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 FEBRUARY 26, 2015 10 11 SALES AND USE TAX APPEAL HEARING 12 APPEAL OF 13 JALIDAT, INCORPORATED 14 NO. 47622 (AC) 15 AGAINST PROPOSED ASSESSMENT OF 16 SALES AND USE TAX 17 18 19 20 21 22 23 24 25 Reported by: Juli Price Jackson 26 CSR No. 5214 27 Kathleen Skidgel 28 CSR No. 9039 1 1 P R E S E N T 2 3 For the Board Jerome E. Horton of Equalization: Chairman 4 5 Sen. George Runner (Ret.) Vice-Chairman 6 7 Fiona Ma, CPA Member 8 9 Diane L. Harkey Member 10 11 Yvette Stowers Appearing for Betty Yee, 12 State Controller (per Government Code 13 Section 7.9) 14 Joann Richmond 15 Chief Board Proceedings 16 Division 17 ---oOo--- 18 For Appeals Division: Lisa Burke Business Taxes 19 Specialist III 20 For Board: Scott Lambert 21 Hearing Representative 22 Robert Tucker Assistant Chief Counsel 23 Legal Department 24 Kevin Hanks Chief 25 Sales and Use Tax Department 26 For Petitioner: Andre Van Der Valk 27 Representative 28 ---oOo--- 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 FEBRUARY 26, 2015 4 ---oOo--- 5 MR. HORTON: Good morning, Members and 6 guests, let us reconvene the meeting of the Board of 7 Equalization. 8 Ms. Richmond, what is our first matter? 9 MS. RICHMOND: Good morning, Chairman and 10 Board Members. 11 Our first matter on today's agenda is item 12 C, Sales and Use Tax Appeals Hearings, item C10, 13 Jalidat, Incorporated. Please come forward. 14 Board Proceedings has received contribution 15 disclosure forms for today's hearings from the 16 parties, participants and agents. All forms are 17 properly completed and signed. All parties, 18 participants and agents are on the alpha listings 19 provided to your office. 20 Each person sitting at the table will be 21 asked to introduce themselves and, if necessary, 22 their affiliation with the taxpayer for the record. 23 Ten minutes is allocated for the taxpayer's 24 opening presentation, followed by ten minutes for 25 the Department's presentation and five minutes is 26 allocated to the taxpayer for rebuttal. 27 Mr. Horton. 28 MR. HORTON: Thank you. 3 1 Ms. Burke, would you please introduce the 2 issues in this case? 3 MS. BURKE: Good morning, Chairman Horton, 4 Members. I'm Lisa Burke for the Appeals Division. 5 The issues in this case are the 6 amounts of unreported taxable sales of fuel, 7 mini-mart merchandise and propane and the negligence 8 penalty. 9 I'd also like to remind the Board that this 10 matter is subject to Section 40 and requires a 11 published decision. 12 MR. HORTON: We will come back for an 13 elaboration on Section 40. 14 Welcome to the Board of Equalization. We 15 would ask that you introduce yourself for the 16 record. Please be advised that you have ten minutes 17 to make your presentation. And we will return to 18 you and allow you five minutes on rebuttal. 19 MR. VAN DER VALK: Yes, good morning, 20 Board. My name is Andre Van Der Valk and I am the 21 President of Jalidat, Inc. 22 Jalidat, Inc. is -- is an acronym for my 23 kids, James, Linda and Timmy and also my mother and 24 it was kind of a good luck charm in 1991 when we 25 actually started the business. 26 My background is such that I am an 27 experienced oil industry person. I've been 50 years 28 in the industry. I was actually 24 years with -- 4 1 with Union Oil, starting as the Marketing Manager, 2 in charge of approximately 35 San Fernando Valley 76 3 stations. And this was back in the '70s. 4 I hit every chair in the -- in the 5 Marketing Division and ended up in 1989 retiring as 6 the Operations Managers and that was -- included 7 about 700 service stations from Beach Boulevard to 8 Santa Maria. 9 I dealt directly with the BOE in terms of 10 the auditor, Norm Rice. And Norm Rice is a key 11 entity in this because to this day they still use 12 the template in terms of looking at how we treat 13 sales taxes in the service station business -- at 14 least in the Van Nuys office. And this was -- now 15 has been 30 years. Norm has retired. 16 But I was the contact in terms of the 17 operations end of 700 stations. It was in its 18 infantile stages with the Board of Equalization in 19 terms of any compliance issues. I handled the -- if 20 there was a request from the -- from the Board, if 21 there was any legal issues, anything else, I would 22 provide the information. 23 And I was very, very familiar with how the 24 Board of Equalization since the '70s, since the 25 starting of gasoline sales taxes and how -- how it's 26 arrived. 27 In 1991, after my retirement, I started 28 Jalidat, Inc., as I mentioned, it's an acronym for 5 1 my kids. At one time I had eight service stations 2 that represented over 60 percent of the Texaco fuel 3 sold in the San Fernando Valley. 4 I started expansion also in terms of sales 5 and what we have is Fuelman. Fuelman is a large 6 entity, much like Voyager, which most of you carry 7 now is a Voyager card, a credit card. It's called a 8 commercial network. It's billed separately. 9 At that time most of the dealers they went 10 ahead and they stamped it in the old-fashioned way 11 through the credit card imprinter. And you would 12 get a bill ripped off. The customer would get that. 13 And then I would then get a check from Fuelman 14 directly. 15 Today you have Voyager, which is an entity 16 of SE Fuels. If you'll look at your card, like I 17 said, most State employees have the Voyager card. 18 That actually says SE Fuels on there or one other 19 distributor. 20 In terms of CFN and Wright Express, it's 21 the same thing. They are now, however, billed 22 through the major oil companies. And in that 23 particular case the major oils dictate how you write 24 up the receipts and everything is trans -- 25 transferred through the oil companies in terms of 26 billing. 27 The reason why I maintained that and why 28 it's important is because the largest portion of 6 1 what is supposed to be of the -- during the audit, 2 that the largest dollar amount that I was off was 3 that amount that I charged through the commercial 4 networks, which again was a separate entity it went 5 through. It didn't go through the credit cards with 6 the oil companies, it went through a separate 7 network. It was carried as an accounts receivable. 8 Accounts receivable, once it's paid by 9 Fuelman, or any of the other entities, once it's 10 paid, that was it. The records were destroyed. 11 They were shredded up. And the next -- and it could 12 have been paid on a weekly basis or a monthly basis, 13 much like a commercial account, other than a 14 commercial account you continue to carry in the 15 terms of a sale. 16 But on the credit cards they were not. And 17 the main reason why is because the credit card 18 company -- and again this occurs today -- Voyager, 19 Fuelman, CFN, Wright Express, they all bill the 20 customer directly. 21 By the way, they also collect the sales tax 22 directly from that customer because there is a 23 different price there. And that's functional, that 24 works. 25 The key to it is that during this process 26 that I was involved with with the Board of 27 Equalization, I was -- this is -- this went from 28 almost nowhere to all of a sudden tens of thousands 7 1 of dollars. 2 I sat down in that audit and it wasn't 3 until my audit came up that all of a sudden it 4 occurred to the staff -- and that includes everybody 5 from Mr. Rice on up -- it occurred to them that 6 there was no follow-up with Fuelman or any of the 7 other entities in terms of being able to get 8 consistent information from them as to how they 9 collected, what they collected. 10 And that procedure was changed. It was 11 changed not only by the large credit card entities, 12 but it was also changed by the Board of 13 Equalization. 14 And, so, the taxes have been collected. It 15 just wasn't from me. I deducted the total sales 16 directly off when I was paid on a monthly basis, 17 weekly basis. CFN would be monthly, but Fuelman was 18 actually weekly. I would deduct that and then 19 deduct it off my sales tax liability. 20 And, so, I was doing that until the audit 21 came through. And I believe that I have shaken up 22 somewhat the system to where people have questions, 23 well, wait a minute -- but like I said, not only did 24 Fuelman and all of the other entities change their 25 reporting techniques -- and I have included some of 26 the -- the -- the communication on that, not only 27 from Fuelman, but also from the Board of 28 Equalization -- but also the fact -- that you have a 8 1 -- a number that is, I believe it's 6596, that says 2 that I have -- I have the ability that if there's a 3 change in the law that the Board regulation or court 4 decision rendered the written response as no longer 5 valid, meaning that to me that somebody can address 6 the situation and say it hasn't been done to this 7 date. Nobody has taken it upon themselves, they're 8 what are you really talking about? 9 I said, "Well, the fact is that somebody 10 has paid it. Fuelman has changed. The Board of 11 Equalization has changed the rules. Why are you 12 still continuing trying to collect it from me?" 13 And, so, that's where the biggest hurdle is 14 or the biggest dollar amount. 15 There are other things that that have 16 occurred. And one of the issues was on fuel and 17 propane. And the propane was used in the 18 preparation of food and filling containers that are 19 over 30 gallons, as stipulated by BOE rules and 20 that's food trucks. And they're provided in the BOE 21 instructions as to if -- as long as the tank is 30 22 gallons and whether you are filling diesel fuel or 23 propane or what have you, and they're fueled 24 appropriately, that you don't need to collect sales 25 tax. It wasn't, again, until the audit -- 26 and this had been sometime then since 1991 -- that 27 all of a sudden it's, oh, no, you to have collect 28 sales tax on this. 9 1 As far as the issue on credit and cash, 2 it's a smaller dollar amount, but it's equally 3 important, even so more now, because it's how the 4 treatment of the credit card fees -- are the credit 5 card fees -- and I'm sure that that the Board is 6 aware that credit card fees are additionally taxed 7 in the total amount of the sale. 8 But the fact of the matter is -- and it's 9 more evident now because of cash credit coming 10 back -- during the period of time of the audit, cash 11 credit was not as prevalent, but it is today. And 12 the fact of the matter is that if you treat the 13 credit card fee, 3 percent on $3 is 9 cents a 14 gallon, roughly, if it's a little bit more than 15 that, it's roughly 10 cents and that appears to be 16 the differential that most of your independent 17 stations that sell fuel, that's what they're 18 charging, the difference is 10 cents a gallon. That 19 should not be taxed. 20 And that's all I was doing there. That has 21 not been resolved yet either. 