1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 JANUARY 26, 2016 10 11 12 13 14 15 LEGISLATIVE COMMITTEE 16 17 18 19 20 21 22 23 24 25 REPORTED BY: Kathleen Skidgel 26 CSR NO. 9039 27 Carole W. Browne 28 CSR NO. 7351 1 1 P R E S E N T 2 3 For the Board of Equalization: Fiona Ma, CPA 4 Chair 5 Jerome E. Horton Member 6 Sen. George Runner (Ret.) 7 Member 8 Diane L. Harkey Member 9 Yvette Stowers 10 Appearing for Betty T. Yee, State Controller 11 (per Government Code Section 7.9) 12 13 Joann Richmond Chief 14 Board Proceedings Division 15 16 For the Department: Michele Pielsticker Chief, Legislative and 17 Research Division 18 Randy Ferris Chief Counsel 19 Legal Department 20 Randy Silva Chief 21 Investigations & Special Operations Division 22 23 ---oOo--- 24 25 26 27 28 2 1 INDEX OF SPEAKERS 2 SPEAKER PAGE 3 4 Mike Gipson Assemblymember 5, 25 5 Kimberly Cargile 6 Director A Therapeutic Alternative 39 7 Cristina Garcia 8 Assemblymember 43 9 Ling Ling Chang Assemblymember 45 10 Les Spahnn 11 Legislative Director for Assemblymember Dodd 52 12 13 ---oOo--- 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 JANUARY 26, 2016 4 ---oOo--- 5 MR. HORTON: Members, now let us go to the 6 Legislative Committee where Member Fiona Ma is the 7 Chair. 8 Member Ma. 9 MS. MA: Thank you very much. 10 We are going to convene the Legislative 11 Committee. We have four bills on the agenda today. 12 And we will start with AB 567, Tax Amnesty: Medical 13 Cannabis, by Assemblymember Mike Gipson. 14 And, Ms. Pielsticker, perhaps you can read 15 our -- the introduction and the summary, and then we 16 will have Mr. Gipson present and open it up for 17 questions from our Members. Thank you. 18 MS. PIELSTICKER: Thank you, Ms. Ma. 19 Existing law imposes a sales tax on all 20 retailers for the privilege of selling tangible 21 personal property at retail, and that includes 22 medical marijuana. 23 This law would require the BOE to develop 24 and administer a tax penalty amnesty program for 25 sellers in a medical-cannabis-related business. And 26 it also applies tax amnesty to the Employment 27 Development Department as well as the Franchise Tax 28 Board. For our purposes, we have analyzed the sales 4 1 and use tax portion of the bill. 2 MS. MA: Mr. Gipson, welcome. 3 ---oOo--- 4 MIKE GIPSON 5 ---oOo--- 6 MR. GIPSON: Thank you very much, Madam 7 Chair and to the Board Members. 8 In the Wizard of Oz, Dorothy said, "There's 9 no place like home." I'm happy to be back here at 10 the State Board of Equalization. And now I'm 11 presenting Assembly Bill 567, which seeks to 12 increase the revenue by providing a tax amnesty 13 period for medical cannabis businesses that fails to 14 pay their taxes historically, are now looking at 15 being in compliance. 16 In the past, many businesses were afraid 17 that by paying sales tax to the State Board of 18 Equalization, they would be exposing themselves to 19 the subject of the federal prosecution. 20 Guiding from the United States Department 21 of Justice, has stated that the Federal Government 22 will refrain from prosecuting cannabis businesses 23 that operate in the state that has developed a legal 24 framework. Now that California has officially taken 25 the step to establish a regulatory framework, we 26 have the opportunity to engage these businesses and 27 to ensure that they pay their fair taxes. 28 This measure will also require local 5 1 jurisdiction to deny business license to companies 2 where it is determined that they owe back taxes for 3 the businesses for the prior operating year. 4 I would like to start by accepting the 5 amendments. I'd like to strike section two of the 6 bill which deals with the dispensary employee, and 7 update the date that the amnesty period takes place 8 in the year 2017. 9 In closing, AB 567 will increase tax 10 compliance and revenue to the State of California. 11 I respectfully ask for your support with this piece 12 of legislation. 13 MS. MA: Thank you, Mr. Gipson. 14 Members. 15 MS. STOWERS: Chairwoman? 16 MS. MA: Yes, Ms. Stowers. 17 MS. STOWERS: Since AB 567 involves the tax 18 administered by the Franchise Tax Board as well, the 19 Controller would not participate on this vote. 20 MS. MA: If we have a vote. 21 MS. STOWERS: If we have a vote. 22 MS. MA: Okay. 23 Members, any questions? 24 Madam Harkey? 25 MS. HARKEY: Hi. I had an amendment. 26 I'm -- my concerns revolve around accepting large 27 amounts of cash. I have expressed them to 28 Mr. Gipson, as well as Members of this Board. 6 1 I found that there were several other 2 avenues that we could take, or that the dispensaries 3 could take to get their cash in, and one of them 4 being that they make either smaller, more frequent 5 deposits. There are other means rather than 6 Electronic Funds Transfer, such as money orders. 7 Oh, excuse me. I just got told that this 8 was a different bill. So, Mike, this is okay. I'm 9 sorry. 10 I apologize to the audience. This is going 11 to be -- I'm going to be on the other one. 12 So anyway, this bill, I have no problem 13 with. I think it makes sense. And, you know, 14 although I have issues with a lot of other items, I 15 think this bill makes sense to allow a tax amnesty 16 to get the funds in, and we'll see how we collect. 17 MR. GIPSON: Thank you very much. 18 MS. MA: Yeah, so I do have a question. 19 Your amendment is to start the period in 2017? 20 MR. GIPSON: Yes. 21 MS. MA: So presumably the Governor would 22 sign it, we would send notices to all of the 23 dispensaries out there, encourage them to register 24 and pay, and give them a whole year to be able to 25 comply? 26 MR. GIPSON: That's correct. 27 MS. MA: Okay. 28 Mr. Runner? 7 1 MR. RUNNER: Yeah, just a quick -- I was 2 just reading some notes here. I notice that it does 3 include the State Franchise Tax Board, correct? 4 MR. GIPSON: That's correct. 5 MR. RUNNER: Okay. And the interesting 6 issue is, at least according to what we've 7 identified, that there hasn't -- that there's not a 8 dispensary that has made, to their knowledge, 9 deposits for income tax. Whereas, on the other 10 hand, we struggle with the issue of cash payments 11 and that's coming in and we think that's important. 12 So, I think particularly I think it's going 13 to be interesting for FTB as we look at that 14 particular side of these businesses and the income 15 tax side, too. So I think it's an important step. 16 I think, you know, bringing the groups out of the 17 shadows, getting them into -- into -- into the full 18 stream there is important. And I do think we do 19 have some tremendous issues, and I think we'll be 20 addressing those a little bit later when it comes to 21 cash. Because what this means is there will be more 22 cash coming in. And we still have some tremendous 23 problems, obviously, with how it is that we in our 24 offices take this cash. And I know a number of 25 Members are trying to figure out how we can do that 26 in a safe way that lets taxpayers pay their tax, but 27 at the same time works in a way that keeps our 28 employees safe in the process. 8 1 MR. GIPSON: Absolutely. 2 MR. RUNNER: Thank you for this step, Mr. 3 Gipson. 4 MR. GIPSON: Thank you. 5 MS. MA: Mr. Horton. 6 MR. HORTON: Thank you, Madam Chair. Thank 7 you Assemblyman. Boy, that's -- this is probably 8 the first time I've said that. I usually refer to 9 you as "Member." 10 Member Gipson, thank you so very much for 11 bringing this important matter forward. As we all 12 know, there's -- there's a serious issue in this 13 industry. There's a bifurcation of those who want 14 to comply and they are participating in every way 15 that they can in order to have a regulatory process 16 that allows them to comply with the laws that are 17 proposed by the Governor and the Legislature. Even 18 to the extent of advancing initiatives that they 19 believe will even put stiffer restrictions on them 20 and guidance to protect the public, which is our 21 primary interest, at the same time to provide 22 revenue to the State of California, which is 23 secondary or third to this. The primary issue is to 24 protect the public. 25 But there is the other side, there is the 26 shadow side. There's the side that is intentionally 27 participating in illegal sales, illegal activities. 28 And we want to encourage both to come forward, 9 1 register and contribute to the State of California 2 as a productive, honest tax-paying citizen. And I 3 believe this opportunity of an amnesty will allow 4 them that opportunity -- a chance to do that. It 5 has proven over the years to accomplish that 6 objective. 7 The one thing, Ms. Pielsticker, I believe 8 the revenue estimates are relatively low and would 9 encourage us to take another look at that and 10 incorporate -- in the event that the bill is 11 extended to 2017, incorporate the potential of 12 legislation passing in 2016, which would encourage 13 far more individuals to be engaged in the retail 14 sale of cannabis. I would encourage you to take a 15 look at that. 16 With that, Members, I move that we support 17 the legislation, at the same time give consideration 18 to the issues at FTB. I know you are aware of 19 those. FTB is committed to -- that they are 20 technical in nature. They are committed to resolve 21 those issues and bring them forward during the 22 legislative process. 23 MS. MA: So I do have a question for 24 Mr. Gipson. So where in the process is your bill? 25 Is this a two-year bill? Or is this your first 26 year, or is it a two-year bill? 27 MR. GIPSON: Two-year bill. 28 MS. MA: Two-year bill. So where is it in 10 1 the process? 2 MR. GIPSON: Right now it's in Senate 3 Rules, right. 4 MS. MA: Okay. So it passed the Assembly. 5 MR. GIPSON: Mm-hmm. 6 MS. MA: And you've made the amendments. 7 It's in Assembly Rules. And then it's presumably 8 going to go to -- 9 MR. GIPSON: Committee. 10 MS. MA: -- Committee. 11 MR. GIPSON: Set side. 12 MS. MA: And then Appropriations and the 13 Floor. 14 MR. GIPSON: Absolutely. 15 MS. MA: Okay. 16 MR. RUNNER: And back to the Assembly, I 17 assume. 18 MS. MA: For concurrence, yeah. 19 MR. GIPSON: Yeah. For concurrence. 20 MS. MA: Ms. Harkey. 21 MS. HARKEY: Thank you, Ms. Ma. 22 I -- one of my concerns with approving 23 things early is that as they get amended, they may 24 take a different turn. 25 MR. RUNNER: Mm-hmm. 26 MS. HARKEY: And it might not be something 27 that I'm willing to support. 28 So what is our -- what is our ability to 11 1 monitor this? 2 MR. HORTON: It's sitting right next 3 to -- 4 MS. MA: Ms. Pielsticker. 5 MR. HORTON: Ms. Pielsticker. And she'll 6 continue to sit next to -- 7 MS. PIELSTICKER: I speak when spoken to. 8 MR. GIPSON: We will -- 9 MS. HARKEY: Yeah. Okay. One of my more 10 concern though is that sometimes the BOE only 11 addresses BOE issues and there may be other things 12 in the bills that I don't really want to have my 13 name on. 14 So, depending on how they get amended, a 15 lot of times things get thrown in that we didn't 16 really realize. And the only thing that we have 17 addressed in this bill is -- is the BOE function. 