1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 MAY 28, 2015 10 11 12 13 14 15 FINAL ACTIONS 16 17 18 19 20 21 22 23 24 25 26 27 REPORTED BY: Kathleen Skidgel 28 CSR NO. 9039 1 1 P R E S E N T 2 3 For the Board Jerome E. Horton of Equalization: Chairman 4 5 Sen. George Runner (Ret.) Vice Chairman 6 7 Fiona Ma, CPA Member 8 9 Diane L. Harkey Member 10 11 Yvette Stowers Appearing for Betty T. 12 Yee, State Controller (per Government Code 13 Section 7.9) 14 Joann Richmond 15 Chief Board Proceedings 16 Division 17 For Staff: Randy Ferris 18 Chief Counsel Legal Department 19 Lou Ambrose 20 Tax Counsel IV Legal Department 21 Lisa Burke 22 Business Taxes Specialist III 23 Legal Department 24 25 ---oOo--- 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 MAY 28, 2015 4 ---oOo--- 5 MR. HORTON: Ms. Richmond. 6 MS. RICHMOND: Our next item is B6 Michael 7 J. Bills and Mary E. Bills. 8 ---oOo--- 9 B6 MICHAEL J. BILLS and MARY E. BILLS 10 NOS. 610028, 782397 11 ---oOo--- 12 MR. HORTON: Discussion, Members? 13 MS. STOWERS: Oh my goodness. 14 MS. HARKEY: Oh yeah. 15 MS. STOWERS: I have a comment. 16 MS. HARKEY: Okay. 17 MR. HORTON: Member Stowers. 18 MS. HARKEY: I want -- 19 Oh, go ahead. I'm sorry. 20 MS. STOWERS: Make your motion. 21 A very difficult case. I see that we have, 22 you know, two issues: Whether they changed their 23 residency, domicile, on January, January 2005 or 24 April 23rd, 2005; and I also see the second issue 25 being the -- the sourcing and whether or not it was 26 a 736(b) payment, and if it's 736(b), if it's -- if 27 it's California source income. 28 With respect to the residency issue, it is 3 1 troubling for me that they gave the appearance of 2 leaving California. The fact that they registered 3 three cars in Washington but those cars were not in 4 that State, is troubling to me. The fact that they 5 were only there for seven days and then returned to 6 their California property, and, yes, they did do 7 trips from Calif -- most important fact, yes, they 8 did stay there and they did -- and they traveled -- 9 they used California as their home base for their 10 various trips and returned back to California on 11 multiple occasions. 12 And reading their -- the letters that they 13 were writing to the Franchise Tax Board, in 14 Mr. Bills' handwriting, I -- I -- reading those 15 letters, I was getting the impression that, yes, 16 they were making plans to move out of California and 17 their trip to -- to Washington State in January was 18 part of that plan. They were setting up that 19 household, but they hadn't completed that. They had 20 not moved there yet. And, in my opinion, their 21 intent was to be there permanently without any 22 intention of returning to California in April of 23 2005. 24 That's how I see that issue. 25 As far as the sourcing issue and the back 26 and forth, I think it's a 730(c)(b) -- 736(b) 27 income. And I have a hard time saying that it has a 28 California source. So I would say that we separate 4 1 the two and have two separate motions. 2 MR. HORTON: Okay. 3 MS. HARKEY: I agree. 4 MR. HORTON: Okay. Then, Members, let's 5 take up the 736(b) as it relates to the intangible 6 item, also concluding that there's no business 7 situs -- I believe that's the motion -- 8 MS. STOWERS: Yes. 9 MR. HORTON: -- in California. 10 Is there a second? 11 MS. HARKEY: Second. 12 MR. HORTON: Second by Member Harkey. 13 Without objection, Members, such will be 14 the order. 15 Now let's take up the sourcing issue. It 16 appears that the issue is whether or not the -- 17 domicile issue -- my apologies -- the issues were 18 whether or not domicile occurred April 1st, 2005 19 versus some other date. Is that -- 20 MS. STOWERS: The motion would be that 21 domicile occurred April 23rd, so it would be to -- 22 MR. HORTON: April 23rd, 2005. 23 Is there a second? 24 I would second it for discussion because I 25 agree that that's the point in time that it appears 26 that it was established. 27 Discussion, Members? 28 MR. RUNNER: Yeah, I -- you know, let me 5 1 real quick. 2 I think my difficulty with the April 23rd 3 is that's an FTB decision as to when somebody moved. 