SR 02-14-2017 3F
Ci ty Council
Report
City Council Meeting : February 14, 2017
Agenda Item: 3.F
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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
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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.
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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)