SR-10-13-2015-3E
City Council
Report
City Council Regular Meeting: October 13, 2015
Agenda Item: 3.E
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To: Mayor and City Council
From: Gigi Decavalles-Hughes, Director, Finance Department, Treasury Division
Subject: Sales, Use and Transactions Tax Audit and Information Services
Recommended Action
Staff recommends that the City Council:
1) Award RFP# 41 to Hinderliter, de Llamas & Associates, a California based
company, to provide sales, use, and transactions tax audit and information
services.
2) Authorize the City Manager to negotiate and execute a professional services
agreement with Hinderliter, de Llamas & Associates for five years with an
estimated total amount of $407,000.
Executive Summary
Hinderliter, de Llamas & Associates (HDL) has been providing sales and use tax
auditing and information services to the City since 2001. HDL conducts these audits b y
reviewing records from the California State Board of Equalization to determine if sales,
use and transactions taxes collected by the State are being properly allocated to the
City. The use of these services has recovered nearly $8 million in revenue for the City
during the past 10 years (2005-2014). In addition, HDL provides valuable information
and consulting services to the City. The current contract with HDL has been in place
since October 12, 2010 and expires on October 12, 2015. Based on evaluation
responses to the Request for Proposals (RFP), staff recommends HDL as the best
qualified firm and that the City negotiate a new five-year contract. The annual amount
for the information and consulting services for sales, use and transactions tax is
$11,400. The annual amount for auditing services is approximately $70,000, based on
a percentage of revenues reallocated to the City. Over the last three years, audit fees
have averaged about $70,000 per year. Based on this, the estimated total value of the
contract over the five-year period will be approximately $407,000.
Background
The City has contracted with Hinderliter, de Llamas & Associates (HDL) since 2001 to
provide sales and use tax auditing and information services. The City’s current contract
with HDL (9274 CCS) was authorized by Council on September 14, 2010 (Attachment
A). The contract provided a term of five years. On September 27, 2011 (Attachment B),
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Council approved a first modification which added transactions and use tax audit and
information services to the scope of work; the modification added a 25% fee for
recovered revenues. Transaction and use tax audit and information services were
added due to the approval of Measure Y on November 2, 2010 which enacted a half
cent transactions and use tax.
Discussion
The State Board of Equalization (BOE) processes a high volume of returns from
sales/transactions and use taxes statewide – approximately 1.2 million in active
accounts, some having 200 or more sub-outlets. The complexity in the State’s “point-of-
sale” regulations compounded with the constant turnover, selling and consolidation of
businesses, factual errors on tax forms, and evolving regulations impact the BOE’s
ability to properly allocate the 1% 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 or correct these errors themselves.
In the past 10 years, the City has recovered nearly $8 million in revenue from additio nal
sales, use and transactions tax through HDL’s audit of state tax records from
misallocation errors due to payments to other jurisdictions. In addition to providing
auditing services, HDL would provide quarterly sales, use, and transactions 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, use, and transactions tax. Statistical da ta
provided will aid the City in revenue forecasting and reporting as well as economic
development efforts.
Consultant Selection
On August 5, 2015, the City published a Request for Proposals (RFP #41) for sales and
use tax audit and information services. The RFP was posted on the City’s online bidding
website and notices were advertised in the Santa Monica Daily Press in accordance
with the City Charter and Municipal Code provisions. A total of 392 vendors were
notified and 16 vendors downloaded the RFP; the City received two proposals. An
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evaluation panel composed of representatives from the Finance and Housing and
Economic Development departments reviewed and ranked the proposals using the
criteria set out in the RFP.
Based on the selection criteria in SMMC 2.24.073, HDL was recommended as the best
qualified firm to provide sales, use, and transactions tax audit and information services.
HDL was selected based on the firm’s long standing and documented success in audit
recoveries, commitment to customer service, experience and qualifications of staff,
methodology in reporting including its web-based information portal, financial stability,
available resources, and compliance with City scope of work. Staff thoroughly reviewed
and analyzed each proposal looking for ways to improve efficiencies; maximize returns
and minimize lost sales, use, and transactions tax revenues; and take advantage of new
technologies. HDL’s cost to provide tax auditing services would be for an estimated
annual amount of $11,400 plus a 15% fee for sales and use tax audit recoveries and a
25% fee for transactions and use tax audit recoveries. The 15% fee for the sales and
use tax audit recovery applies to monies received in the first eight consecutive reporting
quarters. The 25% fee for transactions and use tax audit recovery applies to retroactive
adjustments only.
Financial Impacts and Budget Actions
The contract to be awarded to HDL is for estimated annual amounts of $11,400 for
information services and $70,000 for audit recovery services resulting in an estimated
five-year total of approximately $407,000, which will be more than offset by the
additional revenue recoveries from audits. Funds are available in the FY 2015 -16
budget in the Finance Department, and the contract will be charged to account number
012241.555060 (Professional Services). Future year funding is contingent on Council
budget approval.
Prepared By: David Carr, Assistant City Treasurer
Approved Forwarded to Council
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Attachments:
A. September 14, 2010 Staff Report
B. September 27, 2011 Staff Report
Reference:
CONTRACT NO. 10196
(CCS)