Loading...
SR 02-14-2017 3F Ci ty Council Report City Council Meeting : February 14, 2017 Agenda Item: 3.F 1 of 3 To: Mayor and City Council From: Gigi Decavalles -Hughes, Director , Finance Department, Treasury Subject: Resolution to Authorize the City Manager to Execute an Agreement with the State Board of Equalization for Implementation of Measure GSH and Resolutio n Authorizing Examination of Confidential Transactions and Use Tax Records of the State Board of Equalization Recommended Action Staff recommends that the City Council adopt resolutions authorizing the City Manager to execute agreements with the State Boa rd of Equalization for collection and administration of Measure GSH Transaction and Use Tax revenues and designate representatives of the City authorized to examine confidential Transaction and Use Tax records of th e State Board of Equalization. Executi ve Summary On November 8, 2016, 62.4% of Santa Monica voters approved Measure GSH, which increased the current City Transaction and Use tax by one -half percent to one percent. The State Board of Equalization requires the adoption of a resolution authori zing the City Manager to execute necessary agreements with the State to prepare and administer the new tax rate. Execution of the agreements authorizes the State to be reimbursed up to $175,000 of its one -time preparatory cost to administer the tax as wel l as an annual on -going amount to administer the tax. Any payments to the State will be withheld from taxes collected by the State and remitted to the City. Also required is adoption of a resolution designating the City Manager, Director of Finance, the Assistant City Treasurer, and the City’s sales tax consultants, Hinderliter, de Llamas and Associates (HdL) as representatives of the City authorized to examine confidential Transaction and Use Tax records of the State Board of Equalization. Background On July 12, 2016, Council approved Measure GSH increasing the transaction and use tax by one -half (1/2) percent to one (1) percent on the November 8, 2016 general election. A companion advisory ballot measure (GS), asking if the revenues generated from this tax increase should be used to improve and maintain local public schools and help to preserve and ensure affordable housing in the City , passed with 70.2% of the 2 of 3 vote. The increased tax rate is projected to supplement General Fund revenues by approximate ly $16 million per year. Discussion The State Board of Equalization (BOE) administers and collects Sales and Use taxes as well as Transactions and Use taxes for all jurisdictions within the state. In order to ensure that the Transaction and Use tax incre ase authorized by Measure GSH is collected and administered, BOE requires the passage of a resolution authorizing a City official to execute required agreements. Council approval of the attached resolution would enable staff to complete the required proce ss to authorize the BOE to begin collection of the additional sales tax beginning April 1, 2017. Additionally, the State Revenue and Taxation Code requires the City to designate representatives of the City authorized to examine confidential Transaction an d Use Tax records of the State Board of Equalization. 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 quarter ly sales tax returns, taxpayers often make factual errors which impact the BOE’s correct allocation of the local portion of these taxes. Examination of the BOE’s records allows the City to correct these errors and ensure that the City receives the total t ax revenues to which it is entitled. The amount of audit fieldwork and analysis needed to identify and correct these errors makes it inefficient for only the BOE or the City to identify and correct the errors themselves . The City’s current contract with HdL includes these services. Financial Impacts and Budget Actions The increase in the Transaction and Use tax to one percent is expected to generate approximately $16 million annually. Pursuant to Section 7272 of the State Revenue and Taxation Code, the City must reimburse the State Board of Equalization up to $175,000 for preparation for administering the tax as well as for annual on -going costs to administer, collect, and remit the tax to the City. These costs are withheld from tax remittances. No bud get actions are required. 3 of 3 Prepared By: David Carr, Assistant City Treasurer Approved Forwarded to Council Attachments: A. Authorization Resolution B. Examination of Records Resolution Reference:    Agreement  No. 10427  (CCS)   &   Agreement  No. 10428  (CCS)  &  Resolution  No. 11019     (CCS)  &   Resolution  No. 11020   (CCS)