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 25, 2012 10 11 SALES AND USE TAX APPEAL HEARING 12 APPEAL OF 13 ELITE CERTIFED AUTO SERVICE & TIRES, INC. 14 NO. 550595 (EA) 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: Marc Alviso Tax Counsel 20 Kevin Hanks 21 Chief, Headquarters Operations Division 22 Robert Tucker 23 Legal Department 24 25 For Petitioner: Robbie Kelterer Taxpayer 26 Michelle Kelterer 27 Witness 28 Jerry Taylor Representative 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 JULY 25, 2012 4 ---oOo--- 5 MR. HORTON: Ms. Richmond. 6 MS. RICHMOND: Our last hearing for today is 7 C10, Certified -- Elite Certified Auto Service & Tires, 8 Inc. Please come forward. 9 MR. KELTERER: Hello. 10 MR. HORTON: Mr. Levine, would you please 11 introduce the issues in this case? 12 MR. LEVINE: The issues in this petition are 13 whether adjustments to unreported sales or adjustments 14 to unreported cost of consumables are warranted. 15 MR. HORTON: Okay. 16 MR. KELTERER: Hi, my name's Robbie Kelterer, 17 my wife, Michelle Kelterer, and my accountant, Jerry 18 Taylor of Taylor Accounting. 19 MR. HORTON: Before we start, let me get just a 20 little clarification. 21 We received quite a few documents. 22 MR. KELTERER: Quite a few. 23 MR. HORTON: Has this information been provided 24 to the Department? 25 MR. KELTERER: Yes. 26 MR. HORTON: And Department, you've reviewed 27 this information? 28 MR. ALVISO: I've reviewed most of it. 3 1 MR. HORTON: Okay. 2 MR. ALVISO: As much as I could. 3 MR. HORTON: All right, good. We're all on the 4 same page. 5 Thank you for appearing before us. You have 6 ten minutes to make your presentation. We'd ask that 7 you begin with your introduction for the record. 8 MR. KELTERER: My name's Robbie Kelterer of 9 Elite Certified Auto Services, doing business as a 10 Goodyear franchisee. 11 This is my wife next to me, Michelle Kelterer, 12 and my accountant, Jerry Taylor of Taylor Accounting. 13 MR. HORTON: Welcome. 14 MR. KELTERER: I get notification for an audit 15 a couple years ago. Auditor came in, looked at my books 16 and records. It's all computer-generated, real simple 17 stuff. It's -- it comes in to me at the end of the 18 month and it says, "This is how much tax you got to send 19 in." You send it in. It's so much labor, it's so much 20 parts. 21 I do it every quarter, I do the same thing for 22 the last ten years. And then we went electronic, I 23 guess, a little while back and did it that way and I got 24 a letter for audit. 25 I showed her the electronics -- the monthly 26 electronic statement and she matched it all up, took 27 here a couple hours. She was out of there, we're 28 done -- great. 4 1 So then I got a notice from her that she's 2 coming back. In about week or two, she did. And she 3 stayed for a week. She ordered all my bank statements, 4 everything possible -- deposit slips, so on, so forth. 5 I told her we had a fire, showed her proof of 6 the fire. She said, "We'll just average things out. 7 You know, take a quarter and average it out." So, we 8 did that. 9 And then she came back and said, "You have a 10 sizeable refund coming." Yeah, I always add a little 11 bit more every month in case I get audited. 12 And she went back to her office and came back 13 again. And then she wanted more reports. I've got a 14 box back there. I have got ten of those of brand new 15 reports from the Wells Fargo that she ordered that she 16 never even opened. Some of them -- it cost me $1800 for 17 all this work. 18 And it kind of upset me. She was there a whole 19 year. She audited my shop for a whole year. I don't 20 understand why she was there for a whole year. And she 21 kept wanting more and more. 22 And the fifth time she came back -- the fifth 23 time she came back for a fifth -- different kind of 24 audit. She said, "You've still got a refund coming." 25 Great. 26 Then we went through the use tax. I didn't 27 understand the use tax. She talked me into some weird 28 stuff. And I got proof that I paid -- the use tax, that 5 1 I bought everything from Costco and paid tax for all my 2 equipment and everything like that, that shouldn't be a 3 problem. 4 But then she decided after the fifth, sixth -- 5 seven times she came back for the audit, the eleventh 6 month into the audit, driving me crazy, asking a lot of 7 questions. I'm sole owner. I'm running the business by 8 myself. She's interrupting service, she's interrupting 9 business -- a million questions over and over. 10 She said, "We need to take all your bank 11 accounts, make copies for all of your bank accounts for 12 all three years." 