1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 DECEMBER 18, 2012 10 11 12 13 14 15 LEGISLATIVE COMMITTEE 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 Member 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 Department: Michele Pielsticker Chief, Legislative and 18 Research Division 19 Larry Bergkamp Business Taxes 20 Administrator, III 21 Todd Gilman Taxpayer Rights Advocate 22 23 ---oOo--- 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 DECEMBER 18, 2012 4 ---oOo--- 5 MR. HORTON: Let us reconvene the meeting of 6 the Board of Equalization. 7 Ms. Richmond, what is our next item? 8 MS. RICHMOND: Our next item is the Legislative 9 Committee. Mr. Horton is the Chair of that committee. 10 Mr. Horton. 11 MR. HORTON: Members, we will now convene the 12 Legislative Committee. And let us welcome for the first 13 time our new Legislative Director, Ms. Michele 14 Pielsticker. Welcome. 15 Did you get the list of questions that we had? 16 MS. PIELSTICKER: Um, indirectly, yes. 17 MR. HORTON: Oh, okay. All right. 18 Can you start with number 8, please? Just 19 kidding. 20 MS. PIELSTICKER: You're a card, Mr. Chairman. 21 MR. HORTON: We'll now turn it over to 22 Ms. Michele Pielsticker to introduce the matters before 23 us Members. 24 Welcome. 25 MS. PIELSTICKER: Thank you, Mr. Chairman. 26 The first suggestion is suggestion 2-1. This 27 suggestion comes to us from, uh, Chairman Jerome Horton 28 and is supported by the BOE Taxpayer Rights Advocate 3 1 Mr. Todd Gilman. 2 Under existing law enacted in 1996, the TRA has 3 authorized to release a levy or Notice to Withhold as 4 well as a return of up to $1500 levied under numerous 5 BOE-administered tax and fee programs, including the 6 Sales and Use Tax Law. 7 The TRA may issue the release and return the 8 funds only when he or she finds that the levy or Notice 9 to Withhold threatens the health or welfare of the 10 taxpayer or his or her spouse and family. 11 The TRA has returned funds about four to six 12 times since obtaining the authority to do so, and the 13 $1500 amount has not been changed since 1996. 14 The proposed law would, one, allow the TRA to 15 return levied funds under the Cigarette and Tobacco 16 Products Law and the Fee Collection Procedures Law, 17 similar to its current authority under the Sales and Use 18 Tax Law. 19 Secondly, it would increase the amount the TRA 20 is authorized to return from $1500 to $3500. This 21 amount reflects an adjustment -- an adjustment for 22 inflation over the last 16 years and future 23 cost-of-living adjustments for a similar period. 24 The revenue impact of this proposal is likely 25 to be negligible and is expected to be approximately 26 $7,000 annually. 27 And, uh, I welcome any questions. 28 MR. HORTON: Questions? Discussion? 4 1 Member Mandel. 2 MS. MANDEL: Sure. Um, the -- the amount, 3 um -- my notes showed that that amount was an inflation, 4 inflationary amount from 1996, that that's the way it's 5 being presented? 6 MS. PIELSTICKER: That's correct. 7 MR. BERGKAMP: Yeah. We looked back to see 8 what the inflation rate -- the difference was between 9 when it was enacted and the current rate, looked at the 10 difference, multiplied it by the 1500, and then 11 projected forward. 12 MS. MANDEL: Ah, okay. 'Cause I -- 13 MR. BERGKAMP: Because it captures -- 14 MS. MANDEL: So it's not really inflation to -- 15 to -- to now. It's inflation expected through 20 -- 16 because I thought, you know, I haven't lost that much 17 purchasing power, I hoped, since 1996. Because I had 18 that the -- with three different inflation calculators, 19 that inflation to now was more like $2300. 20 MR. BERGKAMP: You're correct. 