1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 DECEMBER 16, 2015 10 11 12 13 14 ITEM H 15 TAX PROGRAM NONAPPEARANCE MATTERS - ADJUDICATORY 16 ITEM H10 17 LEGAL APPEALS PROPERTY TAX MATTERS 18 19 20 21 22 23 24 25 26 27 REPORTED BY: Kathleen Skidgel 28 CSR NO. 9039 1 1 P R E S E N T 2 3 For the Board Jerome E. Horton of Equalization: Chairman 4 5 Sen. George Runner (Ret.) Vice Chairman 6 7 Fiona Ma, CPA Member 8 9 Diane L. Harkey Member 10 11 Betty T. Yee State Controller 12 13 Joann Richmond Chief 14 Board Proceedings Division 15 For Staff: Lou Ambrose 16 Tax Counsel IV Legal Department 17 Kenneth Thompson 18 Chief State-Assessed Property 19 Division 20 Richard Reisinger Manager 21 Property Taxes State-Assessed Property 22 Division 23 24 ---oOo--- 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 DECEMBER 16, 2015 4 ---oOo--- 5 (Mr. Horton not present.) 6 MR. RUNNER: That takes us to H10. 7 MS. HARKEY: I would like to separate items 8 1 and 17 for a quick discussion. 9 MR. RUNNER: Okay. 10 MS. HARKEY: And then move the -- 11 MR. RUNNER: 1 and 17? 12 MS. HARKEY: And move the rest of the -- 13 MR. RUNNER: I'm sorry, was that 1 and 17? 14 MS. HARKEY: 1 and 17. 15 MR. RUNNER: Okay. Is that a motion then 16 to -- to -- 17 MS. HARKEY: It's a motion to -- 18 MR. RUNNER: -- take up the balance? 19 MS. HARKEY: -- pick up the balance. 20 MS. YEE: I'll second that. 21 MR. RUNNER: Okay. All in favor? 22 MS. YEE: Aye. 23 MS. MA: Aye. 24 MR. RUNNER: Okay. Items 1 and 17 were 25 pulled. 26 Member Harkey. 27 MS. HARKEY: On Item 1, I'm not 28 convinced -- this is Verizon California, and I'm not 3 1 convinced that the BCRI methodology is superior to 2 the taxpayer's suggested methodology. And I 3 understand we are cautious because of pending 4 litigation, but I would need a little more detail 5 before I could support the BCRI valuation. 6 So I am going to recommend a no vote on 7 Number 1. 8 MR. RUNNER: Let me -- let me ask again, 9 maybe from staff, because I -- part of our problem 10 with these issues is that we are required to make a 11 decision today. Isn't -- do I have that correct? 12 MR. AMBROSE: Yes, sir. 13 MR. RUNNER: And -- and the decision is not 14 only a yes or no, but is actually an evaluation? 15 MR. AMBROSE: Yes. The Board must set a 16 final value or decide a final value. 17 MR. RUNNER: So our alternative would be to 18 either accept the value or to -- or to replace it 19 with a different value. 20 MR. AMBROSE: Correct. 21 MR. RUNNER: Okay. Let me -- I don't know 22 if Member Harkey has an idea in terms of that or 23 what you're thinking. 24 MS. HARKEY: Well, I would have, had we had 25 more discussion on this; but because of litigation, 26 we can't. And maybe staff would like to comment, or 27 not. 28 MR. RUNNER: Mr. Thompson. 4 1 MR. THOMPSON: The -- the issue here is 2 Verizon, for the first year, proposed a different 3 depreciation method, using a depreciation method 4 that relied on a -- a company that did a study, 5 included obsolescence in its depreciation number, 6 which is contrary to the Board Rule 6, which 7 mandates that any obsolescence adjustment needs to 8 be separately stated from the -- from the 9 depreciation. 10 Therefore, staff did not use the method in 11 the original appraisal that was proposed by Verizon. 12 And the -- in the petition that Verizon filed, they 13 really did not do anything with that petition to 14 further define what the issue was. They just stated 15 their opposition to us using the BCRI factors, which 16 is a nationally known, used depreciation specialist 17 that publishes depreciation factors, not only for 18 the telecom industry but for -- for all industries. 19 We subscribe to that service and we use it in the 20 preparation of our own depreciation factors for all 21 of our telecom properties. 22 So, in staff's opinion, that was more 23 appropriate and better reflected the market for the 24 depreciation of telecom property than -- than 25 Verizon's TFI factors, which were -- with 26 obsolescence adjustment were proposed for the first 27 time this year. Verizon had an opportunity, both in 28 the -- in the initial production of their appraisal 5 1 and again in the petition, to provide information to 2 staff and they did not do that. 3 MR. RUNNER: Procedurally, um -- 4 MR. THOMPSON: They had their opportunity. 