1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 JULY 24, 2012 10 11 12 13 14 15 FINAL ACTIONS 16 17 18 19 20 21 22 23 24 25 26 27 REPORTED BY: Kathleen Skidgel 28 CSR NO. 9039 1 1 P R E S E N T 2 3 For the Board Jerome E. Horton of Equalization: Chairman 4 5 Michelle Steel Vice-Chairwoman 6 7 Betty T. Yee Member 8 9 George Runner Member 10 11 Marcy Jo Mandel Appearing for John 12 Chiang, State Controller (per Government Code 13 Section 7.9) 14 Joann Richmond 15 Chief Board Proceedings Division 16 17 For Staff: Lou Ambrose Tax Counsel IV 18 19 ---oOo--- 20 21 22 23 24 25 26 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 JULY 24, 2012 4 ---oOo--- 5 MS. RICHMOND: That concludes our tax program 6 non-appearance matters. 7 Would you like to take those matters that have 8 been taken under submission? 9 MR. HORTON: Um, Members, I'm going to take a 10 five-minute recess. And we'll come back in five 11 minutes. 12 MS. YEE: Okay. 13 (Recess taken.) 14 MR. HORTON: Let us reconvene the meeting of 15 the Board of Equalization. 16 Ms. Richmond, what is our next item? 17 MS. RICHMOND: Our next item is B2a, William 18 Justice and Lisa Blinderman; B2b, Michael Panek and 19 Tracy Panek; B2c, David Sterling; and B2d, Mark Cronin 20 and Lois Cronin. 21 ---oOo--- 22 B2a WILLIAM JUSTICE and LISA BLINDERMAN 23 NO. 573575 24 B2b MICHAEL L. PANEK and TRACY PANEK 25 NO. 585508 26 B2c DAVID STERLING 27 NO. 585513 28 B2d MARK CRONIN and LOIS CRONIN 3 1 NO. 586117 2 ---oOo--- 3 MR. HORTON: Uh, discussion, Members? 4 MS. MANDEL: Is there a motion? 5 MS. YEE: Uh, move to sustain the Franchise Tax 6 Board. 7 MR. HORTON: Moved by Member Yee to sustain the 8 Franchise Tax Board. 9 Second, Members? 10 Second by Ms. Mandel. 11 Without objection, Members, such will be the 12 order. 13 ---oOo--- 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4 1 MR. HORTON: Ms. Richmond. 2 MS. RICHMOND: Our next item is B4, Manik R. 3 Bose and Devika Bose. 4 ---oOo--- 5 B4 MANIK R. BOSE and DEVIKA BOSE 6 NO. 574066 7 ---oOo--- 8 MR. HORTON: Discussion, Members? 9 Is there a motion? 10 MS. YEE: Uh, move to sustain the Franchise Tax 11 Board. 12 MR. HORTON: Moved by Member Yee to sustain the 13 Franchise Tax Board. Second by Member Steel. 14 Without objection, Members, such will be the 15 order. 16 ---oOo--- 17 18 19 20 21 22 23 24 25 26 27 28 5 1 MR. HORTON: Ms. Richmond. 2 MS. RICHMOND: Our next item is B7, Robert C. 3 Johnson and Ruby B. Johnson. 4 MR. HORTON: Discussion, Members? 5 Hearing none, is there a motion? 6 MR. RUNNER: I would move to grant the 7 appeal. 8 MS. STEEL: Second. 9 MR. HORTON: Moved by Member Runner to grant 10 the appeal. Second by Member Steel. 11 Objection? 12 MS. YEE: Uh, objection. 13 MR. HORTON: Objection noted by Member Yee. 14 Ms. Richmond, please call the roll. 15 MS. RICHMOND: Mr. Horton. 16 MR. HORTON: No. 17 MS. RICHMOND: Ms. Steel. 18 MS. STEEL: Aye. 19 MS. RICHMOND: Mr. Runner. 20 MR. RUNNER: Aye. 21 MS. RICHMOND: Ms. Yee. 22 MS. YEE: No. 23 MS. RICHMOND: Ms. Mandel. 24 MS. MANDEL: No. 25 MS. RICHMOND: That motion fails. 26 MR. HORTON: Uh, Members -- um, I'd like to, 27 um, take this matter under consideration and ask that 28 the Appeals unit brief the issue of reservation source 6 1 versus tribal source and the cases as they relate to 2 these issues and the other issues discussed by the 3 Members. And then provide us, uh, their -- 4 I'd also like to ask the Department to -- well, 5 let me qualify this. 6 I believe Mr. Runner made some very valid 7 points, and I am concerned about the materiality of the 8 case before us and the other cases and having the burden 9 placed on the taxpayer. 