MEETING DATE:
December 10, 2024
SUBJECT:
Title
RESOLUTION NO. 2024-9395 & 2024-9396 - AUTHORIZING THE CITY MANAGER TO EXECUTE AGREEMENTS WITH THE CALIFORNIA DEPARTMENT OF TAX AND FEE ADMINISTRATION FOR IMPLEMENTATION OF A LOCAL TRANSACTIONS AND USE TAX & RESOLUTION AUTHORIZING EXAMINATION OF SALES OR TRANSACTIONS AND USE TAX RECORDS
Body
Recommendation
Recommendation
ADOPT the following:
1. A resolution authorizing the City Manager to execute agreements with the California Department of Tax and Fee Administration (CFDTA) for the implementation, collection and administration of a local transactions and use tax.
2. A resolution authorizing the Examination of Sales or Transactions and Use Tax Records.
Body
Board or Commission Action
Not Applicable
Relevant Council Strategic Theme
Planning for the Future
Good Governance
Executive Summary
On July 9, the City council approved placing a transaction and use tax measure on the November 5, 2024 General Election ballot for City residents, known as Measure Q, which exceeded the required majority vote threshold for passage. In order to implement the tax program related to Measure Q, the City is required to contract with the California Department of Tax and Fee Administration to perform all functions related to the administration and operation of the ordinance, per California Revenue and Taxation Code section 7270. These agreements are requested for approval in Item 1.
Revenue and Tax Code section 7056 also stipulates that the City is required to authorize certain officers or employees of the City to be granted access to confidential tax records by resolution. Access is requested to be granted to the City Manager/Treasurer, Assistant City Manager (Currently Vacant), and Finance Director. Access is also requested to be provided to the City’s Sales and Use Tax and Transaction and Use Tax consultant, Hinderliter de Llamas. This request for approval is requested in item 2.
These actions are required for the implementation of the Measure Q tax, and mirror previously approved agreements with the CDTFA (formerly the Board of Equalization) approved by way of Resolution 73-833 related to Ordinance 63-4 for the City’s general sales tax. Authority for review of tax records was granted for general sales tax records via Resolution 2003-6019. As the Measure Q TUT ordinance represents a separate special tax district, the same agreements and authorizations are required separately. Therefore, City staff is requesting approval of the two action items, as delay in approval may result in the delay of implementation of the Measure Q special tax and subsequent delay in revenue collected by the CDTFA and distributed to City.
.
Discussion
On July 9, the City Council approved placing a transaction and use tax (TUT) measure on the November 5, 2024 General Election ballot for City residents, known as Measure Q. Measure Q passed the majority vote threshold required for passage. As a prerequisite for implementation, the City must enter into two agreements with the California Department of Tax and Fee Administration (CDTFA), which is responsible for administering and collecting various taxes and fees including sales and use taxes and transactions and use tax on behalf of local jurisdictions. Also as part of its tax administration services, the CDTFA maintains records regarding taxable transactions and distributes revenue as applicable to each City. As such, the City must execute agreements with CDTFA for the administration and implementation of local sales and use taxes or transactions and use taxes. Authorization for the City’s general sales and use tax was approved via Ordinance 63-4 and Resolution 73-883. As Measure Q establishes a separate tax category (Transactions and Use Tax, or TUT) separate agreements are required to provide the Department with authority to collect and administer the Measure Q tax, per California Revenue and Taxation Code section 7270. These agreements are:
1. A preparation agreement, which covers the preparation work to be done by the CDTFA in order to implement the Measure Q tax. The agreement stipulates the City will pay for the Department’s preparatory costs, which shall not exceed One Hundred Seventy-Five Thousand Dollars ($175,000).
2. An administration agreement outlining the ongoing responsibilities of the CDTFA related to the administration and collection of City taxes. Per Article II paragraph A, “the department shall perform exclusively all functions incident to the administration and operation of the City [Measure Q] Ordinance.” The City agrees to pay the Department the cost for administering the Measure Q ordinance, which will be deducted from the taxes collected by the CDTFA at a rate of .39% of revenue.
Execution and submission of these agreements to the CDTFA is required to occur no later than December 27, 2024 for an implementation currently anticipated for Quarter 4 of fiscal year 2025. Delay in approval may result in the delay of implementation of the Measure Q special tax and subsequent delay in revenue to the City. Therefore, it is recommended that the Council adopt the resolution delegating to and authorizing the City Manager to enter into the required agreements with the CDTFA for the collection and administration of the Measure Q-related TUT tax district.
Further, under California Revenue and Taxation Code section 7056, access to confidential tax records is restricted. However, per section 7056 (b) local governments may permit duly authorized officer or employees access to examine these records via a resolution of the legislative body. Information obtained by examination of these records is permitted for the purposes relating to governmental functions such as budget planning purposes and must remain confidential and cannot be disclosed except as permitted by law. As such, City staff seeks to designate access to these records to the City Manager/Treasurer, Assistant City Manager (currently vacant), and the Finance Director. The resolution would allow the identified employees to further delegate authorization to crucial members of staff they determine to need access for authorized purposes. The City also wishes to grant access to these records to Hinderliter De Llamas, who currently prepare reports and revenue projections for the City’s general sales tax funds and will also prepare the same reports and projections for the Measure Q tax funds. Per the Revenue and Taxation Code, Hinderliter De Llamas meets the criteria for examination of transactions and use tax records, including:
a) has an existing contract with the City to examine those sales or transactions and use tax records;
b) is required by that contract to disclose information contained in, or derived from, those sales or transactions and use tax records only to the officer or employee authorized under Section 1 of this resolution to examine the information;
c) is prohibited by that contract from performing consulting services for a retailer during the term of that contract; and
d) is prohibited by that contract from retaining the information contained in, or derived from, those sales or transactions and use tax records, after that contract has expired.
Without approval of a resolution authorizing the examination of confidential tax records, City staff and its sales tax consultant Hinderliter de Llamas will be forced to rely on publicly available TUT tax data, which is insufficient in ensuring accurate revenue projections and budget planning. Moreover, it would limit the City’s capacity to conduct audits of sales tax data which would significantly inhibit the City’s ability to detect and resolve discrepancies in a timely manner.
Environmental Review
The proposed actions do not constitute a “Project” as defined under Section 15378 of the California Environmental Quality Act State Guidelines. Therefore, pursuant to State Guidelines Section 15060(c)(3) no environmental review is required. Notwithstanding the foregoing, the activity contemplated hereunder qualifies for an Exemption pursuant to Section 15061(b)(3) of the California Environmental Quality Act State Guidelines because it can be seen with certainty that there is no possibility of a significant effect on the environment.
Fiscal Impact Approval of the actions would result in a one-time administrative cost collected by the CDTFA related to the administration of transaction and use tax program, estimated up to $175,000 to be paid in FY 2024-25. Ongoing administration of the TUT program will result in administrative costs of 0.39% of total revenue to be deducted from quarterly TUT apportionments. The implementation of the City’s TUT program is estimated to provide $200 million in additional revenue to the City over 10 years.
Attachment(s)
Exhibit A DRAFT Preparatory Agreement
Exhibit B DRAFT Administration Agreement
Resolution to Execute Agreements
Resolution for Examination of Confidential Records
Prepared by: Janet Brotherton, Sr. Management Analyst
Submitted by: Janet Brotherton, Sr. Management Analyst
Reviewed by: Donna Apar, Finance Director
Approved by: Michelle Bender, City Manager