1 BEFORE THE CALIFORNIA STATE BOARD OF 2 EQUALIZATION 3 450 N STREET 4 SACRAMENTO, CALIFORNIA 5 6 7 8 REPORTER'S TRANSCRIPT 9 AUGUST 30, 2017 10 11 12 13 14 SALES AND USE TAX APPEAL HEARING 15 APPEAL OF 16 DISH NETWORK CALIFORNIA SERVICE CORPORATION, 17 NO. 836050, 974472 18 AGAINST PROPOSED ASSESSMENT OF 19 SALES AND USE TAX 20 21 22 23 24 25 26 27 REPORTED BY: Jillian M. Sumner 28 CSR NO. 13619 1 1 P R E S E N T 2 For the Board of Equalization: Diane L. Harkey 3 Chair 4 Fiona Ma, CPA Member 5 Jerome E. Horton 6 Member 7 Sen. George Runner (Ret.) Member 8 Yvette Stowers 9 Appearing for Betty T. Yee, State Controller 10 (per Government Code Section 7.9) 11 Joann Richmond 12 Chief Board Proceedings 13 Division 14 For Board of Equalization Staff: Andrew Kwee 15 Tax Counsel CDTFA 16 Bradly Heller 17 Tax Counsel CDTFA 18 Dario Romano 19 Tax Counsel CDTFA 20 21 For Petitioner/Claimant: Susan Bittick Representative 22 Amanda Angelo 23 Representative 24 25 ---oOo--- 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 AUGUST 30, 2017 4 ---oOo--- 5 MS. RICHMOND: Our next case is Item C9, 6 Dish Network California Service Corporation, please 7 come forward. 8 MS. HARKEY: We are taking C9 ahead of C8, 9 because we want to kind of keep these in order. And 10 C8, 10 and 11, I believe, are all similar. 11 So -- well, Mr. Angeja, will you please 12 introduce the issues in this case. 13 MR. ANGEJA: Madam Chair and Members, the 14 appeal before you involves one unresolved issue, 15 which is whether petitioner owes sales tax on sales 16 and fixtures, furnished and installed, pursuant to 17 construction contracts. And if so, whether an offset 18 is warranted for sales tax paid by a related 19 entity. 20 MS. HARKEY: Thank you. 21 Welcome back again. Please introduce 22 yourselves for the record. 23 You have 10 minutes to present, and the 24 Department will have 10 minutes. Then you'll have 5 25 more minutes on rebuttal. 26 MS. BITTICK: Thank you, Madam Chair. I'm 27 Susan Bittick, and I have with me Amanda Angelo. We 28 are both with Ryan, and we represent Dish Network 3 1 California Service Corporation. 2 I believe you're probably all familiar with 3 Dish Network. That is the company that provides 4 satellite television services across California. 5 Dish Network California Service Corporation 6 is an affiliate of Dish Network. And it exists to 7 perform the contracts or functions that are needed to 8 set up and hook up and deliver all of the equipment 9 necessary for you to get the services that you 10 subscribe to when you subscribe to Dish. 11 Dish Network California Services Corporation 12 purchases all of the equipment that is needed in 13 order for Dish Network to deliver those satellite 14 television programming services to its customers. It 15 purchases the reception equipment, and then it goes 16 out and delivers the equipment and sets it all up for 17 the customer. And it sells that equipment to Dish 18 Network, and Dish Network then sells it to its 19 customers. 20 So the issue here is that the Service 21 Corporation did not charge Dish Network sales tax 22 when it sold two items that are needed as part of 23 this reception equipment package. It did not charge 24 Dish Network sales tax because it didn't believe that 25 these sales were included in taxable sales, because 26 it thought it was a sale for resale. 27 Dish Network, however, just to be clear, 28 when it sells those products to the end-user, the 4 1 actual subscriber to its services does charge sales 2 tax on it. And it's undisputed that it did collect 3 tax reimbursements from those customers, and did 4 remit that to the State. 5 So there are five pieces of equipment that 6 every customer needs in order to receive Dish 7 Network's services. The satellite TV transmissions, 8 as you, I'm sure, understand, those are unique 9 signals. Dish has the satellites in space that are, 10 um -- that are beaming these things down to earth. 11 And certain compatible equipment is needed in order 12 to receive them, decode them, and use them at home in 13 your -- in your -- in your living room through your 14 television. 15 So there are five pieces of essential 16 equipment. When the Department audited the Services 17 Corporation, it, of course, looked at all of the 18 materials that that company buys and sells in its 19 business. And it looked at them pursuant to 20 Regulation 1521, construction contracts and -- and 21 what would be applicable there. 22 And it determined that for two of these 23 pieces, Dish was not entitled -- Dish Services 24 Corporation was not entitled to have sold them ex-tax 25 as a sale for resale. Because it found that they 26 were fixtures. And so it said, "These two pieces are 27 fixtures. You are the retailer of the fixture; 28 therefore, you should have charged tax to your 5 1 customer, Dish Network." 2 So we're arguing today that they really are 3 not fixtures. But even if you do determine that 4 they're fixtures, we think that -- to the extent that 5 any of the old annotations that talk about satellite 6 television antennas would be applicable, we think 7 those are really very, very, very much out of date 8 and don't apply to today's technology. And we also 9 think that the two specific pieces of equipment that 10 have been identified and that are included in this 11 assessment just lack the requisite connection to the 12 real estate to really be fixtures. 13 So we don't think they're fixtures. But 14 even if they are fixtures, we maintain that the 15 Services Corporation should still get relief here, 16 because it is undisputed that Dish Network did 17 collect tax reimbursement on these sales and did 18 remit it to the State. 19 And I will get into in more detail with why 20 the Department denied that, and the Appeal's attorney 21 also denied that. But first I want to talk to you 22 about the fixtures themselves. 23 The facts here are pretty straightforward. 24 You come in, you sign up for Dish's services, and you 25 sign a customer agreement. And that customer 26 agreement says that you must acquire five pieces of 27 reception equipment from Dish. 28 So these are the Dish compatible items. So 6 1 you have to get a receiver; you have to get the 2 remote; you have to get a smart card, which is like 3 an access card that plugs into the receiver. And 4 that's the thing that basically says, "Yeah, this is 5 an authorized user," and allows the receiver to 6 function. 7 You have to get what's called a low-noise 8 block converter fee, we call that an NLBF (sic). And 9 then you have to get the antenna, that's also called 10 a reflector. So it's the LNBF and the antenna that 11 the Department has assessed tax on. So all of those 12 items are spelled out in the contract. 13 Importantly, this contract that you sign 14 also says that you are consenting that you're going 15 to pay tax. And that includes tax reimbursements in 16 connection with your agreement to get these services 17 and these items. 18 So you signed that contract. And the first 19 thing Dish Network does is contact the Services 20 Company. And so we have a new customer. The 21 Services Company contacts you and says, "When can I 22 come out and set up your equipment and get everything 23 hooked up?" 24 They come out to your house, and as soon as 25 they get through introducing themselves and thanking 26 you for joining up with Dish, they're supposed to 27 show you everything they've brought, and then proceed 28 to assemble it and install it as needed. And that is 7 1 what they do. 2 When they're done, they sell those items to 3 Dish. And Dish, in turn, sells them to the customer, 4 and bills the customer on its first monthly bill. So 5 that's how the system works. 