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 OCTOBER 25, 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 18 Tax Counsel IV 19 20 ---oOo--- 21 22 23 24 25 26 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 OCTOBER 25, 2012 4 ---oOo--- 5 MR. HORTON: Next item, Ms. Richmond. 6 MS. RICHMOND: Next are those items that have 7 been taken under submission. 8 Our first item is, um, C17. 9 Oh, but before we go to C17, um, for C18 we -- 10 they never showed up, and we did call the taxpayer. And 11 the person that answered the phone indicated that the 12 taxpayer was not there, so we left a message. 13 We also called the taxpayer's representative 14 and there was no answer; so we also left a message. 15 MR. HORTON: And those are no-shows? 16 MR. LEVINE: And no appearance at the appeals 17 conference. 18 MR. HORTON: And no appearance at the appeals 19 conference. All right. 20 MR. RUNNER: A theme going. 21 MR. HORTON: Pardon? 22 MR. RUNNER: A theme. 23 MR. HORTON: Yes. All right. Then let's just 24 work through them. 25 ---oOo--- 26 27 28 3 1 MR. HORTON: Ms. Richmond, our first item. 2 MS. RICHMOND: So our first item is C17, 3 Baron L. Jones. 4 This is a waived appearance. 5 ---oOo--- 6 C17 BARON L. JONES 7 NO. 523682(EH) 8 ---oOo--- 9 MR. HORTON: Discussion, Members? 10 MS. YEE: Move to adopt the staff 11 recommendation. 12 MR. HORTON: Member Yee moves to adopt staff 13 recommendation. Second by Member Mandel. 14 Objection? 15 None noted. Such will be the order. 16 ---oOo--- 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 C18, Joaquin E. 3 Hernandez. 4 ---oOo--- 5 C18 JOAQUIN E. HERNANDEZ 6 NO. 523684(AA) 7 ---oOo--- 8 MR. LEVINE: If -- if I may. Although they 9 didn't show up to anything, we do have a small revised 10 recommended change. 11 The Department, in its review in preparation 12 for the hearing, saw a -- on Pepsi products, it had 13 regarded all the purchases as taxable merchandise for 14 purposes of its, uh, analysis. In two prior audits it 15 had regarded an average of 86.22 percent as taxable. 16 Some of the Pepsi products presumably are -- are 17 nontaxable snack-food-type items. 18 And so it recommends a reduction from the 19 hundred percent to 86.22 percent. It reduces unreported 20 taxable sales and some of the unreported taxable 21 consumption. Total reduction to the measure of 22 $6,470. 23 MR. HORTON: Okay. 24 MS. STEEL: Question to Mr. Levine, that 25 regarding the markups that, uh -- that this taxpayer had 26 two prior, um, audit. And markup was about, I believe, 27 30 to 32 percent. And this time the markup went up to 28 37 percent. 5 1 MR. LEVINE: I can't give you a reason except 2 that every -- every audit is based on what they look at 3 in that audit. 4 MS. STEEL: So this was like went to the store 5 and look at -- went through this audit? 6 I wish these taxpayers are here to explain. 7 MR. LEVINE: I don't know the specifics well 8 enough to answer that. 9 MR. HORTON: Okay. Discussion, Members? 10 Is there a motion? 11 MS. YEE: Uh, move to adopt the staff 12 recommendation reflecting the, uh, adjustment. 13 MR. HORTON: Motion by Member Yee to reduce 14 the, um, taxable measure as -- as indicated by 15 Mr. Levine in his previous testimony -- uh, statement. 16 My apologies. 17 Is there a second? Member Mandel. 18 Objection, Members? None noted. 19 Such will be the order. 20 ---oOo--- 21 22 23 24 25 26 27 28 6 1 MS. RICHMOND: Our next item is C19, Stephen H. 2 McCorkle and Jennifer L. McCorkle. This is a waived 3 appearance. 4 ---oOo--- 5 C19 STEPHEN H. McCORKLE and JENNIFER L. McCORKLE 6 NO. 486206(UT) 7 ---oOo--- 8 MR. HORTON: Is there -- is there a motion, 9 Members? 10 MS. STEEL: This one, penalties relieved, 11 right? Mr. Levine? 12 MR. HORTON: Mr. Levine. 13 MR. LEVINE: Yes. Yes. The penalties have 14 been -- we've recommended relief of the penalty. 