1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 NOVEMBER 18, 2015 10 11 SALES AND USE TAX APPEAL HEARING 12 APPEAL OF 13 PORT PETROLEUM, INC. 14 NOS. 474336, 551074 (AA) 15 AGAINST PROPOSED ASSESSMENT OF 16 SALES AND USE TAX 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 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 Equalization Staff: Jeff Angeja 17 Tax Counsel IV 18 For the Department: Andrew Kwee 19 Tax Counsel III 20 Lawrence Mendel Tax Counsel III 21 Kevin Hanks 22 Chief, Headquarters Operations Division 23 For Petitioner: Douglas Wallace 24 Taxpayer 25 Allen L. Thomas Attorney 26 Pat Gorman 27 Representative 28 ---oOo--- 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 NOVEMBER 18, 2015 4 ---oOo--- 5 MR. HORTON: Members, let us reconvene the 6 meeting of the Board of Equalization. 7 Ms. Richmond, what is our next matter? 8 MS. RICHMOND: Our next matter's item C6 9 Port Petroleum, Inc. 10 Please come forward. 11 MR. HORTON: Mr. Angeja, as the taxpayer 12 comes forward and settles in, would you please 13 introduce the issues in this case. 14 MR. ANGEJA: Mr. Chairman and Members, the 15 appeal before you presents three unresolved issues, 16 which are whether adjustments are warranted to the 17 amount of disallowed claimed prepayments of tax on 18 fuel sales, whether petitioner is entitled to relief 19 from the tax based on prior erroneous advice, and 20 whether further relief of interest is warranted. 21 MR. HORTON: As the taxpayer settles in, 22 please be advised that you'll have ten minutes to 23 make your presentation. We'd ask that you commence 24 with your introduction for the record. And we will 25 return and allow you five minutes on rebuttal. 26 At your convenience. 27 MR. WALLACE: My name is Douglas Wallace. 28 I'm president of Port Petroleum, Inc. 3 1 MS. GORMAN: Pat Gorman, bookkeeper for 2 Port Petroleum, Inc. 3 MR. THOMAS: And I'm Allen Thomas, 4 attorney. My office is in Long Beach, and I 5 represent Port Petroleum, Inc. 6 MR. HORTON: Welcome. 7 MR. THOMAS: Thank you, Mr. Chairman. 8 May I proceed? 9 MR. HORTON: Yes, please. 10 MR. THOMAS: Thank you. 11 Basically what -- what this hearing is 12 about is that Port Petroleum is seeking relief. 13 They're not seeking a refund of money other than the 14 refund of money that they're already owed that's 15 been held. But what they're seeking relief under is 16 a statute that allows them, when they rely upon 17 advice by the Board through an audit, to have 18 relief. And that statute has to be read in 19 conjunction with Regulation 1705. 20 And I believe that because there's been 21 numerous letters, decis- -- there's been three 22 decisions and recommendations, and with the exhibits 23 that we've submitted, the issue has been fully 24 briefed. But it, in essence, gets down to this: 25 The Regulation 1705 was enacted to 26 interpret, implement and make specific 6596 and to 27 promulgate in regulatory form existing Board 28 interpretations of 6596. 4 1 And so, there is a position that's been 2 asserted by the Department that basically the 3 statute covers and limits the taxpayer relief. And 4 I would submit to each of you that when that 5 regulation became effective in 1997, it was 6 published by the California Administrative Office. 7 I'm sure you all are familiar with the procedures. 8 And the Department at that time submitted it and 9 said that not only is it to interpret or implement, 10 but it's to promulgate regulatory form existing 11 Board interpretations of 6596. 12 And in the brief that was submitted by the 13 Department to all of you and in the summary that was 14 provided to you by the Department or the -- or for 15 your Board's summary, it references "interpret" and 16 "implement," but it doesn't go into the full aspects 17 of what the Department represented to the 18 administrative office at the time that that 19 regulation was published. 20 So it's our position that that regulation 21 does give the Board -- the Port Petroleum relief 22 because back in the 1994, 197 -- 1997 audit, which 23 audit involved not just a card fuel network gas 24 station, but it started off in the era when Port 25 Petroleum was only a fuel stop in the Long Beach 26 port and a mini-market. And what the Department is 27 trying to say is, "Oh, well, if we go back 20-some 28 years, we can somehow say that in fact everything 5 1 was done correctly at the time. So even if this 2 regulation applies, there wasn't bad advice given 3 because you guys did those forms correctly." 4 And I would submit to each of you that the 5 audit in 1994 and 1997 was not done in an era when 6 Port Petroleum was entirely a cardlock network 7 station. So the methodology that was used during 8 that process would not have been because it was a 9 cardlock. It was a audit that was done based upon 10 the forms that were submitted at that time and even 11 in the -- in the -- for the audit and the SG form 12 that had -- there's a form -- and Pat Gorman can 13 better explain some of this detail than me -- that 14 some of the forms that the Department is relying 15 upon to say that all the mathematical calculations 16 show that everything was done correctly back then is 17 just not true. 18 We would also ask that you look 19 specifically at Exhibit 26 which deals with 20 Regulation 1705. And that was the notice of the 21 proposed regulation that it does -- at that time 22 we -- maybe somebody knew the history at that time, 23 but there's nothing in the record by the Department 24 that contradicts the fact that that regulation 25 interpreted, implemented and promulgated a 26 regulatory form existing Board interpretations. 27 And so a person is relieved the liability 28 for payment of sales tax, including penalties and 6 1 interest, if liability resolves from failure to make 2 a timely return or a payment or such failure was 3 found by the Board due to reasonable reliance on 4 written advice given by the Board in a prior audit. 5 That was a full audit and we've kind of 6 gone full circle through the original Decision and 7 Recommendation, the Supplemental Decision and 8 Recommendation, and the second Supplemental Decision 9 and Recommendation in terms of what that original 10 audit involved. But the fact is that that audit 11 resulted in the Board refunding 50-some-thousand 12 dollars to Port Petroleum for overstating taxes, so 13 they got a credit. 14 I would say, also, just in my own advocacy 15 for my client, why would the regulation include a 16 failure to make timely return or a payment if it was 17 already covered by Revenue and Taxation Code 6596? 18 In other words, obviously somebody in the Department 19 and the Board at that time wanted this regulation 20 enacted to explain 6596 and provide taxpayer relief 21 in this exact situation that has occurred where 22 there was an omission by the Department to find the 23 errors back in '94/'97 when that first audit took 24 place. 25 And then when the second audit took place, 26 based upon documents that Pat Gorman can testify to 27 were done exactly the same as the first time around, 28 and then when the second audit occurs and they find 7 1 that you owe money because you're not doing these 2 forms right, we don't understand on the methodology 3 how the Department could come to that conclusion. I 4 mean, I know what they're trying to say, but it's 5 just not true. 6 The other fact is that James Kuhl, in June 7 of 2009 -- and I apologize for not being able to 8 cite the exhibit number -- but he had to write a 9 memo to his auditors in 2006 exactly explaining how 10 to conduct an audit for a cardlock network system 11 such as Port Petroleum. 12 And I would submit that one of the issues 13 is also that the Schedule G form that instructs the 14 taxpayer on how to fill out the numbers to put on 15 the form, line 20, there's two issues on that: 16 One, if it was so obvious to the taxpayer, 17 why did Mr. Kuhl have to write a memo to explain to 18 the auditors how to do their audit in 2006? Why 19 didn't he just tell the auditors go re-read the 20 instructions? 21 And our second point is that the 22 instructions that were provided to the taxpayer were 23 representations by the Department, by the Board, 24 saying this is how you do the form. 25 And Pat Gorman followed the instructions 26 and procedures. And one of the interesting things 27 that the Department has conceded, I think, is the 28 fact that they can't find the instructions on these 8 1 forms predating, I think it's 2004. And if that's 2 the situation, then we don't know what those 3 instructions were on those forms in '94 to '97 that 4 were subject to that first audit. And the fact is 5 for the second audit, which is what we're before you 6 now involving, Pat Gorman prepared the forms exactly 7 the same and in conjunction with the instructions. 8 So what we're saying is, and what I find 9 remarkable that the Department would bring to the 10 Board and argue is, yes, the plain English rule 11 definitely applies to regulations; there's no 12 question about that. But what we've presented to 13 the Board, which I also find remarkable and I agree 14 that the Attorney General's opinion -- you have your 15 own set of lawyers and you can take it or leave it 16 what the Attorney General says. But in my 17 profession, the Attorney General opinion is given 18 some weight about what form should be -- how forms 19 should be written. And we've cited that Santa 20 Barbara case that basically says, when a form is 21 enacting a regulation which enacts basically a tax, 22 the form should be written in plain English. 23 And it's -- to me, I respectfully submit 24 that it's absurd to say that forms for taxpayers 25 should not be written in plain English so they can 26 do the form correctly and the State can get the tax 27 money. 28 So, for the Department to come in, in my 9 1 opinion, and say, somehow argue lawyering, lawyering 2 that the form, if it's confusing or isn't prepared 3 right because the instructions aren't adequate, 4 somehow doesn't have to be in plain English, I don't 5 think that is in the spirit of the law or is 6 consistent with the law. 7 I would also quickly move forward to the 8 relief from interest which is a huge part of the 9 delay that has occurred in this case from when -- 10 not just the audit occurred, which basically the 11 Department has now changed their position, I think 12 twice. First, they just gave interest during the 13 delay in the audit. Then they gave interest relief 14 during the time that the -- I believe the appeal was 15 being written. 16 But basically Jarrett Noble was the first 17 lawyer assigned to this matter. We went to the 18 appeals conference, August 29, 2012. And under the 19 Department regulations, they were supposed to 20 ultimately get that decision out in 90 days. And, 21 yes, I think I asked for a couple weeks; I think I 22 was in trial or something. I think they needed some 23 more time. But then this thing just kind of morphed 24 forward to here we are today, what, three years 25 later, three different -- or two, basically amended, 26 decisions. 27 And I appreciate the fact that maybe some 28 lawyers work slower than others. But the fact is 10 1 when it's been with the Appeals unit lawyers, this 2 thing took over two years to get us to this point. 3 And one of the delays that I think is ignored by the 4 other side is the fact that all I told the Board -- 5 or the Department at one point was that 6 Mr. Douglas's business, the Port of Long Beach 7 needed his space to put a pylon in for the new 8 bridge, so they took his business over by eminent 9 domain. And I was trying to urgently basically move 10 the thing forward. He wanted to close this matter 11 up. And they used that as another excuse to delay. 12 And I don't believe -- I've asked for 13 Public Record Requests to get internal memoranda 14 allowing for further extensions of time, and there 15 haven't been. 16 So what I'm saying on the interest relief 17 is the fact that I think there's 2700 days from 18 start to finish, and we're asking for relief of 19 1,144 of those days. So I don't know if that's 20 40-some percent or thereabouts. But I don't believe 21 the taxpayer should be penalized in the sense of 22 interest, and I realize it's not penalty, but the 23 delay -- if -- if I ask for an extension because of 24 holidays, Thanksgiving, Christmas, all this stuff 25 that's been used as an explanation for delay -- I 26 realize you all know this process and I realize you 27 deal with the organization on a daily basis. But 28 the taxpayer -- we tried to promptly respond to 11 1 everything. We tried to give every document that 2 was requested. We -- I acted as promptly as I 3 could. And I don't believe we got the same shake 4 from the Department. 5 And I'm not saying they're bad. I'm just 6 saying that's reality that they -- the Port 7 Petroleum should at least be given interest relieved 8 during the time that the appeal process, waiting for 9 these Decisions and Recommendations have been 10 written. 11 So, that's basically the two -- the three 12 issues are the original audit, misled the taxpayer 13 to do the form -- to continue to do the forms in the 14 wrong manner. The regulation allows for relief, and 15 if you don't agree and go with the Department 16 recommendation on those points, I would ask that you 17 give strong consideration to further interest relief 18 during the time that there's been these delays with 19 the Department lawyers writing these additional 20 briefs that really never changed their position. 21 Their position has been the same from day 22 one in terms of talking about the statute, not 23 giving relief, talking about the regulation, not 24 meaning what it says, and basically only giving 25 interest relief for the time that the auditor 26 delayed the audit, but not recognizing that they 27 themselves delayed unreasonably and affected the 28 taxpayer. 12 1 So I thank you for your consideration and 2 appreciate the opportunity today. 3 MR. HORTON: Thank you very much. 4 Members, let us go to the Department. 5 Department has ten minutes to make their 6 presentation. We'd ask that they commence with 7 their introduction for the record. 8 MR. KWEE: Good morning, Chairman Horton 9 and Members of the Board. I'm Andrew Kwee with the 10 Board's Legal Department. With me today is Larry 11 Mendel, also with Legal, and Kevin Hanks with the 12 Sales and Use Tax Department, and we will be 13 representing staff. 14 The amount at issue in this appeal consists 15 of $186,000 in sales tax prepayments that Petitioner 16 collected from its customers under its fuel 17 suppliers accounts and then deducted as credits on 18 Schedule G of its retail sales and use tax account. 19 I would like to start by clarifying 20 precisely what amounts were disallowed in the audit. 21 The title of the disallowed Schedule G credit is 22 "Sales Tax Prepaid to a Fuel Supplier." However, 23 the disallowed amounts at issue in this appeal do 24 not concern any amounts of sales tax prepayments 25 that Petitioner paid to a fuel supplier. 26 At the time of purchasing the fuel, yes, 27 Petitioner paid sales tax prepayments to its fuel 28 supplier. However, Petitioner claimed, received and 13 1 reallowed a credit for 100 percent of the sales tax 2 prepayments that Petitioner paid to its fuel 3 supplier on Schedule B of the returns filed under 4 Petitioner's fuel suppliers' accounts. 5 This is not at issue in appeal and this was 6 not disallowed. So I'm going to move on to what is 7 at issue. The issue is what happened next, what 8 happened when Petitioner sold the fuel. This 9 occurred later. 10 When Petitioner sold the fuel, Petitioner 11 collected prepaid sales tax from its customers on 12 resale transactions. The issue is that Petitioner 13 is statutorily required by Revenue and Taxation Code 14 Section 6480.1 subdivision (b)(2)(A) to remit these 15 amounts to the Board. 16 Instead, Petitioner claimed an additional 17 Schedule G credit under its retail sales and use tax 18 account, which is an entirely different account, for 19 the amounts of prepaid sales tax that Petitioner had 20 just collected from its customers under its fuel 21 suppliers' accounts. 22 The title of the Schedule G credit clearly 23 states what is creditable. The title is "Sales Tax 24 Prepaid to Fuel Suppliers." In other words, the 25 title of the credit is not "Sales Tax Collected from 26 a Fuel Supplier." 27 Further, the statute also provides that the 28 amount of sales tax prepayments paid by Petitioner's 14 1 customers shall constitute a credit against his or 2 her, that is the customers, sales and use taxes due 3 and payable for the period in which the sale is 4 made. 5 Therefore, there is no legal authority for 6 Petitioner to claim a credit for these amounts and 7 the statute provides that only Petitioner's 8 customers may claim a credit for these amounts. 9 Petitioner also claims relief under Revenue 10 and Taxation Code Section 6596 based on reliance on 11 a prior audit. Section 6596 is inapplicable for 12 multiple reasons: 13 First, the statute clearly provides that in 14 order for Section 6596 to apply, Petitioner must 15 either fail to charge or collect tax from its 16 customer or fail to pay use tax on Petitioner's 17 storage, use or consumption of tangible personal 18 property. Neither of these scenarios apply because 19 Petitioner actually collected all of the tax at 20 issue from its customers. Thus, we do not have 21 legal authority to grant 6596 relief. 22 Second, the prior audit correctly asserted 23 the liability. The Department has reconciled 24 Petitioner's accounts for the FBO audit period, and 25 the audit reconciliation schedule shows that, dollar 26 for dollar, Petitioner reported the correct amounts 27 on its amended returns and Petitioner did not claim 28 and was not allowed a Schedule G credit for any 15 1 prepaid sales tax collected from its customers. 2 This reconciled dollar for dollar with the 3 audited allowed Schedule G credits in the prior FBO 4 audit. Thus, the prior FBO audit was correct. 5 Further, the Department's reconciliation 6 schedule shows that we did not allow Petitioner any 7 Schedule G credits for prepaid sales tax collected 8 from its customers in the prior 1994 to 1997 audit 9 either. 10 Finally, the Department believes that 11 Petitioner knew how to correctly report the tax. 12 The evidence that we have demonstrates that 13 Petitioner had actual knowledge how to correctly 14 report its liability. Specifically, the Department 15 discussed the findings of the prior audit with 16 Petitioner at a meeting held on February 19th, 1998. 17 After the meeting to discuss the audit 18 findings with the with the Department on February 19 19th, Petitioner filed amended returns dated 20 February 19th, 1998 and February 20th, 1998, the 21 next day, for the remaining three quarters for the 22 reporting periods up to the date of the meeting. 23 These amended returns did not claim any 24 credit for any prepaid sales tax amounts that 25 Petitioner collected from its customers. The same 26 person who signed the amended returns also 27 represented Petitioner in the current and all the 28 prior audits. 16 1 In response, the Department conducted the 2 FBO audit for these last three quarters and 3 determined that Petitioner did in fact overclaim the 4 Schedule G credit and billed Petitioner 5 approximately $9,000 in tax for the erroneously 6 overclaimed Schedule G credits. 7 So, in essence, Petitioner is asking the 8 Board to refund sales tax prepayments made by 9 another taxpayer, and these amounts have already 10 been claimed and paid -- and credited to these other 11 customers, the persons from whom the tax was 12 collected. Therefore, we don't have authority to 13 grant 6596 relief and we request that the appeals be 14 denied pursuant to the Appeals Division's 15 recommendation. 16 Thank you, Chairman Horton. 17 MR. HORTON: Thank you very much. 18 On rebuttal, please. 19 MR. THOMAS: Thank you. 20 I think it's remarkable that there's no 21 further discussion about the Regulation 1725, but I 22 will move on -- or 1705. The fact is that the first 23 audit in 1994-1997 did not have all the documents 24 that were reviewed that the Department is now trying 25 to say shows something that they don't show. 26 I have a memoranda to Ms. Chinn who was the 27 first tax counsel that -- that took on this after 28 Jarrett Noble moved on. And it's from Kevin Hanks, 17 1 who you obviously all know. And it's a memo dated 2 February 10, 2014, and it's in my exhibit book 3 18034, 18035 and 18036. 4 And he wrote in there, in this memoranda to 5 Ms. Chinn, it says -- he's talking about these 6 1994-1997 documents. And he says, the only 7 available schedule from the prior audit is Schedule 8 R-21G4 titled G -- Schedule G sales tax paid to SG, 9 seller, summary of differences. This schedule shows 10 that there is a difference of $4,009 between claimed 11 sales tax prepayments to fuel suppliers of $455,584 12 and audited sales tax prepaid to fuel suppliers of 13 $4,559 -- or $459,564. 14 And then -- and continuing, he writes, 15 however, this schedule does not include any comments 16 explaining how the Petitioner computed claimed sales 17 tax prepayments or how the auditor established 18 audited sales tax prepayments. Thus, there is no 19 written evidence that the prior auditor examined the 20 issue of claimed sales tax prepayments. 21 That was in the era when the Department was 22 trying to say that we don't know what the '94-'97 23 audit involved. We had presented evidence that it 24 was a full audit. There was no mystery about what 25 business Port Petroleum was operating when the 26 auditors were at the facility. And everything was 27 available to come up with the fact in '94-'97 that 28 apparently these forms weren't being prepared 18 1 correctly. 2 So what we're stating is that by the 3 auditor conducting a full audit and not finding the 4 errors that were ultimately found in the second 5 audit, that that was a representation by the 6 Department and the Board as to "You're doing okay. 7 Your documents are fine." 8 If it had been a limited audit, that would 9 be a different story. 10 But then to top that off, they come up with 11 a credit and it goes to the Board and they get money 12 back. How much more can a taxpayer believe that 13 they're doing things correctly when they get money 14 back from the State of California for overpaying 15 their taxes? 16 And, again, I have to state, and I will 17 temper what I was going to say and just say this: 18 There was an inference in the Board's summary that 19 somehow these folks have pocketed this money. We 20 presented a supplemental declarations under penalty 21 of perjury, both Douglas, who was the sole 22 shareholder, and Pat Gorman, who had financial 23 access to their books and records and monies, that 24 they didn't pocket any money. 25 All the money that they've collected in 26 sales tax was paid to the State. So somebody came 27 up with, in your summary, that somehow it would be 28 unjustly enriching them to not grant them relief. 19 1 But they haven't pocketed any of this money. All 2 the sales taxes that they collected have been paid. 3 So that inference about getting money back, 4 the State of California presently owes Port 5 Petroleum $121,686.55. And that's -- because of 6 this delay, they've lost use of that money. 