10 So even to the extent that we can -- the Board 11 can take on, if necessary -- I'm not saying that this is 12 the direction -- but the Board take on the 13 responsibility of advancing these issues to the court 14 somehow, if that is deemed necessary, that the staff 15 directs us or gives us some guidance in that regard as 16 well. But primarily, putting it over just to allow 17 staff an opportunity to brief the issues of concern, uh, 18 cognizant and aware that each of the Members have their 19 own perspective as to what the case says -- the various 20 cases say. 21 MS. YEE: Yeah. 22 MR. HORTON: Member Yee. 23 MS. YEE: Thank you, Mr. Chairman. 24 I -- I -- I support the direction that you are 25 suggesting. Um, it just seems to me the more of these 26 types of cases that we hear, and this one relates to, 27 um -- uh, source of income, but we've had others that 28 have related to resident of the reservation, not -- not 7 1 of the reservation. But, um, it seems to me that if 2 there is, um, the state has authority to tax, this is 3 really about, you know, really being very clear about 4 what the basis of the authority to tax is. 5 And, um, I think it's -- it's -- I'm becoming 6 more frustrated, as we hear these cases, that the case 7 law that comes up is the same case law. And yet, 8 there's really no discernment about, um, how they really 9 apply to the case before us. And it's kind of this 10 general, uh, kind of jurisdictional issue then. 11 And so I -- and regardless of -- of, uh, how we 12 state what that authority is, I -- I -- I do think we've 13 heard enough of these to where we can come to a 14 conclusion about, um, you know, how we're going to 15 define, um, you know, "reservation sourced income" or 16 whether it is -- or we define it by how we define 17 "tribal source income" if we decide that's the 18 distinction to be made. 19 But, um, I think what I'm looking for is -- 20 this is never going to get decided in court. I mean, I 21 just -- for us to wait for a day -- 22 MR. RUNNER: That's right. 23 MS. YEE: -- where, you know, we're going to 24 see a case -- 25 MR. AMBROSE: Yeah. 26 MS. YEE: -- you know, that's really going to 27 be on-point specifically to the cases before us, um, I 28 don't know who's going to take that to court. 8 1 So, but I do think that to the extent that we 2 are applying tax as a state, um, just being very, very 3 clear of what the basis of that authority is and what 4 we're relying on would be very, very helpful. 5 MR. HORTON: I agree. 6 Mr. Runner. 7 MR. RUNNER: Just a -- just a question for the 8 process then. What are -- what are we asking, and how 9 will it come back to us? 10 And, uh -- and then a secondary question to 11 that is how is it applying to this particular case 12 before us? 13 MR. AMBROSE: Well, uh, I don't know if this 14 has been done before, but I could see us doing a memo to 15 the Board Members, uh, and then you holding this open, 16 not deciding this until, say, the next meeting or the 17 one after. And, uh, then just deciding it at that 18 meeting. 19 MR. RUNNER: Mm-hmm. 20 MR. AMBROSE: I -- I could see that. 21 Or if, you know, the Board wishes, we could 22 prepare a summary decision. Um, that's typically, you 23 know, what we do when a matter's deferred. But, of 24 course, it's up to the Board. 25 MR. HORTON: Well, um, Members, the substance 26 of the document -- I mean the form -- I don't want to 27 get caught up in form over substance. And so I believe 28 the Department understands, uh, what the Board is 9 1 seeking, and -- 2 MR. AMBROSE: I -- I think so. 3 MR. HORTON: Okay. And so how it comes back to 4 us -- 5 The one thing I do want to make sure of is that 6 we stay within the boundaries of the discussion and the 7 debate today -- 8 MR. AMBROSE: Mm-hmm. 9 MR. HORTON: -- and that there are no issues 10 that have not been addressed or in -- in protection of 11 both the, uh -- both the, uh, Franchise Tax Board and 12 the taxpayer, to make sure that, uh -- that there is no 13 additional evidence other than what we've discussed. 14 And if so -- 15 MR. AMBROSE: Certainly. 