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Full title: Adversary case 8:21-ap-01034. Complaint by Freedom Communications Inc., Freedom Communications, Inc. against California Department of Tax and Fee Administration. ($350.00 Fee Charge To Estate). COMPLAINT TO 1) DETERMINE AMOUNT OF TAXES OWED TO CALIFORNIA DEPARTMENT OF TAX AND FEE ADMINISTRATION (CDTFA) UNDER BANKRUPTCY CODE §505(A)(1), AND 2) DETERMINE AMOUNTS OF REFUNDS OWED BY CDTFA PURSUANT TO BANKRUPTCY CODE §505(A)(2); OBJECTION TO PRE-PETITION CLAIMS AND ADMINISTRATIVE CLAIMS OF THE CDTFA (Attachments: # 1 Exhibit Exhibits 1-4) Nature of Suit: (14 (Recovery of money/property - other)) (Amitrano, Jonathan) (Entered: 06/17/2021)

Document posted on Jun 16, 2021 in the bankruptcy, 32 pages and 0 tables.

Bankrupt11 Summary (Automatically Generated)

In computing the total subscription revenue of Plaintiff FCI subject to taxation, the22 Defendant erred by subtracting transportation costs from gross subscription revenues before 23 allocating subscription revenue between revenue from digital sales and revenue from print sales.These proposed changes to Regulation 9 1590 completely contradict the position taken by Defendant in the present case on the key issue o10 whether transportation costs should be deducted from total gross revenue from sales of mixed 11 subscriptions, before that revenue is allocated between revenue from digital sales and revenue 12 from print sales, or instead should be subtracted from the portion of gross revenue from the sales 13 of mixed subscriptions that is allocated to print sales.In computing the total subscription revenue of Plaintiff FCHI subject to taxation, 2 the Defendant erred by subtracting transportation costs from gross subscription revenues before 3 allocating subscription revenue between revenue from digital sales and revenue from print sales.That the Court determine that Plaintiff FCI owes no additional sales taxes to 27 Defendant over and above the amounts of sales taxes previously paid by FCI to Defendant, as 1 reflected on Plaintiff FCI’s originally filed California sales tax returns for the relevant FCI audit 2 periods; 3 B. That the Court determine that Plaintiff FCI is entitled to refunds from Defendant 4 for all of the relevant FCI audit periods in amounts not to exceed the amounts set forth in the 5 Plaintiff FCI refund claims, plus statutory interest, plus all penalties relating to the taxes which ar6 determined to not be owed by Plaintiff FCI; 7 C. That the Court determine that Plaintiff FCHI owes no additional sales taxes to 8 Defendant over and above the amounts of sales taxes previously paid by FCHI to Defendant, as reflected on Plaintiff FCHI’s originally filed California sales tax returns for the relevant FCHI 9 audit periods;

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1 A Lavar Taylor – Bar No. 129512 Jonathan T. Amitrano – Bar No. 283389 2 LAW OFFICES OF A. LAVAR TAYLOR 3 Hutton Centre, Suite 500 3 Santa Ana, CA 92707 Telephone: (714) 546-0445 4 Facsimile: (714) 546-2604 5 Email: LTaylor@Taylorlaw.com Jamitrano@Taylorlaw.com 6 Alan J. Friedman - Bar No. 132580 7 Ryan D. O’Dea – Bar No. 273478 SHULMAN BASTIAN FRIEDMAN & BUI LLP 8 100 Spectrum Center Drive, Suite 600 9 Irvine, California 92618 Telephone: (949) 340-3400 10 Facsimile: (949) 340-3000 Email: AFriedman@shulmanbastian.com 11 General Insolvency Counsel for 12 Debtors and Debtors-in-Possession 13 UNITED STATES BANKRUPTCY COURT 14 CENTRAL DISTRICT OF CALIFORNIA 15 SANTA ANA DIVISION 16 In re Adversary No. 17 FREEDOM COMMUNICATIONS, INC., and Case No. 8:15-bk-15311-MW FREEDOM COMMUNICATIONS Chapter 11 18 HOLDINGS, INC., Delaware corporations, et al., (Jointly Administered With Case Nos. 19 8:15-bk-15312-MW; 8:15-bk-15313-MW; 8:15 bk-15315-MW; 8:15-bk-15316-MW; 8:15-bk- 20 FREEDOM COMMUNICATIONS, INC., et al. 15317-MW; 8:15-bk-15318-MW; 8:15-bk- DEBTORS AND DEBTORS-IN-POSSESSION 21 15319-MW; 8:15-bk-15320-MW; 8:15-bk- Plaintiff, 15321-MW; 8:15-bk-15322-MW; 8:15-bk- 22 15323-MW; 8:15-bk-15324-MW; 8:15-bk- vs. 15325-MW; 8:15-bk-15326-MW; 8:15-bk- 23 15327-MW; 8:15-bk-15328-MW; 8:15-bk- CALIFORNIA DEPARTMENT OF TAX AND 15329-MW; 8:15-bk-15330-MW; 8:15-bk- 24 FEE ADMINISTRATION (FKA 15332-MW; 8:15-bk-15337-MW; 8:15-bk- CALIFORNIA BOARD OF 25 EQUALIZATION), 15339-MW; 8:15-bk-15340-MW; 8:15-bk-15342-MW; 8:15-bk-15343-MW) 26 Defendant 27 Affects:

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1 All Debtors COMPLAINT TO 1) DETERMINE AMOUNT OF TAXES OWED TO 2 Freedom Communications, Inc., a Delaware CALIFORNIA DEPARTMENT OF TAX corporation, ONLY AND FEE ADMINISTRATION (“CDTFA”) 3 UNDER BANKRUPTCY CODE §505(A)(1), 4 Freedom Communications Holdings, Inc., a AND 2) DETERMINE AMOUNTS OF Delaware corporation, ONLY REFUNDS OWED BY CDTFA PURSUANT 5 TO BANKRUPTCY CODE §505(A)(2); Freedom Services, Inc., a Delaware OBJECTION TO PRE-PETITION CLAIM6 corporation, ONLY AND ADMINISTRATIVE CLAIMS OF TH CDTFA 7 2100 Freedom, Inc., a Delaware corporation, ONLY 8 OCR Community Publications, Inc., a 9 California corporation, ONLY 10 Daily Press, LLC, a California limited liability company, ONLY 11 Freedom California Mary Publishing, Inc., 12 a California corporation, ONLY 13 Freedom California Ville Publishing Company LP, a California limited partnership, 14 ONLY 15 Freedom Colorado Information, Inc., a Delaware corporation, ONLY 16 Freedom Interactive Newspapers, Inc., a 17 California corporation, ONLY 18 Freedom Interactive Newspapers of Texas, Inc., a Delaware corporation, ONLY 19 Freedom Newspaper Acquisitions, Inc., a 20 Delaware corporation, ONLY 21 Freedom Newspapers, a Texas general partnership, ONLY 22 Freedom Newspapers, Inc., a Delaware 23 corporation, ONLY 24 Freedom Newspapers of Southwestern Arizona, Inc., a California corporation, ONLY 25 OCR Information Marketing, Inc., a 26 California corporation, ONLY 27 Odessa American, a Texas general partnership, ONLY

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1 Orange County Register Communications, Inc., a California corporation, ONLY 2 3 Victor Valley Publishing Company, a California corporation, ONLY 4 Victorville Publishing Company, a 5 California limited partnership, ONLY 6 Freedom SPV II, LLC, a Delaware limited liability company, ONLY 7 Freedom SPV VI, LLC, a Delaware limited 8 liability company, ONLY 9 Freedom SPV I, LLC, a Delaware limited liability company, ONLY 10 Freedom SPV IV, LLC, a Delaware limited 11 liability company, ONLY 12 Freedom SPV V, LLC, a Delaware limited liability company, ONLY 13 14 15 Plaintiffs Freedom Communications, Inc., and Freedom Communications Holding, Inc., 16 Chapter 11 Debtors and Debtors-in-Possession, by their undersigned counsel of record, complain 17 and alleges as follow: 18 JURISDICTION, PARTIES AND VENUE 19 1. This is an action brought to recover refunds of sales tax which Plaintiffs Freedom 20 Communications, Inc. (“FCI”) and Freedom Communications Holding, Inc. (“FCHI”) contend ar21 owed by Defendant the California Department of Tax and Fee Administration ("CDTFA") to 22 Plaintiffs for both pre-petition calendar quarters and post-petition calendar quarters, and to 23 determine the amounts, if any, of the Defendant’s claims against Plaintiffs for sales taxes for both24 pre-petition calendar quarters and post-petition calendar quarters. For Plaintiff FCI, the relevant 25 calendar quarters are the 4th quarter of 2012 through the 1st quarter of 2016 (“relevant FCI audit 26 periods”). For FCHI, the relevant calendar quarters are the 4th quarter of 2013 (effective as of 11-23-2013) through the 1st quarter of 2016 (“relevant FCHI audit periods”). 27

