1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 REPORTER'S TRANSCRIPT 8 SEPTEMBER 13, 2012 9 10 H TAX PROBRAM NON APPEARANCE MATTERS - ADJUDICATORY 11 H1.1 LEGAL APPEALS MATTERS 12 H1.1 ZOBA INTERNATIONAL CORPORATION 13 H1.2 PAUL GALSSON 14 H1.3 DAVID A. BARTEL 15 H1.5 SHARON E. MELAMED 16 H1.6 FRANGI'S RESTAURANT 17 18 19 20 21 22 23 24 25 Reported by: Juli Price Jackson 26 No. CSR 5214 27 28 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 13 Government Code Section 7.9) 14 15 Joann Richmond Chief, Board 16 Proceedings Division 17 18 For Staff: Jeff Angeja Tax Counsel 19 Jeff Vest 20 Assistant Chief Counsel 21 Appeals Division 22 23 24 ---oOo--- 25 26 27 28 2 1 INDEX OF PROCEEDINGS 2 ---o0o--- 3 No. Name Page 4 H1.1 Zoba International Corporation 4 5 H1.2 Paul Glasson 5 6 Speaker -- Paul Glasson 5 7 H1.3 David A. Bartel 19 8 H1.5 Sharon E. Melamed 20 9 H1.6 Frangi's Restaurant, Inc. 22 10 11 ---o0o--- 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 SEPTEMBER 13, 2012 4 ---oOo--- 5 H1.1 6 ZOBA INTERNATIONAL CORPORATION 7 ---o0o--- 8 MR. HORTON: Ms. Richmond. 9 MS. RICHMOND: Our next item is H1, Legal 10 Appeals matters. These matters may be taken up 11 separately. 12 Our first item is H1.1, Zoba International 13 Corporation. 14 MR. HORTON: Okay. Before we take that up, 15 Members, we have a speaker on the H1.2, Mr. Paul Glass 16 --- Glasson. I would ask that he come forward, just 17 have seat and bear with us as we process through H1. 18 H1, Members, we're taking up H1, then we'll go 19 to the item that -- 20 MS. MANDEL: No. 1 he means. 21 MR. HORTON: Sub item -- sub item 1. Is there 22 a motion? 23 MS. YEE: Move to adopt staff recommendation. 24 MR. HORTON: Member Yee moves to adopt the 25 staff recommendation, sub item 1, second by Member 26 Steel. 27 Without objection, Members such will be the 28 order. 4 1 ---o0o--- 2 H1.2 3 PAUL GLASSON 4 ---o0o--- 5 MR. HORTON: Sub item 2. 6 MS. YEE: This is the gentleman. 7 MR. HORTON: Sir? 8 MR. GLASSON: Yes. 9 MR. HORTON: You have three minutes to make 10 your presentation, welcome. 11 ---o0o--- 12 PAUL GLASSON 13 ---o0o--- 14 MR. GLASSON: Thank you, thank you Board 15 Members. 16 My name is Paul Glasson. I'm the owner of PM 17 Enterprises. And I'm one-man auto brokerage, small 18 business. 19 And I drove two hours today to speak in front 20 of you regarding what I believe is an injustice in the 21 tax burden in my sales audit. So, in honor of National 22 Customer Service week, I have the opportunity to perhaps 23 fix this. 24 I liken myself kind of to Forest Gump. I'm not 25 necessarily a smart man, but I know when something is 26 wrong. And in this particular sales audit, they did a 27 sampling, just a sampling, not a full audit like they 28 did after the fact where I've had audits afterwards and 5 1 we've gone through everything. 2 But in the sample audit they found a couple of 3 indiscrepancies (verbatim) with my out-of-state sales. 4 And they computed that -- extrapolated that out to 53 5 percent error rate. 6 As well as my report of sales in my auto 7 industry, everything was looked at and everything that I 8 collected retail sales for was reported and it was 9 accounted for. However, they looked at my federal 10 income tax returns and found a discrepancy. And then 11 they computed that and taxed me on it. And that 12 discrepancy was based solely on gross numbers reported 13 to the federal -- at the federal level. 14 And that included much more than just sales. 15 That was gross deposits that had to do with equity 16 lines, it had to do with -- with money I that I'd taken 17 in order to buy cars. And, for some reason, we're 18 having a problem being able to identify that to -- at 19 the State level with the auditors and get this figured 20 out. 21 So, the tax burden is just amazing here to me 22 as a small business, someone who's -- who makes 60 or 23 $70,000 a year and -- to support his family. 