1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 NOVEMBER 15, 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 18 For Staff: Jeffrey G. Angeja Tax Counsel IV 19 20 Randy Ferris Chief Counsel 21 22 ---oOo--- 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 NOVEMBER 15, 2012 4 ---oOo--- 5 MS. RICHMOND: Next are those matters that were 6 taken under submission today. 7 Our first item is C13, Walid Khaled Awwad. 8 ---oOo--- 9 C13 WALID KHALED AWWAD 10 NO. 512991 (GH) 11 ---oOo--- 12 MR. HORTON: Members? 13 MS. YEE: Move to adopt the staff 14 recommendation. 15 MR. HORTON: Moved by Member Yee to adopt staff 16 recommendation. Second by -- 17 MS. MANDEL: Well, yeah. But I think on this 18 one we have to make clear that the 40 percent is an 19 evasion penalty, because the Appeals, um, sort of was 20 saying it wasn't evasion. Although Department came in 21 and said yes, it is evasion. So I think we should make 22 clear it's an evasion. 23 MS. STEEL: So what you are saying 25 percent, 24 and until 2007 it's going to be 40 percent? 25 MS. YEE: Mm-hmm. 26 MS. MANDEL: Right. It's the -- it's upholding 27 the determination. It's just I wanted to be clear that 28 it's -- that it's -- you know, that Appeal's D&R or 3 1 SD&R -- SD&R had sort of these reasons for why you could 2 uphold it. Um, and they -- that the Appeals sort of 3 talked about it like it wasn't an evasion penalty, the 4 40 percent. And I think it is an evasion penalty, 5 and -- and we ought to be -- 6 MR. RUNNER: Clear in the motion. 7 MS. MANDEL: -- clear what we're saying. 8 MR. HORTON: Member Yee. 9 MS. MANDEL: That's what people think that 10 that's what we're saying. 11 MR. HORTON: Member Yee moves to, uh, adopt 12 staff recommendation with an amendment to notify staff 13 that the Board's position is that both penalties are a, 14 um -- 15 MS. YEE: -- evasion penalties. 16 MR. ANGEJA: Quick point of clarification, if I 17 might. 18 MS. MANDEL: I don't know. 19 MR. ANGEJA: Because the concern would be the 20 standard of proof and the applicable statute of 21 limitations, if this truly is an evasion penalty and it 22 is able to be relieved if somebody shows 23 non-negligence -- 24 MS. YEE: Right. 25 MR. ANGEJA: -- which would be surplusage. 26 MS. MANDEL: Well, my -- my -- my -- my 27 understanding -- you know, maybe I'm wacky, but my 28 understanding from reading the bill summaries, um, and 4 1 from sort of looking at it, it's -- you know, the 2 legislature is a beautiful thing, but it's not always, 3 you know, it's -- my understanding of the -- of that, 4 for these purposes of the stacking of the penalties and 5 our policies on stacking of the penalties, I think that 6 everything we have shows that we considered an evasion 7 penalty. 8 The, um, language in the statute and the 9 discussion about it's a -- that there's these reasonable 10 cause exceptions were, as I understand it, to address 11 the fact that, um, the prior bill had been vetoed 12 because, you know, a lot of people, uh, maybe are 13 collecting sales tax reimbursement and it doesn't all, 14 you know, make it over here for whatever reason. 15 Sometimes it's just because they were, you know, 16 negligent, um, and the statute, you know, wants to make 17 it knowingly. 18 Uh, and so, um, I think they use those -- those 19 words. But, um, I don't -- I don't know that it's -- 20 you know, it's not -- it's not a fraud -- it's not 21 fraud. It's not leaving the statute open because of 22 fraud or anything. I mean, we don't have that issue 23 before us about whether this penalty -- 24 Am I crazy, Mr. -- tell me I'm crazy, 25 Mr. Ferris, because Mr. Angeja will tell me I'm crazy. 26 MR. FERRIS: Right. The operations memo and 27 all guidance requires the Department to -- to meet the 28 same standards of clear and convincing evidence of 5 1 evasion for the 40 percent penalty as they would for a 2 fraud penalty. 