1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 APRIL 28, 2015 10 11 CORPORATE FRANCHISE AND PERSONAL INCOME TAX HEARING 12 APPEAL OF 13 TODD BENTLEY and KATE BENTLEY 14 NO. 593582 15 AGAINST PROPOSED ASSESSMENT OF 16 ADDITIONAL INCOME TAX 17 18 19 20 21 22 23 24 25 Reported by: Kathleen Skidgel 26 CSR No. 9039 27 Juli Price Jackson 28 CSR No. 5214 1 1 P R E S E N T 2 For the Board Jerome E. Horton of Equalization: Chairman 3 4 Sen. George Runner (Ret.) Vice Chairman 5 6 Fiona Ma, CPA Member 7 8 Diane L. Harkey Member 9 10 Yvette Stowers Appearing for Betty T. 11 Yee, State Controller (per Government Code 12 Section 7.9) 13 Joann Richmond 14 Chief Board Proceedings 15 Division 16 For Board of 17 Equalization Staff: Lou Ambrose Tax Counsel IV 18 Legal Department 19 For Franchise Tax Board: Natasha Page 20 Tax Counsel 21 Fred Campbell-Craven Tax Counsel 22 23 For the Appellant: Todd Bentley Taxpayer 24 25 ---oOo--- 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 APRIL 28, 2015 4 ---oOo--- 5 MS. RICHMOND: Our next item is Item B, 6 Corporate Franchise and Personal Income Tax Appeals 7 Hearing. Our only hearing for today is item B3, 8 Todd Bentley and Kate Bentley. 9 Please come forward. 10 Board Proceedings has received contribution 11 disclosure forms for today's hearing from the 12 parties, participants and agents. All forms were 13 properly completed and signed. All parties, 14 participants and agents are on the alpha listings 15 provided to your office. 16 Each person sitting at the table will be 17 asked to introduce themselves and, if necessary, 18 their affiliation with the taxpayer for the record. 19 Ten minutes is allocated for the taxpayer's opening 20 presentation, followed by ten minutes for the 21 Franchise Tax Board presentation, and five minutes 22 is allocated for the taxpayer for rebuttal. 23 Mr. Horton. 24 MR. HORTON: Thank you. 25 Staff -- Mr. Ambrosia. 26 MR. AMBROSE: Ambrose, sir. 27 Good afternoon, Mr. Chair, Members of the 28 Board. 3 1 This is the appeal of Todd Bentley and Kate 2 Bentley, and the issue is whether APPELLANTS have 3 shown that Franchise Tax Board erroneously assessed 4 additional tax based on the sourcing to California 5 of income arising from appellant-husband's 6 settlement of a lawsuit with his former employer. 7 MR. HORTON: Thank you. 8 Welcome to the Board of Equalization. 9 Please introduce yourself for the record, and be 10 advised that you have ten minutes to make your 11 presentation. We will return and allow you five 12 minutes on rebuttal. 13 MR. BENTLEY: All right. Thank you very 14 much. I'm glad to be back for the re-hearing. Some 15 familiar faces, some not, so I wanted to introduce 16 myself. 17 I'm Todd Bentley. I'm a Washington State 18 resident, Canadian citizen. I have a U.S. green 19 card. And I'm a taxpayer, not a lawyer, so I'm 20 going to do my best to answer all the questions that 21 you had in the summary, and we'll go from there. 22 I believe most of the arguments have been 23 made in the briefs by my attorney who is not here. 24 I believe the Confidential Settlement Agreement and 25 the recent Release Agreement, ten pages, goes over 26 why the money was paid and explains very well what 27 considerations I gave up to get the money, and also 28 what were important to the company to get from me in 4 1 order to pay my, what I term, future wages that they 2 paid me. 3 The lawyer representing me versus Deutsche 4 Post Global Mail, unfortunately, could not be here; 5 she passed away a few years ago from breast cancer. 6 But she had a saying that a settlement is something 7 neither side is happy with; we both give up 8 something and we both think we're 100 percent right. 9 When we reach that settlement, we 10 compromise and we use common sense, but we have to 11 compromise and give up a little bit of what we 12 believe. And that's kind of what I'm asking the 13 Franchise Tax Board and the Board of Equalization to 14 use a similar thing there and really look at it and 15 go with what -- what the two sides believed in 16 releasing these agreements. 17 I -- I thought I'd give you a quick context 18 of what our business is so you can understand it a 19 little bit. We're a private post office, so what we 20 do is we mail foreign postage, foreign -- using 21 catalogues, something like that, or packages. We 22 take them to the foreign country and post them 23 there. We play off the U.S. dollar. We give them 24 more certainly on -- certainty on delivery and -- 25 well, what everybody says, it's faster and cheaper 26 than the U.S. postal service. So that's what we do; 27 we compete against them. 28 I won't go into how Amazon worked; it was a 5 1 big account. I've been working on it since I was 2 Canada, at Canadian Post. My job for Canada Post in 3 the 90s, until I moved down here, until '98, was to 4 go into the United States, or foreign countries, and 5 get advertisers, cataloguers, to mail into Canada. 6 Not only did you get the mail, but then you would 7 also get the packages going in. 8 I used that for years in Canada. And when 9 I had a girlfriend, who then became my fiance and 10 now my wife, she lived in California, her company 11 knew of me. I was quite well-known in the United 12 States as I'd hand off business to them to get it to 13 Canada. 14 So I moved to the United States. I chose 15 California because that's where she lived. So I -- 16 I lived here. 17 I'd been into Amazon since '95 in Canada, 18 working that account. In fact, I still have my 19 original email explaining to my boss who this new 20 Internet thing company was, that sold books and 21 music. 22 So I'd been working on that a long time. I 23 never did take them to my second bedroom in my home 24 in Rescue, up the road here, for meetings. I always 25 met them in Seattle or in Frankfurt; we took them 26 there. We took them to different DC's, distribution 27 centers, around the United States. So that's how I 28 worked that account. 6 1 So, a little background there. 2 I wanted to go over some of the questions 3 the staff had of the Franchise Tax Board positions, 4 also I'd like to address those. 5 In the origin of Complaint Doctrine, we 6 address that in the briefs, but the underlying claim 7 determines the settlement when not allocated. 8 That's what the Franchise Tax Board is saying. 9 Certainly the settlement addresses claims, 10 but common sense should prevail in these. The 11 Franchise Tax Board uses this to try to have a 100 12 percent allocation to California source income of 13 this entire agreement, and I totally disagree with 14 that. 15 Included in this, or in their brief 16 actually, is only ten words, ten words that 17 says there's actually a second claim. 18 My claim against Deutsche Post Global Mail 19 certainly was for my kickers, that's it. They paid 20 me bonuses on all my accounts. They paid me 21 properly. The paid me properly on Amazon, on the 22 negotiated six-and-a-half percent. But it was the 23 bonus on Amazon that I was worried about because -- 24 I gave you a little graph there -- you could see how 25 Amazon was growing exponentially. We didn't know 26 exactly that in those days, but the trend was 27 certainly there and the thought was certainly there. 28 And with that trend line, my kickers on Amazon -- 7 1 and on all my other accounts, too -- but on Amazon 2 specifically, would have grown right along with 3 that. 4 So there was a lot of money in the future 5 to be made, and that's why I push this issue so 6 hard. 7 The two Complaints, mine for kickers and 8 theirs for paying me those kickers -- initially, 9 they paid them. And then they said that they paid 10 them incorrectly, and I knew they were incorrect so 11 they filed a Complaint against me for that. And 12 they also said I knew that their labor costs were 13 too low. 14 Amazon was a very labor-intensive -- much 15 more than moving a catalogue, they had to put boxes 16 into air containers. So it was much more 17 labor-intensive. 18 So their argument on their Complaint was, I 19 took the kickers even though I knew I signed an 20 agreement that only allowed kickers for my other 21 accounts, not Amazon, which I don't agree with. And 22 also, that I'd taken more money than I should 23 because they didn't correctly use the correct labor 24 costs in that. 25 They estimated I owed them about $124,000 26 when they filed. They estimated, from their 27 numbers, because they had all the numbers, that even 28 if they used my thought process and gave me the 8 1 kickers, they would owe me, worst case, $196,000. 2 So we were fairly close. But they said I owed them. 3 I said they owed me. So we had a -- certainly a 4 quantified dispute in wages there. 5 Now, when -- when we came to the 6 settlement, we had gone to a lot of mediations. 7 When we came to the Settlement Agreement, the last 8 time -- it was getting close to trial date, finally. 9 It was about three years in, or two years in, I 10 guess, from when I started the account. And there 11 was something different this time. I didn't even 12 want to go because they'd never come up with 13 anything near what I thought was reasonable. But my 14 lawyer talked me into going. 15 This time I came down, and part of the 16 package was I had to resign. Now, I guess it 17 shouldn't have been a surprise to me, but it was 18 because I was their top sales rep, by far. I'd just 19 signed a brand new account out of New York City, 20 Prime Media, that I had some of the titles because 21 they were ex-Peterson Publishing from LA. But 200 22 titles out of New York City that were starting in 23 January of 2005, and I didn't ever get paid on that. 24 But they -- they wanted me to resign and give up my 25 future earnings, basically, for a payment. 26 So we didn't quite see eye to eye on that 27 payment. We actually walked out of the mediation 28 and the clerk ran down the LA Superior Court 9 1 underground hallway, that big long hallway, and got 2 us and brought us back because they said they had 3 more. 4 So, we came to an agreement. At this time 5 I was still -- I was living in Washington. They 6 were still withholding California tax and there was 7 a little thing in the summary that was incorrect. 8 It said I hadn't tried to file my W-4 until we 9 reached the settlement. No, I tried to file my W-4 10 when I moved to Washington State, but there was an 11 order of Deutsche Post not to talk to me. I could 12 not contact human resources; they wouldn't return my 13 calls. And neither would payroll. So, I had 14 California tax continually withheld from me even 15 after I moved, in 2004, to California. 16 The settlement, under 2065 we had to come 17 to a payment for the undisputed wages in order to be 18 legal. I mean, I couldn't sign off my claims. I 19 couldn't sign off theirs unless we had undisputed 20 wages. That was explained to me in nauseam by my 21 attorney. It was explained by the judge when we 22 were there. 23 And I'd like to point you to Section 6 of 24 the Settlement Agreement where, in number 2, it 25 says: 26 "Under this agreement, he will be fully 27 and timely paid any wages that he alleges 28 to have been earned by him." 10 1 I was paid all the wages. We came to an 2 agreement. And, again, I thought they were a little 3 low, so I added $7500, which you'll see in here, for 4 my commissions for October. And we came to that 5 agreement. They didn't agree they owed it, but they 6 paid it. 7 So under number 2, I was fully and timely 8 paid; which, under 202, was within 72 hours of my 9 resignation. I was. I was paid on that Monday, 10 November the 5th, resigning on Friday, November the 11 2nd. 12 In number 3, and number -- number 3, 13 sentence three, I guess it is, in Section 6, it also 14 points to: 15 "The settlement payment constitutes 16 consideration to him in an amount that is 17 in addition to any amount to which he is 18 already entitled." 19 I hadn't earned this money yet, but I was 20 going to, and that's what we were talking about. 21 This was money I would earn. 22 Remember, I'm not a California State 23 resident at this time and hadn't been for months and 24 months. So this was money that I hadn't earned yet 25 but I would earn living in Washington State. 26 Even the legal ruling of the Franchise Tax 27 Board, legal ruling number 133 states: 28 "Amounts paid in cancellation of a 11 1 Personal Services Contract" -- and that's 2 what they're deeming this personal 3 services -- "have their source within 4 California when under the contract all of 5 the personal services must be rendered in 6 California." 7 None of these would be rendered in 8 California. I hadn't rendered services in months. 