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HomeMy WebLinkAboutMunicipal Resource Consultants 1992-05-20Sales Tax Audit & Information Services MUNICIPAL City of Ukiah I, RESOURCE Consultant Services Agreement January 31,1992, Page 1 of 47 RECD MAY 26 1992 CONSULTANTS CONSULTANT SERVICES AGREEMENT THIS AGREEMENT is made at Ukiah, California, as of my 20, 1992, by and between the City of Ukiah (hereafter referred to as "City") and Municipal Resource Consultants (hereafter referred to as "Consultant" or "MRC"), who agree as follows: 1. Services. Subject to the terms and conditions set forth in this Agreement, Consultant shall provide to City the services described in Exhibit "A". Consultant shall provide said services at the time, place, and in the manner specified in Exhibit "A". Consultant shall not be compensated for services outside the scope of Exhibit "A". 2. Payment. City shall pay Consultant for services rendered pursuant to this Agreement at the times and in the manner set forth in Exhibit "A". The payments specified in Exhibit "A" shall be the only payments to be made to Consultant for services rendered pursuant to this Agreement, unless the City approves additional compensation for additional service. Consultant shall submit all billings for services rendered pursuant to this Agreement to City in the manner specified in Exhibit "A". 3. Facilities and Equipment. Consultant shall, at its sole cost and expense, furnish all facilities and equipment which may be required for furnishing services pursuant to this Agreement. 4. General Provisions. The general provisions set forth in Exhibit "B" are part of this Agreement. In the event of any inconsistency between said general provisions and any other terms or conditions of this Agreement, the other term or condition shall control insofar as it is inconsistent with the general provisions. COU No. 1314-097 Sales Tax Audit & InfbLlnation Services City of Ukiah Consultant Services Agreement January 31,1992, Page 2 of 47 5. Exhibits. All Exhibits referred to herein are attached hereto and are by this reference incorporated herein. EXECUTED as of the day and year first above stated. Accepted for Municipal Resource Consul tan ts City of Ukiah: Partner: John T. Austin, Inc. By: L . . (Authorized signalur& Name: Charles L. Rouqh, Jr. Name: Tohn T. Austin (Please Print or Type) President Title: City Manaser Title: Date: May 20, 1992 Date: January 31, 1997 Sales Tax Audit & Information Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 3 of 52 EXHIBIT A - CONSULTANT SERVICES Municipal Resource Consultants (MRC) shall provide sales tax audit and information services to the City of Ukiah (City). The objectives, scope, procedures, timing, compensation and qualifications are set forth as follows: 1. SALESIUSE TAX ALLOCATION AUDITS Many California cities are not receiving the sales/use tax revenue to which they are entitled due to point-of-sale and other types of taxpayer reporting errors (for discussion of misallocation causes, see enclosed MRC Insights newsletter). When businesses fail to properly report their California sales/use tax, the local allocation is distributed in error to pool accounts or other jurisdictions. Accordingly, the purpose of MRC's initial and ongoing allocation audit service is to detect and correct taxpayer reporting errors and thereby generate new sales/use tax revenue which would not otherwise have been realized by the City of Ukiah. Unlike most tax audits, MRC's allocation audit service produces new revenue without causing any additional tax liability for business. As discussed under Section IV, MRC's audit staff is organized into highly focused areas of specialization related to either the detection or correction of misallocations. In this regard, the audit service scope includes, but is not limited to, MRC performing the following procedures and tasks: 1. Procure a computer tape of sales/use tax permit records from the State Board of Equalization (SBE). 2. Establish master file from tape data provided in previous task. 3. Clean-up, standardize and computerize data from City's sales tax distribution reports provided by SBE for eight (8) previous quarters, current quarter and each future quarter service is provided. Sales Tax Audit & Inf~~~nation Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 4 of 52 4. Develop a target list of potential point-of-sale/use taxpayer reporting errors based on a physical canvassing and evaluation of sales/use tax generating businesses located in the City of Ukiah. These businesses are to be analyzed based on proprietary guidelines established by MRC, formulated through expert knowledge of corporate mergers and acquisitions, sales tax versus use tax, business marketing organization and methods, commercial/industria1 sales/use tax reporting practices, and other conditions contributing to reporting errors. 5. Meet with designated City official(s) to review service objectives and scope, MRC workplan schedule, public relations and logistical matters. MRC will also establish an appropriate liaison with the City's coordinator and define logical checkpoints for reviewing the project's progress. Note: with the exception of this initial meeting, MRC's service requires no time or effort on the part of City staff. 6. Contact personnel in sales, operations and/or tax accounting at each target business to determine whether a point-of-sale/use reporting error exists. Note: this is accomplished with the highest regard to discretion and professional conduct, as evidenced by the fact that MRC's allocation audits have involved more than 400,000 direct contacts with taxpayer businesses without a single complaint from a taxpayer, client or the State Board of Equalization. Our allocation audits are predicated on a noncontroversial, constructive, public relations approach which emphasizes the importance of each business to the City and the mutual benefits of correcting reporting errors. 7. Provide to the City and State Board of Equalization, reports addressing each taxpayer reporting 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/use tax revenue which should be forthcoming to the City of Ukiah. Sales Tax Audit & Infolmation Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 5 of 52 8. Respond to negative findings by SBE with timely reconfirmation documentation in order to preserve the City's original dates of knowledge. 9. Receive and process sales/use tax quarterly distribution reports provided to City by SBE. 10. Monitor and analyze the quarterly distribution reports with audit focus on the following: a. Those accounts with previously detected reporting errors to ensure that the corrections are made for current quarters plus retroactive adjustments for eligible amounts improperly distributed in prior quarters. b. Those accounts representing 90% of the City's total sales /use tax revenue to identify and investigate significant aberrations (e.g., negative fund transfers, declines, deficiency assessments, etc.). c. Those accounts having a use tax designation to ascertain why the tax is being classified as use tax rather than sales tax. d. Those accounts receiving deficiency assessments to ensure that the City receives its local allocation. 