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HomeMy WebLinkAbout16-Finance CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION From: Barbara Pachon, Finance Subject: Resolution authorizing the Director execution of an agreement with MuniServices, LLC to provide Dept: Finance analysis and audit services for the transactions and use tax collected by Date: September 14, 2007 the State Board of Equalization and resolution authorizing designated representative to receive transaction and use tax records from the State Board of Equalization and rescinding Resolution 87-130. Council Meeting: 10/1/07 Synopsis of Previous Council Action: April 20, 1987 Resolution 87-130 designating Municipal Resource Consultants as the authorized City Representative to examine sales and use tax records, and designating the Director of Finance and City Auditor as the Officers authorized to receive information contained in, or derived from, the sales and use tax records. April 20, 1987 Resolution 87-131 authorizing the execution of an agreement with Municipal Resource Consultants, a partnership of John Austin and Allen Charkow, to provide sales tax audit and information services. Recommended motions: Adopt Resolutions Signature Contact person: Barbara Pachon, Director of Finance Phone: 5242 Supporting data attached: Staff Report, Attachments Ward: All FUNDING REQUIREMENTS: Amount: $9,000 + 25% of audit findings Source: 001-092-5502 Finance: Council Notes: 1011A7 Agenda Item No. /6 CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION STAFF REPORT SUBJECT: Resolution authorizing the execution of an agreement with MuniServices, LLC to provide analysis and audit services for the City of San Bernardino's transactions and use tax collected by the State Board of Equalization, and also a resolution designating the City Manager, Director of Finance, Deputy Director of Finance and MuniServices, LLC as authorized representatives to receive and examine transactions and use tax records from the State Board of Equalization pertaining to transactions and use taxes collected by the Board of Equalization for the City of San Bernardino. BACKGROUND: On November 7, 2006, San Bernardino voters approved Measures Z and YY, creating a new .25% local transactions and use tax increase effective April 1, 2007. The State Board of Equalization (BOE) is the agency responsible for administering and auditing all transactions and use tax activity for all cities in California. As a back up to ensure that the City of San Bernardino receives all of the transactions and use tax revenues due to the City, the City uses sales tax auditors, MuniServices, LLC, to perform additional audits and reviews of transactions and use tax activity above and beyond audits done by the State Board of Equalization. Now that the City's new .25% local transactions and use tax has been in effect for almost six months the City needs to authorize MuniServices, LLC to begin audit and review work on the new transactions and use tax over and above what the BOE already does. A resolution authorizing the City Manager to execute an updated agreement with MuniServices, LLC needs to be approved by the Mayor and Council to accomplish this. MuniServices, LLC, has been auditing the City's sales tax records since 1987. Because they have the capability to download and review information on a broader scale direct from the BOE for multiple clients, MuniServices can conduct audits and catch mistakes much faster and more efficiently than possible by City staff. In addition to audit services, MuniServices, LLC also provides the City with various reports used by the Finance Department to track and project the City's sales tax revenue. MuniServices also coordinates with the taxpayer and/or BOE to correct any misallocated or underreported sales tax due to the City. It is expected that the initial audit will catch and correct misallocated and underreported taxes by businesses within the City of San Bernardino. Because businesses outside the City of San Bernardino city limits, especially those out of state, may not be familiar with our district tax, or familiar with California's transactions and use tax regulations in general, most of MuniServices, LLC'S ongoing corrective work will most likely be with those businesses. MuniServices, LLC compensation will continue at the same rate even though the new Measure Z tax is being added to the scope of services currently provided by MuniServices. The City of San Bernardino currently pays $9,000 per year ($2,250 per quarter) for the preparation and analysis of the quarterly transactions and use tax reports (called STARS Digest) prepared by MuniServices from the data received from the BOE. After a year, this fee will increase by the Consumer Prince Index as reported by the Bureau of Labor Statistics. This fee also covers any analysis of proposed sales tax legislation and research of various sales tax issues that may come up from the City. Compensation for transactions and use tax audit services, including the new tax, will remain at the current 25% contingency fee. This fee applies to six quarters after the date of correction and all eligible prior quarters back to and including the three quarters prior to the date of knowledge quarter. It should be noted that MuniServices, LLC actual compensation for audit work is entirely predicated and contingent upon their ability to find and correct A)0 . l6 /0- 0"1 h 1 n mistakes. If the audit work done by MuniServices, LLC does not produce additional sales tax revenue to the City of San Bernardino then there is no compensation paid to MuniServices, LLC for this audit work. The second resolution included with this item is an updated resolution that designates MuniServices, LLC as well as the City Manager, the Director of Finance and the Deputy Director of Finance as the authorized City of San Bernardino representatives to receive and examine the transactions and use tax records from the State Board of Equalization. At the recommendation of the State Board of Equalization, all designations in the resolution are done by entity name and position/title rather than individual name. By doing this, there would be an automatic transfer of authority when personnel changes occur, eliminating the need for a new resolution each time a designated individual leaves the City. This will allow a continued flow of information into the City, without a break, should a designated individual leave the City. Regardless of the individual who holds a designated position, the City's sales tax auditors as well as management staff in the City need the transactions and use tax data from the State Board of Equalization. FINANCIAL IMPACT: Sufficient funds have already been included in the City of San Bernardino's Non-Departmental, Contractual Services Budget for FY 2007-2008 to pay MuniServices, LLC for transactions and use tax quarterly reports and audits. RECOMMENDATION: Adopt Resolutions i CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION STAFF REPORT SUBJECT: Resolution authorizing the execution of an agreement with MuniServices, LLC to provide analysis and audit services for the City of San Bernardino's transactions and use tax collected by the State Board of Equalization, and also a resolution designating the City Manager, Director of Finance, Deputy Director of Finance and MuniServices, LLC as authorized representatives to receive and examine transactions and use tax records from the State Board of Equalization pertaining to transactions and use taxes collected by the Board of Equalization for the City of San Bernardino. BACKGROUND: On November 7, 2006, San Bernardino voters approved Measures Z and YY, creating a new .25% local transactions and use tax increase effective April 1, 2007. The State Board of Equalization (BOE) is the agency responsible for administering and auditing all transactions and use tax activity for all cities in California. As a back up to ensure that the City of San Bernardino receives all of the transactions and use tax revenues due to the City, the City uses sales tax auditors, MuniServices, LLC, to perform additional audits and reviews of transactions and use tax activity above and beyond audits done by the State Board of Equalization. Now that the City's new .25% local transactions and use tax has been in effect for almost six months the City needs to authorize MuniServices, LLC to begin audit and review work on the new transactions and use tax over and above what the BOE already does. A resolution authorizing the City Manager to execute an updated agreement with MuniServices, LLC needs to be approved by the Mayor and Council to accomplish this. MuniServices, LLC, has been auditing the City's sales tax records since 1987. Because they have the capability to download and review information on a broader scale direct from the BOE for multiple clients, MuniServices can conduct audits and catch mistakes much faster and more efficiently than possible by City staff. In addition to audit services, MuniServices, LLC also provides the City with various reports used by the Finance Department to track and project the City's sales tax revenue. MuniServices also coordinates with the taxpayer and/or BOE to correct any misallocated or underreported sales tax due to the City. It is expected that the initial audit will catch and correct misallocated and underreported taxes by businesses within the City of San Bernardino. Because businesses outside the City of San Bernardino city limits, especially those out of state, may not be familiar with our district tax, or familiar with California's transactions and use tax regulations in general, most of MuniServices, LLC'S ongoing corrective work will most likely be with those businesses. MuniServices, LLC compensation will continue at the same rate even though the new Measure Z tax is being added to the scope of services currently provided by MuniServices. The City of San Bernardino currently pays $9,000 per year ($2,250 per quarter) for the preparation and analysis of the quarterly transactions and use tax reports (called STARS Digest) prepared by MuniServices from the data received from the BOE. After a year, this fee will increase by the Consumer Prince Index as reported by the Bureau of Labor Statistics. This fee also covers any analysis of proposed sales tax legislation and research of various sales tax issues that may come up from the City. Compensation for transactions and use tax audit services, including the new tax, will remain at the current 25% contingency fee. This fee applies to six quarters after the date of correction and all eligible prior quarters back to and including the three quarters prior to the date of knowledge quarter. It should be noted that MuniServices, LLC actual compensation for audit work is entirely predicated and contingent upon their ability to find and correct moo . /6 /0-/-0-? mistakes. If the audit work done by MuniServices, LLC does not produce additional sales tax revenue to the City of San Bernardino then there is no compensation paid to MuniServices, LLC for this audit work. The second resolution included with this item is an updated resolution that designates MuniServices, LLC as well as the City Manager, the Director of Finance and the Deputy Director of Finance as the authorized City of San Bernardino representatives to receive and examine the transactions and use tax records from the State Board of Equalization. At the recommendation of the State Board of Equalization, all designations in the resolution are done by entity name and position/title rather than individual name. By doing this, there would be an automatic transfer of authority when personnel changes occur, eliminating the need for a new resolution each time a designated individual leaves the City. This will allow a continued flow of information into the City, without a break, should a designated individual leave the City. Regardless of the individual who holds a designated position, the City's sales tax auditors as well as management staff in the City need the transactions and use tax data from the State Board of Equalization. FINANCIAL IMPACT: Sufficient funds have already been included in the City of San Bernardino's Non-Departmental, Contractual Services Budget for FY 2007-2008 to pay MuniServices, LLC for transactions and use tax quarterly reports and audits. RECOMMENDATION: Adopt Resolutions RESOLUTION NO. C (0Fc:)) y Lr 1 2 RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO DESIGNATING MUNISERVICES, LLC AS THE 3 AUTHORIZED CITY REPRESENTATIVE TO EXAMINE TRANSACTIONS (SALES) AND USE TAX RECORDS, AND DESIGNATING THE CITY 4 MANAGER, THE DIRECTOR OF FINANCE AND THE DEPUTY DIRECTOR OF FINANCE AS THE CITY OFFICERS AUTHORIZED TO RECEIVE 5 INFORMATION CONTAINED IN, OR DERIVED FROM, THE TRANSACTIONS 6 (SALES) AND USE TAX RECORDS, AND RESCINDING RESOLUTION 87-130. 7 8 WHEREAS, pursuant to Ordinance No. MC1229 of the City of San Bernardino 9 and Section 7270 of the Revenue and Taxation Code, the City of San Bernardino entered 10 into a contract with the State Board of Equalization to perform all functions incident to the 11 administration and operation of the Transactions and Use Tax Ordinance; and 12 WHEREAS, the City of San Bernardino deems it desirable and necessary for 13 authorized representatives of the City of San Bernardino to examine confidential 14 15 transactions and use tax records of the State Board of Equalization pertaining to 16 transactions and use taxes collected by the Board of Equalization for the City of San 17 Bernardino pursuant to that contact; and 18 WHEREAS, Section 7056 of the Revenue and Taxation Code sets forth certain 19 requirements and conditions for the disclosure of State Board of Equalization records and 20 21 establishes criminal penalties for the unlawful disclosure of information contained in or 22 derived from, the transactions and use tax records of the Board of Equalization. 23 NOW, THEREFORE BE IT RESOLVED BY THE MAYOR AND 24 COMMON COUNCIL OF THE CITY OF SAN BERNARDINO AS FOLLOWS: 25 SECTION 1. The City of San Bernardino designates the City Manager, the 26 Director of Finance and the Deputy Director of Finance as the authorized officers to the 27 28 State Board of Equalization to represent the City of San Bernardino with authority to examine transactions and use tax records of the State Board of Equalization pertaining to 1 RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE 1 CITY OF SAN BERNARDINO DESIGNATING MUNISERVICES, LLC AS THE AUTHORIZED CITY REPRESENTATIVE TO EXAMINE TRANSACTIONS 2 (SALES) AND USE TAX RECORDS, AND DESIGNATING THE CITY MANAGER, THE DIRECTOR OF FINANCE AND THE DEPUTY DIRECTOR OF 3 FINANCE AS THE CITY OFFICERS AUTHORIZED TO RECEIVE 4 INFORMATION CONTAINED IN, OR DERIVED FROM, THE TRANSACTIONS (SALES) AND USE TAX RECORDS, AND RESCINDING RESOLUTION 87-130. 5 transactions and use taxes collected for the City of San Bernardino by the State Board of 6 7 Equalization pursuant to the contract between the City of San Bernardino and the State 8 Board of Equalization. The information obtained by examination of State Board of 9 Equalization records shall be used only for purposes related to the collection of the City of 10 San Bernardino's transactions and use taxes by the State Board of Equalization pursuant to 11 the contract. 12 SECTION 2. The City of San Bernardino designates MuniServices, LLC to 13 14 examine the transactions and use tax records of the State Board of Equalization pertaining 15 to transactions and use taxes collected for the City of San Bernardino by the State Board of 16 Equalization. MuniServices, LLC, designated by this section, meets all the following 17 conditions: 18 a. has an existing contract with the City of San Bernardino to examine 19 20 those transactions and use tax records; 21 b. is required by that contract to disclose information contained in, or 22 derived, from those transactions and use tax records only to the officers 23 authorized under Section 1 of this Resolution to examine information; 24 c. is prohibited by that contract from performing consulting services for a 25 26 retailer during the term of that contract; 27 d. is prohibited by that contract from retaining the information contained 28 in, or derived from, those transactions and use tax records after that contract has expired. 