1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 9 REPORTER'S TRANSCRIPT 10 JUNE 20, 2017 11 12 13 14 15 16 BUSINESS TAXES COMMITTEE 17 18 19 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: Trista Gonzalez 15 Chief Tax Policy Division 16 Business Tax and Fee Department 17 Bradley Heller 18 Tax Counsel IV Legal Department 19 Speakers: Barry Brokaw 20 Agua Caliente Band of Cahuilla Indians 21 Paula Treat 22 Pechanga Band of Luiseno Indians 23 Margaret Rosenfeld 24 Morongo Band, Soboba Band, Bear River Band of 25 Rohnerville Rancheria 26 ---oOo--- 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 JUNE 20, 2017 4 ---oOo--- 5 MS. HARKEY: Okay. Ms. Richmond, please 6 introduce our next item. 7 MS. RICHMOND: Our next item is the Business 8 Taxes Committee. Ms. Harkey is the Chair of that 9 committee. 10 Ms. Harkey. 11 MS. HARKEY: Thank you. 12 MS. RICHMOND: And we do have several 13 speakers for this. 14 MS. HARKEY: Okay. Thank you. 15 Members, Business Taxes Committee is hereby 16 called to order. Let's let everybody get up to 17 the -- thank you. 18 Ms. Gonzalez, Mr. Heller, please introduce 19 your item and yourselves. 20 MS. GONZALEZ: Good morning, I'm 21 Trista Gonzalez with the Business Tax and Fee 22 Department. With me is Mr. Bradley Heller from our 23 Legal Department. 24 We have one agenda item for your 25 consideration today. Staff requests your approval 26 and authorization to publish proposed amendments to 27 Sales and Use Tax Regulation 1616, Federal Areas. 28 We have two action items, one concurred 3 1 item, and one which has alternate recommendations. 2 Action Item One, which represents those 3 areas agreeed upon by staff and interested parties, 4 clarifies that federal law preempts the imposition of 5 California's sales and use tax on the sales and 6 purchases of meals, food, and beverages by and from a 7 non-Indian retailer, provided that the non-Indian 8 retailer's business is an eating or drinking 9 establishment -- excuse me -- such as a restaurant or 10 bar, the non-Indian retailer's business is operated 11 on an Indian reservation under a federally authorized 12 lease or sublease, a tribal tax is imposed on the 13 sales and purchases of meals, food, and beverages, 14 and the meals, food, and beverages are sold or 15 purchased for consumption within the boundaries of 16 the Indian reservation. 17 In addition, the proposed amendments also 18 clarify the definition of reservation, and clarify 19 that use tax does not apply to meals, food, and 20 beverages purchased from an on-reservation Indian 21 retailer for consumption on the Indian reservation. 22 In Action Item 2 we ask that the Board 23 approve and authorize for publication one of the 24 following alternatives; staff's recommendation, which 25 is noted in the Issue Paper as Alternative 2, 26 establishes a rebuttable presumption that meals, 27 food, and beverages sold or purchased on a 28 reservation in a form suitable for immediate 4 1 consumption are sold or purchased for consumption on 2 the reservation. 3 This presumption is also found in 4 Alternative 1. However, staff's recommendation also 5 includes a sentence stating, "Meals, food, and 6 beverages sold or purchased from a drive-thru window, 7 or delivered off of a reservation, are presumed to be 8 sold or purchased for consumption off an Indian 9 reservation." 10 Staff added this provision following the 11 last "interested parties meeting" as staff realized 12 the Alternative 1 language, without this additional 13 statement, may put retailers at a disadvantage. 14 Unfortunately, we were unable to hold 15 another "interested parties meeting" before today to 16 discuss the addition; however, staff believes the 17 statement mitigates the possibility of additional 18 sales and use tax owed in the event of an audit 19 if -- and is therefore in the best interest of the 20 retailer. 21 Without the additional statement, we may 22 inadvertently be encouraging non-Indian retailers to 23 not collect tax on those sales, nor keep appropriate 24 records supporting the exempt sales. 25 If an audit determines those meals were sold 26 for consumption off the reservation, the retailer may 27 be responsible for tax, which was not collected from 28 their customers. 