TO:Andrew P. Powers, City Manager
FROM:Jaime Boscarino, Finance Director
DATE:May 7, 2024
SUBJECT: Business Tax Licensing Software and Discovery and Audit Services Agreement
RECOMMENDATION:
1. Approve a five-year agreement with Hinderliter de Llamas and Associates, Inc. (HdL) of Brea, CA beginning June 1, 2024, through June 1, 2029, for an amount not-to-exceed $175,000.
2. Approve a single-source designation for HdL, of Brea, CA for the Business Tax Licensing Software and Discovery and Audit Services Agreement.
3. Authorize expenditure in the amount of $6,000 for FY 2023-24 and $24,000 for FY 2024-25 from A/C #001-3310-612-4300 (General Fund, Software Maintenance) and $5,000 for FY 2023-24 and $5,000 for FY 2024-25 from A/C #001-3310-612-5221 (General Fund, Collection Services).
4. Approve budget appropriation in FY 2024-25 in the amount of $200,000 from A/C #001-0000-411-1000 (General Fund Revenue, Business Taxes) to A/C #001- 0000-311-0000 (General Fund, Fund Balance) for business tax revenue from the discovery and audit program.
5. Approve additional budget appropriation in the amount of $70,000 from A/C #001-0000-311-1000 (General Fund, Fund Balance) to A/C #001-0000-411-9900 (General Fund, Contra Revenue/Audit Exp) for FY 2024-25.
6. Find that this action is not a project as defined under the California Environmental Quality Act.
LEVINE ACT ITEM: Yes
Business Tax Licensing and Audit Software Update
May 7, 2024
FINANCIAL IMPACT:
$70,000 Increase to FY 2024-25 General Fund Budget, Fully Offset by $200,000 Increase to FY 2024-25 General Fund Revenue Budget. Budget appropriation in the amount of $70,000 to the Adopted FY 2024-25 General Fund Budget, will be fully offset by the estimated increase in revenue budget of $200,000 from the discovery and audit program. The remaining funds for the agreement term will be requested during the next biennial budget process.
BACKGROUND:
Businesses operating within the City limits, including temporary activities and contractors with offices outside the City, are required to obtain a business tax certificate (license), unless specifically excluded (e.g., childcare facilities licensed by the State). The business license tax rate varies depending on the type and size of the business. Annually, the City generates approximately $2.3 million in revenue through the issuance of more than 11,000 licenses; the revenue is used to fund core City services that support private business operation.
The Finance Department is responsible for the administration of business licenses and revenue collection for the City. Staff processes license applications and renewals, serves as a resource to business license customers, processes payments and certificates, maintains and updates the license database, reconciles payments, processes regulatory permits, and compares County and State lists to identify and reach out to businesses that have not obtained a City business license.
To support these functions, the City implemented HdL’s Prime Software (HdL Prime) in 2022. The software was acquired utilizing a piggyback agreement, as outlined in Thousand Oaks Municipal Code Section (TOMC) Section 3-10.203, leveraging another local government agency’s agreement that underwent a formal Request for Proposals process on the open market. This process ensured transparency, fairness, and adherence to regulatory standards.
HdL Prime currently maintains the City’s business license database, facilitates integrated online applications, ensures compliance, and enables email-based invoicing. HdL Prime has saved City staff approximately 550 hours annually by streamlining tasks such as application data entry, database updates, compliance checks, and invoice generation.
DISCUSSION/ANALYSIS:
Since implementation, HdL Prime has provided the City with a robust software solution and excellent client support, enabling staff to efficiently manage business Business Tax Licensing and Audit Software Update
May 7, 2024
tax administration needs. Results included significant time savings in tasks such as sending custom email invoices, processing applications, and managing online application databases. Business owners have been receptive to the change and through word of mouth, have expressed appreciation for the convenience of applying for new licenses, managing existing ones, and easily renewing, paying, and filing tax returns online. These enhancements have markedly improved the customer experience, providing a more efficient and streamlined process.
The conversion to online business applications also enabled the Finance Department to distinguish between costs for online and paper application processing. As a result, staff was able to decrease the online application fee by $14.00 effective July 1, 2023, as part of the 2023-2025 User Fees. The reduced cost reflects the saved staff time from manual data entry. Conversely, the paper application fee increased by $6.00.
HdL now offers an updated software application (Prime Cloud) where the Prime Software is hosted on Amazon servers with direct URL logins instead of a remote desktop connection to their server. This transition provides increased security with newer technology and greater ease of use for staff and customers. HdL is offering a price reduction for the conversion/implementation, along with the option to utilize their preferred payment processor, Paya Inc., for merchant processing. This transition is expected to enhance communication between software systems, streamline the reconciliation process, and further improve the customer experience.
