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HomeMy WebLinkAboutCC 10 SALES TAX RPTNG 10-21-85CONSENT CALENDAR TO: FROM: S UBJ ECT: HONORABLE MAYOR AND MEMBERS ~/~TY COUNCIL RONALD A. NAULT, FINANCE DIR~_~ CONTINUING SALES TAX REPORTING AND AUDITING SERVICES RECOMMENDATION Adopt Resolution 85-105 and sign the attaced agreement for sales tax services. DISCUSSION Municipal Resource Consultants have completed the auditing portion of this original project but they are still involved with meetings/negotiations with one or two businesses to resolve difference of interpretation regarding sales tax reporting. To date we have received $67,000 of new sales tax as a result of their efforts and we have the potential for an additional $100-$150 thousand. Our cost has been $23,000 but our rate of return significantly exceeds our cost. During the period of ~time that we have worked together I have often asked them to assist us in working on other sales tax problems not related to the audit. I have also expressed a desire to have them work on a retainer basis for ongoing sales tax services. As a partial result of my inquiries MRC has put together the attached proposal for ongoing sales tax consulting and auditing services. The most significant item that they will provide is the computerization of the sales tax information sent to us by the State. They will input this information and produce reports on a quarterly basis showing: 1. Major sales tax producers (top 100). 2. Major sales tax producers by classification. 3. Comparison reports. 4. Sales tax trend reports. 5. Sales tax projections. Honorable Mayor and Members of City Council October 16, 1985 Page 2 In addition to the quarterly reports MRC will provide continuing consulting services to include but not limited to: 1. Recommendations regarding economic development goals. 2. Provide City employees post audit sales tax orientation. 3. Public relations with major sales tax or potential sales tax producers. 4. Profile economically desirable/undesirable types of businesses and reasons why. 5. List businesses located in City not presently producing sales tax but could through changes in marketing procedures. 6. Report sales tax by specific geographic areas. In conjunction with the above services MRC will continue to provide audit services on present City businesses. The attached Resolution will allow MRC to represent the City with Sacramento State Board of Equalization offices. They presently are the only non-City employees that are allowed to look at SBE records. The annual fee for the consulting and reporting services is $5,000. The audit services will be billed at the 35% of new sales tax generated rate. Considering the dependence that the City has on sales tax income, the difficulty and time consumption in analyzing the quarterly sales tax reports and the problems inherent in drawing meaningful conclusions allows me to highly recommend signing MRC's proposal. RAN:skr Attachments 6 7 8 9 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 25 ~7 RESOLUTION NO. 85-105 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUSTIN, DESIGNATING A CITY CONSULTANT AS THE AUTHORIZED CITY REPRESENTATIVE TO EXAMINE SALES AND USE TAX RECORDS. WHEREAS, (i); Pursuant to California Revenue and Taxation Code Sections 7200, et seq., the City of Tustin has adopted a sales and use tax ordinance which imposes a tax and provides a measure therefore that can be administered and collected by the State Board of Equalization along the same and existing statutory and administrative procedure followed by the State Board of Equalization in administering and collecting the California State Sales and Use Taxes. WHEREAS, (ii); Pursuant to California Revenue and Taxation Code Section 7056, the City of Tustin, by resolution, may designate any officer, employee or any other person to examine all of the sales and use tax records of the Board pertaining to sales and use taxes collected for the City. WHEREAS, (iii); The City of Tustin has entered into an agreement for sales tax audit and information services with the firm of MUNICIPAL RESOURCE CONSULTANTS, A partnership of JOHN AUSTIN and ALLEN CHARKOW, to designate JOHN AUSTIN and ALLEN CHARKOW of MUNICIPAL RESOURCE CONSULTANTS as the authorized City representatives to examine such sales tax records maintained by the Board on behalf of the City of Tustin. WHEREAS, (iv); All legal prerequisites prior to the adoption of this Resolution have occurred. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 26 27 28 RESOLUTION NO. 85-105 Page 2 THEREBY, IT IS HEREBY RESOLVED by the City Council of the City of Tustin as follows: Section 1: of this Resolution. Section 2: In all respects as set forth in the Recitals, Part A, The City Council of the City of Tustin hereby certifies tot the State Board of Equalization that JOHN AUSTIN and ALLEN CHARKOW of MUNICIPAL RESOURCE CONSULTANTS are the designated representative of the City of Tustin to examine all of the sales and use tax records of the Board pertaining to sales and use taxes collected by the Board on behalf of the City of Tustin. Section 3: Pursuant to California Revenue and Taxation Code Section 7056(b), this Council hereby certifies that MUNICIPAL RESOURCE CONSULTANTS, a partnership of JOHN AUSTIN AND ALLEN CHARKOW {hereinafter referred to as "CONSULTANT") meets all of the following conditions: a. CONSULTANT has an exisiting contract with the CITY to examine sales tax records; b. CONSULTANT is required by that contract to disclose information contained in, or derived from, those sales tax records only to an officer or employee of the CITY who is authorized by resolution to examine the information; c. CONSULTANT is prohibited by that contract from performing consulting services for a retailer during the term of the contract; and, 6 7 8 9 10 11 12 13 14 15 16 17 18 19 ~0 23 25 ~6 ~8 RESOLUTION NO. 85-105 Page 3 d. CONSULTANT is prohibited by the contract from retaining the information contained in, or derived from, those sales tax records after the contracts have expired. Section 4: The City Clerk shall certify to the adoption of this Resolution. PASSED AND ADOPTED at a regular meeting of the City Council of the City of Tustin, held on the day of , 1985. Frank lt. Greinke, Mayor ATTEST: Mary E. Wynn, City Clerk MUNICIPAL RESOURCE CONSULTANTS ..... Sales Tax Specialists 32107 W. Lindero Canyon Rd. Suite 121 Westlake Village, CA 91361 (818) 991-5220 1533 W. Locust Ave. Fresno, CA 93711 September 12, 1985 Mr. Ronald A. Nault Finance Director City of Tustin 300 Centennial Way Tustin, CA 92680 Dear Mr. Nault: Pursuant to our recent conversation, Municipal Resource Consultants (MRC) is pleased to submit the accompanying proposal for sales tax services. With the recent approval of Assembly Bill No. 1611, Section 7056 of the Revenue and Taxation Code was amended. This amendment allows a duly authorized consultant designated by council resolution to examine sales and use tax records pertaining to the client city. This provision enables MRC to provide its client cities with the necessary information to monitor, analyze and forecast their sales tax revenues. It also enables us to work more effectively with the State Board of Equalization with regard to fund transfers for the backquarters adjustments. Accordingly, the scope of our sales tax service has been expanded to provide a sales tax information, ongoing audit and corollary consulting service. We are pleased to have this opportunity of enhancing the value of our service to the City of Tustin. Please let me know if we can provide any additional information or clarification. Sincerely, J~hn T. Austin ~TA:bw Enclosure MUNICIPAL RESOURCE CONSULTANTS ..... Sales Tax Specialists 32107 W. Lindero Canyon Rd. Suite 121 Westlake Village, CA 91361 (818) 991-5220 1533 W. Locust Ave. Fresno, CA 93711 September 12, 1985 Mr. Ronald A. Nault Finance Director City of Tustin 300 Centennial Way Tustin, CA '92680 Dear Mr. Nault: Municipal Resource Consultants (MRC) hereby proposes to provide a professional service to the City of Tustin. The objectives, scope of service, output, timing and charges are set forth as follows: FOREWORD The City of Tustin, together with most of the other cities in California, has been materially affected in recent years by Proposition 13, the recessionary economy and the State and Federal cutbacks. With few prospects for new revenue sources, it is vitally important that cities maximize existing sources of revenue. Clearly, these fiscal changes have made sales tax the most important revenue source for almost all California cities. For example, 1983-84 sales tax revenue for the City of Tustin comprised approximately 50% of total General Fund revenue (per Annual Report of Financial Transactions, State of California, 1983-84). Sales tax revenue has generally been taken for granted with cities simply accepting payments from the State without question. The complex reporting format and distribution process are largely responsible for this condition. Today it is essential that the City know more about who produces its sales tax income and how to forecast its growth or shortfall in future years. It is also essential that the sales tax resource be continuously audited to determine whether the City is receiving all of the sales tax income to which it is entitled. Mr. Ronald A. lit city of Tustin September 12, 1985 Page 2 2. OBJECTIVES Accordingly, we propose to provide a Sales Tax Information, Audit and Corollary Consulting service designed to achieve the following objectives: Sales Tax Information Computerize the City's sales tax data utilizing