AGENDA TITLE:
title
Adopt a Resolution Authorizing the City Manager to Execute the Professional Service Agreement with Hinderliter de Llamas and Associates of Brea, to Provide Sales, Use and Transaction Tax Services for the City and Measure L, Transient Occupancy Tax Administration (TOT), Short-Term Rental Administration Services and Business License Registration (FIN)
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MEETING DATE:
August 21, 2024
PREPARED BY:
Melissa Munoz, Accounting Manager
recommendation
RECOMMENDED ACTION:
Adopt a resolution authorizing the City Manager to execute the Professional Services Agreement with Hinderliter de Llamas and Associates of Brea, to provide Sales, Use and Transaction Tax Services for the City and Measure L, Transient Occupancy Tax Administration (TOT), Short-Term Rental Administration Services and Business License Registration.
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BACKGROUND INFORMATION:
Hinderliter de Llamas and Associates (HdL) provided sales tax audit, economic analysis, recovery and consulting services to the City of Lodi for over 30 years. HdL is the preeminent provider of these services in California due to their years of experience, established relationships, and interface with the California Department of Tax and Fee Administration (CDTFA).
In June 2017, the City Council approved a five-year agreement with HdL to continue performing sales tax audit, economic analysis, recovery and consulting services. The agreement originally set to expire on May 31, 2022 was extended to May 31, 2024 inclusive of all additional services discussed in this report. In January 2019, the City Council approved Amendment No. 1 adding Transaction and Use Tax Services for Measure L. HdL’s service in assistance with forecasting economic activity and auditing business activity for the purpose of revenue recovery was critical to the success of Measure L. These services help ensure the Measure L tax is being uniformly collected on eligible transactions, the businesses are treated equally under Measure L, and that the City receives the full revenue from Measure L as authorized by the voters.
In February 2020, the City Council approved Amendment No. 2 adding ongoing consulting for Business License Administration, Transient Occupancy Tax and Short-term Rental Administration Services. HdL leverages its database for TOT and business license tax services. HdL performs auditing and revenue recovery functions for these revenues, similar to the City’s sales and use tax services.
HdL improved revenue for TOT since these services were added in 2020. See charts below:
|
TOT |
|
|
2021 |
2022 |
2023 |
2024 |
2025 |
|
Projected |
$ 525,000.00 |
$ 800,000.00 |
$1,575,000.00 |
$ 1,700,000.00 |
$1,500,000.00 |
|
Received |
$ 899,933.71 |
$1,485,319.84 |
$ 1,432,287.54 |
$1,590,317.19 |
TBD |
|
Difference |
$ 374,933.71 |
$ 658,319.84 |
$ (142,712.46) |
$ (109,682.81) |
TBD |
In May 2022, the City Council approved Amendment No. 3, extending the contract to May 31, 2024 continuing to provide services for Sales Tax, Transaction Tax (Measure L), Business License Tax and Transient Occupancy Tax Services. In March 2024, the City Council approved a new contract with HdL for the administration of a Business License Registration program and eliminating the Business License Tax program.
The City now requests to contract with HdL through June 30, 2029, to provide services for Sales Tax, Transaction Tax (Measure L), and Transient Occupancy Tax Services. The compensation for Transient Occupancy Tax and Short-term Rental Services will increase to $904.39 per monthly TOT filing. The compensation for Sales and Use tax will increase to $683.50 per month and Transaction Tax (Measure L) will increase to $200 a month. The compensation for Business License Registration shall continue to be $20.00 for each processed account. These fees will be indexed to CPI-U each January and all other fees will remain the same.
STRATEGIC VISION:
3A. Fiscal Health: Promote City's transparency & fiscal fluency.
FISCAL IMPACT:
Based on the increase price in short term rentals and TOT services, the estimated cost will be approximately $50,000 annually. Estimates are based on current volume of all TOT’s. Actual costs will be based primarily on transactions and reduced by collection recoveries.
For both Sales Tax and Measure L tax, HdL is compensated for periodic reports at a nominal fee and for audit services on a revenue recovered basis. HdL shares in some of the recovered taxes owed that were not paid and in prospective tax revenue for a period after a successful audit. Throughout the City’s relationship with HdL, the City benefited from these services because HdL audits have returned substantial revenue to the City above the cost of service.
|
Tax Category |
Fee for Periodic Reporting |
Audit Services on Recovered Revenue |
Audit Services on Future Revenue |
|
Sales Tax |
$6,600/Year |
15% of all past due recovered revenue |
15% of future revenue for the next 8 quarters |
|
Measure L |
$1,200/Year |
25% of all past due recovered revenue |
The City shall retain all future revenue from successful audits |
For all services, it is estimated HdL will receive $137,800 annually for services plus a % of any amounts removed through sales tax or Measure L audits as described. Audit recoveries vary based on the business audited and the discovered findings.
FUNDING AVAILABLE:
Fiscal Year 2024/2025 TOT account number 10020203-72450
Fiscal Year 2024/2025 Sales Tax and Audit Services 10095000-72450
Fiscal Year 2024/2025 Measure L Transactions Tax 10395000-72450
Fiscal Year 2024/2025 Business License Registration
_______________________________________
Andrew Keys
Assistant City Manager
_______________________________________
Scott R. Carney
City Manager