1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 MAY 24, 2016 10 11 12 13 14 15 16 ITEM F 17 PUBLIC HEARINGS 18 ITEM F2 19 BUSINESS TAXPAYERS' BILL OF RIGHTS HEARINGS 20 21 22 23 24 25 26 27 REPORTED BY: Carole W. Browne 28 CSR NO. 7351 1 1 P R E S E N T 2 3 For the Board of Fiona Ma, CPA Equalization: Chairwoman 4 Diane L. Harkey 5 Vice Chair 6 Jerome E. Horton Member 7 Sen. George Runner (Ret.) 8 Member 9 Yvette Stowers Appearing for Betty T. 10 Yee, State Controller (per Government Code 11 Section 7.9) 12 Joann Richmond Chief 13 Board Proceedings Division 14 ---o0o--- 15 For Board of 16 Equalization Staff: Todd Gilman Taxpayers' Bill of 17 Rights Advocate 18 ---o0o--- 19 20 21 22 23 24 25 26 27 28 2 1 INDEX OF SPEAKERS 2 3 SPEAKER PAGE 4 Jesse McClellan 6 5 Rex Halverson 8 6 Gene Christopher 12 7 ---o0o--- 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 MAY 24, 2016 4 ---o0o--- 5 MS. MA: Next item, Ms. Richmond. 6 MS. RICHMOND: Our next item is F2, Business 7 Taxpayers' Bill of Rights Hearings. And we do have 8 several speakers. 9 MS. MA: Okay. Welcome, Mr. Gilman. If you 10 would please introduce yourself for the record and 11 commence your presentation. 12 MR. GILMAN: Good afternoon, Members. Todd 13 Gilman, Taxpayers' Rights Advocate with the State Board 14 of Equalization. 15 Let me get organized here real quick. 16 First off I'd like to bring to the Board's 17 attention -- I believe we have some distinguished 18 individuals in the audience. I believe -- we had a 19 contact from Assemblywoman Patty Lopez that expressed an 20 interest in coming to the Taxpayers' Bill of Rights, so 21 I don't know if she's in the audience. She said she was 22 going to make an appearance. 23 And also we have Honorable Assessor Kathleen 24 Kelleher in the audience as well. 25 And I believe we have one other assessor, but 26 I'm not certain, but I want to make sure that they are 27 acknowledged and recognized for being in the audience. 28 Ms. Kelleher is here representing the 4 1 California Assessors Association today for the 2 Assessors. 3 So we'll move on to the hearings. 4 This is the Business Taxes Taxpayer Bill of 5 Rights Hearings for Sacramento, May 24th, 2016, where 6 individuals have the opportunity to present their ideas, 7 concerns, and recommendations regarding legislation, the 8 quality of Agency services, and other issues the 9 Board -- related to the Board's administration of its 10 tax programs, including Sales and Use Tax, Environmental 11 Fees, Excise Taxes, and any other issues identified in 12 the Taxpayers' Rights Advocate's 2014-2015 Annual 13 Report. 14 We have three business tax speakers. If you 15 would like them to come up now, I can . . . 16 MS. MA: Okay. Great. We have speaker cards 17 from Jesse McClellan, from Rex Halverson, and Gene 18 Christopher. And if there are others who would like to 19 speak, if you would please come up to the Clerk and fill 20 out a speaker form. 21 To the speakers, if you would please introduce 22 yourself for the record. You have three minutes each, 23 and we may ask you additional questions after we hear 24 your presentation as well as Mr. Gilman's response, and 25 then we'll be opening it up for Member comments. Thank 26 you. 27 Mr. McClellan. 28 /// 5 1 ---o0o--- 2 JESSE McCLELLAN 3 ---o0o--- 4 MR. McCLELLAN: Thank you. My name is Jesse 5 McClellan, with McClellan Davis. And I wanted to thank 6 the Board for giving us this opportunity to present our 7 concerns. Thank you, Madam Chair and Board Members. 8 Also wanted to thank the Taxpayers' Advocate, Todd 9 Gilman, and his office for working with me on this 10 particular issue that I'm presenting today and also a 11 number of other issues that him and his office has 12 helped us with historically. They really do a great job 13 helping us to resolve matters. 14 The issue that -- that I want to address 15 today -- and there's actually two -- there's a second 16 issue that just came up -- but the first issue, I think 17 it's a relatively simple one. I think the solution 18 should be relatively simple. And it's that when you 19 have a case that's scheduled for a Board hearing, 20 there's times where it's removed from the hearing, 21 whether it be from -- from Legal or the Department, and 22 sometimes there's -- there's no reason provided for the 23 removal. And there's never a time frame that's provided 24 to -- for us to give to our clients, to the taxpayer, to 25 say, look, we can anticipate this being resolved or back 26 on the calendar within 30 days, 90 days, a year or 27 whatever it may be. There -- there just isn't a time 28 frame. 6 1 So really, what we're asking for is that there 2 be some guidelines set up and that there be some 3 identifiable time frame. 4 And every case is unique, and some extenuating 5 circumstances may warrant additional time, so I think 6 it's appropriate to allow for that opportunity to have 7 additional time, but I think it would be good to at 8 least have a time frame, whether it be 30 days or 9 60 days or 90 days, to either resolve the matter, 10 request an extension for more time, or to bring it back 11 to the calendar. And that's the first issue. 12 The second issue goes to administrative 13 protests. They used to be referred to as late protests, 14 so if a timely petition is not filed, you have the 15 opportunity to file an administrative protest, which 16 essentially gives you the rights that are provided under 17 a timely petition. Sometimes they're accepted and other 18 times they're -- they're not. 19 So the concern is when they're not accepted 20 there's not really a process in place to have it looked 21 at, to have a second set of eyes put on the 22 administrative protest to figure out why it was denied. 