HomeMy WebLinkAboutReso 104-1986RESOLUTION NO. 104-86
CITY COUNCIL, CITY OF SOUTH SAN FRANCI$ZO, STATE OF CALIFORNIA
A RESOLUTION APPROVINGAND AUUHORIZING THE
EXECUTION OF ANAGRRRMENTFOR SALES TAX
AUDIT AND INFORMATION SERVICES WITH MUNICIPAL
RESOURCE CONSULTANTS
BE IT RESOLVED by the City Council of the City of South San Francisco
that:
1. Approval of Agreement
The Agreement entitled "Service Agreement" to furnish sales tax
audit and information services between the City of South San Francisco and
~unicipal Resource Consultants is hereby approved, and a copy of said
Agreement is attached hereto as Exhibit "A."
2. Execution of Agreen~nt
The City Manager is hereby authorized to execute said Agreement on
behalf of the City, and the City Clerk attest her signature thereto.
I hereby certify that the foregoing Resolution was regularly introduced
and adopted by the City Council of the City of South San Francisco at a
re§u]ar meeting held on the 28th day of May ,
19 86 , by the following vote:
AYES: Councilmembers Mark N. Addiego, John "Jack" Drago, Gus
Nicolopulos and Roberta Cerri Tegl~a
NOES: Councilmember Richard A. Haffey
ABSENT: None
EXHIBIT "A" TO RESOLUTION NO. 104-86
MUNICIPAL RESOURCE CONSULTANTS
32123 W. Lindero Canyon Rd.
Suite 209
Westlake Village, CA 91361
(818) 991-5220
1533 W. Locust Ave.
Fresno, CA 93711
(209) 432-6039
March 12, 1986
Mr. Barry R. Lipton
Director of Finance
City of South San Francisco
315 Maple Avenue
South San Francisco, CA 94080
Re:
Sales Tax Audit and Information Services
Dear Mr. Lipton:
Municipal Resource Consultants (MRC) hereby proposes to
provide a professional service to recover sales tax income for
the City of South San Francisco unrealized due to distribution
errors.
1. FOREWORD
The City of South San Francisco, together with most of
the other cities in California, has been materially
affected in recent years by Proposition 13, economic
recession and the State/Federal cutbacks. With the
impending threat of more fiscal hardship and few
prospects for new revenue sources, it is vitally
important that cities maximize income from existing
revenue sources.
Clearly, these fiscal changes have made sales tax the
most important revenue source for almost all California
cities~ For example, 1983-84 sales tax revenue for the
City of South San Francisco comprised approximately 41%
of total General Fund revenue (per Annual Report of
Financial Transactions, State of California, 1983-84).
Sales tax revenue has generally been taken for granted
with cities simply accepting payments from the State
without question. The complex reporting format and
distribution process are largely responsible for this
condition.
Mr. Barry R. Lipton
city of South San Francisco
March 12, 1986
Page 2
The State Board of Equalization is charged with overall
audit responsibility. However, staffing is not adequate
to audit all aspects of sales tax reporting. The Board
concentrates primarily on auditing sales tax collections
reported by the business. Very_ little audit takes place
with regard to "point-of-sale" reporting, which results
in many cities being subject to distribution errors.
These misallocation errors exist because businesses
register for sales tax per~its according to their
convenience, which is not always consistent with point-
of-sales regulations. Further~more, these errors are
often difficult to detect.
Because misallocations are not uncommon, it is essential
that the sales tax resource be audited to determine
whether the City is receiving all of the sales tax income
to which it is entitled. It is also important for the
City to know more about the businesses producing its
sales tax income in order to monitor, analyze and
forecast their performance.
PURPOSE
Accordingly, we propose to conduct an initial and ongoing
sales tax audit in order to identify and correct point-
of-sale distribution errors and thereby generate new
sales tax income for the City. It should be emphasized
that MRC's proposed sales tax audit encompasses all City
businesses and not just the major firms.
Ancillary services designed to further enhance the City's
revenue base are offered as options to each of MRC's
audit clients. These Optional Services are covered
under Section 4, on pages 5 and[ 6.
Mr. Barry R. Lipton
city of South San Francisco
March 12,1986
Page 3
SCOPE OF SERVICE
The scope of our proposed audit service includes, but is
not limited to, accomplishing the following tasks:
Procure a computer tape of sales tax permit records
from the State Board of Equalization (only the City
can order this tape which costs about $%~9J.
Input data from sales tax distribution reports
provided by State Board of Equalization for most
recent consecutive quarters.
Develop a target list of potential point-of-sale
distribution errors based on a comprehensive
inventory and evaluation of all businesses in the
City of South San Francisco. These businesses are
to be analyzed based on proprietary guidelines
established by MRC, formulated through expert
knowledge of corporate mergers and acquisitions,
sales versus use tax, business marketing
organization and methods, commercial sales tax
reporting practices, and other conditions
contributing to reporting errors.
Contact each target business to determine whether a
point-of-sale distributioon error exists.
Note: This is accomplished with the highest regard
to discretion and professional conduct, as evidenced
by the fact that MRC's sales tax audits have
involved more than 40,900 direct contacts with
taxpayer businesses witho'lt a single complaint. Our
sales tax audits are predicated on a constructive
public relations approach which emphasizes the
importance of each business to the City and the
mutual benefits of correcning reporting errors.
Provide to the City, for submission to the local
office of the State Board of Equalization, reports
addressing each point-of-sale distribution error
individually, including the business name, address,
telephone number, California sales tax permit
number, individuals contacted, date(s) of contact,
nature of business, reason(s) for error, recommended
corrective procedure and, if available, estimated
sales tax income which should be forthcoming to the
City of South San Francisco. This report is
accompanied by our suggested language for letters to
be sent to the taxpayers directly from the City
urging cooperation in promptly correcting the
distribution error.
Mr. Barry R. Lipton
city of South San Francisco
March 12,1986
Page 4
O
O
O
Receive and process registration control record
information monthly.
Receive and process sales tax distribution
reports quarterly.
Coordinate with the taxpayer and State Board of
Equalization to make the necessary corrections
and collect backquarters amounts.
Monitor and analyze the quarterly distri-bution
reports with audit focus on the following:
Those accounts with previously reported
point-of-sale distribution errors to
ensure that the corrections are made for
current quarters and all eligible
backquarters.
Those major accounts comprising most of
the City's total sales tax revenue to
identify any irregularities (e.g.,
negative funds transfers, significant
decreases, etc.) and ensure that the City
is not getting less than it is entitled.
Mr. Barry R. Lipton
city of South San Francisco
March 12,1986
Page 5
OPTIONAL SERVICES
Much of the data developed as part of our audit service
is common to that required to perpetually monitor,
analyze and forecast income from the sales tax resource
and provide corollary consulning services designed to
maintain and enhance the City's revenue base. These
services are offered as options to each of MRC's audit
clients.
The scope of our STARS Reports and Corollary Consulting
services includes, but is not Limited to, the following:
4.1 STARS Reports
Refine our computerized sales tax data for the City
utilizing MRC's Sales Tax Analysis and Reporting
System (STARS).
Prepare and submit STARS reports on a quarterly
basis principally focusing on the major sales tax
producers. Major sales tax producers are defined as
those businesses meeting or exceeding a specified
quarterly revenue threshold and comprising in
aggregate 90% or more of the sales tax revenue
generated from businesses located in the City.
AIl major sales tax producers and
categories are monitored and analyzed
based on reports to include the following:
business
quarterly
Major (and ToD 100) Sales Tax Producers. Ranks
in descending order according to level of sales
tax produced.
Business Classificanion. Groups and ranks
major producers by business classification
according to level of sales tax produced.
Mr. Barry R. Lipton
City of South San Francisco
March 12,1986
Page 6
Sales Tax Trend Reports. Indicates growth and
decline comparisons by various categories for
forecasting and analysis.
Projections. For budgetary purposes, provides
sales tax projections based on optimistic,
pessimistic and most likely economic conditions
for major business categories.
Executive Summary. Based on our analysis and
evaluation of the STARS reports and other data,
our quarterly report is to include an Executive
Summary, which presents our findings,
conclusions and recommendations in a condensed
format with narrative comple-mented by
graphics.
Mr. Barry R. Lipton
City of South San Francisco
March 12,1986
Page 7
4.2
Corollary Consulting
Make specific recommendations (for City staff and/or
MRC) to further enhance the City's revenue base in
areas such as sales tax, property tax, business
license tax, transient occupancy tax, utility tax
and defined economic development goals.
Provide City employees with post-audit sales tax
orientation:
- Conduct technical seminar on California's local
sales tax distribution process.
Train staff in the fundamentals of sales tax
auditing should the City desire to assume
responsibility for future maintenance of local
retail accounts internally.
Analyze list of City's major sales tax producers in
order to assist the City in developing a public
relations program to prevent the loss of these
important businesses~
Profile for Economic Development/Community
Redevelopment and Chamber of Commerce personnel the
most economically desirable/undesirable types of
developments/business users and the reasons why.
Provide a list of businesses located in the City
that are not presently producing sales tax to the
City of South San Francisco, but could be through
constructive changes in marketing procedures.
O
If economics warrant, recommend a program be
implemented to capture 'the 1% sales tax on City
purchases from vendors reporting as use tax and/or
having non-city points of sales.
Assist in defining specific geographic areas for
which the City would have an interest in knowing the
sales tax produced (e.g., within Community
Redevelopment Agency boundaries).
Mr. Barry R. Lipton
City of South San Francisco
March 12,1986
Page 8
4. TIMING
We are prepared to commence the proposed service
immediately upon receipt of City Council contract
authorization and resolution designating MRC as the
authorized City contractor to examine sales and use tax
records (see Exhibit B). ,
The initial audit report identifyng point-of-sale
distribution errors is normally provided within 60
working days following receipt of authoriztion. The
ongoing audit reports are provlded within 30 working days
following receipt of the quarterly distribution reports.
With regard to the optional services, STARS reports are
provided on a quarterly basis within 30 working days
following receipt of the quarterly distribution reports.