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1 2. This Court has jurisdiction over this action pursuant to 11 U.S.C. §505(a), 28 2 U.S.C. § 157 and 28 U.S.C. § 1334. 3 3. Plaintiffs are both Delaware corporations, registered to do business in California. 4 Plaintiffs are two of the Debtors and Debtors-in-Possession in the consolidated bankruptcy case 5 No. 8:15-bk-15311-MW, a chapter 11 case pending in Orange County, in the Central District of 6 California. Plaintiffs filed voluntary chapter 11 bankruptcy petitions on November 1, 2015. 7 4. Defendant, whose statutory predecessor was the California Board of Equalization 8 (“BOE”), is the California agency responsible for administering the sales tax laws of the State of California. 9 5. Venue properly lies in this judicial district pursuant to 28 U.S.C. § 1409. 10 FACTUAL ALLEGATIONS 11 6. Plaintiff FCI, during all of the relevant FCI audit periods, was a publisher selling 12 newspapers and magazines in Southern California. Plaintiff FCI had a valid sellers permit from 13 the State of California during the relevant FCI audit periods. 14 7. Plaintiff FCI, with respect to all of the relevant FCI audit periods, filed California 15 sales tax returns with Defendant. These sales tax returns reflected the following amounts of sales 16 tax, all of which have been paid: 17 Quarter Amount of Tax Per Return 18 4th Q 2012 $473,004 19 1st Q 2013 $431,343 20 2nd Q 2013 $516,421 21 3rd Q 2013 $507,021 22 4th Q 2013 $581,281 23 1st Q 2014 $512,715 2nd Q 2014 $564,676 24 3rd Q 2014 $454,155 25 4th Q 2014 $525,985 26 1st Q 2015 $447,205 27 2nd Q 2015 $542,606

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1 3rd Q 2015 $482,024 2 4th Q 2015 $512,461 3 1st Q 2016 $160,969 4 The tax for the 1st quarter of 2016 is based on an amended return. To the extent that penalties and5 interest were owed on the above amounts because of late payment, all related penalties and intere6 have been paid in full. 7 8. After Plaintiff FCI’s California sales tax returns for the relevant FCI audit periods 8 were filed, Defendant began an audit of Plaintiff FCI. The audit by Defendant eventually coveredall of the relevant FCI audit periods. 9 9. In 2016 Plaintiff FCI filed amended sales tax returns seeking total refunds of 10 $5,565,316 for the period of October 1, 2012 through September 30, 2015, $473,806 for the perio11 of October 1, 2015 through December 31, 2015, and $99,443 for the period of January 1, 2016 12 through March 31, 2016. The refunds of taxes sought for each quarter were for the following 13 amounts: 14 Quarter Amount of Refund Claim 15 4th Q 2012 $403,851 16 1st Q 2013 $384,903 17 2nd Q 2013 $431,474 18 3rd Q 2013 $451,352 19 4th Q 2013 $528,607 20 1st Q 2014 $507,556 21 2nd Q 2014 $539,775 22 3rd Q 2014 $452,903 23 4th Q 2014 $488,190 1st Q 2015 $444,781 24 2nd Q 2015 $467,380 25 3rd Q 2015 $464,544 26 4th Q 2015 $473,806 27 1st Q 2016 $99,443

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1 10. Plaintiff FCHI, during the relevant FCHI audit periods, was a publisher selling 2 newspapers and magazines in Riverside and San Bernardino County. Plaintiff FCHI had a valid 3 sellers permit from the State of California during the relevant FCHI audit periods. 4 11. Plaintiff FCHI, with respect to all of the relevant FCHI audit periods, filed 5 California sales tax returns with Defendant. These sales tax returns reflected the following 6 amounts of sales tax, all of which have been paid: 7 Quarter Amount of Tax Per Return 8 4th Q 2013 $47,889 1st Q 2014 $109,422 9 2nd Q 2014 $115,951 10 3rd Q 2014 $138,107 11 4th Q 2014 $138,812 12 1st Q 2015 $137,915 13 2nd Q 2015 $161,851 14 3rd Q 2015 $156,085 15 4th Q 2015 $147,496 16 1st Q 2016 $77,696 17 To the extent that penalties and interest were owed on the above amounts because of late payment18 all related penalties and interest have been paid in full. 19 12. After Plaintiff FCHI’s California sales tax returns for the relevant FCHI audit 20 periods were filed, Defendant began an audit of Plaintiff FCHI. The audit by Defendant 21 eventually covered all of the relevant FCHI audit periods. 22 13. In 2016 Plaintiff FCHI filed amended sales tax returns seeking total refunds of 23 $984,136 for the period of November 21, 2013 through September 30, 2015, $147,398 for the period of October 1, 2015 through December 31, 2015, and $8,692 for the period of January 1, 24 2016 through March 31, 2016. The refund claimed for the 1st quarter of 2016 was based on an 25 original return. The refunds of taxes sought for each quarter were for the following amounts: 26 27

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1 Quarter Amount of Refund Claim 2 4th Q 2013 $47,889 3 1st Q 2014 $109,247 4 2nd Q 2014 $115,512 5 3rd Q 2014 $137,947 6 4th Q 2014 $133,051 7 1st Q 2015 $137,849 8 2nd Q 2015 $147,440 3rd Q 2015 $155,201 9 4th Q 2015 $147,398 10 1st Q 2016 $8,692 11 14. In February of 2020, the Defendant issued a Preliminary Audit Report for 12 Plaintiffs. For Plaintiff FCI, for the period of October 1, 2012 through September 30, 2015, the 13 Defendant proposed allowing a refund of $656,866.30, for the period of October 1, 2015 through 14 October 31, 2015, the Defendant proposed allowing a refund of $35,137.20, and for the period of 15 November 1, 2015 through March 31, 2016, the Defendant asserted a liability of $660,494.36. Fo16 Plaintiff FCHI, for the period of November 21, 2013 through September 30, 2015, the Defendant 17 proposed allowing a refund of $25,302.31, for the period of October 1, 2015 through October 31, 18 2015, the Defendant proposed allowing a refund of $2,475.39, and for the period of November 1, 19 2015 through March 31, 2016, the Defendant proposed a liability of $311,341.28, including 20 interest. No penalties were proposed by the Defendant for the periods for which the Defendant 21 asserted that additional taxes are owed by Plaintiffs FCI or FCHI. 22 15. On June 23, 2020, a telephone administrative hearing was held with the 23 Defendant’s Principal Auditor in Irvine, California, during which Plaintiffs challenged a number of the conclusions found in the Preliminary Audit Report. 24 16. Thereafter, on October 6, 2020, the Defendant issued its final audit results. These 25 audit results mirrored the February 2020 Preliminary Audit Reports issued to Plaintiffs, except 26 that the Defendant made two adjustments: (1) a net reduction in tax owed on sales to distributors 27

