1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 SEPTEMBER 12, 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 the 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 SEPTEMBER 12, 2012 4 ---oOo--- 5 MR. HORTON: Ms. Richmond. 6 MS. RICHMOND: That concludes our oral 7 hearings. Would you like to take those matters that 8 have been taken under submission, or would you like to 9 go into closed session? 10 MR. HORTON: Well, before we close out our oral 11 hearings, let's go into closed session. And, uh, give 12 me -- as we proceed, give me a status of that account 13 that we were considering postponing. 14 MR. RUNNER: Oh, yeah, that other one. The 15 postponement. 16 MS. STEEL: DK. 17 MS. RICHMOND: We have been in contact with DK 18 Supplies. Uh, we've made several telephone calls, as 19 well as emails. 20 Um, the taxpayer has informed us that they're 21 going to be out of the country, um, during the time of 22 our October meeting, and he is supposed to be faxing us 23 his itinerary. 24 Um, it's been an hour now and we have not 25 received it yet, but he's on his way to the office to 26 send it to us. 27 MR. HORTON: All right. Let's see what happens 28 after closed session. 3 1 MS. RICHMOND: And I've just been informed that 2 we just received it. 3 MR. HORTON: Oh. Good. 4 Okay. In that case, um, let's take the matters 5 up under, um, final action items. 6 Ms. Richmond, what would be our first item? 7 MS. RICHMOND: Our first item that was taken 8 under submission is C2, Naim Jamali. 9 ---oOo--- 10 C2 NAIM JAMALI 11 NOS. 448789, 450475, 595326 12 ---oOo--- 13 MR. HORTON: Discussion, Members? 14 MS. MANDEL: I'll move the staff 15 recommendation. 16 MR. HORTON: Member Mandel -- 17 MS. YEE: Second. 18 MR. HORTON: -- moves the staff recommendation. 19 Second by Member Yee. 20 Without objection, such will be the order. 21 ---oOo--- 22 23 24 25 26 27 28 4 1 MR. HORTON: Ms. Richmond. 2 MS. RICHMOND: Our next item is C4, Aircraft 3 Charter and Leasing, LLC. 4 This is a waived appearance. 5 ---oOo--- 6 C4 AIRCRAFT CHARTER AND LEASING, LLC 7 NO. 496438 8 ---oOo--- 9 MS. YEE: Move to adopt the staff 10 recommendation. 11 MR. HORTON: Moved by Member Yee to adopt staff 12 recommendation. Second by Member Mandel. 13 Uh, without objection, Members, such will be 14 the order. 15 ---oOo--- 16 17 18 19 20 21 22 23 24 25 26 27 28 5 1 MS. RICHMOND: Our next item is C5, Khanh Cat 2 Pham. 3 ---oOo--- 4 C5 KHANH CAT PHAM 5 NO. 495973 6 ---oOo--- 7 MR. HORTON: Members? 8 MS. STEEL: Adopt the staff recommendations, 9 but we going to refer this, uh, taxpayer to the OIC. 10 And then, plus, um, it seems like this taxpayer knows 11 the president, a Mr. La -- president, Mr. La. So if we 12 can locate him and try to get the money from president 13 first. 14 MR. RUNNER: I -- that motion was a staff 15 recommendation? 16 MS. STEEL: Right. 17 MR. HORTON: Member -- Member Steel -- Member 18 Steel moves staff recommendation and advise the staff to 19 inform the taxpayer of OIC. 20 Uh, is there a second? 21 Second by Member Yee. 22 Without objection -- 23 MR. RUNNER: Yeah, I'll object. But let me 24 just -- it was clear to me that the -- that, again, on 25 the issue of -- he actually wrote checks. Um -- he 26 wrote checks. And he clearly did not have full control 27 of the bank accounts because the individual who then -- 28 then intervened in stopping those checks, or taking 6 1 money out of the account so the checks were no good, 2 ultimately got frustrated with him and took him off the 3 account. 4 Um, so I -- I -- I believe that I can't -- I 5 think the taxpayer here is -- was doing what he needed 6 to do. He got caught in an unfortunate situation, 7 trying to help out. And I don't see his -- his 8 liability. 