6 Now, in the various briefs I think they're 7 pulling somewhat maybe from out-of-date information 8 about what these satellite antennas and this NLBFs 9 look like. We brought them here today, because I 10 think it's important for you to see them. 11 You know, the argument here is that they 12 lack this attachment to the real estate. They are 13 not fixtures. Which, by their nature, should be 14 attached to real estate. And so I think it's very 15 important for you to actually see what they look 16 like. And if you'll bear with me, I'm going to kind 17 of show them to you. 18 So the -- the actual receiver, the actual 19 reflector, the actual satellite dish looks like this. 20 And this never connects to -- directly to the real 21 estate. Whether you want it installed at your 22 property on a fence or on the side of your house, or 23 whether you want it installed, this never physically 24 connects to the real property. 25 What it connects to is this item. This is 26 a -- this is a mounting bracket, basically. The 27 bottom of it does connect to property, but the top of 28 it connects to the back of yet another piece, this 8 1 item, and it slides kind of up through here. There 2 are a couple of clamps that will hold it in place. 3 And it can easily be removed if you want to change 4 out your satellite dish. 5 The LNBF, which is actually the most 6 expensive item in this assessment, it is the largest 7 piece of the assessment, is this piece. And this 8 acts as a filter. As those satellite feeds are 9 coming in, it filters and decodes them. 10 And there's going to be a coaxial cable that 11 connects to this. It runs down through this arm. 12 And this item connects to the back of this arm just 13 like this. 14 The coaxial cable runs through it, goes on 15 out, goes down the side of your house and connects to 16 the back of your receiver. This connects to the 17 front of this antenna, which connects to this, which 18 eventually connects to the house. 19 So this item is at least one step removed 20 from actually connecting to the house. It connects 21 to this arm. This item is three steps removed from 22 actually ever connecting to real estate. 23 And when this item is finally connected, 24 it's got a lot of different configurations on the 25 back based on what the nature of the surface is it's 26 going to be connected to. But it usually connects 27 with about four screws. 28 So the nature of the technology today is 9 1 more portable. They're lighter, they're smaller. 2 They have -- will cause less damage. You're supposed 3 to be able to pull it off of the mount without any 4 damage. But at the end of the day, they don't 5 connect directly to the real estate. 6 So you say, "Well, this item connects to the 7 real estate." Well, this is a separate item in the 8 audit. This is separately priced. And the 9 Department determined in the audit that this was a 10 material. And so is this arm. And the tax was paid 11 on it. 12 So, you know, I don't think you can 13 bootstrap all this together and say, "Oh, well, we've 14 got this -- we've got these two items over here that 15 are fixtures," when they have that much of a remote 16 connection to the actual property itself. 17 Now, as I said in the beginning, if you're 18 not willing to go there, if you can't see that, that 19 maybe you think, "Well, they do ultimately all become 20 part of a system that is connected to the real 21 estate," the taxpayer still should have relief. 22 As I said, Dish charged tax when it billed 23 its customer on their bill. The customer knew that 24 it was going to pay tax because it consented to pay 25 tax in the agreement. The customer knew every piece 26 of equipment that it was required to get from Dish, 27 because it was listed in the agreement. And because 28 when the installer came and knocked on their door, 10 1 the first thing he does is show it to them. And by 2 the time they actually get the bill, they've already 3 seen all that. It's already in place. 4 The Department took issue with the 5 identifier that occurs on the monthly billing 6 statement. I believe the term that they use, it's an 7 abbreviation for what they're being billed for was 8 "owned receiver." 9 And they said, "Well, how would the customer 10 know that that also includes the LNBF and the 11 antenna?" And we said, "Well, they know it, because 12 they consented to it in their contract, and they saw 13 it before it was installed." 14 And so by the time they got that bill, 15 regardless of how abbreviated that shorthand 16 description was, they knew what they were paying for, 17 and they knew that the -- what the tax that they were 18 paying was associated with that entire package. 19 So we believe that either you should find 20 that these things are not fixtures, and that they 21 really are other property that's transferred with 22 construction contract -- which is the way the 23 Department found that the other pieces of the 24 reception equipment were to be characterized: the 25 receiver, the remote, the smart card -- all of that 26 was treated as other tangible property that's 27 transferred with construction contract, which 28 Services Corporation was entitled to sell to Dish 11 1 ex-tax as a sale for resale. But not these two 2 pieces. 3 So we believe they should all be treated the 4 same. We don't believe there's enough connection to 5 real estate on this to make it a fixture. And even 6 if you think that there is, we think they should get 7 credit for the tax that was remitted to the State, 8 and that should eliminate their liability in this 9 case. 10 MS. HARKEY: Thank you. 11 The Department. 12 MR. KWEE: Good afternoon, Chairwoman Harkey 13 and Members of the Board. I'm Andrew Kwee with the 14 Board's Legal Department -- I mean, I'm sorry -- I'm 15 Andrew Kwee with the California Department of Tax and 16 Fee Administration. 17 With me today is Bradly Heller and Dario 18 Romano, and they're also with the Department. 19 MS. HARKEY: You miss us. 20 MR. KWEE: So petitioner is liable for tax 21 on his cost of reflectors and LNBF that it furnished 22 and installed. 23 Petitioner purchased the LNBF, the 24 reflectors, and the mounting hardware ex-tax, as 25 explained. Petitioner then self-reported use tax on 26 its cost for mounting hardware. Petitioner did not 27 pay or report tax on the cost of the LNBF or the 28 reflectors. And no other entity paid or reported or 12 1 collected tax on the LNBFs or the reflectors. And 2 that's why petitioner is being held liable for the 3 tax on its cost for these items. 4 The Appeals Bureau D&R accepted petitioner's 5 contention that LNBFs, reflectors are fixtures 6 installed in a construction contract. Now, 7 petitioner contends that these items are not, in 8 fact, fixtures. 9 Although petitioner has made a number of 10 arguments regarding the character, before I get into 11 that, it is important to note and emphasize that 12 regardless of the character as a fixture, as a 13 material or something else, petitioner will owe tax 14 on its cost. The only difference in this distinction 15 of the character is whether petitioner is liable for 16 sales tax or use tax. 17 If petitioner founded that petitioner's 18 property were materials, the petitioner owed use tax 19 on its cost as the consumer of materials, just as it 20 did with the mounting rack that it self-reported use 21 tax on. 22 If the property were fixtures, as the 23 Department is assuming, petitioner would owe sales 24 tax on its cost as the retailer of the fixtures. 25 Finally, in the third scenario, if the 26 property were either tangible or personal property, 27 then petitioner would still owe tax on its cost of 28 the LNBFs and the reflectors. 13 1 The reason here is because petitioner's own 2 records from the audit showed that the LNBFs and the 3 reflectors at issue were consumed as part of free 4 installations for the subscriber. This is why these 5 items were picked up in the audit. 6 Specifically, petitioner's records, the 7 purchase order number, the sales invoice number, and 8 reflected that all or almost all of the disputed 9 transactions picked up were free installs. 