2 rr.r.w RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE 1 CITY OF SAN BERNARDINO DESIGNATING MUNISERVICES, LLC AS THE AUTHORIZED CITY REPRESENTATIVE TO EXAMINE TRANSACTIONS 2 (SALES) AND USE TAX RECORDS, AND DESIGNATING THE CITY MANAGER, THE DIRECTOR OF FINANCE AND THE DEPUTY DIRECTOR OF 3 FINANCE AS THE CITY OFFICERS AUTHORIZED TO RECEIVE 4 INFORMATION CONTAINED IN, OR DERIVED FROM, THE TRANSACTIONS (SALES) AND USE TAX RECORDS, AND RESCINDING RESOLUTION 87-130. 5 SECTION 3. The City of San Bernardino Resolution 87-130 is hereby rescinded 6 7 and replaced by this resolution. 8 I HEREBY CERTIFY that the foregoing resolution was duly adopted by the Mayor 9 and Common Council of the City of San Bernardino at a meeting thereof, 10 held on the day of , 2007, by the following vote, to wit: 11 COUNCILMEMBERS AYES NAYS ABSTAIN ABSENT 12 ESTRADA 13 14 BAXTER 15 BRINKER 16 DERRY 17 KELLEY 18 JOHNSON 19 20 McCAMMACK 21 Rachel Clark, City Clerk 22 23 The foregoing resolution is hereby approved this day of 2007. 24 Patrick J. Morris, Mayor 25 City of San Bernardino 26 Approved as to form: 27 JAMES F. PENMAN City Attorney 28 BY: J 3 RESOLUTION NO. COPY 1 2 RESOLUTION OF THE CITY OF SAN BERNARDINO AUTHORIZING THE EXECUTION OF AN AGREEMENT WITH MUNISERVICES, LLC TO 3 PROVIDE ANALYSIS AND AUDIT SERVICES FOR THE CITY OF SAN BERNARDINO'S TRANSACTIONS AND USE TAX COLLECTED BY THE 4 STATE BOARD OF EQUALIZATION. 5 BE IT RESOLVED BY THE MAYOR AND COMMON COUNCIL OF THE 6 CITY OF SAN BERNARDINO AS FOLLOWS: 7 SECTION 1: The City Manager of the City of San Bernardino is hereby authorized 8 and directed to execute on behalf of said City an Agreement with MuniServices, LLC to 9 provide analysis and audit services for the City of San Bernardino transactions and use tax 10 collected by the State Board of Equalization, a copy of which is attached hereto, marked 11 12 Exhibit "A" and incorporated herein by reference as fully as though set forth at length. 13 SECTION 2: The authorization to execute the above mentioned agreement is 14 rescinded if the parties to the agreement fail to sign it within sixty (60) days of the passage 15 of this resolution. 16 17 18 19 20 21 22 23 24 25 26 27 28 i RESOLUTION OF THE CITY OF SAN BERNARDINO AUTHORIZING 1 THE EXECUTION OF AN AGREEMENT WITH MUNISERVICES, LLC TO PROVIDE ANALYSIS AND AUDIT SERVICES FOR THE CITY OF SAN 2 BERNARDINO'S TRANSACTIONS AND USE TAX COLLECTED BY THE 3 STATE BOARD OF EQUALIZATION. 4 I HEREBY CERTIFY that the foregoing resolution was duly adopted by the Mayor 5 and Common Council of the City of San Bernardino at a meeting 6 7 thereof, held on the day of , 2007, by the following vote, to wit: 8 COUNCILMEMBERS AYES NAYS ABSTAIN ABSTAIN 9 ESTRADA 10 BAXTER 11 BRINKER 12 DERRY 13 14 KELLEY 15 JOHNSON 16 MCCAMMACK 17 18 Rachel G. Clark, City Clerk 19 20 The foregoing resolution is hereby approved this day of 21 2007. 22 23 Patrick J. Morris, Mayor City of San Bernardino 24 Approved as to form: 25 26 JAMES F. PENMAN, City Attorney 27 28 BY: -� 2 EXHIBIT "A" SERVICES AGREEMENT MUNISERVICES, LLC THIS AGREEMENT is made and entered into this day of 2007 ("Effective Date"),by and between the CITY OF SAN BERNARDINO,a charter city("City"),and MUNISERVICES, LLC., a Delaware limited liability company ("CONSULTANT"). WITNESSETH : A. WHEREAS,CITY proposes to have CONSULTANT perform the services described herein below; and B. WHEREAS, CONSULTANT represents that it has that degree of specialized expertise contemplated within California Government Code Section 37103 and holds all necessary licenses to practice and perform the services herein contemplated; and C. WHEREAS, CITY and CONSULTANT desire to contract for services as described in Exhibits "A 1-3"; and D. WHEREAS, no official or employee of CITY has a financial interest, within the provisions of California Government Code Sections 1090-1092, in the subject matter of this Agreement. NOW, THEREFORE, for and in consideration of the mutual covenants and conditions contained herein, the parties hereby agree as follows: 1.0. SERVICES PROVIDED BY CONSULTANT 1.1. Scope of Services. For the remuneration stipulated, CONSULTANT shall provide the professional services described in the Scope of Services attached hereto as Exhibits "A 1-3"and incorporated herein by this reference. If a conflict arises between the Scope of Service and this Services Agreement (hereinafter "Agreement"), the terms of the Agreement shall govern. 1.2. Professional Practices. All services to be provided by CONSULTANT pursuant to this Agreement shall be provided in a manner consistent with the standards of care, diligence and skill ordinarily exercised by professional consultants in similar fields and circumstances in accordance with sound professional practices. CONSULTANT also warrants that it is familiar with all laws that may affect its performance of this Agreement and shall advise CITY of any changes in any laws that may affect CONSULTANT's performance of this Agreement. CONSULTANT further represents that no CITY employee will provide any services under this Agreement. [F:\CALKINS\Agreements\MuniSery ices.Agreement.wpd] 1.3. Warranty. CONSULTANT warrants that it shall perform the services required by this Agreement in compliance with all applicable Federal and California employment laws including,but not limited to,those laws related to minimum hours and wages;occupational health and safety;fair employment and employment practices;workers'compensation insurance and safety in employment; and all other Federal, State and local laws and ordinances applicable to the services required under this Agreement. CONSULTANT shall indemnify and hold harmless CITY from and against all claims, demands, payments, suits, actions, proceedings and judgments of every nature and description, including reasonable attorney's fees and costs (collectively, "Losses and Liabilities"), presented, brought or recovered against CITY for, or on account of, any liability under any of the above-mentioned laws, arising from or related to CONSULTANT's performance under this Agreement,except to the extent that such Losses and Liabilities are caused by the gross negligence or willful misconduct of CITY. 1.4. Non-discrimination. In performing this Agreement,CONSULTANT shall not engage in, nor permit its officers, employees or agents to engage in, discrimination in employment of persons because of their race, religion, color, national origin, ancestry, age, mental or physical disability,medical condition,marital status,sexual gender or sexual orientation,except as permitted pursuant to Section 12940 of the Government Code. Violation of this provision may result in the imposition of penalties referred to in Labor Code Section 1735. 1.5 Non-Exclusive Agreement. CONSULTANT acknowledges that CITY may enter into agreements with other consultants for services similar to the services that are subject to this Agreement or may have its own employees perform services similar to those services contemplated by this Agreement. 1.6. Delegation and Assi nment. This is a personal service contract, and the duties set forth herein shall not be delegated or assigned to any person or entity without the prior written consent of CITY. CONSULTANT may engage a subcontractor(s) as permitted by law and may employ other personnel to perform services contemplated by this Agreement at CONSULTANT's sole cost and expense. 1.7 License Agreement. CITY agrees that it is bound by the terms of Exhibit 4,attached hereto and incorporated by reference. 1.8 City Business Certificate. CONSULTANT shall obtain and maintain during the term of this Agreement,a valid CITY Business Registration Certificate pursuant to Title 5 of the City of San Bernardino Municipal Code and any and all other licenses,permits,qualifications,insurance and approvals of whatever nature that are legally required of CONSULTANT to practice its profession, skill or business, unless exempted by law from such requirement or requirements. (F:\CALKINS\Agreements\Mun i Services.Agreement.wpd1 2 2.0. COMPENSATION AND BILLING 2.1. Compensation.Except as provided herein,CONSULTANT shall be paid as set forth in Exhibits "A 1-3" of the Scope of Services. 2.2. Additional Services. CONSULTANT shall not receive compensation for any services provided outside the scope of services unless the CITY, prior to CONSULTANT performing the additional services, approves such additional services in writing. It is specifically understood that oral requests and/or approvals of such additional services or additional compensation shall be barred and are unenforceable. 2.3. Method of Billing. CONSULTANT may submit invoices to CITY for approval. Said invoice shall be based on the total of all CONSULTANT's services which have been completed to CITY's sole satisfaction. CITY shall pay CONSULTANT's invoice within forty-five(45)days from the date CITY receives said invoice. The invoice shall describe in detail,the services performed and the associated time for completion. Any additional services approved and performed pursuant to this Agreement shall be designated as "Additional Services" and shall identify the number of the 9 authorized change order, where applicable, on all invoices. 2.4. Records and Audits. Records of CONSULTANT's services relating to this Agreement shall be maintained in accordance with generally recognized accounting principles and shall be made available to CITY for inspection and/or audit at mutually convenient times for a period of three (3)years from the Effective Date. 3.0. TERM AND NOTIFICATION. 3.1. Term. This Agreement shall commence on the Effective Date and continue for three years, unless the Agreement is previously terminated as provided for herein. 3.2 Termination. CITY or CONSULTANT may terminate the services provided under Section 1.1 of this Agreement upon thirty (3 0) days written notice to the other party. In the event of termination, CONSULTANT shall be paid the reasonable value of services rendered to the date of termination. 3.3 Documents. In the event of termination of this Agreement, all documents prepared by CONSULTANT in its performance of this Agreement including, but not limited to, finished or unfinished background investigations,shall be delivered to the CITY within ten(10)days of delivery of termination notice to CONSULTANT, at no cost to CITY. Any use of uncompleted documents without specific written authorization from CONSULTANT shall be at CITY's sole risk and without liability or legal expense to CONSULTANT. f [F:\C ALKINSW greements`,Muni Services.Agreement.wpd] 3 4.0. INSURANCE 4.1. Minimum Scope and Limits of Insurance. CONSULTANT shall obtain and maintain during the term of this Agreement all of the following insurance coverages: (a) Commercial general liability, including premises-operations, products/completed operations, broad form property damage, blanket contractual liability, independent contractors, personal injury with a policy limit of not less than One Million Dollars($1,000,000.00),combined single limits, per occurrence and aggregate. (b) Automobile liability for owned vehicles,hired,and non-owned vehicles,with a policy limit of not less than One Million Dollars($1,000,000.00),combined single limits, per occurrence and aggregate. (c) Workers' compensation insurance as required by the State of California. 4.2. Notice. CONSULTANT will act reasonably to provide prompt notice to CITY if any insurance required hereunder is terminated, materially changed, reduced or cancelled. 4.3. Certificates of Insurance. CONSULTANT shall provide to CITY certificates of insurance showing the insurance coverages and required endorsements described above, in a form and content approved by CITY, prior to performing any services under this Agreement. 4.4. Non-limiting. Nothing in this Section shall be construed as limiting in any way,the indemnification provision contained in this Agreement,or the extent to which CONSULTANT may be held responsible for payments of damages to persons or property. 5.0. GENERAL PROVISIONS 5.1. Entire Agreement: This Agreement constitutes the entire Agreement between the parties with respect to any matter referenced herein and supersedes any and all other prior writings and oral negotiations. This Agreement may be modified only in writing, and signed by the parties in interest at the time of such modification. The terms of this Agreement shall prevail over any inconsistent provision in any other contract document appurtenant hereto,including exhibits to this Agreement. 5.2. Notices. Any notices, documents, correspondence or other communications concerning this Agreement or the work hereunder may be provided by personal delivery, facsimile or United States mail and shall be addressed as set forth below. Such communication shall be deemed served or delivered: a) at the time of delivery if such communication is sent by personal delivery; b) at the time of transmission if such communication is sent by facsimile; and c)48 hours [F:\CALKINS\Agreements\,MuniSery ic es.Agreement.wpd1 4 after deposit in the U.S.Mail as reflected by the official U.S.postmark if such communication is sent through regular United States mail. IF TO CONSULTANT: IF TO CITY: MuniServices, LLC CITY MANAGER 7335 N. Palm Bluffs Ave. City of San Bernardino Fresno, CA 93711 300 North "D" Street Attn: Legal Department San Bernardino, CA 92418 Email: legal @muniservices.com Telephone: (909) 384-5122 Fax: (909) 384-5138 5.3. Attorneys' Fees: In the event that litigation is brought by any party hereto in connection with this Agreement, the prevailing party in a final non-appealable judgment shall be entitled to recover from the opposing party all costs and expenses, including reasonable attorneys' fees, incurred by the prevailing party in the exercise of any of its rights or remedies hereunder or the enforcement of any of the terms, conditions, or provisions hereof. The costs, salary and expenses of the City Attorney and members of his office in enforcing this contract on behalf of the CITY shall be considered as "attorneys' fees" for the purposes of this Agreement. 5.4. Governing Law. This Agreement shall be governed by and construed under the laws of the State of California without giving effect to that body of laws pertaining to conflict of laws. In the event of any legal action to enforce or interpret this Agreement, the parties hereto agree that the sole and exclusive venue shall be a court of competent jurisdiction located in San Bernardino County, California. 5.5. Assignment: Neither party hereto shall voluntarily or by operation of law assign, transfer, sublet or encumber all or any part of its interest in this Agreement without the other party's prior written consent. Any attempted assignment,transfer, subletting or encumbrance shall be void and shall constitute a breach of this Agreement and cause for termination of this Agreement. Regardless of CITY's consent, no subletting or assignment shall release CONSULTANT of CONSULTANT's obligation to perform all other obligations to be performed by CONSULTANT hereunder for the term of this Agreement. 5.6. Indemnity. CONSULTANT shall protect,defend,indemnify and hold harmless CITY and its elected and appointed officials, boards, commissions, officers, attorneys, agents and employees from any and all Losses and Liabilities arising from or in any way related to CONSULTANT's acts,omissions and obligations under this Agreement, except to the extent such Losses and Liabilities are caused by the gross negligence or willful misconduct of CITY. CITY shall protect, defend, indemnify and hold harmless CONSULTANT and its directors, officers, attorneys, agents and employees from any and all Losses and Liabilities arising from or in any way related to CITY's acts, omissions and obligations under this Agreement,except to the extent such Losses and Liabilities are caused by the gross negligence or willful misconduct of CONSULTANT. [F:\CALKIWAgreements\Muni Services.Agreement.wpd] 5 5.7. Independent Contractor. CONSULTANT, at all times while performing under this Agreement, is and shall be acting at all times as an independent contractor and not as an agent or employee of CITY. CONSULTANT shall secure,at his expense,and be responsible for any and all payment of wages, benefits and taxes including, but not limited to, Income Tax, Social Security, State Disability Insurance Compensation, Unemployment Compensation, and other payroll deductions for CONSULTANT and its officers, agents, and employees, and all business licenses, if any are required, in connection with the services to be performed hereunder. Neither CONSULTANT nor its officers,agents and employees shall be entitled to receive any benefits which employees of CITY are entitled to receive and shall not be entitled to workers' compensation insurance, unemployment compensation, medical insurance, life insurance, paid vacations, paid holidays, pension, profit sharing or social security on account of CONSULTANT and its officers', agents'and employees'work for the CITY. This Agreement does not create the relationship of agent, servant, employee partnership or joint venture between the CITY and CONSULTANT. 