1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 AUGUST 21, 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: Mai Tran Tax Counsel 18 John Johnson 19 Tax Counsel 20 David Levine Tax Counsel IV 21 22 ---oOo--- 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 AUGUST 21, 2012 4 ---oOo--- 5 MS. RICHMOND: Would you now like to take those 6 items that have been taken under submission? 7 MR. HORTON: Yes, please. The first item would 8 be? 9 MS. RICHMOND: B1, Bertha Gaffney Gorman. 10 ---oOo--- 11 B1 BERTHA GAFFNEY GORMAN 12 NO. 594551 13 ---oOo--- 14 MR. HORTON: Discussion, Members? 15 Is there a motion? 16 MS. YEE: I'm going to move to sustain the 17 Franchise Tax Board. Yeah, this reflects the, uh, 18 Franchise Tax Board conceding the head-of-household 19 issue and the accuracy-related penalty. 20 MR. RUNNER: Mm-hmm. 21 MR. HORTON: Thank you. 22 So moved by Member Yee. Second by Member 23 Steel. 24 MS. STEEL: How -- how about the -- that 25 $25,000 -- I want to -- I want Department to check that 26 $25,000, the loan from the original owner -- seller, 27 that has to be calculated, if it was not. I was not 28 really clear about that during the, uh, hearing. 3 1 MR. HORTON: Uh, both parties concurred that 2 the base was 245 versus -- 3 MS. STEEL: That was included for 25,000. 4 MR. HORTON: That included the two 25 -- 5 MS. STEEL: And then how about that second 6 $15,000 for repair for the house? 7 MR. HORTON: Um, I think conclusively they 8 assumed that that was included because the amount 9 requested was far less than the amount allowed. 10 MS. STEEL: They did the two $15,000. So I -- 11 is that okay if, on the motion, the -- the Department 12 check with that, uh, second $15,000 repair for the, uh, 13 house before -- 14 MR. HORTON: We -- 15 MS. STEEL: Was that before? 16 MR. HORTON: We would have to leave the item 17 open if we did that, um, somehow. And then bring it 18 back. 19 MS. TRAN: We could do a 30/30/30 if you wanted 20 that to be to double-check whether or not those are -- 21 MS. STEEL: But interest is going to grow. 22 MS. TRAN: Right. 23 MS. STEEL: You know what, I just let it go 24 then. 25 MS. MANDEL: Yeah, my -- my recollection was 26 that -- I mean, I was very interested in that. 27 MR. HORTON: Yeah, me too. 28 MS. MANDEL: And then what Mr. Horton picked up 4 1 that FTB said that even if you added all the numbers up, 2 it wa -- that she was talking about, you were still less 3 than what had been -- 4 MS. STEEL: Okay. 5 MS. MANDEL: -- allowed, so -- 6 MS. STEEL: Then I second the motion. 7 MR. RUNNER: That's right. 8 MS. STEEL: Okay. 9 MR. HORTON: Moved by Member Yee. Second by 10 Member Steel. 11 Without objection, Members, such will be the 12 order. 13 Members, with your indulgence, I'd like to, uh, 14 sort of thank the Franchise Tax Board for being 15 responsive on the other items and making the appropriate 16 adjustments, uh, prior to appearing before the Board. 17 And thank our Appeals Unit as well. Thank you, Ms. 18 Tran. 19 ---oOo--- 20 21 22 23 24 25 26 27 28 5 1 MR. HORTON: Uh, Ms. Richmond. 2 MS. RICHMOND: Our next item is B2, Diane 3 Green. 4 ---oOo--- 5 B2 DIANE GREEN 6 NO. 539627 7 ---oOo--- 8 MR. HORTON: Discussion, Members? 9 Uh, Ms. -- Ms. Richmond, why don't we go to B3, 10 if that's okay with you. 11 MS. RICHMOND: Okay. 12 ---oOo--- 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6 1 MS. RICHMOND: B3, Eben Gossage. 2 ---oOo--- 3 B3 EBEN GOSSAGE 4 NO. 546541 5 ---oOo--- 6 MR. HORTON: Discussion, Members? 7 Is there a motion? 8 MS. YEE: I move to sustain the Franchise Tax 9 Board. 10 MR. HORTON: Moved by Member Yee to sustain the 11 Franchise Tax Board. Second by Member -- 12 MS. STEEL: Second. 13 MR. HORTON: -- 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 7 1 MR. HORTON: B2? 2 ---oOo--- 3 B2 DIANE GREEN 4 NO. 539627 5 ---oOo--- 6 MR. HORTON: Is there a motion to move the 7 subsequent -- 8 MR. RUNNER: I want to -- let me start some 9 discussion. Um, again, I had leave through part of it, 10 but I did ask the specific questions I wanted to before 11 I left. And I don't know what other dialogue may have 12 taken place. 