1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 REPORTER'S TRANSCRIPT 8 DECEMBER 19, 2012 9 10 ITEM M 11 OTHER CHIEF COUNSEL MATTERS 12 M1 13 DISCUSSION AND REQUEST FOR DIRECTION 14 REGARDING THE IMPLEMENTATION OF AB 2323 15 16 17 18 19 20 21 22 23 Reported by: Juli Price Jackson 24 No. CSR 5214 25 26 Kathleen Skidgel 27 No. CSR 9039 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 Board Staff: Grant Thompson Tax Counsel 19 Legal Department 20 Randy Ferris Chief Counsel 21 22 ---oOo--- 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 DECEMBER 19, 2012 4 ---oOo--- 5 MS. RICHMOND: Our next matter is M, other 6 Chief Counsel matters, M1, discussion and request for 7 direction regarding the implementation of AB 2323. 8 MR. HORTON: Mr. Thompson, would you please 9 introduce the issues in this case? 10 MR. THOMPSON: Good morning, Grant Thompson for 11 the Legal Department. 12 The staff memo, I think, is quite detailed. 13 So, I'll just make a couple of introductory remarks. 14 Our intent here is to implement AB 2323 in a 15 manner that's both consistent, insofar as possible, 16 across tax areas and also is fair to those taxpayers who 17 do not have an amount in controversy exceeding 500,000 18 and does not unduly or unfairly delay the resolution of 19 their matters. 20 I'd note that the Appeals Division and the 21 Legal Department will be closely monitoring the impact 22 of AB 2323 going forward and doing everything possible 23 to mitigate any adverse impact on other taxpayers. 24 I'd also note administratively that we have 25 received some comments from Mr. Vinatieri that all of 26 the Members should have received. And if it assists in 27 the discussion, you may wish to consult the matrix at 28 the back of the memorandum which sets forth the action 3 1 items for which we are seeking Board direction. 2 With that, I'll open it up for discussion. 3 Thank you. 4 MR. HORTON: Discussion? Member Yee. 5 MS. YEE: Thank you, Mr. Chairman. 6 I'm not sure quite how to take these up, 7 whether it makes sense to go action by -- item by item 8 or -- but I just had some general questions, if I could? 9 I know previously I had suggested -- and the 10 staff memo does discuss this -- about revising our rules 11 for tax appeals, which is a rulemaking process that's 12 going to take some time. 13 And I just wanted to get a sense of what would 14 happen in the intervening time before the rules are 15 finalized. 16 MR. THOMPSON: Well, until the rules are 17 finalized, we would follow the path we set forth in the 18 memorandum, subject to the Board's direction and 19 modification. 20 And we could bring back rules relatively 21 quickly on those matters that the Board decided today if 22 the Board wished. Or the Board, you know, may wish that 23 we gain some experience with the implementation of 24 AB 2323 and address these AB 2323 issues in connection 25 with any other possible amendments to the rules as part 26 of the ordinary course. 27 MS. YEE: Okay. My main concern here is -- I 28 mean, certainly the time delay, but also that there's, 4 1 obviously, complete transparency about how we're going 2 to handle this implementation for all parties involved 3 and especially since we've got differences, potentially, 4 in CROS tax programs, okay. 5 And my second question relates to how we're 6 going to manage findings effect, particularly as it 7 relates to business tax opinions when so many of the 8 facts that we're going to be dealing with are 9 confidential taxpayer information. 10 And this is a really sensitive topic that I 11 just want to be sure that we're handling with, 12 obviously, care, but also being very, very upfront about 13 how to address it. 14 MR. THOMPSON: Just one moment again to consult 15 Mr. Ferris on this. 16 MS. YEE: Okay. 17 (A discussion was held off the record.) 18 MR. THOMPSON: My expectation is that taxpayers 19 would have notice that the decision would be covered by 20 AB 2323. So, they could be aware that it's coming. 21 And the findings of fact would try to be 22 cognizant of not going beyond what's necessary to 23 resolve the decisions. And it's going to be posted on 24 the website. 25 MS. YEE: Okay. 26 MR. FERRIS: And this would go to the issue of 27 narrow versus broad -- 28 MS. YEE: Yeah, exactly. 5 1 MR. FERRIS: -- drafting as well. 2 MS. YEE: Exactly. 3 MR. FERRIS: So, drafting narrowly would also 4 protect taxpayers from unnecessary confidential 5 information being disclosed. 6 MS. YEE: Okay. And I guess what I'm -- I'm 7 just thinking about all these scenarios that could 8 occur, that may occur. 9 And that is conceivably could we have facts 10 that would be extracted from the written record to 11 support the decision, even though those facts may not 12 surface during the oral hearing? 13 'Cause a lot of this you're going to be doing 14 kind of in advance of -- in the preparation of the 15 matter coming before us. 16 MR. FERRIS: I mean, we would be focused on -- 17 with business taxes -- 18 MS. YEE: Yeah. 19 MR. FERRIS: -- certainly, we -- at this point 20 the decision and recommendation is not posted to the 21 PAN, the public agenda notice, but the hearing summary 22 is. 23 But, again, I think as Mr. Thompson was 24 indicating, we would, in our hearing summaries that the 25 taxpayer would be receiving in advance of the oral 26 hearing, I think we would take pains to point out -- 27 MS. YEE: Okay. 28 MR. FERRIS: -- that any dispositive fact 6 1 that's in the decision and recommendation would 2 potentially be part of the published decision. 3 MS. YEE: Okay. 4 MR. FERRIS: But again if we are instructed to 5 draft narrowly, that would put us in the best position 6 to make sure that -- 'cause we think that AB 2323 does 7 overrule other confidentiality protections. 8 I mean if the Board is mandated to put forth 9 the dispositive facts upon which it's making its 10 decision, we have to be able to do that. 11 So -- 12 MS. MANDEL: There's ways to say facts -- 13 MR. FERRIS: -- correct. 14 MS. MANDEL: -- that -- 15 MS. YEE: Yeah. 16 MR. FERRIS: We would want to be very mindful 17 of that. 18 MS. MANDEL: You do a pretty good of saying 19 facts in the hearing summaries that are made public on 20 the business tax side. 21 I mean, every once in awhile there is some 22 more -- 23 MS. YEE: Yeah. 24 MS. MANDEL: -- you know, more specificity, but 25 there would always -- there's the question of whether 26 the more specificity is an absolute necessity in 27 preparing an opinion whose intent is so that the world 28 might know the basis for the Board's decision. 7 1 MR. FERRIS: Correct. And staff, I think, 2 would be very protective of -- of the taxpayer's 3 confidentiality. 4 And I think we'll have an expanded kind of 5 review process. And I actually envision myself also 6 being involved in the review, so -- 7 MS. YEE: Okay. And then I know I may be 8 jumping ahead on the matrix, but if we could spend some 9 time on the issue of when the matter becomes final. 10 And I know the statute actually specifies this 11 120 days. But how does that overlay on top of what is 12 currently? 13 MR. THOMPSON: Right. Our recommendation is 14 premised on the idea that the -- that the phrasing of 15 the statute and the intent of the statute suggests that 16 the Board renders its judgment -- renders its decision 17 when that decision becomes final. So that the 18 prerequisites to effectiveness have already been met. 19 And I think that's consistent with the language 20 in terms of speaking of rendering a decision as opposed 21 to submitting a matter to staff for preparing a decision 22 and also with the intent of the legislation, which I 23 don't think would be farthered (verbatim) by a -- our 24 view was that we didn't want to have a situation where 25 decisions were being posted that were not yet final and 26 that could be changed by the Board after consideration 27 on a rehearing. 28 MS. MANDEL: So -- I'm sorry. 8 1 MS. YEE: No, go ahead. 2 MS. MANDEL: So, the -- the staff view, I 3 suppose, then is that the -- you view the intent of the 4 legislation more -- sort of the way I phrased it just 5 before -- which is so that the world might know because 6 under your scenario when these decisions would be put 7 out there would be after all of the time for a petition 8 for rehearing has run, so that the taxpayer -- or in a 9 Franchise Tax Board case, the Franchise Tax Board -- 10 would not have the benefit or burden of what's written 11 in the Board's decision to file a petition for rehearing 12 against. 