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File #: 2020-0151   
Type: Consent Calendar Item Status: Agenda Ready
File created: 2/7/2020 In control: Auditor-Controller-Treasurer-Tax Collector
On agenda: 3/24/2020 Final action:
Title: Sales Tax Audit Contract
Department or Agency Name(s): Auditor-Controller-Treasurer-Tax Collector, County Administrator
Attachments: 1. Agenda Summary, 2. Attachment A -- Professional Services Agreement with Hinderliter, de Llamas and Associates
Date Action ByActionResultAction DetailsMeeting DetailsVideo
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To: Board of Supervisors

Department or Agency Name(s): Auditor-Controller-Treasurer-Tax Collector and County Administrator’s Office

Staff Name and Phone Number: Levi Ehrlich 707-565-3289, Peter Bruland 707-565-3086

Vote Requirement: Majority

Supervisorial District(s): Countywide

 

Title:

Title

Sales Tax Audit Contract

End

 

Recommended Action:

Recommended action

Authorize the Auditor-Controller-Treasurer-Tax Collector to sign a contract with Hinderliter, de Llamas, and Associates for a rate of $5,400/year + 15% of recovered funds to obtain sales tax audit services for the County.

end

 

Executive Summary:

The County has contracted with HdL since 1992 for sales tax audit services. These services require HdL to search out sales tax revenues that are generated by Sonoma County businesses and paid by the business owner but misdirected to another government agency. Additional identified revenues are expected to continue to exceed the cost of services provided.

 

Discussion:

The County’s prior agreements with HdL have allowed for recovery of considerable sales tax

revenue that would otherwise have been misdirected. The table below indicates how much sales tax revenue was directed toward the County as a result of HdL's services in each of the past five fiscal years and how much the County benefitted from the service after deducting contract expenses.

 

Fiscal Year

Revenues Found

Total Fees Paid

Net Revenues

2014-2015

$963,094

$149,085

$814,009

2015-2016

$724,287

$113,412

$610,875

2016-2017

$455,475

$73,257

$382,218

2017-2018

$343,506

$56,595

$286,911

2018-2019

$330,784

$53,451

$277,333

 

It’s also notable that the numbers presented are conservative as they’re based only on those funds for which the County pays sales tax audit fees. The structure of the existing and proposed contracts state that the County is only required to pay audit fees on recovered funds for the first 8 quarters following the funding source's discovery. After those eight quarters, the taxed entity's sales tax dollars are still correctly allocated but the County is no longer required to pay any audit fees to HdL.

 

In 2003 the County signed a five-year contract with Hinderliter, de Llamas and Associates with 2 options to extend the term of the agreement for one year, which were exercised in 2018 and 2019.  This new proposed agreement will establish a new contract for sales tax auditing services with Hinderliter, de Llamas, and Associates, whom the County considers to be a single source provider of sales tax audit services because of:

 

                     the company's long and successful track record providing said services to the County,

                     the company's position as sales tax auditor for 45 other California counties, and

                     the lack of equivalent competition within the market.

 

The yearly base price of the contract is $5,400 plus 15% of the recovered funds. Both the base fee and the total fee (adjusted for the 15% of recovered funds) are small compared to the positive increase in revenue generated for the County by HdL's services. If the contract with HdL is not renewed, the County risks losing a significant amount of sales tax dollars in the future.

 

The company's strong record of positive results, its prominence in the sales tax audit industry, and its history with the County, all support the importance of renewing the County's contract with HdL. Both because of the company's strong track record with the County and HdL's status as a premier provider of sales tax audit services to California counties, Hinderliter, de Llamas and Associates should be retained for County sales tax audit services. This contract will ensure that the valuable and productive services of HdL continue to benefit Sonoma County going into the future.

 

Prior Board Actions:

March 26, 2013 - Board approved a 5 year contract with Hinderliter, de Llamas and Associates.

February 21, 2018 - First Amendment to HdL contract.

February 19, 2019 - Second Amendment to HdL contract.

 

Fiscal Summary

 Expenditures

FY 19-20 Adopted

FY20-21 Projected

FY 21-22 Projected

Budgeted Expenses

$89,160

$99,960

$99,960

Additional Appropriation Requested

 

 

 

Total Expenditures

$89,160

$99,960

$99,960

Funding Sources

 

 

 

General Fund/WA GF

$89,160

$99,960

$99,960

State/Federal

 

 

 

Fees/Other

 

 

 

Use of Fund Balance

 

 

 

Contingencies

 

 

 

Total Sources

$89,160

$99,960

$99,960

 

Narrative Explanation of Fiscal Impacts:

The fiscal summary shown above is an estimate based on the average fees (fixed base + 15% recovered funds fee) paid to HdL over each of the past five fiscal years.

 

Because of the commission-style nature of the payment, it is impossible to accurately predict the actual cost of the contract in any fiscal year. However, the payments to HdL are offset by the significant sales tax revenues generated by their services.

 

Staffing Impacts:

 

 

 

Position Title (Payroll Classification)

Monthly Salary Range (A-I Step)

Additions (Number)

Deletions (Number)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Narrative Explanation of Staffing Impacts (If Required):

N/A

 

Attachments:

Attachment A- Professional Services Agreement with Hinderliter, de Llamas and Associates

 

Related Items “On File” with the Clerk of the Board:

N/A