MRC's Sales Tax Analysis & Reporting System (STARS) to readily facilitate the City's monitoring, analysis and forecasting of its sales tax revenue. Sales Tax Audit Conduct an initial and ongoing sales tax audit in order to identify and correct point of sale distribution errors and thereby generate new sales tax income for the City. It should be emphasized that MRC's proposed sales tax audit encompasses all City businesses and not just the major firms. Corollary Consulting As an outgrowth of our sales tax information and audit services, we will be able to identify additional opportunities for the City and/or MRC to enhance the City's revenue base in areas such as sales tax, property tax, business license tax, transient occupaacy tax, utility tax and defined economic development goals. Mr. Ronald A. alt City of Tustin September 12, 1985 Page 3 SCOPE OF SERVICE The sco~e of our proposed service includes, but is not limited to, performing the following tasks: Sales Tax Information Procure a computer tape of sales tax permit records from the State Board of Equalization (only the City can order this tape which costs about $500). Establish master file in STARS from tape data provided in previous task. Input data from sales tax distribution reports provided by State Board of Equalization for most recent 5 consecutive quarters. o o Receive and process registration information monthly. Prepare and submit initial set of re~orts for the City. control record Receive and process sales tax distribution reports quarterly. Prepare and submit STARS reports on a quarterly basis principally focusing on the major sales tax producers. Major sales tax producers are defined as those businesses meeting or exceeding a specified quarterly revenue threshold and comprising in aggregate 80% or more of the sales tax revenue generated from businesses located in the City. Ail major sales tax producers and business categories are monitored and analyzed quarterly based on reports to include the following: ~ajor (and Top 100) Sales Tax Producers. Ranks in descending order according to level of sales tax produced. Business Classification. Groups and ranks major producers by business classification according to level of sales tax produced. Comparison Report. Compares City with other jurisdictions (based on published information) according to business category, performance and trends. City can select specific jurisdictions for comparison. Mr. Ronald A. ult City of Tustin September 12, 1985 Page 4 Sales Tax Trend Reports. Indicates growth and decline comparisons by category: . By business category by amount · By business category, by relative percentage total to · Change indicator by category, by amount, by percentage Projections. For budgetary purposes, provides sales tax projections based on optimistic, pessimistic and most likely economic conditions for major business categories. Executive Summary. Based on our analysis and evaluation of the STARS reports and other data, our quarterly report is to include an Executive Summary, which presents our findings, conclusions and recommendations in a condensed format. Sales Tax Audit Develop a target list of potential point of sale distribution errors based on a review of each business in the City of Tustin using guidelines established by · MRC, formulated through expert knowledge of corporate mergers and acquisitions, sales versus use tax, business marketing organization and methods, commercial sales tax reporting practices, and other conditions contributing to reporting errors. o Contact each target business to determine whether a point of sale distribution error exists. Note: This is accomplished with the highest regard to discretion and professional conduct, as evidenced by the fact that MRC's sales tax audits have involved more than 40,000 direct contacts with taxpayer businesses without a single complaint. Our sales tax audits are predicated on a constructive public relations approach which emphasizes the importance of each business to the City and the mutual benefits o~ correcting reporting errors. Mr. Ronald A. ~lt city of Tustin September 12, 1985 Page 5 Provide to the City, for submission to the local office of the State Board of Equalization, reports addressing each point of sale distribution error individually, including the business name, address, telephone number, California sales tax permit number, individuals contacted, date(s) of contact, nature of business, reason(s) for error, recommended corrective procedure and, if available, estimated sales tax income which should be forthcoming to the City of Tustin. This report is accompanied by our suggested language for letters to be sent to the taxpayers directly from the City urging cooperation in promptly correcting the distribution error. Coordinate with the taxpayer and State Board of Equalization to make the necessary corrections and collect backquarters amounts. On a quarterly basis, monitor and analyze STARS reports with audit focus on the following: Those accounts with previously reported point of sale distribution errors to ensure that the corrections are made for current quarters and all eligible backquarters. Those major accounts comprising approximately 80% of the City's total sales tax revenue to identify any irregularities (e.g., funds transfers, significant increases, decreases, etc.) and ensure that the City is not getting less than it is entitled. Those accounts having a use tax designation to ascertain why the tax is being classified as use tax rather than sales tax. Mr. Ronald A. alt City of Tustin September 12, 1985 Page 6 Corollary Consulting o Make specific recommendations (for City staff and/or MRC) to further enhance the City's revenue base in areas such as sales tax, property tax, business license tax, transient occupancy tax, utility tax and defined economic development goals. o Provide City employees with post audit sales tax orientation: - Conduct technical seminar on California's local sales tax distribution process. - Train staff in the fundamentals of sales tax auditing should the City desire to assume responsibility for future maintenance of local retail accounts internally. o Analyze list of City's major sales tax producers in order to assist the City in developing a public relations program to prevent the loss of these important businesses. o Profile for Economic Development/Community Redevelop- ment and Chamber of Commerce .personnel the most economically desirable/undesirable types of developments/business users and the reasons why. o Provide a list of businesses located in the City that are not presently producing sales tax to the City of Tustin, but could be through constructive changes in marketing procedures. o If economics warrant, recommend a program be implemented to capture the 1% sales tax on City purchases from vendors reporting as use tax and/or having non-city points of sales. o Assist in defining specific geographic areas for which the City would have an interest in knowing the sales tax produced (e.g., within Community Redevelopment AGency boundaries). Mr. Ronald A. ~lt City of Tustin September 12, 1985 Page 7 4. TIMING We are prepared to commence the proposed service immediately upon receipt of the following: City Council contract authorization and resolution designating MRC as the authorized City contractor to examine sales and use tax records (see Exhibit B); Updated computer tape of sales tax permit records ordered by City from State Board of Equalization to ensure that all current sales tax permits are properly recorded; and o State Board of Equalization quarterly distribution reports for most recent five (5) consecutive quarters. Sales Tax Information. The initial STARS reports are to be provided to the City within forty-five (45) working days following receipt of the above and for each quarter thereafter, within thirty (30) working days following receipt of the quarterly distribution report. Sales Tax Audit. The initial report identifying point of sale distribution errors is aormally provided sixty (60) working days following receipt of the above. Corollary Con.suiting. Any time after delivery of the initial STARS reports and/or completion of the Sales Tax Audit. QUALIFICATIONS Municipal Resource Consultants (MRC) specializes in providing sales, use, excise and property tax consulting services to California municipalities. Each service provided is designed to produce an economic return that is many times greater than the amount invested for the service. As the qualifications attached under Exhibit A indicate, MRC has specialized in conducting sales tax audits for California municipalities since 1978. During that time, we have succeeded in generating more than $5 million annually in new revenue for the clients we have served. The uniqueness of our service and significant results achieved are directly attributable to our employing proprietary techniques borne out of the principals' combined 22 years of experience. MRC's proposed service is to be provided by its principals, John Austin and Allen Charkow. Mr. Ronald A. · lit City of Tustin September 12, 1985 Page 8 PERIOD COVERED & CHARGES Our fee for the proposed service provides for a flat amount for the Sales Tax Information and Corollary Consulting segments of the service plus an incentive or contingent fee for the Sales Tax Audit, further described as follows: Sales Tax Information & Collateral Consulting MRC is to provide the proposed Sales Tax Information and Corollary Consulting segments of the service for a flat fee of $5,000 for the first year, payable in four equal quarterly installments of $1,250 each. Invoices