18 We did not address the drivers that I know are a 19 problem, that, you know, dispensaries have drivers. 20 I believe that there was a -- that there's an issue 21 with what -- who's supposed to be doing the driving. 22 I know I attended a seminar -- or not 23 seminar, a workshop where Barry Broad spoke and 24 definitely wanted them to be certified and, you 25 know, drug tested, yada, yada, yada. And so I 26 wonder where we're going with the legislation. 27 So that's my -- that's my only thing. It 28 could be something's added, could be something's 12 1 added that -- to the betterment of the bill or 2 something that I find that might create a little 3 more of a dangerous atmosphere. 4 So what could -- how could we do this? 5 Because I don't want Ms. Ma not to be actively 6 involved. 7 MS. MA: Well, I think this year we're 8 going to maybe try something different and see -- I 9 think it's very helpful for us to engage early and 10 for us to be helpful in terms of giving you the 11 correct allocation, cost allocation for 12 Appropriations earlier than later in case, you know, 13 you want to -- Members want to narrow the bill or 14 take into consideration other issues that may not 15 have been addressed on the legislative side. 16 So, I really like us engaging early. 17 Whether Members want to support a bill individually, 18 I think that is our prerogative. Mr. Horton may 19 want to speak to that. Or, we can vote as a 20 Committee and I think we will try to find consensus, 21 if we can, to say -- to kind of move forward as a 22 BOE-sponsored bill. But I think last year we did 23 take some positions and the bills changed and then 24 it became a little controversial because some 25 Members wanted their name off of it. 26 And so that would be my proposal for this 27 year, but I'm open. 28 Mr. Horton. 13 1 MR. HORTON: Madam Chair, if I -- if I may 2 make a recommendation and ask the author if he would 3 accommodate Members; in the event that there is a 4 change in the legislation that Members have concerns 5 about, will you accommodate the Members and notify 6 the Committee and make it a public notice that 7 that -- those particular -- or that particular 8 Member is withdrawing their individual support in 9 the event that that support reduces it down to where 10 you don't have the majority of the Board Members in 11 support of it, we would also ask that you withdraw 12 the support of the Board of Equalization as a whole 13 in the effect that that does occur. 14 The inherent danger of waiting 'til 15 legislation is consummated basically means that you 16 would have to wait until after the Governor signs it 17 because the legislation -- as we all know, the 18 legislation is subject to change in the last minutes 19 of the process. But I think that courtesy of the 20 Board Members will enable us to address our 21 concerns. 22 And so I think we all would encourage 23 that -- that if a letter is received from any Member 24 of this Board, that that letter be respected and -- 25 and addressed in a public manner so that everyone's 26 aware of the position of that particular Member. 27 MS. MA: Ms. Harkey. 28 MS. HARKEY: Yeah, I -- I appreciate that. 14 1 The problem that I had -- and I think I was not 2 alone -- last year is that, you know, it's very 3 difficult then to go to the author and say you 4 personally want to get off of his bill. That's kind 5 of an insult. 6 I would rather not support early on and 7 kind of wait until it takes shape, before the floor. 8 Floor vote generally is the final bill, and maybe 9 even in the Committee if we see that everything's, 10 you know, gelled appropriately. But I think that it 11 puts us in the position of legislating, which I 12 don't have staff to track all the legislation, and 13 Ms. Pielsticker does where the Board is concerned. 14 And so this is my concern; and I did 15 express this to Ms. Ma last year, and we kind of 16 arrived at that if, you know, the Board wanted to 17 support independently through the process, that that 18 would be a good thing. If you want to just wait and 19 see how it gelled, that rather than going in early 20 and then -- because we're just starting the season. 21 I mean this is, what, January? So rather than -- 22 rather than going in early -- or February -- we 23 really should kind of hold off and see how this 24 forms. And not -- not any insult or saying we're 25 not going to support, but I think individual Members 26 can go on and then the Board could -- could vote as 27 a group. I just don't want to have to pull off once 28 I'm on. I think that's -- that's in bad form. 15 1 MS. MA: Mr. Runner. 2 MR. RUNNER: I'm kind of confused as to 3 what's before us then. 4 The ones -- generally the ones that I have 5 difficulty with is when a bill comes before us and 6 it's in concept. And, you know, then there's an 7 idea that in concept let's -- let's -- let's move a 8 bill. I have difficulty with that. 9 I have less difficulty with language and, 10 you know, when specific language comes to us at that 11 point. 12 You know, I -- I guess I could go either 13 way, depending on how the Board wants. This is a 14 bill to which, with current language, I could then 15 support. I understand Member Harkey's concern in 16 regards to what happens if the language changes. 17 Because I think -- I think this was actually a gut 18 and amend and it hasn't actually had gone to any 19 policy committee, correct? 20 MR. GIPSON: That's correct. 21 MR. RUNNER: Yeah. So this has got a long 22 ways in the process to still go through. But I'm 23 okay with the language, the way it is right now. 24 And I think it is a bit of a challenge when we, as a 25 Board, then seek to vote to -- I don't know -- I 26 guess it's a language we're trying to do here is 27 support or sponsor a bill? Is it -- this is the 28 Chair's -- 16 1 MS. HARKEY: I think we're just issuing a 2 support. 3 MR. GIPSON: Support. 4 MR. RUNNER: Is that -- it is support, 5 okay. It's to support the bill. 6 Again, I think the challenge that we have 7 is if the bill changes dramatically, then you might 8 lose individual Members in that process. I guess 9 I have a different issue. I don't mind going to an 10 author and saying, "Hey, take me off that bill now." 11 MS. MA: So -- 12 MR. RUNNER: And so -- and so I'm okay with 13 that and I'm okay if that happens to go ahead and 14 write a letter to each of the committees that it's 15 going to saying, "Hey I voted for this at one time, 16 but it's changed, here's why I don't support it 17 anymore." I'm kind of okay with that, so -- but I 18 can appreciate other Members may not be. 19 MS. MA: Yeah. So, to the audience, I mean 20 we are not allowed to discuss issues with more than 21 one Member. And so the only way we can kind of 22 resolve it is in this public context. 23 So that's why, if you're thinking, well, 24 why didn't they work this out someplace else, and 25 just come with -- because we can't, and that's kind 26 of the issue. But, you know, it's good to hear 27 Members and how they're thinking. And also, of 28 course, we're going to hear from Assemblymember 17 1 Gipson as well. But I think we still have a couple 2 of Members here. 3 Mr. Horton. 4 MR. HORTON: Thank you, Madam Chair. 5 Members, it sounds as if though we're 6 deliberating on whether or not we support any 7 legislation whatsoever and whether or not the Board 8 should just take individual positions on 9 legislation, which would mean that all the authors 10 that are here today should pay close attention to 11 the discussion because you may only end up with 12 individual support. 13 I agree with Mr. Runner. I mean, I don't 14 have a problem with withdrawing my name or telling 15 anyone what I think at any given time. In fact, I'm 16 prepared to tell them beforehand if I think this 17 might happen. 18 So -- and -- and I think it's inherent upon 19 the Board of Equalization as we have sought to, over 20 the last few years, and particularly most recently 21 under the leadership of Member Ma, to position the 22 Board of Equalization to be in the position of 23 providing information, guidance, and understanding 24 to the legislative process, as opposed to not being 25 relevant to the process at all. And that it's 26 important that they hear from us individually, and 27 it's important when there is -- when there is a 28 majority -- potential for a majority vote on 18 1 existing legislation, that they hear from us 2 collectively. I believe it's part of our 3 constitutional responsibility as a body to engage at 4 that level with the Legislature. 5 MS. MA: Ms. Harkey. 6 MS. HARKEY: Okay. Why don't we -- just so 7 that we can kind of get rolling on this, because 8 there are some things that, you know -- because, 9 general speaking, I don't like to get on anything 10 right now. But I am willing to make a motion that 11 we, you know, approve without additional amendments. 12 And how could we word that such that any additional 13 amendments to the bill would be brought to the Board 14 for review? 15 MS. PIELSTICKER: I think you could -- 16 MS. HARKEY: Even -- even non-BOE issues. 17 Any language in the bill would be brought to us for 18 review. And Ms. Ma could bring it up in the 19 Legislative. 20 MS. PIELSTICKER: One option would be to 21 move to support the bill on the condition that if 22 the bill changes, it's brought back to Legislative 23 Committee to revisit the position that the Board 24 took. 25 MR. HORTON: I second that motion. 26 MR. RUNNER: I'm okay with it. I just 27 don't know how it practically works. 28 MR. HORTON: It doesn't. 19 1 MR. RUNNER: You know? I mean -- I mean -- 2 I mean the issue is -- I mean we've all been in the 3 Legislature. And that means that -- and I'm 4 concerned that all of a sudden an author will take 5 an amendment in a committee and then they could be 6 45 days away from us being able to then hear what 7 that amendment was and decide if we still support 8 it. And if that happens in May, that's, you know -- 9 so I just don't know how that actually would 10 fundamentally work. 11 MR. HORTON: Member Ma? 12 MS. MA: I think -- I mean this is a long 13 process, right? 14 MR. RUNNER: Yeah. 15 MS. MA: I mean this is a nine-month 16 process. And if Members feel strongly that we 17 should vote now to support the bill, as is or in 18 concept, I think we can do that. 19 MR. RUNNER: Mm-hmm. 20 MS. MA: I think if Members feel like we 21 should wait another month, another two months, 22 another three months, I think that is our option as 23 well and we can have Mr. Gipson come back. 24 MR. GIPSON: Absolutely. 