13 I go, "Can't we just do a quarter like we did 14 before?" 15 "No, all three years." 16 Did all that again. So, I got two sets of bank 17 statements. Then she goes -- she wants the checks, hand 18 deposited checks that went into the account and "We're 19 going to check those." 20 She took all the totals, all the transfers, all 21 the monies in the account, she put them altogether, cut 22 it in half and said, "We're going to tax half of that." 23 I go, 24 "I've never seen an audit like this before, 25 ever. I've been audited by -- Goodyear audits 26 me every month. You know, they want their 27 percentage, you know. Everybody audits me. I 28 get lots of audits and this is the first one 6 1 I've ever seen that they're going to take all 2 of the money I made, cut it in half and we're 3 going to charge you 9.25, or whatever it is." 4 I go, "You can't do that, it's impossible." 5 She goes, "Oh, that's what we're going to do." 6 Because I got, you know, kickbacks from parts 7 companies. I've kickbacks from refunds, from customers, 8 I've got lists and lists of kickbacks I get that go into 9 the account. You know, I got -- I had another business, 10 closed the business. I got my security deposit back, 11 that was $8500 and that went into the account. I showed 12 her the check. I said, "You can't tax me on this $8500, 13 you can't tax me on that." 14 She goes, "Well you have to prove that it 15 wasn't a purchase." 16 I go, "I don't know how to prove that. It came 17 from the landlord and it says such-and-such landlord on 18 the check. I got copies of the checks for you guys." 19 MR. HORTON: When you say, "kickbacks," you 20 mean rebates? 21 MR. KELTERER: Rebates from tire sales -- 22 kickbacks, I get kickbacks from my vendors, yeah, 23 3 percent. And they give me a check for 3 percent of my 24 total sales and I put that in my account. And I don't 25 think that should be taxed. 26 And I -- she just -- she gave me some credit 27 for some of them, but I gave you guys -- most of the 28 ones that she didn't here (indicating), it would be A, 7 1 you go through -- I just took a quarter out, three 2 months, 'cause it cost me a lot of money 'cause they 3 have to hand copy these. So, I got three months and I 4 averaged them all out and it comes out to about $500,000 5 she would not allow. 6 She said, 7 "You know, Don Steed Chevrolet, I don't 8 know who that is, I can't allow that. Caliber 9 Collision, I don't know who that is, I'm not 10 going to allow that." 11 She didn't know who they were, so, she wouldn't 12 allow it. So, I got copies of all that. I tried to 13 talk to her about the Goodyear business management 14 system. It's pretty simple stuff, it's Goodyear. 15 There's -- everybody has a franchise, it's real simple, 16 simple stuff. We have something called, a dapper 17 (verbatim) account. We have a GSA account. We have 18 fleet accounts. We have multiple accounts that money 19 goes into my account that's not taxed. It's the 20 government. I do tires for the government. I do 21 service for the government. I don't tax the government. 22 They don't let me charge them tax, so, it's not non tax. 23 I get a check from them, it's non tax. 24 My fleet accounts, like Enterprise-Rent-A-Car, 25 they -- one of the biggest fleets in the world. They 26 bring a lot of work to me. They -- they -- I don't 27 charge them tax either, they take 12 percent off the top 28 and that's what they do. 8 1 She went round and round about three months, 2 saying, "Oh, no, no, no. You got to pay tax on that, 3 you got to pay tax on that." 4 I go, "No, I got this letter from Goodyear 5 saying that no, that's not the way it's done." It's in 6 the -- in the file thing I gave you guys, along with the 7 fire department, cause of the fire, all that stuff, it's 8 all in here (indicating). 9 So, I -- here, I don't know what to do. I'm 10 very confused. So, we had a meeting at Jerry's office. 11 It was her on the phone, Jerry, me, her supervisor and a 12 mediator. And we all sat down and we're all on the 13 speaker phone and we talked and we talked and we talked. 14 She put her foot in the ground and would not budge, 15 would not change nothing -- not even a dime, wouldn't 16 work on us with a dime. 17 The supervisor -- the mediator decided, well, 18 it's -- he looked over, it's about a thousand dollar 19 variation over the three year period, thousand dollars, 20 goes that's no big deal, a thousand dollars. 21 So, I figured I'd get a letter saying, oh, a 22 thousand dollars, you owe 80 bucks or 800 bucks or 23 whatever is. I got a letter in the mail saying I owe 24 the same amount, come to this hearing. 