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HomeMy WebLinkAbout2024-08-20; City Council; ; Agreement with Hinderliter de Llamas and Associates for Sales and Use Tax Auditing, Analysis and Reporting ServicesMeeting Date: August 20, 2024 To: Mayor and City Council From: Scott Chadwick, City Manager Staff Contact: Jason Rosado, Finance Manager jason.rosado@carlsbadca.gov, 442-339-2473 Subject: Agreement with Hinderliter de Llamas and Associates for Sales and Use Tax Auditing, Analysis and Reporting Services Districts: All Recommended Action 1.Adopt a resolution authorizing the Mayor to enter into an agreement with Hinderliter de Llamas and Associates as the consultant authorized to examine sales and use tax records of the California Department of Tax and Fee Administration on the city’s behalf; and 2.Adopt a resolution approving Hinderliter de Llamas and Associates as the consultant authorized to examine sales and use tax records of the California Department of Tax and Fee Administration on the city’s behalf. Executive Summary Sales tax revenues generated by local businesses are a primary revenue source for the City of Carlsbad. Ensuring the city receives all sales tax revenue it is entitled to is key to maintaining its fiscal integrity. Fiscal year 2022-23 ended with a total of $56.2 million in sales tax revenues and fiscal year 2023-24 is projected to end with approximately $59.4 million. The city has used auditing firms to audit, analyze and report on its sales tax since 1993. Staff have reviewed the proposals the city received for these services and are requesting that the City Council accept Hinderliter de Llamas and Associates’ bid. Hinderliter de Llamas and Associates possesses the tools and support necessary to ensure that the City of Carlsbad receives its share of the sales and use taxes and to capture additional taxes through improved revenue collection processes. Sales tax revenue covers the costs of these sales tax auditing, analysis and reporting services. The City Council’s approval is required for this agreement because Carlsbad Municipal Code Section 3.28.060 - Procurement of Professional Services and Services designates the City Council as the awarding authority for procurement of professional services and services that will cost the city more than $100,000 per agreement year. Aug. 20, 2024 Item #2 Page 1 of 20 Explanation & Analysis Background The city typically awards agreements for sales and use tax auditing, analysis and reporting services on a five-year basis with annual options to extend the agreement. Staff requested proposals for these specialized services and received two responses. A selection committee examined both proposals and recommended Hinderliter de Llamas and Associates, finding it provides the best value for the city. Services This service agreement is required for the city to continue to collect accurate sales and use tax revenues. Agreement compliance requires Hinderliter, de Llamas & Associates to provide: • A special database capable of providing reports and identifying the allocations of all sales tax producers within the city. • Updated reports identifying changes in sales by individual businesses, business groups and categories of businesses. • A special database with the California Department of Tax and Fee Administration registration data. • Initial and on-going sales and use tax audits of businesses to help identify and correct distribution and allocation errors when directed. • Prepare and submit quarterly reports to the city analyzing the city’s sales tax trends. Fiscal Analysis The cost of sales and use tax and economic analysis, forecasting services and reporting services will initially be $500 per month, invoiced quarterly. The fee is subject to adjustment according to the 12-month percent change in the most recently published annual Consumer Price Index – West Urban (CPI-WU), as reported by the U.S. Bureau of Labor Statistics. The city’s allocation and audit recovery service costs will be 15% of all recovered sales and use tax revenue received by the City of Carlsbad as a result, in whole or in part, of the consultant’s services. As noted above, sales tax revenue typically fully funds the cost of sales tax auditing, analysis and reporting services. A similar agreement in fiscal year 2023-24 incurred $111,401 in fees, all of which were covered by revenue generated by the service. Next Steps Staff will continue to utilize sales and use tax reporting to report financial and economic development data to the City Council. Staff will meet with Hinderliter, de Llamas & Associates staff on at least a quarterly basis to review sales and use tax collection and reporting. Aug. 20, 2024 Item #2 Page 2 of 20 Environmental Evaluation This action does not require environmental review because it does not constitute a project within the meaning of the California Environmental Quality Act under California