15 MR. HORTON: Discussion, Members? 16 MS. MANDEL: I'll move the staff 17 recommendation. 18 MR. HORTON: Member Mandel moves staff 19 recommendation, noting relief of penalty. Second by 20 Member Runner. 21 Without objection, Members, such will be the 22 order. 23 ---oOo--- 24 25 26 27 28 7 1 MR. HORTON: Ms. Richmond. 2 MS. RICHMOND: Our next item is C25, Rebhya 3 Abdeljawad. 4 ---oOo--- 5 C25 REBHYA ABDELJAWAD 6 NO. 553035(EH) 7 ---oOo--- 8 MR. HORTON: Discussion, Members? 9 MS. STEEL: Um -- 10 MR. HORTON: Member Steel. 11 MS. STEEL: Can I -- I think that three big 12 wholesalers, two are almost matching. 13 So, um, I just want to make a motion that, um, 14 to support the Department, but, um, abate the negligence 15 penalty for $3,087. 16 MR. RUNNER: Second. 17 MR. HORTON: Member Steel moves to adopt staff 18 recommendation, um, abating the negligence penalty. 19 Second by Member Runner. 20 Objection, Members? None noted. 21 Such will be the order. 22 ---oOo--- 23 24 25 26 27 28 8 1 MS. RICHMOND: Our next item is C26, Mohamad 2 Marwan Nafeh. 3 ---oOo--- 4 C26 MOHAMAD MARWAN NAFEH 5 NO. 326425, 515731(AP) 6 ---oOo--- 7 MR. HORTON: Is there a motion, Members? 8 MS. YEE: Move to adopt the staff 9 recommendation. 10 MR. HORTON: Member Yee moves to adopt staff 11 recommendation. Second by Member Steel. 12 Without objection, Members, such will be the 13 order. 14 ---oOo--- 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9 1 MR. HORTON: Ms. Richmond. 2 MS. RICHMOND: Our next item is C27, Anderson 3 Audio Visual-East Bay, LLC. 4 ---oOo--- 5 C27 ANDERSON AUDIO VISUAL-EAST BAY, LLC 6 NO. 511892(CH) 7 ---oOo--- 8 MS. STEEL: Move to grant. 9 MR. RUNNER: Second. 10 I guess I'll have a discussion. 11 MR. HORTON: Member Steel moves to, uh, grant 12 in favor of the taxpayer. Mr. Runner seconds. 13 Discussion, Members? 14 MR. RUNNER: Yeah, just real quick. Um, you 15 know, I -- again, I -- I understand the dilemma that, 16 uh, we're trying to struggle with. And, uh, you know, I 17 would sense that -- but I also understand, it seems to 18 me, that when somebody seeks help from government or 19 assumes that -- assumes they're getting direction from 20 government, that it would make sense. 21 Um, I'm wondering, in order to clarify what 22 we're doing here, if we would not only -- I would 23 certainly support granting for the taxpayer. But then 24 we also then ask, uh, for a review of the regulation 25 that we have that is kind of binding us up here a bit, 26 too. 27 I understand that there's this -- some concern 28 also with -- with, uh, statute in -- in terms of some 10 1 interpretation, too. But I think that maybe in our 2 regulatory process we can try to help clarify when 3 you've got a owner that owns, you know, clearly 50 4 percent of the exact same business, um, that we can use 5 this as a reason for granting that we're going to go 6 ahead and review some -- some of the regulatory issues 7 that we got in place. 8 So, I think both of those would be 9 appropriate. 10 MR. HORTON: Members, I think that's -- that -- 11 I mean, I agree that this is, you know, a common sense 12 issue. Often times we're restricted by the law, but 13 common sense sort of also dictates the potential 14 precedent that we may establish in doing so and calls a 15 certain behavior modification. 16 I would not want the Department issuing 17 disclaimers in every audit and, therefore, we don't get 18 to the true essence of the truth as to what really 19 happened. 20 I certainly, as an auditor, would write a 21 disclaimer in every audit that I ever -- ever conducted 22 saying that, you know, this does not relieve you, you 23 are not entitled to, and dah, dah, dah, dah, unless you 24 receive written advice and basically quoting the law as 25 it currently stands, um, as much as I would like to be 26 able to be supportive of this. 27 But, uh, let me hear from my colleagues. 