7 Apparently they don't get interest on their money, 8 but -- and no offense to anyone, the State -- you 9 don't write the laws, the Legislature does. 10 The State gets interest. They don't. But 11 the State's been sitting on their $121,000 that's 12 going to be used as an offset. 13 And to top that off, because the port took 14 his business location over, everything -- this -- 15 this is the only issue remaining for Mr. Douglas to 16 resolve. He's a retired school teacher. This 17 business was with his sister. He bought out his 18 business. He has a serious health problem and he 19 wants to get this resolved. 20 But the fact is, now the State is sending 21 him personal bills to get this money personally from 22 him, and this corporation was entirely operated 23 correctly. There's no piercing the corporate veil 24 here. 25 I've told the State department that, hey, 26 this is subject to an appeal, it hasn't been 27 resolved. And I still get these bills at my office, 28 and I've communicated our position and it's just 20 1 ignored. 2 And so, in short, this is the way I think 3 this whole experience has gone from day one. If you 4 have questions, Pat Gorman is the lady who kept the 5 books, knows the numbers, and apparently didn't do 6 the forms the way they ultimately should have been 7 done. But she's the one that relied upon the first 8 audit, not finding a problem, and she relied on the 9 instructions that were not in plain English to fill 10 out the forms. 11 So we would ask for total and complete 12 relief. 13 Thank you. 14 MS. GORMAN: Can I speak? 15 MR. THOMAS: No, not yet. 16 We're through. 17 MR. HORTON: Okay. Thank you. 18 MR. THOMAS: Thank you, though. 19 MR. HORTON: You're welcome. I just wanted 20 to provide her an opportunity if you wish. But -- 21 Discussion, Members? 22 Member Stowers. 23 MS. STOWERS: To the Department, would you 24 provide me with the dates again of the first audit, 25 the date that the amended return was filed. I think 26 you said something about a field bill -- FBO audit. 27 MR. KWEE: Right. 28 MS. STOWERS: And then the audit for the 21 1 period at issue. 2 MR. KWEE: Okay. So there was a field 3 audit from July -- covering the period July 1st, 4 1994 through March 31st, 1997. And then after that, 5 then we did the -- there was an audit covering the 6 period April 1st, 1997 to December 31st, 1997. 7 And so what had happened was, when the 8 Department met to discuss the results of the prior 9 field audit, the documentation says, quote: 10 "Meeting with Pat Gorman, the assistant 11 Marina, and Sally Phetteplace. Discussed 12 audit findings with Ms. Gorman." 13 And that happened on February 19th, 1998. 14 And the next day the Petitioner filed amended 15 returns dated February 19th and February 20th, 1998, 16 accurately reporting the tax. 17 And those -- and in those returns she had 18 reported that she overclaimed the Schedule G credit, 19 so we issued a FBO audit, billing her for the 20 overclaimed Schedule G credits. And the result was 21 a billing of 9,070 and 27 cents in tax. 22 MS. STOWERS: Okay. 23 MR. HORTON: Mr. Runner. 24 MR. RUNNER: Just -- just -- I'm just 25 interested in regards to the 6829, following up in 26 regards to that. And -- and -- and I'm -- again, at 27 least that's what it sounded like was taking place. 28 Prior to a determination here, how would 22 1 that take place? 2 MR. HANKS: Mr. Runner, I was -- I was 3 equally concerned. I've sent a message to my staff 4 inquiring about that. 5 I'm not aware of a 6829 responsible 6 personal liability that may have been issued. I 7 don't know if -- if Petitioner is representing that 8 we attempted to collect from the corporation. 9 Perhaps that's -- that's what he meant? But it's an 10 ongoing -- 11 MR. RUNNER: Let me go ahead and ask the 12 taxpayer representative what the -- what the issue 13 there was. 14 It sounded to me what you described was 15 a -- was a billing for responsible -- as a 16 responsible party -- 17 MR. THOMAS: Right. 18 MR. RUNNER: -- under the corporation. 19 MR. THOMAS: They sent us forms to have all 20 their employees prepare -- I mean, the employees 21 were obviously not principal decision-makers, and 22 Mr. Wallace is the sole shareholder. 23 MR. RUNNER: Right. 24 MR. THOMAS: So, yes, we are getting that 25 responsible bill. 26 MR. RUNNER: A bill or information? 27 MR. THOMAS: I believe it's a bill. I 28 don't have it here with me, but I'll be happy to 23 1 share it. It looks like a bill to me. 2 MR. RUNNER: Let me ask Appeals, looks like 3 he's shaking his head. 4 MR. ANGEJA: If I'm reading it right, it's 5 a determination for 6829 liability, issued 6 December 31 of 2008. 7 MR. RUNNER: In -- 8 MR. ANGEJA: I don't know the status. I'm 9 trying to find out. 10 MR. RUNNER: Would that be for this -- 11 would this be -- would that be for this particular 12 audit period? 13 MR. THOMAS: It's the amount, I believe -- 14 MR. RUNNER: Same amount? 15 MR. THOMAS: -- sir, that is subject to 16 this. 17 MS. GORMAN: It is. 18 MR. RUNNER: Okay. Procedurally, that 19 would be incorrect, wouldn't it? 20 MR. KWEE: They didn't terminate their 21 business until June 19th, 2013. So I'm not sure why 22 there would be a 6829 billing covering -- issued 23 prior to -- 24 MR. RUNNER: But -- but we must agree that 25 one exists right now, right? 26 MR. KWEE: I -- 27 MR. RUNNER: I'm hearing from Appeals. 28 MR. ANGEJA: We're trying to find out. 24 1 MR. RUNNER: Okay. 2 MR. KWEE: Yeah, I'm not -- I'm not -- I 3 don't know the status of the 6829. I'm sorry. 4 MR. MENDEL: We're not sure, I think, what 5 the 6829 is actually for. 6 MR. HORTON: I might recommend that we 7 allow them to figure it out instead of trying to -- 8 MR. RUNNER: Yeah, do it on a -- 9 MR. HORTON: -- speculate. And we'll 10 continue the process. 11 MR. ANGEJA: And I might clarify, a 6829 12 billing might be of concern, I understand. But that 13 doesn't affect the liability of the corporation that 14 we're deciding today. So whether or not that's 15 happened, it still doesn't change the question 16 before this Board. 17 MR. RUNNER: Procedure would be unusual. 18 MR. ANGEJA: To the extent that the 19 corp- -- if the NOD for 6829 pre -- 20 MR. RUNNER: For instance, willfulness, how 21 do you do willfulness if there's no determination? 22 MR. HORTON: Mr. Runner, if I may -- 23 MR. RUNNER: Well, let me -- let me -- let 24 me ask this -- 25 MR. HORTON: The billing's not final. 26 MR. ANGEJA: Right. 27 MR. HORTON: So -- 28 MR. ANGEJA: We've got a petition here -- 25 1 MR. HORTON: Right. 2 MR. ANGEJA: There's still a liability 3 that's incurred, but we don't have the 6829 in front 4 of us. That's all I'm trying to clarify. 5 MR. RUNNER: Okay. But just to, again, 6 help me understand the process a little bit. 7 In order to issue that, we would have to 8 demonstrate willfulness. 9 MR. ANGEJA: In order to reach a 10 determination, yes. But if the Department believes 11 all four elements are met, they can issue a Notice 12 of Determination for 6829 even if the corporation 13 liability is not yet final or even if -- 14 MR. RUNNER: Okay. 15 MR. ANGEJA: -- even if an NOD wasn't 16 issued -- 17 MR. RUNNER: Okay. 18 MR. ANGEJA: -- against the corporation. 19 MR. RUNNER: Okay. Thanks. 20 I may have some other questions. I just 21 wanted to clarify what was going on with that. 22 MR. HORTON: Thank you, Mr. Runner. 23 Member Harkey. 24 MS. HARKEY: Well, I want to clarify a few 25 things too. So, as I understood from the testimony, 26 the State is holding a refund for $121,000? 27 MR. THOMAS: Yes. 28 MS. HARKEY: Where is that from, what -- 26 1 what year is that from? 2 MR. THOMAS: Well, it's from $35,017.49 for 3 the audit in question. And then there's $24,120.45 4 for off -- overpayments. There's $16,031.54 for 5 offsets to SG returns. And then the most recent 6 audit. 7 MS. GORMAN: 2010. 8 MR. THOMAS: 2000 -- 9 MS. GORMAN: '10 to '13. 10 MR. THOMAS: -- '10 to '13 resulted in a 11 credit of $46,517.07. 12 MS. GORMAN: That's even after we made the 13 amended return. 14 MS. HARKEY: Okay. So -- and we are asking 15 them to pay 151 193 plus interest? 16 MR. HANKS: Correct. 17 MS. HARKEY: Okay. Do you want to respond 18 to that? Thank you. 19 MR. KWEE: I have just a quick 20 clarification. I have a copy of the report of the 21 field audit for the subsequent audit. It disclosed 22 a liability of $127,000 in tax. We issued a Notice 23 of Determination on that on April 28th, 2014. 24 And in that subsequent audit we actually 25 discuss the Schedule G issue, and it determined that 26 a refund of zero was a. -- it says that, quote, 27 "Documentation for verification disclosed an actual 28 claim amount of zero." 27 1 And the letter that we mailed to the 2 taxpayer explains, "Unfortunately you have 3 overstated your Schedule G credit compared to your 4 field supplier sales reported on Schedule A." 5 So, I'm not sure -- 6 MS. HARKEY: So 46,000 is not -- you're 7 claiming, is not a refund. 8 MR. KWEE: I -- I -- the subsequent audit 9 disclosed the liability, net liability, not a 10 refund. 11 MS. HARKEY: And the net liability was 12 what? 13 MR. KWEE: $127,000. 14 And then there was a payment. There was a 15 partial claim that offset it for $10,000, resulting 16 in a net deficiency of $116,000. 17 MR. THOMAS: Ms. Harkey, can I have Pat 18 Gorman respond to that, please? 19 MS. HARKEY: Sure. 20 MS. GORMAN: I can't respond to that. 21 MR. THOMAS: All right. 22 MS. GORMAN: I can only respond to the fact 23 that in that prior -- in that prior audit, nothing 24 was done and we weren't done as a cardlock. And 25 their own paperwork to the Board hearing on August 26 27th, 1998, they still did not refer to us as 27 "cardlock." 28 And in that prior audit, we were both -- we 28 1 didn't become cardlock until 1995. So for the first 2 year of that audit, we were a gas station/mini-mart. 3 And there's no correction in their audit for that. 4 And, also, Ms. Norton who did the audit in 5 question now, in the appeals she clearly stated that 6 that audit was done with the wrong methodology. It 7 was done -- the method of doing that audit was 8 incorrect and inconsistent with doing a cardlock. 9 So I can't answer all the numbers they're 10 saying, but I can answer that the auditor who did 11 the second audit, the one that -- 12 MS. HARKEY: 2010 through 2013? 13 MS. GORMAN: -- 2006 to 2008, Connie 14 Norton, she did that audit and she had the paperwork 15 for the prior 1994-1997. And she clearly stated on 16 May 10th that they used the wrong method to audit a 17 cardlock. 18 So, I was there. I know that all the 19 documentation they sent to us for me to look at was 20 a lot and hard for me to understand it all. And I 21 took it for further explanation of those exhibits, 22 and those exhibits proved not to state what they 23 were sending us. It was over my head, but I 24 understood what the other party told me. 25 And, again, what he just said, we did do 26 the 2010 audit 'til the close of business. In that 27 audit we did correct that line, the line 20 that's 28 in question on the prepaid. And we still have a 29 1 $46,000 credit in the audit, along with the 16,000 2 from offsets to the SG during that period. And then 3 20-some-thousand of overpayments. 