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 CALIFORNIA INSURANCE COMPANY 14 NO. 457613 (ET) 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 Joann Richmond 12 Chief Board Proceedings 13 Division 14 For Board of David Levine 15 Equalization Staff: Staff Counsel 16 For Department: Carolee Johnstone 17 Tax Counsel 18 Stephen Smith Legal Department 19 20 For the Department of Insurance: Laszlo Komjathy 21 Staff Counsel 22 23 For Petitioner: Jeffrey Silver Attorney 24 25 ---oOo--- 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 JUNE 27, 2012 4 ---oOo--- 5 MS. RICHMOND: Our next item is D1, California 6 Insurance Company. Please come forward. 7 This is a constitutional function, therefore, 8 the Deputy Controller may not participate in this matter 9 under Government Code Section 7.9. 10 MR. HORTON: Thank you very much. 11 Noting nonparticipation by the constitutional 12 officer, represented by Deputy Controller, Miss Mandel. 13 Mr. Levine, would you please introduce the 14 issues in this case? 15 MR. LEVINE: The issue in this petition of 16 California Insurance Company is whether the subject 17 insurance transactions were subject to California's 18 insurance tax. 19 MR. HORTON: Thank you. 20 Would the taxpayer please introduce yourself 21 for the record? 22 MR. SILVER: Yes. 23 MR. HORTON: After which you will have ten 24 minutes to make your presentation -- 25 MR. SILVER: Thank you, Mr. -- 26 MR. HORTON: -- followed by the Department and 27 then return on the rebuttal. 28 MR. SILVER: -- thank you, Mr. Chairman. 3 1 Jeffrey Silver, appearing on behalf of California 2 Insurance Company. 3 This case involves a proposed assessment for 4 premium tax by the California Department of Insurance 5 with respect to insurance policies that were sold by 6 C. I. C. in Idaho for the period of time January 2004 7 through December 31st, 2005. The policies in question 8 were issued in Idaho. And the policy forms that it was 9 issued on were approved by the State of Idaho under 10 their Insurance Department purview. 11 In connection with the sale of those insurance 12 policies, California Insurance Company paid premium tax 13 to the Idaho Department of Insurance at a rate that 14 would have been greater than the premium tax it would 15 have paid to the State of California if it had paid 16 premium tax at that period of time. 17 We are asking and suggesting that the Board 18 reject the Supplemental Decision and Recommendation 19 dated December 22nd, 2011 for the reason that it is not 20 supported either factually or legally. 21 In order to do that, or to understand, I need 22 to give you a little bit of insurance 101, if I can. 23 The policies that were issued in this case are known as 24 group insurance policies. Group insurance policies are 25 policies that are issued in a particular state to an 26 insured. And, as a result of the issuance of that group 27 master policy, certificates of insurance may be issued 28 to individuals involved in that group. 4 1 In this case, the individuals were employees of 2 the insureds that were issued the policies which were 3 issued in Idaho. Under the California Insurance Code 4 there is a significant distinction between an insurance 5 policy and an insurance certificate. An insurance 6 policy under Insurance Code 381 is specifically defined 7 as to what that insurance contract contains. 8 If you go to Insurance Code Section 384, it 9 clearly indicates that a certificate of insurance issued 10 under a group insurance policy is not an insurance 11 policy and does not extend or alter the coverage 12 afforded by the policies listed therein. 13 And the problem with the -- with the decision 14 of the Appeals Division and also, I think, the problem 15 that was picked up and adopted in the summary provided 16 to you, indicates on page 8 of the -- of the 17 supplemental opinion, it says, 18 "Here all of the insureds under the subject 19 policies resided in California and, thus, there 20 can be no question that California had a strong 21 interest in protecting these residents. We 22 give great weight to this factor." 23 The fact of the matter is the insureds were not 24 in California. There was no insured in California. The 25 only insureds in this case to which the group policies 26 were issued were located in Idaho. 27 And if you look at the policies, you can see 28 they were all issued in the State of Idaho. They were 5 1 issued on forms that were approved by the State of 2 Idaho. 3 Interestingly enough, California Insurance 4 Company could not have sold those policies in the State 5 of California because the policy forms have to be 6 approved in advance by the Department of Insurance. 7 Those policy forms were never submitted for approval to 8 the California Department of Insurance because those 9 policies were not issued in California. Instead, those 10 policy forms were issued and approved by the Idaho 11 Department of Insurance and, thus the contract, the 12 forms, the premium -- the entire transaction with 13 respect to these policies all took place in the State of 14 Idaho. 15 Unfortunately, that particular language that 16 was picked up or indicated in the appeal decision was 17 also picked up in the summary that was provided to you. 18 On page 1 of the summary, under "Unresolved Issues," it 19 says, 20 "All insureds covered under the group 21 policies were located in California." 22 That again is simply not true. The only 23 insureds in this case were located in Idaho. There was 24 not an insured in the State of California. 25 Now what did happen in the State of California? 26 Certificates of insurance were issued to individuals in 27 the State of California. But that is just the way group 28 insurance policies work. Under the law, the policy's 6 1 deemed to be issued in the state where the group policy 2 has been issued and paid for. And in this case that 3 occurred in Idaho. There was no such occurrence in the 4 State of -- in the State of California. 5 Now one of the other items that comes up is the 6 question of whether or not California Insurance Company 7 had an office in the State of California. It did. It 8 had a statutory office in the State of California, as 9 it's required to do. It had no employees in the State 10 of California. It had no functions performed in the 11 State of California. It had no solicitations in the 12 State of California. 13 The employer, as I indicated, was in the State 14 of Idaho. And the disability coverage that was provided 15 was optional for the individuals that were issued the 16 certificates of insurance. So, there was no 17 solicitation in California. There were no agents in the 18 State of California. 