Public Resources Code Section 21065 in that it has no potential to cause either a direct physical change or a reasonably foreseeable indirect physical change in the environment. Exhibits 1.City Council resolution authorizing the Mayor to execute the Agreement with Hinderliter de Llamas and Associates 2.City Council resolution approving Hinderliter de Llamas and Associates as the consultant authorized to examine sales and use tax records of the California Department of Tax and Fee Administration on behalf of the City of Carlsbad Aug. 20, 2024 Item #2 Page 3 of 20 RESOLUTION NO. 2024-200 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, AUTHORIZING THE MAYOR TO ENTER INTO AN AGREEMENT WITH HINDERLITER DE LLAMAS AND ASSOCIATES AS THE CONSULTANT AUTHORIZED TO EXAMINE SALES AND USE TAX RECORDS OF THE CALIFORNIA DEPARTMENT OF TAX AND FEE ADMINISTRATION ON THE CITY'S BEHALF WHEREAS, the auditing and analysis of the California Department of Tax and Fee Administration (CDTFA} records pertaining to the ascertainment of the sales or transaction and use taxes to be collected on the city's behalf is key in maintaining the city's fiscal integrity; and WHEREAS, proposals from two firms qualified to perform such services were evaluated; and WHEREAS, staff believe that Hinderliter de Llamas and Associates is the best equipped firm in providing sales tax audit, analysis and reporting. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, as follows: 1.That the above recitations are true and correct. 2.The firm of Hinderliter de Llamas and Associates is selected to provide the auditing, analysis and reporting services; and 3.That the Mayor is hereby authorized to execute the Agreement (Attachment A) between Hinderliter de Llamas and Associates and the City of Carlsbad. PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City of Carlsbad on the 20th day of August, 2024, by the following vote, to wit: AYES: NAYS: ABSTAIN: ABSENT: BLACKBURN, BHAT-PATEL, ACOSTA, BURKHOLDER, LUNA. NONE. NONE. NONE. KEITH BLACKBURN, Mayor SHERRY FREISINGER, City Clerk (SEAL) Aug. 20, 2024 Item #2 Page 4 of 20 Exhibit 1 jy Docusign Envelope ID: ECSC9E2D-D583-469E-BC08-5D17D05EC2F4 AGREEMENT FOR SALES TAX AUDITING, ANALYSIS, AND REPORTING SERVICES HINDERLITER DE LLAMAS AND ASSOCIATES THIS AGREEMENT is made and entered into as of the IJ-\ ,;\-day of -A-,� 1.c. 'zt , 20.21 by _and between the City of Carlsbad, California, a municipal corp;,:;ion ("City") and Hinderliter de Llamas and Associates, a California stock corporation, ("Contractor"). RECITALS A. City requires the professional services of a consultant that is experienced in sales tax auditing, analysis, and reporting. B. Contractor has the necessary experience in providing professional services and advice related to sales tax auditing, analysis, and reporting. C. Contractor has submitted a proposal to City and has affirmed its willingness and ability to perform such work. NOW, THEREFORE, in consideration of these recitals and the mutual covenants contained herein, City and Contractor agree as follows: 1. SCOPE OF WORK City retains Contractor to perform, and Contractor agrees to render, those services (the "Services") that are defined in attached Exhibit "A," which is incorporated by this reference in accordance with this Agreement's terms and conditions. 2. STANDARD OF PERFORMANCE While performing the Services, Contractor will exercise the reasonable professional care and skill customarily exercised by reputable members of Contractor's profession practicing in the Metropolitan Southern California area and will use reasonable diligence and best judgment while exercising its professional skill and expertise. 3. TERM The term of this Agreement will be effective for a period of five (5) years from the date first above written. The City Manager may amend the Agreement to extend it for one (1) additional five (S) year term or parts thereof. Extensions will be based upon a satisfactory review of Contractor's performance, City needs, and appropriation of funds by the City Council. The parties will prepare a written amendment indicating the effective date and length of the extended Agreement. 4. TIME IS OF THE ESSENCE Time is of the essence for each and every provision of this Agreement. 