25 So, here I am. 26 MR. HORTON: Okay. 27 MR. KELTERER: Ten minutes up? It goes on and 28 on and on and on. I got most of it all highlighted here 9 1 (indicating). 2 MR. HORTON: Thank you. 3 We'll now go to the Department. The Department 4 will be allowed ten minutes to make their presentation 5 and we will return and allow you five minutes on 6 rebuttal. 7 Please commence with your introductions for the 8 record. 9 MR. ALVISO: Thank you, Chairman Horton and 10 Members. My name is Mark Alviso from the Sales and Use 11 Tax Department. To my right is Mr. Kevin Hanks, also 12 from the Sales and Use Tax Department. And to his right 13 is Mr. Robert Tucker from the Legal Department. 14 The taxpayer operates a business, which is 15 a tire -- tires and auto repair. As was stated, an 16 audit was performed from July 1st, 2006 through 17 June 30th of 2009. And due to the limited taxpayer 18 records being available with respect to sales invoices, 19 et cetera, during the time of the audit, the audit was 20 performed using bank deposits. 21 And there are basically two areas of 22 underreporting that were identified. One was 23 underreported sales and the other one, which is the 24 self-consumed -- use tax on self-consumed supplies. Of 25 the two, by far, the unreported taxable sales was the 26 larger portion of what was found. 27 As part of the bank deposit analysis, deposits 28 that were going into three of the taxpayer's bank 10 1 accounts were examined. They were examined on an actual 2 basis, month by month, and I believe, transaction by 3 transaction. And adjustments were made to the bank 4 deposits to account for transfers between accounts, 5 personal deposits, deposits from lines of credit and bad 6 checks and refunds. 7 Since the -- since the sales invoices were not 8 available for the audit period, a segregation test was 9 performed in March of 2009 by the auditor, whereby by 10 sales invoices for the entire month were examined. And 11 that's where the breakdown, as far as taxable versus 12 nontaxable sales were identified on the -- I believe the 13 49 percent was identified in that respect. 14 As far as self-consumed items, according to the 15 file notes that was just an amount that -- that the 16 taxpayer had initially told the auditor at some point 17 during the audit and that what was used. 18 And just to clarify, the end reported -- the 19 use tax on self-consumed items would be things like 20 degreaser, solvents, et cetera, things that would be 21 used performing auto repair that you wouldn't 22 necessarily invoice the client or customer for. 23 I did see some information regarding some sales 24 for resale. And there were some copies of payments or 25 checks that were representing sales for resale. And I 26 believe those were examined at the Appeals conference or 27 after the Appeals conference. But when those were 28 tallied on the actual basis, they were actually 11 1 representative of less amount than compared to the 2 percentage that was identified during the March 2009 3 segregation test. So, the -- no adjustment was done 4 with respect to that. 5 With that, the Department recommends or agrees 6 with the recommendation in the decision and 7 recommendation. 8 MR. HORTON: On rebuttal. 9 MR. KELTERER; Yeah, as far as the use tax -- 10 you got a copy of this, I hope you did. 11 I called your -- a couple of your assistants 12 and they told me what to do. Went to Costco and they 13 gave me all of the receipts, lots of receipts from 14 Costco and they're mixed in with home stuff and stuff I 15 use for the shop. And it's got the solvents. It's got 16 things in there. 17 And the only thing I was telling her, the only 18 thing I might not put on an invoice -- 'cause if I buy 19 something, I'm going to sell it to you and I'm going to 20 charge you tax. I don't understand why I wouldn't put 21 it on your ticket and make money off it. 22 You know what I am saying? I don't understand 23 why somebody would think like that, I'm there to make 24 money. 25 But I have brake cleaner that sometimes doesn't 26 go on a ticket, but goes in the brake package. So, if I 27 do brakes on your car, it's brake pads, hardware, clean 28 and adjust rear brakes. And I -- you know, I mark brake 12 1 pads up 230 percent, I think that's enough sales tax off 2 brake pads to cover the brake cleaning. So, I don't 3 know, that's the only thing I could think of. 4 She was talking flux and rosin and solder and 5 gases -- and I don't know what. I don't -- as far as 6 use tax, I never gave her a dollar amount or what I used 7 for use tax. I said once in a while I'll change the oil 8 on own car, you know, but I don't know -- I don't know. 9 As far as, you know, receipts, I've got a whole 10 bunch of receipts here, all that I'm supposed to need 11 from your assistant told me is to get them all together. 