Item No.
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: OFFICE OF THE CITY MANAGER
BY: JOHN M. FUNK, CITY ATTORNEY
DATE: DECEMBER 10, 2024
SUBJECT: ADOPTION OF RESOLUTIONS AUTHORIZING APPROVAL OF
AGREEMENTS WITH THE CALIFORNIA DEPARTMENT OF TAX AND
FEE ADMINISTRATION FOR THE ADMINISTRATION OF NEW
SUPPLEMENTAL TRANSACTIONS AND USE TAX AND THE
EXAMINATION OF SALES OR TRANSACTIONS AND USE TAX
RECORDS
EXECUTIVE SUMMARY
The City Council will consider adopting Resolutions authorizing the approval of agreements with the California Department of Tax and Fee Administration (CDTFA) for the administration of the new supplemental one-quarter cent (1/4¢) transactions and use tax approved by voters at the November 5, 2024 general municipal election and for the examination of sales or transactions and use tax records pertaining to such taxes collected by the CDTFA for the City.
RECOMMENDATION
That the City Council:
1. Adopt Resolution No. 24-8283, 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; and
2. Adopt Resolution No. 24-8284 Authorizing Examination of Sales or Transactions and Use Tax Records.
BACKGROUND
At the General Municipal Election held on November 5, 2024, a majority of eligible voters of the City of Downey passed Measure D, an ordinance approving a new supplemental one- quarter cent (1/4¢) general transactions and use tax until such time as ended by voters. The California Department of Tax and Fee Administration (CDTFA) administers and collects such taxes for all applicable jurisdictions within the state, including the City. The CDT FA currently performs this function for the City’s existing Bradley-Burns local sales tax and also
RESOLUTION AUTHORIZING APPROVAL OF AGREEMENTS WITH THE CDTFA FOR THE
ADMINISTRATION OF NEW SUPPLEMENTAL TRANSACTIONS AND USE TAX AND THE
EXAMINATION OF SALES OR TRANSACTIONS AND USE TAX RECORDS DECEMBER 10, 2024
PAGE 2
the transactions and use tax authorized by voters in 2016 under Measure S and will do the same for the approved Measure D taxes.
To begin collection of the new transactions and use tax passed with Measure D, CDTFA requires local governments to adopt a resolution authorizing the approval of certain agreements with the CDTFA, known as a “Preparatory Agreement” and an “Administration Agreement.” It is also necessary to adopt a resolution authorizing certain City staff and financial consultants to examine the records pertaining to these new taxes that will be collected by the CDTFA for the City.
DISCUSSION
Approval of the Preparatory Agreement and Administrative Agreement will enable the CDTFA to begin collecting the Measure D supplemental transactions and use tax for the City on April 1, 2025, which is the earliest possible date.
City staff and financial consultants already are authorized to examine CDTFA records related to the collection of the Bradley-Burns local sales tax and the Measure S transactions and use tax but also require the same authorization for the Measure D supplemental transactions and use tax.
California Revenue and Taxation Code Section 7056 prohibits divulging information contained in, or derived from, sales tax or transactions and use tax records. However, local government officials may use sales or transactions and use tax information if it is related to the tax collection or other governmental functions, and the legislative body of the local government authorizes designated officers, employees, or consultants to examine all of the sales or transactions and use tax records.
The designated positions of the City will be the City Manager, Assistant City Manager, Finance Director, and City Treasurer, all of whom have responsibilities requiring the examination of sales or transactions and use tax records. The City has an existing agreement with the consulting firm Hinderliter, de Llamas & Associates (HdL) for sales or transactions and use tax analysis. Accordingly, consultants from HdL will also be authorized to review these records on behalf of the City.