25 MS. MA: If that is the will of the Board, 26 and I don't think we have to make a decision right 27 now. But if Members are interested in signing on 28 now, early, of course I think we have the liberty to 20 1 do so. 2 And Members who do support a bill, as you 3 know, we do go down and testify and, you know, bring 4 our trustee counsel to the extent that, you know, we 5 can help provide any sort of BOE numbers and revenue 6 estimates, etcetera. So, that is always an option 7 as well. If Members don't feel strongly at this 8 moment to take a vote and support it, we can bring 9 it back. 10 MR. HORTON: All right. 11 MS. MA: Mr. Horton. 12 MR. HORTON: Thank you, Madam Chair. 13 To Mr. Runner's point, it sounds as if 14 though the motion made by Member Harkey actually 15 defers to the Chair of the Legislative Committee, 16 so -- which can be brought back at any given time 17 and we are basically -- which I'm comfortable with, 18 in trusting the Legislative Chair of the Committee 19 to disseminate the information to the other Members, 20 which is possible through our three-day notice 21 process. Members can make a decision within a 3-day 22 period of time and then respond. 23 MR. RUNNER: Not at a meeting, just as a 24 3-day? 25 MR. HORTON: Not at a meeting. Then 26 respond appropriately to Madam Chair. And Madam 27 Chair, with the assistance of Ms. Pielsticker and 28 her very capable staff, can move forward and make 21 1 sure that we protect the Member that has expressed a 2 desire to be removed from the legislation. 3 So it is practical, it is feasible, and it 4 can work. 5 MS. HARKEY: Brilliant. 6 MR. HORTON: So, with that, Madam Chair, it 7 sounds as if though we've got the support. Member 8 Harkey made a motion. I second. I'd call for the 9 question, unless there's serious objections. 10 MS. MA: Mr. Gipson, would like to -- 11 MS. STOWERS: I'm just going to -- 12 MS. MA: I know you're not participating, 13 okay. 14 MR. RUNNER: To close? 15 MS. MA: To close or -- 16 MR. GIPSON: Yeah. Well, let me 17 just -- 18 MS. MA: Open this back up again. 19 MR. GIPSON: Let me say thank you very much 20 to all the Board Members. I appreciate the robust 21 conversation. And please know that we, in my 22 office, will make sure to work very closely with 23 Mrs. Pielsticker and this body on any amendments or 24 changes to this bill. We will make the first phone 25 call to you and make sure that the door of dialogue 26 continues around us. We certainly would love to 27 have the State Board of Equalization's support on 28 this bill moving forward. 22 1 So, again, I respectfully ask for an "aye" 2 vote. 3 Thank you. 4 MS. MA: Okay. 5 MS. HARKEY: So we had a motion. 6 MS. MA: We had a motion and a second 7 to -- 8 MS. HARKEY: As is? 9 MS. MA: To support this bill, as is, 10 today. And if it does get amended, it will come 11 back -- 12 MS. HARKEY: To the Legislative 13 Committee. 14 MS. MA: -- to the Legislative Committee 15 for either -- 16 MS. HARKEY: Review. 17 MS. MA: -- a revote, review, or we can 18 continue. 19 MS. HARKEY: For review by -- by all Board 20 Members, and action taken or not thereafter. 21 MR. HORTON: All right. 22 MS. MA: Okay. With the Controller's 23 office not participating in this vote. 24 Okay, Members, do I -- okay. 25 We need a roll call or? 26 Nodding. 27 MR. RUNNER: No objection. 28 MS. MA: No objection? Okay. 23 1 So that -- that will be the will of the 2 Board. 3 MR. GIPSON: Thank you very much. 4 MS. MA: Okay. Thank you, Mr. Gipson. 5 Okay. You have another bill? 6 MR. GIPSON: Yes. 7 MS. MA: AB 821, Sales and Use Taxes: 8 Payments: Medical Marijuana Dispensaries. 9 MS. PIELSTICKER: Yes. 10 MS. MA: Ms. Pielsticker. 11 MS. PIELSTICKER: Yes. AB 821 requires -- 12 rather, under existing law, we require taxpayers 13 with monthly tax liabilities that average $10,000 or 14 more to remit their sales and use tax payments by 15 EFT; and failure to do so subjects taxpayers to a 10 16 percent penalty for their quarterly remittance and a 17 six percent penalty for prepayments. 18 Penalty relief is available when the 19 person's failure to remit by EFT is due to 20 reasonable cause and circumstances beyond his or her 21 control, provided that the person files a relief 22 request under penalty of perjury. 23 So what this bill would do is, until 24 January 1, 2022, allow medical marijuana dispensary 25 to remit amounts due by other than EFT. And the 26 revenue impact would be no material penalty or 27 interest revenue loss. 28 MS. MA: Okay. Mr. Gipson. 24 1 ---oOo--- 2 MIKE GIPSON 3 ---oOo--- 4 MR. GIPSON: Thank you very much, Madam 5 Chair and Board Members. Thank you for considering 6 Assembly Bill 821 which seeks to support the 7 California tax collection efforts by removing 8 penalties associated with certain tax -- cash tax 9 payments over $10,000 a month. 10 Currently, all sales and use tax payments 11 in the excess of $10,000 are required to pay through 12 an Electronic Fund Transfer. This requirement makes 13 tax collection more convenient. However, businesses 14 in the medical marijuana industry has been rendered 15 unbankable due to the fact that the medical 16 marijuana is still considered illegal at the federal 17 level. This has made it hard to comply with the law 18 and lead most of the estimated 50,000 medical 19 marijuana businesses to use cash when paying their 20 taxes. 21 Current law provides for a case by case 22 waiver, but this process is still cumbersome. 23 Whereas, this bill seeks to provide a comprehensive 24 solution by giving medical cannabis businesses an 25 ongoing exemption, this bill will also save the 26 State money -- I would like to underscore "save the 27 State money" -- by reducing the administrative 28 burden associated with the waiving -- with the 25 1 waiver of process. 2 In closing, I respectfully ask for your 3 support in this very important piece of 4 legislation. 5 MS. MA: Thank you very much. 6 Ms. Harkey. 7 MS. HARKEY: Well, here's where I started 8 before, Mr. Gipson. And I know you're aware, I have 9 a problem with accepting large cash. There are 10 other methods of EFT, electronic -- other methods 11 besides Electronic Fund Transfers; paying more 12 frequently, money orders, or, you know, we've 13 been -- my office has been investigating a potential 14 for kiosks and trying to keep the employees out of 15 the cash-handling business, as well as for public 16 safety reasons, is more and more frequently. I 17 think we're all setting this stuff up for the 18 eventual legalization of recreational marijuana. 19 And if that happens, we're going to have a 20 lot more cash coming into our offices, and I don't 21 feel comfortable with large cash. I think it's just 22 you're waiting for someone to, you know, commit a 23 crime; either external, through somebody just 24 showing up and holding everybody up, or perhaps even 25 internally when cash is very difficult, and what if 26 some cash is missing and then you have to have 27 supervisors verify and tally it up, which is one of 28 the reasons that the BOE quit taking large amounts 26 1 of cash or had the policy not to. 2 So I have -- I've requested an amendment 3 that says that, you know, basically: 4 "Before January 1st, 2022, a person 5 issued a seller's permit for a place of 6 business as its dispensary as defined in 7 subdivision (n) of section 19300.5 of the 8 Business and Professionals Code, may remit 9 amounts due for retail sales at the 10 dispensary by any means other than cash." 11 So that would give options other than cash. 12 And there are costs to cash. This bill 13 didn't analyze it. This bill was analyzing the 14 process for reporting. But we have been trying to 15 figure out what -- since the policy appears that it 16 may change, what the costs actually would be. And 17 we've got -- you know, we'd have to have -- we have 18 to have equipment with counting machines, ones that 19 identify counterfeit monies, install extra security 20 cameras over the -- over the receptors, as well as 21 in the offices, request additional armed guards of 22 California Highway Patrol officers. And other 23 costs, more frequent armored car transports and 24 liability insurance if we're starting to accept 25 large amounts of cash. 26 So there are costs that weren't considered 27 because that's not what your bill was about. But I 28 think that, you know, as a Board we have to look at 27 1 this, and the security. 2 I have my office in a BOE facility, my 3 district office. And I would be very uncomfortable 4 having, you know, armored cars pulling up with cash 5 on a regular basis. And if I'm uncomfortable 6 sitting in my district office, I really wouldn't 7 want to subject the BOE staff to something that I'm 8 not comfortable with. 9 So I've made my -- my -- I want to be sure 10 that I've allowed for plenty of options and I'm 11 trying to do so. So I'd love to work with you on 12 this. 13 And I also want to ask Ms. Pielsticker, did 14 anybody verify -- I know that -- I've spent 30 years 15 in banking and corporate finance and I know that 16 cash over $10,000 had to be reported at the federal 17 level. Then you had to fill out the forms. 18 And maybe Mr. Ferris could answer that. Is 19 the BOE, or is our -- are our buildings or our 20 district offices required to complete forms to the 21 Federal Government on large cash? 22 MR. FERRIS: Randy Ferris, Chief Counsel. 23 Member Harkey, my understanding is that 24 governmental entities like the State Board of 25 Equalization are not subject to those reporting 26 requirements in federal law. 27 MS. HARKEY: Okay. Thank you. I'd asked 28 that question earlier in the process and I never got 28 1 a response back, so I wanted to be sure I was clear 2 on that. 3 Okay. So I do have an amendment; I would 4 love for you to accept it. I could understand if 5 you don't. But, anyway, that's my comment. Thank 6 you. 7 MS. MA: So, thank you, Mr. Gipson. 8 And I agree with Ms. Harkey that there are 9 a lot of issues that we are all looking at, I think, 10 in our offices. We prepare for more payments. 11 Hopefully the Federal Government and Congress will 12 act on this and create a little flexibility for this 13 industry that's licensed, to be able to access the 14 banking system. But right now it's a Schedule I 15 drug. 16 Legally they have some guidelines from 17 Thimsen, as well as the Cole memo, where banks can 18 bank, but it requires an increased or a very high 19 due diligence in knowing who your customer is, in 20 jumping through hoops. And so a lot of the banks 21 don't want to expend the extra resources to do this 22 extra due diligence. And so, therefore, they're 23 just saying, you know, we don't want to have to file 24 the forms, we don't really want to go through this 25 risk. 26 So I think in the interim banks are, you 27 know, forced to sit on the sidelines. The 28 dispensaries that want to pay their taxes, want to 29 1 comply, the ones that want to comply, but there's 2 just no options for them. And so to have to 3 penalize an industry for being forced to deal in 4 cash, for me, is very unfair and it is onerous. 