1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 APRIL 26, 2017 10 11 SALES AND USE TAX APPEAL HEARING 12 APPEAL OF 13 GPS ENTERPRISE, INC. 14 NO. 825500 15 AGAINST PROPOSED ASSESSMENT OF 16 SALES AND USE TAX 17 18 19 20 21 22 23 24 25 26 Reported by: Kathleen Skidgel 27 CSR No. 9039 28 1 1 P R E S E N T 2 For the Board of Equalization: Diane L. Harkey 3 Chairwoman 4 Sen. George Runner (Ret.) Vice Chair 5 Fiona Ma, CPA 6 Member 7 Jerome E. Horton 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: Jeff Angeja 15 Tax Counsel IV Legal Department 16 17 For the Department: Scott Lambert Business Taxes 18 Specialist III Business Tax and Fee 19 Department 20 Kevin Hanks Chief 21 Business Tax and Fee Department 22 Stephen Smith 23 Tax Counsel IV Legal Department 24 For Petitioner: Nabil Saad 25 Taxpayer 26 Stephen W. Berger Attorney 27 28 ---oOo--- 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 APRIL 26, 2017 4 ---oOo--- 5 MS. RICHMOND: Our next item is C12, GPS 6 Enterprise, Inc. And Mr. Angeja will be making the 7 introduction for this case. 8 MS. HARKEY: Thank you. 9 Okay. Mr. Angeja, will you please 10 introduce the next item. 11 MR. ANGEJA: Madam Chair and Members, the 12 appeal before you involves two unresolved issues, 13 which are: Whether any further adjustments to the 14 amounts of unreported taxable sales or unreported 15 costs of self-consumed taxable merchandise are 16 warranted; and two, whether adjustments to the 17 amount of unreported taxable cigarette rebates are 18 warranted. 19 MS. HARKEY: Thank you. 20 To the petitioners, thank you for waiting. 21 Our apologies, clearly. 22 You have ten minutes to make your 23 presentation. The Department will have ten minutes 24 after you, and then you will have five minutes on 25 rebuttal. 26 Please introduce yourself for the record. 27 MR. BERGER: I will do so. 28 Good afternoon, Madam Chair and the other 3 1 Members of the Board. My name is Stephen Berger, 2 and I am pleased to be here today representing my 3 client, GPS Enterprise, Inc., dba J&J Smoke Shop. 4 With me is GPS's owner and principal, Mr. Nabil 5 Saad. And J&J Smoke Shop is a small 6 cigarette/tobacco shop in a shopping center in 7 Glendora, California. 8 So the audit period is April 1, 2010 to 9 March 31, 2013, which by my calculation's about 10 three years. There are two issues that are 11 principally in dispute. The first one is the 12 rebate; this is the minor issue, but I'm going to 13 mention just one thing about it. I have read what 14 the summary, the Board hearing summary, says about 15 the rebate on page 26 -- excuse me -- of the 16 summary. And I'll most respectfully and vigorously 17 disagree. The rebate is not a sale. It's a credit 18 for a prior purchase. It doesn't create a sale, and 19 there's no sales tax created. 20 I read the purported explanation that's in 21 the hearing summary, and I'm going to say I'm not an 22 accountant but I'm not persuaded by it at all. 23 Common sense tells us what a rebate is. It's not a 24 sale. It doesn't create a sales tax. 25 The Board says, well, you didn't account 26 for it properly. You didn't tell us that it came 27 from a vendor or it didn't -- you know, it didn't 28 come from a third party or whatever. 4 1 Well, I've dealt with Ms. Shay who is 2 Mr. Saad's bookkeeper. She's a cracker-jack person. 3 She's been very sharp, very accurate in all of her 4 information. And if she had in any way known about 5 this, I'm sure that we could have accounted for it 6 properly. Because the rebates, as I understand it, 7 were accounted for as other income. They were on 8 the tax returns, but they weren't shown as part of 9 the gross sales because they aren't sales. And 10 that's all I'm going to say about that. 11 The inclusion of a rebate and billing J&J 12 Smoke Shop for sales tax based on rebates just 13 defies common sense. And, to me, it's just not 14 right. It's not reasonable and it's not right. 15 Now, if we could, I'd like to get to the 16 principal issue in dispute and the big issue in 17 dispute. This is basically why there's a $90,000 18 proposed sales tax liability, something that is way 19 beyond the financial wherewithal of Mr. Saad and his 20 small business to accommodate. 21 We have 141 transactions, by my count, that 22 are included. We have 29 transactions in 2010; 23 20 -- in 2011, 48 transactions; in 2012, 54 24 transactions; and in 2013, 10 transactions. 25 In 2010, the total of those transactions 26 was $123,819.09; 2011, $178,537.36; 2012, 27 $162,409.82; and for the three months in 2013, 28 $30,925.13; which creates a total amount of the 5 1 disputed transactions from Sam's Club/Walmart of 2 $495,691.40. And that's what this ball game is all 3 about. 4 And I got those figures and they, according 5 to my review, corroborate or accommodate what the 6 Board said in their hearing summary. And I got 7 these from Ms. Saad's -- or Ms. Shay's summary, 8 which I believe is in the record because when I came 9 into the case I was told this had already been 10 provided to the auditors. And it's a summary, day 11 by day, or transaction by transaction, in each 12 respective year of the transactions which are not 13 ours. It's not that we don't think they're ours, we 14 know they're not ours because Mr. Saad scrupulously 15 keeps all of his sales tax register receipts. When 16 he makes a transaction, he keeps all of his 17 receipts; that's how he prepares his sales tax 18 returns. He did not have a single receipt for any 19 of these transactions. More about that later. 20 Now, Ms. Saad -- I'm sorry, Ms. Shay 21 prepared a summary, a detailed summary -- which I 22 understand was also given to the auditors -- and 23 just went through day by day and specifically 24 stated, no, these are not our transactions. 25 The only thing I have from the Board is 26 this thick document from Walmart. It's an 27 undocumented, unverified, unauthorized, no 28 foundation list from Walmart of all these 6 1 transactions that were supposedly done by Mr. Saad. 2 This document is basically just, in terms of this, 3 not worth the paper it's printed on. 4 The reason I say that is we asked 5 Walmart -- and Mr. Wiggins, Mr. Runner's assistant, 6 asked me to send the e-mails. I sent those again. 7 When I was communicating -- when I got in the case I 8 communicated with Walmart and I got to Walmart Legal 9 in Arkansas. And for a while they were very 10 cooperative. They responded to e-mails, they 11 responded to telephone calls. And they sent us some 12 of the receipts, which I'll go into in a little bit. 13 But then all of a sudden they stopped. 14 They didn't respond anymore. They didn't return 15 telephone calls, respond to e-mails. They never 16 sent us the additional receipts. So they refused to 17 give us the information that we needed to prove the 18 negative, that the disputed transactions in this 19 document do not belong to J&J Smoke Shop. They 20 wouldn't do it. 21 I asked the Board of Equalization, I said, 22 "I think you guys have subpoena power. I think you 23 guys can get these records. Why don't you get 24 them?" 25 "No," they said, "Mr. Berger, you go get 26 them." 27 I have no power to get those documents, not 28 unless I file a lawsuit, in which case then I have 7 1 to get permission to go to Arkansas and subpoena all 2 the records, unless I can get them from Sam's Club 3 here in California. Well, we haven't done it yet 4 because we haven't filed a lawsuit. 