24 And, so, it -- I want to have the opportunity 25 to let the Board Members now that -- how devastating 26 this can be to a small business. And that's why I'm 27 here today. 28 MR. HORTON: Okay. Members, staff is here and 6 1 I'd like to also have them provide some insight on this 2 particular case. 3 MR. ANGEJA: Our understanding -- Jeff Angeja, 4 on behalf of Appeals. 5 We did compute a liability based on the 6 difference between income tax returns and sales tax 7 returns. They did make adjustments for sales tax 8 included, DMV fees, charges for optional warranties and 9 overdraft deposits. 10 So, the information that we had we've reduced 11 non sales amounts from the income tax difference. 12 MR. HORTON: Based on all information available 13 to you at the time? 14 MR. ANGEJA: That we had, yes, sir. 15 MR. HORTON: Okay. Discussion, Members? 16 Member Steel. 17 MS. STEEL: How about the loans and equity 18 lines and -- that this taxpayer talking about that, 19 extra deposits? 20 MR. ANGEJA: That would usually factor into a 21 bank deposits analysis, which wasn't done. 22 I don't know that that would be reflected in 23 income tax returns, but I don't have the audit work 24 papers, so, I can't be more specific than that. 25 MR. RUNNER: Just -- 26 MR. HORTON: Mr. Runner. 27 MR. RUNNER: -- just to clarify, this was -- 28 this is a hearing we had back in July of last year? 7 1 MR. GLASSON: That's correct. 2 MR. RUNNER: And at that point then there was a 3 30-30-30, which, apparently, got a little lengthened 4 out. 5 So -- and during that time you provided 6 additional information? 7 MR. GLASSON: I did provide additional 8 information and specifically in regards to consignment 9 sales. 10 MR. RUNNER: Uh-huh. 11 MR. GLASSON: But when I tried to give them the 12 bank deposit information, the deposits on equity line 13 and so forth, they -- the auditor told me that he was 14 instructed to go only off of consignment sales and could 15 not look at anything else. 16 MS. STEEL: That doesn't make any sense. 17 MR. RUNNER: Is that -- 18 MR. ANGEJA: I can't speak to what the 19 Department did when it was out there. 20 I know we sent it back several times because we 21 weren't convinced that they had laid out specifically 22 what they had asked for. So, we had the them do that. 23 MR. RUNNER: When you say, "they," who is the 24 "they" you are -- 25 MR. ANGEJA: The Department, I'm sorry. 26 MR. RUNNER: Okay. 27 MR. ANGEJA: So, I don't know what they didn't 28 look at. 8 1 I know we spent -- sent a specific letter 2 telling them -- or had the Department specifically 3 identify what they wanted to see and, in fact, go out 4 and look at it and then they made these adjustments. 5 I don't -- I'm not aware of anything that was 6 offered that wasn't reviewed. 7 MS. MANDEL: Was the 30-30-30 done specific as 8 to consignment sales? Is that what might have caused 9 the -- 10 MR. ANGEJA: That's my understanding. 11 MS. MANDEL: That was the -- you think that was 12 the Board's -- 13 MS. YEE: I think -- 14 MS. MANDEL: -- I mean -- 15 MR. HORTON: Uhmm -- 16 MS. STEEL: Is that our practice, that, you 17 know, we would send it back and taxpayer's just provided 18 more documents than -- you know, it was not -- they were 19 not instructed. So, they are discarding those 20 documents? I mean, that just doesn't make any sense to 21 me. 22 Because when taxpayers provide more documents 23 than -- then that 30-30-30 means that you have to go 24 back and review other documents too. 25 So, if that's our practice, we have to change 26 that. 27 MS. YEE: Yeah. 28 MR. ANGEJA: We instructed -- my understanding 9 1 from the memo from the Department to us dated June 29th, 2 the Department contacted the taxpayer and requested -- 3 and then as relevant to your request -- any other 4 pertinent records that weren't mentioned that he may 5 want to submit. 