26 MR. RUNNER: Okay. Thank you. 27 MS. MANDEL: Do you have an explanation about 28 why the determination wasn't petitioned within the time 49 1 period? 'Cause that's why there's a finality penalty. 2 MR. TOCCI: Me? 3 MS. MANDEL: Yeah? 4 MR. TOCCI: We hired an attorney to do that and 5 he filed too late. And now I'm filing these appeals, 6 trying to get to the bottom of this. 7 MS. MANDEL: How late was it, Mr. -- 8 MR. TOCCI: I don't know. 9 MS. MANDEL: -- Mr. Levine, do you know how 10 late it was? 11 MR. LEVINE: It's part of the claim for refund 12 and because the Department concedes the tax, that will 13 be refunded. 14 MS. MANDEL: Oh, so, the finality penalty will 15 go away? 16 MR. LEVINE: Yes. 17 MS. MANDEL: Okay, thank you. 18 MR. RUNNER: Thank you. 19 MR. HORTON: Okay. Further discussion, 20 Members? 21 It appears that we may want to look at some 22 additional documents. Any discussion, Members? Is 23 there a motion? 24 MR. RUNNER: I move to grant for the 25 taxpayer. 26 MR. HORTON: Okay. 27 MR. RUNNER: Here's my concern, I'm afraid that 28 we're going to get in this circular argument in that 50 1 they believe that he collected the tax because it was 2 included in money that he, indeed, did show in his -- in 3 his -- it went into his trust account. 4 So, I don't think he's ever going to 5 demonstrate the fact that he didn't do that to satisfy 6 the Department. 7 MS. MANDEL: Except that he says it never went 8 through his trust account, based on my example. 9 MR. TOCCI: Absolutely. 10 MR. RUNNER: Oh. 11 MS. MANDEL: And that's -- and he's got the 12 books and they're saying they never looked at the books. 13 He's saying that the downpayment was -- that 14 actually went into his trust account from the buyer -- 15 was less -- was net of the amount that would be sales 16 tax so that the buyer held on to the amount for sales 17 tax. 18 MR. RUNNER: At all -- okay. 19 MS. MANDEL: That's what -- that's what he's 20 saying the books would show, that's why he's -- 21 MR. TOCCI: Absolutely. 22 MS. MANDEL: -- that's way he's acting so 23 confident. 24 MR. HORTON: Is that a motion for -- 25 MS. MANDEL: That would be a motion that they 26 please go look at the books. 27 MR. RUNNER: Okay. 28 MR. HORTON: Okay, 30-30-30 -- Ms. Mandel's 51 1 motion is 30-30-30, Ms. Yee seconds. 2 Objection, Members? Hearing none, such will be 3 the order. 4 Sir, thank you very much for appearing before 5 us today. Mr. Levine will explain to you what the 6 30-30-30 is. 7 Mr. Levine, please. 8 MR. LEVINE: The basic 30-30-30 is that you 9 have 30 days to supply any information relevant and the 10 Department has 30 days to examine it and respond and 11 then Appeals Division has 30 days to make its 12 recommendation. 13 I think in this case what we'll -- is going to 14 happen is the Department's going to contact you during 15 your 30 day period to ask for you to take the Department 16 through your records, so -- 17 MR. TOCCI: Absolutely, I'm happy to. 18 MR. HORTON: I think it's -- I think it's 19 important that the Department meets with the taxpayer as 20 soon as possible and maybe you can sort of delineate the 21 law and where the responsibility triggers and then the 22 documents to support that the tax flowed to the 23 broker. 24 MS. MANDEL: And Mr. -- 25 MR. HORTON: Ms. Mandel. 26 MS. MANDEL: -- thank you. I don't know if you 27 all if you guys have another case or something, but he's 28 here now. He has the books now. And if you're looking 52 1 at this transaction, sometimes if he can -- you know, 2 "Here it is, here it is, here it is," rather than just 3 send you a piece of paper that you might not quite get, 4 I mean, as long as he's here with -- 5 MR. TOCCI: Are we talking about Harrison? 6 MS. MANDEL: Yeah. 7 MR. TOCCI: That was in -- 8 MS. MANDEL: Yeah, I mean, not right here in 9 front of us, but -- 10 MR. HORTON: Yeah, gentlemen, thank you very 11 much for appearing before us today. There are a number 12 of conference rooms nearby. We will see if we can 13 accommodate just one of you in the event that we need to 14 for an additional case. 15 ---o0o--- 16 17 18 19 20 21 22 23 24 25 26 27 28 53 1 REPORTER'S CERTIFICATE. 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, JULI PRICE JACKSON, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 JUNE 27, 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 53 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: AUGUST 16, 2012 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 54