5.8 Conflict of Interest Disclosure. CONSULTANT or its employee may be subject to the provisions of the California Political Reform Act of 1974 (the "Act"), which (1) requires such persons to disclose financial interests that may be materially affected by the work performed under this Agreement,and(2)prohibits such persons from making or participating in making decisions that will have a foreseeable financial affect on such interest. CONSULTANT shall conform to all applicable requirements of the Act. Failure to do so constitutes a material breach and is grounds for termination of the Agreement by CITY. 5.9. Responsibility for Errors. CONSULTANT shall be responsible for its work and results under this Agreement. CONSULTANT, when requested, shall furnish clarification and/or explanation as may be required by the CITY's representative,regarding any services rendered under this Agreement at no additional cost to CITY. In the event that an error or omission attributable to CONSULTANT occurs, then CONSULTANT shall, at no cost to CITY, provide all other CONSULTANT professional services necessary to rectify and correct the matter to the sole satisfaction of CITY and to participate in any meeting required with regard to the correction. 5.10. Prohibited Emplo ment. CONSULTANT shall not employ any current employee of CITY to perform the work under this Agreement while this Agreement is in effect. 5.11. Costs. Each party shall bear its own costs and fees incurred in the preparation and negotiation of this Agreement and in the performance of its obligations hereunder except as expressly provided herein. 5.12. No Third Party Beneficiary Rights. This Agreement is entered into for the sole benefit of CITY and CONSULTANT and no other parties are intended to be direct or incidental beneficiaries of this Agreement and no third party shall have any right in,under or to this Agreement. [F:\CAL KIN SWgreements WuniSery ices.Agreement.wpd] 6 5.13. Headings Paragraphs and subparagraph headings contained in this Agreement are included solely for convenience and are not intended to modify, explain or to be a full or accurate description of the content thereof and shall not in any way affect the meaning or interpretation of this Agreement. 5.14. Amendments. Only a writing executed by all of the parties hereto or their respective successors and assigns may amend this Agreement. 5.15. Waiver. The delay or failure of either party at any time to require performance or compliance by the other of any of its obligations or agreements shall in no way be deemed a waiver of those rights to require such performance or compliance. No waiver of any provision of this Agreement shall be effective unless in writing and signed by a duly authorized representative of the party against whom enforcement of a waiver is sought. The waiver of any right or remedy with respect to any occurrence or event shall not be deemed a waiver of any right or remedy with respect to any other occurrence or event, nor shall any waiver constitute a continuing waiver. 5.16. Severability. If any provision of this Agreement is determined by a court of competent jurisdiction to be invalid or unenforceable for any reason, such determination shall not affect the validity or enforceability of the remaining terms and provisions hereof or of the offending provision in any other circumstance, and the remaining provisions of this Agreement shall remain in full force and effect. 5.17. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original. All counterparts shall be construed together and shall constitute one agreement. 5.18. Corporate Authoriri. The persons executing this Agreement on behalf of the parties hereto warrant that they are duly authorized to execute this Agreement on behalf of said parties and that by doing so, the parties hereto are formally bound to the provisions of this Agreement. [F:\CALKINS\Agreements\MuniSery ices.Agreement.wpdJ 7 i SERVICES AGREEMENT MUNISERVICES, LLC IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by and through their respective authorized officers, as of the date first above written. CITY OF SAN BERNARDINO MUNISERVICES, LLC. Fred Wilson, City Manager Signature Name and Title APPROVED AS TO FORM: JAMES F. PENMAN, City Attorney [FACALKINS\Agreements\MuniSery ices.Agreement.wpd1 8 �o SCOPE OF SERVICES EXHIBIT 1 SALES AND USE TAX AUDIT (SUTA) ADDENDUM OBJECTIVES AND METHODS MuniServices' sales and use tax audit service is designed to maximize the City's income - and minimize the cost of lost revenue - by detecting and documenting misallocations of local district tax (also knows as Transactions & Use Tax), Bradley-Burns sales tax and local use tax activity within the statute of limitations on recoverability. In performing the sales and use tax audit program MuniServices shall: ❑ Identify and correct the sales/use tax reporting errors of businesses that, based on the nexus of their activities, are not properly registered with the City. ❑ Identify and correct the reporting of businesses that are improperly reporting tax to state and county pools (i.e. classifying sales tax as use tax) and thereby depriving the City of sales tax revenue. ❑ Detect, document and correct sales/use tax reporting errors/omissions and thereby generate new, previously unrealized revenue for the City. ❑ Ensure through comprehensive audit measures that the revenue information used for ongoing economic analysis includes all sales/use tax generators. ❑ Assist the City with strategies to preserve and even enhance sales and use tax revenue generated by existing businesses within the City. MuniServices' proposed sales/use tax allocation audit services for the City includes five distinct types of audits: ❑ Taxable Nexus Field audits ❑ Permitization audits ❑ Deficiency assessment audits ❑ Accounts payable audits ❑ Quarterly Distribution Report audits TAXABLE NEXUS FIELD AUDITS MuniServices' initial and periodic taxable nexus field audits include a physical canvassing and evaluation of sales/use tax generating businesses located in the City. In the absence of this undertaking, significant misallocations will remain undetected. MuniServices' field audits focus on those businesses located in the City from which the City has not been receiving sales/use tax revenue. The result is new or `found' revenue for the City. PER IMATION AUDITS Wholesalers, contractors, processors, manufacturers and other non-retail businesses will frequently not have a sales tax permit properly registered to the City 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 the State Board of Equalization (SBE) audit deficiency assessments, occasional sales (i.e., mergers and acquisitions), and self- accrual of use tax on purchases. MuniServices' field audits facilitate the identification and MuniServices,LLC Page 9 Local District Tax Audit Addendum correction of improperly registered permits for companies having point-of-sale operations in the City. DEFICIENCY ASSESSMENT AUDITS When the California State Board of Equalization audits taxpayers for sales/use tax compliance, it is not uncommon for the taxpayer to receive a substantial deficiency assessment due to underpayments and/or under-collections. 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, MuniServices has developed proprietary criteria and techniques to detect and correct SBE deficiency assessment misallocations and thus expand the benefits produced by MuniServices' allocation audit service. ACCOUNTS PAYABLE AUDITS When California taxpayers purchase tangible personal property for which title passes out-of- state, the transactions are subject to use tax (rather than sales tax) which is collected by the vendor who in turn remits it to the SBE, with the local allocation typically distributed statewide or countywide through the pools. Under certain conditions, the seller may allocate the local tax by situs or 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. MuniServices' accounts payable audit will include a review of the City's purchases to identify opportunities for the City to capture the 1% local allocation on purchases subject to use tax and the local district tax where applicable. In this regard, MuniServices will prepare the documentation to facilitate the election, including assistance in preparing and filing the tax returns. QUARTERLY DISTRIBUTION REPORT AUDITS Every three months, the City and MuniServices receive a Quarterly Distribution Report (QDR) from the SBE with the local allocation amount reflected by permit number. MuniServices' QDR audits detect and correct taxpayer reporting errors and thereby generate new, previously unrealized sales/use tax revenue for the City. MuniServices' QDR audits focus on those accounts where MuniServices observes a substantial decline in the sales/use tax revenue allocation for a particular business entity in a given quarter. In most cases, accounts showing zero balances have either relocated or simply reported late, in which case the payments will not be reflected until the next quarter's QDR. Therefore, six months must lapse before the QDRs indicate whether a zero balance account can be attributed to a late payment or a misallocation. Cities and counties may only recover misallocated Bradley-Burns sales tax revenue for three quarters prior to the SBE being notified of the reporting error and misallocated District tax revenues for between three quarters and three years. Therefore QDR audits must be conducted in a timely manner in order to preserve the opportunity for the City to recover misallocated revenue. MuniServices shall conduct the QDR audit each and every quarter to minimize the potential of lost revenue to the City. r SUTA DETECTION AND DOCUMENTATION MuniServices shall represent the City for purposes of examining SBE records pertaining to sales and use tax to identify errors and omissions. MuniServices' procedures for detecting and documenting misallocations are as follows: MuniServices,LLC Page 10 Local District Tax Audit Addendum • Review applicable provisions of the City's municipal code and ordinance adopted by the City to determine applicability. • Procure a computer tape of sales/use tax permit records from the State Board of Equalization (SBE). ❑ Analyze sales tax distribution reports provided by the SBE for five or more of the most recent consecutive quarters. • Clean-up, standardize and computerize data from City's quarterly sales tax distribution reports provided by SBE for previous quarters, current quarter and each future quarter service is provided. • Prepare an aggregated list of business entities on electronic media; this list is derived from multiple private and public sources (hard copy and electronic), including specialized business listings and directories, the City's sales and use tax payment files, and an electronic copy of the City's Business License Tax registry, updated no less than twice per year. ❑ Clean, standardize and integrate, in address-order, each entity's business name, address and payment file information, to eliminate redundancies, using MuniServices' proprietary software. ❑ Physically canvas commercial/industrial area within the City's borders. ❑ Develop a target list of potential point of sale/use reporting errors/omissions based on: 1) An electronic comparison of MuniServices' comprehensive inventory against the SBE's quarterly distributions for the City, and 2) An analysis of each potentially misallocated account based on proprietary guidelines established by MuniServices. ❑ Meet - with designated City official(s) to review service objectives and scope, MuniServices workplan schedule, public relations and logistical matters. ❑ 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. MuniServices' 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.) ❑ Provide to the City and SBE 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. ❑ MuniServices may also provide suggested language for letters to be sent to the taxpayers and/or SBE from the City (or from MuniServices on behalf of the City) urging cooperation in promptly correcting the distribution error. ❑ Respond to negative findings by SBE with timely reconfirmation documentation in order to preserve the City's original dates of knowledge. ❑ Receive and process registration control record information monthly. MuniServices, LLC Page 11 Local District Tax Audit Addendum ❑ Receive and process sales tax distribution reports quarterly. ❑ Coordinate with the taxpayer and State Board of Equalization to make the necessary corrections and collect eligible back quarters amounts. ❑ Monitor and analyze the quarterly distribution reports with an audit focus on the following: 1) Accounts with previously reported point-of-sale/use distribution errors to ensure that the corrections are made for current quarters and all eligible back quarters. 2) Major accounts comprising 90% or more of the City's total sales tax revenue to identify any irregularities or unusual deviations from the normal pattern (e.g. negative fund transfers, significant decreases, unusual increases, etc.) and ensure that the City is not receiving less revenue than it is entitled to. 3) Those accounts receiving deficiency assessments to ensure that the City receives its local allocation ❑ Identify opportunities for the City to recover local allocation on purchase transactions subject to use tax. MuniServices will prepare the necessary documentation to facilitate recovery, including assistance in preparing and filing the returns. SUTA DETECTION TIMING CONSIDERATIONS For each misallocated account detected, MuniServices 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. MuniServices coordinates and communicates 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 and the instate/out-of-state district offices. Correction of the account is considered to have been made once the payments on identified taxpayer accounts are being properly allocated by the taxpayer to the City in the period in which the payment was made. As needed, MuniServices will represent the City before state officials, boards, commissions and committees for the purpose of correcting sales tax distribution errors that have deprived the City of revenue to which it is entitled. TIMING MuniServices shall commence auditing the sales/use tax and preparing the sales tax Query System within 10 working days of receipt of a fully executed contract and Confidentiality Resolution designating MuniServices as the authorized City Consultant to examine sales and use tax records. CONFIDENTIALITY PROVISIONS MuniServices is authorized by this Agreement to examine district tax, sales tax 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 and California Revenue & Taxation Code applicable to transactions and use taxes. MuniServices 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. MuniServices,LLC Page 12 Local District Tax Audit Addendum MuniServices is prohibited from performing consulting services for a retailer during the term of this Agreement. MuniServices is prohibited from retaining the information contained in, or derived from, those sales and use tax records, after this Agreement has expired. This Agreement, and MuniServices' and CITY's obligations with respect to confidentiality of taxpayer data pursuant to the Bradley