5 1 Or you may approve Alternative 1, which 2 establishes the same rebuttable presumption as 3 staff's recommendation, but without the statement 4 referencing meals, food, and beverages sold or 5 purchased through a drive-thru window or delivered 6 off a reservation. 7 We do have speakers on this agenda item, and 8 would be happy to answer any questions you may have 9 following their presentations. 10 MS. HARKEY: Thank you. 11 Okay. We do have public speakers. Let me 12 see, Barry Brokaw and Ms. Treat, Paula Treat, and 13 Margaret Rosenfeld. 14 Thank you very much. 15 Mr. Brokaw, would you please introduce 16 yourself and -- for the record. 17 MR. BROKAW: Yes, Madam Chair and Members. 18 Barry Brokaw on behalf of the Agua Caliente Band of 19 Cahuilla Indians in Palm Springs, Rancho Mirage, and 20 Cathedral City. 21 It's a pleasure to be here. It's a pleasure 22 to see some of you again, and in this venue. 23 I am here on behalf of Agua Caliente to say 24 that we are agreeable to Alternative 1. That was the 25 subject of considerable discussion and -- at the 26 June 13th meeting, and we support that effort. 27 We have just seen proposed Alternative 2, 28 and that gives us great concern. It's not been a 6 1 subject to any meetings, discussions of stakeholder 2 groups, and yet is before you. 3 So we support the -- the effort and 4 rulemaking to amend the Regulation 1616 so that it 5 does more accurately reflect federal and tribal 6 interest at stage. But we do strongly disagree with 7 Alternative 2. 8 As I said, this has not been presented and 9 discussed with stakeholders. And we note that in the 10 situations described in Alternative 2, the 11 value-added component -- which is very important -- 12 the value-added component occurs on the reservation 13 with the food preperation utilizing tribal resources, 14 unlike prepackaged food, which would be subject to a 15 state tax. 16 We also don't agree that food purchased 17 through a drive-thru should be presumed to be for 18 off-reservation consumption. We know that from 19 personal experience. 20 Again, Agua Caliente's reservation is 32,000 21 square acres. Many of our folks consume in the -- in 22 the cities, and they buy the food, and they consume 23 on reservation. So we don't think that's a 24 presumption that's appropriate nor accurate. 25 So for these reasons, we hope that you will 26 approve Alternative 1 that was thoroughly discussed 27 and vetted, and reject the proposed Alternative 2. 28 Thank you. 7 1 MS. TREAT: Madam Chair, Members of the 2 Board, Paula Treat on behalf of the Pechanga Band of 3 Luiseno Indians, the Colusa Indian Community. And 4 we've also brought with us the Tasan (phonetic) 5 letter from the Tasan Tribes. 6 Without repeating what Mr. Brokaw had to 7 say, we have major concerns with Alternative 2. 8 We -- we came to agreement after many, many meetings 9 on -- on the rebuttable presumption language within 10 1616 that was recommended, and we can accept 11 Alternative 1. And that's what we would hope that 12 this Board would pass. 13 Thank you. 14 MS. HARKEY: Thank you. 15 MS. ROSENFELD: Good morning, Madam Chair. 16 Margaret Rosenfeld from Forman & Associates on behalf 17 of Morongo Band, Soboba Band, Bear River Band of 18 Rohnerville Rancheria. 19 It becomes more challenging as the third 20 speaker to not repeat and support what the previous 21 speakers have said. 22 I think our clients were very pleased with 23 the responsiveness of staff during the interested 24 parties process. Their responsiveness to comment 25 letters, certainly our comment letters on behalf of 26 our clients, went into detail about the unworkability 27 of any kind of analysis of where people eat food they 28 buy at a drive-thru window. And so we moved it to 8 1 the territory of a rebuttable presumption that food 2 prepared and available for consumption on the 3 reservation is rebuttably presumed to be consumed 4 there. 