28 Member Yee. 11 1 MS. YEE: Uh, thank you, Mr. Chairman. 2 I, uh -- the question I posed to Mr. Levine, I 3 think, really kind of highlights the, uh, limitation 4 that we are under, uh, with respect to the, uh, 5 prescriptive nature of the regulation. 6 I -- I'm not averse to revisiting the 7 regulation. I'm not sure that, um, the issue of, uh, 8 ownership or control is, um, the approach, but it's 9 something to look at and maybe the nature of the advice. 10 But, um, I think we are, uh -- we don't have 11 the authority to grant in this matter at this point in 12 time, but certainly would entertain looking -- 13 revisiting, um, options to the reg in the Business Taxes 14 Committee. 15 MR. RUNNER: Can I clarify? Did we -- 16 MR. HORTON: Mr. Runner. 17 MR. RUNNER: Did we establish we don't have the 18 authority to -- to grant? 19 MR. LEVINE: My interpretation of the 20 regulation is that these are two separate people, two 21 separate persons under the law -- they are two separate 22 persons under the law. The only advice given was the 23 benign advice of -- of blessing what they were doing. 24 And if you're asking me if I think you have 25 authority, no. But that's my interpretation. 26 MR. RUNNER: It would be outside the Board's 27 purview in order to make a decision for the taxpayers 28 here? 12 1 MR. LEVINE: Unless you interpret the 2 regulation differently. 3 If you feel that you'd -- if you think that 4 you'd need to change the reg, then what normally the 5 Board does is hold the pending matter in abeyance, 6 especially when it seems like the majority is going to 7 do that, change the reg, bring the matter back. The reg 8 being retroactive, then it conforms to the reg. So 9 that's one option, too. 10 MR. RUNNER: An option would be to -- 11 MR. LEVINE: You hold the case in abeyance and 12 you revisit the -- the regulation. And if the Board 13 decides to change the regulation that will sweep over 14 the pending case, then the pending case would -- the 15 taxpayer would prevail under the newly written 16 regulation. 17 What we do in that type of case is we'll wait 18 for the Board to decide the reg. If they change the 19 reg -- if you change the reg so that it covers the -- 20 the taxpayer's situation, we don't reschedule it for you 21 until the regulation becomes operative. But it's 22 operative retroactively. But we wait until it gets the 23 approval and is -- the extra 30 days after OAL approves 24 it, then we bring the matter back and you approve it 25 based on your new reg. 26 MR. RUNNER: The risk -- the risk to the 27 taxpayer is that interest is still going on. And, 28 therefore, if we didn't change the reg -- 13 1 MR. LEVINE: That's correct. 2 MR. RUNNER: That would be the risk to the 3 taxpayer. 4 MR. LEVINE: And the taxpayer can always pay 5 and file a claim for a refund. 6 MR. RUNNER: Oh, okay. At that point, that's 7 true. To avoid the -- 8 MR. LEVINE: That's always an option. 9 MR. RUNNER: To avoid that particular issue, 10 the taxpayer could pay it, knowing that the reg is being 11 reviewed. And if it could go in that direction, he 12 would then be able to refile. 13 MR. LEVINE: It's not going to get any worse 14 for him. 15 MR. RUNNER: Yeah. 16 MR. LEVINE: And it may get the money back. 17 MR. HORTON: If I may, Mr. Runner. 18 MR. RUNNER: I'd be open for the Board for that 19 discussion if that, uh, seems, uh -- 20 MR. HORTON: I mean, if I may, um, that also 21 opens the Board of Equalization -- I mean for a series 22 of potential claim for refunds as a result of us 23 changing reg, back-dating it. Corporations who will 24 certainly be encouraged, I would think, to look at every 25 audit and see if there was, uh -- that the auditor 26 missed anything in the audit. And if they did miss it, 27 then -- 28 MS. MANDEL: And that -- that -- I mean, 14 1 there -- I heard sort of a little bit conflicting things 2 about what it actually said in that prior audit and 3 whether there was an affirmative statement on the audit 4 work papers that fit within what is usually considered 5 advice, or whether it was just-- 6 MR. HORTON: Open-ended. 