11. Review the City's purchases to identify opportunities for the City to recover the local allocation on transactions subject to use tax. MRC will also prepare the necessary documentation to facilitate recovery, including assistance in preparing and filing the returns. Sales Tax Audit & InfcLlnation Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 6 of 52 MRC's allocation audit service includes five distinctly different types of audits: o Initial and periodic field audits o Permi tization audits o Deficiency assessment audits o Purchases audits o Quarterly Distribution Report audits The nature of each audit is further described as follows: Field Audits MRC's initial and periodic field audits include a physical canvassing and evaluation of sales/use tax generating businesses located in the City. In the absence of this labor-intensive, time-consuming undertaking, significant misallocations will remain undetected. MRC's field audits focus on those businesses located in the City from which the City has not been receiving sales/use tax revenue, but should be. Permitization Audits Wholesalers, contractors, processors, manufacturers and other non- retail businesses will frequently not have a sales tax permit properly registered to the jurisdiction in which they are located because their business operations do not include a point-of-sale qualifying activity. However, these companies will often generate local sales/use tax from audit deficiency assessments, occasional sales (i.e., mergers and acquisitions), and self-accrual of use tax on purchases. MRC's field audits facilitate the identification and correction of improperly registered permits for companies not having point-of-sale operations in the City. Sales Tax Audit & Infolmation Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 7 of 52 Deficiency Assessment Audits When the California State Board of Equalization audits a business for sales/use tax compliance, it is not uncommon for the business to receive a substantial deficiency assessment due to underpayments and/or undercollections. In many cases, the local allocation portion of the deficiency assessment is distributed in error to the State pool, County pools or other jurisdictions. Accordingly, MRC has developed proprietary criteria and techniques to detect and correct SBE deficiency assessment misallocations and thus expand the benefits produced by our allocation audit service. Purchases Audits When California customers purchase tangible personal property for which title passes out-of-state, the transactions are subject to use tax (rather than sales tax) which is typically collected by the vendor who in turn remits it to the SBE, with the local allocation distributed statewide or countywide through the pools, based on customer location. Under certain conditions, the City may elect to self-accrue the use tax and remit it directly to the SBE, in which case the local portion will come back to the City in the same manner as sales tax. MRC's purchases audits will include a review of the City's purchases to identify opportunities for the City to recover the local allocation on transactions subject to use tax. In this regard, MRC will prepare the documentation to facilitate the recovery, including assistance in preparing and filing the tax returns. Quarterly Distribution Report Audits Every three months, the City receives a Quarterly Distribution Report (QDR) from the SBE with the local allocation amount broken down by permit number, grouped according to business code, for each account that has identified the City of Ukiah as the point-of-sale for the quarter ending three months prior to receipt of the QDR. Sales Tax Audit & Infct,lnation Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 8 of 52 In conjunction with our initial field audit, we enter data from the current and previous eight QDRs for processing on our Sales Tax Analysis and Reporting System (STARS) in order to facilitate an ongoing sales/use tax audit program. In the absence of such a program, there is no way of identifying misallocations that occur between field audits. Our QDR audits have the same objective as our other allocation audits; to detect and correct taxpayer reporting errors and thereby generate new sales/use tax revenue for the City. However, our QDR audits focus on those accounts where we observe a decline in the City's sales/use tax revenue to either nothing or substantially less than what has been reported on an historical trend basis. In most cases, the accounts showing zero balances have either relocated or simply reported late, in which case the payments will not be reflected until the next QDR. Therefore, six months elapse before the QDRs indicate whether a zero balance account can be attributed to a late payment or some other problem. Although most zero balances and substantial declines occur for valid reasons, our QDR audits are resulting in the detection and correction of numerous accounts that were reporting properly until they changed their sales/use tax reporting procedures and created misallocations. Whether the reporting procedures are changed due to a merger/acquisition, turnover of tax administration personnel, computerization of the sales/use tax compliance function or other reasons we encounter, the local amount of California sales tax is typically misallocated because it is reported on either a consolidated, destination or use tax basis. Considering that: o there is a three-month lag time in reporting the quarterly sales tax distribution results o there is a six-month lag time in reporting late-paying businesses that all appear as zero balance accounts on the previous QDR Sales Tax Audit & Infolmation Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 9 of 52 o considerable time is required to input and analyze QDR data and contact the taxpayer in order to ascertain the cause of each potential misallocation o under California SBE regulations, cities and counties may only recover misallocated revenue for the three quarters prior to the SBE being notified of the reporting error it is obvious that the QDR audits must be conducted in a highly efficient and timely manner or the eligibility window closes and the opportunity for the City to recover misallocated revenue is forfeited. For each misallocated account detected, MRC will coordinate with the business and SBE to make the necessary corrections plus retroactive adjustments for eligible amounts of sales/use tax improperly distributed in prior quarters. This task is simply stated, but enormously complex and time-consuming, for the following- described reasons: When MRC detects taxpayer reporting errors, together with the reasons therefor, less than half of our audit work is accomplished. Most of our audit work is devoted to facilitating corrective action. This is largely due to the preponderance of reporting errors by out-of- state headquartered distributors, contractors, processors, manufacturers and lessors engaged in business-to-business sales in California. In terms of dollars, these companies account for more than 90% of misallocated sales/use tax revenue. For these companies, there is considerable confusion due to the complexities posed by California's unique point-of-sale regulations. The reporting problems are further compounded when the regulations are applied to multiple California locations with each having a product/customer mix of business-to-business sales where some of the transactions are subject to sales tax, some are subject to use tax and some are exempt. Sales Tax Audit & InfcAlnation Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 10 of 52 Unlike