23 And my thoughts in general there are that, 24 under an administrative protest, because it's not under 25 a standard petition, the Board can still take collection 26 action, but I think we should err on the side of giving 27 taxpayers the opportunity to have their case heard. 28 And I think it would be a good safeguard to at 7 1 least have someone else look at the denial, to figure 2 out, well, why wasn't this accepted. 3 Thank you. 4 MS. MA: Okay. Thank you. 5 Next speaker. 6 ---o0o--- 7 REX HALVERSON 8 ---o0o--- 9 MR. HALVERSON: Good afternoon. My name is Rex 10 Halverson and I'm a tax attorney and a former Deputy 11 State Controller Tax, and having the privilege of 12 sitting on this Board from the years '95 to '98 for the 13 Honorable Kathleen Connell. 14 I've practiced state and local tax now for 15 38 years and would like to make the following comments 16 about two cases that I have currently and one matter of 17 customer service. 18 Case No. 1 involved a $214,000 tax assessment 19 against an innocent spouse who merely made the mistake 20 of applying for and signing the BOE seller's permit for 21 her resident alien husband's used car lot. 22 The taxpayer found me eight years after the 23 initial assessment and well after the appeals deadline 24 in an effort to do an offer and compromise or make 25 installment payments. 26 Within weeks we found the actual pertinent 27 records, so we supplied all those to the Collections 28 Unit. 8 1 Although this matter is not yet closed, the 2 taxpayer went through eight years of worry and hell when 3 the actual liability is closer to 56,000 than 214,000, 4 and she's paid over $46,000 in the Chapter 13 5 bankruptcy, so she owes close to $8,000. 6 The problem, the original assessment was a rush 7 to judgment, a guess, a wildly inaccurate guess, 8 plunging an innocent spouse with four children into a 9 nightmare that should never have been as scary as it was 10 portrayed. 11 The solution, in my humble opinion: More time 12 should be spent in reviewing those estimated assessments 13 long before the NOAs or NPAs were issued in dual 14 assessments. 15 Now, Case No. 2 involves a taxpayer who built 16 his gas station in 2009 down in the Bay Area. It was 17 the first gas station in the Bay Area to carry E85 fuel. 18 E85 fuel is an alcohol fuel blend that contains 19 ethanol and no more than 15 percent gasoline by volume. 20 During the next six or seven years, the gas 21 station owner was never told that he had to have a 22 separate BOE permit for selling E85 fuel and a use fuel 23 tax permit for selling all other types of vehicle fuels, 24 gasoline and diesel. 25 The Special Taxes and Fees Division handles the 26 use fuel tax and a separate division handles the motor 27 vehicle fuel tax. So I don't understand why. 28 In my -- in my taxpayer's case, he never knew 9 1 he had to have a second permit. And now the BOE's going 2 back to 2009 in their audit because he never had a 3 permit. That's not fair. 4 This is a perfect example, in my opinion, of a 5 waste of valuable BOE audit assets. One auditor should 6 be able to handle both fuels. 7 Lastly, the definition of E85 fuel is hardly 8 helpful to taxpayers in BOE publications, as many times 9 the gasoline content of the E58 fuel exceeds the maximum 10 percentage of gasoline, 15 percent, thus making the fuel 11 a blended fuel rather than E85 fuel. And blended fuel 12 is subject to use fuel tax rather than the motor vehicle 13 fuel tax. 14 My client has multiple examples of invoices for 15 fuel that reflect this fact. In other words, he'll 16 actually take how much gasoline was put into the tank, 17 then he'll take how much ethanol was put into the tank, 18 and the gasoline is 16 percent, so he thinks he's 19 subject to a different tax. 20 My last comment is about the front counter at 21 BOE headquarters. Over my long career I've dropped off 22 petitions for redetermination and records requested by 23 BOE Auditors or BOE Collections at the front desk, and 24 for the most part have been greeted by a very warm and 25 friendly staff. 26 Most of my petitions had to be date-stamped so 27 that they had a record of timely filing. In the last 28 two years, though, I've noticed there's more resistance 10 1 at the front desk to taking my hand-delivered items. 2 Staff has advised me that they can no longer -- that I 3 can no longer drop off files or petitions, and staff -- 4 instead, staff or I must call the person that the 5 package is addressed to and I must wait for that person 6 to come down and pick up the package. Sometimes I might 7 wait ten minutes, sometimes 30. Sometimes I've given up 8 and walked off after calling the person for, you know, 9 ten or 20 times. 10 The last time this happened to me, when I did 11 walk off, I mailed the package and it never arrived. 