Burns Revenue and Taxation Code, shall continue until final payment for all services rendered hereunder. SUTA COMPENSATION MuniServices' compensation for the Sales and Use Tax Audit Service shall be a 25% contingency fee. This fee applies to revenue received for six quarters beginning with the quarter in which the Date of Correction falls and all eligible prior quarters back to and including the three quarters prior to the Date of Knowledge quarter for Bradley-Burns sales tax revenues and all eligible prior quarters back to and including all corrected quarters prior to the Date of Knowledge quarter for district tax revenues. As used herein, the Date of Knowledge is the quarter during which MuniServices notifies the State Board of Equalization of the existence of a misallocation. As used herein, the Date of Correction refers to the quarter in which the taxpayer has correctly reported the local tax and the SBE distributes the local tax properly to City based on the taxpayer's reporting. For QDR Misallocations detected and corrected, MuniServices' compensation shall only include the quarters in which the misallocation actually occurred. ADDITIONAL CONSULTING City may request that MuniServices provide additional consulting services at any time during the term of the Agreement to which this Addendum is attached. If MuniServices and City agree on the scope of additional consulting services requested, then MuniServices shall provide the additional consulting services on a Time and Materials basis. Depending on the personnel assigned to perform the work, MuniServices standard hourly rates range from $75 per hour to $300 per hour. These additional consulting services will be invoiced no less frequently than monthly based on actual time and expenses incurred. CITY RESPONSIBILITIES MuniServices' services performed hereunder may result in corrections of misallocations after cessation of services by MuniServices for City. Therefore, City agrees that with regards to misallocations identified to the State Board of Equalization whose Date of Knowledge occurred during MuniServices' performance of services for City, that City's obligation to pay MuniServices in accordance with the above compensation language shall survive expiration or termination of this Agreement for any reason. In the event that City identifies, documents, and notifies the State Board of Equalization of a reporting error or misallocation as those terms are used herein, City agrees to notify MuniServices of City's discovery no later than ten (10) days after the Date of Knowledge. If City fails to so notify MuniServices and MuniServices later detects, documents, and reports the misallocation or reporting error to the State Board of Equalization, or if MuniServices has MuniServices,LLC Page 13 Local District Tax Audit Addendum established a Date of Knowledge with the State Board of Equalization prior to notification to the Board by City, then MuniServices shall be entitled to compensation for the affected account in accordance with this Addendum. Remainder of Page Intentionally Left Blank. 9 MuniServices, LLC Page 14 Local District Tax Audit Addendum EXHIBIT 2 LOCAL DISTRICT TAX AUDIT ADDENDUM OBJECTIVES AND METHODS Many California special taxing jurisdictions are not receiving the transactions and use tax revenue to which they are entitled due to point of use and other types of taxpayer reporting errors. District taxed are collected on a destination basis (where the tangible personal property will be used or is delivered to) as opposed to Bradley-Burns tax, which is collected at the point of sale. When businesses fail to properly report their transactions tax, it is distributed in error to other jurisdictions or not collected at all. Almost all district tax error discoveries involve companies that are correctly collecting and allocating the local Bradley-Burns tax. Accordingly, MuniServices initial and ongoing audit service will assist in the detection and correction of taxpayer reporting errors and generate new transactions and use tax revenue that would not otherwise have been realized by the City. MuniServices has vast experience in auditing district tax. District taxes and local Bradley-Burns taxes do not necessarily result in equivalent tax dollars for an equal measure of tax rate, because they have different rules of application. MuniServices currently audits district tax for the following jurisdictions: Bay Area Rapid Transit District (BART), Los Angeles Metropolitan Transit Authority (LAMTA), Orange County Local Transportation Authority, San Diego County Regional Transportation Commission, Santa Clara Valley Transportation Authority, Town of Truckee, City of West Sacramento, and City of Woodland. DISTRICT TAX DETECTION AND DOCUMENTATION MuniServices shall represent the City of purposes of examining State Board of Equalization (SBE) records pertaining to district tax to identify errors and omissions. MuniServices' procedures for detecting and documenting misallocations are as follows: ❑ Meet with designated CITY official(s) to review service objectives and scope, MuniServices work plan schedule, public relations and logistical matters. ❑ Procure a computer tape of district tax permit records from the State Board of Equalization (SBE). ❑ Clean-up, standardize and computerize data from City's quarterly transaction tax distribution reports provided by SBE for previous quarters, current quarter and each future quarter service is provided. ❑ Develop a target list of potential point-of-sale/delivery/use taxpayer reporting errors of transactions and use tax generating businesses located in the City's jurisdiction. These businesses are to be analyzed based on proprietary guidelines established by MuniServices, formulated through expert knowledge of corporate mergers and acquisitions, transactions versus use tax, businesses marking organization and methods, commercial/industrial transactions and use tax reporting practices, and other conditions contributing to reporting errors. ❑ Clean, standardize and integrate, in address-order, each entity's business name, address and payment file information, to eliminate redundancies, using MuniServices' proprietary software. MuniServices,LLC Page 15 Local District Tax Audit Addendum ❑ Contact personnel in sales, operations and/ or tax accounting at each target business to determine whether a destination based reporting error exists. (Note: this is accomplished with the highest regard to discretion and professional conduct. MuniServices' allocation audits are predicated on a non-controversial, constructive public relations approach which emphasizes the importance of each business to the City and the mutual benefits of correcting reporting errors.) reporting❑ Provide to the City and SBE reports addressing eac h taxpayer p orti g error individually, including the business name, address, telephone number, California sales tax permit number, individuals contracted, date(s) of contract, nature of business, reason(s) for error, and estimated district tax revenue which should be forthcoming to the City. ❑ MuniServices may also provide suggested language for letters to be sent to the taxpayers and/ or SBE from the City (or from MuniServices on behalf of the City) urging cooperation in promptly correcting the distribution error. ❑ Respond to negative findings by SBE with timely reconfirmation documentation in order to preserve the City's original dates of knowledge. ❑ Receive and process registration control record information monthly. ❑ Receive and process transaction tax distribution reports quarterly. ❑ Coordinate with the taxpayer and SBE to make the necessary corrections and collect eligible back quarters amounts. " ❑ Monitor and analyze the quarterly distribution reports with an audit focus on the following: 1. Accounts with previously reported destination based distribution errors to ensure that the corrections are made for current quarters and all eligible back quarters. 2. Major accounts comprising 90% or more of the City's total transaction, sales and use tax revenue to identify any irregularities or unusual deviations from the normal pattern (e.g. negative fund transfers, significant decreases, unusual increases, etc.) and ensure that the City is not receiving less revenue that it is entitled to. 3. Those accounts receiving deficiency assessments to ensure that the City receives its local allocation. DISTRICT TAX CORRECTION OF MISALLOCATIONS/UNDERRPORTING For each misallocated or underreporting account detected, MuniServices will coordinate with the taxpayer and/ or SBE to make the necessary corrections plus retroactive adjustments for transactions and use tax amounts improperly distributed or uncollected in prior quarters. This task is simply stated, but enormously complex and time-consuming. The following is a discussion of the complexity of administering the program: IIJIMIL When MuniServices detects taxpayer-reporting errors, together with the reasons therefore, less than half of MuniServices' audit work id accomplished. Most of MuniServices' audit work is devoted to facilitating corrective action. This is largely due to the preponderance, of reporting MuniServices, LLC Page 16 Local District Tax Audit Addendum SERVICES AGREEMENT MUNISERVICES, LLC THIS AGREEMENT is made and entered into this day of 2007 ("Effective Date"),by and between the CITY OF SAN BERNARDINO,a charter city("City"),and MUNISERVICES, LLC., a Delaware limited liability company ("CONSULTANT"). WITNESSETH : A. WHEREAS,CITY proposes to have CONSULTANT perform the services described herein below; and B. WHEREAS, CONSULTANT represents that it has that degree of specialized expertise contemplated within California Government Code Section 37103 and holds all necessary licenses to practice and perform the services herein contemplated; and C. WHEREAS, CITY and CONSULTANT desire to contract for services as described in Exhibits "A 1-3"; and D. WHEREAS, no official or employee of CITY has a financial interest, within the provisions of California Government Code Sections 1090-1092, in the subject matter of this Agreement. NOW, THEREFORE, for and in consideration of the mutual covenants and conditions contained herein, the parties hereby agree as follows: 1.0. SERVICES PROVIDED BY CONSULTANT 1.1. Scope of Services. For the remuneration stipulated, CONSULTANT shall provide the professional services described in the Scope of Services attached hereto as Exhibits "A 1-3"and incorporated herein by this reference. If a conflict arises between the Scope of Service and this Services Agreement (hereinafter "Agreement"), the terms of the Agreement shall govern. 1.2. Professional Practices. All services to be provided by CONSULTANT pursuant to this Agreement shall be provided in a manner consistent with the standards of care, diligence and skill ordinarily exercised by professional consultants in similar fields and circumstances in accordance with sound professional practices. CONSULTANT also warrants that it is familiar with all laws that may affect its performance of this Agreement and shall advise CITY of any changes in any laws that may affect CONSULTANT's performance of this Agreement. CONSULTANT further represents that no CITY employee will provide any services under this Agreement. [F:\CALKIN S\Agreements\M un iSery ices.Agreement.wpd 1.3. Warran . CONSULTANT warrants that it shall perform the services required by this Agreement in compliance with all applicable Federal and California employment laws including,but not limited to,those laws related to minimum hours and wages;occupational health and safety;fair employment and employment practices;workers'compensation insurance and safety in employment; and all other Federal, State and local laws and ordinances applicable to the services required under this Agreement. CONSULTANT shall indemnify and hold harmless CITY from and against all claims, demands, payments, suits, actions, proceedings and judgments of every nature and description, including reasonable attorney's fees and costs (collectively, "Losses and Liabilities"), presented, brought or recovered against CITY for, or on account of, any liability under any of the above-mentioned laws, arising from or related to CONSULTANT's performance under this Agreement,except to the extent that such Losses and Liabilities are caused by the gross negligence or willful misconduct of CITY. 1.4. Non-discrimination. In performing this Agreement,CONSULTANT shall not engage in, nor permit its officers, employees or agents to engage in, discrimination in employment of persons because of their race, religion, color, national origin, ancestry, age, mental or physical disability,medical condition,marital status,sexual gender or sexual orientation,except as permitted pursuant to Section 12940 of the Government Code. Violation of this provision may result in the imposition of penalties referred to in Labor Code Section 1735. 1.5 Non-Exclusive Agreement. CONSULTANT acknowledges that CITY may enter into agreements with other consultants for services similar to the services that are subject to this Agreement or may have its own employees perform services similar to those services contemplated by this Agreement. 1.6. Delegation and Assignment. This is a personal service contract, and the duties set forth herein shall not be delegated or assigned to any person or entity without the prior written consent of CITY. CONSULTANT may engage a subcontractor(s) as permitted by law and may employ other personnel to perform services contemplated by this Agreement at CONSULTANT's sole cost and expense. 1.7 License Agreement. CITY agrees that it is bound by the terms of Exhibit 4,attached hereto and incorporated by reference. 1.8 City Business Certificate. CONSULTANT shall obtain and maintain during the term of this Agreement,a valid CITY Business Registration Certificate pursuant to Title 5 of the City of San Bernardino Municipal Code and any and all other licenses,permits,qualifications,insurance and approvals of whatever nature that are legally required of CONSULTANT to practice its profession, skill or business, unless exempted by law from such requirement or requirements. r [F:\C ALMN S\Agreements\M un i Services.Agreement.wpdI 2 �I 2.0. COMPENSATION AND BILLING 2.1. Compensation.Except as provided herein,CONSULTANT shall be paid as set forth in Exhibits "A 1-3" of the Scope of Services. 2.2. Additional Services. CONSULTANT shall not receive compensation for any services provided outside the scope of services unless the CITY, prior to CONSULTANT performing the additional services, approves such additional services in writing. It is specifically understood that oral requests and/or approvals of such additional services or additional compensation shall be barred and are unenforceable. 2.3. Method of Billing. CONSULTANT may submit invoices to CITY for approval. Said invoice shall be based on the total of all CONSULTANT's services which have been completed to CITY's sole satisfaction. CITY shall pay CONSULTANT's invoice within forty-five(45)days from the date CITY receives said invoice. The invoice shall describe in detail,the services performed and the associated time for completion. Any additional services approved and performed pursuant to this Agreement shall be designated as "Additional Services" and shall identify the number of the authorized change order, where applicable, on all invoices. 2.4. Records and Audits. Records of CONSULTANT's services relating to this Agreement shall be maintained in accordance with generally recognized accounting principles and shall be made available to CITY for inspection and/or audit at mutually convenient times for a period of three (3) years from the Effective Date. > 3.0. TERM AND NOTIFICATION. 3.1. Term. This Agreement shall commence on the Effective Date and continue for three years, unless the Agreement is previously terminated as provided for herein. 3.2 Termination. CITY or CONSULTANT may terminate the services provided under Section 1.1 of this Agreement upon thirty (30) days written notice to the other party. In the event of termination, CONSULTANT shall be paid the reasonable value of services rendered to the date of termination. 3.3 Documents. In the event of termination of this Agreement, all documents prepared by CONSULTANT in its performance of this Agreement including, but not limited to, finished or unfinished background investigations,shall be delivered to the CITY within ten(10)days of delivery of termination notice to CONSULTANT, at no cost to CITY. Any use of uncompleted documents without specific written authorization from CONSULTANT shall be at CITY's sole risk and without liability or legal expense to CONSULTANT. [FA CALKIN S\AgreementsNuni Services.Agreement.wpd] 3 4.0. INSURANCE 4.1. Minimum Scope and Limits of Insurance. CONSULTANT shall obtain and maintain during the term of this Agreement all of the following insurance coverages: (a) Commercial general liability, including premises-operations, products/completed operations, broad form property damage, blanket contractual liability, independent contractors, personal injury with a policy limit of not less than One Million Dollars($1.000,000.00r),combined single limits, per occurrence and aggregate. (b) Automobile liability for owned vehicles,hired,and non-owned vehicles,with a policy limit of not less than One Million Dollars($1,000,000.00),combined single limits, per occurrence and aggregate. (c) Workers' compensation insurance as required by the State of California. 4.2. Notice. CONSULTANT will act reasonably to provide prompt notice to CITY if any insurance required hereunder is terminated, materially changed, reduced or cancelled. 4.3. Certificates of Insurance. CONSULTANT shall provide to CITY certificates of insurance showing the insurance coverages and required endorsements described above, in a form and content approved by CITY, prior to performing any services under this Agreement. 4.4. Non-limiting. Nothing in this Section shall be construed as limiting in any way,the indemnification provision contained in this Agreement,or the extent to which CONSULTANT may be held responsible for payments of damages to persons or property. 5.0. GENERAL PROVISIONS 5.1. Entire Agreement: This Agreement constitutes the entire Agreement between the parties with respect to any matter referenced herein and supersedes any and all other prior writings and oral negotiations. This Agreement may be modified only in writing, and signed by the parties in interest at the time of such modification. The terms of this Agreement shall prevail over any inconsistent provision in any other contract document appurtenant hereto,including exhibits to this Agreement. 5.2. Notices. Any notices, documents, correspondence or other communications concerning this Agreement or the work hereunder may be provided by personal delivery, facsimile or United States mail and shall be addressed as set forth below. Such communication shall be deemed served or delivered: a) at the time of delivery if such communication is sent by personal .delivery; b)at the time of transmission if such communication is sent by facsimile; and c)48 hours [F:\CALKINS\AgreementsWuniSery ices.Agreement.wpd] 4 �I after deposit in the U.S.Mail as reflected by the official U.S.postmark if such communication is sent through regular United States mail. IF TO CONSULTANT: IF TO CITY: MuniServices, LLC CITY MANAGER 7335 N. Palm Bluffs Ave. City of San Bernardino Fresno, CA 93711 300 North "D" Street Attn: Legal Department San Bernardino, CA 92418 Email: legal @muniservices.com Telephone: (909) 384-5122 Fax: (909) 384-5138 5.3. Attorneys' Fees: In the event that litigation is brought by any party hereto in connection with this Agreement, the prevailing party in a final non-appealable judgment shall be entitled to recover from the opposing party all costs and expenses, including reasonable attorneys' fees,incurred by the prevailing party in the exercise of any of its rights or remedies hereunder or the enforcement of any of the terms, conditions, or provisions hereof. The costs, salary and expenses of the City Attorney and members of his office in enforcing this contract on behalf of the CITY shall be considered as "attorneys' fees" for the purposes of this Agreement. 5.4. Governing Law. This Agreement shall be governed by and construed under the laws of the State of California without giving effect to that body of laws pertaining to conflict of laws. In the event of any legal action to enforce or interpret this Agreement,the parties hereto agree that the sole and exclusive venue shall be a court of competent jurisdiction located in San Bernardino County, California. 5.5. Assignment: Neither party hereto shall voluntarily or by operation of law assign, transfer, sublet or encumber all or any part of its interest in this Agreement without the other party's prior written consent. Any attempted assignment,transfer,subletting or encumbrance shall be void and shall constitute a breach of this Agreement and cause for termination of this Agreement. Regardless of CITY's consent, no subletting or assignment shall release CONSULTANT of CONSULTANT's obligation to perform all other obligations to be performed by CONSULTANT hereunder for the term of this Agreement. 5.6. Indemnity. CONSULTANT shall protect,defend,indemnify and hold harmless CITY and its elected and appointed officials, boards, commissions, officers, attorneys, agents and employees from any and all Losses and Liabilities arising from or in any way related to CONSULTANT's acts, omissions and obligations under this Agreement, except to the extent such Losses and Liabilities are caused by the gross negligence or willful misconduct of CITY. CITY shall protect, defend, indemnify and hold harmless CONSULTANT and its directors, officers, attorneys, agents and employees from any and all Losses and Liabilities arising from or in any way related to CITY's acts, omissions and obligations under this Agreement,except to the extent such Losses and Liabilities are caused by the gross negligence or willful misconduct of CONSULTANT. (F:\CALKINS\Agreements\Muni Services.Agreement.wpd] 5 5.7. Independent Contractor. CONSULTANT, at all times while performing under this Agreement, is and shall be acting at all times as an independent contractor and not as an agent or employee of CITY. CONSULTANT shall secure,at his expense,and be responsible for any and all payment of wages, benefits and taxes including, but not limited to, Income Tax, Social Security, State Disability Insurance Compensation, Unemployment Compensation, and other payroll deductions for CONSULTANT and its officers, agents, and employees, and all business licenses, if any are required, in connection with the services to be performed hereunder. Neither CONSULTANT nor its officers,agents and employees shall be entitled to receive any benefits which employees of CITY are entitled to receive and shall not be entitled to workers' compensation insurance, unemployment compensation, medical insurance, life insurance, paid vacations, paid holidays, pension, profit sharing or social security on account of CONSULTANT and its officers', agents'and employees'work for the CITY. This Agreement does not create the relationship of agent, servant, employee partnership or joint venture between the CITY and CONSULTANT. 5.8 Conflict of Interest Disclosure. CONSULTANT or its employee may be subject to the provisions of the California Political Reform Act of 1974 (the "Act"), which (1) requires such persons to disclose financial interests that may be materially affected by the work performed under this Agreement,and(2)prohibits such persons from making or participating in making decisions that will have a foreseeable financial affect on such interest. CONSULTANT shall conform to all applicable requirements of the Act. Failure to do so constitutes a material breach and is grounds for termination of the Agreement by CITY. 5.9. Responsibility for Errors. CONSULTANT shall be responsible for its work and results under this Agreement. CONSULTANT, when requested, shall furnish clarification and/or explanation as may be required by the CITY's representative,regarding any services rendered under this Agreement at no additional cost to CITY. In the event that an error or omission attributable to CONSULTANT occurs, then CONSULTANT shall, at no cost to CITY, provide all other CONSULTANT professional services necessary to rectify and correct the matter to the sole satisfaction of CITY and to participate in any meeting required with regard to the correction. 5.10. Prohibited Employment. CONSULTANT shall not employ any current employee of CITY to perform the work under this Agreement while this Agreement is in effect. 5.11. Costs. Each party shall bear its own costs and fees incurred in the preparation and negotiation of this Agreement and in the performance of its obligations hereunder except as expressly provided herein. 5.12. No Third Party Beneficiary Rights. This Agreement is entered into for the sole benefit of CITY and CONSULTANT and no other parties are intended to be direct or incidental beneficiaries of this Agreement and no third party shall have any right in,under or to this Agreement. ° t [F:\CALKINSWgreements\MuniServices.Agreement.wpd] 6 5.13. Headings Paragraphs and subparagraph headings contained in this Agreement are included solely for convenience and are not intended to modify, explain or to be a full or accurate description of the content thereof and shall not in any way affect the meaning or interpretation of this Agreement. 5.14. Amendments. Only a writing executed by all of the parties hereto or their respective successors and assigns may amend this Agreement. 5.15. Waiver. The delay or failure of either parry at any time to require performance or compliance by the other of any of its obligations or agreements shall in no way be deemed a waiver of those rights to require such performance or compliance. No waiver of any provision of this Agreement shall be effective unless in writing and signed by a duly authorized representative of the party against whom enforcement of a waiver is sought. The waiver of any right or remedy with respect to any occurrence or event shall not be deemed a waiver of any right or remedy with respect to any other occurrence or event, nor shall any waiver constitute a continuing waiver. 5.16. Severability. If any provision of this Agreement is determined by a court of competent jurisdiction to be invalid or unenforceable for any reason, such determination shall not affect the validity or enforceability of the remaining terms and provisions hereof or of the offending provision in any other circumstance, and the remaining provisions of this Agreement shall remain in full force and effect. 5.17. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original. All counterparts shall be construed together and shall constitute one agreement. 5.18. Corporate Authority. The persons executing this Agreement on behalf of the parties hereto warrant that they are duly authorized to execute this Agreement on behalf of said parties and that by doing so, the parties hereto are formally bound to the provisions of this Agreement. i i [F:\CALKINS\Agreements Wuni Services.Agreement,wpd] 7 SERVICES AGREEMENT MUNISERVICES, LLC IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by and through their respective authorized officers, as of the date first above written. CITY OF SAN BERNARDINO MUNISERVICES, LLC. Fred Wilson, City Manager Signature Name and Title APPROVED AS TO FORM: JAMES F. PENMAN, City Attorney (�41111711— [F:\CALKINS\Agreements\MuniSery ices.Agreement.wpd] 8 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 that 90% of misallocations. For these companies, there is considerable confusion due to the complexities posed by California's transactions and use tax 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, while some of the transactions are subject to transactions tax, and others are subject to use tax and some are exempt. DISTRICT TAX DETECTION TIMING CONSIDERATIONS For each misallocated account detected, MuniServices will coordinate with the business and SBE to make the necessary corrections plus retroactive adjustments for eligible amounts of district tax improperly distributed in prior quarters. MuniServices coordinates and communicates between typically four parties; sales/operations personnel at the taxpayer's local operation, tax personnel at the company's corporate headquarters, and SBE personnel and the instate/out-of-state district offices. Correction of the account is considered to have been made once the taxpayer is properly allocating the payments on identified taxpayer accounts to the City in the period in which the payment was made. As needed, MuniServices will represent the City before state officials, boards, commissions and committees for the purpose of correcting sales tax distribution errors that have deprived the City of revenue to which it is entitled. TIMING MuniServices shall commence auditing the district tax and within 10 working days of receipt of a fully executed contract and Confidentiality Resolution designating MuniServices as the authorized City Consultant to examine district tax records. CONFIDENTIALITY PROVISIONS MuniServices is authorized by this Agreement to examine district tax, sales tax 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 and California Revenue & Taxation Code applicable to transactions and use taxes. MuniServices 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. MuniServices is prohibited from performing consulting services for a retailer during the term of this Agreement. MuniServices is prohibited from retaining the information contained in, or derived from, those sales and use tax records, after this Agreement has expired. This Agreement, and MuniServices' and CITY's obligations with respect to confidentiality of taxpayer data pursuant to the Bradley Burns Revenue and Taxation Code, shall continue until final payment for all services rendered hereunder. MuniServices,LLC Page 17 Local District Tax Audit Addendum ' DISTRICT TAX COMPENSATION COMPENSATION MuniServices' compensation for the City District Tax Audit Services is a 25% contingency fee. This fee applies to six quarters after the Date of Correction and all eligible prior quarters back to and including the three quarters prior to the Date of Knowledge quarter for District Tax revenues and all eligible prior quarters back to and including all corrected quarters prior to the Date of Knowledge quarter for district tax revenues. The Date of Knowledge is the quarter during which MuniServices notifies the SBE of the existence of a misallocation. The Date of Correction refers to the quarter in which the taxpayer has correctly reported the local tax and the SBE distributes the local tax properly to City based on the taxpayer's reporting, together with any prior period reallocations. For QDR Misallocations detected and corrected, MuniServices' compensation shall only include the quarters in which the misallocation actually occurred. In most cases where MuniServices identifies District Tax errors, the business is already reporting the local Bradley-Burns allocations correctly. Therefore, when MuniServices provides the SUTA service for the City's Bradley-Burns revenues and the City's District Tax revenues, MuniServices will not charge for both revenue sources only the Bradley-Burns portion of the correction contained in our original SUTA agreement. ADDITIONAL CONSULTING City may request that MuniServices provide additional consulting services at any time during the term of the Agreement to which this Addendum is attached. If MuniServices and City agree on the scope of additional consulting services requested, then MuniServices shall provide the additional consulting services on a Time and Materials basis. Depending on the personnel assigned to perform the work, MuniServices standard hourly rates range from $75 per hour to $300 per hour. These additional consulting services will be invoiced no less frequently than monthly based on actual time and expenses incurred. CITY RESPONSIBILITES MuniServices' services performed hereunder may result in corrections of misallocations after cessation of services by MuniServices for City. Therefore, City agrees that with regards to misallocations identified to the SBE whose Date of Knowledge occurred during MuniServices' performance of services for City, that City's obligation to pay MuniServices in accordance with the above compensation language shall survive expiration or termination of this Agreement for any reason. MuniServices, LLC Page 18 Local District Tax Audit Addendum In the event that City identifies, documents, and notifies the SBE of a reporting error or misallocation as those terms are used herein, City agrees to notify MuniServices of City's discovery no later that ten (10) days after the Date of Knowledge. If City fails to so notify MuniServices and MuniServices later detects, documents, and reports the misallocation or reporting error to the SBE, or if MuniServices has established a Date of Knowledge with the SBE prior to notification to the Board by City, then MuniServices shall be entitled to compensation for the affected account in accordance with this Addendum. MuniServices,LLC Page 19 Local District Tax Audit Addendum EXHIBIT 3 SALES/USE TAX ANALYSIS & REPORTING SERVICE (STARS) ADDENDUM OBJECTIVES AND METHODS MuniServices' STARS Digest provides a summary that features a general analysis regarding statewide trends that may affect the City's sales tax plus a specific analysis of the City's sales tax composition, changes and performance. Report graphically illustrates the data and analysis presented in the Summary. Each MuniServices STARS Digest 3 includes the Quarterly Management Summary. The MuniServices STARS Digest also includes specialized reports that provide analysis of the City's sales tax economic base and performance for the latest complete quarter and benchmark year. TIMING& REPORTS ' MuniServices shall: ❑ Provide the City with quarterly updated STARS Digests. ❑ Install the STARS Query System on a City designated PC ❑ Update quarterly the City's sales tax registration and allocation data from the State Board of Equalization (SBE) from MuniServices' proprietary STARS Query System on IBM compatible PCs with Microsoft Access export capacity. (note: STARS is provided in encrypted formats) ❑ Train authorized City taff in the use of the STARS y Query System. QUARTERLY STARS DIGEST MuniServices will provide the City with quarterly updated bound STARS Digests including accounts from which the City receives sales tax revenue. The primary reports included in the STARS Digest are: ❑ Allocation Summary - Reconciles SBE advances, cleanup payments and pool allocations with budget projections to assist the City with revenue forecasting and receipt monitoring. ❑ Cash Analysis - Quarterly aberrations due to SBE audits, fund transfers, and other causes are also identified and analyzed for budget planning and revenue forecasting purposes. ❑ Top 100 Five-Year - Historical performance of the top 100 accounts comparing current benchmark year ranking and sales tax produced with that of prior years. ❑ Top 100 Detail — Sales tax performance of the City's top 100 sales tax accounts is shown in order of sales tax produced with the results for the most recent five quarters prominently displayed. The proportion of City sales tax produced is also shown by each account. MuniServices, LLC Page 20 STARS Addendum ❑ Economic Category Performance — An analysis of the changes that -- occurred by economic category and segment with the specific businesses responsible for the significant changes delineated. ❑ Significant Change Analysis — A report reflecting magnitude of change, indicating which key businesses grew or declined, measured in absolute dollars and percentages. ❑ Business Code Classification - This report shows the various business codes assigned by the SBE and the accounts assigned those codes in order of sales tax produced. Five quarters of sales tax data are shown for each significant account. ❑ Historical Economic Composition - Data are summarized by economic category and segment by quarters and benchmark years. Percentage of total sales tax generated by each category and segment is also shown to indicate trends in sales tax composition as well as performance. ❑ Geo-Area Reports - Tracks sales tax performance within designated areas of the City (e.g., key shopping centers, business parks, and downtown /business districts). Charts and printed reports are included for each geo- area. ❑ Cross-Reference Reports - These reports allow the user to look up any account shown in the STARS Digest by name, address or account number. STARS QUERY SYSTEM MuniServices shall install the STARS Query System (a software program) on a City designated, IBM-compatible PC. Each quarter, MuniServices shall provide the City with updated information from SBE on CD-ROM. The data shall be provided in an encrypted format allowing the City to export sales tax information from the Query System in an Access-compatible format. ❑ The Query System enables City staff to analyze the contribution of sales/use tax revenue from each taxpayer 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. Reports may be generated by any year (i.e., calendar, fiscal, benchmark) or for any particular quarter for all periods stored in the historical database. The initial STARS Digest and Sales Tax Query System shall be delivered and installed within 45 working days following receipt of a fully executed contract, confidentiality resolution and the SBE sales tax registration and payment data. Subsequent quarterly Query System updates and STARS reports will be delivered to the City within 30 days following receipt of the quarterly distribution reports from the SBE. MuniServices, LLC Page 21 STARS Addendum COMPENSATION The STARS Digest and Query System are available for an annual fixed fee of $9,000 per year, paid $2,250 quarterly. The Annual Fee shall be adjusted at the beginning of each calendar year by the percentage change in the Consumer Price Index — West Urban (CPI- WU) as reported by the Bureau of Labor Statistics, with the first adjustment to occur at the beginning of the Calendar year following the first full calendar year of service. The current available CPI-WU is 206.2 based on December 2006 index. The adjustments thereafter will be based on the CPI-W-U from the last month of the prior calendar year. Each Annual Fee adjustment shall not be less than two percent (2%) or greater than ten percent (10%). 9. LICENSE AGREEMENT The STARS Query System is licensed software provided by MuniServices. The terms and conditions of the STARS Query System License Agreement are provided to City upon installation. By installing and using the STARS Query System, City agrees to be bound by the terms of the License Agreement. MuniServices, LLC Page 22 STARS Addendum EXHIBIT 4 End-user notice and license agreement from MuniServices Company Notice to end-user: Carefully read the following legal agreement ("license"). Installation or use of the enclosed STARS Query System software and associated Data (together "Software") on a computer system constitutes your acceptance of these terms. If you do not agree to the terms of this license, discontinue this.installation and promptly delete the Software from the computer system, destroy any copies you made of the Software or any installation diskettes of the Software, and dispose of all written materials in your possession regarding the Software. This License is effective until terminated. You may terminate it at any time by destroying-the Software and all copies of it. It will also terminate if you fail to comply with any term or condition of this License. You agree upon termination to destroy the Software together with all copies of the Software. License Grant: MuniServices Company grants to You a license to install and use one copy of the Software on a single computer. Your license to use the Software is conditioned upon Your compliance with the terms of this Agreement. A License is required for each installation of the Software. You may make one (1) copy of the Software for archival purposes only. Copyright: The Software is protected by copyright laws and international treaty provisions. You acknowledge that no title to the intellectual property in the Software is transferred to You. You further acknowledge that title and full ownership rights to the Software will remain the exclusive property of MuniServices Company, and You do not acquire any rights to the Software except as expressly set forth in this license. The Software in source code form remains a confidential trade secret of MuniServices Company and decompiling, disassembling, or otherwise reverse engineering the Software in any way is prohibited as a violation of those copyrights. Prohibited Uses: You may not (a) use, copy, modify, alter, or transfer the Software or documentation except as expressly provided in this License; (b) translate, disassemble, decompile, reverse program or otherwise reverse engineer the Software; (c) sublicense or lease the Software or its documentation; or (d) use a single installation of the Software in a multi-user or multiple computer environment or in a rental, time sharing or computer service business. Without prejudice to any other rights, MuniServices Company may terminate this License if You fail to comply with its terms and conditions. In such event, You must destroy all copies of the Software. Limited Warranty= MuniServices Company warrants that the Software will perform substantially in accordance with the accompanying written materials for a period of thirty (30) days from the date of purchase. End-User Remedies: If the Software does not conform to the "Limited Warranty" section above, MuniServices Company's entire liability and Your sole and exclusive remedy shall be, at MuniServices Company's option, either to (a) correct the error, or (b) help you work around the error. The Limited Warranty is void if failure of the Software has resulted from accident, abuse, or misapplication. Any replacement software will be warranted for the remainder of the original Limited Warranty period. MuniServices, LLC Page 23 End-User Agreement No other warranties: MuniServices Company does not warrant that the software is error free, except for the express limited warranty in the "limited warranty" section. MUNISERVICES COMPANY DISCLAIMS ALL OTHER WARRANTIES WITH RESPECT TO THE SOFTWARE, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT OF THIRD PARTY RIGHTS. Some jurisdictions do not allow the exclusion of implied warranties or limitations of how long an implied warranty may last, or the exclusion of limitation of incidental damages, so the above limitations or exclusions may not apply to you. This warranty gives you specific- legal rights and you may also have other rights which vary from jurisdiction to jurisdiction. No Liability for Consequential Damages: in no event shall MuniServices Company, or its licensors, suppliers or licensees be liable to you for any consequential, special, incidental, or indirect damages of any kind arising out of the performance or use of the software, even if MuniServices Company has been advised of the possibility of such damages. Governing Law: This Agreement is governed by the laws of the State of California, U.S.A. without regard to its conflict of laws principals.' U.S. Government Restricted Rights: Use, duplication or disclosure of the Software by any agency, department or other entity of the U.S. Government is restricted in accordance with FAR 12.212 for civilian agencies and DFARS 227.7202 for military agencies. The Software is a commercial product. Use of the Software by the U.S. Government is further restricted by the terms of this License. Acknowledgement: Your installation or use of this product for any period of time constitutes your acceptance of this agreement and License and binds You to its terms, contents and conditions. MuniServices, LLC Page 24 End-User Agreement SCOPE OF SERVICES EXHIBIT 1 SALES AND USE TAX AUDIT (SUTA) ADDENDUM OBJECTIVES AND METHODS MuniServices' sales and use tax audit service is designed to maximize the City's income - and minimize the cost of lost revenue - by detecting and documenting misallocations of local district tax (also knows as Transactions & Use Tax), Bradley-Burns sales tax and local use tax activity within the statute of limitations on recoverability. In performing the sales and use tax audit program MuniServices shall: ❑ Identify and correct the sales/use tax reporting errors of businesses that, based on the nexus of their activities, are not properly registered with the City. ❑ Identify and correct the reporting of businesses that are improperly reporting tax to state and county pools (i.e. classifying sales tax as use tax) and thereby depriving the City of sales tax revenue. ❑ Detect, document and correct sales/use tax reporting errors/omissions and thereby generate new, previously unrealized revenue for the City. ❑ Ensure through comprehensive audit measures that the revenue information used for ongoing economic analysis includes all sales/use tax generators. ❑ Assist the City with strategies to preserve and even enhance sales and use tax revenue generated by existing businesses within the City. MuniServices' proposed sales/use tax allocation audit services for the City includes five distinct types of audits: ❑ Taxable Nexus Field audits ❑ Permitization audits ❑ Deficiency assessment audits ❑ Accounts payable audits ❑ Quarterly Distribution Report audits TAXABLE NEXUS FIELD AUDITS MuniServices' initial and periodic taxable nexus field audits include a physical canvassing and evaluation of sales/use tax generating businesses located in the City. In the absence of this undertaking, significant misallocations will remain undetected. MuniServices' field audits focus on those businesses located in the City from which the City has not been receiving sales/use tax revenue. The result is new or `found' revenue for the City. PER.MITIZATION AUDITS 'Wholesalers, contractors, processors, manufacturers and other non-retail businesses will frequently not have a sales tax permit properly registered to the City 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 the State Board ;�f Equalization (SBE) audit deficiency assessments, occasional sales (i.e., mergers and acquisitions), and self- accrual of use tax on purchases. MuniServices' field audits facilitate the identification and MuniServices,LLC Page 9 Local District Tax Audit Addendum correction of improperly registered permits for companies having point-of-sale operations in the Cite. DEFICIENCY ASSESSMENT AUDITS When the California State Board of Equalization audits taxpayers for sales/use tax compliance, it is not uncommon for the taxpayer to receive a substantial deficiency assessment due to underpayments and/or under-collections. 