AMENDMENT NO. 2
TO
PROFESSIONAL SERVICES AGREEMENT
BETWEEN
THE CITY OF SAN BERNARDINO
AND
HINDERLITER, DE LLAMAS & ASSOCIATES
This Amendment No. 2 to the professional services agreement (“Amendment No. 2”) is made and entered into as of June 3, 2026 (“Effective Date”), by and between the City of San Bernardino (a charter city and municipal corporation organized and operating under the laws of the State of California with its principal place of business at Vanir Tower, 290 North D Street, San Bernardin o, California 92401) (“City”) and Hinderliter, de Llamas & Associates (a California limited liability corporation with its principal place of business at 120 S. State College Boulevard, Suite 200, Brea , California 92821) (“Consultant”). City and Consultant are sometimes referred to herein individually as a “Party” and collectively as “Parties”.
RECITALS
A. The Mayor and City Council (“Council”) adopted Resolution No. 2010 -351 dated October 18, 2010 , authorizing the execution of an agreement with Consultant to provide analysis and audit services for City transactions and use tax collected by the State Board of Equalization Property Tax Audit and Analysis Services; and B. The Council adopted Resolution No. 2020 -249 dated October 7, 2020, establishing the Measure “S” Expenditure Policy which provides that Measure “S” revenues are general purpose revenues to be used for lawful municipal purposes with enhanced transparency, accountability, and budgetary oversight (including tracking revenues and expenditures, annual budgeting, and audit requirements); and C. The Parties entered into an agreement dated April 7, 2021 (“Agreement”), for the purpose of Consultant providing professional auditing and recovery services related to the City’s sale and use transaction tax (“Services ”) utilizing California Department of Tax and Fee Administration (“CDTFA”) authorized access; and D. The Parties entered into Amendment No. 1 dated July 1, 2025, to extend the term and increase the not-to-exceed (“NTE”) compensation amount; and E. The Agreement includes compensation provisions providing for contingency-based audit recovery fees calculated as a percentage of revenues recovered for the City as set forth in Exhibit A; and
F. The Council adopted Resolution No. [___] dated June 3 , 2026 (“Resolution”), (a) approving this Amendment No. 2, (b) making findings regarding the legality and public purpose of contingency -based compensation, (c) authorizing a compensation structure consisting of a base contract amount subject to a NTE limitation and contingency -based audit recovery fees calculated as a p ercentage of revenues
recovered, and (d) authorizing the City Manager to execute this Amendment No. 2 pursuant to California Government Code section 40602; and G. The Parties intend that any contingency -based compensation associated with recovered Measure “S” revenues shall be consistent with the City ’s Measure “S” Expenditure Policy including applicable budgeting, tracking, and audit requirements; and H. The Parties desire to implement the compensation structure and authorizations approved by the Resolution while maintaining appropriate fiscal safeguards and City oversight.
NOW, THEREFORE, the Parties mutually agree as follows:
AGREEMENT
1. Incorporation of Recitals. The recitals listed above are true and correct, and are hereby incorporated herein by this reference.
2. Amendment. Section 4 (Compensation) of the Agreement is hereby amended by adding a new Section 4.c to read as follows:
"c. All compensation payable under this Agreement, including fixed service fees and any additional services billed on a time -and-materials or similar basis , shall be included within and subject to the not -to-exceed amount set forth in Section 4.b as amended herein.
(1) The Parties acknowledge that compensation under this Agreement consists of two components: (a ) fixed service fees, which are subject to the not-to-exceed amount set forth in Section 4.b; and (b) contingency-based audit recovery fees, which shall be calculated in accordance with the percentage formulas set forth in Exhibit A.
(2) Notwithstanding anything to the contrary in th is Agreement, contingency-based audit recovery fees payable pursuant to Exhibit A shall not be subject to the not -to-exceed limitation set forth in Section 4.b provided that such fees are: (a) based solely on new, increased, or recovered tax revenues actually received by the City as a direct result of Consultant’s audit and recovery services; (b) calculated in accordance with objective percentage formulas applied to verifiable revenue data; (c) billed only after completion of the applicable audit work, submission of corrections to CDTFA, and receipt of revenues by the City, and following City review and approval of the applicable quarterly work authorization documenting the audit recovery activity ; (d) limited to revenues received within defined recovery periods, including back-quarter adjustments and the first eight (8) consecutive reporting quarters following completion of audit work; (e) supported by documentation reasonably acceptable to the City, including evidence of CDTFA fund transfers or other verified receipts; (f) subject to review and approval by the City in accordance with its standard contract administration and fiscal control procedures ; and (g) audit recovery services shall be initiated and tracked through quarterly work authorizations prepared by Consultant which shall summarize identified misallocations or
recovery opportunities from the prior quarter, and shall be submitted to the City for review and approval by designated City personnel prior to submission of audit claims and invoicing.