7 Mr. Levine? 8 MS. MANDEL: Just a -- which is -- which -- 9 which in cases involving prior audit work papers the 10 issue generally focuses on what does it say in the 11 actual audit work papers, which -- which wasn't really 12 addressed in the case because it was focused on, is this 13 the same person who got the advice because the statute 14 requires it to be advice to the person who then failed 15 to make the timely return, which the regulations look to 16 someone who's the same person which legal and statutory 17 successors were put in because that's considered the 18 same person under regular law. 19 But we didn't have anything really -- I haven't 20 looked -- I mean I looked at the letter, but I didn't 21 look through the audit work papers to see what they 22 really said. And I heard a conflict, a little, between 23 you and staff. 24 MR. LEVINE: Well, what we have here is we have 25 a district office who, in my view, is clearly wrong. So 26 I just don't trust what they say about the prior audit 27 because they're wrong about how it should be applied and 28 they were vested in that by -- it just seems weird 15 1 saying the Deputy Director in the conference is wrong. 2 Um, and we didn't examine it because the 3 Department conceded the issue. But in a normal case, we 4 would examine it. And I already sent a message back 5 that I'm sorry I didn't pull this case to send it back 6 just to figure out if we agree that the prior audit 7 advice -- that the taxpayer who was audited had a right 8 to rely on it, on this freight in. And I just don't 9 know. 10 It may well be. But I -- we didn't examine 11 that at all. And we don't know if -- they examined the 12 invoices on an actual basis, but we don't know what the 13 invoices were. In that type of case we look at the 14 invoice. And if it says "freight in, no tax," yeah, 15 that's enough. Because that's taxable and the auditor 16 should have picked it up. But if it's just freight, 17 that's not enough because commonly freight is separately 18 stated, means freight to the customer and that's not 19 taxable usually. 20 So we don't know if it had the necessary. 21 MR. RUNNER: That wasn't the -- that wasn't the 22 nature of the issue before us, was it? 23 MR. LEVINE: That's right. We never addressed 24 that. 25 MR. RUNNER: Right. 26 MR. LEVINE: It was assumed that that was valid 27 because the district conceded it. 28 MS. MANDEL: Yeah. And it -- it is a little, 16 1 um -- 2 MR. RUNNER: Well, it -- it just seems to me it 3 can go one way or another. We can't say our hands are 4 tied because of the regulation, um, and at the same time 5 have a path to clear up the regulation in order then to 6 solve the problem. So, I mean we can't have it both 7 ways. 8 And it seems to me that we -- I guess the -- 9 the issue for us is that the -- through the regulatory 10 process I think it's up to us then to make sure that 11 it's -- it's -- it's -- we're dealing with a really 12 tight interpretation here of what it is that an 13 individual would, uh, need to then qualify so that we 14 don't swing the door open for all kinds of future 15 appeals and other problems. 16 And it seems to me that, again, this -- this 17 could be pretty narrowly crafted, uh, dealing with an 18 individual who has majority control ownership dealing 19 with the exact same business. The only difference here 20 is just the structure. If he would have structured his 21 company different, it would have applied. Um, he would 22 have -- and so that, to me, is why it is it seems to me 23 that's a solution. I mean, if we're trying to say we're 24 trying to come up with common sense for taxpayers, it 25 seems to me this is a path for common sense. 