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HomeMy WebLinkAboutItem 11 - Agreements with the Dept. of Tax and Fee Administration Department Name: Finance Cost Center: 2001 For Agenda of: December 8, 2020 Placement: Consent Estimated Time: N/A FROM: Brigitte Elke, Finance Director SUBJECT: AUTHORIZATION TO EXECUTE AGREEMENTS WITH THE CALIFORNIA DEPARTMENT OF TAX AND FEE ADMINISTRATION AND AUTHORIZE THE EXAMINATION OF TRANSACTION AND USE TAX RECORDS RECOMMENDATION 1. Approve a Resolution authorizing the City Manager to execute agreements with the California Department of Tax and Fee Administration (CDTFA) for implementation of a Local Transactions and Use Tax (Attachment A); and 2. Approve a Resolution authorizing the examination of Transaction and Use Tax records (Attachment B); and 3. Authorize the City Manager to amend the agreement with Hinderliter, De Llamas, and Associates (HdL Companies) for continued Transaction and Use Tax Audit and Information Services. DISCUSSION Background On November 3, 2020, the voters of the City of San Luis Obispo approved Measure G-20, a 1.5 cent Community Services and Investment Local Transactions (Sales) and Use Tax measure to provide funding to protect the City of San Luis Obispo’s financial stability; maintain fire/community safety, health emergency/disaster preparedness; protect creeks from pollution; address homelessness; keep public areas clean/safe; retain local businesses’ maintain youth/senior services, streets, open space/natural areas, and other general services. The results of the election were certified by the County Clerk on November 25, 2020 and subsequently by the City Council on December 1, 2020. December 1, 2020 was also the date of the second reading of the ordinance that amended the existing Municipal Code chapter and reenacted in full the amended chapter 3.15 – Community Services and Investment Local Transactions (Sales) and Use Tax. The use of the local transactions and use tax revenue will be recommended by the City’s Revenue Enhancement Oversight Commission to the City Council as codified under amended Municipal Code Chapter 2.14. Item 11 Packet Page 185 Collection of the Local Transactions and Use Tax In order for the California Department of Tax and Fee Administration (CFTA) to begin the levy and collection of the additional local transaction and use tax, several documents need to be filed including a resolution (Attachment A) authorizing the City Manager to execute the agreements to implement the local transaction and use tax. Authorization to review records In addition, staff updated the resolution (Attachment B) required for pertinent staff to access and examine the transaction and use tax records which are deemed confidential. Only staff listed in the resolution will be given the privilege of review of the CDTFA records. The resolution also provides for the City’s sales tax consultant, HdL Companies to have access to the data for analysis and auditing purposes. Since the local transaction and use tax is administered separately by the CDTFA, a separate and updated agreement between the City and the consultant is necessary to allow for the services to continue. An important service provided by HdL Companies is the audit of tax remittances to ensure that all applicable tax is collected and submitted. HdL Companies works closely with the CDTFA to ensure such collection. Previous Council Action The City Council has most recently reviewed related items on July 21, 2020 and on September 9, 2020. The second reading of the ordinances amending Section 3.15 and Section 2.14 occurred on December 1, 2020 with the certification of the election results. Policy Context The local transactions and use tax is guided by the City’s Municipal Code section 3.15, which was amended in consideration of the approved measure. Chapter 2.14 of the Municipal Code, which stipulates the revenue oversight and use recommendation by the Revenue Enhancement Oversight Committee, was also updated in consideration of the voter approved measure. Public Engagement Extensive public outreach was done prior to the decision by the City Council to place the measure on the ballot. The item has been before Council in public session on various occasions, last in July to introduce the ordinance to amend Municipal Code chapter 3.15 and in September to amend Chapter 2.14 – Revenue Enhancement Oversight commission. FISCAL IMPACT Budgeted: No Budget Year: 2020-21 Item 11 Packet Page 186 Fiscal Analysis: Funding Sources Total Budget Available Current Funding Request Remaining Balance Annual Ongoing Cost General Fund N/A State Federal Fees Other: Total The measure in its entirety will provide approximately $21,600,000 annually in General Fund revenue until ended by the voters. At current levels, this is an