over-the-counter retail consumer outlets where all sales are taxable, business-to-business taxpayers sell to Original Equipment Manufacturers (OEMs), resellers and other types of exempt customers, as well as end users, with some products requiring installation affixing them to real property. For convenience and expediency, it is common for taxpayers located outside of California to erroneously report by customer destination or characterize sales transactions as being subject to use tax or contractor-installed classifications. The State Board of Equalization does not have sufficient staff or incentive to correct these types of misallocations. In order to correct these complex reporting errors, MRC undertakes a travel-intensive liaison program to facilitate coordination and communication between typically four parties; sales/operations personnel at the taxpayer's local operation, tax personnel at the company's corporate headquarters, and State Board of Equalization personnel at Sacramento and the in-state/out-of-state District offices. Implementation of corrective action normally requires that MRC's senior personnel travel to the taxpayer's headquarters to personally discuss the nature of the reporting error and applicable regulations with corporate tax counsel. The objective of these meetings is to correct the distribution reporting error by assisting the taxpayer in developing an allocation formula which is acceptable to the State Board of Equalization. (Note: All expenses incurred to provide the audit service are absorbed by MRC, including employee salaries, insurance, airfare, auto rentals, lodging, meals, communications, etc.). Sales Tax Audit & Information Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 11 of 52 The SBE will only allow the City to recover misallocated sales/use tax for up to three quarters prior to the SBE being notified of the reporting error for a given account. Consequently, if a misallocating account has had its point-of-sale located in the City for more than three quarters, the City forfeits the right to recover a portion of its misallocated sales tax with every elapsed quarter that a reporting error remains undetected. The preliminary workplan schedule following this page presents MRC's time frames for accomplishment of the prescribed tasks. As indicated, the initial field audit is to be completed within 90 to 120 working days following receipt of authorization. By significantly accelerating the timetable for performance of the audit, MRC can convert a cost (forfeited revenue) into a benefit (recovered revenue). Sales Tax Audit & Infcllmation Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 13 of 52 On a quarterly basis, MRC is to provide the City with audit progress reports to include, but not be limited to, the following: 1. Status of audit work in progress, including: a. Copies of reports provided to the SBE addressing each point-of-sale taxpayer reporting error individually, including the business name, address, telephone number, California sales tax permit number, individuals contacted, date($ of contact, nature of business, reason for error and recommended corrective procedure. b. Copies of misallocation reconfirmation documentation, in response to negative findings by the SBE, in order to preserve original dates of knowledge. 2. Actual sales/use tax produced for the City by MRC's audit service on a quarterly and cumulative basis. 3. Projected sales/use tax revenue forthcoming to the City as a result of MRC's allocation audits, delineated according to source, timing and one-time versus ongoing. 4. Alphabetical listing of all misallocated accounts detected for the City by MRC including, for each, the permit number, correction status, payment amount received by the City, quarter to which payment is related and payment source (e.g., fund transfer, deficiency assessment, etc.). Sales Tax Audit & InfoAAaation Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 14 of 52 II. INFORMATION SERVICES Much of the data developed as part of MRC's audit service is common to that required for the sales tax module of GRIP, MRC's proprietary Geobased Revenue Information Program (please refer to enclosed brochure). The complete GRIP database encompasses all of a City's land parcels, its buildings, its commercial, industrial, institutional, and residential users, and its major sources of general fund revenue - such as business license tax, franchise fees, parking tax, property tax, sales tax, transient occupancy tax, use tax, utility users tax, etc. MRC's GRIP service is the key to unlocking revenue enhancement strategies and solutions for California cities seeking fiscal self-reliance. The GRIP sales tax module will enable MRC to assist the City of Ukiah maintain and enhance revenue by developing and implementing strategies and solutions based on: o Revenue Recovery Audits o SWOT1 Analysis o Business Retention o Revenue Forecasting o Business Expansion o Strategic Planning o Fiscal Impact Analysis o Special Studies & Reports Examples of these applications using the GRIP sales tax module are summarized as follows: The logical starting point for any city seeking revenue enhancement is to make sure it is receiving all the revenue it is entitled to from its businesses and intermediaries. Strengths, Weaknesses, Opportunities, Threats Sales Tax Audit & Information Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 15 of 52 Computerized access to sales tax registration and allocation data facilitates the auditing of sales tax and other City revenues. For example, the GRIP sales tax module includes a quarterly updated Sales Tax Inquiry System installed by MRC on IBM compatible PCs, designated by the City, to provide the City's business license staff with on-line access to sales tax information on all businesses that the SBE has registered to the City (further discussed below under sales Tax Inquiry Sys tem). Many cities are unaware that 80% or more of their general fund revenue is generated by 10% to 25% of their businesses. It is thus commonplace for cities to inadvertently neglect or alienate businesses that are vital to the their fiscal health and allow - or unintentionally encourage - these businesses to leave, and take their revenue with them. The GRIP sales tax module includes a quarterly updated report on the City's major (and top 100) sales tax producers ranked in order according to level of sales tax produced for current and prior periods. With this accurate information, the City can develop and implement proactive public relations programs that will help retain these vital businesses and their revenue through improved communication and coopera tion. 0 BUSINESS EXPANSION On a regular basis, taxpaying businesses (including institutions and government agencies) make arbitrary decisions that have positive and negative impacts on the City's revenu'e. Typically, these taxpayers do not realize the revenue impact their decisions have on the City and the discretionary latitude they possess to enhance or impair City revenues. Sales Tax Audit & Infollnation Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 16 of 52 By combining a GRIP sales tax analysis with our knowledge of how the administrative procedures of taxpayers and intermediaries affect City revenue, MRC can identify those taxpayers with the greatest potential for enhancing City revenue through modification of their procedures. In addition to retaining vital