5 The staff's concern about whether a retailer 6 might subsequently find themselves in an audit 7 position is obvious under a rebuttable presumption 8 also. They understand that we're an analysis or 9 sting operation to be undertaken to do some kind of 10 analysis about where food were actually consumed, 11 there might be a tax liability. And down the road, 12 that is an acceptable risk for our clients to work 13 with their non-Indian lessees to take. 14 But here, to flip that assumption is not 15 acceptable, inhibits economic development 16 uncertainty, inhibits economic development and makes 17 non-Indian lessees less amendable to the imposition 18 and collection of tribal tax. 19 That's all. Thank you. 20 MS. HARKEY: Thank you. 21 Member Ma. 22 MS. MA: Yeah. So I strongly support 23 Alternative 1 clearly because it's embedded. 24 Secondly, you know, a lot of these 25 reservations are far. They're not right, you know -- 26 you know, right there in the center of town, but they 27 are off the beaten path. And I think when you talk 28 about a drive-thru, how do you know these aren't 9 1 employees that are going to be working, you know, 2 going on shift at, you know -- at a casino, delivery. 3 I mean, it's -- it's, to me, a little bit nitpicky. 4 I understand, you know, the equity argument 5 for retailers. But these reservations, I've been to 6 many of them, they are kind of off the beaten path. 7 And I do agree that, you know, the assumption is that 8 they are prepared on the reservation by people, 9 sometimes maybe tribal members, who live on the 10 reservation. 11 You know, I do feel that we should do what 12 we can to, you know, support reservations and tribal 13 members. So I'm supporting Alternative 1. 14 MS. HARKEY: Member Runner. 15 MR. RUNNER: Yeah. Just a couple -- yeah, I 16 find myself kind of in that same position. But I've 17 got a question to staff. 18 And that is, what prohibited us from having 19 another meeting? 20 MS. GONZALEZ: Basically the timing of 21 trying to keep it on the agenda for today's 22 meeting. 23 MR. RUNNER: I guess -- 24 MS. HARKEY: Okay. Let -- 25 MR. RUNNER: I guess I'm a bit puzzled by 26 that in the fact that as a Board Member I'd just as 27 soon have -- make sure that something was fully 28 vetted before it comes before us, especially then 10 1 when we have people who thought they bought into 2 something and then it changed. I guess I would much 3 rather be delayed a month to make sure everybody was 4 on the same page. 5 MS. HARKEY: Well, let me just -- 6 MR. RUNNER: So let me just -- 7 MS. HARKEY: Let me just respond -- 8 MR. RUNNER: So -- and that's a concern for 9 where I'm -- that I'm at that way. 10 So, again, I would have wished at that point 11 once the staff had discovered that it came up with 12 some other issues that needed to be dealt with, that 13 it had, I think, the courtesy to include then another 14 follow-up meeting in order to hear -- again, the 15 whole purpose of interested parties is to discuss the 16 implications of that. What does it -- how does that 17 effect those businesses? Because we're not experts 18 at that. But we need -- these other folks are. So 19 that's why we would say, "Hey, we thought about 20 something. We'd like to hear what you think about 21 this now." 22 So I guess I'm disappointed that we didn't 23 at least follow through and have something fully 24 vetted before we come to us. 25 MS. HARKEY: Okay. No, I -- I wish to 26 comment right here. I want to break down this -- 27 this fog. 28 Okay. We had the language, was prepared by 11 1 staff, went through several "interested parties" 2 meetings. The tribes got together for over a year, 3 took them a year to reach agreement on this language. 4 There were a variety of reasons, there were a variety 5 of tribes up and down the state. They all coalesce 6 around one language, and it was not an easy process. 7 We got informed two days before the PAN was 8 due that staff wanted to pull the item because they 9 had a change in language that they wanted to insert. 10 So we got together with Mr. Gau, as we should, and 11 that's why there are two items on the agenda. So 12 they're both here for vetting. 