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HomeMy WebLinkAbout05/15/1990, C-6 - SALES TAX AUDIT AND INFORMATION SERVICES M NG DATE: 'uw►I�I� Ails 11 city of San tins OBISPO GRIGN COUNCIL AGENDA REPORT : � From: William C. Statl ctor of Finance Prepared By: Dixon Flynn, cc ystems Manager Subject: Sales Tax Audit and Information Services RECOMMENDATION Authorize by Resolution certain City Officials and a City Contractor access to sales and use tax records pursuant of Government Code Section 7056 and authorize the Director of Finance to approve and sign the attached "Agreement for Sales Tax Audit and Information Services" with the firm of Hinderliter, De Llamas and Associates. DISCUSSION A. Background As discussed in the Mid-Year Budget Review submitted to the City Council on March 5, 1990, the City's sales tax revenue is relatively flat compared with receipts from the prior fiscal year. In the 1989-91 Financial Plan, staff projected an annual increase of approximately 6%. Due to the significance of sales tax revenue, a 6 % variance has a negative impact on General Fund balances of the City of almost $400,000. It is reasonable to assume that current sales tax revenue trends reflect the increased competitive pressure from both the North and South County areas. However, it is not possible at this time to identify which sectors of the City's economy are being affected by these retail changes; and without this information, it is difficult to fully evaluate all of the factors affecting the City's retail base. The recommended consulting firm of Hinderliter, de Llamas and Associates developed software specifically designed to collect and manage the information provided by the State to assist cities in evaluating and managing their sales tax revenues. The services provided by this firm includes: o Performing audits to ensure that the City is correctly allocated its sales tax revenues from the State. o Providing quarterly reports of sales tax activities by business type and area. o Monitoring aberrations in sales tax allocations from the State. o Working with businesses on possible changes in procedures (at no cost) that can result in increased allocations to the City. o Improving business tax collections by coordinating data base information. B. Hinderliter, de Llamas and Associates There are several firms in the State of California that may be able to provide comparable services to those provided by the recommended firm. However, there have been a significant number of business failures during the past several years by companies attempting to enter this market. During this period, the firm of Hinderliter, de Llamas and Associates has not only remained stable, but has grown significantly; at this time, Hinderliter, de Llamas and Associates has over 80 California cities as clients. Due to the importance of this information to the City in managing its long-term financial health, stability and integrity is an important consideration in selecting a firm to provide this service. Hinderliter, de Llamas and Associates is well qualified to perform the services requested by the City. One of the principal officers of the firm was a former City Manager. As noted above, the programs they offer are well tested and currently being used by over 80 cities throughout California. A copy of their Sales Tax Management Proposal is attached which summarizes the scope of services offered, pricing, standard agreement, and their experience and ability to successfully perform. C. Revenue and Taxation Code Section 7056 of the Revenue and Taxation Code requires the City Council to request sales tax information from the State by Resolution naming the City officials and contractors authorized to receive and review sales and use tax transactions of the City. Accordingly, the attached Resolution is provided to the City Council for the necessary authority to allow the firm of Hinderliter and de Llamas to receive sales and use tax transactions. CONCURRENCES In March 1990,Mr. de Llamas made a presentation as to the services his firm could provide to the City. In addition to City staff, Dave Garth of the Chamber of Commerce and Dodie Williams of the BIA attended. Dave Garth and Dodie Williams stated that this information would be very helpful to the business community and encouraged Staff to obtain these services. FISCAL IMPACT A. Cost and Budget. The cost of this program will be $5,000 per year plus IS% on new sales tax revenues identified by Hinderliter and Associates. Funds are available in the Financial Administration Program of the 1989-91 Financial Plan under contract services (page D-88). B. Purchasing Procedures The Purchasing Control Manual (PC 402-1) allows the Director of Finance to approve and sign professional service contracts costing less than $10,000 after review and approval by the City Attorney and the City Administrative Officer. Attachments: Sales tax management proposal Agreement for sales tax audit and information services Resolution to authorize us of sales tax transactions RESOLUTION NO. (1990 Series) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO AUTHORIZING CERTAIN CITY OFFICIALS AND A CITY CONTRACTOR ACCESS TO SALES AND USE TAX RECORDS PURSUANT TO GOVERNMENT CODE SECTION 7056 THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO HEREBY RESOLVES AS FOLLOWS: Section 1. The following City officials are hereby authorized to receive and review sales and use tax transactions, for the City of San Luis from the Board of Equalization: Mayor and Councilmembers City Administrative Officer Director of Finance Section 2. The following independent contractor for the City of San Luis Obispo is hereby also authorized to receive and review sales and use tax transactions for the City of San Luis Obispo. Hinderliter, de Llamas & Associates: Robert Hinderliter, Principal, Lloyd de . Llamas, Principal. Section 3. The City of San Luis Obispo hereby certifies that Hinderliter, de Llamas & Associates: A. Has an existing contract with the City of San Luis Obispo to receive sales and use tax records; and B. Is required by that to disclose information contained in,or derived from, those sales and use tax records only to an officer or employee of the City who is authorized by this resolution to examine the information; and C. Is prohibited by that contract from performing consulting services for a retailer during the term of that contract; and D. Is prohibited by that contract from retaining the information contained in, or derived from those sales tax records, after that contract has expired. Section 4. information obtained by examination of the board of records shall be used only for purposes related to the collection of local sales and use taxes by the board pursuant to the contract, and for Municipal Revenue Forecasting. Section 5. This resolution supersedes previous authorizations. Section 6. The City Clerk shall certify to the adoption of this Resolution and send forward a certified copy to the Board of Equalization. CI Upon motion of seconded by and on the following roll call vote: AYES: NOES: ABSENT: the foregoing resolution was adopted this day of 1990. Mayor Ron Dunin ATTEST: Pam Voges, City Clerk APPROVED t City A inistrative Officer I*tyor C� r AGREEMENT FOR SALES TAX AUDIT AND INFORMATION SERVICES This agreement is made and entered into by and between the CITY OF SAN LUIS OBISPO, a municipal corporation hereinafter called CITY, and HINDERLITER, DE LLAMAS AND ASSOCIATES a California Corporation, hereinafter called CONTRACTOR. RECITALS WHEREAS, sales tax revenues can be increased through: a system of continuous monitoring, identification and correction of"point of sale" allocation errors and; WHEREAS, an effective program of sales tax management will improve identification of sales tax opportunities as they relate to economic development and provide for more accurate sales tax forecasting; and WHEREAS, City desires the combination of data entry, report preparation, and data analysis necessary to effectively manage the municipal sales tax base and recover revenues erroneously allocated to other jurisdictions and allocation pools; and WHEREAS, Contractor has the programs, equipment and personnel required to deliver the sales tax services referenced herein; THEREFORE, City and Consultant, for the consideration hereinafter described, mutually agree as follows: -S 1 SERVICES The Contractor shall perform the following services:. A. Sales tax and economic analysis 1. Contractor shall establish a special data base that identifies the name, address and quarterly allocations of the major sales tax producers within the City for the most current and previous four quarters from the date of this agreement. Major sales tax producers are defined as those businesses meeting a quarterly revenue threshold determined by City. Since 100% of the business outlets registered with the Board of Equalization are tracked monthly, this major producers data base is designed to highlight the activities of major businesses. A second data base covering the. same period will be established showing total sales tax receipts for each business category identified by the Board of Equalization. These data bases will be utilized to generate special reports to the City on: major sales tax producers by rank and category, analysis of sales tax activity by category and business districts or redevelopment areas specified by City, analysis of reporting aberrations, and per capita and outlet comparisons with state wide sales. 2. Contractor shall provide up-dated reports each quarter identifying changes in sales by major outlets and by category; area growth and decline comparisons; and current graphics, tables, and top 100 listings. Quarterly aberrations due to State audits, fund transfers, and receivables along with late or double payments will be identified. 3. Contractor will additionally provide an analysis for the City to share with Chambers of Commerce and other economic development interest groups That analyze City's sales _J 2 1i/ t . , tax trends by major groups, and geographic areas without disclosing confidential information. 4. Contractor will provide annual reports for the City Administrative Officer identifying historical growth comparisons with state, county, selected city averages and C.P.I. indices; top producer listings and make up and volatility of the economic base. Annual reconciliation worksheets to assist the Director of Finance with budget forecasting will also be provided. 5. Contractor shall make available to City Staff the HdL DATA computer program and data base containing sellers permit information for all in-city business outlets registered with the Board of Equalization. In addition, contractor shall process for City the monthly registration and allocation files provided by the Board in magnetic media. Printouts of registration changes and dollars allocated by business name and number will be provided from these files on a monthly basis. B. Allocation Audit and Recovery 1. Contractor shall conduct an initial and on-going sales tax audit in order to identify and correct "point-of-sale" distribution errors and thereby generate previously unrealized sales tax income for the City. Common errors that will be monitored and corrected include: transposition errors resulting in misallocation; erroneous consolidation of multiple outlets; misreporting of "point of sale" from the wrong location; delays in reporting new outlets; misidentifying transactions as a "use tax" rather than a "sales tax," and erroneous fund transfers and adjustments. 3 C - (Q 2. Contractor will initiate contacts with the appropriate sales management and �. accounting officials in companies that have businesses where a probability of error exists to verify whether current tax receipts accurately reflect the local sales activity. Such contracts will be conducted in a manner to encourage local business retention and expansion. 