12 The front desk staff has said to me and advised 13 me in no uncertain terms I cannot simply drop it off 14 because many people never pick up the mail from them. 15 I know that BOE staff are busy, but the front 16 desk is usually staffed by two to four people, and it 17 represents the face of the BOE. 18 If customer service is important to the BOE, I 19 think that the BOE Members should consider allowing tax 20 practitioners to continue to hand-deliver packages and 21 petitions for redetermination and perhaps ask staff to 22 deliver those packages to the mail room if not picked up 23 by the addressee at the end of the day. 24 My suggestion stems from the fact that the 25 U.S. Mail has lost no fewer than three of my packages of 26 mail to the BOE and FTB in 38 years, and those are only 27 the ones I know of. 28 On a positive note, appeals are moving faster 11 1 than at any time that I recall. And both my clients and 2 other practitioners are extremely grateful to all of 3 you. Thank you. 4 MS. MA: Thank you. 5 Next speaker. 6 ---o0o--- 7 GENE CHRISTOPHER 8 ---o0o--- 9 MR. CHRISTOPHER: Yes. My name is Gene 10 Christopher. I'm a taxpayer and a citizen. 11 I came across a situation the other day at the 12 local hardware store where I had some screens replaced. 13 I'm sure the screens probably cost less than a dollar, 14 but they charged me tax on $40 labor. And I asked them 15 why they do this, and they said, well, that they have to 16 charge tax on this. 17 It's a minor amount, I realize that, but I 18 think if you extrapolate it over a period of a number of 19 people, it's a lot of money that they're paying that 20 they shouldn't be. 21 And they also said they pay -- you have to pay 22 tax on service to lawnmowers. Well, if you sharpen a 23 lawnmower, I don't think there's much product or 24 merchandise in that lawnmower servicing. And they 25 shouldn't be charging tax for that. 26 I do have one other thing. I'll make it short 27 and sweet. 28 I was a member of Rotary Club for over 12 1 30 years, a number of clubs. We do a lot of good work 2 throughout the community, throughout the world, in fact, 3 for some clubs. 4 There is a tax exemption, a sales tax exemption 5 for service clubs; however, I would defy you to tell me 6 a service club that gets that tax exemption. 7 I had a situation personally where I belonged 8 to a club, I looked into it to try to get us exempt from 9 the tax, and you couldn't do it. I asked the gentleman 10 how do you do it, what do we have to do to be able to 11 get that tax exemption, and he could not tell me or 12 would not tell me. 13 And I don't know if it's a deep-down secret or 14 what it is. But there's a reason that the people that 15 put these rules together wanted service clubs to get an 16 exemption for meals, so to -- basically, that's what I'm 17 talking about, and they had a reason for doing that. 18 But there isn't anybody that can tell me how you could 19 do it. So I just thought I would pass that on. You can 20 do what you want with it. Okay. 21 MS. MA: Thank you, Mr. Christopher. 22 Okay, Mr. Gilman. Would you like to respond? 23 MR. GILMAN: Yes. 24 Well, we'll start off with Mr. McClellan. 25 First off, I want to thank Mr. McClellan -- I 26 want to thank all the taxpayers, for that matter, for 27 appearing before you today. It's not often always easy 28 to get down to downtown Sacramento, but they made the 13 1 effort, so it's obviously important to them. 2 So again, I believe Mr. McClellan's suggestion 3 is reasonable, and we can do a better job when it comes 4 to providing taxpayers with something substantive as to 5 why a case has been pulled from going forward to a Board 6 hearing. Also providing the taxpayer with something 7 meaningful regarding when and if the case is going to 8 come back will provide the taxpayer a sense of finality. 9 I think that's part of what they sometimes suffer from, 10 which is the anxiety of this has been going for a few 11 years, you know, when is this case going to come back. 12 But maybe, you know, the case is pulled for a 13 good reason, which means it's not going to come back 14 because there's a decision that's made or an adjustment 15 made that's going to benefit the taxpayer, so it kind of 16 goes both ways. But it goes back to the information 17 that would be helpful to them. 18 And also, as mentioned by Mr. McClellan, with 19 respect to his recommendation in his memo, this might be 20 a topic that may be suited for Business Taxes Committee 21 in order to get all the issues on the table with respect 22 to, you know, when, if, and how much information we're 23 going to provide taxpayers when it comes to a case being 24 pulled. But it was just a recommendation that he had 25 made in the written submission that he had provided to 26 the Board. So I think they're good recommendations, and 27 my plan is to work with our BOE staff to see whether or 28 not we can incorporate what he recommends. 14 1 With respect to Mr. Halverson's issues, I think 2 that -- first off, I didn't get a chance to look at the 3 cases, so it would be helpful if we had some account 4 numbers with respect -- and I'll be following up with 5 Mr. Halverson on that. 6 With regards to Case No. 1, I don't know how 7 recent this actually happened, but there's definitely 8 some things that we can look into to see whether or not 9 we're assessing the right amount of tax to the 10 individual. But apparently, from what Mr. Halverson is 11 saying, was just a name on a permit but she was not the 12 decision-maker of the business. So my plan is to assign 13 that to one of our technical advisors to look at his 14 case to see what the facts are, what happened, and see 15 if we can figure out what the resolution would be with 16 respect to that case. 17 On the second matter, I had a chance to look 18 into this one with the E85 and the gas stations. I have 19 some good news. It sounds, from what I understand, the 20 Board is -- has developed a letter -- I don't think it's 21 available, but it's going through clearance -- to be 22 sent to taxpayers, asking them if they would like to 23 have a combined audit. 