EAST PALO ALTO
CITY COUNCIL
STAFF REPORT
DATE: June 7, 2022
TO: Honorable Mayor and Members of the City Council
VIA: Patrick Heisinger, Interim City Manager
BY: Bo-Kyoung Kim, Financial Services Manager
Greg Henry, Senior Management Analyst
SUBJECT: Award of Business License Tax Administration Services to HdL Companies Recommendation
Adopt a resolution authorizing the City Manager to:
1. Enter into a professional services agreement with HdL Companies, in a form approved by the City Attorney, in an amount not to exceed $8,500, to implement their Business License Tax Administration system; and
2. Enter into a three-year agreement with HdL Companies in a form approved by the City Attorney, with two one-year extensions at the sole discretion of the City Manager to provide Business License Tax Administration services where the cost of those services shall not initially exceed $16 per business and shall increase annual at the United State Consumer Price Index; and
3. Enter into a three-year agreement with HdL Companies in a form approved by the City Attorney, with two one-year extensions at the sole discretion of the City Manager to provide Business License Tax Discovery, Compliance and Auditing Services where the cost of discovery and audit services shall not exceed 40% of new revenues and collection services shall not exceed 25% of new revenues.
Alignment with City Council Strategic Plan
This recommendation is primarily aligned with:
Priority No. 2: Enhance Economic Vitality
Priority No. 3: Increase Organizational Effectiveness and Efficiency Background
The current business license system is labor intensive for staff, with 12 percent of the Finance Department’s total staff hours (or .75 of a full-time employee) annually committed to managing business licenses. The current intake process is completely manual with citizens completing a paper form (and mailing it in or delivering in person) which is then transcribed into the City’s Business License software by staff. Annually, for the renewal and to process the business license tax, businesses must complete a paper form to calculate tax owed. Staff have found that 10 to 15 percent of businesses that mail in their renewals complete the form incorrectly, leading to additional staff time reaching out to those businesses and correcting the information and asking for a corrected payment.
The City issued a Request for Proposals (RFP), on February 2, 2022. The City had three proposers. Two of them moved forward from the proposal phase to demonstration of their product. Staff selected HdL Companies as the vendor which best met the City’s needs.
Analysis
Staff is recommending that Council entertain a three‐year agreement with HdL. HdL currently serves 220 cities in California including business license tax/registration, transient occupancy tax, cannabis tax, and short-term rentals, HdL processes hundreds of millions in revenue annually from locally collected taxes. This enables HdL to compile the most extensive database in the State. Thus, HdL has more access to data regarding misallocated revenue than any other company, aiding in the efficient recovery of such funds for local jurisdictions.
The Business License Tax Administration Service will provide a turnkey approach for the City.
HdL has a team of experts can manage all the business tax operations conducted by the City.
When combined with the Compliance Management services, the City will receive the benefit of increased revenues and superior customer service, while reducing internal costs and gaining efficiencies a “trifecta” of increasing city revenues and support to the business community, while simultaneously reducing costs.
HdL programs are so successful in this endeavor, that most of their clients not only reduce costs, but actually see new revenues exceeding the cost of the program, resulting in the City receiving the contracted administration services effectively at no cost.
HdL’s online portal was reviewed as the best offered solution with the greatest ease of use and the highest level of sophistication for the City’s businesses. The City website will be the starting point for all web-based activities. This City specific site will look and feel like the City’s own web pages, which ensures a level of continuity between the business community, the City, and HdL.
HdL’s website offers a variety of online functions to service the business community. While most of the website is a self-service platform for the business community, HdL staff reviews each account processed online for accuracy and compliance with City guidelines and procedures. Besides filing and paying for taxes, businesses can get copies of applications, general support and FAQs, schedule appointments, and request copies of their tax registration, all with the click of a button. Our on-line services underscore HdL’s commitment to excellence in customer service and education by continually improving the registration and payment experience for the business community. Online functionality available to the business community includes:
· Submission of a new application
· Renewal of existing account
· Closure request
· Pay a balance due
· Update account information
· Print Certificate
· Public record inquiries
Staff are excited to report that HdL’s payment acceptance process accepts the following payment types:
· Check / Money Order /Cashier’s Check
· E-Check
· Debit Cards
· Credit Cards (Visa, Mastercard, Discover, and American Express) · Check by Phone
Increasing the manner and method through which the City’s businesses can pay.
HdL is specialized in sales and use tax analysis and has exhaustive experience identifying and correcting “point of sale” allocation errors, misallocations, and other misreported sales transactions that result in recovered sales tax revenues for the City.
Fiscal Impact
The Business License Tax Administration cost is $16 per business (with an annual inflation equal to United States Annual Consumer Price Index (CPI)). Currently there are approximately 1,100 active licenses ($17,600). However, staff expect this number to increase significantly with HdL’s compliance services. There are, for example, approximately 3,500 businesses ($56,000) in the system.
For Business License Tax Discovery, Compliance and Auditing Services HdL collects 40% of the first year of new revenue for discovery and 25% of revenue for compliance. This isn’t an expense but a reduction in initial revenue because the cost comes from otherwise uncollected revenue.
Public Notice
The public was provided notice by making the agenda and report available on the City’s website and on a bulletin board located at City Hall: 2415 University Avenue, East Palo Alto.
Environmental
The action being considered does not constitute a “Project” within the meaning of the California Environmental Quality Act (CEQA), pursuant to CEQA Guideline section 15378 (b)(5), in that it is a government administrative activity that will not result in direct or indirect changes in the environment.
Attachments
1. Resolution Award HdL Business License Tax Administration Services