9 I had withholdings from California because they 10 wouldn't let me change my W-4. But none of these 11 services would be have been rendered in California. 12 Now, why would they pay these future wages? 13 What was in it for them? Well, there are three 14 things, and we'll go over that. They tied a lot of 15 restrictive covenants to this. This is what they 16 wanted me to do in order to get these payments. 17 You had some questions about the 18 non-compete versus a non-solicitation. Under 19 Business Code 16600, they can't give me a blanket 20 "non-compete." I've got to be able to make a 21 living. 22 Now, in California and Washington, that's a 23 different question. But in California, I understand 24 it to be that. 25 So, in the case of Loral Corp. -- you asked 26 for a case, so I did the best I can. Loral Corp. 27 versus Moyes, it's very poignant in that an employee 28 signed a Termination Agreement, promising all this, 12 1 and then went out and did his thing. 2 The courts ruled that while a non-compete 3 would not have been legal in California, a 4 non-solicitation that's fairly narrow may be held up 5 by an agreement and that. 6 And something else they did very curious 7 that you'll see in here, they gave somebody who's 8 resigning and leaving the company a customer list of 9 their entire customers. They gave it to me and 10 said, "Oh, by the way, here's" -- it was about that 11 thick, 4,000 names approximately, and they bought 12 everybody in the company. These are -- this is a 13 multi-billion-dollar company. It's the German 14 government post office. They bought DHL. They 15 bought everybody. 16 They gave me a list of these customers and 17 said, "By the way, here's all our customers and you 18 can't approach any of them, except the ones you 19 brought from Canada with you." And that was a few 20 customers in California, Prime Media that was 21 Peterson in New York; you can approach them. 22 I asked about Amazon. That was a definite 23 no. That was the one that they would not do. 24 So, not only did they give me the list, but 25 they made it clear under one of the provisions that, 26 by the way, you got that list, that's trade secret, 27 so if you use it, not a good thing. 28 So that's -- that's kind of how they got a 13 1 non-solicitation into a non-compete. And, you know, 2 I signed it. I was going to honor it anyway, so 3 there was not -- 4 The other restrictive covenants they 5 wanted, and I point to the number 11, because that's 6 the other really one that they pointed at, was 7 number 11: 8 "The confidentiality of the company 9 hereby represents, and Bentley hereby 10 acknowledges, that his compliance with the 11 provisions of paragraph 11" -- this 12 confidentiality one -- "is a fundamentally 13 important reason why the companies entered 14 into this agreement with Bentley, and that 15 any breach by Bentley of these provisions 16 would be a material fundamental breach of 17 this agreement and it goes to its essence." 18 Why would they want confidentiality to be 19 such a big deal? I'll go to that in a moment. 20 Other ones, they reinforce the trade secret 21 agreement in 12; the non-solicitation in 13, which 22 was a virtual non-compete; waive Section one -- 23 1542, I did, in 16; a nondisparagement in 17; 24 agreement to arbitration in 18; 22, a covenant not 25 to sue; and a covenant not to be re-employed ever by 26 this massive company in 23. 27 Now, why were these all so important? 28 Well, the non-compete was obvious; they were 14 1 negotiating with Amazon for a long-term deal. They 2 wanted me out of the picture. I was the one person 3 that Amazon had asked to be their rep for DHL, for 4 Global Mail, for the packages, for everything. 5 I worked hard for them. I was up there 6 every month in Seattle. I had Frankfurt on the 7 line. I had the CEO of the company answering to me 8 because this was such an important account. This 9 was almost 50 percent of the U.S. business. 10 So I was at their beck and call. I was in 11 Seattle more than you can believe and -- and they 12 wanted a lock on that Amazon account because they 13 knew I was the one person that could walk somebody 14 else in the door. So that was that one. 15 The confidentiality was another one. The 16 reason my kickers would have been so big is because 17 there was no cap in our contracts. For every 18 million dollars we sold over 12 months, we got a 19 half a percent kicker. 20 Well, Amazon being 12 million to start was 21 six percent on everything; and as it went up, those 22 kickers were going up. And that was on everything. 23 Every rep had that same contract. 24 So I was the only one that had anything 25 with -- I'll term it the skin -- big skin in the 26 game that would go after 'em because I was the only 27 one with that kind of revenue, with that kicker. 28 They could change the other rep's contracts pretty 15 1 simply without them saying anything because they had 2 two, three million dollars in revenues and it's not 3 going to affect them as much. 4 The other reps knew, also, that I was going 5 through some litigation and it had taken a long 6 time. So it probably scared them a little bit, too. 7 So, for me not to be able to tell them anything 8 about the case and to -- and to settle this case 9 without it becoming public and going to court, was a 10 big deal for them. And that's why the 11 confidentiality was such a big -- big essence of 12 this entire thing. It had gotten a little personal, 13 too, with a few people, so that was the third reason 14 they wanted me gone, that I can see. 15 So the final take-away is the Settlement 16 Agreement is, I believe, very clear, that they paid 17 me up to the time of my resignation. I was gone 18 from California then. I was paid future earnings 19 for my time when I would have been in Washington 20 doing it. I'm still in Washington. 21 If they want to use the origin claim, I 22 believe they should use both claims and look at both 23 claims and why people settled this. It wasn't just 24 all me. They -- they claim that they were owed 25 money as well. 26 The restricted covenants, the ones we went 27 over, I emphasized the ones that were a big deal to 28 them and it's reflected here in the Release 16 1 Agreement. 2 Franchise Tax Board says I have offered no 3 reasonable allocation of this. Well, my reasonable 4 allocation is, look at this, and it is allocated. 5 It's allocated to paying everything up to the date I 6 left and paying me for the covenants while I'm in 7 Washington State, and my future wages. I believe 8 that's what it is. 9 I've offered compromises because believe 10 me -- and, sorry, if I'm going long -- believe me, 11 if anybody knows the cost of attorneys, it's me. 12 And even here, I wanted to avoid having to do 13 attorneys, having to come before the Board, having 14 to do all of this because I knew how much one brief 15 costs. It's not cheap. I'm well over a hundred 16 thousand dollars just dealing with the Board of 17 Education (verbatim). 18 It's -- I've offered reasonable. Their 19 number was 196,000, using my premises at -- at the 20 point before we settled, when they filed suit. That 21 was about a year before settlement. They then cut 22 me off the Amazon account, and so I wouldn't pay -- 23 be paid the original six-and-a-half percent as well 24 as the kickers. 25 So, what I did was saying, well, I think 26 reasonable is two years of kickers is close to 27 $200,000. One year without the kickers and without 28 that you could add another 200,000. I was more than 17 1 willing to say, let's do $400,000. I think that's 2 reasonable from the time I was in California. And 3 that even includes time when I wasn't in California 4 to the point of -- of the resignation. And -- and 5 kind of fell on deaf ears. 6 So I think that's reasonable, but I'm 7 certainly willing to work with anybody on this. 8 MS. RICHMOND: Time's expired. 9 MR. BENTLEY: Okay. 10 MR. HORTON: Would you like to summarize? 11 MR. BENTLEY: Yeah, my summary is -- that 12 was kind of what it was. I want to do the 13 allocations. They're trying to source future wages 14 to California when my personal services would have 15 been done in Washington State. 16 They're asking you not to make an 17 allocation, but maybe do one. So I'm asking you if 18 you could take this under some kind of reasonable 19 common sense, that would be great. 20 And please look at my briefs again. I 21 think everything's in there. And the one case that 22 I cited, hopefully that satisfies what you were 23 looking for in the non-solicitation versus 24 non-compete area. 25 Thank you. 26 MR. HORTON: Thank you. 27 Members, let us go to the Department. The 28 Department has ten minutes to make their 18 1 presentation. We'd ask that you commence with your 2 introduction for the record. 3 MS. PAGE: Good afternoon, Mr. Chairman, 4 Members of the Board. I'm Natasha Page and this is 5 Fred Campbell-Craven; we represent the Franchise Tax 6 Board. 7 As you're aware, we're here on a 8 re-hearing. Your Board, in November 2013, sustained 9 the Franchise Tax Board in its assessment in this 10 matter. 11 Appellant has provided no new evidence, and 12 there is no error in law. 13 The reason that it is here is that he 14 asserts that your Board has a duty to make an 15 allocation of the income he received as a result of 16 the settlement he entered into with his employer in 17 the years at issue. 18 The parties to the settlement prepared no 19 such allocation, and the Appellant has provided no 20 quantified allocation to the Board. But the 21 Appellant and the FTB agree that the income should 22 be sourced based on the purpose of the Settlement 23 Agreement. 24 The Appellant, in briefing, agrees that if 25 a Settlement Agreement is involved but lacks express 26 language regarding the claims that were settled, the 27 intent of the payor is critical to the 28 determination. 19 1 In June 2000, Appellant entered into an 2 Employment Agreement with his employer Deutsche 3 Postal Global Mail. He did a tremendous job as he 4 explained. 5 In March 2001, Appellant helped the company 6 secure a major two-year shipping contract with 7 Amazon and he became the exclusive contact for 8 Amazon. At this time his Employment Agreement was 9 amended with respect to his commissions on the 10 Amazon account. But as early as July of 2001, the 11 company began to slow down its payment to Appellant 12 of his commissions. 13 In January 2002, Appellant started seeing 14 unusual charges against his commission and other 15 irregularities. His company was a bad actor. 16 Eventually, Appellant had to file his 17 Complaint with the California Labor Commissioner in 18 October 2002. This escalated the dispute, leading 19 to his removal from the Amazon account in or about 20 March 2003. 21 Around that time the company excluded him 22 from important negotiations with Amazon as it 23 secured its second year -- its second two-year 24 contract. 25 Appellant then filed a Civil Complaint in 26 April 2003, asserting ten causes of actions, all of 27 which stemmed from his employment, and many of which 28 specifically are with respect to his Amazon 20 1 commissions. 2 According to his lawsuit, Appellant at all 3 times was employed in California. If you will bear 4 with me, I would like to read his causes of action. 5 Unpaid wages: In his action he states that 6 he was owed a minimum of $996,000 in wages. 7 Breach of written contract: This was based 8 on his employment contract as of June 2000, Schedule 9 A of that contract, and the specific agreement 10 regarding Amazon. He states a minimum of $1 million 11 damages. 12 Breach of implied covenant of good faith 13 and fair dealing with respect to the company's 14 performance under employment contract: He state's a 15 minimum of $1 million damages. 16 Negligent misrepresentation, asserting that 17 the company did not perform its obligation under 18 Appellant's employment contract, including 19 improperly charging sorting costs, as he mentioned, 20 and improperly paying commissions and kickers after 21 the specific agreement regarding the Amazon account. 22 He states damages of a minimum of $1 million. 23 Conversion of unpaid commissions, underpaid 24 commissions, unpaid kickers and additional 25 reductions of commissions. As opposed to the 26 $196,000 that he mentioned to you today, his 27 Complaint says that he -- he averred to the 28 California court that he was owed a minimum of 21 1 200 -- I'm sorry, $2.25 million. 2 Fraud: In that the company intentionally, 3 wantonly and recklessly promised and misrepresented 4 to Appellant that he would be paid wages pursuant to 5 the employment contract, a minimum of $1 million 6 damages. 