HomeMy WebLinkAbout1987-131
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RESOLUTION NO. 87-131
2 RESOLUTION OF THE CITY OF SAN BERNARDINO AUTHORIZING THE
EXECUTION OF AN AGREEMENT WITH MUNICIPAL RESOURCE CONSULTANTS, A
3 PARTNERSHIP OF JOHN AUSTIN AND ALLEN CHARKOW, TO PROVIDE SALES TAX
AUDIT AND INFORMATION SERVICES.
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BE IT RESOLVED BY THE MAYOR AND COMMON COUNCIL OF THE CITY OF
, 5 SAN BERNARDINO AS FOLLOWS:
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SECTION 1. The Mayor of the City of San Bernardino is hereby
7 ~vthorized and directed to execute on behalf of said City an
8 agreement with Municipal Resource Consultants, a partnership of
9 John Austin and Allen Charkow, to provide sales tax audit and
10 information services, a copy of which is attached hereto, marked
11 Exhibit "A" and incorporated herein by reference as fully as
12 though"set forth at length.
13 I HEREBY CERTIFY that the foregoing resolution was duly
14 adopted by the Mayor and Common Council of the City of San
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Bernardino at a
meeting thereof, held on
regular
20th day of
April
, 1987, by the following vote,
the
to wit:
Council Members
Estrada, Reilly, Flores,
AYES:
Maudsley, Quiel, Frazier, Strickler
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NAYS:
None
ABSENT:
None
)~g:~~1f'
eby approved this .:::21v1 day
,
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The foregoing resolution
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of
, 1987.
April
27
Approved as to form:
; ~lI4;cV
City Attorney
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:of."_
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A G R E E MEN T
2 (Sales Tax Audit)
3 THIS AGREEMENT is entered into this .:3Jt-L day of
4 ;'.h;/ , 1987, between the CITY OF SAN BERNARDINO, a
5 municipal corporation, referred to as "City," and MUNICIPAL
6 RESOURCE CONSULTANTS, a partnership, consisting of John Austin and
7 Allen Charkowr referred to as "Consultant."
8 City and Consultant agree as follows:
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1. Consultant shall perform a comprehensive sales tax audit
10 of the local sales tax adm,inistered and collected by the State
11 Board of Equalization and provide information services designed to
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12 identify and correct p6lnt-of-sale distribution errors and thereby
13 generate new sales tax income for the City on an ongoing basis.
14 Consultant shall provide said auditing and information services as
15 specified in Consultant's Proposal dated February 17, 1987. A
16 copy of said Proposal is annexed hereto as Exhibit "I" and
17 incorporated herein by reference.
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2. This agreement may be terminated upon ninety (90) days
19 prior written notice by either the Consultant or City. The
Finance Director is hereby authorized to give such notice on
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behalf of the City.
IN WITNESS WHEREOF, the parties have hereunto executed this
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agreement on the day and year first above written.
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BERNARDINO
ATTEST:
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~~?Z4/~~
CIty Clerk
By
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2/26/87
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MUNICIPAL RESOURCE CONSULTANTS,
a partnership
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Approved as -to form:
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{(3~(,1)~~'~ee~
lty torney
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2S
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2/26/87
MUNICIPAL RESOURCE CONSULTANTS
32123 W. Lindero Canyon Rd.
Suite 209
Westlake Village, CA 91361
(818) 991-5220
9874 Teaparty Lane
Fresno, CA 93710
(209) 432-6039
February 17, 1987
Mr. Warren A. Knudson
Finance Director
City of San Bernardino
300 North D Street
San Bernardino, CA 92418
Re:
Sales Tax Audit and Information Services
Dear Mr. Knudson:
Municipal
provide a
the ci ty
errors.
Resource Consultants (MRC) hereby proposes to
professional service to recover sales tax income for
of San Bernardino unrealized due to distribution
1. FOREWORD
The City of San Bernardino, 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, sales tax revenue for the City of
San Bernardino comprises approximately 36% of total
General Fund revenue (per Annual Report of Financial
Transactions, State of California, 1985).
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.
[. '1
;;. i l. I. ~ l
Mr. Warren A. Knudson
City of San Bernardino
February 17, 1987
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 permits according to their
convenience, which is not always consistent with point-
of-sales regulations. Furthermore, 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.
2. 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
audi t cl ients. These Optional Services are covered
under Section 4, on pages 5 and 6.