businesses, a proactive taxpayer relations program enables the City and its taxpayers to explore opportunities for enhancing revenue without creating additional tax liability. Many cities charge impact fees that partially defray estimated infrastructure costs caused by development. Rarely, however, is a provision made to recover the deficit produced when the ongoing actual cost for a county or City to service a development or business exceeds the general fund revenue produced. For this reason, many cities unknowingly subsidize developments and businesses that are not paying their way. Which is one of the reasons revenue shortfall gaps are widening. In order to structure a self-sustaining impact analysis and cost recovery program, MRC's complete GRIP analysis provides a city with the contribution of revenue from each parcel, use, development, user and geographic area on a total amount and size-adjusted basis for individual and aggregated revenue sources. By comparing revenue contribution to service costs, in equivalent units of measurement, a City can readily ascertain whether the revenue derived from a given use, development, parcel, user or geographic area is greater than, less than or equal to the related service costs. The first task in building the complete GRIP database is to develop the sales tax module, which establishes a computerized system that identifies (and ranks) the contribution of sales/use tax revenue from each commercial, industrial, residential, institutional and governmental taxpayer in the City, as well as each address, development, shopping center or other designated geographic area. Sales Tax Audit & Information Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 17 of 52 o SWOT ANALYSIS Every City has unique Strengths, Weaknesses, Opportunities and Threats (SWOTS) that affect its businesses and therefore its revenue base. Current examples include: - Major businesses migrating inland at a record pace to avoid urban traffic congestion, high housing and land costs, and long-distance commutes for their employees - Legally binding decisions entitling major industries and businesses to budget-busting tax reductions, exemptions and refunds - Much of a jurisdiction's general fund revenue being generated by businesses in an industry which expects a prolonged economic downturn To develop reliable revenue forecasts and proactive strategic plans that will maintain and enhance revenue, cities must be able to assess how constantly changing external dynamics translate to SWOTs for their businesses and revenue bases. The GRIP sales tax module provides much of the basis for this type of assessment. Although the downside implications for errant revenue forecasting can be severe and embarrassing, the typical city has no reliable basis for assessing how actual and potential changes or unusual developments will impact its revenue base and fiscal future. Based on a GRIP SWOT analysis, MRC can assist the City in developing "what if" sales tax revenue forecasts based on pessimistic, optimistic and mixed-assump tions scenarios. This analysis is especially important to the City when an adverse impact is of sufficient magnitude to cause fiscal crisis. Developing these scenarios will lead the City to strategic planning that will help avoid catastrophic outcomes. Sales Tax Audit & Inf~~~nation Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 18 of 52 In order to develop and implement a strategic plan for maintaining and enhancing revenue, the City must be able to define its Strengths, Weaknesses, Opportunities and Threats (SWOTS). With the GRIP sales tax module, MRC can assist the City in assessing its SWOTs and, based on that assessment, developing a strategic plan which will: - Maintain and enhance revenue by capitalizing on the strengths and opportunities - Contain losses by taking defensive steps to eliminate or reduce weaknesses and threats Cities frequently need special studies or reports for purposes such as: - Negotiating revenue-sharing agreements with private developers, business users and other jurisdictions - Evaluating and monitoring performance in specific developments, project areas, annexation areas, etc. - Analyzing retail sales leakage - Planning project development for revenue generation - Promoting the City for business and industry MRC's GRIP sales tax module provides the basis for estimating, tracking and evaluating revenue generation by land use, development, user, industry, parcel, address or designated geographic area. This multi-dimensional capability simplifies the task of planning and producing special reports and studies. Sales Tax Audit & Infb~rnation Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 19 of 52 The GRIP sales tax module consists of a Sales Tax Inquiry System, STARS reports and related consulting, further described as follows: MRC will install and update quarterly the City's sales tax registration and allocation data on IBM compatible PCs designated by the City. MRC will also train authorized City staff in the use of the Inquiry System and an easy-to-follow user manual, also furnished by MRC. Because the Sales Tax Inquiry System contains confidential information, access is limited to authorized personnel by making the System password - protected. The Inquiry System will enable City staff to analyze the contribution of sales/use tax revenue from each business in the City, on an individual, grouped or sorted-order basis by business name, business type, permit number, size ranking, street address, development, shopping center or other geographic area. All sales tax data processed by MRC is located on the Inquiry System. History for each account can be called up by account number and even by business tax registration number(s), if the latter are added to the Inquiry System. MRC has made the Inquiry System extremely user-friendly, even incorporating different types of name and address searches. For example, the address search only needs the street name and will fill in the direction and proper abbreviation for the street tY Pe. Also, in looking up a particular type of business segment, a listing of business codes is shown on a "pop up" menu to help the user identify which code to select. The Inquiry System can also be used to geo-code specific areas such as business districts, shopping centers, project redevelopment areas, industrial parks, etc. MRC's Inquiry System will even generate the geo-coded addresses, thus eliminating the need to manually place a code by each business in a geo-area. The System will also eliminate a geo-area in a global command rather than having to eliminate geo-coded accounts one-by- one when removing a geo-area. MRC's Sales Tax Inquiry System would be a particularly valuable tool for administration of the City's business license tax program. Sales Tax Audit & Infollnation Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 20 of 52 B. STARS (SALES TAX ANALYSIS & REPORTING SYSTEM) REPORTS Quarterly, MRC will provide the City with an updated set of bound STARS reports (sample enclosed). The scope of MRC's STARS reports includes, but is not limited to, the following: Cleaning up, standardizing and automating data from the City's sales and use tax distribution reports provided by the SBE for eight (8) previous quarters, the current quarter and each future quarter service. This is done to provide two benchmark years in the initial report to the City. Amounts for the most recent quarter are included in each STARS report, but are not used for benchmark purposes as many accounts are incomplete because of late-paying businesses. MRC clients use STARS reports to gain a better understanding of where their sales tax comes from, what trends, good or bad, are occurring in their sales tax base, and to identify those businesses on which the jurisdiction is most dependent for its sales tax revenue. 