4 So, all I can tell you is in that -- in the 5 audit in question, 2006 to 2008, Connie Norton also 6 did a reconciliation of all the monies we collected 7 and proved that we not only paid every penny 8 collected, we paid more, over $13,000 more. 9 She was very aware there were other 10 problems. She was -- she had taken this audit on 11 after it had been dropped by the original auditor 12 Kevin Nguyen who -- who admitted he was not capable 13 of doing the audit, nor was she because she had to 14 get further instructions in 2009 that turned out to 15 be nine pages of further instruction, that I never 16 saw. 17 When I went to start the new -- the new 18 audit period, the 2010, I -- Connie Norton told me 19 to contact an Eddy Iyoha, which I did, and he wrote 20 instructions that are totally nothing like the 21 instructions on any of the forms that I followed. 22 The forms always ask for my prepaid. 23 Even on the SG form, line 20 doesn't even 24 refer to further instructions; the other lines do. 25 When -- if there was a case for me to look at 26 further instructions, I would have. The line 20 27 clearly says enter your prepaid. It also says see 28 Schedule G and put your total of G5 on it. 30 1 On that schedule, when I -- when I looked 2 at it, it tells me on the -- to read the 3 instructions. The first line tells me if I -- this 4 schedule must be completed by all sellers of fuels 5 subject to prepaid. That was me. 6 The next line down where I entered all of 7 that says, credit for sales tax prepaid to my fuel 8 suppliers. Not "sold." Not "collected." "Prepaid 9 to my fuel suppliers," which I used. 10 It also says, "see instruction G2." And in 11 instructions G2 it says, summary of tax prepaid to 12 my suppliers. Not "collected." Not "sold," as he 13 inferred. 14 So, I'm a bookkeeper. I followed these 15 instructions. I told Connie Norton, even after her 16 audit, saying that line 20 was incorrect, that I 17 couldn't just change and falsify what they were 18 asking for on that line. 19 I needed her to write down why I needed to 20 make that change so I had it in writing. She 21 couldn't do it. She said, "I have asked for further 22 instructions that I've been given, and I can't 23 answer that. Please contact Eddy Iyoha." 24 When I contacted him, his instructions 25 read: "When you have both an SR and an SG account, 26 your SR account can only purchase fuel from your SG. 27 All fuel suppliers for tanks should be reported on 28 your SG account Schedule B. When fuel is sold, it 31 1 should be reported on Schedule A." 2 Again, on an SG return that never is 3 referred to on these instructions. 4 "Line 1 on Schedule A should be sales you 5 made to yourself, your SR account, then follows by 6 sales to others. The sales you made to yourself, 7 sales to your SR account, is the amount that goes on 8 your Schedule G, line 20." 9 So, these instructions, I understood, and I 10 made the correction or the amended line 20. But on 11 the returns, none of those instructions ever told me 12 that. And I did it according to the instructions. 13 They asked for apples, but they wanted 14 oranges. And they -- they just -- they don't want 15 to admit that, but it is true. 16 MR. THOMAS: Thank you. 17 MS. HARKEY: So -- 18 MS. GORMAN: Also, I don't know anything 19 about an FBO audit. And they said I talked to 20 someone; if I did, it was on a phone call. It was 21 not someone meeting with me in any office, giving me 22 any further education or training that would have me 23 falsify the reports or the line that I was asked to 24 do. 25 That's it. 26 MS. HARKEY: Okay. What I have here -- I 27 understand that, and I'm trying to figure out where 28 we are with the dollars and cents owed versus the 32 1 dollars and cents to be refunded. I thought that 2 was important. 3 But what I have here in our analysis is 4 that Petitioner, which is you, were reimbursed for 5 all of the prepaid sales taxes it paid to its fuel 6 suppliers plus the 186 211 that you contend you're 7 allowed to keep. 8 So, that seems to be the problem. It's 9 almost like it's -- 10 MS. GORMAN: Well, and what we're -- 11 MR. THOMAS: (Inaudible.) 12 MS. GORMAN: I'm sorry. 13 MS. HARKEY: That's -- that's okay. Go 14 on. 15 MS. GORMAN: What we're stating is, we're 16 not -- we did -- we did get reimbursed the -- the 17 foreign prepay. That was just a reimbursement, it 18 was a wash. 19 When we came over to the SR return, line 20 20 asked me to put my prepaid there again, which did 21 overstate my prepaid. But, later on -- and even in 22 Connie's own audit, she -- she stated there were 23 many other problems. 24 And when we did the third audit, which is 25 the 2010 to 2013 close of business, that audit was 26 done correcting line 20. And we still are overpaid 27 just in the audit principals over 46,000. Not -- 28 not taking into consideration the offsets of the 33 1 SG's or the overpayment of the 24,000. 2 So what we've stated is, you know, we made 3 your correction, but it's clear we had other 4 problems. In that third audit there were many 5 problems presented. There were calculation errors, 6 measure errors, overstating sales errors and, most 7 of all, district errors that Connie Norton, in her 8 audit, never looked at. She would have found we had 9 overstated districts; again, offsetting that 186. 10 And what -- what the 2010 audit proved, 11 even -- and also, most important I think, was Connie 12 Norton's analysis of our collected sales tax. She 13 proved that we did pay everything we collected. 14 Unfortunately, there were so many other areas that 15 were incorrect, that were not looked at, and 16 certainly not considered by any of the Appeal Board 17 people because they -- they knew we did it correctly 18 in 2010 to '13 and we're still way overpaid. 19 None of that's been considered. And the 20 fact that the first audit that they keep -- first of 21 all, in that first audit they denied it for several 22 years, when they had it all along. They even went 23 as far as to deny it and say they lost it. That's 24 all in their own SD&R's because they just didn't 25 want to -- because they wanted to say, originally, 26 you were audited as a gas station, therefore, you 27 can't rely on that audit to say you -- when you're 28 now a cardlock. 34 1 Well, we did rely on that. We -- we know 2 they looked at the SG's. We know they looked at our 3 general ledger. We know they looked at everything. 4 Well, four years later, they realized that 5 and they come back with schedules and documents and 6 this FBO audit, that I don't know about, stating we 7 did know. And I am aware of conversations I've had 8 that I did correct a return in 1998. But that 9 verbal correction, to me, was a calculation error, 10 certainly not an explanation of changing line 20 -- 11 MS. HARKEY: Okay. 12 MS. GORMAN: -- when the whole instructions 13 had to change. 14 MS. HARKEY: Okay. I think I -- I 15 understand what the issue was. 16 You're relying on a previous audit. The 17 Department is saying that you were a gas station, so 18 you can't rely on the previous audit because it 19 wasn't for the same thing. That's -- that's part of 20 the problem. 21 The other part is, for me, trying to figure 22 out -- 23 Okay, this is for the Department. 24 Department, if they were to issue a check 25 to you for all that you say you owe them today, what 26 would they get back in refunds? 27 MR. HANKS: Ms. Harkey, the amounts that we 28 have before us indicate that -- that we've got 35 1 payments against the liability that was calculated 2 of the $151,000 tax and the $44,000 in interest. So 3 the information that we have before us shows a 4 balance due for this liability of $109,000. There 5 may be other amounts that -- that -- 6 MS. HARKEY: Are we -- are we, the State of 7 California, holding up refunds through this time 8 period? Is that -- or I don't -- I'm asking, is 9 that what we usually do? 10 MR. HANKS: I'm not aware of us holding -- 11 holding any amounts -- 12 MS. HARKEY: Well, they say we've got 13 35,000 -- 14 MR. HANKS: -- other than what we have 15 here. 16 MS. HARKEY: -- 24,000, 16,000 and 46,000, 17 roughly. So, I just kind of want that to be 18 verified. So if somebody could just get back to me 19 and let me know if we're holding up anything. I 20 don't have to have that right now. 21 MR. HANKS: Okay. 22 MS. HARKEY: But we can go on. 23 MR. HANKS: Okay. 24 MS. HARKEY: Thank you. 25 MR. HORTON: Further discussion, Members? 26 MR. ANGEJA: If I could quickly correct one 27 of the things that I had said earlier regarding the 28 6829 determination. I misread. It wasn't issued on 36 1 December 31st of '08. It's for the audit period 2 ended December 31st of '08, which is the audit 3 period that's at issue here. 4 It was issued on September 2nd, 2015. It 5 is final. There was no appeal that was filed, and 6 its collection status is on hold, pending the 7 outcome of this appeal. 8 MR. THOMAS: That's -- that's not -- I sent 9 a letter back and I asked for an appeal and then 10 they just keep sending me bills. 11 And I felt, in good faith, that this matter 12 is still pending and that it was harassment of -- 13 without a finding that he's personally liable on 14 that -- this number that's in dispute. 15 But I definitely respond on behalf of 16 Mr. Wallace. And to say that this is now in 17 collection without recognizing that we have a 18 contested matter, and we most certainly will contest 19 it and we did send back a response stating our 20 position. 21 And I think somebody pushed a button -- 22 based upon the fact that they -- that the business 23 closed down, somebody pushed a button to send out 24 that bill. And I don't know what motivated that 25 person to do it, but I don't think it's -- 26 I just think it's really shocking under Mr. 27 Wallace's rights that he's proceeding in this 28 proceeding in good faith, providing all the 37 1 documents to state his case, responding to the 2 Department's legal positions, and then to have a 3 side war going on on this, sending out that he owes 4 this money personally is -- is -- is incredible. 5 MR. HORTON: Okay. 6 MR. THOMAS: Thank you for listening to 7 me. 8 MR. RUNNER: Well, yeah, I just wanted -- 9 MR. HORTON: Member Runner. 10 MR. RUNNER: -- to quick follow up because 11 I'm not -- I'm not sure how to -- how to separate 12 these two since they are basically dealing with the 13 same audit. 14 Excuse me, they're not dealing with the -- 15 well, they're dealing with the same liability. 16 How -- again, is that a normal process? Do 17 we have a normal process for actually -- for us 18 actually doing a billing under 6829 while somebody 19 is actually still in appeals? 20 MR. HANKS: Mr. Runner, there could be a 21 review as to whether or not 6829 billing might -- 22 might be applicable. And of course we're -- we're 23 aware that there's a statute of limitations that 24 applies to that process. 25 And -- and so if the close-out date was -- 26 was long enough ago, then yes, our -- our staff 27 could look at the case from a standpoint of -- 28 MR. RUNNER: Does the statute of 38 1 limitations apply to -- does it -- does it apply to 2 the audit or to the point of determination? 3 MR. HANKS: It applies to the close-out 4 date for the business. So it applies within three 5 years of the close-out of the business. 6 So if the business closed out many years 7 ago, then that would be a case that might be right 8 for a consideration of a dual liability. 9 MR. RUNNER: But does that mean we actually 10 actually initiate the liability, or do we have the 11 ability to just -- or, I mean, to collect on the 12 liability? Or we just have to initiate the 13 liability? 14 MR. MENDEL: I believe what the explanation 15 Mr. Angeja provided is that it is not in collection. 16 It is pending collection on the outcome of this 17 case. 18 MR. RUNNER: Okay. 19 MR. MENDEL: Because what we are looking 20 for -- 21 MR. RUNNER: But there was a billing 22 done. 23 MR. ANGEJA: They have to preserve -- they 24 have to preserve the statute of limitations. 