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 12 ---oOo--- 13 PUBLIC COMMENT 14 JOHN FRANCIS KELLY 15 ---oOo--- 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 18 ---oOo--- 19 20 Speaker: John Francis Kelly 21 22 ---oOo--- 23 24 25 26 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 JULY 25, 2012 4 ---oOo--- 5 MR. HORTON: Let us reconvene the meeting of 6 the Board of Equalization. 7 Ms. Richmond, uh, I understand we have public 8 comments. 9 MS. RICHMOND: Yes, that's correct. 10 ---oOo--- 11 JOHN FRANCIS KELLY 12 ---oOo--- 13 MR. HORTON: Okay. 14 Mr. John Kelly, owner of Kelly's Men's Store, 15 would you please come forward. 16 Uh, welcome to the Board of Equalization. You 17 have five minutes. 18 MR. KELLY: Thank you. 19 MR. HORTON: Okay. 20 MR. KELLY: Thank you Honorable, uh, Mr. Horton 21 and Members of the Board of Equalization. 22 My name is John Kelly, and I'm the owner of 23 Kelly's Men's Store in Tustin where I've sold cigars 24 retail for 32 years. I've, uh, put a little, uh, 25 information package for each one your -- for your 26 perusal there. 27 The first item in there is a little history on 28 California's former Governor, Pat Brown, the father of 3 1 our current Governor, Jerry Brown. He paid his way 2 through law school selling cigars retail here in the 3 golden State of California. 4 I think he'd have a very difficult time today, 5 uh, given the fact that 70 percent of cigars sold into 6 the State of California come through the Internet or 7 mail-order catalogues where the State gets no revenue. 8 These vendors pay no property tax in 9 California; they don't pay the excise tax; and they do 10 not collect the sales tax. So puts a brick-and-mortar 11 retailer at tremendous disadvantage, way beyond the 12 Amazon, uh, problem that you're confronted with 13 currently right now. 14 Um, I was referred to the, uh, PACT Act by your 15 staff members in Sacramento. Uh, this is the Prevention 16 Against Cigarette Trafficking that was passed in 2010 17 and signed into law by President Obama. And, uh, the 18 law was originally introduced by none other than 19 Congressman Anthony Weiner from New York who's no longer 20 in the House of Representatives. 21 But if you look at the PACT Act carefully, in 22 the preamble of the PACT Act, it says, "to ensure the 23 collection of all tobacco taxes, and for other 24 purposes." 25 And when you turn to page four of the PACT Act, 26 there is the exception: "For the purpose of this Act, 27 the term 'cigarette' does not include a cigar as the 28 term is defined in Section 5702 of the Internal Revenue 4 1 Code of 1986." 2 "To ensure the collection of all taxes on all 3 tobacco products" -- and so on page three your staff has 4 said we can't do anything about going after this 5 Altadis, the largest cigar company in the world; it's a 6 European conglomerate. 7 So currently, right now, we have a culture of 8 tax-cheating cigar-smokers and we have, uh, the only 9 beneficiary is this European conglomerate. 10 There has been no justification from 11 Mr. Weiner's staff, his former staff, on the, uh, 12 rationale as to why cigars were excluded from tobacco 13 trafficking. 14 Perhaps there was a lot of romance with the 15 lobbyists there to exclude cigars out of it, but it 16 doesn't make any sense to the general citizenry here in 17 California. 18 Um, I have included in that package in there a, 19 uh, a copy of the Internal Revenue Code for your 20 perusal. And also, the, uh, idea that if it was brought 21 back into Congress to revisit the PACT Act, that I think 22 the Members of the House and the Senate and the 23 President would have no problem with eliminating this 24 culture of tax-cheating nationwide on cigars. 25 Again, the only beneficiaries are the big 26 mail-order companies and the tax-cheats across the 27 country that buy their product through these mail-order 28 catalogues. 5 1 Uh, the PACT Act passed with unanimous Senate 2 approval, uh, went total consent. And, also, the House 3 of Representatives, they only had 25 dissenting votes on 4 the PACT Act; and one of them was Congressman John 5 Campbell who, uh, Member Michelle Steel sent me, uh, the 6 information on my last complaint about it, that, uh -- 7 to contact him to talk about the PACT Act with him. 8 Well, he voted against it in its entirety, so I guess 9 he's comfortable with tobacco products moving 10 nationwide, a libertarian stance, if you will. 11 So, I've come to you here as a last resort, to 12 ask you to possibly consider, uh, resolution on the 13 Board, not the refer this back to the staff. But a 14 political move on your part, to pass a resolution to 15 implore Governor Jerry Brown, with his family heritage, 16 given the fact that onerous taxes on California 17 merchants, putting us out of business -- and, again, the 18 State will get nothing when we're out of business, and 19 currently we're not getting anything from the 20 out-of-state vendors. So you're killing the goose that 21 lays the golden egg. 22 Uh, if you could pass a resolution saying that 23 we need a revision of the PACT Act to include cigars and 24 propose this to Governor Jerry Brown, he would 25 definitely have the ear of Senator Dianne Feinstein and 26 Senator Barbara Boxer. I've included a letter in there 27 that, uh, has a -- a solicitation to both Barbara Boxer 28 and Dianne Feinstein that I've never gotten a response 6 1 in over two -- almost years now. 2 So, uh, I'd -- I would really appreciate it. 3 The citizenry of Tustin -- uh, the citizenry of 4 California, they need this; it's of vital interest. And 5 it serves the public no good to punish law-abiding 6 citizens. 7 I've also included in there a -- a page out of 8 the catalogue, this mail-order catalogue, this Altadis 9 JR catalogue, where it shows a single box -- I've just 10 identified one -- box of Churchill 25-count Teamo 11 cigars, made in Mexico, to a consumer here in California 12 with no license, no store, can get it delivered to their 13 doorstep for $84.75. 