The corollary consulting services are provided on an
ongoing basis in conjunction with the delivery of our
ongoing audit and STARS reports.
Mr. Barry R. Lipton
City of South San Francisco
March 12,1986
Page 9
Se
OUALIFICATIONS
Municipal Resource Consultants (MRC) specializes in
providing sales, use, excise and property tax consulting
services to California municipalities. Each service
provided is designed to produce an economic return that
is many times greater than the amount invested for the
service.
MRC has established a reputation as the undisputed leader
in providing sales tax services to California
municipalities,- based on a proven track record of
consistently impressive resulted.
Since 1978, MRC has conducted sales tax audits that have
produced in aggregate more than $5 million annually in
recovered sales tax for California municipalities. Our
sales tax audits have also res'llted in the identification
and correction of the largest misallocated accounts in
California.
California clients served represent a wide and varied mix
of cities with populations ranging from less than 50,000
to more than 500,000, and ant.ual sales tax income from
less than $2 million to more than $20 million.
The uniqueness of our service and significant results
achieved are directly attributable to our employing
proprietary techniques borne out of the principals'
combined 23 years of sales tax audit experience.
MRC's proposed service is to be provided
principals, John Austin and Allen Charkow.
by its
Mr. Barry R. Lipton
city of South San Francisco
March 12,1986
Page 10
PERIOD COVERED & CHARGES
Our fee is based on a contingency incentive for the
initial and ongoing sales tax audit service plus a flat
charge for the STARS reports and corollary consulting,
further described as follows=
Sales Tax Audit Service
MRC's fee for the initial and ongoing sales tax audit
service is entirely predicated and contingent upon our
ability to produce new sales tax income for the City.
Our fee for providing the audit service, exclusive of the
optional services, is 35% of new sales tax income
realized by the City as a result of MRC identifying and
correcting the related point-of-sale distribution error.
Said 35% applies to each correction for any backquarters
fund transfers and the first six consecutive reporting
quarters following completion of the audit by MRC and
confirmation of corrections by the State Board of
Equalization.
Should the City also desire the optional services, the
contingency incentive fee for the audit service is
reduced from 35% to 25%.
Sales tax audit invoices are submitted quarterly after
the City has received the revenue from the correction and
quarterly distribution repor~ confirming it. Each
invoice is to include the business name, permit number,
local allocation amount received by the City and amount
due MRC.
STARS Reports & Corollary Consulting ¢ODtional)
MRC is to provide STARS Reports and Corollary Consulting
for a flat fee of $5,000 for the first year, payable in
four equal quarterly installments of $1,250 each.
Invoices are to be submitted together with our quarterly
reports and are due and payable upon receipt.
Expenses i
It should be emphasized that under both the flat fee and
contingency fee arrangements, all expenses are absorbed
by MRC. These expenses include items such as airfare,
auto rentals, meals, lodging, keypunching, computer
processing, clerical, communications (e.g., personal
meetings, telephone, mail, etc.) photocopying, overhead
and miscellaneous out-of-pockets for consumable supplies
and research materials such as maps, directories, etc.
Mr. Barry R. Lipton
city of South San Francisco
March 12,1986
Page 11
®
CERTIFICATION OF 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 ~qualization. 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 (see sample resolution
attached as Exhibit B).
The following conditions speclfied in Section 7056 (b),
(1) of the State of California Revenue and Taxation Code
are hereby made part of this contractual agreement
entered into between the City of South San Francisco and
Municipal Resource Consultants (Contractor).
A. Contractor is authorized by this agreement to
examine sales 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, of derived from, those sales 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 during the term of this
agreement.
D. Contractor is prohibited from retaining the
information contained in, or derived from, those sales
and use tax records, after this agreement has expired.
Information obtained by examination of Board 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
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 Secnion 7056 (b),(1) of the
Revenue and Taxation Code.
Contractor hereby certifies tkat any and all information
utilized in the conduct of work performed is to be
utilized only for those purposes authorized by the City
and by the Bradley-Burns Uniform Local Sales and Use Tax
Law.
Mr. Barry R. Lipton
City of South San Francisco
March 12, 1986
Page 12
CONCLUSION
The proposed audit service is designed to identify and
correct point-of-sale distribution errors and thereby
generate new sales tax income for the City of South San
Francisco on an ongoing basis.,
The STARS reports and corollary consulting provide the
essential information to monitor, analyze and forecast
income from the sales tax resource and to maintain and
enhance the City's revenue base.
All of MRC's proposed services are designed to produce an
economic return that is many times greater than the
amount invested for the service.
Should you have any questions regarding the proposed
services or our charges, we are prepared to respond
promptly.
Should the City decide to use this proposal as the
contract or contract attachment, please indicate
acceptance by noting the services desired and returning
an executed copy to my attentLon. The original is for
your records.
Yes N__o
Sales Tax Audit Service
STARS Reports
&
Corollary Consulting
ACCEPTED FOR
CITY OF SOUTH SAN FRANCISCO
ACCEPTED FOR MUNICIPAL
R~SOURCE CONSULTANTS
Ti~e:
Date: March 12, 1986