13 I mean I do understand that in today's world if 14 the Board were to issue an opinion after a petition -- 15 after a rehearing or off of a petition for rehearing, 16 there's not that, you know, opportunity to come back 17 again. 18 But -- but that's probably a rare occurrence, 19 but here the way you have it set up is there'd be no 20 formal or informal writing, you know, more expansive 21 writing than today goes out for cases prior to the time 22 that someone's filing a petition for rehearing. It just 23 comes at the end -- the very end of the whole process. 24 Is that how I -- 25 MR. FERRIS: Correct, we're understanding the 26 intent of the legislation to be that there were be a 27 public memorialization of the Board's reasons for a case 28 that it decides that -- that meets or exceeds the 9 1 threshold, that the -- that that was the primary focus 2 of that. 3 And certainly both -- both sides in the 4 controversy would reserve their rights to file petitions 5 for rehearing based upon the -- the initial vote of the 6 Board with respect to resolution of the matter. 7 MS. MANDEL: Well, they could petition off the 8 Board's -- yeah, the Board's -- the way you have it set 9 up, the Board's vote on the matter at the time that the 10 Board then also says, "Okay, go -- go -- you know, go 11 draft." 12 And we have that discussion about what that 13 really means, but you would have the time period to 14 petition for rehearing run from the Board's vote, the 15 way it generally does today in an income matter or from 16 a Notice of Redetermination that comes out on the 17 business tax matters. 18 MR. FERRIS: In business taxes, yes. 19 MS. MANDEL: Right. 20 MR. FERRIS: Franchise and income tax, it's a 21 different rule. 22 MS. MANDEL: Yeah, I understand, assuming 23 there's no -- okay. 24 But if the Board on its -- okay. 25 So, on the business tax side, the taxpayer 26 would not -- if they were in one of these big cases, the 27 tax -- under your system, the taxpayer would not have 28 the written opinion or summary decision before he has to 10 1 petition for rehearing because none would be issued 2 until after there is a decision on the petition for 3 rehearing? 4 MR. FERRIS: Unless the taxpayer were to 5 request of the Board that the Board not make its 6 determination until the Board adopts the -- either the 7 summary decision or the memorandum opinion and it -- and 8 as we indicate in our memo -- 9 MS. MANDEL: Which would be then consistent, 10 you would have the -- 11 MR. FERRIS: -- with the current FIT rule. 12 MS. MANDEL: -- taxpayer. You would -- you 13 would -- you would put the burden on the taxpayer to ask 14 for that in a business tax case? 15 MR. FERRIS: Right. 16 And our assumption is that the Board would be 17 generous in granting that type of request because any 18 interest accrual that would be associated with that 19 delay would be at the taxpayer's request. 20 MS. MANDEL: Okay. Uhmm -- do you have more at 21 this point? 22 MS. YEE: No, I'm -- I am sitting here having a 23 little bit of quiet heartburn about how we're going to 24 inform taxpayers about all this, but have it be 25 understood that -- but that's my own personal -- 26 MS. MANDEL: I had questions. 27 MS. YEE: -- yeah, go ahead. I'm fine. 28 MR. RUNNER: Is our intent to kind of go 11 1 through this? 2 'Cause I think -- at least the way the staff 3 set that up is that there is a series of action items? 4 MS. YEE: Yeah. 5 MR. HORTON: Yeah, I'm -- I'm -- 6 MR. RUNNER: I have a general question before 7 we start doing that. 8 MS. YEE: Yeah. 9 MR. RUNNER: I think for us -- 10 MS. YEE: To put it -- 11 MR. HORTON: I think it may be helpful to get 12 the general questions out -- 13 MR. RUNNER: Right. 14 MR. HORTON: -- and the discussion out and see 15 if there is some consensus on the staff recommendation 16 on particular items and where there isn't, to deal with 17 those separately. 18 And I would also put the issue of due process 19 on the floor for discussion to insure that the 20 taxpayer -- that we have gone the full gamut as it 21 relates to due process, which is part of the reason of 22 waiting until such time that all of the taxpayer's 23 rights have been exhausted. 24 Member Mandel. 25 MS. MANDEL: Well, I -- I think the way I kind 26 of prepared my little thing here (indicating), I have my 27 thoughts by the different action items. 28 MR. HORTON: Uh-huh. 12 1 MS. MANDEL: I guess the only generalized -- 2 and I guess even the generalized one really probably 3 comes on the last one about how you're going to do the 4 rulemaking process and that's a -- that's a separate 5 action item, so -- 6 MR. HORTON: Okay. 7 MS. MANDEL: -- I guess I don't have -- 8 MR. RUNNER: I have one general item. 9 MR. HORTON: Mr. Runner. 10 MR. RUNNER: In terms of the concept and the 11 discussions that we're having here, I mean, the whole 12 goal here is to create a public record memorializing the 13 opinion that the Board has made. 14 And that makes some assumptions. 15 A, it makes the assumptions that everybody had 16 that same opinion. So, my first question is in regards 17 to assuming that there would also be in regards to -- 18 within these opinions, potentially, if opinions are 19 split, a majority and a dissenting opinion. 20 And then, on top of that, the other issue is 21 even there is -- even when we all may decide on 22 something the same, we may deciding on different facts. 23 And, so, therefore, what got to the conclusion 24 for me may be different than it was for the Chair, even 25 though the -- even though it was the same decision. 26 So, I would assume that then within -- 27 within -- within then the opinion writing that that 28 would be needing to be articulated because that was the 13 1 whole intent of the bill is they wanted to know why 2 people decided what they did and why. 3 MR. FERRIS: Yeah. I think one important 4 distinction to point out is that the bill only envisions 5 concurring and dissenting opinions on precedential 6 opinions. 7 MR. RUNNER: Right and -- excuse me. 8 And my whole -- my whole discussion there is 9 in -- is in regards to precedential decisions. 10 MR. FERRIS: Right. 11 MR. RUNNER: Not in -- yes, my whole thought is 12 just in regards to that. 13 MS. MANDEL: But -- but on the other ones, 14 depending how you write it up, you might have had a 15 majority vote -- I mean, let's say it's a split vote 16 with a split majority. I mean, I -- I mean, you could 17 have the same issue on trying to get a summary decision 18 adopted if Members feel that it doesn't reflect why they 19 voted or they don't like -- want this line, so -- 20 MR. RUNNER: Right. 21 MS. MANDEL: -- you don't have maybe the 22 formality of providing concurring or dissenting, but we 23 sort of went through -- 24 MR. RUNNER: I guess my question, though, is it 25 as -- is it as important? 26 MS. MANDEL: Well, it might be if a Member is 27 going to put -- you know, the summary decision still 28 requires -- don't they still require, you know, who's 14 1 voting for it? 2 MR. FERRIS: Adopted Members, yes. 3 MS. MANDEL: Yeah. So, you know, if they write 4 a summary decision and it -- it covers things that you 5 didn't think were -- 6 MR. RUNNER: Okay. 7 MS. MANDEL: -- the basis, you'd still kind of 8 have the same issue of how they wrote it up. 9 I mean, there was, years ago, when the property 10 tax findings and decisions, which the law did and still 11 provides taxpayers can request and they were, of course, 12 more relevant when taxpayers did not have a trial de 13 novo, I mean, from the taxpayer's side, there was one 14 findings and decision whey they used to have more in 15 them that -- there's -- there's one out there that I can 16 think of where there was an asterisk by -- probably it's 17 by my name -- and it was, you know, concurring in the 18 result only. 19 So, I think you can have the same issue. 20 MR. FERRIS: Yeah. And I think that it -- it 21 argues, from our point of view, in favor of directing us 22 to draft things narrowly. 23 We believe that there will be greater potential 24 to have a consensus among Members who agree with that 25 result if we're seeking to draft narrowly as opposed to 26 getting into kind of additional, and possibly 27 disputable, alternative rationale behind how you can get 28 to that result. 15 1 MS. MANDEL: Okay. Then what's the -- what's 2 the -- is there a plan for dealing with the -- on the 3 formals then, what Mr. Runner's talking about and 4 concurring in the sending and how that's going to happen 5 or when? 6 MR. FERRIS: Well, I guess if a Member knew 7 that they were not in the majority as to the result, 8 they would be kind of on notice from the beginning if 9 they want to file a dissenting opinion. 10 MR. RUNNER: Okay. Let's -- can we stop right 11 there? 12 MR. FERRIS: Yeah. 13 MR. RUNNER: And I think that's a good -- I 14 think -- I think the assumption can be that if there is 15 to be a minority opinion, a dissenting opinion, then 16 it's up to the Member then to initiate that. 17 The assumption doesn't necessarily need to be 18 that we go out and seek those -- 19 MR. FERRIS: Correct. 20 MR. RUNNER: -- or assume that one will be 21 argued -- 22 MR. FERRIS: Right. 23 MR. RUNNER: -- based upon the discussion that 24 took place. 25 So, I -- I think that's a -- I think that's a 26 good place to assume at that point so that, you know, 27 you -- so that you all are not running around trying to 28 figure out who's going to give the dissenting opinion. 16 1 MR. FERRIS: Right. 2 MR. RUNNER: So, I think it's up to the Member 3 then, if they feel like this is a case to which it is 4 important to them to do that, that they take the 5 initiative to communicate that. 6 MR. FERRIS: Correct. And they could -- we 7 could set up a procedure for that. 8 You could inform -- 9 MR. RUNNER: Uh-huh. 10 MR. FERRIS: -- the Chief Counsel's office. 11 That probably would be the best procedure. And then -- 12 then we would make sure that the Appeals Division of 13 Legal would then interact with that Member's office to 14 let them know what the deadline is -- 15 MR. RUNNER: Uh-huh. 16 MR. FERRIS: -- to make sure that that dissent 17 is ready to be published with the lead opinion onto the 18 websites. 19 MR. RUNNER: How about going to the next step, 20 which would be the -- what would be the timing and the 21 available -- when is that -- for instance, when Members 22 would see what it is that has been drafted and a Member 23 would say, "Well, yeah, I would -- we all voted for 24 this, but that's not the fact that got me there."? 25 MR. FERRIS: Uh-huh. 26 MR. RUNNER: When would -- when would -- what 27 would be the process and when would that be a part of 28 then the input that would come from a Member? 17 1 MR. FERRIS: Right. So, we -- we would -- 2 again when we know a case is -- is covered by the bill, 3 we would -- the -- the attorneys who would be working 4 on -- whether it be the decision and recommendation, the 5 hearing summaries, depending upon the program and this 6 type of thing -- would be drafting those documents with 7 a view towards -- that would then -- our hope would be 8 at the next Board meeting following the Board's oral 9 hearing and, at the very latest, at the -- at the second 10 Board meeting. 11 If we can't get it -- depending upon on how -- 12 sometimes the -- the Board meetings follow so -- 13 MS. MANDEL: You can't write them in a week? 14 MR. FERRIS: -- close that we just can't do it. 15 MR. RUNNER: Uh-huh. 16 MR. FERRIS: But as soon as possible we would 17 get a draft opinion to the Members. 18 And that's -- that's another -- 19 MR. RUNNER: That can then be talked through -- 20 MR. FERRIS: -- talked through. 21 MR. RUNNER: -- prior to then the meeting 22 itself where that would be adopted? 23 MR. FERRIS: Correct. The Members' offices 24 could have unilateral communication with Appeals -- 25 MR. RUNNER: Right. 26 MR. FERRIS: -- during that time period and not 27 violate -- 28 MR. RUNNER: Right. 18 1 MR. FERRIS: -- Bagley-Keene. 2 But that would allow the Member to have notice 3 that -- unless -- they may find out when -- when the 4 draft is publicly discussed that other Members also 5 agree with them about a missing fact or a different fact 6 being important, which may then end up being part of the 7 majority opinion and, therefore, no need for a 8 concurring opinion. Or that Member may find out that, 9 oh, I'm -- I'm -- he or she is out there on their own on 10 that particular point, agrees with the result, but had a 11 different analysis and, therefore, should submit their 12 concurring opinion, if that's what they want to do. 13 MR. RUNNER: Okay. 14 MS. STEEL: Could I -- 15 MR. HORTON: Uhmm -- 16 MS. STEEL: -- general question. 17 MR. HORTON: Member Steel. 18 MS. STEEL: You know, we've been publishing 19 some written formal opinions, so far. I mean it was 20 very rare that we did the last few years. 21 How did we practice until now? 22 MR. THOMPSON: We haven't had the issue of 23 dissents or concurrences arise. That's been relatively 24 unusual. 25 I can think of one appeal where the possibility 26 of dissent was raised in connection with the formal, but 27 it was ultimately determined not to do a formal on it. 28 MS. STEEL: But -- 19 1 MR. THOMPSON: So -- 2 MS. STEEL: -- we been doing that, though, for 3 at least two, three cases per year -- or maybe less than 4 that? 5 MR. THOMPSON: -- right, right. 6 MS. STEEL: You don't even remember? 7 MR. THOMPSON: Right. I mean, it's -- you 8 know, I've seen it raised, I've never seen it done. 9 MS. STEEL: Really? 10 MR. THOMPSON: It's more the exception than the 11 rule. 12 And I think, you know, we're, obviously, going 13 to strive to produce opinions that the -- at least the 14 entire Board can sign off on. 15 And to that end, during the oral discussion we 16 may be a little more assertive in seeking the Board's -- 17 the individual Board Member's view of the particular 18 facts leading to their decision to that there's more 19 than one path to the decision and we have a clear sense 20 of where the Board is coming from. 21 MS. MANDEL: I think mostly in the past if -- 22 if it wasn't a unanimous vote, I can think of maybe one 23 time where somebody wrote something that they wanted 24 attached. 25 But if it wasn't a unanimous vote, you just 26 didn't -- you didn't support it, you just didn't vote 27 for it. 28 And just depending on Members, some may be 20 1 inclined -- depending on who Members are at any given 2 point in the Board's life -- they may want to do these 3 other opinions, so -- 4 MR. RUNNER: In the past, though, I think the 5 thing that makes this a little bit different -- in the 6 past that may have been a part of the discussion and the 7 rationale as to whether or not to go ahead and set as 8 precedent. 9 MS. MANDEL: Well, you will -- you will see 10 some that are -- 11 MR. RUNNER: Now we don't -- now that 12 discretion's been taken away. 13 And, so, you could be in position where we may 14 see that -- 15 MS. MANDEL: The discretion to make it 16 precedent or not still exists. 17 MR. RUNNER: -- that -- well, that's true, 18 that's true. 19 MS. MANDEL: And in the past, you did -- 20 MR. RUNNER: That's a good observation. 21 MS. MANDEL: -- you will, if you go through 22 like the business tax ones and even some of -- 23 MR. RUNNER: That's true. 24 MS. MANDEL: -- the income tax ones, they are 25 not -- not every single one has unanimous signage. 26 And, in fact, I can think of one where, I 27 believe, there were more votes in favor of the result at 28 the hearing than there were signatures on the formal 21 1 opinion when it came out. 2 And, presumably, that's because the person -- 3 the people -- the person or people who, you know, didn't 4 sign the -- voted against the opinion, maybe they didn't 5 agree with, you know, the rationale that was given. 6 MR. RUNNER: Uh-huh. 7 MS. MANDEL: So, it's -- 8 MR. FERRIS: And now -- and that would, what 9 you're raising there -- kind of supports our long term 10 recommendation that our rules be amended to reflect that 11 for precedential decisions, which may warrant a more 12 deliberative kind of quasi-judicial process, that the 13 Board not determine the matter until it adopts the 14 opinion so that there's not a disconnect on who the 15 adopting Members are, with -- you know, so the -- 16 MS. MANDEL: Yeah, the one -- the particular 17 one I'm thinking of, where I think there was more votes 18 at the hearing, it actually was -- 19 MR. FERRIS: Uh-huh. 20 MS. MANDEL: -- an income tax case. 21 But I do know that there's business tax ones 22 when you pull them up there's not five names on them. 23 MR. FERRIS: That's right. 24 MR. HORTON: I think that will also help us 25 insure that the dissenting and concurring opinions are 26 on record and not subsequent -- an action subsequent to 27 the -- to the deliberation of the issues, which is -- 28 can be very challenging for the agency and certainly not 22 1 necessarily reflect the intent of the legislation. 2 MR. FERRIS: Correct, yeah. 3 It seems like that the dissenting and 4 concurring opinions should be published simultaneous to 5 the lead opinion. 6 MR. HORTON: Okay. 7 MR. FERRIS: So -- 8 MR. HORTON: Any concurrence on adopting the 9 staff recommendation dealing -- separating out item 10 No. 9 for a further discussion? 11 MS. MANDEL: No. It would probably be easier 12 if we you talk about them one by one, I mean, I -- 13 MR. HORTON: You guys want to talk about them 14 one by one? 15 MS. MANDEL: -- well, maybe. Maybe they'll be 16 fast, but maybe -- 17 MR. HORTON: Okay. 18 MS. MANDEL: -- they won't be, I don't know. 19 But -- 20 MR. HORTON: Item 1, Members. 21 MR. RUNNER: How about -- 22 MR. HORTON: Is there a motion? 23 MR. RUNNER: -- a motion to adopt -- 24 MR. HORTON: Mr. Runner moves -- 25 MR. RUNNER: -- staff recommendation -- 26 MR. HORTON: -- to adopt staff recommendation. 27 Second by Member Yee. 28 Discussion, Members? 23 1 Hearing none, such will be the order. 2 Item No. 2, is there a motion? 3 MS. MANDEL: Okay. On item No. 2, there -- 4 there were two things that sort of were affecting my 5 thoughts on item No. 2. 6 One is that interest follows the tax. So, even 7 if somebody hasn't sought interest abatement, which I 8 take it is what staff's probably talking about when they 9 say "disputed tax," the interest follows the tax. 10 And, so, is at some level kind of, you know, to 11 the extent you've disputed $100, you're also disputing 12 the -- you know, the amount in controversy is $100 plus 13 interest at some level. 14 And the other thing was that I -- I -- I kind 15 of thought that when the staff was giving information 16 about how many cases were affected -- and maybe that 17 wasn't as the bill was finally written -- that interest 18 was lumped in as part of the calculations. 19 So, I'm just kind of curious about the -- only 20 including interest that is the subject of abated -- of 21 an abatement request. 22 MR. FERRIS: I mean, at the time of the -- the 23 costing that we started with, we hadn't -- at that point 24 we really hadn't done any legal research into what 25 amount in controversy might mean. 26 And during that time period we were raising, on 27 a regular basis, that we don't know what "amount in 28 controversy means." Could you please define what that 24 1 means so that we can properly try to estimate what the 2 workload is going to be associated with this? 3 And -- but subsequent to that costing exercise 4 we have done our -- again, we kept hoping someone would 5 direct us to what they meant and that didn't happen. 6 And, so, our research shows that -- especially 7 with respect to business taxes, for example, when you -- 8 when -- when you're done with your administrative 9 appeals and you're going to Superior Court, your -- your 10 -- your amount that you're required to pay, you know, 11 the amount in controversy is just the tax amount, but 12 the tax doesn't have to be paid in order to do that. 13 And there are also -- 14 MS. MANDEL: The interest doesn't -- weren't 15 there a whole bunch of cases a long time ago but -- 16 MR. FERRIS: Agnew -- the California Supreme -- 17 MS. MANDEL: -- I can't remember, you know. 18 They seemed to go different ways -- and I -- 19 MR. FERRIS: Agnew was the -- 20 MS. MANDEL: -- don't remember how it ended up. 21 MR. FERRIS: -- Agnew was the controlling 22 Supreme Court case. 23 And it's clear that the -- that the interest is 24 not part of the amount in controversy that has to be 25 paid in order to have standing to -- to go into Superior 26 court. 27 Also with respect to federal case law, where 28 there is an underlying tax dispute, as reflected in the 25 1 memo, you know, there's different ways, depending upon 2 the context, that that -- that the courts look at that. 3 And, so, we do think that it is -- based on our 4 research and in the absence of any kind of direction in 5 the bill itself as to what it means -- we think that it 6 is a fair way to read it to -- and it's consistent with 7 the Board's historical practice and even in the hearings 8 that we've had. 9 Everything is focused on what is the tax that's 10 in dispute? You know, that's what the Board is 11 deciding. I think that's the culture of the Board. 12 Our recommendation is kind of reflecting what's 13 the Board's historic practice in the absence of any 14 other kind of direction that would expand that notion to 15 kind of ancillary, tagalong amounts, like interest, 16 unless it's expressly in controversy. 17 MS. MANDEL: Unless they say, "And I don't want 18 to have to pay interest 'cause I can't afford it or I 19 don't want to pay interest because you guys were 20 delayed," or -- 21 MR. FERRIS: Correct. 22 MR. THOMPSON: I mean, that would be enough to 23 put it in issue, I think. 24 We're not looking for magic words, if that's 25 what you're -- 26 MR. FERRIS: Yeah. 27 MR. THOMPSON: -- getting at, yeah. 28 MR. FERRIS: Yeah, we certainly would be 26 1 looking liberally. You know, if there's any doubt, we 2 would construe it as being in controversy. 3 We would not be looking to kind of limit the 4 application. 5 MS. MANDEL: Okay. And on the -- I know if you 6 only have a case involving interest in federal court you 7 really have to -- there is really only one place you can 8 go because the federal district courts don't have -- 9 unless they've changed it -- they don't have 10 jurisdiction over only interest cases -- which may be 11 why there was some -- but, again, that would be where 12 you only had interest in dispute. You're going to wind 13 up in the Claims Court. 14 Okay. Thank you for the explanation. I had 15 been inclined to say that it ought to be inclusive of 16 all interest that's following the tax, which I guess 17 could result in difficult computation exercises as well. 18 But I was concerned because there was, you 19 know, dollars and because I had thought that -- that the 20 information that was given about how many -- what would 21 be impacted included cases involving, you know, where 22 interest tossed them over the 500,000. But that might 23 have been only one or two cases. Is that -- am I 24 remembering that right? 25 MR. THOMPSON: That's right. 26 And, you know, we had a number of assumptions 27 in the costing analysis and it was relatively early in 28 the process. 27 1 For example, we had looked at the prior 2 calendar year and estimated one local tax reallocation 3 case and my understanding is we'll probably have more 4 this year that would be covered. 5 And we have also excluded an increase in 6 covered appeals due to the effective increase from our 7 southern California office, to be conservative. I'm not 8 sure, it may have been really conservative. 9 And the other thing I would note is that 10 overall the analysis, like we do here, focused on what 11 was actually disputed. So, as we looked through prior 12 year appeals and saw items that were conceded, no longer 13 at issue, we did not include those appeals. So, it's 14 consistent in that regard also. 15 On the interest, I -- I think one concern is 16 that whether the decision is covered by AB 2323 perhaps 17 shouldn't change just by the mere passage of time. 18 Meaning that if you had two taxpayers -- 19 MS. MANDEL: Right. 20 MR. THOMPSON: -- with the same dispute, and 21 one of them is deferred -- 22 MS. MANDEL: Okay, thank you. 23 MR. THOMPSON: -- you know -- 24 MS. MANDEL: Got it. Okay. 25 MR. HORTON: Is that a motion? 26 MS. MANDEL: Yeah, I'm okay then. 27 MR. HORTON: Member Mandel moves to adopt staff 28 recommendation. Second by Member Runner. 28 1 Without objection, Members, such will be the 2 order. 3 Item 3. 4 MS. MANDEL: I'm okay on item 3. 5 MR. HORTON: Moved by Member Mandel to adopt 6 staff recommendation. 7 MS. STEEL: No, I want to ask -- 8 MR. HORTON: Second by Member Yee. Discussion? 9 MS. STEEL: -- your -- so, expressly 10 contested penalties we talking about, other than based 11 on the -- on the tax? 12 Which penalty we talking about? We just add 13 everything, like a negligence penalty and all other 14 stuffs or just based on the tax? 15 MR. FERRIS: If they're asking for relief of 16 penalty, then it would be part of the amount in 17 controversy, so -- 18 MS. STEEL: All -- most all of the other -- 19 MR. FERRIS: -- most of the time they're asking 20 for relief of penalty. 21 MS. MANDEL: Yeah. 22 MR. FERRIS: So, it would be -- 23 MS. MANDEL: Most of the penalties are based on 24 the amount of tax. But if they have a late filing 25 penalty, that's, you know, 10 percent of the tax and 26 they -- 27 MR. FERRIS: -- repay or fraud. 28 MS. MANDEL: -- they admit it or don't ask for 29 1 relief, then you're saying you wouldn't count that 2 penalty in the number, right? 3 MR. FERRIS: If they concede that they owe the 4 penalty, we wouldn't include it. 5 MR. HORTON: Controversy is the word here. 6 Further discussion, Members? 7 Objection? 8 Hearing none, such will be the order. 9 Item No. 4. 10 MS. MANDEL: On item No. 4, this is the -- this 11 is the one that I note there was comment on, but item 12 No. 4, I think it would be very unusual, except I 13 suppose it could happen. 14 And you don't have -- sort of -- taking it at 15 the time of the Board's vote on the case -- and whatever 16 you want to call it, the initial vote on the case -- we 17 would know at that point what remains disputed because 18 certainly on the business tax side taxpayers can amend 19 their petitions up to any point -- by statute up to any 20 point until the Board makes its decision. And 21 sometimes, you know, staff, FTB or Board staff, concedes 22 something along the way. They get more information, 23 taxpayers may give up on something. 24 I think it'd be unusual, but perhaps it has 25 occurred or might occur that between the time of the 26 Board's vote on a case and later that something -- I 27 mean, I don't know if it's possible that somebody might 28 -- that there might be an additional change. 30 1 Or maybe that only would happen in the course 2 of a rehearing petition, like the one that we had today, 3 where upon further reflection in looking at the 4 rehearing petition. So, maybe it doesn't ever -- maybe 5 I'm just, you know, anticipating something that's not 6 ever really going to happen -- where after the Board 7 votes and before the document comes out that there's 8 some further potential adjustment on the number. 9 Am I just being hypersensitive? 10 MR. FERRIS: Well, there could be. I think 11 that even if the Board directed a 30-30-30, you know, 12 something like that, because that is the -- 13 MS. MANDEL: Oh, yeah, that would be a typical 14 time, yeah. 15 MR. FERRIS: -- yeah. 16 MS. MANDEL: Okay. 17 MR. FERRIS: Because the Board -- I think the 18 focus should be on the -- on the money amounts that are 19 associated with the issues that the Board is deciding. 20 MS. MANDEL: Okay. 21 MR. FERRIS: So, even on a 30-30-30 -- if it 22 was in at the time of the hearing, it stays in, even if 23 there is a staff concession later because of the 24 30-30-30, that's -- as the Board then adopts that type 25 of recommendation back up through Appeals at that point. 26 I think the fairest way to look at that is the 27 Board was deciding that. You know, whatever it is the 28 Board -- 31 1 MS. MANDEL: Was deciding? 2 MR. FERRIS: -- is deciding the amount in 3 controversy that's associated with what the Board is 4 deciding. 5 MS. MANDEL: Okay. So, let me just see if I 6 understand. 7 So, if it was a 30-30-30, which probably is the 8 time -- most likely time, the 30-30-30, the Board still 9 isn't making its vote until it comes back at the end of 10 the 30-30-30. 11 Is that what you're saying? So that if staff 12 made a concession based on the additional information 13 that the taxpayer came forward with and the numbers 14 somehow then -- you know, that caused the number to drop 15 below 500, then that case is off the list? 16 Is that what you're saying? Or is it when the 17 Board originally votes to send it to 30-30-30? 'Cause 18 that's not yet the Board vote, 'cause we're still sort 19 of keeping it open. 20 That's more like in -- under, you know, case is 21 still sort of -- it's not really technically under 22 submission in our old-fashioned way, but it's -- the 23 Board hasn't made any decision other than to send it 24 30-30-30. 25 MR. FERRIS: Right. It would depend on the 26 exact instruction of the Board I guess is what I'm 27 saying. 28 If the Board said, "Do a 30-30-30. Make some 32 1 adjustments and look at --" where you would distinguish 2 a Board direction from a Department concession. 3 MS. MANDEL: Okay. So -- okay. So, say 4 there's nothing -- I mean, this sounds like the kind of 5 thing I was thinking about -- if there's nothing and 6 it's an over 500 case on the day the Board hears it, 7 that the Board sends it for 30-30-30 'cause the taxpayer 8 says, "I got some more records in the shed at home that 9 I forgot about." 10 And he brings forward those -- he brings those 11 records, gives them to staff and Appeals. And the 12 Department or Appeals makes some -- the Department makes 13 a concession or Appeals makes a recommendation, which 14 maybe those two things are different -- but the 15 Department makes a concession based on the additional 16 records provided in the 30-30-30 that would take the 17 remaining disputed number -- because, presumably, the 18 taxpayer still thinks he should get it all, unless he 19 agrees with staff that, "Oh, yeah, it's 400 instead of 20 500," you're -- I'm trying to figure out when -- when 21 you're thinking that -- 'cause that still has to come 22 back to the Board on, you know, the Appeals 23 recommendation with the staff concession for the Board 24 to make, you know, in the normal -- today's world, the 25 Board would not actually be making its decision until it 26 votes when it comes back on the 30 -- after -- 27 MR. FERRIS: Right. 28 MS. MANDEL: -- after the 30-30-30 period has 33 1 expired. 2 MR. FERRIS: So, those conceded amounts would 3 not be in controversy when the Board makes its 4 determination, so -- 5 MS. MANDEL: Okay. That's what I wanted to -- 6 MR. FERRIS: Right. 7 MS. MANDEL: -- clarify. 8 And then -- then it would be -- robably doesn't 9 ever really happen that once the Board makes a vote, 10 whether it's income tax or after 30-30-30, but that -- 11 that after that, although I suppose it could happen, but 12 in these big cases it probably doesn't happen, in the 13 small, little guy case it might happen -- that the 14 taxpayer has something else that he gives and then FTB 15 sends a letter. 16 I mean, but then they make an adjustment -- I 17 mean, it's not -- you know what I'm talking about, 18 Mr. Thompson? 19 I mean -- 20 MR. THOMPSON: I think that would be the 21 exception, certainly. Usually after the Board comes 22 down and renders its view, you know, you don't see 23 further concession or movement. 24 Another point to remember is that I think we're 25 focused here on cases at the margin. 26 MS. MANDEL: Yeah, okay. 27 MR. THOMPSON: There's going to be a lot that 28 aren't that close. 34 1 MS. MANDEL: Yeah. 2 MR. THOMPSON: Either way under or way over. 3 MS. MANDEL: Okay. So, you've clarified the 4 30-30-30, which I think takes care of that issue. 5 And the only -- the other thing that I had -- 6 oh, I guess then I started bleeding into number -- 7 started bleeding into some other number on here, I 8 think. 9 I think I started bleeding into No. 7 on my 10 writeup here, which had to do with when you wind up 11 doing -- writing the thing. 12 So -- so, okay. 13 MR. HORTON: No. 4, Members? 14 MR. RUNNER: Move staff recommendation. 15 MR. HORTON: Member Runner moves staff 16 recommendation. 17 MS. MANDEL: Oh, wait a minute, wait a minute, 18 wait a minute. 19 When it -- when the Board's decision will 20 become final, that's the -- is that the 30 days after? 21 MR. FERRIS: Correct. So, to the extent -- and 22 it will be less problematic because of what the Board 23 decided on item 2, since only interest -- 24 MS. MANDEL: Oh, okay. 25 MR. FERRIS: -- that is actively in dispute. 26 MS. MANDEL: So, it's still effectively the day 27 that the Board votes? 28 MR. FERRIS: Correct. I mean, we put it this 35 1 way because we didn't want to presume what the Board 2 would do as to item 2. 3 But if interest was continuing, if it was 4 just -- 5 MS. MANDEL: Okay. 6 MR. FERRIS: -- following, you could -- 7 MS. MANDEL: You could still -- so, even though 8 it says when the the Board's decision would become 9 final, you effect -- you're really saying the rules -- 10 it's effectively the day that we cast the vote? 11 MR. FERRIS: Correct, because you're not 12 including ancillary interests. 13 MS. MANDEL: Okay, all right. 14 MR. FERRIS: It isn't -- 15 MS. MANDEL: Sorry. Sorry, guys. 16 MR. HORTON: That's okay. 17 MS. MANDEL: Okay. Keep going. 18 MR. HORTON: Are we good now? 19 MS. MANDEL: Yeah. 20 MR. HORTON: I just want to put this on the 21 table as it relates to the rest of them. 22 We really have to consider the -- the legal 23 issue of due process. That has to govern. And when -- 24 there's a point in time that we can certainly trigger 25 the AB 2323 process to begin it, but we can't finalize 26 that until the taxpayer's rights have been taken fully 27 under consideration, we've gone through the entire 28 process. 36 1 Even in a 30-30-30 situation, the precess is is 2 still open, it's still subject to change. We can't 3 issue any document that is final in any regard. 4 Moved by Member Runner, second by Member 5 Mandel. 6 Without objection, Members, such will be order. 7 Item No. 5. 8 MS. MANDEL: Use 1 percent of the general tax 9 rate as the overall? 10 MR. FERRIS: (Whereupon he nods head.) 11 MR. HORTON: Staff? 12 MR. THOMPSON: That's correct. 13 MS. YEE: I'll move. 14 MR. HORTON: Moved by Member Yee to adopt staff 15 recommendation. Second by Member Mandel. 16 Without objection, Members, such will be the 17 order. 18 Item No. 6. 19 MS. MANDEL: And then again this is the total 20 amount at the time, not just whatever $2 that have 21 stayed in the petition? 22 MR. FERRIS: Correct. And this is a 23 situation -- to get back to your previous point -- where 24 during that 30 days there could be more transactions 25 that are occurring that could be reallocated, right, 26 once the Board's decision becomes final. 27 So, local tax is going to be the unusual one 28 'cause in most cases, right, the amount in controversy, 37 1 if it's going to change, is most likely going to change 2 lower; whereas with local tax, if the retailer remains 3 in business and continues the same business practices 4 with respect to the transactions, right, that amount is 5 going to grow over time. 6 MS. MANDEL: So -- well, but you've got it set 7 as by the time of the oral hearing is what the amount is 8 for local tax. 9 Or did I write that down wrong? 10 MR. FERRIS: I think -- 11 MS. MANDEL: I have it as staff recommends 12 computing based on the total amount that's in 13 controversy by the time of the oral hearing, which would 14 not include -- that would include the amounts that are 15 on our little piece of paper, but would not include 16 amounts accruing after the hearing and before it's -- 17 MR. FERRIS: If our memo said that, that was a 18 drafting error. I -- 19 MS. MANDEL: Oh. 20 MR. FERRIS: -- we intended to -- everything to 21 be linked. 22 MS. MANDEL: Oh, it could be my Saturday 23 morning drafting error, so, hold on a second. 24 Let me see where this is. 25 MR. THOMPSON: While you're looking, I -- goes 26 back to the timing issue somewhat. 27 We thought about all these issues, obviously, 28 and we were a little -- 38 1 MS. MANDEL: I -- it might have been the way I 2 drafted it 'cause you so simply just said, based on the 3 total amount of reallocation that's at issue, I guess I 4 assumed that meant at the time of the oral hearing 5 'cause I guess I just did. 6 So -- 7 MR. FERRIS: So, we would intend to follow the 8 normal reallocation rules that the Sales and Use Tax 9 Department uses -- 10 MS. MANDEL: Uh-huh. 11 MR. FERRIS: -- you know, in terms of how much 12 money is going to get reallocated because of what the 13 Board did. 14 And we would use that figure to judge whether 15 or not it meets or exceeds the $500,000 threshold. 16 MS. MANDEL: So, again, you're just -- we're 17 just talking about some case that might be at the margin 18 of 500,000 that flips it during that 30-day time period? 19 MR. FERRIS: Or whatever the reallocation 20 period is that SUTD is using. We would have to 21 conferring with SUTD as to how -- 22 MS. MANDEL: I don't understand. 23 MR. FERRIS: I -- 24 MS. MANDEL: When -- when -- I mean, when it 25 comes before us, there's dollars. They give us dollars. 26 And then if the thing -- let's just say the 27 thing goes final without a petition for rehearing -- 28 that's the easiest. Does SUTD, you know, later do some 39 1 other number that includes more stuff and then all of a 2 sudden nothing pops over? 3 I mean -- well, most of the cases will be 4 bigger, but -- 5 MR. FERRIS: And I don't know if there's 6 someone in the room that's more well-versed in SUTD's 7 procedures. 8 MS. MANDEL: No, looks like Kevin went 9 upstairs. 10 MR. HORTON: Everyone stood up. 11 MS. MANDEL: Oh, he's in the back -- there he 12 is. 13 MR. FERRIS: I think they reallocate on a 14 quarterly basis, is my understanding, which is different 15 than, you know, the date of the Board's -- 16 MS. MANDEL: Yeah, but -- 17 MR. FERRIS: -- vote or 30 days thereafter. I 18 think they do their reallocations -- 19 MS. MANDEL: Yeah, but for -- 20 MR. FERRIS: -- on a quarterly -- 21 MS. MANDEL: -- your purposes of having to 22 write something up 120 days after the Board renders its 23 decision, it -- are you going to have that number? 24 Are you going to have that -- I mean, it's only 25 the ones on the margin and maybe -- maybe we never get a 26 local tax reallocation case that's on the margin at 500. 27 That would be my guess, but you never know. 28 MR. FERRIS: Yeah, clearly there's some -- on 40 1 those margin cases there's going to be some need to work 2 out with SUTD as to how -- 3 MS. MANDEL: How you're going to -- 4 MR. FERRIS: -- how they implement the Board's 5 decision and what is the fairest way to to say what the 6 amount of controversy, you know, the amount that's being 7 reallocated as a result of the Board's decision. 8 And we would want it to be consistent with -- 9 with what SUTD does and to not -- again, to not prevent 10 cases from tripping -- you know, in the sense to say, 11 "Oh, even though we know they're going to really 12 reallocate more because of -- of their internal 13 procedures, we're just going to lock it in at the time 14 of the hearing." 15 That doesn't seem to be consistent with the 16 spirit of the legislation. So, we would -- we would 17 need to work with SUTD to have a very clear 18 understanding of what see the impact being, what they 19 are going to reallocate as a result of -- of the Board's 20 determination and then make sure that we include all 21 cases that meet or exceed the $500,000 threshold and 22 make sure we get opinions up to the Board for their 23 adoption. 24 MS. MANDEL: Within the right amount of time -- 25 MR. FERRIS: Within the right amount of time. 26 MS. MANDEL: -- after the Board -- well, so, 27 you'll have to figure that out the time to -- 28 MR. FERRIS: Yeah, I think -- I mean, we'll 41 1 have probably a good idea. And if a case really is on 2 the margin, we may just have to say we're -- you 3 know -- 4 MS. MANDEL: We're going to do it. 5 MR. FERRIS: -- we're going to -- if it -- if 6 it happens, we're going to be bringing this back to you. 7 Right now, it's not. 8 MS. MANDEL: Yeah, okay. 9 MR. FERRIS: But it may. 10 MS. MANDEL: Okay. I guess I shouldn't be 11 making stuff up like that, yeah, okay. 12 Okay. 13 MR. HORTON: Move to adopt staff recommendation 14 by Member Yee, second by Member Steel. 15 Without objection, Members, such will be the 16 order. 17 Item 7. 18 MS. MANDEL: Oh -- 19 MR. HORTON: 6. 20 MS. MANDEL: -- oh, wait. 21 MR. RUNNER: 7. 22 MR. HORTON: 7. 23 MS. MANDEL: Okay. So, one of the things that 24 you guys had in there was that -- in the procedures, was 25 that at the time -- unless again I messed this up on 26 Saturday morning -- was that at the time of the Board's 27 vote, you were going to ask for whether it would be 28 formal or not so that you would draft formal or summary? 42 1 MR. FERRIS: Correct. 2 MS. MANDEL: Right? 3 So, are you anticipating that -- I'm a little 4 curious about that just because, you know, sometimes it 5 might be when someone sees something that they go, "Ooh, 6 maybe this should be a formal," which I suppose if a 7 summary came back and someone had that reaction, they 8 could do it at that time, but I'm just curious if the -- 9 if the work product is anticipated to be somehow 10 different? 11 I do understand that with the concurring -- the 12 discussion we had about concurring and dissenting and 13 how that only applies to formals that -- which, of 14 course, includes the memorandums, but the precedential 15 ones -- that -- that -- that -- that a Member wouldn't, 16 you know, be on notice to sort of draft something 17 particular unless the Board first -- but it just sort of 18 struck me as interesting that you'd be asking upfront. 19 It made we wonder whether there was a perceived 20 difference in we might see later? 21 MR. FERRIS: Yeah, I think that -- that the -- 22 that's bleeding into -- 23 MS. MANDEL: Yeah, all my things bleed -- 24 MR. FERRIS: -- the issues that are under 25 item 9. 26 MS. MANDEL: -- into everything. 27 MR. FERRIS: Item 9 because if the Board were 28 to ultimately promulgate a rule that says that for 43 1 nonprecedential opinions the Board basically decides the 2 case -- determines the case at the time of the hearing 3 and things start moving towards finality at that point. 4 But, where -- but in the -- in contrast. But 5 if it's a precedential decision, if the Board had a 6 default rule that it would -- would not determine the 7 case until it adopts the decision, right, then it 8 becomes important for staff to know whether or not -- if 9 that's -- if that became the rule, it would be important 10 for staff to know whether or not the Board is actually 11 determining the case right then and there or whether or 12 not the Board wants to wait to determine the case 13 because it anticipates issuing precedential guidance. 14 So, that's why we had that concern. It -- it 15 envisions -- and the Board could do that right now with 16 business taxes cases 'cause there is no rule of tax 17 appeal that governs how the Board does -- 18 MS. MANDEL: Right. 19 MR. FERRIS: -- summary decisions -- 20 MS. MANDEL: Right. 21 MR. FERRIS: -- for business taxes or 22 memorandum opinions for business taxes -- 23 MS. MANDEL: Right. 24 MR. FERRIS: -- in the same way that right now 25 the current rule for FIT says the Board doesn't 26 determine the case until it adopts the decision, whether 27 or not the decision is precedential or nonprecedential. 28 MS. MANDEL: Okay. 44 1 MR. FERRIS: And, so, the Board may want to 2 consider changing that rule and making -- and then make 3 the distinction not be franchise and income tax or 4 business taxes, but make the distinction to be -- 5 MS. MANDEL: Well, that gets to my second -- 6 MR. FERRIS: -- precedential versus 7 nonprecedential. 8 MS. MANDEL: -- yeah, that gets to my second 9 thing, which I guess I kind of mentioned or alluded 10 before, part of what always drove that rule where we 11 held back was precisely the concern that in the income 12 tax or, you know, Franchise Tax Board appeals, the 13 statute provides 30 days from, you know, the Board's 14 decision. 15 And, so that if there was going to be an 16 opinion, you wanted to not have the decision until there 17 was the opinion precisely so that the parties could have 18 that when they needed to figure out whether they were 19 going to petition for rehearing and what grounds they 20 might petition for rehearing on. 21 And the way you've set this up is that there'd 22 be no written opinion, no summary decision off these 23 cases in time -- well, I guess on the sales -- business 24 tax side -- still would be the same on the income tax 25 side because of the way we have it in the rule, right? 26 That they would have it -- 27 MR. FERRIS: Under the current rule, yes. 28 MS. MANDEL: -- that's what I'm concerned about 45 1 is that -- you know, it's sort of they won't -- they 2 won't have it before -- will they have it or not have it 3 in time to petition for a rehearing? 4 And I understand at some level the concern of 5 we can't be posting all these things that maybe then go 6 away, but courts, you know, do it. 7 The court thing -- they issue their opinion and 8 then you ask for a rehearing. And if there's a 9 rehearing or if the higher court grants review, that 10 court opinion disappears, it's no longer there. 11 One thing that the -- what the Board currently 12 has on the website, there's no reflection, in part 13 because at some level there's certain things that the 14 Board doesn't have, maybe didn't have current knowledge 15 of, but, you know, it used to be -- and they're still 16 probably up there -- cases that the Board had decided 17 that later were overturned in court on a claim, you 18 know, suit for refund by the taxpayer. 19 Usually those were on the income tax side, 20 sometimes they went forward in court under different 21 names. And there wasn't any good way for people to, you 22 know, know that or Shepardize that, really. 23 But those opinions -- and the ones I'm thinking 24 of are usually in an area we don't see too many cases on 25 any more on sort of diverse unitary business -- but -- 26 but there's nothing in -- you know, we have had a couple 27 of cases go through the courts where the higher courts 28 have, in fact, cited the underlying BOE decision, which 46 1 I'm not sure if they recognized in full that it was the 2 underlying decision in the very case that they were 3 deciding. 4 Of course, they may look at the Board as 5 something of an expert and want to, you know, cite the 6 way a Court of Appeal might say, "Well, the Tax Court 7 found this and we think that." 8 But I'm just -- it sort of bleeds into all of 9 that if the goal is to let people know why we decided 10 their case, at some level it seems fair that they 11 should, you know, have that petition for rehearing if 12 the goal of the legislation is that there's not enough 13 administrative law and that the world should know why 14 the Board decided a case, that it's the final, final 15 statement after, you know, all of the rights for 16 rehearing have expired. 17 So, I'm just kind of curious. 18 MR. FERRIS: I mean, as to consent items that 19 are summary decisions for -- like franchise and income 20 tax matters, the -- the taxpayer is going to have -- 21 MS. MANDEL: Right, right. 22 MR. FERRIS: -- access. 23 MS. MANDEL: And those aren't covered by this. 24 MR. FERRIS: Correct, but I'm just saying -- 25 MS. MANDEL: Right. 26 MR. FERRIS: -- and that's the vast majority 27 of -- of summary decisions. 28 MS. MANDEL: Today? 47 1 MR. FERRIS: Today. 2 MS. MANDEL: Right. 3 MR. FERRIS: And will be in the future, no 4 doubt. 5 MS. MANDEL: Right. 6 MR. FERRIS: So -- and then as to ones where 7 there's an oral hearing before the Board, staff is -- 8 will definitely be recommending that there be rule put 9 in that the taxpayer can request that the Board not 10 determine their case until they adopt the required 11 decision under AB 2323, so that if -- if the taxpayer 12 wants to delay the finality of their case that they make 13 sure that they get to see the written opinion with 14 respect to a petition for -- for rehearing. 15 I -- my opinion is the Board should accommodate 16 that request. Any delay, any interest accrual would be 17 at the taxpayer's request then at that point. 18 But, again, when you're dealing with cases -- 19 and, you know, this kind of a charged word -- but when 20 it's -- the only reason why the Board is contemplating 21 the summary decision is because an arbitrary $500,000 22 threshold has been met or exceeded, it doesn't seem fair 23 to us that a taxpayer's matter should be delayed just 24 because of that unless that's what they want. 25 MS. MANDEL: Okay. So then that gets to -- I 26 mean, I'm -- I'm -- I'm concerned that taxpayers, yeah, 27 that they -- that they have, you know, knowledge. 28 And, so, you're suggesting a rule. And then I 48 1 guess that gets into the administrative details that 2 concerns about, you know, how that gets conveyed and 3 implemented prior to the time that the Board goes 4 through rulemaking. 5 And -- and, I guess, did you -- the timing that 6 you gave during the general commentary was -- you've 7 already talked about the availability of incorporating 8 any revisions that Members might -- incorporating or 9 deflecting revisions that Members might have. 10 I mean, I was -- you know, like that last 11 experience we had where we the opinion came back a 12 couple of times. 13 MR. FERRIS: Right. 14 MS. MANDEL: That that's -- you've worked into 15 your time frame the ability to deal with that? 16 Nodding yes for the -- 17 MR. FERRIS: I'm not -- 18 MS. MANDEL: -- court reporter or? 19 MR. FERRIS: -- I'm not sure -- 20 MS. MANDEL: You're not following -- 21 MR. FERRIS: -- what you're saying. 22 I mean, we certainly will be doing everything 23 possible to make sure that the -- that the Board has the 24 opportunity to adopt something in time to meet the 25 120-day deadline. 26 MS. MANDEL: Okay. 27 MR. FERRIS: And -- 28 MS. MANDEL: Then -- 49 1 MR. FERRIS: -- even though it's not the 2 primary reason for our recommendation, with respect to 3 having the 120 days follow from the date of finality, 4 the main reason why we're recommending that is we 5 believe that the Board issues only one decision per 6 controversy. And that's the only way to insure that 7 there's no confusion about that. 8 But a side benefit is that it does create 9 another 30 days that are part of -- part of that, which 10 allow -- would allow us to get a draft opinion before 11 the Board probably up to three times. 12 MS. MANDEL: Okay. 13 MR. FERRIS: We're hoping that that's not 14 necessary on a regular basis, but if it were to 15 become -- 16 MS. MANDEL: Yeah, I just -- 17 MR. FERRIS: -- necessary, it helps. 18 MS. MANDEL: -- I just was concerned about the 19 ability to incorporate revisions or any direction 20 provided by the Board when they see the thing. 21 And, you know, speaking for an office that on a 22 -- you know, for the foreseeable and long term future is 23 not likely to have a lot of, you know staffing on Board 24 meetings and Board meetings that include things like 25 this -- and I know that we want to take -- you know, 26 really be able to look at these, as well as everything 27 else. 28 You know, when I -- when I said was, you know, 50 1 rushing and doing this thing Saturday morning, you know, 2 I wasn't kidding. And you know what it's like. 3 So, I don't want to be in a position where the 4 Controller's office, you know, has like ten days and 5 then the Board meeting and we're doing everything else 6 and, oh, my gosh, and now there's no time to make 7 changes. 8 So, it's a -- you know, it's a personal concern 9 too for our office that we have adequate time to review 10 stuff. 11 MR. HORTON: Further discussion, Members? 12 Moved by Member Yee, second by Member Steel. 13 Objection, Members? 14 Hearing none, such will be the order. 15 ---o0o--- 16 17 18 19 20 21 22 23 24 25 26 27 28 51 1 MR. HORTON: Item -- 2 MR. RUNNER: 8. 3 MS. MANDEL: 8. 4 MR. HORTON: -- 8. 5 MS. YEE: Move the staff recommendation. 6 MR. HORTON: Member Yee moves staff 7 recommendation. 8 MR. RUNNER: Second. 9 MR. HORTON: Second by Member Runner. 10 Without objection, Members, such will be the 11 order. 12 ---oOo--- 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 52 1 MR. HORTON: Item 9. 2 MR. RUNNER: I just have a quick question in 3 regards to how this is going to work. 4 MR. HORTON: Member Runner. 5 MR. RUNNER: Um, and I'm trying to see, you 6 know, what -- on the -- on the matrix that was prepared 7 versus the longer discussion here. The line that was a 8 little, uh, concerning to me, um, you know, in the 9 matrix it says, "Begin rulemaking process, including 10 interested parties process as to any action items for 11 which the Board does not provide present guidance." 12 I'm -- I'm struggling as to what that means. 13 Because I can understand the rulemaking process for what 14 it is that we just went through. And so I'm struggling 15 a little bit to know exactly what the intention is there 16 in regards to -- to that or -- again, and I don't 17 necessarily see that line as put that same way in -- 18 in -- in the, uh -- in the material with more con -- 19 more detail. 20 MR. FERRIS: Right. The reason why we phrased 21 it that way was to -- the Board has just decided items 1 22 through 8. 23 MR. RUNNER: Right. 24 MR. FERRIS: So I -- we will assume -- and 25 unanimously. So we assume that that is the will of the 26 Board with respect to those issues. 27 Of course anyone is -- uh, when we codify that 28 in rulemaking, there will be a formal rulemaking process 53 1 with -- with a public hearing. 2 MR. RUNNER: Mm-hmm. 3 MR. FERRIS: And people can, uh, dispute that 4 and -- and argue against it. And the Board would then 5 respond through the rulemaking process. 6 But our -- our view would be we don't need to 7 have a bunch of interested parties meetings on these 8 eight items that the Board just decided. Uh, but 9 clearly, from this discussion, there are other issues; 10 for example, you know, should the Board change its 11 current FIT rule that links both nonprecedential and 12 precedential decisions as not being determined until the 13 Board adopts the decision? You know, do we want to 14 change that rule? What do we want to do about some -- 15 some other more minor types of -- 16 MR. RUNNER: Okay. 17 MR. FERRIS: -- types of things? We would want 18 to get, uh, input on those types of issues. 19 We would -- we would list -- the issue paper 20 would discuss all the things the Board had given 21 guidance -- given guidance on. But, uh, the interested 22 parties meetings would not be -- the discussion wouldn't 23 be focused on trying to come back before the Board and 24 have them change their mind, uh, before formal 25 rulemaking started with respect to any of these eight 26 items. 27 Staff will view these as being, you know, this 28 is the guidance the Board's giving. There will be, 54 1 eventually, a public hearing on this when the Board 2 formally codifies this direction. But there are other 3 issues, uh, that we may want input from interested 4 parties on. 5 MR. RUNNER: Okay. 6 MS. MANDEL: Well, to that -- you know, I know 7 you guys are fabulous drafters. But to that, it might 8 be that the way you draft the proposed regulatory 9 language to implement the things the Board decided, 10 somebody might see during the interest parties process 11 that there was a better way to write it without 12 changing. 13 MR. FERRIS: Oh, sure. And we'd be very open 14 to that. 15 MS. MANDEL: Oh, okay. 16 And -- and, you know, somebody might see, I 17 suppose, an additional issue that they think arises from 18 what the Board's decided. 19 MR. FERRIS: Yeah, ABSOLUTELY. No, we're 20 not -- 21 MS. MANDEL: Oh, okay. 22 MR. FERRIS: We're not trying to preclude 23 improving, uh, the final product at all. But, uh -- 24 MS. MANDEL: So you are anticipating overall 25 that there would be a rulemaking project with interested 26 parties before the formal rulemaking under that scenario 27 that we just discussed? 28 MR. FERRIS: Correct. And -- and there are 55 1 other kind of pending ideas about, uh, refinements to 2 the rules of tax appeal that have kind of piled up since 3 2009 that should have interested party discussion as 4 well, that are completely unrelated to AB 2323, but just 5 where experience with the rules of tax appeals has 6 suggested that some refinements might be warranted. 7 MS. MANDEL: Okay. And then what -- aside from 8 the -- the rulemaking and interested parties, which is 9 going to take a while, what -- what -- how are you going 10 to approach, um -- or have you guys thought about how 11 you're going to approach Ms. Yee's initial question 12 which was how are we going to let -- in the meantime, 13 uh, what processes and procedures and letters and 14 explanations and things are going to happen so that 15 people know, for example, about needing to ask? 16 MR. FERRIS: Well, with FIT, they 17 don't because the current rule is -- 18 MS. MANDEL: Well, with -- okay. With -- 19 with -- I mean, I'm just wondering, you guys are just 20 going to work on all that and let us know, or -- 21 MR. FERRIS: I think the -- 22 MS. MANDEL: What's the plan? 23 MR. FERRIS: The, um -- I think the easiest way 24 to do it would be to include it in the hearing summary 25 for business taxes, so that, you know, hopefully that's 26 a document -- even if they don't read some of the other 27 correspondence that they may receive in anticipation of 28 their oral hearing, hopefully they are going to the read 56 1 the hearing summary. And if -- 2 MS. MANDEL: Well, um -- see this -- this -- if 3 they waive appearance -- if they waive appearance, this 4 doesn't apply unless somehow they get pulled off the 5 consent calendar and get on the adjudicatory calendar. 6 So I think at some level you're going to have 7 to work with Board Proceedings because it might be 8 something that -- in the stuff that they send out and 9 highlight things to people, that it might have to 10 somehow get a highlight there, too. I don't know. 11 MR. THOMPSON: Yeah, we can notify them that 12 this case appears to be one that could be covered, or 13 could potentially be covered by AB 2323. 14 MR. FERRIS: And provide some information, 15 yes. 16 MS. MANDEL: Yeah. 17 It's been fun. 18 MR. HORTON: I'll take that as a motion. 19 MR. RUNNER: Second "It's been fun." 20 MR. HORTON: Second by Member Runner. 21 Objection? 22 None noted. Such will be the case. 23 MS. YEE: Mr. Chairman. I just wanted to thank 24 the staff for trying to make sense out of this statute. 25 It, uh, really kind of puts a little bit of -- kind of 26 turns some of our procedures and processes on its head. 27 But, uh, I really appreciate the diligence that's been 28 paid thus far. 57 1 Okay. 2 MR. HORTON: Other comment, Members? 3 Let's continue to keep financing the loop. 4 MS. YEE: Oh, one other thing. And any -- uh, 5 additional workload resource issues, if you could just 6 keep us posted on that. 7 MR. FERRIS: Absolutely. 8 MS. YEE: Okay. Thank you. 9 ---oOo--- 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 58 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 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 51 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: JANUARY 8, 2013 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 59 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 13 52 through 58 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: January 11, 2013 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 60