CITY COUNCIL STAFF REPORT
Meeting: May 21, 2024
Subject
Approve a Fourth Amendment with Hinderliter, de Llamas & Associates (HdL) to continue Sales, Use, and Transaction Tax Audit services for a total not-to-exceed amount of $230,000 Recommended Action
Authorize the City Manager to execute the Fourth Amendment with Hinderliter, de Llamas & Associates (HdL) for continued sales, use, and transaction tax audit services, increasing the contract amount by $60,000 for a new total not-to-exceed contract amount of $230,000 Description
The City uses consultants to investigate Cupertino businesses’ sales, use, and transaction tax reporting to identify and correct tax underpayments due to the City of Cupertino. In June 2020, the City awarded a contract under the City Manager’s award authority to HdL for Sales, Use, and Transaction Tax Audit services, effective July 2020, for a not-to-exceed amount of $99,999. Subsequently, the contract was increased to $170,000 and extended by the City Manager to expire on June 30, 2026.
Included in the scope of work, HdL utilizes confidential taxpayer records to identify and correct errors leading to tax underpayments to Cupertino, employing analyses, data comparisons, and physical canvassing. HdL will promptly file claims for correction following California Department of Tax and Fee Administration (CDTFA) procedures, collaborate with CDTFA for revenue recovery, and provide the City with regular documentation of errors. Additionally, HdL will present quarterly reports depicting the City's sales tax base, use tax collections, retail compositions, and revenues, aiding with annual tax estimates for budget projections.
The contract's fee structure for audit services entails 15% of sales and use tax revenue acquired for the City through audit and recovery efforts, covering the first eight consecutive reporting quarters from the receipt of audit revenue and retroactive adjustments facilitated by HdL. The 15% recovery rate is standard across all agencies in California. Non-audit services are provided at a flat rate, adjusted annually for CPI, and billed quarterly.
Staff was recently informed that HdL services have resulted in the City receiving $833,792 since the inception of this contract and was approaching the contract’s not-to-exceed amount of $170,000. Staff is recommending increasing the contract by $60,000 to cover services through the term of the contract ending on June 30, 2026. These increased costs are due to successful audits from HdL that resulted in increased sales tax revenues to the City.
Sustainability Impact
No sustainability impact.
Fiscal Impact
There is no fiscal impact associated with this item. This contract is budgeted in 100-41-405 700-702.
California Environmental Quality Act
Not applicable.
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Prepared by: Jonathan Orozco, Finance Manager
Reviewed by: Kristina Alfaro, Director of Administrative Services Approved for Submission by: Pamela Wu, City Manager
Attachments:
A – Draft Fourth Amendment
B – Original Agreement
C – First Amendment with HdL
D – Second Amendment with HdL
E – Third Amendment with HdL