WIXLIB

1pay a percentage, there are certain requirements,2including a minimum of five stores and assigning them a3certificate.4I don't know why in 2011 we weren't told that.5If it was a law then, and we're meeting with the head of6the entire Board of Equalization, I don't understand why7we're not being told or given these avenues; or told you8don't have five locations, you can't do this.9being told and complying directly from the advice of -- of1011We werepeople who we're trying to comply with.I don't understand why the statute says you have12to have five or more stores.I don't understand what the13difference is between whether having 5 stores, 4 stores, 214stores, 1 store, 30 stores, whether or not that would15justify you being allowed to pay a percentage and not have16to constantly harass --17We have 80 percent return sales to our store.18And everybody -- we ask the same person every day, for19here or to go?20Every day they come in.It doesn't make sense to me, and21-- but that's the law.And we're complying because that's22all we ever tried to do, and that's all we were trying to23do in -- during this period in question.2425For here or to go?For here or to go?We've -- there's nothing we could have done thatwould have been anything different.There's no way weSTATE OF CALIFORNIA OFFICE OF TAX APPEALS13

1could have taken any other avenue.2compliance.We did everything we could to be in3compliance.So I'm not really sure what else we could4have done.5We thought we were inWe to this day, now that we're apparently in6compliance, still have nothing in writing saying we're in7compliance to today.8that I'll be right back in front of you gentlemen again --9hopefully I won't be -- and doing the same thing, andSo five years from now I don't know10they're telling me I don't have anything in writing.11have nothing in writing telling me I'm in compliance as of12this moment.13A final note.14a scope evaluation not an audit.15scope evaluation just recently, completely different.16Completely different.17through our stuff.18said, yes, you're in compliance.19They gave us a card.20that happened in 2011.21IWe were told that in 2007 this wasWe received the secondIt had a checklist.They wentThey saw what we were doing.TheyThey signed off on us.We have a contact person.None ofThe only thing that happened in 2011 was they22looked over our stuff and took the money directly.We23woke up the next morning, and our bank account was empty.24It was -- it was taken out.25we were fighting and trying to figure out -- tried to getAnd then from that moment on,STATE OF CALIFORNIA OFFICE OF TAX APPEALS14

1the money back, which we never did.2the fine.3We ended up payingBut we met with the head of the board, and once,4again, I keep saying this.5have done differently.6conducted differently, business.7it's not like we weren't trying to do the right thing8here.9sand and not trying to understand what the laws were.10I don't know what we couldI don't know how we could haveWe don't know what we --It was not like we were sticking our head in theWe went to the head of the department and got the11advice directly from them.12that tells that I didn't do anything right, is I didn't13get it in writing.14when I'm dealing with a government agency, that when I'm15getting the advice from them, it is the law.16understand, or I didn't realize that I would have to have17in writing from a government agency informing me how to18conform to their laws -- that agency's laws.19And the only thing in hereAnd I have a certain expectation thatAnd I didn'tI'd have to have it in writing as if it was20something that's -- we didn't even realize that we were21being treated special or trying for a special situation.22We thought we were just complying with the law as it was.23MRS. HARTMAN:And can I add one more thing?24It's because he's an elected official.I mean, we assume25that this was public record because he was elected.STATE OF CALIFORNIA OFFICE OF TAX APPEALSAnd15

1so even with a meeting, I would think that when they were2saying, well, how we -- we were asked by our auditor.3Well, how do we know that you met with him?4I'm, like, why would I make up meeting with5somebody who is the head of the Board of Equalization, who6was elected with a staff, and we have, you know, Betty Jo7Taccoli who was the head of the California Small Business8Association.9this up?10They were all there.And I said -- I told her.So why would we makeI said it's got to be11a part of his record, but we -- we can't -- we don't have12the ability, and we don't have attorneys.13we don't have the money to do it to go -- what?14going to subpoena a record -- an elected official's15record, you know.16contention.17And, you know,We'reWe just -- so that's our -- ourAnd the thing is that we feel with this whole18thing is, we acted in good faith this whole time.19felt, seriously, when we were with Jerome Horton, he was20pretty amazing.21We came together, and it felt like we're doing the right22thing.23And weI felt like they acted in good faith too.And so I think where we're coming from is there24is nothing that we didn't feel that we were doing that25wasn't right.And -- and so any ways --STATE OF CALIFORNIA OFFICE OF TAX APPEALS16

1MR. HARTMAN:And a final note is this -- sheer2numbers.3page 46 of the evidence that was turned in, just look at4our net income and look at the money we -- that we've5collected.6we can afford.7for us.89If you look at the fine, and if you look onThis fine is exorbitant.It's beyond anythingIt's going to be a crusher, financially,I mean, all you got to do is look at the numbers.We're a small business.We -- we get along.We get by.10We work hard.We're both full-time employees in this11business, including our son.12we're not getting rich.13on the State.14every way, shape, and form for the 32 years that we've15been in business.We love what we do, butAnd we're not trying to get overWe never should have -- we've complied in16Thank you.17MRS. HARTMAN:18ADMINISTRATIVE LAW JUDGE KWEE:19At this point, I'd like to ask if CDTFA has anyThank you.20questions for the witnesses?21MS. PALEY:22ADMINISTRATIVE LAW JUDGE KWEE:No.23one question.24It's fading in and out.25Sorry.MR. HARTMAN:Okay.Thank you.Thank you.Okay.I did haveThis doesn't seem to be working.I can hear you fine.STATE OF CALIFORNIA OFFICE OF TAX APPEALS17

1ADMINISTRATIVE LAW JUDGE KWEE:Okay.So I did2have one question.So when you were reporting the flat3percentage, the 3 percent, were you collecting sales tax4from the customers or are you not --5MR. HARTMAN:6MRS. HARTMAN:7MR. HARTMAN:89101112No.No.It was --It was -- it was incorporated inthe price.ADMINISTRATIVE LAW JUDGE KWEE:MR. HARTMAN:Okay.So they were being taxed foreverything.MRS. HARTMAN:Or kind of -- not really taxed for13everything, but it was just like -- it was a percentage of14the price.15Starbucks does it as far as --16MR. HARTMAN:17This wasn't our idea.18The way we -- they were -- explained thatWe didn't come up with this plan.This was the advice given to us.ADMINISTRATIVE LAW JUDGE KWEE:Okay.But did19you disclose anything to the customers that tax was20included in the selling price, or it was just something21that you calculated when you --22MR. HARTMAN:232425If people -- if people asked us, wewould tell them that's how we calculated sales tax.MRS. HARTMAN:someone that ask.Yeah.Once in a while you haveAnd then -- and another thing is whenSTATE OF CALIFORNIA OFFICE OF TAX APPEALS18

1we came up with -- even the percentage is going through2that original audit back -- was it 2010 or 2011?3when we met Jerome Horton, actually, right before the4previous year.5they audit us, and so we said we had to go back and find6out what the percentage would be at, like, at -- with7Starbucks.8standard.2011 isIt was kind of -- we met with this -- whenThey said it was standard for the -- industry9MR. HARTMAN:Industry standard.10MRS. HARTMAN:So we went back.And then she11said for us to come up -- I kid you not -- for us to come12up with -- what do you think the percentage is?13said, well, 2 percent.14that would be sitting down, you know, and she said -- she15said no.16said that's too high.17we throughout numbers.18sounds good.19So II mean, 2 percent of our clienteleThat's too low.So we said 5 percent, and sheAnd we said 3 -- uh, 3.05?I mean,I'm like 3 point -- she said thatAnd that's how they came up with it.So -- and it wasn't in writing.It was just20this -- it was so weird, but we just -- not -- and I think21what we felt along the way -- and I feel like this tax22organization has changed.23years.24e-mail saying there's a class, like, in Glendale to help25you with taxes.We've been doing this for 32The way it is now, like, every month now I get anSTATE OF CALIFORNIA OFFICE OF TAX APPEALS19

1There's a lot -- there's a lot more opportunity2to get information now, and it seems like it's going in3the right direction.4doing it, it was just this very arbitrary number and we --5we -- even with the percentage, we didn't -- there was6nothing in writing.7But for all these years we've beenSo we just had to take people's word for it, but8it -- and it was just -- I mean, we couldn't force to have9anybody write us some -- anything, you know.And so it10was just that's how it went, if that makes sense.11ADMINISTRATIVE LAW JUDGE KWEE:12Does anyone on the panel have questions before I13ADMINISTRATIVE LAW JUDGE GEARY:15ADMINISTRATIVE LAW JUDGE KWEE:17Thank you.move on to CDTFA's presentation?1416Okay.No questions.Okay.So at thispoint, CDTFA may proceed with their opening presentation.MS. PALEY:Thank you.181920OPENING STATEMENTMS. PALEY:Appellant, a California corporation,21has operated a coffee and gift shop located in Burbank,22California, since July of 2001.23using a blanket 3 percent taxable ratio of its sales to24report its gross receipts.25Appellant acknowledgesThe reporting method used did not taken intoSTATE OF CALIFORNIA OFFICE OF TAX APPEALS20