19 Now one of the cases that has been relied upon 20 is the Illinois Commercial Case versus the Board of 21 Equalization as one of the significant cases in support 22 of the Insurance Department's position. That case is 23 factually distinguishable. In the Illinois case, two 24 significant things occurred. One, there were direct 25 mail solicitations made to the State of California by 26 the company. And two, the company had -- they called 27 them independent agents, but the court determined that 28 they were, in fact, their agents. So, those two factors 7 1 are significantly different than what we have in this 2 case. We have no solicitations to the State of 3 California. We have no agents in the State of 4 California selling the policy. 5 What's interesting also about the case that 6 California -- that the employer's case is -- it cites in 7 there two cases. And, interestingly enough, in that 8 case the Board of Equalization cited in that case in 9 support of their position the case of Connecticut 10 General Company versus Johnson. Connecticut General 11 Company versus Johnson is a case that emanated from 12 California and went to the US Supreme Court. And the 13 facts of that case were that there were two companies 14 that were admitted to do business in the State of 15 California that entered into a reinsurance transaction 16 outside the State of California. And the US Supreme 17 Court said, and I want to quote this because it's 18 important, 19 "The Appellant is a Connecticut corporation 20 admitted to do an insurance business in 21 California." 22 Just like California Insurance Company in this 23 case. 24 "In addition to its business conducted 25 within that state, it has entered into 26 contracts with other insurance corporations 27 likewise licensed to do business in California, 28 reinsuring them against loss on policies of 8 1 life insurance affected by them in California 2 and issued to California residents." 3 In that case the similarities between those 4 facts and the facts of our care are really quite 5 striking. In Connecticut -- in the Connecticut case you 6 had California residents involved. In this case the 7 argument is made that the certificates of insurance are 8 issued to California residents. In the Connecticut case 9 the transaction occurred outside the State of California 10 by two companies that were admitted in the State of 11 California. In this case the transaction that occurred 12 in the State of Idaho. And it certainly involved, at 13 the end of the day, certificates issued to California 14 residents, but so did Connecticut General case. They 15 were talking about life insurance issued to residents of 16 the State of California. And in that case the US 17 Supreme Court said that that is not enough to allow 18 premium tax to be assessed against the company. 19 The constitution here in California says premium tax 20 can be assessed upon its business done in this state. 21 Unfortunately, the constitution nor any statute doesn't 22 define what it means, "upon its business done in this 23 state." 24 But what I can tell you is that in this case 25 the business that is sought to be the basis for the 26 premium tax, those group policies are all issued and the 27 situs of them is in Idaho. So, there is no business 28 done in this state with respect those policies. 9 1 The fact that the California Insurance Company 2 has an office in California, it was unrelated to this 3 piece of business. It had a statutory office here in 4 the State of California. In order for there to be 5 premium tax assessed, in order to satisfy the due 6 process requirement, there's got to be a nexus between 7 the business being sought to be taxed or as a basis for 8 the tax and the office. 9 And in this case there were no employees. All 10 of the business and all of the claims that were going to 11 be assessed and adjusted on this book of business were 12 all adjusted in Omaha, Nebraska. There was no claims 13 adjusting office in the State of California. 14 I see my time is up. So, I don't want to go 15 over my time. 16 MR. HORTON: Thank you very much. 17 We'll now go to the Department. The Department 18 has ten minutes to make their presentation. Please 19 commence with your introductions. 20 MS. JOHNSTONE: Good morning, Mr. Chairman and 21 Members of the Board. I am Carolee Johnstone with the 22 Legal Department. 23 With me are Laszlo Komjathy with the -- 24 representing the Department of Insurance and Stephen 25 Smith with the Legal Department. 26 We concur with the Appeals Division's 27 recommendation in this case. The California 28 constitution and tax law provide that the basis of the 10 1 tax for an insurance company, such as Petitioner, is the 2 amount of gross premiums less return premiums received 3 by the insurer for its business done in this state. 4 Petitioner is licensed by the Department of Insurance as 5 a casualty -- property and casualty insurer in this 6 state. 7 In 2004 and 2005 the only insurance Petitioner 8 wrote was group disability and accident insurance for 9 persons employed in California and workers'compensation 10 coverage and group employment practices liability 11 insurance for California employers. 12 The three group DNA policies here were issued 13 by Petitioner effective July 31, 2004, to be continuous 14 until cancelled, to three organizations -- AEG 15 Processing Center, No. 35, California Employer Group 16 No. 27 and American Employers' Group -- each of which 17 states its address as being in Boise, Idaho. The 18 Petitioner issued the group EPL policy, which was also 19 issued to American Employers' Group, beginning May 2005. 20 Together these three entities were -- are the 21 policyholders. They are not the insureds. 22 If you will refer to the exhibit that we 23 provided, on page 4 it specifically says that the -- it 24 is the certificate holders, the employees, the eligible 25 employees employed in California, who are the insureds 26 on the policy. 27 The three policyholders are not insureds under 28 this policy. They are called, in the application, 11 1 organizations. They are -- under the Metropolitan Life 2 Insurance Company case they are considered to be merely 3 agents of the insurer. And, in fact, they are 4 affiliates of the insurer, all owned by the same holding 5 company. They are not insureds under this policy. 6 Therefore, Petitioner's argument that the insureds are 7 located in Idaho is not correct. 8 Petitioner continues to argue that the premium 9 tax on these policies should be paid where the policies 10 were consummated and the policyholders are located, 11 which is in Idaho. Petitioner also argues that it did 12 not do business in California for purposes of these 13 policies. 14 First, as the law says, neither Idaho nor 15 California imposes the tax based on where the insurance 16 contract was consummated or where the policyholder is 17 located. Idaho imposes its tax on premiums from 18 policies covering subjects of insurance that are 19 resident, located or performed in Idaho. In fact, Idaho 20 returned the tax the Petitioner had paid for 2006 on 21 exactly the same policies, naming exactly the same 22 policyholders and covering exactly the same insureds as 23 in 2004 and 2005. Unfortunately, Idaho has a one-year 24 statute of limitation and could not refund the tax 25 Petitioner voluntarily and mistakenly paid for 2004 and 26 2005. 27 And California imposes its insurance tax on 28 premium received from business done in the State, which 12 1 is determined by, among other things, the location of 2 activity related to the policy before and after the 3 policy is consummated, how much interest the State has 4 in protecting those -- what is being insured and the 5 location of what is being insured. 6 Here the only persons insured -- covered under 7 the DNA policies were California employees. And in 2005 8 only employers who purchased California workers' 9 compensation coverage were eligible for coverage under 10 the EPL policy. Needless to say, California has a 11 strong interest in protecting these persons. 12 Further, after the policies were consummated, 13 Petitioner received premiums from insureds located in 14 California and from the California employees under the 15 DNA policies out of their California paychecks and from 16 the California employers. Collection of premiums within 17 the State constitutes doing business in the State. 18 Most telling, Petitioner maintained an office 19 in California out of which it administered claims made 20 by the California employees, which is clearly displayed 21 in the exhibit I provided for you, Exhibit -- page 11, 22 which shows where the insureds under the policy, would 23 be California employees, were to send their claims under 24 "Notice of Claim." 25 Lastly, the Petitioner paid the tax on the same 26 policies to California in 2006. It does not matter that 27 the employer or -- where -- pardon me, my mouth is 28 dry -- that -- it does not matter who the actual 13 1 employer was or whether the Certificate of Insurance is 2 merely evidence because the tax is not based, by law, on 3 the situs of the contract. 4 Petitioner was under no legal obligation to pay 5 the tax to Idaho. Petitioner mistakenly and voluntarily 6 paid the tax to Idaho for 2004, 2005 and 2006, in 7 ignorance of the Idaho law and is not entitled to relief 8 beyond what is provided by statute. 9 Petitioner has provided no authority -- no 10 legal authority that supports its theory that the gross 11 premium tax as imposed either by Idaho or by California 12 based on the situs of the contract. Instead, the 13 evidence showed that Petitioner did business in 14 California with respect to the policies at issue here. 15 Consequently, Petitioner owes the tax to California and 16 the taxes should be redetermined without adjustment. 17 Regarding the Connecticut General case, I do 18 not believe that this staff or we used that case, relied 19 on that case. In fact, that case can be distinguished 20 because in that case Connecticut General was insuring 21 another insurance company. It was not insuring the 22 original insureds, the people with the life insurance 23 coverage under the policy. Connecticut General was 24 reinsuring the other company that was providing the 25 original insurance. 26 That is not the case here. The -- the employer 27 or the policyholders, the three policyholders on the 28 group policy, were not the insureds and they -- they 14 1 were the -- they were the agents for the Petitioner and 2 it is not applicable at all here. 3 Mr. Komjathy? 4 MR. KOMJATHY: Yes, I mean one of the points 5 that Mr. Silver raises is they're not doing business in 6 California. 7 As Miss Johnson (verbatim) indicates that the 8 premiums were paid by California employees. The 9 employees here are the ones that were the beneficiaries 10 of these policies and those are -- those are evidence of 11 doing business. 12 Mr. Silver says Illinois Commercial shows that 13 that's not a good case because they don't have a claims 14 office. Yet, as the -- as the documents indicate, they 15 do have an office here in California. In order to 16 protect these policyholders if there's claims that are 17 being contested, they would have to come to California 18 court system. These are all indicia of doing business. 19 They're getting the benefit of the California State 20 judicial process. They're getting the benefits of the 21 employers and the employees working here in California, 22 making these payments. And these claims are going to 23 have to be covered and handled in California. 24 For these reasons, I believe Illinois 25 Commercial Men's is appropriate to show that there is 26 sufficient nexus for finding that there is doing 27 business in California. If they are doing business in 28 California under the Revenue and Taxation Code 15 1 Section 12221 they are subject to paying taxes based 2 upon the gross amount -- gross amount of premiums paid 3 less any -- less any returns that they received back. 4 For these reasons I believe it's appropriate 5 and proper that the suggestion be affirmed. Do you have 6 any questions or comments? 7 MR. HORTON: Not at this time. 8 On rebuttal? 9 MR. SILVER: Thank you, Mr. Chairman. It -- it 10 is fascinating to me that the Department now takes the 11 position that it wants to impose this tax upon its 12 business done in the State. 13 When initially, when we had the first hearing 14 in this case, the Department's position was that the tax 15 is based on the fact that the rule of 500, which is the 16 rule that talks about how many potential certificate 17 holders or anything like that has. 18 We had a whole hearing and we briefed the issue 19 about the rule of 500 and the Department asserted, quite 20 vehemently, that our exposure was based on the fact of 21 the rule of 500s. It was not until we went to the 22 hearing officer and said, 23 "Excuse me, the rule of 500s was not 24 adopted until May of 2008. Therefore, any 25 basis or claim that that can form the basis 26 upon which this premium tax can be charged is 27 just not true." 28 Undaunted, they abandoned the rule of 500 after 16 1 we pointed out to them that it wasn't adopted until 2 2008. 