2. Receiving and processing sales tax distribution reports quarterly. 3. Reorganizing and refining the computerized sales tax data for the City using MRC's STARS. 4. Analyzing the City's major sales tax producers. All major sales producers and business categories are monitored and analyzed quarterly to include the following: a. Management - xmmarv, Sales Tax Digest, Charts. MRC delivers each quarter with the STARS reports, a confidential Management Summary, a non-confidential Sales Tax Digest, and twelve color charts that portray graphically the City's sales tax performance and composition. Sales Tax Audit & Inl~~.mation Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 21 of 52 b. Analvsis Section. The Analysis Section of MRC's STARS report compares the sales tax performance for the latest complete quarter/report benchmark year to previous quarters and years. This section, which is an exclusive MRC report, was instituted to replace cumbersome manual comparisons between quarters and years. The Analysis Section includes the following: (1) historical performance of the top 100 accounts for up to four years, (2) an automated analysis of the changes that occurred by economic category and by business sector with the specific businesses that made the major contribution to the change delineated; and (3) an analysis by magnitude of change indicating which key businesses grew or declined, measured in absolute dollars and percentages. Quarterly aberrations due to SBE audits, fund transfers and other causes are also identified and analyzed for budget planning and revenue forecasting purposes. c. Major (and Top 100) Sales Tax Producers. Sales tax performance of the top 100 sales tax accounts is shown in order of sales tax produced with the results for the last five quarters prominently displayed. The proportion of City sales tax produced is also shown by each account. d. Sales Tax Accounts bv Business Code. This report shows the various business codes assigned by the State Board of Equalization and the accounts assigned those codes in order of sales tax produced. Five quarters of sales tax data are shown for each account. The client can select the cut-off level of this report (i.e., all accounts or just accounts that produce over a certain amount per year). Misclassified sales tax accounts are corrected to make the report a true reflection of the sources of the City's sales tax income. Sales Tax Audit & Infollnation Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 22 of 52 e. Sales Tax Trend Report. Data is summarized by economic category and by business sector making up each category. Sales tax trends are shown by quarter and by successive benchmark years. Percent of sales tax is also shown to indicate trends in sales tax composition as well as performance. Growth and decline comparisons are indicated by various categories for forecasting and analysis. f. Sales Tax Bv Account/Sub-Number. The State Board of Equalization does not provide the specific sales tax amounts generated by each individual location of a company with multiple locations in the same jurisdiction. Such a breakdown is needed if the City is to track sales tax by specific geo-areas, such as shopping centers, project areas, business districts, industrial parks, etc. STARS allocates sales tax by location and even customizes difficult allocations such as auto dealers with showrooms, leasing, used cars, and body repair shops. This report shows the amounts allocated to each individual location for a firm with multiple locations in the City. g. Geo-cod in^. Tracks sales tax performance within designated areas of the City (e.g., key shopping centers, project areas, downtown business districts, etc.) Charts and printed reports are included for each geo-area. h. Cross Reference Reports. These reports allow the user to look up any account shown in the STARS reports by name, address, or account number. i. Special Business Tax Report. MRC's STARS includes a report that is specifically designed to facilitate the City's business license tax administration by replacing the manual yellow registration control cards. Sales Tax Audit & Information Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 23 of 52 These cards come in no particular order and are cumbersome to use. MRC produces a printed report each quarter that lists all changes to the City's sales tax records by the type of change (i.e., new businesses, closed businesses, new addresses, new owners, etc.). Under each type of change are the accounts in clean address order. By correcting, cleaning up and standardizing addresses, business names and business classifications on all of the City's sales tax generators, MRC is able to provide the City's business license staff with another valuable audit tool. MRC will also provide the City with a copy of the cleaned up sales tax files on floppy disk or nine-track tape if the City wishes to add the data to its database. In conjunction with the Sales Tax Inquiry System and STARS reports, MRC shall provide consulting services to include: 1. Providing City staff with post-audit sales tax orientation: a. Conducting a technical seminar on California's local sales tax distribution process b. Training staff in the fundamentals of sales/use tax allocation auditing should the City desire to assume responsibility for future maintenance of local retail accounts internally. 2. Preparing and analyzing a list of the City's major sales/use tax generators to assist the City in developing a public relations program to prevent the loss of these important businesses. 3. Profiling for Economic Development personnel the most economically desirable/undesirable tY Pes of developments/business uses and the reasons why. Sales Tax Audit & Infoll,~ation Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 24 of 52 4. Providing a list of businesses located (or doing business) in the City that are not presently producing as much sales/use tax to the City as they could be through constructive changes in marketing/purchasing procedures (with the City's approval, MRC will assist the City in pursuing these opportunities and implementing the changes). 5. Assisting in defining specific geographic areas for which the City would have an interest in knowing the sales/use tax produced. 