5 So, the only documentation that we have 6 supports J&J Smoke Shop here. And that's part of 7 what we have here in Hearing Exhibit 2, which I 8 submitted. I respectfully submit that the Board 9 should carefully look at the checks that are the 10 first page of Hearing Exhibit 2. And you see the 11 signature of Mr. Saad on four of those checks. Look 12 at his signature. That's it. This is his 13 signature. We can't dispute it, we don't dispute 14 it, here it is. 15 Take a look at the signature on -- there 16 are two samples of the signature on the disputed -- 17 two of the disputed transactions that we got back 18 from Walmart. Look at that signature. Does that in 19 any way, in any iota of reasonable rationality and 20 significance, resemble in any way the signatures on 21 the checks? I submit to you that one can look at 22 this and conclude that Mr. Saad did not sign the 23 Walmart receipts. 24 And that's part of what we got. You can 25 also take a look on Hearing Exhibit 1, the tax 26 returns, which I'll go into a little bit later. But 27 that also has Mr. Saad's signature. It's a little 28 bit different from the checks, but one can see that 8 1 that's his signature. It doesn't at all compare to 2 the information received from Walmart. 3 Now, in the BO -- in the Board of -- in the 4 Board's summary, if we go to page 14, we can take a 5 look, and this is what the Board said about the -- 6 these signatures. They say: 7 "Petitioner notes that the electronic 8 signatures on disputed Sam's Club 9 transactions do not match signature samples 10 of Mr. Saad from bank checks petitioner 11 provided to the Department." 12 All right. Now, if we go to page 17, the 13 Board acknowledges that same point again. This is 14 at line 18, it starts: 15 "Petitioner asserts that the electronic 16 signatures on disputed Sam's Club 17 transactions do not match signature samples 18 of Mr. Nabil Saad from bank checks 19 petitioner provided to the Department. 20 While we possess no special expertise in 21 handwriting analysis, the signatures 22 associated with the disputed Sam's Club 23 receipt images appear to be similar to 24 the signatures associated with the 25 nondisputed Sam's Club receipt images." 26 I submit to you that that is an admission 27 by the Board that Mr. Saad is right. There is no 28 way that that's -- that that statement can be 9 1 accepted with any credibility at all. 2 And then there is an important admission 3 down that same page, 17, lines 24 and 25. 4 "However, we" -- meaning the Board -- 5 "lack the expertise to conclusively 6 determine the likelihood that any 7 particular signature could be attributable 8 to Mr. Saad." 9 Nevertheless, Mr. Saad is being charged 10 with those disputed Walmart transactions. 11 All right. We have a second semblance of 12 support for the Board's theory that these disputed 13 transactions were done by Mr. Saad. We have the 14 frequency of purchases. This is at the summary, on 15 page 18 and 19. They somehow compared the detail of 16 the disputed transactions based on actual receipts, 17 and they said that somehow this correlated in a way 18 that supports the Board's position that the disputed 19 transactions are really Mr. Saad's and he really 20 doesn't have any way of -- you know, of contesting 21 based on that. 22 Once again I say, the Board is reaching out 23 and trying to say, "Okay, well, we took some of this 24 data and some of this data to reach the conclusion 25 that we want to reach," instead of looking at the 26 actual evidence, which shows that the disputed 27 transactions are not Mr. Saad's. 28 Once again, you're talking about $495,000 10 1 in sales transactions. If you look at the tax 2 returns, Hearing Exhibit 1, that's way more, way 3 more. It materially increases the actual business 4 shown on the tax returns. 5 Leads to a point. If in fact Mr. Saad who 6 has always paid his taxes -- he's never been audited 7 before -- if he did these transactions, why wouldn't 8 he have paid the sales taxes? It doesn't make any 9 sense. 10 Also, go look at how he lives. Where'd the 11 money go? Where is it? Nobody's ever asked to 12 account for that. Instead the Board's taking the 13 position, well, you can't prove that those disputed 14 transactions aren't yours, so we're going to charge 15 you an extra $91,000 for this half a million dollars 16 in extra transactions. 17 MS. RICHMOND: Time's expired. 18 MR. BERGER: Okay, I'm sorry. I, uh -- 19 MS. HARKEY: No problem. 20 MR. BERGER: -- would -- 21 The only thing I'll conclude at this point, 22 and reserve the rest, it's just not reasonable and 23 it's just not right to hold Mr. Saad to these 24 transactions. Just look at the tax returns, look at 25 the signature examples, and you can draw your own 26 conclusions based on the evidence that we do have -- 27 MS. HARKEY: Okay. You will have five 28 minutes on rebuttal. 11 1 MR. BERGER: -- instead of the evidence we 2 don't have. 3 Thank you very much. 4 MS. HARKEY: Thank you. 5 To the Department, you have ten minutes. 6 And please introduce yourselves for the record. 7 MR. LAMBERT: Thank you, Chairwoman Harkey. 8 My name is Scott Lambert. To my right is Kevin 9 Hanks, and to his right is Stephen Smith, 10 representing staff. 11 In this particular case the taxpayer 12 operates a retail smoke shop selling cigarettes, 13 mainly cigarettes, and some miscellaneous associated 14 products, such as other tobacco products and some 15 other types of miscellaneous tobacco items. 16 In this case the taxpayer did not provide 17 any sales records other than his income tax returns. 18 The -- he did provide profit and loss statements for 19 2010 and 2011 and bank statements. 20 There were no -- there were no sales 21 journals that were provided, and that's what the 22 taxpayer indicated, that that's how their accountant 23 reported from. 24 There was no purchase -- a detailed 25 purchase journal was not provided. So, therefore, 26 the Department had no idea what -- what example -- 27 what particular purchases there were, although the 28 taxpayer did provide some purchase invoices. 12 1 So based on the income tax returns, 2 comparing the sales that were reported on the sales 3 and use tax return, which was similar to the sales 4 that were reported on the income tax returns, and 5 comparing that to the purchases, for 2010, there was 6 a negative markup of one percent; 2011 there was a 7 negative markup of five percent; and 2012 there was 8 a markup of 25 percent. 9 So in this particular case what the 10 Department decided to do was to poll the vendors. 11 And what we do is send letters to the vendors to 12 obtain the purchases from them. So that's what we 13 did. We obtained all the various purchases. 14 In Sam's Club's case, the taxpayer 15 provided -- or, I'm sorry, Sam's Club provided a 16 detailed list, or a list of all the purchases that 17 were made under this taxpayer's Sam's Club purchase 18 account. 19 So the -- what is at dispute is there were 20 purchases made by e-check, and there were also 21 purchases made by cash. Initially, the bookkeeper 22 had said that the taxpayer had not purchased any 23 cash from Sam's Club. It was noted that for the 24 shelf test, which used September of 2013, that a 25 number of the invoices that were provided for the 26 shelf test were cash purchases from Sam's Club. So 27 it did appear that purchases -- cash purchasing was 28 made from Sam's Club. 13 1 In any case, a shelf test was conducted. 2 There was a little less than five percent markup for 3 cigarettes and a 28 percent markup for 4 miscellaneous. The miscellaneous is less than a 5 hundred thousand dollars in purchases and it's a 6 rather minor amount. So the majority of what we're 7 discussing is the cigarette purchases and the sales 8 of those. 9 So, there was information-- or there has 10 been information in regards to the signatures that 11 are on the Sam's Club. And they provided us with a 12 number of purchases. I believe it covers the years 13 2012 and 2013. There -- there is no question that a 14 lot of the signatures don't match the e-check. Even 15 on the signatures that the taxpayer does not 16 dispute, that are -- that they signed. 17 What I would point out is -- and I think 18 everyone here has done it -- trying to sign the 19 electronic document that's provided to you, and I've 20 talked to various people, including my own 21 experience, I think when you sign that electronic 22 data, a lot of times it's difficult for you to 23 recognize your own signature. 24 In this particular case, the two examples 25 that have been provided are the most -- the ones 26 that are just -- it appears to just be a scribble or 27 a line or an "E" or whatever it is, there are 28 signatures like that. I would say those are the 14 1 most extreme examples. 2 There's other ones where there is another 3 signature that's provided. And it appears that on 4 some of the cash -- some of the cash purchases, they 5 appear to be similar to some of the purchases with 6 the e-checks. 7 So, you know, as we said we're not experts 8 in that. All we can say is the information that's 9 provided to us by Sam's Club. 10 I would point out a couple of purchases in 11 particular, or several at a time. There was one on 12 January 18th of 2013, basically at Sam's Club, he 13 was purchasing from two locations. They have two 14 different cash registers at that location where 15 they -- people will purchase tobacco from. You have 16 to purchase it from a special or a designated cash 17 register. 18 Within a four-minute time period, there was 19 a cash purchase made at one of the registers. Then 20 there's an undisputed, in the meantime, purchase at 21 the second register with an e-check that the 22 taxpayer does not dispute. And then there's another 23 purchase at the cash register, the other cash 24 register, for another purchase of cigarettes. 25 So, if somebody is using the -- the 26 membership and they're not supposed to, they're 27 doing it at the same time that the taxpayer's 28 purchasing. And I guess what's unusual is, it -- it 15 1 happened more than once. So the fact that, you 2 know, you have the taxpayer at one end and a 3 purported somebody else using another membership at 4 the other register seems to be somewhat beyond 5 explanation. 6 But what I would point out is the cash that 7 was going into the bank account, the -- there are 8 very few cash deposits into the bank accounts. 9 There's periods of time where there's no cash that's 10 going into it. And so what's at dispute is $495,000 11 in purchases. But I think the way you have to look 12 at it, instead of looking at, "Hey, where's this 13 $495,000?" it's not like that. 14 What it is, the way this works is you get 15 cash from your customers for the sales of your 16 product, and then you take that cash and purchase 17 product with it, and you bring that back to your 18 store, you is sell it again, you get the cash and 19 you go back and you buy more product with it. 20 And so when you're saying, "Hey, where's 21 the $495,000?" if you think about it, there's only a 22 5 percent, or less than 5 percent markup on this. 23 So really what we're talking about, a profit of 24 $25,000. And that's the profit that's being made 25 from this. Otherwise, it's just the cash being 26 circulated through this business. 27 The other issue you would have is the sales 28 tax that's being collected that's not being 16 1 reported. And you're looking there probably over 2 $40,000 in tax. So it'd be the 40,000 plus the 3 $25,000 in cash that we're really looking at. But 4 when you analyze the bank statements, you don't see 5 the cash being deposited in there. 6 In addition to the sales records, they 7 haven't provided the daily sales journals or the -- 8 to back up what their sales that they reported. 9 In terms of their purchases -- and I 10 thought Appeals did an excellent job by going 11 through several of the large volume items that are 12 being sold, and they looked at several of those. 13 And what they found is, when you take out the cash 14 purchases that are in dispute, there were large 15 periods of time where there were no -- where some of 16 the most common items weren't being purchased. 17 So if you looked at -- and you took into 18 the total purchases, cash and check, it made sense 19 as to the items that were being purchased. They 20 were in a timely manner. 21 But I think what happened is, is the 22 taxpayer did not -- he didn't purchase half of his 23 items by check, half of the items. So, in other 24 words, say like a Marlboro hard pack 100s, he didn't 25 divide it up between cash and credit. It all went 26 to one or the other and that's why you see these 27 large discrepancies. 28 I think one thing that -- that kind of 17 1 proves that, when you go and look at the days where 2 there's both cash and credit card purchases, you 3 will not see any of -- on the cash and the credit of 4 the same purchases on that day. So say it was a 5 Marlboro hard red pack, you'll see that on the 6 e-check, but you won't see it on the cash or vice 7 versa. It's like you'll never see whoever -- if 8 somebody else was using it and they have a lot of 9 common purchases, on the days where they purchased 10 both with cash and check, there's never both of them 11 being purchased at the same time on the most common 12 items. 13 Oh, then in regards to the rebates, the 14 rebate figures that we obtained were either from the 15 manufacturers or from the bank statements that we 16 obtained. And based on Regulation 1671.1(C)(3)(a), 17 we consider -- the Board of Equalization considers 18 rebates subject to tax. And it is on the actual 19 basis. It was not estimated. And therefore we 20 believe that was proper. 21 So accordingly, the Department concurs with 22 the Appeals Division Decision and Recommendation. 23 MS. HARKEY: Okay, thank you very much. 24 You have five minutes. 25 MR. BERGER: Thank you, Madam Chairman. 26 MS. HARKEY: Sure. 27 MR. BERGER: I'd like to refer to page 16 28 of the Board hearing summary, lines 8 through 13, 18 1 where it talks about the purchase data obtained from 2 Sam's Club is evidence of petitioner's merchandise 3 purchases. The purchase data included for the audit 4 period, all purchases made under the membership 5 number, also include his membership type code, the 6 club number, and all this information. 