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 19, 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 Tax Counsel IV 18 19 ---oOo--- 20 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 DECEMBER 19, 2012 4 ---oOo--- 5 MS. RICHMOND: Our last item is C5, David A. 6 Bartel. 7 ---oOo--- 8 C5 DAVID A. BARTEL 9 NO. 518470 (KH) 10 ---oOo--- 11 MR. HORTON: Discussion, Members? 12 MR. RUNNER: I think there's two potential 13 issues here. One is the application of the $10,000. 14 MS. YEE: Mm-hmm. 15 MR. RUNNER: Whether or not that, um, can be or 16 should be applied then to the time to which the 17 individual had control. 18 Um, I mean it -- it -- I realize when he 19 submitted it that he didn't ask for that. But at that 20 point he didn't think he'd be responsible. I suppose if 21 you were to ask him -- I mean -- well, I think we did. 22 I think it was stated today that his intention would be 23 to go ahead and have it applied, uh, during the time 24 that he was -- that he had -- that he is being 25 identified as in control. 26 And I believe we -- again, I don't know if we 27 do it -- we probably don't ordinarily do it -- I think 28 we've had this discussion before, um -- after the fact. 3 1 But, indeed, if it was done at the time of his filing, 2 he could have applied. He could have asked for it to be 3 applied during that period of time, correct? 4 MR. LEVINE: Yes. 5 MS. STEEL: Mm-hmm. 6 MR. RUNNER: And I think the only reason he 7 didn't is because he didn't think he was going to be 8 responsible for the previous time -- amount of time. 9 So, um, I think that's one of the issues. 10 The other issue I am -- I am convinced that the 11 business had to operate differently in its last two 12 weeks of operation, um, simply because it was a 13 winding-down business. You don't do business the same 14 way, you know, 10 weeks prior that you were then in 15 business versus as -- as it's been -- as you wind down 16 the business and the business is winding -- well, 17 especially when you take control and your whole goal of 18 your control is to shut the business down; as opposed to 19 before, before you had control of the business, which 20 was to then operate the business. 21 So I think, again, the assumption that you 22 divide then the, uh, obligation by -- evenly amongst 23 that whole quarter to the point to where he gets the -- 24 the full requirement during the time he was actually -- 25 the two weeks he was in control, that seems to be a bit 26 problematic for me, so -- 27 MR. HORTON: The challenge before us is, in the 28 absence of evidence, how do we -- how would one adjust 4 1 accordingly? 2 The other concern that I have -- and this is a 3 broader concern -- is that staff has, on occasions, 4 they're generous, conservative in their calculations. 5 And then I think he used that as a defense in the 6 subsequent deliberation of issues as they come arise, 7 which causes sometimes us to lose sight of the fact of 8 the -- in this case the flooring, the million dollars in 9 sales and so forth. That this was a situation where 10 staff may have the -- the liberty to take a look at what 11 was actually presented to us today. The liability may 12 in fact go up. 13 So -- 14 MR. RUNNER: You -- you actually think that the 15 liability would go up because he actually had greater 16 sales in those last 14 days than he had previously? 17 MR. HORTON: I think the facts discussed here 18 today sort of implies that the staff recommendation was 19 conservative. 20 MS. YEE: Mm-hmm. 21 MR. RUNNER: Conservative in which way? I 22 mean -- I mean, I'm just looking at the floor change and 23 everything else. And it seemed, to me, by the time -- 24 what everybody agreed on in regards to the -- to the, 25 uh, sale for resale and whatnot, it basically is a 26 formula -- it assumed, um, you know -- 27 Well, I mean, if you take -- basically there 28 was taxable sales over the three-month period of 5 1 $3 million, right? Um, of which he had -- of which he 2 had an obligation during that $3 million of two weeks' 3 worth over that quarter. Um, and you start 4 extrapolating that down and I'm -- I'm -- I'm struggling 5 seeing where then the requirement of $39,000 was 6 generous. It just seems, to me, to be a matter of 7 math. 8 MR. HORTON: Member Yee. 9 MS. YEE: Uh, thank you, Mr. Chairman. 