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.
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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
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City A inistrative Officer
I*tyor
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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:
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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
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, 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.
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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.
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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
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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 �\
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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.
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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.
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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
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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
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general liability policy shall name the City of San Luis Obispo as an additional named insured
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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,
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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
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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
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APPROVED AS TO FORM:
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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
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