10 Further -- I'll get into that in more detail 11 in a bit. 12 But further, the audit report explains there 13 was no documentation to show that LNBF was included 14 in the sale of the receivers, not on invoice, not on 15 packing list, not on parts list. 16 In summary, regardless of whether or not 17 these are fixtures, the measure of tax, which 18 petitioner is liable, is the same. It's cost. 19 That being said, the Department's position 20 is that LNBFs and the reflectors are, in fact, 21 fixtures. For purposes of the sales and use tax law, 22 Regulation 1521 provides for the application of tax 23 to construction contracts and defines fixtures and 24 materials. 25 The regulation defines fixtures as items 26 which are accessory to a building or other structure 27 and do not lose their identity as accessories when 28 installed. 14 1 Thus, for example, we have Venetian blinds. 2 They are installed with metal brackets. The metal 3 brackets are mounted to the sides of the window. And 4 the Venetian blinds will slide in. And you simply 5 flip up the brackets, slide them in, flip down the 6 brackets, and you can pop them out. 7 And it's in and out in the same manner. 8 There's no screws holding the actual blinds. It's 9 only the mounting brackets holding the blinds to the 10 realty. Venetian blinds are described in Appendix B 11 of the Regulation 1521 as fixtures. 12 Similarly, here, the reflector is attached 13 with screws to the metal mounting bracket, and the 14 metal mounting bracket is affixed to the realty with 15 bolts. The LNBF is then attached to the metal arm, 16 which attaches to the same metal mounting bracket as 17 the reflector. And then cable wiring connects the 18 LNBF and runs through the metal arm, as was 19 described, along the side of the house to which its 20 affixed. 21 There, a junction box for the cable and the 22 inside of the wall is covered by a wall plate. And 23 the connection has -- from the wall plate will 24 connect the coaxial cable from the wall plate to the 25 receiver. And this is a construction contract. 26 Petitioner's residential customer agreement 27 also refers to the dish as a satellite antenna. In 28 Appendix B to Regulation 1521 defines television as 15 1 fixtures. 2 In summary, these items do constitute part 3 of a satellite television antenna installed on realty 4 using mounting brackets, bolts and screws. And they 5 do not lose their identity as reflectors and dishes 6 as distinguished from the realty on which they 7 installed. Therefore, these are fixtures. 8 As a retailer of fixtures, petitioner is 9 liable for sales tax as opposed to use tax. 10 Petitioner contends that it's entitled to an offset 11 for sales tax reimbursement that was allegedly 12 collected by a related entity, Dish Network. 13 However, petitioner has not provided any 14 documentation establishing that Dish Network sold, 15 collected tax on -- or collected tax on the retail 16 sale of reflectors and satellite dishes. 17 And to the contrary, the documentation that 18 the Department examined reflected that these items 19 were given to customers as part of reinstallation. 20 Petitioner also sites that residential 21 customer agreements provision says that the 22 subscriber must purchase a receiver, LNBF, and 23 satellite antenna as proof that the Dish Network, the 24 related entity, sold and collected sales tax 25 reimbursement from the customers. However, the 26 residential customer agreement is not a contract to 27 sell the LNBF or the reflector or the receiver. 28 The agreement also goes onto define 16 1 equipment to include LNBF, the dish, the receiver. 2 Nevertheless, the amount billed by the related entity 3 on the sample invoice is only for the receiver. It's 4 not for equipment. 5 Again, equipment has been defined to include 6 everything. But they didn't bill for that. This 7 underscores that the sales transaction, if it 8 occurred between the customer and Dish Network, 9 occurred separately from the services agreement. 10 It is also undisputed that petitioner 11 furnished and installed the property at issue. 12 Petitioner has not provided documentation that Dish 13 Network, as opposed to petitioner, sold or gifted the 14 property to the customer as part of the free 15 installation. Or that if it did, sales tax was 16 reflected from the customer on the free installation. 17 And that gets me to Exhibit 4, page 1, of 18 the Department's exhibit. And the documentation here 19 indicates that the dish-mover charge, which was on 20 the invoice provided by petitioner, was a charge to 21 deliver and install the satellite television antenna. 22 And the statement shows that sales tax reimbursement 23 was not collected on the mover's charge -- the $100 24 mover's charge. 25 And this exhibit also shows that according 26 to Dish's mover's program, a customer can sign a 27 24-month service agreement and get the satellite dish 28 delivered and installed for free. And they're 17 1 instructed to leave their old dish reflector behind. 2 Or they can pay the MSRP of $99.95, and petitioner 3 will then deliver and install the satellite dish 4 without any commitment. 5 And here there was a charge for the dish 6 mover, but no tax was collected on that charge. 7 The alternative would be to get a free 8 instillation. And as noted, that's in the next 9 exhibit, Exhibit 4, page 3 of 4. And that shows what 10 we've picked up in the audit. And I didn't include 11 all pages. There's 21,000 pages -- I'm sorry -- 12 2,100 pages. 13 But then these do show that we picked up 14 free installs, that is items that were given away for 15 free. That's the way the Department was looking at 16 this. 17 And then although petitioner also contends 18 that some of these items were installed 19 free-standing -- I believe that was raised recently 20 in the last brief -- and not affixed to the realty. 21 And this was the first time this argument had been 22 raised in appeal by this entity or any other related 23 entities. 24 We audited about six entities at the same 25 time. And petitioner has not provided any 26 documentation to support the amount of free-standing 27 transactions that exist. Again, this would get to 28 sales tax versus use tax. So I won't get into that 18 1 in too much detail. 2 And I would also note -- this was another 3 exhibit that we had that petitioner's Dish Q/A 4 inspection form states that for the other period at 5 issue, the following requirements are required for 6 Dish installations. And this is the petitioner's 7 inspection form for installations. 8 It says, leg bolts and the studs or 9 equipment materials, leg bolts or weather-sealed, all 10 dish assembly hardware secure, nuts, bolts, LNBF 11 screws, dish mounted to secure structure in 12 accordance with installation standards, wall mounts 13 must have concrete. 14 And petitioner's delivery and installation 15 standards -- and this was Exhibit 3, page 4 -- also 16 specifies that the installer is responsible for 17 mounting of the HDOA -- that's the satellite 18 antenna -- to the customer's structure. 19 In summary of petitioner's own instillation 20 standards required installation of the items on the 21 studs or cements, end quote -- dismounted to secure 22 structure, end quote. 23 So I'd emphasize also this period at issue 24 is 2009 to 2011. Not the current year, 2017. We're 25 looking at what the standards were at that time. 26 And, therefore, we concur with the Appeals Bureau 27 Division recommendation and believe no further 28 adjustments are warranted. 19 1 MS. BITTICK: Thank you. 2 Well, most of what the Department has said 3 regarding lack of documentation on payment of tax and 4 that sort of thing really goes back to the issue that 5 I mentioned earlier about the disagreement over this 6 abbreviated description that appears on the billing 7 statement to the customer. 