13 But it seemed to me pretty -- from -- from what 14 I had seen and what was said before that, uh -- that 15 there really was -- I could not find evidence of the -- 16 of the, um -- Ms. Green's, uh, ownership of shares which 17 created the res -- area of responsibility for her on 18 that. 19 Um, so I'm -- I'm interested to hear some of 20 the other discussion. 21 MR. HORTON: Sure. Um, why don't I go to, um, 22 Mr. Johnson, uh, if you will. 23 Um, there are maybe two or three points that -- 24 relative to the amendment of the tax returns and -- 25 might be helpful if you could share with us the -- kind 26 of hesitating to have a discussion about the 27 Department's position. But just a gen -- generic 28 summary, if you will, of the legal, uh, issues before 8 1 us. 2 MR. JOHNSON: Okay. The question is whether or 3 not she was a shareholder for 2004? 4 MR. RUNNER: Right. 5 MR. JOHNSON: On the original returns filed by 6 all three parties -- Diane Green, Mr. Gossage, and 7 Zack's -- uh, it showed that she was a partial owner, 8 shareholder of Zack's. And that's reflected in the pro 9 rata share that they each claimed on the independent 10 returns as well as the Schedule K-1's issued by Zack's. 11 On the amended return, she was sort of denouncing that 12 ownership. 13 If there's a -- was the question specific to 14 whether or not she received certificates or something to 15 that effect, uh, some kind of paper to symbolize she was 16 a shareholder? Nothing was presented in the record 17 beyond all the tax returns that were filed where she, 18 uh, signed under penalty of perjury that she was a 19 shareholder. 20 And the Franchise Tax Board points to one case, 21 it's Denemark, which the Court goes through analysis and 22 decides that you don't have to actually have to have 23 certificates issued to you in order to be a shareholder 24 of an S corporation. 25 MR. HORTON: Further discussion, Members? 26 MR. RUNNER: Was there any -- any -- anything 27 presented in terms of -- in terms of, uh, that she had 28 benefited from any of those other -- I mean, her 9 1 position in the corporation -- in fact, I don't even -- 2 her current positions or what -- what happened in the 3 corporation and any financial benefit that she had 4 received from that? 5 MR. JOHNSON: On her original return she had 6 reported a gain of approximately 6500, I believe it was, 7 about 10 percent -- 8 MR. RUNNER: Right. 9 MR. JOHNSON: -- of her income that year. 10 There's also the transaction journal from 11 Zack's, Incorporated which shows, uh, money going 12 between Zack's and herself of several thousand dollars 13 being transacted between the two of them for the 2004 14 tax year. 15 She also reported -- 16 MR. RUNNER: Now, is that outside the loans? 17 Or is that assumptions? 18 MR. JOHNSON: I don't know if we actually have 19 loan documents. 20 MR. RUNNER: Okay, okay. 21 MR. JOHNSON: And then she also reported -- as 22 2005, six, and seven, she also reported as a shareholder 23 of Zack's. I'm not clear exactly what her income 24 revenue was during those years from Zack's. 25 MR. RUNNER: Yeah. Thank you. 26 MR. HORTON: Further discussion, Members? 27 Is there a motion? 28 MS. YEE: Move to sustain the Franchise Tax 10 1 Board. 2 MR. HORTON: Moved by Member Yee to sustain the 3 Franchise Tax Board. Second by -- 4 MS. STEEL: Second. 5 MR. HORTON: -- Member Steel. 6 Without objection, Members, such will be the 7 order. 8 ---oOo--- 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11 1 MR. HORTON: Ms. Richmond. 2 Our last item is C2, The Kelleher 3 Corporation. 4 ---oOo--- 5 C2 THE KELLEHER CORPORATION 6 NO. 470475, 516087 (JH) 7 ---oOo--- 8 MR. HORTON: Discussion, Members? 9 Hearing none, is there a motion? 10 MS. YEE: Uh, move to adopt the staff 11 recommendation. 12 MR. HORTON: Moved by Member Yee to adopt staff 13 recommendation. Second by -- 14 MS. STEEL: That means that Crest hundred 15 percent. It's not, um, resale? 16 MR. HORTON: Second by Member Mandel -- 17 MR. LEVINE: That's correct. 18 MS. MANDEL: No, not second. 19 MR. HORTON: No second? Okay. 20 I'll second it for purpose of discussion. 21 And discussion, Members? 22 Member Steel. 23 MS. STEEL: I think as long as Crest had the 24 resale certificate, that I think we should give at least 25 some portion of it to this taxpayer. 26 So, I have an objection. I don't know how to 27 calculate that amount, but-- 28 MR. HORTON: Further discussion, Members? Or 12 1 maybe a question of Mr. Levine? 2 MS. MANDEL: No, I don't have a -- I don't -- I 3 don't have a question, Mr. Levine. 4 It's a -- it's, um -- it's a troubling 5 situation because you asked the question, or someone 6 did, as if they didn't have -- the Department didn't 7 have knowledge of the confidential information. 8 And I think it's very hard for them to put one 9 piece of that confidential information out of their 10 mind, which I won't say because I don't want to see you 11 jump over the table at me. Um, so I think it's very 12 hard for them to answer that question because it's a 13 little hard to unring that one piece of the bell. 14 Um, but that also, um, assumes, I think, that 15 you know for sure that Crest didn't pick up the use tax 16 somewhere, uh, didn't pick up tax, uh, on their returns. 17 And, um, I don't know that they know that for sure, uh, 18 either. 19 So, uh, it's very -- very hard for the taxpayer 20 because they -- they have to, um -- they have to argue a 21 case based -- they're arguing based on what, knowing 22 that this is a -- a view, that this is a construction 23 contractor. They're arguing the, uh -- the, uh, logic 24 of the, um, alternative method in the Audit Manual, 25 which -- which is for when, um, your sell -- your 26 purchaser is gone. 27 Um, the purchaser is gone. The purchaser had 28 a, uh, resale -- had a seller's permit, um, which would 13 1 suggest that they had a reason for having a seller's 2 permit as a -- you know, maybe they weren't required to 3 hold one, but they certainly held one and had a reason 4 to hold it at some point. That's what the seller has to 5 deal with. 6 And then the third piece of that is, if it's 7 the type of stuff that, you know, someone holding that 8 seller's permit would, uh, resell, um, and that's what, 9 through their sort of circumstantial evidence, they were 10 trying to, um, present that you could conclude as a 11 matter of fact that it seemed that it was the kind of 12 stuff that these guys -- this Crest would resell under 13 that seller's permit. 14 Then the staff says they have confidential 15 information that indicates that, um, there weren't, 16 uh -- or may not likely have been retail sales. 17 And I think that's very hard, uh, for the 18 taxpayer. Um, and even the tax return information from 19 Crest is confidential. But, um, if it's -- if it's, 20 uh -- if it's a construction contractor who, um, 21 shouldn't have been buying without -- shouldn't have 22 been buying ex-tax and did buy ex-tax, um, one might 23 think that they -- I mean, I would have thought that 24 they would have then picked up the tax or be likely to 25 pick up the tax on their return when they're reporting 26 it. 27 And the only thing I heard back was kind of a 28 very technical, um, well, if they shouldn't have -- if 14 1 they should not have been able to buy ex-tax, then they 2 didn't have to report use tax because it should have 3 been sales tax upfront. And I just don't know that a, 4 um, small, um -- I -- I just don't know that a -- a 5 tax -- a construction contractor of this level, that 6 that sounded like an awfully technical answer. And I 7 thought that, um, if it is somebody who's -- they kept 8 talking about a particular type of contractor. I don't 9 know, I just thought that they might, um, be just as 10 likely, potentially, to pick it up on their return. 