additional $14,400,000 in General Fund revenue as the current local transactions and use tax of half a cent is budgeted to provide $7.2 million. ALTERNATIVES The City Council could decide not to approve the resolutions. This is not recommended as the California Department of Tax and Fee Administration will not begin the collection of the tax without the resolution designating a City executive to sign the required agreements. Attachments: a - Draft Resolution - CDTFA Execution of Agreements b - Draft Resolution - Authorizing Examination of Confidential Records Item 11 Packet Page 187 RESOLUTION NO. _____ (2020 SERIES) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO, CALIFORNIA, AUTHORIZING THE CITY MANAGER TO EXECUTE AGREEMENTS WITH THE CALIFORNIA DEPARTMENT OF TAX AND FEE ADMINISTRATION FOR IMPLEMENTATION OF A LOCAL TRANSACTIONS AND USE TAX WHEREAS, on December 1, 2020, the City Council approved Ordinance No. 1686 (2020 Series amending the City Municipal Code and providing for a local transaction and use tax as approved by the voters of San Luis Obispo on November 3, 2020; and WHEREAS, the California Department of Tax and Fee Administration (Department) administers and collects the transactions and use taxes for all applicable jurisdictions within the state; and WHEREAS, the Department will be responsible to administer and collect the transactions and use tax for the City; and WHEREAS, the Department requires that the City enter into a “Preparatory Agreement” and an “Administration Agreement” prior to implementation of said taxes, and WHEREAS, the Department requires that the City Council authorize the agreements; Item 11 Packet Page 188 Resolution No. _____ (2020 Series) Page 2 R _______ NOW, THEREFORE BE IT RESOLVED by the City Council of the City of San Luis Obispo that the “Preparatory Agreement” attached as Exhibit A and the “Administrative Agreement” attached as Exhibit B are hereby approved and the City Manager is hereby authorized to execute each agreement. Upon motion of _______________________, seconded by _______________________, and on the following roll call vote: AYES: NOES: ABSENT: The foregoing resolution was adopted this _____ day of _____________________ 2020. ____________________________________ Mayor Heidi Harmon ATTEST: ____________________________________ Teresa Purrington City Clerk APPROVED AS TO FORM: _____________________________________ J. Christine Dietrick City Attorney IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Luis Obispo, California, on ____________________________. ____________________________________ Teresa Purrington City Clerk Item 11 Packet Page 189 Resolution No. _____ (2020 Series) Page 3 R _______ AGREEMENT FOR PREPARATION TO ADMINISTER AND OPERATE CITY'S TRANSACTIONS AND USE TAX ORDINANCE In order to prepare to administer a transactions and use tax ordinance adopted in accordance with the provision of Part 1.6 (commencing with Section 7251) of Division 2 of the Revenue and Taxation Code, the City of San Luis Obispo, hereinafter called City, and the CALIFORNIA DEPARTMENT OF TAX AND FEE ADMINISTRATION, hereinafter called Department, do agree as follows: 1. The Department agrees to enter into work to prepare to administer and operate a transactions and use tax in conformity with Part 1.6 of Division 2 of the Revenue and Taxation Code which has been approved by a majority of the electors of the City and whose ordinance has been adopted by the City. 2. City agrees to pay to the Department at the times and in the amounts hereinafter specified all of the Department's costs for preparatory work necessary to administer the City's transactions and use tax ordinance. The Department's costs for preparatory work include costs of developing procedures, programming for data processing, developing and adopting appropriate regulations, designing and printing forms, developing instructions for the Department's staff and for taxpayers, and other appropriate and necessary preparatory costs to administer a transactions and use tax ordinance. These costs shall include both direct and indirect costs as specified in Section 11256 of the Government Code. 3. Preparatory costs may be accounted for in a manner which conforms to the internal accounting and personnel records currently maintained by the Department. The billings for costs may be presented in summary form. Detailed records of preparatory costs will be retained for audit and verification by the City. 4. Any dispute as to the amount of preparatory costs incurred by the Department shall be referred to the State Director of Finance for resolution, and the Director's decision shall be final. 