1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 DECEMBER 14, 2016 10 11 12 13 14 15 LEGISLATIVE COMMITTEE 16 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: Fiona Ma, CPA 4 Chair 5 Diane L. Harkey 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 For Board of Equalization Staff: Michele Pielsticker 16 Chief Legislative and Research 17 Division 18 ---oOo--- 19 20 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 DECEMBER 14, 2016 4 ---oOo--- 5 MS. MA: Okay, committee. I guess, is that 6 me? Leg. Committee? Is that the next one? 7 MS. RICHMOND: Yes. 8 So our first committee this evening is the 9 Legislative Committee. Ms. Ma is the Chair of that 10 committee. 11 Ms. Ma. 12 MS. MA: Okay, thank you. 13 Ms. Pielsticker, welcome. 14 MS. PIELSTICKER: Good evening. Michele 15 Pielsticker, Chief of the Legislative and Research 16 Division. 17 We have three items up for Board 18 sponsorship. The first item is Suggestion 1-1 by 19 the Property Tax Department. 20 Under existing law, assessors are required 21 to separately appraise leach pads, tailing 22 facilities, and settling ponds on mining or mineral 23 property. 24 These components are not sold separately, 25 and therefore determining their value in the 26 marketplace if sold separately is impossible. 27 Failure to value these items as a separate appraisal 28 unit is noted in assessment practice surveys as a 3 1 recommendation, as existing -- as existing law 2 requires separate appraisal. 3 So the proposed law would repeal the 4 provision that requires separate appraisal of leach 5 pads, tailing facilities, and settling ponds. 6 MR. HORTON: Move support. 7 MR. RUNNER: Second. 8 MS. MA: Okay. Mr. Horton moves 9 recommendation to support, seconded by Mr. Runner. 10 Without objection, motion carries. 11 MS. PIELSTICKER: Okay. The second item we 12 have is Suggestion 2-1 from the Legal Department. 13 Under existing law, the BOE's Offer in 14 Compromise program allows taxpayers to offer to pay 15 less than the full amount of their tax liability, 16 provided that it is the most they can pay within a 17 reasonable time. Offers in compromise are processed 18 differently, depending on whether the business is 19 closed and discontinued or open and active. 20 Until January 1, 2018, open and active 21 compromises are authorized for certain final tax 22 liabilities of businesses that continue to operate. 23 The BOE's authority applies to businesses 24 that are not discontinued or transferred if the 25 final tax liability arises from transactions in 26 which the taxpayer did not receive sales or use tax 27 reimbursement, persons liable as successors, and 28 consumers who incurred a use tax liability. 4 1 These provisions allow tax liability 2 compromises for taxpayers who may otherwise have to 3 sell or discontinue their business due to their 4 inability to pay a final tax liability in full. 5 The proposed law would repeal the 6 January 1, 2018 sunset date to make permanent the 7 open and active OIC provisions. 8 MR. HORTON: Move support. 9 MS. HARKEY: Second. 10 MS. MA: Okay. Mr. Horton moves to 11 support, seconded by Ms. Harkey. 12 Without objection, motion carries. 13 MS. PIELSTICKER: Excellent. 14 The third suggestion is Suggestion 2-2 15 related to alterations establishments and their 16 treatment as consumers. The source is the Business 17 Tax and Fee Department. 18 Under existing law, certain types of labor 19 charges are subject to tax. Tax applies to charges 20 for producing, fabricating, or processing tangible 21 personal property for customers who furnish directly 22 or indirectly the materials used in these 23 activities. 24 Charges for the alteration of new items are 25 subject to tax, except as provided in statute which 26 provides that clothes cleaners and dying 27 establishments, otherwise known as dry cleaners, are 28 consumers of property used or furnished in altering 5 1 new or used clothing, provided that their alteration 2 activities represent no more than 20 percent of 3 their total gross receipts during the preceding 4 calendar year. 5 The BOE has considered clothing to be new 6 if it does not have hems or cuffs, store tags are 7 attached, or the item is clearly unworn or unused to 8 the observer. 9 Charges for alteration of used items are 10 not subject to tax. Generally businesses altering 11 used items are consumers and not retailers of the 12 materials and supplies furnished in connection with 13 the alterations. 