7 Accounting: He was due an accounting by 8 his -- to him as an employee for all commissionable 9 payments obtained by the -- by it as a result of his 10 skills, labors and accounts. 11 Constructive trust, with respect to the 12 monies held by the company as a result of its 13 misconduct under the employment contract. 14 Retaliation: After the Appellant filed a 15 complaint with the Labor Commission, he argued that 16 under the California Labor Code -- and he referenced 17 code sections 206.5 and 202 -- he argued that he had 18 suffered serious and significant financial and 19 economic harm to justify the awarding of exemplary 20 and punitive damages. 21 And finally, negligence per se under the 22 California Labor Code: The company filed a 23 cross-complaint regarding overpaid commissions on 24 the Amazon complaint -- account. Shortly after 25 filing of this lawsuit, the company terminated his 26 employment contract and made him an at-will employee 27 and prohibited him from any further contact with 28 Amazon. 22 1 At all times, Appellant worked for the 2 company in California where he was also a resident. 3 In August 2004, Appellant moved to 4 Washington and continued working for the company, 5 but not on any Amazon-related business. 6 In 2004, Appellant settled all of his 7 disputes and entered into a Settlement Agreement 8 which paid him $5.3 million. 9 He was allowed to take the Prime Media 10 account under the non-solicitation provision that he 11 mentioned he had just recently entered into a new 12 account -- or new business with. 13 This case is not about past wages or future 14 wages. This is about sourcing the proceeds of the 15 Settlement Agreement that arose in connection with 16 an employment relationship that occurred almost 17 entirely in California. It is about sourcing the 18 income from a settlement of a case which originated 19 at the California Labor Commission. 20 None of the ten causes of action were for 21 future wages. Even the non-solicitation provision 22 that is contained in the settlement agreement 23 concerns future wages. 24 Appellant would like your Board to overturn 25 your prior decision, and FTB's determination, with 26 no new evidence and no facts to support an 27 allocation of income. He based his allocation on 28 the third recital of the settlement and paragraph 13 23 1 of the settlement. 2 FTB based its allocation on the following 3 facts: 4 Although of the agreement contained a 5 non-solicitation provision, it is titled 6 "Confidential Settlement and Release Agreement." 7 In the recitals, it's clear that the 8 agreement was made in contemplation of the lawsuit 9 filed by Appellant and the cross-action filed by the 10 company and that the Solicitation Agreement was part 11 of the agreement. 12 The parties made no allocation in the 13 Settlement Agreement. However, we can deduce the 14 company's intent by reviewing the forms W-2, 15 reporting the wage income withheld in California 16 state income tax. 17 By the way, of the $5.3 million, the W-2 -- 18 the W-2s only reported to California $3.8 million. 19 So the NPA's only have taxed Mr. Bentley on 3.8 of 20 the $5.3 million. 21 We have the Complaint which clearly states 22 each of the ten causes of action which allows the 23 FTB to see that they arose in the course of 24 employment. Without a proper allocation by the 25 parties to the settlement, further quantification is 26 not available. 27 Although Appellant has asserted here that 28 the company said he was only due $196,000 in past 24 1 wages, maybe, in his Civil Complaint he declared 2 that he was owed a minimum of a million dollars in 3 underpaid or overpaid commissions and millions of 4 dollars in claims under the California Labor Code. 5 In another cause of action he averred to be 6 due $2.2 million in unpaid and underpaid 7 commissions, unpaid kickers, and additional 8 reductions of commissions. 9 The other cause of actions arising under 10 the California Labor Code are alleged to be in the 11 multi million dollar range. Therefore, FTB's 12 allocation is reasonable. 13 Paragraph 49 of the Civil Complaint sums up 14 Appellant's civil case. Deutsche's conduct alleged 15 herein thwarted Bentley's legitimate expectations to 16 receive the fruits of his labor. 17 Bentley performed his labor in California. 18 Absent evidence of an allocation by the parties to 19 each cause of action, your Board's decision should 20 stand. 21 Your Board is not required to provide an 22 allocation in this case. Your Board need only 23 determine whether Appellant has provided credible, 24 competent and relevant evidence showing that 25 Respondent's determination to source the entire 26 proceeds, as reported on the forms W-2, were in 27 error. 28 I'm happy to answer any questions. 25 1 ---oOo--- 2 MR. HORTON: Thank you very much. 3 On rebuttal, please. 4 MR. BENTLEY: We did have a lawsuit. I did 5 ask for a lot of money in different areas, I did. 6 When you have a lawsuit, you tend to be one 7 side, they tend to be the other. There is some 8 truth on both sides. 9 As I said in settlement, you have to give 10 up things you may believe is true, but may not be 11 inherently true. 12 I was on the hook for a lot of money to 13 relatives, to everybody, trying to stand up for my 14 rights with this. 15 Were those numbers all accounted? No. 16 Were they all -- did I believe some of them to be 17 true? Yes, I did. 18 But in the settlement that we reached, 19 where they would settle their claim and I will 20 settle my claim, we had to come to a meeting of the 21 minds of what this money was for. 22 If I thought those numbers were true, I 23 would have been crazy not to go to trial. I put 24 them down because it was an estimate of what I 25 thought they could add up to, certainly. 26 I did the best I could to reach a 27 settlement agreement with somebody who I didn't 28 think was being forthright, but I knew their 26 1 accounting was fairly accurate. I didn't have privy 2 to all of the numbers. But I made some estimates on 3 what I could get. 4 The W-2 wages were reported correctly, as 5 far as I know, per the accountants, per them. 6 They -- they came up with the allocation. 7 I believe that the attorneys' fees should 8 be on 1099s and wages should be on W-2s. That's how 9 I understood it. 10 Again I'm Canadian, I did the best I could. 11 And I believe what I did was -- was correct. 12 The money that we resolved was a meeting of 13 the minds. We came to a meeting that we would pay 14 you up to this point, and if you do these other 15 things, we'll pay you this much. 16 We can't try that case. I -- believe me, I 17 would love to, in my mind, go back and just do it. 18 But what we came up to in the settlement agreement 19 was something that we both agreed to, and is laid 20 out in the settlement agreement very plainly, I 21 believe. 22 I was employed, it says, in the State of 23 California for most of this time. At the 24 settlement, I wasn't. But the work I did, they 25 argue, when I was in California, all my personal 26 services were done in California. 27 I told you I went all over the place. I 28 was in Seattle. I never had Amazon come to my spare 27 1 bedroom in my house where I worked out of. 2 Then I moved to Washington, the same holds 3 true. If they say your personal services are where 4 you live, it's what they seem to be saying, then in 5 Washington my personal service is in Washington. 6 What they had me do for this settlement was 7 the covenants -- the restrictions on the covenants 8 to keep my mouth shut and we will give you this 9 money. 10 The amounts at trial were huge amounts. If 11 I thought that was reasonable, I would have went for 12 it. But what they offered and what we negotiated in 13 the settlement agreement, I believe, should -- 14 should govern what I pay in California tax. 15 We had a meeting of the minds. I was told 16 to do these certain things and I would be paid a 17 separate amount. 18 I did those things. I did not go after 19 Amazon. I did not do a lot of things that they 20 wanted to, and for that I was paid -- I was paid in 21 Washington state. I was not paid in California, to 22 not do those things. 23 In fact, I could come to California and 24 solicit accounts down here under that non solicit 25 agreement as for -- for the accounts were allowed. 26 Primea (sic) account, I was never given 27 that account, I was given the okay to go see them if 28 you want. 28 1 I wasn't working for anybody at the time. 2 It says I started my own company. I went to work 3 for a small guy to try to set up a company. That's 4 what I did. I wasn't hirable. I knew that going 5 into this. 6 It's a niche industry. Everybody knows 7 everybody. And for me to get a job in that industry 8 in a larger company, with all these restrictions, 9 was not going to happen. We came to a meeting of the 10 minds. We settled this for me doing something for 11 them and them doing something for me. 12 I believe this was settled while I was a 13 Washington state resident. I believe all of the 14 things they asked me to do was during the time I was 15 a Washington state resident. 16 And I believe this was -- the allocation is 17 in here very clearly, but again, I -- I said -- and 18 I said before -- what I thought could be a fair 19 allocation, if there needs to be one, was the one I 20 laid out earlier today for you. 21 Thank you. 22 MR. HORTON: Thank you very much. 23 Discussion? Member Ma. 24 MS. MA: Thank you, Mr. Bentley. 25 How much, on average, did you get paid 26 before you were terminated in 2004 -- an average -- 27 a base salary plus kickers? 28 MR. BENTLEY: I never got any base salary. 29 1 So, it was all commission plus kickers. 2 The commission was a base, and then the 3 kickers were the bonuses -- 4 MS. MA: Oh, I see. 5 MR. BENTLEY: -- on top on how many 6 millions you have done in the past 12 months. 7 MS. MA: I see. So, just on the Amazon 8 case, like how many years did you have the Amazon 9 account? 10 MR. BENTLEY: I had the account for two 11 full years. 12 MS. MA: And how much did you make on the 13 Amazon account? 14 MR. BENTLEY: Probably -- estimating, 15 starting off around 10,000 a month to 20,000 a 16 month, somewhere in that range. That was base 17 salary plus kickers. 18 It grew because the revenue -- as the 19 Amazon revenue came in, my 12-month revenue grew. 20 Therefore, my kicker went up. 21 MS. MA: So, that would be like 120,000 22 maybe -- 23 MR. BENTLEY: And then 240 the next year. 24 I never made over 300,000. 25 MS. MA: Okay. 26 MR. BENTLEY: And when I started there I 27 think they paid me a $52,000 salary and I made 28 $100,000. 30 1 MS. MA: Okay. Just on the Amazon, you 2 made probably 300,000 in two years? 3 MR. BENTLEY: Yeah, yeah, I would say that. 4 MS. MA: And your former employer, are they 5 still in business? 6 MR. BENTLEY: Oh, yeah. 7 MS. MA: And do they still have the Amazon 8 account? 9 MR. BENTLEY: As far as I know, they do. I 10 don't think they have it all 'cause Amazon's 11 starting their own shipping company, as Amazon 12 starts everything else. So -- 13 MS. MA: And, so, when you say you weren't 14 hirable after -- so, you couldn't go -- how many 15 competitors are in this market? 16 MR. BENTLEY: Well, there used to be a lot, 17 but how this market -- it used to be T and T was the 18 big player. And then they start seeing reps making 19 too much money and they laid off some sales reps. 20 Well, the sales reps can go start their own 21 company. So, it's like a big bang theory. They go 22 out and they start their own companies, as I have, 23 and then they start getting scooped up by another 24 postal administration that comes in. 25 The latest is the Belgian and the French. 26 They are buying everybody. At that time Deutsche 27 Post, in '98, had bought probably ten companies and 28 then they bought DHL, which is immensely bigger than 31 1 FedEx or UPS worldwide, huge. They're a multi 2 billion dollar company. So, they're still a player, 3 but they're starting to implode a bit on the mail 4 side and the international distribution. They still 5 own DHL, which does a lot of international courier. 6 But at that time DHL, or Deutsche Post, had bought 7 up pretty well most of the smaller companies. 8 FedEx and UPS were getting into the 9 industry, but they weren't there yet. They wanted 10 their express courier, this actually flies it there 11 and mails it. They didn't like that competition, 12 but they thought, "We better join it 'cause it's 13 going to kick our you-know-what," because it's about 14 30 percent of the cost, maybe a day to two slower. 