7 If the Board looks at this document, it 8 doesn't have any of the sufficient detail to tie the 9 disputed transactions to Mr. Saad. 10 Mr. Lambert's argument is virtually 100 11 percent supposition. Mr. -- Mr. Lambert has no 12 personal knowledge of much of what he testified to. 13 Mr. Saad, sitting to my left, knows that he did not 14 purchase those things. 15 Now, the -- the, uh -- in page 16, lines 17 16 through 18, the Board summary notes that I made an 17 argument based on the California Evidence Code that 18 the Walmart document would be inadmissible in a 19 court of law. 20 The Board summarily dismisses that and says 21 the California Evidence Code is not applicable to 22 our analysis. That's right. Because if the 23 California Evidence Code did apply, they wouldn't be 24 able to use the Walmart, uh -- they wouldn't be able 25 to use the Walmart documentation. 26 So I respectfully submit to you that a 27 document like that is not reliable. Even though the 28 Board says Walmart is reliable and Mr. Saad is not, 19 1 that is not a cogent argument. It is not rational, 2 it is not reasonable. 3 Now, the two signatures are what Walmart 4 provided us. We didn't just pick this out and pick 5 the two most illegible signatures. This is what 6 Walmart sent us, and they were the only signatures 7 that they sent us and we supplied those to the 8 Department. We didn't hand-pick those. That's what 9 Walmart gave us. 10 Now, I really have to object to 11 Mr. Lambert's intimation and insinuation of gross 12 criminal misconduct by Mr. Saad, because that's what 13 he's saying; Mr. Saad basically got all this cash, 14 didn't report it, then went back and bought more 15 cigarettes, more merchandise, and then run it on a 16 treadmill and continually accumulated these so that 17 he wouldn't have to report it. 18 We categorically and emphatically deny any 19 such wrongdoing. There's no proof of it and 20 Mr. Saad did not do that. 21 With that, I'm going to turn this over to 22 Mr. Saad who would like to make a brief statement to 23 the Board. And I will say that in my estimation 24 Mr. Saad is an honest, decent, very credible person 25 and he would like to address the Board briefly. 26 Thank you. 27 MR. SAAD: My name is Nabil Saad. I am a 28 CFO of GPS Enterprise, operate a small circuit 20 1 cigarette tobacco store in Glendora. 2 I'm always make all the purchases for the 3 store for cigarette or any other products. I have 4 deferred to GPS's attorney Mr. Berger to primary 5 speak to the Board, but I am simply want to tell you 6 myself I did not purchase an extra 495,000 of 7 products that the Board is charging me with. 8 I always pay my sales tax on time, to the 9 penny, and I have purchased -- if I have purchased 10 those products and sold it, I would have paid the 11 sales tax. I did not purchase an extra $495,000 12 products. I don't owe sales tax claimed by the 13 Board and I don't have 91,000 substantial amount to 14 pay sales tax that not owed by GPS. 15 Thank you. 16 MR. BERGER: We'd like to close with this 17 statement: Apparently the Board agrees that 18 Mr. Saad is at least somewhat credible and somewhat 19 honest because they waived the negligence penalty. 20 And I have been told and I understand that it's 21 basically a policy, but not when you're accused of 22 basically looting and hiding $495,000 in cash 23 transactions. You don't waive a negligence penalty 24 if anyone really believes that Mr. Saad did that. 25 We ask that the Board's recommendation not 26 be accepted and that the disputed Walmart 27 transactions be excluded. 28 Thank you. 21 1 MS. HARKEY: Member Ma. 2 MS. MA: Thank you. 3 So, Mr. Saad, you said you purchased all of 4 the cigarettes yourself? 5 MR. SAAD: Yes, ma'am. 6 MS. MA: And were you operating your 7 business -- 8 MR. SAAD: Yes. 9 MS. MA: -- all of this time? 10 MR. SAAD: Yes. 11 MS. MA: Do you have anyone helping you? 12 MR. SAAD: No. My wife, once in a while 13 comes in and stands in the store, but I'm the only 14 one -- 15 MS. MA: Okay. 16 MR. SAAD: -- that does everything. 17 MS. MA: And so when you go and buy 18 cigarettes, how many -- do you usually go to Sam's 19 Club? 20 MR. SAAD: Before, yes, I used to go to 21 Sam's Club. My promotion from Philip Morris and 22 Camel, which is RJ Reynolds, goes there. Therefore, 23 I have to go get it from Sam's Club. But after this 24 incidence here we have, I go only for the promotion. 25 I do not buy much of anything from Sam's Club 26 because I don't know what's going to happen. 27 MS. MA: Okay. 28 MR. SAAD: I just go to other wholesaler 22 1 around the area. 2 MS. MA: Okay. So during the audit period, 3 how many brands of cigarettes did you buy from Sam's 4 Club? 5 MR. SAAD: During the audit? 6 MS. MA: Yeah. Are their lots? I don't 7 know. I don't smoke. So just explain to me kind 8 of -- 9 MR. SAAD: I usually buy. 10 MS. MA: -- when you go to Sam's Club, grab 11 cartons? How many cartons do you grab? What kinds? 12 I'm just trying to -- 13 MR. SAAD: We buy Marlboro Light, Marlboro 14 Light 100, Marlboro Red, same thing, you know. I'll 15 say 10, 15 cartons every time we go. 16 MS. MA: Okay. And then, are they all the 17 same ones? Like, when you go to Sam's Club it looks 18 like you purchase one carton of Kent Kings. Like on 19 one day it looks like you buy 10 cartons each 20 time. 21 MR. SAAD: Sometimes we buy -- we buy 22 whatever we need, especially these days. Right now 23 economy's kind of slow. We buy what we need at this 24 time. 25 But before, when we have a lot of, you 26 know, turnaround from these products and people buy 27 more and there's no problems with the economy it was 28 if you need five cartons of Light, I buy five 23 1 carton. If 10 Light, I buy 10. There's no -- 2 there's no rhythm to it, or there's no order. 3 MS. MA: Okay. And so do you go -- when 4 you go to Sam's Club, like what time would you go? 5 MR. SAAD: Usually in the morning. 6 MS. MA: Before you open? 7 MR. SAAD: Before I open, yes. 8 MS. MA: Okay. And then it looks like the 9 membership, it was all key to your membership. But 10 then it looks like there's two club member numbers, 11 6240 and 6619. 12 MR. SAAD: I don't know. I changed the 13 card. I went to change the card. I don't remember. 14 What number do you have? 15 MS. MA: 6619 and 6240. There's two club 16 numbers that are charged to the cigarette 17 purchases. 18 MR. SAAD: I have the 1851 right now. 19 MS. MA: The 1851 is your membership. But 20 I don't -- 21 MR. RUNNER: It's a club number, maybe the 22 store. Do you go to different stores? 23 MR. SAAD: No, just mainly the one in 24 Glendora. 25 MR. RUNNER: I don't know what the club 26 number means. 27 MS. MA: Okay. 28 MR. RUNNER: Do you know what "club number" 24 1 means? 2 MR. LAMBERT: I don't. But he -- he did 3 go -- he was mainly at one store, but there were two 4 stores that he purchased, from Sam's Club that he 5 purchases from. 6 MR. SAAD: I rarely go to -- if they don't 7 have products on my way down from my house, if I 8 have to stop by Sam's in Rancho Cucamonga quickly, I 9 can do that. But most of the time I go to Glendora 10 one, is the closest one to my store. 