25 There's a Compliance Policy Manual section that 26 requires a 6829 Notice of Determination to be issued 27 within one year of the expiration of the statute of 28 limitations on that 6829. In other words, they've 39 1 got to protect -- 2 MR. RUNNER: So the other issue that seems 3 to be at least unresolved is the fact that we did a 4 billing based upon the fact that there was not an 5 appeal filed; is that what I understand? 6 MR. ANGEJA: A Notice of Determination is 7 issued. He's saying that he appealed it. 8 MR. RUNNER: Right. 9 MR. ANGEJA: The records show that it's 10 not. Whether the Department -- 11 MR. RUNNER: That's another issue that 12 would have to be resolved. 13 MR. ANGEJA: And if the Department accepts 14 it -- 15 MR. RUNNER: Okay. 16 MR. ANGEJA: -- as an administrative 17 protest. But, again, none of that bears on the 18 question before you. 19 MR. RUNNER: Right, right. That's another 20 issue. Okay, thank you. 21 MR. THOMAS: Well, the only -- if I may, 22 though, only answer the question, just so we're not 23 misled here, that the corporation is still open. 24 They may have done their last books in terms of 25 income tax returns, but the corporation is not 26 officially dissolved under the corporate code and in 27 fact will not dissolve until this issue's 28 resolved. 40 1 MR. RUNNER: Well, let me ask -- let me 2 ask -- let me go back real quick to -- to the 3 Department then. 4 Is the statute of limitations on the close 5 of the business or the close of the corporation? 6 MR. MENDEL: Close of business activities. 7 Close of the activities for which they are required 8 to hold a seller's permit. 9 MR. RUNNER: So they can close the 10 business, still have an active corporation, and 11 therefore the statute could begin. 12 MR. MENDEL: If the corporation is no 13 longer permitized in some way by us, then we 14 consider the business activities to be terminated. 15 MR. RUNNER: Okay. Okay. 16 MR. HORTON: Member Ma. 17 MS. MA: Okay. So, first off, I think this 18 is another issue where it would be nice to have the 19 auditor present to really understand, you know, 20 what's going on, number one. 21 Number two, dual determinations, we've been 22 having issues with that where one hand doesn't know 23 what's happening with the other and taxpayers are 24 getting notices, yet there is an audit going on or 25 an appeal is going on. So, somehow we need to, you 26 know, figure out -- you know, I know 27 decentralization is being discussed in dual 28 determinations. 41 1 And then, third, it seems like this area's 2 very confusing. That in 2009 Jim Kuhl, who's now my 3 Chief Deputy, had to write a nine-page memo on how 4 to file these forms and what has to go on each line. 5 Seems like there's a lot of confusion over these 6 forms. 7 Can I just ask the BOE attorneys whether 8 there's been a lot of confusion over these forms or 9 not? 10 MR. MENDEL: It's not a simple area because 11 they are running both a retail and wholesale 12 business. 13 Previously, according to them, they were 14 just a retail seller. And so they only paid prepaid 15 sales tax to their suppliers when they bought gas, 16 then sold the gas and then got a credit. 17 But now they are both a wholesaler and 18 retailer, so they both pay prepaid sales tax and 19 they collect prepaid sales tax from their wholesale 20 customers. 21 The credit we're not giving them right now, 22 because they're not entitled to it, is not prepaid 23 sales tax they paid but what they collected from 24 their suppliers, paid to us, we gave credit to 25 the -- to the retailer that actually sold the gas, 26 and they now want an additional credit on their 27 side. 28 But it is -- it's not a simple area because 42 1 they're running essentially two different businesses 2 and they're selling to themselves. It's just 3 inherently confusing. 4 MS. MA: Okay. So in the last audit, the 5 prior audit, 1997, they were in this line of 6 business, the cardlock and wholesaler/retailer. Did 7 you do a full audit? And what does a full audit 8 mean? 9 MR. KWEE: So, there are two prior audits. 10 One was a field audit, which is from '94 to '97. 11 And then after that was a Field Billing Order, which 12 was for the last three quarters of 1997. 13 So, the '94 to '97 was a full audit. The 14 subsequent three quarters was not a full audit. 15 And, Kevin -- 16 MR. HANKS: Ms. Ma, a Field Billing Order 17 is a limited review of certain transactions. So it 18 wouldn't encompass a full audit per se. 19 So in this instance what they did do, 20 however, was a reconciliation of -- of the prepaid 21 sales taxes. And what we determined was that the 22 taxpayer was reporting absolutely correctly after 23 they had filed some amended returns for these three 24 quarters. 25 So the nature of this review was to 26 determine that the amended returns were filed 27 correctly, that the forms are properly prepared; and 28 that was verified and vouched by our audit staff. 43 1 MS. MA: So since 1997, as I'm hearing, the 2 taxpayers, given that they went through a full 3 audit, a field audit, field billing, but they 4 continued to report the same way, up until this last 5 audit; is that my understanding? 6 MR. THOMAS: Yes. 7 MR. MENDEL: The problem is they're doing 8 business differently now. They have an aspect to 9 their business now that they didn't have then. 10 MS. GORMAN: No. 11 MR. MENDEL: Is that correct? 12 I'm sorry. Go ahead. Go ahead. 13 MR. KWEE: If I may clarify, I believe they 14 began field cardlock operations, which is when they 15 obtained the second account, the fuel suppliers 16 account. I believe that happened on June 1st, 1995, 17 which was one year into the first audit. 18 MS. MA: Okay. So then -- okay, to the 19 taxpayers. So then you tried to clarify whether you 20 were doing things right. I mean, was it related to 21 this specific -- is it line G -- 22 MS. GORMAN: Yeah. 23 MS. MA: Schedule G? 24 MS. GORMAN: Well, Schedule G, line 20 of 25 the SR, Schedule G. -- 26 MS. MA: Okay. 27 MS. GORMAN: -- of the SR. 28 But in that audit that they're referring 44 1 to, we were both types of business. And the 2 audit meth- -- the -- I want to use the right word. 3 The correct method of auditing us as both businesses 4 was not done. 5 The method they used was incorrect, per 6 Ms. Norton who is an auditor, their own team. She 7 clearly stated the method they used was incorrect. 8 Now, this field billing audit they're 9 referring to, they may have made a phone call to me 10 because I am aware of one phone call. But I would 11 have changed, thinking it was calculating and I just 12 got to make this change, I got to do what they're 13 asking me to do. 14 But when -- three months later, when I go 15 to do the next sales tax return, I'm looking and 16 taking extra care, trying not to make any 17 calculation errors, but the instructions still tell 18 me to put prepaid to my fuel suppliers, not -- not 19 my sold, not my collected, but my prepaid. And 20 that's what I did. 21 On -- on top of that, and the biggest thing 22 that we're contending is, in the later audit, the 23 2010, post -- you know, after this audit in 24 question, we did do line 20 with Eddy Iyoha's 25 instructions that were given to us in 2010. 26 We did do that. I now had something in 27 writing that I could substantially change and -- and 28 falsify that line 20, which I did. 45 1 We went through a complete audit that was 2 scrutinized by the -- the State Board, not only once 3 but three times; twice by the auditor's direct 4 supervisor, and then again when it finally went to 5 the State Board in Sacramento, they sent it back and 6 had him audit districts which had not happened in 7 the second audit or the -- you know, it hadn't 8 happened on the third audit either, which continued 9 growing our credit, which is what we've said all 10 along via Connie Norton's own schedule to our books, 11 that we paid every penny we collected. 12 So the problem here is that they -- the 13 6596 says you have to have failed to collect. We 14 didn't do that. We did collect, but we paid the 15 State. Connie Norton did an audit -- it's required 16 in the audit to do an audit of our collected -- and 17 gave us a $13,000 credit more because we did pay 18 everything. 19 And that's their -- they just said, you 20 know, they want us to give them money that they 21 collected. Well, we did collect it, but we did pay 22 the State Board on these other types of errors, 23 calculating errors, overstating sales, offset of 24 SG's that -- there are no offsets in the audit in 25 question where there should be and there aren't. 26 So the State Board did get their money, 27 proven by their own auditor who audited our general 28 ledger and stated we not only paid every penny we 46 1 collected, we paid more. 2 I think that's the biggest thing I can say 3 here because I watch -- the only point I had to 4 balancing this SR return, because it is so confusing 5 and convoluting and asking for one thing, wanting 6 another, I had my collected account which was 7 electronically done by very expensive 8 industry-related system. That system took every 9 penny off every invoice collected and put it into 10 the sales tax account automatically. 11 So if I didn't pay the State those funds, I 12 would have had a debit on my books that would have 13 been money we kept. But Connie Norton clearly 14 checked that. We did not keep one penny. We 15 actually overpaid what we collected. And that's the 16 biggest problem that's -- and, again, not once they 17 deny us, they say there isn't an audit, then five 18 years later, four years later they come back and say 19 we did do an audit and you did it right and you're 20 saying you did it wrong, when their own paperwork 21 clearly categor- -- puts a category on us that is 22 not cardlock. But we did pay the State every penny 23 that we collected. 24 MS. MA: Okay. So the BOE, so they said 25 they collected it and they remitted it. So, what 26 is -- are you saying they have more money that they 27 didn't remit? 28 MR. KWEE: Yes. So I understand what 47 1 schedule she's referring to. She's referring to 2 Schedule 12A-1A, I believe, in the audit working 3 papers, and that's actually a separate issue. 4 That's not the issue that we have an appeal before 5 us. 6 The issue on appeal is sales tax 7 prepayments on non retail sales. That schedule 8 concerns sales tax collected on retail sales. So, 9 for example, on a sales and use tax return you have 10 line 19 and 20. On line 19 is the total sales tax 11 due. Line 20 is prepayments that you're claiming as 12 paid, and that's the prepaid sales tax then. 13 So the issue on appeal is line 20. The 14 amounts that they claimed that they prepaid and the 15 schedule that she's referring to is actually line 19 16 that's an entirely separate issue, but it's not what 17 we're discussing here. 18 And so, what the Department is saying is 19 that on Schedule G she's entitled to deduct. And 20 the title of the schedule is "Sales Tax Prepaid to a 21 Fuel Supplier." She deducted that. And, in 22 addition -- I mean, in addition, Port Petroleum also 23 deducted amounts that they collected from a fuel 24 supplier, and that's not what you're entitled to 25 deduct. They're only allowed to deduct what was 26 actually paid. 27 So then we have a dichotomy there in what 28 they're claiming they actually prepaid, not the 48 1 total amount of sales tax that is due on the measure 2 of tax. 3 MS. MA: Okay. My question was, did they 4 collect more tax that they did not remit to the 5 State? 6 MR. KWEE: They -- okay. So they 7 collected -- we did give them a refund -- not a 8 refund. We did show that there was some 9 overcollection and there was a credit. 