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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