26 MS. MANDEL: Uh, sta -- 27 MR. RUNNER: Do the regulatory process. 28 MR. HORTON: I don't necessarily see the same 17 1 path, uh, Members. 2 I believe it was Thurgood Marshall who said 3 that it's incumbent upon the taxpayer to arrange their 4 finances in such a way to pay the minimum amount of 5 taxes under the law. Failure to do so is indicative of 6 your intent. 7 Um, so -- but I agree, um, I'm certainly always 8 willing to, and open to, revisiting the situation to see 9 if we can craft legislation to reflect common sense. 10 Unfortunately, the tax code is one area that often 11 doesn't do so. 12 So -- but -- 13 MS. STEEL: I want to retrieve my motion. 14 That was my motion? 15 MR. RUNNER: Mm-hmm. 16 MS. STEEL: Or yours? 17 MR. RUNNER: No, it was yours. 18 MS. STEEL: Okay. And I want to wait the 19 decision until regulatory process has to be done 20 first. 21 MR. RUNNER: I'll second that. 22 MR. HORTON: Member -- Member Steel moves to -- 23 Um, Mr. Levine, I'm going to have to ask for 24 your assistance in the motion here. Are we putting it 25 over? Or are we -- 26 MR. LEVINE: Holding the decision in 27 abeyance -- 28 MR. HORTON: Holding it in abeyance. 18 1 MR. LEVINE: -- pending regulatory decision. 2 We would bring it back to you no matter what happens, 3 unless you made a conditional order, which I could 4 suggest but I won't unless you ask. 5 The -- the default would be we would just hold 6 it until you go through the regulatory process or drop 7 the regulatory process. And then we would bring it back 8 to you with the recommendation which would be to deny if 9 you don't change the regulation to cover it and would be 10 to grant, um -- 11 MR. HORTON: Okay. It's a little difficult for 12 me to do that. Um -- and I'll tell you my concern is, 13 is that I'm now making a decision for the taxpayer 14 whether or not they want to pay the liability or accrue 15 the interest and wait. 16 Their option, if we rule in -- in favor of 17 them, of course, is obvious. If we rule against them 18 their option is the same as the one that's presented 19 with the motion; that is, to pay it and file a claim for 20 refund, uh, when the rulemaking process is concluded, 21 which protects them -- which is the -- the method of 22 protection they -- would have to occur under any of 23 these circumstances. 24 MS. STEEL: How about my motion, plus we advise 25 the taxpayer that they have a choice that they can wait 26 and interest accrued or they can just pay the, uh, whole 27 tax -- whatever the -- here. And then they can ask for 28 refund later on. 19 1 MR. RUNNER: Yeah, I don't see how the taxpayer 2 loses because if we find against the taxpayer, he's 3 going -- they're going to owe it anyhow. 4 MS. STEEL: Right. 5 MR. RUNNER: If they don't pay it, the interest 6 is going to keep going. So -- 7 MR. HORTON: I think I -- my apologies, but I 8 think I, at least, attempted to articulate that the end 9 result of paying it remains the same but the decision is 10 that of the taxpayers as opposed to ours, relative to 11 the accrual of interest. Um, and we place that burden 12 on the taxpayer. 13 Maybe if we, um -- I don't know if we can put 14 this over until -- 15 MR. RUNNER: We try to reach the taxpayer? 16 MR. HORTON: -- the Sacramento meeting and then 17 direct staff to have that dialogue? Or -- I'm just not 18 prepared to -- to -- to, uh -- to make a financial 19 decision on the behalf of the taxpayer. 