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 12 13 14 15 16 FINAL ACTIONS 17 18 19 20 21 22 23 24 25 26 27 REPORTED BY: Kathleen Skidgel 28 CSR NO. 9039 1 1 P R E S E N T 2 3 For the Board Jerome E. Horton of Equalization: Chairman 4 5 Sen. George Runner (Ret.) Vice Chair 6 7 Fiona Ma, CPA Member 8 9 Diane L. Harkey Member 10 11 Yvette Stowers Appearing for Betty T. 12 Yee, State Controller (per Government Code 13 Section 7.9) 14 Joann Richmond 15 Chief Board Proceedings 16 Division 17 For Staff: Jeff Angeja 18 Tax Counsel IV Legal Department 19 20 ---oOo--- 21 22 23 24 25 26 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 NOVEMBER 18, 2015 4 ---oOo--- 5 MR. HORTON: Ms. Richmond. 6 MS. RICHMOND: That concludes our hearings 7 for today. Next are those items that were taken 8 under submission. 9 Our first item is C2 Stainless Fixtures, 10 Inc. 11 ---oOo--- 12 ITEM C2 13 STAINLESS FIXTURES, INC. 14 NO. 505327 (AP) 15 ---oOo--- 16 MS. HARKEY: I will move -- 17 MS. MA: Hold on. 18 MS. HARKEY: Ready? 19 MS. STOWERS: That's a 30/30/30. 20 MS. MA: 30/30/30 30. 21 MS. HARKEY: 30/30/30. 22 MS. STOWERS: We already did that. 23 MR. HORTON: Member Harkey moves 30/30/30. 24 MS. HARKEY: With ed -- for education and 25 resources from BOE to be provided, to ensure that 26 the taxpayers fully understand their 27 responsibilities. 28 MR. HORTON: Second by Member Ma. 3 1 Without objection -- 2 MR. ANGEJA: Clarification, if I might. 3 MR. HORTON: Um -- 4 MR. ANGEJA: Earlier the discussion was to 5 continue the hearing, conditioned -- 6 MR. RUNNER: Yes. 7 MR. ANGEJA: -- on the 30/30 -- 8 MR. RUNNER: Yes, and continue the 9 hearing. 10 MS. HARKEY: Right. I'm sorry. That's not 11 part of our 30/30/30 automatically, is it? 12 MR. ANGEJA: No, it's not. 13 MS. HARKEY: Okay. Thank you. 14 MR. RUNNER: We could make it that way. 15 That's okay, we'll -- 16 MR. ANGEJA: If you -- if you direct us 17 that that's how you want it interpreted, we could do 18 that as the standard and then you wouldn't have to 19 specify and I wouldn't -- we wouldn't have to 20 interrupt you, going forward. If you just tell me 21 right now, I can do it. 22 MR. HORTON: My advice is leave it to the 23 discretion of the Board. 24 MR. RUNNER: Yeah. 25 MR. HORTON: You never know where they may 26 fall. 27 MS. HARKEY: You never know -- 28 MR. RUNNER: You never know when we might 4 1 change our mind. 2 MR. ANGEJA: Okay. 3 MR. HORTON: Yeah. 4 MS. HARKEY: (Inaudible). 5 MR. HORTON: There's a motion and a second, 6 by Member Harkey, second by Member Ma. 7 Clarification noted, at the request of Mr. 8 Angeja. 9 Without objection, Members, such will be 10 the order. 11 ---oOo--- 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 1 MR. HORTON: Ms. Richmond. 2 MS. RICHMOND: Our next item is C6 Port 3 Petroleum, Inc. 4 ---oOo--- 5 ITEM C6 6 PORT PETROLEUM, INC. 7 NOS. 474336, 551074 (AA) 8 ---oOo--- 9 MS. MA: I move for the taxpayer. 10 MR. RUNNER: Second. 11 MR. HORTON: Member Ma moves for the 12 taxpayer, to adopt staff -- strike that. Moves for 13 the taxpayer. Okay. Second by Member Runner. 14 Objection noted. 15 MR. RUNNER: To me, clearly there was -- 16 there was -- there was just a lack of clarity in 17 regards to the business, what the business 18 activities were, confusion in regards to that 19 process. 20 I think that's what drives me -- I'm not 21 sure what other conclusion or whatever options we 22 have in terms of trying to nuance a solution. But 23 it seems to me that's what at least drives me to. I 24 believe it's the government's job to make clear 25 direction, and there were enough hiccups in this 26 process, to me, that we -- we did not do that. 27 MS. MA: And, you know, I -- they went 28 through an audit, and the auditors did not inform 6 1 the taxpayers that they were filing their Schedule G 2 line 20 incorrectly. They continued that practice. 