5 So I strongly support your bill. 6 MR. GIPSON: Thank you. 7 MS. MA: You know, I think that we want 8 cannabis industries, the cannabis industry to comply 9 and to come forward. But to assess that extra 10 10 percent penalty for doing so is going to be, 11 perhaps, burdensome. It may create folks not to 12 pay. 13 So, I do think this bill is very, very 14 important. And I understand Ms. Harkey's concerns, 15 and I'm hoping that as we move forward with this 16 track and trace system, that we will use or have the 17 industry use technology software that would be able 18 to potentially download the sales taxes to the BOE 19 daily, weekly, monthly, eventually. Right? 20 But, again, it's going to still require a 21 bank. 22 MR. GIPSON: Right. 23 MS. MA: And the banking system, access to 24 the banking system before we can do that. But I'm 25 hoping that in the future we don't have to collect 26 all this big cash, we don't have to have kiosks, we 27 don't have to, you know, employ all that. But who 28 knows how long that's going to take. So in the 30 1 interim, you know, not penalizing these folks who 2 have no other option, I think, should -- you know, 3 is a good bill. And so I'm going to strongly 4 support it -- 5 MR. GIPSON: Thank you. 6 MS. MA: -- regardless of whether the Board 7 votes to support it. 8 Mr. Runner. 9 MR. RUNNER: Yeah. You know, I'm -- I 10 don't know what the other options are. I mean, 11 we've been exploring this issue for a number of 12 months now and I don't know what the other options 13 are. Maybe you've got some listed here? 14 MS. HARKEY: Yes, I do. 15 MR. RUNNER: And what are they? Have you 16 identified some other options for cash that I'm -- I 17 haven't. 18 MS. HARKEY: Yes. Yes, I have. Make more 19 frequent payments, I suggested. Money orders have 20 been used by the industry for a long time, long 21 before we got into this discussion. And the kiosk 22 is an option. There are options, and we're 23 continuing to explore the potential of a kiosk -- 24 MR. RUNNER: Right. 25 MS. HARKEY: -- that would not require 26 hands on the cash in the facilities. And it would 27 be a cost, but I think it's a cost of doing 28 business. It not only helps the BOE with, you know, 31 1 point of sale kind of system where we would know and 2 we would be able to track, even on a daily basis, 3 and, you know, what -- what taxes were due. And 4 it -- you know, the people walk in, they put their 5 money in the kiosk in the store and then they come 6 over and they get their product delivered. So it 7 helps that, helps that store as well from any 8 potential for theft or money handling. 9 MR. RUNNER: Yeah. 10 MS. HARKEY: On the BOE side, we could 11 potentially do a kiosk system too, either on-site or 12 off-site, that would prohibit -- that would keep 13 hands off the monies, that could be guarded. 14 There's still some -- some issues with it, but I 15 think we've got a banking committee that we're 16 setting up to try to resolve some of these issues. 17 And I would seriously suggest that, before we just 18 start allowing large wads of cash into our offices 19 on a regular basis, that we -- we consider getting 20 this banking committee in place so that we can help 21 move this process along. Because I think there will 22 be other options. 23 There's multiple companies out there now 24 trying to figure this out, and they have. And 25 I've -- I've talked to -- the thing about the -- 26 about the banking is that they can actually set up a 27 kiosk for a small bank. It wouldn't be a B of A or 28 a Wells Fargo that does, you know, electronic 32 1 screening. It would have to be somebody that knows 2 the customer, that knows unusual activity, can flag 3 it, and that's what we would want, too. We don't 4 want money laundering. So you want unusual activity 5 to be flagged if the sales are extremely high at one 6 time or another. 7 So what, you know, I'm suggesting is that I 8 mean I can't support this as is. I suggested an 9 amendment that might kind of bridge the gap, but 10 if -- what I'm suggesting is that there are other 11 avenues, and they've been used for a long time. So 12 I -- you know, I want to -- 13 MR. RUNNER: Okay. My question was -- my 14 understanding is money orders have the same problem 15 with $10,000. 16 MR. HORTON: Mm-hmm. 17 MR. RUNNER: In terms of reporting, so I -- 18 MR. HORTON: Three. 19 MR. RUNNER: Three what? 20 MR. HORTON: $3,000 is the threshold. 21 MR. RUNNER: Okay, but whatever. 22 MS. HARKEY: Right. 23 MR. RUNNER: So it's still a banking -- 24 it's still the basic, same banking problem. 25 MS. HARKEY: I've got a customer in 26 San Diego that does 2 million in sales that pays by 27 money order all the time. 28 MR. RUNNER: Well, again -- maybe. But the 33 1 problem is -- the problem is he may not be doing it 2 legally. 3 MS. HARKEY: You're still doing a maybe. 4 MR. RUNNER: Here's. 5 MS. HARKEY: You're not doing it to legally 6 now. 7 MR. RUNNER: To me -- to me -- 8 MS. HARKEY: That's the problem. 9 MR. RUNNER: -- the issue is I think there 10 are going to be solutions in the future. The 11 problem is right now, and -- and I think that's my 12 concern. 13 And so I'm going to support the bill 14 because I do believe we've got to come up with ways 15 to -- to deal with cash, but at the same time I just 16 don't think it's fair to anybody in business to then 17 say, "Hey look, we're glad you're paying your tax. 18 But because you're in an industry that does not 19 allow you to have a bank account or to pay another 20 way, guess what, we're going to go ahead and 21 penalize you." 22 I just don't think that is a fair system, 23 because there's no way for them to prevent 24 themselves from the penalty. 25 So I'm going to support the bill. I'm 26 going to work really hard though to find those 27 solutions. I think, I know there's discussions 28 about kiosks and whatnot. So far I've not been 34 1 convinced that a kiosk is ready to be placed. 2 I've talked to bankers from lots of 3 different states. There's banks that are not -- 4 they say they want to do it and then all of a sudden 5 they change their mind and they can't do it. 6 So right now I think we have a very 7 specific problem. And that is, we collect money, we 8 tell them -- we have them only pay cash because 9 that's the only way they can pay cash right now. 10 And then we say, "Oops, by the way, now you got to 11 pay 10 percent more." I just don't think that's a 12 fair way to honor a business. 13 MS. MA: Mr. Horton. 14 MR. HORTON: Thank you, Madam Chair. 15 You know, as a sponsor of the bill, I've 16 deliberated over this time and time again and 17 actively involved in the underground economy for the 18 last -- or forbidding and fighting the underground 19 economy for the last 37 years, it's been an issue of 20 my concern. And I'm not overly excited about the 21 criminal activities that will occur from the illegal 22 sales of marijuana. And so therein is the issue. 23 The challenge is, violating or not being 24 consistent with the Federal Coinage Act, which 25 basically says that U.S. currency has to be accepted 26 or should be accepted in the rendering and payment 27 of a debt. 28 The second issue that we have here is that 35 1 it is what it is. They're currently making 2 payments. If it's under 9,000, it's no more of an 3 incentive for a criminal act than it is if it was 4 over 9,000 or $9,999. The criminal incentive still 5 exists. 6 I recently had my home burglarized. And, 7 quite frankly, they walked away with $13,000. So 8 the incentive for the criminals that are out there 9 to do the things that they do, go figure. 10 The other inherent challenges articulated 11 by Member Harkey is of concern, but it's also of -- 12 in the purview of this body to figure that out. I 13 don't believe that we need legislative authority to 14 do so. And to the extent that we do, we would ask 15 that the Member so state in this legislation that 16 defer to the Board of Equalization to establish the 17 regulatory oversight necessary to implement this 18 bill. That gives us additional purview. 19 We've also looked at, as Mr. Runner shared, 20 the -- the Money Laundering Act. It's really not a 21 threshold. The law basically says that if you know 22 that there is a criminal act, the money's associated 23 with a criminal act, the threshold is established 24 primarily as a check and balance, kind of like a 25 safe harbor. If you -- if it's 3,000, then of 26 course you have to report it. Violation of the law 27 is violation of the law, whether it's 50 cents or 28 not. 36 1 And so looking at the alternatives that are 2 out there is within our jurisdiction. If not, maybe 3 we can look for legislation to accomplish that. 4 And, for example, one of the solutions that we sort 5 of considered with the armored truck was to see if 6 the armored truck could be -- the armored company 7 can be an intake center for the Board of 8 Equalization and then provide us some sort of 9 document that said that they've taken in and 10 transferred to the bank on our behalf X amount of 11 dollars. 12 There's a gift of funds that's associated 13 with that that we may need legislation in order to 14 address. But I share that only to say that I do 15 believe that the wisdom of this body can figure that 16 out. I do believe that we have the authority. 17 Current law, federal law -- I do believe federal law 18 says that we should accept this cash irregardless of 19 our feelings and so forth. Not deny. 20 Secondary -- I mean primary, Members, is 21 that the illegal activity associated with impeding a 22 taxpayer from paying their tax liability is 23 inherently challenging to this organization and part 24 of the reason that we have hundreds of millions of 25 dollars that's going uncollected. There's enough 26 money out there being uncollected that this bill 27 will enable us to now make their payments that will 28 provide the funding necessary in order to address 37 1 the issues articulated by my colleagues. 2 I, too, support the bill and would make a 3 motion to support the bill. 4 MS. STOWERS: Second. 5 MS. RICHMOND: Excuse me, Ms. Ma. I think 6 we do have another speaker for this item. 7 MS. MA: Yes, I see that. 8 But, Ms. Stowers, do you want to make a 9 comment? 10 MS. STOWERS: We support the bill as well. 11 MS. MA: Okay. 12 MS. STOWERS: The way I read the bill is 13 really addressing taxpayers who have to file or pay 14 electronically in an industry they cannot file or 15 pay electronically because they can't get a bank 16 account. 