12 Look over what I got, it's all I can say. 13 MR. HORTON: Does that conclude your -- 14 MR. KELTERER: Yeah. 15 MR. HORTON: -- presentation? Thank you very 16 much. 17 Discussion, Members? 18 Member Runner. 19 MR. RUNNER: Yeah, let me just -- I'm sorry -- 20 MR. TAYLOR: Yeah, I was going to say, it 21 should be obvious on there, like disallowing the resale 22 cards and stuff. There was some of them, it's pretty 23 obvious just by the company, you know, if you do 24 something for it that it's -- it's a wholesale item 25 exemption, you got to read. 26 MR. RUNNER: Okay. The core of this concern 27 seems to be the assumption of the split that says that 28 half of these are taxable sales and half are not. 13 1 Is that -- I mean, that's the core of a lot -- 2 the core of a lot of this money? 3 MR. TAYLOR: Well, that's true. She also -- 4 pardon me, I'm sorry. 5 She took everything off of bank statements. 6 Like I say, he's -- there's a check in there like for 7 $50,000 that he loaned the company and that was all 8 included. 9 MR. RUNNER: Okay. Again, it was this idea 10 that it was -- that those -- is those individual checks 11 were not looked at? 12 MR. KELTERER: Correct. 13 MR. RUNNER: It was just done on a -- 14 MR. KELTERER: Correct, on a-- 15 MR. RUNNER: This goes here, this goes there? 16 MR. KELTERER: Right, 'cause I took almost 17 130,000 out of my house to keep my business going and 18 she wouldn't -- 19 MS. KELTERER: She allowed 40. 20 MR. KELTERER: She allowed 40. She allowed 40. 21 MR. RUNNER: Your records -- 22 MR. KELTERER: She allowed 40. 23 MR. RUNNER: -- your records -- these are the 24 same records that you submit to Goodyear, Goodyear 25 reviews these records and all that stuff? 26 MR. KELTERER: Every quarter -- 27 MR. RUNNER: Okay. Let me ask the Department a 28 couple of questions. 14 1 MR. KELTERER: -- in regards to that. 2 MR. RUNNER: See if you concur with that. Is 3 that what took place? 4 I mean, did we -- did we, for instance, we went 5 right down middle, but yet he showed some -- some -- 6 some checks like a refund from his landlord or other 7 things that we then didn't adjust for? 8 MR. ALVISO: In reviewing the audit, it appears 9 that the deposits were reviewed on an actual basis and 10 adjustments were made at that point for transfers and 11 deposits for personal -- 12 MR. RUNNER: How were adjustments made if we 13 did 50-50? 14 MR. ALVISO: No, that came after the fact. 15 MR. RUNNER: Oh, those were already excluded? 16 MR. ALVISO: For the actual audit period -- 17 MR. RUNNER: Uh-huh. 18 MR. ALVISO: -- we have bank statements and 19 bank records for the entire period. 20 MR. RUNNER: Uh-huh. 21 MR. ALVISO: And those were reviewed. We 22 started with total gross deposits. 23 MR. RUNNER: Right. 24 MR. ALVISO: And the auditor made adjustments 25 for that to account for transfers and items coming 26 from -- 27 MR. RUNNER: Okay. Let me clarify that then. 28 So, all these things you just talked to me 15 1 about -- the -- the -- the loans from your personal -- 2 you know, from -- that you put into the business, the 3 landlord rebate and whatnot, what I'm hearing from the 4 Department is those were all taken out before the 50-50 5 split. 6 MR. KELTERER: No. 7 MS. KELTERER: Only what she allowed. 8 MR. KELTERER: Only what she allowed. She 9 allowed a certain percentage of it. 10 MR. RUNNER: Well, can you tell me what per -- 11 do you have examples of what she didn't allow? 12 MR. KELTERER: Well, like this, I was sitting 13 at the table, she'd go like this (indicating), she'd 14 say, 15 "I'm not going to take that one. I don't 16 -- I'm not taking those, I'm not taking those. 17 I'll take this one, this one's okay." 18 Because I didn't have my resale cards because I 19 had a fire so the resale cards got burnt up and she 20 said, "Run around town and get new ones." 21 But most of these places are closed, you know. 22 Don Steed Chevrolet's closed, Ford's and Dodge's closed. 23 MR. RUNNER: Right. 24 MR. KELTERER: And, you know, '07, everybody 25 closed, '08. 26 MR. RUNNER: Okay. Tell me about this one here 27 (indicating), which is -- which is this idea of the 28 service work that you were doing for -- who was it, 16 1 Enterprise? 2 MR. KELTERER: Enterprise. 