21 MS. MANDEL: And there are some provisions -- 22 maybe not in BOE, maybe they're on the FTB side -- where 23 there was adjustment for inflation and then it had a -- 24 the provision had an inflator calculator in it. 25 So I was really surprised to see 3500 as an 26 inflated amount. And, um -- I mean, I -- I don't know 27 if 3500 is otherwise an appropriate amount. But, um, I 28 wouldn't want to -- I mean, so I was more inclined on, 5 1 well, if what we're trying to do is inflation, then it 2 ought to be more like 2300 with -- if you think it's 3 appropriate to have an inflator built into the 4 provision, revise the provision so that it has that. 5 Or if Members thought 3500 was an appropriate 6 amount, don't -- don't go selling it like it's 7 inflation. 8 MR. RUNNER: Mm-hmm. 9 MR. BERGKAMP: Right, right. 10 MS. MANDEL: Just -- just -- and I'm not sure 11 why the amount was set at what it was set at and why it 12 wasn't in, um, the cigarette provisions or the other 13 provisions, that that was just an oversight or if there 14 was some reason. Do we know why it wasn't in those? 15 MR. BERGKAMP: Looking at the history of it, it 16 wasn't -- I couldn't find the file, and I'm not sure if 17 we had one regarding, uh, when the provision was enacted 18 in '96. 19 There were some, um, provisions that were added 20 in at different times, for the different statutes. But 21 I checked back with the departments and couldn't 22 determine whether or not there was a specific reason why 23 those were left out. We believe it was an oversight. 24 Um, but as far as the difference between 1500, 25 maybe 2300 and 3500, we were trying to stick with the 26 framework that was already in statute, which was a 27 certain dollar amount. It wasn't a -- there wasn't an 28 inflation adjustment originally provided. 6 1 So we were trying to stay with that framework, 2 but provide for a dollar amount that would allow an 3 increase. But, certainly, if -- if the Board sought to 4 put an adjustment in there, we -- we'd put an 5 inflationary adjustment. 6 MS. MANDEL: Well, what -- what -- what 7 would -- aside from we've had inflation to date that 8 gets us partway to the number, is there some other 9 justification for the -- I mean I don't think that it 10 would behoove us to go up the street and claim inflation 11 when it's, you know, inflation into the future. 12 MR. HORTON: -- future. Yeah. 13 MS. MANDEL: So is there some other 14 justification for the -- for the number, other than 15 inflation? Or are we just going to go with -- 16 MR. HORTON: I. -- 17 MS. MANDEL: -- inflation? That was the 18 question I kind of had on this. 19 MR. HORTON: Yeah. I'd agree to -- to -- to -- 20 to, uh -- to use an inflationary calculator instead. 21 The Legislature may very well do -- and of course that's 22 their discretion. They may cap it. 23 MR. RUNNER: Mm-hmm. 24 MR. HORTON: And, uh -- and because they may be 25 a little concerned about having a calculator out there 26 that it's endless, uh, and they may very well cap it. 27 But I concur, uh, with Ms. Mandel relative to 28 the, uh -- let's state a message, you know, onpoint. 7 1 So, um, possibly, let's put a calculator in and then -- 2 and then, you know, if the Legislature -- Legislature 3 decides to cap it at 3500, anticipating that we want to 4 give you a few years and not come back and give you the 5 range, that will be their discretion. At least we are 6 consistent with message. 7 Member Yee. 8 MS. YEE: Thank you, Mr. Chairman. 9 Uh, I just want to echo the sentiment of, uh, 10 Ms. Mandel. But, also, um, I know this is a rarely used 11 provision -- 12 MR. HORTON: Mm-hmm. 13 MS. YEE: -- by the Taxpayer Rights Advocate, 14 so -- but it does raise the question with respect to, 15 uh, how we deal with inflators and other aspects of our 16 business here at the Board. 