A cautionary tale for small minority business owners

In a criminal case filed at the Antelope Valley Superior Court, it appears the State Board of Equalization is veering away from its own Sales and Use Tax Regulations and Investigations Division Policy and Procedures Manual when it comes to prosecuting an alleged case of sales tax evasion against a corporation.

The criminal case pending against individual business owners Nicola Giannini and Sharon Giannini is proceeding at the Antelope Valley Courthouse—the court serving the communities of Palmdale and Lancaster known as the Antelope Valley in Los Angeles County. According to the 2007 United States Census, there are 59,680 black-owned businesses in this area.

In 2011, both the City of Palmdale and the City of Lancaster were sued by the Public Counsel Law Center and the Neighborhood Legal Services of Los Angeles County for alleged discrimination against African-American families living in Section 8 housing.

In order to gain compliance with the law from Palmdale and Lancaster, the criminal enforcement division of the Housing and Urban Development Department became involved and in 2015, the United States Justice Department found “Los Angeles County housing officials and sheriff’s deputies joined with two cities to drive black residents out of Antelope Valley.” The Los Angeles County Housing Authority agreed to pay $2 million to victims of its actions.

Therefore, the action taken by BOE against the Giannini’s as individuals, who currently own and operate Giannini’s Bistro and Grill on a sought-after retail location on Lancaster Boulevard, should cause any African-American business located in the Antelope Valley grave concern.

According to BOE Sales and Use Tax Regulations, Article 18, Regulation 1702.5, BOE is to investigate and determine the responsible person with liability, which is the person “having control or supervision of, or who is charged with the responsibility for, the filing of returns or the payment of tax or who has a duty to act for the corporation” had “actual knowledge” had “ability to pay” and “authority to pay” and “willfully fails to pay or cause to be paid” the sales tax.

The only exception to the BOE procedure is when a corporation has been suspended by the California Secretary of State.

After the responsible person has been determined, BOE is to issue a Notice of Determination stating that an individual or individuals have personal liability.

In reviewing 1,697 pages of records released by BOE to the Giannini’s attorney, there was no Notice of Determination found.  The filing of a felony criminal complaint against two individual corporate officers of Purple Cow Hospitality, Inc., Nicola Giannini and Sharon Giannini, without having a Notice of Determination, appears to be a deviation from the State Board of Equalization’s own regulations.

According to the Statement of Information filed by Purple Cow Hospitality, Inc., Nicola Donato Giannini is the secretary of the corporation and Sharon Rae Hamilton Giannini is the chief executive and chief financial officer and a director.

The only exception to the BOE procedure is when a corporation has been suspended by the California Secretary of State. According to the State Board of Equalization’s Sales and Use Tax Regulations obtained by The Black Voice News, the individual who is a corporate officer “shall be personally liable (sic) for any unpaid sales or use tax liability” when the corporation is suspended.  However, records from the California Secretary of State indicate that is not the case here.

Statements made at a preliminary hearing held on May 24, illustrated the point when Attorney Steve Fox, representing the Giannini’s, questioned the district attorney about the corporate ownership of the business, the district attorney claimed it had been determined Nicola Giannini and Sharon Giannini were the owners of the business, controlled the business and Sharon Giannini had filed the report of sales and use tax for the third and fourth quarter of 2009 as well as its report of sales and use tax for 2010 through 2012.

“When there is an alleged violation of the law regarding filing and payment of sales and use tax by a corporation, you prosecute the corporation not the individual.  I find it interesting here BOE went directly after the individual not the corporation.”

Additionally, Fox questioned monies that were allegedly held in the BOE’s possession on behalf of Purple Cow Hospitality, Inc. $26,000, $25,098 accumulated through payments made to BOE during the period of 2006-2016 according to BOE records, $16,000 paid on August 16, 2013 and a $50,000 surety bond with BOE named as its beneficiary dated July 22, 2013 and “continuous.”

When the district attorney questioned BOE Agent Arturo Nevarez, Nevarez claimed Purple Cow Hospitality owed $46,199 for 2010, $68,256 for 2011 and $49,930 for 2012 with BOE not receiving any payments for those years while claiming without evidentiary basis that Giannini’s $50,000 surety bond was an “illegal bond.”

In response to questions by the district attorney, Nevarez alleged Sharon Giannini filed several sales and use tax reports indicating zero income with zero sales and use tax due.

When Giannini’s attorney raised the issue of the unapplied funds held by BOE totaling $117,098 with Nevarez, Nevarez responded, “The payment history is irrelevant to filing a false tax return (sic) attempts to pay back the liability does not absolve the client of guilt.”

Judge David Hizami explained while the issues involved were outside the norm he found sufficient evidence at the preliminary hearing for the criminal case to proceed to trial explaining there is a low bar when determining sufficient evidence.

In an interview with The Black Voice News, Attorney Steve Fox explained, “When there is an alleged violation of the law regarding filing and payment of sales and use tax by a corporation, you prosecute the corporation not the individual.  I find it interesting here BOE went directly after the individual not the corporation.”

Fox told The Black Voice News that he will need to “educate the court and jury that the district attorney has violated the corporate veil.”

In response to questions from The Black Voice News about prosecution of corporate officers, BOE Information Officer I Paul Cambra explained, “In general, criminal prosecution for tax evasion is directed at the person or people within the corporation responsible for the criminal acts.”

“A Notice of Determination for tax owed is sent to businesses and/or individuals at the conclusion of the investigation,” Cambra shared explaining, “BOE investigators gather the available evidence and present it to prosecutors, the prosecutors then ultimately decide who to charge.”

“The investigation and prosecution are the processes for identifying the responsible person or people,” Cambra explained clarifying, “The law states that any person who files or assists another person who files a false tax return or knowingly fails to file a tax return is guilty of criminal tax evasion.”

The Black Voice News will continue to follow this story.

Feature photo: Giannini Bistro & Grill

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