5 The detail was not forthcoming. 6 MR. RUNNER: Okay. And -- and -- and in 7 the sense that the detail was not forthcoming to 8 staff, if indeed they wanted to go ahead and -- 9 and -- and move through a -- a -- a appeal process 10 to the Board or in this discussion and discussions 11 to the Board Members themselves in regards to this 12 issue, that would have been the typical path? Or -- 13 MR. THOMPSON: That would have been 14 appropriate had they so chose. They -- they waived 15 their -- not only their oral hearing but they waived 16 their appeals conference. So we did not -- we did 17 not engage them on this issue, but that was their 18 choice, not ours. 19 MR. RUNNER: And their -- and the time 20 problem -- the time from that would have been from 21 the -- the valuations that were set back in, what, 22 May? 23 MR. THOMPSON: Valuations were set in May. 24 The petition was filed before July 20th. 25 MR. RUNNER: So if indeed their process 26 would have been to come and be concerned about 27 the -- the valuation, they would have typically then 28 been able to create a public hearing and an appeal 6 1 process in the period of time before this -- before 2 this. 3 MR. THOMPSON: Correct. 4 MR. RUNNER: Okay. Okay. 5 Any other questions or discussion on that? 6 Okay. That was -- that was Item Number 1. 7 Is there a motion? 8 MS. YEE: Move to adopt the staff 9 recommendation. 10 MR. RUNNER: Second. 11 All in favor? 12 MS. MA: Aye. 13 MS. YEE: Aye. 14 MR. RUNNER: Opposed? 15 Okay. 16 And then 17. 17 MS. HARKEY: Item 17, I want to move to 18 abate the ten percent penalty imposed by the 19 State-Assessed Property Division. And it's a 20 failure-to-file penalty of ten percent under Section 21 830, due to reasonable cause, and occurred despite 22 ordinary care and no willful neglect. That's the 23 position. 24 I think that the penalty was assessed for 25 not providing a financial statement required for a 26 complete and accurate property statement. However, 27 SES Americom asserted that they filed a financial 28 statement generated from their company's system that 7 1 included the required information, and that the 2 format they had provided the information for the 3 past 15 years. But it just wasn't in the desired 4 BOE format. 5 They are agreeing to format information to 6 the appropriate form in the future, but I don't 7 think it warrants a $328,000 penalty. 8 So, other than that, I approve staff 9 recommendation, but I just want to eliminate the 10 penalty. 11 MR. RUNNER: So the motion you would be 12 making would be to -- 13 MS. HARKEY: Support staff 14 recommendation -- 15 MR. RUNNER: -- support staff 16 recommendation minus the -- 17 MS. HARKEY: -- minus the penalty of 18 $328,000. 19 MR. RUNNER: Okay. 20 MS. HARKEY: Waive the penalty. 21 MR. RUNNER: Before we go there, let me 22 hear from staff. 23 MR. AMBROSE: I'm sorry. Excuse me. 24 MR. RUNNER: Go ahead, yes. 25 MR. AMBROSE: The -- the only issue before 26 the Board is the penalty. 27 MR. RUNNER: Okay. 28 MR. AMBROSE: So the value wasn't 8 1 disputed. 2 MS. HARKEY: So the valuation, I'm not 3 disputing. 4 MR. RUNNER: Okay. 5 MR. AMBROSE: Okay. 6 MR. RUNNER: So the only issue before us 7 right now is the penalty. 8 MR. AMBROSE: Right. So the motion would 9 be just to abate the penalty. 10 MR. RUNNER: Okay. Okay. 11 MS. YEE: Can we get a response from staff 12 about -- 13 MR. RUNNER: Yes, please. 14 MS. YEE: -- the format of the information 15 provided? 16 MR. REISINGER: Yes. In the -- the last -- 17 last year and this year they did not provide the 18 income statement information that we require in the 19 property statements. 20 Last year we informed them that the 21 information they gave us was not appropriate or 22 adequate. And then this year they filed the same 23 information. And then when they filed the petition, 24 they just gave the same information that they 25 provided in the property statement. 26 So, from our perspective, they've ignored 27 our request for the information. 28 MS. MA: Is there anyone from the company 9 1 to come and -- 2 MS. HARKEY: These are nonappearance 3 generally. 4 MR. RUNNER: Right. Well, again, they're 5 nonappearance because they chose to be 6 nonappearance. 7 MS. HARKEY: Right. 