11 MS. MA: Okay. So Glendora looks like it's 12 a 62 -- the 6240 club because that's where you 13 purchased -- 14 MR. SAAD: I am not quite sure the number 15 of the, uh -- 16 MS. MA: Okay. 17 MR. SAAD: -- the Sam's Club number. 18 MS. MA: Okay. And then, you know, on 19 these sheets, you know, the Sam's Club sheets, how 20 do we know that the purchases -- it says "disputed 21 purchases" in column K. How do we know that these 22 were not his purchases if he didn't provide any sort 23 of purchase journals, sales records? Like, how did 24 you know which ones are highlighted? It says 25 "disputed," so that's the ones he says -- 26 MR. LAMBERT: He provided us with that 27 information. Which ones were disputed? 28 MS. MA: Okay. Yeah. 25 1 MR. LAMBERT: Yeah. They -- they told us 2 the cash ones that they disagreed with. 3 MS. MA: Okay. So, Mr. Saad, how do we -- 4 how did you go through this whole list? These are 5 all the Sam's Club purchases. And the ones that are 6 kind of highlighted are the ones that say 7 "disputed," meaning -- 8 MR. SAAD: I believe a little while back we 9 went to each receipt, me and my accountant, and 10 checked things out to see which one is which. And 11 that's what we did. 12 MS. MA: Okay. 13 MR. BERGER: May I address two points? 14 MS. MA: Sure. 15 MR. BERGER: Okay. First point is on the 16 contemporaneous transactions. My recollection is 17 that this was one of the first issues raised by Ms. 18 Shay, like the fact that how could he be at two cash 19 registers at once? And we objected. We said, 20 "Look, this isn't evidence that we made two 21 transactions at the same time. This is evidence 22 that somebody else was making transactions on our 23 card." And thus was part of what we disputed. 24 Also, on the cash situation, Mr. Lambert, I 25 believe, is incorrect. I was the one who told, I 26 believe, it was Larry Nakano that, "Gee, Mr. Saad 27 didn't make any cash purchases at -- at Sam's Club." 28 And when I mentioned that, it was in an 26 1 e-mail. And Mr. Saad immediately called me. He 2 says, "Wait a minute, that's not true. This is your 3 mistake. I make cash purchases at Walmart or at 4 Sam's Club but, you know, I always got the receipt." 5 And we did give the receipts to the Board. 6 So I immediately e-mailed. And I don't 7 know if I called Larry Nakano, but I e-mailed him. 8 I said, "Look, the error was mine. It's -- it was a 9 mistake by me." We did make cash purchases at Sam's 10 Club, but we have the transaction receipts and the 11 purchase receipts from all of those transactions. 12 MS. MA: Okay. That's it for now. 13 MS. HARKEY: Member Runner. 14 MR. RUNNER: Um, let me just -- do we -- 15 did the taxpayer -- well, I'll ask the taxpayer. 16 Did you make any electronic purchases? 17 MR. SAAD: When you say electronics, credit 18 card? 19 MR. RUNNER: No, whatever -- well, whatever 20 the process was that -- 21 MR. SAAD: Checks. 22 MR. RUNNER: -- had you sign -- that had 23 you sign, uh -- 24 MR. SAAD: Yeah, those are checks, 25 electronic checks. 26 MR. RUNNER: Those -- did you make 27 electronic -- 28 MR. SAAD: Yes. At Sam's Club, I did, 27 1 yes. 2 MR. RUNNER: Okay. Do we have any examples 3 of his signature on those acceptable electronic? 4 MR. BERGER: You know, Mr. Runner, I have 5 never seen those. I was told that they were 6 provided to the Board, but I never personally 7 received them. Because all sales receipts we had 8 were provided to the Board, to my understanding. 9 But I was never given any of those because they were 10 already at the Board. They were already at the 11 Board by the time I got into the case. 12 MR. RUNNER: I mean that would be 13 interesting to me to see if indeed they -- indeed he 14 is -- the electronic signature -- 15 MR. BERGER: Well -- 16 MR. RUNNER: -- was indeed closer to the 17 one that we see on his returns and whatnot -- 18 MR. BERGER: Sure. 19 MR. RUNNER: -- or closer to the ones that 20 we see on the -- on the -- on the receipts that we 21 do -- that he did take responsibility for. 22 Do we -- what's -- what's our observation 23 there? What do we have? 24 MR. LAMBERT: What we do -- there are -- I 25 have, as I had stated, 2012 and 2013 purchases with 26 the electronic signature. 27 MR. RUNNER: Can you give me -- can you 28 make a copy for me, for us, of the -- of one of 28 1 those which is one that he doesn't dispute? 2 MR. LAMBERT: That he does not dispute. 3 MR. RUNNER: Right. That he doesn't 4 dispute that he did. 5 MR. LAMBERT: Would that be a cash 6 purchase? 7 MR. RUNNER: No, it'd be his electronic 8 signature. 9 MS. HARKEY: Whatever. I think he's -- 10 MR. LAMBERT: On the electronic ones? 11 MR. RUNNER: Yeah, yeah. That he doesn't 12 dispute. 13 MR. LAMBERT: Okay. 14 MR. RUNNER: Because what I have is I have 15 copies of the ones that he does dispute. 16 MR. BERGER: Yes, that's what we 17 provided. 18 MR. RUNNER: Right. I don't have copies of 19 the ones, electronic, that he doesn't dispute. 20 MR. BERGER: And I have never seen those, 21 so if we make a copy, I'd like to see one. 22 MR. RUNNER: Well, you're going to get to 23 see it. 24 MR. BERGER: Good. Thank you, Mr. 25 Runner. 26 MR. RUNNER: Okay. So as we're doing that, 27 let me -- let me just follow up another question. 28 And do we see any -- I've got income tax 29 1 returns here for during this period of time. And I 2 don't know if you can answer this, but do we -- is 3 there any indication on these income tax returns 4 that would indicate that he actually had purchased 5 those -- those, um -- those cigarettes? 6 MR. LAMBERT: I -- I -- I don't believe so. 7 The purchases are below what we have found. So -- 8 and they didn't provide us with a list of the 9 purchases. So I don't believe there's any evidence 10 that -- what you're getting at is a cash, that cash 11 Sam's Club purchases are included in there? 12 MR. RUNNER: Yeah. Well, in -- 13 He disputes that he made these purchases, 14 right? 15 MR. LAMBERT: That's correct. 16 MR. RUNNER: So now I have income tax 17 returns for him for that period of time. 18 MR. LAMBERT: Yes. 19 MR. RUNNER: And again, it's a large 20 number. 21 So my question is, is there any -- do we 22 believe that his income tax returns -- let me say it 23 this way -- also do not show these purchases that he 24 is disputing? 25 MR. LAMBERT: Yes, they do not show. 26 MR. RUNNER: So we believe -- we would 27 believe, rather than seeing this as evidence showing 28 that he indeed didn't make those purchases, because 30 1 we would say the -- not only was his reporting wrong 2 to the BOE, but his reporting is wrong also to the 3 IRS. 4 MR. LAMBERT: Oh, abso- -- yes. 5 MR. RUNNER: Okay, okay. I just want to -- 6 I just want to make -- see if I get that. 7 MR. LAMBERT: Yeah. 8 MR. RUNNER: So we would not see this as 9 evidence that is provided by him to show, "Look, I 10 don't even claim it on my income." We would say, 11 "No, what's happening is he didn't show it there 12 either." 13 MR. LAMBERT: That's right. 