22 In terms -- and I know that there were 23 several comments about that it was not a 24 lackadaisical, but that I wasn't in touch or 25 whatever else the case may be. 26 And I contend that I've been in touch with 27 the auditors. I had a service station right at 28 Sherman Way and you. Sepulveda have an office right 10 1 next door. And guess what? A lot of the auditors 2 would come over there and grab a cup of coffee, 3 'cause I sold a lot of coffee. And they would talk 4 and I would ask. And I got some free advice. And, 5 so, that's how I operated for many, many years until 6 the audit came through. 7 I'm able to make the changes. I'm able to 8 accept changes, but, like I said, in good faith I 9 operated for that many years, 1991, under my own -- 10 I made the switch from corporate entity to that. 11 And it was just a matter of -- of -- of habits and 12 of practice and what I thought was good practice. 13 And, lo and behold, five or six years later 14 I'm sitting here. And I still maintain contact. 15 It's almost -- it's taken over five years in order 16 to get to this point. 17 And I have been in contact with the Board. 18 I have been available to -- as recently or as early 19 as four or five years ago. But, again, I'll leave 20 it up to the Board in terms of what's -- what's 21 transpired. 22 Finally, I have a -- it's a fragmented 23 industry out there. Service station operators tend 24 not to talk among themselves, especially -- and I 25 don't think I'm hurting your -- your feelings -- but 26 especially when it comes to the Board of 27 Equalization. Why? 'Cause, frankly, they're 28 scared. And so am I. 11 1 I have had a $2 million cloud hanging over 2 my head for these many years. And I -- I thought 3 what did I do wrong? Where -- where have I gone 4 wrong? What did I do? 5 I thought that I was operating under, you 6 know, the fair assessment and everything else. And 7 I know there are operators that are in the same 8 position or maybe for less, in some cases more, 9 depending on how much volume they have done and how 10 big they are. But it's as simple to collect sales 11 taxes on gasoline as what you would think it would 12 be. 13 And my proof in that would be, ask some of 14 your local people, your contacts on how to price 15 diesel fuel and how to collect sales tax on diesel 16 fuel. 17 And if you ask a dozen operators and if you 18 ask a dozen CPAs -- and I do a hire a CPA, he does 19 my monthly books -- if you ask them, you'll get a 20 dozen different answers, especially on diesel fuel. 21 And it's a shame, but that's the way it is. And I 22 still contend that there's a lot of confusion out 23 there. 24 I thank you for the hearing this morning. 25 I've attached a few of the attachments, including 26 the Fuelman notice that confirms that, yes, they did 27 switch in 2006. And this I didn't get until 2012, 28 actually, September 24, 2012. 12 1 And I've also included -- the last item was 2 the SE Fuel statement. So, when you get a Voyager 3 statement, this happens to be Voyager, but it's the 4 same premise, they do collect the sales tax. It's 5 right on there. And it's the last page of the 6 attachments. Happens to be for a smaller dollar 7 amount than what we're looking at right now, but the 8 fact of the matter is, what's consistent about it is 9 that it says "SE Fuels" up on top. 10 So, here you have a distributor, which is 11 SE Fuels, and they're actually in control of 12 Voyager, which is a merchant credit card. 13 So, this continues to be -- and I contend 14 that there's still issues in terms of getting 15 consistent information from large entities. And 16 you're representing probably about 15 percent of the 17 credit card business that's out there today is done 18 in this manner. 19 Thank you very much. 20 MR. HORTON: Thank you as well. 21 Has the Department had an opportunity to 22 view these documents? 23 MR. LAMBERT: We have. 24 MR. HORTON: Members, we'll now go to the 25 Department. 26 The Department has ten minutes to make 27 their presentation. We would ask that you commence 28 with your introduction for the record. 13 1 MR. LAMBERT: Good morning, Chairman Horton 2 and Members. 3 My name is Scott Lambert and I'll be 4 representing the Sales and Use Tax Department today. 5 To my right is Kevin Hanks, also with the Sales and 6 Use Tax Department. And Mr. Hanks' right is Robert 7 Tucker with the Legal Department. 8 In this particular case the taxpayer 9 operates four gas stations with mini-marts during 10 the audit period. 11 There were numerous errors that were found 12 in the comparison of the records to what was 13 reported to the State as taxable. And I'll go over 14 each one of the items. 15 But before I do that, we did -- this is 16 strictly comparing the figures in the taxpayer's 17 records to the figures that were reported to the 18 State as taxable. So, other than the estimate for 19 the mini-mart taxable, as far as the fuel is 20 concerned, they're the taxpayer's own numbers. 21 So, in regards to Fuelman, the taxpayer 22 provided no information to us in regards to this 23 taxpayer. The -- the DPA that he worked with 24 requested any type of information in order to 25 contact Fuelman. At that particular time they were 26 owned by an entity that had a gone out of business 27 shortly before the end of the audit period. And, 28 so, that entity was not available to answer 14 1 questions for us. 2 The taxpayer indicates or states that they 3 destroyed six months -- after after six months, they 4 destroyed the Fuelman records. The taxpayer was 5 contacted before six months before the last period 6 and apparently those records had already been 7 destroyed. 8 The taxpayer did provide us names with 9 several other -- and I'll call them -- well, I guess 10 there is different terms for them, one of them is 11 cardlock. And basically what that is is that a 12 customer of the system can go to a gas station, or a 13 lot of times it's a station that doesn't have an 14 attendant, and they can use that card to purchase 15 fuel. Basically the only thing that'll show on 16 there is the number of gallons that are running 17 through the register or through the meter. 18 In this case the taxpayer's rec -- the 19 taxpayer's location is not set up that way. This is 20 strictly a gas station, retail operation, where if 21 you're going to use something, you are going to use 22 such as a credit card or something else to indicate 23 who you are ruining through it. So, there are 24 attendants at all of the taxpayer's locations. 25 So, the Department did contact three of the 26 names that were provided to us. And the first one 27 was -- or one of them was Fleet 1. We contacted 28 that person. We contacted them in person. And they 15 1 clearly state that the taxpayer's the retailer and 2 Fleet 1 will reimburse the merchant for sales tax. 3 The second one was Petroleum Card Services. 4 They stated to the auditor that Jalidat is 5 reimbursed for the fuel taxes. 6 And the last one was EFS National or Nation 7 Bank. And they state that it was only a credit card 8 agreement and the bank is not purchasing or selling 9 any fuel. 10 So, in these cardlock situations, you can 11 have can different types of situations where it's 12 anywhere from using it as a credit card to actually 13 one of the hosts having to report the tax. And if 14 they do that, what's supposed to happen is that you 15 sell the fuel to that person that you're -- to the 16 entity that you're selling it to and you would 17 collect a prepayment tax on the fuel, the same way 18 that you would when you purchased the fuel from your 19 vendor. 20 So -- and just to step back for a minute, 21 any time a gas station in California is buying fuel 22 from a distributor that is putting it into the fuel 23 tanks of a retailer in California, they're required 24 to collect a prepayment from them. 25 And the taxpayer, in most cases if you 26 didn't -- if you didn't make resales of that fuel, 27 it was strictly you sold them to consumers, you 28 would would take a credit on what's called Schedule 16 1 G of your -- of your return. 2 So everyone that has a gas station is going 3 to be -- is going to have a Schedule G that they're 4 required to file. 5 And you would, on that return, claim the 6 amount of prepayment that you paid to your fuel 7 vendor. And they started this up a number of years 8 ago. And the reason was that people -- gas station 9 operators would open up businesses, run a 10 substantial amount of fuel through their business, 11 close it down and someone else would come in and 12 take it over. And the State was losing a 13 substantial amount of money. This is what they did 14 in order to protect the State from losing all of our 15 money that -- we wanted to get at least a certain 16 amount of the tax, even if someone continued to do 17 that, that scheme. 18 So, if you were going to resell to someone, 19 you would use -- you would need to obtain an SG 20 permit. In this particular case, after the end of 21 the audit period, the taxpayer did obtain an SG 22 permit. They closed it out shortly thereafter. It 23 was -- I am going to say somewhere between six, 24 seven months it was open. There was no amount that 25 was run -- there was no tax that went through that 26 particular account. There weren't any numbers 27 that -- there wasn't -- other than zero there wasn't 28 anything record on those returns. 17 1 So, to summarize, basically we've tried to 2 get ahold of contact Fuelman. We've asked for any 3 information from the taxpayer. We have no idea -- 4 we have no idea what amount of sales, if there were 5 any sales made to Fuelman, we don't know what the 6 figures are. These sales were netted off the total 7 sales that were reported. So, it wasn't even when 8 you claimed a resale, it was strictly taken from 9 total sales. And, so, that's why there's a 10 substantial difference between the sales that were 11 reported on the income tax returns and the sales 12 that were reported on the sales and use tax returns. 13 The taxpayer also took an adjustment. It's 14 basically a hot fuel adjustment. It's -- I can 15 explain that if you want to. Basically there's a -- 16 I will just briefly explain it. There is a fuel 17 calibration when it goes into your tank. So, in 18 other words, when they deliver the fuel, they 19 calibrate it for 60 degrees and that's how many 20 gallons that you -- that the gas station operator 21 pays for that fuel. Now when you sell it to your 22 customers, that fuel is not calibrated for 23 temperature. So, you -- you could purchase -- an 24 operator could purchase 10,000 gallons of fuel. And 25 based on the temperature that you sell it at, you 26 actually told 10,200 gallons because the fuel 27 expanded. And it also -- if it goes below 60 28 degrees, then you would sell less than 10,000 18 1 gallons that went into there. 2 And just kind of a note, 'cause I did quite 3 a bit of research on that and I want to tell you 4 what I did. 5 MS. HARKEY: You're proud. 6 MR. LAMBERT: Yeah. Even though it 7 expands, the fuel -- the energy in that fuel remains 8 the same. 9 So, if you bought something, that fuel's 10 expanded and you get 20 miles to the gallon for you 11 fuel and you put 1.1 gallons in there, you're still 12 going to get 20 gallons if it went in at 90 degrees, 13 wherein if it went in at below 60, you'd only buy -- 14 you'd only get, let's say .9 gallons, you'd still 15 get the 20 miles to the gallon. 