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1 of approximately $1,378; and (2) a net increase in the tax owed from the sale of assets totaling 2 approximately $233,000. 3 17. As it relates to Plaintiff FCI, on May 4, 2016, the BOE filed an amended 4 prepetition claim in the amount of $126,353.79 for the period covering October 1, 2012 through 5 September 30, 2015 (Claim 229-2). See Exhibit 1. On October 14, 2020, the Defendant filed an 6 amended administrative expense claim in the amount of $931,366.62 for the period covering 7 November 1, 2015 through March 31, 2016 (Claim 597-2). See Exhibit 2. 8 18. As it relates to Plaintiff FCHI, on May 5, 2016, the BOE filed an amended prepetition claim in the amount of $81,945.63 for the period covering November 21, 2013 throug9 September 30, 2015 (Claim 84-2). See Exhibit 3. On October 14, 2020, the Defendant filed an 10 amended administrative expense claim in the amount of $467,489.18 for the period covering 11 November 1, 2015 through March 31, 2016 (Claim 112-2). See Exhibit 4. 12 19. Plaintiffs dispute the amounts of Defendant’s claims and contend that no additiona13 taxes are owed by Plaintiffs. Plaintiffs contend that Defendant owes Plaintiffs refunds for the 14 relevant FCI audit periods and the relevant FCHI audit periods, not to exceed the amounts of tax 15 set forth in the claims for refund, plus statutory interest and amounts of any penalties relating to 16 the disputed tax amounts. 17 FIRST CLAIM FOR RELIEF: TO DETERMINE THE AMOUNT, IF ANY, O18 ADDITIONAL TAXES OWED BY PLAINTIFF FCI TO DEFENDANT FOR THRELEVANT FCI AUDIT PERIODS 19 20. Plaintiffs incorporate herein by reference the allegations set forth in paragraphs 1 20 through 19 above. 21 21. Defendant’s assertion that Plaintiff FCI owes additional net sales tax for the 22 relevant FCI audit periods at issue over and above the amounts of sales tax set forth on Plaintiff’s 23 original sales tax returns for the relevant FCI audit periods is wrong. Plaintiff does not owe the 24 sales taxes for the relevant audit periods asserted by Defendant in Defendant’s various proof of 25 claims. Instead, Defendant owes Plaintiff FCI refunds for all of the relevant FCI audit periods. 26 The amounts of the refunds owed to Plaintiff FCI by Defendant are the amounts set forth in the 27 refund claims referred to in paragraph 9 above, plus refunds of the related penalties, and statutory interest.

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1 22. A non-exclusive list of reasons why Plaintiff FCI does not owe the additional taxes2 asserted by Defendant, and why Defendant owes Plaintiff FCI refunds, is as follows: 3 a. Defendant improperly asserted that newspaper subscriptions which were donated t4 School Districts are not exempt from taxation. The donated subscriptions, which total $1,981,8175 over the relevant FCI audit periods, were used by the relevant School Districts and consisted of 6 digital subscriptions only. Digital subscriptions are not subject to sales tax since a digital 7 subscription involve the sale of intangible property. Plaintiff FCI has previously made available 8 to Defendant documentary evidence and testimonial evidence on this issue, all of which supports Plaintiff FCI’s position. The following facts support Plaintiff FCI’s position: 9 i. Plaintiff FCI previously had a website for teachers to use to register to 10 access donated subscriptions (“REI website”). This website was previously available through the 11 following URL address: www.ocregister.com/rie. While this link is no longer active, using the 12 internet archive website “waybackmachine”, previously active website links are viewable and 13 show what the REI website looked like on various days of the relevant FCI audit period. The 14 relevant REI website for each of the quarters under examination show that teachers had access 15 only to the digital subscription of the Orange County Register. 16 ii. Every available REI website page covering 4th Quarter 2012 through 1st 17 Quarter 2015 contains the following language: “This program is for 7-day access to the Electronic18 Edition only….,” including website pages for October 7, 2012, February 8, 2013, April 26, 2013, 19 August 31, 2013, October 17, 2013, March 31, 2014, May 2, 2014, September 27, 2014, 20 December 13, 2014, and March 18, 2015. 21 iii. In addition, the REI website contained a “frequently asked questions” 22 (“FAQ”) section. The FAQ from May 19, 2012, a period that predates the relevant FCI audit 23 periods, states the following: “Why can’t I sign up for the print edition of the Orange County Register?” The response to this FAQ was as follows: “A business decision was made to Go 24 Green! We believe it will have a positive impact environmentally, with the reduction in newsprint25 and fossil fuels used in delivery of print copies. We are making available the electronic edition 26 with 7-days access. The print edition was limited only to certain days of the week.” 27

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1 iv. Thus, no later than May 19, 2012 (a date which predates the relevant FCI 2 audit periods), this program was changed to only allow electronic access to the donated 3 subscriptions. 4 v. The REI website was substantially changed on or about May 20, 2015. As i5 relates to the periods covering May 20, 2015 through March 31, 2016, the FAQ portion of the RE6 website still contained the same exact language as cited above, although the REI website no longe7 stated that “This program is for 7-day access to the Electronic Edition only…. .” This means that 8 the FAQ which was linked to the REI website indicated that the access was digital only. b. Revenue from the sale of digital (online) newspapers is not subject to sales tax. As9 it relates to Plaintiff FCI, the Defendant improperly asserted that 100% of the subscription revenu10 earned by FCI during the 4th quarter of 2012 and the 1st quarter of 2013 was allocable to print 11 sales, and therefore subject to taxation. In actuality, during the 4th quarter of 2012, 15.15% of tot12 gross subscription revenue is allocable to non-taxable digital sales. For the 1st quarter of 2013, 13 13.51% of sales revenue is allocable to non-taxable digital sales. 14 c. As it relates to Plaintiff FCI, the Defendant improperly asserted that for the periods15 covering 2nd quarter 2013 through 1st quarter 2016, 41% of total subscription revenue should be 16 allocated to non-taxable revenue from digital sales. In actuality, for the month of April 2013, 17 13.51% of sales revenue is allocable to non-taxable digital sales, and for the remaining period 18 which covers May 2013 through 1st quarter 2016, 50% of sales revenue is allocable to non-taxabl19 digital sales. 20 d. The following facts show that Defendant erred in refusing to agree to Plaintiff 21 FCI’s allocation of subscription revenue between revenue from digital subscriptions and revenue 22 from paper subscriptions, as set forth in paragraphs 22.b and 22.c above. 23 i. Where a newspaper subscription includes access to both a hardcopy print paper and digital access to the paper, the subscription revenue must be allocated between (taxable24 revenue from print sales and (non-taxable) revenue from digital sales. The portion of the mixed 25 newspaper subscription revenue allocated to print sales is subject to California sales tax, while the26 portion allocated to digital sales is not subject to California sales tax. 27

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1 ii. California Sales and Use Tax Regulation (“Regulation”) 1590 which 2 addresses this allocation issue, was substantially amended in June of 2016. The June 2016 3 amendments to the Regulation added a bright-line allocation percentage, whereby, for all tax 4 periods starting October 1, 2016, the minimum amount of revenue from a mixed newspaper 5 subscription that is allocated to digital sales is 53% of the mixed newspaper subscription sales 6 revenue. 7 iii. The Defendant, when it first proposed the amendments to Regulation 1590,8 proposed a bright-line allocation percentage of 38% of mixed newspaper subscription revenue to digital sales. However, after soliciting various comments, the Defendant modified the final 9 Regulation to provide for a bright-line allocation percentage of 53% of mixed newspaper 10 subscription revenue to digital sales. 11 iv. The Defendant modified the final 2016 amendments to Regulation 1590 to 12 provide for a bright-line allocation percentage of 53% of mixed newspaper subscription revenue t13 digital sales based on information and data provided by the newspaper industry. 14 v. Prior to the establishment of the bright-line allocation of 53% of mixed 15 subscription revenue to digital sales via the amended Regulation in 2016, print media companies 16 could approach the Defendant and request a ruling regarding the appropriate allocation of revenue17 from mixed newspaper subscriptions between digital sales revenue and print sales revenue. 18 Through these “letter requests,” print media companies presented various data to the Defendant 19 which enabled the companies and the Defendant to agree on the appropriate allocation of 20 subscription revenue between digital sales revenue and print sales revenue. 21 vi. Chris Christian, of C2 Media, assisted more than forty-five print media 22 companies with the submission of letter requests to the Defendant prior to the effective date of the23 2016 amendments to Regulation 1590. In submitting these requests, Mr. Christian utilized the following methodology in determining the percentage of subscription revenue to be allocated to 24 digital sales revenue and print sales revenue: 25 Digital 7-Day Subscription Cost / (Digital 7-Day Subscription Cost + Print 7-Day 26 Subscription Cost) = Digital Allocation % 27