10 I actually communicated with staff on this 11 question of whether the economic conditions may have 12 played, uh -- may have been a factor with respect to, 13 um, what may have occurred in December. 14 And the staff was able to look at another local 15 Chevy dealership. And, um, with the percentages that 16 they were able to, uh, extract from the fourth quarter 17 2007 return for the -- for a similar dealership, applied 18 that percentage for December, which did reflect some 19 decline in, uh, activity to this case here. And it 20 actually resulted in a higher determination than what 21 we're dealing with here. 22 So, I just think, without further evidence, 23 it's going to be really hard to know just how to treat 24 this period. 25 MR. HORTON: Yeah. For me, the taxpayer 26 himself appears to be relatively innocent even though he 27 did have control over -- over the payments -- 28 MS. YEE: Mm-hmm. 6 1 MR. HORTON: -- by its own admission, and made 2 a conscious decision, uh, to do what in the business 3 world might be appropriate, save his business, uh, to 4 that extent that that's appropriate. 5 But the question before us, I think, is the 6 liability of the company and the responsiveness of the 7 company and the overall activity of the company. 8 In addition, whereas I agree with some of the 9 variables that may, in fact, signal a reduction, it is 10 the preponderance of the evidence, the aggregate of the 11 information that has to be taken in consideration. And 12 if you do that, uh, we could end up with a higher 13 liability. 14 MR. RUNNER: Well, there was no evidence 15 that -- that it was the same. It was just assumed it 16 was the same, right? I mean, there was no evidence that 17 it was the same. It was just assumed it was divided 18 evenly across the quarter. 19 MR. HORTON: Well, I'm -- I -- 20 MR. RUNNER: Am I wrong? Am I -- 21 MR. HORTON: Yeah. Well, because -- well, I 22 don't want to retry the case. 23 MS. YEE: Yeah. 24 MR. RUNNER: Well, I just wonder, you said the 25 "evidence," that's why I wondered about the evidence 26 that would show that -- 27 MR. HORTON: Or I could actually say the invert 28 of that. The lack of evidence on the other side, uh, to 7 1 cause -- to substantiate any reduction. But if you 2 take, uh -- uh, the total inventory on hand, the sales 3 comparatively to another, uh, the fact the resales were 4 taken into consideration in the fourth quarter, reported 5 amount, and the variables and the relationship to 6 taxable versus nontaxable was taken into consideration, 7 and, quite frankly, generated by the taxpayer, uh, 8 probably much more reflective of what it was than what 9 is hypo -- what is hypothetically represented before us, 10 uh -- 11 And I could go on, but those are just a few. 12 MR. RUNNER: How about on the last -- on the 13 other issue, the issue in regards to the application of 14 the $10,000 payment? 15 MR. HORTON: I would defer -- I mean I can't 16 defer to Mr. Levine. But I certainly have some 17 reservations of allocating monies that don't necessarily 18 belong to the party who was making the request. 19 MR. RUNNER: You mean the taxpayer? 20 MR. HORTON: Well, in this case the taxpayer, 21 not the business. Those are funds that belongs to the 22 business and not to the taxpayer before us. 23 MS. STEEL: But Mr. Levine said that if it was 24 on the check, if this taxpayer wrote it, that, you know, 25 which dates that it has to be applied, then -- 26 MR. HORTON: Had he wrote it -- 27 MS. STEEL: -- he can apply it. 28 But at the same time, he took over and he paid 8 1 that $10,000 with a good intention to pay. So he just 2 assumed -- 3 How many people, how many taxpayers know that 4 they have to write it down on the check that, you know, 5 how many -- which dates has to be covered? 6 MR. LEVINE: I don't think on the check. I 7 don't think that would do it. It would have to be -- it 8 has to be something that will be noticed. 9 MR. HORTON: Yeah. 10 MR. LEVINE: The check doesn't really do it. 11 It would have to be a letter directing payment. 12 MS. MANDEL: Oh, if they wrote it on a check -- 13 MS. STEEL: That's what I asked. 14 MS. MANDEL: I mean, we -- you know, we -- 15 that's what you're supposed to write -- 16 MS. STEEL: Yeah. 17 MS. MANDEL: -- on your check. It's for my 18 540 -- 19 MR. LEVINE: I don't know what -- 20 MS. MANDEL: -- for a certain period. Or my 21 property tax it's for this period. 