10 This issue here is prepaid sales tax. 11 They're claiming a credit for what they collected 12 from customers. It's -- and that has to be remitted 13 to the State and they did not remit that to the 14 State. So, if that answers your question. They did 15 not remit. They're claiming a credit for prepaid 16 sales tax as opposed to -- 17 MS. MA: I understand they're claiming a 18 credit on their return. 19 MR. KWEE: Right. 20 MS. MA: I'm asking if they physically 21 collected the tax and they were supposed to remit it 22 to the State, so it's sitting in some bank 23 account. 24 MR. KWEE: Right. Yes. So yes, they 25 collected it from their customers. Yes, they have 26 to remit it to the State per the statute. It was 27 not, but -- okay, again, it was not paid to the 28 State because it was claimed as a credit, if that 49 1 answers your question, because -- 2 MS. MA: Yes. 3 MR. KWEE: Yeah. 4 MS. MA: So, to the taxpayers, you said you 5 have your own separate account that you collect all 6 the sales taxes in and you remit it all and you 7 report it. Is there extra amounts? How much are we 8 talking about, 186,000 -- 9 MR. KWEE: Correct. 10 MS. MA: -- that's sitting in a bank 11 account. 12 MS. GORMAN: No. In fact, when he says 13 I can't use that 12A-1A Schedule, I was told by an 14 auditor that that does clearly state what I'm 15 saying. So I'm not -- I didn't know that. I was 16 given that information. 17 Port Petroleum would have had this huge 18 debit sitting on their books that -- we were 19 audited. We have CPAs that look at everything. And 20 that -- that was always my checkpoint. If I -- if I 21 didn't have enough sitting there to take over one 22 quarter -- because it was always two quarters paid 23 and one quarter not on our books. 24 MS. MA: Right. 25 MS. GORMAN: If I didn't have that amount 26 there that equaled a quarter's worth of liability, 27 that was my checkpoint -- 28 MS. MA: Right. 50 1 MS. GORMAN: -- and why I didn't catch all 2 the other types of errors, because they offset that 3 debit. 4 So, it was -- it was paid, but it off-set. 5 What they're -- what they're neglecting to tell you 6 is the second audit, 2006 to 2008 was botched, 7 totally botched, you know. And I think you probably 8 have all that documentation. We don't have time, 9 but it goes back to the first auditor coming in who 10 got all the books and records. I set them up at our 11 CPA's office and never heard from them again. 12 Four or five months later I called over to 13 the office and I said, "Is Kevin Nguyen there?" And 14 they said, "No, he only came that one day. He's 15 never been back." 16 Well, then almost a year later is when 17 Connie Norton came in, knowing that the statute of 18 limitations was running out and they were going to 19 lose the ability to even do the audit, she rushed 20 through this audit. She made her comments. And her 21 comments go back to the first audit being wrongly 22 audited, using the wrong method of auditing. 23 She also noted that these returns need to 24 be amended and that they are -- that the first 25 auditor was never able to do it, that she had to get 26 further instructions, post dating our audit, and 27 they keep saying that I -- I should have known that. 28 They even put it in their SD&R. Whether we told you 51 1 in writing or verbal, that you do not have relief of 2 any liability because you're -- you are to do it 3 right. 4 I can read it word-for-word if you want, 5 but that basically is -- and that goes against the 6 Taxpayers' Bill of Rights. 7 And so, every stage of these D&R's, SD&R's, 8 we have corrected them every single time, even to 9 the point where they denied the audit, over and 10 over. Then when they said they finally got it, they 11 lost it; that's in their SD&R. 12 Then, two more years later go by and they 13 start with this -- this harassment that I did it 14 right in that audit. Which, when I had those papers 15 reviewed by someone a lot smarter than I am and 16 understands a lot more than I do, he clearly said it 17 does not prove that and we got pulled off this 18 docket today. We weren't going to be able to come 19 to this hearing today after eight years of this 20 abuse on and on. And we -- we went and we were able 21 to get put back on, because it just was absolutely 22 absurd to pull us off again. Because every time 23 they use a different method of trying to make us, 24 the taxpayer, guilty. 25 MS. MA: Okay. So I'm going to ask you 26 again, is $186,000 sitting in some bank account that 27 you have? 28 MS. GORMAN: Absolutely not. 52 1 MS. MA: Okay. 2 MR. THOMAS: And we also submitted 3 supplemental declarations, that I mentioned, that 4 they've signed under penalty of perjury indicating 5 that they didn't pocket that money because of the 6 inference that they had been unjustly enriched. 7 MR. HORTON: Okay. Ms. Stowers. 8 MS. STOWERS: Just, to the Department, I 9 definitely hear what the Petitioners are saying that 10 they submitted the money, but you -- are you saying 11 that they did not? Or are you saying because they 12 have claimed a credit for that money, you're saying 13 that? 14 MR. KWEE: Right. Yes. That's correct. 15 I'm saying that the reason it wasn't paid is because 16 they're claiming a credit against their taxes due 17 and the amount of credit that they claimed was the 18 amount that they actually had collected from their 19 customers. 20 So they collected it and then went around 21 and claimed a credit for it which, on the return, 22 reduced the amount of tax that they had to pay and 23 that's why it was not paid to the State. 24 MS. STOWERS: Okay, thank you. 25 MR. HORTON: Yeah, so -- 26 MS. GORMAN: Can I -- 27 MR. HORTON: Member Stowers. 28 MS. STOWERS: Yes, please, go right 53 1 ahead. 2 MS. GORMAN: But in the 2010-2013 audit -- 3 and that's what they're not making any reference 4 to -- we corrected that method of pre- -- of doing 5 prepaid. We did what they wanted. And we are still 6 showing an overpayment of over $80,000. 7 I don't know how else to tell them we did 8 not hold any of their money. The problem is the 9 paperwork is convoluted and confusing, even to your 10 own auditors, stated over and over again. I wish 11 they were here. I wish all of them were here. And 12 that they asked for apples but want oranges. And 13 that we did, most definitely, pay them because that 14 second audit was botched and not completed, not -- 15 not scrutinized the -- the way the third audit 16 wasn't. All their scrutiny in that 2010-'13 audit 17 could not prove that we held up one penny. It 18 proved the direct opposite. 19 MS. STOWERS: Okay. Thank you very much. 20 MR. HORTON: I just heard something that 21 might be helpful maybe. I think the Department has 22 explained it pretty clearly. I don't necessarily 23 see this as complicated, but I see how it could be 24 complex when you engage in -- when you have two 25 different types of businesses creating two different 26 issues, where you have a prepayment or where you 27 collect this -- the tax, and then file a claimed 28 deduction which subsequently reduces your tax 54 1 liability in the subsequent period, which should not 2 have been reduced because the deduction shouldn't 3 have been allowed because there was no -- it was 4 claimed against nontaxable sales which shouldn't 5 have taken place. 6 I get that. But it sounds to me like what 7 the taxpayer is contending is that something to 8 do -- not necessarily with this audit or the issue 9 before us, but more with the subsequent audit and 10 that in the subsequent audit they -- they believed 11 that there is an overpayment in the subsequent audit 12 or something happened in the subsequent audit, that 13 they would like that to be taken under consideration 14 or the Department got it wrong or -- I'm asking the 15 Appellant. 16 MS. GORMAN: Me? 17 MR. HORTON: Yes. 18 MS. GORMAN: We made the correction. We 19 did what they wanted. 20 MR. HORTON: Let me -- let me ask the 21 question. 22 MS. GORMAN: Okay. 23 MR. HORTON: The error that occurred in 24 2008, you subsequently self-corrected again in 2010? 25 MS. GORMAN: We -- we corrected it due to 26 the memo I received from Eddy Iyoha. 27 MR. HORTON: When did you make the 28 correction? 55 1 MS. GORMAN: It was 2010. He sent this to 2 me April 29th, 2010 -- 3 MR. HORTON: Is this -- 4 MS. GORMAN: -- which the -- the -- the 5 post audit, which we're talking, was for 2010 to 6 '13. 7 MR. HORTON: And how did you correct it? 8 Did you correct it by a self -- 9 MS. GORMAN: I corrected it -- 10 MR. HORTON: When they saying 11 "self-correcting," what happens is, is that 12 self-correcting is perceived to be that you make an 13 adjustment on your tax returns to offset another 14 liability instead of filing a claim for refund, 15 which -- 16 MS. GORMAN: And we're not -- 17 MR. HORTON: It's just form -- it's just 18 over substance, but if there is an adjustment that 19 took place in 2010 -- 20 MS. GORMAN: Well, we're not asking for a 21 refund of 187. 22 MR. HORTON: No, I know that. 23 MS. GORMAN: Okay. The line 20 that was in 24 question on the 2006-2008 audit, which they contend 25 we did incorrectly, which according to this in 2010 26 we did it differently than this instruction. 27 MR. HORTON: Are you correct -- you started 28 reporting it properly? 56 1 MS. GORMAN: Right. 2 MR. HORTON: Okay. Got it. 3 MS. GORMAN: And have a huge $80,000 4 credit. 5 MR. HORTON: Which could happen, could be 6 the case, in 2010. 7 I get it. 8 MS. HARKEY: Credit the offset? 9 MR. HORTON: No. 10 To the Department. Department? 11 MR. KWEE: Yes. 12 MR. HORTON: Oh, okay. I get the purpose, 13 Mr. Angeja, of filing a dual determination, to 14 protect the statute. It's a fiduciary 15 responsibility that the State has to the people of 16 the State of California. I get that. 17 The concern that the taxpayer raised, 18 though, relative to you filing the dual 19 determination, protecting the statute, not 20 acknowledging his -- his appeal. 21 And so it seems to me that we should 22 acknowledge the appeal; if for no other reason, we 23 should acknowledge it as an administrative protest. 24 And so I would speculate that that would be the will 25 of the Board in order to give the taxpayer an 26 opportunity to contest whatever they feel was 27 inappropriately done. 28 Okay. Further discussion, Members? 57 1 Member Harkey. 2 MS. HARKEY: Well, I just wanted to know if 3 there's any update on my question as to are they 4 owed refunds at any point in time here? Because 5 they were claiming -- they gave me a little listing 6 of all of their refunds, and so I did -- I did kind 7 of want to know what our records show, if we have 8 such an ongoing kind of ledger. 9 MR. MENDEL: I'm just looking at the most 10 recent audit. There are numerous audit items that 11 show over -- 12 MR. HORTON: Can you give us a timeline? 13 We're talking about three our four different audits 14 here. Most recent. 15 MR. MENDEL: Close that up. Go ahead. 16 MR. KWEE: Yes. It's January 1st, 2010 to 17 June 19th, 2013 when they closed out. 18 MS. HARKEY: Right. 19 MR. RUNNER: Mm-hmm. 20 MR. MENDEL: The various line items show 21 underpayments and overpayments where they clearly 22 overpaid in some areas and underpaid in other areas. 23 And the result on one of the accounts was basically 24 a minor -- a small credit of $3,000 in -- 25 MS. HARKEY: But they're saying they have 26 $46,000 coming back from 2010 to '13. 27 MR. HANKS: Ms. Harkey, if I could add, it 28 does appear as though there was a payment made of 58 1 $46,517 and that amount is being held and it looks 2 like that is -- that is related to this account. 