6 MS. YEE: Yeah. 7 MS. STEEL: Yeah. 8 MR. ANGEJA: And then all that's reflected is 9 that he provided a summary record of consignment sales. 10 So, I -- I don't know what else may have been 11 offered that we did not see or refused -- or the 12 Department -- 13 MS. MANDEL: Yeah. And the minutes -- the 14 minutes from July don't specify. They just -- it's just 15 a 30 days to file supporting documents. 16 The minutes themselves don't specify that. 17 MR. HORTON: Member Yee. 18 MS. MANDEL: Just says "information." 19 MS. YEE: We can put this item over. 20 I think what may have precipitated the more 21 limited look was what was presented at the Board 22 hearing. 23 And, I believe, Mr. Glasson, you provided the 24 QuickBooks journal that showed some of the consignment 25 transactions for the year in question? 26 MR. GLASSON: Correct. 27 MS. YEE: And that may have been why it was a 28 more limited look. 10 1 So, perhaps we can put this over and ask the 2 Department to go back and look at other records that may 3 be -- 4 MR. HORTON: Okay. 5 MS. YEE: -- pertinent. 6 MS. STEEL: Okay. 7 MR. HORTON: All right. 8 MR. RUNNER: So, when we say, "put it over," 9 we're basically -- 10 MS. STEEL: To our next meeting. 11 MR. RUNNER: -- the request is for -- is for a 12 rehearing. 13 So, the -- the issue that we're asking now for 14 is for the auditors to -- it's not for rehearing? 15 MS. MANDEL: It's not for rehearing. 16 MS. YEE: No. 17 MS. MANDEL: The case has not actually been 18 decided. It's finally back on the 30-30-30. 19 So, it's still open from the original 20 hearing. 21 MS. STEEL: So, we can give -- 22 MS. MANDEL: Right? 23 MR. RUNNER: It's not a petition for a 24 rehearing? 25 MR. HORTON: No. 26 MR. RUNNER: Correct? 27 MS. YEE: No. 28 MR. HORTON: Yeah. 11 1 MS. YEE: It's not -- 2 MR. HORTON: Sir, quick question -- this is a 3 question of convenience more than anything else. 4 The next hearing we have is in the Culver City 5 area. Is that more convenient for you or here in 6 Sacramento? 7 MR. GLASSON: Sacramento would be more 8 convenient for me -- 9 MR. HORTON: Okay. 10 MR. GLASSON: -- as I'm in the Bay area. 11 MR. HORTON: So, let's put it over to -- 12 MS. YEE: November. 13 MR. HORTON: -- November and -- 14 MR. RUNNER: For us to hear then? 15 MR. HORTON: -- have the assessment be 16 open-ended, basically. 17 So, we're basically continuing the 30-30-30, 18 for the most part. And, hopefully, some resolution will 19 occur or, at a minimum, some evaluation or assessment of 20 all of the documents available. 21 MS. YEE: Okay. 22 MR. HORTON: And at the same time let's make 23 sure that the taxpayer is fully aware of the type of 24 documents and the type of audit that was conducted and, 25 so, we don't have a conclusive statement provided to the 26 taxpayer that says we're not going to look at something 27 without specifically sharing with him why that may or 28 may not be relevant to the additional taxable measure. 12 1 MS. YEE: Yeah. 2 MR. HORTON: Member Yee. 3 MS. YEE: You are in agreement with the 4 adjustment that was made, though, as with the records 5 that have been provided? 6 MR. GLASSON: It -- well, I'm in agreement to 7 the items I provided them, we looked over. 8 The problem I'm finding is the layers that 9 happens -- that I meet with the field auditor and then 10 it goes back to the supervisor and the supervisor denies 11 something. And they don't really explain to me why. 12 MS. YEE: Why, okay. 13 MR. GLASSON: And then from a federal tax 14 level, I spoke to my accountant and he said we could go 15 in and do an amendment and actually look at the actual 16 gross numbers and not -- not the gross deposits, because 17 that's -- that was a procedural thing that led -- led to 18 that higher valuation in the federal income tax returns 19 that stimulated this -- this margin. 20 MS. YEE: Okay. 21 MR. HORTON: That's interesting. 