5. Preparatory costs incurred by the Department shall be billed by the Department periodically, with the final billing within a reasonable time after the operative date of the ordinance. City shall pay to the Department the amount of such costs on or before the last day of the next succeeding month following the month when the billing is received. 6. The amount to be paid by City for the Department's preparatory costs shall not exceed one hundred seventy-five thousand dollars ($175,000) (Revenue and Taxation Code Section 7272.) 7. Communications and notices may be sent by first class United States mail. Communications and notices to be sent to the Department shall be addressed to: California Department of Tax and Fee Administration Attention: Administrator Local Revenue Branch P.O. Box 942879 MIC: 27 Sacramento, California 94279-0027 Item 11 Packet Page 190 Resolution No. _____ (2020 Series) Page 4 R _______ Communications and notices to be sent to City shall be addressed to: City of San Luis Obispo Attention: Finance Director 990 Palm Street San Luis Obispo, CA 93401 8. The date of this agreement is the date on which it is approved by the Department of General Services. This agreement shall continue in effect until the preparatory work necessary to administer City's transactions and use tax ordinance has been completed and the Department has received all payments due from City under the terms of this agreement. CITY OF SAN LUIS OBISPO CALIFORNIA STATE DEPARTMENT OF TAX AND FEE ADMINISTRATION By By (Signature) Administrator Local Revenue Branch (Typed Name) (Title) (Rev. 11/17) Item 11 Packet Page 191 Resolution No. _____ (2020 Series) Page 5 R _______ AGREEMENT FOR STATE ADMINISTRATION OF CITY TRANSACTIONS AND USE TAXES The City Council of the City of San Luis Obispo has adopted, and the voters of the City of San Luis Obispo (hereafter called “City” or “District”) have approved by the required majority vote, the City of San Luis Obispo Transactions and Use Tax Ordinance (hereafter called “Ordinance”), a copy of which is attached hereto. To carry out the provisions of Part 1.6 of Division 2 of the Revenue and Taxation Code and the Ordinance, the California State Department of Tax and Fee Administration, (hereinafter called the “Department”) and the City do agree as follows: ARTICLE I DEFINITIONS Unless the context requires otherwise, wherever the following terms appear in the Agreement, they shall be interpreted to mean the following: 1. "District taxes" shall mean the transactions and use taxes, penalties, and interest imposed under an ordinance specifically authorized by Revenue and Taxation code Division 2, Part 1.7, Chapter 2.3, and in compliance with Part 1.6, Division 2 of the Revenue and Taxation Code. 2. "City Ordinance" shall mean the City's Transactions and Use Tax Ordinance referred to above and attached hereto, Ordinance No.1686 (2020 Series) as amended from time to time, or as deemed to be amended from time to time pursuant to Revenue and Taxation Code Section 7262.2. ARTICLE II ADMINISTRATION AND COLLECTION OF CITY TAXES A. Administration. The Department and City agree that the Department shall perform exclusively all functions incident to the administration and operation of the City Ordinance. B. Other Applicable Laws. City agrees that all provisions of law applicable to the administration and operation of the Department Sales and Use Tax Law which are not inconsistent with Part 1.6 of Division 2 of the Revenue and Taxation Code shall be applicable to the administration and operation of the City Ordinance. City agrees that money collected pursuant to the City Ordinance may be deposited into the State Treasury to the credit of the Retail Sales Tax Fund and may be drawn from that Fund for any authorized purpose, including making refunds, compensating and reimbursing the Department pursuant to Article IV of this Agreement, and transmitting to City the amount to which City is entitled. Item 11 Packet Page 192 Resolution No. _____ (2020 Series) Page 6 R _______ C. Transmittal of money. 1. For the period during which the tax is in effect, and except as otherwise provided herein, all district taxes collected under the provisions of the City Ordinance shall be transmitted to City periodically as promptly as feasible, but not less often than twice in each calendar quarter. 2. For periods subsequent to the expiration date of the tax whether by City’s self- imposed limits or by final judgment of any court of the State of California holding that City’s ordinance is invalid or void, all district taxes collected under the provisions of the City Ordinance shall be transmitted to City not less than once in each calendar quarter. 