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 22, 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: David Levine Tax Counsel IV 18 19 ---oOo--- 20 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 AUGUST 22, 2012 4 ---oOo--- 5 MS. RICHMOND: That concludes our 6 administrative session. 7 Would you like to take those matters that have 8 been taken under submission? 9 MR. HORTON: Yes, please. 10 MS. RICHMOND: Our first item is C5, Mar 11 Dwatmadja Sijangga and Roslin Octavia Basuki. 12 ---oOo--- 13 C5 MAR DWATMADJA SIJANGGA and ROSLIN OCTAVIA BASUKI 14 NO. 533973 (CH) 15 ---oOo--- 16 MR. HORTON: Discussion, Members? 17 Is there a motion? 18 MS. YEE: Uh, move to adopt the staff 19 recommendation. 20 MR. HORTON: Moved by Member Yee to adopt staff 21 recommendation. 22 Objection -- 23 MS. STEEL: Objection. 24 MR. HORTON: Objection noted by Member Steel. 25 Second by Member Mandel. 26 Uh, Ms. Richmond, please call the roll. 27 MS. RICHMOND: Mr. Horton. 28 MR. HORTON: Horton aye. 3 1 MS. RICHMOND: Ms. Steel. 2 MS. STEEL: No. 3 MS. RICHMOND: Mr. Runner. 4 MR. RUNNER: Aye. 5 MS. RICHMOND: Ms. Yee. 6 MS. YEE: Aye. 7 MS. RICHMOND: Ms. Mandel. 8 MS. MANDEL: Aye. 9 MS. RICHMOND: Motion carries. 10 ---oOo--- 11 12 13 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 C7, Northbay 3 Wellness Group. 4 ---oOo--- 5 C7 NORTHBAY WELLNESS GROUP (JH) 6 NO. 526954 7 ---oOo--- 8 MR. HORTON: Discussion, Members? 9 Mr. Runner. 10 MR. RUNNER: Hmm-mm. 11 MR. HORTON: Oh, okay. 12 Um, is there a motion? 13 MS. YEE: Um, move to adopt the staff 14 recommendation. 15 MR. HORTON: Moved by Member Yee to adopt staff 16 recommendation. 17 MS. STEEL: Second. 18 MR. HORTON: Second by Member Steel. 19 Without objection, Members, such will be the 20 order. 21 ---oOo--- 22 23 24 25 26 27 28 5 1 MR. HORTON: Ms. Richmond. 2 MS. RICHMOND: Our next item is C8, Buy Rite 3 Auto Wholesale. 4 ---oOo--- 5 C8 BUY RITE AUTO WHOLESALE 6 NO. 523718 (KH) 7 ---oOo--- 8 MR. HORTON: Discussion, Members? 9 Is there a motion? 10 MR. RUNNER: Yeah. 11 MR. HORTON: Moved by -- 12 MR. RUNNER: I would -- I would, um, move to 13 grant for the taxpayer. 14 MS. STEEL: Second. 15 MR. HORTON: Moved by Member Runner to grant 16 for the taxpayer. Second by Member Steel. 17 Objection, Members? 18 MS. YEE: Objection. 19 MR. HORTON: Objection noted. 20 Ms. Richmond, call the roll. 21 MS. RICHMOND: Mr. Horton. 22 MR. HORTON: No. 23 MS. RICHMOND: Ms. Steel. 24 MS. STEEL: Aye. 25 MS. RICHMOND: Mr. Runner. 26 MR. RUNNER: Aye. 27 MS. RICHMOND: Ms. Yee. 28 MS. YEE: No. 6 1 MS. RICHMOND: Ms. Mandel. 2 MS. MANDEL: No. 3 MS. RICHMOND: Motion failed. 4 MR. HORTON: Uh, subsequent motion, Members? 5 Um -- my concern, on the floor, the testimony 6 seemed to imply that further resolution, uh, might be 7 beneficial, although I personally don't think it changes 8 a whole lot. But, um, during the discussion I noted 9 that that was -- appeared to be an option. Wasn't quite 10 clear. 11 But -- Mr. Runner. 12 MR. RUNNER: Well, I think the thing that 13 was -- a number of issues were concerning to me. Number 14 one, just size. I mean, size of the -- size of the -- 15 of the audit, the size of the dollars. And all of a 16 sudden when we got down to in regards to which was -- I 17 guess, two-tenths of one percent. And then we started 18 talking about then the issues behind that two-tenths of 19 one percent, uh, in terms of differences. 20 And especially then what I'm -- what I'm, 21 again, most concerned about is that it's difficult, it 22 seems to me, for a taxpayer to challenge the information 23 and the -- and the -- and the calculations of the BOE 24 when indeed we've actually netted out things like return 25 checks and the deposits. Um, you know, because then now 26 all of a sudden you've got books that don't compare. 27 Um, and I don't know how you -- for instance, I 28 don't know how you net out a deposit -- a returned check 7 1 if the returned check was not -- was in a -- to which 2 deposit you netted out of. I mean, so you get some 3 deposits -- some return check that you get notified on 4 at some point in time or that we identify and then 5 what -- what deposit did we actually deduct it from, 6 when it really had nothing to do with that deposit 7 unless -- I guess, unless we went back and found that 8 deposit that we -- that it was attached to. 9 It just seems to me it was problematic and, in 10 fact, it seems to me the Department even said that it 11 was in terms of -- not that it was problematic, but it 12 was not the best way to deal with that. 13 So at that point, it seems to me if they talked 14 about the fact that it's not the best way to deal with 15 it, we're talking about such a small amount on top of 16 all of the activity. Um, it just seems the bar was 17 incredibly high without the ability for the taxpayer to 18 actually then be able to go through and understand the 19 calculations that the Board has made because the Board 20 decided to net out some of its calculations. 