17 MR. GIPSON: Right. 18 MS. STOWERS: So with that being said, we 19 think it's a good bill. It does have a date that it 20 will end, January 2022. So hopefully by then this 21 industry will be banked. 22 MS. MA: Or you can say it would end 23 sooner, right? 24 MR. GIPSON: Yeah. 25 MS. MA: If it's banked. 26 MS. STOWERS: Right. 27 MS. MA: Anyway, we do have a speaker here 28 today, Kimberly Cargile, Director at A Therapeutic 38 1 Alternative here in Sacramento. 2 ---oOo--- 3 KIMBERLY CARGILE 4 ---oOo--- 5 MS. CARGILE: Good morning, Board. My name 6 is Kimberly Cargile. I'm the Director of A 7 Therapeutic Alternative. I also sit on the board 8 for the Sacramento Chapter of Americans for Safe 9 Access, a patient advocacy group, and the Sacramento 10 Chapter of the National Organization for the Reform 11 of Marijuana Laws, the Legislative Advisory 12 Committee for the California Cannabis Industry 13 Association and the Board of California Growers 14 Association. 15 As an industry, we ask for support of this 16 bill. We -- as the new laws MMRSA have just passed, 17 we are bringing our industry, you know, out of the 18 shadows, into the light. That's going to bring a 19 great deal of tax revenue to the State of 20 California, and this 10 percent tax penalty is 21 impeding that progress. 22 I just wanted to respectfully address the 23 concerns you had and the ideas of different ways 24 that we could pay our taxes. One is the idea of 25 money orders. I don't know if you've ever been to a 26 money store where you get money orders, but that is 27 kind -- that is one of the scariest places I ever go 28 in my day. And taking $10,000 in there is really 39 1 setting me up to be robbed because the people in 2 those money stores are -- are often criminals. 3 Whereas, the Board of Equalization, you rarely see 4 criminals there. Those are good, hard-working 5 people paying their taxes. I feel much more 6 comfortable carrying $10,000 there than I do into a 7 money store. 8 The kiosk is a great idea; however, those 9 companies know that we are unbankable and they are 10 charging thousands of dollars a month for us to work 11 with them. It's really unreasonable right now. 12 And so we are working really hard as an 13 industry to move forward in the progress with 14 banking. We support any options of banking and any 15 reasonable options such as the armed guards service, 16 picking up the money from the dispensaries and 17 taking it in. 18 But the options that have been presented so 19 far are hard to work with. So we feel that the 20 State of California will receive much more tax 21 dollars if we have an easy way to pay our taxes as 22 we do now. 23 Thank you. 24 MS. MA: Okay. Anymore comments, or 25 Mr. Gip- -- 26 Ms. Harkey. 27 MS. HARKEY: I just -- I would just like to 28 say I understand the difficulties; I truly do. But 40 1 one of the advantages of kiosks, and may just be a 2 cost of doing business, is the keeping of books and 3 records, which you also have a problem with for 4 audit purposes. So, in essence, what we do is we 5 ask you to tell us what you think you owe us and pay 6 it. And I don't think we do that for other 7 businesses. 8 So I'm trying to get this on a fair level 9 for all companies. And, you know, the kiosks are an 10 option. I know they're costly, but I do think that 11 maybe there might be some kind of way to cooperate 12 on those. 13 I do -- I do think that perhaps we could 14 require those requesting the armored car to actually 15 pay for that, so the BOE doesn't have to absorb that 16 service. There are a lot of things that we could do 17 because this is going to cost us. And so I think we 18 need to understand that this is not going to be free 19 for the Board of Equalization, and to have other 20 taxpayers absorb the cost of the industry is not 21 usually what we do. 22 So, with that, thank you very much. 23 MS. MA: Thank you. 24 Okay. Mr. Gipson, would you like to close? 25 MR. GIPSON: I was -- just, again, thank 26 you very much for the opportunity to present 27 Assembly Bill 821 and respectfully ask for your 28 "aye" vote. 41 1 Thank you. 2 MS. MA: Okay, thank you. 3 Members, we have a motion by Mr. Horton. A 4 second by Ms. Stowers. 5 Members, how would we like to vote? 6 MS. HARKEY: I object. 7 MS. MA: Okay. So we're going to -- 8 Ms. Stowers, yes or no? 9 MS. STOWERS: Yes. 10 MS. MA: Yes. 11 Mr. Horton, to support the bill? 12 MR. HORTON: Yes. 13 MR. RUNNER: Aye. 14 MS. MA: Aye. 15 And then Ms. Harkey is a "no." 16 And Ms. Ma is a "yes." 17 So 4 to 1. 18 MR. GIPSON: Thank you very much. 19 MS. MA: Thank you. 20 MS. HARKEY: So does that mean you go on 21 individually, Ms. Ma? 22 MS. MA: No. I think it's going to be a 23 BOE-supported -- sponsored bill -- supported bill? 24 MR. RUNNER: Supported. 25 MS. MA: Supported bill. 26 Okay. We are going to take the next bill, 27 AB 1561 with Members Cristina Garcia, and I also see 28 Member Ling Ling Chang here. Sales and Use Tax 42 1 Exemption for Sanitary Napkins and Tampons. 2 ---oOo--- 3 CRISTINA GARCIA 4 ---oOo--- 5 MS. GARCIA: Good morning. 6 MS. MA: Good morning. 7 MS. GARCIA: AB 1561, tampons and sanitary 8 pads. AB -- thank you for allowing us today. 9 AB 1561 would exempt menstrual products 10 like tampons and sanitary napkins from sales and use 11 tax. 12 Before you is an opportunity to end an 13 outdated tax that targets women for a function of 14 their bodies. The fact that the economic defect of 15 this tax is felt by only women is especially unjust 16 when women still make less than men. 17 We call tampons and pads feminine hygiene 18 products and makes us forget that these are actually 19 necessary health items that women use on a monthly 20 basis. It's women who are poor or homeless that 21 have a harder time accessing tampons and pads when 22 they need them. 23 There are about 4.6 million women living in 24 poverty in California. Many of them are of color. 25 When you're trying to figure out how to make less -- 26 how to make ends meet on less than $5 a day -- 27 sorry, I apologize -- every penny counts. If we 28 can't make these products free, then we at least 43 1 have to make them more affordable. 2 I've been hearing stories about girls 3 buying tampons one at a time at gas stations, making 4 them much more expensive. Or girls having to miss 5 school because they can't afford to buy the tampons 6 that week. Our bills have also sold justice. It's 7 about eliminating a gender and equity in our tax 8 code. Our taxes should not target half of our 9 population, just for being women, over a function of 10 our bodies we cannot control, much less ignore every 11 month. 12 I understand that there are concerns about 13 any bill that would narrow the base of our sales tax 14 and use tax. There's no doubt that our code needs 15 to be reformed. But that is not the question before 16 us. The question before us right now that we need 17 to consider is whether California should continue to 18 tax women on essential health items that is unique 19 to them. In fact, I have not found a single example 20 for a similar tax on men. 21 As society progresses, our laws should too. 22 Our tax code needs to reflect the fact that we don't 23 live in a time where we tax women just for being 24 born women. 25 I respectfully ask for an "aye" vote. 26 With me to testify today is my joint 27 author, Assemblymember Ling Ling Chang. 28 MS. MA: Ms. Chang, welcome. 44 1 ---oOo--- 2 LING LING CHANG 3 ---oOo--- 4 MS. CHANG: Thank you. 5 Members of the Board, thank you for the 6 opportunity to speak to AB 1561 today. The tax on 7 feminine hygiene products is an unjust tax. 8 As Assemblymember Garcia has illustrated, 9 these products are inescapable health products. By 10 taxing these products, we are putting up an 11 unnecessary barrier to a necessary health product. 12 The absence of this kind of protection can lead to 13 serious health issues, so this is about women's 14 health. 15 This bill is about tax relief for women. 16 Collectively we pay $20 million in taxes on feminine 17 hygiene products. By putting that money back in the 18 hands of women, we are creating greater access to a 19 very important health product, especially in 20 low-income and homeless populations. 21 That 20 million paid in taxes is only .01 22 percent of the annual budget. I am hopeful that we 23 can afford to provide that to women in tax relief. 24 Finally, this is about fairness. 25 Government is taxing women for something completely 26 out of their control. Feminine hygiene is not a 27 choice and should not be taxed. There are health 28 products we, as a State, choose to exempt, but the 45 1 one health necessity exclusive only to women is 2 still taxed. 3 And as you can see, this is not a partisan 4 issue. This bill has earned co-authorship from 5 conservative Republicans and progressive Democrats. 6 That's because we all care about the well-being of 7 women and girls. They are our mothers, sisters, 8 daughters, wives, and they're half the population. 9 This proposal is important for all women 10 across California. And it may not be intentional, 11 but this is a targeted tax on half of the 12 population. And on principle, this form of 13 regulatory discrimination should end. And on pure 14 economic grounds, this bill deserves our support. 15 Thank you. 16 MS. MA: Thank you, Members. 17 MR. RUNNER: Move to support. 18 MS. HARKEY: Second. 19 MS. MA: Any discussion, Members? 20 Ms. Stowers. 21 MS. STOWERS: BOE has indicated that the 22 revenue loss is about 20 million, and that's just 23 based on what women spend on the products. This 24 bill, as written, will also allow care providers and 25 hospitals to benefit as well. 26 And because of that, I see that the revenue 27 loss will increase. And as such, the Controller 28 would not be participating on this item. 46 1 MS. MA: Okay. 2 Mr. Horton? 3 MR. HORTON: Comment. 4 First I want to thank the authors for 5 bringing the bill forward. I think it's an 6 important discussion for the Legislature to have, in 7 that this is one of those issues that I think is 8 very, very significant and I plan to be supportive 9 of the bill to allow -- because I believe the 10 Legislature should have the opportunity to 11 deliberate over these issues. 12 I don't -- I see it as a woman's issue, but 13 at the same time I see it more as a health issue 14 because there are non-medicine that men are required 15 to take, but yet still they're subject to tax as 16 well when they have certain health conditions. In 17 the case of prostate and things of that nature, when 18 they decide not to take medicine and they want to go 19 an alternative route, there are medicines -- there 20 are alternative medicines that are basically unique 21 to them, of which I think should be exempt as well. 22 Any medical treatment of the human body should have 23 a level of exemption in concern. 24 The -- my concern, which the -- I've had a 25 chance to speak to the author about this -- is that, 26 as it is currently written, the more affluent women 27 in our society, Christine Walters who makes 28 $41 billion will receive a tax exemption, Miss 47 1 Powell, the wife of Steve Jobs who earns $19 2 billion, will receive a tax exemption. And, quite 3 frankly, I don't know that the State has enough 4 revenue. And if they are going to use the revenue, 5 it ought to be focused on those who need it the 6 most, the poor people in our society, the working 7 poor in our society. 8 To the extent that we can recraft 9 legislation to look at that, I would certainly 10 encourage the authors to take that under 11 consideration. But I am supportive because I think 12 that is a deliberation that should take place in the 13 legislative process. And so I am supportive of the 14 legislation and would join my colleagues who are 15 also in support of the bill. 16 MS. MA: Yeah. So I think we had a similar 17 discussion about diapers last time, in that those 18 who can least afford it have to pay more 19 proportionately to what they earn and whether there 20 was a way to carve it out so that those maybe who 21 are on Medi-Cal or lower income, you know, would be 22 allowed the exemption but not those that could 23 afford it. 24 So that's -- we had a robust discussion on 25 that last time. And I think Mrs. Gonzalez's bill is 26 in Appropriations. 27 And so I'm also supporting the bill 28 personally. I think it is not a luxury item but 48 1 actually a necessity for women. You know, we're 2 half the population and it's just something that we 3 can't help or choose every month. And so I'm very 4 strongly supporting it. 5 And if Members don't have any other 6 comments, perhaps you would like to close. 7 MR. HORTON: Madam Chair, if I may? 8 MS. MA: I'm sorry? 9 MR. HORTON: I would offer to the authors 10 that a consideration establishing a State income tax 11 exemption that has a particular threshold, that 12 meets the population that you want to -- want to 13 meet and address. 14 I think that will accomplish the objective 15 or accomplish the thought process of not providing 16 those who can afford to pay the tax. Because sales 17 tax, as we all know, is a very regressive tax. And 18 so when we begin to adjust sales tax one way or the 19 other, ultimately it hits the poor and the poor ends 20 up paying and carrying the burden of any tax credit 21 because it's an aggressive tax, inherently. 22 So, that's just my offer, that thought 23 process as you go through the legislative process. 24 MS. GARCIA: And thank you. So, in closing 25 a couple of comments. I think this is a discussion 26 that will continue and how do we get these products 27 into the hands of low-income individuals? A waiver 28 from the Federal Government that uses your EBT card 49 1 is one way to do it, so action from Congress would 2 be necessary. And we're pushing that discussion. 3 As a Latino, half of Latinos live in 4 poverty right now. So we would be helping half, and 5 while it would be a tax break for some of our 6 wealthier females out there, I think the good that 7 we're doing as a whole is easier when we're trying 8 to manage out. 9 And I think a tax exemption is definitely 10 something we should explore as this issue continues 11 to evolve and additional ideas of working this. We 12 have women who -- homeless women who are not doing 13 taxes and this tax exemption would not necessarily 14 help them out either. But they are definitely 15 buying this product every month. 16 So I think that discussion needs to 17 continue; it's robust. And I think through this, 18 many more ideas of how do we really get to our 19 low-income schools is important. So my co-author 20 and I are very committed to that long-term 21 discussion as we move forward and the thankful for 22 the Board's consideration today to allow this to -- 23 this discussion to move forward in Legislature. 24 MS. MA: Okay, thank you. 25 So we have a motion by Senator Runner, a 26 second by Ms. Harkey. 27 The Controller is not participating. 28 So that would be a 4-0 vote. 50 1 And I would like to say, Ms. Pielsticker, 2 since sometimes the votes may not reflect what's 3 happening, whether it's a "no" vote or whether it's 4 a non-participatory vote, perhaps when we issue the 5 letter, we specify whether it's, you know, 4-0, 6 Controller does not participate, or you know, 4-1. 7 If you want Members to say who did not 8 participate, I think that is also Ms. Harkey with a 9 "no" on the last vote. I think that would send a 10 message to the Legislature in terms of like what 11 really happened here, accurately happens. 12 MR. RUNNER: Yeah. 13 MS. MA: Okay. Very good. Thank you. 14 MS. GARCIA: Thank you. 15 MS. MA: Okay. And our final bill, AB 1559 16 Tax Relief: Disasters, by Assemblymember Dodd. 17 And Mr. Les Spahnn, his Legislative 18 Director, is here to present on his behalf. 19 MR. HORTON: Move to support the bill. 20 MR. RUNNER: Second. 21 This is getting more like the 22 Legislature. 23 MS. MA: Getting there. 24 MS. PIELSTICKER: Under existing law, 25 taxpayers are required to file sales and use tax 26 returns on or before the last day of the month 27 following the end of the reporting period. Persons 28 who are late paying a tax fee or surcharge must pay 51 1 a 10 percent penalty, plus interest, on the unpaid 2 tax from the due date to the date of payment. 3 However, they are granted an extension in the case 4 of disaster for up to 30 days. 5 Under this law, it would authorize the BOE 6 in the case of a disaster to extend for up to three 7 months the time for a tax or feepayer to file a tax 8 return or to pay the tax. It doesn't -- interest 9 relief is still a separate request, but this -- this 10 would remove the automatic imposition of a penalty. 11 MS. MA: Okay. 12 MS. PIELSTICKER: There's minor revenue 13 loss related to foregone penalties for late returns 14 and payments beyond the existing one-month 15 extension. 16 MS. MA: Okay. Thank you. 17 Mr. Spahnn. 18 ---oOo--- 19 LES SPAHNN 20 ---oOo--- 21 MR. SPAHNN: Right. Very quickly, Miss 22 Chairman and Members, I'm Les Spahnn. I am 23 Assemblymember Dodd's Legislative Director. And I'm 24 here on behalf of Mr. Dodd to ask that the Board 25 consider supporting and sponsoring AB 1559 26 pertaining to disaster tax relief. 27 First, Assemblymember Dodd sends his 28 apologies for not being here himself. It's my 52 1 fault. I didn't get it on his schedule soon enough 2 and he had a conflict. So I apologize. 3 Assemblymember Dodd represents Assembly 4 District 4, which includes part or all of six 5 counties, including Lake County. You may be aware, 6 Lake County suffered three large wildfires. The 7 largest and most destructive of which was the Valley 8 Fire, the fire that destroyed nearly 2,000 9 structures and a number of commercial businesses, 10 burned 78,000 acres of land. And interestingly 11 enough, being a rural county where ranching is a 12 very important economic activity, destroyed about 13 three-fourths of the ranchers' range land and out 14 structures. 15 About the same time as the Valley Fire, the 16 Butte Fire erupted in Calaveras County, burning 17 another 70,000 acres, destroying over 800 18 structures. 19 And you may have noticed in the Sacramento 20 Bee this morning there was an article estimating 21 that the insurance losses approached a billion 22 dollars. And, as we know, insurance doesn't cover 23 all the losses, and many of the residents and 24 business owners and property owners were uninsured 25 as well. 26 So these disasters spurred Assemblymember 27 Dodd to introduce AB 1559. We've spoken with Board 28 Member Ma about the bill. Property owners, business 53 1 owners, residents, it takes quite a bit of time for 2 them to recover from disasters of this sort. They 3 have to recover from structural damage, the loss of 4 equipment and inventory, reduce distribution of 5 supplies and goods, loss of business, loss of 6 revenue. 7 So AB 1559, as Ms. Pielsticker mentioned, 8 builds upon an existing Board authority to grant a 9 deferral of taxes and fees owed. Currently you can 10 do a 30-day deferral. This would grant a 90-day or 11 3-month deferral for each filing period, per filing 12 period. We think this would provide meaningful tax 13 and fee relief and go beyond simply tinkering on the 14 taxpayer/feepayer's financial margins. 15 We would welcome your support and consider 16 sponsorship. Thank you. 17 MS. MA: Thank you, Mr. Spahnn. Can you 18 just, also, define who can ask for the deferment? 19 It has to be as part of a declared disaster area, 20 right? 21 MS. PIELSTICKER: Actually, it's -- it's a 22 BOE-declared disaster. We have some specified 23 conditions under which we would grant relief under 24 that provision. It doesn't necessarily have to be a 25 Governor-declared disaster. 26 MS. MA: So how -- how is that different, 27 and how would taxpayers know that? Would we issue 28 releases to folks, even if it's different; like Lake 54 1 County, it was a State-declared -- 2 MR. SPAHNN: Yes. 3 MS. MA: -- and a Federal-declared disaster 4 area. But you're saying that it may not be the same 5 definition. 6 MS. PIELSTICKER: Right. I'm -- I'm aware 7 that the BOE engages in fairly significant outreach 8 when there is a disaster, to let folks know of their 9 rights under the laws that we administer. 10 I would imagine that if it's not a 11 Governor-declared disaster or disaster that we're 12 aware of, it might be a conversation that's had 13 between a late filing taxpayer who says, "Hey, my 14 house burned down, I can't -- I couldn't file on 15 time. Can you grant me some relief here?" And then 16 the BOE would look under the specified conditions 17 and decide whether to grant relief. 18 MS. MA: Okay. So also on an individual 19 basis. 20 Ms. Stowers? 21 MS. STOWERS: I'm glad you clarified that 22 because when I looked at it, I was looking for the 23 bill to say Federally-declared or Governor-declared 24 disaster, and it does not. But when you go back to 25 the original statute, it does not have that it in it 26 either. 27 I think there's a need to have additional 28 time. One month is clearly not enough. 55 1 MR. RUNNER: Mm-hmm. 2 MS. STOWERS: When, on the income tax side, 3 it was -- the counties that we're talking about, 4 Lake County, Federal and Governor, they actually 5 received one year to file their income tax returns. 