16 Anyway -- 17 MS. MA: What is the hot fuel adjustment? 18 MR. LAMBERT: So, yeah, that's why you fill 19 up in the morning. 20 MR. RUNNER: There you go. 21 MR. LAMBERT: Yeah, so you get the cooler 22 fuel and you get -- yeah. 23 MS. MA: Cooler fuel? What is the hot fuel 24 adjustment? 25 MR. LAMBERT: What is the hot fuel 26 adjustment? Well -- and that's a good question. 27 He wants -- well, he took an adjustment on 28 his return for -- and I am little bit confused on 19 1 the expansion of the fuel -- but the thing is, we 2 did the audit based on the amount of money he 3 received from his customers. And that's what we 4 based it on. 5 So, the fact that you sold 10,000 gallons, 6 9800 gallons or 10,200, it doesn't matter. It's -- 7 we based it on whatever money that you received from 8 your customer. And all that money included the 9 sales tax. It's all included in there. 10 So, there is also the propane. He -- there 11 was an adjustment for that. He was reporting that 12 as all nontaxable. The cash and the credit, it was 13 charging one lump sum. He's not allowed to take an 14 judgment for that. 15 We applied a 10 percent negligence penalty 16 for the -- for the amount and the fact that the 17 records were destroyed. And he didn't have any 18 information to support the amounts that he was 19 subtracting from line 1 of his return. 20 I should also point out that there were two 21 additional audits to this one, one was before and it 22 was for the period of '93 through '96. And it was 23 found during that time that the taxpayer 24 substantially reported their sales correctly, except 25 for they had not claimed a prepayment. And they 26 were allowed a credit for that. 27 In the subsequent audit there are the same 28 errors that you have here. Basically this new 20 1 audit, which is still going through the review 2 process, has about $13 million dollars in measure, 3 all the same issues from here. 4 And we're still unable to -- unable to 5 provide any information to show that there was these 6 sales for resale that took place. 7 I think that's the majority of my comments. 8 I'm available for any questions. 9 And the Department concurs with Appeals' 10 Division's decision and recommendation. 11 MR. HORTON: Thank you very much. We'll 12 now go back to the taxpayer on appeal -- I mean 13 rebuttal. 14 MR. VAN DER VALK: Thank you. 15 If I can address that last comment? There 16 was an additional audit in July of 1998 where I had 17 a clean record. And there was no problems on that. 18 If I can, in terms of the out of business, 19 yes, Fuelman is not out of business, Fuelman is 20 still alive and kicking today, only they're doing 21 business through Fleetwide. 22 And what happens with the cardlocks that 23 Mr. Lambert refers to is that the cardlocks are 24 actually the ones that I'm referring to and that is 25 that SE Fuels is a cardlock company and a 26 distributor, but, by the way, they also handle the 27 Voyager card that's in your pocket. 28 Same thing with Fuelman. Fuelman's a part 21 1 of Fleet 1 right now and they are connected large -- 2 in large scale with the cardlocks. And that 3 explains why they're doing retail. They want to 4 pick up the business out of my service stations. 5 And, so, consequently they have these commercial 6 credit cards that are available. Wright 7 Express, same thing. They do a large amount of 8 business, but, by the way, they also do it in the 9 service station end and retail end and that's how 10 they do it. They bill the sales taxes. 11 As far as me destroying anything, or what 12 have you, I didn't say six months that I kept the -- 13 it was my accounts receivables, when I receive it -- 14 in some cases it's by the week, in some cases I 15 receive it on a monthly basis -- at that particular 16 time, the bill was paid and, so, consequently the 17 bill was destroyed under the accounts receivables. 18 And I'm told that that's a perfectly accepted 19 practice by my CPA. 20 In terms of the confusion with the prepay, 21 the PCS and some of their responses, I differ with 22 the response from PCS because they basically say 23 exactly opposite of what the BOE reports. And that 24 is that when PCS collected on these credit cards, 25 they actually are not reimbursing or not addressing 26 the issue of the sales tax. And that's my 27 contention. To this day I don't think the Board of 28 Equalization has a good handle as to who is 22 1 collecting the sales tax -- whether it be the 2 cardlock who sells it through a cardlock or the 3 cardlock who happens to own Voyager, who bills it 4 through my service station that is now billed 5 through the credit card company that is dealt with 6 the -- with the oil company. 7 I believe also on the Schedule G -- I've 8 never not submitted a form without the Schedule G 9 right from the start. The Schedule G only handles 10 the prepay. 11 And I know what -- what Mr. Lambert is 12 talking about and it's a different issue and that is 13 that they want to pick up some of that money up 14 front. 15 In fact, over the last three months you 16 have been picking up more money on the prepay than 17 what actually the prices have been when in -- and I 18 see some head shaking, I know this. I know it 19 'cause I see it firsthand on my books when I do it. 20 And that was that the State was collecting more 21 money on the prepay than me collecting it from the 22 customer. 23 There was never any intent from anybody 24 contacting me -- and this is just recently, this is 25 as we speak. And, so, consequently I've kept up -- 26 until I can get a resolution on what we're talking 27 about, I've kept up the same premise, the same 28 things in good faith and that is until this can be 23 1 resolved. And say, hey, you know, "Here's my 2 contentions. Here's my points." 3 The SG permit, I went ahead and did away 4 with. I said, "You know, this is ridiculous. I'm 5 not a distributor. I am a retailer." 6 And the SG permit that Mr. Lambert is 7 talking about, that the BOE -- is just one more 8 complicated form. That's great if you're a 9 distributor, but I'm not a distributor. I'm a 10 retailer. 11 And, so, consequently, the hot fuel 12 issue -- hot fuel, Costco, as we speak today, when 13 you pull up to your Costco station right now, 14 they're giving you a credit as a customer when 15 you're paying with your -- your cash or credit. 16 And they're adjusting the net versus gross. 17 They're giving you the better of the deal. Don't 18 overcomplicate it saying that, "It's my mileage," 19 and everything else. 20 It's just that as an industry we bill out 21 at gross and net gallons. And all I'm suggesting is 22 that if I take operators gross gallons and use it as 23 my expense mechanism, guess what, my tax liability 24 is less. 25 And I have some disclosures -- or I 26 actually submitted in your large packet that you 27 received from the Board of Equalization, where it 28 shows that in some industry publications where 24 1 that's questionable. 2 But as I stated, Costco today is giving you 3 credit as a consumer for that difference. And 4 they're the only ones. They're the first ones that 5 have actually taken a positive position like that. 6 The propane is still -- I contend that I 7 filled out the proper paperwork -- 30-gallon tank, 8 filled with propane, used in the preparation of 9 food, it's nontaxable. 10 And then, finally, on the credit card fees, 11 it's more evident now, you couldn't do it during the 12 audit period because the pumps were -- the software 13 wasn't available. But if you would, please, go out 14 and pay cash on a cash credit card station and 15 you'll -- automatically you'll say, "Wait a minute, 16 you're posting the cash price right there and I'm 17 paying with cash." 18 But I go to the pump and it's -- actually 19 shows as a credit price. And, so, the attendant 20 will tell you yes and then he'll punch in and he'll 21 put the cash price in there. That price will change 22 before your eyes and it goes to the lower amount. 23 And, so, that's a technology that was 24 there, not in the audit period, it wasn't there 25 several years ago, but it's come back since, you 26 know, the cash credit has come back. And that's 27 just been recently and yet the Board does not 28 acknowledge. 25 1 Wait a minute, you mean to tell me what we 2 should be doing, but the oil companies right now are 3 very restrictive, with all the other things that are 4 going on with changes in credit cards and 5 everything, to create a separate line item that 6 would show the reverse and, that is, that here's how 7 much I'm paying on my credit. And, so, consequently 8 that should not be taxable. 9 And my case in point is that if I pay the 10 liability to the State for credit card fees or 11 for -- if I want to pay my -- my liability with a 12 credit card, they actually charge me a separate fee. 13 And guess what, that's not taxable. 14 Why shouldn't it be the same if you pull 15 into a service station? 16 Thank you very much. 17 MR. HORTON: Thank you. 18 Discussion, Members? 19 Member -- 20 MS. MA: Start down there. 21 MR. VAN DER VALK: Hot fuel? 22 MR. HORTON: We're going to get there. 23 Has the -- has the issue of excess tax 24 reimbursement been considered? 25 MR. LAMBERT: Well -- 26 MR. HORTON: Discussed, I should say? 27 MR. LAMBERT: -- no, because I don't 28 believe it's a issue. 26 1 MR. HORTON: Okay. 2 Member Ma. 3 MS. MA: So, it seems like everything's 4 hinging on Fuelman -- whether Fuelman actually 5 collected the tax and remitted it? 6 Have we audited Fuelman? 7 MR. LAMBERT: One second. 8 MR. TUCKER: There's confidentiality 9 issues, Ms. Ma. It's not at the hearing today. 10 Robert Tucker with the Legal Department. 11 There are issues of confidentiality of discussing 12 that type of question. 13 MS. MA: Okay. So, we have the taxpayer 14 submitted an SE Fuels statement that said -- that 15 says that SE Fuels collects sales on the sales. 16 So, the taxpayer contends that Fuelman also 17 submitted these similar statements and collected 18 sales tax on the sales to him. 19 I mean, that's where the big bulk of this 20 case is hinging is whether Fuelman collected the 21 sales tax or not. 22 So, how are we verifying whether Fuelman 23 did it or not and whether the State received the 24 money? 25 MR. LAMBERT: In terms of Fuelman, I can 26 tell you the information that we have in regards to 27 them is from what we received from their website, 28 which is public information. 27 1 And it does refer to them using -- their 2 customers using a credit card. I'm not aware of the 3 other -- the possible cardlock use that they have. 4 And it's quite possible that that's what's taking 5 place now. 6 I don't have any information in regards to 7 Fuelman other than what we received off the website. 