3 But as I noted previously, I mean we have 4 payments made against this liability that total 5 $86,668.86. Those are the amounts that -- that I 6 think the Petitioner is -- is indicating that we're 7 withholding or retaining. Those are merely payments 8 that they had made against this liability. 9 MS. HARKEY: So the liability is not really 10 tax of 151, it's something less than that? 11 MR. HANKS: So the amount owed is less than 12 that because of these payments; that's correct. So 13 it looks like the balance owed is approximately 14 $109,000, tax and interest included. There is no 15 penalty. 16 MS. HARKEY: And what -- what is the tax 17 and what is the interest? 18 MR. HANKS: So the tax is $151,193 19 remaining. 20 MS. HARKEY: Yeah, but what's -- out of the 21 109, can you break that down? I'm sorry to ask you 22 this, but I'm just kind of wondering what's left. 23 MR. HANKS: Okay. So I'm looking at our 24 IRIS system now and show -- what it shows is a 25 non final liability of $113,793 remaining on this 26 account, which consists of $64,524.67 tax and 27 interest of $49,268.98. 28 MS. HARKEY: Okay, thank you. 59 1 MR. HANKS: So total 113 793 65. 2 MS. HARKEY: Okay, thank you. 3 MR. HORTON: Mr. Runner. 4 MR. RUNNER: Yeah. I just wanted to kind 5 of -- one item that was brought up was the issue 6 of -- of delays in this process. And I just wanted 7 to kind of help me walk through that a little bit in 8 regards to the interest amounts then. 9 The -- you said that this -- there was 10 200 -- or 2700 days of process here that interest 11 was applied, of which you would believe 1144 should 12 be relieved of interest; is that close to what you 13 had said? 14 MR. THOMAS: Yes. 15 MR. RUNNER: Does the 2700 days that you're 16 dealing with there already take out the days that 17 the Department has said that they have taken out for 18 delay issues? 19 MR. THOMAS: I didn't try to cross-check 20 it. It probably does. 21 MR. RUNNER: Okay. Okay. 22 Let me ask -- and then specifically, you 23 said that there was a -- there was a time period to 24 which you communicated to the Board that there was a 25 eminent domain issue that really had nothing to do 26 with a liability, but yet there was then created a 27 delay in regards to the process with the Board; is 28 that right? 60 1 MR. THOMAS: Yes. 2 MR. RUNNER: Okay. How many -- what was 3 the amount of that delay? 4 MR. THOMAS: I put out a chronology on 5 pages 4 and 5 of my opening brief, and I'm looking 6 for -- 7 MR. RUNNER: I think I've got it, and I 8 couldn't find that particular specific description, 9 I guess, due to a notification of -- of eminent 10 domain. If I can find it here. 11 MR. THOMAS: Yeah, I sent a letter on 12 September 3rd, 2013 that Port Petroleum had ceased 13 doing business. There was no new information 14 provided in that letter. And I didn't ask for any 15 further delay. 16 I believe at that time the appeals 17 conference had been August 19, 2012. And then the 18 decision, the first decision was issued December 12, 19 2013. 20 So my whole point is that the rules provide 21 for a decision in 90 days. I appreciate the fact 22 that there was certain delays just to respond and 23 more information requested and things like that. 24 But it kind of morphed into, I think, the Department 25 forgetting on his 90-day rule. And then I asked 26 for, I believe -- there's a rule about written 27 confirmation by a Chief or an Assistant Counsel that 28 that has been granted, and I've never been provided 61 1 that that ever -- permission was given. 2 So I'm just saying that there's certain 3 written rules that I, as a lawyer, would have 4 followed. And then when I try to verify that they 5 were followed by the Department, we were never 6 provided that information. 7 And in fact when Bruce Morgan and Catherine 8 Wurst explained delays to, I believe, Ms. Chinn, 9 those memoranda were never provided to us and I felt 10 that that created something beyond the regulation. 11 MR. RUNNER: Okay. Let me ask the 12 Department, how many days of interest relief were 13 provided for in this? 14 MR. KWEE: I believe there were 13 -- about 15 13 months for the -- from the audit period. And 16 then from March, I believe -- March to December for 17 the time it was with the Appeals Division. So is 18 that -- 19 MR. HANKS: Nine months. Nine and 13. 20 MR. RUNNER: Nine and 13? 21 MR. HANKS: 22 months total. 22 MR. RUNNER: 22 months. 23 MR. ANGEJA: And if I might add, that 24 nine-month period does overlap the September 2013 25 eminent domain letter to which he referred. 26 MR. RUNNER: Mm-hmm. 27 MR. ANGEJA: And the reason we chose March 28 13th of 2013 is because the earliest possible date 62 1 on which the D&R would have been ready to write, 2 excluding any delays in between that -- we had a few 3 small ones in between one person's response and then 4 the next person's response. If we subtract all 5 those out, the earliest the D&R would have been 6 ready to write was December 12th; 90 days later 7 would be March 13th -- or March 12th. 8 So we're granting relief from after -- 9 well, for that period between when the D&R could 10 have been issued at its earliest point, to the point 11 at which it was actually issued. That's the nine 12 months explanation. 13 MR. THOMAS: Well, and if I may only add -- 14 MR. RUNNER: Real quick. 15 MR. THOMAS: -- the -- the corrections I 16 asked after getting the D&R was on December 31st, 17 2013. The Supplemental D&R came out on June 14, 18 2014. Then I requested corrections on August 15, 19 2014. And then the second D&R came out July 21st, 20 2015. 21 So, that's almost a year in 2014/2015 that 22 the Department is ignoring. And I appreciate 23 people's workloads and everything, but the meter's 24 running on my client to pay for the fact that they 25 can't work faster. And that's what I, I think, have 26 a problem -- my client has a problem with. 27 MR. RUNNER: So during that -- let me go 28 back to the Department. 63 1 So during that year period -- or Appeals -- 2 during that year period of time, there were 3 corrections that was requested by the taxpayer. Is 4 that -- is that typical kind of time response, six 5 months, to have the issue still working? 6 MR. ANGEJA: Probably Appeals should answer 7 for that -- 8 MR. RUNNER: Okay, go ahead. 9 MR. ANGEJA: -- because that's in our -- 10 MR. RUNNER: Please, please. 11 MR. ANGEJA: We received timely RFR's to 12 our SD&R's. And then we wrote -- protocol is to 13 give a response -- or give the opportunity to the 14 other side a chance to respond. From the date it's 15 then ready to write, we then have 90 days from that 16 date to issue an SD&R. We were timely compliant 17 with the SD&R's that got issued in this case. The 18 last one that got issued was -- I pulled it because 19 we didn't have the correct analysis for 1705 in 20 preparation for the last Board hearing. 21 MR. RUNNER: So you met all the time -- you 22 met the time schedules that you're required to meet? 23 MR. ANGEJA: Yes. The only delay that we 24 had that we would apologize for is that nine-month 25 period from March -- from when the D&R should have 26 been issued to the time that it was issued. 27 MR. RUNNER: That nine-month period is one 28 that you already gave them interest credit -- 64 1 interest credit for. 2 MR. ANGEJA: That's in our summary, and the 3 table correctly reflects that. 4 MR. RUNNER: Okay. 5 MR. HORTON: Mr. Runner, if I may. 6 MR. RUNNER: Yeah, go ahead. 7 MR. HORTON: To Appeals, if you could do us 8 a favor and provide the full description of the 9 A-B-C and D-F-G's and the F-R-A's and so forth for 10 the benefit of the -- 11 MR. RUNNER: That's true. It would be 12 helpful. 13 MR. HORTON: -- taxpayer. 14 MR. RUNNER: And for me. 15 MR. ANGEJA: I don't understand that 16 question. I'm sorry. 17 MR. HORTON: That's my point. 18 MR. ANGEJA: Oh, "RFR"? We issue an SD&R 19 which is a Supplemental Decision and Recommendation. 20 Decision and Recommendation is the first one that 21 comes out. If we get a timely request for 22 reconsideration, which is a taxpayer pointing out 23 something that they believe we got wrong, we treat 24 that -- we call it an RFR, Request for 25 Reconsideration. We issue a supplemental to address 26 that and we have something in writing for the 27 parties. 28 We got two RFR's in this case. So two 65 1 SD&R's prompted by the taxpayer. I caused the last 2 one. 3 MR. HORTON: Excellent. Thank you. 4 Member Ma. 5 MS. MA: Okay. So, I'm going to go back to 6 the auditor again and the auditor's advice to the 7 taxpayers. Can we go back to that? 8 So I -- to the taxpayer, do you feel that 9 the auditors, in their audit, reviewed the issue in 10 question and whether they found the issue, you know, 11 this Schedule G, line 20 item -- okay, was 12 schedule -- 13 Did you fill out Schedule G, line 20 during 14 any of the audits? 15 MS. GORMAN: All of them. 16 MS. MA: All of them. 17 And did the auditor ask you to correct the 18 line because it was incorrectly done in any of those 19 audits? 20 MS. GORMAN: In the appeal, the 2006 to 21 2008, when Connie Norton received James Kuhl's, 22 after she requested it from him -- because she 23 couldn't answer line 20 either -- she then told me I 24 needed to do line 20 differently. 25 She couldn't explain to me at that point, 26 which was in 2010, clearly, because it was confusing 27 and convoluted to her still, even after a nine-page 28 memorandum. 66 1 So she requested I talk to Eddy Iyoha, and 2 that's when he sent me a completely different set of 3 instructions for doing line 20, which I then did. 4 And that's where the 2010 to 2013 audit was done to 5 the amended correction, and still we are overpaid. 6 There is nowhere at all that Port Petroleum 7 kept the money. There were errors done in each 8 audit. In the third audit he caught much more than 9 in the -- or the 2010 to '13 audit done by Lance 10 Jackson. Every time his superior sent him back, 11 which was twice at his level and once by the 12 Sacramento level, the credit grew from, like, 13 20-some-thousand to 46,700 by that time, along with 14 the SG offsets that are not picked up in his audit, 15 were not picked up in the second audit. And if it 16 had been, our credit in the second audit would have 17 been much greater. 18 If they had audited districts, it would 19 have been substantially greater. And if Connie 20 Norton really understood how to do the audit and 21 have the time, her time was running out. She had to 22 put this -- she -- it was a constant rush with 23 Connie because she was transferring to another -- I 24 think the Riverside office, and all she could do is 25 do the paperwork that she had to do. She couldn't 26 spend anymore time going over SG's or districts or 27 any other thing, and she had to submit this 28 nonconcurred. 67 1 She did her -- what she called a 414Z log 2 which she did in a statement summary on May 10th, 3 and said in there that these forms need to be 4 revised. 5 Lance Jackson, in my third audit, the 2010 6 to 2013, he said, I understand your frustration, if 7 I was not up on all of this right now due to the 8 fact that you are in -- you are the talk of our 9 office, by the way -- I would not even have known 10 how to audit you. He said, I think we only have 11 three our four people at this time that could even 12 possibly come out and do this audit. 13 MS. MA: Okay. But the audit -- the audit 14 in question right now is the '06 to '08. 15 MR. KWEE: Yes. 16 MS. MA: Right? 17 And then the subsequent audit in '010 to 18 '013, they corrected it based on Eddy's email. 19 MR. THOMAS: Right. 