9 And then I want to re-emphasize the fact that I 10 do want us to review that issue in regards to the due -- 11 uh, when it's due on the -- on the 6829 side. I -- I 12 think that -- I also believe he has -- even if we find 13 him, he shouldn't have liability for when it was that he 14 wasn't even there. Uh, because the tax was not due -- 15 even though it's a prepayment, that is not a tax 16 payment. That is an estimate, and it's not a tax bill. 17 Um, so I won't be able to support the motion, 18 but -- 19 MR. HORTON: Okay. 20 Discussion, Members? 21 Ms. Rich -- 22 MS. STEEL: Okay. 23 MR. HORTON: Ms. Richmond, please call the 24 roll. 25 MS. RICHMOND: Mr. Horton. 26 MR. HORTON: Aye. 27 MS. RICHMOND: Ms. Steel. 28 MS. STEEL: Aye. 7 1 MS. RICHMOND: Mr. Runner. 2 MR. RUNNER: No. 3 MS. RICHMOND: Ms. Yee. 4 MS. YEE: Aye. 5 MS. RICHMOND: Ms. Mandel. 6 MS. MANDEL: Aye. 7 MS. RICHMOND: Motion carries. 8 ---oOo--- 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8 1 MS. RICHMOND: Our next item is C6, Karim 2 Mehrabi. 3 ---oOo--- 4 C6 KARIM MEHRABI 5 NO. 525215, 525216 6 ---oOo--- 7 MR. LEVINE: Can I just comment on the last 8 case. You asked a question on the related matter, and 9 the Department has gotten the answer on that. He 10 received a notice for the other company because he was 11 listed as the vice president. And the Department sends 12 copies of these type of notices to all the officers, so 13 that's why he got that notice. 14 MR. RUNNER: At home? 15 MR. LEVINE: Yeah. 16 MR. RUNNER: Is that what the home notice was? 17 MR. LEVINE: I assume that he had -- that's the 18 address they had for him. 19 MS. MANDEL: Okay. Because he seemed to think 20 he was being asked to pay that one, too. Okay. 21 MR. LEVINE: Presumably -- I can see it, but 22 presumably it was clearly in the name of that 23 corporation. 24 MS. MANDEL: It was in the name of the 25 corporation. His name was not on it. Okay. 26 MS. YEE: Mm-hmm. 27 MR. HORTON: Okay. Um -- 28 MR. RUNNER: Is this C6 right now? 9 1 MS. RICHMOND: Yes. 2 MR. RUNNER: Um, I would move that we calculate 3 this -- the -- the liability, based upon the fourth 4 quarter 2006, as opposed to the 2004. 5 MS. MANDEL: Um -- 6 MR. RUNNER: So -- 7 MS. MANDEL: I don't -- I don't remember what 8 that was. But I heard Department was at least willing 9 to go down 17,000. 10 MR. RUNNER: Yeah -- well -- 11 MS. MANDEL: But I don't know what -- 12 MR. RUNNER: I know they were willing to go 13 17,000, but the problem -- 14 MS. MANDEL: Because they re-did the -- they -- 15 he re-did the numbers based on -- so I just -- 16 MR. RUNNER: Well, I think we ended up doing 17 the calculations two different ways, right? That was -- 18 I mean, there was -- one was backing in one way -- 19 MR. HORTON: Excuse me, Members. 20 Um, Member Mandel. 21 MS. MANDEL: Yeah, I just didn't -- I didn't 22 make a note about the -- what quarter you're talking 23 about. 24 MR. RUNNER: Yeah. 25 MS. MANDEL: So I don't have it -- a note. 26 That's all. 27 MR. RUNNER: The -- well, my thought was in the 28 motion, was that we apparently were doing calculations 10 1 two different ways. Although the final calculation in 2 regards to the billing was -- was really not about fuel 3 sales. It was all about the comparing it to a quarter 4 in -- in 2004. 5 MS. MANDEL: I -- I understand that. I don't 6 know how the '06 quarter relates to the number that 7 Mr. Lambert was talking about here. 8 MR. RUNNER: Well, the only -- the reason I 9 picked 2006, because it is closer to the time. 10 MS. MANDEL: I understand. 