3. Contractor shall prepare and submit to the Board of Equalization all information necessary to correct any allocation errors that are identified and shall follow-up with the individual businesses and the State Board of Equalization to ensure that all back quarter payments due the City are recovered. 4. If during the course of its audit; Contractor finds businesses located in the City that are properly reporting sales tax but have the potential for modifying their operation,to provide an even greater share to the City, Contractor will work with those businesses and the City to encourage such changes. C. On Going Consultation Contractor shall work with City on questions related to tenant mix alternatives for maximum sales tax returns; advise City business license staff on utilization of reports to enhance business license collection efforts; provide sales tax projections on specific projects and city budget purposes; and provide sample reports, letters and programs to enhance the sales tax base. 4 C ® (o CONFIDENTIALITY Section 7056 of the State of California Revenue and Taxation code specifically limits the disclosure of confidential taxpayer information contained in the records of the State Board of Equalization. This section specified the conditions under which a City may authorize persons other than City officers and employees to examine State Sales and Use Tax records. The following conditions speed in Section 7056 (b), (1) of the State of California Revenue and Taxation Code are hereby made part of this contractual agreement. A Contractor is authorized by this agreement to examine sales and use tax records of the Board of Equalization provided to City pursuant to contract under the Bradley-Burns Uniform Sales and Use Tax Law. B. Contractor is required to disclose information contained in, or derived from, those sales and use tax records only to an officer or employee of the City who is authorized by resolution to examine the information. C. Contractor is prohibited from performing consulting services for a retailer during the term of this agreement. D. Contractor is prohibited from retaining the information contained in, or derived from those sales and use tax records,'after this agreement has expired. Information obtained by examination of board records shall be used only for purposes related to collection of local sales and use tax or for other governmental functions of the City as set forth by resolution adopted pursuant to Section 7056 (b) of the Revenue and taxation Code.. The 5 resolution shall designate the Contractor as a person, authorized to examine sales and use tax records and certify that this agreement meets the requirements set forth above and in Section 7056 (b), (1) of the Revenue and Taxation Code. CONSIDERATION A. Contractor shall establish the sales tax and audit data bases and shall provide the monthly and quarterly updates referenced above for a fee of $600.00 per month, invoiced quarterly. B. Contractor shall be further paid 15% of all new Sales and/or Use tax revenue received by the City as a result of audit and recovery work performed by Contractor. Said percentage fee will apply to fund transfers received for back quarter reallocations and monies received in the first eight consecutive reporting quarters following completion of the audit by Contractor and confirmation of corrections by the State Board of Equalization. Contractor shall obtain City approval prior to beginning the work of correcting tax reporting methodology or "point of sale" for specific businesses where said payment of the percentage fee will be expected. Said approval shall be accomplished by the City Administrative Officer .or,his ,desiSnated representative on the Sales Tax Audit Authorization form, a copy of which is attached as "Exhibit A." City shall pay audit fees upon Contractor's submittal of evidence of State Fund Transfers and payments to City from businesses identified in the audit and approved by the City. C. Above sum shall constitute full reimbursement to Contractor for all direct and indirect expenses incurred by Contractor in performing audits including the salaries of �\ 6 G � � lC Contractor's employees, and travel expenses connected with contacting local and out-of- state businesses and Board of Equalization representatives. CITY MATERIALS AND SUPPORT City shall adopt a resolution in a form acceptable to the State Board of Equalization and in compliance with Section 7056 of the Revenue and taxation Code, authorizing Contractor to examine the confidential sales tax records of City. City further agrees to provide any information or assistance that may readily be available such as business within the City and copies of the monthly sales tax allocation reports received from the board of Equalization. TERMINATION This agreement may be terminated by either party with 30 days written notice. Upon the presentation of such notice, Contractor may continue to work through the date of termination. Upon termination, Contractor shall be paid the value of all tax analysis and reporting work performed in accordance with paragraphs A and B above under "Consideration" less payments previously made. Compensation for any audit work previously authorized and satisfactorily performed shall be made at the times provided in the preceding section entitled "Consideration." All documents, data, surveys and reports prepared by Contractor pursuant to this agreement shall be considered the property of the City and upon payment for services performed by Contractor, such documents and other identified materials shall be delivered to City by Contractor. 