HomeMy WebLinkAbout09. Approve Updated Agrmts w -HDL-Sales and Use Tax Audit Services Fee IncreaseÐ Citycfaowney AGENDAMEMO
TO
Item No.
APPROVED BY
H.N.RABLE MAyoR AND MEMBERS oF rHE crry cou*tflY MANAGER
OFFICE OF THE CITY MANAGER
BY: ANIL H. GANDHY, DlR. OF FINANGE AMD INFORMATION TECHNOLOGY
DATE:AUGUST 14,2018
,4u .tu'
SUBJECT: SALES AND USE TAX AUDIT SERVICES FEE INCREASE
FROM:
RECOMMENDATION
That the City Council take the following action
Approve an updated agreement that implements a fee increase for sales, use and transactions tax
audit and information services with Hinderliter, de Llamas and Associates (HdL)
DISCUSSION
ln November of 2010, the City signed an agreement with HdL and presented a Resolution for
comprehensive sales tax tracking and auditing services.
HdL performs an audit of all individual retailers within the city, county, and surrounding cities to
be sure that all sales tax dollars that should accrue to Downey are paid to Downey. HdL
services are as follows:
,/ Quarterly revenues generated by major groups (food and drug, auto, fuel etc.)./ Quarterly revenues generated within a specific area (Stonewood, Downey Landing
etc.),/ lndividual business comparisons from quarter to quarterr' Top tax producers,/ Comparisons of Downey's activity to both the County and the State,/ Per capita analysis,/ Forecasting modules,/ Retailers showing an interest in moving to California,/ Budget projections,/ Legislative changes,/ New producers in the Cityr' Current Software program and database,/ Audit services for proper allocation to the City
Due to the highly confidential nature of individual sales tax data, it is a criminal offense to
unlawfully disclose sales tax data to anyone besides the city. ln order for HdL to obtain this
information from the Board of Equalization, specific authorization must be granted to HdL. The
resolution satisfies this requirement and sets forth the limited governmental use of that data.
TITLE SALES AND USE TAX AUDIT SERVICES FEE INCREASE
DATE AUGUST 14,2018
PAGE#2
Over the past 7 years, HdL has significantly expanded its service level, number and quality
management reports and added detailed sales tax budget estimates to its scope of services.
Additionally, over that same time frame, the City's economic base and sales tax revenue has
grown by more than 47o/o. This updated agreement incorporates HdL's current compensation
language and will bring the City in line with what other cities of similar size and complexity are
paying for the same services.
CITY GOUNCIL PRIORITIES
Fiscal' Responsibility
FISCAL IMPACT
The annual cost for audit services is currently $7,ZOO. Thereafter, this cost will be $7,800, an
increase of $600.
ATTACHMENTS
Attachment A - Agreement
2
AGREEMENT FOR SALES, USE AND TRANSACTIONS TAX AUDIT AND
INFORMATION SERVICES
This Agreement is made and entered into as of the _ day of 2018 (the
"Effective Date") 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
V/HEREAS, sales, use and transactions tax (sometimes collectively referred to herein as
"sales and use tax") revenues can be increased through a system of continuous monitoring,
identification and correction of allocation errors, and
V/HEREAS, aî effective program of sales and use tax management will improve
identification of economic opportunities; provide for more accurate sales and use tax
forecasting; and assist in related revenue collections; and
WHEREAS, CITY desires the combination of data entry, report preparation and analysis
necsssary to effectively manage its sales and use tax base; the recovery of revenues
erroneously allocated to other jurisdictions and allocation pools; and to maximize its f,rnancial
and economic planning; 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:
940431.4-6 Page I of15 ATTACHMENT A
II. SERVICES
The CONTRACTOR shall perform the following services (collectively, the "Services"):
A, SALES TAX AND ECONOMIC ANALYSIS SERVICES
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 all quarters back to frscal year 1990-199I or earlier, if the CITY has prior
historical sales tax data available on computer readable magnetic media. 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, or business districts,
identification of reporting aberrations, and per capita and outlet comparisons with
regional and statewide sales.
2. CONTRACTOR shall provide updated reports following each calendar quarter
identifying changes in sales by individual businesses, business groups and categories
anci by geographic area. These reports may include, without limitation, quarterly
aberrations due to State auclits, fund transfers, and receivables along with late or
double payments, and quarterly reconciliation worksheets to assist with budget
forecasting. CONTRACTOR shall meet quarterly with CITY.
3. CONTRACTOR shall additionally provide following each calenclar quarter a
summary analysis for the CITY to share with Council Members Chambers of
Commerce, other economic development interest groups and the public that analyze
CITY'S sales tax trends by major groups, and geographic areas without disciosing
confidential information,
94043t.4-6 Page 2 of 15
4. CONTRACTOR shall make available to CITY staff CONTRACTOR's web-based
sales tax computer software program containing sellers permit and quarterly
allocation information for all in-city business outlets registered with the Board of
Equalization and updated quarterly. This software shall allow CITY staff to search
businesses by street address, account number, business name, business type and
keyword, arrange databy geographic are4 and print out a variety of reports.
B. ALLOCATION AUDIT AND RECOVERY SERVICES
CONTRACTOR shall conduct initial and on-going sales, use ancl transactions tax
audits to identifu and correct distribution and allocation errors, and to proactively
affect favorable registration, reporting or formula changes thereby generating
previously unrealized sales, use and transactions tax income for the CITY and/or
recovering misallocated tax from previously properly registered taxpayers. Common
errors that will be monitored and corrected include, but are not limited to:
transposition errors resulting in misallocations; effoneous consolidation of multiple
outlets; formula errors, misreporting of "point of sale" to the wrong location; delays
in reporting new outlets; misallocating use tax payments to the allocation pools or
wrong jurisdiction; and erroneous fund transfers and adjustments.
2. CONTRACTOR shall initiate contacts with state agencies, and sales management
and accounting offrcials in companies that have businesses where a probability of
error exists to verifu whether current tax receipts accurately reflect the local sales
activity. Such contacts will be conducted in a professional and courteous manner.
3. CONTRACTOR shall (i) prepare ancl submit to the Board of Equalization
information for the purpose of comecting allocation errors that are identified and (ii)
follow-up with individual businesses anci the State Board of Equaiization to promote
recovery by the CITY ofback or prospective quafterly payments that may be owing.
940431 .4-6 Page 3 ofl5
4. If during the course of its audit, CONTRACTOR finds businesses located in the
CiTY that are properly reporting sales and use tax but have the potential for
modi$'ing their operation to provide an even greater share to the CITY,
CONTRACTOR may so advise CITY and work with those businesses and the CITY
to encourage such changes.
C. CONSULTING AND OTHER OPTIONAL SERVICES
CONTRACTOR may, from time to time in its sole discretion, consuit with CiTY staff,
including without limitation, regarding (i) technical questions and other issues related to
sales, use and transactions tax; (ii) utilization of reports to enhance business license
collection efforts; and (iii) sales tax projections for proposed annexations, economic
development projects and budget planning. In addition to the foregoing optional
consulting services, CONTRACTOR may, from time to time in its sole discretion,
perform other optional Services, including without limitation, negotiating/review of tax
sharing agreements, establishing purchasing corporations, and meeting with taxpayers to
encourage selÊassessment of use tax.
III. CONSIDERATION
A. CONTRACTOR shall provide the sales tax and economic analysis Services described in
Section II-A above for a fee of $650 per month, commencing with the month of the
Effective Date (hereafter referred to as "monthly fee"). The monthly fee shall be invoiced
quarterly in arears, and shall be paid by CITY no later than 30 days after the invoice date.
The monthly fee shall increase annually following the month of the Effective Date by the
percentage increase in the "CPI" for the preceding twelve month periocl. In no event shall
the monthly fee be reduced by this calculation. For puryoses of this Agreement, the
"CPI" shall mean the Consumer Price Index - All Urban Consumers lor the surrouncling
statistical metropolitan area nearest CITY, All ltems (1982-84: 100), as publishecl by the
940431.4-6 Page 4 ofl5
U.S. Department of Labor, Bureau of Labor Statistics, or, if such index should cease to be
published, any reasonably comparable index selected by CONTRACTOR.
B. I CONTRACTOR shall be further paid 1SYo of all new and recovered sales, use and
transactions tax revenue received by the CITY as a result, in whole or in part, of the
allocation audit and recovery services described in Section II-B above (hereafter
refered to as "audit fee"), including without limitation, any reimbursement or other
payment from any state fund and any point of sale misallocations.
2. The auclit fee shall be paid even if CITY assists, works in parallel with, and/or incurs
attorneys' fees or other costs or expenses in connection with any of the relevant
Services. Among other things, the audit fee applies to state ftrnd transfers received
for back quarter reallocations and monies received in the first eight consecutive
reporting quarters following completion of the allocation audit by CONTRACTOR
and confirmation of corrections by the State Board of Equalization. CITY shall pay
audit fees upon CONTRACTOR'S submittal of eviclence of CONTRACTOR'S work
in support of recovery of subject revenue, including, without limitation, copies of
BOE 549-5 petition forms of any other correspondence between CONTRACTOR
and the Board of Equalization or the taxpayer.
3. For any increase in the tax reportecl by businesses already properly making tax
payments to CITY, it shall be CONTRACTOR's responsibility to support in its
invoices the audit fee attributable, in whole or in part, to CONTRACTOR's Services.
940431 4-6 Page 5 of l5
C. CONTRACTOR shall invoice CITY for any consulting and other optional Services
rendered to CITY in accordance with Section II-C above based on the following hourly
rates on a monthly or a quarterly basis, at CONTRACTOR's option. All such invoices
shall be payable by CITY no later than 30 days following the invoice date. CITY shall not
be invoiced for any consulting Services totaling less than an hour in any month. The
hourly rates in effect as of the Effective Date are as follows:
Principal
Programmer
Senior Analyst
Analyst
$295 per hour
$250 per hour
$195 per hour
$100 per hour
CONTRACTOR may change such hourly rates from time to time upon not less than 30
clays' prior written notice to CITY.
D. Any invoices not paid in accorclance with the Thity (30) day payment terms, shall accrue
monthly interest at arate equivalent to ten percent (10%) per annum until paid.
E. CONTRACTOR unilaterally retains the right to divide any recovery bills in excess of
$25,000 over a one (1) year period (Four (4) quarterly billings).
F. CONTRACTOR shall provide CITY with an itemized quarterly invoice showing all
formula calculations and amounts due for the audit fee (including, without limitation, a
cletailecl listing of any corrected misallocations), which shall be paid by CITY no later
than 30 clays following the invoice date.
940431.4-6 Page 6 of l5
IV. CONFIDENTIALITY;OWNERSHIP/USEOFINFORMATION
A. Section 7056 of the State of California Revenue and Taxation Code specif,rcally limits the
disclosure of confidential taxpayer information contained in the records of the State
Boarcl of Equalization. Section 7056 specifìes the conditions under which a CITY may
authorize persons other than CITY officers and employees to examine State Sales and
Use Tax records.
B. The following conditions specified in Section 7056-(b), (1) of the State of California
Revenue and Taxation Code are hereby made parl of this Agreement:
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 uncler the Bradley-Br,rrns Uniform Sales and Use Tax Law
Revenue ancl Taxation Code section 7200 et.seq.
2. CONTRACTOR is required to disclose information contained in, or derived from,
those sales, use or transactions and use tax recorcls only to an officer or employee of
the CITY who is authorizecl by resolution to examine the information.
3. CONTRACTOR is prohibited from performing consulting services for a retailer, as
defined in California Revenue & Taxation Cocle Section 6015, dr-rring the term of this
Agreement.
4. CONTRACTOR is prohibited from retaining the information contained in, or
clerived from those sales, use or transactions and use tax records, after this
Agreement has expired. Information obtained by examination of Boarcl 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 forth by
resolution adopted pursuant to Section 7056 (b) of the Revenue and Taxation Cocle.
Page 7 ofl594043t 4-6
The resolution shall clesignate 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.
C. Software Use. CONTRACTOR hereby provides authorization to CITY to access
CONTRACTOR'S Sales Tax website if CITY chooses to subscribe to the software and
reports option. The website shall only be used by authorized CITY staff. No access will
be granted to any third party without explicit written authorization by CONTRACTOR.
CITY shall not sublet, duplicate, moclify, decompile, reverse engineer, disassemble, or
attempt to derive the source code of said software. The software use granted hereunder
shall not imply ownership by CITY of said software, or any right of CITY to sell said
software or the use of same, or any right to use said software for the benefit of others.
This software Lrse authorization is not transferable. Upon termination or expiration of
this Agreement, the software use authorization shall expire, and all CITY staff website
logins shall be de-activated.
D. Proprietar)¡ Information. As used herein, the term "proprietary information" means all
information or material that has or could have commercial value or other utility in
CONTRACTOR's business, inclucling without limitation: CONTRACTOR'S (i)
computer or data processing programs; (ii) data processing applications, routines,
subroutines, techniques or systems; desktop or web-based software; (iii) business
processes; (iv) marketing plans, analysis and strategies; and (v) materials and techniques
used; as well as the terms and conditions of this Agreement. Except as otherwise
requirecl by law, CITY shall hold in conhdence and shall not use (except as expressly
authorized by this Agreement) or disclose to any other party any proprietary information
. providecl, learned of or obtained by CITY in connection with this Agreement. The
obligations imposecl by this Section IV-D shall survive any expiration or termination of
94043t.4-6 Page I of l5
this Agreement or otherwise. The terms of this Section IV-D shall not apply to any
information that is public information.
V. 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 ftrther agrees
to provide any information or assistance that may readily be available such as business license
records within the CITY and to provide CONTRACTOR with proper identification for
contacting businesses. CITY fuither 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 repofis on computer
readable magnetic meclia until such time as all audit acljustments have been completecl by the
State Board of Equalization and any audit fee owing to CONTRACTOR has been paid.
VI. LICENSB, PERMITS, FEES AND ASSESSMENTS
CONTRACTOR shall obtain such licenses, permits ancl approvals (collectively the "Permits")
as may be required by law for the performance of the Services. 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.
VII. TBRMINATION
This Agreement may be terminated for convenience by either party by giving 30 days written
notice to the other of such termination and speci$ing the effective date thereof. Upon the
presentation of such notice, CONTRACTOR may continue to perform Services through the
date of termination. Following termination of this Agreement, CITY shall continue to timely
pay CONTRACTOR's invoices for Services performed and not paicl for prior to termination.
s4o43t.4-6 Page 9 of 15
Anything to the contrary herein notwithstanding (and without limitation on the foregoing
sentence), CITY shall continue to pay to CONTRACTOR the atrdit fee for tax payrnents
received by CITY after termination of this Agreement from (i) state fund transfers for back
quarter reallocations and the first eight consecutive calendar quarters following completion of
the allocation audit by CONTRACTOR and confirmation of corrections by the State Board of
Equalization; and (ii) businesses identified by CONTRACTOR pursuant to Section III-B-3
above, to the extent such businesses comrnence or continue to make increased tax payments
during the first 24 months following termination of this Agreement.
VIII. INDEPENDENT CONTRACTOR
CONTRACTOR shall perform the services hereunder as an independent contractor and shall
ftrrnish such services in its own manner and method, and under no circumstances or
conditions shall any agent, servant, or employee of CONTRACTOR be consiclered as an
employee of CITY.
IX. NON-ASSIGNMENT
This Agreement is not assignable either in whole or in part by CONTRACTOR without the
written consent of CITY
X. INSURANCE
CONTRACTOR shall maintain the policies set out below, and in amounts of coverage not
less than those indicated herein. Additionally, where required by CITY, CONTRACTOR
shall name the CITY as an additional insured on CONTRACTOR'S comprehensive general
liability policy and provide a Certificate of Insurance.
In accordance with applicable lawo
94043t 4-6
Worker's Comnensation and Em nl ver J Liahilitv
Page l0 of l5
2. Comprehensive Genq{al Liabilitl¿. Bodily injury liability in the amount of $1,000,000 for
each person in any one acciclent, and $1,000,000 for injuries sustained by two or more
persons in any one accident. Property damage liability in the amount of $1,000,000 for
each accident, and $2,000,000 aggregate for each year of the policy periocl.
3. Comprehensive Automobile Liability Bodily injury liability coverage of $1,000,000 for
each accident
4. Errors and Omissions. In addition to any other insurance required by this Agreement,
CONTRACTOR shall provide and maintain, during the term of this Agreement,
professional liability insurance in the amount of $1,000,000 as evidenced by a Certifìcate
of Insurance.
XI. INDEMNIFICATION
CONTRACTOR hereby agrees to, and shall hold CITY, its elective and appointive boards,
officers, agents ancl 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 clamage which may arise from CONTRACTOR'S willful or negligent acts, enors 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 sttits or
actions at law or in equity for clamages caused, or allegeci to have been caused, by reason of
any of the aforesaid willful or negligent acts, errors or omissions.
CITY hereby agrees to, and shall holcl CONTRACTOR, its officers, agents and employees,
harmless from any liability for damage or claims for damage for personal injury, incluciing
death, as well as from claims for breach of confidentìality or property damage which may
arise from CITY'S negligent acts, erors or omissions including misuse or improper disclosure
of confidential information containecl in reports submitted by contractor under this
Agreement. CITY agrees to and shall defend CONTRACTOR ancl its offltcers, agents and
employees from any suits or actions at law or in equity for clamage caused, or allegecl to have
s4043t.4-6 Page I I of 15
been caused, by reason of any of the aforesaid negligent acts, errors or omissions and/or
misuse or improper clisclosure of confidential information.
XII. IRRBPARABLE HARM
CONTRACTOR ancl CITY each understands and agrees that any breach of this Agreement by
either of them may cause the other party hereto irreparable harm, the amount of which may be
difficult to ascertain, and therefore agrees that such other party shall have the right to apply to
a court of competent jurisdiction for specific performance and/or an order restraining and
enjoining any further breach and for such other relief as such other party shall deem
appropriate. Such right is to be in addition to the remedies otherwise available to such other
party at law or in equity. The parties hereto expressly waive the clefense that a remedy in
damages will be adequate and any requirement in an action for specific performance or
injunction hereunder for the posting of a bond.
XIII. GOVERNING LAW
This Agreement shali be governed by and construed in accordance with the laws of the State
of California (without regard to its choice of law provisions). If any legal action is necessary
to enforce or interpret this Agreement, the parties agree that such action shall be brought in
the Superior Court for the State of California, County of Los Angeles, or the U.S. District
Court for the Central District of California, Western Division. The parties hereby submit to
the exclusive jurisdiction of such courts and waive any other venue to which either party
might be entitled by domicile or otherwise.
XIV. ATTORNEYS'FEES
If any party hereto brings an action or proceeding under this Agreement or to declare rights
hereunder, the Prevailing Party in any such proceeding, action, or appeal thereon shall be
entitled to recover all reasonable fees, costs ancl expenses, including reasonable attorneys'
940431.4-6 Page 12 of 15
fees. Such fees, costs ancl expenses may be awarded in the same suit or recovered in a
separate suit, whether or not such action or proceeding is pursued to decision or judgment.
The attorneys' fees award shall not be computed in accordance with any court fee schedule,
but shall be such as to fully reimburse all attorneys' fees reasonably incurred. "Prevailing
Party" shall mean and include, without limitation, a party who substantially obtains or defeats
the relief sought, as the case may be, whether by compromise, settlement, judgment, or the
abanclonment by the other party of its claim or defense.
XV. SEVERABILITY; NO WAIVER
The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of the other provisions of this Agreement, which shall remain in full
force ancl effect. If any of the provisions of this Agreement shall be cleemed to be
unenforceable by reason of its extent, duration, scope or otherwise, tiren the parties
contemplate that the court making such determination shall enforce the remaining provisions
of this Agreement, and shall reduce such extent, duration, scope, or other provision and shall
enforce them in their reduced form for all purposes contemplated by this Agreement. No
failure or delay by either party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or parlial exercise thereof preclucle any other
or ftirther exercise thereof or the exercise of any right, power or privilege hereunder.
XVI. NOTICES
All notices sent by a parly under this Agreement shall be in writing ancl shall be deemed
properly delivered to the other party as of the date of receipt, if received on a business day
prior to 3:00 PM local time, or otherwise on the next business day after receipt, providecl
clelivery occurs personally, by courier service, or by U.S. mail to the other party at its address
set forth below, or to such other adclress as either party may, by written notice, designate to the
other party. Notices to CONTRACTOR shall be sent to HINDERLITER, de LLAMAS and
94043t.4-6 Page 13 of l5
ASSOCIATES, 1340 Valley Vista Drive, Suite 200, Diamond Bar, CA 91765; and notices to
CITY shall be sent to CITY OF DOWNEY, 1 1 1 1 Brookshire Avenue, Downey , CA 90241.
XVN. ENTIRE AGREEMENT; ETL.
This Agreement expresses the full and complete understanding of the parties with respect to
the subject matter hereof and supersedes all prior or contemporaneous proposals, agreements,
representations and understandings, whether written or oral, with respect to the subject matter.
This Agreement may not be amended or modified except in writing signed by each of the
parties hereto. This Agreement shall be construecl as to its fair meaning and not strictly for or
against either party. The headings hereof are descriptive only and not to be construed in
interpreting the provisions hereof.
XVIII. COUNTERPARTS; AUTHORITY TO SIGN
This Agreement may be executed in any number of counterparts, each of which will constitute
an original and all of which, when taken together, will constitute one agreement. Any
signature pages of this Agreement transmitted by facsimile or sent by email in portable
document format (PDF) will have the same legal effect as an original executed signature page.
Each of the persons signing on behalf of a party hereto represents that he or she has the right
and power to execute this Agreement on such party's behalf.
94043t.4-6 Page 14 ofl5
IN V/ITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the date
first above written by their respective officers duly authorized in their behalf.
CITY:
CITY OF DOWNEY
Gilbert A. Livas
City Manager
Alicia Maria Duarte, CMC
City Clerk
CONTRACTOR:
HINDERLITER, DE LLAMAS & ASSOCIATES
A California Corporation
By
Andrew Nickerson, President
APPROVED AS TO FORM:
Yvette Garcia
City Attorney
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