1considering the proper application of tax with the respect2to different types of food items sold.3tax to the sale of food turns on the nature of the4transaction.5cold, for consumption on the premises or on the to go6basis.7The application ofFor example, whether food was sold hot orTo determine an accurate taxable ration for food8sales, the Department examined the daily sales records9accounting of dine-in sales and to go sales for the period10of April 1st, 2016, through May 20th, 2016, 49 days,11resulting in a taxable ratio of 15.43 percent.12also, was an observation test conducted on Friday,13May 20th, 2016, which yielded a 28.87 ratio.14ThereThe Department used the 15.43 percent ratio,15which it applied to Appellant's reported total sales of16nearly 2.5 million for the audit period and determined17audited taxable sales of just over 379,000.18found a deficiency measure of about 287,000 for19unreported taxable sales, resulting in the notice of20determination for approximately 25,000 in tax, plus21interest due.22The auditAudit methodology and deficiency measure is not23in dispute.Instead, Appellant contends they should be24relieved of liability because they relied on alleged oral25advice given on February 14th, 2011, by then BOE boardSTATE OF CALIFORNIA OFFICE OF TAX APPEALS21

1member, Horton and his staff, to use the 3 percent figure.2They also claim hardship if required to pay the deficiency3because they did not collect tax reimbursement.4California imposes sales tax on a retailer for5its retailed sales of tangible personal property measured6by gross receipts, unless the sale is specifically exempt7or excluded from taxation by statute.8provides specified instances for relief of taxes or9interest for erroneous written advice.10Section 6596There's no lawful basis, however, for relieving11tax or interest due to oral advice reportedly made by the12agency or board staff.13equitable relief in this case for hardship.14law and evidence, this appeal should be denied.Likewise, the law does not provide15Thank you.16ADMINISTRATIVE LAW JUDGE KWEE:17Based on theDid either memberof the panel have any questions at this point?18ADMINISTRATIVE LAW JUDGE GEARY:19ADMINISTRATIVE LAW JUDGE TAY:No.I have a couple of20questions.21of, a blanket percentage to figure out their taxable22sales.23as industry standard.24methodology for taxpayer in this industry?25The Appellant mentioned that they used, kindThey mentioned that this was what they referred toMS. SILVA:Does the CDTFA accept thisThere is a provision in the auditSTATE OF CALIFORNIA OFFICE OF TAX APPEALS22

1manual for alternative reporting methods for taxable food2sales for certain retailers, but there's not a standard3for across the board for any retail seller of food.4ADMINISTRATIVE LAW JUDGE TAY:Yeah.I didn't5ask if there was a blanket standard.But is this one of6the methodologies that CDTFA accepts for taxpayer sin this7industry?8MS. SILVA:Meaning the 3 percent --9ADMINISTRATIVE LAW JUDGE TAY:10MS. SILVA:11ADMINISTRATIVE LAW JUDGE KWEE:12Has it ever been?-- or -Yeah, thepercent.13MS. SILVA:-- that are having -- there -- there14are retailers that are on alternative reporting methods,15where different percentages may be approved as a plan for16reporting.17question.18But I don't -- I'm not sure I understand yourADMINISTRATIVE LAW JUDGE TAY:I think that19answers the question.20does accept alternative methods similar to this one --21similar to the one that Appellants used here.22the -- what's the standard or the method for accepting23that kind of alternative methodology?2425MS. RENATI:In other words, there is -- CDTFAAnd what'sTaxpayer would have to apply for itand test a representative number of stores and test basedSTATE OF CALIFORNIA OFFICE OF TAX APPEALS23

1on type.2a mall or it was by a college campus or was off by itself,3you would have various tests performed during weekends,4days, nights; a representative period of time to make sure5you got a sample that was reasonable.6If your store was close to a -- say a -- withinThose results would then be analyzed by a member7of the Department, and then that would be approved, and8then for a period of time.9they need to do further testing keep using it past thatTaxpayer would then be told10time.If there was a disagreement, they would do more11testing between the two of them, the Department and the12taxpayer.13ADMINISTRATIVE LAW JUDGE TAY:14MR. HARTMAN:15Okay.Thank you.I apologize about the mic.I canhear everything you say.16MS. RENATI:17MS. SILVA:I have a lot of voice, yes.And Ms. Renati did mention locations.18These types of written agreements that we come to with19taxpayers require that you have more than one location,20multiple locations.21ADMINISTRATIVE LAW JUDGE TAY:22didn't mean to interrupt.23during the audit period?I'm sorry.IThis procedure was in place24MS. RENATI:Yes.25ADMINISTRATIVE LAW JUDGE TAY:Okay.Does theSTATE OF CALIFORNIA OFFICE OF TAX APPEALS24