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1 vii. As an illustration, if the digital subscription sales price was $5 per week an2 the print subscription sales price was $6 per week, the digital allocation percentage would be 3 determined by taking $5 and dividing it by $11, for a resulting allocation of mixed subscription 4 revenue of 45.45% to digital sales. This would result in 45.45% of the revenue from mixed 5 subscription sales being allocated to (non-taxable) digital sales. The remaining portion (54.55% o6 mixed subscription sales revenue) was allocated to (taxable) print sales. 7 viii. Mr. Christian used the methodology described in paragraph 22.d.vi above 8 in every single letter ruling that he requested from Defendant prior to the effective date of the 2016 amendments to Regulation 1590. In every single case, Defendant accepted the methodolog9 used by Mr. Christian to determine the appropriate allocation percentage in every one of the 10 requests for letter rulings. 11 ix. Mr. Christian used the same methodology described above in paragraph 12 22.d.vi to determine the allocation of subscription revenue between digital sales revenue and pape13 sales revenue for Plaintiff FCI for the relevant FCI audit periods. Using this methodology, Mr. 14 Christian determined that, as to Plaintiff FCI, during the 4th quarter of 2012, 15.15% of total gross15 subscription revenue is allocable to non-taxable digital sales and, for the 1st quarter of 2013, 16 13.51% of sales revenue is allocable to non-taxable digital sales. Using this same methodology, 17 Mr. Christian also determined that, as to Plaintiff FCI, for the month of April 2013, 13.51% of 18 sales revenue is allocable to non-taxable digital sales, and that, for the remaining period, which 19 covers May 2013 through 1st quarter 2016, 50% of sales revenue is allocable to non-taxable digita20 sales. 21 e. In computing the total subscription revenue of Plaintiff FCI subject to taxation, the22 Defendant erred by subtracting transportation costs from gross subscription revenues before 23 allocating subscription revenue between revenue from digital sales and revenue from print sales. The Defendant should have first allocated total subscription revenue between revenue from digita24 sales and revenue from print sales, and should then have subtracted transportation costs from total25 revenue generated by print sales. The Defendant’s position on this issue is inconsistent with 26 proposed amendments to Regulation 1590, proposed by Defendant on July 16, 2020, which 27

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1 confirm that the Plaintiff FCI's position is the correct, and always has been the correct way to 2 calculate taxable subscription sales. The following facts support Plaintiff FCI’s position: 3 i. Regulation 1590, both in its current form and as it existed prior to the 20164 amendment, does not address in detail the methodology for subtracting transportation costs for 5 purposes of calculating the taxable portion of revenue from newspaper subscription sales. On July6 16, 2020, the Defendant announced proposed amendments to Regulation 1590. 7 ii. One of the proposed changes to Regulation 1590 governs how 8 transportation costs are taken into account for purposes of determining the taxable portion of revenue from the sale of mixed newspaper subscriptions. These proposed changes to Regulation 9 1590 completely contradict the position taken by Defendant in the present case on the key issue o10 whether transportation costs should be deducted from total gross revenue from sales of mixed 11 subscriptions, before that revenue is allocated between revenue from digital sales and revenue 12 from print sales, or instead should be subtracted from the portion of gross revenue from the sales 13 of mixed subscriptions that is allocated to print sales. 14 iii. The July 16, 2020 discussion paper which contained the proposed 15 amendments to Regulation 1590, states as follows: 16 “In California, many newspaper publishers sell their newspaper subscriptions for a17 price that includes delivery charges and sales tax reimbursement. Subdivision (b)(3)(B)1 18 states “for sales of mixed newspaper subscriptions made on and after October 1, 2016, 19 forty-seven (47) percent of the charge for the mixed newspaper subscription is presumed t20 be the taxable measure from the sale of tangible personal property and tax applies to that 21 amount.” From this provision alone, it may not be clear as to whether the taxable allocatio22 percentage should be applied to the gross subscription price, including delivery charges 23 and sales tax reimbursement or whether the nontaxable amounts should be removed prior to applying the taxable allocation percentage. In review of the regulation, we note that 24 subdivision (b)(3)(B) specifies that tax is applied to the tangible personal property portion 25 of the transaction unless otherwise exempt or excluded. Yet, the phrase “unless otherwise 26 exempt or excluded” is not referenced in (b)(3)(B)1. We propose to amend subdivision 27 (b)(3)(B)1 to add the phrase “unless otherwise exempt or excluded” to make it consistent

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1 with (b)(3)(B) and clarify that exempt or excluded charges are removed after applying the 2 taxable allocation percentage… We also propose adding subdivision (b)(3)(B)3 to specify 3 that in order to determine the taxable measure of a mixed newspaper subscription, the 4 percentage that is either presumed or demonstrated to be the measure of the sale of tangibl5 personal property (the taxable allocation percentage) applies to the mixed subscription 6 price, excluding any sales tax reimbursement, prior to deducting exempt or excluded 7 charges, such as nontaxable delivery charges. A formula and an example to illustrate the 8 calculation for determining the taxable measure of a mixed newspaper subscription when the subscription includes nontaxable delivery charges and sales tax reimbursement have 9 also been included.” 10 iv. In its discussion paper Defendant made clear that these proposed changes 11 are to be applied retroactively, since the proposed changes simply clarify what was always 12 intended: 13 “Under Revenue and Taxation Code section 7051, “[t]he [Department] may 14 prescribe the extent to which any ruling or regulation shall be applied without retroactive 15 effect.” In other words, when the Department wishes to limit the retroactive effect of a 16 regulation, or amendments thereto, it is authorized to do so, and would accomplish it by 17 taking affirmative action in the regulatory process by means of specifying an operative 18 date for the amendments. Since the proposed amendments are clarifying in nature and are 19 not providing a new methodology to determine the application of tax, we do not 20 recommend a prospective basis for the amendments. For this reason, the proposed 21 amendments would apply retroactively.” 22 v. In issuing this discussion paper, the Defendant indicated that it always 23 intended for the gross mixed subscription revenue to be allocated between revenue from digital sales and revenue from print sales prior to subtracting transportation costs, and that all of the 24 transportation costs should be subtracted from the sales revenue allocable to print sales. 25 vi. On December 3, 2020, the Defendant released revised proposed 26 amendments to Regulation 1590. The revised proposed amendments issued on December 3, 2020,27

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1 continue to provide that transportation costs should be subtracted from the sales revenue allocable2 to print sales. 3 f. The Defendant understated the total allowable transportation costs which are 4 deducted from subscription revenue. The Defendant refused to review the voluminous records of 5 the Plaintiff, and instead the Defendant relied on a miniscule sample of data which was 6 statistically insignificant. The Defendant has determined that allowable transportation expenses 7 total $29,594,832 as to Plaintiff FCI, when the correct amount totals $41,212,452.25. The 8 following facts support Plaintiff FCI’s position: i. The Plaintiffs recorded and removed from Plaintiff FCI’s taxable sales the 9 applicable amount of transportation costs for the relevant FCI audit periods. The Newscycle 10 Solution software used by the Plaintiffs is very commonly used by large print media companies. 11 ii. To comply with the requirement to separately state the transportation costs,12 Plaintiffs sent subscriber renewal notices with language which provided that transportation costs 13 of X dollars for Y periods were included in the stated charge. 14 iii. The data which proves up the allowable transportation cost pursuant to 15 Regulation 1628 consists of millions of different data points. Defendant, in reviewing the 16 transportation deduction of Plaintiff FCI, sampled a few hundred data points. Based on this 17 extremely limited, statistically insignificant, sample, Defendant developed a weighted 18 transportation cost percentage which it applied against total subscription sales. 19 iv. At the time of the Defendant’s examination, Plaintiff FCI produced 20 evidence of the total transportation costs incurred and recorded by Plaintiff FCI’s Newscycle 21 Software, and all of the underlying data to support these costs, for August of 2015. That evidence22 showed that Plaintiff FCI was entitled to a significantly larger deduction for transportation costs 23 than the deduction allowed by Defendant. v. Since the conclusion of the audit, Plaintiff FCI has gathered additional 24 evidence to support its position that the deduction for transportation costs allowed by Defendant i25 too low. Because of the vast volume of data involved, and because of Mr. Chris Christian’s 26 expertise in the taxation of newspaper subscription sales, Plaintiff FCI hired Mr. Christian to 27 review the underlying data and to opine on the gross transportation costs incurred by Plaintiff FCI

