sr-032712-3eCity Council Meeting: March 27, 2012
Agenda Item: .3 -E
To: Mayor and City Council
From: Gigi Decavalles- Hughes, Director of Finance
Subject: Utility Users Tax and Utility Franchise Fee Discovery and Revenue
Recovery Services
Recommended Action
Staff recommends that the City Council authorize the City Manager to execute a sixth
modification to Contract #6221 with MuniServices LLC, a California based company, to
conduct Utility Users Tax and Franchise Tax revenue recovery services for an additional
year. This will result in a total of $85,000 for the Utility User Tax Program. Fees for
specific audits requested by the City will be negotiated when each audit is requested,
but will not exceed 25% of the audit findings.
Executive Summary
Since 1992, MuniServices LLC has provided discovery and revenue recovery services
to ensure accurate reporting and payment of Utility Users Tax and Franchise Tax. The
Utility Users Tax Program, of which the City is a member, provides ongoing legislative
monitoring, technology updates, ordinance updates, tax geo- coding information, and
statewide tax application compliance and business detection.
1) The fee for the Utility Users Tax Program is a not -to- exceed amount of
$85,000 annually.
2) The fee for specific audits of the Utility Users Tax and Franchise Tax
payments will be negotiated when the audit is requested for a fixed fee not -to-
exceed 25% of the audit findings.
Background
The City levies local taxes on the use of electricity, natural gas, telephone, cable, and
water /wastewater services (Utility Users Tax), as well as fees on the use of the City
right -of -way by certain utility companies (Franchise Fees). The City has engaged
MuniServices LLC to provide Utility Users Tax discovery and revenue enhancement
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services since 1992. During this time, Muniservices LLC has been the sole source that
provides the required range of Utility Users Tax services.
Discussion
The City may not receive all the Utility Users Tax (UUT) and utility franchise fee revenue
that it is legally entitled to due to administrative errors or omission by either the taxpayer
or the utility service providers responsible for collecting and distributing taxes. This may
result from human error, the complex nature of the business, or fraud. Therefore, audits
should be conducted to ensure proper payment of the taxes. Additionally, in recent
years there have been legal and legislative challenges to the City's UUT collections.
Over the last four years, MuniServices' efforts have helped generate approximately $3.4
million in additional revenue for the City.
The existing agreement between the City of Santa Monica and MuniServices expires on
April 30, 2012. Therefore, staff recommends extending the term of the agreement (Sixth
Modification) to extend the UUT services on a contracted basis for the period of May 1,
2012 through June 30, 2013. In FY12 -13, staff will conduct an RFP process for these
services for subsequent terms.
The expiring contract also includes Transient Occupancy Tax (TOT) audit services.
Staff is planning upcoming audits for TOT, Business License Taxes and Parking
Facility Taxes and believes it prudent to conduct a selection process to select the firm or
firms to conduct those audits as, unlike UUT, there are other companies that provide
those services. Therefore, TOT audits will not be included in the MuniServices contract
modification.
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Financial Impacts & Budget Actions
The annual fee for inclusion in the Utility User Tax Program is $85,000. Funds in the
amount of $85,000 are available in the FY11 -13 budget at account 01224.555060.
Specific audits of the Utility Users Tax and Franchise Tax payments that are requested
by the City will be negotiated at a fixed fee amount not to exceed 25% of audit findings
and will be included in future budget requests.
Prepared by: David Carr, Treasury Administrator
Forwarded to Council:
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Gigi Decavalles- Hughes Rod Gould
Director of Finance City Manager
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Reference Amended
Contract No. 6221 (CCS).