1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 (PREPARED FROM AUDIO RECORDING) 10 NOVEMBER 16, 2017 11 12 SALES AND USE TAX APPEAL HEARING 13 APPEAL OF 14 NEWPORT JEWELERS BY GABE ARIK CORP. 15 NOS. 757324, 796213 (AA) 16 AGAINST PROPOSED ASSESSMENT OF 17 SALES AND USE TAX 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 For the Board of Equalization: Diane L. Harkey 3 Chairwoman 4 Sen. George Runner (Ret.) Vice Chair 5 Fiona Ma, CPA 6 Member 7 Jerome E. Horton Member 8 Yvette Stowers 9 Appearing for Betty T. Yee, State Controller 10 (per Government Code Section 7.9) 11 Joann Richmond 12 Chief Board Proceedings 13 Division 14 Henry Nanjo Chief Counsel 15 For Appeals Bureau: Jeff Angeja 16 Tax Counsel IV Legal Department 17 Ramona Verrege 18 Business Taxes Specialist III 19 For Department of Tax and Fee Administration: Scott Lambert 20 Business Taxes Specialist III 21 Business Tax and Fee Dept 22 Kevin Hanks Chief 23 Business Tax and Fee Dept 24 Robert Tucker Assistant Chief Counsel 25 Legal Department 26 For Petitioner: Daniel Arik Taxpayer 27 Steve Mather 28 Attorney 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 NOVEMBER 16, 2017 4 ---oOo--- 5 MS. HARKEY: Next item, Ms. Richmond. 6 MS. RICHMOND: Our next item is C10 Newport 7 Jewelers by Gabe Arik Corp. 8 Please come forward. 9 MS. HARKEY: Thank you. 10 MR. RUNNER: It's another one. 11 MS. HARKEY: Sure. I'm handing out some 12 exhibits to the group. I'm not sure if my questions 13 will be pertinent after the other Members speak, but 14 I just have some exhibits of things that I looked 15 up. So, when I speak, we'll have real-time 16 pictures. 17 Thank you. 18 Okay. Mr. Angeja or Ms. -- yes -- 19 Verrege. 20 MS. VERREGE: Madam Chair and Members, the 21 Appeal before you involves three unresolved issues, 22 which are: 23 Whether additional adjustments to the 24 amount of unreported taxable sales are warranted; 25 Second, whether a reduction is warranted to 26 the amount of disallowed claimed nontaxable sales 27 for resale; 28 And third, whether a reduction is warranted 3 1 to the amount of disallowed claims, exempt sales and 2 interstate commerce. 3 Also, we have a typographical error in the 4 summary. The proposed adjusted tax determination 5 should be decreased to $272,642.11. And 6 correspondingly, the finality penalty should also be 7 decreased to $27,264.24. We will provide the 8 insurance reduction as we get them. 9 MS. HARKEY: Thank you. Welcome to the 10 State Board of Equalization. You have ten minutes 11 to present your case. The Department will then have 12 ten minutes. You'll have five minutes on rebuttal. 13 So please introduce yourself for the 14 record. And be sure if you're going to speak, you 15 speak into the microphone. 16 Thank you. 17 MR. MATHER: Good morning, Madam Chairman 18 and Members of the Board. I am Steve Mather, I'm 19 the attorney for the petitioner in this case. And I 20 have seated with me Daniel Arik who is the CFO of 21 the petitioner and the taxpayer. And we have other 22 friends and families in the courtroom. 23 This is really a case that involves just 24 kind of a litany of horrors from, I think from 25 the -- the -- certainly from the taxpayer's 26 standpoint. And, also, I think in terms of a 27 rational analysis of what the Department, how it has 28 functioned in this case. 4 1 We had a -- initially there was an audit. 2 It was done -- it was done in multiple stages, but 3 the fundamental problem with the audit is that the 4 taxpayer had excellent books and records, complete 5 books and records. The general ledger was 6 effectively reconciled to the sales tax returns, had 7 a difference of less than a half a percent. It was 8 also reconciled to the federal income tax return; 9 again, a difference of just a little bit of over one 10 percent. 11 So the records -- and in fact in the cost 12 records they accepted the general ledger records, so 13 they accepted bits and pieces of the general ledger. 14 So stymied by the fact that there were 15 excellent books and records, the Department then 16 took one quarter out of the, uh -- out of the 17 12-quarter period and conducted a survey of the 18 sales invoices and found a $13,000 difference in 19 that one sample for that one quarter. That was 20 probably one sale based on the nature of the 21 taxpayer's business. Could have been returned. 22 Even the auditor's notes indicate could have been 23 returned. Could have been a timing difference. But 24 based on that $13,000 amount, the Department decided 25 to chuck the books and records altogether and do a 26 markup method test. 27 So, in this markup method test, they broke 28 it down between in-state, out-of-state, watches, 5 1 jewelry and wholesale, and literally came up with 2 five different estimates that they used. Sometimes 3 picking the numbers out of the air, sometimes 4 picking it from the general ledger, sometimes 5 picking it from a subsequent shelf test that was 6 conducted by the taxpayer. And by process of 7 elimination, essentially eliminated all the cost of 8 sales that were allocable to California retail sales 9 of jewelry and computed a markup percentage of about 10 120 percent when all of the -- all of the records in 11 the case showed an overall markup of about 13 or 14 12 percent. 13 So they -- they -- they basically picked 14 and choose to come up with a number they were 15 looking for, because there was a perception that 16 there should be a hundred percent markup because 17 this taxpayer was in the jewelry business. So 18 that's the audit. 19 So then, when the petition -- the petition 20 was filed in this case, it -- it -- it was treated 21 as being one day late. And so what happened next is 22 that the -- it was treated as an administrative 23 protest, but it went to collection. Collection 24 raked the taxpayer over the coals -- it was a very 25 difficult time -- and almost, almost at that point, 26 forced the taxpayer out of business. 27 And then the other aspect of that claimed 28 missing the petition date by one day was admit that 6 1 every time the taxpayer made a payment there had to 2 be another refund claim filed because this is 3 fundamentally at this case a refund proceeding 4 because the entire amount of the tax and penalty and 5 interest has been paid. 6 And so the taxpayer religiously was filing, 7 you know, refund claims all the time and the 8 Department wasn't -- wasn't giving us consistent 9 story about what they received and what they didn't 10 receive. We were originally told all of the claims 11 were timely. Then we were told almost no claims 12 were timely. Then it was a different number and 13 then a final number. And so the Department's been 14 all over the park on what was the timely refund 15 claims in these cases. 16 And so, you know, it's just yet another 17 situation where we have inconsistent application of 18 the rules, inconsistent stories, that permeated the 19 entire history of this case. 20 Now, I have Danny Arik here with me and 21 he's -- he's -- as the taxpayer he's more familiar 22 with things, so I wanted to give him -- let him do 23 the explanation of what the taxpayer's business was 24 and what their model was and how their history has 25 evolved. 26 So Danny, can you explain briefly what the 27 history of your family is in the jewelry business? 28 MR. ARIK: Yeah. We're a family-owned 7 1 business that's been around for close to 40 years. 2 We're originally from the jewelry manufacturing 3 wholesale side of the business. And about 18 years 4 ago we opened up a retail store and a jewelry mart 5 inside Fullerton. And in 2008, we expanded into 6 Newport Jewelers by Gabe Arik, which we opened up a 7 retail store over there. 8 MR. MATHER: And so where was that store 9 located, and what was the client base? 10 MR. ARIK: It was on PCH. It was a very 11 educated, very sophisticated market. I mean, a lot 12 of competition around, and, uh -- yeah. 13 MR. MATHER: Was there foot traffic in this 14 location? 15 MR. ARIK: Not at all. Not at all. The 16 only foot traffic that we would get is very little. 17 It was a very busy street, very fast street, and our 18 store was actually right on the sidewalk. So you 19 weren't able to see it driving by. You had to 20 actually search for the place. So we didn't have 21 any foot traffic like a mall or anything like that. 22 Any business that we got we actually had to generate 23 it ourself. 24 MR. MATHER: So, how did you generate the 25 business and what was the model? 26 MR. ARIK: We did a lot of charity events, 27 and our number one model was our pricing is, I mean, 28 really the only way that we were able to stay in 8 1 business is we just wanted the word to get out that 2 our pricing was very aggressive, very low. And I 3 mean in our history of being in the jewelry mart and 4 the manufacturing side and also especially in that 5 kind of market, especially -- 6 I mean we opened it up in 2008; it was 7 during the recession. So everybody, retail 8 customers didn't want to pay retail anymore. You 9 know, they were tired of paying that hundred percent 10 markup in Fashion Island or here or there. So we 11 just wanted people in the area and around that area 12 to know that our pricing was very aggressive, very 13 low and that they should shop with us. 14 MR. MATHER: So what -- what types of 15 markups were you looking for? 16 MR. ARIK: You know, our markup was 17 anywhere from eight percent to 20 percent, depending 18 on the item. But we never turned away a sale. You 19 know, if a client walked in and, you know, offered 20 us, you know, 10 percent above our cost, we're not 21 going to say no. 22 We didn't have a 20-year-old business at 23 that point. We were in business for a couple years, 24 so any sale that we were able to get, any customer 25 that we were able to make, we took it because we 26 were hoping for return business. 27 MR. MATHER: So was there a difference in 28 the markup in different types of items that you 9 1 sold? 2 MR. ARIK: Yes, of course. 3 So watches, depending whether the watch was 4 brand new or pre-owned had a lot to do with it. 5 Because, as you know, I mean a watch is a watch. 6 You can just go online. You can go on eBay, there's 7 thousands of websites selling it. So, I mean, 8 somebody's not going to buy the watch from me for 9 six grand when it's online for $5,000. 