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HomeMy WebLinkAbout10 AGREEMENT FOR SALES, USE AND TRANSACTIONS TAX AUDIT AND INFO SERVICESy'~., Agenda Item ~_ -~~=~~ AGENDA REPORT Reviewed: ~,. > ~T City Manager ~A,.~" Finance Director MEETING DATE: FEBRUARY 16, 2010 TO: WILLIAM A. HUSTON, CITY MANAGER FROM: PAMELA ARENDS-KING, FINANCE DIRECTOR SUBJECT: AGREEMENT FOR SALES, USE AND TRANSACTIONS TAX AUDIT AND INFORMATION SERVICES SUMMARY: Approve the agreement with Hinderliter, De Llamas and Associates (HDL) for sales, use and transactions tax audit and information services and adopt resolution no. 10-25, authorizing examination of sales, use and transaction tax records. RECOMMENDATION: It is recommended that the City Council: 1. Adopt resolution no. 10-25 authorizing examination of sales, use and transaction tax records by HDL. 2. Approve agreement with HDL for sales, use and transactions tax audit and information services FISCAL IMPACT: HDL will provide sales and transactions tax databases, ongoing reports and analysis and shall make available the computer software program and databases for a monthly fee of $650. For each event of sales tax recovered through HDL's audit and recovery work, the City shall pay a fee of 15% based on the revenue recovered. BACKGROUND: Sales tax revenue is the City's largest revenue source therefore receiving the most up to date and thorough information regarding the sales tax revenue is critical for revenue projections and budgeting. It is also important for economic development within the City. HDL will provide the services necessary to provide that up to date and thorough sales tax revenue information. HDL will establish a special database for the City that identifies the name, address and quarterly allocations of all sales tax producers within the City and categorize them based on rank, major sales tax producers, activities and/or however the City requests the information be categorized. The firm will also provide quarterly summaries or that sales tax data and make available sales tax computer software program and database containing sellers permit and quarterly allocation information for all in-city business outlets registered with the Board of Equalization and updated quarterly. AGREEMENT FOR SALES, USE AND TRANSACTIONS TAX AUDIT AND INFORMATION SERVICES FEBRUARY 16, 2010 Page 2 HDL will complete on-going sales and use tax audits to identify and correct distribution errors that will generate previously unrealized sales tax revenue. The firm will also 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 sales tax revenue agree with their local sales tax activity. Resolution no. 10-25 authorizes the information for the City to HD~. All confidential information for staff use only State Board of Equalization to provide sales tax information collected and provided to the City is Respectfully submitted, ~.~~~ a~~ -~_ Pamela Arends-King Finance Director Attachments: Resolution no. 10-25 Agreement for Sales, Use and Transactions Tax Audit and Information Services RESOLUTION NO. 10-25 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUSTIN, CALIFORNIA, AUTHORIZING EXAMINATION OF SALES, USE AND TRANSACTIONS TAX RECORDS The City Council of the City of Tustin (the "City") does hereby resolve as follows: WHEREAS, pursuant to Ordinance No. 708, the City of Tustin entered into a contract with the State Board of Equalization to perform all functions incident to the administration and collection of local sales, use and transactions taxes; and WHEREAS, the City Council of the City of Tustin deems it desirable and necessary for authorized representatives of the City to examine confidential sales, use and transactions tax records of the State Board of Equalization pertaining to sales, use and transactions taxes collected by the Board for the City pursuant to that contract; and WHEREAS, Section 7056 of the California Revenue and Taxation Code sets forth certain requirements and conditions for the disclosure of Board of Equalization records, and establishes criminal penalties for the unlawful disclosure of information contained in, or derived from, the sales, use and transactions tax records of the Board. NOW, THEREFORE, it is hereby ORDERED and DETERMINED, as follows: SECTION 1: That the City Manager, or other officer or employee of the City designated in writing by the City Manager to the State Board of Equalization (hereafter referred to as "Board"), is hereby appointed to represent the City of Tustin with authority to examine sales, use and transactions tax records of the Board pertaining to sales, use and transactions taxes collected for the City by the Board pursuant to the contract between .the City and the Board. The information obtained by examination of Board records shall be used only for purposes related to the collection of City sales, use and transactions taxes by the Board pursuant to that contract. SECTION 2: That the City Manager, or other officer or employee of the City designated in writing by the City Manager to the Board, is hereby