1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 SEPTEMBER 16, 2015 10 11 12 13 14 15 16 FINAL ACTIONS 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 the Staff: Jeff Angeja 18 Tax Counsel IV Legal Department 19 20 ---oOo--- 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 SEPTEMBER 16, 2015 4 ---oOo--- 5 MR. HORTON: Ms. Richmond. 6 MS. RICHMOND: Next are those items that 7 were taken under submission. 8 Our first matter is item B1 Ameristar 9 Casinos and Subsidiaries. 10 ---oOo--- 11 ITEM B1 12 AMERISTAR CASINOS, INC. and SUBSIDIARIES 13 NOS. 605227, 841016 14 ---oOo--- 15 MS. HARKEY: Item B1. Where am I? 16 MR. HORTON: B1. 17 MS. HARKEY: B1. I'll make a motion to 18 grant the taxpayer's appeal. 19 MR. RUNNER: Second. 20 MR. HORTON: Member Harkey moves to grant. 21 Second by Member Runner. 22 Discussion, Members? 23 MS. STOWERS: Yeah, just two comments. 24 The first one we had a discussion about the 25 local business taxes and whether or not those taxes 26 are deductible for California Franchise Tax 27 purposes. And I want the Members to know that I am 28 going to ask the Franchise Tax Board to do a legal 3 1 analysis on those taxes and -- and, if necessary, a 2 Chief Counsel ruling so that we have clarity. 3 With respect to the issue at hand -- I know 4 there's a motion and then there's a second -- and I 5 do oppose that motion because I see that as a tax 6 measured on income and the statute is clear that 7 when you have a tax measured on income, it's not 8 deductible for California Franchise Tax purposes. 9 I understand and respect their argument 10 that it's a privileged tax and the regulation seems 11 to indicate that a privileged tax is deductible, but 12 the controlling blow is going to be the statute, for 13 me. And if you have a privilege attached that's 14 based on income, based on statute, it won't be 15 deductible. 16 And I basically see it very similar to the 17 California Franchise Income Tax, which is a 18 privileged tax for the business of doing business in 19 California. If any other state had a franchise 20 income tax based -- measured on income, it would not 21 be deductible. So it's in the same vain. Tax is 22 measured on income, nondeductible for California 23 income tax purposes. 24 So I do object to the motion. 25 MR. HORTON: Okay. You know, I share those 26 concerns. I think the law is very, very clear; it's 27 not ambiguous at all. And the wagering is income, 28 tax on the wagering would be considered a tax on the 4 1 income of gross receipts and, therefore, 2 unfortunately we can't deduct it. 3 The challenges that are faced in addressing 4 the various different other taxes is a separate 5 issue that's not relative to these -- to the facts 6 in this case and, therefore, fully null. 7 There's a motion and a second. 8 Objection noted. 9 Further discussion, Members? 10 With -- 11 Ms. Richmond, please call the roll. 12 MS. RICHMOND: Mr. Horton. 13 MR. HORTON: No. 14 MS. RICHMOND: Ms. Harkey. 15 MS. HARKEY: Aye. 16 MS. RICHMOND: Mr. Runner. 17 MR. RUNNER: Aye. 18 MS. RICHMOND: Ms. Ma. 19 MS. MA: No. 20 MS. RICHMOND: Ms. Stowers. 21 MS. STOWERS: No. 22 MS. RICHMOND: Motion fails. 23 MR. HORTON: Ms. Richmond. 24 MS. RICHMOND: Motion fails. 25 MR. HORTON: No, next item. 26 MR. RUNNER: No, we got a -- 27 MS. STOWERS: Motion failed. 28 MR. HORTON: Oh. 5 1 MR. RUNNER: Motion failed. 2 MS. STOWERS: Move to sustain the Franchise 3 Tax Board. 4 MR. HORTON: Okay. Member Stowers moves to 5 sustain the Franchise Tax Board. Second by Member 6 Ma. 7 Without objection, Members -- 8 MS. HARKEY: Objection. 9 MR. RUNNER: Objection. 10 MR. HORTON: Objection noted. 11 Ms. Richmond please call -- 12 Discussion, Members? 13 MS. HARKEY: No. 14 MR. HORTON: Ms. Richmond, please call the 15 roll. 16 MS. RICHMOND: Mr. Horton. 17 MR. HORTON: Aye. 18 MS. RICHMOND: Ms. Harkey. 19 MS. HARKEY: No. 20 MS. RICHMOND: Mr. Runner. 21 MR. RUNNER: No. 22 MS. RICHMOND: Ms. Ma. 23 MS. MA: Aye. 24 MS. RICHMOND: Ms. Stowers. 25 MS. STOWERS: Aye. 26 MS. RICHMOND: Motion carries. 27 MR. HORTON: Process. 28 ---oOo--- 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7 1 MR. HORTON: Ms. Richmond, next matter. 2 MS. RICHMOND: Our next matter is B3 John 3 Nafeh and Ursula G. Burger Nafeh. 4 ---oOo--- 5 ITEM B3 6 JOHN NAFEH and URSULA G. BURGER NAFEH 7 NO. 785086 8 ---oOo--- 9 MR. HORTON: Is there a motion, Members? 10 Discussion, Members? 11 MS. STOWERS: Just comment. 