24 So that would partially address what 25 Mr. Halverson's recommending or concerned about where if 26 a taxpayer is scheduled for a tax audit, they now can 27 make the decision as to whether or not it's going to be 28 one auditor out there or two auditors that are going to 15 1 be conducting not only a routine sales tax audit but 2 maybe a motor -- a motor carrier audit or a use fuel tax 3 audit. So that should address some of those issues with 4 respect to that concern. 5 And then as far as the dropping off mail at the 6 counter, yeah, I'm sure that it's important to everyone 7 that our counter staff are the face of the BOE when 8 taxpayers come in. I'm going to follow up with our 9 Deputy Director of Admin to find out what exactly is the 10 policy, and if the taxpayers are not allowed to drop off 11 materials, they should be. We should be responsible for 12 directing that information to the appropriate section, 13 so . . . 14 And then, with Mr. Christopher, Mr. Christopher 15 and I spoke this afternoon. And I'm not sure whether 16 the retailer is charging tax correctly. There's four 17 different types of labor. Repair labor and assembly -- 18 or repair labor and installation labor are generally not 19 taxable, and what he described is more of a repair 20 labor. So our plan is to follow up with the retailer to 21 see if they're charging tax correctly and then also let 22 Mr. Christopher know that if they are overcharging tax 23 he would be entitled to a refund from the retailer. 24 With respect to his last issue, on the social 25 clubs, there's some narrative out there and some 26 information with respect to how tax applies to social 27 clubs. And I'm not quite sure exactly how it works with 28 them, so my plan is to go back and research the concern 16 1 that he has and see how those types of organizations are 2 treated when it comes to taxation, so . . . 3 MR. CHRISTOPHER: Excuse me. If I could just 4 say, not only social clubs but service clubs. 5 MR. GILMAN: Service clubs. 6 MR. CHRISTOPHER: Yeah. There is an exemption 7 in the rules. 8 MS. MA: Okay. Members? Mr. Runner. 9 MR. RUNNER: Just a couple follow-up, 10 particularly in regard to -- well, let me just go down 11 the line a couple of these. 12 The issue of the contact, when it is that an 13 issue -- when an appeal has been delayed or not -- taken 14 off agenda, right now I think what takes place is it 15 basically ends up a communication from Board Proceedings 16 when somebody's case is going to get postponed. Is that 17 the normal process? 18 MR. McCLELLAN: Not all of those letters always 19 hit my desk, but to my recollection the last one that 20 came off came directly from Appeals, so there was -- 21 MR. RUNNER: From Appeals? 22 MR. McCLELLAN: From Appeals. 23 MR. RUNNER: That was actually part of my 24 concern is that -- is that oftentimes -- at least my 25 understanding is that oftentimes it's just a -- you 26 know, there will just be a contact from -- from Board 27 Proceedings, and Board Proceedings doesn't really know 28 anything other than that it's not going to be on the 17 1 calendar. 2 MR. McCLELLAN: Mm-hmm. 3 MR. RUNNER: And so I think it's important that 4 one of the issues we may have to do is engage Appeals, 5 if they're not engaged in some of these, to be able to 6 give either explanation or at least let -- I would 7 assume -- at least let Board Proceedings give the 8 individual taxpayer the information of who to contact, 9 you know, at that point. I think that's -- I think that 10 would be the -- the key process, because right now -- I 11 think right now, just going -- going to Board 12 Proceedings, you're basically just communicating to the 13 taxpayer what's on the agenda; correct? 14 MS. RICHMOND: Correct. 15 MR. RUNNER: Yeah. 16 MS. RICHMOND: And we just usually tell them 17 that their case is being deferred. 18 MR. RUNNER: Because we don't -- because you 19 don't know. 20 MS. RICHMOND: Correct. 21 MR. RUNNER: Right. So I think we need to do 22 some extra effort in regards to that. So I think if we 23 could go ahead and again, as we review that, see how 24 that could be done in order to inform the taxpayer and 25 give them some -- some additional information, I think 26 certainly a timetable is good, because, again, I think 27 oftentimes this is just, you know, you know, kind of the 28 way things happen in government; right? We're going to 18 1 get delayed. And we know that that means the next 2 hearing or it's going to take two hearings, but the 3 taxpayer, who's maybe been in this queue for the last 4 three years, doesn't know that. 5 MS. RICHMOND: Right. 6 MR. RUNNER: And so I think a lot of times it's 7 just being able to then just help them give some 8 parameters to that. So I think that would -- in regards 9 to that. 10 In regards to the -- to the -- Mr. Halverson's 11 concerns, a couple -- one of the other issues you 12 brought up was the dual permits, two permits that are 13 required. 14 MR. HALVERSON: Correct. For gas station. 15 MR. RUNNER: For gas station. 