20 MS. YEE: Yeah. 21 MR. RUNNER: Maybe help me understand again 22 why -- why the financial decision is different on behalf 23 of the taxpayer? If we make the decision today and we 24 basically find -- 25 MR. HORTON: The scenar -- the scenario would 26 be, if we made the decision today and we ruled against 27 the taxpayer -- 28 MR. RUNNER: Right. 20 1 MR. HORTON: -- then, um -- you know, there are 2 a number of things that they could do if they wanted to 3 delay the -- you know, they could request for a 4 re-hearing. They could pay the liability, file a claim 5 for refund and delay it, uh, knowing that there's a 6 pending rulemaking process that may ultimately be 7 back-dated, uh, which, um -- or we could just, uh, hold 8 it in abeyance, which means the taxpayer can't do 9 anything except for the option that they have -- have 10 had throughout the entire process that they have not 11 exercised, and that's the option to pay the liability 12 and avoid the accruance of interest. 13 MR. RUNNER: But any of those it's going to be 14 the taxpayer's interest is going to continue, right? 15 MR. HORTON: No, they could -- 16 MR. RUNNER: No? Which -- 17 MR. HORTON: They could stop it. 18 MR. RUNNER: How do they -- how do they stop 19 the interest without paying the liability? 20 MR. HORTON: It -- it -- my position is not 21 whether or not they pay the liability or not. 22 MR. RUNNER: Okay. 23 MR. HORTON: My position is, is that that's not 24 my decision. 25 MS. MANDEL: Mr. Runner, were you just asking 26 technically when something's on petition how they stop 27 the interest? Is that what you were asking? 28 MR. RUNNER: Well, that -- I don't think it 21 1 can, right? 2 MS. MANDEL: The interest -- 3 MR. HORTON: If you pay it. 4 MS. MANDEL: The interest -- well, Mr. Levine, 5 the interest does not -- interest does not compound 6 for -- for sales tax, right? So if they pay the tax 7 amount at any time during an administrative process, 8 there's no longer accrual of -- 9 MR. RUNNER: Right. 10 MS. MANDEL: -- interest. 11 MR. RUNNER: Yeah. 12 MS. MANDEL: They just have to make sure to 13 file refund claim -- 14 MR. RUNNER: Right. 15 MS. MANDEL: --- for that time. 16 MR. RUNNER: Right. Right. Right. 17 MS. MANDEL: Okay. I thought that's what you 18 were asking. 19 MR. RUNNER: No. No. And that -- well, no, my 20 point is, is that if we -- if we went ahead and held 21 this in abeyance while we went through the regulatory 22 process, the taxpayer has two choices. They could 23 either pay it and stop the interest, right? And then 24 file for -- or they can not pay it and the interest 25 keeps going. 26 If we find against the taxpayer today, the 27 taxpayer either can pay it or not pay it and the 28 interest will continue until there comes to resolution. 22 1 So, I guess I'm just caught in regards to what the 2 difference is to the taxpayer at that point. 3 Um, now, one of the things mis -- uh, the Chair 4 mentioned that is different, and I just want to 5 clarif -- see if that's true, and that is you had 6 mentioned the idea of actually finding against the 7 taxpayer, going into the regulatory process and having 8 them retroactively come back after we've -- after we've 9 come to -- to a, uh, final determination against them 10 already? Is that -- is there a path that way? 11 MR. LEVINE: I think he was suggesting a claim 12 for refund. 13 MR. HORTON: Claim for refund. 14 MR. RUNNER: A claim for refund because we 15 would back-date the regulation to come back to his date 16 of hearing? 17 MR. LEVINE: It depends -- you have that 18 choice. In regulatory, if you change -- 19 MR. RUNNER: Uh-huh. 20 MR. LEVINE: -- the regulation -- 21 MR. RUNNER: Right. 22 MR. LEVINE: -- in the way you're 23 contemplating, traditionally, there's no operative date. 24 It's just fully retroactive. So it would go back to the 25 statute of limitations for anyone who hadn't filed a 26 pending claim for refund. 