11 And Mr. Levine thinks it's just as likely that 12 they wouldn't have picked it up on their return. 13 MR. LEVINE: I don't think it's likely at all. 14 They did not owe use tax. They did not give a resale 15 certificate. The Department could not assess use tax. 16 Do they -- do people in this situation ever 17 report use tax? Well, I'm sure it's happened. Um, it 18 did not happen here. 19 MS. MANDEL: Well, I -- I don't think that it's 20 definitive. I don't think we have -- 21 MR. LEVINE: Well, we conclude that it was. 22 MR. HORTON: Mr. Levine. 23 MR. LEVINE: I'm sorry. 24 MS. MANDEL: I -- I mean, the -- on the one 25 hand I hate to rely on the confidential information. On 26 the other hand, there is the confidential information. 27 I -- I don't -- I don't know that there's a -- I mean, 28 there's a -- if you can't exactly tie a number to a 15 1 number, um, but -- it, um -- it's just, um -- it's just 2 a -- it's a -- it's a sort of troubling confluence of -- 3 MR. HORTON: Yeah. 4 MS. MANDEL: -- factual pieces. 5 MR. HORTON: The concern for me was, um, 6 making, um -- was a due process concern, um, in that to 7 assure that the taxpayer had an opportunity to respond 8 to even what was considered confidential. And so the 9 Board was faced with the challenge of not disclosing 10 confidential information and having hypothetical 11 discussions. And in those hypothetical discussions sort 12 of considering the law in determining whether or not the 13 purchaser would have been construed or determined to be 14 a consumer versus a retailer. And where the burden of 15 liability would have fall -- fallen. 16 Um, so, um -- uh -- and it appeared from the 17 testimony of the taxpayer's representative that, um, 18 even in the absence of the confidential information, 19 that there was no real direct evidence that would, uh, 20 fulfill the burden of proof to prove that the taxpayer 21 was in fact or could have been a retailer, which 22 presents somewhat of a challenge for me. 23 Um, however, in consideration of the, quote 24 unquote, "preponderance of the evidence," one could 25 conclude, as Member Steel has implied, that, um, a 26 percentage of this could have been, in fact, sold for -- 27 sold at retail, making the individual a retailer on a 28 percentage and actually the consumer on the balance, 16 1 which would mean that we would still have a disallowed 2 sale for resale of whatever that balance might be, uh, 3 which would only reduce the amount that we ultimately 4 pick up and project. 5 And so, Mr. Levine, in reference to the 6 annotation in the Audit Manual which deals with the, uh, 7 substantial determination and -- and the alternative -- 8 alternative method in trying to determine if this 9 individual is a retailer or if he's a contractor, uh, 10 wherein it deals with substantially all of the sales, a 11 substantial amount of the sales have to be for resale 12 before he can even hold himself out as a retailer. 13 Can you shed some light on that for us? 14 MR. LEVINE: Yeah. The annotation is kind of a 15 red herring because it's in a completely different 16 situation. 17 MR. HORTON: In, uh -- combine that with the 18 language in the Audit Manual. 19 MR. LEVINE: Right, I'll get to that. 20 The annotation relates to when a contractor can 21 issue a resale certificate for commingled products, 22 which -- some of which -- the majority of which will be 23 consumed and a little portion will be resold. 24 I don't think there's any doubt that -- we're 25 not trying to figure out if this, uh, purchaser was a 26 construction contractor, which it clearly was, where -- 27 we're looking at this sale and whether some or all of 28 the purchase was resold. 