8 Billing statements are in the record. And 9 you can see that Dish Network did charge the 10 customer. It varies, but the typical transaction 11 that we try to show had a charge of $449. 12 We provided the Department the breakdown of 13 how much Services Corporation pays for each item of 14 this reception equipment. They pass it through to 15 Dish Network at cost. Dish marks it up and charges 16 the customer, in this case, $449 and applicable tax. 17 So it -- the -- the statement that there's 18 been no evidence that they were charged tax on the 19 LNBF or the reflector, goes all back to just the "we 20 don't like the way it was described on the billing 21 statement." 22 Again, we say that the customer knew what 23 they were buying. The billing statement, as 24 abbreviated as it was, they -- they operate with a 25 limited number of characters on those billing 26 statements. But the customer knew what they had 27 bought, they -- the tax is correct to that amount. 28 There's been no dispute about that. And the amount 20 1 is a reasonable amount of a markup over what the 2 total amount would have been. In this case it was 3 449. And the actual cost that Services Corporation 4 had for buying all that was $313.65. 5 So the thought that they've charged the 6 customer that total amount solely for the 7 receiver -- the receiver was $261 of it. So that's 8 just -- as I said, that's a bit of a stretch. 9 So, you know, I think the evidence that tax 10 was -- was collected on this, that the customers were 11 billed, is there. It just may not be to the 12 Department's satisfaction in terms of the actual 13 nomenclature that was used on those billing 14 statements. 15 You know, with regard to those various 16 amounts that we mentioned in our last response that 17 we filed with the Board, one of the points that we 18 wanted to make, the assumption seems to be that all 19 of these -- all of these satellites are installed the 20 same way. And, in fact, they're not. 21 What we brought here with us today is 22 something we considered to be the typical one. This 23 is -- you see these a lot. This is very much one of 24 the common ones that -- that they use here. 25 But they do have other options. And one of 26 them, specifically, is for people that lease their 27 property and are not permitted under their lease to 28 attach anything to the real estate. And so Dish has 21 1 a mount that really looks more like a stand that this 2 can go on top of. 3 So that is -- that is also something that is 4 used in California where almost half the people in 5 the state don't own their own homes and may be 6 subject to those kind of restrictions. 7 The other type of mount that they also use a 8 lot out here is a mount that can be positioned on the 9 roof of a house that has tile or other types of -- 10 some of the eco-substances that you see today. And 11 you certainly don't want to pierce those in any way. 12 And so the weight of the tile itself holds the mount 13 in place. There's no connection at all in those -- 14 those two situations. 15 So, you know, I think that there's an 16 assumption based on annotations that I think go back 17 to the '50s that a television antenna and a satellite 18 television antenna must be a fixture. But we believe 19 that the technology has really changed beyond that. 20 And then, again, to the issue of the tax 21 that's been paid, at no time in our discussions with 22 the Department have they ever suggested to us that 23 they don't believe Dish Network remitted tax that 24 they collected from their customers on these charges. 25 It's solely been about, "Well, was that description 26 really a description that covered everything?" 27 And we've repeatedly pointed back and said, 28 "Here's what the contract said you have to get. 22 1 These five pieces of equipment." That's what all 2 comes the day the guy shows up at your house and sets 3 this up. And so when you see that on your bill, you 4 pretty much know that that's what it is. 5 MS. HARKEY: Okay. 6 If that's the end, Member Runner. 7 MR. RUNNER: Yeah. Just a couple of 8 questions, I guess, to clarify. 9 One is, I -- I think -- part of this 10 discussion is whether or not our current descriptions 11 are relevant to the technologies of the day. And so 12 it seems like an appropriate place to have this 13 discussion, especially after we applied the tax law 14 to it. 15 I guess I'm the one who sees this as one 16 integrated system. And I -- and I even differ that 17 from a TV antenna. A TV antenna you used to have up 18 in your house, and you can move TVs in and out. And, 19 you know, it was there. But the next TV you got 20 would do it. You didn't require it to be hooked up 21 to anything else to make the antenna work. 22 Whereas, this is one integrated system. And 23 the receiver itself doesn't function without the rest 24 of the system. 25 MS. BITTICK: That's right. 26 MR. RUNNER: And so, to me, that's why I 27 kind of look at this as kind of all the same system. 28 I certainly have seen plenty of these 23 1 installs that are not connected to houses. I have 2 some mountain property where people in the mountains 3 take them down when it snows. And so they put them 4 in the backyard on a stand, you know. So there's 5 lots of times when these are not -- at least from my 6 experience -- not used as a fixture attached to -- to 7 real property. 8 Let me ask about the -- on the issue -- the 9 other issue that's interesting to me is, again, if 10 this is a -- I'm trying to get through the process of 11 what the real core issue we're trying to deal with 12 is. And if it's -- if it's the fact of the language 13 that was there in the billing, for instance, again, 14 when I bought a system -- when I bought the systems 15 that I have, I don't think about the fact that I'm 16 just buying the receiver. I'm buying the whole 17 system. And the whole system is what makes it all 18 work. 19 But in the billing itself, I'm trying -- I 20 mean, I -- I've probably not seen a bill in a really 21 long time. But I don't know if it calls out my 22 remote in the bill. 23 Would that be typical? How did -- how 24 did -- how are remotes handled? 25 MS. BITTICK: Well, the remote is part of 26 the whole system. 27 MR. RUNNER: Right. 28 MS. BITTICK: And to your point about all of 24 1 these pieces kind of being integrated, you're 2 absolutely right. The receiver is actually 3 completely worthless unless you are connected to the 4 Dish satellite system. You can't use it with any 5 other system. 6 It also requires the smart card. So it is 7 not usable without the smart card. And the receiver 8 itself doesn't even know what it's getting without 9 the LNBF. So they all kind of are required to get 10 what you want. 11 MR. RUNNER: Let me ask you, how do we -- 12 how do we handle the remote? 13 MS. BITTICK: The remote is treated as other 14 tangible property -- 15 MR. RUNNER: Okay. 16 MS. BITTICK: -- being transferred with a 17 construction contract. As was the receiver and the 18 smart card. 19 MR. RUNNER: So the question before us is 20 wether or not the rest of the system should be 21 included then? 22 MS. BITTICK: That's right. 23 MR. RUNNER: Let me ask about the question 24 that came up in regards to free install. It came up 25 a couple of times. 26 Is the -- is the -- tell me about what the 27 significance of the free install is that you -- that 28 you -- that you call out. 25 1 MR. KWEE: So the Department was seeing this 2 as separate transactions. On the one hand, you get 3 billed for the receiver. But then what we picked up 4 from the audit file, which are Exhibit 4, page 3 of 4 5 and page 4 of 4, these were billed and listed on 6 petitioner's own record as free installs. 7 And then I also attached a copy of the -- 8 MR. RUNNER: It was free in -- okay. Let me 9 stop you there. Because I just want to clarify the 10 questions. When it says free install, are you 11 assuming that the -- that the install includes the 12 equipment? 