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1 vi. In forming his opinion, Mr. Christian reviewed and sampled Plaintiff FCI’s2 data. In completing his analysis, Mr. Christian received and reviewed a schedule of delivery cost 3 general ledger account balances with supporting journal entries for all periods. Next, Mr. Christia4 received a schedule of monthly home delivery deductible transportation fees/costs and related 5 sales tax amounts. 6 vii. With these two schedules, Mr. Christian sampled data from the following 7 six individual months: (1) December 2012; (2) August 2013; (3) December 2014; (4) February 8 2015; (5) August 2016; and (6) February 2016. For each of the six sampled months, Mr. Christianreviewed company-prepared schedules that outlined the Newscycle Solutions delivery cost 9 amounts from the Newscycle Solutions reports. In preparing his analysis, Mr. Christian obtained 10 the Newscycle Solutions General Ledger Interface Journal and determined that the relevant entrie11 therein agreed with the schedule of delivery related cost general ledger activity. 12 viii. Next, Mr. Christian obtained the Newscycle Solutions Account Billing 13 Journal Report and Distributor Invoice Report and determined that the figures in that Report were14 internally consistent and were consistent with the amounts in the Newscycle Solutions General 15 Ledger Interface Journal. Next, Mr. Christian obtained the Newscycle Solutions Account 16 Transportation Exclusion Report and determined that the amounts therein agreed with the amount17 within the Newscycle Solutions Account Billing Journal Report and the schedule of monthly hom18 delivery deductible transportation fees/costs. Finally, Mr. Christian received several renewal 19 notices for each period and reviewed five for each period for testing and determined that amounts 20 in these notices agreed with the files discussed above. 21 ix. Based on Mr. Christian’s review, he determined that, in his professional 22 opinion, Plaintiff FCI properly recorded gross transportation costs, and as such Plaintiff FCI 23 incurred the following gross transportation costs: 4th Quarter 2012: $3,759,781.81; 1st Quarter 2013: $4,436,823.88; 2nd Quarter 2013: $3,779,506.13; 3rd Quarter 2013: $4,365,140.00; 4th 24 Quarter 2013: $3,749,924.75; 1st Quarter 2014: $4,388,334.00; 2nd Quarter 2014: $3,751,147.63;25 3rd Quarter 2014: $4,338,342.00; 4th Quarter 2014: $2,980,264.75; 1st Quarter 2015: 26 $3,278,636.50 ; 2nd Quarter 2015: $2,562,969.00; 3rd Quarter 2015: $3,166,782.88; 4th Quarter 27 2015: $2,968,018.00; and 1st Quarter 2016: $3,434,067.25.

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1 x. The gross transportation deduction was further limited by Plaintiff FCI’s 2 accounting software to ensure that the deduction did not result in a net taxable loss on a 3 transaction-by-transaction basis. The software applied the following limitation to Plaintiff FCI’s 4 transportation deduction: (1) 4th Quarter 2012: $730,853.94; (2) 1st Quarter 2013: $789,288.63; 5 (3) 2nd Quarter 2013 $764,604.25; (4) 3rd Quarter 2013 $744,334.50; (5) 4th Quarter 2013 6 $775,013.25; (6) 1st Quarter 2014 $773,346.88; (7) 2nd Quarter 2014 $809,981.63; (8) 3rd 7 Quarter 2014 $840,966.88; (9) 4th Quarter 2014 $642,969.63; (10) 1st Quarter 2015 $479,334.388 (11) 2nd Quarter 2015 $353,155.25; (12) 3rd Quarter 2015: $503,022.88; (13) 4th Quarter 2015: $745,201.75; and (14) 1st Quarter 2016 $795,212.50. 9 g. The Defendant improperly seeks to tax wholesale hard copy sales of newspapers to10 distributors who resell the newspapers to retail customers. Plaintiff FCI sold a large amount of 11 newspapers to wholesalers at a reduced price, and these wholesalers in turn resold the newspapers12 to retail customers. The Defendant improperly seeks to tax Plaintiff FCI on sales to distributors, 13 including a markup on these sales, in the amount of $4,030,997. None of the sales to distributors 14 is subject to taxation. The following facts support Plaintiff FCI’s position: 15 i. In order to be treated as concessionaires, the distributors to whom/which 16 Plaintiff FCI sold newspapers at wholesale must “operate within the perimeter of the prime 17 retailer's own retail business premises.” 18 C.C.R. § 1699(d). “Premises” is defined, in part, as, 18 “a tract of land with the building thereon” or “a building or part of a building usually with its 19 appurtenances (such as grounds).” Merriam-Webster, Premise n.3, https://www.merriam-20 webster.com/dictionary/premise (last visited May 31, 2021). It is also defined as, “a piece of land 21 together with its buildings, esp considered as a place of business.” Dictionary, Premises n.1, 22 https://www.dictionary.com/browse/premises (last visited May 31, 2021). Premises, then, is 23 generally defined as a piece of land or a structure. ii. Plaintiff FCI did not own the premises from which the distributors sold 24 newspapers. The distributors purchased newspapers from the Debtors for resale to the consumer 25 through newspaper racks, for resale to third-party retailers for resale to the consumer, and/or were26 paid a fee for delivery to third-party retailers for resale to the consumer. The purchasers were not27 affiliated with Plaintiff FCI, but rather owned, maintained, or otherwise had an interest in their

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1 respective locations independent of Plaintiff FCI. The newspaper racks were not located on land o2 within premises which Plaintiff FCI owned or otherwise had an interest in. 3 iii. For Plaintiff FCI to be a prime retailer, Plaintiff FCI would have to control 4 the locations where the newspapers at issue were sold for final retail. Since Plaintiff FCI did not 5 own or control the locations where these final sales were made, either by the third-party buyers or6 through the newspaper racks, Plaintiff FCI cannot be a prime retailer within the meaning of 18 7 C.C.R. 1699(d). Thus, the distributors are not concessionaires. 8 iv. The distributors: (a) operated their own separate businesses; (b) had the right to sell papers to certain buyers for their own established selling price limited only by the fina9 selling prices located on the newspaper, with the exception of Isaia Oleta and Oleta Distribution, 10 which had price limits for specific corporate buyers; (c) made business decision as to how many 11 papers to buy and how to get those papers to their customers; (d) registered with the Franchise Ta12 Board, Employment Development Department, Defendant, and/or other regulatory agencies; and 13 (e) collected their own proceeds which were deposited into their own separate bank account. 14 h. Plaintiff FCI was hired, and received compensation, to complete various special 15 print jobs for third parties. The Defendant improperly seeks to tax $6,611,592.10 of special print 16 job sales to Plaintiff FCI. All of these sales are exempt from taxation. These sales are exempt 17 pursuant to a variety of different code sections and regulations, including, but not limited to, 18 California Revenue & Taxation Code § 6379.5, and California Sales and Use Tax Regulation §§ 19 1668 & 1590(b). 20 i. In 2016 Plaintiff FCI sold various assets to Digital First Media. Only the sale of 21 the tangible personal property to Digital First Media is subject to taxation. The Defendant seeks t22 allocate the sales price of the assets in an improper manner, which is resulting in tax allegedly 23 owed on $5,581,700. The calculation used by the Defendant is improper, and the Defendant is ignoring common sense and the prior agreements between Digital First Media and the Plaintiff 24 which set the price for certain sold asset classes. Plaintiff FCI contends that only $3,025,267.52 25 from the proceeds of the asset sale to Digital First Media consists of taxable proceeds from the 26 sale of tangible personal property. 27

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1 SECOND CLAIM FOR RELIEF: TO DETERMINE THE AMOUNT, IF ANY, OF 2 ADDITIONAL TAXES OWED BY PLAINTIFF FCHI TO DEFENDANT FOR THE 3 RELEVANT TIME PERIODS 4 23. Plaintiff incorporates herein by reference the allegations set forth in paragraphs 1 5 through 22 above. 6 24. Defendant’s assertion that Plaintiff FCHI owes additional net sales tax for the 7 relevant FCHI audit periods at issue over and above the amounts of sales tax set forth on 8 Plaintiff’s original sales tax returns for the relevant time period is wrong. Plaintiff FCHI does notowe the sales taxes for the relevant audit periods asserted by Defendant in Defendant’s various 9 proof of claims or in Defendant’s audit notices. Instead, Defendant owes Plaintiff FCHI refunds 10 for all of the relevant FCHI audit periods. 11 25. A non-exclusive list of reasons why Plaintiff FCHI does not owe the additional 12 taxes asserted by Defendant, and why Defendant owes Plaintiff refunds, is as follows: 13 a. Defendant improperly asserted that newspaper subscriptions which were donated t14 School Districts are not exempt from taxation. The donated subscriptions, which total $209,951 15 over the relevant FCHI audit periods, were used by the relevant School Districts and consisted of 16 digital subscriptions only. Digital subscriptions are not subject to sales tax since a digital 17 subscription involves the sale of intangible property. Plaintiff FCHI has previously made 18 available to Defendant documentary evidence and testimonial evidence on this issue, all of which 19 supports Plaintiff FCHI’s position. This evidence includes the following: 20 i. Plaintiff FCHI previously had a website for teachers to use to register to 21 access donated subscriptions. This website was previously available through the following URL 22 address: www.pe.com/nie/. While this link is no longer active, using the internet archive website 23 “waybackmachine”, previously active website links are reviewable and show what the NIE website looked like on various days of the audit period. 24 ii. Unlike the FCI website for which there are numerous website “snapshots” 25 available for various days of the audit period, the “waybackmachine” is only able to show website26 “snapshots” for FCHI for two days. 27