3 And now they come back say, "Okay. Now it's 4 based upon business done in the State." The fact of the 5 matter is the insurance quote still talks about a 6 certificate of insurance as not being a policy. There 7 were no policies issued in the State of California to 8 any individuals. 9 With respect to the premium -- and this is very 10 important -- the individuals who received certificates 11 of insurance were employees of the three insureds in 12 Idaho. Premium was taken and paid by deduction, payroll 13 deduction. This money did not come to California to 14 these individual employees and then get sent back to 15 Idaho. It was deducted in Idaho before it even got to 16 the individuals in California. So, the premium was not 17 sent from California to Idaho, it was already deducted 18 by the employers in the State of Idaho because these 19 three employers at the time were professional employer 20 organizations and they had these individuals as their 21 employees. 22 So, they come back and they don't want to talk 23 about the Connecticut General case, but the case that 24 they do rely upon and the case that was relied upon in 25 the supplemental decision is Illinois Commercial Men's 26 Association case. And in that case the court cites the 27 following with approval, 28 "However, since no act in the formation, 17 1 performance or discharge of the contracts 2 occurred in the state and the contracts did not 3 depend on any privilege or protection granted 4 by the state, imposition of the tax was held to 5 violate due process." 6 That case is still good law. And whether or 7 not you call it a reinsurance transaction or you call it 8 an otherwise -- a regular insurance transaction, the 9 facts are strikingly similar in terms of having 10 contracts entered into outside the State of California 11 and involving residents of the State of California, 12 which the Connecticut General case did. 13 So, for that reason we're asking and suggesting 14 that you not accept the supplemental decision and 15 recommendation. 16 MR. HORTON: Thank you very much. Discussion? 17 Member Yee. 18 MS. YEE: Thank you very much, Mr. Chairman. 19 Let me see, where do I start? To Mr. Silver, 20 the Petitioner has a -- is licensed by the California 21 Department of Insurance? 22 MR. SILVER: That's correct. 23 MS. YEE: Okay. And the office -- you make 24 reference to a statutory office. Can you elaborate on 25 that? 26 MR. SILVER: Yes. It's an office that is -- 27 it's a statutory office that is required to be had in 28 the State of California. Claims were not processed 18 1 there. We have -- I agree that the language in the 2 policy says, "Claim forms shall be sent there," but 3 there were no claims adjusted there. There were no 4 policies adjusted there. Checks, with respect to these 5 policies, were all issued from Omaha, Nebraska. 6 MS. YEE: Okay. What took place in that 7 office? 8 MR. SILVER: It's simply a place to have staff 9 for service of process. 10 MS. YEE: Okay. I'm curious as to, I guess, 11 the -- a little bit of history of the business of the 12 Petitioner. 13 The years in question before us, 2004, 2005, 14 are these unique in terms of the types of -- I guess, in 15 terms of these insurance policies, these employer 16 policyholder-type arrangements? 17 MR. SILVER: Let me -- let me give you a thirty 18 second history of California insurance law. 19 MS. YEE: And then if you can kind of fast 20 forward to 2006, if anything changed -- 21 MR. SILVER: Yes. 22 MS. YEE: -- that can respond to -- 23 MR. SILVER: Yes. 24 MS. YEE: -- the Department's (unintelligible). 25 MR. SILVER: The original California Insurance 26 Company was originally incorporated shortly after the 27 great earthquake. It then ceased doing business and was 28 reincorporated in, I believe, 1963 or 1964. Current 19 1 ownership of California Insurance Company purchased it 2 in 2003 from General Electric Company. So, prior to 3 2003, the current ownership and management had no 4 involvement with the California Insurance Company. 5 What changed in 2006 to make the distinction 6 that counsel referred to was that prior to that time the 7 three policies that were issued to those three entities 8 were considered to be the actual employers of the 9 employees in California. And, therefore, the policies 10 were issued to those three employers. 11 In 2006 that changed and instead of those three 12 entities being deemed to be the employers of the 13 employees in California, the actual employer, for 14 example, Joe's Gas Station -- okay, Joe's Gas Station, 15 prior to 2006, the individuals that performed work for 16 Joe's Gas Station would have been considered to be 17 employees of the three entities in Idaho. In 2006, that 18 changed. Joe's Gas Station or Joe was now going to be 19 considered the employer of those individuals. As a 20 result, the individual -- instead of having these three 21 policies, the policy was issued to Joe's emp -- to Joe's 22 Gas Station. So, as a result of the policy, the actual 23 policy being issued to Joe's Gas Station, premium tax 24 then became due and owing to California, which we timely 25 paid. 26 I also want to point out the fact that this is 27 not a case where we were shopping for a lower premium 28 tax. We paid premium tax in Idaho because we thought we 20 1 had to pay it there. It was a higher rate than it was 2 in California. So, I don't want there to be any 3 suggestion that somehow we were forum shopping for a 4 better place. We paid the tax because we had to pay it. 5 And, interestingly enough, when we paid it to Idaho, 6 Idaho never sent us back the tax and said, "Excuse me, 7 this tax is not done." And by the time California 8 decided to assess us this tax, we could not go back and 9 get the 5 or $600,000 that we paid in premium tax to 10 Idaho. 11 So, at the end of the day here -- and I know 12 your equity powers probably are not -- are nonexistent, 13 we're going to have to pay premium tax to Idaho of about 14 4 or 500,000, $550,000 and the current amount that the 15 DOI is claiming is $941,000 on the very same book of 16 business. 17 MS. YEE: Okay. And I appreciate that. So, 18 these employer policyholders, they were -- they were the 19 employer of record for California? 20 MR. SILVER: Yes. 21 MS. YEE: Okay. And the people never moved. 22 They were Californians. They reside here. They're 23 being covered? 24 MR. SILVER: No question that -- that the 25 individual -- the individuals who were performing work 26 at Joe's Gas Station were certainly California 27 residents. 28 MS. YEE: Okay. I know there was a good deal 21 1 of discussion with respect to what constitutes doing 2 business. And I'm wondering if what we have here is 3 maybe a little bit of an overlay of what constitutes 4 doing business under the Insurance Code, as opposed to 5 what constitutes being engaged in business for tax 6 purposes. 