15 So, there wasn't a lot for me to go to 16 then, especially when I had all these restrictions 17 on who I could go see for a few -- at least for six 18 months. But by then Amazon would have been locked 19 up. That was the big one. 20 MS. MA: So, part of your agreement -- 21 settlement agreement, was there a time period, six 22 months -- 23 MR. BENTLEY: Six months. 24 MS. MA: -- that you could not approach any 25 of the prior -- 26 MR. BENTLEY: 4,000 customers. 27 MS. MA: -- customers? 28 MR. BENTLEY: Yeah. 32 1 MS. MA: And then after the six months? 2 MR. BENTLEY: It was open game. But I was 3 not allowed -- I was supposed to shred or destroy 4 that list. So, I wasn't supposed to know any of it, 5 which made -- it was kind of goofy to me, but that's 6 what they said. And I guess they would use trade 7 secret on that 'cause I had a customer list. 8 But, yeah, after six months -- but, bear in 9 mind, the big granddaddy was Amazon, and it was six 10 months, that deal was done. 11 MS. MA: Okay. But then after six months 12 you could -- 13 MR. BENTLEY: I could go in. 14 MS. MA: -- in theory, go -- 15 MR. BENTLEY: I've been in Amazon since. 16 MS. MA: -- okay. 17 MR. BENTLEY: So, last year I went and saw 18 them. And I'm going to maybe consult a little bit 19 on them setting up their own distribution company. 20 That's why I know what they're doing. 21 MS. MA: Okay. That's it for now. 22 MR. HORTON: Thank you. 23 Member Stowers. 24 MS. STOWERS: I don't know where I want to 25 start. 26 Mr. Bentley, you're saying basically that 27 the settlement was really some past wages and some 28 future wages? 33 1 MR. BENTLEY: We settled on the resignation 2 date of everything up -- it's very clear in there -- 3 of everything up to that date, that I would settle 4 on and they would settle on. We said, okay, let's 5 just go from there. 6 And then after that -- for payments after 7 that, which is over above -- and it says that in the 8 Section 6, No. 3 -- these are payments over and 9 above anything owed me. That's -- 10 MS. STOWERS: Okay. 11 MR. BENTLEY: -- that's the two parts they 12 wanted. They wanted that for my silence and for not 13 going into Amazon with another company that might be 14 able to do it. 15 MS. STOWERS: Okay, sir. I just wanted to 16 make sure I understood your argument. 17 FTB, you gave us some figures on his 18 original complaint -- court action. What does that 19 total to be? 20 MS. PAGE: Because they're each different 21 claims, the 200 -- $2.25 million figure, for 22 example, is a conversion. That included unpaid, 23 underpaid commissions, plus kickers. So, that 24 included the 900 and 9600 thousand dollars that were 25 for unpaid wages. So, those two are combined. So, 26 it's only 2.25 million to include wages and 27 commissions. 28 But each of the other one million dollars 34 1 that I called out were for distinct causes of 2 action. 3 So, the court or a jury, presumably a jury, 4 could award a million dollars in damages for breach 5 of a written contract. It could award a million 6 dollars for breach of implied covenant, a million 7 for negligent representation. This is why the 8 employer was settling for such a high dollar. 9 MS. STOWERS: Okay. 10 MS. PAGE: I'm sorry, you asked me -- 11 MS. STOWERS: Yeah, I do want to see a 12 total. 13 MS. PAGE: -- and there's ten causes of 14 action, so -- 15 MR. CAMPBELL-CRAVEN: We've come up with 16 six and a quarter and some unspecified damages. 17 MS. STOWERS: That's what I kind of got to 18 as well. 19 Now I want to go to the settlement 20 agreement. I want to go to Section 4, and the 21 second to the last paragraph, 22 "It is agreed that part of the 23 consideration the company's providing to 24 Mr. Bentley under this agreement is the 25 satisfaction of all claimed (sic) made by 26 him, including for alleged past and future 27 lost wages." 28 First read on that, it kind of goes to your 35 1 argument, Mr. Bentley, that they were paying you for 2 past wages and future wages. But they also say, 3 "all claims." 4 And I asked myself, well, what do these 5 claims represent? 6 When I read further into the settlement 7 agreement, I go to Section 14. They list off the 8 claims, which happens to be the same claims that was 9 the cause of action in your court filing. 10 So, my reading on this is that -- excuse 11 me, consideration is for everything -- the claims 12 that you made in court, past wages and future wages. 13 And the claims you made in court was at 14 least 6.2 million. And you settled on 5.3. 15 If there's any legal authority -- authority 16 to do an allocation, that would be, in my opinion, 17 the basis to do an allocation. But I don't know if 18 we have authority to do an allocation when it's 19 silent within the settlement agreement. It's one 20 point. 21 And then the next point is this origin of 22 the claim doctrine. FTB, I think you cite two cases 23 and talk about the -- the Keller case, Keller Street 24 Development, and how does that case support your 25 position to go to the original version of the claim 26 to say that, one, we have taxable income, and does 27 this case give us authority to say this is 28 California-sourced income? 36 1 Or do we have to look to another statute or 2 case law to say it's California-sourced income? 3 MS. PAGE: In this case, actually, since 4 the causes of action are subsumed into this 5 agreement, we actually don't need to go lower into 6 this agreement. 7 But we -- the origin of claim doctrine in 8 Keller stand for this principle that you want to 9 look past just the word "settlement" and you want to 10 actually see what is the actual claim that's being 11 settled in order to find out its origin or its 12 source. 13 So, in -- in Keller -- I should be more 14 prepared -- I'm sorry, I have lost it. 15 MR. CAMPBELL-CRAVEN: Keller was actually a 16 characterization case, as I'm sure you're very well 17 aware. 18 However, federal law, as I'm sure you're 19 also very aware, has no -- it's not concerned with 20 sourcing issues. 21 So, our argument about the claim of right 22 doctrine is simply for the general legal principle 23 that if you're paid for something, try to figure out 24 what you're being paid for. Just look back. 25 And in this case it would be the underlying 26 lawsuit, that's why he was paid. That's why he 27 received the $5.3 million. 28 MS. STOWERS: Okay. And then if that's 37 1 accurate, do we -- do we then go to our statute to 2 see if it's sourced to California or not? 3 MS. PAGE: Yes. We are al -- we are always 4 obligated to look to our sourcing regulations and 5 statutes. 6 So, then we looked to these causes of 7 action and we see that employment agreement, 8 employment-type causes of action, we would look to 9 17 -- Regulation 17951-5, which is how we look to 10 compensation income of a nonresident, the source 11 based on where the employee performed the services. 12 So, Mr. Bentley performed his services here 13 in California. And that's where these causes of 14 action took place. And, so, that's where the 15 settlement income should be sourced. 16 MS. STOWERS: What about the consideration 17 for future wages? 18 They do identify -- describe it in the 19 agreement. 20 MS. PAGE: Consideration for future wages, 21 we would look to where he would have performed the 22 services. 23 There is -- there is a question. He did 24 move. There is a question as to where he would have 25 performed those services had this employment 26 agreement or employment relationship not spun out. 27 Would he have moved from Los Angeles? 28 MS. STOWERS: Okay. 38 1 MS. PAGE: Cannot predict that. And 2 there's no allocation. 3 MR. CAMPBELL-CRAVEN: There are some 4 unaccounted for funds on the W-2s also. We're not 5 sure where those were sourced to. 6 Those could have been the future 7 compensation discussed here. That's 200 -- $172,780 8 the employer did not source to California on the 9 W-2. 10 We just don't know. And that points to the 11 fundamental difficulty we have here. The part of 12 the legal principle is that in an agreement of this 13 type, the parties are to specify the allocation. 14 And if they don't, the only thing that we 15 can do is look to the intent of the payor, in this 16 case the former employer. And that's how the former 17 employer sourced it. 18 So, that's what we're left with -- the same 19 dilemma that you're facing right now. We have no 20 evidence of anything contrary to the underlying 21 lawsuit and what it says in the agreement. 22 MS. STOWERS: What was 170 figure again? 23 MR. CAMPBELL-CRAVEN: $172,780. 24 MS. PAGE: That figure is based on the -- 25 the agreement was for $5.3 million and the W-2 26 figures are only $3.8 million. 27 MS. MA: Attorney fees? 28 MS. PAGE: And that -- if you assume that 39 1 there was the attorneys' fees error, then it still 2 leaves a difference of $172,000 that was not sourced 3 to California or not reported on the W-2s. 4 So, the -- there is still $172,000 that the 5 company did not source to California, did not report 6 as W-2 income. 7 Does that mean that they were allocating 8 that to the non solicitation agreement? Were they 9 allocating that to future wages? 10 We don't know what that $172,000 is. Even 11 if they sent the money to the attorney, and even 12 though we did not include that in income, so, 13 Mr. Bentley has received the benefit of the 14 attorneys' fees not being sourced to him or taxed by 15 him, even, I don't think, at the federal level. 16 But even the $172,000 casts enough doubt to 17 make us believe that the employer may have had an 18 allocation in mind that made it allocating something 19 other than employment or wage income. 20 MS. STOWERS: Okay, thank you very much. 21 MR. HORTON: Member Runner. 22 MR. RUNNER: Let me go to the taxpayer 23 first. 24 What's -- I mean, what is the answer to the 25 172, the missing $172,000? 26 MR. BENTLEY: I think the only thing I can 27 come up with there is my payment as a portion of the 28 days I have since I left California, possibly. 40 1 MR. RUNNER: Okay. 2 MR. BENTLEY: I think they may have done it 3 that way. 4 It's the German post office, they didn't 5 realize a lot of things and -- 6 MR. RUNNER: Okay. 7 MR. BENTLEY: -- I think that might have 8 been what they -- what they did was allocate it. 9 MR. RUNNER: Okay, let me -- again, I -- 10 where I struggle with this is in the -- in the -- 11 you know, I get what the lawsuit is and what it says 12 in the lawsuit, okay. 13 MR. BENTLEY: Uh-huh. 14 MR. RUNNER: And I also get when you make a 15 -- when you create a lawsuit, you throw everything 16 against the wall. You know, you just are throwing 17 it all out there and you're, you know, trying to see 18 what sticks. 19 So, I have a hard time then attaching a 20 hard number to the settlement. Because it's -- 21 it's -- you know, if that was the intent, then it 22 could have been said. But that's what was said in 23 the settlement. 24 So, I have a hard time deciding that, well 25 now we can go ahead and apply this much to this much 26 and whatnot. 27 At the end of the day during the 28 discussions of settlement, somebody's light bulb 41 1 could go on and say, 2 "Hey, you know what, he said this in 3 the lawsuit, but, you know what, he has a 4 bigger -- he has a bigger threat to us in 5 regards to his relationship with this -- 6 with whoever, Amazon or whoever in the 7 future, than what he even -- he even is 8 aware of." 9 And, so, they begin to try to create then 10 what the settlement is. 11 And, so, that's why I am a bit -- you know, 12 this statement that says that this agreement is in 13 satisfaction for all claims made by him, including 14 for alleged past and future lost wages. Clearly, 15 the intent is to deal with future wages. 16 And I -- and if it was such a small number, 17 which is I think what I'm hearing from FTB, future 18 wages, no -- I am sorry, how much did you attribute 19 to future wages? 20 MS. PAGE: I have -- I cannot attribute 21 future wages. That's our whole position is that 22 there are no allocations made. 23 It actually is Appellants' position -- 24 MR. RUNNER: Well, no. Excuse me, I think 25 what you did say, I think you said that maybe that's 26 what the 172,000 is. 27 Is that -- did I hear that speculation? 28 MS PAGE: Well, it was actually Mr. Bentley 42 1 that was saying that the 106,000 -- 2 MR. RUNNER: Okay, okay. So, then -- okay, 3 well, let me start there then. 4 If the settlement says it's for future 5 wages, the FTB attributes nothing to future wages? 6 MS. PAGE: The FTB has no evidence to 7 allocate anything to anything. 