16 MR. HALVERSON: If you have E58 fuel, it's a 17 separate permit, different -- different tax. 18 MR. RUNNER: I think we need to make sure that 19 we review our -- our publications. And again -- again, 20 it would be interesting, again, to go back, not only our 21 publications but also go to our website to ensure that 22 there's some instruction at that point if you're opening 23 up a gas station. That should be one of the things that 24 we take them through in this checklist of making sure 25 you have the right things in order for them to do that, 26 because I don't think -- they may certainly think they 27 only need the one permit and go ahead and do that, and 28 then we require a second permit, and then they don't 19 1 really know that until -- unless we -- unless they are 2 aware that this -- that certain fuel needs a certain -- 3 a different kind of permit. 4 So I think we need to review the -- the 5 permitting process to ensure, to see both online and 6 also in our offices to know if we are instructing 7 properly somebody who's opening up that kind of 8 business. 9 I think we -- we actually hit this with the 10 issue -- that came up once before with the issue about 11 fuel tank registration, too. Right? Because, I mean, 12 all of a sudden somebody realizes -- open a gas station 13 and they realize, oh, I didn't know I needed a fuel 14 tank. 15 And again, we need -- we need to have a good, 16 clear checklist, if somebody's in a certain kind of 17 business, of the kind of permits they should be seeking 18 to then have at that point. To me that would be an 19 important issue that we need to address in that process. 20 Anyhow, so those are my observations. 21 MS. MA: Mr. Horton. 22 MR. HORTON: Thank you, Madam Chair. 23 I share Mr. Runner's concern, but in addition 24 to what he said, the other challenge is, is that the 25 Board of Equalization, some- -- often -- operates in 26 silos, and so each permit could actually have a 27 different set of auditors who are coming out to examine 28 the gas station. An underground storage permit, for 20 1 example, is examined by a different part of the Agency, 2 Sales and Use Tax, different part of the Agency. 3 However, the taxpayer is not aware of that. 4 And so when someone from Sales and Use Tax 5 comes out from the Board of Equalization, if I have an 6 underground storage issue, they should have said 7 something or should have cleared it. And so we run into 8 a 6596 issue when we have the audit and the audit didn't 9 mention the Storage and Use Tax. 10 So it's something that the Board has sort of 11 grappled with for a number of years, even sought 12 legislation -- no, not legislation, but administrative 13 policy to try to -- and as Mr. Runner indicated, some 14 kind of education to try to accomplish that -- those 15 objectives of resolving that. So, you know, we 16 appreciate you bringing the point forward and sharing it 17 with us. 18 The customer service issue, my experience in 19 the last 30 years of Board of Equalization is that the 20 BOE has some pretty kindhearted people who ultimately 21 want to do whatever they can to serve. They're innately 22 service-oriented or they wouldn't be working for the 23 State. And so what we may have is a policy issue where 24 some policy may have been established without our 25 knowledge. And so, again, you know, we appreciate that 26 coming to bear. 27 And the other concern, the social club, I agree 28 with Mr. -- the Taxpayer Bill of Rights Advocate. It 21 1 may be more of an understanding of the issues, which 2 hopefully we can resolve. 3 And then -- but the one -- one of the ways that 4 I look at concerns expressed by the taxpayer, and I 5 think it's indicative of the entire Board, is that one 6 complaint is really tantamount to 200 complaints, 7 because there are probably another 200 people out there 8 who feel the same way that you feel, that just didn't 9 have the opportunity to come before us. 10 And so I think when we treat it as such, what 11 happens is, is that it enhances our responsiveness and 12 elevates the issue to a point that maybe we may need to 13 look at some pamphlets or a means of education our 14 taxpayers. 15 Thank you, Madam Chair. 16 MS. MA: Thank you. 17 So I have a couple of -- oh, Ms. Harkey, go 18 ahead. 19 MS. HARKEY: No, go ahead. 20 MS. MA: Okay. So I just have a couple of 21 things. We didn't touch on the administrative protest 22 yet, and -- 23 MR. GILMAN: I'm sorry. 24 MS. MA: -- I'm just wondering, you know, some 25 of, like, the appeals and protests, you know, I'm not 26 sure if we ever talked about having, like, a real 27 independent outside person look at it versus someone 28 who's in the process, you know, engaged in the -- or has 22 1 a stake at either the outcome. That's one of the things 2 that I've questioned in the last year. 3 MR. GILMAN: Well, I -- what I can say is that, 4 you know, the administrative protest is overseen by the 5 Petition Section and the Refund Section. 6 I was speaking to Mr. McClellan before the 7 hearing that generally what happens when a taxpayer 8 wants to apply for an administrative protest, it is 9 based on certain -- how do I want to put this? -- 10 certain requirements that a taxpayer has to meet in 11 order to be allowed into an administrative protest. 12 For example, maybe the taxpayer wasn't noticed 13 properly and the taxpayer didn't have adequate time to 14 respond, or possibly the taxpayer has -- has been out of 15 commission, for lack of a better way of saying it. They 16 were ill or something was happening where they didn't 17 have ample time to respond to a notice of determination 18 to file a timely petition, or maybe they're in the 19 middle of changing tax practitioners -- that happens, 20 too -- to where maybe they've let somebody go and now 21 they're hiring somebody else, and for whatever reason it 22 didn't get approved. 