SR 09-27-2011 3O10
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City of City Council Report
Santa Monied
City Council Meeting: September 27, 2011
Agenda Item: 3_
To: Mayor and City Council
From: Carol Swindell, Director of Finance
Subject: Contract Modification and Resolution to authorize Hinderliter, deLamas
and Associates (HdL) to examine transactions and use tax records
collected for the City by the California State Board of Equalization (BOE)
Recommended Action
Staff recommends that the City Council:
1) Authorize the City Manager to negotiate and execute a first. modification to
Contract No. 9274 (CCS) with Hinderliter, deLlamas and Associates (HdL), a
California -based company, to add transaction and use tax audit and information
services to the scope of work.
2) Adopt the attached resolution authorizing HdL to examine the transactions and
use tax records of the California State Board of Equalization (BOE) collected for
the City by the Board of Equalization.
Executive Summary
On November 2, 2010, 61.22% of Santa Monica voters approved Measure Y, enacting
a half cent transactions and use tax. The City currently uses the services of Hinderliter,
de Llamas and Associates (HdL) to ensure that the City is properly receiving its share of
sales and use tax revenue. The modification would add transactions and use tax audit
and information services to the existing contract. As required by Section 7056 of the
State Revenue and Taxation Code, the attached resolution will designate HdL as a
party permitted to examine BOE records for the purposes of ascertaining whether
transactions and use taxes are being properly collected and allocated to the City.
Additional costs resulting from the increased scope of work will be 25% of the revenues
recovered.
Background
On July 13, 2010 Council approved placing a half cent transactions and use tax on the
November 2, 2010 general election ballot to assist the City in addressing its anticipated
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structural deficit. On November 2, 2010, 61.22% of Santa Monica voters approved
Proposition Y and 68.26% approved the complimentary Proposition YY which advises
that the City allocate half of the revenue from the transactions and use tax to fund
school programs. On September 14, 2010 Council approved the current contract with
HdL
The City has contracted for sales and use tax audit and related detailed information
services since 1987. Hinderliter, de Llamas and Associates (HdL) has been providing
these services for the City's sales and use taxes since 2001. Due to the number of
accounts collecting sales /transaction and use taxes statewide, 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 local portion of these taxes. 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 themselves.
Discussion
During the last 10 years, HdL has helped the City recover $4.507 million in additional
sales tax revenue from misallocated payments to other jurisdictions through the audit of
state tax records. In addition, statistical information received has aided the City in
revenue forecasting and reporting as well as economic development efforts. Staff
recommends modifying HdL's existing contract with the City to add transactions and use
tax audit and information services. Additionally, the State Revenue and Taxation Code
requires that the City adopt a resolution specifying the individuals and entities
authorized to view confidential State Board of Equalization tax files.
Financial Impacts & Budget Actions
The audit fee is 25% of the initial transactions and use tax recovery amount. As this is a
new tax there may be more than normal errors the first few quarters. However any
additional contract costs will be covered by additional recovered revenue. Funds are
available in 01224.555060.
L
Adoption of the attached resolution authorizing HdL to view State Board of Equalization
records will have no budget or financial impact on the City.
Prepared by: Stephanie Manglaras, Acting Senior Administrative Analyst
David Carr, Treasury Administrator
Approved:
cs
Carol Swindell
Director of Finance
Attachments:
A. Resolution
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Forwarded to Council:
Rod Gould
City Manager
Reference Amended
Contract No. 9274 (CCS)
and Resolution No. 10603
(CCS).