TO: LINDA REICH, CITY MANAGER
FROM: ROB BURNS, DIRECTOR OF FINANCE
SUBJECT
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Professional Services Agreement - Hinderliter, de Llamas and Associates (HdL).
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RECOMMENDATION
1) Approve a Professional Services Agreement with Hinderliter, de Llamas and Associates in an amount not to exceed $140,000 annually for Sales Tax Audit and Information Services with up to two, one-year extensions; 2) approve an additional appropriation of $80,000 from the General Fund; and 3) authorize the City Manager to execute the necessary documents on behalf of the City.
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FISCAL IMPACT
Requires an additional appropriation of $80,000 from the unappropriated reserves of the General Fund 100 to cover the additional services and tax recovery payments anticipated during FY 2024-25. There are sufficient reserves in the General Fund for this appropriation.
CITY OF CHINO MISSION / VISION / VALUES / STRATEGIC ISSUES
The recommendation detailed above further the City’s values and strategic issues that serve as key pillars on which identified priorities, goals, and action plans are built, by fostering:
• Financial Stability
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Revenue: Click or tap here to enter text. |
Expenditure: 1003000-43515 |
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BACKGROUND
The City utilizes Hinderliter, de Llamas and Associates (HdL) for Sales and Use Tax Services and Transaction Tax Services. The services provided by HdL include the following main components: 1) sales tax collection reporting and analysis; 2) sales tax recovery from misallocations to other jurisdictions and 3) transaction tax audit, economic analysis/forecasting and related services pertaining to the voter approved Measure V on March 5, 2024.
The Adopted FY 2024-25 Budget includes $60,000 for normal ongoing services provided by HdL.
ISSUES/ANALYSIS
HdL currently serves over 400 clients (352 cities and 50 counties). HdL serves the majority of cities and counties in California. This enables HdL to compile the most extensive database in the State, and, therefore, the best access to cross-reference possible misallocations between cities. Therefore, HdL is more efficient in recovering Chino’s misallocated revenue than any other company with a limited access to local sales tax records. HdL has an in depth understanding of the City’s sales tax sources and the technical expertise to perform the work required.
The breakdown of the annual HdL services are:
• Sales and Use Tax Recovery Services ($137,600) - estimate based on anticipated recovery amounts in FY 2022-25
• Transaction Tax Services ($2,400) - based on the $200 per month fee
The $137,600 estimate for sales tax recovery is for sales taxes that are misallocated to other agencies. HdL researches misallocation of the local sales tax revenue by individual businesses located in Chino. Once a misallocation is identified, HdL processes the necessary documents with the California Department of Tax and Fee Administration (CDTFA) to recover these taxes for the City. If HdL recovers revenue for the City, they receive 15% of the recovered sales tax revenue for eight consecutive reporting quarters. The City retains the remaining 85% during that time and 100% afterwards.
With the passing of Measure V, HdL has also established a database containing all applicable CDTFA registration data for each business within the Measure “V” boundaries holding a seller’s permit account. The database will be utilized to generate reports, conduct on-going reviews to identify and correct unreported transactions and tax payments and distribution errors resulting in the recovery of previously unrealized revenue. The monthly fee is $200 plus 25% of the initial amount of new transactions or use tax revenue received by the City because of audit and recovery work performed by HdL.
Because sales tax and transaction tax information are considered confidential, the State requires that only designated City staff, or those specifically authorized, can obtain this information from the State. The City of Chino has authorized HdL to work on its behalf since 2003.
Therefore, staff recommends that the City award a single source contract to HdL for an amount not to exceed $140,000 annually for sales tax and transaction tax services and appropriate an additional $80,000 from the General Fund for the anticipated recovery amounts for the FY 2024-25. The contract will be for one year with the option to extend two (2) additional years.
Attachment - HdL Agreement
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