23 But what Mr. McClellan is touching on is 24 something entirely different. There were other 25 circumstances outside of that that we need to look at as 26 an Agency to see whether or not those types of cases 27 would be allowed in under administrative protest, 28 so . . . 23 1 MS. MA: Is that what you're -- Mr. McClellan? 2 MR. McCLELLAN: Yes. The -- the cases that I'm 3 thinking of, and one in particular that was recent, is 4 really -- it gets a little complicated. We don't need 5 to go into that now. But -- but the gist of it is that 6 it's a case where I think once somebody looks at it 7 they're going to agree that the liability should have 8 never been issued in the first place. I mean, it's 9 in-inviteable (verbatim) if the -- if the evidence is 10 looked at. 11 And really it stemmed from an inquiry from the 12 Return Analysis Unit after the business had closed for a 13 year or greater. I think it was one or two years. So 14 the business didn't respond because it was a shell of an 15 entity. And so the process oftentimes is to issue an 16 estimated bill at that point because records aren't 17 coming in in response to the inquiry. 18 That then led to a personal liability billing 19 that was issued that wasn't apparently received, and 20 we're contesting that, but really what we're looking at 21 is the underlying evidence of the LLC liability. 22 And we got a letter the next day basically 23 saying, look, this is denied. 24 My thought is, there's no way they went through 25 all the documentation that we went through and developed 26 and presented, and that if somebody just looks at it, I 27 think there's a very good chance that they would agree 28 with us. 24 1 And at the end of the day, there's really not a 2 process that we're aware of, aside from exercising 3 various channels, to try and get this done, for 4 taxpayers to call and say, look, can you take a second 5 look at this to try to get some eyes on it. And 6 that's -- that's indicative of the sort of concerns that 7 we have with those cases. 8 MS. MA: Okay. Mr. Gilman. 9 MR. GILMAN: Well, I mean, as Mr. McClellan 10 states, every case is obviously unique and different, 11 and it's going to depend on a number of factors in terms 12 of whether or not a case would qualify for an 13 administrative protest or not. But I think what he's 14 trying to say or recommending is a process to -- that 15 might be either inside or outside the current process 16 that allows the taxpayer to provide a set of facts that 17 maybe weren't looked at before, and if there is some 18 kind of independent body that can -- kind of like what 19 you're suggesting -- that can look at those cases and 20 make a decision as to whether they should or shouldn't 21 be allowed in would be helpful for the taxpayer, because 22 I think what he's trying to point out is that it could 23 have been resolved much earlier in the process as 24 opposed to, you know, months, if not -- I don't know how 25 many -- maybe not years, but months down the road, 26 so . . . 27 MS. MA: So it doesn't make sense if, like -- 28 like your shop? 25 1 MR. GILMAN: Well, it's kind of funny you 2 mention that, because I was thinking the same thing. Is 3 this like a, you know, would it be something that comes 4 to the Taxpayers Rights Advocate's Office to do an 5 independent review and make a recommendation as to 6 whether or not we believe . . . 7 MS. MA: Okay. I think Mr. Runner. 8 MR. GILMAN: I'll stop right there. 9 MR. RUNNER: Again, I think it's something for 10 review. 11 MR. GILMAN: Right. 12 MR. RUNNER: And I think maybe it's something 13 that we can -- I mean, since we work together on -- 14 MR. GILMAN: Right. Customer Service 15 Committee. Right. 16 MR. RUNNER: -- customer service and 17 everything, maybe it's something we can just bring out 18 in committee, we'll work with Mr. Gilman on that issue 19 to see if we could come to a resolution on it. 20 I actually wanted to follow up on one other 21 item, and that is, again, we could set up whatever 22 systems are good -- and, of course, that's where we want 23 to catch a lot of the issues -- but oftentimes some -- 24 you can have the -- you can have effective systems 25 before something just doesn't -- isn't getting handled 26 right. 27 MR. McCLELLAN: Mm-hmm. 28 MR. RUNNER: To me what you're describing 26 1 there, Mr. McClellan, is a perfect time to call up a 2 Board Member, just say, hey, look, can you -- can you 3 have you guys review this -- 4 MR. McCLELLAN: Mm-hmm. 5 MR. RUNNER: -- so that we can see if there's a 6 process and bring the people together. So I'm hoping 7 that you're using those tools, too. 8 Again, that doesn't solve the big problem, and 9 certainly we don't want to -- we don't want to have 10 people calling us on every one. We'd rather set up 11 systems that solve the problem. 12 MR. McCLELLAN: Right. 13 MR. RUNNER: But sometimes the systems don't 14 work. 15 MR. McCLELLAN: Mm-hmm. 16 MR. RUNNER: And the bottom line, what I'd like 17 to do is make sure that if we've got a constituent out 18 there who just needs some extra attention to see if 19 something is handled correctly, boy, I'd encourage you 20 to help direct them to our Member offices, too, to help 21 us assist. 