CITY COUNCIL PRIORITIES
Fiscal Responsibility
Economic Vibrancy
FISCAL IMPACT
Approval of the recommended action(s) will result in a one-time start-up fee associated with the Preparatory Agreement that is an estimated expenditure at $5,000 to $15,000, which will be paid from the General Fund, Finance Department Account No. 10-4-1350-
RESOLUTION AUTHORIZING APPROVAL OF AGREEMENTS WITH THE CDTFA FOR THE
ADMINISTRATION OF NEW SUPPLEMENTAL TRANSACTIONS AND USE TAX AND THE
EXAMINATION OF SALES OR TRANSACTIONS AND USE TAX RECORDS DECEMBER 10, 2024
PAGE 3
0700. There is sufficient fund balance to absorb this cost for the Fiscal Year 2024-2025 budget. There are periodic fees under the Administration Agreement that typically amount to approximately 1% of the taxes collected by the CDTFA for the City. For Fiscal Year 2024/25, administrative charges for the Measure D tax rate were set by the CDTFA at 1.54%. These fees are deducted directly from the taxes collected and not separately paid by the City.
If the resolutions are approved, effective April 1, 2025, CDTFA will begin collection of the supplemental transactions and use tax approved by voters with Measure D. The estimated revenue increase associated with this tax will be incorporated into the Fiscal Year 2024-2025 budget at the City Council’s Mid-Year Budget review tentatively scheduled for February 2025, as well as included in the preparation of future budgets.
ATTACHMENTS
Attachment A: Resolution No. 24-8283
Attachment B: Resolution No. 24-8284
RESOLUTION NO. 24-8283
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DOWNEY
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, at the General Municipal Election held on November 5, 2024, a majority of eligible voters of the City of Downey approved an ordinance known as the “City of Downey Supplemental General Transactions and Use Tax Ordinance” adding Chapter 1F to Article VI of the Downey Municipal Code to establish a supplemental one-quarter cent (1/4¢) general 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 City; 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 these agreements.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF DOWNEY
DOES HEREBY RESOLVE AS FOLLOWS:
SECTION 1. The “Preparatory Agreement” attached as Exhibit A and the “Administration Agreement” attached as Exhibit B are hereby approved, and the City Manager is hereby authorized to execute each agreement.
SECTION 2. This Resolution shall take effect immediately upon adoption.
SECTION 3. The City Clerk shall certify to the adoption of this Resolution.
APPROVED AND ADOPTED this ___ day of December, 2024.
_________________________
MARIO TRUJILLO
Mayor
Resolution No. 24-8283
ATTEST:
______________________________
MARIA ALICIA DUARTE, CMC
City Clerk
APPROVED AS TO FORM:
_______________________________
JOHN M. FUNK
City Attorney
I HEREBY CERTIFY that the foregoing Resolution was adopted by the City Council of the City of Downey at a Regular meeting held on the ____ day of December, 2024, by the following vote, to wit:
AYES: Council Members:
NOES: Council Members:
ABSENT: Council Members:
ABSTAIN: Council Members:
_____________________________
MARIA ALICIA DUARTE, CMC
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 Downey, California, 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.
EXHIBIT A
(Rev. 07/24) 2
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.)
7. Communications 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:
City of Downey
11111 Brookshire Avenue
Downey, CA 90241
Attention: City Manager
Director of Finance
8. The date 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 DOWNEY CALIFORNIA DEPARTMENT OF TAX
AND FEE ADMINISTRATION
By By
Administrator
Local Revenue Branch
Roger Bradley
(Typed Name) Date: _______________________________
City Manager
(Title)
Date: _______________________________
AGREEMENT FOR STATE ADMINISTRATION
OF CITY TRANSACTIONS AND USE TAXES
The City Council of the City of Downey, California, has adopted, and the voters of the City of Downey, California (hereafter called “City” or “District”) have approved by the required majority vote, the City of Downey Supplemental General 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. , 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 the satisfaction of the claims of the State, cities, counties, cities and counties, redevelopment agencies, other districts, and City as their interests appear.
(Rev. 7/24) 3
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.
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:
(Rev. 7/24) 4
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.
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.
(Rev. 7/24) 5
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:
City of Downey
11111 Brookshire Avenue
Downey, CA 90241
Attention: City Manager
Director of Finance
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.