3 I see that as written notification or -- I don't 4 know what the correct terms are -- from the Board of 5 Equalization until 2010 when he -- she got a email 6 from one of our staff members saying that she was 7 not filing correctly. And so she amended the 8 returns and filed according to what our Board Member 9 staff informed her. 10 And so, for me, also I think they did not 11 get the work papers, as requested, to understand 12 whether -- you know, what was in the work -- working 13 papers for the auditor, and that also concerns me as 14 well, that they would have been provided guidance 15 earlier if there was something in the working papers 16 or if the auditor had told them in the audit that 17 they were not filing correctly, so -- 18 MS. STOWERS: Well, I understand your guys 19 concerns. And I think there may have been some 20 miscommunication. But I'm a "no" because they did 21 collect the tax. And under 6596(b)(3), you cannot 22 get relief if you already collected the tax. 23 I do sympathize with them and I think that 24 they're an excellent candidate for Offer in 25 Compromise and to have the tax substantially reduced 26 through the Offer and Compromise Program. 27 MR. HORTON: Yeah, I have similar concerns, 28 Members. I mean the situation where the tax has 7 1 been actually collected and where the taxpayer has 2 acknowledged that they've collected the tax and made 3 a subsequent adjustment, and so we have an admission 4 that we've collected the tax from taxpayers, didn't 5 turn it over and now we're giving something back 6 that, quite frankly, has already been paid off. 7 Quite frankly, I don't even know if we can legally 8 do this. But certainly -- 9 MR. RUNNER: I -- I -- I -- 10 MR. HORTON: Maybe -- Mr. Angeja, maybe you 11 can assist the Members. I mean I'm still a "no," 12 but I do want to be helpful in -- let's -- 13 MS. HARKEY: May I make a comment? 14 MR. HORTON: -- make sure that we provide 15 some legal direction on how to accomplish what they 16 want to accomplish. 17 MR. ANGEJA: Well, there's -- the testimony 18 was that the audit advice was not erroneous. I 19 understand your concern that if they were doing it 20 wrong and an auditor doesn't tell them that, that 21 6596 requires that the auditor seize it. And we 22 have written evidence they examined it. In this 23 case they were given a schedule and the Department 24 reconstructed it to show that it was actually done 25 correctly. So they were shown how. 26 And then for the FBO period, that 27 intervening period between the allegedly erroneous 28 audit and the current one now, they properly did it 8 1 based on the direction from the Department. So we 2 don't have reliance or there's at least an 3 intervening understanding of the proper way. 4 So we don't have reasonable reliance on 5 erroneous advice once you know the proper way to do 6 it. Mr. Horton and Ms. Stowers have already noted 7 that they did collect the tax, and the statute 8 itself says relief is unavailable when you've 9 collected it, and they've admitted that. 10 We don't see how 6596 authorizes relief in 11 this instance. 12 MR. HORTON: Could we -- 13 Member Harkey. 14 MS. HARKEY: Thank you. I -- I have had 15 this all explained to me on board, by Board -- you 16 know white board, because I said, "Well, where did 17 this money go and how'd it get there?" 18 And here's the deal. They did collect the 19 dollars. They did remit the dollars, but then they 20 also took a credit for the remittance. And because 21 of that, and because of various offsets that 22 occurred through the other audit that we -- that we 23 heard, there was never a clear trace to the money 24 that was -- that was supposed to stay -- that the 25 credit was given for. There was never a clear trace 26 in the books because there was other things going in 27 and out of it. 28 And so, I don't think that this error was 9 1 by anyone's intention. But the fact does remain 2 they did collect the taxes and they did get -- they 3 did remit them but they got a credit for 'em. 4 So, I would have a problem going for a full 5 refund, but I would like to do away with interest. 6 And maybe I could make a substitute motion for that 7 and see if we could have acceptance for that. 8 Because I think -- I think they were wrong. 9 MR. HORTON: Maker of the motion is 10 acceptable to a substitute. 