City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Administrative Services
Meeting Date: March 24, 2025
Report #:2410-3624
TITLE
Adoption of a Resolution Authorizing MuniServices LLP, Hinderliter de Llamas & Associates, and Appropriate City Staff to Examine Sales and Use Tax Records from the California Department of Tax and Fee Administration (CDTFA); Adoption of an Ordinance Amending the Municipal Code to Update References to CDTFA; CEQA Status – Not a Project
RECOMMENDATION
Staff recommends that the City Council:
1. Adopt a resolution authorizing MuniServices LLP, Hinderliter de Llamas & Associates, and appropriate City staff to examine sales and use tax records from the California Department of Tax and Fee Administration (Attachment A), and
2. Adopt an ordinance amending Municipal Code Chapters 2.32 (Sales and Use Tax) and
4.10 (Solicitors, Peddlers, Pawnbrokers, Secondhand Dealers, and Other Businesses Regulated by Police) to delete references to the State Board of Equalization and replace with the California Department of Tax and Fee Administration (Attachment B).
BACKGROUND
California Revenue and Taxation Code Section 7056 authorizes the examination of confidential sales and use tax data by officers or employees of local jurisdictions who are designated by resolution of the legislative body of the jurisdiction. The review of confidential information is governed by state law, which sets certain requirements and conditions for the disclosure of sales and use tax records. State law also establishes criminal penalties for the unlawful disclosure of sales and use tax information.
After a Request for Proposals (RFP) process, the City contracted with Avenu Insights & Analytics1 to perform a sales tax audit, analysis, and projections. Although Avenu is the official 1 City Council, June 19, 2023: https://portal.laserfiche.com/Portal/DocView.aspx?id=66194&repo=r- 704298fc&searchid=11351563-322c-453d-ae31-aa866556d8eb
name of the company, it still operates under MuniServices, LLC for sales tax examination purposes. In August 2023, staff contracted with Hinderliter de Llamas & Associates (HdL) to implement the City’s business tax. In February 2024, Council approved the contract with HdL to administer, collect, and perform tax audits, including review of tax credits such as the sales tax credit.2
Prior to the City Auditor function being contracted to Baker Tilly, the Office of the City Auditor (OCA) shared the sales and use tax audit function with MuniServices. With the change in service delivery of the City Auditor function, the sales and use tax audit function was fully transitioned to MuniServices.
The Resolution authorizing appropriate personnel to examine sales and use tax data replaces a prior Resolution adopted by the Council on April 4, 2005.3 In 2017, the State Legislature adopted the Taxpayer Transparency and Fairness Act4, which reorganized tax collection and administration by transferring many duties previously performed by the Board of Equalization (BOE) to the newly-created California Department of Tax and Fee Administration (CDTFA). CDTFA is now responsible for administrating many of the taxes formally handled by the BOE, including sales and use, fuel and cigarette taxes. CDTFA also handles the auditing of taxpayers with regard to these taxes.
ANALYSIS
The attached resolution revises the list of positions in the City that have authority to examine sales and use tax records for taxes collected for the City by CDTFA and allows the City Manager make updates as needed in the future. The resolution also formalizes MuniServices’ and HdL’s ability to work with the CDTFA on sales and use tax and business tax audit matters.
In addition to the attached resolution, staff recommends updating the Palo Alto Municipal Code (PAMC) to replace references to the State Board of Equalization (State BOE) with the California Department of Tax and Fee Administration (CDTFA) (Attachment B). The City’s tax administration was not affected by the outdated references because the Muni Code includes a provision automatically incorporating changes to state law (PAMC 2.32.150). Updating the references, however, will improve clarity and ease of use of the Code by referring to the appropriate responsible state agency.
2 City Council, February 5, 2024: https://portal.laserfiche.com/Portal/DocView.aspx?id=70303&repo=r- 704298fc&searchid=ae1218b6-8637-4cc3-9d55-61265d95f27f
3 City of Palo Alto Resolution No. 8509, approved April 4, 2005:
https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/reso-8509.pdf 4 Taxpayer Transparency and Fairness Act of 2017:
https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180SB86
FISCAL/RESOURCE IMPACT
Approval of this resolution has no fiscal impact to the City.
STAKEHOLDER ENGAGEMENT
Administrative Services staff conferred with the Office of the City Auditor regarding this update.
It was determined that the City Auditor or their staff no longer need access to sales and use tax records for taxes remitted to the City.
ENVIRONMENTAL REVIEW
Council action on this item is not a project as defined by CEQA because is it an administrative activity. CEQA Guidelines section 15378(b)(2).
ATTACHMENTS
Attachment A: Resolution of the City of Palo Alto Authorizing Examination of Sales or Transactions and Use Tax Records
Attachment B: Ordinance of the Council of the City of Palo Alto Amending the Palo Alto Municipal Code to Delete Obsolete References to the California Board of Equalization and Replace Them with References to the California Department of Tax and Fee Administration
APPROVED BY:
Lauren Lai, Administrative Services Director