17 And I thought that one of the justifications we 18 had heard from the staff previously, just evaluating the 19 proposal, was the $3500 figure coming from, um -- or 20 basing it on monthly, uh, minimum income standards that 21 are used by tax agencies when they're evaluating, um, 22 payment agreements or payment plans. 23 But -- and, for me, it's really, you know, 24 what's appropriate when you're looking at a particular 25 taxpayer's situation that may be, um -- and -- and what 26 kind of standard to use when you have, um -- and whether 27 you use these standards episodically when you're trying 28 to evaluate a long-term situation for a taxpayer. 8 1 So, I think it does beg the question of maybe 2 looking at it a little bit more deeper. And to the 3 extent this is a provision that's little used, I think 4 we have some, um, ability to do that without 5 jeopardizing much of anything. 6 But I would agree, I think we'd want to, um -- 7 if we're going to couch this as "inflation," let's have 8 it reflect inflation. And, uh, I would suggest also 9 adding, um, an automatic inflator on top of what the 10 current, um, dollar amount should be. 11 MR. HORTON: Yeah. 12 MS. MANDEL: So are you -- 13 MR. HORTON: Members, I would suggest that we 14 take the dollar amount out entirely, uh, and just have 15 the calculator in there. 16 The inherent danger with that from the 17 legislative perspective is they may put it back. Uh, 18 but if we're communicating that, uh, arguably, uh, it 19 probably should have been adjusted some time ago and the 20 whole legislative process becomes an impediment to 21 reality of being able to -- to -- to reflect an increase 22 and cost of living. 23 So if it's the desire to provide the 24 flexibility to make this decision, even though it's 25 nominal and not that -- used that often, but if the 26 desire's to have it reflect inflation, then the 27 inflationary factor accomplishes that objective. But if 28 we set ourself at the current inflationary number, uh, 9 1 which does calculate out, uh, to 2300, somewhere a 2 little closer to 24, uh, then it may go up or down the 3 following year and the next year, and we end up having 4 to go back to the Legislature if the desire is to try to 5 reflect closer to current value. 6 Member Mandel. 7 MS. MANDEL: Well, I think -- I think there are 8 provisions in -- and I can't remember if it's, uh, offer 9 and compromise or settlement. I think there is a 10 provision somewhere in, um -- on the Franchise Tax Board 11 side where there was a stated number, but then there was 12 a provision -- 13 MR. HORTON: Both. 14 MS. MANDEL: -- in the code that allowed for an 15 inflationary. So that now actually there's a 16 difference, I think, on whatever that provision is. And 17 I'm thinking about it. I think there's a difference in 18 the number for FTB and BOE. Because I don't think BOE 19 has the inflator in that particular provision. 20 So if the goal was inflation, you'd -- you'd 21 change the 1500 that's in the statute now to whatever 22 the number would be now -- 23 MR. RUNNER: Currently -- 24 MS. MANDEL: -- whether it's 23 or 24 and you'd 25 add a provision for inflation. 26 MR. HORTON: For the future. 27 MS. MANDEL: But what Ms. Yee is saying is 28 that, um, the -- which I sort of haven't -- I didn't 10 1 hear from staff was that there was a second, um, a 2 different justification than inflation, which was that 3 the 3500 number, uh, reflected some sort of baseline 4 need number that's otherwise used. And so that, just 5 putting 3500, um -- if you were going to use 3500, that 6 you -- you would have some other -- you would have a 7 different justification for picking the number than 8 inflation. You might say, by the way, there's been 9 inflation; but it wouldn't be that you're justifying it 10 as the inflationary number, because -- 11 MS. YEE: Right. 