The City’s contract for HdL’s legacy Prime Software is set to expire on June 30, 2024. A single-source designation with HdL for the Business Tax Licensing Prime Cloud Software and Discovery and Audit Services Agreement is recommended pursuant to TOMC Section 3-10.202. This conversion will provide consistency, compatibility, and continuity for the City’s businesses, while reducing administrative redundancies. There are two primary objectives for this single- source designation: continued use of proven software and utilization of the business discovery and audit professional services. The software platform provided by HdL has proven to be reliable, user-friendly, and tailored to meet specific legal requirements. Continuing to utilize this platform will ensure continuity in City operations and minimize disruptions to business tax administration processes. Additionally, leveraging HdL’s business compliance program is designed to access data already available to HdL Companies to increase tax administration capabilities, ensure all businesses are being treated equitably, improve compliance rates among local businesses, maximize revenue collection, and mitigate financial and legal risks associated with non-compliance. Given the successful implementation and performance of HdL’s software thus far, staff recommends continuing to utilize their services for the City’s business tax administration needs. This recommendation aligns with staff’s commitment toward Business Tax Licensing and Audit Software Update
May 7, 2024
optimizing efficiency, maintaining compliance, and delivering high-quality services to our constituents.
Discovery and Audit Services:
HdL’s Business Tax Discovery and Audit Professional Services employ advanced data analytics and research techniques to identify and recover potentially missed or underreported business tax revenue for cities. HdL specializes in municipal revenue recovery and utilizes decades of experience and best practices to minimize risks and maximize results for the City. HdL’s Business Tax Discovery and Audit Professional Services include identifying non-compliant businesses and promoting voluntary compliance, supporting a program that creates a level playing field for all businesses, and ensuring fairness in tax collection.
HdL’s Business Tax Discovery and Audit Professional Services operate with a fee- sharing structure of 35 percent of the additional revenues generated through their efforts, similar to both sales tax and property tax audit services. This fee is a one- time charge per business based on the new revenue generated by HdL. Of the revenue collected from non-compliant businesses or underreported taxes, HdL remits 65 percent of the initial revenue collected back to the City. This revenue- sharing arrangement ensures that the City benefits directly from the increased tax compliance and revenue recovery efforts.
Once HdL enrolls a business in the City’s program, it then becomes the City’s responsibility to manage renewals and ongoing tax collections from these businesses in subsequent years. The revenue-sharing model aligns HdL’s incentives with the City’s financial objectives, promoting a collaborative approach to revenue enhancement and tax administration. The City anticipates a $200,000 increase in business tax revenue in the first year of this agreement. Based on the cost-sharing model of 35 percent of revenue collected, HdL would keep $70,000, for a net revenue to the City in the amount of $130,000.
Compensation:
The initial, one-time implementation cost for the updated Prime Cloud platform is $5,000, covering software fees and online payment implementation. Annual software use fees and hosting services amount to $24,000 with subsequent annual escalations based on Consumer Price Index (CPI), which is comparable to current pricing. Absorbed merchant processing fees for electronic checks are estimated at approximately $5,000 per year, assuming a 40 percent utilization rate. Credit Card payments will include a customer-paid convenience fee of 2.9% ($2.00 minimum) retained by the merchant processor, Paya Inc. The five-year agreement’s total not- to-exceed amount is set at $175,000. Staff’s recommendation is to approve the agreement with HdL for Business Tax Licensing Prime Cloud Software and Discovery and Audit Services (Attachment #1).
Business Tax Licensing and Audit Software Update
May 7, 2024
LEVINE ACT (California Government Code § 84308):
This item is subject to the Levine Act. City Councilmembers who have received a campaign contribution of more than $250 (aggregated) within the preceding 12 months from a party or their agent/representative, or a financially interested participant involved in this proceeding may do either of the following: (1) disclose the contribution on the record and recuse themselves from this proceeding; or if applicable (2) return the portion of the contribution that exceeds $250 within 30 days from the time the official knew or should have known about the contribution, and participate in the proceeding.
All parties and their agents/representatives must disclose on the record of this proceeding any aggregated contribution of more than $250 made to any Councilmember within the preceding 12 months. Councilmembers are prohibited from accepting, soliciting, or directing a campaign contribution of more than $250 (aggregated) from a party, their agent/representative, or a financially interested participant during a proceeding and for 12 months following the date a final decision is made. In addition, a party, their agent/representative, or a financially interested participant is prohibited from contributing more than $250 (aggregated) to a Councilmember during a proceeding and for 12 months following the date a final decision is made.
COUNCIL GOAL COMPLIANCE:
Meets the following City Council goal:
C. Operate City government in a fiscally and managerially responsible and prudent manner to ensure that the City of Thousand Oaks remains one of California's most desirable places to live, work, visit, recreate, and raise a family.
PREPARED BY: Tara Tosatto, Revenue Operations Manager
Attachments:
Attachment #1 – Business Tax Licensing Software and Discovery and Audit Services Agreement
FIN:370-10\tt\H:\COMMON\Council\2024\Public Services\050724 Business Tax Agreement Staff Report.docx