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, MuniServices has developed proprietary criteria and techniques to detect and correct SBE deficiency assessment misallocations and thus expand the benefits produced by MuniServices' allocation audit service. ACCOUNTS PAYABLE AUDITS When California taxpayers purchase tangible personal property for which title passes out-of- state, the transactions are subject to use tax (rather than sales tax) which is collected by the vendor who in turn remits it to the SBE, with the local allocation typically distributed statewide or countywide through the pools. Under certain conditions, the seller may allocate the local tax by situs or 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. MuniServices' accounts payable audit will include a review of the City's purchases to identify opportunities for the City to capture the 1% local allocation on purchases subject to use tax and the local district tax where applicable. In this regard, MuniServices will prepare the ,. documentation to facilitate the election, including assistance in preparing and filing the tax returns. QUARTERLY DISTRIBUTION REPORT AUDITS Every three months, the City and MuniServices receive a Quarterly Distribution Report (QDR) from the SBE with the local allocation amount reflected by permit number. MuniServices' QDR audits detect and correct taxpayer reporting errors and thereby generate new, previously unrealized sales/use tax revenue for the City. MuniServices' QDR audits focus on those accounts where MuniServices observes a substantial decline in the sales/use tax revenue allocation for a particular business entity in a given quarter. In most cases, accounts showing zero balances have either relocated or simply reported late, in which case the payments will not be reflected until the next quarter's QDR. Therefore, six months must lapse before the QDRs indicate whether a zero balance account can be attributed to a late payment or a misallocation. Cities and counties may only recover misallocated Bradley-Burns sales tax revenue for three quarters prior to the SBE being notified of the reporting error and misallocated District tax revenues for between three quarters and three years. Therefore QDR audits must be conducted in a timely manner in order to preserve the opportunity for the City to recover misallocated revenue. MuniServices shall co iduct the QDR audit each and every quarter to minimize the potential of lost revenue to the City. SUTA DETECTION AND DOCUMENTATION . MuniServices shall represent the City for purposes of examining SBE records pertaining to sales and use tax to identify errors and omissions. MuniServices' procedures for detecting and documenting misallocations are as follows: MuniServices,LLC Page 10 Local District Tax Audit Addendum ❑ Review applicable provisions of the City's municipal code and ordinance adopted by the City to determine applicability. ❑ Procure a computer tape of sales/use tax permit records frouz the State Board of Equalization (SBE). ❑ Analyze sales tax distribution reports provided by the SBE for five or more of the most recent consecutive quarters. ❑ Clean-up, standardize and computerize data from City's quarterly sales tax distribution reports provided by SBE for previous quarters, current quarter and each future quarter service is provided. ❑ Prepare an aggregated list of business entities on electronic media; this list is derived from multiple private and public sources (hard copy and electronic), including specialized business listings and directories, the City's sales and use tax payment files, and an electronic copy of the City's Business License Tax registry, updated no less than twice per year. ❑ Clean, standardize and integrate, in address-order, each entity's business name, address and payment file information, to eliminate redundancies, using AuniServices' proprietary software. ❑ Physically canvas commercial/industrial area within the City's borders. ❑ Develop a target list of potential point of sale/use reporting errors/omissions based on: 1) An electronic comparison of MuniServices' comprehensive inventory against the SBE's quarterly distributions for the City, and 2) An analysis of each potentially misallocated account based on proprietary guidelines established by MuniServices. G Meet with designated City official(s) to review service objectives and scope, MuniServices workplan schedule, public relations and logistical matters. ❑ 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. MuniServices' allocation audits are predicated on a non-controversial, constructive public relations approach which emphasizes the importance of each business to the City and the mutual benefits of correcting reporting errors.) ❑ Provide to the City and SBE 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. ❑ MuniServices may also prof:ide suggested language for letters to be sent to the taxpayers and/or SBE from the City (or from MuniServices on behalf of the City) urging cooperation in promptly correcting the distribution error. ❑ Respond to negative findings by SBE with timely reconfirmation documentation in order to preserve the City's original dates of knowledge. ❑ Receive and process registration control record information monthly. MuniServices, LLC Page l I Local District Tax Audit Addendum Receive and process sales tax distribution reports quarterly. • Coordinate with the taxpayer and State Board of Equalization to make the necessary corrections and collect eligible back quarters amounts. • Monitor and analyze the quarterly distribution reports with an audit focus on the following: 1) Accounts with previously reported point-of-sale/use distribution errors to ensure that the corrections are made for current quarters and all eligible back quarters. 2) Major accounts comprising 90% or more of the City's total sales tax revenue to identify any irregularities or unusual deviations from the normal pattern (e.g. negative fund transfers, significant decreases, unusual increases, etc.) and ensure that the City is not receiving less revenue than it is entitled to. 3) Those accounts receiving deficiency assessments to ensure that the City receives its local allocation ❑ Identify opportunities for the City to recover local allocation on purchase transactions subject to use tax. MuniServices will prepare the necessary documentation to facilitate recovery, including assistance in preparing and filing the returns. SUTA DETECTION TIMING CONSIDERATIONS For each misallocated account detected, MuniServices will coordinate with the business and SBE to male the necessary corrections plus retroactive adjustments for eligible amounts of sales/use tax improl)erly distributed in prior quarters. MuniServices coordinates and communicates 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 and the instate/out-of-state district offices. Correction of the account is considered to have been made once the payments on identified taxpayer accounts are being properly allocated by the taxpayer to the City in the period in which the payment was made. As needed, MuniServices will represent the City before state officials, boards, commissions and committees for the purpose of correcting sales tax distribution errors that have deprived the City of revenue to which it is entitled. TiNmgG MuniServices shall commence auditing the sales/use tax and preparing the sales tax Query System within 10 working days of receipt of a fully executed contract and Confidentiality Resolution designating MuniServices as the authorized City Consultant to examine sales and use tax records. CONFIDENTIALITY PROVISIONS MuniServices is authorized by this Agreement to examine district tax, sales tax 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 and California Revenue & Taxation Code applicable to transactions and use taxes. MuniServices 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 _ authorized by resolution to examine the information. MuniServices, LLC Page 12 Local District Tax Audit Addendum MuniServices is prohibited from performing consulting services for a retailer during the term of this Agreement. MuniServices is prohibited from retaining the information contained in, or derived from, those sales and use tax records, after this Agreement has expired. This Agreement, and MuniServices' and CITY's obligations with respect to confidentiality of taxpayer data pursuant to the Bradley Burns Revenue and Taxation Code, shall continue until final payment for all services rendered hereunder. SUTA COMPENSATION MuniServices' compensation for the Sales and Use Tax Audit Service shall be a 25% contingency fee. This fee applies to revenue received for six quarters beginning with the quarter in which the Date of Correction falls and all eligible prior quarters back to and including the three quarters prior to the Date of Knowledge quarter for Bradley-Burns sales tax revenues and all eligible prior quarters back to and including all corrected quarters prior to the Date of Knowledge quarter for district tax revenues. As used herein, the Date of Knowledge is the quarter during which MuniServices notifies the State Board of Equalization of the existence of a misallocation. As used herein, the Date of Correction refers to the quarter in which the taxpayer has correctly reported the local tax and the SBE distributes the local tax properly to City based on the taxpayer's reporting. For QDR Misallocations detected and corrected, MuniServices' compensation shall only include the quarters in which the misallocation actually occurred. ADDITIONAL CONSULTING City may request that MuniServices provide additional consulting services at any time during the term of the Agreement to which this Addendum is attached. If MuniServices and City agree on the scope of additional consulting services requested, then MuniServices shall provide the additional consulting services on a Time and Materials basis. Depending on the personnel assigned to perform the work, MuniServices standard hourly rates range from $75 per hour to $300 per hour. These additional consulting services will be invoiced no less frequently than monthly based on actual time and expenses incurred. CITY RESPONSIBILITIES MuniServices' services performed hereunder may result in corrections of misallocations after cessation of services by MuniServices for City. Therefore, City agrees that with regards to misallocations identified to the State Board of Equalization whose Date of Knowledge occurred during MuniServices' performance of services for City, that City's obligation to pay MuniServices in accordance with the above compensation language shall survive expiration or termination of this Agreement for any reason. In the event that City identifies, documents, and notifies the State Board of Equalization of a reporting error or misallocation as those terms are used herein, City agrees to notify MuniServices of City's discovery no later than ten (10) days after the Date of Knowledge. If City fails to so notify MuniServices and MuniServices later detects, documents, and reports the misallocation or reporting error to the State Board of Equalization, or if MuniServices has MuniServices, LLC Page 13 Local District Tax Audit Addendum i S t k established a Date of Knowledge with the State Board of Equalization prior to notification to the Board by City, then MuniServices shah' be entitled to compensation for the affected account in accordance with this Addendum. 8 Remainder of Page Intentionally Left Blank. i i E i I I i �i MuniServices, LLC Page 14 Local District Tax Audit Addendum EXHIBIT 2 LOCAL DISTRICT TAX AUDIT ADDENDUM OBJECTIVES AND METHODS Many California special taxing jurisdictions are not receiving the transactions and use tax revenue to which they are entitled due to point of use and other types of taxpayer reporting errors. District taxed are collected on a destination basis (where the tangible personal property will be used or is delivered to) as opposed to Bradley-Burns tax, which is collected at the point of sale. When businesses fail to properly report their transactions tax, it is distributed in error to other jurisdictions or not collected at all. Almost all district tax error discoveries involve companies that are correctly collecting and allocating the local Bradley-Burns tax. Accordingly, MuniServices initial and ongoing audit service will assist in the detection and correction of taxpayer reporting errors and generate new transactions and use tax revenue that would not otherwise have been realized by the City. Mur iServices has vast experience in auditing district tax. District taxes and local Bradley-Burns taxes do not necessarily result in equivalent tax dollars for an equal measure of tax rate, because they have different rules of application. MuniServices currently audits district tax for the following jurisdictions= Bay Area Rapid Transit District (BART), Los Angeles Metropolitan Transit Authority (L.AMTA), Orange County Local Transportation Authority, San Diego County Regional Transportation Commission, Santa Clara Valley Transportation Authority, Town of Truckee, City of West Sacramento, and City of Woodland. DISTRICT TAX DETECTION AND DOCUMENTATION 'WAW MuniServices shall represent the City of purposes of examining State Board of Equalization (SBE) records pertaining to district tax to identify errors and omissions. MuniServices' procedures for detecting and documenting misallocations are as follows: ❑ Meet with designated CITY official(s) to review service objectives and scope, MuniServices work plan schedule, public relations and logistical matters. ❑ Procure a computer tape of district tax permit records from the State Board of Equalization (SBE). ❑ Clean-up, standardize and computerize data from City's quarterly transaction tax distribution reports provided by SBE for previous quarters, current quarter and each future quarter service is provided. ❑ Develop a target list of potential point-of-sale/delivery/use taxpayer reporting errors of transactions and use tax generating businesses located in the City's jurisdiction. These businesses are to be analyzed based on proprietary guidelines established by MuniServices, formulated through expert knowledge of corporate mergers and acquisitions, transactions versus use tax, businesses marking organization and methods, commercial/industrial transactions and use tax reporting practices, and other conditions contributing to reporting errors. ❑ Clean, standardize and integrate, in address-order, each entity's business name, a address and payment file information, to eliminate redundancies, using **AW MuniServices' proprietary software. MuniServices,LLC Page 15 Local District Tax Audit Addendum s ❑ Contact personnel in sales, operations and/ or tax accounting at each target business to determine whether a destination based reporting error exists. (Note: this is accomplished with the highest regard to discretion and professional conduct. e MuniServices' 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.) ❑ Provide to the City and SBE reports addressing each taxpayer reporting error individually, including the business name, address, telephone number, California sales tax permit number, individuals contracted, date(s) of contract, nature of business, reason(s) for error, and estimated district tax revenue which should be forthcoming to the City. ❑ MuniServices may also provide suggested language for letters to be gent to the taxpayers and/ or SBE from the City (or from MuniServices on behalf of the City) urging cooperation in promptly correcting the distribution error. ❑ Respond to negative findings by SBE with timely reconfirmation documentation in order to preserve the City's original dates of knowledge. ❑ Receive and process registration control record information monthly. ❑ Receive and process transaction tax distribution reports quarterly. • Coordinate with the taxpayer and SBE to make the necessary corrections and collect eligible back quarters amounts. • Monitor and analyze the quarterly distribution reports with an audit focus on the following: 1. Accounts with previously reported destination based distribution errors to ensure that the corrections are made for current quarters and all eligible back quarters. 2. Major accounts comprising 90% or more of the City's total transaction, sales and use tax revenue to identify any irregularities or unusual deviations from the normal pattern (e.g. negative fund transfers, significant decreases, unusual increases, etc.) and ensure that the City is not receiving less revenue that it is entitled to. 3. Those accounts receiving deficiency assessments to ensure that the City receives its local allocation. DISTRICT TAX CORRECTION OF MISALLOCATIONS/UNDERRPORTING For each misallocated or underreporting account detected, MuniServices will coordinate with the taxpayer and/ or SBE to make the necessary corrections plus retroactive adjustments for transactions and use tax amounts improperly distributed or uncollected in prior quarters. This task is simply stated, but enormously complex and time-consuming. The following is a discussion of the complexity of administering the program: When MuniServices detects taxpayer-reporting errors, together with the reasons therefore, less than half of MuniServices' audit work id accomplished. Most of MuniServices' audit work is devoted to facilitating corrective action. This is largely due to the preponderance, of reporting MuniServices,LLC Page 16 Local District Tax Audit Addendum OWN 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 that 90°/0 of misallocations. For these companies, there is considerable confusion due to the complexities posed by California's transactions and use tax 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, while some of the transactions are subject to transactions tax, and others are subject to use tax and some are exempt. DISTRICT TAX DETECTION TIMING CONSIDERATIONS For each misallocated account detected, MuniServices will coordinate with the business and SBE to make the necessary corrections plus retroactive adjustments for eligible amounts of district tax improperly distributed in prior quarters. MuniServices coordinates and communicates between typically four parties; sales/operations personnel at the taxpayer's local operation, tax personnel at the company's corporate headquarters, and SBE personnel and the in-state/out-of-state district offices. Correction of the account is considered to have been made once the taxpayer is properly allocating the payments on identified taxpayer accounts to the City in the period in which the payment was made. As needed, MuniServices will represent the City before state officials, boards, commissions and committees for the purpose of correcting sales tax distribution errors that have deprived the City of revenue to which it is entitled. TIMING MuniServices shall commence auditing the district tax and within 10 working days of receipt of a fully executed contract and Confidentiality Resolution designating MuniServices as the authorized City Consultant to examine district tax records. CONFIDENTIALITY PROVISIONS MuniServices is authorized by this Agreement to examine district tax, sales tax 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 and California Revenue & Taxation Code applicable to transactions and use taxes. MuniServices 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 w1 .