3 MR. RUNNER: Enterprise, did she allow that? 4 MR. KELTERER: No, she did not understand it. 5 MR. RUNNER: Okay. So, let me go back to the 6 Department. 7 What would -- if she -- what would be the 8 auditor's reason for not allowing the service work when 9 at least the documentation that the taxpayer provided 10 from Goodyear is that -- gives them pretty clear 11 direction that that's not a taxable item, that that is, 12 I guess, 13 "Your outlet is not reimbursed for sales 14 tax, those are billed by Goodyear and do not 15 pass through your outlet and are not your 16 responsibility." 17 Why would that not be allowed? 18 MR. ALVISO: My understanding, reviewing the 19 file, was that those transactions were allowed. And 20 there was specific information regarding contracts 21 through Goodyear and that those were considered sales 22 for resale and not taxable. And those were allowed. 23 MR. RUNNER: So, you believe that the taxpayer 24 is in error, that they were allowed? 25 MR. ALVISO: That's my understanding from 26 reviewing. 27 MR. RUNNER: Well, I need more than your 28 understanding. 17 1 So, yes, you believe that? 2 MR. HANKS: Yes. 3 MR. RUNNER: And you -- and you've got the 4 documentation to demonstrate that? 5 MR. HANKS: We do, we do. We've got the audit 6 working papers. The Petitioner would have been supplied 7 a copy of those working papers too. 8 I just thought I would -- I would add, I'm just 9 looking at the auditor's comments, initial comments upon 10 audit, they note that total sales were reported were 11 based on the taxpayer's best estimates. That's exactly 12 what the auditor's writing. 13 Also taxable sales were determined by 14 subtracting estimated amounts of exemptions for labor, 15 sales for resale, cash discounts and so on. 16 Now, the -- the auditor also comments that 17 there was a point of sale system. However, it was set 18 up for proper bookkeeping, according to our audit staff 19 and accounting, rather it was used to generate job 20 estimates and invoices. 21 So, there was no general ledger supplied. 22 There were no profit and loss statements, there 23 weren't -- 24 MR. RUNNER: Does that seem unusual for a -- 25 for a franchise? 26 MR. HANKS: It seems -- 27 MR. RUNNER: Doesn't that seem unusual for a 28 Goodyear franchise to -- to have that lack of basic 18 1 accounting? 2 MR. HANKS: It seems odd, it seems odd. 3 But my point was that's why the alternative 4 method of looking at bank deposits was used in this 5 case, because generally we can rely, in looking at the 6 general ledger and profit and loss statements and such, 7 income tax returns. There was only one income tax 8 return. 9 MR. RUNNER: And what got us -- what got us to 10 the 50-50? Is that an industry standard? What -- 11 what -- what got us to say that that was the fair way to 12 assess? 13 MR. ALVISO: The 50-50 came up through a 14 segregation test done in March 2009, which was during 15 the audit period. And the auditor reviewed, as I 16 understand it, sales invoices for the entire month and 17 separated out what would be the nontaxable labor versus 18 taxable parts versus resale. 19 MR. RUNNER: So, it was all based upon that 20 first month, the 50-50 -- that one -- I shouldn't say 21 the first month, that month? 22 MR. ALVISO: That's correct. 23 MR. RUNNER: Okay. Did you again -- how did 24 you -- how did that -- 25 MR. KELTERER: It's one of the highest grossing 26 months I had that -- in the summer. And she went 27 through that month and that's the month she took into 28 consideration. 19 1 And she said, "I'm going to make it 50-50. Is 2 that all right with you?" 3 By then she's been there a year, you know, what 4 I am going to say? 5 MR. RUNNER: Okay. Let me ask you this about 6 this just to -- again, procedure wise -- tell me again, 7 at least the taxpayer is saying, "Hey, this auditor came 8 into my business and said, 'Hey, you're going to get -- 9 you've overpaid, you're going to get a refund, you're 10 going to get a refund.'" 11 And then -- and then -- and then proceeded 12 on -- seems to me, you know, a number of other visits, 13 only to conclude then with this deficit or this -- this 14 liability. 15 Is it typical for an auditor to come in and 16 inform somebody that they're going to get something? 17 MR. KELTERER: I got six -- 18 MR. RUNNER: Is that -- 19 MR. HANKS: No. 20 And Mr. Alviso probably has some comments to 21 include, but I just wanted to -- to mention to you that 22 one of the things that the auditor typically captures is 23 what's called an assignment activity history. 