16 MR. HORTON: -- they, too, have an opportunity 17 to, uh, brief those, uh that issue. So let's try to 18 stay as far away from it as we can. 19 MR. RUNNER: So the case will come back before 20 us for a vote? 21 MR. HORTON: Case will come back before us -- 22 MR. RUNNER: Okay. 23 MR. HORTON: -- for a vote. We will receive a 24 document from, uh -- 25 MR. RUNNER: Okay. 26 MR. HORTON: -- the Department, uh, with their 27 entire briefing on the issue. Call that document what 28 you will. 10 1 Ms. Mandel? 2 MS. MANDEL: And, um, I -- I guess in -- in -- 3 in doing that, perhaps then it will be, uh, maybe a 4 little more clearer about why legal ruling 399 -- 5 MR. RUNNER: Yeah. What happened to the 6 history of that. 7 MS. MANDEL: Legal ruling 399, which, as the 8 gentleman mentioned at the very end, was withdrawn in 9 1998 as unnecessary, whatever. But it -- it -- it, 10 um -- it talks about sourcing, as Ms. Yee said. And so, 11 um, it's just, the surround is all very interesting, and 12 that will, um -- 13 MR. AMBROSE: So -- so you'd like us -- 14 MS. MANDEL: Well -- 15 MR. AMBROSE: -- to look at all of the 16 materials and authorities that the parties have raised 17 and -- and what I suppose, you know, we put in the 18 hearing summary? 19 MR. RUNNER: Yes. 20 MS. YEE: Mm-hmm. 21 MS. MANDEL: Yeah. 22 MS. YEE: Absolutely. 23 MS. MANDEL: Because I -- you know, when it 24 comes back -- I mean, I'll hold on to the hearing 25 summary and stuff. But when it comes back, presumably 26 it will be a little while from now, so -- 27 MR. AMBROSE: Mm-hmm. 28 MR. HORTON: Okay. Let's tentatively, uh, have 11 1 that brought back at the next Board Meeting. 2 MS. MANDEL: Is that -- 3 MR. HORTON: If the Department needs additional 4 time, just notify Board Proceedings, and we will, uh, 5 adjust accordingly. 6 MR. AMBROSE: Okay. 7 MR. HORTON: Without objection, Members, such 8 will be the order. 9 MR. HORTON: Ms. Richmond. 10 MS. RICHMOND: Our next item is B9, Irene C. 11 Tritz. 12 MR. HORTON: Uh, let me digress a minute. Uh, 13 Mr. Ambrose, please explain to the taxpayer what just 14 transpired. 15 MR. AMBROSE: Oh, yes, sir. I will. 16 ---oOo--- 17 18 19 20 21 22 23 24 25 26 27 28 12 1 MR. HORTON: Okay. Ms. Richmond. 2 MS. RICHMOND: Our next item is B9, Irene C. 3 Tritz. 4 ---oOo--- 5 B9 IRENE C. TRITZ 6 NO. 592022 7 ---oOo--- 8 MR. HORTON: Discussion, Members? 9 Is there a motion? 10 MS. YEE: Move to sustain the Franchise Tax 11 Board. 12 MR. HORTON: Moved by Member Yee to sustain the 13 Franchise Tax Board. Second by Member Steel. 14 Without objection, Members, such will be the 15 order. 16 ---oOo--- 17 18 19 20 21 22 23 24 25 26 27 28 13 1 MS. RICHMOND: Our next item is B10, Ruby 2 Jeffery. This is a waived appearance. 3 MR. HORTON: So noted. Waived appearance. 4 ---oOo--- 5 B10 RUBY JEFFERY 6 NO. 595546 7 ---oOo--- 8 MR. HORTON: Uh, discussion, Members? 9 Is there a motion? 10 MS. YEE: Uh, move to sustain the Franchise Tax 11 Board. 12 MR. HORTON: Move to sustain the Franchise Tax 13 Board by Member Yee. Second by Member Steel. 14 Without objection, such will be the order. 15 ---oOo--- 16 17 18 19 20 21 22 23 24 25 26 27 28 14 1 MR. HORTON: Miss -- 2 MS. RICHMOND: Our next item is B12, Levern 3 Staples. 4 ---oOo--- 5 B12 LEVERN STAPLES 6 NO. 589098 7 ---oOo--- 8 MR. HORTON: Discussion, Members? 9 Is there a motion? 10 MS. YEE: Uh, move to sustain the Franchise Tax 11 Board. 12 MR. HORTON: Moved by Member Yee to sustain the 13 Franchise Tax Board. Second by Member Runner. 14 Without objection, such will be the order. 15 Ms. Richmond. 16 MS. RICHMOND: That concludes our business for 17 today. 18 MR. HORTON: Members, we will recess until 19 tomorrow. And thank you very much for today. 20 ---oOo--- 21 22 23 24 25 26 27 28 15 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, KATHLEEN SKIDGEL, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 July 24, 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 15 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: July 30, 2012 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 16