Mr. Warren A. Knudson
City of San Bernardino
February 17, 1987
Page 3
3. SCOPE OF SERVICE
The scope of our proposed audit service includes, but is
not limited to, the following procedures and tasks:
o 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 $500).
o Input data from sales tax distribution reports
provided by State Board of Equalization for most
recent consecutive quarters.
o 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 San Bernardino. 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.
o Contact each target business to determine whether a
point-of-sale distribution 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 40,000 direct contacts with
taxpayer businesses without a single complaint. Our
sales tax audits are predicated on a constructive
public relations approach which emphasizes the
importance of each business to the ci ty and the
mutual benefits of correcting reporting errors.
o 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 San Bernardino. 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. Warren A. Knudson
City of San Bernardino
February 17, 1987
Page 4
o Receive and process registration control record
information monthly.
o Receive and process sales tax distribution
reports quarterly.
o Coordinate with the taxpayer and State Board of
Equalization to make the necessary corrections
and collect backquarters amounts.
o Moni tor and analyze the quarterly distribution
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. Warren A. Knudson
city of San Bernardino
February 17, 1987
Page 5
4. 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 consulting services designed to
maintain and enhance the City's revenue base. These
services are offered as options to each of MRC I saudi t
clients.
The scope of our STARS Reports and Corollary Consulting
services includes, but is not limited to, the following:
4.1 STARS Reports
o Refine our computerized sales tax data for the City
utilizing MRC's Sales Tax Analysis and Reporting
System (STARS).
o Prepare and submit STARS reports on a quarterly
basis principally focusing on the maj or 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.
All major sales tax producers and
categories are monitored and analyzed
based on reports to include the following:
Maior (and Top 100) Sales Tax Producers. Ranks
in descending order according to level of sales
tax produced.
business
quarterly
Business Classification. Groups and ranks
major producers by business classification
according to level of sales tax produced.
. Mr. Warren A. Knudson
city of San Bernardino
February 17, 1987
Page 6
Sales Tax Trend Reoorts. Indicates growth and
decline comparisons by various categories for
forecasting and analysis.
Proiections. For budgetary purposes, provides
sales tax projections based on optimistic,
pessimistic and most likely economic conditions
for major business categories.
Executive Summarv. 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 complemented by graphics.
. "
Mr. Warren A. Knudson
city of San Bernardino
February 17, 1987
Page 7
4.2 CorollarY Consultinq
o 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.
o 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.
o 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.
o 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.
o Provide a list of businesses located in the City
that are not presently producing sales tax to the
City of San Bernardino, 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.
o
Assist in defining specific geographic
which the City would have an interest in
sales tax produced (e.g., within
Redevelopment Agency boundaries).
areas for
knowing the
Community
Mr. Warren A. Knudson
City of San Bernardino
February 17, 1987
Page 8
5 . TIMING
We are prepared to commence
immediately upon receipt of
authorization and resolution
authorized City contractor to
records (see Exhibit B).
the proposed service
City Council contract
designating MRC as the
examine sales and use tax
The initial audit report identifyng point-of-sale
distribution errors is normally provided within 60
working days following receipt of authorization. The
ongoing audit reports are provided within 30 working days
following receipt of the quarterly distribution reports.
Wi th 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. Warren A. Knudson
City of San Bernardino
February 17, 1987
Page 9
6. 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 results.
Since 1978, MRC has conducted sales tax audits that have
produced in aggregate more than $7 million annually in
recovered sales tax for California municipalities. Our
sales tax audits have also resulted 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 annual 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 by its
principals, John Austin and Allen Charkow.
Mr. Warren A. Knudson
City of San Bernardino
February 17, 1987
Page 10
7. PERIOD COVERED & CHARGES
Our compensation 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 compensation 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
contingency incentive fee for
reduced from 35% to 25%.
optional services, the
the audit service is
Sales tax audit invoices are submitted quarterly after
the City has received the revenue from the correction and
quarterly distribution report confirming it. Each
invoice is to include the business name, permit number,
local allocation amount received by the city and amount
due MRC.
STARS Reoorts & Corollarv Consultina COotionall
MRC is to provide STARS Reports and Corollary Consulting
for a flat fee of $9,000 for the first year, payable in
four equal quarterly installments of $2,250 each.
Invoices are to be submitted together with our quarterly
reports and are due and payable upon receipt.
Exoenses
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. Warren A. Knudson
city of San Bernardino
February 17, 1987
Page 11
8. 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 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 specified 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 San Bernardino 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
services for
agreement.
is prohibited from performing consulting
a retailer during the term of this
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 Section 7056 (b), (l) of the Revenue
and Taxation Code.
Contractor hereby certifies that 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. Warren A. Knudson
city of San Bernardino
February 17, 1987
Page 12
9. CONCLUSION
The proposed audit service is designed to
correct point-of-sale distribution errors
generate new sales tax income for the
Bernardino 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.
identify and
and thereby
Ci ty of San
The proposed service is automatically cost-justified
because compensation earned by MRC is derived from new
income which would not otherwise have been realized by
the city.
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 attention. The original is for
your records.
Yes
No
Sales Tax Audit Service
x
STARS Reports
&
Corollary Consulting
x
ACCEPTED FOR
CITY OF SAN BERNARDINO
By' f~ 71~
ACCEPTED FOR MUNICIPAL
RESOURCE CONSULTANTS
By:
Title:~
Date: ~fl~.jft;'
Tit
Date: Februarv 17. 1987