14 MR. RUNNER: Okay. That being said then, 15 what would be required -- I mean, again, I don't 16 know if this could happen or not. I have no idea. 17 But what would be required of him to demonstrate, 18 "Hey, somebody's using my number"? What would be 19 required of him to be able to demonstrate that to 20 satisfaction? 21 MR. LAMBERT: Well, you know, you are in a 22 difficult spot, right, because you're trying to 23 prove something -- 24 MR. RUNNER: Right. 25 MR. LAMBERT: -- that you have no knowledge 26 of. 27 MR. RUNNER: Right. 28 MR. LAMBERT: Which makes it difficult. 31 1 But -- 2 MR. RUNNER: Because we already don't 3 believe his income tax. 4 MR. LAMBERT: We don't believe his income 5 tax. 6 MR. RUNNER: Right. So we would -- we 7 would say we don't believe what -- 8 MR. LAMBERT: Right. 9 MR. RUNNER: Okay. 10 MR. LAMBERT: I think what you have to do 11 is actually look at the facts. I mean it's easier 12 for us to indicate that he made those purchases than 13 for him to indicate that he didn't. And, you know, 14 the reason is, is when you take a look at the fact 15 that he didn't provide a purchase journal, you know, 16 there -- and if you had, if you were keeping all 17 that meticulous records, you would have that. 18 In fact when they say, "We reported all of 19 our tax," it's -- they didn't. I mean even if you 20 take those Sam's Club -- 21 MR. RUNNER: Right. 22 MR. LAMBERT: -- cash purchases out of 23 there, you still have underreported your tax. So 24 it's not -- it's not just those Sam's Club -- 25 MR. RUNNER: Right, right. 26 MR. LAMBERT: There's -- 27 MR. HANKS: I just wanted to add, also, and 28 this is somewhat similar to a -- a concern that we 32 1 would have just as individuals ourselves if it was 2 disclosed someone else had gotten our credit card 3 number and was using our credit card -- 4 MR. RUNNER: Right. 5 MR. HANKS: -- information. 6 So the appeals conference holder actually 7 posed that question to the taxpayer, "Well, did you 8 close out that membership number?" 9 MR. RUNNER: Mm-hmm. 10 MR. HANKS: I mean that would probably be 11 the first thing you'd do, you'd close out your 12 credit card account if someone were using -- 13 MR. RUNNER: Right. 14 MR. HANKS: -- your credit card. 15 MR. RUNNER: Sure. 16 MR. HANKS: Much -- much like you would 17 here. He didn't do that here. And so there wasn't 18 an indication that that was done. And so that was 19 just an observation that Appeals had made. 20 MR. RUNNER: Okay. Okay. So let me ask 21 the taxpayer, why -- why didn't you change your 22 account when you thought it was being used 23 fraudulently? 24 MR. SAAD: I have just answered that to 25 him. I did that. That's my credit card. My, uh -- 26 MR. RUNNER: When did you do that? 27 MR. SAAD: Uh -- 28 MR. RUNNER: Did you do it based upon -- 33 1 did you do it in conjunction with the fact that when 2 you had found out that somebody was using your -- 3 MR. SAAD: When I have problem, when I have 4 problem with this and I have this case and I went 5 and changed my card. 6 MR. RUNNER: So why do we think he didn't? 7 MR. HANKS: At the time of the appeals 8 conference, he indicated to the appeals conference 9 holder that it's a timely process to obtain a new 10 membership number with Sam's Club, and for that 11 reason, you know, he wasn't going to take the time 12 to do that. 13 MR. RUNNER: Do you recall having that 14 conversation? 15 MR. SAAD: (Shaking head.) 16 MR. RUNNER: Okay. You weren't with him at 17 that time? 18 MR. BERGER: No. He was not at the appeals 19 conference. I think he was there by phone. I 20 really can't recall. 21 But I know he had tried to change it, but 22 he said there was a long line and he couldn't do it. 23 And I know he did it later. But the thing also was 24 he doesn't go to Sam's Club that much anymore, so he 25 wasn't using the membership number. 26 MR. RUNNER: Well, yeah, except somebody 27 else was. 28 MR. BERGER: Well, but not after all this 34 1 exploded. Because once -- he never would have even 2 known about it, that's the ironic thing. But for 3 this audit, he -- who knows what he would have found 4 out that this was going on. He never even knew. 5 MR. RUNNER: But, again, he can stop using 6 his Sam's Club card, but somebody else was using it 7 and they wouldn't know that he was being audited. 8 MR. BERGER: Well, no. But the -- no, the 9 point was it's the other way around, Mr. Runner. 10 They -- for whatever reason -- I don't know 11 how this went down or how it happened. But the fact 12 of the matter is that all these transactions 13 appeared on his club account number, which he had 14 nothing to do with, didn't even know about until all 15 of a sudden we get this document as part of the 16 audit. And I think that's about the time I was 17 called in. Sometime after that it was provided by 18 Walmart. And I think that the most significant 19 factor here is that Walmart stopped cooperating with 20 us. 21 MR. RUNNER: Let me ask about that. 22 MR. BERGER: They stopped. 23 MR. RUNNER: Let me ask about that for a 24 minute. And that is, what do we -- again, I'm 25 looking at this and I got to tell you this signature 26 looks a lot like the ones that are on -- that is 27 on -- that are on the regular checks, not like the 28 ones -- I mean, I'm not an expert either. 35 1 MR. LAMBERT: Well, there's other -- 2 there's other ones. I picked out the best one. 3 MR. RUNNER: Well, you shouldn't have done 4 that. 5 MR. BERGER: Thank you, Mr. Lambert. 6 MR. LAMBERT: I mean that -- we're not 7 trying to hide anything. 8 MR. RUNNER: No, no. But I need to 9 compare, so I get that. 10 MR. LAMBERT: I got another one -- 11 MR. RUNNER: Right. 12 MR. LAMBERT: -- that would be similar -- 13 MR. RUNNER: Okay. Okay. 14 MR. LAMBERT: -- to the other one. 15 MR. BERGER: I have a suggestion. Why 16 don't we see all of the signatures that we have from 17 Walmart? Let's take a look at all of them. 18 MR. RUNNER: Okay. Let me go back down 19 this other track that I wanted to go down. And that 20 is, the issue in trying to get information from 21 Walmart. 22 MR. BERGER: Yes. 23 MR. RUNNER: They stopped communicating to 24 you. 25 MR. BERGER: Yes. 26 MR. RUNNER: You indicated to the Board, 27 "Hey, look, they stopped talking to us. Can you go 28 ahead and get this information for us?" 36 1 MR. BERGER: Yes. 2 MR. RUNNER: And they indicated what? 3 MR. BERGER: They basically said, "No, we 4 have what we need. You go get it." 5 MR. RUNNER: Again, why wouldn't we try to 6 get more information if they're not willing to give 7 it to the taxpayer and we may or may not -- you 8 don't have to tell me -- have the ability to get it? 9 MR. LAMBERT: Well, we got the -- they 10 provide -- Sam's Club provided us with the purchase 11 information. 12 MR. RUNNER: Right, right. 13 MR. LAMBERT: Right? 14 MR. RUNNER: Right, right. That's in -- 15 but that's at dispute -- 16 MR. LAMBERT: That's in dispute. 17 MR. RUNNER: -- from the taxpayer. 18 MR. LAMBERT: That's right. 19 MR. RUNNER: So if the taxpayer says, "Hey 20 they've got information" -- 21 Well, let me ask them. What kind of 22 information were you thinking that they could 23 provide you? 24 MR. BERGER: Well, the records underlying 25 this document. Where did they get the information 26 to put in this long document that they supplied, 27 which is the basis of the Board's position here that 28 we did all of theses transactions? Where's the 37 1 underlying documentation? Where's the source 2 information? 3 MR. RUNNER: When you say -- when you say 4 the underlying documentation -- 5 MR. BERGER: The purchase receipts. 6 MR. RUNNER: Okay. 7 MR. BERGER: The receipts that would show, 8 that would specifically show what transactions were 9 generated that went into this document. 10 MR. RUNNER: And what would that help? How 11 would that help your client? 12 MR. BERGER: Well, because it would help my 13 client because he would have some understanding of, 14 okay, you know, what was purchased on those receipts 15 and why was it added to my club account number 16 without my authorization or consent? It would at 17 least give us a basis -- 18 MR. RUNNER: Did your client find the 19 purchase receipts for all the ones that were his? 20 MR. BERGER: Yes. My understanding is it 21 says in the Board summary that they have the 22 transaction receipts. Because that's what -- that's 23 how he prepared his tax returns. That's how he 24 prepared sales tax returns, tax returns. That's 25 what he gives to Ms. Shay. And she doesn't brook 26 any nonsense here. When she wants the receipts, she 27 gets them all. And you can ask him. 28 What he's told me is that he keeps all of 38 1 his receipts, all of his invoices, and that's what 2 he gives to Ms. Shay to prepare his returns. 3 MR. RUNNER: Let me ask Appeals a 4 procedural question. 5 Okay. We have documents that are -- again, 6 we -- I'll give it the benefit in terms of saying at 7 least they're in dispute. So we have documents that 8 are from Walmart, that again that are -- that they 9 would say represent one thing. They got signatures 10 that they would say represent. 11 Um, what's the process for us to swear in 12 the, um, the taxpayer? And then at what level of 13 credibility to the -- to the -- to these documents 14 would sworn testimony have? 15 MR. ANGEJA: That's entirely within the 16 trier of fact's purview. 17 MR. RUNNER: Right, right. 18 MR. ANGEJA: That's this Board. 19 You can swear them in, it's been done. 20 I don't know that we need to go to a 21 signature battle with the remaining circumstantial 22 evidence we've got, including a photo ID on the back 23 of the card. 24 If I were trying to decide this case, I 25 wouldn't be looking at a signature comparison 26 because -- I mean, I heard it said earlier, I don't 27 know which part he said it -- every electronic 28 signature I do, I don't even recognize my own 39 1 signature. I think that doesn't help us. But we've 2 got photo IDs on the back of the card. I don't know 3 the incentive for some rogue third party to come in 4 and use -- 5 MR. RUNNER: Okay. So, again, photo ID's 6 an interesting issue because it hasn't been brought 7 up in the discussion, as far as I know, here. 8 So in the back of the card, you would say 9 that Walmart was probably acting responsibly because 10 they would look at the photo ID and therefore know 11 who or who is not correct to that card? 12 MR. ANGEJA: I don't know if I'm 13 appropriate to say it, but the card that he flashed 14 to Ms. Ma has his picture on the back of it. I saw 15 it from here. 16 MR. RUNNER: Mm-hmm. 17 MR. ANGEJA: My Costco card has my picture 18 on the back of it, although I apologize to the 19 Costco people who have to see it, but -- 20 MR. RUNNER: Okay. Well, let me go back to 21 my basic question though. 22 MR. ANGEJA: You could swear him in, and he 23 could say that that signature was not his and that 24 it's up to the trier of fact. I don't know if it 25 adds any additional weight, except it's penalty of 26 perjury -- 27 MR. RUNNER: Right. 28 MR. ANGEJA: -- whereas any other testimony 40 1 is not. 2 MR. RUNNER: But in terms of the value of 3 evidence or issue, a sworn testimony is equal, not 4 equal, less than? 5 MR. ANGEJA: In an abstract, sworn 6 statements under penalty of perjury weigh more than 7 assertions that are not under a penalty of perjury. 8 MR. RUNNER: Okay. 9 MR. ANGEJA: As the trier of fact, I don't 10 know that it helps in this matter to get us really 11 any further. 12 MR. RUNNER: Okay. No, that's -- that's 13 kind of what the answer that I was looking for, 14 where the sworn testimony is. 15 Okay. That's an interesting issue in 16 regards to the picture on the back. Why -- I mean 17 does that -- how does that -- 18 MR. BERGER: Well, why don't we ask 19 Mr. Saad? Whenever you did a transaction that you 20 don't dispute at Sam's Club, did you show them a 21 card with a picture on it and did you ever have any 22 trouble? That'd be an interesting question to ask 23 him. Go ahead. We can do it under penalty of 24 perjury. 25 MR. RUNNER: No, no, no. The point would 26 be, I guess it makes it harder for just using a 27 number if you've got to actually present a card. 28 MR. BERGER: Well, that's true. On the 41 1 other hand, since these were illegal transactions 2 anyway, to the extent that they occurred without his 3 consent and permission, accepting Mr. Saad's 4 testimony, since he's the only one who knows for a 5 fact whether those are his transactions, nobody else 6 here knows for a fact, you know, it would be 7 interesting to know how this actually went down. 8 But since, if it did go down, it was 9 illegal in the first place and it was probably 10 somewhat of an inside job at Sam's Club, Walmart. 11 Which is why Walmart stopped communicating with me. 12 That's, if I were to infer -- 13 MR. RUNNER: Let me go back to the other 14 issue. 15 MR. BERGER: -- why that -- I'm sorry. If 16 I were to infer why that happened, that's 17 certainly -- 18 MR. RUNNER: Okay. 19 MR. BERGER: -- one plausible 20 explanation. 21 MR. RUNNER: Okay. Let me go back to the 22 issue about why it is that we wouldn't try to get 23 additional information from Walmart if indeed the 24 taxpayer asked us to do it. 25 MR. LAMBERT: Well, we did attempt to go 26 back to get information from them. 27 MR. RUNNER: Uh-huh. 28 MR. LAMBERT: We did get information. 42 1 We -- there was -- there was some issues trying to 2 get it. But we did -- they said they would provide 3 us with five different days, and they did provide us 4 with that information. We took a look at that. We 5 were fairly confident with it. 6 You know, the one thing I haven't said -- 7 MR. RUNNER: Did the taxpayer see what we 8 got? 9 MR. LAMBERT: I believe -- I believe they 10 did, but I mean they could answer that -- 11 MR. RUNNER: Okay. 12 MR. LAMBERT: -- better than -- than I 13 could. 14 MR. RUNNER: Right. 15 MR. LAMBERT: But I believe they -- they 16 saw the five days. And they were in communication 17 with Sam's Club at the same time. 18 MR. RUNNER: Right now the testimony has 19 been that they asked us to do something and we 20 didn't do it. You're telling me we did do something 21 and you gave it to them. 22 MR. LAMBERT: Well, I'm not sure how it got 23 to them. We did -- well, I have the information 24 here. And they were in contact with the Legal 25 Department at Walmart/Sam's Club. 26 But your question was, you know, why didn't 27 we do something further? I think we were satisfied 28 with the fact that it was Mr. Saad that made the 43 1 purchases. 2 And the one thing, you know, I haven't said 3 and I don't know how much weight that you want to 4 put to it, but one of our employees was a Sam's 5 Club, former Sam's Club cashier that worked at that 6 store, that worked the tobacco counter and was 7 familiar with Mr. Saad and indicated to our audit 8 staff that Mr. Saad came in and made -- routinely 9 made purchases with cash. 10 And that -- I mean that's really a side 11 issue. The majority of it is the fact that we 12 believe we have the -- the documentation evidence, 13 the fact that the cash isn't going into the bank 14 account, the fact when you take a look at the 15 purchase, the purchase -- 16 MR. HANKS: Mix. 17 MR. LAMBERT: -- combination mix, that it 18 just, it doesn't make sense that -- what the 19 taxpayer -- 20 MR. RUNNER: Okay, thank you. 21 MR. BERGER: It only doesn't make sense if 22 you believe that these transactions actually 23 occurred with Mr. Saad -- 24 MR. RUNNER: Right. 25 MR. BERGER: -- doing them. 26 MS. HARKEY: Yeah, we -- we understand. 27 MR. RUNNER: Right, we get -- we get that. 28 We know that. 44 1 MR. BERGER: Thank you. 2 MS. HARKEY: I need to bring this back 3 around. Do you have any questions? 4 MS. STOWERS: Just real quick, please, 5 Chairwoman. 6 MS. HARKEY: Yes. 7 MS. STOWERS: To the petitioner, could you 8 explain to me when you did make purchases at Sam's 9 Club, what was the process? Did you have to show 10 your Sam's card at that time? 11 MR. SAAD: Yes. Yeah, every time I go 12 there to buy any products, I have to show the ID, 13 the Sam's Club card. 14 MS. STOWERS: And at that time did it have 15 your picture on there? 16 MR. SAAD: It have picture, but picture's 17 kind of like stripped. The old card was kind of 18 like stripped. 19 MS. STOWERS: Okay. 20 MR. SAAD: But the newer one is pretty 21 good. I don't use it much anyway. 22 MS. STOWERS: Okay. So they did check for 23 ID? 24 MR. SAAD: Yes, absolutely. Not ID -- 25 MS. STOWERS: I'm sorry. Membership. 26 Membership. 27 MR. SAAD: Just the picture, the photo on 28 the membership. 45 1 MS. STOWERS: The photo membership. 2 And so it's your argument, to you and to 3 your attorney, is that some of these transactions, 4 although they're connected to your Sam's card 5 account, you were not there to -- you did not make 6 those transactions? 7 MR. SAAD: Absolutely not, no. 8 MS. STOWERS: So where I'm struggling is 9 that you just indicated that when purchases were 10 made, they would look at your -- your Sam's Club 11 card. 12 MR. SAAD: Yes. 13 MS. STOWERS: So I'm struggling with how 14 could someone else make a purchase under that 15 account and not have access to your card? 16 MR. SAAD: I do not have answers to this. 17 No, I'm sorry. 18 MS. STOWERS: You don't have the answer to 19 that one either. But that's -- that's where I'm 20 struggling at. I understand your argument, sir, 21 would be that perhaps Sam's Club employees was doing 22 something improper. 23 MR. BERGER: Or somebody affiliated with 24 Sam's Club employees; in other words it was a scam 25 that worked very effectively for a period of time 26 until it got exposed. 27 MS. STOWERS: Okay. And that scam would be 28 to purchase cigarettes at whatever the price was and 46 1 then -- 2 MR. BERGER: Ms. Stowers, if I pronounced 3 it correctly, I don't really know how it worked. 4 MS. STOWERS: Okay. 5 MR. BERGER: But obviously somebody who 6 figured this out did it for a reason that was 7 probably to make some free money -- 8 MS. STOWERS: Okay. 9 MR. BERGER: -- at Mr. Saad's expense. 10 MS. STOWERS: Okay, I understand your 11 argument. Thank you very much. 12 Thank you, Chairwoman. 13 MS. HARKEY: Member Horton. 14 MR. HORTON: Thank you, Madam Chair. 15 I just want to make a statement relative to 16 the law. The, um, the challenge with a rogue person 17 vendor that wants to purchase cigarettes and then 18 turn around and sell them under somebody else's 19 name, they're putting themselves at risk because the 20 law requires them to have an invoice with their name 21 on it. 22 So if they don't have an invoice with their 23 name on it, then they're putting themselves at risk 24 of violating the law, criminal prosecution, having 25 their product confiscated by the organization. 26 That's a huge risk for someone to go in just to be 27 able to buy cigarettes when they can buy them anyway 28 if they're in the business of -- of selling 47 1 cigarettes. 2 MR. BERGER: Well, Mr. Horton, speaking to 3 that same point from another standpoint, why would 4 Mr. Saad, who has a business, who always pays his 5 taxes, who always does things on the up-and-up, why 6 would he get involved in some kind of a scheme like 7 this? Why would he do that? He wouldn't do that. 8 A person who would conceive and contrive 9 this kind of a scheme wouldn't be worried about 10 showing an invoice, wouldn't be worried accounting 11 for it to anybody. They're only interested in 12 getting the merchandise and in selling it out on the 13 black market, for wherever they can. It's free 14 money to them. 15 MR. HORTON: I don't have a license to 16 answer that. 17 MS. HARKEY: Okay. Okay. I'm just -- I'm, 18 uh -- does anyone else use your Sam's Club card? 19 MR. SAAD: No, ma'am. 20 MS. HARKEY: Okay. How long did it take 21 for you to decide to change your number once you 22 realized you had this problem? 23 MR. SAAD: I'll say about six months to 24 eight months right now. 25 MS. HARKEY: Okay. So this could still be 26 going on with a fake card or -- 27 MR. SAAD: I don't know. I can't tell. 28 MS. HARKEY: Okay. 48 1 MR. SAAD: But I have the new card right 2 now for the last, I think, six to eight months. 3 MS. HARKEY: Right. I -- I -- I think that 4 the Department's got a lot of data, not the least of 5 which is the signature. But I'm thinking that maybe 6 some of the signatures were made with like a little 7 pen thing and others were made with your fingernail. 8 I mean those things happen. I know when I have to 9 sign for things on my computer and I have to bring 10 my mouse, it looks nothing like how I sign. 11 MR. SAAD: Mostly it was a pen. 12 MS. HARKEY: Yeah. 13 MR. SAAD: Mostly it was a pen. 14 MS. HARKEY: So I'm -- I just, you know, 15 I -- I think the Department actually was -- I'm 16 going to call you Colombo on this one. I think you 17 really turned over every leaf to try to, uh, make a 18 case or support your case. Support the auditor's 19 case. 20 So, um, is there a motion? 21 MS. STOWERS: Move to adopt staff 22 recommendation to deny the petition. 23 MR. HORTON: Second. 24 MS. HARKEY: There's a motion and a second. 25 Is there any objection? 26 No. Such will be the order. 27 MR. BERGER: Very well. 28 MS. HARKEY: Thank you. 49 1 MR. BERGER: We will proceed further and 2 hopefully we will see you in court. 3 MS. HARKEY: Thank you. 4 MR. BERGER: Thank you very much. We are 5 very disappointed in the Board's decision. It is 6 totally wrong. 7 ---oOo--- 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 50 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 April 26, 2017 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 50 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: June 23, 2017 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 51