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 DOWNEY CALIFORNIA STATE DEPARTMENT OF
TAX AND FEE ADMINISTRATION
By By
(Signature) Administrator
Local Revenue Branch
Roger Bradley Date: _______________________________
City Manager
(Date)
RESOLUTION NO. 24-8284
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DOWNEY
AUTHORIZING EXAMINATION OF SALES OR TRANSACTIONS AND
USE TAX RECORDS
WHEREAS, at the General Municipal Election held on November 5, 2024, a majority of the eligible voters of the City of Downey approved an ordinance known as the “City of Downey Supplemental General Transactions and Use Tax Ordinance” adding Chapter 1F to Article VI of the Downey Municipal Code to establish a supplemental one- quarter (1/4¢) general transactions and use tax; and
WHEREAS, pursuant to the above Ordinance, Ordinance No. 16-1362, and Revenue and Taxation Code Section 7270, the City entered into a contract with the California Department of Tax and Fee Administration (Department) to perform all functions incident to the administration and collection of transactions and use taxes; and
WHEREAS, pursuant to Ordinance No. 183, the City entered into a contract with the Department to perform all functions incident to the administration and collection of sales and use taxes; and
WHEREAS, the City Council of the City of Downey deems it desirable and necessary for authorized officers, employees, and representatives of the City to examine confidential sales or transactions and use tax records of the Department pertaining to sales or transactions and use taxes collected by the Department for the City pursuant to that contract; and
WHEREAS, Section 7056 of the California Revenue and Taxation Code sets forth certain requirements and conditions for the disclosure of Department records, and Section 7056.5 of the California Revenue and Taxation Code establishes criminal penalties for the unlawful disclosure of information contained in, or derived from, the sales or transactions and use tax records of the Department.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF DOWNEY
DOES HEREBY RESOLVE AS FOLLOWS:
SECTION 1. The following position titles, or other officers or employees of the City designated in writing by the City Manager to the California Department of Tax and Fee Administration, are hereby appointed to represent the City with authority to examine sales or transactions and use tax records of the Department pertaining to sales or transactions and use taxes collected for the City by the Department pursuant to the contract between the City and Department.
• City Manager
• Assistant City Manager
• City Treasurer
• Director of Finance
Resolution No. 24-8284
SECTION 2. The information obtained by examination of Department records shall be used only for purposes related to the collection of City sales or transactions and use taxes by the Department pursuant to that contract, and for purposes related to the following governmental functions of the City:
• Economic Development
• Financial Planning
• Business Tax Compliance
• Budget Planning
• Collection of sales or transactions and use taxes by the Department
The information obtained by examination of Department records shall be used only for those governmental functions of the City listed above.
SECTION 3. Hinderliter, de Llamas & Associates is hereby designated to examine the sales or transactions and use tax records of the Department pertaining to sales or transactions and use taxes collected for the City by the Department. The person or entity designated by this section meets all of the following conditions, which are also included in the contract between the City and Hinderliter, de Llamas & Associates:
(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.
The information obtained by examination of Department records shall be used only for purposes related to the collection of City sales or transactions and use taxes by the Department pursuant to the contract between the City and the Department and for those purposes relating to the governmental functions of the City listed in section 2 of this Resolution.
SECTION 4. This Resolution supersedes all prior resolutions of the City adopted pursuant to Section 7056(b) of the California Revenue and Taxation Code.
SECTION 5. This Resolution shall take effect immediately upon adoption.
SECTION 6. The City Clerk shall certify to the adoption of this Resolution.
Resolution No. 24-8284
APPROVED AND ADOPTED this ___ day of December, 2024.
_________________________
MARIO TRUJILLO
Mayor
ATTEST:
______________________________
MARIA ALICIA DUARTE, CMC
City Clerk
APPROVED AS TO FORM:
_______________________________
JOHN M. FUNK
City Attorney
I HEREBY CERTIFY that the foregoing Resolution was adopted by the City Council of the City of Downey at a Regular meeting held on the ____ day of December, 2024, by the following vote, to wit:
AYES: Council Members:
NOES: Council Members:
ABSENT: Council Members:
ABSTAIN: Council Members:
_____________________________
MARIA ALICIA DUARTE, CMC
City Clerk