8 MR. CAMPBELL-CRAVEN: Other than what is in 9 the agreement, as you're pointing out. 10 MS. PAGE: And we're saying that all of the 11 income has arisen under an employment relationship 12 and that employment relationship has occurred -- 13 MR. RUNNER: Do you -- 14 MS. PAGE: -- primarily in California. 15 MR. RUNNER: -- do you dispute that in 16 terms of where he lived, if there were future wages 17 engaged in this discussion that where he lived would 18 have not made those sourced to California? 19 MR. CAMPBELL-CRAVEN: No, that is 20 correct. 21 MS PAGE: Right, where you would perform 22 the services -- 23 MR. RUNNER: Right. 24 MS. PAGE: -- would be where you would 25 source them. 26 MR. RUNNER: So, how do you ignore -- I 27 mean, I get it that -- how do you just ignore the 28 part of the settlement that says future agreements 43 1 and say, "Well, we don't know what it is, so, we 2 just think it's all California-sourced income," even 3 though the agreement settle -- the settlement says 4 that some is for future. 5 And the taxpayer has come up with his 6 answer. May not -- it's a big number, you may not 7 like it and you may think it's too big, but then you 8 say, "Oh, no, we don't believe that number." 9 But you don't have a number of your own -- 10 for yourself. 11 MS. PAGE: We look at -- well, we have 12 balances. And we have asked the taxpayer to provide 13 evidence to support an allocation. 14 MR. RUNNER: Well, he has and you just 15 don't agree with it, right? 16 MS. PAGE: He has provided a settlement 17 offer of $400,000. 18 MR. RUNNER: No. Well -- but you've asked 19 him to show you how -- demonstrate what the income 20 is -- what he would believe would be done in 21 California and he's given you a number. 22 MS. PAGE: No. 23 MR. RUNNER: Oh, I thought, wasn't it -- 24 wasn't that the 400,000? 25 MS. PAGE: No. His $400,000 number is his 26 estimate of what the covenant -- or what he believes 27 that everything other than the non solicitation 28 portion is worth. 44 1 MR. CAMPBELL-CRAVEN: May I interject 2 something here? 3 Perhaps -- I believe Mr. Bentley may have 4 engaged in discussions with our settlement bureau. 5 MS. PAGE: Huh-uh. 6 MR. CAMPBELL-CRAVEN: No? 7 MS. PAGE: I'm sorry, I am not -- 8 MR. CAMPBELL-CRAVEN: Okay, my mistake. 9 MS. PAGE: -- I am not -- I have no idea 10 about settlement, I'm not talking about it. 11 MR. RUNNER: Right, right, correct. 12 MS. PAGE: I'm talking about in his 13 briefing, he -- he has -- 14 MR. RUNNER: Well, I guess -- here's -- 15 here's where -- 16 MS. PAGE: I would like to say -- 17 MR. RUNNER: -- here's where I'm 18 struggling, okay. 19 So, he's -- he's -- he has -- I think this 20 is right, Mr. Bentley, you've come up with a number 21 around $400,000 -- 22 MR. BENTLEY: Correct. 23 MR. RUNNER: -- that you believe is sourced 24 to California? 25 MR. BENTLEY: Correct. 26 MR. RUNNER: In the settlement agreement he 27 -- that says that it's for future -- past and future 28 settlement -- or wages. 45 1 He's telling you as the taxpayer, "I think 2 that 400 of it is for past." 3 All the rest of it is non solicitation, non 4 compete, and that's where it is. 5 MS. PAGE: Right. 6 MR. RUNNER: Okay. But you don't agree 7 with that? 8 MS. PAGE: I don't agree with that 9 because -- 10 MR. RUNNER: So, how much have you 11 attributed to his future wages? 12 MS. PAGE: I have looked at the settlement 13 agreement. I've seen the 9 hundred and 9600 14 thousand and the $2.2 million and I have said, I 15 don't know what it is, but it's not 400,000. 16 MR. RUNNER: Okay. But -- okay, but those 17 were -- those were part of his lawsuit, right? 18 MS. PAGE: Right. 19 MR. RUNNER: Those were just numbers thrown 20 -- I mean, those are part of a lawsuit? 21 MS. PAGE: But they're presented as facts 22 that will be -- 23 MR. RUNNER: Okay. Well, let me ask you 24 this, why didn't you -- then why didn't you land on 25 one of those numbers? 26 MS. PAGE: -- because that's only one of 27 the causes of action. 28 We have asked him to allocate the income. 46 1 And, so, we have -- 2 MR. RUNNER: He has allocated -- 3 MS. PAGE: -- but we have -- 4 MR. RUNNER: -- the income. You just don't 5 agree with it, right? 6 MS. PAGE: -- let me ask you -- I will tell 7 what we -- 8 MR. RUNNER: Okay. 9 MS. PAGE: -- what we -- 10 MR. RUNNER: Let me just -- let me clarify 11 that point. 12 He has given you his allocation for the -- 13 for the settlement, right? 14 MS. PAGE: He has, yes. 15 MR. RUNNER: Okay. You just don't agree 16 with it? 17 MS. PAGE: I am using the W-2s that were 18 provided by his employer. 19 ---oOo--- 20 21 22 23 24 25 26 27 28 47 1 ---oOo--- 2 MR. RUNNER: So, again, okay, so you don't 3 agree with it. You're just using the W-2, which is 4 out -- which is not consistent then with what the 5 Settlement Agreement is. 6 MS. PAGE: Right. 7 MR. RUNNER: So, is the Settlement 8 Agreement in error or the W-2s in error? 9 MS. PAGE: The W-2s -- FTB relies on 10 W-2s -- 11 MR. RUNNER: Okay. 12 MS. PAGE: -- every day. The W-2s are a 13 business record that we trust. And it shows the 14 intent of the payor, which is a standard of how we 15 look to, uh -- to, uh, interpret Settlement 16 Agreements. So that is our standard. 17 MR. RUNNER: And what's the explanation 18 from the taxpayer? Again, I -- this was a W-2 19 issued by a German company? 20 MR. BENTLEY: Correct. They're located in 21 Virginia. 22 MR. RUNNER: Oh. 23 MR. BENTLEY: Now Florida. 24 MR. RUNNER: Okay, okay. 25 MR. BENTLEY: So it's a subsidiary of -- 26 MR. RUNNER: So it's a subsidiary -- 27 MR. BENTLEY: -- Deutsche Post. 28 MR. RUNNER: -- that does business in 48 1 California -- or in the United States. 2 MR. BENTLEY: Do not future wages go on a 3 W-2, too? I -- I was just asking that. That's what 4 I was told, any wages would go on the W-2. So, past 5 and future, they'd have to allocate them, put them 6 on the W-2 with -- mixed with it, huh? 7 MR. RUNNER: Let me ask. Let me ask. Is 8 that -- I mean, it's an interesting statement. Just 9 because they showed in a W-2, why do we think that 10 that means they're sourced in California? 11 MR. CAMPBELL-CRAVEN: The legal standard, 12 again, is if the parties are to put the allocation 13 in the agreement and if they do not, then -- and 14 since that's the only evidence that we have, other 15 than the statements later, then the most important 16 factor is how the employer characterized those 17 amounts. 18 So we went to the W-2, and it's true that 19 the 5.3 million, or whatever it was, and the total 20 amount put on the W-2 do not match exactly. But the 21 vast lion's share of that is attributed to wages, 22 to -- to -- to personal service compensation 23 reportable on a W-2. And the W-2 is for services 24 rendered. 25 So I don't know the specific answer as to 26 whether -- 27 MR. RUNNER: Okay. I'm just trying to get 28 educated here in this process. 49 1 MR. CAMPBELL-CRAVEN: Yeah. 2 MR. RUNNER: The W-2 would only reflect 3 services rendered. If it was payment for future 4 employment, it would not -- it would not be reported 5 on a W-2? 6 MR. CAMPBELL-CRAVEN: That is my belief. I 7 don't want -- 8 MR. RUNNER: Let me ask -- 9 MR. CAMPBELL-CRAVEN: -- to mistake the 10 issue. 11 MR. RUNNER: I don't know. Let me just see 12 if anybody knows the answer to that. 13 MR. AMBROSE: We don't. We don't know how 14 they would treat that. 15 MR. RUNNER: So, in theory, they could put 16 future earnings on a W-2? 17 MR. AMBROSE: I would think -- well, I 18 mean, they're putting the -- the settlement proceeds 19 on the W-2. 20 MR. RUNNER: Uh-huh. 21 MR. AMBROSE: And -- yeah. 22 MR. RUNNER: And if part of settlement was 23 in -- was indeed future earnings -- 24 MR. AMBROSE: Sure. Yeah. 25 MR. RUNNER: -- it could show up on a 26 W-2. 27 MR. AMBROSE: Right. Right. But it 28 wouldn't otherwise break it out. I mean it 50 1 wouldn't -- it could be -- 2 MR. RUNNER: Right. 3 MR. AMBROSE: -- for, you know, settling 4 costs. 5 MR. RUNNER: Yeah. Yeah. You don't break 6 out what categories it would be in, but -- 7 MR. AMBROSE: Right. 8 MR. RUNNER: But the idea is you could 9 in -- I guess, we -- in talking through here, we're 10 at least understanding that maybe you could put 11 future earnings on a W-2, um -- 12 MR. CAMPBELL-CRAVEN: I'm just -- excuse 13 me, sir. 14 MR. RUNNER: Hang on. Yeah. Let me go to 15 the taxpayer again. 16 MR. BENTLEY: The earnings went on two 17 W-2s; one went in the following year, in 2005, well 18 after I was gone. 19 So there was, I think, three million or 20 something in that effect. 21 MR. RUNNER: Right. There were two 22 different payments. 23 MR. BENTLEY: In 2005. Now I was gone in 24 November of '04. So the second payment wasn't until 25 '05. Which, again, was, "If you do this, then we'll 26 give you the second payment." 27 MR. RUNNER: Mm-hmm. 28 MR. BENTLEY: So that's all in this 51 1 agreement as well. 2 What's the intent of the payor? The intent 3 of the payor was to get rid of me. 4 MR. RUNNER: Well, yeah. Let's go through 5 that for a minute. 6 So the intent -- the idea was you have 7 two -- well, tell me, why did they give it to you in 8 two payments? 9 MR. BENTLEY: They had that second -- the 10 age discrimination or something. Once that was paid 11 or signed off, then I could have the other part -- 12 MR. RUNNER: Okay. 13 MR. BENTLEY: -- of that. So they split 14 it. 15 MR. RUNNER: So you had certain 16 responsibilities you had to do in order to get the 17 rest of that payment. 18 MR. BENTLEY: Correct. And without that 19 sign-off, I don't get the $3 million or whatever it 20 was. 21 MR. RUNNER: Doesn't that speak to future 22 payment? Doesn't that speak then to future earnings 23 because he had to perform certain things in order to 24 get that next payment? I mean -- 25 Well, I mean I'll ask that rhetorically and 26 you don't have to answer. It seems to me that's the 27 case. 28 Let me ask you about the age discrimination 52 1 issue. The age discrimination issue, if -- if you 2 were -- if -- age discrimination payments can be 3 made both post and future. If he lived -- and if 4 that was part of the settlement and he lived in -- 5 and he lived in Washington, why would we believe 6 anything tied to an age discrimination would have -- 7 all be in past, when, indeed, it certainly could be 8 attributed to future earnings? 9 MS. PAGE: When you have a lawsuit for 10 things like fraud or a car accident, items like 11 that, or age discrimination -- 12 MR. RUNNER: Mm-hmm. 13 MS. PAGE: -- you usually look to the time 14 the lawsuit was filed. At that time Mr. Bentley was 15 a resident of California. He filed in California, 16 and at that time is when the age discrimination 17 would have taken place. So that would have been the 18 cause of action. 19 Now, in this case, age discrimination was 20 not included in his lawsuit. But the conversion 21 claims, the negligence, the fraud, all of those 22 things were included in his California lawsuit. 23 The age discrimination, however, was only 24 included in the Settlement Agreement. But those 25 type of inchoate personal rights would be sourced -- 26 MR. RUNNER: But the age discrimination 27 would take place in California, but the age 28 discrimination settlement could have future earnings 53 1 attached to it. And those future earnings, if he 2 lived in -- in Seattle, would not be 3 California-sourced. 4 MS. PAGE: We would not source an age 5 discrimination breach or an age discrimination claim 6 as personal services income. That would be -- 7 MR. RUNNER: Don't worry about the -- don't 8 go there. Don't worry about that. Just go to the 9 issue of age discrimination as a part of the 10 settlement. If it was truly age discrimination, age 11 discrimination for future earnings would be based 12 upon -- would not be California-sourced. They'd be 13 based upon where he lived. 14 MS. PAGE: Yes, they would be sourced to 15 where he lived. 16 MR. RUNNER: Okay. So, again, I don't want 17 to get that wrapped into the personal services. And 18 if part of the settlement then appears to be age 19 discrimination settlement, right? 20 MS. PAGE: One part, yes. 21 MR. RUNNER: Okay. So how much of the -- 22 how much of the settlement for future earnings on 23 age discrimination did the FTB feel that should be 24 included in his -- in his -- in his income out of 25 the State of California? 26 MS. PAGE: We have asked Appellant many 27 times for an allocation. 28 MR. RUNNER: He's -- okay. I guess I'm 54 1 frustrated because we're in circular 2 conversations. 3 MS. PAGE: I -- 4 MR. RUNNER: He's given you -- 5 MS. PAGE: We are equally frustrated. 