17 1 And Ms. Steel is correct; if we had evidence 2 that a portion was resold, then that portion would be 3 allowable as resold and only that portion. Because, 4 under our regulation and the law, when you don't take a 5 resale certificate, tax applies except to the extent 6 that -- that the purchaser is shown to have actually 7 resold or is still holding it for resale, which we know 8 is not the case here. 9 As far as the Audit Manual, the Audit Manual is 10 in the context of if you don't of any information, 11 you've got to use what you can, and it gives the benefit 12 of the doubt to the taxpayer under certain facts. 13 The best answer I can give you is what the 14 third SD&R says, that we conclude that the available 15 information indicates Crest did indeed make the disputed 16 purchase as a consumer and not for resale, and that's 17 why we weren't looking at the Audit Manual, because we 18 didn't think we needed supposition. 19 And that's basically the context of the Audit 20 Manual. When the -- the purchaser's out of business, 21 there's no way to get information, we're not going to 22 get an XYZ letter. We don't have anything else. If it 23 looks like it's consistent with the sales that purchaser 24 made, we treat it as a sale for resale. 25 But we don't know what, if any -- let me 26 rephrase that. There is no record that this purchaser 27 made resales of this nature. And certainly not all of 28 it. But that's how we viewed the Audit Manual. 18 1 MS. MANDEL: But they have a -- they have a 2 resale permit. I mean, we do have these cases where 3 as -- where even when the auditors are using the 4 alternative methods, they hold a resale permit, is this 5 the kind of stuff they would have resold? And it's 6 like, well, okay, you know, you're -- you're a, um -- 7 you're a -- a -- a hair salon that, you know, sells 8 product, so you have a seller's permit. And, um, the 9 buyer -- the seller that wants to use this method, you 10 know, sold you a whole bunch of hammers. 11 Well, no, you know, hammers are not the sort of 12 thing that a -- that a beaut -- that a salon that holds 13 a seller's permit is likely to have, you know, resold. 14 It's not the sort of stuff that they would have resold, 15 so no, it wouldn't fit under this, even if they were 16 gone. 17 I mean, that's -- 18 MR. LEVINE: Even beauty supplies we wouldn't 19 necessarily accept because salons consume them. They 20 may sell little bits, but that doesn't mean that we 21 treat everything that's for resale. 22 The best example is, uh, an appliance store -- 23 MS. MANDEL: No, but I'm looking at the 24 Audit -- I mean, I -- you can tell, I find this a very 25 aggravating -- I find this a very aggravating case in 26 large -- in very large part because I think that the 27 reason, um, the Department is worried is, is because of 28 the confidential information. 19 1 I mean, unless you're telling me that the, 2 um -- that the, uh -- consistent with the type of sales 3 the business makes is not the normal way that we look at 4 what's consistent with the type of sales the business 5 makes. Because if -- normally when we see that, it's 6 "Did you sell something to a guy who, in the regular 7 course of his business, that's kind of the stuff that he 8 sells?" Not that he, you know, sometimes uses, 9 sometimes sells. But is it something that he would 10 sell? 11 And if it's something that's out of character 12 for the buyer to sell, no, that's not consistent with 13 the type of sales the business makes. 14 And it sounds like what's going on here is, is 15 you -- you have to take someone who has a seller's 16 permit and then say, not only is it the kind of stuff 17 that somebody who's in that business who sells -- holds 18 a seller's permit would have been the type of stuff they 19 would have sold, but that you know for a fact and not, 20 you know, just from circumstantial evidence, like how 21 they're listed on a website, that you know for a fact 22 that they sold those items, that specific item or those 23 types of items. 