22 MS. MA: Well, I don't want us -- people to 23 call us and then we call the Petition and Refund Section 24 and say, hey, can you look at it again? 25 They're, like, well, we denied it once, we 26 looked at it, and we deny it again. Right? I mean, 27 that's not the point of it. Right? 28 MR. RUNNER: Well, sometimes it's just -- 27 1 sometimes it's just the process. 2 MS. MA: Yeah. So someone, I think, some group 3 can maybe, you know, maybe you can work on it in your 4 committee and figure out, you know, what the process is 5 so at least, you know, people feel like someone did 6 actually -- 7 MR. GILMAN: Look at it. 8 MS. MA: -- take another look at it. Right? 9 My other question is, you mentioned four types 10 of labor. 11 MR. GILMAN: Right. 12 MS. MA: And you mentioned repair labor, 13 installment labor. So what are the other two? 14 MR. GILMAN: The other are assembly and 15 fabrication. So those are generally the two taxable 16 forms of labor. And the other two types of labor are 17 generally nontaxable. So assembly and installation, 18 might be install part of a car -- generally the labor 19 that goes into installing a part on a car is not going 20 to be taxable. 21 MS. MA: Okay. 22 MR. GILMAN: Repair, like, if you're repairing 23 the screen, for example, what he's talking about, 24 generally is not going to be considered taxable labor, 25 so . . . 26 MS. MA: Okay. Well, it seems, if there's 27 confusion out there with retailers, perhaps we -- I'll 28 include it in my newsletter, and I know we all have 28 1 newsletters that we send out, so maybe we'll -- 2 MS. HARKEY: Educational opportunity. 3 MS. MA: Yeah. Yes. The four types of labor 4 and which ones are taxable, which ones are not. 5 So I thank you, Mr. Christopher, for bringing 6 that forward. 7 MR. CHRISTOPHER: Thank you. 8 MS. MA: Anybody else have questions? 9 MS. HARKEY: I do. 10 MS. MA: Ms. Harkey. 11 MS. HARKEY: Thank you. 12 No, I appreciate that, too. There's just one 13 thing I'd like to say is that if the gentleman is -- is 14 going to get a refund, let's be sure that the retailer 15 that misunderstood doesn't go through a lot of pain. 16 Let's make sure this is a simple one-step process -- the 17 Board refunds, he gets his refund -- so we don't have to 18 drag this out for the retailer. 19 The fuels interested me, that if you have an 20 E85 fuel and you mix it and then use a different tax 21 structure, can you expand on that for me? 22 MR. HALVERSON: Yeah. Well, I'd like to 23 reiterate one point. Remember, this is a gas station 24 that, just as it was being built, actually E85 was 25 brought to it, and the people selling the E85 said, 26 look, we'll put in the pumps for you, et cetera. So he 27 really got caught after he had done his original -- his 28 original permit. 29 1 So, now, in E85 fuel, it can't have any more 2 than 15 percent gasoline, so it's called maximum 3 15 percent gasoline. The problem is that the way it's 4 actually bought is that, you know, a truck trailer will 5 go over to pick up the gasoline at one place and load it 6 into the large tanker and then it will drive to the 7 ethanol fueling station and dump in the ethanol at the 8 same -- I mean, into the same tank. Then the truck 9 drives along and they mix. So by the time the guy 10 gets -- 11 MS. HARKEY: High tech. 12 MR. HALVERSON: By the time the guy gets the 13 bill, though, it breaks out how many gallons of gasoline 14 went in there and how many gallons of ethanol went in 15 there. And when the guy double-checks to see if it's 16 E85, even though it's labeled as such on an invoice, he 17 actually does the math. And when you find more than 18 15 percent of gas, that falls outside your definition in 19 the publications; and therefore, he starts saying, well, 20 then I've got to collect the motor vehicle fuel tax and 21 not the use fuel tax. And that's created a problem, 22 because all of a sudden he gets then audited by both, 23 saying, no, you did this one wrong and you took the 24 wrong credit, and here you did this one wrong and we get 25 this. Plus, we're going to go back as many years as 26 seven because you didn't have the other permit, and 27 that's your problem, not ours. So it's rather 28 complicated. 30 1 But the publications are wrong, and they -- we 2 need to clean up the definition of E85. It might be 3 easier to say, if you're selling E58 fuel, this is the 4 tax that applies, and we don't care how much gasoline is 5 in there. But if you don't start breaking out that it 6 doesn't have a maximum of 15 percent, these people get 7 into blended fuel and they -- and they come up with a -- 8 MS. HARKEY: Yeah, I can see it's a real 9 "gotcha," a Catch 22. I'm not sure, but that sounds 10 like it might be something for Business Taxes. 11 MR. RUNNER: Is that a law? I mean, what 12 requires -- 13 MS. HARKEY: I don't know. Let's -- let's 14 research it, and I'd love to work with you, Todd, and 15 see, just to be sure we get clear as to exactly what's 16 going on. And maybe we'll look at the two regs or 17 whatever and find out what the situation is, and if we 18 can do it with just some clean-up language or if we 19 actually have to have legislative language, because I 20 thought that was -- that was way too confusing. 