4 You know, I -- I -- I think the taxpayer 5 clearly had a plan and an understanding. They went 6 out and then their intent was to clearly move and 7 change their domicile. They did a series of things 8 to do it. 9 The fact that cars were left in California 10 is just not meaningful to me. The fact is these are 11 people of wealth; they can leave cars anywhere they 12 want. 13 And so I -- I'm -- I would tend to, again, 14 feel like the taxpayer had a plan, they were 15 carrying out that plan. Actually, I thought the 16 best argument that the taxpayer made is, hey, 17 California was planning on being our vacation home 18 starting in -- starting in -- what is it, the, uh -- 19 January 10th and that's our vacation home. And, 20 guess what? The weather in the San Juan Islands 21 isn't very good in January and February, so we 22 vacationed our home in California during that time, 23 along with our movement of areas. 24 So I -- I'm going to be supporting the 25 taxpayer's position of the January 10th. 26 MR. HORTON: Yeah, my -- 27 MS. HARKEY: Substitute motion. 28 MR. HORTON: My -- my thoughts, Mr. Runner, 6 1 is that it wasn't the car that sort of got me. It 2 was more or less all of the variables relative to 3 the Braggs test that seemed to imply that clearly 4 the intent was established that the intent at some 5 point is to relocate outside of California. 6 They established that in a number of 7 different ways. But in looking at the preponderance 8 of the evidence and the actions that were taken 9 relative, registering to vote and still 10 participating here in California, participating by 11 virtue of returning for a period of time, actually 12 accommodating previous decisions to fly outside of 13 California, which is the establishment of a 14 presence, a convenience that California provided for 15 the taxpayer. 16 So when there is a point of convenience, a 17 point of action in California, there is activity 18 that occurs in California that establishes a 19 presence here. And when that presence is 20 established, a responsibility to -- to pay your fair 21 share of taxes as it relates to other California 22 activities, they seem to have established that -- 23 that they finalized their move. They had the intent 24 to do it and they took all the actions, preliminary 25 actions that were taken between that period of time. 26 They finalized it and they left around that date, 27 which seems -- 28 I can't recall the testimony of the 7 1 appellant. But I don't recall there being a whole 2 lot of testimony as to whether or not that date was 3 or was not. 4 But that's my thoughts on that. 5 MR. RUNNER: Well, I'll put a substitute 6 motion in to go ahead and grant -- 7 MR. HORTON: Mr. Runner makes a substitute 8 motion to. 9 MR. RUNNER: Grant and find that the -- 10 MR. HORTON: Grant. 11 MR. RUNNER: -- residency date was -- is it 12 January 10th? Is that right? 13 MR. AMBROSE: Yes, Mr. Runner. 14 MR. RUNNER: Okay. 15 MR. AMBROSE: They left California January 16 10th. 17 MR. RUNNER: And to grant -- grant for 18 taxpayer based upon the residency established 19 January 10th -- 20 MR. HORTON: January 10th. 21 MR. RUNNER: -- 2005. 22 MR. HORTON: Second -- 23 MS. MA: Second. 24 MR. HORTON: -- by Member Ma. 25 MS. STOWERS: Object. 26 MR. HORTON: Objection noted. 27 To the subsequent motion, Member -- 28 I mean, Ms. Richmond, please call the 8 1 roll. 2 MS. RICHMOND: Mr. Horton. 3 MR. HORTON: No. 4 MS. RICHMOND: Ms. Harkey. 5 MS. HARKEY: Aye. 6 MS. RICHMOND: Mr. Runner. 7 MR. RUNNER: Aye. 8 MS. RICHMOND: Ms. Ma. 9 MS. MA: Aye. 10 MS. RICHMOND: Ms. Stowers. 11 MS. STOWERS: No. 12 MS. RICHMOND: Motion carries. 13 MR. RUNNER: I have a follow-up question, I 14 think, to Chief Counsel, in regards to the issue. 15 Is this a Section 40 case? Correct? 16 Yeah, come on up. That'd be great. 17 MR. AMBROSE: Yes, it is. 18 MR. RUNNER: Yeah. Well -- yeah, whoever 19 wants to answer this. You guys could do it, too. 20 I'm sorry. 21 But my question -- my question is -- and, 22 again, the reason -- we have two paths to go with a 23 Section 40 case; one is to do a summary decision and 24 the other is to do one of greater precedential 25 decision, correct? 26 MR. FERRIS: Correct. 27 MR. RUNNER: Okay. Are there elements in 28 this case that you would believe that would be 9 1 helpful as a precedential decision? 