24 MR. RUNNER: Uh-huh. 25 MR. HANKS: And, so, it identifies all of the 26 requests for records, the requests for appointments and 27 meetings with the taxpayer -- with the gentleman before 28 us today. 20 1 And what's identified here are continuous 2 delays in our requesting meetings with the gentleman and 3 his asking for postponements to meet at later dates. 4 I cannot identify the exact dates of these 5 conversations, who our auditor spoke with and usually 6 it's Mr. Kelterer that we spoke with. 7 But frequently there were delays. There is no 8 indication whatsoever that the auditor identified 9 credit -- credit amounts as being applicable. 10 In fact, everything was estimated. The 11 reported amounts are based on estimates. So, I can't 12 imagine that our audit staff would have said, "Based on 13 your estimated reporting, we're calculating that you're 14 owed a refund." 15 MR. RUNNER: I mean -- 16 MR. HANKS: I don't see that. 17 MR. RUNNER: Were these all just conversations 18 that you had with the auditor? 19 MR. KELTERER: Oh, we had lots of 20 conversations. 21 MR. RUNNER: I know, but -- 22 MR. KELTERER: She had lots and lots of 23 questions. She would come in one day right in the 24 middle of the audit, she was in my break room, taking it 25 over. She got my paperwork everywhere and, all of a 26 sudden, she got sick and left. And I didn't see her for 27 a week with my paperwork everywhere. 28 No place for the mechanics to eat their lunch. 21 1 No place for them to dress. Then she comes back, 2 "Sorry, I was sick." 3 Three weeks later she's got to go on vacation. 4 A month after that she comes in, "I don't feel real 5 good. I'm going to take the rest of the day off." 6 It's like -- I'm there all the time. 7 MR. RUNNER: Uh-huh. 8 MR. KELTERER: I should be there today, but I'm 9 not. 10 But she'd come in randomly and just show up, 11 and say, "I need this, this, this, this. Let me write 12 it all down for you." 13 MR. RUNNER: Okay. Let me ask you, if -- if -- 14 again, a lot of material has been presented here. Is 15 there anything new in this material that you have not 16 seen? 17 MR. ALVISO: There's quite a bit that's new, 18 although some of it is similar to what I noted in the 19 file. 20 Let's see if I have -- 21 MR. RUNNER: Is there material in here -- is 22 there -- is there information in here that would be 23 material to the estimates that we have -- that -- of the 24 audit that we've given to him so far? 25 MR. ALVISO: Potentially. 26 MR. RUNNER: Potentially. 27 MR. ALVISO: I was -- for example, as I 28 understand it this grouping of A were payments the 22 1 taxpayer received, which he's asserting are sales for 2 resale. 3 And it looks like -- I believe we had three 4 months worth of payments -- August 2006, September 2006 5 and, I believe, October 2006. 6 I just did a quick tally. Those tallied 7 greater than we had included as far as sales for resale. 8 We had used the 2 percent -- 2.09 percent sales for 9 resale. The sum of those would exceed that. 10 MR. RUNNER: Okay. Yeah, I -- at this point 11 I'm kind of not sure whether -- it's seems to me at 12 least a 30-30-30, some more time to review these things 13 could be important. If not, potentially a re-audit, 14 based upon some of the -- at least -- I'm concerned 15 about some of the accusations -- not that they're 16 necessarily true -- but I'm just concerned about some of 17 the audit procedures we're hearing about. 18 And I don't -- and I -- again, I don't know, 19 I'm not giving credence to them, it's -- I guess I would 20 just say I'm concerned. 21 But again it seemed to me either more time or 22 re-audit might be part of this. But certainly what I'm 23 concerned about is the fact that somebody would have a 24 Goodyear franchise and we would find them so lacking 25 because -- did we go to Goodyear for some of this 26 information? Did Goodyear -- did we go back to the 27 Goodyear Corporation to ask them what they had? 28 MR. ALVISO: I do not believe so. 23 1 MR. RUNNER: Boy, why not? Why wouldn't that 2 be the logical place to go -- to go to Goodyear and ask 3 them what their -- what their numbers are for their 4 franchisee? 5 MR. HANKS: It could be that -- Goodyear would, 6 most definitely, have gross sales information, but they 7 wouldn't have the information probably segregated the 8 way that we need to have it segregated because a large 9 portion of the taxpayer's sales are exempt labor 10 sales. 11 MR. RUNNER: Do we -- do you -- do we know that 12 that's what Goodyear has or doesn't have? 13 MR. HANKS: I don't know -- 14 MR. RUNNER: I mean -- 15 MR. HANKS: -- what's exactly reported. 