(3) Consultant acknowledges that all contingency -based compensation constitutes full compensation for audit recovery services, including all direct and indirect costs incurred in performing such services. (4) Payment of all compensation under this Agreement is subject to annual appropriation and budget authorization by the City Council. The City shall have no obligation to make any payment unless and until sufficient funds have been appropriated for such purpos e in the applicable fiscal year. Consultant shall submit invoices in accordance with the Agreement, and all payments shall be processed in accordance with the City’s standard fiscal controls and procedures. The Parties acknowledge that funding for this Agreement is anticipated to be incorporated into annual budget appropriations over the term of the Agreement. The Parties further acknowledge that contingency -based audit recovery fees may vary significantly based on actual revenues recovered and may exceed amounts originally budgeted for su ch services.
Accordingly: (a) the City may process budget amendments, supplemental appropriations, or other fiscal adjustments in accordance with applicable law and City financial procedures to authorize payment of such fees; (b) approval constitutes Council authorization for staff to bring forward such budget amendments as necessary to align appropriations with actu al audit recovery activity; and (c) nothing herein shall be construed to create a continuing appropriation or obligation of funds, and all paym ents remain subject to formal budget approval by the City Council. (5) To the extent contingency-based audit recovery fees relate to Measure “S” revenues, the Parties acknowledge that (a) recovered Measure “S” revenues shall be accounted for in accordance with the City’s established financial tracking practices, including any separate fund or sub-fund established for Measure “S” revenues; (b) expenditures of such revenues, including payment of contingency -based audit recovery fees, shall be subject to the City’s annual budget process and oversight consistent with th e Measure “S” Expenditure Policy; (c) such revenues and related expenditures shall be subject to applicable transparency and accountability requirements, including annual audit review; and (d) nothing in this Agreement shall be construed to obligate the City to expend Measure “S” revenues except as appropriated by the City Council in accordance with applicable law and policy, including any required budget amendments or adjustments adopted in connection with such expenditures. (6) The Parties acknowledge and confirm that the contingency - based compensation p rovisions set forth in Exhibit A and further acknowledge that: (a) the fifteen percent (15%) fee applicable to Bradley -Burns sales and use tax applies to both retroactive adjustments and a defined period of prospective revenue recovery following correction of misallocations; and (b) the twenty-five percent (25%) fee applicable to Measure “S” transactions tax applies to retroactive recovery of previously unpaid or underreported tax revenues and does not include prospective recovery periods, reflecting the differing nature and complexity of transactions tax audits.
(7) The Parties acknowledge that audit recovery services differ depending on the nature of the tax: (a) Bradley-Burns sales and use tax audit services primarily involve identification and correction of misallocations of taxes already paid; and (b) transactions and use tax (Measure “S”) audit services may involve identification o f non-payment or underreporting requiring coordination with the CDTFA for verificati on, assessment, and collection ( which may result in longer recovery timeframes and increased effort by Consultant).
(8) The Parties acknowledge that Consultant does not have independent authority to audit, assess, or collect taxes; and that recovery of revenues in certain cases ( particularly those involving non -payment) is dependent on CDTFA processes, timelines, and enforcement actions (which may affect the timing of revenue receipt and corresponding contingency fee invoicing).
(9) The Parties acknowledge that the timing and magnitude of audit recovery revenues and associated contingency -based fees are inherently variable and may not align with the City’s adopted annual budget cycle. The City retains full discretion to: (a) defer payment until sufficie nt appropriations are in place; (b) include such fees in mid-year or y ear-end budget adjustments; and (c) allocate recovered revenues and associated expenditures in accordance with City financial policies, including Measure “S” Expenditure Policy requirements where applicable.”
3. Continuing Effect of Agreement. Except as amended by this Amendment No. 2, all provisions of the Agreement as amended shall remain in full force and effect, and shall govern the actions of the Parties under this Amendment No. 2. Whenever the term “Agreement” appears in the original Agreement from and after the date of this Amendment No. 2, it shall mean the Agreement as amended.
4. Electronic Transmission. A manually signed copy of this Amendment No. 2 which is transmitted by facsimile, electronic mail, or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original executed copy of this Amendment No. 2 for all purposes. This Amendment No. 2 may be signed using an electronic signature.
5. Counterparts. This Amendment No. 2 may be signed in counterparts, each of which shall constitute an original.
[SIGNATURES ON FOLLOWING PAGE]
SIGNATURE PAGE
TO
AMENDMENT NO. 2
OF
PROFESSIONAL SERVICES AGREEMENT
BETWEEN
THE CITY OF SAN BERNARDINO
AND
HINDERLITER, DE LLAMAS & ASSOCIATES
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment No. 2 on the Effective Date.