21 So that's why it seems to me the taxpayer was 22 in a position to which they could not win and understand 23 the audit. 24 MR. HORTON: Further discussion, Members? 25 Is there a subsequent motion? 26 MS. YEE: Move to adopt the staff 27 recommendation. 28 MR. HORTON: Moved by Member Yee to adopt staff 8 1 recommendation. Second by Member Mandel. 2 Without ob -- I mean, objection noted. 3 Ms. Richmond, please call the roll. 4 MS. RICHMOND: Mr. Horton. 5 MR. HORTON: Aye. 6 MS. RICHMOND: Ms. Steel. 7 MS. STEEL: No. 8 MS. RICHMOND: Mr. Runner. 9 MR. RUNNER: No. 10 MS. RICHMOND: Ms. Yee. 11 MS. YEE: Aye. 12 MS. RICHMOND: Ms. Mandel. 13 MS. MANDEL: Aye. 14 MS. RICHMOND: Motion carries. 15 ---oOo--- 16 17 18 19 20 21 22 23 24 25 26 27 28 9 1 MR. HORTON: Ms. Richmond. 2 MS. RICHMOND: Our last item is C9, Ron 3 Cummings and Lenora Antoinette Cummings. 4 ---oOo--- 5 C9 RON CUMMINGS and LENORA ANTOINETTE CUMMINGS 6 NO. 479484, 509237 (CH) 7 ---oOo--- 8 MR. HORTON: Discussion, Members? 9 MR. RUNNER: I'm -- I'm persuaded to maybe use 10 a different figure in regards to the tax issue. Um, and 11 the one that I would at least be interested in 12 discussing would be the, uh, the sales that were 13 reflected in the lease. 14 Um, I -- I -- it seems to me it's problematic 15 in regards to -- I think the sale of the business was 16 a -- there certainly was an event that took place. I 17 don't disagree with that. The problem is I'm not sure 18 the event actually triggered anybody knew to responsibly 19 collect the tax, uh, in light of the fact that the 20 individual still continued to file the returns, collect 21 the money and, um, and kind of took on a responsibility 22 there. If it was a clearer sale, then it would not be 23 such. But it seems to me that makes it hard. 24 I really believe that the business model was 25 very different, though, from the beginning of when the 26 individual did operate the business to when the -- the 27 so-called new owner took over. And, therefore, I think 28 the business model that was being actually looked at was 10 1 different than a good portion of the audit period. 2 Um, and so it seems to me a number that could 3 be a useable number would be what it is that the owner, 4 um, reported to the landlord in regards to the -- to 5 the, uh -- the sales. Because, I mean, they're all 6 estimates. I mean, our estimate's an estimate. Maybe 7 in one sense that's a truer report than what our 8 estimates were because our estimates were based upon, 9 again, I think -- I think we had clarity -- I think it 10 was clear that we didn't know whether to treat this as a 11 restaurant or a bar. 12 Uh, but again, the operation, at least to the 13 previous owner, the first owner who still has 14 responsibility, I think, in the end, um, clearly 15 operated something that was more like a bar than a 16 restaurant. So the whole table turnover, that is -- I 17 think, the assumptions were wrong. 18 So, I'd like to at least see if there would be 19 interest in readjusting the amount at that point. 20 Leaving that for the discussion. 21 MR. HORTON: Um, further discussion, Members? 22 Um, seems to me the only arm's length 23 transaction in -- in -- in this whole, uh -- uh, all of 24 the activities was the sale of the restaurant where two 25 individuals established a selling price, 125,000, 26 145,000. I believe it excluded the sale of the liquor 27 license which probably would have been a subsequent 28 50,000 or so, for a total of somewhere around 150, 11 1 75,000, based on the capitalization rate when they look 2 to sell a business is usually two or three times gross. 3 Uh, so, that's indicative that, uh, the numbers 4 reported to the, uh -- to the lessor might be the bottom 5 of the spectrum. And our numbers may be somewhere in 6 the -- somewhere in the, uh, medium or -- medium-high 7 range. So in dealing with these estimates, what are we 8 going to do? 9 So what I would do is split the baby, if you 10 will. Hate to say that, but, you know, it's, uh, based 11 on all available facts and figures, uh, whatever that 12 number is between the number proposed by Mr. Runner and 13 the number proposed by the Department. Uh, we get 14 somewhere in between there. 