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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 1 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. 2 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: ~ ~~ Carol Swindell Director, Finance Department ~~ ~" ~ Forwarded to Council: Rod Gould City Manager 3 Reference Contract No. 9274 (CCS).