21 As for the mail room delivery, I think, yes, 22 you know, if you bring it in, we ought to be able to get 23 it to a mail room, if nothing else. I would think we 24 have responsible people. But I bet that there's been 25 parcels lost or claimed to be lost, and so now all of a 26 sudden the rule is don't take it. And so I think we can 27 work with that. We might want to just give a little 28 cover to the front desk people. 31 1 As for identifiable time frame for rescheduling 2 hearing, I have wondered, too, if they just fall off the 3 radar screen and go away, if they're really being worked 4 on, if there's a resolution, if they're just being 5 pulled because they think maybe the Board's not going to 6 be favorable. You know, I have my own suspicions, and I 7 just kind of would like to know what the reasons are 8 when things fall off the agenda as well. 9 So I think, in any event, we should have some 10 kind of an explanation, especially for the taxpayer, and 11 maybe even whatever we can communicate to the Board as 12 to what the reason is. 13 And there you go. I think that's it. Thank 14 you very much for bringing these forward. 15 MR. HALVERSON: Thank you. 16 MS. MA: Mr. Horton. 17 MR. HORTON: Thank you, Madam Chair. 18 I just wanted to sort of explore the 19 administrative hearing process. As we consider what to 20 do with that, I'm always concerned about taking action 21 based on the exception and not the rule, and -- because 22 in doing so, inherently we create a greater bureaucracy 23 that makes it challenging, oftentimes. 24 And so let me also recommend that one of the 25 efforts might be to educate the representatives about 26 the process and -- relative to the chain of command. 27 The Taxpayers' Rights Advocate is currently available. 28 We don't really need to establish that. You can 32 1 currently contact the Taxpayers' Rights Advocate with 2 any concerns whatsoever, including whether or not the 3 information was looked at properly. The Executive 4 Director, the hierarchy within the appeals process, 5 they're all currently available. 6 And -- now, if they have been contacted in the 7 past and that hasn't worked, and the data that has been 8 provided, you have not had a fair chance or your -- your 9 opportunity -- no one's given an objective view of that 10 data after they've looked at it and they have not been 11 fair about that, that's a different concern. But if it 12 never has been looked at, then that's an inherent 13 problem that the system itself ought to be able to 14 address. And so maybe more of the Taxpayers' Rights 15 Hearings, maybe an outreach effort directly to the 16 representatives to make them aware of the power of your 17 office and the responsiveness or the role of the ED as 18 well as the other hierarchy within the system to be able 19 to address those concerns. 20 Again, you know, I have found that the Agency 21 is extremely responsive and wants to be that way, and 22 I'm always concerned about creating further bureaucracy 23 that makes it even more challenging to resolve a matter 24 at -- within the existing system and at the lowest level 25 possible. 26 MS. MA: Okay. Seeing no further comments, 27 thank you very much, speakers, for coming down. 28 Thank you, Mr. Gilman. 33 1 Thank you, Members. 2 This was an informational item, so we will go 3 to the next item. 4 MR. GILMAN: And just for the record, we have 5 one written submission that I wanted to read into the 6 record real quick. 7 MS. MA: Sure. 8 MR. GILMAN: A gentleman had sent us a 9 document. We received an anonymous document last night 10 where a business owner in San Francisco expressed 11 concerns with the BOE's cost of recovery fees. The 12 taxpayer feels the fees punish small business owners for 13 having a liability when they are already struggling, and 14 the taxpayer states that the cost recovery fee is 15 unjust, aggressive, and counterproductive, and needs to 16 be abolished. 17 Also, the taxpayer states that when a payment 18 has been earmarked for a specific tax period or periods, 19 BOE should honor those payments and apply them towards 20 taxes first and not the cost recovery fee. 21 So I'm in the process of researching this. 22 Again, we don't know who this taxpayer is, but we'll 23 certainly work with District 2, D2, with respect to 24 their management and your ACOF to make sure that we 25 provide them with information based on what we've been 26 able to develop. Again, we don't know who this taxpayer 27 is, so . . . 28 MS. MA: And what's the cost recovery fee? 34 1 MR. GILMAN: It's a -- it's a -- it was passed 2 by -- well, it's a law that was put into effect that 3 basically reimburses the Board for the cost of 4 collecting from taxpayers, so it's a graduated amount 5 over time. So apparently this individual has some fees 6 that have added up, and it's apparently affecting his 7 business and he's not happy, so . . . 8 MS. MA: Okay. Thank you very much. 9 MR. GILMAN: Okay. That concludes the Business 10 Taxes Taxpayers' Bill of Rights hearing. 11 ---o0o--- 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 35 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, CAROLE W. BROWNE, Hearing Reporter for the 8 California State Board of Equalization, certify that on 9 May 24, 2016, I recorded verbatim, in shorthand, to the 10 best of my ability, the proceedings in the 11 above-entitled hearing; that I transcribed the shorthand 12 writing into typewriting; and that the preceding pages 1 13 through 35 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: June 1, 2016 17 18 19 _________________________________ 20 CAROLE W. BROWNE, CSR #7351 21 Hearing Reporter 22 23 24 25 26 27 28 36