13 But we -- we could have extended it, but I 14 think it would have reopened a can of worms that took 15 a year to resolve. And I think -- 16 Would you mind speaking to that, either of 17 you? 18 MS. ROSENFELD: I think that the tribes 19 would just like this to be resolved today and be done 20 with it 21 MS. HARKEY: Yeah. This has been a two-year 22 process. This has not been easy. This has been -- 23 been through many, many hearings and many interested 24 parties meetings. If -- and staff did prepare the 25 first language. If staff had a problem sometime 26 within that year, I would have thought they would 27 have brought it forward. 28 Yes, Ms. Stowers. 12 1 MS. STOWERS: Yes, I just wanted to say I'm 2 also supportive of Alternative 1. This is the 3 language that was fully vetted with all the tribes 4 and everyone came to an agreement. 5 I'm also concerned that Alternative 2 does 6 add a burden. I have a hard time with this one to 7 say just because it's a drive-thru, it's not going to 8 be consumed on a reservation. The example that 9 Member Ma is perfect that they could be going to 10 work. 11 Also for some of the reservations that -- 12 gentlemen here, they are on and off the reservation 13 just by crossing the street. So they could be 14 driving -- going to the drive-thru to pick up the 15 food, but going to the reservation or going to the 16 hotel to stay but decided to use a drive-thru. 17 And I'm also concerned that -- what's the 18 difference between a drive-thru and an item to go? 19 Who's to say that's not going to be used on a 20 reservation? 21 So I'm -- I think Alternative 1 is the best 22 language at this time, and we're very supportive of 23 it. 24 MS. HARKEY: Thank you. 25 Yes. 26 MR. HORTON: Thank you, Madam Chair. 27 Members, you know, I -- there's existing 28 history as it relates to this, not even on the 13 1 reservation. I mean, the Board of Equalization has 2 dealt with this issue when it comes down to 3 restaurants that are operating within a mall. And so 4 a restaurant that's operating in a mall as to whether 5 or not the food is consumed at the site, when, in 6 fact, they can eat it anywhere in the mall. 7 So the logic of -- the legal logic behind it 8 is consistent with the arguments that have been put 9 forth by -- by the tribal alliance. 10 So, I mean, I'm very -- I'm supportive of 11 Alternative 1, and question sort of why we went to 12 this drive-thru window concept when our -- the 13 Board -- the agency's general practice has been when 14 it's relation to a mall is to take into consideration 15 the product purchased that may go outside of the area 16 where it's purchased, let's say. And then there are 17 tables, there are places where that food can be 18 consumed that is considered exempt. 19 MS. HARKEY: Okay. 20 MR. RUNNER: I would move -- make a motion 21 to adopt staff recommendation. 22 MR. HORTON: No, I'm -- I'm -- that was -- 23 that was really a question. 24 MR. RUNNER: Oh. 25 MR. HORTON: I mean, it was a long question, 26 but -- 27 MS. HARKEY: Reformulate your question, 28 please, Mr. Horton. 14 1 MR. HORTON: Um, understanding -- 2 understanding that -- that -- that food so can 3 actually be consumed within the area -- a particular 4 area that's owned and utilized, can be consumed 5 within that area, in this case the reservation, in 6 the case of traditional operations, the mall, why 7 didn't we apply the same concept? 8 MR. HELLER: Well -- well, I think -- this 9 is Bradley Heller from the Board's Legal Department. 10 And, um -- and, Mr. Horton, I think, first 11 of all, it's not the same legal issue that we're 12 dealing with. But essentially to the extent that we 13 were dealing with, like, a restaurant inside of a 14 mall on an Indian reservation, I think the way that 15 staff's been looking at this is we would treat that 16 as presumed to be sold for consumption on the Indian 17 reservation. 18 And initially when we were looking at this, 19 we were actually looking at just restaurants that -- 20 or restaurants and bars that were operated within a 21 casino where the food would be eaten within the 22 casino. 23 So we were never originally started out with 24 this idea of -- of regularly -- or addressing the 25 issue with regard to all potential restaurants and 26 bars on Indian reservations. And we did, initially, 27 take an approach, I think, that's somewhat similar to 28 what you're thinking. Which is, you know, when you 15 1 sell meals within, like, a mall, it's probably for 2 consumption somewhere in the mall. It may not be 3 necessarily right at that retailers -- 4 MR. HORTON: Or somewhere on the 5 reservation. 