appointed to represent the City with authority to examine those sales, use and transactions tax records of the Board, for purposes related to the following governmental functions of the City: Resolution No. 10-25 Page 2 (a) City administration (b) Revenue management and budgeting (c) Community and economic development (d) Business license tax administration The information obtained by examination of Board records shall be used only for those governmental functions of the City listed above. SECTION 3: That Hinderliter, de Llamas & Associates is hereby designated to examine the sales, use and transactions tax records of the Board pertaining to sales, use and transactions taxes collected for the City by the Board. The person or entity designated by this section meets all of the following conditions: (a) Has an existing contract with the city to examine those sales, use and transactions tax records; (b) Is required by the. contract to disclose information contained in, or derived from, those sales, use and transactions tax records only to the officer or employee authorized under Sections 1 or 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; and (d) Is prohibited by that contract from retaining the information contained in, or derived from those sales, use and transactions tax records, after that contract has expired. The information obtained by examination of Board records shall be used only for purposes related to the collection of City sales, use and transactions taxes by the Board pursuant to the contract between the City and the Board and for purposes relating to the governmental functions of the City listed in section 2 of this resolution. Resolution No. 10-25 Page 3 PASSED AND ADOPTED at a regular meeting of the City Council of the City of Tustin held on the 16tH day of February, 2010. Jerry Amante, Mayor ATTEST: PAMELA STOKER, City Clerk STATE OF CALIFORNIA ) COUNTY OF ORANGE ) SS CITY OF TUSTIN ) I, Pamela Stoker, City Clerk and ex-officio Clerk of the City Council of the City of Tustin, California, do hereby certify that the whole number of the members of the City Council is five; that the above and foregoing Resolution No. 10-25 was duly and regularly passed and adopted at a regular meeting of the City Council held on the 16tH day of February, 2010 by the following vote: COUNCILMEMBER AYES: COUNCILMEMBER NOES: COUNCILMEMBER ABSTAINED: COUNCILMEMBER ABSENT: PAMELA STOKER, City Clerk AGREEMENT FOR SALES, USE AND TRANSACTIONS TAX AUDIT AND INFORMATION SERVICES This Agreement is made and entered into as of the day of , 2010 by and between the CITY OF TUSTIN, a municipal corporation hereinafter called CITY, and HINDERLITER, DE LLAMAS AND ASSOCIATES a California Corporation, hereinafter called CONTRACTOR. I. RECITALS WHEREAS, sales, use and transactions tax revenues can be increased through: a system of continuous monitoring, identification and correction of allocation errors, and WHEREAS, an effective program of sales and use tax management will improve identification of economic opportunities; provide for more accurate sales and use tax forecasting; assist in related revenue collections; and WHEREAS, CITY desires the combination of data entry, report preparation and analysis necessary to effectively manage its sales and use tax base; recover revenues erroneously allocated to other jurisdictions and allocation pools; and maximize it's financial and ~~ economic planning; and WHEREAS, CONTRACTOR has the programs, equipment and personnel required to deliver the sales and use tax related services referenced herein; THEREFORE, CITY and CONTRACTOR, for the consideration hereinafter described, mutually agree as follows: Page 1 IL SERVICES The CONTRACTOR shall perform the following services: A. SALES TAX AND ECONOMIC ANALYSIS I. CONTRACTOR shall establish a special database that identifies the name, address and quarterly allocations of all sales tax producers within the CITY for the most current and all quarters back to fiscal year 1992-1993, or earlier, if the CITY has prior historical sales tax data available on computer readable magnetic media. This database will be utilized to generate special reports to the CITY on: major sales tax producers by rank and category, sales tax activity by categories, business districts or redevelopment areas, identification of reporting aberrations, and per capita and outlet comparisons with regional and statewide sales. 2. CONTRACTOR shall provide up-dated reports each quarter identifying changes in sales by individual businesses, business groups and categories and by geographic area. Quarterly aberrations due to State audits, fund transfers, and receivables along with late or double payments will be identified. Quarterly reconciliation worksheets to assist finance officer with budget forecasting will also be included. 