3 MR. HORTON: Same. 4 MS. MANDEL: But it's not an issue. We're not 5 talking about an issue of statute of limitations blowing 6 it open for -- 7 MR. FERRIS: We would consider both penalties. 8 Since you have to make a, uh -- a showing that would be 9 sufficient for fraud in order to, uh, impose the 40 10 percent penalty, it would also be sufficient for opening 11 up a statute of limitations as well. 12 MS. MANDEL: Right. But I -- I don't -- didn't 13 see the sort of -- 14 MR. FERRIS: That wasn't an issue. 15 MS. MANDEL: The -- the -- the reasonable 16 cause, um, as -- as going to -- that, you know, had an 17 excuse for not paying over the money as much as going 18 toward you weren't sort of purposefully. 19 MR. FERRIS: Correct. It would basically -- 20 the reasonable cause provisions basically establish that 21 there isn't clear and convincing evidence of an intent 22 to evade. 23 MS. MANDEL: So that's why I didn't think that 24 it defeated it as a -- being evasion. 25 MR. FERRIS: Correct. 26 MR. HORTON: Okay. 27 MS. MANDEL: Okay. Thank you. 28 MR. HORTON: Member Yee moves adoption of staff 6 1 recommendation. Second by Member Mandel. 2 MS. STEEL: I object. 3 MR. HORTON: Noting, uh, discussion of 4 similarities of the various fraud and, uh -- and the 5 evasion penalties. 6 Objection by Member Steel. 7 Ms. Richmond, please call the roll. 8 MS. RICHMOND: Mr. Horton. 9 MR. HORTON: Aye. 10 MS. RICHMOND: Ms. Steel. 11 MS. STEEL: No. 12 MS. RICHMOND: Mr. Runner. 13 MR. RUNNER: Aye. 14 MS. RICHMOND: Ms. Yee. 15 MS. YEE: Aye. 16 MS. RICHMOND: Ms. Mandel. 17 MS. MANDEL: Aye. 18 MS. RICHMOND: Motion carries. 19 ---oOo--- 20 21 22 23 24 25 26 27 28 7 1 MR. HORTON: Ms. Richmond. 2 MS. RICHMOND: Our next item is D1, Akop Jack 3 Chichyan, Vicken Djeredjian and Mnatsakan Mike Grigory. 4 ---oOo--- 5 D1 AKOP JACK CHICHYAN, 6 VICKEN DJEREDJIAN and MNATSAKAN MIKE GRIGORY 7 NO. 388129 (ET) 8 ---oOo--- 9 MR. HORTON: 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 Runner. 14 Without objection, such will be the order. 15 MS. STEEL: Can we just -- you know, there is, 16 uh, the shipments has Nevada and California. That 17 really bothers me there. I know it's a fraud and 18 they got convicted for this. But still that, you know, 19 there is shipments that went to Nevada and California. 20 So there's some portion of it, I think it went to 21 Nevada, too. It's not all of them came to California, 22 so we didn't give them any credit for that. 23 MR. ANGEJA: We didn't because we didn't have a 24 basis on which to make that adjustment. 25 MS. STEEL: We don't have any basis on this. 26 MR. ANGEJA: Well, they've admitted that it was 27 for either and haven't proven which way it went. So the 28 burden of proof is on them at that point. But the trier 8 1 of fact can make an adjustment. 2 MS. STEEL: If we can give at least just few 3 percent. 4 I mean -- you know what, I just -- 5 MR. HORTON: We'd have to rescind the motion. 6 MS. MANDEL: Do we have a motion? 7 MS. STEEL: There's a motion. 8 MR. HORTON: No, it's been moved, second, and 9 dispensed with. 10 MS. STEEL: You know what, I just go for it, 11 with the motion. It bothers me though. 12 MR. HORTON: Oh, okay. 13 ---oOo--- 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9 1 MR. HORTON: Ms. Richmond, our next item. 2 MS. RICHMOND: Our next item is D2, Cig Row, 3 Inc. 4 ---oOo--- 5 D2 CIG ROW, INC. 6 NO. 588150 (ET) 7 ---oOo--- 8 MR. HORTON: Members? 9 MS. MANDEL: Move staff recommendation. 10 MS. YEE: Second. 11 MR. HORTON: Member Mandel moves staff 12 recommendation. Second by Member Yee. 13 Without objection, Members, such will be the 14 order. 15 ---oOo--- 16 17 18 19 20 21 22 23 24 25 26 27 28 10 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 November 15, 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 10 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: November 19, 2012 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 11