14 Under the proposed law, a taxpayer who 15 alters garments is the consumer of property used or 16 furnished in altering the new or used garments, 17 provided that the alterations do not result in a new 18 or different item, the taxpayer was not the retail 19 of the garment -- retailer of the garment when sold 20 as a new item, and the taxpayer does not have a 21 formal or informal agreement to perform alterations 22 for a clothing retailer's customers. 23 MS. MA: Okay. 24 MS. STOWERS: Move support. 25 MS. MA: I just want to make sure. So this 26 is like a 20-percent rule also, right? If they're a 27 dry cleaner, local dry cleaner, and they don't do 28 more than 20 percent of the business in alterations? 6 1 MS. PIELSTICKER: No. There would be no 2 20-percent rule under the proposed law. 3 MS. MA: Okay. So, as long as they aren't 4 the direct retailer, they don't have an agreement 5 with one of the companies, and they're not, like, on 6 site for Macy's or something, right? 7 MS. PIELSTICKER: Correct. And it would 8 apply both to new or used garments so they wouldn't 9 have to make the distinction between what is new and 10 what is used. 11 MS. MA: Okay. 12 MS. STOWERS: Okay, great. 13 MS. MA: All right. 14 MR. HORTON: Members, I'm a "no" vote, 15 but -- no. 16 My only concern is -- is the -- um, how 17 this relates to service in connection with the sale 18 of tangible personal property related to other items 19 and a carve-out of -- for this industry for service 20 in connection with sale of tangible personal 21 property when in fact they've received a carve-out 22 on the 20-percent rule. And particularly for the 23 cleaners operations. 24 But people who are individuals who are in 25 the business of altering, and that's their sole 26 business, they're altering tangible personal 27 property, the logic for the original carve-out 28 relative to the confusion and so forth was -- is not 7 1 consistent there. But that's not to say that we 2 can't have new logic as to why we want to give a tax 3 exemption to the folks that are altering this. 4 The other -- and so it is the service in 5 connection with the sale of tangible personal 6 property, are we modifying that in carving that out 7 for, uh, folks who are in the business of altering 8 clothing a hundred percent? That's all they do. 9 That's their business. They -- they alter new 10 clothing, and they modify it. 11 It's a continuing sale from my perspective. 12 But, uh, it's the kind of stuff, I think, that the 13 Members are supportive of it, the Legislature ought 14 to take a look. I mean it's their call. I mean I 15 just think at the end of the day that would be a 16 concern. 17 MS. HARKEY: This was very hard fought, if 18 I might say. 19 MS. MA: Ms. Harkey. 20 MS. HARKEY: It was -- I'm sorry. You 21 know, it went through many iterations to be sure 22 that nobody was impacted. 23 I think it was, you know, if you have a tag 24 it's new. Without the tag, it's not. 25 It's just, you know, this is such a small, 26 little bit of an exemption. It didn't -- you know, 27 it's not what everyone wanted, which is why I think 28 it's probably good. It seemed to, you know, remedy 8 1 a little bit of the issue but not all. And I know 2 this has been going around for quite a while. 3 The revenue impact is minimal. And I just, 4 I would like to see it complete. I think it's -- 5 it's been vetted very thoroughly for months. 6 MS. MA: Okay. Why don't we take a roll 7 call on this then. 8 Ms. Richmond. 9 MS. RICHMOND: Chairwoman Ma. 10 MS. MA: It was, um -- the motion was by 11 Ms. Stowers, seconded by Mr. Runner. 12 Aye. 13 MS. RICHMOND: Ms. Harkey. 14 MS. HARKEY: Aye. 15 MS. RICHMOND: Mr. Horton. 16 MR. HORTON: No. 17 MS. RICHMOND: Mr. Runner. 18 MR. RUNNER: Aye. 19 MS. RICHMOND: Ms. Stowers. 20 MS. STOWERS: Aye. 21 MS. RICHMOND: Motion carries. 22 MS. MA: Okay. I think that's it on the 23 Legislative Committee. Okay. The Legislative 24 Committee -- this concludes the Legislative 25 Committee. 26 ---oOo--- 27 28 9 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, Kathleen Skidgel, Hearing Reporter for 8 the California State Board of Equalization certify 9 that on December 14, 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 9 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: February 15, 2017 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 10