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Recommendation to Award a Five-Year Contract for an Amount not to Exceed a Total Five-Year Expenditure of $250,000, Subject to Budget Approvals, to Hinderliter de Llamas (HdL) for Review and Analysis of Sales and Use Tax Revenues. (Finance 2410)
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To: Honorable Mayor and Members of the City Council
From: Jill Keimach, City Manager
Re: Recommendation to Award a Five-Year Contract for an Amount not to Exceed a Total Five-Year Expenditure of $250,000, Subject to Budget Approvals, to Hinderliter de Llamas for Review and Analysis of Sales and Use Tax Revenues
BACKGROUND
Hinderliter de Llamas (HdL) has been performing Sales and Use Tax consulting services for the City for the past seven (7) years. HdL is a state-wide expert in Sales and Use Tax data analysis with 348 public agency clients for whom such services are performed and has the programs, equipment, data and personnel required to deliver the sales and use tax services. HdL performs continuous monitoring, identification, detailed analysis and reconciliation of Sales and Use Tax revenues of the Board of Equalization (BOE) records for the purpose of ensuring that the City receives the appropriate Sales and Use Taxes. Effectively managing the city’s Sales and Use Tax helps the City in fiscal, economic and community development planning.
DISCUSSION
Sales and Use Tax is the City’s second largest source of General Fund revenue. Sales and Use Tax accounts for $9.65 million or 11% of General Fund revenue. Sales and Use Tax is levied on retailers who sell or rent tangible personal property. The local share (Bradley-Burns 1%) is distributed to the jurisdiction where the sale is negotiated or the order is taken. The City of Alameda receives 95% of the 1% Bradley-Burns Sales and Use Tax. The remaining 5% goes to Alameda County. Sales Tax does not apply to the sale of real property or to services that do not result in a finished product.
The consulting services offered by HdL would include filing of claims with the BOE for the correction of errors and working with the BOE to ensure prompt recovery of all escaped revenue. They will also provide a variety of detailed Sales and Use Tax reports for the City as a whole and for specific geographic areas. Staff uses these reports for the quarterly sales tax update presented to the City Council for acceptance. These reports include a listing by major industry group; per capita sales tax surplus/gap comparison; sales tax by geographic areas; a sales tax listing for agencies within Alameda County; and a State to City sales tax collection comparison. In addition, they will provide reports estimating expected Sales and Use Tax revenue and detailing revenue trends for the City. A copy of the service provider agreement is attached as Exhibit 1.
In order to evaluate the best services, the City reached out to the BOE to identify other vendors that provide review and analysis of Sales and Use Tax revenues. HdL and MuniServices were the only two identified. City staff solicited proposals from both providers and determined HdL to be the best fit based on excellent customer service, a superior work product, and the ability to tier the recovery fee, as outlined below.
FINANCIAL IMPACT
Regular audits of the City’s Sales and Use Tax finds and corrects errors that result in underpayments of tax or lost revenue to the City. Since 2010, Sales and Use Tax audits have recovered approximately $611,000 in revenues for the City (Exhibit 2).
The funds for this contract are and will be appropriated as part of each Fiscal Year Budget within Finance Department. In the first three years of the contract, the compensation for Sales and Use Tax consulting services, as set in the agreement, is $6,000 per year, plus a recovery fee based on the sales and/or use tax revenue recovered:
• 15% on the first $1,000,000
• 10% on $1,000,001 to $2,500,000
• 5% on amounts over $2,500,001
The annual base fee for the succeeding years will be adjusted based on the Consumer Price Index for the San Francisco Bay area as reported by the U.S. Department of Labor, Bureau of Labor Statistics for the previous calendar year. The total compensation for the work under this agreement is not to exceed $250,000 during the five year period.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action is consistent with the Municipal Code.
ENVIRONMENTAL REVIEW
The California Environmental Quality Act (CEQA) applies only to projects, which have the potential for causing a significant effect on the environment. This project is exempt pursuant to CEQA Guidelines section 15061(b)(3).
RECOMMENDATION
Award a five-year contract for an amount not to exceed a total five-year expenditure of $250,000, subject to budget approvals, to Hinderliter de Llamas for review and analysis of sales and use tax revenues.
Respectfully submitted,
Elena Adair, Finance Director
Financial Impact section reviewed
Elena Adair, Finance Director
Exhibit:
1. HdL Agreement
2. Annual Sales Tax Recovery