10 So you have to be very aggressive with the 11 pricing. Sometimes on pre-owned watches you're able 12 to make a little bit more. And same thing with 13 engagement rings. You know, there's hundreds of 14 websites online that work on very low margins 15 because their overhead is not the same. I mean, you 16 know, Newport Beach rent is really expensive. 17 So, I mean, we had to be very aggressive. 18 I mean if a customer brought in a diamond engagement 19 ring online and showed us a report and said, "Hey, 20 you know, I found this diamond for 10,000," how is 21 it possible that I'm going to sell the stone for 16, 22 17 grand? Because the guy's not going to buy it 23 from me if he doesn't like me. 24 MR. MATHER: So what -- which ones did you 25 get better markups on? You said used watch might be 26 a little bit better? 27 MR. ARIK: Pre-owned -- yeah, pre-owned 28 watches we got a little bit better markup on. 10 1 MR. MATHER: What about the engagement 2 rings? 3 MR. ARIK: Engagement rings was very low. 4 It was very, very competitive. I mean you're 5 dealing with a very educated market, you know. So 6 people -- I mean you could just go on your phone 7 and, you know, go on Blue Nile, go on James Allen 8 and look up prices. I mean these people would look 9 them up at the store and present them on their 10 phone. So you don't really have a choice. 11 MR. MATHER: And so what -- what would be a 12 typical markup on an engagement ring? 13 MR. ARIK: I mean anywhere from seven to 13 14 percent, 14 percent, just depending. 15 MR. MATHER: And the Department in the 16 audit computed a retail markup of 120 percent. 17 How -- how do you respond to that? 18 MR. ARIK: I mean, it's impossible. I 19 mean, literally impossible. 20 I mean -- I don't know. I mean, it's 21 crazy. I mean, I wish I was making hundred, 120 22 percent markup. That'd be awesome. But it's 23 just -- it's not physically possible when you have 24 all the resources -- I mean to a retail consumer -- 25 there's just no way. I mean, there's no way. 26 MR. MATHER: And, you know, in terms of the 27 books and records, what process do you use to record 28 the sales? 11 1 MR. ARIK: For our sales? 2 MR. MATHER: Yes. 3 MR. ARIK: We recorded on an invoice book. 4 You mean like our cost? 5 MR. MATHER: Right, right. 6 MR. ARIK: Our cost of sales? 7 So we're in the manufacturing business. 8 So, you know, when we buy our items we're not just 9 buying a ready item from a manufacturer where we're 10 making the item. You know, we buy the gold from a 11 place, we'll buy the diamonds from a place, and we 12 set the diamonds ourself so our costs can be 13 extremely lower. 14 So when we're providing an invoice or, like 15 you know, our invoices to show our proof of profit 16 margins, you know, one item can have six different 17 invoices, or one item can have four different 18 invoices. So that's -- that's the way we would 19 track it. 20 MR. MATHER: And -- and during the hearing 21 in this case the hearing officer requested 22 documentation of cost on several items; it's Exhibit 23 B in the hearing exhibit for our case. What was 24 your -- what was your experience in putting together 25 that information? 26 MR. ARIK: Very easy. 27 MR. MATHER: Very what? 28 MR. ARIK: To put together all of our 12 1 invoices and provide them the markup that we have? 2 MR. MATHER: Yes, yes. 3 MR. ARIK: I mean we tracked down all of 4 our invoices. I mean our books are very, very 5 organized. I mean we have, you know, different 6 vendors we use for different things. So I mean we 7 compiled them altogether and we provided every 8 single invoice that they requested for our invoices. 9 MR. MATHER: And during the -- during the 10 audit there was a shelf test that was performed by 11 the taxpayer, as I mentioned, because the Department 12 didn't perform a shelf test. In fact didn't do any 13 kind of verification of any kind of any of their 14 numbers whatsoever. 15 But in the shelf test were there lots of 16 markups on retail jewelry of 120 percent? 17 MR. ARIK: None. 18 MR. MATHER: None? 19 MR. ARIK: None. 20 MR. MATHER: I mean, there's not a single 21 corroborating piece of evidence in the audit file to 22 suggest 120 percent markup other than this five 23 different estimate process of elimination. 24 So, now, we filed a petition in the case 25 and the case was still -- you still had to make the 26 payments, correct? 27 MR. ARIK: Yes. 28 MR. MATHER: And that was -- what was 13 1 you're understanding for that? 2 MR. ARIK: We had to make $10,000 a month 3 payments until the amount was paid off. And 4 multiple times in the payment they levied our 5 accounts. They levied our merchant accounts. 6 I mean they made it really, really 7 difficult to do business. I mean even one time 8 during our busiest season in December, which is a 9 lot of times when we pay all of our vendors, I woke 10 up one morning and my account was zero, all my 11 merchant accounts were levied, all my -- I mean, 12 every single dollar that we had in our bank account 13 was levied. Checks were bouncing, you know, 14 suppliers were calling. It was really embarrassing 15 actually. 16 MR. MATHER: And that was while this 17 petition was pending. 18 MR. ARIK: Yes. 19 MR. MATHER: And so what did you have to do 20 then to ensure that you were able to get the money 21 back in the event that we prevailed? 22 MR. ARIK: We had to file a timely refund 23 for each payment we did. 24 MR. MATHER: So how did -- what process did 25 you use for that? 26 MR. ARIK: We went on the State Board 27 website and we faxed in the form online to submit 28 for each payment that we made. 14 1 MS. RICHMOND: Time's expired. 2 MR. ARIK: Sorry? 3 MS. HARKEY: Thank you. You will -- you 4 will have additional time at the end. 5 To the Department, you have ten minutes. 6 Please introduce yourself for the record. 7 MR. LAMBERT: Good morning, Ms. Harkey and 8 Members. My name is Scott Lambert. To my right is 9 Kevin Hanks, and to his right is Robert Tucker, 10 representing staff. 11 This particular case taxpayer operates a 12 retail and wholesale jewelry store located in 13 Newport Beach. There was an audit conducted for a 14 four-year period of time. Upon audit, the taxpayer 15 did have general ledgers. They did have books and 16 records. 17 The auditor tested the sales invoices from 18 the third quarter of 2011 to the figures that were 19 reported in the general ledger and noticed 20 differences of about $13,000, sales invoices that 21 were not recorded in the general ledger. 22 Also during that -- or afterwards a bank 23 deposit analysis was performed and a difference of 24 $2.2 million of unaccounted for deposits remained. 25 We did account for about $2 million in loans were 26 taken out, but there was unaccounted for 27 $2.2 million. 28 So the auditor decided that they would 15 1 conduct the audit using a shelf test in order to 2 establish the liability. There were a number of 3 things that had to have been performed in order to 4 do that type of analysis. The taxpayer made both 5 resales in California. They made resales outside of 6 California. They also made interstate commerce 7 sales. The sales that were claimed as exempt 8 interstate commerce included both retail sales and 9 wholesale sales. So those had to be separated. 10 The taxpayer did have records in regards to 11 their purchases. It was broken down into three 12 different categories. There were watches, jewelry 13 and diamonds. Each one of those was come up -- came 14 up with a percentage to be used in the audit. There 15 were adjustments that were made for inventory for 16 each year. So that information was obtained. 17 The taxpayer -- well, first, the auditor 18 attempted to do a shelf test and was unable to 19 perform one. This type of business is different 20 than your typical over-the-counter business. In 21 other words you just don't get a shot -- a price 22 off-the-shelf and compare it to the cost. In a lot 23 of cases they do custom jewelry. They will take 24 watches and put diamonds on those. 25 So it's very difficult for someone that is 26 not in that business -- and actually, even for a 27 person that doesn't know what the item is, in order 28 to cost that out, because you don't know exactly 16 1 what type of diamonds went into the jewelry, you 2 don't know how much gold went into it. It's very 3 difficult. 4 So, anyway, the taxpayer was asked to 5 conduct a shelf test. Well, conduct their own 6 markup test for this business. They did for the 7 resales. It came out to about 11 percent. The 8 auditor accepted that. They came out for the retail 9 portion of it and it came out to below the wholesale 10 price, it came out to 8 percent. 11 And at that point, based on our experience 12 of auditing other jewelry stores, this is not what 13 we would expect, that the markup would be 14 significantly higher than that. It's difficult for 15 us though to -- to determine exactly what that 16 markup is. 17 So the audit tried to take the -- calculate 18 the sales that were nontaxable, get the cost of 19 goods sold and take those out of the cost of goods 20 sold, overall cost of goods sold. So you'd have the 21 nontaxable cost of goods sold. You'd subtract that 22 from the total. And what that would leave you is 23 the taxable items that were sold. 24 And so we did that for the year of 2009, 25 and we came up with was a reflective 120 percent 26 markup. And it was decided at that point to use the 27 120 percent in the other three years. We came out 28 to a difference of $2.7 million. 17 1 And I should point out that the analysis of 2 the bank statements was a difference of 3 $2.2 million, and so therefore that's what was used 4 in the audit. 5 There's a lot of other detail that's 6 involved in that and I can explain it if you need 7 to, but that's the basic oversight of how the audit 8 was performed. 9 There were also some -- there were some 10 out-of-state sales that weren't supported and there 11 was also some resales. The third quarter of 2011 12 was used as a test period to establish that 13 liability. I believe, Ms. Harkey, that you've 14 provided some questions in regards to that. I have 15 not had a chance to review that. I asked Mr. Hanks 16 to take a look at it. 17 MS. HARKEY: We'll review them together. 18 MR. LAMBERT: Okay. Well, then that'll -- 19 that will, um -- that'd be great. 20 So, um, in regards to the liability, what 21 happened was is the taxpayer did not file a timely 22 petition, which caused the liability to become 23 final, and therefore collection activity took place. 24 To this date the outstanding liability has 25 been paid. It was a total of $390,000. And there 26 is, based on the second reaudit, there is an amount 27 that is due back to the taxpayer at this particular 28 time. So that needs to be processed. 18 1 I should point out, when we did do the 2 analysis for taking out the nontaxable sales and we 3 compared that to the taxable sales that were 4 reported, we came up with, for 2010, a negative 5 markup of 3 percent; for 2011, negative of 16 6 percent; and a negative markup in 2012 of 19 7 percent. 8 Based on my review of the case in order to 9 prepare for this, it appeared to me that watches 10 seemed to be a somewhat more item that we could 11 agree upon. In other words, as far as the markup, 12 the taxpayer provided us information in regards to 13 the watches. There were four watches that were 14 provided and there was a markup established of 23.32 15 percent. Also, we used the watch -- watch purchases 16 that were in the general ledger and those 17 percentages. 18 And so kind of when you take the watches 19 out of this and then compare and subtract the 20 audited watch sales from the reported, that's going 21 to leave you with the diamond and jewelry sales. 22 And based on that for 2009, there'd be an 23 underreporting of -- or, I'm sorry, there'd be 24 audited jewelry and diamond sales of 436,000 for -- 25 and there was no difference for that, so we accepted 26 that as 436,000. 27 For 2010, they would have reported jewelry 28 sales of 285,000. 19 1 For 2011, 220,000. 2 And for 2012, 311,000. 3 So there -- other than the watch sales, 4 there really wasn't that much taxable jewelry and 5 diamond sales that were reported based on our 6 analysis. 7 So, with that, the Department concurs with 8 the Appeals Division Decision and Recommendation. 9 MS. HARKEY: Thank you. 10 You have five minutes to rebut. 11 MR. MATHER: I think that presentation was 12 just about as astonishing as this audit was because 13 what -- what -- what they said -- what Mr. Lambert 14 said fundamentally is that they found a $13,000 15 error on sales invoices in one quarter and turned 16 that into $2.7 of unreported taxable sales. Which 17 is, without being able to perform a shelf test, as 18 they've acknowledged -- because the nature of the 19 business is that you don't buy an item and sell an 20 item, you buy materials, you create an item and you 21 sell an item. 22 And we attempted in our shelf test to make 23 that matching and they accepted it when they liked a 24 number and they rejected it when they didn't like 25 the number. 26 So there is literally no audit technique of 27 any kind that is supporting this determination of 28 this massive amount. And when you have -- you have 20 1 a situation where you have 120 percent determined 2 markup when even the shelf test on the retail items 3 was -- was -- was a tiny fraction of that amount -- 4 there isn't a single shred, not a single shred of 5 corroboration for this. 6 I mean the maximum that you could even say 7 has any support to it whatsoever would be the eight 8 percent or so of discrepancy between the sales 9 invoice and the recorded sales for the one quarter 10 that they did the test. But that was such an 11 unreliable test in its own right -- pardon me -- 12 because they didn't even attempt to eliminate the 13 possibility that it was just recorded in a different 14 quarter, and it's only a one-quarter test, and it's 15 one sale, one sale that we're off there. So you 16 take one, maybe, mistimed reporting of a sale 17 between quarters and turn it into $2.7 million. 18 The issue on the bank deposits analysis, 19 I'll have Danny address that. 20 So what types of deposits were going into 21 the account or what were you doing that caused the 22 deposits to be made that weren't sales? 23 MR. ARIK: Yeah. So, I mean, we were a 24 newer store and we dealt with high value items, so a 25 lot of times when we were to get an order from a 26 customer, you know to build the trust of the client 27 we wouldn't take a deposit or we wouldn't take the 28 money upfront. So sometimes you're buying a 21 1 fifteen-, twenty-thousand-dollar item from a vendor 2 that wants to get paid upfront, we would take the 3 money from our other store, which is Eternity 4 Jewelers, Happy Jewelers, which our banks were 5 linked. We would transfer the money over, buy the 6 item. Once we get paid, pay it back. 7 And this would happen a lot; I mean, 8 sometimes it would happen five times a week, 9 sometimes six times a week, I mean sometimes even 10 twice a day. I mean when you have to cover a 11 payment, you're going to do anything you need to do 12 to get it covered. So a lot of those transfers were 13 between our stores. 14 MR. MATHER: So what would a typical 15 monthly volume be of those types of loans? 16 MR. ARIK: I mean, it can go up to two-, 17 three-hundred-grand sometimes. 18 MR. MATHER: And -- and -- and the other 19 thing that I'd like to point out is that the 20 Department took it to the point of basically running 21 a tape to find that there was an excess and said, 22 well, maybe that could be extra taxable sales, but 23 didn't really do the analysis to eliminate the loans 24 and the other transactions. They just identified a 25 possible discrepancy, cherry-picked a few items that 26 were very obviously transfers from the other company 27 and then said, "Okay. Well, maybe, maybe that's -- 28 maybe that's some more sales, too." But that's -- 22 1 that's not -- that's not a bank deposits analysis in 2 any sense of the word. 3 And then the -- with respect to the 4 resales, you generally know your customer, right? 5 MR. ARIK: Yes. 6 MR. MATHER: And so you'd know if they are 7 a reseller -- 8 MR. ARIK: Of course. 9 MR. MATHER: -- or retailer. 10 MR. ARIK: Of course. And we have 11 relationships with everybody we pretty much deal 12 with. We do a lot of repeat business and -- I mean 13 we've -- we built our store and our name from 14 relationships. So, I mean if we're selling to a 15 wholesaler -- I mean the jewelry business is a very 16 tightknit business anyway, so you know if somebody's 17 a reseller, you know if somebody is a retail 18 customer. 19 MR. MATHER: And did you have an entire 20 markup on retail than wholesale? 21 MR. ARIK: A little bit, not -- I mean it 22 wasn't a significant amount because, you know, I 23 would rather make my retail client happy than to 24 make somebody else's client happy, so. 25 MR. MATHER: And with respect to the refund 26 claims, are you aware of any refund claims that were 27 not timely? 28 MR. ARIK: No. They were all timely 23 1 claimed. 2 You know, it was weird because I think it 3 was about seven, eight months ago I called in, maybe 4 a little bit longer than that. They said, "Don't 5 worry about it. You're fully covered. All of them 6 are timely claimed." 7 And then afterwards when we were dealing 8 with Theresa, I believe, she said, "Hey, no, you 9 only have 170,000 claims." 10 So I called in and, you know, somebody told 11 me one seventy. And then I called in a week later 12 and somebody told me one twenty. And then it was 13 two fifty. And then all of a sudden I couldn't get 14 any information. My account was, like, locked and I 15 would just get transferred from person to person to 16 person, Oh, I can't look at your info, you need to 17 call this person. 18 And I think I called maybe like 15 to 20 19 different people and I still wasn't able to get the 20 information. 21 MR. MATHER: But at least initially they 22 said they were all timely. 23 MR. ARIK: All covered. 24 MR. MATHER: Okay. 25 No further. 26 MS. HARKEY: Okay, thank you. 27 Member Runner, or Ms. Stowers. 28 MS. STOWERS: He can go first. 24 1 MS. HARKEY: Okay, Member Runner. 2 MR. RUNNER: Yeah, let me -- I just want to 3 quickly ask this question because I think it's going 4 to be I guess one of the beginning points for 5 everybody. And that is the -- the initial 6 identification of the $13,000, what attempt, before 7 we went to different tests and whatnot, what 8 attempts were made to try to identify what that was? 9 MR. LAMBERT: I'm not sure exactly. We 10 also took a look at the income tax returns and there 11 was a difference between the income tax returns and 12 what was reported to us as well. 13 But ultimately what we're going to do is 14 take a look at -- our audit is going to take a look 15 at the book markups. So that's going to be the 16 basic criteria whether we go and do additional work 17 or if we don't. So the fact that we found that 18 there's a difference there, I don't know if we went 19 further to identify exactly what that issue was. 20 MR. RUNNER: So that difference didn't 21 initiate the additional -- 22 MR. LAMBERT: It did. Well -- 23 MR. RUNNER: My question is -- 24 MR. LAMBERT: It was part of the -- it was 25 part of the reason why we did that. 26 MR. RUNNER: But if it wasn't identified, 27 what would be the next step? 28 MR. LAMBERT: If it wasn't identified? In 25 1 other words if it tied out? 2 MR. RUNNER: Yeah. 3 MR. LAMBERT: Oh, we'd still take a look at 4 the markup. We would go and essentially do the same 5 thing that we did to verify that the sales were -- 6 were reasonable that were recorded in their books. 7 MR. RUNNER: I guess I'm still -- I'm not 8 understanding exactly with the one -- with the one 9 item or potentially just one item, with a lot of 10 explanation, why there wouldn't at least be an 11 attempt to try to explain what that one item was? 12 MR. LAMBERT: Well, you might end up going 13 back. I don't know if it was or not, but my point 14 is -- 15 MR. RUNNER: What do you mean you don't know 16 if it was or not? 17 MR. LAMBERT: I'm not sure. I don't recall 18 off the top of my head whether the auditor went into 19 detail of exactly what the difference was. 20 MR. RUNNER: Wouldn't it have been recorded 21 in the audit if he did? 22 MR. LAMBERT: It -- it should be. 23 MR. RUNNER: And was it? 24 MR. LAMBERT: I'm not sure. 25 MR. RUNNER: You don't -- you don't know? 26 You don't know what the audit says about that? 27 MR. LAMBERT: I don't recall exactly what 28 it says about that. 26 1 MR. RUNNER: Let me ask the taxpayer. Was 2 there an attempt to try to identify the $13,000 3 item? 4 MR. MATHER: I, uh -- I wasn't representing 5 the taxpayer during the audit, but I believe there's 6 a comment in the audit work papers that, from the 7 auditor herself, that said, could be a timing 8 difference, could be a return. 9 MR. RUNNER: Which indicates there was no 10 attempt. 11 MR. MATHER: Which -- yeah, yeah. I mean 12 really kind of identifies -- 13 MS. HARKEY: I do have a copy of that audit 14 paper. That's in one of the exhibits that was given 15 to the Department. And the Members might want to look 16 at this. I handed out a group. If you can find 17 this, it is -- 18 MR. RUNNER: What's it say? 19 MS. HARKEY: It says 12-B, it is -- it is 20 this sheet that you will see right there. And you 21 can see down in the comment section it says 22 differences between reported and recorded per 23 general ledger are not significant and could be due 24 to timing -- 25 MR. RUNNER: Okay. 26 MS. HARKEY: -- or possible voided 27 transaction. 28 MR. RUNNER: So an indication that, again, 27 1 there was not any attempt to try to rectify or 2 identify what the issue was. 3 MR. MATHER: Seemed to be accepting. 4 MR. RUNNER: Yeah. 5 MR. MATHER: Mainly. 6 MR. RUNNER: Okay, thank you. I'll let 7 others go, but I wanted to try to figure out that one 8 first. Thanks. 9 MS. HARKEY: Thank you. 10 MS. STOWERS: I had a concern about that 11 one, too. But then I wanted to back up because you 12 guys said that you compared the federal tax return 13 to the sales tax return and you noticed a 14 difference. It's a very small difference. I 15 mean -- 16 MR. LAMBERT: Right. 17 MS. STOWERS: -- half a percent. 18 And then from there you moved further. And 19 the way I read it you did the sales tax return 20 reconciliation first. 21 MR. LAMBERT: Right, and that -- 22 MS. STOWERS: And that was a small 23 difference. 24 MR. LAMBERT: Right. 25 MS. STOWERS: So you decided to do -- or 26 the Department decided to do another test and you 27 looked at the book, the markup and felt like, you 28 know, your expectation was it should be 150 to 200 28 1 percent markup. 2 MR. LAMBERT: These -- all the tests that 3 we're doing, whether we're moving onto the next -- 4 whether it tied out or not, this is the normal process 5 that you go through in conducting an audit. 6 So the fact that even if the income tax 7 returns tied out, that the invoices tied out, we're 8 going to go to the next step of making sure that we 9 can account for the sales. So we're going to take a 10 look and see if whether the taxable sales that were 11 reported are reasonable. 12 And so that's what we did in this case. It 13 was a natural progression. The fact that we found a 14 small error in each one of those different areas, 15 whether we found those or not, we were going to go 16 to the next step. And that's just part of what the 17 audit process is. 18 MS. STOWERS: Okay. When you consider the 19 markup that you were expecting, did you consider 20 their business model and what they're saying as far 21 as that they would sell something at a lower rate 22 basically because, one, we're still in the recession 23 and, two, they were competing with online sales and, 24 three, that they were actually manufacturing some of 25 their products? 26 MR. LAMBERT: Right. Well, and I think -- 27 MR. HORTON: Did you take all that into 28 consideration? 29 1 MR. LAMBERT: Right. We used the bottom -- 2 one, we used -- in order to establish the 3 out-of-state retail sales, we used the lower 4 percentage of what we would expect. 5 And then for the actual audit, we used what 6 the results were for 2009 of their -- of their own 7 records. 8 But what I would point out is that they are 9 manufacturing these items, you know, in a large -- 10 other than -- well, when I refer to diamonds and 11 jewelry, they are doing a lot of the manufacturing 12 of this or designing or whatever it's called. Those 13 costs are not included in our costs that we're 14 marking up. So when they are coming up with an 15 eight percent markup, that is accounting for the 16 material, and they made eight percent on that. 17 So any labor that's included in there, this 18 is just, from my experience and I think the 19 Department's experience, anyone I talked to, retail 20 jewelry does not have an eight percent markup. And 21 now it's difficult for us because of what I 22 explained earlier to try and us go through and do a 23 shelf test. But in Newport Beach, retail sales of 24 expensive -- eight percent just doesn't appear 25 anywhere near reasonable, especially when you have a 26 23 percent markup on watches and that your wholesale 27 percentage is higher than your retail. It just -- [its|it's] 28 it's unbelievable. 30 1 MR. HANKS: Ms. Stowers, we should also 2 emphasize, too, that the auditor after doing their 3 reconciliation that they did where they were able to 4 reconcile to the federal income tax return reported 5 amounts, still they looked at bank deposits and 6 there was a large discrepancy and disparity between 7 the bank deposits and the amounts reported to the 8 Board. And so that was an indication to the auditor 9 that at least further exploration and testing was 10 indicated. So there's a $2 million difference. 11 MS. STOWERS: So when you looked at the 12 bank deposits, they said earlier that there was a 13 lot of transfers between accounts from their 14 different stores. 15 MR. LAMBERT: Well, we took out. The items 16 that we took out were -- I believe it was a little 17 over $2 million in deposits out of the bank account. 18 So they had the -- we took the total deposits and 19 subtracted out the -- what we knew to be loans or 20 basically nonsales, also took out the sales tax. So 21 the 2.2 million is without loans or sales tax. 22 MS. STOWERS: And it's not -- you don't 23 believe that it's just inner accounts transfers, 24 from account A to account B? 25 MR. LAMBERT: Well, we -- 26 MS. STOWERS: That's what they're saying. 27 MR. LAMBERT: Right. We took that into 28 account. Now, do we have all of them? All I can 31 1 tell you is that, you know, what we could identify 2 is we removed from there, and it was over $2 3 million. And that's where it stands. 4 MS. STOWERS: To the petitioner, were you 5 able to isolate the additional 2.2? 6 MR. MATHER: We -- we didn't isolate the 7 additional 2.2, but the bank deposit schedule -- I 8 mean this wasn't a real bank deposits analysis. 9 You know, all of this is -- I mean this is 10 the process for the audit is, okay, let's tie up the 11 sales tax return to the books. Okay, they tie out 12 basically. Let's tie it to the federal income tax 13 return. Oh, they basically tie out. Let's do a 14 test of the invoices. Well, they basically tie out. 15 Let's do a shelf test. Well, it's really hard for 16 us to do a shelf test, so we won't do a shelf test. 17 So then we get, we'll just do a markup and 18 we'll just make it up. We're just going to make it 19 up. We're going to go, because we think it should 20 be a hundred percent, you know it should be a 21 hundred percent markup, so we'll just keep plugging 22 numbers into this formula to make it -- using an 23 estimate from here, an estimate from here, an 24 estimate from here and then we get to 120 percent 25 and then we're done because that's the number we 26 wanted in the first place. 27 But there's no -- there's no verifiable 28 technique involved in this. It's just a total 32 1 fabrication. Just like the bank deposits analysis. 2 So you run a tape of the deposits and the account. 3 Some of the accounts are identified in the statement 4 as being transferred from another account, others 5 are not. And they -- but they stop. You know, they 6 stopped there. They didn't finish the analysis. 7 They just identified the difference between the 8 totals. And so, you know, and then say, okay, well, 9 maybe that could be sales. 10 And then lastly, they never identified even 11 a possible source. How are they getting these 12 sales? Was it cash sales? I mean, there's no 13 identification of, you know, they didn't analyze the 14 credit card information, they didn't do any kind of 15 analysis to even say how it was that this company 16 was getting $2.7 million of additional sales in this 17 audit period when they didn't identify a single, a 18 single unreported sale, and they didn't identify a 19 single markup that even began to approach 120 20 percent. 21 MS. STOWERS: Thank you. 22 I'm good for right now. 23 MS. HARKEY: I -- you know, I will say to 24 the Department, you're in an unenviable position 25 because I think you've got a poor audit to try to 26 support. 27 I think the audit, the original audit that 28 the auditor did was probably accurate. And then the 33 1 numbers were just not believable to supervisors, if 2 I read through the audit papers, and so they went 3 hunting. 4 Because I -- my staff went through the 5 disallowed sales for resale and we found that there 6 were five sales to two resale customers that were 7 disallowed. And so let me walk you through. This 8 is not new information. This is directly from the 9 file. 10 So that would be -- that would be this, 11 this sheet that we have here that is sheet 12C-2. 12 And they were basically the two resale customers, 13 Newport Watch and Jewelry and J8J8. 14 It's actually 12-D. I'm sorry, 12-D is the 15 schedule I'm looking for. These are the ones that 16 were okay or not okay. 17 Yeah, 12-D. I don't know if I gave you 18 this big Schedule of 12-D. I probably -- okay, 19 12-D. 20 So what we found, the auditor indicated in 21 the columns here where the comments that the permit 22 for Newport Watch and Jewelry was closed out 23 12/31/07, therefore the sale in August and September 24 of '11 were not valid sales for resale. The permit 25 for J8J8 was closed out June 2008, therefore the 26 Sales in July 2011 were not valid for resale. 27 But when we researched TEAL ourselves, we 28 found that Newport Watch and Jewelry had a new 34 1 permit which opened 1/1/08 and then remained open 2 until 3/31/14 when they incorporated. So I've got 3 three sets of permits here. 4 And then J8J8 was investigated. Those are 5 these printouts from the Department that I've got 6 here. This one says Newport Watch and Jewelry, 7 Inc. -- let me go backwards on these. 8 Okay. Rory Sidener, Newport Watch and 9 Jewelry, close-out date 12/31/07, is this one. 10 And then the next one I have is Newport 11 Watch and Jewelry, start date 1/1/08. So that -- 12 those would be contiguous. And then I have a 13 close-out date on that one of 3/31/14. But then 14 they incorporated and transferred the permit and the 15 start date was 1/1/14, to Newport Watch and Jewelry 16 Center, Inc. 17 So I think that pretty well covers Newport 18 Watch and Jewelry. 19 And then the J8J8, we don't have a process 20 like that for J8J8. But what we do have is contact 21 person was -- well just say the first name Brandon. 22 And it was an investigation audit. And it tells 23 what happened here. But then down -- I've 24 underlined, they were talking to the person from 25 J8J8 that had closed out, and said, "When asked when 26 she last sold product, either retail or wholesale, 27 she said roughly four years ago but was not entirely 28 sure." 35 1 So that would indicate that -- I mean lack 2 of anything else, at least the story's believable, 3 that that was a sale for resale. And that's from 4 the -- from the audit -- not from the audit, but 5 from the follow-up that we had in the file. 6 So I think those can be sales for resale. 7 Disallowed out-of-state sales is this next 8 one that I've pulled up at first. It's -- it's 9 Schedule 12C-2. And there're only four disallowed 10 out-of-state sales. Three of them were sales 11 related to the ASD convention in Las Vegas, which 12 ended the first week of August 2011. But the 13 invoices were dated 8/19/11, to Chicago, $6,739. 14 And 8/20/11, San Antonio, $825. And 9/10/11, Las 15 Vegas, 2,000. 16 And according to the auditor's comments the 17 sales did not have appropriate shipping documents, 18 therefore were disallowed. 19 We noted that the auditor allowed other 20 sales related to the Las Vegas show which had 21 invoice dates that were later from the dates of the 22 show that were the ones disallowed -- so it's a 23 little confusing -- with comments regarding that 24 there were appropriate shipping documents. In fact, 25 on one sale the auditor disallowed it appears to be 26 the same customer as the one that was allowed, yet 27 the invoice date was later than the one disallowed. 28 The fourth disallowed out-of-state sale was 36 1 a California address and could be considered a 2 nonrecurring event since it's actually 3 out-of-state -- it's not an out-of-state sale and 4 there were no other transactions like it. 5 So I think that presents a problem for the 6 audit. 7 And then the next point we get to is the 8 markup that although the auditor did not believe, or 9 the supervisor did not believe, the auditor said it 10 was minuscule, could be from -- not actually 11 "minuscule" What was the word that she used? 12 Insignificant. It was insignificant. And so, you 13 know, an 8.57 calculation of error for a new 14 business starting up was probably reliable. 15 And I would like to point out that the 16 follow-up audit spoke to the inter-company 17 transactions, and that was a no-change audit. 18 So I think the audit has a lot of problems 19 and you're not in an enviable position. But I am 20 very prepared to rule in the taxpayer's favor here. 21 And I think we have enough documentation that 22 supports that. 23 MR. MATHER: And I'd also like to note that 24 the, uh -- during the same period, the Happy 25 Jeweler, the pre-existing company, was audited and 26 no-changed, also. 27 MR. RUNNER: Madam Chair. 28 MS. HARKEY: Yes. 37 1 MR. RUNNER: Yeah. I mean, my -- you know, 2 I get that fact, what appears to be to me is that 3 there's a series of attempts to try different audit 4 methods to get to an end. And I guess my concern 5 is, is it typically when it is that we try one audit 6 process or we look at one process and we then go to 7 a next because somehow we've impeached the records 8 of the previous attempt that whatever we tried 9 before was in error or showed problems and then that 10 takes us to the next method? 11 It seems to me that in this process we just 12 kind of like started with one, went to another, then 13 we went to another without really trying to answer 14 the questions and this still brings me back to that 15 $13,000 item rather than try to resolve what that 16 was, was an attempt to then find another method. 17 So I, too, believe that this was a poorly 18 orchestrated and it seemed to me almost -- I don't 19 think there was a consideration for the uniqueness 20 of this business. I think it looked like it was 21 kind of a downtown or a upscale Newport Beach 22 jeweler. 23 MS. HARKEY: It was in Newport Beach. 24 MR. RUNNER: And therefore there's an 25 assumption as to what that means. And I don't think 26 there was an attempt to then understand the 27 uniqueness of this business model. 28 So I would make a motion for the 38 1 taxpayer. 2 MS. HARKEY: I will second that motion, but 3 we do have -- 4 MR. RUNNER: I'm sorry. 5 MS. HARKEY: We do have some discussion -- 6 MR. RUNNER: I'll remove it then. 7 MS. HARKEY: -- from Member Horton. 8 MR. HORTON: Thank you. 9 MS. HARKEY: Thank you. 10 MR. HORTON: Thank you, Members. 11 First let me say that the -- the process 12 that the Department went through, I think, is 13 appropriate. The challenge that the Department has 14 here though is that -- well, let me just ask a 15 question. 16 The inner-company transfer, did the company 17 flesh that out, reconcile that? The transfers 18 between the two different entities? 19 MR. LAMBERT: A bill was provided with 20 information included in the $2 million that was 21 taken out that we were made aware of. 22 So, is there more? You know, all I could 23 say is, is that that was the information that was 24 provided to us that we took into account and -- 25 MR. HORTON: I mean given that -- my 26 apologies -- given that as a concern, the other 27 company, did the Department consider taking a look 28 at the records of the other company? 39 1 MR. LAMBERT: I don't believe so. 2 MR. MATHER: That actually -- I guess my 3 comment was the other company was the one that was 4 audited during the same period and no-changed. So 5 there was at least some examination of that. 6 MR. HORTON: And -- and were you the 7 representative for the other company as well? 8 MR. MATHER: No, I wasn't. 9 MR. HORTON: Do you know if inner-company 10 transactions were taken, the transfers between the 11 two companies taken into consideration? 12 MR. MATHER: I don't know. 13 MR. HORTON: Did the Department look at the 14 other audit that was a no-change and determine if 15 there was a transfer? 16 MR. LAMBERT: Did I -- I or someone that I 17 know? 18 MR. HORTON: Not you. The Department. 19 MR. LAMBERT: Not that I'm aware of. 20 MR. HORTON: All right. I'm good. 21 MS. STOWERS: I have one more follow-up 22 question. 23 MS. HARKEY: This is from my district and 24 I'm embarrassed up here. 25 MS. STOWERS: To Appeals or the Department, 26 do we have timely claim for refunds? 27 MR. ANGEJA: We've got timely claims for 28 refund up through September 22 of 2014 as are noted 40 1 in the documents, that's 130,000. There were no 2 claims for refund filed after 9/22/14. So without a 3 claim for refund you don't have a claim to those 4 payments. 5 MS. STOWERS: So from what I understand, I 6 think someone said they paid like $390,000 already. 7 MR. ANGEJA: Yes. 8 MS. STOWERS: So they're going to be out 9 $150,000; isn't that what you're saying? 10 MR. ANGEJA: Any payments for which there 11 lacks a timely claim for refund is waived and can't 12 be refunded. 13 MS. HARKEY: Do you have any copies of your 14 refund claims? 15 MR. MATHER: Exhibit C to the -- for the 16 hearing is copies of what we believe or assert was a 17 timely claim for every single payment. They made a 18 claim for every time that there was a payment. 19 MS. HARKEY: Well, you know, I'm prepared 20 to just -- I mean, this is like -- this is 21 getting -- going from bad to worse. 22 I think we have definitely impugned the way 23 the way the audit was conducted and the way that the 24 results were computed. And I want to make a motion 25 for the taxpayer, but I also want to include all of 26 these -- I want to be sure these things are checked 27 out because there's just a comedy of errors here. 28 And it's not funny, not a comedy. A lot. 41 1 MR. ANGEJA: Although a claim for refund 2 has nothing to do with the Department. 3 MS. HARKEY: Well, he called one time and 4 found out that they were all in, then got called and 5 said no you're missing some. Then got called and 6 they're providing us with all of these copies. 7 There's got to be some way of going back and finding 8 out what happened to these, because I'm beginning to 9 think that a lot of this information went into a 10 black hole. 11 MR. ANGEJA: I'd have to defer to the 12 Department to review. I haven't seen what you're 13 looking at. To my knowledge, we've got no claims 14 after September 22nd, 2014. 15 MR. MATHER: And that's not true. It's 16 just empirically not true. 17 MR. HORTON: What is -- to the taxpayer, 18 can you point out -- 19 Does the Department have a copy of this? 20 MR. MATHER: Yes. 21 MR. HORTON: And can you point out to the 22 Department, so I can ask them, what you believe to 23 be a valid claim for refund? 24 MS. HARKEY: What's not included? 25 MR. MATHER: At the, uh -- in Exhibit C, 26 the first couple of pages is the history of the 27 payments on the account, and there's a handwritten 28 cross-reference to the claim that was submitted for 42 1 every single one of those payments. 2 Now -- well, let me see. 3 MR. HORTON: Department on the same page? 4 MR. LAMBERT: Yes. They are -- at the 5 beginning there's a $130,000 where I don't believe 6 there's any question that those are signed. But I 7 would point out that the majority of these claim for 8 refunds are unsigned or undated, at least the copies 9 of them. It would be difficult to know when they 10 were filed. 11 There was information that I located in the 12 file that I show were filed on February 1st of 2016. 13 And there were, from my review, five $10,000 14 payments that should be added in addition to the 15 $130,000, but that there -- those claim for refunds 16 all were dated with the same date, which was 17 February 1st of 2016. If you take a look at a 18 number of these, assuming -- well, there were -- I 19 believe these were submitted on February 1st of 20 2016. They were not timely. They were after the 21 six months. Because the determination went final 22 from a lack of a timely petition, that when they 23 make a payment they have to file a claim within six 24 months of that date, and I believe a number of these 25 were not filed timely. 26 MR. HORTON: Did you indicate at any time 27 to the Department that you disagreed with the audit? 28 MR. ARIK: Multiple times. Every single 43 1 call. 2 MR. HORTON: Was that prior to the -- at 3 what point in time did you -- did you communicate to 4 the Department, verbally or otherwise, that you 5 disagreed with the audit? 6 MR. ARIK: On maybe about 15 to 20 7 different occasions dating back from maybe eight to 8 12 months ago. I mean -- 9 MR. HORTON: Eight to 12 months ago from 10 now or -- 11 MR. MATHER: I think Danny's referring to 12 the refund claims specifically. 13 MS. HARKEY: No, the audit. 14 MR. MATHER: We filed -- I mean there were 15 one reaudit, then a second reaudit, you know, then 16 we had a petition and the petition is supposedly one 17 day late, which is, you know, fatal if -- 18 MS. HARKEY: I have -- I have a quick 19 question. 20 MR. HORTON: One second, Madam Chair. 21 Was the petition one day late? 22 MR. LAMBERT: It was. What happened was is 23 that -- and I don't recall the exact dates. I can 24 get them, but I remember exactly what happened, is 25 that 30 days from the date of the determination was 26 a Saturday, that they are allowed to file it until 27 the next Monday. 28 MR. HORTON: Right. 44 1 MR. LAMBERT: And then they contacted us on 2 Tuesday to file the petition. 3 MR. HORTON: Is there a reason the 4 Department didn't accept that as a late petition? 5 MR. LAMBERT: Because -- well, we accepted 6 it as a -- we accepted it as a late protest, but the 7 rules are 30 days -- 8 MR. HORTON: I know. 9 MR. LAMBERT: So we accepted it as -- 10 that's why we're here. 11 MR. HORTON: All right, go ahead and say 12 the rules. 13 MS. HARKEY: Let me just ask Appeals this, 14 six months applies to voluntary payments; is that 15 correct? 16 MR. ANGEJA: Yes. 17 MS. HARKEY: Not involuntary? 18 MR. ANGEJA: Right. It's a three-year 19 statute for involuntary payments, but that requires 20 collection efforts by the Department. 21 MS. HARKEY: Right. And they -- they 22 levied. Department levied. That was collection 23 efforts. So then we're under a three-year statute. 24 MR. ANGEJA: That would be correct. That's 25 evidence that's new to me; that's why I'm looking to 26 Scott. I don't know what -- 27 MR. LAMBERT: Well, it would be for those 28 payments. It was only three of them, and I'm not 45 1 sure if any of these are involved in this claim for 2 refund. 3 MS. HARKEY: Their accounts were levied and 4 they weren't making voluntary payments. So let's be 5 sure -- let's be sure the levies are included. And 6 I don't know how much that would come to. 7 MR. ARIK: It's a lot. They -- they levied 8 them multiply times. 9 MR. MATHER: Basically every payment that's 10 not a round dollar amount was a levy payment. 11 MS. HARKEY: Okay. So -- 12 MR. HORTON: Somebody's gotta reconcile all 13 that. 14 MS. HARKEY: Somebody has to reconcile 15 that. But I will, at this point, accept a motion on 16 the -- on the items with -- on the case with 17 additional follow-up instructions to the Appeals. 18 MR. RUNNER: Let me ask, again there seems 19 to be a dispute over these dates and what's dated 20 and what isn't dated and the levy and whatnot. What 21 if we just found that these indeed were, uh -- that 22 their filings were timely and we just decided and it 23 was part of our motion and we found that all of 24 their filings were timely? 25 MR. ANGEJA: If the trier of fact had facts 26 to substantiate that conclusion -- 27 MR. RUNNER: Well, we think we do. 28 MR. ANGEJA: -- you could make that 46 1 conclusion. 2 MS. HARKEY: I don't want to be appealed. 3 I want to be sure we've got enough supporting 4 documentation that this is the end. 5 Can we -- can we find out what the 6 levies -- what the levy amounts were? Can somebody 7 get back to us on the levy amounts? 8 MR. ANGEJA: I would need the Department to 9 look that up. 10 MR. LAMBERT: I believe we can -- 11 MR. ANGEJA: It isn't that it's an open 12 window on a levy. We still need a claim within 13 three years of that levy date. So I'm assuming 14 we've got claims for refund. 15 MR. LAMBERT: Well, in the earlier period, 16 that 130,000-something-dollars, there are I believe 17 a couple of the levies that are already included in 18 there and it might just be one other levy that's at 19 issue. So they, I believe, out of the 130,000 20 there's two levies included in there that have 21 already been accepted. So it's just there may be 22 one other one that's outside that area. 23 MS. HARKEY: Let me just ask the taxpayer, 24 what is the dollar amount that you think you are 25 owed back? 26 MR. ARIK: I think the full amount. 27 MS. HARKEY: And what is the full amount? 28 MR. ARIK: 390,000. 47 1 MS. HARKEY: Well, okay. Do we have -- so 2 that's -- I thought it was larger than that. I 3 thought it was larger than that. So take 4 three-ninety -- 5 MR. ARIK: Yeah, it was three-ninety. 6 MS. HARKEY: And so we're gonna -- 310 plus 7 another levy, whatever that levy is. And it may be 8 more than one levy. 9 MR. LAMBERT: Well, it was one-thirty, 10 but -- a hundred -- 11 MS. HARKEY: Because the levies have a 12 three-year statute. So we could do -- we could do 13 three-year statutes on the levies, and then allow 14 all the other claims for refund for the additional 15 amounts because they would be timely, would they 16 not? I mean, why do -- 17 MR. TUCKER: Pardon me. Claims for refund 18 have to come after the payments are made. They 19 can't be made before the payments are made. 20 MS. HARKEY: But you're telling me that 21 levies can -- some of those claims for refunds can 22 apply to levies, which the levies have a three-year 23 statute. So apply the claims to refunds, to those 24 refunds that they're entitled to and a three-year 25 statute on one of them for the levies. 26 I mean -- 27 MR. HORTON: Madam Chair. 28 MS. HARKEY: I just -- this is just really 48 1 messed up. And I'm sorry, but I don't really like 2 going off with not knowing what they're getting 3 back. If they paid and they filed -- they paid 4 their taxes timely, we've determined that. So -- 5 MR. MATHER: I think the record is that we 6 have a written refund claim, maybe not a signed one, 7 but a written refund claim in Exhibit C for every 8 single one of the payments. We -- we have Danny's 9 testimony that he filed them all on time. We have 10 two different versions here at the hearing, and we 11 got four different versions before of how many of 12 these were on time or not. 13 So I don't know why the Department's 14 testimony, if you will, on the timeliness of these 15 claims should be accepted at all. It's all over the 16 place. 17 MS. HARKEY: We have a statute. But let me 18 have Mr. -- Member Horton. 19 MR. HORTON: Thank you, Madam Chair. 20 We're somewhat dealing with points of fact. 21 So what the Board could consider doing is just 22 giving direction to the agency to adjust for any 23 claim -- any claim for refund that would have been 24 pursuant to the garnishing of the funds, involuntary 25 taking of the funds, any claim for refunds, whether 26 it's an acknowledgement, evidence of an 27 acknowledgement from the Department, even if it was 28 verbal, if the Department acknowledged that the 49 1 conversation took place -- I don't know if that 2 exists -- and they would be bound by that. 3 And we -- just to make sure, we could bring 4 it back for next month just to make sure, but I 5 would believe the Department would make those 6 appropriate adjustments. 7 MR. MATHER: One other question, I guess 8 that I would pose is that, the reason we had an 9 installment payment was because the auditor or the 10 collection representative, she was levying if we 11 didn't pay. So our installment payments were 12 voluntary in the sense that we made them, but we 13 were under great duress to enter into the 14 installment agreement. 15 So there wasn't anything particularly 16 voluntary about those installment payments because 17 we were -- we were under the gun and there were 18 repeated -- while I got involved in the case and 19 while the petition was pending, there were levies 20 that were made. And the only way we could avoid the 21 levy was to do the installment payment. 22 So I don't know if that makes it -- you 23 know, it's not a levy payment. I don't know what 24 involuntary payment means. But they were very 25 involuntary because we had a petition pending. We 26 didn't think we owed the liability and we were being 27 forced to pay this or put -- or being put out of 28 business. 50 1 So they were all involuntary payments. 2 MS. HARKEY: Member Runner. 3 MR. RUNNER: Just real quick. I mean 4 these, um, these claims for refund, um, that you 5 believe are valid here that -- do I hear the 6 Department saying that they are not because they're 7 not dated or what -- what -- 8 MR. LAMBERT: I'm saying that in the file I 9 have those and they are dated. They're dated 10 February 1st of 2016. And that when you take a look 11 at the payments that were made, some of them are 12 beyond the six-year -- or, I'm sorry, six-month 13 statute, and therefore the claim period has already 14 expired. 15 MR. RUNNER: You know, I -- I guess I -- 16 Member Horton, I think, brought up a good point. 17 I -- I wouldn't mind continuing -- you know, finding 18 for the taxpayer -- 19 Hold on. Hold on. Hold on. 20 Continuing the issue in regards to the 21 refund claim, and coming back and having both sides 22 present the issue on the reclaim -- refund amount. 23 MS. HARKEY: I am -- I am worried that 24 we're going to get into a timing issue, Member 25 Runner. What I'd like to do is have a motion that 26 finds for the taxpayer. 27 MR. RUNNER: Uh-huh. 28 MS. HARKEY: Refunds the entire amount 51 1 allocable. And then, if there is a discrepancy -- 2 including any levied payments or anything that was 3 not voluntary. 4 MR. RUNNER: Uh-huh. 5 MS. HARKEY: And if there was a discrepancy 6 after that is done, to bring it back before this 7 Board. 