27 You can make an operative date, but this isn't 28 the type of change that the Board has traditionally -- 23 1 MR. RUNNER: Right. 2 MR. LEVINE: -- made it perspective only. By 3 default, it's retroactive. 4 MR. HORTON: Mm-hmm. 5 MR. LEVINE: So if -- if they filed a claim for 6 refund and we knew there was regulatory process, it 7 would be held up. If we did not know there was a 8 regulatory process, if you don't -- if you deny the 9 claim and don't order a regulatory process now or soon 10 and -- and the taxpayer filed a claim for refund, it 11 would probably be denied pretty quickly because the 12 Board's already acted and there's nothing new. 13 MR. RUNNER: So the Board could find against 14 the -- 15 MR. HORTON: You can bifurcate it if you want 16 to. 17 MR. LEVINE: Could deny the claim and say but 18 we're still going to send the issue to the regulatory 19 process. And then we would send a message up the line 20 that if a claim comes in, tag it. Tag it because this 21 one is -- is -- 22 MR. RUNNER: So it's either that choice -- that 23 would be one choice, or the choice would then be to hold 24 this in abeyance while we go through the regulatory 25 process. 26 MR. LEVINE: Right. 27 MR. RUNNER: Then it would be -- then it would 28 be settled later. 24 1 MR. LEVINE: Then it would be brought back to 2 the Board later, once we knew what happened in the 3 regulatory process. 4 MR. RUNNER: Okay. I'm -- I'm still fine with 5 the latter. 6 MR. HORTON: Okay. Um, there's a mo -- 7 Further discussion, Members? 8 There's a motion on the floor to hold the, um, 9 the case in abeyance pending a regulatory process, um, 10 moved by Member Steel. 11 Ms. Steel, still good? 12 MS. STEEL: Mm-hmm. Mm-hmm. 13 MR. HORTON: Second by Member Runner. 14 Objection? 15 MS. MANDEL: Um, yeah. 16 MS. YEE: Objection. 17 MR. HORTON: Objection noted. 18 Ms. Richmond, please call the roll. 19 MS. RICHMOND: Mr. Horton. 20 MR. HORTON: No. 21 MS. RICHMOND: Ms. Steel. 22 MS. STEEL: Aye. 23 MS. RICHMOND: Mr. Runner. 24 MR. RUNNER: Aye. 25 MS. RICHMOND: Ms. Yee. 26 MS. YEE: No. 27 MS. RICHMOND: Ms. Mandel. 28 MS. MANDEL: No. 25 1 MS. RICHMOND: Motion fails. 2 MR. HORTON: Subsequent motion, Members, being 3 mindful that you could bifurcate and still accomplish 4 your objective. Although I would -- I mean, I would not 5 expose the State to, uh, potential claims for refund. 6 Just don't really see how we could craft this, other 7 than to specifically mention their name, um, in 50 8 percent ownership which -- less than 50 percent 9 ownership, greater than 50 percent ownership. Which is 10 still going to capture a significant number of 11 taxpayers. 12 And would -- would -- would caution us to, at a 13 minimum, even though we don't make decisions based on -- 14 we shouldn't make decisions based on dollars, but -- I 15 don't know, it's just a complicated -- 16 MR. RUNNER: Maybe -- maybe we can -- maybe I 17 would -- maybe I'd like to ask Mr. Levine if he -- given 18 the nature of this discussion, um, in terms of how it is 19 that a motion would be fashioned in order to move 20 forward dealing with the taxpayer's current liability, 21 but yet opening the door then for the regulatory 22 process. 23 MR. LEVINE: I think you can make a motion to 24 send this issue to the BTC for consideration of an 25 interested party process. Um, and then -- 26 MR. RUNNER: That's two different -- that's two 27 different motions? 28 MR. LEVINE: Right. 26 1 MR. RUNNER: Okay. 2 MR. HORTON: Mr. Runner moves to bifurcate the 3 issues -- 4 MR. RUNNER: Okay. 5 MR. HORTON: -- to establish a rulemaking, um, 6 send it to the Business Tax Committee for consideration. 7 Although it seems to be a consensus of the Board, I 8 don't know that we need that motion. But second by 9 Member -- 10 MS. YEE: I'm sorry. The -- are we taking -- 11 MS. MANDEL: -- action on the case? 12 MR. HORTON: We're just separating -- 13 MR. RUNNER: The first motion was to go ahead 14 and send it to the -- 15 MR. HORTON: We're not taking the case up. 16 MS. YEE: Oh. 17 MR. HORTON: We're just making a decision 18 whether or not to take the matter under consideration -- 19 MS. YEE: Okay. 20 MR. HORTON: -- in the Business Tax 21 Committee. 22 MS. YEE: Okay. I'll second the motion. 23 MR. HORTON: Second by Member Yee. 24 Without objection, such will be the order. 25 Motion on the issue, matter before us? 26 MS. MANDEL: Staff recommendation. 27 MR. HORTON: Member Mandel moves staff 28 recommendation. Second by Member Yee. 27 1 MR. RUNNER: Objection. 2 MS. STEEL: Objection. 3 MR. HORTON: Objection noted. 4 Ms. Richmond, please call the roll. 5 MS. RICHMOND: Mr. Horton. 6 MR. HORTON: Aye. 7 MS. RICHMOND: Ms. Steel. 8 MS. STEEL: No. 9 MS. RICHMOND: Mr. Runner. 10 MR. RUNNER: No. 11 MS. RICHMOND: Ms. Yee. 12 MS. YEE: Aye. 13 MS. RICHMOND: Ms. Mandel. 14 MS. MANDEL: Aye. 15 MS. RICHMOND: Motion carries. 16 ---oOo--- 17 18 19 20 21 22 23 24 25 26 27 28 28 1 MS. RICHMOND: Our next item is C28, Yin Mei 2 Liang. 3 ---oOo--- 4 C28 YIN MEI LIANG 5 NO. 492980(EA) 6 ---oOo--- 7 MR. HORTON: Discussion, Members? 8 MS. MANDEL: Uh -- 9 MR. HORTON: Member Steel -- uh, Member Mandel. 10 Member Steel. 11 MS. MANDEL: Well, I -- I -- I was -- I was -- 12 I was prepared to ask Mr. Levine if he -- you know, we 13 heard a lot of things from the taxpayer that I couldn't 14 really get. But maybe -- 15 MS. STEEL: Um -- 16 MS. MANDEL: I don't know if there's a 17 further -- 18 MS. STEEL: Discussion. 19 MR. HORTON: Wait, wait. 20 MS. STEEL: Yeah. 21 MR. HORTON: Ms. Mandel? Do you want to ask 22 Mr. Levine? 23 MS. MANDEL: If he -- if, um, you know, that 24 the -- the sheet that I had got from -- wasn't in the -- 25 actually in the appeals file. Staff had to get it from 26 the audit file. 27 So, um -- and then she talked a lot about her 28 business. And it sounded like there may have been a lot 29 1 of discussion that didn't happen at the appeals 2 conference. 3 So, I just -- 4 MR. HORTON: Your assessment, Mr. Levine? 5 MS. MANDEL: Might have an assessment. 6 MR. LEVINE: The one thing we know is this is 7 kind of an unground business operation, off the books, 8 and we know that. It was intentional. 9 On the other hand, you know, if I -- if I had 10 held a conference and heard all this stuff, the -- the 11 bottom line is, were there actually sales for resale? 12 We know she was selling off the books and she shouldn't 13 have. And she knew that she was selling off the books. 14 But that's -- that's why I think the negligence and 15 penalties are properly imposed. 16 But I'd revise our recommendation and say, 17 finger in the wind, 50 percent sales for resale. We 18 know there were sales for resale. It had to be more 19 than we allowed. 20 She's guessing. I think that she's make -- she 21 believes what she's saying, and that would be my best 22 guess. So that's our revised recommendation, is to 23 reduce the deficiency by 50 percent and sustain the 24 penalties. 25 MR. HORTON: We'll accept that as a revised 26 recommendation from the Department. 27 Is there a motion to adopt? 28 MS. YEE: So moved. 30 1 MS. STEEL: So move. 2 MR. HORTON: Moved by Member Yee. Second by 3 Member Steel. 4 Without objection, Members, such -- such will 5 be the order. 6 Ms. Richmond. 7 MS. RICHMOND: This concludes our meeting. 8 MS. STEEL: Mr. Levine, thank you. 9 MR. HORTON: Meeting of the Board of 10 Equalization is hereby adjourned. 11 ---oOo--- 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31 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 October 25, 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 31 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: November 5, 2012 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 32