16 MR. RUNNER: -- I think Goodyear, depending 17 upon their agreement with the franchise, may have all 18 kinds of detail as to how much was labor, how much was 19 materials. 20 I would think that they've got more than just 21 gross sales that you send to your -- to your franchise, 22 you know, to Goodyear. 23 I would assume -- I would assume, do you -- 24 MR. KELTERER: I get a daily printout that goes 25 to corporate, goes to Akron, Ohio via San Diego. 26 MR. RUNNER: And in that corporate -- in that 27 daily printout, does it -- does it distinguish 28 between -- 24 1 MR. KELTERER: Oh, yeah, breakdown -- 2 MR. RUNNER: -- tangible goods -- 3 MR. KELTERER: -- brake pads -- 4 MR. RUNNER: -- labor, all those other issues? 5 MR. KELTERER: -- oh, yeah -- every single rag, 6 towel, uniform, battery, everything's on those lists, 7 everything. 8 She had those lists. She had every single one. 9 She took them all. She put them all in a box and they 10 disappeared. 11 And I can't get reprints on them. 12 MR. RUNNER: And we don't have any -- and in 13 the audit, we don't have any reference to those, do we? 14 We just end up -- 15 MR. HANKS: We do not. 16 MR. RUNNER: Okay, thank you. 17 MR. KELTERER: Can I have a request to not have 18 that auditor? 19 MR. HORTON: Sir -- 20 MR. RUNNER: Well, the -- 21 MR. HORTON: Member Steel. 22 MS. STEEL: I am very much concerned here that 23 Mr. Hanks just re -- stated that they didn't have all 24 the documents, but they had fire, that's another thing. 25 And then I just heard from the Appellant that 26 he put $130,000, but only $40,000 loan was allowed. I 27 think we should do little more detailed job here that, 28 you know, going through it. And if we -- the taxpayer 25 1 said that Goodyear has everything, I think they should 2 have it because they have it every month that they are 3 going through the audit, then I think they have it. 4 And why don't we just go through it and -- 5 instead of half and half, 50-50, why don't we just go 6 through one by one? Because those services are not 7 taxable and whatever that he put it in from the house, 8 that loan, that has to be calculated nontaxable. 9 And I think we have to do little more thorough 10 job here, that's what I'm hearing because, you know 11 what, it's a -- just here from our attorney that, you 12 know, it's almost similar, I don't want to hear it's 13 similar, but it has to be exact same. 14 So, most of the documents here that I'm looking 15 at it first time today, I think it's -- I think we 16 should review it again to looking at those documents. 17 MR. HANKS: Ms. Steel, we'd be happy to look at 18 those documents. 19 Perhaps the Petitioner could assist in 20 obtaining information through Goodyear, to the extent 21 that they have that information? He's probably got a 22 better rapport with them than we would have. 23 MS. STEEL: And then if taxpayer can provide 24 that, you know, those loans that you made from the house 25 and, you know, copy of those documents and then make 26 sure that it's -- it went in. 27 MR. KELTERER: I'll try, but the bank's changed 28 names a couple times since. So, I'll try. 26 1 MS. STEEL: But you already gave to the 2 auditors all those documents? 3 MR. KELTERER: All those documents, it's all 4 the original copies. 5 MS. STEEL: We can go through that because a 6 chunk of money went in, $430,000, 40,000 here and 30,000 7 there, and I think we should consider those too. 8 MR. TAYLOR: May I add something? 9 All the gross sales are on the federal income 10 tax. And I take -- I get that report off of the reports 11 that go to Goodyear. 12 MS. STEEL: Okay. 13 MR. TAYLOR: So, had they used those, I think 14 you'd have found a different -- 15 MS. STEEL: Thank you. 16 MR. HORTON: Okay. Question of the taxpayer, 17 it makes sense, being a Goodyear distributor, not only 18 does Goodyear have the information, but you would have 19 it as well. 20 The Department has indicated a challenge in 21 receiving books and records. Do you currently have the 22 sales journal or any document that reflects your sales 23 or the information that you provided to Goodyear? 24 MR. KELTERER: I don't understand the question. 25 MR. HORTON: Do you have any documents that you 26 provided to Goodyear to substantiate the sales? 27 MR. KELTERER: It runs through a GBMS system, 28 it's Goodyear Business Management. There's this large 27 1 satellite on my roof and they take what they want, what 2 they need and they send me what they want and what they 3 need. 4 MR. HORTON: You actually input that 5 information through their system? 