CITY SAN BERNARDINO
Approved By:
Eric Levitt
City Manager
Attested By:
Telicia Lopez, CMC
City Clerk
Approved as to Form:
City Attorney
Best Best & Krieger LLP
HINDERLITER, DE LLAMAS &
ASSOCIATES
Andrew Nickerson
President
EXHIBIT A
STATEMENT OF WORK AND CONSULTANTS DUTIES AND RESPONSIBILITIES The Consultant shall perform the following services:
MANAGEMENT REPORTS AND ECONOMIC ANALYSIS
Consultant shall establish a special database that identifies the name, address, and quarterly allocations of all sales tax producers within the City for the most current and previous back to 1990 or earlier, if the City has prior historical sales tax data available on computer readable magnetic media and update the information quarterly. This database will be utilized to generate special reports to the City on: major sales tax producers by rank and category, sales tax activity by categories, business districts or redevelopment areas, identification of reporting aberrations, and per capita and outlet comparisons with regional and statewide sales.
Consultant shall provide updated reports each quarter identifying changes in sales by individual businesses, business group and categories, and by geographic area. Quarterly aberrations due to State audits, fund transfers, and receivables along with late or double payments will be identified. Quarterly reconciliation worksheets to assist finance officer with budget forecasting will be included along with separate reports to monitor and project the City's Measure S Transactions Tax that was adopted in 2020.
Consultant shall additionally provide a quarterly summary analysis for the City or its Redevelopment Agency to share with Chambers of Commerce and other economic development interest groups that analyze the City's sales tax trends by major groups, and geographic areas without disclosing confidential information.
Consultant shall make available and train the City Staff on the use of HdL sales tax computer software program and database containing sellers permit and quarterly allocation information for all in-city business outlets registered with the Board of Equalization and keep the registration and allocation data current with quarterly updates.
ALLOCATION AUDIT AND RECOVERY
Consultant shall conduct an initial and on-going sales and use tax audit to identify and correct "point-of-sale" distribution errors and thereby generate previously unrealized sales tax income for the City. Common errors that will be monitored and corrected include: transposition errors resulting in misallocations; erroneous consolidation of multiple outlets; misreporting of "point of sale" to the wrong location; failure to properly report out of state purchases to in-state warehouses; improper reporting of capital purchases to state or county allocation pools; misdirection of self-imposed use tax and erroneous fund transfers and adjustments.
Consultant will initiate contacts with the appropriate sales management and accounting officials in companies that have businesses where a probability of error exists to verify whether current tax receipts accurately reflect the local sales activity. Such contacts will be conducted in a professional and courteous manner so as to enhance the City's relations with the business community.
14 Consultant shall prepare and submit to the California Department of Tax and Fee Administration (CDTFA) all information necessary to correct any allocation errors that are identified and shall follow-up with the individual businesses and the CDTF A to ensure that all back quarter payments due the City are recovered.
If during the course of its audit, Consultant fmds businesses or capital projects located in the City that have the potential for modifying their operation to provide an even greater share of sales or use tax to the City, Consultant shall so advise City and upon request, shall work with those businesses, Consultant, and the City to encourage such changes.
DEFICIENCY/ALLOCATION AUDITS- TRANSACTIONS TAX
Consultant shall conduct on-going reviews to identify and correct unreported transactions and use tax payments and distribution errors, thereby generating previously unrealized revenue for the City. Said reviews shall include:
• Comparison of county-wide local tax allocations to transactions tax for brick-and-mortar stores and other cash register-based businesses, where clearly all transactions are conducted on-site within the Measure "S" City boundaries, and therefore subject to transactions tax.
• Review of any significant one-time use tax allocations to ensure that there is corresponding transaction tax payments for taxpayers with nexus within the City boundaries.
• Review of state-wide transactions tax allocations and patterns to identify any obvious errors and omissions.
• Identification and follow-up with any potentially large purchasers of supplies and equipment ( e.g. hospitals, universities, manufacturing plants, agricultural operations, refineries) to ensure that their major vendors are properly reporting corresponding transactions tax payments to the Measure "S" Transactions Tax District.
Consultant will initiate, where the probability of an error exists, contacts with the appropriate taxpayer management and accounting officials to verify whether current tax receipts accurately reflect the local sales activity. Such contacts will be conducted in a professional and courteous manner so as to enhance the City's relations with the business community.