are to be submitted together with our quarterly reports and are due and payable upon receipt. Sales Tax Audit MRC's fee for the proposed Sales Tax Audit is entirely predicated and contingent upon MRC's ability to produce new sales tax income for the City. ~RC's total fee for the Sales Tax Audit is 35% of new sales tax income realized by the City as a result of MRC identifying and correcting the related point of sale distribution error. Said 35% applies to each correction for any backquarters fund transfers and the first four consecutive reporting quarters following.completion of the audit by MRC and confirmation of corrections by the State Board of Equalization. Sales Tax Audit invoices are submitted quarterly after the City has received the revenue from the correction and quarterly distribution report confirming it. Each invoice is to include the business name, permit number, local allocation amount received by the City and amount due MRC. It should be emphasized that under our flat fee and contingency fee arrangements all expenses are absorbed by MRC. These expenses include items such as travel, meals, lodging, keypunching, com~uter processing, clerical, communications (e.g., personal meetings, telephone, mail, etc.) photocopying, overhead and miscellaneous out of pockets for consumable supplies and research materials such as maps, directories, etc. Mr. Ronald A. lit City of Tustin September 12, 1985 Page 9 e CERTIFICATION OF 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 (see sample resolution attached as Exhibit B). The following conditions specified in Section 7056 (b),(1) of the State of California Revenue and Taxation Code are hereby made part of this contractual agreement entered into between the City of Tustin and Municipal Resource Consultants (Contractor). 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, of 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 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. Contractor hereby certifies that any and all information utilized in the conduct of work ~erformed is to be utilized only for those purposes authorized by the City and by the Bradley-Burns Uniform Local Sales and Use Tax Law. Hr. Ronald A.. City of Tustin SeDtember 12, 1985 Page 10 8. CONCLUSION The proposed service is designed to provide the City with the essential Sales Tax Information for moaitoring, analyzing and forecasting its sales tax revenue and Sales Tax Audit for realizing additional revenue many times greater than the amount invested for our service. Should you have any questions regarding the proposed services or our charges, we are prepared to respond promptly. Should the City decide to use this proposal as the contract or contract attachment, please indicate acceptance by noting the services desired and returning an executed copy to my attention. The original is for your records. Sales Tax Information and Corollary Consulting Sales Tax Audit YES NO ACCEPTED FOR CITY OF TUSTIN By: Title: Date: ACCEPTED FOR MUNICIPAL RESOURCE CONSULTANTS ~John~T. Austin Til~. Date: September 12, 1985 MUNICIPAL RESOURCE CONSULTANTS QUALIFICATIONS, STAFFING & REFERENCES EXHIBIT A GENERAL QUALIFICATIONS Municipal Resource Consultants (MRC) specializes in providing sales, use, excise and property tax consulting services to California municipalities. Each service provided is designed to produce an economic return that is many times greater than the amount invested for the service. PROFESSIONAL STAFF JOHN T. AUSTIN - Mr. Austin has been a valuation and tax consultant to the public sector for more than fifteen years. He is a specialist in state and local sales, use and property tax and Federal income tax as it relates to corporate mergers and acquisitions. He is a graduate of the University of Southern California where he majored in business economics. ALLEN W. CHARKOW - Mr. Charkow has been in municipal finance for the past fifteen years of which thirteen were in the capacity of Director. He has served in the California cities of Fresno, Garden Grove, Cypress and Sunnyvale. He is a graduate of the University of Santa Clara in'the field of business management. Mr. Charkow pioneered sales tax audit and computerized information systems for sales tax analysis, on behalf of California cities. He has also applied sales tax expertise to enhance economic development projects as a key member of City economic development teams. PARTIAL LIST OF MAJOR CLIENTS Since 1978, MRC has conducted sales tax audits that have produced in aggregate more than $5 million annually in recovered sales tax for California municipalities. A partial list of clients served includes: City of Bakersfield City of Long Beach City of Riverside City of San Jose City of San Mateo City of Santa Aha City of Tustin Additional references are available on request.