8 In regards to the invoice that's been 9 provided, that is an acceptable way of billing for 10 the tax when you have one of -- and I guess it's SG, 11 one of their customers come in, you can have SG pay 12 the tax. I will point out on that particular 13 invoice that's from 2012, which is outside the audit 14 period. And we haven't received anything from 15 inside this audit period in regards to Fuelman in 16 particular, other than the ones that I stated in my 17 opening in regards to the other names that were 18 provided of vendors. And they did not resell and 19 collect the tax on the fuel. 20 MR. TUCKER: If I could point out one 21 thing? 22 What should have occurred is that the 23 Petitioner here should have obtained a resale 24 certificate and that would have protected him from 25 any such liability. 26 Sales are presumed subject to tax unless 27 you take a resale certificate, a valid and timely 28 resale certificate. 28 1 MR. HANKS: Ms. Ma, if I could also add? 2 If there were an arrangement of the type 3 that the Petitioner is mentioning too, we'd expect 4 to see contracts, pretty voluminous contracts, 5 actually, with -- with Fuelman. 6 And Petitioner's not able to supply that 7 information either. If he had been selling the fuel 8 to Fuelman, that would have been some contractual 9 arrangement regarding the pricing for the sales of 10 the fuel. We don't see that. 11 And then just lastly, we note that 12 Petitioner didn't have an SG permit at the time that 13 these alleged sales were made. He should have had 14 that type of a permit to report those type of 15 distributor sales. 16 MS. MA: Okay. So, the SG permit he did 17 mention -- taxpayer mentioned that because he was 18 not a distributor, but a retailer, he was not 19 required to have an SG permit. 20 What is the rule on SG permits? 21 MR. LAMBERT: Well, if you're -- if you're 22 selling it to someone who is going to resell it, you 23 should have an SG permit. 24 He's basically making the argument that 25 we're making, is that he's the retailer and he owes 26 tax on the sale of his fuel. He's not a wholesaler. 27 And you can have these situations where you 28 would handle the prepayment the same way that you 29 1 handled it when you purchased it from your supplier. 2 In other words, you would charge them for 3 the tax and you would charge the prepayment to the 4 person you are paying it for. And then they would 5 take that prepayment on their Schedule G. 6 MS. MA: Okay. Taxpayer? 7 MR. VAN DER VALK: Could I respond to that? 8 MS. MA: Yes. 9 MR. VAN DER VALK: I don't have any 10 contracts with any of these, the large entities 11 today. 12 It's all handled now through the -- and 13 this is the evolution of what's transpired -- and 14 that is back then, am I supposed to fill out a 15 resale certificate? Or am I supposed to fill out an 16 SG? 17 I'm not aware of of that. I wasn't aware 18 of that, that's my whole point that -- that I 19 content (verbatim), that as far as contracts are 20 concerned, there's no contract that's necessary 21 today in order to be able to sell 10, 15 percent of 22 your credit cards through the system in terms of any 23 contracts that are, you know, that's just not -- 24 that's just not true. 25 And, so you can't -- you know, the horse's 26 out of the barn. You can't, all of a sudden, go 27 back and expect to get that pound of flesh out of 28 me. 30 1 If they can't even go and say, "Yeah, we 2 sent a person down to Fuelman and they audited 3 them." And they're not able to come up with this or 4 they are able to come up with this, one way or 5 another. 6 Put me on a contract basis and I'll knock 7 on some doors with Fuelman, and say, "Oh, by the 8 way, let me see your records." 9 And I contend that to this day that there's 10 still inconsistencies among these large entities 11 that are commercial networks. 12 And I heard that firsthand, that not -- I 13 showed you a nice, clean, "Oh, yeah, here's the 14 sales taxes being collected." 15 But the next time you go in and rent a car, 16 find out, "Wait a minute, I'm prepaying the sales 17 tax on this? How are you going to determine that?" 18 Well, you bought at the local service 19 station. There is a lot of inconsistencies on that 20 that the Board of Equalization is not aware of. 21 MS. HARKEY: I'll go next, but I reserve 22 the right to come back. 23 MS. MA: Me too. 24 MR. HORTON: All right, Member Harkey. 25 MS. HARKEY: Okay. Not to go back again, 26 but we've got this invoice here (indicating). It 27 shows sales tax. Now this is 2012. I understand 28 that's what says somewhere, I don't see that, but -- 31 1 2 MR. VAN DER VALK: It's on the bottom. 3 MS. HARKEY: Okay. 4 MR. VAN DER VALK: Bottom left-hand side. 5 MS. HARKEY: Okay, it's tiny, okay. 6 This is for the taxpayer, when you reported 7 this, how do you report this? 8 MR. VAN DER VALK: Now it's all 9 electronically. And it shows up as a credit in my 10 account on the daily sales. 11 It's as simple as that. 12 MS. HARKEY: Okay. So, how were you 13 reporting this prior -- during the audit period? 14 MR. VAN DER VALK: During the audit period 15 on Fuelman they were not electronic. They were 16 actually a hand invoice. 17 And the hand invoice or the electronic was 18 an actual separate unit that went directly to 19 Fuelman. 20 MS. HARKEY: And how did you account for 21 their sales tax? Where did you put that? 22 I just want to be sure I'm tracking what 23 you did. 24 MR. VAN DER VALK: I coll -- I went ahead 25 and I recorded the total dollar amount of sale -- 26 MS. HARKEY: Okay. 27 MR. VAN DER VALK: -- the total dollar 28 amount of sale and then when they paid me, I 32 1 deducted that off of my accounts receivable. That's 2 how I carried it. 3 MS. HARKEY: Right. So, you -- the total 4 amount of sale, including -- including the sales 5 tax? 6 MR. VAN DER VALK: Including the sales tax, 7 correct. 8 MS. HARKEY: So, when they paid you -- 9 but -- okay. 10 So, I'm still missing -- who paid the sales 11 tax then? Did they send it out? How did you -- 12 MR. VAN DER VALK: They billed the 13 customer. 14 MS. HARKEY: -- bill that? 15 MR. VAN DER VALK: They billed their 16 customer. And then they paid -- they actually are 17 paying the sales tax, the customer. 18 MS. HARKEY: And how did you account for -- 19 this billing here, does this include sales tax? 20 MR. VAN DER VALK: I was not reimbursed -- 21 to answer your question, I wasn't reimbursed the 22 full amount. 23 I actually would take the sales tax. But 24 if it was eight and a quarter percent, I would 25 deduct the eight and a quarter percent off of what 26 they owed me. That's what they paid me. 27 MS. HARKEY: Okay. So -- so, your reported 28 sales were minus the sales tax -- 33 1 MR. VAN DER VALK: Right. 2 MS. HARKEY: -- which is the point of this 3 whole conversation? 4 MR. VAN DER VALK: Exactly. 5 MS. HARKEY: And Fuelman, you contend, 6 already had paid the sales tax? 7 MR. VAN DER VALK: They billed the 8 customer. 9 MS. HARKEY: Right. 10 MR. VAN DER VALK: And the customer paid 11 the sales tax. 12 MS. HARKEY: Okay. 13 MR. VAN DER VALK: The problem is, I have 14 no way of knowing because I never see the -- the end 15 result, which is that customer. 16 MS. HARKEY: Okay, these are just little 17 cards that we put in and then Fuelman kind of takes 18 care of it, correct? 19 MR. VAN DER VALK: Exactly. 20 MS. HARKEY: Okay. And this is what the 21 practice is today? 22 MR. VAN DER VALK: Today the practice is -- 23 is all by computer. When you put that card in the 24 pump and you put the codes in, they may vary it a 25 little bit, but on a branded service station, which 26 is what I am now, I just finally said, "Enough of 27 Fuelman." 28 They have gone -- you know, had some issues 34 1 and enough of that. And I went through some 2 transition, went back with CFN for a while and then 3 decided that was enough of that. 4 Now, today, as we speak, I am 100 percent 5 through the oil company. And what goes in is 6 exactly the credits that I receive out. And there 7 is no deduction for any CFN or anything else today. 8 MS. HARKEY: I don't -- I don't understand 9 CFN. So, I know -- you're in the business and 10 you're -- 11 MR. VAN DER VALK: I am sorry. 12 MS. HARKEY: -- we're just like -- this is 13 basic 101. I'm kidding. 14 MR. VAN DER VALK: I apologize. 15 The -- today if you put in that Voyager 16 card -- 17 MS. HARKEY: Correct. 18 MR. VAN DER VALK: -- the Voyager card, I 19 get full credit for it. 20 It's Voyager that bills it out. 21 MS. HARKEY: Okay, yes. 22 MR. VAN DER VALK: And they're the ones 23 that are responsible, much like Fuelman, for 24 collecting the sales tax. 25 MS. HARKEY: Okay. So, you sell the gas or 26 you report the gas minus the sales tax or just 27 whatever? 28 MR. VAN DER VALK: No. 35 1 MS. HARKEY: Okay, tell me -- tell me, 2 explain that again. 3 MR. VAN DER VALK: Today -- 4 MS. HARKEY: That's what it sounded like. 5 MR. VAN DER VALK: -- today technology has 6 allowed us to be able to go through -- and also the 7 assistance of the oil companies -- they actually 8 handle the credit card transactions in full now. 9 So, if your commercial networks -- which 10 there's four large ones, but if you take the Voyager 11 card that most State employees have and you put it 12 in, the retailer, which is what I am, gets full 13 credit for that credit card purchase. 14 MS. HARKEY: Okay. With the tax included 15 or not included? 16 MR. VAN DER VALK: With the tax included. 17 MS. HARKEY: So, you get full credit? 18 So, now -- 19 MR. VAN DER VALK: Today. 20 MS. HARKEY: Today. So, now you would 21 report the total amount and remit the sales tax? 22 MR. VAN DER VALK: Exactly. 23 MS. HARKEY: Real simple. 24 MR. VAN DER VALK: Real simple. 25 MS. HARKEY: And the way it worked before 26 was you would remit only -- 27 MR. VAN DER VALK: I would -- I would take 28 the -- they owed me. They would pay me on the ex 36 1 sales tax -- they being Fuelman. 2 They would pay me ex sales tax. And that's 3 what I would get, along with a small management fee, 4 cents per gallon. 5 And I would take that then off of how much 6 they owe me. And within a few dollars, okay, that's 7 it. And you throw away -- you know, they've paid 8 the bill, that's it. 9 MS. HARKEY: So, Fuelman paid the sales 10 tax. You deducted the sales tax and that's how you 11 reported your sales? 12 MR. VAN DER VALK: Exactly. 13 MS. HARKEY: It's kind of like a credit, 14 you know, you didn't have to pay sales tax on that 15 because it was already paid -- 16 MR. VAN DER VALK: Correct. 17 MS. HARKEY: -- by this entity? 18 MR. VAN DER VALK: Correct. 19 MS. HARKEY: So, that changed in what year? 20 MR. VAN DER VALK: That changed when 21 Fuelman -- and there's a note on there -- 2006. 22 MS. HARKEY: And the audit period -- I'm 23 sorry, refresh me -- is what? 24 MR. VAN DER VALK: The audit period itself 25 is -- 26 MR. LAMBERT: April of 2004 through March 27 of 2007. 28 MS. HARKEY: Okay, I'm sorry I had to go 37 1 ducky, bunny, but I needed to understand where the 2 debits and the credits were and who wrote the 3 check -- 4 MR. VAN DER VALK: Thank you. 5 MS. HARKEY: -- for what. 6 'Cause usually this isn't that complicated, 7 it never is when you can break it down real simply 8 like this. 9 So, next for the Department, in 2006, 10 sometime during the audit period, did you notice a 11 change in the reporting? 