5. COMPENSATION The total fee payable for the Sales and Use Tax and Economic Analysis/Forecasting Services/Reports to be performed during the Agreement term and optional extension shall not exceed six thousand dollars ($6,000) per Agreement year (paid quarterly), � an adjustment at the beginning of each Agreement year based on the 12-month percent change in the Consumer Price Index -West Urban (CPI-WU) as reported by the Bureau of Labor Statistics. The Consumer Price Index used for the CPI adjustment will be Page 1 City Attorney Approved Version 12/22/2023 Aug. 20, 2024 Item #2 Page 5 of 20 Attachment A Page 2 City Attorney Approved Version 12/22/2023 the CPI-WU for the month in which the agreement is fully signed with the first adjustment to occur at the beginning of the second Agreement year. Payment for Sales and Use Tax Allocation and Audit Recovery Services will be based on a fifteen percent (15%) fee of all recovered sales and use tax revenue received by the City as a result, in whole or in part, of the allocation and audit recovery services . The 15% fee shall be paid quarterly and only after Contractor has submitted evidence of Contractor’s relevant allocation and audit recovery services in support thereof, including, without limitation, copies of relevant communications between Contractor and the California Department of Tax and Fee Administration (“CDTFA”) and/or taxpayers; the City has received the revenue from the corrected sales and use tax revenue; and the quarterly distribution report has verified receipt of said revenue. Fees for performing optional consulting and other services described in Exhibit “A” shall be based on rates as described in Exhibit “A.” Incremental payments, if applicable, should be made as outlined in attached Exhibit "A." No other compensation for the services will be allowed except for items covered by subsequent amendments to this Agreement. The City reserves the right to withhold a ten percent (10%) retention until City has accepted the work and/or Services specified in Exhibit "A." 7. STATUS OF CONTRACTOR Contractor will perform the Services in Contractor's own way as an independent contractor and in pursuit of Contractor's independent calling, and not as an employee of City. Contractor will be under control of City only as to the result to be accomplished, but will consult with City as necessary. The persons used by Contractor to provide services under this Agreement will not be considered employees of City for any purposes. The payment made to Contractor pursuant to the Agreement will be the full and complete compensation to which Contractor is entitled. City will not make any federal or state tax withholdings on behalf of Contractor or its agents, employees or subcontractors. City will not be required to pay any workers' compensation insurance or unemployment contributions on behalf of Contractor or its employees or subcontractors. Contractor agrees to indemnify City within thirty (30) days for any tax, retirement contribution, social security, overtime payment, unemployment payment or workers' compensation payment which City may be required to make on behalf of Contractor or any agent, employee, or subcontractor of Contractor for work done under this Agreement. At the City’s election, City may deduct the indemnification amount from any balance owing to Contractor. 8. SUBCONTRACTING Contractor will not subcontract any portion of the Services without prior written approval of City. If Contractor subcontracts any of the Services, Contractor will be fully responsible to City for the acts and omissions of Contractor's subcontractor and of the persons either directly or indirectly employed by the subcontractor, as Contractor is for the acts and omissions of persons directly employed by Contractor. Nothing contained in this Agreement will create any contractual relationship between any subcontractor of Contractor and City. Contractor will be responsible for payment of subcontractors. Contractor will bind every subcontractor and every subcontractor of a subcontractor by the terms of this Agreement applicable to Contractor's work unless specifically noted to the contrary in the subcontract and approved in writing by City. Docusign Envelope ID: EC5C9E2D-D5B3-469E-BC08-5D17D05EC2F4 Aug. 20, 2024 Item #2 Page 6 of 20 Page 3 City Attorney Approved Version 12/22/2023 9. OTHER CONTRACTORS The City reserves the right to employ other Contractors in connection with the Services. 10. INDEMNIFICATION Contractor agrees to defend (with counsel approved by the City), indemnify, and hold harmless the City and its officers, elected and appointed officials, employees and volunteers from and against all claims, damages, losses and expenses including attorney fees arising out of the performance of the work described herein caused by any negligence, recklessness, or willful misconduct of the Contractor, any subcontractor, anyone directly or indirectly employed by any of them or anyone for whose acts any of them may be liable. The parties expressly agree that any payment, attorney’s fee, costs or expense City incurs or makes to or on behalf of an injured employee under the City’s self-administered workers’ compensation is included as a loss, expense or cost for the purposes of this section, and that this section will survive the expiration or early termination of this Agreement. 