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1 iii. The January 16, 2013 “snapshot” predates the start of the relevant FCHI 2 audit periods. The link provides: “What is the P-Edition?” The page goes on to answer, “The P-3 Edition is an exact replica of the printed edition of The Press-Enterprise newspaper. The digitized4 pages of the newspaper are delivered to you through a password-protected website. All you need i5 a browser and internet connection. To get started, click here.” 6 iv. The “click here” language cited above is a hyperlink. If you click on the 7 hyperlink you are brought to the “snapshot” from February 14, 2013. This “snapshot” provides th8 following: “Thank you for your interest in the Press-Enterprise Newspaper in Education Program. We are pleased to offer you access to the P-Edition, an electronic replica of our print product.” 9 v. As it relates to the April 20, 2016 “snapshot”, paragraph 6 of the agreement10 provides as follows: “I understand the Press-Enterprise NIE program is a digital online only 11 program.” Neither “snapshot” references anything about a print version of the paper; instead both 12 “snapshots” show that the provided paper was the “P-Edition”, which is a digital replica of the 13 printed version. 14 b. Revenue from the sale of digital (online) newspapers is not subject to sales tax. 15 c. As it relates to Plaintiff FCHI, the Defendant improperly asserted that for the 16 relevant FCHI audit periods 41% of total subscription revenue is allocable to non-taxable revenue17 from digital sales. In actuality, 50% of total subscription revenue is allocable to non-taxable 18 revenue from digital sales during the relevant FCHI audit periods. 19 d. Plaintiff FCHI incorporates herein by reference the allegations in paragraph 22.d.i 20 through 22.d.viii above which shows that Defendant erred in refusing to agree to Plaintiff FCHI’s21 allocation of subscription revenue between revenue from digital subscriptions and revenue from 22 paper subscriptions. 23 i. Mr. Christian used the same methodology described above in paragraph 22.d.vi. to determine the allocation of subscription revenue between digital sales revenue and 24 paper sales revenue for Plaintiff FCHI for the relevant FCHI audit periods. Using this 25 methodology, Mr. Christian determined that, as to Plaintiff FCHI, 50% of mixed subscription 26 revenue is allocable to digital sales, and 50% of that revenue is allocable to print sales, for all 27 relevant FCHI audit periods.

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1 e. In computing the total subscription revenue of Plaintiff FCHI subject to taxation, 2 the Defendant erred by subtracting transportation costs from gross subscription revenues before 3 allocating subscription revenue between revenue from digital sales and revenue from print sales. 4 Plaintiff FCHI incorporates herein by reference the allegations in paragraph 22.e. above (includin5 paragraphs 22.e.i through 22.e.vi.). 6 f. The Defendant understated the total allowable transportation costs which are 7 deducted from subscription revenue. The Defendant refused to review the voluminous records of 8 the Plaintiff FCHI, and instead the Defendant relied on a miniscule sample of data which was statistically insignificant. The Defendant has determined that allowable transportation expenses 9 total $6,355,659 as to FCHI, when the correct amount totals $11,348,085.50. The following facts 10 support Plaintiff FCHI’s position: 11 i. The Debtors recorded and removed from Plaintiff FCHI’s taxable sales the 12 applicable amount of transportation costs for the relevant FCHI audit periods. The Newscycle 13 Solution software used by the Debtors is very commonly used by large print media companies. 14 ii. To comply with the requirement to separately state the transportation costs,15 FCI & FCHI sent subscriber renewal notices with language which provided that transportation 16 costs of X dollars for Y periods were included in the stated charge. 17 iii. The data which proves up the allowable transportation cost pursuant to 18 Regulation 1628 consists of millions of different data points. Defendant, in reviewing the 19 transportation deduction of Plaintiff FCHI, sampled a few hundred data points. Based on this 20 extremely limited, statistically insignificant, sample, Defendant developed a weighted 21 transportation cost percentage which it applied against total subscription sales. 22 iv. At the time of the Defendant’s examination, Plaintiff FCHI produced 23 evidence of the total transportation costs incurred and recorded by Plaintiff FCHI’s Newscycle Software, and all of the underlying data to support these costs, for August of 2015. That evidence24 showed that Plaintiff FCHI was entitled to a significantly larger deduction for transportation costs25 than the deduction allowed by Defendant. 26 v. Since the conclusion of the audit, Plaintiff FCHI has gathered additional 27 evidence to support its position that the deduction for transportation costs allowed by Defendant i

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1 too low. Because of the vast volume of data involved, and because of Mr. Chris Christian’s 2 expertise in the taxation of newspaper subscription sales, Plaintiff FCHI hired Mr. Christian to 3 review the underlying data and to opine on the gross transportation costs incurred by Plaintiff 4 FCHI. 5 vi. In forming his opinion, Mr. Christian reviewed and sampled Plaintiff 6 FCHI’s data. In completing his analysis, Mr. Christian received and reviewed a schedule of 7 delivery cost general ledger account balances with supporting journal entries for all periods. Next,8 Mr. Christian received a schedule of monthly home delivery deductible transportation fees/costs and related sales tax amounts. 9 vii. With these two schedules, Mr. Christian sampled Plaintiff FCHI’s data fro10 the following four individual months: (1) December 2014; (2) February 2015; (3) August 2016; 11 and (4) February 2016. For each of the four sampled months, Mr. Christian reviewed company-12 prepared schedules that outlined the Newscycle Solutions delivery cost amounts from the 13 Newscycle Solutions reports. In preparing his analysis, Mr. Christian obtained the Newscycle 14 Solutions General Ledger Interface Journal and determined that the relevant entries therein agreed15 with the schedule of delivery related cost general ledger activity. 16 viii. Next, Mr. Christian obtained the Newscycle Solutions Account Billing 17 Journal Report and Distributor Invoice Report and determined that the figures in that Report were18 internally consistent and were consistent with the amounts in the Newscycle Solutions General 19 Ledger Interface Journal. Next, Mr. Christian obtained the Newscycle Solutions Account 20 Transportation Exclusion Report and determined that the amounts therein agreed with the amount21 within the Newscycle Solutions Account Billing Journal Report and the schedule of monthly hom22 delivery deductible transportation fees/costs. Finally, Mr. Christian received several renewal 23 notices for each period and reviewed five for each period for testing and determined that amounts in these notices agreed with the files discussed above. 24 ix. Based on Mr. Christian’s review, he determined that, in his professional 25 opinion, Plaintiff FCHI properly recorded gross transportation costs: 4th Quarter 2013: 26 $593,292.00; 1st Quarter 2014: $1,373,096.00; 2nd Quarter 2014: $1,264,374.00; 3rd Quarter 27 2014: $1,069,444.38; 4th Quarter 2014: $1,191,730.38; 1st Quarter 2015: $1,358,552.25 ; 2nd