22 MS. YEE: Yeah. 23 MR. RUNNER: Let me ask procedurally, if -- if 24 we assign out a 30-30-30 and in that -- in that 25 administrative process there's not satisfaction on that 26 part of the taxpayer, what is their path to actually 27 then have a -- well, I mean, a review of that -- another 28 hearing or a hearing in front of us because they 13 1 couldn't come to a conclusion of the 30-30-30? 2 MR. HORTON: Members, let's get staff -- I know 3 that several of us could and might want to answer, but 4 let's -- 5 MS. MANDEL: And I'm just -- 6 MR. RUNNER: Yeah, I don't care who gives it to 7 me. 8 MR. HORTON: Yeah. 9 MR. ANGEJA: It would normally come back to you 10 as a nonappearance matter. 11 MR. RUNNER: If they're not satisfied? 12 MR. ANGEJA: Well -- right. And the purpose of 13 Appeals' review is if they're dissatisfied, the parties 14 still don't agree -- 15 MR. RUNNER: Right. 16 MR. ANGEJA: We give our independent review of 17 any evidence and information that's supplied and then 18 our analysis to you is supposed to analyze that and then 19 recommend adjustments. 20 MS. MANDEL: And what does taxpayer get? 21 Because it was an oral hearing, it will always 22 be on an adjudicatory calendar. 23 MR. HORTON: Uh-huh. 24 MS. MANDEL: So, the taxpayer's always going to 25 be aware of the date because they have to fill out 26 contribution disclosure forms, right? 27 And the taxpayer does get something from 28 Appeals. Do they get a copy of the hearing summary, 14 1 which is probably -- 2 MS. RICHMOND: Yes. 3 MS. MANDEL: -- posted anyway. 4 So, they have that so they know, which is how 5 Mr. Glasson knew to come today, right? 6 MR. GLASSON: That's correct. 7 MR. RUNNER: Right. Okay, but I'm still -- I'm 8 still won- -- okay. 9 So, so -- so, they get -- they know the 10 hearing -- they know it's here. They know it's before 11 us. 12 At what point then, in light of the fact that 13 they may have gone through this 30-30, the exchange of 14 documents, they're not satisfied still with what it is 15 -- the conclusions that have been made, when do they -- 16 what is their opportunity to present that back to us as 17 a Board? 18 MR. HORTON: Excuse, me I'm going to go to 19 staff. 20 MR. ANGEJA: Off the top of my head, I'm not 21 exactly aware. 22 It's -- unless they submit -- I don't know if 23 there's a briefing process. 24 MS. MANDEL: No. 25 MR. ANGEJA: So, it's us? 26 MR. RUNNER: Maybe -- somebody's coming up that 27 answer my question? 28 MR. VEST: Jeff Vest with -- 15 1 MR. RUNNER: Hi, Jeff, yeah. 2 MR. VEST: -- with Appeals. 3 Yeah. Right now it is on -- on the 4 adjudicatory calendar. It will come back for the Board 5 to review. And as has been indicated, the taxpayer can 6 come and make a public comment. 7 Your Board will make a decision at that point 8 and we will issue a decision. Now, if -- if he would 9 like to contest that, then he can file a petition for 10 rehearing. 11 MR. RUNNER: Okay. So, that -- that's -- 12 that's good, okay. 13 So, the process is he really -- through this 14 process he does not have the ability to kind of go 15 through, have the Department here, challenge the 16 assumptions that were made in the rehearing or in the -- 17 in the 30-30-30? 18 The only way that he gets there is for us to go 19 ahead, make a decision and then he formally has to file 20 for a rehearing? 21 MR. VEST: Correct. 22 MR. RUNNER: And then -- then at that point the 23 issues are brought anew and there's discussion on both 24 sides? 25 MR. VEST: At this stage of the process. 26 MR. RUNNER: Thank you. 27 MR. VEST: Yes. 28 MR. HORTON: Well, let me just augment that. I 16 1 mean, what is occurring could occur again and again and 2 again. 3 MS. YEE: Exactly. 4 MR. HORTON: The taxpayer could very well come 5 before the Board, share their concerns. The Board could 6 put the matter over. 7 They have an opportunity now to present that 8 additional evidence to the Appeals unit. And the 9 Appeals unit can take it under consideration. 