12 MS. MANDEL: -- because it's just not. 13 MS. YEE: Yeah. 14 MR. HORTON: Mr. Gilman? And then -- can you 15 respond to that? I mean, this is the first time I've 16 heard that, so -- anyone? 17 MR. GILMAN: Well, um, in terms of -- of that, 18 using that as a factor, I mean, we haven't really 19 considered that. 20 I mean, in terms -- what comes to my office, 21 basically, are individuals that have hardship issue. 22 And those individuals that do have the hardship issue, 23 um, that -- let me correct Ms. Pielsticker -- there's 24 been about four cases in total. 25 Um, the $1500 amount that has been refunded 26 wasn't nearly enough to cover the hardship that they 27 were incurring. So that number, whatever that number 28 would be, whether it's 2400 or 3500, we're not there. 11 1 So the amount that has been refunded hasn't covered what 2 they have demonstrated as a hardship. 3 MS. MANDEL: But -- but -- 4 MR. HORTON: Let -- let -- let's get 5 Mr. Runner's thoughts on the table. 6 MR. RUNNER: Yeah, I just want to get to the -- 7 MR. HORTON: And then we can kind of flush them 8 all out. 9 MR. RUNNER: I think there's -- there's two 10 different issues going on. It seems to me that, you 11 know, we started with this 1500 -- 12 MR. GILMAN: Right. 13 MR. RUNNER: -- for whatever reason back in the 14 Legislature, many, many years ago. 15 MR. GILMAN: Mm-hmm. 16 MR. RUNNER: And, uh, obviously it hasn't 17 adjusted. 18 MR. GILMAN: Right. 19 MR. RUNNER: What's presented to us today is 20 now $3500. Um, part of the justification for that is, 21 obviously, some inflation. 22 MR. GILMAN: Mm-hmm. 23 MR. RUNNER: I'm still not getting a clear 24 answer whether or not the staff feels like 3500 is the 25 right starting point, regardless of the fact that 26 inflation may only be $2300. But $3500 is the right 27 number in light of what we're trying to do with this 28 program in order to assist taxpayers when it is that 12 1 they find themselves in difficult situations and then 2 getting some relief to that when it is we've taken money 3 out of their account. 4 So, I guess that's what I'm waiting to hear. 5 MR. HORTON: Um -- 6 MR. RUNNER: If -- if -- if that's not the 7 case, then I'm fine with going with an inflated number 8 today and then putting an adjustor on it into the 9 future. But I still am waiting to hear whether or not 10 the number with the inflator today of 2400 is not enough 11 in order to meet the needs of taxpayers when they find 12 themselves in these difficult situations. 13 MR. HORTON: Um, Members, just from 14 recollection, all the historical knowledge sort of 15 indicates that the intent of the Legislature and the 16 body at the time was not really to satisfy, uh, the 17 problem. It was just to be there as -- as a way of 18 helping out. 19 MR. RUNNER: Right. 20 MR. HORTON: Anticipating that we will never 21 reach, uh, the point that we can actually satisfy an 22 entire, uh, challenge before us. 23 So, sounds like there's a consensus -- 24 MR. RUNNER: Well, I kind of really want to 25 hear back from them in regards to the 3500. If there 26 was a -- if there was indeed a thought from the 27 experience that we've had that $3500 is the amount that 28 is a -- the right amount to give the Taxpayers' Advocate 13 1 flexibility in order to making that decision, or not. 2 MR. GILMAN: Well, I mean, to anticipate a 3 specific amount that would be related to a hardship is 4 difficult because each case is different. 5 MR. RUNNER: Right. 6 MR. GILMAN: So, I mean, the 3500, if you 7 started from there, I mean, that -- that would 8 satisfy -- I mean, every case being different, it's hard 9 to determine whether or not that would be the amount to 10 start from. 11 MR. RUNNER: I'm still puzzled as to why we 12 came up with 3500 then, but that's okay. Um -- 13 MR. BERGKAMP: I -- I -- I might be able to 14 shed some light on it. 15 MR. RUNNER: Okay. Okay. 16 MR. BERGKAMP: I can't explain the whole thing, 17 but, um, I think Board Member Mandel was discussing the, 18 uh, national standards, the IRS national standards. 