12 MR. HORTON: Member Stowers. 13 MS. STOWERS: I know FTB gave three or four 14 different reasons on why they felt like it was not a 15 qualified trade or business, and I do follow some of 16 the comments of "How could you say that there's a 17 brokerage service when they did not have a brokerage 18 license?" I -- I do have a problem with that. 19 But I -- I do see that it was an 20 investment-type business. And the reason why I see 21 that is because their customers were basically 22 making investments when they were buying these 23 HedgeStreet contracts, and their customers were 24 doing -- buying selling or hedging for the purpose 25 of making a profit. And for that, I say that 26 HedgeStreet was not a qualified business for the 27 small business stock exclusion. 28 MR. HORTON: Yeah. You know, I would 8 1 concur. 2 MR. RUNNER: Is that a motion? 3 MS. STOWERS: Is that a motion? 4 MR. HORTON: Is there a motion? 5 MR. RUNNER: No, I didn't know if -- I was 6 asking if that was a motion. 7 MS. STOWERS: I was -- I was just giving 8 my -- 9 MR. RUNNER: Okay, okay. I got it. 10 MS. STOWERS: -- my thought process 11 here. 12 MR. HORTON: I would concur. I mean -- 13 but, you know, FTB wasn't all that clear in the 14 testimony. I mean I had to go to the briefings in 15 order to sort of extract that out and spend the 16 extra time and energy to -- to -- to read the 17 briefings to establish what the definition of an 18 investment is wherein you don't have to have a 19 license at all, it is a service. 20 And any time that there's an exchange of an 21 instrument, investment instrument, thereby is the 22 process. And the -- the skills and expertise of 23 the -- the appellant that established that and 24 received a patent for it and that -- that is what 25 develops and sets in motion the opportunity to 26 invest. 27 And relative to eBay, if eBay was to 28 participate in selling or providing opportunities 9 1 for individuals to exchange investment tools, then 2 it, too, would be subject to -- disqualified in this 3 case. 4 So, I just do wish the FTB had did a better 5 job clarifying that. 6 Member Harkey. 7 MS. HARKEY: Where I'm hitting a roadblock 8 is with the trust accounts and management of the 9 trust accounts. And whether or not the funds -- I 10 mean, they did manage trust accounts. They did have 11 monies for investment purposes. And so that's where 12 I -- I'm -- that was my one issue. 13 I think that it was a website and they 14 truly didn't interact, but it was -- the fact that 15 the money was on deposits, they controlled the trust 16 accounts, even though they go the fees, I kind of 17 think it was for investment purposes as well. 18 MR. HORTON: So we'll take that as a motion 19 from Member Stowers -- second by Member Harkey -- to 20 sustain the FTB. 21 Without objection, Members, such will be 22 the order. 23 ---oOo--- 24 25 26 27 28 10 1 MR. HORTON: Ms. Richmond. 2 MS. RICHMOND: Our last matter is C2 Alan 3 Levitz. 4 ---oOo--- 5 ITEM C2 6 ALAN LEVITZ 7 NO. 718640 8 ---oOo--- 9 MS. HARKEY: Okay. I've got a motion here 10 that I do believe that Mr. Levitz was the 11 responsible party. Where I'm having a problem is 12 that his ability to pay once they went into the -- 13 the liquidation thereof. 14 And so I would like to approve staff 15 recommendation but waive the prepayment penalty, the 16 late return penalty, and the cost recovery. I think 17 they did collect the taxes and they owed the taxes. 18 So that would be my motion. 19 MS. STOWERS: And that's saying that the 20 appellant that used the corporation had reasonable 21 cause for not -- 22 MS. HARKEY: He, in essence, was acting 23 for the corporation at that point. He was -- 24 MS. STOWERS: Okay. 25 MS. HARKEY: He was the responsible party. 26 And we're going -- we're dueling the individual as 27 the responsible party and he was the responsible 28 party for the corporation. 11 1 Now, I don't believe that he -- he 2 purposefully did not pay. I do believe he probably 3 got poor legal advice, but I do think he's 4 responsible for the taxes. They collected the 5 taxes. They're responsible for taxes and the 6 interest. But the penalties, I would be willing to 7 waive. 8 MS. STOWERS: Second. 9 MR. HORTON: Maybe a question of Appeals. 10 I -- I just need a clarity. 11 How do we distinguish the two, the 12 liability versus the penalty? I mean, if you're a 13 responsible party, any penalties associated, you're 14 also -- 15 And the other, I didn't really hear an 16 argument from the taxpayer -- 17 MR. ANGEJA: With regard to the 18 collection -- 19 MR. HORTON: -- or any facts presented to 20 the case. 21 MR. ANGEJA: For the collection cost 22 recovery fee? 23 MR. HORTON: Yeah. 24 MR. ANGEJA: There should have been -- 25 MR. HORTON: I mean I'd like to do it, 26 but -- 27 MR. ANGEJA: There should have been 28 evidence. 12 1 They get an individual notice that they've 2 got an outstanding liability, that they need to pay 3 within 90 days or enter into a payment plan. 4 There's no evidence or testimony or 5 argument as for the failure to keep it 6 outstanding -- for the failure to not pay it within 7 90 days or to not get into -- too many negatives -- 8 to not get into a payment plan. It remained 9 outstanding for more than 90 days without a payment 10 or a payment plan with no explanation for why. 11 So we haven't heard reasonable cause for 12 the CCRF, Collection of Cost Recovery Fee. Ms. 13 Harkey's motion does suggest a reasonable basis for 14 relieving the other penalties, which is the 15 bankruptcy, the liquidation and the inability to pay 16 those timely. That's as to the corporation. 17 So there's a difference between the 18 corporate penalties and the one penalty on the 19 individual. 20 MS. HARKEY: And what -- what -- break 21 those down for me then. What are -- what are the 22 penalties on the individual and what are the 23 penalties on the corporation? 24 MR. ANGEJA: There's only one on the 25 individual, which is the collection cost recovery 26 fee. And I believe it's late payment, and late 27 prepayment on the corporation. 28 MS. HARKEY: Okay. So the other one is 13 1 five -- $5,273. And then there's a late return fee 2 of 3,721. Who -- who pays for the corporation in 3 that case? Is -- is -- if he's the responsible 4 party, I thought he was -- 5 MR. HORTON: Liable? 6 MR. ANGEJA: Finding relief -- in order to 7 relieve it in this specific individual's case, 8 you're finding that the corporation had reasonable 9 cause to relieve. 10 So relieving the two penalties, other than 11 the CCRF, would relieve it here and as to the 12 corporation, although I don't know the status of our 13 collection with the corporation. But it relieves it 14 in both cases. 15 MS. HARKEY: Well, is there -- is there 16 still an existing corporation? 17 MR. ANGEJA: I -- I don't believe so. But 18 I've understood you to say how would we be relieving 19 it as to the corporation. Finding -- 20 MS. HARKEY: Right. I'll leave my motion, 21 and I think I've got a second for it. But I just 22 want to kind of discuss where this is all going. 23 And I think we're still looking to Mr. Levitz to 24 pay, ultimately, are we not? 25 MR. ANGEJA: Yes. But if you relieve the 26 two penalties as to the corporation, he would get 27 that refunded. 28 MS. HARKEY: Oh, refunded? 14 1 MR. ANGEJA: Because he's paid penalties 2 and interest -- penalties and tax in full. 3 MS. HARKEY: Oh. 4 MR. ANGEJA: So finding of relief would 5 give him relief of those two penalties. If you were 6 to find relief of the CCRF, it would relieve that as 7 well. 8 MR. HORTON: Would give the corporation -- 9 MS. HARKEY: Mm-hmm. 10 MR. ANGEJA: In this case he paid the tax. 11 He would get that money back. 12 MR. HORTON: Oh. 13 MR. ANGEJA: But it would reduce the amount 14 owed by the corporation which is probably an 15 academic exercise. 16 MS. HARKEY: Okay. Well, let me -- let me 17 withdraw my motion then, and I'll just approve staff 18 recommendation. 19 MS. STOWERS: Okay. Second. 20 MS. HARKEY: Sorry. 21 MS. MA: I didn't understand that 22 (inaudible). 23 MS. HARKEY: Are you okay? 24 MS. STOWERS: Okay? 25 MS. MA: Yeah. 26 MR. HORTON: Member Harkey moves to 27 approve -- 28 Member Harkey moves to approve staff 15 1 recommendation. Second by Member Stowers. 2 Without objection, Members, such will be 3 the order. 4 I just felt there's enough confusion with 5 all this to -- 6 MS. HARKEY: There was a lot of 7 confusion -- 8 MR. HORTON: Anyway. 9 MS. HARKEY: -- because the corporation 10 being involved. 11 ---oOo--- 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 16 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 September 16, 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 16 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: September 28, 2015 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL 22 Hearing Reporter 23 24 25 26 27 28 17