7 f INDEPENDENT CONTRACTOR Contractor shall perform the services hereunder as an independent contractor and shall furnish such services in his own manner and method, and under no circumstances or conditions shall any agent, servant, or employee of Contractor be considered as an employee of City. Nothing in this agreement shall be considered to create the relationship of employer and employee between the parties hereto. Neither Consultant nor any employee of Consultant shall be entitled to any benefits accorded City employees by virtue of the services provided under this agreement. The City shall not be responsible for withholding or otherwise deducting federal income tax or social security or for covering the Consultant under its workers' compensation insurance program, or otherwise assuming the duties of an employer with respect to Consultant, or any employee of Consultant. NON-ASSIGNMENT This Agreement is not assignable either in whole or in part by Contractor without the written consent.of City. ATTORNEY'S FEES In the event a legal action is commenced to enforce any of the provisions of this Agreement, the prevailing party shall be entitled to recover its costs and reasonable attorney's fees. 8 J GOVERNING LAW The laws of the State of California shall govern the rights, obligations, duties and liabilities of the parties to this agreement and shall also govern the interpretation of this agreement. INDEMNIFICATION Contractor hereby agrees to, and shall hold City, its elective and appointive boards officers, agents and employees, harmless from any liability for damage or claims for damage for personal injury, including death, as well as from claims for breach of confidentiality or property damage which may arise from Contractor's negligent acts, errors or omissions under this Agreement. Contractor agrees to and shall defend City and its elective and appointive boards, officers, agents and employees from any suits or actions at law or in equity for damages caused, or alleged to have been caused, by reason of any of the aforesaid negligent acts, errors or omissions. City hereby agrees to, and shall hold Contractor, its officers, agents and employees, harmless from any liability for damage or claims for damage for personal injury, including death, as well as from claims for breach of confidentiality or property damage which may arise from City's negligent acts, errors or omissions under this Agreement. City agrees to and shall defend Contractor and its officers, agents and employees from any suits or actions at law or in equity for damage caused, or alleged to have been caused, by reason of any of the aforesaid negligent- acts, errors or omissions. The Consultant shall secure and maintain in force throughout the duration of this contract j comprehensive general liability insurance with a minimum coverage of $500,000 per occurrence for personal injury; and $500,000 per occurrence for property damage. Said C -lo _ 13 I general liability policy shall name the City of San Luis Obispo as an additional named insured i and shall include a provision prohibiting cancellation of said policy except upon thirty (30) days prior written notice to the City. Certificates of coverage as required by this section shall be delivered to the City within fifteen (15) days of execution of this agreement. COVENANT AGAINST CONTINGENT FEES The Consultant warrants that he has not employed or retained any company or person, other than a bonafide employee working solely for the Consultant, or to solicit or secure this contract, and that he has not paid or agreed to pay any company or person, other than a bonafide employee working solely for the Consultant, any fee, commission, percentage, brokerage fee, gifts, or any other consideration.contingent upon or resulting from the award or making of this contract. For breach or violation of this warranty, the City shall have the right to annul this contract without liability or, in its discretion, to deduct from the contract price or consideration, or otherwise recover, the full amount of such fee, commission, percentage, i brokerage fee, gift or contingent fee. DISCRIMINATION PROHIBITED The. Consultant, with regard to the work performed by him under this agreement, will not discriminate on the grounds of race, color-, national origin, religion, creed, age, sex or the presence of any physical or sensory handicap in the selection and retention of employees or procurement of materials or supplies. NOTICE All notices required by this Agreement shall be given to City and Contractor in writing, by first class mail postage prepaid, addressed as follows: Citv: CITY OF SAN LUIS OBISPO P. O. Box 8100 San Luis Obispo, California 93403 10 ` � I Contractor: HINDERLTTER, DE LLAMAS, & ASSOCIATES 150 West First Street, Suite 280 Claremont, California 91711-4139 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the date first above written by their respective officers duly authorized in that behalf. Dated this day of , 19_ CITY: CITY OF SAN LUIS OBISPO Director of Finance CONTRACTOR: HINDERLITER, DE S & ASSOCIATES A Califortua'�orporation C APPROVED AS TO FORM: ty to y C SAMPLE SAMPLE EXHIBIT A Sales Tax Audit Work Authorization No. The following business or businesses, located in the City of , have been identified as having the potential for generating additional sales tax revenue to the City of Contractor is hereby authorized to contact the given business(s) and the State Board of Equalization to verify the accuracy of the current reporting methodology and, obtain the necessary documentation for the Board of Equalization, to modify allocation formulas, and to return previous misallocated revenue that may be due to City. Contractor's compensation shall be 15% of the incremental growth generated by the above business (and/or businesses) for the first eight quarters following completion of work, plus any _. recovered back quarters. The base shall be the average of the last four quarters of revenue received from the business, if any, less any amounts determined by City or Contractor to be increment attributable to causes other than Contractor's work. Contractor shall provide City with an itemized quarterly invoice showing all formula calculations and amounts due. CITY OF By: Date HINDERLITER, DE LLAMAS AND ASSOCIATES By: Date 12