3. CONTRACTOR shall additionally provide a quarterly summary analysis for the CITY or its Redevelopment Agency to share with Chambers of Commerce and other economic development interest groups that analyze CITY'S sales tax trends by major groups, and geographic areas without disclosing confidential information. Page 2 4. CONTRACTOR shall make available to CITY Staff the HdL sales tax computer software program and database containing sellers permit and quarterly allocation information for all in-city business outlets registered with the Board of Equalization and update quarterly. Software shall allow city staff to search business by street address, account number, business name, business type and keyword; arrange data by geographic area and print out a variety of reports. B. ALLOCATION AUDIT AND RECOVERY 1. CONTRACTOR shall conduct an initial and on-going sales and use tax audit to identify and correct 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 misallocations; erroneous consolidation of multiple outlets; misreporting of "point of sale" to the wrong location; delays in reporting new outlets; misallocating use tax payments to the allocation pools or wrong jurisdiction and erroneous fund transfers and adjustments. 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 contacts will be conducted in a professional and courteous manner so as to enhance CITY'S relations with the business community. 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 Page 3 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 shall so advise CITY and upon request, shall work with those businesses and the CITY to encourage such changes. C. ON GOING CONSULTATION Throughout the term of this agreement, CONTRACTOR shall advise and work with CITY and CITY Redevelopment Agency Staff on technical questions related to sales, use and transactions tax; advise CITY Business License staff on utilization of reports to enhance business license collection efforts; provide sales tax projections for proposed annexations, economic development projects and budget planning; and generally serve as support staff on sales, use and transactions tax related issues. III. 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 specifies 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 specified in Section 7056 (b), (1) of the State of California Revenue and Taxation Code are hereby made part of this agreement. Page 4 A. CONTRACTOR is authorized by this Agreement to examine sales, use or transactions 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, use or transactions 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, as defined in California Revenue & Taxation Code Section 6015, during the term of this Agreement. D. CONTRACTOR is prohibited from retaining the information contained in, or derived from those sales or transactions and use tax records, after this Agreement has expired. Information obtained by examination of Board of Equalization 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 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), (I) of the Revenue and Taxation Code. IV. PROPRIETARY INFORMATION In performing its duties under this agreement, CONTRACTOR will produce reports, technical information and other compilations of data for the CITY. These reports, technical information and compilations of data are derived by CONTRACTOR using Page 5 methodologies, formulae, programs, techniques and other processes designed and developed by CONTRACTOR at a substantial expense and are therefore considered by CONTRACTOR to be proprietary information. CONTRACTOR'S Proprietary Information is not generally known by the entities with which CONTRACTOR competes. CONTRACTOR desires to protect its Proprietary Information. Accordingly, CITY agrees that neither it nor any of its employees, agents, independent contractors or other persons or organizations over which it has control, will at any time during or after the term of the Agreement, directly or indirectly use any of CONTRACTOR'S Proprietary Information for any purpose not associated with CONTRACTOR'S activities. Further, CITY agrees that neither it nor any of its employees, agents, independent contractors or other persons or organizations over which it has control, will disseminate or disclose any of CONTRACTOR'S Proprietary Information to any person or organization not connected with CONTRACTOR, without the express written consent of CONTRACTOR. The CITY also agrees that it will undertake all necessary and appropriate steps to maintain the proprietary nature of CONTRACTOR'S Proprietary Information. V. CONSIDERATION A. CONTRACTOR shall establish the sales and transactions tax databases, shall provide the ongoing reports and analysis and shall make available the computer software program and databases referenced above for a fee of $650.00 per month, invoiced quarterly (hereafter referred to as "monthly fee") B. CONTRACTOR shall be further paid 15% of all new sales, transactions and/or use tax revenue received by the CITY as a result of audit and recovery work performed Page 6 by CONTRACTOR (hereafter referred to as "audit fees") including any reimbursement from the Sales and Use Tax Compensation Fund as outlined in Section 97.68 of the Revenue and Taxation Code. New sales, transactions and/or use tax revenue shall not include any amounts determined by CITY or CONTRACTOR to be increment attributable to causes other than CONTRACTOR'S work pursuant to this agreement. In the event that CONTRACTOR is responsible for an increase in the tax reported by businesses already properly making tax payments to the CITY, it shall be CONTRACTOR'S responsibility to separate and support the incremental amount attributable to its efforts prior to the application of the audit fee. Said audit fees will apply to state 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 provide CITY with an itemized quarterly invoice showing all formula calculations and amounts due for audit fees. 