12 Or how -- how do you account for -- I know 13 what you said, but he claims that prior to 2006 -- 14 prior to 2006, these entities, Fuelman and others, 15 paid the sales tax. 16 And I guess what I'm asking you, if it's -- 17 if he was doing it, were others doing that? And was 18 that standard practice back in the day? 19 MR. LAMBERT: There were other people doing 20 it. There was the -- what'd called CFN -- it's a 21 CFN network and it's -- 22 MS. HARKEY: What's CFN? 23 MR. LAMBERT: You know, I don't know what 24 the acronym stands for, but it's -- 25 MS. HARKEY: I don't either. 26 MR. LAMBERT: -- it's a pump -- 27 MR. VAN DER VALK: Commercial fueling 28 network. 38 1 MR. LAMBERT: Right. 2 MS. HARKEY: Okay. 3 MR. LAMBERT: And what it is, it's 4 basically a cardlock system. And you -- 5 MS. HARKEY: What's a cardlock system? 6 Explain all this real simple to me. 7 MR. LAMBERT: Sure. 8 MS. HARKEY: 'Cause I want to understand. 9 MR. LAMBERT: You have like a credit 10 card. 11 MS. HARKEY: Okay. 12 MR. LAMBERT: And you go in and you put it 13 into the machine and pull it out and you pump the 14 fuel. 15 And they don't show you a price, at least 16 at that time they didn't show you a price, because 17 they had different contracts with different people. 18 And, so, you would just keep track of the 19 fuel that went through the CFN and then CFN would 20 bill you and then whoever's -- 21 MS. HARKEY: Me, the consumer or him? 22 MR. LAMBERT: -- if he was the owner, CFN 23 would bill him and then -- well, actually, they 24 billed their client and then pay him is what 25 happened. 26 The CFN -- 27 MS. HARKEY: Okay. 28 MR. LAMBERT: -- would bill the customer 39 1 and then pay him the difference. 2 MS. HARKEY: Pay him the amount? 3 MR. LAMBERT: The problem here is there is 4 different ways that companies were doing it. And 5 there were -- there were issues with who was 6 actually paying the tax. 7 So, the fact that you might have Fuelman 8 collect or running it through their system, they 9 might not have been reporting the tax or were only 10 reporting the debt tax on the difference that -- 11 that they were paying him, which is basically his 12 fee for pumping that gas. 'Cause that's basically 13 what he's ending up with. 14 When you go through Fuelman, you end up 15 with whatever profit per gallon that you're running 16 through there. That -- that's what you would end up 17 with. 18 So, as far as the tax is concerned on that 19 fuel, that's between the two parties, my 20 understanding was, during that time period. 21 So, if you were charging a price to them 22 and they thought it was tax included, Fuelman did, 23 they would claim it on their return as a tax paid 24 purchases resold credit, the amount that they paid 25 him, and then they would report their sales on line 26 1 of the return. So, the net difference is what 27 Fuelman would pay their tax on. 28 MS. HARKEY: Okay. 40 1 MR. LAMBERT: So, the problem is, we don't 2 really know what was going on during that time 3 period with Fuelman. 4 We -- we don't know what the agreement was 5 between the two parties, whether this was something 6 where it was used as a credit card, whether it was 7 used as a cardlock system, how they were accounting 8 for the tax. 9 There hasn't been anything that's been 10 provided to show that, 11 "Oh, I -- I billed out $3 a gallon, 12 but I'm taking, say, 25 cents for the sales 13 tax off of that, I'm -- out of the price 14 that I billed and then the profit margin. 15 And I'm only collecting $2.70, say, from 16 Fuelman." 17 There hasn't been any of that information 18 provided nor has there been the volume that -- that 19 went through there. 20 We have no idea how much went through 21 there. There hasn't been anything provided. 22 You would think this would go through your 23 bank statements that -- and -- to show you. And 24 even that, even if you see -- I mean, you can get 25 the amounts and so you could quantify that, but then 26 you still have the problem with what was the 27 agreement between Fuelman and this taxpayer. 28 MS. HARKEY: The next question for the 41 1 Department is the last audit I believe the taxpayer 2 refers to was 1998. 3 MR. LAMBERT: Uh-huh. 4 MS. HARKEY: Did you have all the data you 5 needed then? And was -- was this type of 6 arrangement even in existence in 1998? 7 MR. LAMBERT: What he's referring to is 8 actually the first audit, which was from '93 through 9 '96. 10 MS. HARKEY: And then I think he said there 11 was another one in '98 -- that's what my notes say. 12 I might be wrong. 13 MR. LAMBERT: No, he said that. 14 MS. HARKEY: Subsequent audit in 1998 with 15 no problem. 16 MR. LAMBERT: I have no -- it's not in our 17 system, so -- 18 MS. HARKEY: Was -- well, let me ask the -- 19 MR. VAN DER VALK: Yeah, he gave it -- 20 MS. HARKEY: But -- 21 MR. LAMBERT: Well, I can -- I can 22 answer -- I can answer the question. 23 MS. HARKEY: Sure. 24 MR. LAMBERT: That -- that -- if you ask 25 him the question in regards to what period of time 26 that is, it's between the '93 through '96 period. 27 It just happened -- it's dated in '98 because -- the 28 reason is it went through the no change audit and 42 1 then there was an issue with the fuel pre -- one 2 fuel prepayment and it went back to the claim for 3 refund. 4 And then that's when the '98 came out to 5 give him the money back for that one prepayment. 6 So, there was only -- 7 MS. HARKEY: Okay. 8 MR. LAMBERT: -- there was only one prior 9 audit. 10 MS. HARKEY: Was this practice in place in 11 the prior audit? 12 MR. LAMBERT: I believe so. 13 MS. HARKEY: Okay. So, it seems like 14 everything was being reported the same or correctly 15 in the prior audit. 16 MR. LAMBERT: It was, yeah. 17 MS. HARKEY: Okay. So, how then -- I'll go 18 to the gentleman, I'm sorry I've gone blank on the 19 name. 20 MR. VAN DER VALK: Andre Van Der Valk. 21 MS. HARKEY: Yes -- that's okay, we can 22 call names, not Taxpayer and Department. 23 How -- if you did it -- if everything was 24 right in '93-'96 and you were using similar systems, 25 what changed? Why did your reporting change, 26 apparently, with the next audit? 27 MR. VAN DER VALK: It didn't. The 28 reporting -- you're talking about the 1991. 43 1 MS. HARKEY: 1993-96 audit -- 2 MR. VAN DER VALK: The -- 3 MS. HARKEY: -- that you've got a 1998 4 report on? 5 MR. VAN DER VALK: I've got a 1998 and a 6 2005 also. But in -- in the '90s there was no 7 difference. 8 I mean, I continued and that's how I built 9 the business up with Fuelman, is that it continued 10 on. And many auditors, as I said, "Look, I've got 11 this." It was a busy service station at Sherman Way 12 and Sepulveda. 13 I said, "Look at this, this is what's going 14 on. How do I treat this?" 15 And they acknowledged that, yeah, you know, 16 just carry it as a -- as a -- as a -- as a -- an 17 accounts receivable. 18 I'm sorry. 19 MS. HARKEY: Okay. So, what -- what I'm 20 asking then, is if you were following the same 21 practice '93 through '96 and the audit was fine, and 22 then this next audit there is a problem. 23 Department -- Kevin, whoever -- what 24 happened? 25 MR. LAMBERT: Well, I -- I can explain this 26 because I do have the report from the '93 through 27 '96, the no change. 28 And when we compared his -- the sales in 44 1 his records to what he reported, it matched, the 2 sales matched. 3 When we -- in this audit period when you 4 compare sales that are in the records to the sales 5 that he reported, they don't match. They're off by 6 millions of dollars. 7 MS. HARKEY: So, something changed? 8 So, let me go back to the taxpayer. The 9 audits matched the sales to what you reported 10 matched in the previous audit. 11 Why, in simple terms, didn't they match in 12 this one? 13 MR. VAN DER VALK: I think that -- I don't 14 think that they were looking to the scrutiny and to 15 the extent. 16 This auditor, for whatever reason, spent 17 220 hours in doing this -- this audit. And, I think 18 ironically, the Fuelman became an issue during the 19 period and saying -- hey, and they were changing. 20 They were looking specifically for -- for these 21 types of entities. 22 I have -- I didn't change. 23 MS. HARKEY: So, you reported -- what 24 they're saying is that what you reported on one was 25 not the same as what you reported on the other. 26 MR. VAN DER VALK: You have to take in 27 consideration too, though, is that the level of 28 sales to Fuelman were expanding on a large scale 45 1 basis. 2 And, so, what may have been small dollars 3 back in the '90s, I was going full-blown sales, to 4 the extent -- and I mentioned that -- that I 5 represented over 60 percent of Texaco sales. 6 MS. HARKEY: Okay, so -- 7 MR. VAN DER VALK: -- in the valley. 8 MS. HARKEY: -- you were reporting the same 9 exact way, but for some reason in the '93-'96 audit 10 it matched. 11 And then in '90 -- in the 2004 to 2007 12 audit, it didn't match and that was due to -- 13 MR. VAN DER VALK: I think the level of 14 sales increased. 15 MS. HARKEY: -- the level of sales 16 increased -- 17 MR. VAN DER VALK: Absolutely. 18 MS. HARKEY: -- for Fuelman? 19 So, you think -- you think that there were 20 probably -- you were using the same practices 21 back then, but you just didn't have as much -- 22 MR. VAN DER VALK: Sales weren't there and 23 in all -- I mean, the commercial credit card didn't 24 grow until the 2000 -- middle of 2000-2005. 25 The sales through your -- you weren't 26 carrying as -- you know, a card that was identified 27 as a commercial type card. 28 MS. HARKEY: Okay. 46 1 MR. VAN DER VALK: You were carrying a 2 Visa/Mastercard. 3 And, so -- and as I recollect, back in the 4 2005 -- actually prior to that, 2003, there was a 5 large scale effort by these what -- what 6 appropriately Mr. Lambert's called the -- the 7 network, the commercial fueling network where you 8 actually pull in the station -- those guys were 9 buying large entities. So, they could go in and 10 pick up that retail business. 11 And that would be my business. And, so, 12 there was a large expansion in that period of time. 13 MS. HARKEY: Okay. To the Department, he 14 claims he showed these numbers as receivables. 15 Did you guys check receivable books or 16 anything at all during that time? 17 MR. LAMBERT: I can say I don't have any 18 record of that 19 MS. HARKEY: Okay. I'm just trying to 20 circle the wagons here. 21 Thank you, I'll be back, I'm sure. 22 MR. HORTON: Mr. Runner. 23 MR. RUNNER: Let me to go the Department 24 real quick in regards to the Fuelman. 25 Typically if, you know, we have a 26 distributor and a retailer and we need records, we 27 go to them and get those records. We don't need to 28 worry about if they were audited or not. 47 1 So, what was -- so, I'm a little surprised 2 that we said, "Well, we looked them up on the 3 internet." 4 Did we attempt to try to make contact with 5 Fuelman in regards to -- to -- 6 MR. LAMBERT: This is the comments that the 7 DPA wrote from the -- from the District office. 8 "The DPA specifically requested that 9 the taxpayer provide any quarterly --" 10 MR. RUNNER: Okay. These are -- just so we 11 get clarification here, so, these are notes that the 12 auditor -- from the -- from the District -- 13 MR. LAMBERT: District Principal Auditor. 14 MR. RUNNER: -- right, his writing on this? 15 MR. LAMBERT: Right. 16 MR. RUNNER: So, my question wasn't whether 17 or not they did. 18 My question is whether or not you did? 19 MR. LAMBERT: Myself. 20 MR. RUNNER: Yeah, in terms of trying to 21 see -- 22 MR. LAMBERT: Yes. 23 MR. RUNNER: -- the taxpayer's made his 24 argument. 25 MR. LAMBERT: Yes. 26 MR. RUNNER: He says, "Hey, here's my 27 problem, it's Fuelman." 28 MR. LAMBERT: Yes. 48 1 MR. RUNNER: And, so -- and, so, we know 2 that the District kind of didn't follow up on that? 3 MR. LAMBERT: Right. 4 MR. RUNNER: So, my question is, did you 5 all follow up with Fuelman? 6 MR. LAMBERT: I didn't. I personally 7 contacted our District office in Chicago, which 8 is -- the account is out of and talked to them and 9 asked them if they knew anything in regards to 10 Fuelman. 11 They indicated that they had not -- there, 12 unfortunately, wasn't enough time to go further with 13 that. 14 MR. RUNNER: Well, I guess the answer to my 15 question is no? 16 MR. LAMBERT: Did I contact -- 17 MR. RUNNER: There was no conversation with 18 Fuelman -- 19 MR. LAMBERT: In particular? 20 MR. RUNNER: -- in regards -- 21 MR. LAMBERT: That is correct and that was 22 the answer to that. 23 MR. RUNNER: It seems a bit odd. It seems 24 a bit odd that this whole discussion hinges on the 25 the business practices between Fuelman and a 26 retailer and we didn't have any conversation with 27 Fuelman. 28 MR. LAMBERT: Well, what I would point out 49 1 is that it's not the same entity that sold during 2 this time period. It is a different entity that -- 3 that we're discussing right now. 4 The entity that was in effect at that time 5 is out of business, they're no longer -- 6 MR. RUNNER: But if we found -- well, let 7 me ask, Fuelman -- okay, let me go to the taxpayer 8 real quick on that issue. 9 The timing of Fuelman, when they used it, 10 when they didn't in this audit period, is the 11 practice that Fuelman was having the same as the 12 practice that was under -- that was taking place 13 during this audit in regards to how it is that sales 14 tax was reported? 15 MR. VAN DER VALK: You mean today? 16 MR. RUNNER: No, I mean during this 17 audit. 18 MR. VAN DER VALK: During the audit period, 19 the consistency was the same. 20 MR. RUNNER: Okay. And that was Fuelman or 21 not Fuelman? 22 MR. VAN DER VALK: That was Fuelman. 23 MR. RUNNER: Okay. Hold on then, I am -- I 24 guess I'm a little confused then, I thought you said 25 it wasn't Fuelman that was -- that related to this 26 audit. 27 MR. LAMBERT: I said the entity that owned 28 Fuelman -- Fuelman is a dba and the entity that 50 1 owned Fuelman is not the same entity that owns 2 Fuelman now. 3 MR. RUNNER: Okay. What difference -- what 4 difference does that make in regards to how it is -- 5 I mean, just because the entity's -- the parent 6 company changed doesn't mean necessarily the 7 underlying company changed its practices. 8 MR. LAMBERT: Well, that's true. 9 MR. RUNNER: Okay. So, my question is -- 10 MR. LAMBERT: Or it -- 11 MR. RUNNER: -- the same. 12 MR. LAMBERT: -- may have. 13 MR. RUNNER: Or it may not have. And the 14 problem is we don't know because we didn't call 15 them. 16 MR. LAMBERT: We did not contact either 17 Fuelman, that's correct. 18 MR. RUNNER: Isn't it typical -- maybe I -- 19 maybe I'm missing the point here, but typically 20 don't go we go back to the distributor at times when 21 we're trying to justify numbers or the retailer's 22 giving us information and, in fact, sometimes we use 23 the distributor's numbers in order to audit, in 24 order to see whether or not somebody's fully 25 reporting their sales? 26 MR. LAMBERT: Right. 27 MR. RUNNER: So, I guess I'm -- help me 28 understand why in this process we would not. 51 1 MR. LAMBERT: Well -- 2 MR. RUNNER: I think Mr. Tucker's trying to 3 tell me this. 4 MR. LAMBERT: Well, let me just take -- let 5 me answer -- 6 MR. RUNNER: Okay. 7 MR. LAMBERT: -- and then he can add -- 8 MR. RUNNER: Okay. 9 MR. LAMBERT: After I'm -- I'm done with 10 it. 11 I attempted to go on to see what Fuelman 12 had reported. And I was unable to come to a 13 conclusion that Fuelman had reported the tax. I can 14 say that much. I couldn't come to that conclusion. 15 The other point that I would put out is -- 16 MR. RUNNER: Hold on, hold on, careful 17 here -- I guess we're dancing around some. 18 When you say you -- when you said what -- 19 you went in, did you mean you went into their 20 account? 21 MR. LAMBERT: Right. 22 MR. RUNNER: Okay. 23 MR. RUNNER: And you couldn't identify -- 24 MR. LAMBERT: I could not. 25 MS. HARKEY: We don't want to get him in 26 trouble. 27 MR. RUNNER: No, no, but they know where 28 that line is, so I'll let them -- 52 1 MR. LAMBERT: Yeah, I couldn't identify 2 that, but -- 3 MR. RUNNER: Okay. I -- I get it. 4 My only concern is, see, I don't know. I 5 can't dance around this issue. 6 I don't know how they report. I don't know 7 if they're responsible for reporting it in a 8 particular sale, that particular individual site. 9 So, I don't know if we can really say it 10 was reported or wasn't reported 'cause I don't know 11 how specific their reports are versus how -- 12 basis -- you know, based upon -- but compared to, 13 you know, what their backup would be, I mean -- 14 MR. LAMBERT: Right. And -- well, here's 15 the problem is you don't know what the -- you don't 16 know what the amounts are. 17 When we have 15 million down here, there's 18 a lot of things that are included in that $15 19 million that just aren't Fuelman. There is other 20 things that are included in there. 21 And then the other point I would -- the 22 other point I would make is that when we went to 23 Fuelman's website and they indicate that you can -- 24 they also have where you can use a credit card -- 25 MR. RUNNER: Uh-huh. 26 MR. LAMBERT: -- instead -- well, that -- 27 that confuses as well, because then you don't know 28 which one was used, which contract he had with them. 53 1 And, so, it really puts us at a disadvantage when 2 we're not provided any information that -- the prior 3 taxpayer's closed out. He didn't -- he did not 4 operate with the new Fuelman. He didn't do -- he 5 stopped -- as I understand it, he stopped dealing 6 with them. 7 It puts the Department at a distinct 8 disadvantage to try and answer specific questions 9 when the taxpayer hasn't maintained that data in 10 order to give it to us. 11 MR. RUNNER: Okay, let me go to Mr. Tucker. 12 I think you were going to say something in there. 13 MR. TUCKER: I was simply going to point 14 out that here the law creates a -- pardon me -- a 15 presumption that taxpayer's sales are subject to 16 tax. 17 MR. RUNNER: Uh-huh. 18 MR. TUCKER: There are generally two ways 19 that staff uses to validate that there were sales 20 for resale. One is if he had obtained a resale 21 certificate from Fuelman and the other cardlock 22 customers, that would have been it. 23 The other is if we had had invoices or 24 records that show how the billing practices -- 25 MR. RUNNER: Right. 26 MR. TUCKER: -- occurred. Unfortunately, 27 he didn't retain his record's. He's required to do 28 so for at least four years, but he didn't do so. 54 1 The final method is if this were, indeed, a 2 sale for resale, in fact, then that would have 3 allowed it as well. 4 Unfortunately, the records aren't 5 available. We're unable to verify through his 6 customer that these were resales, in fact. 7 And had we been able to do so, then we 8 would have been able to address it in the audit. 9 But that's the complication we have without having 10 access to records. 11 MR. RUNNER: Again, see, here's my 12 challenges, I don't know what -- I don't know what 13 the nature of this business model is. I don't know 14 what records are kept or not kept based upon the 15 business model. 16 So, I'm trying to -- and sometimes I think 17 we try to transfer how we think business has been 18 done to how businesses -- you know, what -- how we 19 think business should be done. 20 But let me just ask about records. Why 21 would you not have any records in regards to a 22 relationship that would show the kind of practices 23 and responsibilities that Fuelman would have? 24 MR. VAN DER VALK: I do have records. And 25 they were provided. Every record that -- that was 26 asked for. 27 The problem was that this was a changing 28 environment with Fuelman and the BOE didn't take -- 55 1 you know, they've got a great template is what you 2 called it, or your auditors called it, you've got a 3 great template for going back, as you indicate, back 4 to the supplier -- 5 MR. RUNNER: Right. 6 MR. VAN DER VALK: -- of record, but they 7 never did with Fuelman, for whatever reason. 8 And it was a changing entity and it was 9 picked up with my audit that, "Hey, wait a minute, 10 we better get into this thing." 11 And, in fact, it got to the point that it 12 was changed as a result of this audit and you're 13 collecting a whole lot more money today than what 14 you were back ten years ago is what it almost is. 15 MR. RUNNER: When you say we're collecting 16 money, what do you mean? From? 17 MR. VAN DER VALK: From the CFNs -- 18 MR. RUNNER: Oh, okay. 19 MR. VAN DER VALK: From the Fuelman, from 20 the other entities, Commercial Fueling Network, 21 'cause it was a -- it was a changing environment 22 that the BOE just simply hadn't picked up on -- 23 MR. RUNNER: Again -- 24 MR. VAN DER VALK: -- until my audit. 25 MR. RUNNER: -- I'm still trying to get 26 through this idea, okay, it's a changing environment 27 and whatnot, but why wouldn't you have some of the 28 records of -- of -- 56 1 MR. VAN DER VALK: Accounts receivables, 2 okay, by the nature, I don't have to keep those for 3 four years. I beg to differ with the -- for any 4 purpose. 5 If you -- if I extend you credit for 20 6 bucks and you pay me at the end of the -- of the 7 month, I tear it up. It's as simple as that. 8 He's -- the counsel is talking about four 9 years. I don't keep my accounts receivable. 10 MR. RUNNER: -- but in one sense -- I mean, 11 I get that. 12 But in one sense you know that typically 13 you would have to be responsible for collecting the 14 sales tax. 15 MR. VAN DER VALK: I -- you're trying -- 16 MR. RUNNER: Right? 17 Typically -- I mean, typically -- typically 18 that would be the normal. 19 So then you've got this other entity where 20 they're buying fuel from you but you're not 21 collecting the sales tax -- 22 MR. VAN DER VALK: -- the -- 23 MR. RUNNER: -- right? 24 MR. VAN DER VALK: -- that's correct. 25 MR. RUNNER: And I would think as a -- as a 26 businessman, you'd say, "Man, I need -- I need 27 something from you to show that I'm not responsible 28 for that sales tax." 57 1 MR. VAN DER VALK: It was -- 2 MR. RUNNER: Right? 