11 MS. HARKEY: A substitute motion that we -- 12 that we -- the tax remains, but the interest is -- 13 is eradicated or removed such that it's only tax. 14 And I think then they're down to, quite honestly -- 15 well, I won't put that in my motion. 16 That's my motion; I want to have the tax 17 remain and the interest be exonerated. 18 MS. STOWERS: Is that the outstanding 19 interest? 20 MS. HARKEY: All the outstanding interest. 21 Because I think it was a combination of errors and 22 mistakes and late audits and -- and late -- not -- 23 inability to get the audit reports, and just a 24 variety of things. I don't think they set out to do 25 anything wrong. I think it was just truly -- it's 26 just a kind of a messy situation, compounded by 27 several audits. And -- and also the advice that 28 they got in the written memos and trying -- it was 10 1 very complex. So, that would be my motion. 2 MS. MA: Second. 3 MS. HARKEY: Substitute motion. 4 MR. HORTON: Moved by Member Harkey to 5 grant relief of the interest amounts. Second by 6 Member Ma. 7 I'd concur with Member Ma's assessment as 8 well as Member Harkey's assessment. The audit -- 9 having to subpoena the audit, the audit being 10 request in May of 2010 and not being provided until 11 January, February, March of 2014 puts the taxpayer 12 at an unreasonable delay in providing them with the 13 information and the facts and the evidence necessary 14 to have made a call. 15 Had they been able to review the audit 16 working papers, they may have made the appropriate 17 call back in May of 2010; it wouldn't be here before 18 us. And so that's an unreasonable delay, 19 positioning the taxpayer at a totally disadvantage. 20 I get the logic of the Department, the 21 reason and why all this happened and it's indicative 22 of -- of just improving our technology, but the 23 taxpayer shouldn't have to pay for that. 24 So there's a motion and section 25 (verbatim). 26 MR. RUNNER: Let me just real quickly -- 27 MR. HORTON: Mr. Runner. 28 MR. RUNNER: -- comment to that. It seemed 11 1 to me, in light of this discussion, it makes it so 2 there needs to be a good look at 6829 that's still 3 hanging out there, too. I would want the staff to 4 take a hard look at that issue. 5 MS. HARKEY: So the motion -- 6 MR. ANGEJA: We have it as a directive to 7 accept that as an administrative protest, so there 8 will be an appeal of that. 9 MR. RUNNER: Okay. 10 MR. ANGEJA: So as far as I understand it. 11 I don't know what power I have, but we'll make that 12 happen. 13 MR. HORTON: So there's a motion and a 14 second to the effect as articulated by Member 15 Harkey, Member Ma. 16 Objection? 17 No objection noted. 18 Such will be the order. 19 ---oOo--- 20 21 22 23 24 25 26 27 28 12 1 MS. RICHMOND: Our next matter is D1 Almond 2 Corporation. 3 ---oOo--- 4 ITEM D1 5 ALMOND CORPORATION 6 NO. 867053 (STF) 7 ---oOo--- 8 MS. HARKEY: I'll move to support staff 9 recommendation with a contingency that we get 10 involved with the next part of the process, that my 11 office is notified so that we can assist with the 12 appeal process and try to ensure a -- a equitable 13 result for -- 14 MR. HORTON: Member -- 15 MS. HARKEY: -- for a first-time offense. 16 MR. ANGEJA: My only clarification would 17 be, that part of the involvement isn't part of this 18 appeal that's in front of you. 19 MS. HARKEY: Okay. Then I move to support 20 staff's recommendation. 21 MR. ANGEJA: And then we'll fully take the 22 rest of that as a directive as well. And I've 23 already been in contact with the people in Appeals 24 that will be handling that appeal. So we're very 25 well aware of the Board's sentiment on that issue. 26 MR. HORTON: Member Harkey moves to deny 27 the petition, adopt staff recommendation. Second by 28 Member Stowers. 13 1 Without objection, Members, such will be 2 the order. 3 ---oOo--- 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14 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 14 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: November 23, 2015 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 15