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 deemed given when the City Manager or his designated representative, signs a 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 CONTRACTOR'S employees, and travel expenses connected with Page 7 contacting local and out-of--state businesses and Board of Equalization representatives. VI. 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 license records within the CITY and to provide CONTRACTOR with proper identification for contacting businesses. CITY further agrees to continue CONTRACTOR'S authorization to examine the confidential sales tax records of the CITY by maintaining CONTRACTOR'S name on the CITY Resolution or by providing copies of future allocation reports on computer readable magnetic media until such time as all audit adjustments have been completed by the State Board of Equalization and audit fees due the CONTRACTOR have been paid. VII. LICENSE, PERMITS, FEES AND ASSESSENTS CONTRACTOR shall obtain such licenses, permits and approvals (collectively the "Permits") as may be required by law for the performance of the services required by this Agreement. CITY shall assist CONTRACTOR in obtaining such Permits, and CITY shall absorb all fees, assessments and taxes which are necessary for any Permits required to be issued by CITY. VIIL TERMINATION This Agreement may be terminated for convenience by either party by giving 30 days written notice to the other of such termination and specifying the effective date thereof. Page 8 Upon the presentation of such notice, CONTRACTOR may continue to work through the date of termination. Upon termination as provided herein, CONTRACTOR shall be paid the value of all tax analysis and reporting work performed less payments previously made by CITY. In ascertaining the value of the work performed up to the date of termination, consideration shall be given to amounts due for any unpaid invoices, and to businesses identified by CONTRACTOR which make tax payments after termination of this Agreement as a result of CONTRACTOR'S work. After CITY receives said tax payments for such businesses, CONTRACTOR shall be paid the audit fees resulting from tax payments made by the business for back quarter reallocations and the first eight consecutive reporting quarters following completion of the audit by CONTRACTOR and confirmation of corrections by the State Board of Equalization. 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. IX. 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. Page 9 X. NON-ASSIGNMENT This Agreement is not assignable either in whole or in part by CONTRACTOR without the written consent of CITY. XI. 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. XII. 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. XIII. 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 willful or negligent acts, errors or omissions or those of its employees or agents. CONTRACTOR agrees to and shall indemnify and defend, including reasonable attorneys fees. 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 willful or negligent acts, errors or omissions. Page 10 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. Page 11 XIV. NOTICE All notices required by this Agreement shall be given to CITY and CONTRACTOR in writing, by personal delivery or first class mail postage prepaid, addressed as follows: CITY: CITY OF TUSTIN 300 Centennial Way Tustin, CA 92780 CONTRACTOR: HINDERLITER, DE LLAMAS, & ASSOCIATES 1340 Valley Vista Drive, Suite 200 Diamond Bar, CA 91765 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. CITY: CITY OF TUSTIN Mayor City Clerk CONTRACTOR: HINDERLITER, DE LLAMAS & ASSOCIATES A California Corporation APPROVED AS TO FORM: Page 12 City Attorney Page 13 SAMPLE EXHIBIT A Sales Tax Audit Work Authorization No. SAMPLE The following business or businesses, located in the City of Tustin, have been identified as having the potential for generating additional sales tax revenue to the City of Tustin. Contractor is hereby authorized to contact the given busines(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 I S% of the new sales and/or use tax revenue received by the City as a result of audit and recovery work performed by Contractor, as set forth in the Agreement between Contractor and City. CITY OF TUSTIN By: Date: HINDERLITER, DE LLAMAS AND ASSOCIATES By: Date: