Staff Report Resolution re Agreements with CDTFA
P age 1 of 3
STAFF REPORT
TO
: Mayor and Members of the City Council
FROM: Renee Eshun
VIA: Dan Barros, City Manager
MEETING DATE: December 11, 2024
SUBJECT: AGREEMENTS REGARDING LOCAL SALES TAX/TRANSACTIONS AND USE TAX
RECOMMENDATION
Staff recommends that the City Council adopt:
RESOLUTION 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
COUNCIL ADOPTED VALUES
Responsibility and Economic Sustainability
BACKGROUND
On November 6, 1996, the voters of the State of California approved proposition 218, an amendment of the State Constitution which requires all general taxes which are imposed, extended or increased must be submitted to the electorate and approved by a majority vote of qualified electors voting in the election.
The Town of Colma is authorized to levy a Transaction and Use Tax. The City Council submitted to the voters at the November 5, 2024, General Municipal Election Measure AA to establish a one half (1/2 cent) tax increase on all the sale and/or use of all tangible personal property sold at retail in the Town of Colma. This vote required a majority (50 % plus one) of voter approval.
The Town of Colma Measure AA (local transactions and use tax) passed with voter approval over 80%.
The California Department of Tax and Fee Administration (CDTFA) administers local taxes under the Bradley Burns Uniform local sales and use tax law and district taxes imposed in accordance with the Transactions and Use Tax Law. Therefore, the CDTFA requires an adopted resolution of City Council authorizing the executed documents of “Preparatory Agreement” and “Administration Agreement” to administer the local transaction and use tax on behalf of Colma.
AGENDA ITEM #6
Staff Report Resolution re Agreements with CDTFA
ANALYSIS
The local Transaction and Use tax also known as Measure AA sales tax will go into effect April 1, 2025, and the Town of Colma expects to receive the first quarter payments in June 2025.
The Town of Colma sales tax consultant HDL has provided an initial estimate of Measure AA sales tax revenues of $2.3 million. Using projections from recently updated general fund financial forecasts, staff projects Measure AA revenues to increase on average by 3% per year.
Table 1 below show the forecasted Measure AA revenues by fiscal year.
Measure AA
On November 5, 2024, the voters approved the ballot measure to increase local transaction and use tax:
“TOWN OF COLMA SALES TAX MEASURE.
To maintain general Town services such as 911 emergency response, community programs and events, parks, public safety, recreational youth and adult programs, respond to property crimes/thefts/burglaries, and retain/attract local businesses; shall the measure establishing a 1/2¢ sales tax providing approximately $2.3 Million annually until ended by voters; requiring audits, public spending disclosures, funds locally controlled, be adopted?”
Sustainability Impact
The resolution is to authorize the City Manager to execute the “Preparatory Agreement” and “Administration Agreement” documents with CDTFA will allow the collection and administration of local transactions and use taxes. This will provide funding to the General Fund to maintain and enhance The Town of Colma’s services and facilities, including:
• Sustainability initiatives
• Crime prevention; public safety; and disaster preparedness • Street repairs; maintain parks; and community center and services • Youth, family, and senior programs
FISCAL IMPACT
The Town staff estimates the sales tax increase by one half cent (1/2) will be a fiscal benefit of an additional $2.3 million of revenues. The CDTFA will administer and operate the transactions and use tax ordinance. The Town shall pay the CDTFA its costs of preparation to administer and FY 2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032 FY2033 FY2034 Total 575,000.00 2,300,000.00 2,369,000.00 2,440,070.00 2,513,272.10 2,588,670.26 2,666,330.37 2,746,320.28 2,828,709.89 2,913,571.19 23,940,944.09 Projected Measure AA revenues, FY 2025-2034
Table 1
Staff Report Resolution re Agreements with CDTFA
operate the transactions and use taxes ordinance which will not exceed one hundred seventy- five thousand dollars ($175,000). The CDTFA preparatory costs will include developing procedures, programming for data processing, developing and adopting appropriate regulations, designing and printing forms, developing instructions for Department’s staff and for taxpayers, and other appropriate and necessary costs.
ENVIRONMENTAL
The proposed action to adopt the resolution is not subject to CEQA pursuant to CEQA Guideline 15378 as it is more akin to an administrative or fiscal activity without any connection to any potential project or change in the environment.
ALTERNATIVES
The City Council could choose not to adopt the resolution. Doing so is not recommended, because the Town will not be able to collect the sales tax revenue of estimated $2.3 million dollars.
CONCLUSION
The staff recommends that the City Council adopt the resolution to authorize the City Manager to execute agreements with California Department of Tax and Fee Administration (CDTFA) to administer the local transaction and use taxes.
ATTACHMENTS
A. Resolution Authorizing Execution of Agreements
I
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• JI.• 4 II
Res 2024-__, Transactions and Use Tax (Measure AA) Page 1 of 2 RESOLUTION NO. 2024-__
OF THE CITY COUNCIL OF THE TOWN OF COLMA
RESOLUTION 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
WHEREAS, on June 26, 2024, the City Council of the Town of Colma approved Ordinance No. 825 amending the Town Municipal Code and providing for a local transactions and use tax; and WHEREAS, the California Department of Tax and Fee Administration (Department) administers and collects the transactions and use taxes for all applicable jurisdictions within the state; and WHEREAS, the Department will be responsible to administer and collect the transactions and use tax for the Town; and
WHEREAS, the Department requires that the City enter into a “Preparatory Agreement” and an “Administration Agreement” prior to implementation of said taxes, and Whereas, the Department requires that the City Council authorize the agreements; NOW, THEREFORE BE IT RESOLVED by the City Council of the Town of Colma that the “Preparatory Agreement” attached as Exhibit A and the “Administrative Agreement” attached as Exhibit B are hereby approved and the City Manager is hereby authorized to execute each agreement.
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ATTACHMENT 1
Res 2024-__, Transactions and Use Tax (Measure AA) Page 2 of 2 Certification of Adoption
I certify that the foregoing Resolution No. 2024-__ was duly adopted at a regular meeting of the City Council of the Town of Colma held on December 11, 2024, by the following vote:
Name Voting Present, Not Voting Absent
Aye No Abstain Not Participating
Ken Gonzalez, Mayor
Carrie Slaughter, Vice Mayor
Helen Fisicaro
Joanne F. del Rosario
Thomas Walsh
Voting Tally
Da
ted ______________________ ___________________________________ Ken Gonzalez, Mayor
Attest: ____________________________
Michelle Estabillo, City Clerk
(Rev. 07/24) 1
AGREEMENT FOR PREPARATION TO ADMINISTER AND OPERATE
CITY'S TRANSACTIONS AND USE TAX ORDINANCE
In order to prepare to administer a transactions and use tax ordinance adopted in accordance with the provision of Part 1.6 (commencing with Section 7251) of Division 2 of the Revenue and Taxation Code, the City of Colma, hereinafter called City , and the CALIFORNIA DEPARTMENT OF TAX AND FEE ADMINISTRATION, hereinafter called Department, do agree as follows:
1. The Department agrees to enter into work to prepare to administer and operate a transactions and use tax in conformity with Part 1.6 of Division 2 of the Revenue and Taxation Code which has been approved by a majority of the electors of the City and whose ordinance has been adopted by the City.
2. City agrees to pay to the Department at the times and in the amounts hereinafter specified all of the Department's costs for preparatory work necessary to administer the City's transactions and use tax ordinance. The Department 's costs for preparatory work include costs of developing procedures, programming for data processing, developing and adopting appropriate regulations, designing and printing forms, developing instructions for the Department 's staff and for taxpayers, and other appropriate and necessary preparatory costs to administer a transactions and use tax ordinance. These costs shall include both direct and indirect costs as specified in Section 11256 of the Government Code.
3. Preparatory costs may be accounted for in a manner which conforms to the internal accounting and personnel records currently maintained by the Department . The billings for costs may be presented in summary form. Detailed records of preparatory costs will be retained for audit and verification by the City.
4. Any dispute as to the amount of preparatory costs incurred by the Department shall be referred to the State Director of Finance for resolution, and the Director's decision shall be final.
5. Preparatory costs incurred by the Department shall be billed by the Department periodically, with the final billing within a reasonable time after the operative date of the ordinance. City shall pay to the Department the amount of such costs on or before the last day of the next succeeding month following the month when the billing is received.
6. The amount to be paid by City for the Department 's preparatory costs shall not exceed one hundred seventy-five thousand dollars ($175,000) (Revenue and Taxation Code Section 7272.)
EXHIBIT A
(Rev. 07/24) 2
7. Commun ications and notices may be sent by first class United States mail or through email at [email protected]. If and when communications and notices may include confidential information, communications and notices must be sent through encrypted email at [email protected] or by mail. Communications and notices to be sent to the Department shall be addressed to:
California Department of Tax and Fee Administration
P.O. Box 942879 MIC: 27
Sacramento, California 94279-0027
Attention: Administrator
Local Revenue Branch
Communications and notices to be sent to City shall be addressed to:
Daniel Barros, City Manager
1198 El Camino Real
Colma, CA 94014
8. T
he dat
e of this agreement is the date on which it is approved by the Department of General Services. This agreement shall continue in effect until the preparatory work necessary to administer City's transactions and use tax ordinance has been completed and the Department has received all payments due from City under the terms of this agreement.
CITY OF COLMA CALIFORNIA DEPARTMENT OF TAX
AND FEE ADMINISTRATION
By B y
(Signa ture) Administrator
Local Revenue Branch
DANIEL BARROS
(Typ ed Name) Date: _______________________________
CITY MANAGER
(Title)
Date: _______________________________
AGREEMENT FOR STATE ADMINISTRATION OF
CITY TRANSACTIONS AND USE TAXES
The City Council of the City of Colma has adopted, and the voters of the City of Colma (hereafter called “City”) have approved by the required majority vote, the City of Colma Transactions and Use Tax Ordinance (hereafter called “Ordinance”), a copy of which is attached hereto. To carry out the provisions of Part 1.6 of Division 2 of the Revenue and Taxation Code and the Ordinance, the California State Department of Tax and Fee Administration, (hereinafter called the “Department”) and the City do agree as follows:
ARTICLE I
DEFINITIONS
Unless the context requires otherwise, wherever the following terms appear in the Agreement, they shall be interpreted to mean the following:
1. "District taxes" shall mean the transactions and use taxes, penalties, and interest imposed under an ordinance specifically authorized by Revenue and Taxation code Section 7285.9, and in compliance with Part 1.6, Division 2 of the Revenue and Taxation Code.
2. "City Ordinance" shall mean the City's Transactions and Use Tax Ordinance referred to above and attached hereto, Ordinance No. 824, as amended from time to time, or as deemed to be amended from time to time pursuant to Revenue and Taxation Code Section 7262.2.
ARTICLE II
ADMINISTRATION AND COLLECTION
OF CITY TAXES
A. Administration. The Department and City agree that the Department shall perform exclusively all functions incident to the administration and operation of the City Ordinance.
EXHIBIT B
(Rev. 7/24) 2
B. Other Applicable Laws. City agrees that all provisions of law applicable to the administration and operation of the Department Sales and Use Tax Law which are not inconsistent with Part 1.6 of Division 2 of the Revenue and Taxation Code shall be applicable to the administration and operation of the City Ordinance. City agrees that money collected pursuant to the City Ordinance may be deposited into the State Treasury to the credit of the Retail Sales Tax Fund and may be drawn from that Fund for any authorized purpose, including making refunds, compensating and reimbursing the Department pursuant to Article IV of this Agreement, and transmitting to City the amount to which City is entitled.
C. Transmittal of money.
1. For the period during which the tax is in effect, and except as otherwise provided herein, all district taxes collected under the provisions of the City Ordinance shall be transmitted to City periodically as promptly as feasible, but not less often than twice in each calendar quarter.
2. For periods subsequent to the expiration date of the tax whether by City’s self - imposed limits or by final judgment of any court of the State of California holding that City’s ordinance is invalid or void, all district taxes collected under the provisions of the City Ordinance shall be transmitted to City not less than once in each calendar quarter.
3. Transmittals may be made by mail or electronic funds transfer to an account of the City designated and authorized by the City. A statement shall be furnished at least quarterly indicating the amounts withheld pursuant to Article IV of this Agreement.
D. Rules. The Department shall prescribe and adopt such rules and regulations as in its judgment are necessary or desirable for the administration and operation of the City Ordinance and the distribution of the district taxes collected thereunder.
E. Preference. Unless the payor instructs otherwise, and except as otherwise provided in this Agreement, the Department shall give no preference in applying money received for state sales and use taxes, state- administered local sales and use taxes, and district transactions and use taxes owed by a taxpayer, but shall apply moneys collected to (Rev. 7/24) 3
the satisfaction of the claims of the State, cities, counties, cities and counties, redevelopment agencies, other districts, and City as their interests appear.
F. Security. The Department agrees that any security which it hereafter requires to be furnished by taxpayers under the State Sales and Use Tax Law will be upon such terms that it also will be available for the payment of the claims of City for district taxes owing to it as its interest appears. The Department shall not be required to change the terms of any security now held by it, and City shall not participate in any security now held by the Department.
G. Records of the Department.
When requested by resolution of the legislative body of the City under section 7056 of the Revenue and Taxation Code, the Department agrees to permit authorized personnel of the City to examine the records of the Department, including the name, address, and account number of each seller holding a seller’s permit with a registered business location in the City, pertaining to the ascertainment of transactions and use taxes collected for the City.
Information obtained by the City from examination of the Department 's records shall be used by the City only for purposes related to the collection of transactions and use taxes by the Department pursuant to this Agreement.
H. Annexation. City agrees that the Department shall not be required to give effect to an annexation, for the purpose of collecting, allocating, and distributing District transactions and use taxes, earlier than the first day of the calendar quarter which commences not less than two months after notice to the Department . The notice shall include the name of the county or counties annexed to the extended City boundary. In the event the City shall annex an area, the boundaries of which are not coterminous with a county or counties, the notice shall include a description of the area annexed and two maps of the City showing the area annexed and the location address of the property nearest to the extended City boundary on each side of every street or road crossing the boundary.
(Rev. 7/24) 4
ARTICLE III
ALLOCATION OF TAX
A. Allocation. In the administration of the Department 's contracts with all districts that impose transactions and use taxes imposed under ordinances, which comply with Part
1.6 of Division 2 of the Revenue and Taxation Code:
1. Any payment not identified as being in payment of liability owing to a designated district or districts may be apportioned among the districts as their interest appear, or, in the discretion of the Department , to all districts with which the Department has contracted using ratios reflected by the distribution of district taxes collected from all taxpayers.
2. All district taxes collected as a result of determinations or billings made by the Department, and all amounts refunded or credited may be distributed or charged to the respective districts in the same ratio as the taxpayer's self -declared district taxes for the period for which the determination, billing, refund or credit applies.
B. Vehicles, Vessels, and Aircraft. For the purpose of allocating use tax with respect to vehicles, vessels, or aircraft, the address of the registered owner appearing on the application for registration or on the certificate of ownership may be used by the Department in determining the place of use.
ARTICLE IV
COMPENSATION
The City agrees to pay to the Department as the State's cost of administering the City Ordinance such amount as is provided for by law. Such amounts shall be deducted from the taxes collected by the Department for the City.
(Rev. 7/24) 5
ARTICLE V
MISCELLANEOUS PROVISIONS
A. Communications. Communications and notices may be sent by first class United States mail to the addresses listed below, or to such other addresses as the parties may from time to time designate or through email at [email protected]. If and when communications and notices may include confidential information, communications and notices must be sent through encrypted email at [email protected] or by mail.
Communications and notices to be sent to the Department shall be addressed to:
California State Department of Tax and Fee Administration P.O. Box 942879
Sacramento, California 94279-0027
Attention: Administrator
Local Revenue Branch
Communications and notices to be sent to the City shall be addressed to:
Daniel Barros, City Manager
1198 El Camino Real
Colma, CA 94014
Unless otherwise directed, transmittals of payment of District transactions and use taxes will be sent to the address above.
B. Term. The date of this Agreement is the date on which it is approved by the Department of General Services. The Agreement shall take effect on ______________.
This Agreement shall continue until December 31 next following the expiration date of the City Ordinance, and shall thereafter be renewed automatically from year to year until the Department completes all work necessary to the administration of the City Ordinance and has received and disbursed all payments due under that Ordinance.
C. Notice of Repeal of Ordinance. City shall give the Department written notice of the repeal of the City Ordinance not less than 110 days prior to the operative date of the repeal.
(Rev. 7/24) 6
ARTICLE VI
ADMINISTRATION OF TAXES IF THE
ORDINANCE IS CHALLENGED AS BEING INVALID
A. Impoundment of funds.
1. When a legal action is begun challenging the validity of the imposition of the tax, the City shall deposit in an interest -bearing escrow account, any proceeds transmitted to it under Article II. C., until a court of competent jurisdiction renders a final and non-appealable judgment that the tax is valid.
2. If the tax is determined to be unconstitutional or otherwise invalid, the City shall transmit to the Department the moneys retained in escrow, including any accumulated interest, within ten days of the judgment of the trial court in the litigation awarding costs and fees becoming final and non-appealable.
B. Costs of administration. Should a final judgment be entered in any court of the State of California, holding that City's Ordinance is invalid or void, and requiring a rebate or refund to taxpayers of any taxes collected under the terms of this Agreement, the parties mutually agree that:
1. Department may retain all payments made by City to Department to prepare to administer the City Ordinance.
2. City will pay to Department and allow Department to retain Department's cost of administering the City Ordinance in the amounts set forth in Article IV of this Agreement.
3. City will pay to Department or to the State of California the amount of any taxes plus interest and penalties, if any, that Department or the State of California may be required to rebate or refund to taxpayers.
(Rev. 7/24) 7
4. City will pay to Department its costs for rebating or refunding such taxes, interest, or penalties. Department 's costs shall include its additional cost for developing procedures for processing the rebates or refunds, its costs of actually making these refunds, designing and printing forms, and developing instructions for Department 's staff for use in making these rebates or refunds and any other costs incurred by Department which are reasonably appropriate or necessary to make those rebates or refunds. These costs shall include Department's direct and indirect costs as specified by Section 11256 of the Government Code.
5. Costs may be accounted for in a manner, which conforms to the internal accounting, and personnel records currently maintained by the Department . The billings for such costs may be presented in summary form. Detailed records will be retained for audit and verification by City.
6. Any dispute as to the amount of costs incurred by Department in refunding taxes shall be referred to the State Director of Finance for resolution and the Director's decision shall be final.
(Rev. 7/24) 8
7. Costs incurred by Department in connection with such refunds shall be billed by Department on or before the 25th day of the second month following the month in which the judgment of a court of the State of California holding City's Ordinance invalid or void becomes final. Thereafter Department shall bill City on or before the 25th of each month for all costs incurred by Department for the preceding calendar month. City shall pay to Department the amount of such costs on or before the last day of the succeeding month and shall pay to Department the total amount of taxes, interest, and penalties refunded or paid to taxpayers, together with Department costs incurred in making those refunds.
CITY OF COLMA CALIFORNIA STATE DEPARTMENT OF
TAX AND FEE ADMINISTRATION
By By
(Signature) Administrator
Local Revenue Branch
DANIEL BARROS
(Typed Name)
CITY MANAGER
(Title)
(Date)