­, is authorized by resolution to examine the information. MuniServices is prohibited from performing consulting services for a retailer during the term of this Agreement. MuniServices is prohibited from retaining the information contained in, or derived from, those sales and use tax records, after this Agreement has expired. This Agreement, and MuniServices' and CITY's obligations with respect to confidentiality of t:ixpayer data pursuant to the Bradley Burns Revenue and Taxation Code, shall continue until final payment for all services rendered hereunder. MuniServices,LLC Page 17 Local District Tax Audit Addendum i t a i E i 0 F t DISTRICT TAX COMPENSATION COMPENSATION MuniServices' compensation for the City District Tax Audit Services is a 25% contingency fee. This fee applies to six quarters after the Date of Correction and all eligible prior quarters back to and including the three quarters prior to the Date of Knowledge quarter for District Tax revenues and all eligible prior quarters back to and including all corrected quarters prior to the Date of Knowledge quarter for district tax revenues. The Date of Knowledge is the quarter during which MuniServices notifies the SBE of the existence of a misallocation. The Date of Correction refers to the quarter in which the taxpayer has correctly reported the local tax and the SBE distributes the local tax properly to City based on the taxpayer's reporting, together with any prior period reallocations. For QDR Misallocations detected and corrected, MuniServices' compensation shall only include the quarters in which the misallocation actually occurred. In most cases where MuniServices identifies District Tax errors, the business is already reporting the local. Bradley-Burns allocations correctly. Therefore, when MuniServices provides the SUTA service for the City's Bradley-Burns revenues and the City's District Tax revenues, MuniServices will not charge for both revenue sources only the Bradley-Burns portion of the correction contained in our original SUTA agreement. ADDITIONAL. CONSULTING City may request that MuniServices provide additional consulting services at any time during the term of the Agreement to which this Addendum is attached. If MuniServices and City agree on the scope of additional consulting services requested, then MuniServices shall provide the additional consulting services on a Time and Materials basis. Depending on the personnel assigned to perform the work, MuniServices standard hourly rates range from $75 per hour to $300 per hour. These additional consulting services will be invoiced no less frequently than monthly based on actual time and expenses incurred. CITY RESPONSIBILITES MuniServices' services performed hereunder may result in corrections of misallocations after cessation of services by MuniServices for City. Therefore, City agrees that with regards to misallocations identified to the SBE whose Date of Knowledge occurred during MuniServices' performance of services for City, that City's obligation to pay MuniServices in accordance with the above compensation language shall survive expiration or termination of this Agreement for any reason. MuniServices,LLC Page 18 Local District Tax Audit Addendum 1 . i f I i i In the event that City identifies, documents, and notifies the SBE of a reporting error or misallocation as those terms are used herein, City agrees to notify MuniServices of City's discovery no later that ten (10) days after the Date of Knowledge. If City fails to so notif- MuniServices and MuniServices later detects, documents, and reports the misallocation or reporting error to the SBE, or if MuniServices has established a Date of Knowledge with the SBE prior to notification to the Board by City, then MuniServices shall be entitled to compensation for the affected account in accordance with this Addendum. MuniServices, LLC Page 19 Local District Tax Audit Addendum i . EXHIBIT 3 SALESIUSE TAX ANALYSIS & REPORTING SERVICE (STARS) ADDENDUM OBJECTIVES AND METHODS MuniServices' STARS Digest provides a summary that features a general analysis regarding statewide trends that may affect the City's sales tax plus a specific analysis of the City's sales tax composition, changes and performance. Report graphically illustrates the data and analysis presented in the Summary. Each MuniServices STARS Digest includes the Quarterly Management Summary. The MuniServices STARS Digest also includes specialized reports that provide analysis of the City's sales tax economic base and performance for the latest complete quarter and benchmark year. TIMING & REPORTS MuniServices shall: ❑ Provide the City with quarterly updated STARS Digests. ❑ Install the STARS Query System on a City designated PC ❑ Update quarterly the City's sales tax registration and allocation data from the State Board of Equalization (SBE) from MuniServices' proprietary STARS Query System on IBM compatible PCs with Microsoft Access export capacity. (note: STARS is provided in encrypted formats) Train authorized City staff in the use of the STARS Query System. QUARTERLY STARS DIGEST MuniServices will provide the City with quarterly updated bound STARS Digests including accounts from which the City receives sales tax revenue. The primary reports included in the STARS Digest are: ❑ Allocation Summary Reconciles SBE advances, cleanup payments and pool allocations with budget projections to assist the City with revenue forecasting and receipt monitoring. ❑ Cash Analysis - Quarterly aberrations due to SBE audits, fund transfers, and other causes are also identified and analyzed for budget planning and revenue forecasting purposes. ❑ Top 100 Five-Year - Historical performance of the top 100 accounts comparing current benchmark year ranking and sales tax produced with that of prior years. ❑ Top 100 Detail — Sales tax performance of the City's top 100 sales tax accounts is shown in order of sales tax produced with the results for the most recent five quarters prominently displayed. The proportion of City sales tax produced is also shown by each account. MuniServices, LLC Page 20 STARS Addendum 2 I F I i ❑ Economic Category Performance — An analysis of the changes that -- occurred by economic category and segment with the specific businesses responsible for the significant changes delineated. ❑ Significant Change Analysis — A report reflecting magnitude of change, indicating which key businesses grew or declined, measured in absolute dollars and percentages. ❑ Business Code Classification - This report shows the various business codes assigned by the SBE and the accounts assigned those codes in order of sales tax produced. Five quarters of sales tax data are shown for each significant account. ❑ Historical Economic Composition - Data are summarized by economic category and segment by quarters and benchmark years. Percentage of total sales tax generated by each category and segment is also shw.ca to indicate trends in sales tax composition as well as performance. ❑ Geo-Area Reports - Tracks sales tax performance within designated areas of the City (e.g., key shopping centers, business parks, and downtown /business districts,). Charts and printed reports are included for each geo- area. ❑ Cross-Reference Reports - These reports allow the user to look up any account shown in the STARS Digest by name, address or account number. STARS QUERY SYSTEM MuniServices shall install the STARS Query System (a software program) on a City designated, IBM-compatible PC. Each quarter, MuniServices shall provide the City with updated information from SBE on CD-ROM. The data shall be provided in an encrypted format allowing the City to export sales tax information from the Query System in an Access-compatible format. ❑ The Query System enables City staff to analyze the contribution of sales/use tax revenue from each taxpayer 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 oth,:r geographic area. Reports may be generated by any year (i.e., calendar, fiscal, benchmark) or for any particular quarter for all periods stored in the historical da,,abase. The initial STARS Digest and Sales Tax Query System shall be delivered and installed within 45 working days following receipt of a fully executed contract, confidentiality resolution and the SBE sales tax registration and payment data. Subsequent quarterly Query System updates and STARS reports will be delivered to the City within 30 days following receipt of the quarterly distribution reports from the SBE. MuniServices, LLC Page 21 STARS Addendum COMPENSATION The STARS Digest and Query System are available for an annual fixed fee of $9,000 per year, paid $2,250 quarterly. The Annual Fee shall be adjusted at the beginning of each calendar year by the percentage change in the Consumer Price Index — West Urban (CPI- WU) as reported by the Bureau of Labor Statistics, with the first adjustment to occur at the beginning of the Calendar year following the first full calendar year of service. The current available CPI-NA'U is 206.2 based on December 2006 index. The adjustments thereafter will be based on the CPI-WU from the last month of the prior calendar year. Each Annual Fee adjustment shall not be less than two percent (2%) or greater than ten percent (10%). 9. LICENSE AGREEMENT The STARS Query System is licensed software provided by MuniServices. The terms and conditions of the STARS Query System License Agreement are provided to City upon installation. By installing and using the STARS Query System, City agrees to be bound by the terms of the License Agreement. `ter MuniServices, LLC Page 22 STARS Addendum I i EXHIBIT 4 End-user notice and license agreement from MuniServices Company Notice to end-user: Carefully read the following legal agreement ("license"). Installation or use of the enclosed STARS Query System software and associated Data (together "Software") on a computer system constitutes your acceptance of these terms. If you do not agree to the terms of this license, discontinue this installation and promptly delete the Software from the computer system, destroy any copies you made of the Software or any installation diskettes of the Software, and dispose of all written materials in your possession regarding the Software. This License is effective until terminated. You may terminate it at any time by destroying the Software and all copies of it. It will also terminate if you fail to comply with any term or condition of this License. You agree upon termination to destroy the Software together with all copies of the Software. License Grant: MuniServices Company grants to You a license to install and use one copy of the Software on a single computer. Your license to use the Software is conditioned upon Your compliance with the terms of this Agreement. A License is required for each installation of the Software. You may make one (1) copy of the Software for archival purposes only. Copyright: The Software is protected by copyright laws and international treaty provisions. You acknowledge that no title to the intellectual property in the Software is transferred to You. You further acknowledge that title and full ownership rights to the Software will remain the exclusive property of MuniServices Company, and You do not acquire any rights to the Software except as expressly set forth in this license. The Software in source code form remains a confidential trade secret of MuniServices Company and decompiling, disassembling, or otherwise reverse engineering the Software in any way is prohibited as a violation of those copyrights. Prohibited Uses: You may not (a) use, copy, modify, alter, or transfer the. Software or documentation except as expressly provided in this License; (b) translate, lisassemble, decompile, reverse program or otherwise reverse engineer the Software; (c) sublicense or lease the Software or its documentation; or (d) use a single installation of the Software in a multi-user or multiple computer environment or in a rental, time sharing or computer service business. Without prejudice to any other rights, MuniServices Company may terminate this License if You fail to comply with its terms and conditions. In such event, You must destroy all copies of the Software. Limited Warranty= MuniServices Company warrants that the Software will perform substantially in accordance with the accompanying written materials for a period of thirty (30) days from the date of purchase. End-User Remedies: If the Software does not conform to the ".Limited Warranty" section above, MuniServices Company's entire liability and Your sole and exclusive remedy shall be, at MuniServices Company's option, either to (a) correct the error, or (b) help you work around the error. The Limited Warranty is void if failure of the Software has resulted from accident, abuse, or misapplication. Any replacement software will be warranted for the remainder of the original Limited Warranty period. MuniServices, LLC Page 23 End-User Agreement No other warranties: MuniServices Company does not warrant that the software is error free, except for the express limited warranty in the "limited warranty" section. MUNISERVICES COMPANY DISCLAIMS ALL OTHER WARRANTIES WITH RESPECT TO THE SOFTWARE, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT OF THIRD PARTY RIGHTS. Some jurisdictions do not allow the exclusion of implied warranties or limitations of how long an implied warranty may last, or the exclusion of limitation of incidental damages, so the above limitations or exclusions may not apply to you. This warranty gives you specific legal rights and you may also have other rights which vary from jurisdiction to jurisdiction. No Liability for Consequential Damages: in no event shall MuniServices Company, or its licensors, suppliers or licensees be liable to you for any consequential, special, incidental, or indirect damages of any kind arising out of the performance or use of the software, even if MuniServices Company has been advised of the possibility of such damages. Governing Law: This Agreement is governed by the laws of the State of California, U.S.A. without regard to its conflict of laws principals. U.S. Government Restricted Rights: Use, duplication or disclosure of the Software by any agency, department or other entity of the U.S. Government is restricted in accordance with FAR 12.212 for civilian agencies and DFARS 227.7202 for military agencies. The Software is a commercial product. Use of the Software by the U.S. Government is further restricted by the terms of tills License. Acknowledgement: Your installation or use of this product for any period of time constitutes your acceptance of this agreement and License and binds You to its terms, contents and conditions. MuniServices, LLC Page 24 F-nd-User Agreement