6 MR. RUNNER: In my -- in my opinion, he's 7 given you his. You just don't like it and you think 8 it's different and you want more information. But I 9 don't know what more information he can give you. 10 So, again, I -- I mean I felt I had these 11 concerns when it was before us before, and nothing 12 much has changed that way. 13 I wish, quite frankly, that we had a more 14 firm number from FTB to help us understand the 15 California numbers. The only one that's coming up 16 with any numbers for the California source is 17 actually the taxpayer. 18 MS. PAGE: We have $3.8 million on a W-2, 19 on two W-2s. 20 MR. RUNNER: Okay. But, again, the W-2 21 could reflect future incomes that are not sourced 22 necessarily to California, correct? 23 MS. PAGE: Yes. Yes. 24 MR. RUNNER: Thank you. 25 MR. HORTON: Member -- 26 MS. MA: Yeah. It includes backpay awards, 27 bonus awards, severance pay, and cancellation of 28 your employment contract. So, all of those -- 55 1 MS. PAGE: Conversion. 2 MS. MA: -- are required to be -- 3 MR. HORTON: Members. 4 MS. PAGE: -- reported on a W-2, per the 5 IRS publication I just pulled up. 6 MR. HORTON: Member -- 7 MS. STOWERS: Can you say that again, Ms. 8 Ma? 9 MR. HORTON: -- Harkey. 10 MS. HARKEY: Go ahead. I'm sorry. 11 Okay. Well, thank you. I'm glad that 12 you're so swift with your little iPhone there. That 13 was -- that was very helpful to me because I was 14 trying to get through this, and I am not an expert 15 in this arena. 16 But what I -- I'm beginning to feel like a 17 real expert in is in litigation. And I would not 18 look to a lawsuit as a credence or, you know, to 19 provide any credence to what actually transpires. 20 This is what's, as I think we have seen, thrown 21 against the wall; you know, we're going to get this, 22 this, this and this. 23 So I -- I don't think we can source that. 24 What I see is we have, though, we do have 25 the Settlement Agreement. And I understand where 26 you've got the confusion and we've got the, uh -- 27 the confusion here. 28 What I see is that the tax -- the 56 1 California salary had been no more than 300,000, 2 generally speaking. And kickers, commissions range 3 between 128 and 200,000 per year, is what I have in 4 my notes. 5 MR. BENTLEY: That was included in the 6 300. 7 MS. HARKEY: Right, in the 300,000. 8 MR. BENTLEY: I had no salary. 9 MS. HARKEY: So that was all included. 10 The Settlement states that there was -- 11 excuse me. I've been circling and underlining and 12 trying to find something that had -- the Settlement 13 stated it was for 5.3 million. It was after you 14 moved to Washington, November 2004. And 3 million 15 was paid in December 2004, including -- which 16 included the 1.2 -- 1.280 -- 1,280,000 of attorney's 17 fees. So that was in the 3 million. 18 MR. BENTLEY: Um -- 19 MS. HARKEY: And 2.3 million was paid 20 January of 2005. 21 So, my question for the Franchise Tax Board 22 is the employer paid to resolve a compensation 23 dispute and also paid not to solicit. That's what I 24 get from the agreement that they signed. 25 MS. PAGE: Mm-hmm. 26 MS. HARKEY: He also waived any -- any 27 future claims to the litigation. 28 MS. PAGE: Mm-hmm. 57 1 MS. HARKEY: So that's a separate issue. 2 You waive all these claims and we're paying you for 3 this and this. 4 So, why -- if the non-solicitation period, 5 I believe, took place when the taxpayer was residing 6 in Washington, because he was already there, why 7 should that be sourced to California? 8 I know you've been through this. 9 MS. PAGE: It should -- it actually should 10 not be sourced to California. 11 MS. HARKEY: Okay. 12 MS. PAGE: It should be sourced to the 13 place where the non-performance would occur. 14 MS. HARKEY: Okay. Thank you. 15 Thank you. 16 So there were two cases, and I'm no 17 attorney either, but I did ask for a little review 18 on the Keller Street Development Company and Milhous 19 versus Franchise Tax Board. And I don't see that 20 they -- other than the general claim to be studied 21 is the claim that gave rise to the transaction, 22 that's just the general term. But the -- the case 23 was totally different. 24 It was a sale of brewery assets and -- 25 but -- but what I've got in my notes is that the 26 court determined that the sale of the brewery assets 27 was the origin of the claim, but ironically did not 28 even resolve that dispute on the basis -- on that 58 1 basis. Instead, the court ignored the origin of the 2 claim and concluded the payment was more like 3 interest or rent. So it was deemed taxable as 4 ordinary income. 5 So it doesn't -- what does that have to do 6 with this, I guess, is my question? 7 MS. PAGE: And -- and really the reason 8 we -- it's really a general principle, is that we -- 9 whenever we look to source anything -- because when 10 you have a non-resident, our jurisdiction is to 11 source -- or to tax only the income that ties back 12 to California, that has an origin or a source to 13 California. And that's why we look to these federal 14 cases that talk about origin of claim. Origin, 15 source, basically the same concept. So, when we 16 look at a Settlement Agreement, we look through it 17 to see what was settled. 18 As I mentioned to Ms. Stowers, in this case 19 it's all incorporated into the settlement document, 20 so it actually becomes moot. But that's really why 21 we talk about origin of claim, is that if it were, 22 for example, a lawsuit for a car accident, we would 23 look through to see what that cause of action was 24 because we wouldn't just -- 25 MS. HARKEY: That -- that litigation or 26 that -- that lawsuit wasn't really settled on 27 that. 28 MS. PAGE: Right. 59 1 MS. HARKEY: So it was a little bit 2 different. And so I understand the reach, but I'm 3 not seeing its -- 4 MS. PAGE: Right. It's not -- yes, it's 5 just a sourcing concept. 6 MS. HARKEY: Thank you. 7 MS. PAGE: Yes. 8 MS. HARKEY: Thank you. Okay. 9 So, and then we've also established that 10 the -- that, you know, anything paid not to solicit 11 in the future is not California-sourced income 12 because he was living in Washington. 13 MS. PAGE: He was not performing the 14 services. It's not based on his residence. 15 MS. HARKEY: Right. 16 MS. PAGE: It's based on where -- 17 MS. HARKEY: Not performing the services. 18 MS. PAGE: -- he would not perform the 19 serviceS. 20 MS. HARKEY: Okay, thank you. 21 MR. HORTON: Member Stowers. 22 MS. STOWERS: Just to follow up on the 23 non-solicitation, Mr. Bentley, are you saying that a 24 portion of the 5.3 was for non-solicitation? 25 MR. BENTLEY: It was one of the keys. 26 MS. STOWERS: It was one of the keys. 27 And -- 28 MR. BENTLEY: One of the keys, and the 60 1 confidentiality; I think, those were the two keys. 2 MS. STOWERS: That's -- that's how you're 3 reading the agreement? 4 MR. BENTLEY: Mm-hmm. 5 MS. STOWERS: Now when -- but they don't 6 list the non-solicitation when they talk about what 7 their -- what the consideration is for. They just 8 list claims, future and back wages. They don't say 9 claims, future, back wages and non-solicitation. 10 MR. BENTLEY: Their intent when they gave 11 me a list of 4,000 of the customers and said "You 12 can't go into any of these," I believe that was very 13 important to them. Because otherwise I'd think they 14 were crazy giving somebody leaving their company a 15 list of their clients. 16 MS. STOWERS: Franchise Tax Board, do you 17 agree that a portion of this 5.3 is for 18 non-solicitation? 19 MR. CAMPBELL-CRAVEN: It could be. 20 MS. PAGE: Yes. 21 MR. CAMPBELL-CRAVEN: We just don't know. 22 And the law says that if they don't provide for 23 allocation in the agreement, that we look to the 24 intent of the employer. And that's manifested in 25 the W-2, and that's what we did. 26 I -- I wish I could help more, but that's 27 what we're stuck with. 28 MS. STOWERS: So we look to the intent of 61 1 the employer. The employer put everything on a W-2 2 which makes -- at least FTB, say it's compensation 3 for personal services because that's how you report 4 personal services? 5 MR. CAMPBELL-CRAVEN: Well, they didn't put 6 everything on the W-2, but they put 7 three-point-something-million dollars. 8 MS. STOWERS: Million. 9 MR. CAMPBELL-CRAVEN: On the 5.3, yes. And 10 that's what we assessed tax on. 11 MS. STOWERS: Would, just hypothetical, if 12 we had a W-2 showing a portion of it being in 13 California and a portion of it being another 14 location or non-California, would we be here or 15 would you just be saying only the amount that the 16 employer -- I'm sorry, the company reported as -- 17 MR. CAMPBELL-CRAVEN: We would follow that 18 W-2. 19 MS. STOWERS: You would follow that W-2. 20 MR. CAMPBELL-CRAVEN: And if the taxpayer 21 didn't agree with that, then perhaps we would be 22 here, but -- 23 MS. STOWERS: Okay. Okay. 24 No more further questions. Thank you very 25 much. 26 MR. HORTON: Boy. I can see the, um -- the 27 dilemma that we face. I mean, hindsight is always 28 20/20. And unfortunately, when we're so far out 62 1 beyond hindsight and having to make a discuss -- 2 decision, we're faced with dealing with the reality 3 of what actually happened. 4 Question of the taxpayer. At any point 5 during this process, did you challenge the employer 6 to modify the Settlement Agreement to reflect what 7 you perceived to be the -- the intent of both 8 parties? 9 MR. BENTLEY: It's the first lawsuit I've 10 ever been in. I had a two-year-old at the time 11 who's now 13. I have three daughters now that have 12 only seen me do this, with lawyers and this. 13 My intent at that point, at that settlement 14 hearing, was to get this over with. It had been 15 since 2001 dealing with the employer, working there, 16 dealing with attorneys, being ostracized. I just 17 wanted out. 18 So when this came about, it was basically a 19 light at the end of the tunnel. Was I going to 20 delay this and say, "Well, let's work on the wording 21 now"? 22 My wife was stressed. I had little kids. 23 I had better things to do than fight my employer. 24 So did I -- I wanted this done. 25 So, in hindsight, I'd love to write a book 26 and say, "If you're going to sue, make sure you do 27 this, this, this." I know what to do now. And I'd 28 love to be able to say to you, "This much was this 63 1 and this much was that." 2 I truly believe they paid me up to the 3 point of resignation, and the rest I truly believe 4 was for me to keep my mouth shut, to go on my merry 5 way, and to stay the heck out of Amazon. That's 6 what was their intent in this whole thing. 7 I think it's very clear under Section 6 8 that it -- that's what they wanted. I know that's 9 how they sold it to Germany, that, "Hey, we'll get 10 him out of there. We'll make this money back 11 through Amazon, not problem, we'll lock him in." 12 That's where that money was going. I am 13 adamant that's what the payer -- because otherwise 14 why would they give me that kind of money free? 15 MR. HORTON: Here's another part of the 16 challenge, presuming that we're looking at the 17 origin of the claim and the intent of the parties as 18 reflected in the documents, the W-2, the employer 19 has said that this is California-source income and 20 that they're allocating a 1099 to the -- to the 21 attorney and they have this undescribed amount of 22 $172,000; that's what the employer's intent was. 23 The employer didn't really know that he was 24 going to leave California. So then the question 25 harkens back to the notion of future wages. And if 26 the Settlement Agreement gave some -- some weight to 27 this term, which my read on it was a little 28 confusing because they didn't have any -- it just 64 1 said "present, future wages." It didn't say 2 "present and future wages." It just said, you 3 know -- 4 So, it -- so they didn't have any 5 knowledge. So without that knowledge, they could 6 have very well presumed that we are allocating 7 this -- some of this forward, albeit a nominal 8 amount or -- strike that -- an amount. We are -- we 9 do intend to allocate some of this forward, and 10 we're going to reflect it on his W-2 as 11 California-based income because he lives here, as 12 far as we know. We're not making that decision. So 13 it could be an error on their part. 14 Given that that was the case, then during 15 that settlement process, hindsight being 20/20, 16 discussions could have very well been made that, 17 "I'm going to leave California. I see you have this 18 future wage percentage. We need to allocate that." 19 Did you know that you were going to -- you 20 were going to move out of California? 21 MR. BENTLEY: I was already gone for 22 months. 23 MR. HORTON: How many months? 