11 MR. RUNNER: And -- and -- 12 MS. MANDEL: I don't know if it's -- 13 I understand what you're saying. 14 MR. RUNNER: Uh-huh. 15 MS. MANDEL: Um, I don't particularly want to 16 pick a number that's higher than the number that 17 Mr. Lambert was suggesting. 18 MR. RUNNER: Oh. 19 MS. MANDEL: I don't know what -- 20 MR. RUNNER: This won't be higher, I don't 21 believe. This will be -- 22 MS. MANDEL: That's why I'm saying I didn't 23 make any note. 24 MR. RUNNER: Gotcha. Gotcha. 25 MR. HORTON: Members, Mr. Lambert is available? 26 I mean, no -- strike that. Mr. Levine is available and 27 might be able to bring some clarity. 28 MR. RUNNER: Well, yeah. I guess the question 11 1 would be, if we chose to go with an estimate, um, of tax 2 liability based upon, uh, the 2006 year as opposed to 3 the 2004 year in sales, and applied that to the April 4 time, how would that change the liability? 5 MR. LEVINE: I'm not going to be able to answer 6 that. If you're comparing dollars rather than reducing 7 it to gallons, you're -- it's obvious you'll understate 8 the liability considerably because the price of gas was 9 75 percent during that quarter, compared to the April 10 quarter based on the information -- 11 MR. RUNNER: What do you mean the price of gas 12 was 75 percent? 13 MR. LEVINE: Uh, if I understood what 14 Mr. Lambert was saying, the average price was 2.50 per 15 gallon. 16 MR. RUNNER: No. No, I'm not using that 17 quarter. I'm using the April -- I'm using the -- I'm 18 using the quarter where the gas prices were almost the 19 same. Because I put -- 20 MR. LEVINE: Uh, he -- he in Dec -- he -- maybe 21 I missed it, but I thought he said December was -- 22 MR. RUNNER: And I didn't say "December." 23 Right. 24 MR. LEVINE: Fourth quarter. 25 MR. RUNNER: I used -- I said -- I said, um, 26 second quarter 2006. 27 MR. LEVINE: Okay. I'm sorry. 28 MS. MANDEL: Yeah. 12 1 MR. RUNNER: Which was -- which was -- as I was 2 hearing this discussion, the gas prices were pretty 3 equivalent. 4 MS. MANDEL: Three -- three thirty -- three 5 thirty-three? 6 MS. STEEL: 2007? 7 MS. MANDEL: See, that's the only thing I wrote 8 down was four oh seven. I -- and I had ten oh six 9 eleven and twelve oh six, but that's why I was -- but 10 you -- I just don't want to go higher than he said. 11 MR. RUNNER: It's -- well, again, as I talked 12 to the taxpayer, at least in this discussion, it seems 13 to me that would -- I thought he was indicating that 14 would satisfy his concern, uh, if we went to that number 15 because that was closer to where he believed, uh, the 16 issue was. 17 But, again, I -- I just -- I can't imagine why 18 we would choose a quarter that is 120 percent higher, 19 um, as opposed to going to the quarter that is the same 20 quarter, only 12 months earlier, and gas prices are 21 about the same. That seems to me a pretty good, clear 22 comparison as opposed to going back 2000 -- you know, 23 three years previous when, indeed, competition was 24 different. It was just -- it was -- it was just a 25 different, um -- it was just different at that time. It 26 seems to me closer is better. 27 MS. STEEL: Um, I -- what I heard was 2004 -- 28 actually, I'm looking at the computer averaged gas price 13 1 is $1.78, and 2006 is $3.12. 2 So if we lower it, with 2004, actually taxpayer 3 comes out better number? 4 MR. RUNNER: No. No. I'm not talking about 5 gas price. I'm talking about the sale. Because 6 again -- 7 MS. MANDEL: Gallons. 8 MS. STEEL: Gallons of sale? 9 MR. RUNNER: I'm talking about -- 10 MS. STEEL: Okay. 11 MR. RUNNER: -- the total number of sales that 12 were reported. Because, again, the gas prices can be 13 lower, but if you were busier, you -- you moved a lot of 14 product. 