14 And on the top of that page you have an invoice 15 that was sent to me, a California merchant, with a 16 license that is in compliance with you. I have to pay 17 $111.85. It's absolutely absurd. The concept of having 18 a retail tobacco shop here in California, as long as the 19 PACT Act is intact, we're all dying on the vine. And, 20 uh, the position that you're in to implore the Governor 21 to contact the, uh -- the -- the powers to be that have 22 the ability to make the change in the law. 23 Uh, I don't know. If you care to have any 24 input on it, I'd like to hear from the Board on this, 25 any kind of rationale of how this law makes any sense 26 where, again, in a preamble of the PACT Act it says, "to 27 ensure the collection of all taxes on all tobacco 28 products." And then to eliminate cigars, which is a 7 1 hundred percent tobacco product, it is absurd, it's 2 asinine. 3 MR. HORTON: Thank you very much for your 4 testimony before us today. 5 Uh, discussion, Members? 6 We appreciate you bringing this to our 7 attention. And it's my understanding that staff has -- 8 is in the process of looking at this matter. 9 Um, the concern goes a little bit beyond, uh, 10 the, um -- the act, the PACT Act. Uh, there's also 11 issues, even here in the State of California, as it 12 relates to sales of tobacco, uh, where they actually 13 have nexus here in California, uh, through the Internet. 14 And we are conscious of the -- how that put California 15 retailers at a serious disadvantage, um, and so we are 16 conscious of that. 17 The unfortunate thing is, is that the -- we 18 don't necessarily have the appropriate jurisdiction over 19 that. So just, uh, the best we could do is advocate for 20 a change of some sort. 21 Um -- 22 MR. KELLY: Would it -- would it be possible 23 that you could have the staff or the Board, again, put 24 together a -- some kind of a resolution as a unity of 25 the five major tax collectors here in California to call 26 the Chief Executive, Governor Brown, to put a bee in his 27 bonnet, to implore the U.S. Senators? Dianne Feinstein 28 was on the Senate Committee on the PACT Act. 8 1 I've talked to congressional, uh, members here 2 in California. They've told me that they were even 3 unaware that cigars were not included. They thought it 4 was an oversight. 5 But, again, it was intentionally done. And the 6 Congress member on the Committee that introduced it to 7 the overall House was Congressman Anthony Weiner; so we 8 know about his turpitude. Uh -- 9 MR. HORTON: Member Yee. 10 MS. YEE: Thank you, Mr. Chairman. Um, let me 11 make a suggestion in terms of how we may want to 12 proceed. 13 Uh, Mr. Kelly, I appreciate you bringing this, 14 uh, issue forward to the Board. 15 Um, the PACT Act is, um, something that, uh, 16 raises a number of issues that this Board is concerned 17 with. And I can assure you the staff has been, uh, very 18 diligent about, um, implementing in terms of the 19 predecessor provisions in the Jenkins Act. 20 And, uh, for us, there have been a number of, 21 uh, issues, uh, and concerns that have been raised 22 relative to, um, our role in implementing the federal 23 Jenkins Act, including, um, how we identify, uh, those 24 who purchase, uh, cigarettes from out of state. Uh, 25 it's not necessarily, uh, retailers; but we're also 26 talking about individual consumers as well. 27 And so, uh, I know we've had some resource 28 issues associated with the Board with respect to our 9 1 ability to, you know, really, uh, look at where, uh, tax 2 is due and to be sure that the appropriate tax is, um -- 3 is assessed and collected. 4 What I'd like to do, uh, Mr. Chairman, is 5 suggest that perhaps, uh, the Business Taxes Committee 6 take a look at this. Um, these are, uh, you know, uh, 7 revised provisions of the Jenkins Act, and this probably 8 is an appropriate time to review how our staff is doing 9 relative to the larger, uh, implementation of the 10 Jenkins Act provisions. 11 MR. HORTON: Okay. Um -- 12 MR. KELLY: Mr. Chairman, is there any 13 opportunity as elected officials, individually elected 14 officials, that you could personally, uh, send something 15 like this, a message to the Governor; uh, not as a 16 collective Board, but as individual Members of the 17 Board? 18 MR. HORTON: I think the, um, the most 19 appropriate way for the body to act would be as 20 recommended by Member Yee. 21 Uh, it allows for us to completely vet the 22 issue; and in the process of vetting the issue, of 23 course, I believe, um, individuals would be made aware 24 of the concerns and it positions us to make a 25 informative -- not that we're not informed -- but 26 position us to be able to have gathered the information 27 and the input necessary to take an action. 28 So, uh, it is what you're asking for, it's just 10 1 a process by which we accomplish that objective as a 2 body. Uh, and individually, each individual Member can 3 certainly act on their own accord; uh, however, in this 4 case, we'd certainly encourage us to act at a body. 5 MR. KELLY: Okay. 6 Well, thank you for your time, Mr. Chairman and 7 Members. And, uh, hope we get this squared away. 8 Because what this country needs is not a good five-cent 9 cigar. We need cigars that are in the PACT Act. 10 MS. YEE: Thank you, Mr. Kelly. 11 MR. HORTON: Yeah, thank you as well. 12 MR. KELLY: Thank you. 13 ---oOo--- 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11 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 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 11 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: August 2, 2012 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 12