13 MR. KWEE: Right. And, yes. And if you 14 look at the dish-mover program, it says that we'll 15 deliver and install -- we'll deliver and 16 professionally install a state-of-the-art Dish 17 antenna in your new home for free. And it says also 18 leave your old Dish antenna behind, and pack your 19 receivers and remote control. 20 So the concept here is that they're -- 21 MR. RUNNER: Let me ask you, couldn't I 22 interpret that as they're going to come and install 23 the system for free, and not necessarily that I'm 24 getting the dish for free? 25 MR. KWEE: Right. But then they're already 26 packing and bringing their own receivers and remote 27 control. 28 I mean, I guess the way we're seeing it is 26 1 that there wasn't any documentation to show that tax 2 was charged, that there was a sale of the reflector 3 and the LNBF. And it seems to be something that was 4 provided by the petitioner on their own records was 5 listed as free and given away. And that's what we 6 were looking at. 7 MR. RUNNER: Well, again, whether it was 8 given away, when -- again, it seems to me, I've heard 9 people who have had then when they -- when they stop 10 their service, they actually have to go and take that 11 one piece down off of there, right? 12 MR. KWEE: Yes. And that's a lease 13 transaction. And that's not at issue in this appeal. 14 The lease transactions, the Department 15 allowed the LNBFs, but the petitioner conceded the 16 reflectors. And so there -- and those are not at 17 issue here. The only issue is the transactions where 18 there was an outright sale. Those are the ones we're 19 saying that the LNBFs and reflectors were not -- 20 MR. RUNNER: Isn't that -- I mean, I get 21 that. But -- but when you say it was free 22 installation, you're -- on one hand, the free 23 installation, do you think -- do you think that 24 included that -- what's it called -- the L, what? 25 MR. KWEE: The LNBF. 26 MR. RUNNER: Do you think the free 27 instillation included that? 28 MR. KWEE: Right. Well, there was an option 27 1 for the free install or an option for the pay the $99 2 for installation. 3 And that's supported also by the fact that 4 the Department, according to the records when we 5 looked at this -- and the audit report said that 6 there was nothing listed in the invoice of purchase 7 order showing that the LNBFs and the reflectors were 8 included with the -- with the receiver. 9 And I'm looking for the exact language. 10 MR. RUNNER: Well, does it say the remote's 11 included? 12 MR. KWEE: I don't have that information. 13 MR. RUNNER: Well, does -- does it say the 14 remote's included? 15 MR. KWEE: We -- we allowed the remote. I 16 don't have -- 17 MR. RUNNER: No, but in the paperwork you're 18 talking about, does it say it didn't include this? 19 Does it also say the remotes included? 20 MR. KWEE: It did not reference the remote. 21 MR. RUNNER: So isn't this like the remote 22 then? It's part of the system. 23 MR. KWEE: Well, I guess the way -- with the 24 receiver, the remote is included with the receiver. 25 If you buy a receiver, it doesn't usually say remote, 26 receiver. You get the receiver as part of the 27 remote. I think that's -- 28 MR. RUNNER: Yeah, I think you're right. I 28 1 think we think that way. But I'm thinking we maybe 2 need to think about that through the whole system, 3 too. 4 I think -- I think your logic is correct 5 there. I think typically we think about that. But 6 certainly, I think I got just about all the -- I 7 don't know if they do now or not now that I think 8 about it. But a lot of times, at least on my TV 9 remote, I can do most of the things that my remote 10 does directly on my TV. And I don't think I can do 11 that on my -- on my -- on my network or my satellite. 12 But the point would be the thing that we -- 13 we -- I look at it -- I guess my tendency is to look 14 at it as the system. Just like I need the remote to 15 work my system, I also need the rest of this 16 equipment to work the system. And so that, to me, is 17 why I think that makes sense in terms of how we -- 18 how do we look at that in the future. 19 The other issue that's here is that as you 20 mentioned, okay, no matter what you call it, how was 21 the tax paid or not paid, correct? 22 MR. KWEE: Right. 23 MR. RUNNER: So speak to that real quick. 24 MR. KWEE: So the way we're seeing it is 25 that if it were material, then under 1521 they're a 26 consumer and they're use tax, then they have reported 27 use tax on the other materials. 28 If it's a fixture, then they owe a sales tax 29 1 because they reported as the retailer of the 2 fixtures. 3 And then with respect to other tangible 4 personal property other than material or fixture, 5 tangible personal property, since they haven't 6 provided documentation that this was a 7 self-resale -- in fact, our understanding, this was 8 something which was provided to the customer either 9 for a $100 mover charge or for free with a service 10 agreement and this was gifted, they would owe use tax 11 on that gift to the customer unless they can show 12 that the tax was collected from the customer, and 13 they were going to offset. 14 MR. RUNNER: So let me ask the taxpayer 15 then. 16 Regardless of what we call this, what the 17 system is and whatnot, you all believe that the tax 18 has been -- if we identify it in a certain way, the 19 tax has been paid? 20 MS. BITTICK: Absolutely. 21 MR. RUNNER: Explain to me how the tax has 22 been paid if we identify this as tangible personal 23 property. 24 MS. BITTICK: Well, so, Dish was -- Dish 25 Network charged the end user. And the invoice shows 26 the transaction has been assessed to Service 27 Corporation, is where Service Corporation sold the 28 goods to Dish, and Dish then sold them to the 30 1 customer. 2 So, again, I go back to, you know, the 3 description, and the fact that they don't think 4 anything other than the receiver was sold to the end 5 customer. 6 MR. RUNNER: And how was the tax paid on the 7 receiver? 8 MS. BITTICK: It was charged at the 9 appropriate rate on a -- you know, the typical charge 10 is $449 for the whole package. That's what they were 11 charged, and tax was levied on that. And the 12 customers paid it as they were required to under 13 their customer agreement. 14 MR. RUNNER: And under -- under the theory 15 that you all are promoting, is that that would have 16 also included the tax on the -- on the rest of the 17 system? 18 MS. BITTICK: Yeah, it included everything. 19 The total cost to Dish of the system was in the -- in 20 the instance of $449 system -- and it can vary 21 depending on the type of receiver, if you want 22 something more sophisticated. 23 But for a $449 system, you know, the cost of 24 the receiver itself would have been about $261 25 of -- of that amount. 26 MR. RUNNER: The rest of it all paid for 27 something. 28 MS. BITTICK: Yeah, it paid for -- on the 31 1 breakdown, $313.65 is the total cost for all the 2 components that make up the five pieces of reception 3 equipment. 4 MR. RUNNER: Okay. Thank you. 5 MS. HARKEY: Anyone else? 6 Okay. I guess I'll take this. 7 I had not thought about Member Runner's and 8 your admission that some of these things are placed 9 on the ground, not attached to the property at all. 10 So therefore they might be TPP. 11 MS. BITTICK: Mm-hm. 12 MS. HARKEY: Okay. I've got displays I've 13 been studying quite a bit. And as I see this, the 14 low-noise blocker fee, the LNBF, in the instructions 15 to the opener of the property or whatever, they 16 actually are instructed that they can safely remove 17 that if it's safe to do so, and take it to their next 18 property. 