7 And I want to see if I can get the Department 8 to, perhaps, clarify for purposes of the insurance 9 premiums tax. 10 MR. KOMJATHY: Well, the power to -- 11 MS. YEE: What are we looking at? 12 MR. KOMJATHY: -- the power to tax insurance 13 companies comes from the, of course, the California 14 constitution. And it defines what is doing business in 15 California. It states it's based upon premiums earned 16 for business done in California. 17 Now, the Insurance Code, the legislature in 18 enacting Revenue Code Sections, they -- they said, okay, 19 we are going to split that work between the State Board 20 of Equalization, the Department of Insurance. The 21 Insurance Department is obligated to go in audit 22 these -- these -- these companies, make a determination 23 as to whether or not the premium is properly earned here 24 in California or not. And on that basis, they made the 25 assessment that they recommended to the State Board of 26 Equalization to assess. 27 The -- the Insurance Code talks about 28 transacting business, et cetera, but the Tax Code and 22 1 the constitution talks about what is doing business. In 2 Illinois Men's there was a company that wasn't even 3 admitted in California. They solicited from 4 out of state. They collected premium. As much as -- 5 very much as what Mr. Silver claiming is that California 6 Insurance Company did, vis-a-vis Idaho. However, as -- 7 again as Miss Johnstone stated, the employees who are 8 covered by these policies they were all residents of 9 California. They earned their income working here in 10 California. 11 And, of course, he says, well, they never 12 got -- they never paid the money. But they earned the 13 money here and the money was deducted from their 14 paychecks, literally. And that's how they collected 15 their money. 16 So, those indicia all indicate that this is 17 part of the insurance process, both the solic -- the 18 solicitation, et cetera, were outside. However, the 19 employees were here. And these claims are California 20 claims. If it's a workers' comp claim, any issues are 21 going to be put forward before the Workers' Comp 22 Appellate Board here in California. If there's 23 litigation related to any claims that are covered by the 24 these policies, they're going to be litigated in 25 California because the -- the incident that causes the 26 claim arose in California. 27 So, these are all very important points that 28 shows that there is, indeed, a nexus in California 23 1 sufficient to find that they are doing business for 2 purposes of assessing taxes on these policies. 3 MS. YEE: Okay. And, Mr. Silver, you're 4 contending that -- that doing business involves 5 solicitation, negotiations, execution, any transaction 6 attendant to that and none of that occurred in 7 California? 8 MR. SILVER: That's correct. And I just want 9 to clarify the record. None of the insurance involved 10 in this case is workers' compensation insurance. 11 MR. KOMJATHY: Right. 12 MS. YEE: Yeah. 13 MR. SILVER: I don't know where that came from, 14 but there is no workers' compensation involved in 15 this -- in this premium tax issue. 16 The only -- we only have three policies. It's 17 a disability policy, which is not workers' comp and an 18 employment practices liability policy, which is not 19 workers' comp. So, there is no workers' compensation 20 involved in this case. 21 MS. YEE: The employer policyholders were -- 22 did provide workers' comp, but that's not at issue here? 23 MR. SILVER: That's not -- if they did, and, 24 obviously they did because it's required by statute, it 25 came from a different insurance company and didn't come 26 from California Insurance Company because that is not 27 the subject of -- of this premium tax issue. 28 And, again, going back to Illinois, the two 24 1 critical factors that they relied on in that case were 2 the fact that there were solicitations into the State of 3 California. There is no evidence in the record and I 4 didn't hear counsel indicate that there were any 5 solicitations made into the State of California. 6 And second of all, they had agents, although 7 they designated them as independent agents, the court 8 said they had agents going around to actually solicit 9 and do their business. Neither of those are present in 10 this case. 11 MS. YEE: You're -- you now are of the position 12 that you were not required to pay the tax to the -- to 13 Idaho, the State of Idaho? 14 MR. SILVER: Well, my position is we owe tax to 15 somebody and only one place. 16 MS. YEE: Uh-huh. 17 MR. SILVER: The only reason we went back to 18 Idaho was because of the assessment -- proposed 19 assessment by California. 20 On a going forward basis, from 2006, when the 21 circumstances changed, we are no longer paying tax -- 22 premium tax to Idaho. We are paying premium tax to 23 California. 24 MS. YEE: You paid it because you believed the 25 location of the policyholder dictated -- 26 MR. SILVER: That's correct. 27 MS. YEE: -- the payment of the tax. 28 Okay. Last set of questions has to do really 25 1 with the -- I guess, the legal position and this 2 original position of the first D & R that was based on 3 the rule of 500. I'm a little concerned about this and 4 this is probably, perhaps more appropriate, to pose to 5 Mr. Levine. 6 We have -- I can understand when a petition is 7 amended to state additional grounds at any time prior to 8 the time that the Board issues an order, but it just 9 seems a little -- for lack of a better word -- 10 inequitable to completely change a legal position to 11 support a Notice of Determination. And nothing with 12 wrong that, I'm sure, but it doesn't feel right. 13 MR. LEVINE: I don't think there's anything 14 wrong with it. And here, as I understand the rule of 15 500, basically, it's saying we're going make a exception 16 in certain cases to the normal rule, which is we're 17 going to tax risk, which is if you don't have a lot of 18 insureds in the policy, if it's under 500, we'll let it 19 be taxed more simply. 20 MS. YEE: Uh-huh. 21 MR. LEVINE: And if it's over 500, and I assume 22 these were over 500, then you have to pay the tax to 23 wherever the risk is -- whether it's all in California 24 or in every state. 25 So, if we didn't have the rule of 500, it would 26 be where risk is, which is what the Department asserts 27 here. If you have the rule of 500, then you have to 28 examine to see if -- is this an exception? So, either 26 1 way, here it's taxed where the risk is. 2 So, the Department really isn't making a 3 different argument. They were saying, "We have to 4 examine the rule of" -- incorrectly, for the time, "we 5 have to examine the rule of 500 to see if we really do 6 go where the risk is." 7 And here you are in the rule of 500, so, we go 8 where the risk is. And then they said, "Oh, yeah, 9 you're right, it's not the rule of 500, you just go 10 where the risk is." 11 MS. YEE: Okay. All right, thank you, 12 Mr. Chairman. 13 MR. HORTON: Thank very much. Member Steel. 14 MS. STEEL: So that, Mr. Levine, here this 15 insurance been sold through California to California 16 workers for these insurances. So, if that was insurance 17 company that doesn't have any nexus here in California 18 then that makes a difference -- that they don't owe us 19 taxes? Or still the Californians are buying it so 20 what's there? 21 MR. LEVINE: If we -- we don't have an argument 22 about nexus. We have a company that is regulated and 23 has an office in California. And if it -- if they 24 didn't have nexus, I'm -- if they didn't have nexus, we 25 couldn't tax them. 26 And I haven't researched and I don't remember 27 if the risk alone is enough. I don't think it is. 28 MS. STEEL: Okay. 27 1 MR. LEVINE: But we don't have that issue 2 here. 3 MS. STEEL: Then let's go back to the payroll 4 deducted from the paycheck directly and it goes into 5 Idaho. 6 You know, some of employees, State employees, 7 get paid and they pay some of the insurance from their 8 own paycheck but some of them that government 9 subsidizing the amount that -- so, it has nothing to do 10 with paycheck or it still count as a paycheck in 11 California? 12 MR. LEVINE: I'm not sure. As I heard the 13 facts here, the employees' deductions funded the entire 14 amount. And if that's the case, it's pretty simple, 15 they were paying it. It doesn't matter whether it was 16 withdrawn from a paycheck in Idaho. They were working 17 in California. They were getting paid for their work in 18 California. And whether they get the pay or they 19 authorize the employer to deduct or the employer says, 20 "That's how we do it," it's irrelevant. 21 Even if the employer puts in, it's really not 22 legally different because the employer is putting in as 23 compensation. Wages are compensation. The State's 24 contribution to our -- 25 MS. STEEL: That's the general policy. 26 MR. LEVINE: -- health is a contri -- is 27 consideration for our labor. 28 MS. STEEL: Okay. And then this insurance 28 1 company already paid Idaho the premium taxes, much 2 higher than California. There is no offset? 3 MR. LEVINE: No, there is no offset. 4 The only -- even if it were like sales tax, we 5 have a provision for a credit against use tax, but we 6 don't give that credit to someone who voluntarily and 7 incorrectly pays to another state. It has to actually 8 be due. 9 MS. STEEL: Okay, thank you. 10 MR. HORTON: Mr. Runner. 11 MR. RUNNER: Just to kind of clarify the 12 insurance type that we're dealing -- these were -- 13 'cause again there was some reference, so, I want to 14 make sure that we all understand this has nothing to do 15 with whether -- workers' comp, this is a -- these were 16 disability insurance policies or benefits? 17 MR. SILVER: That's correct. 18 MR. RUNNER: Correct? 19 MR. SILVER: Optional coverage. 20 MR. RUNNER: Optional coverage. 21 So -- so, in that sense, the employer in Idaho 22 was offering these optional benefits that the employer 23 could pay for? 24 MR. SILVER: The employee. 25 MR. RUNNER: Excuse me, the employee could pay 26 for as they were in California? 27 MR. SILVER: That's correct. 28 MR. RUNNER: Okay. Tell me why that's not a 29 1 solicitation. 2 MR. SILVER: Because the solicitation -- the 3 relationship is between the employer in Idaho and its 4 employees in California. 5 MR. RUNNER: Why -- 6 MR. SILVER: The California Insurance 7 Company -- the employer in Idaho could have gone to XYZ 8 Insurance Company -- 9 MR. RUNNER: I'm not talking about the 10 employer, I'm talking about the solicitation of the 11 employee. 12 MR. SILVER: Yeah. 13 MR. RUNNER: Why is that not a solicitation of 14 the employee -- the employee for a disability policy? 15 'Cause the employer's saying, "Hey, you can buy 16 our -- you can use this disability policy," to which we 17 probably get a pretty good rate for because we've done 18 it as a group, but the employee also has the ability to 19 go outside to another private, right? 20 MR. SILVER. Sure. 21 MR. RUNNER: So, in one sense, why isn't the 22 employer acting as an agent, soliciting that -- that 23 insurance for that -- for that indi -- for that company? 24 MR. SILVER: Because the employer is the -- not 25 only the policyholder, but the employer is the insured 26 in this case. He's not acting as an agent for the 27 insurance company. 28 The employer could have gone out and gotten 30 1 insurance from any one of a number of insurance 2 companies and made that transaction and then made it 3 available to the individual employee, who could take it 4 or not take it. 5 But it was not a solicitation by the -- the 6 insurance company to the employee at the end of the -- 7 at the end of the transaction. 8 MR. RUNNER: Who's -- 9 MR. SILVER: The employer's not getting any 10 kind of a commission. It's just the employer is 11 making -- 12 MR. RUNNER: The employer is not getting any 13 commission? 14 MR. SILVER: -- no, that's correct. 15 MR. RUNNER: So, who is going to make money off 16 of that -- off of that -- off of -- who is making money 17 off the fact that somebody in California chose to take 18 that benefit? 19 MR. SILVER: At the end of the day, the 20 insurance company, if the losses are -- 21 MR. RUNNER: Right, right. 22 MR. SILVER: Yeah. 23 MR. RUNNER: At the end and, I mean, -- 24 MR. SILVER: Yeah. 25 MR. RUNNER: -- wouldn't be a business if you 26 weren't making money? 27 MR. SILVER: That's correct. 28 MR. RUNNER: So, at the end of the day -- 31 1 that's what I'm trying to get over -- seems like 2 somebody that -- I mean, there was a solicitation that 3 took place, it seems to me, albeit not by the insurance 4 company, but by -- in essence, I can't help but get 5 around, maybe thinking, in essence, their agent, who 6 acted in that way, who's -- who, I assume, sent a 7 brochure -- I assume it was a brochure of the -- 8 MR. SILVER: There was no brochure sent. 9 MR. RUNNER: -- how did they describe what the 10 product was? 11 MR. SILVER: I-- they -- the employer, the 12 actual -- the client, who was the -- for whom those 13 employees worked, 'cause he was not the employer, the 14 employer was in Idaho -- 15 MR. RUNNER: Right. 16 MR. SILVER: -- made that available to them by 17 some method. But there was no pamphlet. There was no 18 brochure. 19 MR. RUNNER: The insurance company never saw 20 any kind of material that was shown to the California 21 employee talking about what that particular product was 22 to which they were going to get a certificate for? 23 MR. SILVER: That's correct. 24 MR. RUNNER: How did they know what they were 25 getting? 26 MR. SILVER: Because it would have been 27 explained to them by the client, in this case, the 28 client, I want to use that as opposed to the -- 32 1 MR. RUNNER: The employer? 2 MR. SILVER: -- the client who runs Joe's Gas 3 Station. 4 MR. RUNNER: Right. 5 MR. SILVER: Joe -- Joe, who runs Joe's Gas 6 Station, is going to tell his people at his gas station, 7 "I'm going to make available to you 8 disability insurance. If you want to buy it, 9 it's optional. It's from this insurance 10 company. Tell me if you want it or if you 11 don't want it. If you all want it, we'll do it 12 by payroll deduction." 13 But there's not a piece of paper that goes from 14 California Insurance Company to those individuals that 15 Joe was talking to. 16 MR. RUNNER: No, no, no -- okay, again I'm not 17 saying there is anything that's paper that they actually 18 have to sign or do -- 19 MR. SILVER: No, no. 20 MR. RUNNER: -- I got to believe that somewhere 21 along the line the information that the employer got 22 came from somewhere. It had to come from the insurance 23 company. 24 MR. SILVER: But it goes from the employer to 25 the client. 26 MR. RUNNER: Right. 27 MR. SILVER: And tells the client, which is 28 Joe -- 33 1 MR. RUNNER: But where did -- but where did the 2 client get that information? 3 MR. SILVER: -- from the employer, which is 4 the -- 5 MR. RUNNER: Where did the employer get that 6 information? 7 MR. SILVER: From the insurance company. 8 MR. RUNNER: Then -- okay. 9 MR. SILVER: But it's not a solicitation. 10 There is not -- 11 MR. RUNNER: Okay, okay. I got it. 12 I am just trying to figure out -- 13 MR. SILVER: Okay. 14 MR. RUNNER: -- the only way they knew how to 15 buy that product, I guess, is where we're going. 16 Let me ask you this -- 17 MR. SILVER: When you say, "they", I guess who 18 is -- 19 MR. RUNNER: -- I'm talking about the employee, 20 at that point, I'm sorry, the California employee. 21 Let me ask you this then, the issue of the 22 California office, the California employees are getting 23 this, they have this benefit. They've said, "I'm 24 choosing to do this on my own. I'm paying the premium. 25 It's going over here so, I'm paying." 26 Do you define what that individual pays as a 27 premium, the California employee? 28 MR. SILVER: Sure. 34 1 MR. RUNNER: Okay. The premium -- 2 MR. SILVER: Absolutely. 3 MR. RUNNER: -- that that individual pays is 4 going -- is going to Idaho? 5 MR. SILVER: Well, I want to -- when you say 6 it's going to Idaho, I don't want to give the impression 7 that it goes to California and then there is a check 8 written back from California to Idaho. It's deducted by 9 the Idaho employer. 10 MR. RUNNER: Correct, you're right. I get, you 11 are right, right. 12 It doesn't actually -- it comes out of the 13 check. It comes out of the earnings of a California 14 individual? 15 MR. SILVER: Yes. 16 MR. RUNNER: Now, where that actually is cut, I 17 have no idea. 18 MR. SILVER: And maybe a semantical issue. 19 MR. RUNNER: But it comes out of the earnings? 20 MR. SILVER: Yes. 21 MR. RUNNER: Okay. This -- this San Francisco 22 office then, the -- the insured, the employee in 23 California, what's their relationship to that 24 San Francisco office? 25 MR. SILVER: None, other than they can send the 26 Notice of Claim to the San Francisco office. 27 MR. RUNNER: Well, that's a pretty -- when you 28 say, "None," there's a big difference between "none" and 35 1 "This is where you send your claim." 2 MR. SILVER: No -- well, the difference -- the 3 reason that it's significant is the claim is going to be 4 sent to the California office, but it's not going to 5 adjusted there. 6 MR. RUNNER: I get -- get that that -- 7 MR. SILVER: Okay, yeah. 8 MR. RUNNER: -- happens in Nebraska or -- 9 MR. SILVER: Yeah. 10 MR. RUNNER: Right. But, I mean -- 11 MR. SILVER: The policy certainly said, 12 "Send" -- 13 MR. RUNNER: Now why do you have to do that? 14 Why -- why -- why do you have a San Francisco office? 15 MR. SILVER: Because we're licensed and we're a 16 California corporation. We are -- we are not -- we are 17 licensed by the California Department of Insurance and 18 we are -- at the end of the day, we are a California 19 corporation. 20 MR. RUNNER: And that requires you to then have 21 an office in California? I don't know if it does. 22 Does that require you to have an office in 23 California? 24 MR. SILVER: It's -- it's the office where 25 we're domiciled because we're a California corporation. 26 MR. RUNNER: Okay. Let me ask the Department 27 real quick, what is the different -- we use different 28 words here. 36 1 We used the issue of "insured" and then we used 2 the issue of a "certificate" and then we've heard the 3 word "policy." 4 Am I understanding that insured and certificate 5 is probably the same person? 6 MS. JOHNSTONE: The certificate holder, the 7 member of the group that's insured under the group 8 policy. 9 MR. RUNNER: Okay. 10 MS. JOHNSTONE: Correct. 11 MR. RUNNER: And the policyholder, at that 12 point, would you agree that the definition of the 13 policyholder is the company that's the employer? 14 MS. JOHNSTONE: Not exactly. 15 MR. RUNNER: Why not? Why -- why would that 16 not be the -- the -- the policyholder? 17 MS. JOHNSTONE: Several reasons. 18 First of all, the three -- the three 19 policyholders for the disability and accident policies 20 are also the -- the entities that are doing the payrolls 21 and providing other employee services for their clients, 22 which are the California employers. 23 They're not California Insurance Company, not 24 Petitioner itself, but its affiliates, including the 25 three policyholders and the -- 26 MR. RUNNER: My question is really -- 27 MS. JOHNSTONE: -- oh, no, no. 28 MR. RUNNER: -- okay, my question is -- let me 37 1 say it again. 2 MS. JOHNSTONE: Right. 3 MR. RUNNER: Why is the California insured 4 employee, not the policyholder? 5 Or, excuse me, you think that they are 6 policyholder? Why do you believe that they are the 7 policyholder as opposed to those insured by definition 8 or hold an insurance certificate as opposed to insure -- 9 holding the insurance policy? 10 MS. JOHNSTONE: Well, the -- they are not 11 defined as the insureds under the policy. The insureds 12 are defined under the policy as being the California -- 13 the eligible employees or the California employees, the 14 California -- the employees located in -- 15 MR. RUNNER: Okay, I get that. 16 MS. JOHNSTONE: -- California. 17 MR. RUNNER: Okay, I'm okay there. 18 But, again, you -- let me try it again, the 19 policyholders, do you believe that the insured or those 20 that hold the certificate are also policyholders? 21 MS. JOHNSTONE: No. 22 MR. RUNNER: Okay, that -- that's where I was 23 going. I misunderstood that. 24 Okay, you -- you agree that the employer is the 25 policyholder? 26 MS. JOHNSTONE: I agree that the three entities 27 are the policyholders -- 28 MR. RUNNER: Okay. 38 1 MS. JOHNSTONE: -- whether -- 2 MR. RUNNER: Who are not the insured? 3 MS. JOHNSTONE: They are not the insured. 4 MR. RUNNER: Okay, that -- okay. 5 The -- you had mentioned that there was a 6 refund in Idaho in 2006? 7 MS. JOHNSTONE: Correct. 8 MR. RUNNER: For this -- for this tax? 9 MS. JOHNSTONE: They were -- the policies that 10 were -- are at issue are the 2004 and 2005 disability 11 and accident -- 12 MR. RUNNER: Uh-huh. 13 MS. JOHNSTONE: -- policies and the 14 employer's -- employment practices liability insurance. 15 They were -- they were written either in 2004 or 2005 to 16 be continuous. They were exactly the same policies in 17 2004, 2005 and 2006 -- as they were in 2006. 18 The -- when the -- when the Petitioner found 19 out that they had misattributed the premiums reported to 20 Idaho, they applied to Idaho for a refund. 21 MR. RUNNER: Okay. 22 MS. JOHNSTONE: And they obtained a refund for 23 2006. 24 MR. RUNNER: Okay. 25 MS. JOHNSTONE: Unfortunately, they didn't do 26 this until September of 2007, or around there sometime. 27 And Idaho has only a one year statute -- 28 MR. RUNNER: Okay. So -- 39 1 MS. JOHNSTONE: -- of limitations. 2 MR. RUNNER: Okay. 3 MS. JOHNSTONE: They couldn't do 2004 and 2005. 4 MR. RUNNER: Okay, gotcha. 5 Okay. So, so -- when you received that, then 6 you went ahead and paid your tax in California with that 7 refund? 8 MR. SILVER: Yes. 9 MR. RUNNER: Okay. I just wanted to clarify 10 that that's -- that that's -- that that's what took 11 place. 12 Risk of loss, how much is that? Is that -- how 13 key is this -- that in this formula in regards to doing 14 business in California under the Insurance Code? 15 MS. JOHNSTONE: It's very key. I -- I 16 mentioned earlier the Metropolitan Life Insurance case 17 that was against us. 18 MR. RUNNER: Okay. So, tell me why you believe 19 the risk of loss for this company is in California. 20 MS. JOHNSTONE: Because it -- only the people 21 who are insured can be indemnified under the policy. 22 And only the people who are -- can be indemnified are -- 23 I mean, those people are all in California. 24 So, the risk of loss, in other words, if 25 they've got -- 26 MR. RUNNER: When we talk about risk of loss, 27 we're talking about the fact that you actually have to 28 pay out something on this -- 40 1 MS. JOHNSTONE: Oh, yes. 2 MR. RUNNER: -- on a claim, right? 3 MS. JOHNSTONE: Yes, yes. 4 MR. RUNNER: That's what we're talking about? 5 MS. JOHNSTONE: Yes, yes, exactly. 6 MR. RUNNER: Okay. Okay, now again would you 7 argue that -- that the risk of loss was not in 8 California? 9 MR. SILVER: No. 10 MR. RUNNER: You believe the risk of loss is in 11 California? 12 MR. SILVER: Yes, but I don't think it's 13 determinative of the issue. 14 MR. RUNNER: And tell me why quickly. 15 MR. SILVER: Because if you go through the 16 cases, it talks about risk of loss being one factor. 17 But if you look at all the other factors in terms of -- 18 MR. RUNNER: Excuse me, I -- I agree, it's not 19 determinative, it's a part of? 20 MR. SILVER: Yeah. 21 MR. RUNNER: Okay. I -- I get you. 22 MR. SILVER: Okay. 23 MR. RUNNER: But -- so is where -- I mean, it 24 is a case of weighing this issue because part of the 25 case is where the insured are, right? 26 MR. SILVER: Sure. 27 MR. RUNNER: So, I mean -- so, it's -- so, you 28 would believe it's on the side over here of -- the risk 41 1 of loss issue is on the side of -- of -- of the tax 2 being due in California? 3 MR. SILVER: It would not be a favorable factor 4 to us. 5 MR. RUNNER: Okay, gotcha. Okay, thank you. 6 MR. HORTON: Member Yee. 7 MS. YEE: I hope this is not simply stated, but 8 what governs where taxes are owed is the location of the 9 risk, yes? 10 MS. JOHNSTONE: What governs where taxes are 11 owed in California is whether the premium comes from 12 business done in this state. 13 What governs where taxes are owed in Idaho is 14 if the risk of loss -- the subject insured is located 15 resident or takes place in Idaho. 16 MS. YEE: Okay. 17 MS. JOHNSTONE: Neither state says it's where 18 the situs of the contract was. 19 MS. YEE: Right, right, okay. 20 MR. HORTON: Okay. I just want to make sure I 21 heard your testimony earlier correctly. 22 Was it your testimony that someone or a company 23 has made a decision to -- prospectively, based on their 24 own deliberation -- to report the tax to California as 25 opposed to Idaho? 26 MR. SILVER: Yes, because there was a -- there 27 was a change in circumstances in 2006. And as a result 28 of that, prospectively we have paid the tax to -- to -- 42 1 to California. 2 MR. HORTON: What was that change? 3 MR. SILVER: The change was in -- in the 4 structure of the relationship. 5 Prior to 2006 with respect to -- 6 MR. HORTON: Prospectively -- 7 MR. SILVER: Oh, prospectively. 8 MR. HORTON: I know what happened prior. 9 MR. SILVER: The policies were issued directly 10 to the various clients as opposed to being issued to the 11 three companies in Idaho. 12 So, Joe's -- Joe's Gas Station would have a 13 policy. This policy would be issued directly to Joe's 14 Gas Station. Thus, we pay premium tax to California. 15 MR. HORTON: Okay. Further discussion, 16 Members? Is there a motion? 17 MS. YEE: Move to take the matter under 18 submission. 19 MR. HORTON: Moved by Member Yee to take the 20 matter under submission, second by Member Steel. 21 Objection? Without objection -- 22 MR. RUNNER: No. 23 MR. HORTON: -- such will the order. 24 MS. JOHNSTONE: Thank you. 25 MR. HORTON: Ms. Richmond, what is our next 26 item? 27 MR. SILVER: Thank you very much. 28 MR. HORTON: My apologies. 43 1 MR. SILVER: That's okay. 2 MR. HORTON: Thank you so very much for 3 appearing before us today. It was very, very 4 informative. 5 MR. SILVER: Thank you very much. 6 MR. HORTON: Appreciate your testimony. 7 ---o0o--- 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 44 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 44 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: August 28, 2012 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 45