2 MR. HORTON: Maybe to the first question of 3 bifurcating them. 4 MR. FERRIS: Certainly not on the residency 5 issue. 6 MR. AMBROSE: Right. 7 MR. FERRIS: That's so fact-intensive that 8 it wouldn't be helpful. 9 MR. RUNNER: Okay. How about on the second 10 portion of it? 11 MR. FERRIS: I would defer to -- 12 MR. AMBROSE: I -- I could see it being 13 helpful, yeah. I could see it being good 14 guidance. 15 MR. RUNNER: Okay. 16 MR. AMBROSE: And -- 17 MR. RUNNER: Clearly there was a 18 disagreement in FTB's view, that's why I'm -- you 19 know, in regards to the issue, right? 20 MR. AMBROSE: Right. Right. And it -- I 21 mean, I think, you know, there is case law or -- and 22 Board decisions that have held that, you know, 23 intangibles have situs, you know, at the -- at the 24 owner's domicile or, you know, where the owner is 25 resident. 26 But I don't know that we've had one -- and 27 I could be wrong, but I don't know that the Board 28 has issued a formal on these facts. 10 1 MR. RUNNER: Okay. 2 MR. AMBROSE: You know, a liquidation of a 3 partnership interest and -- 4 MR. RUNNER: So this could be potential 5 good future guidance? 6 MR. AMBROSE: I think so. 7 MR. RUNNER: So what would our -- what 8 would we need to do in order to -- now that we've -- 9 now that we've clearly made the decision, what would 10 be our decision now in regards to how to handle this 11 or would this come -- when we -- when this comes 12 back to us, is that when that would be addressed? 13 MR. FERRIS: Well, the default in our rules 14 for tax appeals is that, unless the Board directs 15 otherwise, staff prepares a summary decision. 16 MR. RUNNER: So would it -- 17 MR. FERRIS: Which is the 18 non precedential. 19 MR. RUNNER: So would a proper -- would a 20 proper follow-up motion at this point be to 21 deal with the sourcing issue as precedential? 22 MR. FERRIS: Yes. 23 MR. RUNNER: Or do we wait until we come 24 back? 25 MR. FERRIS: I mean, we've never done a 26 document that is partially precedential and 27 partially not. The courts do do that. 28 MR. RUNNER: Uh-huh. 11 1 MR. FERRIS: So I think that we could 2 probably do footnotes and things like that and make 3 that distinction clear. But -- 4 MS. HARKEY: I have a question. I have a 5 question. 6 MR. FERRIS: This is all part of that -- 7 that Section 40 -- 8 MR. RUNNER: Right, right. 9 MR. FERRIS: -- statute that's so wonderful 10 to us and presents all these conundrums. 11 MR. RUNNER: I don't want to say we're 12 fumbling through this, but at least we're trying to 13 get clarity. 14 MR. HORTON: Member Harkey -- just to make 15 sure that all the Members have their -- on the 16 floor. 17 MS. HARKEY: One of the problems we had 18 with my requesting a precedential hearing, as I 19 understand the last time, was that that gave the FTB 20 a chance to appeal it. And if we just go for the 21 summary, whatever, now and then when we get it back 22 we have the option to make it precedential; is that 23 true? 24 MR. FERRIS: Right. Again, the default 25 rules of -- for tax appeals, as they're written, is 26 if the Board's doing something precedential, the 27 Board doesn't decide the -- 28 MR. RUNNER: Right. 12 1 MR. FERRIS: -- case until it adopts the 2 opinion. 3 MR. RUNNER: Right. 4 MR. FERRIS: And so -- 5 MS. HARKEY: I would just, for the record, 6 I would rather we just -- 7 MR. RUNNER: Well, I want to -- I want to 8 ensure -- that's fine. But I want to ensure that we 9 have the ability then at that future date to create 10 the precedential decision in regards to the 11 sourcing. 12 MR. FERRIS: Right. So if you -- if you 13 decided the case today -- 14 MR. RUNNER: Right. 15 MR. FERRIS: -- and we came forward, back 16 to you with the summary decision and you decided 17 that certain sections of that opinion should be made 18 precedential, at that time you could -- you could do 19 that. 20 And then the downside of that for the 21 Franchise Tax Board is their time to -- to petition 22 for re-hearing will have expired before they see 23 what precedential guidance the Board is adopting. 24 So in a sense they're precluded from that 25 opportunity. 