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HomeMy WebLinkAbout10a. Sales and Use Tax Audit Agreement AGREEMENT FOR SALES, USE AND TRANSACTIONS TAX AUDIT AND INFORMATION SERVICES This Agreement is made and entered into as of the 1st day of November 2010 , by and between the CITY OF DOWNEY, a municipal corporation hereinafter called CITY, and HINDERLITER, de LLAMAS AND ASSOCIATES a California Corporation, hereinafter called CONTRACTOR. I. RECITALS WHEREAS, sales, use and transactions tax revenues can be increased through: a system of continuous monitoring, identification and correction of allocation errors, and WHEREAS, an effective program of sales and use tax management will improve identification of economic opportunities; provide for more accurate sales and use tax forecasting; assist in related revenue collections; and WHEREAS, CITY desires the combination of data entry, report preparation, and data analysis necessary to effectively manage its sales and use tax base and recover revenues erroneously allocated to other jurisdictions and allocation pools; and WHEREAS, CONTRACTOR has the programs, equipment and personnel required to deliver the sales and use tax related services referenced herein; THEREFORE, CITY and CONTRACTOR, for the consideration hereinafter described, mutually agree as follows: II. SERVICES The CONTRACTOR shall perform the following services: A. SALES TAX AND ECONOMIC ANALYSIS 1. CONTRACTOR shall establish a special database that identifies the name, address and quarterly allocations of all sales tax producers within the CITY for the most current and previous back to 1992-93 or earlier, if the CITY has prior historical sales tax data available on computer readable magnetic media and update the information quarterly. This database will be utilized to generate special reports to the CITY on: major sales tax producers by rank and category, sales tax activity by categories, business districts or redevelopment areas, identification of reporting aberrations, and per capita and outlet comparisons with regional and statewide sales. 1 2. CONTRACTOR shall provide up-dated reports each quarter identifying changes in sales by individual businesses, business groups and categories and by geographic area. Quarterly aberrations due to State audits, fund transfers, and receivables along with late or double payments will be identified. Quarterly reconciliation worksheets to assist finance officer with budget forecasting will be included. 3. CONTRACTOR shall additionally provide a quarterly summary analysis for the CITY or its Redevelopment Agency to share with Chambers of Commerce and other economic development interest groups that analyze CITY’S sales tax trends by major groups, and geographic areas without disclosing confidential information. 4. CONTRACTOR shall make available and train the CITY Staff on the use of HdL sales tax computer software program and database containing sellers permit and quarterly allocation information for all in-city business outlets registered with the Board of Equalization and keep the registration and allocation data current with quarterly updates. B. ALLOCATION AUDIT AND RECOVERY 1. CONTRACTOR shall conduct an initial and on-going sales and use tax audit to identify and correct “point-of-sale” distribution errors and thereby generate previously unrealized sales tax income for the CITY. Common errors that will be monitored and corrected include: transposition errors resulting in misallocations; erroneous consolidation of multiple outlets; misreporting of “point of sale” to the wrong location; failure to properly report out of state purchases to in-state warehouses; improper reporting of capital purchases to state or county allocation pools; misdirection of self-imposed use tax and erroneous fund transfers and adjustments. 2. CONTRACTOR will initiate contacts with the appropriate sales management and accounting officials in companies that have businesses where a probability of error exists to verify whether current tax receipts accurately reflect the local sales activity. Such contacts will be conducted in a professional and courteous manner so as to enhance CITY’S relations with the business community. 3. CONTRACTOR shall prepare and submit to the Board of Equalization all information necessary to correct any allocation errors that are identified and shall follow-up with the individual businesses and the State Board of Equalization to ensure that all back quarter payments due the CITY are recovered. 4. If during the course of its audit, CONTRACTOR finds businesses or capital projects located in the CITY that have the potential for modifying 2 their operation to provide an even greater share of sales or use tax to the CITY, CONTRACTOR shall so advise CITY and upon request, shall work with those businesses, CONTRACTOR and the CITY to encourage such changes. C. ON GOING CONSULTATION Throughout the term of this agreement, CONTRACTOR shall provide sales tax estimates for proposed annexations, economic development projects and budget projections, monitor the CITY’s sales tax sharing agreements and budgeted revenue projections against actual receipts, evaluate sales and use tax related legislative and regulatory proposals that potentially impact the CITY, assist in targeting business retention and tax leveraging opportunities, provide training on sales and use tax revenues when requested and generally serve as CITY staff on sales, use and transactions tax issues. III. CONFIDENTIALITY Section 7056 of the State of California Revenue and Taxation code specifically limits the disclosure of confidential taxpayer information contained in the records of the State Board of Equalization. This section specifies the conditions under which a CITY may authorize persons other than CITY officers and employees to examine State Sales and Use Tax records. The following conditions specified in Section 7056 (b), (1) of the State of California Revenue and Taxation Code are hereby made part of this agreement. A. CONTRACTOR is authorized by this Agreement to examine sales, use or transactions and use tax records of the Board of Equalization provided to CITY pursuant to contract under the Bradley-Burns Uniform Sales and Use Tax Law. B. CONTRACTOR is required to disclose information contained in, or derived from, those sales, use or transactions and use tax records only to an officer or employee of the CITY who is authorized by resolution to examine the information. C. CONTRACTOR is prohibited from performing consulting services for a retailer, as defined in California Revenue & Taxation Code Section 6015, during the term of this Agreement. D. CONTRACTOR is prohibited from retaining the information contained in, or derived from those sales or transactions and use tax records, after this Agreement has expired. Information obtained by examination of Board of Equalization records shall be used only for purposes related to collection of local sales and use tax or for other governmental functions of the CITY as set 3 forth by resolution adopted pursuant to Section 7056 (b) of the Revenue and Taxation Code. The resolution shall designate the CONTRACTOR as a person, authorized to examine sales and use tax records and certify that this Agreement meets the requirements set forth above and in Section 7056 (b), (1) of the Revenue and Taxation Code. IV. PROPRIETARY INFORMATION AND SOFTWARE In performing its duties under this agreement, CONTRACTOR will produce software, technical reports and other compilations of data for the CITY. The software, technical information and compilations of data are derived by CONTRACTOR using methodologies, formulae, programs, techniques and other processes designed and developed by CONTRACTOR at a substantial expense and are therefore considered by CONTRACTOR to be proprietary. CONTRACTOR’S codes and processes are not generally known by the entities with which CONTRACTOR competes. CONTRACTOR desires to protect its Proprietary Information and Software. Accordingly, CITY agrees that neither it nor any of its employees, agents, independent contractors or other persons or organizations over which it has control, will at any time during or after the term of the Agreement, directly or indirectly use any of CONTRACTOR’S Proprietary processes and software for any purpose not associated with CONTRACTOR’S activities. Further, CITY agrees that neither it nor any of its employees, agents, independent contractors or other persons or organizations over which it has control, will disseminate or disclose any of CONTRACTOR’S Proprietary Software to any person or organization not connected with CONTRACTOR, without the express written consent of CONTRACTOR. The CITY also agrees that it will undertake all necessary and appropriate steps to maintain the proprietary nature of CONTRACTOR’S Proprietary software and processes. V. CONSIDERATION A. CONTRACTOR shall establish the sales and transactions tax databases, shall provide the ongoing reports and analysis and shall make available the computer software program and databases referenced above for a fee of $600.00 per month, invoiced quarterly (hereafter referred to as “monthly fee”). However, CONTRACTOR agrees to discount its fee for the first twelve months (12) of this agreement and provide the above mentioned reports, services and software for a fee of $400.00 per month for a period not to exceed one year. B. CONTRACTOR shall be further paid 15% of all new sales, transactions and/or use tax revenue received by the CITY as a result of audit and recovery work performed by CONTRACTOR (hereafter referred to as “audit fees”) including any reimbursement from the Sales and Use Tax 4 Compensation Fund as outlined in Section 97.68 of the Revenue and Taxation Code. New sales, transactions and/or use tax revenue shall not include any amounts determined by CITY or CONTRACTOR to be increment attributable to causes other than CONTRACTOR’S work pursuant to this agreement. In the event that CONTRACTOR is responsible for an increase in the tax reported by businesses already properly making tax payments to the CITY, it shall be CONTRACTOR’S responsibility to separate and support the incremental amount attributable to its efforts prior to the application of the audit fee. Said audit fees will apply to state fund transfers received for back quarter reallocations and monies received in the first eight consecutive reporting quarters following completion of the audit by CONTRACTOR and confirmation of corrections by the State Board of Equalization. CONTRACTOR shall provide CITY with an itemized quarterly invoice showing all formula calculations and amounts due for audit fees. CONTRACTOR shall obtain CITY approval prior to beginning the work of correcting tax reporting methodology or “point of sale” for specific businesses where said payment of the percentage fee will be expected. Said approval shall be deemed given when the City Manager or his designated representative, signs a Sales Tax Audit Authorization form, a copy of which is attached as “Exhibit A.” CITY shall pay audit fees upon CONTRACTOR’S submittal of evidence of State Fund Transfers and payments to CITY from businesses identified in the audit and approved by the CITY. C. Above sum shall constitute full reimbursement to CONTRACTOR for all direct and indirect expenses incurred by CONTRACTOR in performing audits including the salaries of CONTRACTOR’S employees, and travel expenses connected with contacting local and out-of-state businesses and Board of Equalization representatives. VI. CITY MATERIALS AND SUPPORT CITY shall adopt a resolution in a form acceptable to the State Board of Equalization and in compliance with Section 7056 of the Revenue and Taxation Code, authorizing CONTRACTOR to examine the confidential sales tax records of CITY. CITY further agrees to continue CONTRACTOR’S authorization to examine the confidential sales tax records of the CITY by maintaining CONTRACTOR’S name on the CITY Resolution or by providing copies of future allocation reports on computer readable magnetic media until such time as all audit adjustments have been completed by the State Board of Equalization and audit fees due the CONTRACTOR have been paid. VII. LICENSES, PERMITS, FEES AND ASSESSENTS 5 CONTRACTOR shall obtain such licenses, permits and approvals (collectively the “Permits”) as may be required by law for the performance of the services required by this Agreement. CITY shall assist CONTRACTOR in obtaining such Permits, and CITY shall absorb all fees, assessments and taxes which are necessary for any Permits required to be issued by CITY. VIII. TERMINATION This Agreement may be terminated for convenience by either party by giving 30 days written notice to the other of such termination and specifying the effective date thereof. Upon the presentation of such notice, CONTRACTOR may continue to work through the date of termination. Upon termination as provided herein, CONTRACTOR shall be paid the value of all tax analysis and reporting work performed less payments previously made by CITY. In ascertaining the value of the work performed up to the date of termination, consideration shall be given to amounts due for any unpaid invoices, and to businesses identified by CONTRACTOR which make tax payments after termination of this Agreement as a result of CONTRACTOR’S work. After CITY receives said tax payments for such businesses, CONTRACTOR shall be paid the audit fees resulting from tax payments made by the business for back quarter reallocations and the first eight consecutive reporting quarters following completion of the audit by CONTRACTOR and confirmation of corrections by the State Board of Equalization. Compensation for any audit work previously authorized and satisfactorily performed shall be made at the times provided in the preceding section entitled “Consideration.” All documents, data, surveys and reports prepared by CONTRACTOR pursuant to this Agreement shall be considered the property of the CITY and upon payment for services performed by CONTRACTOR, such documents and other identified materials shall be delivered to CITY by CONTRACTOR. IX. INDEPENDENT CONTRACTOR CONTRACTOR shall perform the services hereunder as an independent contractor and shall furnish such services in his own manner and method, and under no circumstances or conditions shall any agent, servant, or employee of CONTRACTOR be considered as an employee of CITY. X. NON-ASSIGNMENT This Agreement is not assignable either in whole or in part by CONTRACTOR without the written consent of CITY. XI. ATTORNEY’S FEES 6 In the event a legal action is commenced to enforce any of the provisions of this Agreement, the prevailing party shall be entitled to recover its costs and reasonable attorney’s fees. XII. GOVERNING LAW The laws of the State of California shall govern the rights, obligations, duties and liabilities of the parties to this Agreement and shall also govern the interpretation of this agreement. XIII. INDEMNIFICATION CONTRACTOR hereby agrees to, and shall hold CITY, its elective and appointive boards, officers, agents and employees, harmless from any liability for damage or claims for damage for personal injury, including death, as well as from claims for breach of confidentiality or property damage which may arise from CONTRACTOR’S willful or negligent acts, errors or omissions or those of its employees or agents. CONTRACTOR agrees to and shall defend CITY and its elective and appointive boards, officers, agents and employees from any suits or actions at law or in equity for damages caused, or alleged to have been caused, by reason of any of the aforesaid willful or negligent acts, errors or omissions. CITY hereby agrees to, and shall hold CONTRACTOR, its officers, agents and employees, harmless from any liability for damage or claims for damage for personal injury, including death, as well as from claims for breach of confidentiality or property damage which may arise from CITY’S negligent acts, errors or omissions under this Agreement. CITY agrees to and shall defend CONTRACTOR and its officers, agents and employees from any suits or actions at law or in equity for damage caused, or alleged to have been caused, by reason of any of the aforesaid negligent acts, errors or omissions. XIV. NOTICE All notices required by this Agreement shall be given to CITY and CONTRACTOR in writing, by personal delivery or first class mail postage prepaid, addressed as follows: CITY: CITY OF DOWNEY Attn: John Michicoff Director of Finance 11111 Brookshire Avenue Downey, CA 90241 CONTRACTOR:HINDERLITER, DE LLAMAS, & ASSOCIATES 7 1340 Valley Vista Drive, Suite 200 Diamond Bar, CA 91765 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the date first above written by their respective officers duly authorized in that behalf. CITY OF DOWNEY Anne M. Bayer, Mayor CONTRACTOR: HINDERLITER, DE LLAMAS & ASSOCIATES A California Corporation APPROVED AS TO FORM: Charles S. Vose, City Attorney ATTEST: Kathleen L. Midstokke 8 SAMPLE SAMPLE EXHIBIT A Sales Tax Audit Work Authorization No. ______ The following business or businesses, located in the City of Downey, have been identified as having the potential for generating additional sales tax revenue to the City of Downey. Contractor is hereby authorized to contact the given business(s) and the State Board of Equalization to verify the accuracy of the current reporting methodology and obtain the necessary documentation for the Board of Equalization, to modify allocation formulas, and to return previous misallocated revenue that may be due to City. Contractor’s compensation shall be 15% of the new sales and/or use tax revenue received by the City as a result of audit and recovery work performed by Contractor, as set forth in the Agreement between Contractor and City. CITY OF DOWNEY By:___________________________ Date: HINDERLITER, DE LLAMAS AND ASSOCIATES By: Date: