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Public Meeting Minutes


December 16, 1998


The Franchise Tax Board met in open session at 1:30 p.m. at the State Board of Equalization, 450 N Street, Hearing Room 121, Sacramento, California. Present were Hon. Kathleen Connell and Hon. Dean Andal.

Franchise Tax Board
Staff Participating

Gerald Goldberg, Brian Toman, Richard Draffin, Johnnie Lou Rosas, Don Buxton, Mike Brownell, Benjamin Miller, Larry Counts and Megan Hall.


Others ParticipatingChris Abess representing Deloitte and Touche LLP, Alexander Ashford representing Chevron, Katrina Doerfler representing Cisco Systems, Chris Micheli representing Carpenter Snodgrass, Eric J. Miethke representing Nielsen, Merksamer, and Bonnie Morris, representing California State Employees Association.

Item 1. - Approval of Board Minutes

The minutes of the October 8, 1998 Board meeting were approved.

Item 2. - Legislative Matters

All legislative proposals were approved as presented with the exception of LP 99-18, which was approved with revised language. The Board moved that FTB sponsor and find authors for these legislative proposals.

Item 3. - Regulation Matters

  1. The Board approved the staff's recommended changes to proposed regulations 25128, 25128-1 and 25128-2 and authorized the staff to take the necessary steps to formally adopt the regulations in accordance with the Administrative Procedure Act.
  2. Mike Brownell, Tax Counsel IV, summarized the issues presented with the proposed regulation 25106.5, et. seq. Katrina Doerfler, Cisco Systems, Eric Miethke, Nielsen, Merksamer, Sandy Ashford, Chevron and Chris Micheli, Carpenter Snodgrass, made brief presentations regarding their objections and agreements to certain sections of the regulation.

    The Board voted that the regulation go forward only with respect to 25106.5-2, as well as 25106.5-3, -4, -5, -9, and -10, that part of the series that have currently been noticed, which are noncontroversial. Regulation 25106.5-2 is to be amended to specify that gains and losses, to the extent that gains equal or exceed the losses, are available for offset. The portion of it dealing with carryforward would be reserved. The department is to issue those regulations, including whatever changes are necessary to implement the Board's direction, under a 15-day regulation notice. At the same time, FTB staff will meet and confer with industry with respect to the methodology of a group carryforward regarding net capital and group credit utilization loss issues, and will present an alternative draft regulation at the second Franchise Tax Board meeting to be held in 1999.
  3. The Board motioned to delete items 23151, 24344(b), 24402, 24519 and 25120 from the 1999 Rulemaking Calendar. The Board approved all other items.
  4. Staff recommendation regarding Regulation Section 25106.5-1 (Intercompany Transactions), was moved to the second Franchise Tax Board meeting in 1999.

Item 4. - Staff Report on Controversies Involving the Substitution of "Net Gains" for "Gross Receipts" in the Sales Factor in Certain Circumstances

Report accepted by the Board without a follow-up.

Item 5. - Performance Audit Report

Chris Abess, Deloitte &Touche LLP, gave a brief presentation summarizing the Final Report of the Independent Performance Audit of the Franchise Tax Board. The presentation noted 33 specific recommendations of which six were presented as high-priority recommendations in the following areas: 1) Span of Control; 2) Filing staffing; 3) Non tax programs; 4) Technology staffing; 5) Customer service; and 6) Management vacancies. As presented, upon full implementation the recommendations would, among other things, represent an overall 15% reduction in the workforce at the Franchise Tax Board.

Mr. Goldberg, whose written response to the Final Report is attached, responded by noting that while he was pleased with the overall performance audit, he took strong exception to the technology staffing recommendation.

Further discussion of technology staffing by Mr. Abess, the Board members, and Bonnie Morris, representing CSEA membership, led to the Board adoption of a motion to approve 31 of the 33 specific findings of the Performance Audit without modification, to be implemented as set forth in the Final Report Action Plan. The two recommendations relating to filing staffing and technology staffing were modified, and adopted, to provide 1) that an additional reduction of 90 PY’s, in addition to the reduction of 60 vacant management positions, shall occur by no later than June 30, 2000, to be allocated in the discretion of the Executive Officer; and 2) a further reduction of 454 PY’s shall occur at the discretion of the Executive Officer by no later than the end of the budget year 2002/2003.

Additionally, the Board voted to modify currently outstanding BCP #10 to replace its 250 PY reduction proposal with the reductions approved by the foregoing action.

The Board further approved a motion directing Mr. Goldberg to convene a meeting of all FTB employee organizations to discuss the foregoing Board actions and to involve the organizations in the dissemination of information to the workforce at the Franchise Tax Board so as to deal positively with morale issues that might occur.

Item 6. – Administrative Matters

  1. Board consideration and action regarding budget matters.
    1. Status of BCPs and Baseline Budget. Pursuant to its actions under Item 5, Performance Audit Report, the Board directed staff to revise the Performance Audit BCP #10, to include the elimination of 151 positions in the budget year (1999/00). This action is in lieu of the Board's previous decision to eliminate a total of 309 positions from the FTB budget by June 30, 2000. The current year position reduction was not revised.
    2. Performance Audit Report-Other Budget Changes. No actions were made under this item.
    3. Performance Audit Contract-Performance/Payment. The Board approved the payment of $487,515.00 to Deloitte & Touche for completion of the Performance Audit.


  2. Board consideration and action regarding contracts.

The Board approved the two space action requests (Form 9) relating to Central Office configuration and the Stockton District Office.

  • Central Office: Expand Central Office security room to accommodate new equipment.
  • Stockton: Relocation of FTB staff within the Stockton State Building to create a more effective Taxpayer Service Center.

Item 7. - Tax Gap

The Board moved that this item be deferred to a later date.

Item 8. – Taxation of Medical Organizations

The Board moved that this item be deferred to a later date.

Item 9. – Procedures and Timeframes for Docketed Protest Cases

The Board acted to grant conceptual approval to staff recommendations set forth in the report.

Item 10 – Status Report on Support Staff Classification Study

No comments were made on this item.

Item 11. – Executive Officer's Annual Performance Evaluation Report

No comments were made on this item.

Item 12. – Executive Officer's Time

Mr. Goldberg had no items for discussion.

Item 13. – Board Member's Time

The Board Members approved all Employee Recognition Resolutions. (Joan Hyatt Cation, Sherry A. Chill, Donald T. Hareid Jr., C. Annette Jackson, Suzanne M. Jones, Veltessia M Lewis, Gary L. Peterson, VerJoyce Salmon, Carolyn E. Bonner.)

Item 14. - Closed Session Announcement

Chair Connell announced the agenda for the Closed Session, pursuant to Government Code 11126.3.

The meeting was adjourned at approximately 5:00 p.m.

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