sr-091410-1jCity Council Meeting: September 14, 2010
Agenda Item: ~ ~~
To: Mayor and City Council
From: Carol Swindell, Finance Director
Subject: Sales and Use Tax Audit and Information Services
Recommended Action
Staff recommends that Council authorize the City Manager to negotiate and execute a
contract with Hinderliter, de Llamas and Associates for sales and use tax audit and
information services in an annual amount of $9,000 plus 15% of recovered sales and
use tax for a term of five years.
Executive Summary
The City uses the services of a sales and use tax audit firm to ensure that the City is
properly receiving its share of tax revenue. The use of these services has recovered
over $4 million for the City during the past nine years. On May 10, 2010, the City issued
a request for proposals to provide sales and use tax audit and information services to
which three responses were received. An internal committee of Finance Department
staff evaluated the proposals and recommends award of the contract to Hinderliter, de
Llamas and Associates for a term of five years. Funds for this contract are provided for
in the Finance Department's operating budget.
Background
The California Board of Equalization (BOE) is responsible for collecting and monitoring
sales tax revenues from 1.895 million accounts, some having 200-300 suboutlets each.
Due to the number of accounts, the complexity of the state's "point-of-sale" regulations,
and the number of out-of-state corporations filing quarterly sales tax returns, taxpayers
often make factual errors which impact the BOE's correct allocation of the 1 % local
portion of reported sales tax. The amount of audit fieldwork and analysis needed to
identify and correct these errors makes it inefficient for the BOE or the City to identify
and correct misallocations themselves. The City has contracted for sales and use tax
audit and related detailed statistical information services since 1987. During the last
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nine years, the City has recovered $4.029 million in additional sales tax revenue from
misallocated payments to otherjurisdictions through the audit of state tax records.
Discussion
Due to the complexity of monitoring sales and use tax and the historical success with
audit firms recovering additional revenue, staff recommends continuing sales and use
tax audit services. In addition to providing audit services, the recommended firm will
provide quarterly sales and use tax data reports reflecting trends and projections; assist
the City in identifying additional means to recover the local allocation from eligible
purchases; assist the City in identifying strategies to preserve and enhance sales and
use tax generated by businesses in Santa Monica; and assist the City in preparing five-
yearsales and use tax projections.
Consultant Selection
A Request for Proposals was issued on May 10, 2010. Proposals were received from
three firms: Hinderliter, de Llamas and Associates (HdL); MuniServices, LLC; and Fox
Advisors. The proposals were evaluated by a committee of Finance Department staff on
the basis of ability to provide the required services, approach to accomplishing the work
plan, experience in providing similar services, and cost. Both HdL and MuniServices
have previously provided sales tax audit services to the City. HdL is recommended
based on proposing the lowest cost, complete responsiveness to the RFP requirements,
and its experience in providing the required services. HdL is the City's current provider
of sales and use tax services.
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Financial Impacts & Budget Actions
Fixed contract costs of $9,000 per year, for afive-year total of $45,000 over the five-
year contract plus a 15% contingency costs based on funds received by the City as a
result of audit findings are available in account no. 01224.555060. Funding for future
fiscal years will be requested as part of the annual budget process.
Prepared by: Don Patterson, Business & Revenue Operations Manager
Approved:
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Carol Swindell
Director, Finance Department ~~ ~" ~
Forwarded to Council:
Rod Gould
City Manager
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Reference Contract No.
9274 (CCS).