8 MR. RUNNER: That would be fine. That 9 would be fine. 10 MS. HARKEY: But to settle the case now. 11 MR. RUNNER: Yes. 12 MS. HARKEY: Have it go final. And then if 13 there's anything else that's out there, it would 14 come back to this Board in December. The Department 15 could report to us what the result of this was. 16 MR. RUNNER: Well, the -- what would be 17 coming back, I assume then, would be any amount that 18 would be shown as not being able to be given back to 19 the taxpayer. 20 MS. HARKEY: Correct. 21 MR. RUNNER: Right. 22 MS. HARKEY: That way we wouldn't lose 23 track of it. 24 MR. RUNNER: Right. 25 MS. HARKEY: And we could -- the Department 26 would have had time to go through any difference 27 that is not in agreement, so to speak. 28 MR. RUNNER: I'm fine. 52 1 MS. HARKEY: But I want this to be final. 2 I don't what to hear a rehearing. 3 MR. RUNNER: No, I agree. I think the only 4 thing that should come back should be the item of 5 the unresolved refund. And if we can come to an 6 agreement that the refund is the whole three hundred 7 ninety, then it doesn't need to come back. But any 8 difference, I think, should come back for 9 discussion. 10 MS. HARKEY: Right. It may be small. It 11 may be a small amount, but I'm just -- I want to be 12 sure that we're accurate. 13 MR. HORTON: Let me suggest that we -- 14 apologies, Members. 15 Let me suggest that we have Appeals weigh 16 in on this proposal. 17 MR. ANGEJA: I'm trying to verify. I think 18 the -- 19 And, Scott, please help. 20 I believe the case ID for the claim for 21 refund would allow you to do that. You have your 22 decision today in the petition, well, the 23 administrative protest, that's 757324. 24 The claims for refund -- I can't find it -- 25 claims for refund would be 796213. You could keep 26 the 796213 refund claim as a matter heard but not 27 decided, bring that back on the H calendar, or 28 continue the hearing and have it come back on a C 53 1 calendar if it was needed. 2 MS. HARKEY: I don't want -- I don't want 3 to continue the hearing. 4 MR. HORTON: I would suggest, Members, that 5 we bring it back on an H calendar. That gives the 6 Members the option, up or down, without any further 7 discussion. This is a point of fact. We continue 8 the item and for whatever reason the item remains 9 open. But I mean it's -- 10 MS. HARKEY: I just want to be sure that 11 we're not negating all of our effort here today and 12 they don't have to go before a new Board. 13 MS. STOWERS: It doesn't sound that way, 14 Madam Chair. 15 MS. HARKEY: It doesn't. It sounds like we 16 can do -- we can find for the taxpayer and -- 17 MR. ANGEJA: On the administrative protest, 18 you can make a decision in that case. 19 MS. HARKEY: In that case. And then bring 20 back -- 21 MR. ANGEJA: And bring the refund claim 22 back to the extent necessary. 23 Now, it's up to you whether you continue 24 that hearing, which requires them to attend if they 25 don't agree; or put it on an H, which would be a 26 nonappearance item, heard but not decided. You 27 don't have a decision in that case yet. You would 28 reach that decision in December. That would be on a 54 1 claim for refund, which is going to be granted as to 2 all the claims that are admittedly timely. It's 3 just that tail that is up in the air as to whether 4 we have time -- 5 MS. HARKEY: Would we be able to dispute 6 that tail or would the taxpayer then have to file 7 another claim for something? 8 MR. ANGEJA: It would be coming back before 9 you as an undecided matter. Presumably, we'd have 10 input from the Department and the taxpayer, although 11 we've got less than a month to turn that around. 12 But that would -- 13 I guess you'd want to continue the 14 hearing. 15 MR. RUNNER: Right. If it came back as an 16 H and there was a dispute on the issue, we could not 17 debate it. That would be the problem. 18 MS. HARKEY: So the case is decided in the 19 taxpayer's favor. 20 MR. ANGEJA: For the administrative 21 protest. 22 MS. HARKEY: The refund would come back for 23 the next Board hearing. 24 MR. ANGEJA: If necessary. If the parties 25 agree, clearly they could withdraw. 26 MS. HARKEY: If necessary. 27 I'm being told by my staff don't keep it 28 open on the C. 55 1 MR. RUNNER: I'm sorry, on the what? 2 MS. HARKEY: Don't keep it open on C. 3 MR. RUNNER: On the C. I don't know what 4 that means. 5 MR. HORTON: Don't continue. 6 MS. HARKEY: On the C calendar, don't 7 continue the hearing. And I'm very concerned with 8 doing that because -- 9 MR. RUNNER: I don't agree with that. 10 MS. HARKEY: Well, I'm sorry. But when I'm 11 up here and I'm trying to get these things scheduled 12 for Board hearing you should see the machinations I 13 have to go through to ensure that they're heard by 14 this Board. 15 MR. RUNNER: Yeah, but if we have the 16 discussion on the Board and the Board instructs 17 what's going to be on the calendar, that should be 18 pretty specific. 19 MS. HARKEY: If we have it -- I know, but 20 it's not. They're not listening to us. Let me just 21 tell you. They don't have to listen to us and they 22 know it. 23 MR. RUNNER: Again, let me just ask the 24 issue, just to clarify. 25 The two choices would be to have it come up 26 on an H calendar, which would mean then we could 27 not -- it could not -- it would just be coming up as 28 an up or down vote. We wouldn't be able to dispute 56 1 any -- or discuss any of the differences or why we 2 would think -- or that the taxpayer didn't agree, we 3 would not be able to open and have that discussion, 4 nor that decision, correct? 5 MR. ANGEJA: You guys can discuss it still. 6 It's just a nonappearance matter, so the taxpayers 7 wouldn't necessarily be here to argue. 8 MS. HARKEY: We can discuss it. 9 MR. HORTON: Madam Chair, if I may. Maybe 10 Appeals can, um -- can speak to the taxpayers -- 11 taxpayers, not the Department -- taxpayers right to 12 actually come and testify. It's just that we're 13 not -- 14 MR. RUNNER: Right. 15 MR. ANGEJA: So we used to have this 16 problem a lot before we figured out we can continue 17 hearings. 18 MR. RUNNER: Right, right. 19 MR. ANGEJA: The record is technically 20 closed. What you'd get is some memo or something 21 from the Department, presumably something from the 22 taxpayer if there was still disagreement. We would 23 try to provide some analysis if we had the time to 24 do so. The record for additional evidence would be 25 closed. You'd have to decide based on the record 26 that day. 27 MR. RUNNER: The taxpayer could not 28 participate in that discussion. 57 1 MR. ANGEJA: They could have a three-minute 2 presentation, but it can't supplement the record. 3 MR. RUNNER: Right. So -- so that would be 4 if it's on an H calendar. 5 MR. ANGEJA: If it on a C -- 6 MR. RUNNER: If it's on a C calendar -- 7 and, again, all we're talking about is the amount of 8 the refund. 9 MR. ANGEJA: Right. 10 MR. RUNNER: We're not talking about the 11 case itself. 12 MS. HARKEY: I'm sorry. I don't want to 13 put it on a C, Member Runner. We will not get it 14 back again. I know you think we have the power. 15 MR. RUNNER: Well, let me ask. What would 16 prohibit us -- 17 Madam Chair, hang on just a minute. 18 What would keep this from coming back on 19 the C calendar? 20 MS. HARKEY: Staff didn't have time to do 21 their write-up. 22 MR. RUNNER: Well, I'm asking. 23 MS. HARKEY: They have 75 days or something 24 like that. 25 MR. ANGEJA: Continued hearings -- 26 MR. HORTON: It's just continued. 27 MR. ANGEJA: -- are not in the same boat as 28 deferred. 58 1 MS. HARKEY: Well then tell me what tragedy 2 might befall this taxpayer if we schedule a C 3 hearing. 4 MR. RUNNER: Well, the same thing would 5 happen if it's an H, for that matter. An H doesn't 6 satisfy that issue. It could not show up on an H 7 next month. So either way we run the risk of -- of 8 a problem that you're pointing out. The only 9 difference is if it's an H calendar we don't have 10 the ability to hear from the taxpayer if they agree 11 or didn't agree or come up -- 12 MS. MA: Can we bring our Chief Counsel up 13 here? Because we're all different departments now 14 and I want to hear from Mr. Nanjo that we will 15 definitely have this on the calendar if it's 16 scheduled for a C. 17 MR. HORTON: Madam Chair, if I may just 18 share another thing -- 19 MS. HARKEY: Hold on just a moment. 20 MR. HORTON: -- for Chief Counsel to 21 elaborate on. 22 On the C calendar, both parties have -- the 23 measure will be continued. Both parties will have 24 an opportunity to testify again and provide 25 additional evidence. 26 Under the H calendar, Members will take the 27 evidence currently provided -- 28 MR. RUNNER: Right. 59 1 MR. HORTON: -- under consideration and 2 possibly additional testimony from the taxpayer, if 3 they so wish. And it's unusual for the Department 4 to weigh in at that level. Then our decision at 5 that point is based on the evidence we've heard 6 today, not based on additional evidence that may 7 come forth. 8 I don't know what that evidence is. And 9 I'm okay either way. Personally, I'd leave it up to 10 the taxpayer because they have a lot more knowledge 11 about what the facts are. 12 MS. HARKEY: I want to hear from our Chief 13 Counsel that if we put this on a C calendar, which 14 I'm being pushed to do and I'm very nervous about, 15 that we will actually get it back in December. 16 MR. NANJO: That is dependent on the 17 Department and Appeals being able to do their work. 18 For a continued matter, they should be able 19 to, but I don't know what challenges they may have. 20 So there is some risk there. 21 The other thing I would also remind the 22 Board is, to the extent that any decisions are made 23 in December, that little piece of the decision, I 24 believe -- Appeals can confirm on this -- is not 25 final until 30 days thereafter. Therefore, that -- 26 to the extent that there is a challenge based on 27 that decision, that would probably go to the new 28 Office of Tax Appeals. 60 1 MS. HARKEY: Yeah. Which is why I say, 2 let's just make our decision today and then deal 3 with the fallout in a later. It'll be small, I'm 4 sure, and much easier to manage than trying to do 5 this all over again in the Office of Tax Appeals. 6 MR. RUNNER: What -- what -- what item are 7 you wanting to finalize then today? 8 MS. HARKEY: I want to -- I want to 9 finalize it all, and I want to bring back any 10 discrepancy to an H calendar, just so we know. But 11 I don't want -- I want to rule for the taxpayer. 12 MR. RUNNER: If it comes up on an H 13 calendar it is not then decided. 14 MS. STOWERS: Can't do both. 15 MS. HARKEY: Oh, it's still not decided? 16 MR. RUNNER: Right. 17 MS. HARKEY: Then let's -- I would just 18 rule for the taxpayer then, allow the maximum amount 19 of refund. 20 And I will allow you to opine on that. You 21 know what might be missing. But I'm telling you if 22 you drag this out, you could be back here again for 23 another couple years, with a whole new Board and new 24 evidence. And I think you've gone through a lot. 25 And I think that maybe there might be some way of 26 protesting another balance due you. Not sure how 27 you could do that at this point, but we're -- 28 December's -- December's our last day. 61 1 MR. MATHER: What's -- obviously my 2 preference would be that the Board make a factual 3 determination based on the record they have today 4 that all the claims were timely. 5 You have a piece of paper. You have -- 6 they correspond to every single one of the payments. 7 You have the statement from Danny that it was 8 timely. You have an acknowledgement by the Board, 9 by the Department at some point, that they were all 10 timely. And then we've gotten nothing but differing 11 stories ever since. 12 MS. HARKEY: Okay. 13 MR. MATHER: So there's no credible 14 evidence, I think, to say that they're not timely. 15 And the Board, I think, could make a factual 16 determination that they were. 17 MS. HARKEY: Okay. 18 Mr. Angeja, are we okay with that? That 19 will pass the muster? 20 MR. ANGEJA: If the trier of fact makes 21 that conclusion based on the evidence its heard -- 22 MS. HARKEY: Then we're done. 23 MS. STOWERS: One quick question. Just one 24 quick question. 25 I think you said something that triggered 26 for me, that you have acknowledgement from the Board 27 that they were timely. To the Department, 28 communication logs, does that reflect that in the 62 1 log? 2 MR. LAMBERT: Well, I have the actual claim 3 for refunds that are in our files. 4 MS. STOWERS: No, no, no. I understand 5 what you're saying. But they're saying when they 6 called and spoke -- 7 MR. LAMBERT: Oh. 8 MS. STOWERS: -- to someone at the 9 Department, and the Department said, yes, your claim 10 for refunds were timely. Is that noted in any type 11 of communication log? 12 MR. LAMBERT: Not that I'm aware of. 13 MR. HANKS: Ms. Stowers, we acknowledge 14 claims for refund that get filed with the Board. So 15 we have a record of acknowledgement of all claims 16 for refund filed. 17 MS. STOWERS: I'm trying to see if we have 18 anything acknowledging verbally. Because if we're 19 going to say that they were timely claimed, for me, 20 I would need to either have some written 21 confirmation that they were timely claimed or a 22 verbal confirmation from the Board through some kind 23 of telephone conversation informing the taxpayer 24 that, yes, we have a timely claim for refund. 25 So that's why I'm asking do you have 26 anything showing that he called and asked about his 27 claim for refunds? 28 MS. HARKEY: Can -- can they apply them as 63 1 accounts receivable for future returns? 2 MR. ANGEJA: The payment stays within that 3 period and if no timely claim -- short answer, no. 4 Because that works as an offset. If you've got a 5 period that an audit or deficiency or determination 6 that otherwise opens that period. 7 MS. HARKEY: Okay. 8 MR. ANGEJA: It's not as if it's on 9 accounts receivable in perpetuity. 10 MS. HARKEY: I'm -- quite honestly, I've 11 very comfortable going with Member Runner's 12 suggestion. I've had it confirmed by our Appeals 13 and I've also had it confirmed by my staff that 14 that's an okay thing to do. If a Member doesn't 15 want to do that, I think we should have a vote and 16 let that be said and then we'll deal with this 17 again. But, I -- 18 MR. HORTON: Members, I would be a "no" 19 vote in that case. 20 MS. HARKEY: Well -- 21 MR. HORTON: I would be supportive of the 22 taxpayer, ruling in favor of the taxpayer. But 23 opening this item up when it's a point of fact and 24 will be challenged because it's a point of fact. 25 And if it's a challenged as a point of fact, then 26 the entire case gets challenged. 27 MR. RUNNER: If we do this in two motions, 28 we can avoid that. 64 1 MS. HARKEY: Make your motions, let's see 2 what happens. 3 MR. RUNNER: My first motion would be to 4 find for the taxpayer. 5 MS. HARKEY: I'll second that. 6 MS. STOWERS: For both cases? 7 MR. RUNNER: I'm sorry? 8 MS. HARKEY: For everything. 9 MR. RUNNER: No. Just, right now, not on 10 the refund. 11 MS. HARKEY: Oh, not on the refund. 12 MR. RUNNER: Not on the refund. Find for 13 the taxpayer. 14 MS. HARKEY: Find for the taxpayer. I will 15 second that. 16 MS. STOWERS: And just so I'm sure so I 17 can vote positive, we're finding for the taxpayer on 18 the administrative protest. 19 MR. RUNNER: Yes. 20 MS. STOWERS: Which is case number 757324. 21 Okay. 22 MS. HARKEY: Yes. 23 There's a motion and there's a second. 24 Is there any objection? 25 No. 26 Okay. 27 MR. RUNNER: My second motion is that we 28 would find for -- a refund for the taxpayer in that 65 1 all the -- that we would be triers of fact and we 2 would find that all the correspondence and phone 3 calls show that the taxpayer made timely claims for 4 refund. 5 MS. HARKEY: Not only that, but the payment 6 history, had the audit not gone awry, the payment 7 history shows that he was timely paid. We're ruling 8 for the taxpayer on the dollar amount -- I mean on 9 the case. Had this case not come before us, all of 10 the payments would have been made timely. And 11 that's how I would like to see this because I don't 12 want to have to go back and search a record. I do 13 believe -- 14 MR. RUNNER: Yeah. 15 MS. HARKEY: Yeah. 16 MR. HORTON: All right. 17 MS. HARKEY: So I will augment that motion 18 to -- or substitute that motion to say that we 19 are -- that in light of finding for the taxpayer on 20 the case, had the -- 21 MR. RUNNER: Hold on. You're doing a 22 substitute motion right now? 23 MS. HARKEY: Well, your motion -- I'm 24 augmenting it. 25 MR. RUNNER: Okay. 26 MS. HARKEY: Okay. I'm trying to make it 27 so that we don't have to go back and dig through 28 paper. 66 1 I'm finding that we found for the taxpayer 2 on the case, and had the case not arisen, had the 3 taxpayer not been through years of auditing, all of 4 his payments would have been timely. So regardless 5 of the claims for refunds and levies, which are 6 still undecided, we will find for a full refund for 7 the taxpayer. 8 MR. RUNNER: Yeah. I think that's the 9 justification for the motion, not the motion though, 10 right? 11 MS. HARKEY: Full -- well, yeah, but I 12 think you have to include that. I just want to be 13 sure it's specific. So if it's okay with everybody, 14 that's my motion. 15 MR. HORTON: Members, although -- although 16 I would still oppose, but because statute of 17 limitation law is very specific, I would suggest a 18 much shorter motion that would simply say that the 19 trier of fact finds that the taxpayer has filed a 20 claim for refund in a timely basis under the statute 21 of limitations and leave it at that. 22 MR. RUNNER: I believe that's the simplest 23 motion and intent. 24 MS. HARKEY: Okay. I'll remove my motion 25 and go with that one. If that does the job, I'm 26 happy. 27 MR. RUNNER: And I think -- 28 MR. HORTON: I'm still opposed, but -- 67 1 MR. RUNNER: -- the Chair has given a good 2 explanation as to what should be evaluated in that 3 process. 4 MS. HARKEY: Right. That's -- that's -- 5 that's wonderful. I have no pride in authorship 6 here. Just want to be sure we're done. 7 Okay. That's my motion. Is there another 8 motion? Or is there a second? 9 MR. RUNNER: What was your mo -- I'm 10 sorry. 11 MS. HARKEY: Member Horton had the motion 12 and I had the augmentation to it. 13 MR. HORTON: No, no. I'm not making a 14 motion. 15 MS. HARKEY: Well, you don't have to vote 16 for it. You can make a motion. 17 Rephrase the motion, please. Let's get 18 over this charade and let's rephrase the motion. 19 The motion was what? What was Member 20 Horton saying? 21 MR. HORTON: Have Appeals do it, and 22 then -- then the Members can confirm what Appeals 23 said. 24 MR. ANGEJA: I won't speak to who made the 25 motion. I thought you made it first. But it was 26 that the trier of fact finds that all the refund 27 claims were timely and therefore grants the refund 28 of all payments in full. 68 1 MR. RUNNER: That would be my motion. 2 MS. HARKEY: That's good. Okay. I'll 3 second that. 4 MR. ANGEJA: I don't know who made it, but 5 that's the motion I heard. 6 MR. HORTON: All right. That works. 7 MS. HARKEY: That works. 8 MR. HORTON: We're good. 9 MS. HARKEY: Okay, I second. 10 Is there any objection? 11 MR. HORTON: Objection. 12 MS. HARKEY: Okay. Call the roll, 13 please. 14 MS. RICHMOND: Chairwoman Harkey. 15 MS. HARKEY: Aye. 16 MS. RICHMOND: Mr. Runner. 17 MR. RUNNER: Aye. 18 MS. RICHMOND: Mr. Horton. 19 MR. HORTON: No. 20 MS. RICHMOND: Ms. Ma. 21 MS. MA: Aye. 22 MS. RICHMOND: Ms. Stowers. 23 MS. STOWERS: Aye. 24 MS. RICHMOND: Motion carries. 25 MS. HARKEY: Hallelujah. 26 I'm so sorry. But thank you for hanging in 27 there. We -- this has a lot of twist and turns, but 28 it's really impacted by the timing of when we quit 69 1 hearings, which is -- December's our last Board 2 hearing and then they have 30 days to go final and I 3 don't want to get you into that. 4 MR. MATHER: No, I appreciate that and 5 thankful to have a resolution. 6 ---oOo--- 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 70 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, Kathleen Skidgel, Hearing Reporter for 8 the California State Board of Equalization state 9 that I transcribed from recorded audio, to the best 10 of my ability, the proceedings in the above-entitled 11 hearing; and that the preceding pages 1 through 70 12 constitute my transcription of the proceedings. 13 14 Dated: March 21, 2018 15 16 17 ____________________________ 18 Kathleen Skidgel, CSR #9039 19 Hearing Reporter 20 21 22 23 24 25 26 27 28 71