3. Transmittals may be made by mail or electronic funds transfer to an account of the City designated and authorized by the City. A statement shall be furnished at least quarterly indicating the amounts withheld pursuant to Article IV of this Agreement. D. Rules. The Department shall prescribe and adopt such rules and regulations as in its judgment are necessary or desirable for the administration and operation of the City Ordinance and the distribution of the district taxes collected thereunder. E. Preference. Unless the payor instructs otherwise, and except as otherwise provided in this Agreement, the Department shall give no preference in applying money received for state sales and use taxes, state-administered local sales and use taxes, and district transactions and use taxes owed by a taxpayer, but shall apply moneys collected to the satisfaction of the claims of the State, cities, counties, cities and counties, redevelopment agencies, other districts, and City as their interests appear. F. Security. The Department agrees that any security which it hereafter requires to be furnished by taxpayers under the State Sales and Use Tax Law will be upon such terms that it also will be available for the payment of the claims of City for district taxes owing to it as its interest appears. The Department shall not be required to change the terms of any security now held by it, and City shall not participate in any security now held by the Department. G. Records of the Department. When requested by resolution of the legislative body of the City under section 7056 of the Revenue and Taxation Code, the Department agrees to permit authorized personnel of the City to examine the records of the Department, including the name, address, and account number of each seller holding a seller’s permit with a registered business location in the City, pertaining to the ascertainment of transactions and use taxes collected for the City. Information obtained by the City from examination of the Department's records shall be used by the City only for purposes related to the collection of transactions and use taxes by the Department pursuant t o this Agreement. Item 11 Packet Page 193 Resolution No. _____ (2020 Series) Page 7 R _______ H. Annexation. City agrees that the Department shall not be required to give effect to an annexation, for the purpose of collecting, allocating, and distributing District transactions and use taxes, earlier than the first day of the calendar quarter which commences not less than two months after notice to the Department. The notice shall include the name of the county or counties annexed to the extended City boundary. In the event the City shall annex an area, the boundaries of which are not coterminous with a county or counties, the notice shall include a description of the area annexed and two maps of the City showing the area annexed and the location address of the property nearest to the extended City boundary on each side of every street or road crossing the boundary. ARTICLE III ALLOCATION OF TAX A. Allocation. In the administration of the Department's contracts with all districts that impose transactions and use taxes imposed under ordinances, which comply with Part 1.6 of Division 2 of the Revenue and Taxation Code: 1. Any payment not identified as being in payment of liability owing to a designated district or districts may be apportioned among the districts as their interest appear, or, in the discretion of the Department, to all districts with which the Department has contracted using ratios reflected by the distribution of district taxes collected from all taxpayers. 2. All district taxes collected as a result of determinations or billings made by the Department, and all amounts refunded or credited may be distributed or charged to the respective districts in the same ratio as the taxpayer's self-declared district taxes for the period for which the determination, billing, refund or credit applies. B. Vehicles, Vessels, and Aircraft. For the purpose of allocating use tax with respect to vehicles, vessels, or aircraft, the address of the registered owner appearing on the application for registration or on the certificate of ownership may be used by the Department in determining the place of use. ARTICLE IV COMPENSATION The City agrees to pay to the Department as the State's cost of administering the City Ordinance such amount as is provided for by law. Such amounts shall be deducted from the taxes collected by the Department for the City. ARTICLE V MISCELLANEOUS PROVISIONS A. Communications. Communications and notices may be sent by first class United States mail to the addresses listed below, or to such other addresses as the parties may from time to time designate. A notification is complete when deposited in the mail. Item 11 Packet Page 194 Resolution No. _____ (2020 Series) Page 8 R _______ Communications and notices to be sent to the Department shall be addressed to: California State Department of Tax and Fee Administration Attention: Administrator Local Revenue Branch P.O. Box 942879 Sacramento, California 94279-0027 Communications and notices to be sent to the City shall be addressed to: City of San Luis Obispo Attention Finance Director 990 Palm Street San Luis Obispo, CA 93401 Unless otherwise directed, transmittals of payment of District transactions and use taxes will be sent to the address above. B. Term. The date of this Agreement is the date on which it is approved by the Department of General Services. The Agreement shall take effect on ___________________. This Agreement shall continue until December 31 next following the expiration date of the City Ordinance, and shall thereafter be renewed automatically from year to year until the Department completes all work necessary to the administration of the City Ordinance and has received and disbursed all payments due under that Ordinance. C. Notice of Repeal of Ordinance. City shall give the Department written notice of the repeal of the City Ordinance not less than 110 days prior to the operative date of the repeal. Item 11 Packet Page 195 Resolution No. _____ (2020 Series) Page 9 R _______ ARTICLE VI ADMINISTRATION OF TAXES IF THE ORDINANCE IS CHALLENGED AS BEING INVALID A. Impoundment of funds. 1. When a legal action is begun challenging the validity of the imposition of the tax, the City shall deposit in an interest-bearing escrow account, any proceeds transmitted to it under Article II. C., until a court of competent jurisdiction renders a final and non-appealable judgment that the tax is valid. 2. If the tax is determined to be unconstitutional or otherwise invalid, the City shall transmit to the Department the moneys retained in escrow, including any accumulated interest, within ten days of the judgment of the trial court in the litigation awarding costs and fees becoming final and non-appealable. B. Costs of administration. Should a final judgment be entered in any court of the State of California, holding that City's Ordinance is invalid or void, and requiring a rebate or refund to taxpayers of any taxes collected under the terms of this Agreement, the parties mutually agree that: 1. Department may retain all payments made by City to Department to prepare to administer the City Ordinance. 2. City will pay to Department and allow Department to retain Department's cost of administering the City Ordinance in the amounts set forth in Article IV of this Agreement. 3. City will pay to Department or to the State of California the amount of any taxes plus interest and penalties, if any, that Department or the State of California may be required to rebate or refund to taxpayers. 4. City will pay to Department its costs for rebating or refunding such taxes, interest, or penalties. Department's costs shall include its additional cost for developing procedures for processing the rebates or refunds, its costs of actually making these refunds, designing and printing forms, and developing instructions for Department's staff for use in making these rebates or refunds and any other costs incurred by Department which are reasonably appropriate or necessary to make those rebates or refunds. These costs shall include Department's direct and indirect costs as specified by Section 11256 of the Government Code. 5. Costs may be accounted for in a manner, which conforms to the internal accounting, and personnel records currently maintained by the Department. The billings for such costs may be presented in summary form. Detailed records will be retained for audit and verification by City. 6. Any dispute as to the amount of costs incurred by Department in refunding taxes shall be referred to the State Director of Finance for resolution and the Director's decision shall be final. Item 11 Packet Page 196 Resolution No. _____ (2020 Series) Page 10 R _______ 7. Costs incurred by Department in connection with such refunds shall be billed by Department on or before the 25th day of the second month following the month in which the judgment of a court of the State of California holding City's Ordinance invalid or void becomes final. Thereafter Department shall bill City on or before the 25th of each month for all costs incurred by Department for the preceding calendar month. City shall pay to Department the amount of such costs on or before the last day of the succeeding month and shall pay to Department the total amount of taxes, interest, and penalties refunded or paid to taxpayers, together with Department costs incurred in making those refunds. CITY OF SAN LUIS OBISPO CALIFORNIA STATE DEPARTMENT OF TAX AND FEE ADMINISTRATION By By (Signature) Administrator Local Revenue Branch (Typed Name) (Title) Item 11 Packet Page 197 R ______ RESOLUTION NO. _____ (2020 SERIES) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO, CALIFORNIA, AUTHORIZING