6 And it's written in the statute that when there is a 7 Federal- and Governor-declared disaster, there can 8 be a postponement of filing tax filings, not just 9 the income tax return but even an estimated tax 10 payment that may be due, and they will give them up 11 to a year. 12 I like the bill, but I actually think we 13 may need two statutes. We may need a statute 14 amending 6459 that provides for three months as you 15 suggested, but another statute that stands alone 16 that deals with declared disasters and provide the 17 BOE with a little bit more discretion on how much 18 time the business may need to get back on their 19 feet. 20 MS. MA: Okay. 21 Mr. Horton. 22 MR. HORTON: Thank you, Madam Chair. 23 In these situations where there's a State 24 or a Federal disaster or there's a trauma or to a 25 household or family, often times, if it's a fire, 26 records are destroyed and it's very complicated in 27 trying to pull it back together. It's important 28 that the conditions are established to make sure 56 1 that we are also protective of the State, that we 2 don't have situations where it's obvious that 3 there's no impediment to filing tax returns. 4 On a secondary issue, when there is a 5 problem and there is a challenge to California 6 taxpayers due to a disaster, they should also be 7 relieved of the interest and -- because it's the 8 same process. So, from a process perspective at the 9 Board of Equalization, it would relieve us of having 10 to go through a separate evaluation on the interest. 11 Because if the penalty is relieved because of some 12 extenuating circumstances, those same extenuating 13 circumstances might very well have the same legal 14 bearing as it relates to interest. And I'd ask that 15 you consider that, possibly consult with our Chief 16 Counsel on taking a look at that. 17 MR. SPAHNN: Absolutely. 18 MS. MA: Okay. 19 Mr. Runner? 20 MR. RUNNER: No. There's a motion. 21 MS. MA: Ms. Harkey? No? Okay. 22 Okay. So the motion was made by Mr. 23 Horton, Chairman Horton, and the second by 24 Mr. Runner. 25 And, Ms. Stowers, are you an "aye" or a 26 "no"? 27 MS. STOWERS: I'm an "aye." 28 MS. Ma: Okay, so -- 57 1 MS. HARKEY: No objection. 2 MS. MA: No objection. Unanimous -- 3 MR. SPAHNN: Thank you very much. 4 MS. MA: -- to support the bill. 5 ---oOo--- 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 58 1 ---oOo--- 2 MS. MA: And I think that concludes our 3 Legislative Committee. No? We have more? 4 MS. PIELSTICKER: We have Board-sponsored 5 proposals. 6 MS. MA: Okay. That's right. Sorry. 7 Ms. Pielsticker, do you want to, like, move 8 over to the middle? 9 MS. PIELSTICKER: Yes. Thank you. 10 Okay. Are you ready? 11 MS. MA: We're ready. Sorry. 12 MS. PIELSTICKER: The first proposal is a 13 technical proposal that would extend the deadline 14 for local governments to file appeals with the BOE 15 related to taxable government-owned property or 16 Section 11 appeals from July 20th to November 30th. 17 Existing law exempts local government-owned 18 property from property tax except when the property 19 is located outside the local government's 20 jurisdiction and was taxable when acquired. Appeals 21 related to this property are known as Section 11 22 appeals. 23 Current law provides that July 20th is the 24 deadline to file Section 11 appeals except when the 25 Assessor completes the assessment roll after July 1. 26 In that case, the Assessor is provided two 27 additional weeks to complete and deliver the roll to 28 the Auditor. 59 1 Section 11 properties differ from the 2 deadline for other locally assessed property 3 appeals, which generally is November 30th, so that 4 is why this proposal proposes that the deadline be 5 November 30th for Section 11 appeals to eliminate 6 any confusion that may arise at the difference 7 between the deadline for local -- locally assessed 8 property and Section 11 appeals. 9 MS. STOWERS: Move the Board sponsor 10 Section 11 appeals. 11 MS. MA: Okay. Do we have an author yet 12 for these or . . . 13 MS. PIELSTICKER: We do not have an author 14 yet. I'm going to propose this as a committee bill. 15 MS. MA: Okay. Members, any . . . 16 MS. HARKEY: Second. 17 MS. MA: Second? Okay. Okay. 18 Ms. Stowers, motion -- made the motion and Ms. 19 Harkey seconded, and unanimous support. 20 Next item. 21 MS. PIELSTICKER: The next item would 22 reinstate various sections of the sales and use tax 23 law and special tax and fee laws to continue to 24 allow the BOE under specified circumstances to 25 prorate the interest on a tax or fee electronic 26 payment that is no more than one day late. 27 Existing law, until January 1, 2016, 28 allowed the BOE to prorate the interest due on a 60 1 late tax or fee electronic payment that is no more 2 than one day late if the BOE members, meeting as a 3 public body, find that it would be inequitable to 4 impose interest for the entire month. This relief 5 is available if the person was granted relief from 6 all penalties applied to the payment and also filed 7 a request for an oral hearing before the BOE 8 members. 9 When these provisions expired, taxpayers 10 now will be charged a full month's interest even 11 when their payment is only a day late, so this 12 proposal would seek to reinstate those provisions. 13 The estimated annual state and local 14 revenue loss for this is $78,000. 15 MR. RUNNER: Move support. 16 MR. HORTON: Second. 17 MR. RUNNER: Sponsorship. We're actually 18 sponsoring these bills. Right? Move to sponsor. 19 MR. HORTON: Second. 20 MS. MA: Okay. So Member Runner moved, 21 Member Horton seconded, and unanimous support. 22 Next item. 23 MS. PIELSTICKER: Okay. The next item 24 would allow a taxpayer making installment payments 25 on an outstanding tax liability to file a claim for 26 refund to cover the entire period. 27 I'm very -- this proposal comes to us from 28 the Sales and Use Tax Department. 61 1 Under existing law, taxpayers may not 2 receive a refund for an overpayment of tax if the 3 taxpayer does not file a claim for refund within the 4 specified statute of limitations. Taxpayers 5 challenging an audit determination must file a 6 formal protest within 30 days of the determination, 7 and if they fail to do so generally they have to pay 8 the tax and file a claim for refund. 9 An exception is provided if the BOE 10 exercises its discretion to accept a late petition 11 as an administrative protest. If accepted as an 12 administrative protest, the taxpayer is required to 13 make installment payments while the appeals process 14 is pending. 15 A taxpayer must file a timely claim for 16 refund for each individual installment payment made 17 toward an outstanding tax liability, and taxpayers 18 who have entered into an installment payment plan 19 often mistakenly believe that they need only file 20 one claim for refund at the conclusion of the 21 payment plan rather than filing claims for a refund 22 for each payment within six months after the date 23 the payment was required. 24 Other taxpayers making multiple payments 25 believe that upon paying the amount due and 26 receiving notice of their appeal rights, each 27 payment will be refunded regardless of whether they 28 filed claims for each individual payment. And once 62 1 the statute of limitations has expired, the BOE 2 cannot refund the overpayments, regardless of either 3 a cancellation or reduction of the originally 4 determined amount. 5 So this would allow a taxpayer making 6 installment payments to file a single claim for 7 refund before the outstanding liability is paid in 8 full and the single claim for refund would toll the 9 statute of limitations as of the timely filing of a 10 refund claim on the first installment. 11 MS. HARKEY: I move to support this. I 12 love this bill. 13 MS. MA: Do I have a second, Members? 14 MR. RUNNER: Second. 15 MR. HORTON: Quick question, Madam Chair. 16 MS. MA: Okay. Mr. Horton. 17 MR. HORTON: Thank you, Madam Chair. 18 Tell me, how does Regulation Section 6902, 19 with the current claim for refund process, fit into 20 all of this? 21 MS. PIELSTICKER: Well, the current claim 22 for refund process would -- 23 MR. HORTON: Well, let me -- specifically 24 6902. I mean, the process is a little more in-depth 25 than that. 26 MS. PIELSTICKER: I don't have 6902 before 27 me, but I can tell you that there are various 28 statute of limitations set forth, and that with 63 1 regard to installment payments, these are folks that 2 have to make a claim for refund within six months of 3 their overpayment of tax. 4 So how this would work is that the taxpayer 5 would file a late petition, they're required to 6 enter into an installment payment agreement, and 7 payments made before they actually entered into the 8 formal agreement as well as payments made subsequent 9 to the formal agreement would be covered by this 10 protective claim for refund. 11 MR. HORTON: Okay. 6902 currently provides 12 them six months, and so once they've made their 13 payments, they have six months to -- and so this 14 would extend it indefinitely. 15 MS. PIELSTICKER: It would not extend it 16 indefinitely. It would -- it would simply say 17 that -- and this is only for late petitions. So 18 once the petition is resolved and the Board decides 19 in the taxpayer's favor, then they could recover the 20 entire amount that the Board decided they were 21 entitled to. 22 If, however, they didn't have this in 23 place -- and this has happened before, where a 24 taxpayer will make several installment payments, 25 they don't make the claim until the end, those first 26 few payments they made, which are now past the six 27 months, they don't get that money back even if the 28 Board decides in their favor. And that's what we're 64 1 trying to specifically address here. 2 MR. HORTON: Okay. I'm supportive of the 3 bill. I think it's a good concept. I would 4 encourage staff to take a look at 6902, wherein once 5 the Board has made a decision, the claim for refund 6 is tolled for six months, I understand, I believe, 7 as it is, but any additional effort that we put 8 forth. But I'd hate to have a situation where 6902 9 comes up in the legislative process and we're not 10 responsive to it. So I would just encourage us to 11 kind of consider that, take another look at that 12 section of the law as we go through the process so 13 that we're in a position to respond to it. So I'm 14 supportive, Madam Chair. 15 MS. MA: Ms. Harkey. 16 MS. HARKEY: I think this is one of -- one 17 of those issues where it's -- you know, it's very 18 confusing to the average person. They don't know 19 that they have to file each time. If you're a 20 professional, you know the law. And I think this 21 just kind of simplifies it a little bit for the 22 individuals or -- or businesses that aren't in the 23 business of tax and intend that they can, you know, 24 actually if they get it, a favorable judgment, they 25 can get a full refund of the taxes due. 26 MS. PIELSTICKER: I would add that the 27 Franchise Tax Board has similar authority with 28 regard to protective claims for refund. 