1Department dispute the fact that this meeting with -- this2alleged meeting with Mr. Jerome Horton occurred?34567891011MS. PALEY:We have no information other than theinformation we were provided by the taxpayer.ADMINISTRATIVE LAW JUDGE TAY:Okay.So it isdisputed then?MS. PALEY:Well, we do not have Mr. Horton hereto indicate what he conveyed or his staff.MR. HARTMAN:Call him up.Bring him in.ADMINISTRATIVE LAW JUDGE TAY:Maybe a -- maybe aquestion for the Appellant on this?12MR. HARTMAN:13ADMINISTRATIVE LAW JUDGE TAY:14other Board of Equalization employees besides --151617MR. HARTMAN:entourage there.Sure.Absolutely.Were there anyHe had his entireIn fact, he had somebody taking notes.MRS. HARTMAN:John Pierce was there.And they18had somebody taking notes.19was John Pierce, Jerome Horton, and then Betty Jo Toccoli.20And she's still on the California Small Business21Association.22We didn't have the name.ItShe's still on their board.MR. HARTMAN:I don't have that much courage to23come up in front of you three gentlemen and tell you that24I had a meeting with Jerome Horton, the head of the Board25of Equalization, and flat out lie to you about it.STATE OF CALIFORNIA OFFICE OF TAX APPEALSI25

1don't have those kind of cajones (sic).2It's a little insulting right now.3I just don't.I mean, all we've ever done is try and do the4right thing, and it's a little insulting the5implication -- even the implication that we would be lying6about that.789ADMINISTRATIVE LAW JUDGE TAY:I appreciate yourhonesty.Question for the Department on a separate topic.10The Department raised notion of equity in their brief.11What's your position on whether or not this panel can take12into consideration notions of equity?13141516MS. PALEY:There's no provisions under the lawfor equity in this case, really.ADMINISTRATIVE LAW JUDGE KWEE:mind, I do have -- I'm sorry.If you don'tI don't --17ADMINISTRATIVE LAW JUDGE TAY:18ADMINISTRATIVE LAW JUDGE KWEE:Go ahead.Just on that19issue in 6593.5 Revenue and Taxation Code, it provides20discretionary authority to relieve all or part of the21interest imposed by a person under the sales and use tax22law, when the failure to pay taxes in whole or in part due23to an unreasonable error or delay by an employee of the24Board acting in his or her official capacity.25What is CDTFA's position on if this panel findsSTATE OF CALIFORNIA OFFICE OF TAX APPEALS26

1that meeting did occur and that advice was give, whether2or not we would have authority to relieve interest under3that basis?456MS. PALEY:But it would need to have beenwritten.ADMINISTRATIVE LAW JUDGE KWEE:76596 requires written advice.8written advice.9MS. SILVA:That's 6595.6593.5 did not requireBut -- that's true.And that is a10statutory ability for the panel to make that decision with11respect to relief and interest.12ADMINISTRATIVE LAW JUDGE KWEE:So CDTFA13doesn't -- so if this panel does find this meeting14occurred, CDTFA's position would be that we do have15statutory authority to relieve interest on that basis?16MS. PALEY:If we may have one moment, please.17ADMINISTRATIVE LAW JUDGE KWEE:18MS. SILVA:Okay.We do agree that there are provisions19in the statute for relief of interest if you find that a20Board employee made an error.21is -- that is a basis for relief.22ADMINISTRATIVE LAW JUDGE KWEE:23I'm sorry.24to cut you off.25So I mean, that's -- thatOkay.Did you have further questions?ADMINISTRATIVE LAW JUDGE TAY:No.Thank you.I didn't meanThat's okay.STATE OF CALIFORNIA OFFICE OF TAX APPEALS27

1I'm just going to follow up on that.2applies in this case?3MS. SILVA:Do you think thatI'm not sure from the evidence that4we know exactly what was said or not said.5that would be for the panel to make a decision as to what6employee may have made an error.7ADMINISTRATIVE LAW JUDGE TAY:But I guessOkay.Going back8to notions of equity.There is provision in the9California Code of Evidence about equity and, you know,10being able to bring

The documentary evidence marked for identification in this appeal includes Exhibits A through H for CDTFA, and no exhibits for the taxpayer. . sitting down with, you know, a plate and fork and a knife and all that. So that's what even added more to it. Like, it was confusing, and it was jus