15 MR. RUNNER: Somewhere. 16 MR. HORTON: Halfway. 17 MR. LEVINE: Just for clarification, you 18 haven't made the motion yet -- 19 MR. RUNNER: No. 20 MR. HORTON: No. 21 MR. LEVINE: -- but just for clarification, are 22 you talking about the period after the event? 23 MR. HOROTN: No, this is -- 24 MR. LEVINE: The sale event? 25 MR. HORTON: This is all-inclusive. 26 MR. LEVINE: Oh. 27 MR. HORTON: I don't believe the sale -- 28 MR. LEVINE: For the whole -- whole -- both -- 12 1 both assessments, the whole audit period. 2 MS. STEEL: There's two cases. 3 MR. LEVINE: Right. 4 MS. YEE: Mm-hmm. 5 MS. STEEL: So you're talking about after 6 sales -- it seems like -- 7 MR. HORTON: You probably need additional 8 information. Because, uh, I think I posed the question, 9 and I don't know if the number -- I know -- I recall the 10 number 500 and X thousand dollars, but I don't know what 11 period that reflected. Uh, do you, Mr. Levine? 12 MR. LEVINE: The average monthly audit -- 13 audited figure is about 22,000, I believe, for the whole 14 period, 20 to 22. 15 MS. YEE: Mm-hmm. 16 MR. HORTON: And they reported 15,000, uh -- 17 MS. YEE: -- 656. 18 MR. LEVINE: To the lessor. 15,656. 19 MS. YEE: Mm-hmm. 20 MR. RUNNER: And that's through the whole 21 period of whoever owned the building, right? 22 MR. HORTON: Yeah. So if you took the 15 -- 23 you took the 15,656 extrapolated throughout the entire 24 audit period, including both periods, compare -- 25 combine -- compared that to the consolidated amount, 26 where would we be? 27 MR. LEVINE: I believe that it's about 7,000 -- 28 $6500 per month less than the audited. 13 1 MS. MANDEL: Uh, I understood Mr. Runner's 2 concern to be with the first period? 3 MR. RUNNER: No, no, no, no. I think -- I mean 4 no, I'll be glad for this part of the discussion. 5 I mean, I don't have any doubt that the 6 gentleman thought he had made a sale. But the problem 7 is they're just -- there's not enough there. 8 MS. MANDEL: No, no, I understand that. 9 MR. RUNNER: Right. 10 MS. MANDEL: I meant, when you were talking 11 about the tax amount, your discussion was -- 12 MR. RUNNER: No, I think -- I believe since -- 13 since the -- I would believe that the number reported to 14 the -- to the landlord would reflect the type of 15 business that the gentleman had. Because he was 16 responsible for writing it, telling the landlord. So 17 that's why I believe it is a good number to reflect his 18 type of business. 19 MS. MANDEL: Right. And his type of business 20 for the -- was the first period as -- that's why I was 21 asking. 22 MR. RUNNER: Oh. And then I -- for the 23 simplicity of it, I would just believe it's the -- well, 24 and then after that it's still a report to the landlord. 25 So I would just use a report to the landlord throughout 26 the whole business. 27 The Chair is just saying let's split the 28 difference. Let's go between those two amounts. 14 1 MS. MANDEL: I was just -- because you talked 2 about his business -- 3 MR. RUNNER: Yeah. 4 MS. MANDEL: -- that's why I was confused. 5 MR. RUNNER: Yeah, I was confusing it. 6 MS. MANDEL: Okay. 7 MR. RUNNER: And I -- I -- I would be satisfied 8 with splitting the amount, finding a middle ground 9 between the report to the landlord and what it is the 10 BOE audited, and find the middle point and using that as 11 the estimate. 12 MR. HORTON: Okay. Members, are we good with 13 that? 14 MS. MANDEL: Mm-hmm. 15 MR. RUNNER: So moved. 16 MR. HORTON: Okay. 17 Ms. Steel? 18 MS. STEEL: Is that the motion? 19 MR. RUNNER: Yes. 20 MR. HORTON: Uh, Mr. Levine, is -- do you need 21 clarity? 22 MR. LEVINE: I understand. Split the baby, 23 right between the reported to the landlord and the 24 audited amount. 25 MR. HORTON: Well, let me clarify. Uh, based 26 on the evidence before us, it appears that, uh, the 27 margin of error is somewhere in between the two. 28 Accordingly, uh, we would suggest the staff, uh, take 15 1 that 50 percent ratio in between the two. Thank you. 2 So be the motion by Mr. Runner. Second by 3 Member Steel. 4 Uh, without objection, such will be the order. 5 ---oOo--- 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 16 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 22, 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 16 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: August 31, 2012 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 17