19 Now, the Department has said that that's 20 only in the lease agreement, and they're not 21 challenging the lease agreement. So -- 22 MS. BITTICK: Well, let me just kind of 23 clarify that a little bit -- or from my perspective, 24 correct it a bit. 25 Just as a matter of practice, the company 26 does not generally recommend that its customers take 27 down this equipment. But if a customer is moving, 28 this mover program that he's referred to a couple of 32 1 times, you know, that's a promotional program to make 2 sure that Dish doesn't lose a customer when somebody 3 moves from one home to another. 4 And so they do offer to come out and take 5 the equipment down for them if they need to. 6 Particularly if it is a leased house. So we're not 7 talking about leased equipment, we're talking about a 8 leased real estate premises. 9 And so if it is somebody who had it in the 10 terms of the lease of their home that they had to 11 remove anything that they put up like that, they can 12 call Dish Network and Dish will have Service 13 Corporation go out and take it down for them. 14 MS. HARKEY: Okay. Let me go to the 15 Department then. 16 I must have misunderstood your comment, 17 because I thought you said that there were lease 18 contracts and there were for-sale contracts. 19 MR. KWEE: Yes, there are lease transactions 20 and then there are outright sale transactions. The 21 only transactions at issue in this appeal are the 22 outright sale transactions. 23 With respect to the lease transactions, they 24 do not pick up the LNBFs. And the petitioner has 25 conceded the reflectors were not, and that's why 26 that's not before you today. 27 And we're just here -- the issue is whether 28 or not they paid tax on -- or whether or not tax is 33 1 owed on the LNBFs and the reflectors that were 2 transferred directly by petitioner, and transactions 3 which were not lease transactions. 4 MS. HARKEY: Well, I know that the receiver, 5 remote and the smart card are in the house. They all 6 need the LNBF to even function. So I would see those 7 as one integral unit. Because the LNBF is to -- is 8 what generates the reception and blocks -- gets it 9 controlled properly and gets it to the smart card. 10 Those items cannot be used by anybody else 11 moving into the house. This LNBF would not be good 12 without the proper receiver and contract. 13 I see those as all -- and they're connected. 14 They've got a copper coaxis cable that connects to 15 the receiver from the LNBFs. So that's all 16 part -- in my mind, form a receiving unit, one 17 receiving unit. 18 The reflector, I see those left behind quite 19 a bit. So I'm trying to -- if -- I see the LNBF as 20 being the -- your window blind is kind of compelling, 21 because the blinds are not bolted to the unit. But 22 the LNBF really is bolted to the unit there. 23 MS. BITTICK: I did want to correct one 24 statement they made about how the LNBF connects. 25 The LNBF is not connected to the mounting 26 bracket. The LNBF connects to an arm, a separate 27 piece, that connects to the reflector, the antenna 28 that connects to the mounting bracket. So it's three 34 1 steps removed. 2 MS. HARKEY: I have a beautiful picture. 3 MS. BITTICK: That's it. 4 MS. HARKEY: So I can see that. And that's 5 why I say I believe that this is all one unit. I 6 think it's all part of a receiver. Because you can't 7 receive here unless you have this. And this doesn't 8 go to anything but that. It's all programmed to work 9 together. 10 The dish sometimes gets left. Sometimes -- 11 I don't know -- well -- because I don't know if 12 they're just not that expensive to replace or what 13 story, but I do believe the dish might be a fixture. 14 Only because to take it out of a -- when it's 15 attached to a roof only, if you take it out of a 16 roof, you're going to have holes and maybe some 17 problems there. 18 MS. BITTICK: And I would point out, Chair 19 Harkey, that, you know, you're right about the cost 20 between the two items. The cost of a reflector is 21 less than $7. The cost of the LNBF is around $46. 22 And just as to the specific assessment you 23 have in front of you, the LNBF accounts were about 24 three-fourths of it. 25 MS. HARKEY: Yes, Member Ma. 26 MS. MA: I haven't bought a dish yet, but my 27 father was asking me to look into the dish. It 28 seemed too complicated for me. But if you buy the 35 1 Dish Network, all five pieces come together? 2 MS. BITTICK: Yeah. 3 MS. MA: Okay. So why don't we treat all 4 five the same? I don't understand why we treat one 5 differently, and another different. Let's -- why? 6 MS. BITTICK: Well, I'm going to go out on a 7 limb and guess that I won't be the first person to 8 have told you that Regulation 1521 is a little bit of 9 a mess. I mean, it's a little difficult. 10 But when you look at it, the way the 11 Department does it, they break everything down. They 12 look at every piece a contractor is using, and they 13 try to determine, under 1521, is it a material, is it 14 a fixture, is it machinery equipment? 15 And, quite honestly, the terms overlap so 16 much. Even that for one purpose, you're the 17 consumer, because it's viewed as a material; for 18 another purpose, you're the retailer, because it's 19 viewed as a fixture. 20 In the case of these particular items, if I 21 were with the Department, I could probably make an 22 argument to fit them into any one of those three 23 categories. 24 MS. MA: And that's what he was saying. It 25 could fit under one of three categories. But you 26 can't use one without the other. 27 MS. BITTICK: Right. And so you have to 28 take a step back and look at it as a whole, and say, 36 1 "Okay. What is it really?" 2 And our -- what we maintain is it's really 3 this system, which has become quite portable. And 4 these items should all be treated alike. They should 5 be treated just like the receiver is. And they 6 should be, you know, treated as other property that's 7 transferred with construction contracts, and, you 8 know -- 9 MS. MA: Reflector, maybe you can use it to 10 go down to the mountains with snow. But everything 11 else seems like they all have to go together. 12 MS. BITTICK: Well, they're worthless 13 without each other for sure. 14 Particularly, as you kind of focused on, 15 Chair Harkey, that the LNBF, the receiver, the smart 16 card, all of that together is what gets you your 17 service. 18 Now, you need the antenna to pick it all up. 19 But the actual decoding specialization to the actual 20 unique signal that Dish is transmitting, all of 21 that's happening in those pieces of equipment. 22 MS. MA: Could you use another type of 23 antenna? Is that the antenna, that dish thing? 24 MS. BITTICK: Yeah, that's -- yeah. 25 MS. MA: Is that proprietary, like the last 26 case, you can only use it with that product? 27 MS. BITTICK: You know, I really don't know 28 the answer to that. It might be hard to fit it 37 1 together with their other products. 2 But the one thing that certainly you must 3 use that can't -- isn't compatible any other way are 4 the LNBF, the receiver, and the smart card. All of 5 those things. In fact, the smart card is unique to 6 you. So it's not only just Dish, but it's beyond 7 them all. 8 MS. HARKEY: 1521 speaks only of TV 9 antennas. And that's why it's old and needs to 10 probably be revised. Because there's a lot more. 11 And the break says antennas are fixtures, 12 but what is the antenna here? It's certainly not all 13 the receiving devices, which is part of the -- that 14 needs a smart card. I can see it being maybe the 15 dish that is attached. 16 So let me ask the Department, why -- why are 17 you -- why didn't you pick up the LNBF for leases? 18 MR. KWEE: We actually allowed the LNBF. 19 And that was because there's a separate lease 20 agreement which specifically provided that the LNBFs 21 were part of the leased equipment, and the reflectors 22 were not. And, therefore, we allowed -- we did not 23 pick up the LNBFs, but we did pick up the reflectors. 24 And that's why we also conceded the reflectors were 25 not part of the lease, and that they were tax 26 reflectors. 