THE EXAMINATION OF TRANSACTIONS (SALES) AND USE TAX RECORDS WHEREAS, pursuant to Ordinance No. 1866 (2020 Series) of San Luis Obispo, hereinafter referred to as District, and Section 7270 of the Revenue and Taxation Code, the District entered into a contract with the California Department of Tax and Fee Administration (CDTFA) to perform all functions incident to the administration and operation of the Transactions and Use Tax Ordinance; and WHEREAS, the District deems it desirable and necessary for authorized representatives of the District to examine confidential transactions and use tax records of the California Department of Tax and Fee Administration pertaining to transactions and use taxes collected by the Board for the District pursuant to that contract; and WHEREAS, Section 7056 of the Revenue and Taxation Code sets forth certain requirements and conditions for the disclosure of California Department of Tax and Fee Administration records and establishes criminal penalties for the unlawful disclosure of information contained in or derived from, the transactions and use tax records of the Board; NOW, THEREFORE IT IS RESOLVED by the Council of the City of San Luis Obispo as follows: Section 1. That the City Manager, the Finance Director, the Deputy City Manager, and the Principal Budget Analyst of the District designated in writing by the City Manager to the California Dept of Tax and Fee Administration (hereafter referred to as the CDTFA) are hereby appointed to represent the District with authority to examine transactions and use tax records of the CDTFA pertaining to transactions and use taxes collected for the District by the CDTFA pursuant to the contract between the District and the CDTFA. The information obtained by examination of CDTFA records shall be used only for purposes related to the collection of the District’s transactions and use taxes by the CDTFA pursuant to the contract. Section 2. That the City Manager, or other officers or employees of the District designated in writing by the City Manager to the CDTFA are hereby appointed to represent the District with authority to examine those transactions and use tax records of the Board for purposes related to the following governmental functions of the District: a) Revenue management and budgeting b) Community and economic development c) City Administration d) Business License and Tax administration The information obtained by examination of CDTFA records shall be used only for those governmental functions of the District listed above. Item 11 Packet Page 198 Resolution No. _____ (2020 Series) Page 2 R ______ Section 3. That Hinterliter, De Llamas and Associates (HdL Companies) is hereby designated to examine the transactions and use tax records of the California Department of Tax and Fee Administration pertaining to transactions and use taxes collected for the District by the Department. The person or entity designated by this section meets all of the following conditions: a) has an existing contract with the District to examine those transactions and use tax records; b) is required by that contract to disclose information contained in, or derived from those transactions and use tax records only to the officer or employee authorized under Section 1 and Section 2 of this resolution to examine the information; c) is prohibited by that contract from performing consulting services for a retailer during the term of that contract; d) is prohibited by that contract from retaining the information contained in or derived from those transactions and use tax records after that contract has expired. BE IT FURTHER RESOLVED that the information obtained by examination of Board records shall be used only for purposes related to the collection of District’s transactions and use taxes by the Board pursuant to the contracts between the District and Board. Item 11 Packet Page 199 Resolution No. _____ (2020 Series) Page 3 R ______ Section 4. That this resolution supersedes all prior transactions and use tax resolutions of the City of San Luis Obispo adopted pursuant to subdivision (b) of Revenue and Taxation Section 7056. Upon motion of _______________________, seconded by _______________________, and on the following roll call vote: AYES: NOES: ABSENT: The foregoing resolution was adopted this _____ day of _____________________ 2020. ____________________________________ Mayor Heidi Harmon ATTEST: ____________________________________ Teresa Purrington City Clerk APPROVED AS TO FORM: _____________________________________ J. Christine Dietrick City Attorney IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Luis Obispo, California, on ____________________________. ____________________________________ Teresa Purrington City Clerk Item 11 Packet Page 200