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1 Quarter 2015: $1,132,260.75; 3rd Quarter 2015: $1,376,567.38; 4th Quarter 2015: $1,221,345.38;2 and 1st Quarter 2016: $1,408,032.03. 3 x. The gross transportation deduction was further limited by Plaintiff FCHI’s 4 accounting software to ensure that the deduction did not result in a net taxable loss on a 5 transaction-by-transaction basis. The software applied the following limitation to Plaintiff FCHI’s6 transportation deduction: 3rd Quarter 2014 $65,158.00; 4th Quarter 2014 $96,371.13; 1st Quarter7 2015 $88,606.63; 2nd Quarter 2015 $92,176.00; 3rd Quarter 2015: $96,402.00; 4th Quarter 2015: 8 $96,482.25; and 1st Quarter 2016 $105,413.00. g. The Defendant improperly seeks to tax wholesale hard copy sales of newspapers to9 distributors who resell the newspapers to retail customers. Plaintiff FCHI sold a large amount of 10 newspapers to wholesalers at a reduced price, and these wholesalers in turn resold the newspapers11 to retail customers. The Defendant improperly seeks to tax Plaintiff FCHI on sales to distributors12 including a markup on these sales, in the amount of $2,411,177. None of the sales to distributors 13 are subject to taxation. 14 i. In order to be treated as concessionaires, the distributors to whom/which 15 Plaintiff FCHI sold newspapers at wholesale must “operate within the perimeter of the prime 16 retailer's own retail business premises.” 18 C.C.R. § 1699(d). “Premises” is defined, in part, as, 17 “a tract of land with the building thereon” or “a building or part of a building usually with its 18 appurtenances (such as grounds).” Merriam-Webster, Premise n.3, https://www.merriam-19 webster.com/dictionary/premise (last visited May 31, 2021). It is also defined as, “a piece of land 20 together with its buildings, esp considered as a place of business.” Dictionary, Premises n.1, 21 https://www.dictionary.com/browse/premises (last visited May 31, 2021). Premises, then, is 22 generally defined as a piece of land or a structure. 23 ii. Plaintiff FCHI did not own the premises from which the distributors sold newspapers. The distributors purchased newspapers from the Debtors for resale to the consumer 24 through newspaper racks, for resale to third-party retailers for resale to the consumer, and/or were25 paid a fee for delivery to third-party retailers for resale to the consumer. The purchasers were not26 affiliated with Plaintiff FCI, but rather owned, maintained, or otherwise had an interest in their 27

23

1 respective locations independent of Plaintiff FCHI. The newspaper racks were not located on land2 or within premises which Plaintiff FCHI owned or otherwise had an interest in. 3 iii. For Plaintiff FCHI to be a prime retailer, Plaintiff FCHI would have to 4 control the locations where the newspapers at issue were sold for final retail. Since Plaintiff FCHI5 did not own or control the locations where these final sales were made, either by the third-party 6 buyers or through the newspaper racks, Plaintiff FCHI cannot be a prime retailer within the 7 meaning of 18 C.C.R. 1699(d). Thus, the distributors are not concessionaires. 8 iv. The distributors: (a) operated their own separate businesses; (b) had the right to sell papers to certain buyers for their own established selling price limited only by the fina9 selling prices located on the newspaper, with the exception of Isaia Oleta and Oleta Distribution, 10 which had price limits for specific corporate buyers; (c) made business decision as to how many 11 papers to buy and how to get those papers to their customers; (d) registered with the Franchise Ta12 Board, Employment Development Department, Defendant, and/or other regulatory agencies; and 13 (e) collected their own proceeds which were deposited into their own separate bank account. 14 h. In 2016 the Plaintiff FCHI sold various assets to Digital First Media. Only the sale15 of the tangible personal property to Digital First Media is subject to taxation. The Defendant 16 seeks to allocate the sales price of the assets in an improper manner, which is resulting in tax owe17 on $3,405,471. Plaintiff FCHI contends that the calculation used by the Defendant is improper, 18 and that the Defendant is ignoring common sense and the prior agreements between Digital First 19 Media and the Plaintiff which set the price for certain sold asset classes. Plaintiff FCHI contends 20 that only $1,835,777.26 from the proceeds of the asset sale to Digital First Media consists of 21 taxable proceeds from the sale of tangible personal property. 22 THIRD CLAIM FOR RELIEF: TO DETERMINE THE AMOUNTS OF REFUNDS OWED TO 23 PLAINTIFF FCI FOR THE FCI AUDIT PERIODS 26. Plaintiff re-alleges and incorporates herein by reference the allegations contained i24 paragraphs 1 through 25 above of the complaint. 25 27. Defendant’s assertion that Plaintiff FCI owes additional net sales tax for the 26 relevant FCI audit periods at issue over and above the amounts of sales tax set forth on Plaintiff’s 27 original sales tax returns for the relevant time period is wrong. Plaintiff does not owe the sales

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1 taxes for the relevant audit periods asserted by Defendant in Defendant’s various proof of claims. 2 Instead, Defendant owes Plaintiff refunds for all of the relevant FCI audit periods. The amounts o3 the refunds owed by Defendant to Plaintiff FCI for the FCI audit periods include the amounts of 4 tax set forth in the claims for refund, plus refunds of the related penalties, and statutory interest. 5 28. A non-exclusive list of reasons why Plaintiff FCI does not owe the additional taxes6 asserted by Defendant, and why Defendant owes Plaintiff refunds, is as follows: 7 a. Plaintiff FCI incorporates herein by reference the allegations in paragraph 22.a. 8 above. b. Plaintiff FCI incorporates herein by reference the allegations in paragraph 22.b. 9 above. 10 c. Plaintiff FCI incorporates herein by reference the allegations in paragraph 22.c. 11 above. 12 d. Plaintiff FCI incorporates herein by reference the allegations in paragraph 22.d. 13 above. 14 e. Plaintiff FCI incorporates herein by reference the allegations in paragraph 22.e. 15 above. 16 f. Plaintiff FCI incorporates herein by reference the allegations in paragraph 22.f. 17 above. 18 g. Plaintiff FCI incorporates herein by reference the allegations in paragraph 22.g. 19 above. 20 h. Plaintiff FCI incorporates herein by reference the allegations in paragraph 22.h. 21 above. 22 i. Plaintiff FCI incorporates herein by reference the allegations in paragraph 22.i. 23 above. FOURTH CLAIM FOR RELIEF: TO DETERMINE THE AMOUNTS OF REFUNDS OWED 24 TO PLAINTIFF FCHI FOR THE FCHI AUDIT PERIODS 25 29. Plaintiff incorporates herein by reference the allegations set forth in paragraphs 1 26 through 28 above. 27

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1 30. Defendant’s assertion that Plaintiff FCHI owes additional net sales tax for the 2 relevant FCHI audit periods at issue over and above the amounts of sales tax set forth on 3 Plaintiff’s original sales tax returns for the relevant time period is wrong. Plaintiff FCHI does not4 owe the sales taxes for the relevant audit periods asserted by Defendant in Defendant’s various 5 proof of claims. Instead, Defendant owes Plaintiff FCHI refunds for all of the relevant FCHI audi6 periods. The amounts of the refunds owed by Defendant to Plaintiff FCHI for the FCHI audit 7 periods include the amounts of tax set forth in the claims for refund, plus refunds of the related 8 penalties, and statutory interest. 31. A non-exclusive list of reasons why Plaintiff FCHI does not owe the additional 9 taxes asserted by Defendant, and why Defendant owes Plaintiff refunds, is as follows: 10 a. Plaintiff FCHI incorporates herein by reference the allegations in paragraph 25.a. 11 above. 12 b. Plaintiff FCHI incorporates herein by reference the allegations in paragraph 25.b. 13 above. 14 c. Plaintiff FCHI incorporates herein by reference the allegations in paragraph 25.c. 15 above. 16 d. Plaintiff FCHI incorporates herein by reference the allegations in paragraph 25.d. 17 above. 18 e. Plaintiff FCHI incorporates herein by reference the allegations in paragraph 25.e. 19 above. 20 f. Plaintiff FCHI incorporates herein by reference the allegations in paragraph 25.f. 21 above. 22 g. Plaintiff FCHI incorporates herein by reference the allegations in paragraph 25.g. 23 above. h. Plaintiff FCHI incorporates herein by reference the allegations in paragraph 25.h. 24 above. 25 26 27