Consultant shall prepare and submit to the CDTF A all information necessary to correct any allocation errors and deficiencies that are identified, and shall follow-up with the individual businesses and the CDTF A to ensure that all back quarter payments due the City are recovered.
CONSULTATION
Throughout the term of this agreement, Consultant shall provide sales tax estimates for proposed annexations, economic development projects and budget projections, monitor the City's sales tax sharing agreements and budgeted revenue projections against actual receipts, evaluate sales and use tax related legislative and regulatory proposals that potentially impact the City, assist in targeting business retention and tax leveraging opportunities, provide training 15 on sales, transactions and use tax revenues when requested and generally serve as City staff on sales, use and transactions tax issues.
CONSIDERATION
Consultant shall establish the sales and transactions tax databases, shall provide the ongoing reports and analysis and shall make available the computer software program and databases referenced above for a fee of $850 per month, invoiced quarterly (hereafter referred to as "monthly fee"). The monthly fee shall increase annually by the percentage increase in the Consumer Price Index (CPI) for the preceding twelve-month period.
Consultant shall be further paid 15% of all new Bradley-Bums sales or use tax revenue received by the City as a result of audit and recovery work performed by Consultant (hereafter referred to as "audit fees") including any reimbursement from the Sales and Use Tax Compensation Fund as outlined in Section 97 .68 of the Revenue and Taxation Code. New sales, transactions and/or use tax revenue shall not include any amounts determined by the City or Consultant to be increment attributable to causes other than Consultant's work pursuant to this agreement. In the event that Consultant is responsible for an increase in the tax reported by businesses already properly making tax payments to the City, it shall be Consultant's responsibility to separate and support the incremental amount attributable to its efforts prior to the application of the audit fee. Said audit fees will apply to state fund transfers received for back quarter reallocations and monies received in the first eight consecutive reporting quarters following completion of the audit by Consultant and confirmation of corrections by the California Department of Tax and Fee Administration.
Consultant shall provide the City with an itemized quarterly mvmce showing all formula calculations and amounts due for audit fees.
For City's Measure "S" Transactions Tax, Consultant shall be paid 25% of all new transactions or use tax revenue received by the City as a result of audit and recovery work performed by Consultant (hereafter referred to as "audit fees"). New revenue shall not include any amounts determined and verified by the City or Consultant to be increment attributable to causes other than Consultant's work pursuant to this agreement. In the event that Consultant is responsible for an increase in the tax reported by businesses already properly making tax payments to the City, it shall be Consultant's responsibility to separate and support the incremental amount attributable to its efforts prior to the application of the audit fee. Said audit fees will apply to state fund transfers received for those specific quarters identified as being missing and/or deficient following completion of the audit by Consultant and confirmation of corrections by the California Department of Tax and Fee Administration.
Consultant shall obtain City approval prior to beginning the work of correcting tax reporting methodology or "point of sale" for specific businesses where said payment of the percentage fee will be expected. City shall pay audit fees upon Consultant's submittal of evidence of State Fund Transfers and payments to the City from businesses identified in the audit and approved by the City.
16 Above sum shall constitute full reimbursement to Consultant for all direct and indirect expenses incurred by Consultant in performing audits including the salaries of Consultant's employees, and travel expenses connected with contacting local and out-of-state businesses and CDTF A representatives.
CONFIDENTIALITY
Section 7056 of the State of California Revenue and Taxation code specifically limits the disclosure of confidential taxpayer information contained in the records of the California Department of Tax and Fee Administration. This section specifies the conditions under which a City may authorize persons other than City officers and employees to examine State Sales and Use Tax records.
The following conditions specified in Section 7056 (b), (1) of the State of California Revenue and Taxation Code are hereby made part of this agreement:
A. Consultant is authorized by this Agreement to examine sales, use or transactions and use tax records of the Board of Equalization provided to the City pursuant to contract under the Bradley-Bums Uniform Sales and Use Tax Law.
B. Consultant is required to disclose information contained in, or derived from, those sales, use or transactions and use tax records only to an officer or employee of the City who is authorized by resolution to examine the information.
C. Consultant is prohibited from performing consulting services for a retailer, as defined in California Revenue & Taxation Code Section 6015, during the term of this Agreement.
D. Consultant is prohibited from retaining the information contained in, or derived from those sales or transactions and use tax records, after this Agreement has expired.
Information obtained by examination of CDTF A records shall be used only for purposes related to collection of local sales and use tax or for other governmental functions of the City as set forth by resolution adopted pursuant to Section 7056 (b) of the Revenue and Taxation Code. The resolution shall designate the Consultant as a person, authorized to examine sales and use tax records and certify that this Agreement meets the requirements set forth above and in Section 7056 (b), (1) of the Revenue and Taxation Code. 17