27 But I also did want to get -- to support 28 what you're saying earlier. This is Exhibit 4, 38 1 page 1 of 1. And it talks about how you can leave 2 your old Dish antenna, remote control, and they'll 3 deliver and professionally install your new home for 4 free. 5 And then if you look at the billing, there's 6 actually the charge for the movers and charge for 7 another receiver, but they did not collect charge -- 8 did not charge or collect tax on the mover's charge. 9 And the mover's charge here was -- they 10 provided a free satellite Dish antenna. That's part 11 of what we're getting at is tax was not collected on 12 the satellite Dish antenna. That was part of a 13 separate aspect of installation versus the receiver. 14 And the receiver, they have various options. 15 You can choose different receivers ranging from like 16 99 to $650, depending on what type of receiver they 17 wanted. And that's kind of what we're getting at, 18 two separate aspects. 19 MS. HARKEY: I understand. I -- I do 20 believe that LNBF unit comes off. I know people have 21 taken it off and taken their stuff with them. 22 Usually no one -- if it's attached to the house, they 23 don't take off the antenna. The satellite Dish is 24 all. So that's all I have to say. 25 Any other questions or comments? 26 MR. RUNNER: I guess my question is in this 27 discussion here, are we needing to -- if we -- if we 28 buy into the idea that this is all a single system, 39 1 and it seems to me we're going to have to then 2 identify that we do that based upon the fact that we 3 look at the whole system as, what, tangible personal 4 property in order to make that? 5 MS. MA: What does that mean? 6 MR. RUNNER: Somebody help me out here. 7 MS. MA: Are the other three TPPs? 8 MS. BITTICK: Yeah, they are -- they're 9 treated under 1521 as other tangible property that's 10 transferred with a construction contract. 11 MR. RUNNER: So the issue would be that the 12 system is tangible personal property. 13 MS. MA: Everything's a fixture -- 14 MR. RUNNER: Or parts of it could be 15 fixtures, and parts of it not, right? Because that's 16 how we deal with it -- 17 MS. BITTICK: Right. And I'm assuming 18 you're talking -- when you're talking about the 19 system, the reception equipment. There are, you 20 know -- there are these pieces that are materials, 21 cable and -- 22 MR. RUNNER: No, I'm talking about the thing 23 that has to make it work. 24 MS. BITTICK: Right. That's the reception 25 equipment. 26 MR. RUNNER: The reception equipment. 27 MS. BITTICK: Right. 28 MR. RUNNER: A bracket is not -- I would 40 1 not look at that. But the things that all the -- all 2 the technology aspects of it that make it -- that 3 make it work. 4 And then if we do that -- again, if we do 5 that -- go down that path, then in terms of -- 6 because I'm still trying to struggle with the issue 7 in regards to the tax payment. 8 MS. BITTICK: Right, so -- 9 MR. RUNNER: So if we do that, that would be 10 one aspect. But then you would then argue that 11 that -- that that then solves the tax issue, 12 because -- 13 MS. BITTICK: Because Services Corporation 14 is entitled to buy that equipment and sell it to Dish 15 Network, ex-tax as a sale for resale, because Dish 16 Network is then going to resell it to the end 17 customer and charge tax on it. 18 MR. RUNNER: Okay. 19 MS. BITTICK: Which they did in this case. 20 MR. RUNNER: And the tax would have been 21 paid when that transaction took place. 22 MS. BITTICK: Exactly. So you're avoiding 23 the pyramiding that would have otherwise occurred if 24 you taxed -- 25 MR. RUNNER: Well, under that theory, aren't 26 we almost double taxing if we keep the system the way 27 it is? 28 MS. BITTICK: Yeah, exactly. 41 1 MR. RUNNER: Because you are charging a 2 higher tax -- you are charging a greater value than 3 just the receiver right now. 4 MS. BITTICK: Oh, sure. Yeah. 5 MR. RUNNER: Okay. Well, I'll go for a 6 motion. 7 MR. HORTON: Point of clarification, I just 8 want to. 9 To the Department, Dish Network bills their 10 customer on these items? 11 MR. KWEE: Our position is that they only 12 bill for the receiver. I'd also note that -- 13 MR. HORTON: Is that because you're taking 14 the position that the 449 is not a bundled price -- 15 MR. KWEE: Right. The 449 -- 16 MR. HORTON: -- for everything? 17 MR. KWEE: That's correct. The 449 price 18 was listed for a receiver, and then additional 19 documentation listed that installations were free 20 installations. So they're saying in the construction 21 contract -- 22 MR. HORTON: The statement does not 23 necessarily say that the equipment that I'm 24 installing is free. 25 MR. KWEE: Right, but they're -- 26 MR. HORTON: Is that what it says? 27 MR. KWEE: It does. 28 MR. HORTON: Does it speak to the 42 1 installation labor, or does it speak to the items 2 that are being installed? 3 MR. KWEE: Right. And that is our position 4 is that it did include the construction contract, the 5 LNBF, the reflectors. For example, it says, Leave 6 your old Dish antenna behind and pack your receivers 7 and your remote control, and we'll deliver and 8 professionally install a state-of-the art Dish 9 antenna in your home for free. 10 And then there's charge on the billing 11 statement for the dish-mover program, and sales tax 12 is not collected on that charge. And that's why our 13 position is that construction -- 14 MR. HORTON: How do you -- how do you rebut 15 the taxpayer's testimony that it is their customer's 16 view that it is a bundled price, it is their view 17 that it's a bundled price, and that the language is 18 specific to the tangible personal property at this 19 point aside from the installation? 20 MR. KWEE: Right. And our understanding is 21 that if you're looking at a charge for a receiver, 22 you wouldn't think, "Hey, I paid $100 for 23 installation, and then -- 24 MR. HORTON: I'm not really asking for 25 logic. I'm asking -- the testimony is -- is that, I 26 mean, I don't necessarily believe that nobody gives 27 me anything for free. Maybe instillation they give 28 me for free, but I just don't believe that. So I 43 1 would have a tendency from a layman's perspective to 2 presume that the testimony provided without some 3 evidence that there's language aside from the 4 instillation. 5 It's pretty clear when it says the 6 instillation is free. I mean, why not say -- 7 especially considering this is a contract -- why not 8 be explicit, the instillation and these items are 9 free. 10 MR. KWEE: Right. Oh, and let me clarify 11 that. So it says the instillation is free if you 12 sign a 24-month service commitment, otherwise it's 13 $100 and the instillation includes the delivery -- 14 MR. HORTON: In fact, that actually leads 15 more towards a bundled price. 16 MR. KWEE: Right. And tax is not collected 17 on that price, is what we're getting at. And we'd 18 also note that if, for example, if a charge is for 19 the lease -- 20 MR. HORTON: Can I see the invoice? Can I 21 see the invoice and the language? 22 MR. KWEE: Yes. That's Exhibit 4, page 2 of 23 4, and Exhibit 4, page 1 of 4, is what I'm referring 24 to. 25 MR. HORTON: I am in somewhat of a quandary, 26 Members, because the evolution of these items have -- 27 they've seem to have evolved to this onsite satellite 28 that basically has much more significant technology 44 1 than just a piece of metal up there that we used to 2 refer to as antenna. 3 That technology is relative complex, has a 4 specific purpose, function, aside from the -- a 5 function -- that could function in your garage, could 6 function on your fence. 7 And certainly if fixation is an issue, the 8 other factors are also an issue. Whether or not it's 9 easy to remove, or whether or not it's a part of a 10 building, whether or not the intent of the parties is 11 that it's, um -- so. 12 MR. KWEE: So, for example, on June 14th, 13 Exhibit 4, page 2 of 4, there's two charges. One is 14 for an owned receiver and one is for a new purchase. 