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1 FIFTH CLAIM FOR RELIEF: DISALLOWANCE OF ALL CLAIMS ASSERTED BY 2 DEFENDANT AGAINST PLAINTIFF FCI 3 32. Plaintiff incorporates herein by reference the allegations set forth in paragraphs 1 4 through 31 above. 5 33. Defendant’s claims against Plaintiff FCI for the relevant FCI audit periods are 6 excessive and improper for the following reasons:. 7 a. Plaintiff FCI incorporates herein by reference the allegations in paragraph 22.a. 8 above. b. Plaintiff FCI incorporates herein by reference the allegations in paragraph 22.b. 9 above. 10 c. Plaintiff FCI incorporates herein by reference the allegations in paragraph 22.c. 11 above. 12 d. Plaintiff FCI incorporates herein by reference the allegations in paragraph 22.d. 13 above. 14 e. Plaintiff FCI incorporates herein by reference the allegations in paragraph 22.e. 15 above. 16 f. Plaintiff FCI incorporates herein by reference the allegations in paragraph 22.f. 17 above. 18 g. Plaintiff FCI incorporates herein by reference the allegations in paragraph 22.g. 19 above. 20 h. Plaintiff FCI incorporates herein by reference the allegations in paragraph 22.h. 21 above. 22 i. Plaintiff FCI incorporates herein by reference the allegations in paragraph 22.i. 23 above. 34. Defendant’s claims against Plaintiff FCI for the relevant FCI audit periods should 24 be disallowed in their entirety. Alternatively, Defendant’s claims against Plaintiff FCI for the 25 relevant FCI audit periods should be disallowed to the extent they are determined to be excessive. 26 27

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1 SIXTH CLAIM FOR RELIEF: DISALLOWANCE OF ALL CLAIMS ASSERTED BY 2 DEFENDANT AGAINST PLAINTIFF FCHI 3 35. Plaintiff incorporates herein by reference the allegations set forth in paragraphs 1 4 through 34 above. 5 36. Defendant’s claims against Plaintiff FCHI for the relevant FCHI audit periods are 6 excessive and improper for the following reasons: 7 a. Plaintiff FCHI incorporates herein by reference the allegations in paragraph 25.a. 8 above. b. Plaintiff FCHI incorporates herein by reference the allegations in paragraph 25.b. 9 above. 10 c. Plaintiff FCHI incorporates herein by reference the allegations in paragraph 25.c. 11 above. 12 d. Plaintiff FCHI incorporates herein by reference the allegations in paragraph 25.d. 13 above. 14 e. Plaintiff FCHI incorporates herein by reference the allegations in paragraph 25.e. 15 above. 16 f. Plaintiff FCHI incorporates herein by reference the allegations in paragraph 25.f. 17 above. 18 g. Plaintiff FCHI incorporates herein by reference the allegations in paragraph 25.g. 19 above. 20 h. Plaintiff FCHI incorporates herein by reference the allegations in paragraph 25.h. 21 above. 22 37. Defendant’s claims against Plaintiff FCHI for the relevant FCHI audit periods 23 should be disallowed in their entirety. Alternatively, Defendant’s claims against Plaintiff FCHI fothe relevant FCI audit periods should be disallowed to the extent they are determined to be 24 excessive. 25 WHEREFORE, Plaintiffs FCI and FCHI pray as follows: 26 A. That the Court determine that Plaintiff FCI owes no additional sales taxes to 27 Defendant over and above the amounts of sales taxes previously paid by FCI to Defendant, as

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1 reflected on Plaintiff FCI’s originally filed California sales tax returns for the relevant FCI audit 2 periods; 3 B. That the Court determine that Plaintiff FCI is entitled to refunds from Defendant 4 for all of the relevant FCI audit periods in amounts not to exceed the amounts set forth in the 5 Plaintiff FCI refund claims, plus statutory interest, plus all penalties relating to the taxes which ar6 determined to not be owed by Plaintiff FCI; 7 C. That the Court determine that Plaintiff FCHI owes no additional sales taxes to 8 Defendant over and above the amounts of sales taxes previously paid by FCHI to Defendant, as reflected on Plaintiff FCHI’s originally filed California sales tax returns for the relevant FCHI 9 audit periods; 10 D. That the Court determine that Plaintiff FCHI is entitled to refunds from Defendant 11 for all of the relevant FCHI audit periods in amounts not to exceed the amounts set forth in the 12 FCHI refund claims, plus statutory interest, plus all penalties relating to the taxes which are 13 determined to not be owed by FCHI; 14 E. That the Court disallow Defendant’s claims against Plaintiff FCI for the relevant 15 FCI audit periods in their entirety or to the extent that the Court determines these claims are 16 excessive; 17 F. That the Court disallow Defendant’s claims against Plaintiff FCHI for the relevant 18 FCHI audit periods in their entirety or to the extent that the Court determines these claims are 19 excessive; 20 G. That the Court award Plaintiffs their costs; 21 H. That the Court enter a judgment consistent with the relief prayed for in this 22 Complaint; and 23 I. That the Court grant such other and further relief as is just and proper. 24 25 26 27

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ADVERSARY PROCEEDING COVER SHEET ADVERSARY PROCEEDING NUMBER (Instructions on Reverse) (Court Use Only) PLAINTIFFS DEFENDANTS Freedom Communications, Inc., et al. California Department of Tax and Fee Debtors and Debtors-in-Possession Administration ATTORNEYS (Firm Name, Address, and Telephone No.) ATTORNEYS (If Known) A.Lavar Taylor Danny P. Le Jonathan T. Amitrano Deputy Attorney General Law Offices of A. Lavar Taylor , LLP 300 South Spring St., Suite 1702, Los Angeles, CA 90013 3 Hutton Centre Drive, Suite 500, Santa Ana, CA 92707 PARTY (Check One Box Only) PARTY (Check One Box Only) □x Debtor □U.S. Trustee/Bankruptcy Admin □Debtor □U.S. Trustee/Bankruptcy Admin□Creditor □Other □x Creditor □Other □Trustee □Trustee CAUSE OF ACTION (WRITE A BRIEF STATEMENT OF CAUSE OF ACTION, INCLUDING ALL U.S. STATUTES INVOLVED) COMPLAINT TO 1) DETERMINE AMOUNT OF TAXES OWED TO CALIFORNIA DEPARTMENT OF TAX AND FEE ADMINISTRATION ("CDTFA") UNDER BANKRUPTCY CODE §505 (A)(1), AND 2) DETERMINE AMOUNTS OF REFUNDS OWED BY CDTFA PURSUANT TO BANKRUPTCY CODE §505(A)(2); OBJECTON TO PRE-PETITION CLAIMS AND ADMINISTRATIVE CLAIMS OF THE OF CDTFA NATURE OF SUIT (Number up to five (5) boxes starting with lead cause of action as 1, first alternative cause as 2, second alternative cause as 3, etc.) FRBP 7001(1) – Recovery of Money/Property FRBP 7001(6) – Dischargeability (continued) □ □ 11-Recovery of money/property - §542 turnover of property 61-Dischargeability - §523(a)(5), domestic support □ □ 12-Recovery of money/property - §547 preference 68-Dischargeability - §523(a)(6), willful and malicious injury □ □ 13-Recovery of money/property - §548 fraudulent transfer 63-Dischargeability - §523(a)(8), student loan □ □ x 14-Recovery of money/property - other 64-Dischargeability - §523(a)(15), divorce or separation obligation(other than domestic support) □ FRBP 7001(2) – Validity, Priority or Extent of Lien □ 65-Dischargeability - other 21-Validity, priority or extent of lien or other interest in property FRBP 7001(7) – Injunctive Relief □ FRBP 7001(3) – Approval of Sale of Property □ 71-Injunctive relief – imposition of stay □ 31-Approval of sale of property of estate and of a co-owner - §363(h) 72-Injunctive relief – other FRBP 7001(4) – Objection/Revocation of Discharge □ FRBP 7001(8) Subordination of Claim or Interest □ 41-Objection / revocation of discharge - §727(c),(d),(e) 81-Subordination of claim or interest FRBP 7001(5) – Revocation of Confirmation □ FRBP 7001(9) Declaratory Judgment □ 51-Revocation of confirmation 91-Declaratory judgment FRBP 7001(6) – Dischargeability □ FRBP 7001(10) Determination of Removed Action □ 66-Dischargeability - §523(a)(1),(14),(14A) priority tax claims □ 01-Determination of removed claim or cause 62-Dischargeability - §523(a)(2), false pretenses, false representation, actual fraud Other □ □ 67-Dischargeability - §523(a)(4), fraud as fiduciary, embezzlement, larceny SS-SIPA Case – 15 U.S.C. §§78aaa et.seq. □ 02-Other (e.g. other actions that would have been brought in state court(continued next column) if unrelated to bankruptcy case) □x Check if this case involves a substantive issue of state law □Check if this is asserted to be a class action under FRCP 23□Check if a jury trial is demanded in complaint Demand $ 7,278,791 plus accrualsOther Relief Sought

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