15 And so, you know, at this point what I'm 16 talking about is just total sales. That unit had X 17 amount of sales, and it seemed to me it's more 18 equivalent, in terms of the X amount of sales, to go 19 back one year rather than three years. 20 MS. STEEL: So your motion is, um, comparing to 21 2006 total gallons of gas sales -- 22 MR. RUNNER: No, sales. 23 MS. STEEL: Total gallon of sales, of gallon -- 24 MR. RUNNER: No. No. 25 MS. STEEL: -- of gases. 26 MR. RUNNER: No, no. This is more than just 27 gas. This is, uh -- this is their total -- total -- 28 these are total dollars, not -- not gas. Gas is a 14 1 portion of it. 2 But I'm just saying they reported X amount of 3 sales in that quarter; it included gas and other things. 4 And I'm just saying let's just use their total sales in 5 the -- of second quarter to be -- of 2006, to be the 6 calculator for what it is that we're going to estimate 7 the tax for 2007. 8 MS. STEEL: Total taxable sales. 9 MR. RUNNER: Total taxable sales. 10 MS. STEEL: Okay. 11 MR. HORTON: Just as a thought, Members, uh, we 12 still have an option of taking an average or a medium 13 number -- 14 MS. YEE: Can I -- 15 MR. HORTON: -- instead. 16 MR. RUNNER: Between what? 17 MR. HORTON: Member Yee. 18 MS. YEE: I was going to just -- 19 MR. HORTON: Just a thought. 20 MS. YEE: -- make a suggestion. 21 Uh, I mean, I think in terms of what the 22 Department was trying to do in using the second quarter 23 of '04 was to provide some incentive for the petitioner 24 to come up with an actual return, um, that wasn't going 25 to, um, underestimate the -- the liability. 26 But the $167,671 based on that second quarter 27 of '04, I believe, was, um -- was adjusted for 28 inflation. And if you compare that number, the 167,671 15 1 to, uh, the option that the Department had of using the 2 petitioner's fuel purchases marked up by the Department 3 of Energy average fuel sales prices, and then adding 4 back the food sales, that was the $17,000 difference. 5 So I'd be comfortable with just setting the 6 compliance assessment at $150,000. I mean, it's close. 7 I mean, you can -- you can pick an option -- 8 MR. RUNNER: Mm-hmm. Mm-hmm. 9 MS. YEE: -- but at some point you still have 10 to true up. 11 MR. HORTON: Okay. We're not that far apart, 12 Members. Does that work? 13 Um -- 14 MS. MANDEL: 150? 15 MS. YEE: 150. 16 MR. HORTON: Member Yee moves to adjust the, 17 uh -- the amount down to 150,000. Second by Member 18 Runner. 19 Without objection, Members, such will be the 20 order. 21 ---oOo--- 22 23 24 25 26 27 28 16 1 MS. RICHMOND: That takes us back to C1, DK 2 Supplies, Inc. 3 ---oOo--- 4 C1 DK SUPPLIES, INC. 5 NO. 509933 6 ---oOo--- 7 MR. HORTON: We'll put that over -- well, he 8 sent the itinerary. 9 Uh, was the taxpayer notified that he's still 10 faced with having to come to Sacramento? 11 MS. RICHMOND: Yes. And he's arriving, um, 12 from his trip on October 24th, in the evening. 13 MR. HORTON: And the Culver City hearing is 14 when? 15 MS. RICHMOND: 23rd, 24th and 25th. 16 MR. HORTON: I guess he's going to be 17 vacationing instead of accumulating books and records, 18 huh? I certainly can appreciate that. 19 So be it. We'll put it over until the 20 following hearing, which is November. 21 MS. RICHMOND: Okay. We'll notify the 22 taxpayer. 23 ---oOo--- 24 25 26 27 28 17 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 September 12, 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 17 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: September 18, 2012 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 18