SR-05-14-2013-3DCity Council Meeting: May 14, 2013
Agenda Item: 3D
To: Mayor and City Council
From: Gigi Decavalles- Hughes, Director or Finance
Subject: Parking Facilities Tax and Business License Tax Audit Services
Recommended Action
Staff recommends that the City Council authorize the City Manager to negotiate and
execute a two -year professional services agreement with MuniServices, a California -
based company, in an amount not -to- exceed $221,262 for parking facilities tax and
business license tax audit services.
Executive Summary
In order to ensure that the City is realizing the full tax revenue owed by companies that
are not properly reporting, and to comply with Section 6.04.280 of the Santa Monica
Municipal Code (SMMC), which requires the Finance Director to conduct a program to
audit business license tax returns of businesses operating in the City of Santa Monica,
the City seeks to contract with an agency to provide Parking Facilities Tax and Business
License Tax auditing services. The recommended contract amount would allow the City
to audit 89 parking facilities, as well as specific companies identified by staff as
potentially underreporting gross receipts used to calculate business license tax.
Staff recommends MuniServices, LLC to provide audit and revenue enhancement
services to ensure accurate reporting and payment of Parking Facilities Tax and
Business License tax. The fee for the audits would be a not -to- exceed amount of
$221,262 for 89 parking facilities and for as- needed business license tax audits,
Background
Parking Tax
The City of Santa Monica levies a 10% tax on private and public parking fees collected
in the City, which generates approximately $9.3 million annually in Parking Facility Tax
(PFT) revenues, two- thirds (approximately $6.2 million) of which is collected and
remitted to the City by 177 private parking facilities that report collecting parking taxes.
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The remaining one third (approximately $3.1 million) is generated by City -owned
facilities that would not be part of the scope of services of this contract.
Business License Tax
Businesses operating in the City of Santa Monica are required to obtain a business
license annually and pay a tax. In most cases, the amount of the tax is based on prior
calendar year gross receipts.
There are three major gross receipts categories:
• Professional:
$5.00 for each $1,000 in gross receipts
• Services:
$3.00 for each $1,000 in gross receipts
• Retail /Other:
$1.25 for each $1,000 in gross receipts
Businesses with gross receipts between $40,000 and $60,000 annually pay a minimum
tax of $75. Businesses physically located within Santa Monica with worldwide gross
receipts less than $40,000 annually are exempt. Certain other small categories pay a
flat tax.
Business License taxes are due on June 30th of each year for the upcoming fiscal year,
which runs from July 1st to June 30th of each year. If full payment is not received by
August 31st, a 10% penalty is assessed each month, up to 100% of the business
license tax due. The City currently administers approximately 22,000 business license
accounts annually, and collected $25.5 million and $26.3 million in business license
taxes and penalties in FY 2010 -11 and FY 2011 -12, respectively.
The City may not receive all the tax revenue that it is legally entitled to due human error,
the complex nature of the business, or fraud. Therefore, audits should be conducted to
ensure proper payment of taxes. Additionally, Section 6.04.280 of the SMMC requires
the Finance Director to conduct a program to audit business license tax returns of
businesses operating in the City of Santa Monica
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Discussion
On September 10, 2012, to provide ample opportunity for competitive bidding, per
SMMC 2.24.070, staff issued a Request for Proposals (RFP) for parking facilities and
transient occupancy tax auditing and other related services, and an RFP for Business
License Discovery' and Auditing Services. The RFPs aimed to identify one or more
agencies to provide auditing and discovery services to assist the City with realizing all of
the tax revenue due.
Vendor Selection
Both RFPs were posted on the City's online bidding system. The deadline to respond to
both RFPs was October 11, 2012. Four companies responded to the RFPs, with
MuniServices being the only company to respond to all three audit services. Two
companies responded to Parking Facilities Tax Audit and Transient Tax Audit services;
one company responded only to Transient Occupancy Tax Audit services; and one
company only responded to Business License Tax Audit services.
A selection committee comprised of Finance and Housing and Economic Development
staff evaluated the proposals in compliance with Section 2.24.072 of the SMMC, taking
into consideration criteria including but not limited to price, the quality of the services
offered, the ability to perform the service, the capacity to perform the service, the
applicability of the proponent's experience as it relates to the RFP's scope of work, and
whether the respondent would have available resources to accomplish all elements of
the scope of services.
Based on the proposals submitted, MuniServices was found to be the firm that could
best provide the broad range of required services with experienced staff at a
competitive cost to the City. In particular, MuniServices met the RFP criteria through
their experience and resources. MuniServices has over thirty years of service history
Discovery is the process of identifying businesses that are operating without a business license and
using available tools to bring the business into compliance.
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providing similar services to over 900 government agencies nationwide, including over
50 clients in Southern California. The City contracted with MuniServices to perform
Business License Discovery in 2006. It currently has a contract with the company to
perform Utility Users Tax Audits.
As part of their Parking Facilities Tax audits, MuniServices would assist the City in
realizing all of the tax revenue from companies that are not properly reporting the full
amount of tax to which they are subject; and identify businesses that are potentially
underreporting, or not reporting, all applicable taxes. MuniServices would review the
audited company's records to ensure compliance with City taxes, including internal
controls related to the preparation of the Parking Facilities Tax returns, in order to
determine the adequacy of those procedures over the calculation and reporting of taxes
due to the City.
MuniServices would also provide, on an as- needed basis, Business License Tax Audit
services to assist the City in realizing all of the tax revenue from companies that are not
properly reporting the full amount of tax to which they are subject, and identify
businesses that are potentially underreporting, or not reporting, all applicable taxes.
MuniServices would review the audited companies' records to ensure compliance with
City taxes, including internal controls related to the preparation of business license
returns, in order to determine the adequacy of those procedures over the calculation
and reporting of taxes due to the City. Audits would only be conducted on businesses
specifically identified by staff as potentially underreporting gross receipts and therefore
underpaying business license taxes due.
Staff determined that the return on investment for transient occupancy tax audits would
not warrant conducting these audits in the coming fiscal year as a previous, five -year
contract for such audits expired on June 30, 2012. In addition, staff concluded that
conducting business license discovery efforts in -house with existing staff was feasible
and more cost effective approach, allowing the City to retain 100% of revenues
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discovered as opposed to paying contingency fees. Therefore, staff is not pursuing
contracts for Transient Occupancy Tax Audits or Business License Discovery services.
In the future, staff would determine whether issuing an RFP for these services is
beneficial to the City.
Financial Impacts & Budget Actions
The contract to be awarded to MuniServcies is for an amount not to exceed $221,262
for a two -year term. This contract will be charged to account 01224.555060. Budget
authority for FY 2013 -14 and FY 2014 -15 will be requested in the proposed FY 2013 -15
budget.
Prepared by: Salvador M. Valles, Business & Revenue Operations Manager
Director of Finance
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Forwarded to Council:
Rod Gould
City Manager
Reference Contract No.
9736 (CCS)