6. Serving as a resource to assist the City on an "as-needed" basis by providing legal and technical support on sales/use tax issues and questions regarding proposed legisla tion, estimated revenue on proposed projects, revenue-sharing negotiations, retail sales leakage, budget projections, etc. MRC shall commence preparing the Sales Tax Inquiry System and STARS reports within 10 working days following receipt of the following: o Contract approval and resolution designating MRC as the authorized City Consultant to examine sales and use tax records (see Exhibit C); and o State Board of Equalization quarterly distribution reports for most recent nine (9) consecutive quarters. The initial Sales Tax Inquiry System shall be delivered and installed on IBM compatible PCs designated by City, together with the STARS reports, within 45 working days following receipt of the above. The quarterly updated Inquiry System and STARS reports will be delivered to the City within 30 working days following receipt of the quarterly distribution reports. MRC will provide consulting services to the City in conjunction with delivery of the Inquiry System and STARS reports following completion of the enhancement audits. Sales Tax Audit & Information Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 25 of 52 Ill. COMPENSATION In order to make MRC's services self-funding for the City, MRC's compensation for providing the audit and information services shall be entirely predicated and contingent upon MRC's audits producing new sales/use tax revenue that would not otherwise have been received by the City, further described as follows: MRC's compensation for providing the allocation audit service is 25% of the new sales/use tax revenue received by the City as a result of MRC detecting and correcting the related point-of-sale/use distribution error. Said 25% applies to each correction for fund transfers (i.e., retroactive adjustments for eligible amounts improperly distributed in prior quarters) and the first six consecutive reporting quarters following completion of the audit by MRC and confirmation of corrections by the State Board of Equalization. Sales/use tax audit invoices are submitted quarterly after the City has received the revenue from the correction and quarterly distribution report verifying it. Each invoice is to include the business name, permit number, local allocation amount received by the City and amount due MRC. Invoices are due and payable upon receipt. Sales Tax Audit & InfolAllation Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 26 of 52 MRC shall provide the Sales Tax Inquiry System and STARS reports for $625 per quarter, payable only after the City has received the Sales Tax Inquiry System, STARS report(s) sufficient funds to cover the charges from the City's share of new tax revenue produced from MRC's audit service. Stated another way, payment is deferred until there is adequate audit revenue to cover it. The following computation illustrates a hypothetical example: New sales/use tax revenue produced for City from MRC audit service Less MRC compensation for audit service C3 25% City's share of new sales tax revenue @ 75% Less information service charge for full year @ $625 per quarter -2,500 Net new sales/use tax revenue to City after compensating MRC for audit and information services Should MRC's audit service fail to generate sufficient new sales/use tax revenue for the City to cover the information service charges out of the City's 75% share, then MRC shall absorb the shortfall amount. Sales Tax Audit & Inl,imation Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 27 of 52 All expenses incurred by MRC in providing the sales tax audit and information services are absorbed by MRC. These expenses include items such as employee salaries and benefits, insurance, 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 material such as maps, directories, etc. IV. QUALIFICATIONS Since its inception in 1978, Municipal Resource Consultants (MRC) has specialized in providing innovative revenue enhancement audit services to municipalities located throughout California. MRC is the only firm in California (or the rest of the country), offering these proprietary enhancement audit services that encompass all sources of municipal tax revenue. MRC's revenue enhancement audit services are complemented by geobased management information programs and consulting in areas such as strategic planning, economic development and redevelopment. In 1978, MRC pioneered the concept of revenue enhancement consulting with its sales tax services for California municipalities. Since then, MRC has established a track record of consistently impressive results by providing ongoing revenue enhancement services to more than 100 California municipalities. To date, MRC's sales tax audits have produced more than $70 million for the clients served. MRC's revenue enhancement services are designed to provide clients with an ongoing, readily measurable economic return that is many times greater than the amount invested in the service. On behalf of the clients served, MRC's revenue enhancement audit findings and recommendations have been validated and accepted by third party intermediaries throughout California, in addition to thousands of corporate tax departments throughout the United States. Sales Tax Audit & Infollltation Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 28 of 52 MRC's 55 member staff serves California cities from five in-state office locations. Please refer to Exhibit D for a representative list of MRC client cities, results achieved and references. Sales Tax Audit & 1ni"rmation Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 29 of 52 V. PROJECT TEAM In providing sales tax audit and information services to the City, MRC will be employing a project team approach. MRC's team for providing these services consists of 25 full-time, permanent MRC employees and 1 attorney specializing in sales/use tax law. Project team personnel are described according to project role and functional area of specialization, as follows: Proiect Co-Directors: Tohn Austin & Allen Charkow As Project Co-Directors, John and Allen are responsible for the overall quality control and timeliness of the project. They are also responsible for making MRC's resources available to the project and assisting in the technical direction, management and liaison activities. Both John and Allen will be personally involved in providing MRC's sales tax audit, information and consulting services to the City. John is responsible for the design and provision of MRC's sales/use tax enhancement services, contract negotiations and client relations. Allen is responsible for the development and implementation of MRC's data processing and geobased information systems for auditing, monitoring, analyzing and projecting sales tax revenue. Proiect Manager - Hunter Austin As Project Manager, Hunter has day-to-day responsibility for the technical direction and coordination of the project, including the methodology and procedures utilized in detecting, documenting and correcting sales/use tax misallocations. In this capacity, his duties encompass creation and implementation of the workplan, including scheduling, coordinating and monitoring the activities of other project team members. Le~al Counsel - Tose~h Vinatieri When MRC's auditors or clients have questions or issues involving interpretation of sales/use tax law, they rely on the legal counsel of Joseph Vinatieri who is a Partner with Bewley, Lassleben & Miller. Sales Tax Audit & Information Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 30 of 52 Data Processing & Detection Analvsis Data Processing and Detection Analysis personnel are responsible for: o Creating MRC's quarterly STARS reports and Sales Tax Inquiry Sys tem o Developing MRC's target list of potentially misallocated accounts based on a physical canvassing and evaluation of sales/use tax generating businesses located in the unincorporated area of the County o Monitoring quarterly distribution reports for aberrations For these purposes, MRC has developed proprietary electronic mapping and data