3 MR. VAN DER VALK: -- you know, if you take 4 a look at the big picture, I'm running eight service 5 stations, doing pretty good volume. The -- the 6 liability that -- that the Board of Equalization is 7 trying to go -- you know, get from me, even 8 economics don't work on that. I don't make that 9 kind of money out of four service stations today. 10 It just isn't -- it isn't there. 11 And, so, consequently, the tax consequences 12 never even occurred to me. It's like what we've 13 been doing it this way and everything seems to be 14 okay. 15 MR. RUNNER: Did you -- who -- who actually 16 reported and signed your tax return? 17 MR. VAN DER VALK: I do. 18 MR. RUNNER: Your -- your sales tax 19 certificates? 20 MR. VAN DER VALK: I signed it as -- 21 MR. RUNNER: You signed it? 22 MR. VAN DER VALK: -- as the President of 23 the corporation, yes. 24 And -- and the reason why -- and I thank 25 you for asking that -- is that who determines 26 whether I make profit today? 27 Gasoline went up 24 cents last night. I 28 was on the phone to my managers indicating, "You 58 1 better go up." It's gone up almost a dollar since 2 the first of February. If I don't stay on top of 3 that, I'm out of business. 4 And if I don't stay on stop of this, I'm 5 out of business. 6 MR. RUNNER: Okay. Let me, again, I want 7 to go back 'cause I'm still perplexed as to why we 8 weren't more -- especially with a number as big as 9 this -- why we wouldn't try to -- you know, I mean, 10 typical, what is it, an XYZ letter that we'd send 11 out to somebody? 12 Why -- why we wouldn't -- why we wouldn't 13 want to do that when we're -- again we're not trying 14 to send it to lots of people, there's only one 15 entity that we're going to have to sit down and talk 16 to or call up and say, "How does this work?" 17 MR. LAMBERT: Right. 18 MR. RUNNER: And I'm perplexed as to why we 19 wouldn't have done that. 20 MR. LAMBERT: Well, that -- right, on your 21 question, we did send out letters to -- on -- to 22 customers, vendors, where he provided us with the 23 information. 24 We did ask him for the Fuelman information 25 and he said he was trying to contact them. He was 26 unable to contact them. And we asked him for any 27 type of information and we left it at that. 28 59 1 MR. VAN DER VALK: I finally did. 2 MR. RUNNER: Hold on, hold on. Well, okay. 3 But we knew how to get ahold of Fuelman. 4 MS. HARKEY: They'll call us. 5 MR. LAMBERT: I'm not sure that that's 6 correct. They were closed out at that particular 7 time. 8 MR. RUNNER: Okay. You went to their 9 website, you told me. 10 MR. LAMBERT: We went to their -- I believe 11 it was their current -- 12 MR. RUNNER: And their website didn't have 13 like a little pulldown that said "Contacts?" 14 MR. LAMBERT: I'm assuming -- I assume it 15 did -- 16 MR. RUNNER: Okay. 17 MR. LAMBERT: -- have some information. 18 MR. RUNNER: Okay, okay. I -- let me just 19 ask -- let me go down a different issue now. 20 Let's talk a little bit about propane. The 21 concept in regards to propane that's not taxable if 22 used for food, if it's a tank of more than 30 -- 30 23 gallons, is that what we're dealing with? 24 MR. VAN DER VALK: Yes. 25 ---oOo--- 26 27 28 60 1 ---oOo--- 2 MR. LAMBERT: For residential use. 3 MR. RUNNER: For, um -- for residential 4 use. 5 MR. LAMBERT: I believe that's the -- 6 MR. HANKS: Yes. Yes. 7 MR. RUNNER: It's not applied at all for 8 food trucks? 9 MR. TUCKER: The statute speaks to -- 10 MR. RUNNER: So, so, so, so propane -- 11 propane used for the preparation of food is a 12 taxable item? 13 MR. TUCKER: Section 6353 provides the 14 exemptions for propane. And the exemption is 15 available for use in, I believe it's referred to as 16 a "qualified residence." And if it's not a 17 qualified residence, then it would not be 18 available. 19 MR. RUNNER: So the whole assumption that 20 the taxpayer's making in regards to food preparation 21 of -- of propane -- use of propane, is not a correct 22 understanding of the law. 23 MR. TUCKER: Correct. 24 MR. RUNNER: Let me ask the taxpayer how he 25 came to the understanding that -- 26 MR. VAN DER VALK: Food preparation. I -- 27 MR. RUNNER: Yeah, you're on. 28 MR. VAN DER VALK: It's -- it's food 61 1 preparation. And if I'm mistaken, again, this is 2 one of those situations that I would probably 3 concede that, you know what, I understand, I'll 4 start collecting sales tax from now on. However, 5 you know, if you read that and -- and it's a 6 30-gallon tank. 7 MR. RUNNER: Right. 8 MR. VAN DER VALK: Food preparation. It 9 doesn't say how -- how do I determine whether it's 10 for residential use or for -- if it's a commercial 11 entity in the form of a food truck. 12 MR. RUNNER: Well, typically -- 13 MR. VAN DER VALK: Or -- 14 MR. RUNNER: -- residential use over 30 15 means it's the truck went there to fill it up. 16 MR. VAN DER VALK: Or if it's a propane 17 tank in a -- in a motorhome where the motorhome is a 18 second home. 19 MR. RUNNER: Well, again, I -- again, I -- 20 there might -- you probably could come up with an 21 example, one or two, but my -- my issue is that your 22 argument here was all about food trucks. 23 MR. VAN DER VALK: Right. 24 MR. RUNNER: So -- so I think we've 25 established now at this point that the fact that a 26 propane tank, you know, even if it's 30 gallons or 27 more, is -- the propane sale is a taxable sale, 28 right? 62 1 MR. HANKS: Yes. 2 MR. RUNNER: Okay. Thanks. 3 I'm done, for right now. 4 MR. HORTON: Member Stowers. 5 MS. STOWERS: Yes. 6 It's my understanding that the Department 7 compared recorded taxable sales to reported taxable 8 sales and came up with the $15 million difference. 9 It's also my understanding that's a 10 combination of what is asserted to be sales for 11 resales and what is asserted to be hot fuel sales. 12 Do we have a breakdown between the 13 difference; can we verify the difference? 14 MR. LAMBERT: He, um -- 15 MS. STOWERS: To the Department. 16 MR. LAMBERT: Right. He did provide us 17 with a schedule of the credit card. It also 18 includes credit, the charges for credit card. And I 19 think that adds up to, um -- in the $2 million mark 20 or somewhere in there. And then he also provided us 21 with the hot fuel. And the propane is separate from 22 this. 23 So I think we can take and come up with a 24 difference that is maybe unaccounted for. And 25 there's -- there's certain items that we can -- we 26 know what they are, which is the credit card and 27 the -- and the hot fuel. 28 But the other one is just a difference. We 63 1 don't know what exactly that difference is due to. 2 He claims it's due to the -- due to the cardlock. 3 But -- I mean, that's just an assertion by him. 4 There's no evidence to -- to prove who it was to and 5 how -- how many of them it was to or whether it 6 was -- there's just a difference, and the cardlock 7 people are substantially less than that. 8 MS. STOWERS: So what was the hot fuel? 9 MR. LAMBERT: Are you -- I'm sorry. 10 MS. STOWERS: Yes, to the -- the -- 11 including the 15 million, do you know how much is 12 hot fuel? 13 MR. LAMBERT: He provided a schedule to us 14 for the hot fuel, um, and it's in here. I don't 15 have the amounts added up, but he -- he broke it 16 down by year, by month. 17 MS. STOWERS: Sir, do you know -- do you 18 have that schedule handy? 19 MR. VAN DER VALK: I -- I have it. It may 20 take me a -- 21 MS. STOWERS: Okay. 22 MR. VAN DER VALK: -- a little while to 23 find. But I -- I don't -- I think it was -- I may 24 be mistaken -- a couple hundred thousand over a 25 three-year period. And I may be off on that. 26 MR. LAMBERT: It was something to that 27 effect. 28 MS. STOWERS: To Appeals, what is the 64 1 requirement by law if you're doing a sale for 2 resale? What does the statute require? 3 MS. BURKE: Generally, in Regulation 1668, 4 it provides that a retailer may provide a resale 5 certificate and explains what a valid resale 6 certificate would be, to support their sales for 7 resale. 8 Barring that, the Department will often 9 send out an -- they call it an XYZ letter to ver- -- 10 or the Department doesn't send it. The Department 11 asks the retailer to send letters to its customers. 12 And then based on the customers' responses, there 13 has to be some form of documentation supporting 14 valid sales for resale. 15 MS. STOWERS: Thank you. 16 To the petitioner, did you send your 17 customers any of these, what we call, XYZ letters, 18 asking them to confirm there was a sale for resale? 19 MR. VAN DER VALK: I never received 20 anything from the BOE requesting that or that there 21 was any kind of a, uh -- an issue until the audit 22 period. 23 MS. STOWERS: That's when they would have 24 asked you to do it, during the audit period. 25 To the Department, did you guys request him 26 to do the XYZ letters? 27 MR. LAMBERT: Sometimes when there's a 28 small amount of vendors or customers where they make 65 1 claimed resales or there's a large dollar amount, we 2 will make phone calls ourselves and try and make 3 contact with them, also with letters. 4 In this particular case, we had the 5 information for three of the customers and we sent 6 contacts to them. We talked to some of them on the 7 phone and we got confirmations that they were not 8 sales for resale during the audit period or they 9 were just not sales for resale in general. 10 What I would point out, also, is the 11 taxpayer did not receive any resale certificates 12 from his customers. So typically when you're going 13 to make a sale for resale to someone, you would 14 obtain a resale certificate from them or -- or 15 charge them tax. 16 MR. STOWERS: I thought I had another 17 question. 18 That's it for this time. 19 MR. HORTON: Member Ma. 20 MS. MA: Okay. So there are other cardlock 21 companies. 22 MR. LAMBERT: Sure. 23 MS. MA: So what is their practice? 24 MR. LAMBERT: They vary. 25 They -- during this -- this time period, 26 they were ones where they can do it like the CFN 27 where they have the S -- everybody does the SG 28 permits and they -- they -- the vendors or your 66 1 host, whatever you want to call them, will get an SG 2 permit and then they charge the prepayment to each 3 other. And then one claims it, the other one 4 reports it, and then the tax is all reported in that 5 manner. 6 There's other ones where you would just 7 sell the entire amount to them and they would 8 consider it to be a tax-included figure and they 9 would take a tax-paid purchases resold credit. And 10 that's in a resale situation and not in a financing 11 situation. If it was a financing situation, then, 12 you know, it's just like a Visa card or Mastercard 13 or any kind of credit card; you get billed for it 14 and you pay that amount. 15 So there's different ways that -- that it 16 can be done, and that's part of the problem in this 17 particular case. 18 MS. MA: So besides the taxpayer sitting 19 here, I mean everyone potentially could have a 20 problem because it seems like this is very confusing 21 and there's various ways that cardlocks are, you 22 know, charging or not charging or billing or 23 collecting -- 24 MR. LAMBERT: Mm-hmm. 25 MS. MA: -- on this tax. 26 MR. LAMBERT: Well, what I can tell you is 27 is over the number of years -- and we've presented 28 numerous gas station audits. That is -- and 67 1 actually, I can't -- well, maybe one. I can't 2 really recall where this has been an issue. 