65 1 MS. HARKEY: Yeah. Just kind of 2 streamlines it. 3 MR. HORTON: Okay. 4 MS. HARKEY: Thank you. 5 MS. MA: Okay. Seeing no further comments, 6 the motion was made by Ms. Harkey, seconded by 7 Mr. Runner, unanimous support by the Board. 8 And our last item. 9 MS. PIELSTICKER: And I would invite 10 Mr. Randy Silva from our Investigations Division to 11 join me at the dais. Thank you. 12 So Suggestion 2-3 would specify that any 13 person who possesses, sells, offers to sell, buys or 14 offers to buy any unaffixed cigarette tax stamps is 15 guilty of a misdemeanor, subject to applicable 16 criminal penalties. It also authorizes the Board of 17 Equalization to seize and destroy used cigarette tax 18 stamps aggregated for reuse. 19 Under existing law, any person who 20 possesses, sells, or purchases any false or 21 fraudulent cigarette tax stamps is guilty of a 22 misdemeanor punishable by a fine or imprisonment of 23 up to one year in a county jail or both by a fine 24 and imprisonment. 25 Existing law authorizes a BOE employee to 26 inspect any place for which there is evidence of a 27 taxpayer's failure to comply and authorizes seizure, 28 forfeiture, and destruction of the cigarettes when 66 1 the stamp is affixed or the tax is paid in a manner 2 that violates the law. 3 Existing law does not provide for the 4 seizure and destruction of used cigarette tax stamps 5 aggregated for reuse purposes and it does not 6 provide criminal sanctions or penalties related to a 7 person's possession, sale, or purchase of used 8 cigarette stamps. 9 So this -- the proposed law would make it a 10 misdemeanor for any person to possess, sell, or 11 purchase any unaffixed cigarette tax stamps. I 12 explained the applicable crime. It specifies that 13 unaffixed stamps do not include any unused and 14 unapplied rolls of stamps or loose stamps in the 15 possession of a licensed distributor. So we're 16 really just trying to go after folks that collect 17 stamps. As you can see in that photo right there, 18 this is something that Investigations came upon at 19 a -- at a retailer. There's no reason to have those 20 cigarette packages saved like that with the stamps 21 on them except to repurpose them on counterfeit 22 cigarettes, but currently we don't have the 23 authority to seize that bucket of stamps. 24 MS. MA: Mr. Silva. 25 MR. SILVA: Good morning. 26 MS. MA: Good morning. 27 MR. SILVA: Good morning, Chairman. Good 28 morning, Members. 67 1 As Michele pointed out, basically we're 2 starting to see a lot more of this. It started out 3 in retail, just sort of your lunch-type bag with 4 stuff in a few cellophane wrappers in there with the 5 stamps to where we're seeing aggregators that have 6 as many as in the tens of thousands of these stamps. 7 So we're recommending that the Board 8 support this bill to allow us to seize them when 9 we're in retail as well as educate that it's a 10 violation to aggregate them, and as we currently do, 11 pursue them criminally when it's -- when it's 12 significant tax evasion. 13 MS. MA: So one of my questions I think 14 during the briefing was how do people know? 15 Retailers. Do they have the ability to check all of 16 the stamps that come in to make sure that it's not 17 counterfeit versus, you know, maybe a repurpose? 18 Like, how do retailers know that they're getting the 19 real thing? 20 MR. SILVA: Generally, if they're buying 21 from a legitimate licensed distributor, they're in 22 pretty good shape, but they have an option. This is 23 a UV indicator that, when passed over the stamp, 24 it'll highlight some -- some of the chemicals in it, 25 it'll see a different reaction. This is available 26 to retailers for purchase from the Board's current 27 stamp contractor. 28 MS. MA: How much is that? 68 1 MR. SILVA: I believe it lists for $5 and 2 out the door ends up costing you around 20. 3 MS. MA: And it's reusable or just -- 4 MR. SILVA: This is reusable -- they can 5 continue to use it by passing it over the packs and 6 stamps specifically. 7 MS. MA: Interesting. 8 MS. PIELSTICKER: And that detects whether 9 a stamp is counterfeit or not. It doesn't detect 10 whether a stamp has been reused. 11 MR. SILVA: Reused. 12 MS. PIELSTICKER: That being said, that's 13 why this proposal only deals with unaffixed stamps. 14 So if a used stamp is applied, we would -- we would, 15 on our inspection, be able to identify the -- the 16 brand, and if the brand doesn't match, then we go 17 back to the licensed distributor and talk to them 18 about why that might be, and there might be some 19 legitimate reasons for why that might be and maybe 20 not so legitimate reasons. 21 MR. SILVA: That's correct. 22 MS. MA: This is more for the people who 23 are doing in en masse, not necessarily the small 24 retailer who bought cigarettes thinking that they 25 were real and selling it and, you know, maybe not 26 knowing there's a device, but now knowing a device 27 could -- wouldn't be subject to the misdemeanor 28 penalty -- 69 1 MS. PIELSTICKER: Correct. 2 MS. MA: -- right? 3 MR. SILVA: Generally, what we look at is 4 invoices they have, and if the invoices support the 5 cigarettes that they purchased that are the ones 6 that are affixed with the repurposed stamps, then 7 we're looking at the wholesaler or the distributor 8 that sold those cigarettes. 9 MS. MA: And is there a recourse if they 10 are selling? 11 MR. SILVA: It's -- when you apply a reused 12 stamp, it's basically a counterfeit stamp. 13 MS. MA: Okay. 14 MR. SILVA: When it's actually affixed to a 15 packet of cigarettes. 16 MS. MA: But when it's in that form, we 17 don't have any -- 18 MR. SILVA: There's no crime. 19 MS. MA: -- jurisdiction or it's not in the 20 Code. 21 MR. SILVA: There's no authority to seize 22 it. 23 MS. MA: Okay. Mr. Horton. 24 MR. HORTON: Thank you, Madam Chair. 25 This is a serious issue. The whole 26 secondary market is an issue, whether it comes down 27 to aspirin that have been taken off the shelf for 28 whatever reason and being resold as the original 70 1 product. So there's an issue not only with 2 cigarettes but an issue with all the other products 3 out there that the criminals are counterfeiting and 4 putting forth as quality product that's causing 5 health issues for the people of the state of 6 California, financial issues for the state of 7 California, perpetuating crime, from my perspective, 8 and it's generating a lot of money for the criminals 9 to do this, so there's an incentive, a financial 10 incentive. 11 My concern -- I'm supportive, but my 12 concern, Members, is that I don't believe the 13 penalty necessarily fits the crime. You have a 14 situation where the individual's arrested as a 15 misdemeanor, pays $1,000 fine, out in three months, 16 and be -- thousands of dollars they have, the cash 17 that they have, they get it back, even though we've 18 done legislation to try to address that as well. 19 But I do -- I'm very realistic when it comes to the 20 legislature. This is probably the best you're going 21 to get out of the current legislature. 22 MR. RUNNER: You -- you think the penalty 23 should be greater? 24 MR. HORTON: I do. 25 MR. RUNNER: Mm-hmm. 26 MR. HORTON: But, you know, I don't think 27 we're going to get it, so . . . 28 MR. RUNNER: Yeah. 71 1 MR. HORTON: I mean, I don't think we're 2 going to get it not because the legislature's not 3 prepared to -- to apply a penalty to these 4 individuals. Quite frankly, I don't think the 5 legislature and the general public is fully aware of 6 the significance of these criminal activities. 7 This has been going on for years, and it's 8 always a challenge. It's kind of indicative of the 9 saying that someone once said: The greatest trick 10 the devil ever played was convincing the public that 11 he didn't exist. In many cases people really don't 12 believe that this exists. 13 I remember Member Ma or myself, over the 14 years we were in the legislature talking about the 15 underground economy, the Mafia, the Russian Mafia, 16 the Spanish Mafia, and they're looking at us like 17 we're crazy, and yet still not acknowledging that 18 upward of 9 billion -- that California is losing 19 upward of $9 billion. This is funding illegal 20 activities, human trafficking, a number of different 21 issues. But hopefully we'll get there sooner or 22 later, and the aggressive action of the Board of 23 Equalization to prosecute, arrest, and so forth, and 24 confiscate the taxes, identify a level of taxation 25 that we can kind of put some burden on these 26 individuals. 27 MS. MA: Ms. Harkey. 28 MS. HARKEY: I really support this, and I 72 1 appreciate your efforts. It's just amazing to me 2 some of the little idiosyncrasies of the law where 3 you can see that but you can't touch it, and I think 4 it's pretty apparent that the purpose is not just to 5 collect them for wallpaper, you know. It's a 6 serious crime going on to repurpose. So I 7 appreciate and -- you know, the more that we can 8 actually protect the -- the law-abiding citizens, 9 the better for all of us. Thank you. 10 MS. MA: Mr. Runner. 11 MR. RUNNER: Move to sponsor it. 12 MS. STOWERS: Second. 13 MS. MA: Okay. So Mr. Runner made a motion 14 to sponsor, second by Ms. Stowers, unanimous support 15 by the Board. 16 And I just want to reiterate that the four 17 Board-sponsored -- now -- pieces of legislation we 18 do not have an author yet. 19 MS. PIELSTICKER: Right. 20 MS. MA: And we're going to be going and 21 seeking authors. And are any of these going to be 22 combined into an omnibus tax bill or are they going 23 to be separate authors with four different bill 24 numbers? 25 MS. PIELSTICKER: These will -- well, with 26 the exception of the -- the first proposal will be a 27 committee bill, most likely. 28 MS. MA: Committee. Okay. 73 1 MS. PIELSTICKER: The other proposals, 2 since they're more policy-based, will be individual 3 authors. 4 MS. MA: Okay. So we look forward to you 5 coming back with bill numbers and bill authors, and 6 keep us up to date on the process moving forward. 7 Okay. Thank you, Members. That concludes 8 the Legislative Committee. 9 ---oOo--- 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 74 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 January 26, 2016 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 58 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: March 24, 2016 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 75 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, CAROLE W. BROWNE, Hearing Reporter for 8 the California State Board of Equalization certify 9 that on January 26, 2016 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 59 through 74 14 constitute a complete and accurate transcription of 15 the shorthand writing. 16 17 Dated: February 3, 2016 18 19 20 ____________________________ 21 CAROLE W. BROWNE, CSR #7351 22 Hearing Reporter 23 24 25 26 27 28 76