20 MR. HANKS: Except that we have the 21 intermediary period or that FBO period that we were 22 talking about from -- 23 MS. MA: What's FBO? 24 MR. HANKS: -- 19 -- Field Billing Order 25 period -- 26 MS. MA: Okay. 27 MR. HANKS: -- from 1997. So during that 28 time period, we were able to reconcile the allowed 68 1 credit for sales tax prepaid to fuel suppliers with 2 the reported prepaid sales tax collected from -- 3 from the taxpayer. 4 MS. MA: Okay, so -- 5 MR. HANKS: So those -- 6 MS. MA: -- during that audit -- 7 MR. HANKS: Yes, during that time period. 8 MS. MA: -- did you audit the Schedule G, 9 did they have a Schedule G, line 20? 10 MR. HANKS: Yes. 11 MS. MA: And did the auditor make any 12 adjustments or ask the taxpayer to make adjustments 13 because they incorrectly filed? 14 MR. HANKS: No. 15 MS. MA: Okay. 16 MR. HORTON: My understanding is there was 17 a period of time where possibly the taxpayer -- 18 where the taxpayer requested a copy of the previous 19 audit in order to be able to examine the previous 20 audit to determine if it was an error in law in 21 which he would be -- possibly be entitled to a 6596 22 relief if in fact that was provided, or a mechanical 23 clerical error which wouldn't fall under 6596. At 24 what time did the taxpayer make that request? 25 MR. KWEE: Oh, the taxpayer requested a 26 copy of the prior audit working papers on March 6, 27 2014, and the Department provided the audit work 28 papers on March 24th, 2014. 69 1 MR. HORTON: Repeat those numbers -- dates 2 again? 3 MR. KWEE: He requested it on March 6th, 4 2014. And the Department responded and provided 5 them on March 24th, 2014. 6 MR. THOMAS: Can I just say that that -- 7 MR. HORTON: So, the Department provided 8 the -- the taxpayer made the request for the 9 previous audit and the Department provided it 10 within -- 11 MR. KWEE: That was about 18 days, I 12 believe. 13 MR. THOMAS: Well, it was a public record 14 request that required compliance in 14 days, and 15 then I think if they wanted an extension. But the 16 point of that request was made because at the time 17 they were saying that first audit -- 18 MR. HORTON: Had you -- had you -- my 19 apologies. 20 MR. THOMAS: That's all right. 21 MR. HORTON: The only reason, I don't want 22 you to trap yourself up. Trying to be helpful. 23 Had you requested the audit prior to the 24 public records request? 25 MR. THOMAS: No. 26 MS. GORMAN: I -- I did. I -- to Connie 27 Norton. 28 MR. HORTON: And when did you make that 70 1 request? 2 MS. GORMAN: Back in May of 2010, I 3 believe. And she, in her own write-up, said the 4 prior audit was not available. 5 MR. HORTON: Okay. 6 MS. GORMAN: It's in her write-up. 7 MR. HORTON: And what caused you to -- 8 To the Department, if that request 9 occurred, why was there -- presuming that a public 10 records request is not necessary in order to get a 11 copy of a previous audit, that there was some 12 motivation on the part of the taxpayer to go to the 13 extent of a public record request because they 14 perceived that they had made a previous request and 15 the Department was not complying, from their 16 perspective. 17 MR. KWEE: I -- I would note, first off, 18 that we also provided a copy of the reported field 19 audit on May 22nd, 1998. 20 And as to their later request, I'm not sure 21 why they were unable to find the work papers when 22 she says that she requested it. 23 MR. HANKS: Our standard policy though 24 would be to supply copies of audit work papers 25 without a Public Records Act request. That's -- 26 that's standard for us. 27 MS. GORMAN: But it was denied, that there 28 even was one. 71 1 MR. HORTON: And -- and in the audit 2 working papers there's -- you say that there's -- 3 the auditor actually wrote that the audit working 4 papers weren't available? 5 MS. GORMAN: Mm-hmm. 6 MR. HORTON: Do you have a copy of that? 7 MR. KWEE: Well -- 8 MR. HORTON: One second. 9 MR. KWEE: Okay. 10 MR. HORTON: While they're looking, 11 Department? 12 MR. KWEE: I was just also going to clarify 13 that the Board has been converting to electronic 14 copies of records. So there might have been -- it 15 might have been possible that the documents, paper 16 documents, were misplaced during the conversion to 17 keeping documents stored electronically. 18 MR. HORTON: Okay. And what period of time 19 was that? What period of time was that? 20 MR. HANKS: Right. Mr. Horton, I'm trying 21 to think of the period of time that that would have 22 related to. I think we started that conversion 23 process about three years ago, three or four years 24 ago. And so all paper records of audit work papers 25 are being scanned and retained now digitally. 26 MR. HORTON: Okay. To the Appellant. 27 MR. THOMAS: I'm not sure I can find that 28 right now, Mr. Horton. 72 1 MS. GORMAN: It's in one of these. 2 MR. HORTON: Okay. 3 MR. THOMAS: I think we're looking for a 4 form that's in the exhibit book, but I haven't been 5 able to identify which form to look for, so I'm 6 sorry. 7 MS. GORMAN: It's on the -- the May 10th, 8 2010 supervisory comments. 9 MR. THOMAS: That's Exhibit 13001. 10 MS. GORMAN: And it's -- 11 MR. THOMAS: What paragraph? 12 MS. GORMAN: The last -- the second to the 13 last paragraph. 14 "Although the audit work papers were 15 not available, it appears the Board meeting 16 for the claim for refund held on June 26, 17 1998, that the Board and staff were unaware 18 the taxpayer operated a cardlock system. 19 The audit approach and schedule is not the 20 same for a cardlock system as a gas 21 station." 22 This is, again, where she said the method 23 of doing that first audit was incorrect by the only 24 papers she had. 25 MR. HORTON: Ms. Richmond, can someone give 26 that to the Department? 27 MR. THOMAS: I'm not sure what Ms. Gorman 28 is reading from is the same exhibit I referenced. 73 1 She's referring -- 2 MR. HORTON: To the Department. I don't 3 need to see it. Just need them to look at it and 4 verify it. Give us their perspective. 5 MR. THOMAS: I think on Exhibit 13001 it's 6 actually the second paragraph where it says, 7 "Although this was a normal audit selection ..." I 8 think that's what she was reading from. Right? 9 MR. HORTON: What are your thoughts? 10 MR. KWEE: I would clarify that the prior 11 audit working papers do state that the gas station 12 became -- I'm just quoting: 13 "The gas station became a part of the 14 CFN network cardlock system on June 1995." 15 And there were other references in the work papers 16 to the Schedule G's and that aspect. 17 MR. HORTON: Yeah. 18 MR. KWEE: So, I think -- 19 MR. HORTON: I mean I appreciate that, but, 20 you know, my focus in that regard. To me, this 21 clearly is a -- is a clerical error where they 22 overstated their subsequent deductions. And 23 mathematical, as opposed to a point of law, lack of 24 understanding of the law, how it relates to cardlock 25 facilities, how it relates to gas stations and so 26 forth. 27 So I'm not really -- I'm not asking those 28 types of questions, but I appreciate the 74 1 clarification. 2 I'm more concerned with the taxpayer having 3 to request a copy of the previous audit pursuant to 4 a public records request. I mean, you don't go 5 there unless you're not getting it, or someone 6 didn't get it. And if that document indicates that 7 the auditor stated that -- 8 MR. HANKS: Mr. Horton. 9 MR. HORTON: -- the working papers weren't 10 available and then if the testimony of the 11 Department that they may not have been available due 12 to electronic transfer, that's an error on the part 13 of the Department that would have positioned the 14 taxpayer at an earlier stage to have made a call on 15 this transaction. 16 MR. HANKS: Mr. Horton, I would just add 17 that some taxpayer representatives actually file 18 Public Record Acts requests for any books and 19 records that relate to the -- the audits that we 20 perform. And so that actually is standard procedure 21 for -- for some representatives. Of course it's not 22 necessary. We provide copies. 23 MR. HORTON: Fortunately, they're right 24 here in front of us. 25 MR. HANKS: Right. We willingly supply 26 copies. 27 MR. HORTON: So why did you file it? 28 Public records request? 75 1 MR. THOMAS: Because I didn't get -- I 2 wasn't getting it anywhere else. And if they 3 wouldn't -- I wanted to get them committed to if 4 they don't have it, they don't have it. 5 They were -- they were trying to say that 6 that first audit was a limited audit. That was 7 their original staked out position. 8 And, yes, I believe the taxpayer had an 9 absolute right to all these documents, but they had 10 said they didn't have them. So, I thought it would 11 be more formal request to ask for it in that manner, 12 even though I didn't feel it was necessary. 13 MR. HORTON: You received two documents 14 from the Board of Equalization via our 15 representatives, explaining the law and so forth. 16 Has the Department been able to receive those -- 17 review those documents? 18 MR. HANKS: I'm sorry, Mr. Horton. Can you 19 repeat your question? 20 MR. HORTON: The taxpayer's testimony is 21 that they received an explanation from two different 22 individuals. And that explanation, they point out, 23 indicates the complexity of this audit. 24 Has the Department reviewed those 25 explanations to ensure that they're both correct and 26 that we didn't issue advice that we -- 27 MR. HANKS: That was inaccurate, right, 28 right. 76 1 We have looked at the information that was 2 supplied by -- by headquarters. We -- we reviewed 3 the most recent information that we had that's 4 fairly contemporaneous with the period -- 5 MR. HORTON: And I'll tell you, I'm 6 actually going to -- not this audit, but I am going 7 to the subsequent audit as to whether or not, just 8 to make sure that -- 9 MR. HANKS: Right, right. 10 It's our understanding, just based on the 11 record, that the taxpayer had a clear understanding 12 of how to report these transactions after they filed 13 amended returns in this 1997 period, and that was a 14 period following when the business started operating 15 a cardlock operation, which, as Mr. Mendel 16 indicates, does add complexity to -- to the sales 17 and use tax obligations. 18 Typically what -- what happens in instances 19 of this sort where we have policy and guidance 20 coming out to the district and advising auditors 21 on -- on changes in audit methods, or reviews a 22 cardlock facility in this case, our Tax Policy 23 Division will put out policy guidance to audit 24 staff; that's what happened in 2009. And it's that 25 staff that -- it's that document that they're 26 referring to that Mr. Kuhl prepared in 2009. 27 For the following audit period, it appears 28 that there were some questions that the district had 77 1 concerning that audit period, and so they contacted 2 a staff member within our audit determination or 3 refund section who are very familiar with Schedule 4 SG's and G Schedules that get prepared in connection 5 with cardlock operations. It's that person that the 6 taxpayer was responding to or referring to that they 7 received guidance from. 8 MR. HORTON: Okay. All right. 9 Further discussion, Members? 10 Hearing none, is there a motion? 11 MS. HARKEY: Take the matter under 12 submission. 13 MR. HORTON: Member Harkey moves to take 14 the matter under submission. Second by Member Ma. 15 Without objection, Members -- 16 MR. THOMAS: Thank you. 17 MR. HORTON: -- such will be the order. 18 ---oOo--- 19 20 21 22 23 24 25 26 27 28 78 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 November 18, 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 78 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: December 15, 2015 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 79