3 There are situations where there's cardlock 4 businesses and not retail stores and, uh -- and 5 those are issues. But as far as just a retail 6 gasoline station, in the number of years that I've 7 been presenting cases here, I can't recall one where 8 that was an issue as far as the pre- -- as far as 9 the prepayment. If I'm wrong, somebody can say 10 something. But I -- I don't recall it as being an 11 issue. 12 MR. HANKS: I don't either. 13 MR. TUCKER: Just one other point. In 14 essence, the law does address this. And it 15 addresses the multiple situations because all sales 16 are presumed subject to tax. And if they're not 17 going to be subject to tax, it's up to the customer, 18 which in this case would be the cardlock business. 19 And they would contact this taxpayer and say, "I'm 20 not paying the tax to you. I'm going to be charging 21 it to my customers, my clients. Here's my resale 22 certificate," and that's how those transactions 23 would be addressed. 24 So it's up for the cardlock businesses to 25 communicate that with the -- the -- and, well, 26 arguably what would be a retailer but for the fact 27 that they're making a purchase for resale. 28 MS. MA: So Mr. Van -- 68 1 MR. VAN DER VALK: Van Der Valk. 2 MS. MA: -- Van Der Valk, so your 3 communications with Fuelman, what did Fuelman or 4 what was your understanding was Fuelman collecting 5 the tax or not collecting the tax? 6 MR. VAN DER VALK: Fuelman was collecting 7 the tax. And it's -- it's not a critical issue. 8 But like I said, Fuelman started right around 1991, 9 '92 and so did I. One of the employees that retired 10 that was a friend of mine, actually it was a 11 handshake deal and that's when we started. And the 12 business started growing from there to the evolution 13 of now it represents roughly 15 percent of all 14 credit card transactions are, quote, through the 15 cardlock people who happen to also own those four 16 various entities; and that is the commercial credit 17 cards that are in competition with American Express, 18 and Visa, Mastercard, and the proprietary cards that 19 you see at the local service stations. 20 That's how they -- they want that retail 21 business, the little bobtail truck that goes into 22 that station. Little bobtail's two-and-a-half-ton 23 five-ton trucks that goes in there and buys diesel 24 fuel. They want that business. They want it in the 25 cardlock and they want it at the retail level. 26 And they pay the sales tax in all cases 27 now. Why? Because it changed during my audit and 28 the fact that it came to the attention of the Board 69 1 of Equalization that there was no consistency and no 2 template to be able to go back to those large 3 entities and find out what was really going on and 4 were they collecting sales tax. 5 MS. MA: That's my questions for now. 6 MR. HORTON: Member Harkey. 7 MS. HARKEY: I just have one more question. 8 I -- we did hear earlier, in the beginning of the 9 testimony, and we're hearing again now, that 10 something changed. Our regulation changed at the 11 Board, perhaps, as to how we accounted for this. 12 What -- in the testimony, and the -- and 13 the taxpayer keeps referring back to it, that as a 14 result of his audit, the BOE changed the policy on 15 the advice and records to all commercial credit card 16 companies. 17 Do we have -- do we know that -- what -- 18 did the BOE change its way of handling anything? 19 MR. HANKS: I -- I was just going to 20 mention that, no, we're not aware of any changes 21 that -- that occurred during the -- the relevant 22 time period. 23 I was also going to suggest, however, that 24 if -- if the Board opted and wanted us to look into 25 this further, you know, we'd -- we'd be happy to 26 contact the successor operation at Fuelman and 27 attempt to determine if -- if they had any 28 contracts, any additional information that we could 70 1 look at to try and establish if it's resales that 2 may have taken place. We don't have any 3 documentation for that today and that's -- that's 4 our -- our complication. 5 MS. HARKEY: Yeah, that is -- that is a 6 problem. 7 MR. HANKS: Yeah. 8 MS. HARKEY: Thank you. 9 MR. RUNNER: Mr. Chair. 10 MR. HORTON: Mr. Runner. 11 MR. RUNNER: Yeah. Yeah, I think we're 12 going to have to go to someone else. And, again, I 13 think it's interesting we call it a successor to 14 Fuelman. Fuelman's still operating. I mean I've 15 just been browsing their website. 16 MS. HARKEY: Hundred different -- 17 MR. RUNNER: You know. And so they clearly 18 are still operating. And I get how it is that 19 they're trying, you know -- you can put in there 20 what kind of business you have and choose which then 21 card you can get from them. 22 Let me just ask -- well, again -- 23 Okay. You know, it seems to me what we're 24 going to have to do is we're going to have to -- the 25 liability is so large I just think we need to make 26 sure that we are doing everything we can do. And 27 that's -- I just feel like there's still some undone 28 issues here. 71 1 Now, I am a bit perplexed, honestly, from 2 the -- my view in regards to where the taxpayer is, 3 or what -- that there isn't more documentation of 4 relationship or something. I -- I don't understand 5 that. You know, and, um -- because -- but on that 6 other hand, you know, as I'm looking through this, 7 the relationship really isn't with the retailer. 8 Although -- although, no, that's not exactly true 9 because you -- 'cause you have certain stations that 10 are signed up with Fuelman, right? I mean you -- 11 you -- right? In order to -- in order to take a 12 Fuelman card -- 13 MR. VAN DER VALK: All it -- all it took 14 was a credit card imprinter. That's it, and they 15 would cut you a check on a Friday afternoon. 16 MR. RUNNER: So when it's -- well, okay. 17 So when it says it's got 160,000 locations, what 18 they're talking about is every gas station. 19 MR. VAN DER VALK: Exactly. Thank you. 20 And that's today. 21 MR. RUNNER: Okay. 22 MR. VAN DER VALK: And -- and shame on the 23 Board of Equalization if they don't have some kind 24 of a mechanism -- 25 MR. RUNNER: Don't shame anybody right now. 26 We're all -- we're just trying to work through this 27 and you're not in a -- 28 MR. VAN DER VALK: No, no. And thank you 72 1 for your time. 2 MR. RUNNER: You're not in a great position 3 to -- 4 MS. HARKEY: Be nice. 5 MR. RUNNER: -- want to be going down that 6 path. 7 MR. VAN DER VALK: Thank you. But if they 8 don't -- 9 MR. RUNNER: But anyhow, let me just 10 finish. Let me just finish. 11 MR. VAN DER VALK: Thank you. 12 MR. RUNNER: The -- yeah. So, okay. So if 13 it's just like any other credit card, I can -- maybe 14 that is part of the answer. 15 So anyhow, I guess what I'd -- I guess the 16 motion I'm going to make, uh, because -- I'm going 17 to make a 30/30/30, uh, with a continued hearing. 18 Somebody want to -- 19 MS. HARKEY: I'll second. 20 MR. HORTON: Second. 21 MR. RUNNER: So for the discussion now. 22 And I think what we need to do is examine 23 this particular issue. I think maybe this is an 24 issue for BTC to get engaged with, in regards to the 25 business practices that are taking place. Because 26 there seems to be something here that I'm trying 27 to -- that I just don't feel comfortable moving 28 ahead with that kind of liability when we have these 73 1 questions out there. 2 So that would be my motion. 3 MR. HORTON: I believe there's a motion by 4 Member Runner for a 30/30/30, second by Member 5 Harkey. And then the encouragement of the Board 6 to -- to make sure that they exercise all the 7 efforts. Because, you know, the law itself does 8 have the notion of a resale in fact, and if there is 9 industry practice of actually doing this one way or 10 the other -- 50 percent, 30 percent, 40 percent -- 11 the Department should give that benefit to the 12 taxpayer. 13 And then I'd personally like to understand 14 better the relationship to the total audited 15 unreported taxable sales of 15 million to the total 16 amount relative to Fuelman. 17 MS. HARKEY: And a re-hearing. 18 MR. RUNNER: Yeah. 19 MR. HANKS: We'll certainly try and develop 20 that information. 21 MR. RUNNER: Can I say one other thing, 22 too? 23 MR. HORTON: Sure. 24 MR. RUNNER: I think, also, in this 25 30/30/30 time I assume there are some things we've 26 had in this discussion, even with the taxpayer, in 27 regards to propane that maybe need to be adjusted in 28 terms of understanding, too, that has been clarified 74 1 here, too, that maybe there's some things that don't 2 have to probably be addressed in the 30/30/30. 3 MR. HORTON: Right. And -- and -- I'm 4 trying to figure out how to say this. I would 5 encourage the Department to discuss with general -- 6 with the Chief Counsel to what extent, whatever 7 information they happen to have that may be 8 protected by the confidentiality rules, that they 9 find a way to communicate to the Members of the 10 Board, if possible. 11 MS. HARKEY: And return for hearing. 12 MR. RUNNER: Yeah. The motion was -- 13 MR. HORTON: So the motion is a 30/30/30, 14 to have the, uh -- the issue returned back to the 15 Board for further discussion. 16 Without objection, Members -- 17 Member Stowers? 18 MS. STOWERS: No objection. 19 MR. HORTON: Without objection, Members, 20 such will be the order. 21 Thank you very much for appearing before 22 us. The Appeals unit will explain what -- what the 23 30/30/30 means. But basically it's 30 days in order 24 for you -- the Department to seek out information, 25 30 days for you to respond to that information, then 26 another 30 days to try to resolve it. 27 But if you need any further clarification 28 Appeals, which is to my right, to your left, will be 75 1 more than happy to provide you with some 2 clarification. 3 MR. VAN DER VALK: Thank you, Chairman 4 Horton. 5 MR. HORTON: Thank you. 6 MR. VAN DER VALK: Thank you. 7 ---oOo--- 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 76 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, JULI PRICE JACKSON, Hearing Reporter for 8 the California State Board of Equalization certify 9 that on FEBRUARY 26, 2015 I recorded verbatim, in 10 shorthand, to the best of my ability, the 11 proceedings in the above-entitled hearing; that I 12 transcribed the shorthand writing into typewriting; 13 and that the preceding pages 1 through 60 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: MARCH 16, 2015 18 19 20 ____________________________ 21 JULI PRICE JACKSON 22 Hearing Reporter 23 24 25 26 27 28 77 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 certify 9 that on February 26, 2015 I recorded verbatim, in 10 shorthand, to the best of my ability, the 11 proceedings in the above-entitled hearing; that I 12 transcribed the shorthand writing into typewriting; 13 and that the preceding pages 61 through 76 14 constitute a complete and accurate transcription of 15 the shorthand writing. 16 17 Dated: March 24, 2015 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 78