11. INSURANCE Contractor will obtain and maintain for the duration of the Agreement and any and all amendments, insurance against claims for injuries to persons or damage to property which may arise out of or in connection with performance of the services by Contractor or Contractor’s agents, representatives, employees or subcontractors. The insurance will be obtained from an insurance carrier admitted and authorized to do business in the State of California. The insurance carrier is required to have a current Best's Key Rating of not less than "A-:VII"; OR with a surplus line insurer on the State of California’s List of Approved Surplus Line Insurers (LASLI) with a rating in the latest Best’s Key Rating Guide of at least “A:X”; OR an alien non-admitted insurer listed by the National Association of Insurance Commissioners (NAIC) latest quarterly listings report. 11.1 Coverages and Limits. Contractor will maintain the types of coverages and minimum limits indicated below, unless Risk Manager or City Manager approves a lower amount. These minimum amounts of coverage will not constitute any limitations or cap on Contractor's indemnification obligations under this Agreement. City, its officers, agents and employees make no representation that the limits of the insurance specified to be carried by Contractor pursuant to this Agreement are adequate to protect Contractor. If Contractor believes that any required insurance coverage is inadequate, Contractor will obtain such additional insurance coverage, as Contractor deems adequate, at Contractor's sole expense. The full limits available to the named insured shall also be available and applicable to the City as an additional insured. 11.1.1 Commercial General Liability (CGL) Insurance. Insurance written on an “occurrence” basis, including personal & advertising injury, with limits no less than $2,000,000 per occurrence. If a general aggregate limit applies, either the general aggregate limit shall apply separately to this project/location or the general aggregate limit shall be twice the required occurrence limit. 11.1.2 Automobile Liability. (if the use of an automobile is involved for Contractor's work for City). $2,000,000 combined single-limit per accident for bodily injury and property damage. 11.1.3 Workers' Compensation and Employer's Liability. Workers' Compensation limits as required by the California Labor Code. Workers' Compensation will not be required if Contractor has no employees and provides, to City's satisfaction, a declaration stating this. Docusign Envelope ID: EC5C9E2D-D5B3-469E-BC08-5D17D05EC2F4 Aug. 20, 2024 Item #2 Page 7 of 20 Page 4 City Attorney Approved Version 12/22/2023 11.1.4 Professional Liability. Errors and omissions liability appropriate to Contractor’s profession with limits of not less than $1,000,000 per claim. Coverage must be maintained for a period of five years following the date of completion of the work. 11.2 Additional Provisions. Contractor will ensure that the policies of insurance required under this Agreement contain, or are endorsed to contain, the following provisions: 11.2.1 The City will be named as an additional insured on Commercial General Liability which shall provide primary coverage to the City. 11.2.2 Contractor will obtain occurrence coverage, excluding Professional Liability, which will be written as claims-made coverage. 11.2.3 This insurance will be in force during the life of the Agreement and any extensions of it and will not be canceled without thirty (30) days prior written notice to City sent by certified mail pursuant to the Notice provisions of this Agreement. 11.3 Providing Certificates of Insurance and Endorsements. Prior to City's execution of this Agreement, Contractor will furnish certificates of insurance and endorsements to City. 11.4 Failure to Maintain Coverage. If Contractor fails to maintain any of these insurance coverages, then City will have the option to declare Contractor in breach, or may purchase replacement insurance or pay the premiums that are due on existing policies in order to maintain the required coverages. Contractor is responsible for any payments made by City to obtain or maintain insurance and City may collect these payments from Contractor or deduct the amount paid from any sums due Contractor under this Agreement. 11.5 Submission of Insurance Policies. City reserves the right to require, at any time, complete and certified copies of any or all required insurance policies and endorsements. 12. BUSINESS LICENSE Contractor will obtain and maintain a City of Carlsbad Business License for the term of the Agreement, as may be amended from time-to-time. 13. ACCOUNTING RECORDS Contractor will maintain complete and accurate records with respect to costs incurred under this Agreement. All records will be clearly identifiable. Contractor will allow a representative of City during normal business hours to examine, audit, and make transcripts or copies of records and any other documents created pursuant to this Agreement. Contractor will allow inspection of all work, data, documents, proceedings, and activities related to the Agreement for a period of three (3) years from the date of final payment under this Agreement. 