processing technology. Detection Auditing Detection Auditing personnel are responsible for contacting target list businesses to determine whether allocation reporting errors exist and, for each misallocation detected, developing the substantiating documentation to be included in MRC's reports for submission to the County and State Board of Equalization. Correction Auditing Correction Auditing personnel are responsible for: o Correcting misallocated accounts by working with personnel at the taxpayer's local operation and corporate headquarters and the State Board of Equalization's in-state/out-of-state District offices and Local Tax Unit in Sacramento o Preserving the City's original dates of misallocation knowledge by responding to the SBE's negative findings with timely reconfirmation documenta tion o Recovering for the City eligible amounts misallocated in prior quarters. Sales Tax Audit & In!,,mation Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 31 of 52 Consulting Consulting personnel have liaison responsibility for providing to the City GRIP sales tax module services, consisting of the Sales Tax Inquiry System, STARS reports and consulting to assist the City in developing and implementing strategies and solutions for: - Enhancement Audits - SWOT Analysis - Business Reten tion - Revenue Forecasting - Business Cooperation - Strategic Planning - Fiscal Impact Analysis - Special Studies & Reports Sales Tax Audit & Inforll~ation Services City of Ukiah Proposal/Agreement Exhibit A - Consultant Services January 31,1992, Page 32 of 52 VI. 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 Equalization. This section specifies the conditions under which a City or county may authorize persons other than officers and employees to examine State Sales and Use Tax records. A. MRC is authorized by this Agreement to examine sales and use tax records of the State Board of Equalization provided to City pursuant to contract under the Bradley-Burns Uniform Sales and Use Tax Law. B. MRC is required to disclose information contained in, or 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. MRC is prohibited from performing consulting services for a retailer during the term of this Agreement. D. MRC is prohibited from retaining the information contained in, or derived from, those sales and use tax records, after this Agreement has expired. Informa tion obtained by examination of State Board of Equalization 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 MRC as a person authorized to examine sales and use tax records and certify that this Agreement meets the requirements set forth above and in Section 7056(b)(l) of the Revenue and Taxation Code (see Exhibit C). MRC hereby certifies that any and all information examined 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. Sales Tax Audit & Infb,mation Services City of Ukiah Proposal/Agreement Exhibit B - General Provisions January 31,1992, Page 33 of 52 EXHIBIT B - GENERAL PROVISIONS 1. Inde~endent Contractor. At all times during the term of this Contract, Municipal Resource Consultants (Consultant) shall be an Independent Contractor and shall not be an employee of the City of Ukiah (City). City shall have the right to control Consultant only insofar as the results of Consultant's services rendered pursuant to this Agreement; however, City shall not have the right to control the means by which Consultant accomplishes services rendered pursuant to this Agreement. 2. Liability. City shall not be called upon to assume any liability for direct payment of any salaries, wages, or other compensation to any Consultant personnel or subcontractor performing services hereunder for City, or any liability other than provided for in this Agreement. City shall not be liable for compensation or indemnity to any Consultant employee or subcontractor for injury or sickness arising out of his/her employment, or for any negligent actions of the Consultant or its employees. All persons employed in the performance of such services and functions shall be employees of Consultant, and as such shall not, for any purposes, be considered employees of City and therefore shall have no right to any City service, civil service, or other City status. 3. Subcontracts. Any subcontracts entered into by Consultant for services to be rendered towards the completion of Consultant's portion of this Agreement shall be for Consultant's benefit alone, and as such shall be its responsibility with no liability resting on the City. Consultant agrees to provide a list of all subcontractors to be used in connection with services to be rendered toward the completion of its portion of this Agreement to the City within ten (10) working days of execution of this Agreement. 4. Licenses, Permits, Etc. Consultant represents and warrants to City that he has all licenses, permits, qualifications and approvals of whatsoever nature which are legally required for Consultant to practice his profession. Consultant represents and warrants to City that Consultant shall, at his sole cost and expense, keep in effect or obtain at all times during the term of this Agreement any licenses, permits, and approvals which are legally required for Consultant to practice his profession. Sales Tax Audit & Information Services City of Ukiah Proposal/Agreement Exhibit B - General Provisions January 31,1992, Page 34 of 52 5. Time. Consultant shall devote such time to the performance of services pursuant to this Agreement as may be reasonably necessary for satisfactory performance of Consultant's obligations pursuant to this Agreement. Neither party shall be considered in default of this Agreement to the extent performance is prevented or delayed by any cause, present or future, which is beyond the reasonable control of the party. 6. Insurance. (a) Public Liabilitv. During the term of this Agreement, Consultant shall maintain in full force and effect a policy of public liability insurance with minimum coverages as follows: $1,000,000 for injury to one person in any one occurrence; $1,000,000 aggregate; and, $50,000.00 for property damage. Consultant shall cause the City, its officials and employees to be named on all liability policies described above as insured as respects: (1) activities performed for the City by or on behalf of the named insured, (2) products and completed operations of the Named Insured, and (3) premises owned, leased or used by the Named Insured. (b) Worker's Compensation. During the term of this Agreement, Consultant shall fully comply with the terms of the law of California concerning worker's compensation. Said compliance shall include, but not be limited to, maintaining in full force and effect one or more policies of insurance insuring against any liability Consultant may have for worker's compensation. 7. Consultant Not Agent. Except as City may specify in writing, Consultant shall have no authority, express or implied to act on behalf of City in any capacity whatsoever as an agent. Consultant shall have no authority, express or implied, pursuant to this Agreement to bind City to any obligation whatsoever. 