24 MR. BENTLEY: Three and a half, I think. 25 MR. HORTON: You were out three and a half 26 months? 27 MR. BENTLEY: Yeah. 28 MR. HORTON: And when they say just the 65 1 wages alone, typically they don't -- they don't -- 2 there's no multiplier on the wages. The wage is 3 actual, real wages. And so for three months you 4 would have earned how much? 5 MR. BENTLEY: I'd say, at that time, 6 probably 30 to $50,000, something like that, 30,000, 7 50,000. 8 MR. HORTON: Why don't you add in bonuses? 9 MR. BENTLEY: That's all I have is 10 commission bonus. That's it. 11 MR. HORTON: I mean -- well, let me 12 rephrase that. During that period of time -- 13 Let's presume that you never left the 14 company. I believe it was your testimony that -- 15 that things were about to -- to -- with Amazon, at 16 that point it was about to blow up, that you 17 anticipated a -- a nice boost because the contract 18 with Amazon that you'd been negotiating was 19 appearing to be substantial or would have been 20 substantial in the future. Would that -- would that 21 increase, if it had occurred in that three-month 22 period of time, presumingly that it did, what would 23 have been your -- I can't recall the term -- kicker 24 or -- 25 MR. BENTLEY: Kicker. 26 MR. HORTON: Kicker. What would have been 27 your kicker plus your salary? 28 MR. BENTLEY: The kicker grew very slowly. 66 1 It was a -- it was a slow curve, because what they 2 did on the kicker was look back. So it's November, 3 they look back to the previous November, how much -- 4 how many millions did you sell? You got a half a 5 percent. 6 So as each month went by, it moved one 7 month. So if this was a million-and-a-half and it 8 was a million a year earlier, I wouldn't get any 9 extra kicker. 10 So it -- it grew slowly. But with the 11 Amazon revenue growing, it was speeding up. So it 12 might go from a million-and-a-half to $2 million to 13 two-and-a-half to 3 million. So I'm getting an 14 extra one half to -- one-and-a-half would be a huge 15 jump in a month. I wasn't being paid on Amazon -- 16 MR. HORTON: I mean -- I mean, so would you 17 say that during the negotiation period, all of this 18 growth was unknown and had you had an opportunity to 19 negotiate it, that you might have argued that your 20 future income would have been more than 50,000? 21 MR. BENTLEY: All my future income would 22 have been. 23 MR. HORTON: For that three-month period of 24 time. 25 MR. BENTLEY: For that three-month? It's 26 hard to say because it -- it's premised on the 27 previous 12 months. 28 So, my income at that time? No, that year 67 1 I probably made $130,000, $150,000 that year. I 2 wasn't being paid on Amazon that year, at the point 3 of this going. 4 MR. HORTON: Okay. 5 MR. RUNNER: I have a quick question. 6 MR. HORTON: Member Runner. 7 MR. RUNNER: Another item in the settlement 8 that I just kind of focused on that maybe somebody 9 can explain it because it seems to throw some 10 interesting thoughts into the W-2. And that is, the 11 line after "alleged past and future lost wages," the 12 next sentence says: 13 "The company understands that 14 Bentley -- that he will apply for refund 15 from the California Franchise Tax Board 16 based upon the belief that the company has 17 over-withheld California State taxes when 18 it makes up the W-2 payment and the second 19 payment to him." 20 What's the context of that? 21 MR. BENTLEY: That's when I was in this 22 agreement and I said, "Okay, you guys understand I 23 live in Washington State. You would not allow HR or 24 payroll to take my new W-4." 25 And the management goes, "What are you 26 talking about? Well, we're just going to give it to 27 California and you -- you get it back from them." 28 That's what they said. 68 1 And at that point I should have -- I should 2 have stopped. I should have said "no." 3 MR. RUNNER: So they -- okay, I'm trying -- 4 okay, let me go back to the State, Franchise Tax 5 Board. 6 Doesn't -- doesn't that acknowledge the 7 fact that the -- that in this agreement there was an 8 understanding that not all of that income would be 9 sourced to California by the guy -- by the people 10 who made the W-2? 11 MS. PAGE: Yes. We do recognize that there 12 is a tension or dispute, if you will, between them. 13 And -- but it doesn't change the fact that this is 14 still an employment dispute and we -- 15 MR. RUNNER: Well, the only reason I ask 16 that -- 17 MS. PAGE: The only evidence we have still 18 of the allocation is the W-2. 19 ---oOo--- 20 21 22 23 24 25 26 27 28 69 1 ---oOo--- 2 MR. RUNNER: Right, that's actually why I 3 asked the question. 4 So, the evidence you have is the W-2, but 5 the employer who gave the W-2 acknowledges the fact 6 that the W-2 is probably incorrect and that he'll go 7 ahead and seek the refund. 8 MS. PAGE: Right. I'll explain to you 9 exactly why that happened, not -- you know. 10 You know that we have withholding laws 11 and -- 12 MR. RUNNER: Right. 13 MS. PAGE: -- that employers can be held 14 responsible if we find out they didn't properly 15 withhold. So, they're covering their bases. 16 MR. RUNNER: Right. 17 MS. PAGE: The reason that we still hold -- 18 we still believe that this entire settlement 19 agreement, to the extent that we can allocate it, is 20 still due to the employment relationship. 21 MR. RUNNER: Okay, thank you. 22 MR. HORTON: Member Ma. 23 MS. MA: I have a question of Mr. Bentley. 24 The Franchise Tax Board earlier talked 25 about your civil complaint, the ten causes of action 26 against the employer back in April 2003. 27 And, so, the first one they mentioned was 28 unpaid wages. And they said that you had asked for 70 1 unpaid wages of 990,000. 2 What was that based on? Was that just a 3 number that you kind of threw out there? Was it 4 based on some actual belief that you were owed 5 990,000? 6 MR. BENTLEY: My best case scenario, that's 7 kind of the rough numbers drawn from their 8 commission statements they gave me. 9 I said, well, that's probably not right, I 10 don't believe you did the conversion of 11 international currency correct. I threw a whole 12 bunch in there just to get a good number to give 13 them. 14 So, was it all based on fact? No. But it 15 was -- was it something -- I go, this is the best I 16 can do, I think you owe me this much. 17 Like I said, we -- my attorney said to go 18 best case scenario on everything and throw 19 everything at them. 20 So, that's what I did. 21 MS. MA: Okay. 22 MR. BENTLEY: I didn't have the numbers. 23 They had the numbers. 24 MS. MA: But then the number you offered in 25 the -- in the settlement -- or now, is 440,000 26 for -- 27 MR. BENTLEY: Well, no, 400. 28 MS. MA: -- 400,000. 71 1 MR. BENTLEY: I said in the three years I 2 had Amazon, including the year I didn't have them -- 3 MS. MA: Okay. 4 MR. BENTLEY: -- I should have been paid 5 that. 6 I figure something in that -- off their 7 numbers that they gave me and said, your kickers, 8 when you were being paid the commission of 6 and a 9 half, your kickers went out to about 196. 10 The next year that you were talking about, 11 Chairman Horton, when I gave you the number 30,000, 12 I wasn't being paid anything on Amazon that year. 13 So, with that 196 for two years, I just 14 extrapolated. And, again, I didn't have their 15 numbers. 16 So, I just said, well, for that next year, 17 I'll take the two years combined, because I wasn't 18 being paid my base commission or the kickers. And 19 knowing that that would come up, I figured somewhere 20 in the range of 200,000 I would have made on Amazon 21 that year. 22 So, that's how I came up with the 200 that 23 year -- 196 from their numbers, the first two years 24 on kickers when I was paid the 6 and a half percent 25 commissions. 26 MS. MA: So, I'm just conflicted. 27 If I was going to allocate based on 28 everything we've heard, the back pay versus future 72 1 pay, why wouldn't I use your 990,000 that you had 2 requested or put in your complaint back in 2003 3 versus the number now, which is 400,000? 4 MR. BENTLEY: Because the agreement wasn't 5 anywhere near that. I didn't have the numbers. And 6 we came to an agreement on the numbers of payment up 7 to the resignation date. 8 MS. MA: What was that again? What was 9 that? 10 MR. BENTLEY: We came to an agreement on 11 the -- on what was earned and owed up to the 12 resignation date. I threw an extra $7500 on that 13 amount. 14 MS. MA: Okay. So, how much was that? 15 MR. BENTLEY: That was my regular pay 16 through that scale, so, it was about $12,000, 17 15,000, $20,000. 18 It wasn't -- it wasn't a lot of money. I 19 added $7500 to it because it was my previous month's 20 commissions. 21 We came to that. The rest of the money 22 that it says -- it talks about the rest of the money 23 in the settlement, the 5.3 million less the 24 attorneys' fees, which apparently we're not even 25 supposed to be talking about that, but I don't know. 26 But the money that's on the -- in this 27 agreement was money for after the resignation date. 28 And I believe that's very clear in here. 73 1 Money up to that was a different amount. 2 So, the money on here is totally different. 3 That may be where the discrepancy is on the 4 W-2. I allocated that money for the months I was in 5 California on my taxes of 2004. 6 So, I did allocate the money that I earned 7 in California that year, I forget what amount it 8 was. I didn't make a whole lot of money that year. 9 MR. HORTON: Member -- question of the 10 Department -- and I need you to refresh my memory. 11 But the settlement agreement, did it 12 provide for non solicitation? 13 MS. PAGE: Yes. 14 MR. HORTON: Did it allocate -- not the -- 15 not the claims, but in the actual settlement 16 agreement -- 17 MS. PAGE: Uh-huh. 18 MR. HORTON: -- did it allocate an amount 19 for non solicitation? 20 MS. PAGE: No. 21 MR. HORTON: But it said that there is some 22 value -- 23 MS. PAGE: Yes. 24 MR. HORTON: -- by including it? 25 By nature they wouldn't include a non -- 26 something that has no value in the settlement 27 agreement for risk that they'd come back and open it 28 back up and say, "Oops, what about this?" 74 1 MS. PAGE: Right. 2 MR. HORTON: So, in the other -- I mean, I 3 agree that the -- you know, it's -- most of this is 4 attributed to the employer's relationship and that's 5 what caused them or positioned him to have the 6 leverage from the onset -- the yeoman's job that was 7 done and the performance that was done and so 8 forth -- and so, I get that. I understand that. 9 The absence of a number, in and of itself, 10 is -- is not something -- not cause for us to 11 ignore. Even the taxpayer's failure to provide 12 documentation to support is not -- it's cause for 13 the Franchise Tax Board to totally rely on the 14 evidence, but not necessarily cause for us to not, 15 at least, attempt to try to come up with something. 16 The term of the non solicitation is six 17 months? 18 MS. PAGE: Right. 19 MR. HORTON: Of that six month period of 20 time, how long was the taxpayer in California or out 21 of California? 22 Or maybe I should ask the taxpayer? 23 MR. CAMPBELL-CRAVEN: He was in Washington 24 the whole time. 25 MR. HORTON: The whole time of the non 26 solicitation? 27 MR. CAMPBELL-CRAVEN: Yes. 28 MR. HORTON: And question of the taxpayer, 75 1 if you were soliciting on behalf of the company 2 aggressively, what do you think you would have 3 earned -- bonus, kickers and so forth? 4 MR. BENTLEY: The nature of this business, 5 I'm not really sure how to answer that question. 6 It's not like I'm selling a car or a house. 7 I don't get paid on selling that car. And it was 8 that much and I get a commission. That's not how it 9 works. 10 MR. HORTON: Well, you can imagine how -- I 11 can't come up with a number. 12 It's not -- it's not -- the challenge here 13 is not in the settlement agreement. 14 There is some value attributed to it. 15 Clearly, the origin, the genesis for a settlement is 16 the fact that value has been established, work has 17 been done. You have -- you have performed at a 18 level that you have value to the party that wants 19 you to terminate your relationship. 20 They also have the option of not 21 terminating your relationship and just 22 reassigning. 23 MR. BENTLEY: That's what I thought would 24 happen. 25 MR. HORTON: Or not terminating your 26 relationship and allow you -- and allow you to 27 continue to just work for the organization. 28 And any other settlement that would have 76 1 occurred because of age discrimination and so forth 2 would all be attributed to California. 3 So, they have the option of settling all of 4 those -- 5 MR. BENTLEY: Uh-huh. 6 MR. HORTON: -- and that revenue being 7 attributed to California, and then keeping you on 8 board, saying, "Well, stay on board." 9 MR. BENTLEY: I've always said, sir, that 10 if all things stayed the same and they gave me this 11 money, it would all be California, totally. 12 MR. HORTON: Can you answer the invert of 13 that then? 14 If all things stayed the same, they settled 15 all of your claims aside from -- and they said, 16 "Well, we'd like for you to stay with the company," 17 what would you have earned in that six month period 18 of time? 19 MR. BENTLEY: I have no way of knowing. I 20 would have made substantial money, I think, 300,000 21 maybe in that three months -- not $300,000, no, 22 maybe upwards of a hundred thousand. 23 But under 6-3 it clearly says the 24 settlement payment is for -- 25 "Constitutes consideration to him in an 26 amount that is in addition to any amount 27 which he is already entitled." 28 It says the entire settlement amount is 77 1 consideration to me for all the stuff I'm doing for 2 them in Washington State -- not soliciting, keeping 3 my mouth shut so there's no class action against 4 them by the other reps, because they want to keep 5 their -- their uncapped kickers and not have them in 6 their contracts. 7 There's a lot -- there was a lot of lot of 8 people that made quite a bit of money that refused 9 to sign any new agreement. They said, 10 ""We're not signing any new agreement 11 with a cap on our kickers. That's not how 12 we're working." 13 They were all waiting for this to end, to 14 see what happened with me. And I had to go away, 15 keep my mouth buttoned -- that was in there. 16 And under 6 it specifically says the 17 settlement payment is for me doing that, it's not 18 for something I sold in the past, it's not that. 19 "You go ahead and keep your mouth shut. 20 Don't touch Amazon for six months 'cause 21 we're going to sign them. You do all of 22 that, and this settlement payment is 23 yours." 24 I don't know how it can be more black and 25 white. I really don't. And I truly believe that. 26 I offered the compromise because I've 27 always known how much lawyers are, how much stress 28 it is, and how much -- if you're a lawyer, sorry -- 78 1 but how much negative stuff it is dealing with you 2 guys. 3 And then you get that bill at the end of 4 the month and you are just like -- so, I truly 5 believe the settlement payment, as 6-3 says, was 6 payment for me to do all those things so they could 7 get Amazon, tell Germany we're going to get all that 8 money back 'cause Todd's kickers and that would have 9 been this much, we'll get this back in one year, two 10 years, three years -- whatever it takes them. 11 MR. HORTON: I mean, it's hard to just -- I 12 mean, to speak to the belief of the Respondent, as 13 well as the taxpayer -- clearly two different tracks 14 here. 15 And, so, this -- I would imagine FTB is 16 still going to back to if you never were employed 17 with the -- with the company, you wouldn't have 18 gotten a settlement at all. That it's all based on 19 -- attributed back to that. So, you go back to this 20 whole circular conversation. 21 And then, you know, it's the issue of the 22 covenant not to compete. They really just don't 23 want you competing. 24 And that has -- traditionally, courts have 25 ruled that that's the place where the -- where the 26 employment was and so forth. 27 It is -- it is this notion of a future 28 income that they want to compensate you for, that if 79 1 there was a way to attribute a value -- the value 2 you've assigned to it is 100,000 to 300,000, 3 somewhere around there. Or I don't want to put 4 words in your mouth, but -- okay. 5 MS. HARKEY: Mr. Chair. 6 MR. HORTON: Member Harkey. 7 MS. HARKEY: Hi. I believe you said that 8 it was maybe 30,000, maybe 40,000 for that quarter? 9 MR. BENTLEY: Yeah, something like that. 10 MS. HARKEY: Right, okay. 11 Your salary would have been. 12 But you could have potentially earned 13 300,00 for that year, but not for that quarter? 14 MR. BENTLEY: Not for that quarter. 15 MS. HARKEY: That's, I think, where we're 16 going. 17 And the settlement agreement, since it does 18 state the future, that a covenant not to compete 19 doesn't mean just now, here and now, it means later 20 on. 21 So, I believe you were paid a healthy 22 portion of this income. And, as Mr. Runner pointed 23 out -- Senator Runner pointed out, the section in 24 the settlement agreement kind of lines it out for 25 us, that, in fact, if you were paid too much in 26 California, that was up to you to figure out and get 27 adjustments for. 28 So, I really -- a non solicitation for 80 1 services in the future has a future value. I don't 2 think they would have given you 5. something, $5.3 3 million had you not had a value. 4 I think you probably had a legitimate legal 5 case to fight, but, as you know, what's in there and 6 what you -- how you can be whittled away over time, 7 and the cost and expense to you -- it's much better 8 for you to settle. And they offered you a healthy 9 sum to settle. 10 So, that means you had value and you had 11 future value to them. 12 So, I don't know what more there is to say. 13 He was paid for future value. And I understand why 14 the FTB can't quantify it, but I do think that we up 15 here can make some kind of decision on the future 16 value and the appeal. 17 So, I want to thank you very much for 18 coming in. Litigation is a black hole. It's a very 19 negative experience. 20 And I want to thank you very much for 21 coming back in and talking to us about the 2004 and 22 2005 time frame. 23 Yes? 24 MR. BENTLEY: Can I burn all this stuff? 25 MS. HARKEY: No, don't burn a thing. 26 Please don't burn a thing. 27 Thank you. 28 MS. MA: Do I want to make a motion to take 81 1 it under submission? 2 MR. HORTON: Member -- 3 MS. STOWERS: I'm still -- 4 MR. HORTON: -- further discussion, 5 Members? 6 MS. STOWERS: While he's still here, I 7 think it's submission, but I'm just thinking about 8 what Ms. Harkey said about -- so, you're thinking 9 that the five of us can come up with assigning value 10 to all parts of the settlement agreement -- value 11 for the future wages, value for the non 12 solicitation, value for the past wages? 13 MS. HARKEY: No, I don't believe that's -- 14 I'm sorry, Member Stowers. 15 I don't believe that's how these documents 16 are drawn. They're just drawn, you get so much now. 17 You do this and you get so much later. And that's 18 what we've got. 19 And we've also got the statement in here 20 that if, in fact, some of the salary paid to 21 California -- or some of the income reported to 22 California was not California and it should be 23 sourced, I had the FTB tell me that future wages 24 were, in fact, not taxable in California if he 25 wasn't in California. 26 You know, all of these things were kind of 27 ignored in the analysis because the FTB didn't have 28 any solid -- let's say, solid evidence. 82 1 I believe we have discretion to use in this 2 settlement agreement -- that is actually pretty 3 clear -- as to when he got paid and what he got paid 4 and what it was for. And it was basically to be 5 quiet, go away and enjoy your life. 6 MS. STOWERS: Okay. 7 MS. HARKEY: So, I'm prepared to -- I'm 8 quite honestly prepared to make a motion to grant 9 the taxpayer's petition. 10 I don't know if I have a second on that, 11 but that's where I'm going with this. 12 MS. STOWERS: I will go with a substitute 13 motion to -- 14 MR. RUNNER: Hold on. 15 MR. HORTON: Whoa, whoa, whoa -- 16 MR. RUNNER: Hang on, hang on. 17 MR. HORTON: -- we're still under 18 discussion mode. 19 MR. RUNNER: I think -- my question is, I 20 think granting -- I think the taxpayers themselves 21 said $400,000 of it could be -- he believed was 22 sourced in California. 23 MR. BENTLEY: I said I'd compromise on 24 that. 25 MR. RUNNER: You'd compromise on that. 26 MR. BENTLEY: I thought -- I was willing to 27 compromise a year ago. 28 MR. RUNNER: So, I mean, I'd -- I'd be 83 1 willing to go ahead at that point to the $400,000. 2 MS. MA: I'd second that. 3 MR. RUNNER: So, I will -- I'll make a 4 motion to sort -- to source $400,000 to California 5 and grant the petition. 6 MS. HARKEY: You got a second? 7 MS. MA: I would second, Senator 8 Runner's -- 9 MR. HORTON: There's a motion by Member 10 Runner to -- the first motion by Member Harkey dies 11 without a second. 12 Second motion by Member Runner to grant in 13 favor of the Petitioner, to -- to determine that of 14 the total settlement amount, that only 400,000 is to 15 be allocated to California. 16 MR. AMBROSE: Point of clarification? 17 MR. HORTON: Second by Member Harkey. 18 Discussion? 19 Appeals. 20 MR. AMBROSE: There are two years at issue. 21 So, would this be allocated over both years or to 22 the first or to the second? 23 MR. HORTON: Member Runner? 24 MR. RUNNER: I would just split between the 25 two years. 26 MR. AMBROSE: Okay. 27 MR. HORTON: Okay. 28 MS. HARKEY: Yes. 84 1 MR. RUNNER: My motion would be -- my 2 assumption would be to split it over the two years. 3 MR. HORTON: Discussion, Members? 4 I -- I would have a bit of a pause by 5 virtue that the -- it's -- it's so challenging to 6 refute the intent of the parties at the time of the 7 settlement, when, in fact, that -- the documents and 8 the facts sort of reflect otherwise. 9 And, so, the subsequent allocation of the 10 dollar amounts have no real basis in fact, other 11 than an opinion. And, so, the facts before us say 12 something totally otherwise. 13 Clearly, there is some value assigned to 14 future wages. The value attributed to -- attributed 15 to income, personal income, negotiations and so 16 forth, all are reflected backwards instead of 17 forwards -- reflected back to the actions of the 18 party. 19 Going forward we're looking at the 20 settlement of -- of trying to provide some 21 compensation for wages that would have been 22 earned -- sort of like a -- when an employee leaves 23 a company, they decide to give them six months or a 24 year's severance pay, pretty much. 25 Which the evidence and the testimony seem 26 to imply that that was closer to the range of 27 100,000 to 300,000. 28 Anyway -- 85 1 MS. STOWERS: Mr. Chairman, I respect the 2 motion, but since it's mainly based on Mr. Bentley's 3 settlement offer of what he thought should be the 4 past wages, it seems to me that we're -- we're 5 walking into settlement. 6 And, if anything, that's something that 7 Mr. Bentley and the Franchise Tax Board should be 8 working out. 9 So, I do object to that motion 'cause I 10 think it's best to go back to the Franchise Tax 11 Board and get it resolved at settlement and not by 12 the Board. 13 MR. HORTON: The other -- the other 14 challenge we face, Members, is that we're setting 15 somewhat have a precedent in doing so, and that 16 subsequent actions can modify an actual document, 17 support documents, and so forth, where once a party 18 is made aware of their potential of tax liability, 19 you can come into the negotiations with the Board 20 and say, "Well, that $50 million should have been 21 attributed outside of California." 22 So, it leaves too much room for 23 manipulation when we disregard the -- from my 24 perspective -- the actual facts before us. 25 But that being the case, there's a motion 26 on the floor. 27 Motion by Member Runner, second by 28 Member -- 86 1 MS. HARKEY: Ma. 2 MR. HORTON: -- Ma. 3 Objection noted. 4 Ms. Richmond, please call the roll. 5 MS. RICHMOND: Mr. Horton. 6 MR. HORTON: No. 7 MS. RICHMOND: Ms. Harkey. 8 MS. HARKEY: Yes. 9 MS. RICHMOND: Mr. Runner. 10 MR. RUNNER: Aye. 11 MS. RICHMOND: Ms. Ma. 12 MS. MA: Aye. 13 MS. RICHMOND: Ms. Stowers. 14 MS. STOWERS: No. 15 MS. RICHMOND: Motion carries. 16 MR. HORTON: Thank you. 17 Thank you very much. The Board has ruled 18 in your favor, I believe. 19 MS. HARKEY: With 400,000. 20 ---oOo--- 21 22 23 24 25 26 27 28 87 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 April 28, 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 25 and 48 14 through 69 constitute a complete and accurate 15 transcription of the shorthand writing. 16 17 Dated: November 3, 2015 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL 22 Hearing Reporter 23 24 25 26 27 28 88 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 April 28, 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 26 through 47 and 70 14 through 87 constitute a complete and accurate 15 transcription of the shorthand writing. 16 17 Dated: November 4, 2015 18 19 20 ____________________________ 21 JULI PRICE JACKSON 22 Hearing Reporter 23 24 25 26 27 28 89