24 And I -- that just sounds like so much more 25 than is here, and that's part of why I think it sounds 26 like they're having trouble unringing the bell of what 27 they read in the confidential information. And I'm 28 not -- you know, I'm not a hundred percent sure that I 20 1 could look at the confidential information and say that, 2 to the extent stuff was used by this company -- this 3 purchaser, in their construction business, that they did 4 not report tax. 5 So, this is why I'm just so frustrated. 6 MR. HORTON: Yeah. 7 MS. MANDEL: I find the case very frustrating 8 from that. 9 MR. HORTON: I -- I was, um -- I mean, there 10 were a couple of things. One, by the taxpayer's 11 representative's own testimony, uh, they sort of 12 concluded that there could be a hybrid here, uh, where 13 there was, at a minimum, uh, that there was construction 14 activity. 15 And so, in light of that, um, we can't 16 altogether ignore the information that is perceived to 17 be confidential, and so -- in that there is a potential 18 for both to have occurred. 19 So, um -- and based on all the information 20 before us, uh, one could conclude that a marginal amount 21 of this was ultimately resold. 22 As to whether or not tax was paid and -- and so 23 forth and so on, there is a, uh -- the Agency would 24 be -- the Board of Equalization would be at a serious 25 disadvantage if they shift the preponderance of the -- I 26 mean, shift the burden of proof back to the Agency when, 27 in fact, all evidence indicates that it's on the 28 taxpayer and that there is some consumption here. 21 1 So, now, it seems to me that the burden of 2 responsibility falls on the Board to ascertain whether 3 there is an absolute, which doesn't appear to be an 4 absolute, uh, one way or the other. And then whether 5 there is some -- some, uh, marginal -- uh, some way of, 6 uh, dealing with these hypotheticals, if you will. 7 Ms. Steel. 8 MS. STEEL: Is it -- motion still alive? 9 MR. HORTON: Uh, unless someone -- unless 10 there's a subsequent motion -- 11 MS. STEEL: Or I can make subsequent motion. 12 MR. HORTON: -- or the maker of the motion 13 wants to -- 14 MR. RUNNER: Is there a motion? 15 MR. HORTON: -- withdraw it. 16 There is. 17 MS. STEEL: There's a -- 18 MR. HORTON: There's a motion to sustain the, 19 uh -- 20 MS. YEE: Staff recommendation. 21 MR. RUNNER: Oh. 22 MR. HORTON: -- staff recommendation, um, 23 and -- a motion and a second. 24 So if there is -- 25 MS. STEEL: Can I make substitute -- 26 MR. HORTON: Sure. 27 MS. STEEL: -- motion to -- we to have give 28 something there because we cannot really reveal the 22 1 confidential information here. But we all know that 2 Crest, um, Trim and Door had resale permit for all those 3 years -- I don't know when -- 1996 to 2008. 4 So why don't we do this, um, compromise here -- 5 because, you know, there's just no perfect number that 6 we can bring it out because they're not doing XYZ -- to 7 reduce the amount by 10 percent of the purchase of, you 8 know, by Crest and then project the balance. 9 MR. HORTON: Uh, Member Yee? 10 MS. STEEL: We give just little bit here. 11 MR. HORTON: Member Yee? 12 MS. YEE: I'm against it. 13 MR. HORTON: Okay. Um, technically the, uh, 14 subsequent motion, if there is a second, would govern. 15 Uh, is there a second to the subsequent motion? 16 MR. RUNNER: For the sake of the discussion, I 17 will second that and see if I understand it. 18 MR. HORTON: Okay. 19 MR. RUNNER: That's a ten percent -- 20 MS. STEEL: Right. 21 MR. RUNNER: Are we making the assumption then, 22 or the application that ten percent of the items in this 23 particular issue were for resale? 24 MS. STEEL: Ten percent of the Crest Door and 25 Trim. 26 MR. LEVINE: Actually resold, is what you'd be 27 needing. 