15 Sales tax was collected on the receiver charge, but 16 sales tax was not collected in the mover's charge. 17 And then if you go to the next page, 18 Exhibit 4, page 3 of 4, you note that the items that 19 we picked up in audit were free installs. 20 MR. HORTON: This is -- 21 MS. BITTICK: Could I address the free 22 installation issue? 23 MR. HORTON: I don't see it as being 24 relevant. I see the -- I don't see the 25 instillation -- I see the instillation as 26 installation. 27 I mean, any other -- if the Department was 28 looking at any other transaction document, and said 45 1 instillation -- they would not impute that 2 installation including some other items that were 3 part of. In fact, they would say no. That's not the 4 case. You were consumer of those items that you used 5 to install, tape, and all these other things that 6 don't go along with the property. 7 So they're getting away from their 8 traditional perspective in that regard. 9 All right. That's it. 10 Thank you, Madam Chair. 11 MS. HARKEY: Thank you. 12 MR. RUNNER: I'll make a motion that all 13 equipment that makes up the receiving system is 14 personal tangible property. 15 MS. HARKEY: Tangible personal property. 16 MR. RUNNER: And grant the refund to the 17 petitioner. 18 MS. HARKEY: Would -- since Regulation 1521 19 is kind of confusing with regard to antenna, would 20 you like to make that a presidential opinion? 21 MR. RUNNER: To what? 22 MS. HARKEY: With regard to antenna, would 23 you like to offer this as a presidential opinion? 24 Would you like do that on this case? 25 MR. RUNNER: Yeah, I think that certainly I 26 don't mind. Maybe we go on to take the vote here 27 first, and then go onto see if there's a discussion 28 about that. 46 1 MS. HARKEY: Okay. I would second that 2 motion. 3 Is there any objection? 4 No? 5 Motion and second. Such will be the 6 order. 7 MS. MA: And who is going to change all 8 these regulations? 9 MS. HARKEY: I don't know. That's why I 10 want to establish a presidential opinion. 11 MR. RUNNER: Yeah. I think there's a good 12 reason to do that. Certainly this has got 13 application. 14 MR. HORTON: Madam Chair, if I may. 15 MR. RUNNER: Can I check with Appeals to see 16 if -- again, whenever we deal with this issue, it's 17 always whether or not the facts are specific enough. 18 Would we believe the facts are specific enough in 19 regards to identifying the system -- receiving system 20 as a whole as specific enough for a presidential 21 decision? 22 MR. ANGEJA: The hard part is getting 23 from -- and I'll speak frankly -- getting from where 24 the vote is to getting to have it make legal sense is 25 a hard bridge to cross. Because I realize your point 26 that it's one integrated system. However, what the 27 purpose of 1521 does is to look at tangible personal 28 property in the hands of the construction contractor 47 1 where it's still a transaction involving a transfer 2 of TPP. 3 So in the hands of the retail -- the 4 construction contract, it's either materials or 5 fixtures. Or if it's not being attached, it's then 6 other tangible personal property. It could also be 7 machinery equipment. But that's not relevant. 8 So given what you've said, if you apply -- 9 and I'm being honest, if you apply it to this case, 10 it can still work. If we try to take this case and 11 turn it into a presidential, it's literally gutting 12 court-approved 1521. 13 Then if we were to change it, my advice 14 would be that it gets changed through a regulatory 15 process with input from industry, because there's 16 other people relying on it for how it currently 17 exists. 18 MR. RUNNER: We live in a strange world 19 right now. So I guess what we would do is make a 20 request for a regulatory process? Whoever does that? 21 MS. HARKEY: I'd still like to use this. 22 And I think we can identify certain pieces of 23 equipment that we concluded, that we determine are 24 part of the receiving system. 25 I think -- because I've got everything 26 broken down here quite honestly. My staff, Lisa. 27 The mounting bracket is a fixture, the cables are 28 materials, the dish is part of the receiving unit as 48 1 we've so decided, and the mounting bracket's where 2 I'm going. Just a second. 3 MR. ANGEJA: Even that's taking a 4 piece-by-piece approach. It's been conceded tax 5 applies to the cabling, which you still can't have 6 this system function without the cabling. You're 7 concluding that it's all part of one system. That 8 it's other TPP -- 9 MR. HORTON: Well, no, I don't think that 10 was the motion. 11 MS. HARKEY: I think the LNBF -- 12 MR. HORTON: The motion was that all of 13 the -- what do you call it -- 14 MR. RUNNER: All the equipment part of the 15 receiving system. 16 MR. HORTON: -- accountable, the receiving 17 system itself was TPP. And that the method of a 18 fixation was such that it wasn't permanent enough. 19 And I know you can have one vote and so forth and so 20 on. I know all of that. But it wasn't an integral 21 part of the functionality of the building. 22 I'm adding my thoughts. 23 And so that it's a separate TPP that is 24 affixed to material on a building, just clamped on 25 there, and not really affixed directly to the 26 building. But material becomes a building. 27 MS. HARKEY: Can we just refine this and say 28 that maybe the dish and LNBF are considered part of 49 1 the receiving system -- part of the antenna receiving 2 system? Or not the antenna, the -- 3 MR. HORTON: Why don't we do this, Members. 4 Just out of interest of assuring -- out of interest 5 of assuring that we all have an opportunity to review 6 the court case, have discussion and so forth, we can 7 make a motion and make this motion presidential 8 contingent upon how we do that. 9 MS. HARKEY: Okay. Well, I don't mind 10 saying we'd like a regulatory change. But what I'd 11 like to see in this, that the regulatory change will 12 likely be really slow, and likely there will be even 13 more of these cases coming forward somewhere. And 14 I'd like the industry to have something, because 1521 15 is old. 16 To say the low-noise blocker fee, LNBF, the 17 satellite dish reflector, and the receiver remote and 18 smart card are all part of one receiving system, 19 it's -- 20 MR. ANGEJA: And if I might, my request is 21 perhaps that avenue be taken instead of making it 22 presidential for instance. And, maybe to some 23 contractor's interest, to not have it be considered 24 the other TPP, is that it wasn't a sale for resale, 25 which is alleged here. And what you're inherently 26 finding, you now have tax on the markup. When 27 currently it's only tax on their cost. So there's 28 unintended consequences. 50 1 MS. HARKEY: Okay. There's just all sorts 2 of confusion. We'll let it ride. We'll be happy 3 with what we got. We won't try to recreate the wheel 4 here tonight. But we'll look into it. We'd like to 5 have 1521 be examined and updated to apply to the 6 current satellite systems. 7 MR. HORTON: Members, I just read the court 8 case. 9 MS. HARKEY: Okay. You guys are through. 10 MS. BITTICK: Thank you. 11 MR. HORTON: But maybe, Mr. Angeja -- maybe 12 you can take a look at this and kind of come back at 13 our next hearing, and we can have an opportunity to 14 kind of discuss that issue at some point. 15 16 ---oOo--- 17 18 19 20 21 22 23 24 25 26 27 28 51 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, Jillian Sumner, Hearing Reporter for 8 the California State Board of Equalization certify 9 that from August 30, 2017 audio, I recorded verbatim, 10 in 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 51 14 constitute a complete and accurate transcription of 15 the shorthand writing. 16 17 Dated: July 17, 2018 18 19 20 ____________________________ 21 JILLIAN SUMNER, CSR #13619 22 Hearing Reporter 23 24 25 26 27 28 52