8. Assignment Prohibited. No party to this Agreement may assign any right or obligation pursuant to this agreement. Any attempt of purported assignment of any right or obligation pursuant to this Agreement shall be void and of no effect. Sales Tax Audit & Infblmation Services City of Ukiah Proposal/Agreement Exhibit B - General Provisions January 31,1992, Page 35 of 52 9 Personnel. Consultant shall assign only competent personnel to perform services pursuant to this Agreement. In the event that City, in its sole discretion, at any time during the term of this Agreement, desires the removal of any person or persons assigned by Consultant to perform services pursuant to this Agreement, Consultant shall remove any such person immediately upon receiving notice from City of the desire of City for the removal of such person or persons. 10. Standard of Performance. Consultant shall perform all services required pursuant to this Agreement in the manner and according to the standards observed by a competent practitioner of the profession in which Consultant is engaged in the geographical area in which Consultant practices his profession. All products of whatsoever nature which Consultant delivers to City pursuant to this Agreement shall be prepared in a substantial, first class and workmanlike manner and conform to the standards of quality normally observed by a person practicing in Consultant's profession. 11. Reports, Charts or Other Products. All reports, charts and other products resulting from the performance of this agreement are the property of the City. 12. Citv Representative. The City Manager or his designee is the representative of the City and will administer this Agreement for the City. 13. Termination. This Agreement may terminate on ten (10) days written notice by either party, or within such time as both parties may find necessary to conclude the work currently under way and to summarize Consultant's findings for City. Sales Tax Audit & Infollnation Services City of Ukiah Proposal/Agreement Exhibit B - General Provisions January 31,1992, Page 36 of 52 14. Indemnitv and Hold Harmless. Consultant shall assume the defense of, and indemnify and save harmless, the City, its officers, employees, and agents, and each and every one of them, from and against all actions, damages, claims, losses or expenses of every type and description to which they may be subjected or put, by reason of, or resulting from, the performance of the work, provided that such action, damage, claims, loss, or expense is attributable to bodily injury, sickness, disease or death, or to injury to, or destruction of property, whether upon or off the work, including the loss of use thereof, and is caused in whole or in part by any negligent act or omission of the Consultant, and subcontractor, anyone directly or indirectly employed by any of them or anyone for whose acts any of them may be liable, whether or not it is caused in part by a party indemnified hereunder. 15. Waiver of Breach No waiver of the breach of any of the covenants, agreements, restrictions or conditions of this Agreement by any partner shall be construed to be a waiver of any succeeding breach of the same or other covenants, agreements, restrictions or conditions of this Agreement. No delay or omission of any partner in exercising any right, power or remedy herein provided in the event of default shall be construed as a waiver thereof, or acquiescence therein, nor shall the acceptance of any payments made in a manner or at a time other than as herein provided be construed as a waiver of or variation in any of the terms of this Agreement 16. Whole and Entire Agreement This instrument contains the whole and entire agreement of the parties hereto relating to their partnership and correctly sets forth the rights, duties and obligations of each to the others as of its date. Any prior agreements, promises, negotiations or representations not expressly set forth in this Agreement are of no force and effect. 17. Equal Emplovrnent Opportunity: During the performance of this Agreement, Consultant, for itself, its assignees and successors in interest, agrees as follows: a. Compliance With Regulations: Consultant shall comply with the Executive Order 11246 entitled "Equal Employment Opportunity,: as labor regulations (41 C.F.R. Part 60), hereinafter referred to as the "Regulations." Sales Tax Audit & In~~mation Services City of Ukiah Proposal/Agreement Exhibit B - General Provisions January 31,1992, Page 37 of 52 b. Nondiscrimination: Consultant, with regard to the work performed by it after award and prior to completion of the work pursuant to this Agreement, shall not discriminate on the ground of race, color, religion, sex or national origin in the selection and retention of subcontractors, including procurements of materials and leases of equipment. c. Solicitation for Subcontractor, Including Procurements of Materials and Eauipment: In all solicitations either by competitive bidding or negotiations made by Consultant for work to be performed under any subcontract, including procurements of materials or equipment, such potential subcontractor or supplier shall be notified by Consultant of Consultant's obligation under this Agreement and the Regulations relative to nondiscrimination on the ground of race, color, religion, sex or national origins. d. Information and Reports: Consultant shall provide all information and reports required by the Regulations, or orders and instructions issued pursuant thereto, and will permit access to its books, records, accounts, other sources of information and its facilities as may be determined by the City to be pertinent to ascertain compliance with such Regulations, orders and instructions. Where any information required of Consultant is in the exclusive possession of another who fails or refuses to furnish this information, Consultant shall so certify to the City and shall set forth what efforts it has made to obtain the informa tion. e. Sanctions for Noncompliance: In the event of noncompliance by Consultant with the nondiscrimination provisions of this Agreement, the City shall impose such contract sanctions as it may determine to be appropriate, including, but not limited to: (1) Withholding of payments to Consultant under the contract un ti1 Consultant complies; (2) Cancellation, termination, or suspension of the Agreement, in whole or in part. Sales Tax Audit & Inforillation Services City of Ukiah Proposal/Agreement Exhibit B - General Provisions January 31,1992, Page 38 of 52 f. Incorporation of Provisions: Consultant shall include the provisions of paragraphs a through e in every subcontract, including Regulations, order, or instructions issued pursuant thereto. Consultant shall take such action with respect to any Regulations, order or instructions issued pursuant thereto. Consultant shall take such action with respect to any subcontract or procurement as the City may direct as a means of enforcing such provisions, including sanctions for noncompliance; provided, however, that in the event Consultant becomes involved in, or is threatened with, litigation with a subcontractor or supplier as a result of such direction, Consultant may request City to enter such litigation to protect the interests of the City. Notices. Any notice to be given from one party to the other pursuant to this Agreement shall be deposited with the United States Postal Service postage prepaid and addressed as follows: To City: City Administrator CITY OF UKIAH 300 Seminary Avenue Ukiah, CA 95482-5400 To Consultant: John Austin MUNICIPAL RESOURCE CONSULTANTS 32107 W. Lindero Canyon Road Suite 233 Westlake Village, CA 91361 Nothing in this Paragraph shall be construed to prevent the giving of notice by personal service.