8 MR. AMBROSE: Correct. 9 MR. RUNNER: And I guess this is where I 10 struggle with some of these issues. And that is, 11 I'm as open as anybody to hear -- hear -- hear from 12 the taxpayer in regards to what their issues are and 13 feel like where they have been maybe not adequately 14 dealt with. And I'm as available as anybody, I 15 think, in order to do that. 16 So it's frustrating to me, I guess if, you 17 know, when there's a concern like that but yet no 18 one picks up the phone or sets up a meeting. And -- 19 and so, for that reason, it's hard for me to really 20 get engaged to know exactly what took place because 21 if they would have contacted me, I would have had a 22 meeting with them. I would have had staff come over 23 and we would have had a nice long discussion, and I 24 would have tried to understand what the situation 25 was. But short of that, it's hard for me to then be 26 sympathetic to the taxpayer. 27 MS. HARKEY: Well probably I should have 28 used my one chance to talk to a Board Member then 10 1 and I did not do it. We did discuss this with the 2 taxpayer and we felt sympathetic to the argument. 3 I did not -- I -- I am very concerned with 4 discussing anything up here with anybody because of 5 what goes on. So I'm just trying to -- this is 6 not -- it's not a burning issue, but I think 7 $328,000 is a lot of money for a format that we 8 could understand but just wasn't in the format we 9 wanted. And, in fact, they have agreed that they're 10 going to -- they're going to provide that format 11 next year. 12 So I think 328,000 is just a lot of money 13 for a failure to -- 14 MR. RUNNER: Mr. Thompson. 15 MR. THOMPSON: Just a coup- -- just a 16 couple of issues. The actual amount in tax is about 17 $3500. But, if they would have given us the 18 information along with their petition that we 19 required, we probably would have recommended an 20 abatement of the penalty. The penalties here are 21 not punitive. They're really just to enforce 22 compliance so we can do our -- we can do our job. 23 MS. HARKEY: Right. But you -- well, you 24 just said you would have recommended. 25 MR. THOMPSON: If they had provided the 26 information that we had asked for, yes. 27 MS. HARKEY: Yeah, okay. 28 (Mr. Horton entered the Boardroom.) 11 1 MR. RUNNER: Okay. I'll finish up this 2 item and turn it back over to the Chair. 3 So this takes us to Item 17. There was a 4 motion to waive the penalty on Item 17. 5 I don't think there was a second. 6 MS. HARKEY: No second. 7 MR. RUNNER: Is there another motion? 8 MS. YEE: Move to adopt the staff 9 recommendation. 10 MR. RUNNER: Okay. 11 MR. HORTON: Second. 12 MR. RUNNER: Second. 13 Without objection? Object? 14 MS. HARKEY: Object. 15 MR. RUNNER: Object. Okay. 16 Okay, that takes us through -- finishes up, 17 Mr. Chair, H -- Item H10. 18 MR. HORTON: Should probably take a vote. 19 MR. RUNNER: We just did. 20 MR. HORTON: There was an objection. 21 MS. MA: Four ayes, one -- 22 MR. RUNNER: Okay. I'm sorry. I thought 23 she saw it. It was -- I'm sorry. 24 Did you see the vote? 25 MS. RICHMOND: Yes, I did. 26 MR. RUNNER: Okay, thank you. 27 Okay. I'll turn it back over to the Chair. 28 We are through H10. 12 1 MS. MA: We did H7, 8, 9 and 10. 2 MS. YEE: I1. 3 MS. MA: So where are we going? 4 MS. YEE: I1. 5 MS. MA: I1? 6 MR. HORTON: Madam Clerk, on the most 7 recent action, there's a motion and a second, with 8 an objection noted. 9 Please call the roll. 10 MS. RICHMOND: Mr. Horton. 11 MR. HORTON: Aye. 12 MS. RICHMOND: Ms. Harkey. 13 MS. HARKEY: This is repeat of the last? 14 MR. RUNNER: Yeah, thanks. 15 MS. HARKEY: No. 16 MS. RICHMOND: Mr. Runner. 17 MR. RUNNER: Aye. 18 MS. RICHMOND: Ms. Ma. 19 MS. MA: Aye. 20 MS. RICHMOND: Ms. Yee. 21 MS. YEE: Aye. 22 MS. RICHMOND: Motion carries. 23 MR. HORTON: Thank you. 24 ---oOo--- 25 26 27 28 13 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 December 16, 2015 I recorded verbatim, in 10 shorthand, to the best of my ability, the 11 proceedings in the above-entitled hearing; that I 12 transcribed the shorthand writing into typewriting; 13 and that the preceding pages 1 through 13 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: December 21, 2015 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL 22 Hearing Reporter 23 24 25 26 27 28 14