19 MS. MANDEL: That's what -- 20 MR. BERGKAMP: Oh, I'm sorry. 21 MS. MANDEL: -- Ms. Yee mentioned and I want -- 22 that's part of what I was asking staff to answer. 23 MR. BERGKAMP: Right. Right. So part of it 24 is, uh, there is a -- there is a national standard for 25 allowable living expenses that the IRS publishes. That 26 amount is exclusive of -- 27 MR. HORTON: Cost of living. 28 MR. BERGKAMP: Well, it's exclusive of what you 14 1 would -- what you would pay for rent or what you would 2 pay for your mortgage. 3 MR. RUNNER: Okay. 4 MR. BERGKAMP: So it has certain allowable 5 living expenses. And for a family of four, uh -- and 6 this is the national standard -- it's works out to about 7 1500. But that's just a baseline for necessary living 8 expenses, not accounting for, as I said, either a 9 mortgage or a rent. 10 MR. RUNNER: Okay. 11 MR. BERGKAMP: So if we had to construct it 12 over again to say, well, how -- how -- how did we get 13 there? The 1500 is a base amount for certain living 14 expenses. It's related to, uh, when our collectors are 15 looking at, um, an installment payment agreement, that's 16 where that kind of comes in. It's a guide. 17 MR. RUNNER: Okay. 18 MR. BERGKAMP: It doesn't say you have to use 19 this. But it's a guide, and they can compare it to what 20 someone is claiming for -- for expenses compared to what 21 this is. 22 So -- so using that amount, the 1500, uh, I -- 23 I couldn't locate -- and I'm sure there's something out 24 there -- but I couldn't locate something that says, 25 "This is the living expense for a person in California. 26 Here's -- here's an amount that's published that you can 27 use." I couldn't find something like that. But I was 28 basing it off the 1500, looking at the 2300, uh, that 15 1 was adjusted for inflation, and trying to work within 2 the framework that we had, which was, originally, there 3 was no CPI adjustment. How can we take into account 4 what the cost of living is in California and what's a 5 reasonable amount? 6 So that was -- 7 MR. RUNNER: Okay. I'm convinced there was a 8 plan there. Um, so I am fine with going with 23, 9 2400. 10 MR. HORTON: It sounds like the Legislature -- 11 Excuse me, Mr. Runner. 12 It sounds like the Legislature -- while I was 13 there, we pulled these numbers out of a hat. But, you 14 know, based on what we perceived as fairness -- 15 MR. RUNNER: Yeah. 16 MR. HORTON: -- equitable. And so, um -- but 17 I'm good. 18 I -- I -- it seems like we have a consensus 19 that, from the Board of Equalization's perspective, we 20 ought to be consistent and ought to have a basis for the 21 number. And the basis now is inflation. And, uh -- and 22 so going with the 23, blah, blah, blah, plus an 23 inflationary factor seems to be where we are. 24 MR. RUNNER: Mm-hmm. 25 MR. HORTON: And we will adjust it accordingly. 26 And, you know, if the Legislature is in a 27 giving mood -- let's see if we can get it over there 28 around the holiday or so -- maybe it will go up. 16 1 MR. RUNNER: Thank you. 2 MR. HORTON: Okay. 3 MR. BERGKAMP: Chairman, just to clarify. 4 MR. HORTON: Sure. 5 MR. BERGKAMP: So on the, uh -- on the amount 6 we can go to the -- what the inflationary factor was. 7 If we can we just round it? Is it okay if we just round 8 it to either 2300 -- just come to a rounded amount 9 rather than -- 10 MR. HORTON: Sure. 11 MS. YEE: Yeah. 12 MR. RUNNER: Yeah. 13 MR. BERGKAMP: And then -- and then -- and 14 then, too, if we put in an inflationary factor, tie it 15 to the California Consumer Price Index, and then have 16 a -- maybe some sort of accumulated amount when we would 17 make that change and round it so that -- 18 MR. HORTON: Member Yee. 19 MS. YEE: I just want -- we're talking about -- 20 MR. BERGKAMP: Or even just on an annual 21 basis. 