28 MR. HORTON: Yeah. Resold in fact. 23 1 MR. LEVINE: Yeah. 2 MR. RUNNER: Were re -- yeah. 3 Let me -- let me just -- let me just, 4 procedure-wise, in terms of this stratified sample, 5 is -- is part of our -- it seems to me part of our 6 dilemma is -- that we've got here is that in this -- in 7 the center strata, we ended up with -- we ended up with 8 three errors, of which one of them is this questionable 9 issue we have, right? And as a result of that, if we 10 find that this particular transaction is indeed 11 incorrect, or -- or the assumptions that we made are 12 incorrect on this -- and are not in error, then I think 13 the sample isn't valid, right? Because then we'd only 14 have two left? 15 MR. LEVINE: Well, it's not that it's not 16 valid. It's we don't -- if the Board concluded that 17 this -- that the entire purchase was resold, then it 18 would not be in error. There'd be two errors left. We 19 don't project two errors. 20 MR. RUNNER: Right. 21 MR. LEVINE: So they'd be picked up on an 22 actual basis and not projected. 23 MR. HORTON: That's a different -- that's 24 different than what the motion is. 25 MR. RUNNER: Well, no, no. I'm trying to 26 figure out what got us to this point. I mean, if we 27 would have found five errors, then we could throw one 28 out and we would not -- we'd kind of end up with this 24 1 issue because the -- the sample was so tight, right, in 2 terms of the error number for that -- for that strata? 3 MR. LEVINE: When we have a three-error test, 4 the -- the taxpayer's look very closely to see if one 5 can be disputed -- 6 MR. RUNNER: Right. 7 MR. LEVINE: -- is much more important than -- 8 MR. RUNNER: Right. 9 MR. LEVINE: -- than the fifth or fourth. 10 MR. RUNNER: Right, right. And that's what -- 11 and so that's what becomes kind of a pivotal issue in 12 this discussion of the questionableness of this 13 particular transaction. 14 Let me ask you this, if -- if we are -- if we 15 are about ready to decide that ten percent -- that -- 16 that indeed -- if we are about ready to decide that ten 17 percent of the transaction was indeed, um -- uh, 18 nontaxable to the -- 19 MR. HORTON: Reseller. 20 MR. RUNNER: -- reseller, yeah, okay, um, does 21 that -- aren't we indeed -- aren't we in essence 22 undermining the -- the item and the -- and the 23 assumption of the item that we're using -- 24 MR. LEVINE: No. 25 MR. RUNNER: -- on the sample itself? 26 MR. LEVINE: This is an error unless you 27 conclude that no part of it was taxable. Because 28 there's no doubt -- there's no argument about a resale 25 1 certificate, so the taxpayer kind of got itself -- 2 MR. RUNNER: We can adjust the one sample, 3 identify it's an error, and just adjust it in some way 4 like this -- 5 MR. LEVINE: And then it would be -- 6 MR. RUNNER: -- not affecting the, um, the 7 quality or the authenticity of -- of -- of the method. 8 MR. LEVINE: That's correct. 9 MR. RUNNER: Okay. 10 MR. LEVINE: We would consider it an error as 11 long as there's some tax left over. 12 MR. RUNNER: Okay. Okay. 13 MR. LEVINE: Deficiency. 14 MR. HORTON: Further discussion, Members? 15 Okay. There is a, um, subsequent motion and 16 a -- subsequent motion with a second. So, unless there 17 is an objection by the maker of the motion that we -- 18 then we're going to move on the subsequent motion. 19 Hearing no objection, uh, there's a -- on the 20 supplementing the first motion with the subsequent 21 motion, um, there's a motion on the floor by, uh, Member 22 Steel to adjust the purchase -- adjust the total, uh, 23 error, as it relates to Crest, by ten percent, to 24 reflect resales and facts, uh, leaving the balance of 25 nine percent in error and allowing the Department to 26 project that balance in conjunction with the other two 27 transactions. Uh, and a second by Member Runner. 28 Objection, Members? 26 1 Hearing none, such will be the order. 2 MS. RICHMOND: This concludes our business for 3 today. 4 MR. HORTON: Thank you. The Board of 5 Equalization is hereby, uh, recessed until tomorrow. 6 ---oOo--- 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 27 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 August 21, 2012 I recorded verbatim, in shorthand, to 10 the 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 27 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: August 30, 2012 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 28