22 If he wrote it on a check and that was the only 23 place -- 24 MS. STEEL: Right. 25 MS. MANDEL: -- and he showed me the check, you 26 know, I -- I -- I'd be inclined to say that he was 27 trying to say it goes -- goes to this. Because it's 28 typically what people do on a -- on a tax payment check. 9 1 It might not be the best way, but -- 2 MR. RUNNER: He -- he certainly had the ability 3 and the, um -- the authority when he wrote that check to 4 direct that check to those last two weeks, correct? 5 MR. LEVINE: When he wrote -- when he paid 6 it. 7 MR. RUNNER: Right. 8 MR. LEVINE: Yes. 9 MR. RUNNER: Okay. And that's why I'm going 10 back to the Chair's discussion in regards to whether 11 it's the person or the corporation. The point is, I 12 think he's the same, um, in the sense that, you know, he 13 had the ability to direct it. 14 I got to believe that if he understood that he 15 was going to be held accountable for those -- for those 16 previous months, he would have said, "Apply it to the 17 time when I ran the business." In fact, that's what he 18 did say through his representative. 19 MR. HORTON: I'm sort of open to the will of 20 the Board. But, again, I'm just expressing, uh, the 21 concern. 22 Uh, the taxpayer did not have unilateral 23 authority. The taxpayer had a authority that was vested 24 in him and some sort of process where the owner of the 25 company granted him authority to do X, Y and Z and, to 26 the extent that he's a responsible person, and he did 27 it. 28 And so subsequent to that action, to make a 10 1 request, we can certainly presume that, uh -- that -- I 2 mean, that he has that authority and make the 3 adjustment. 4 MR. RUNNER: Well, let me go ahead and make a 5 motion then that we apply the 10 -- his last $10,000, 6 uh, payment to his -- against his liability. 7 MR. HORTON: Mr. Runner makes -- Mr. Runner 8 moves that the $10,000 payment be applied to the, uh -- 9 to the period in which the taxpayer was deemed to be a 10 responsible person, um, as opposed to the way it was 11 previously applied under the presumption that he has the 12 authority to do so. 13 Uh, second -- 14 MS. STEEL: Second. 15 MR. HORTON: -- by Member Steel. 16 Objection, Members? 17 MS. YEE: Objection. 18 MR. HORTON: Objection noted. 19 Um -- I can't go there. 20 MS. MANDEL: Well, that was why I was asking 21 all the questions about whether there were, um, funds 22 available or whether the 10,000 was -- was really 23 generated as -- as a result of the particular, um, 24 activities that occurred when he was in -- when he was 25 responsible. That if there was no, um -- no, uh, prior 26 funds, um, that's kind of what I was trying to -- trying 27 to get at. 28 MR. HORTON: I don't know if there's any, uh, 11 1 evidence of such. It is -- it is rather difficult to -- 2 to -- to presume that the documents, in the spirit of 3 authority as reflected, is different. And particularly 4 when it's an argument subsequent to the -- to the 5 hearing evolved out of the process, wasn't germane to 6 the initial intent or thought. We're actually creating 7 this. 8 Ms. Richmond, please call the roll. 9 MS. RICHMOND: Mr. Horton. 10 MR. HORTON: No. 11 MS. RICHMOND: Ms. Steel. 12 MS. STEEL: Aye. 13 MS. RICHMOND: Mr. Runner. 14 MR. RUNNER: Aye. 15 MS. RICHMOND: Ms. Yee. 16 MS. YEE: No. 17 MS. RICHMOND: Ms. Mandel. 18 MS. MANDEL: No. 19 MS. RICHMOND: Motion failed. 20 MR. HORTON: Further discussion, Members? 21 MS. YEE: I'm going to move to adopt the staff 22 recommendation. 23 MS. MANDEL: That the Appeals -- 24 MS. YEE: Appeals staff recommendation, yes. 25 MR. HORTON: Member Yee moves to adopt the 26 Appeals staff recommendation. Second by Member Mandel. 27 Objection -- 28 MS. STEEL: Objection. 12 1 MR. RUNNER: Objection. 2 MR. HORTON: -- noted. 3 Ms. Richmond, please call the roll. 4 MS. RICHMOND: Mr. Horton. 5 MR. HORTON: Horton, aye. 6 MS. RICHMOND: Ms. Steel. 7 MS. STEEL: No. 8 MS. RICHMOND: Mr. Runner. 9 MR. RUNNER: No. 10 MS. RICHMOND: Ms. Yee. 11 MS. YEE: Aye. 12 MS. RICHMOND: Ms. Mandel. 13 MS. MANDEL: Aye. 14 MS. RICHMOND: Motion carries. 15 ---oOo--- 16 17 18 19 20 21 22 23 24 25 26 27 28 13 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 December 19, 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 13 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: December 26, 2012 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 14