22 MS. YEE: No, no. That -- that all sounds 23 fine. 24 I guess we're talking about this one single 25 provision under the authority of the Taxpayer Rights 26 Advocate. I want to just be sure that we've got some 27 consistency agency-wide. I don't know all the other 28 instances where we actually look at a inflation 17 1 adjustor, um, but I'd hate to have the TR -- the 2 Taxpayer Rights Advocate kind of have a set of 3 provisions affecting what he or she can do, and then the 4 departments, you know -- 5 MR. RUNNER: If there's a formula out there 6 that's used, we ought to use the same formula. 7 MS. YEE: Yeah. 8 MS. PIELSTICKER: Ms. Yee, um, there is a 9 formula that we use -- 10 MS. YEE: Okay. 11 MS. PIELSTICKER: -- to adjust the bulk sales 12 exemption for, uh, bullion. And that -- 13 MS. YEE: I think I remember that. 14 MR. HORTON: Yeah. 15 MS. PIELSTICKER: And what that does is it 16 looks at an annual inflationary factor -- 17 MS. YEE: Mm-hmm. 18 MS. PIELSTICKER: -- but it waits 'til it 19 accumulates above $500 before it becomes -- 20 MS. MANDEL: Yeah, that one never seems to 21 change. And the -- the one that -- but maybe that has 22 to do with the price of bullion never seems to. 23 MR. HORTON: Yeah. 24 MS. MANDEL: The one I remember is where there 25 actually is -- my recollection is there a difference 26 between BOE and FTB, and that might be something you 27 want to look at, where the FTB number is now, like -- I 28 want to say it's like 9,000 something and the BOE number 18 1 is still like 7500. That's my recollection, which, you 2 know, I sort of vaguely trust on this aspect, just that 3 there was a difference. 4 MS. PIELSTICKER: Okay. 5 MS. MANDEL: Um, so -- and I don't know what 6 the inflator is, but it was one place where FTB had an 7 inflator and -- and BOE did not. 8 MS. YEE: Yeah. 9 MS. MANDEL: So -- 10 MS. PIELSTICKER: We can explore the various 11 options and present them to you. 12 MR. HORTON: Well, um -- 13 MR. RUNNER: Well, I'm personally not hung up 14 on which one as long as we're consistent. So, I mean, I 15 think the instruction, it seems to me, is, hey, use a -- 16 use a base amount of 2300 -- 17 MR. HORTON: Right. 18 MR. RUNNER: -- find an inflator that is -- 19 that is consistent with what it is that we use, or the 20 FTB uses, and, uh -- and I don't -- I don't -- 21 MR. HORTON: So moved. 22 Is there a second? 23 Second by Member Yee. 24 Without objection, Members, such will be the 25 order. 26 MR. GILMAN: Thank you, Members. 27 MR. HORTON: I don't know if you guys are 28 finished. Where are you going, Mr. Gilman? 19 1 MS. PIELSTICKER: I think maybe Mr. Gilman made 2 the assumption that because the last two items are on 3 consent -- 4 MR. RUNNER: Oh. Well, we can change that. 5 MS. PIELSTICKER: -- we'll not be discussing 6 them. 7 MR. HORTON: Michele, this is your first time, 8 not his. 9 MS. PIELSTICKER: Well, I figured -- 10 MR. GILMAN: I'm not that anxious. 11 MR. HORTON: Members. 12 MR. RUNNER: Move the consent. 13 MS. STEEL: So moved. 14 MR. HORTON: Uh, Member Runner moves the 15 consent calendar. Second by Member Steel. 16 Objection? 17 None noted. Such will be the order. 18 Thank you for your time. 19 ---oOo--- 20 21 22 23 24 25 26 27 28 20 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 *datetaken I recorded verbatim, in shorthand, to the 10 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 20 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: January 18, 2013 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 21