1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 9 REPORTER'S TRANSCRIPT 10 OCTOBER 25, 2016 11 12 13 14 15 16 BUSINESS TAXES COMMITTEE 17 18 19 20 21 22 23 24 25 26 27 REPORTED BY: Kathleen Skidgel 28 CSR NO. 9039 1 1 P R E S E N T 2 3 For the Board of Equalization: Diane L. Harkey 4 Chair 5 Fiona Ma, CPA Member 6 Jerome E. Horton 7 Member 8 Sen. George Runner (Ret.) 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 Board of Equalization Staff: Jason Parker 17 Supervising Tax Auditor III 18 Business Tax and Fee Department 19 Erin Dendorfer 20 Tax Counsel Legal Department 21 22 ---oOo--- 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 OCTOBER 25, 2016 4 ---oOo--- 5 MS. MA: Ms. Richmond, please introduce our 6 first item. 7 MS. RICHMOND: Good morning, Madam 8 Chairwoman and Members. 9 Our first item on this morning's agenda is 10 the Business Taxes Committee. Ms. Harkey is the 11 Chair of that committee. 12 Ms. Harkey. 13 MS. HARKEY: Let me get organized here. 14 Thank you. Thank you, Ms. Richmond. 15 Members, the Business Taxes Committee 16 meeting is called to order. 17 Mr. Parker and Ms. Dendorfer; is that 18 correct? 19 MS. DENDORFER: Yes. 20 MS. HARKEY: Will you please introduce the 21 first item. 22 MR. PARKER: Thank you. Good morning. I 23 am Jason Parker with the Business Tax and Fee 24 Department. With me today is Ms. Erin Dendorfer 25 from our Legal Department. 26 We have one agenda item for your 27 consideration this morning. Staff requests your 28 approval and authorization to publish proposed 3 1 amendments to Sales and Use Tax Regulation 1524, 2 Manufacturers of Personal Property. 3 The proposed amendments clarify the 4 application of tax to alterations of new and used 5 garments. 6 We would be happy to answer any questions 7 you may have on this topic. 8 MS. HARKEY: Thank you. Do we have 9 speakers on this? 10 MS. RICHMOND: No. 11 MS. HARKEY: No, no speakers. Okay. 12 Any Member? 13 MS. MA: Yeah, I think this was brought up 14 at one of our public comments about a tailor who 15 alters clothing and he wasn't sure whether he was 16 supposed to charge -- 17 MR. RUNNER: Mm-hmm. 18 MS. MA: -- sales tax or not. And so, is 19 this the clarification for that? 20 MR. PARKER: Yes, this is the clarification 21 for that. 22 MS. MA: So maybe you can explain. 23 MR. RUNNER: New and used. 24 MS. HARKEY: What it -- what it basically 25 says -- 26 MS. MA: What it -- yeah. 27 MS. HARKEY: -- in a nutshell, is that if 28 there's tags and labels on the garment, that is a 4 1 new garment, and it is taxable. If there's no tags, 2 no labels and the hems are in, it's just for some 3 kind of a -- a -- a general fix, then -- 4 MS. MA: Alteration. 5 MS. HARKEY: -- it's not -- and a general 6 alteration, then it is not taxable. 7 Is that basically it in a nutshell? 8 MR. PARKER: Yes. 9 MS. STOWERS: Chairwoman? 10 MS. MA: Yes. 11 MS. STOWERS: Does that put them in parity 12 with dry cleaners? 13 MS. HARKEY: No, it really doesn't. And 14 the problem being is that -- 15 Well, you can explain. We -- we had a -- 16 MS. MA: No. 17 MS. HARKEY: No, it does not. 18 MS. DENDORFER: Right. There's a specific 19 statutory exemption for dry cleaners and it does not 20 apply to alteration or tailor shops. 21 But there -- the -- the statute that 22 applies here is the statute regarding manufacturing, 23 written Regulation 1524 regarding manufacturing. 24 Which says that alterations of new garments are 25 subject to tax and alterations of used garments are 26 not. 27 The dry cleaner exemption is -- it just 28 doesn't apply here. It's very specific to dry 5 1 cleaners. 2 MS. STOWERS: So -- so for a dry cleaner -- 3 if a dry cleaner is making alterations to a new or 4 used garment, either way -- either way it's not 5 subject to tax? 6 MS. DENDORFER: I think it depends on the 7 percentage of alterations that dry cleaners perform. 8 I think there's like a 80 percent or 20 percent. I 9 can get the specific. 10 Yeah. If a dry cleaner performs no more 11 than 20 percent of their gross receipts for 12 alterations of garments, then they're considered the 13 consumer of the materials that they use in 14 alterations, so tax would not apply. 15 MS. STOWERS: Okay. 16 MR. RUNNER: Even if it's new? 17 MS. DENDORFER: Correct. 18 MS. HARKEY: We just -- we bumped into a 19 statutory issue, Members. 20 MR. RUNNER: Mm-hmm. 21 MS. HARKEY: And so we either can revise 22 the statute or we can incrementally help this along 23 as best we can. 24 MR. RUNNER: Mm-hmm. 25 MS. STOWERS: I'm in favor for the 26 regulation, to at least help out the tailors. And 27 then, perhaps, consider sponsoring a change in 28 the -- 6 1 MR. RUNNER: It would make sense. 2 MS. HARKEY: That -- that makes a lot of 3 sense. 4 MR. PARKER: Yeah. And we are going to -- 5 there is a legislative proposal that will be for 6 tailors and alterations that's being planned for the 7 December 13th, 2016 Legislative Committee meeting. 8 So we're already working on language to address this 9 issue for tailors. 10 MS. HARKEY: Thank you. 11 Are there any other questions from the 12 Board? 13 Mr. Horton. 14 MR. HORTON: Members, I just wanted to -- 15 to say, and particularly to the auditors that 16 continue -- that are faced with having to conduct 17 the audits, I think this measure pretty much 18 codifies existing practice in the audit world. But 19 it serves to somewhat give the business industry 20 some guidance, I guess, as to when they can, from a 21 academic perspective, make the call. 22 We certainly don't want to put the 23 responsibility on the business person to be able to 24 determine if something's new or used when there is 25 no evidence that it is new. But I think this, for 26 the most part, codifies existing practice. It does 27 not take away the professional judgment of the 28 professionals who are in the field making their 7 1 decision, but it does give some guidance to the 2 operator or the tailor themselves. 3 So I'd be supportive and move the item 4 appropriately. 5 MS. HARKEY: Is there a second? 6 MS. STOWERS: Second. 7 MS. HARKEY: Okay. Moved by Member Horton, 8 seconded by Chairwoman Ma. 9 Any objection? 10 So moved. Such is the order. Thank you. 11 This concludes the Business Taxes Committee 12 meeting. 13 ---oOo--- 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8 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 October 25, 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 8 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: October 26, 2016 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 9