26 MR. RUNNER: Mm-hmm. So clearly then what 27 you would understand then at least that there's an 28 interest in this Board that a portion of this become 13 1 precedential, and that right now, because of the way 2 the decision was made, that it was a summary 3 decision, but there certainly is an interest in 4 regards to when that comes back to consider it as a 5 precedential. 6 MR. FERRIS: The Board would be free to do 7 that. 8 MR. RUNNER: Okay. Thank you. 9 I just want to make it clear. 10 MS. HARKEY: I know. 11 MR. HORTON: I would encourage our legal 12 staff to take a look at it, to make sure that we can 13 in fact bifurcate these issues. Because, to some 14 degree, they are integrated within themselves and -- 15 and, in addition, there are a number of case laws 16 that sort of reflect the -- the factual base 17 intensity of trying to make these determinations. 18 And so we may end up just repeating what, you know, 19 the Courts have already said and what the Board has 20 already said, and so there may be plenty of 21 precedential guidance out here. 22 The mere fact that the FTB doesn't 23 necessarily concur with appeal or this body, writing 24 it again is not going to establish it. But my 25 primary concern is with the bifurcating of the 26 issues in this case and sort of trying to figure out 27 a way to distinguish 'em and say this is 28 precedential and this is not, yet still when they 14 1 come together in one case we're -- you know, it's 2 not. 3 MR. RUNNER: Well, I think that's our 4 discussion we can have. 5 MR. FERRIS: Yeah. We would need to break 6 it into separate sections that were clearly 7 identified so that there would be no ambiguity. 8 MR. RUNNER: Could you prepare the summary 9 re -- response in that way? 10 MR. FERRIS: Yes, we will. 11 MR. RUNNER: Okay. 12 MR. HORTON: Okay. 13 MS. HARKEY: In good hands with Allstate. 14 MR. FERRIS: And -- and while I'm on 15 microphone, I, uh -- I expressed doubt as to 16 administrative settlement during a 30/30/30 period. 17 I think we found a solution that worked for the 18 taxpayer, but I have received confirmation that if 19 the Board in the future does a 30/30/30 on a 20 business taxes case, that the taxpayer can go into 21 administrative settlement during that period. 22 MR. HORTON: Oh, so I was right on both? 23 MR. FERRIS: You were right. I was 24 wrong. 25 MS. HARKEY: That's okay. Everybody's 26 happy. 27 MR. HORTON: I didn't need that. 28 MR. FERRIS: Actually, I said, "I believe." 15 1 I used hedging lawyer language. 2 MR. RUNNER: Good lawyer language. 3 MR. FERRIS: Yeah. 4 MR. HORTON: Thank you for your exceptional 5 job. Further -- much appreciated. But please, you 6 know, get back to the Members on that prior to it 7 coming back before us so that we're clear. 8 Thank you. 9 ---oOo--- 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 16 1 MR. HORTON: Ms. Richmond. 2 MS. RICHMOND: Our next item is C4 -- this 3 is a waived appearance -- Jasinder Pal Singh and 4 Charanjeev Singh. 5 ---oOo--- 6 C4 JASINDER PAL SINGH and CHARANJEEV SINGH 7 NO. 621322 (KH) 8 ---oOo--- 9 MR. HORTON: Mr. Runner moves to deny claim 10 for refund. Second by Member Stowers. 11 Without objection, Members, such will be 12 the order. 13 Ms. Richmond. 14 MS. BURKE: I'm sorry, Chairman Horton. 15 The Appeals Division had a revised recommendation in 16 this case. Did you want to hear that? 17 MR. HORTON: Member Ma moves to rescind the 18 motion. Second by Member Harkey. 19 Without objection, the motion's hereby 20 rescinded. 21 MS. HARKEY: Which one's this now? 22 MR. RUNNER: This is the one, the waived 23 appearance. 24 MS. RICHMOND: C4. 25 MS. HARKEY: Oh, C4. Okay. 26 MR. HORTON: Okay. Appeals. 27 MS. BURKE: We now recommend that the 28 amount of unreported taxable fuel sales be reduced 17 1 by $52,021 and that the tax, interest and penalty on 2 that amount be refunded. 3 MR. HORTON: We'll accept that as a motion 4 on behalf of Member Ma, second on Mr. Runner. 5 Without objection, such will be the order. 6 ---oOo--- 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 18 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 May 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 18 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: June 3, 2015 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL 22 Hearing Reporter 23 24 25 26 27 28 19