6 MR. KELTERER: It's automatic, yes. 7 MR. HORTON: So, as your cash register rings it 8 up, it's automatically sent over to them? 9 MR. KELTERER: Yeah, they know everything. 10 I don't -- I'm only allowed to go one day back 11 for reprints. So, I get -- I gave my auditor everything 12 I had. I can go only one day back and reprint my audit 13 trails. I can't go back a week, a month, a year. So, I 14 told her, "These are very important." You know, 15 she's -- she was going to make copies in my office, but 16 she said there was too many and she was going to take 17 them with her and -- 18 MR. HORTON: Okay. 19 MR. KELTERER: I think she was pretty new at 20 it. 21 According to her, she said it was the first 22 time. 23 MR. HORTON: Further discussion, Members? 24 Ms. Steel moves a 30-30-30, Mr. Runner seconds. 25 Objection, Members? 26 Without objection, such -- Mr. Levine? 27 MR. LEVINE: Can I just ask for, perhaps, a 28 modification to allow it to go into re-audit if the 28 1 parties decide that that would be useful? 2 MR. HORTON: Ms. Steel? 3 MS. STEEL: I think right now that, you know, I 4 just want our Department to review all the documents 5 what they have first. 6 And if they can not find out, then, you know, 7 go for re-audit. 8 But re-audit's going to -- I mean it costs 9 taxpayers money and time and I -- I don't think it's 10 really fair, what after we did -- you know, what not 11 really did a great detail job. And then, you know, we 12 going after the taxpayer for re-audit. 13 That's not really fair for the taxpayer. 14 MR. LEVINE: So, bring it back then if you 15 want -- 16 MR. HORTON: I'm going to go to the Department. 17 Based on their assessment of the records, it seems to me 18 if the taxpayer has the documentation, we are able to 19 clarify. 20 I also want to say that in the absence of 21 records, I believe the auditor did the appropriate -- 22 took the appropriate actions in the absence of books and 23 records. 24 But now that we have books and records, we can 25 get closer to reality. 26 So, there's a motion -- 27 MR. RUNNER: Just real quick on this. Since 28 it's my second, I'll get there real quick. 29 1 Again, I wouldn't be opposed a re-audit based 2 upon some of the issues, if, indeed, that was found to 3 be necessary. 4 I don't want to put the taxpayer -- and, again, 5 the understanding is up to the taxpayer. This is -- 6 this is a different auditor, if you go through re-audit. 7 So, you're not at that point. So -- but I 8 think that material -- if the material can be found that 9 needs to be done through a 30-30-30, great. 10 But, again, if -- if we see some problems 11 within the -- if we see underlying -- I guess here's 12 what I want to know: I want to know that the Department 13 is actually looking to see if there are problems in the 14 underlying audit, not just -- not just look at it, but 15 determine whether or not there was problems in the audit 16 itself. 17 And if there were, then I would assume that 18 either we fix it through the 30-30-30 or we go ahead and 19 do the re-audit. 20 But I'm -- I'm -- I'm concerned in that at 21 least the little research that we've done tells us, 22 "We're concerned about the audit." 23 So, I -- that be would my comment. 24 MR. HORTON: Okay. 25 MR. TAYLOR: May I make one last comment? 26 MR. HORTON: Mr. Runner? 27 MR. RUNNER: Yes. I don't think it's 28 necessary, I think we're about concluded for your -- for 30 1 your -- 2 MR. TAYLOR: Okay. 3 MR. RUNNER: -- I think we're doing fine. So, 4 I think -- 5 MR. HORTON: Okay. So, the amended motion is 6 to grant a 30-30-30, leave at the discretion of the 7 Department, if necessary, to conduct a re-audit. 8 If so, to notify the Board accordingly. 9 Did I capture that? Okay. 10 There's a motion and a second to that effect. 11 Without objection, Members? 12 Such will be the order. 13 Thank you very much for appearing before us 14 today. We appreciate the additional information you 15 provided. 16 The Board will take your -- will not take your 17 matter under consideration, we just took action. 18 The Appeals will share with you what 30-30-30 19 means and the discretion that they have and try to work 20 with you to minimize the burden on you as taxpayers. 21 Okay? 22 MR. TAYLOR: I am aware of that. 23 MR. HORTON: Oh, you are? Okay. 24 MR. TAYLOR: Thank you, sir. 25 MR. HORTON: You're welcome. 26 ---o0o--- 27 28 31 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 JULY 25, 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 32 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: September 14, 2012 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 32