6 MR. HELLER: -- silly. 7 MR. HORTON: I mean, this is -- 8 MR. HELLER: Absolutely. 9 And then I think, though, at sometime we 10 expanded it to discuss, you know, to broaden -- well, 11 I shouldn't say we broadened the amendments, but to 12 address the fact that federal preemption is broader 13 than preemption just within an Indian casino. And 14 that created the scenario, though, of restaurants 15 that wouldn't necessarily just have customers that 16 are within a facility that itself is inside a 17 reservation, But that could have customers who are 18 coming onto the reservation solely to visit the 19 restaurant and then leave. 20 And basically I think staff, for the most 21 part, is still pretty comfortable with the situation 22 where customers are truly coming into the restaurant. 23 We think that still kind of falls into the thinking 24 that you're having, which is if they've got out of 25 car, they've come into the restaurant. 26 We all know that some people who even order 27 something to go will still sit down right in front 28 and just eat the food there or eat it in their car in 16 1 the parking lot. So we really tried to not -- to not 2 interfere with that kind of relationship. 3 But when people are -- we have concerns that 4 when a restaurant is located essentially right next 5 to a public street, that consumers are non-Indians 6 and they're in their car buying a meal, and, you 7 know, many of them we understand can take it home. 8 We're really concerned that down the road that 9 retailer, if they're not collecting tax, and they're 10 being pressured to treat that as an exempt sale. And 11 I'm not sure the comments that we're receiving today 12 seem to indicate to me that people are even concerned 13 about the delivery language, which I really wonder 14 about. 15 MR. HORTON: But given the -- given the 16 presumption that there is a rebuttable presumption, 17 it seems to me that the exception should not be the 18 rule. That what you've described is an exception 19 where the restaurant may be in proximity to a public 20 street or public locations, and individuals who live 21 around the reservation may go and then drive off the 22 facility. 23 But typically when they purchase food 24 to-go -- I mean, when I go through a drive-thru for 25 food, as soon as I drive off, I'm opening it up. 26 MS. HARKEY: How many fries do you consume? 27 MR. HORTON: Yeah. I'm consuming. 28 So it seems to me that Alternative 2 sort of 17 1 puts the ownness on the retailer. 2 Now to defend an exception to the rule, 3 which also goes contrary to the philosophy used in 4 establishing our regulations. But enough said, I 5 guess. I'm with -- 6 MS. HARKEY: I just -- I just want to 7 reiterate -- 8 MR. HORTON: -- this is a motion. 9 MS. HARKEY: -- this has been a two-year 10 process. There will not be another BTC Committee. 11 We are going away. And I thought it was really 12 important to get this into the public. And I think 13 the last-minute change offended me. I thought we had 14 this all clear after a year of language being put out 15 by staff. That we, you know, it was out there. 16 So I just thank this Board for whatever 17 consideration. 18 MR. RUNNER: So make a motion, move to adopt 19 staff recommendation -- I'm sorry -- staff 20 recommendation on Action 1 and adopt Alternative 1 21 for Action 2. 22 MR. HORTON: Second. 23 MS. HARKEY: Okay. There's a motion and a 24 second. Such will be the order. I don't see an 25 objection. 26 Thank you very much, and thank you for 27 attending our Business Taxes Committee. Our final -- 28 our grand finale. 18 1 Thank you. 2 3 ---oOo--- 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 19 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 on June 20, 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 20 14 constitute a complete and accurate transcription of 15 the shorthand writing. 16 17 Dated: August 15, 2017 18 19 20 ____________________________ 21 JILLIAN SUMNER, CSR #13619 22 Hearing Reporter 23 24 25 26 27 28 20