10 That evidence will then, by virtue or through 11 the Appeals unit, be presented to the Board Members and 12 the Members can take it under consideration in their 13 adjudication of the case. 14 So, there is another -- 15 MR. RUNNER: Right, but that -- but that -- 16 MR. VEST: That -- 17 MR. RUNNER: -- during that process we don't 18 have the Department here to go ahead and have them 19 articulate exactly what took place and for then the 20 taxpayer to kind of respond to that. 21 MR. VEST: Correct. 22 MR. RUNNER: Right. 23 MR. VEST: Not at this time. 24 However, based on what was said today, Appeals 25 is more aware of some of the concerns of the taxpayer 26 and we'll be able to look for those things. 27 MR. RUNNER: Good, thanks. 28 MR. GLASSON: And one more question, is there 17 1 an advocacy group that I can go to without getting 2 private counsel if I need somebody to help me -- 3 MR. HORTON: Sure. 4 MR. GLASSON: -- support me in presenting my 5 case? 6 Is there someone here in Sacramento I can -- 7 MR. HORTON: We will make sure that you meet -- 8 that the head of that Department before you leave. 9 MR. GLASSON: Thank you, sir. 10 MR. HORTON: Okay. 11 MR. GLASSON: And ma'am -- all of you. 12 MR. HORTON: So, Members, we have concurrence 13 that we're putting this item over until November. 14 ---o0o--- 15 16 17 18 19 20 21 22 23 24 25 26 27 28 18 1 ---o0o--- . 2 H1.3 3 DAVID A. BARTEL 4 ---o0o--- 5 MR. HORTON: Section H1-3, Members. 6 MS. YEE: Mr. Chairman, I'd like to move to 7 grant the petition for rehearing in this matter. 8 MR. HORTON: H1-3, Member Yee moves to grant 9 the petition for rehearing. 10 MS. STEEL: Second. 11 MR. HORTON: Second by Member Steel. 12 Objection? Hearing none, such will be the 13 case. 14 ---o0o--- 15 16 17 18 19 20 21 22 23 24 25 26 27 28 19 1 ---o0o--- 2 H1.5 3 SHARON E. MELAMED 4 ---o0o--- 5 MR. HORTON: H1-5. 6 MS. YEE: What happened to 4? Is there a 4? 7 MS. MANDEL: 4s came off before, 4a and 4b, is 8 that correct? 9 MS. RICHMOND: Correct. 10 MS. YEE: All right. I'll move to adopt the 11 staff recommendation on sub item 5. 12 MR. HORTON: Member Yee moves to adopt staff 13 recommendation on sub item 4 -- 14 MS. MANDEL: No. 15 MS. STEEL: What's the staff recommendation? 16 MR. HORTON: Okay. 17 MS. STEEL: -- not to give rehearing, right? 18 MR. RUNNER: Yes. 19 MS. YEE: Correct. 20 MR. HORTON: For -- there's a motion. There is 21 a second for purpose of discussion, just to allow us 22 some clarity here. 23 Member Mandel. 24 MS. MANDEL: No, I was just saying it's sub 25 item 5, I heard you say 4. 26 MR. RUNNER: Okay. 27 MR. HORTON: All right, all right. So, 5, 28 thank you. 20 1 Further discussion, Members? 2 MS. STEEL: There is no second. 3 MS. MANDEL: No, I would second it. 4 MR. HORTON: There is a second. Objection 5 noted by Member Steel. 6 Ms. Richmond, call the roll. 7 MS. RICHMOND: Mr. Horton? 8 MR. HORTON: Aye. 9 MS. RICHMOND: Ms. Steel? 10 MS. STEEL: No. 11 MS. RICHMOND: Mr. Runner? 12 MR. RUNNER: Aye. 13 MS. RICHMOND: Ms. Yee? 14 MS. YEE: Aye. 15 MS. RICHMOND: Ms. Mandel? 16 MS. MANDEL: Aye. 17 MS. RICHMOND: Motion carries. 18 ---o0o--- 19 20 21 22 23 24 25 26 27 28 21 1 ---o0o--- 2 H1.6 3 FRANGI'S RESTAURANT 4 ---o0o--- 5 MR. HORTON: Sub item 6, Members, this is an 6 item that we took up previously and I'd like to rescind 7 the motion solely related to consents on sub item G1-4, 8 Frangi's Restaurant, adopted at the August 2012 Board 9 meeting. 10 MS. MANDEL: I'll second that motion. 11 MR. HORTON: Second by Member Mandel. 12 Objection? None noted. Such will be the 13 order. 14 ---o0o--- 15 16 17 18 19 20 21 22 23 24 25 26 27 28 22 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 SEPTEMBER 13, 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 22 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: OCTOBER 1, 2012 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 23