14. OWNERSHIP OF DOCUMENTS All work product produced by Contractor or its agents, employees, and subcontractors pursuant to this Agreement is the property of City. In the event this Agreement is terminated, all work product produced by Contractor or its agents, employees and subcontractors pursuant to this Agreement will be delivered Docusign Envelope ID: EC5C9E2D-D5B3-469E-BC08-5D17D05EC2F4 Aug. 20, 2024 Item #2 Page 8 of 20 ~s Page 5 City Attorney Approved Version 12/22/2023 at once to City. Contractor will have the right to make one (1) copy of the work product for Contractor’s records. 15. COPYRIGHTS Contractor agrees that all copyrights that arise from the services will be vested in City and Contractor relinquishes all claims to the copyrights in favor of City. 16. NOTICES The name of the persons who are authorized to give written notice or to receive written notice on behalf of City and on behalf of Contractor under this Agreement are: For City: For Contractor: Name Jason Rosado Name Andrew Nickerson Title Finance Manager Title Project Manager Dept Finance Address 120 S State College Blvd #200 CITY OF CARLSBAD Brea, CA 92821 Address 1635 Faraday Avenue Phone 714-879-5000 Carlsbad, CA 92008 Email contracts@hdlcompanies.com Phone 442-339-2473 Each party will notify the other immediately of any changes of address that would require any notice or delivery to be directed to another address. 17. CONFLICT OF INTEREST Contractor shall file a Conflict of Interest Statement with the City Clerk in accordance with the requirements of the City of Carlsbad Conflict of Interest Code. The Contractor shall report investments or interests as required in the City of Carlsbad Conflict of Interest Code. Yes ☐ No ☐ If yes, list the contact information below for all individuals required to file: Name Email Phone Number 18. GENERAL COMPLIANCE WITH LAWS Contractor will keep fully informed of federal, state and local laws and ordinances and regulations which in any manner affect those employed by Contractor, or in any way affect the performance of the Services by Contractor. Contractor will at all times observe and comply with these laws, ordinances, and regulations and will be responsible for the compliance of Contractor's services with all applicable laws, ordinances and regulations. Docusign Envelope ID: EC5C9E2D-D5B3-469E-BC08-5D17D05EC2F4 Aug. 20, 2024 Item #2 Page 9 of 20 City Attorney Approved Version 12/22/2023 Page 6 Contractor will be aware of the requirements of the Immigration Reform and Control Act of 1986 and will comply with those requirements, including, but not limited to, verifying the eligibility for employment of all agents, employees, subcontractors and consultants whose services are required by this Agreement. 19. CALIFORNIA AIR RESOURCES BOARD (CARB) ADVANCED CLEAN FLEETS REGULATIONS Contractor’s vehicles with a gross vehicle weight rating greater than 8,500 lbs. and light-duty package delivery vehicles operated in California may be subject to the California Air Resources Board (CARB) Advanced Clean Fleets regulations. Such vehicles may therefore be subject to requirements to reduce emissions of air pollutants. For more information, please visit the CARB Advanced Clean Fleets webpage at https://ww2.arb.ca.gov/our-work/programs/advanced-clean-fleets. 20. DISCRIMINATION AND HARASSMENT PROHIBITED Contractor will comply with all applicable local, state and federal laws and regulations prohibiting discrimination and harassment. 21. DISPUTE RESOLUTION If a dispute should arise regarding the performance of the Services the following procedure will be used to resolve any questions of fact or interpretation not otherwise settled by agreement between the parties. Representatives of Contractor or City will reduce such questions, and their respective views, to writing. A copy of such documented dispute will be forwarded to both parties involved along with recommended methods of resolution, which would be of benefit to both parties. The representative receiving the letter will reply to the letter along with a recommended method of resolution within ten (10) business days. If the resolution thus obtained is unsatisfactory to the aggrieved party, a letter outlining the disputes will be forwarded to the City Manager. The City Manager will consider the facts and solutions recommended by each party and may then opt to direct a solution to the problem. In such cases, the action of the City Manager will be binding upon the parties involved, although nothing in this procedure will prohibit the parties from seeking remedies available to them at law. 22. TERMINATION In the event of the Contractor's failure to prosecute, deliver, or perform the Services, City may terminate this Agreement for nonperformance by notifying Contractor by certified mail of the termination. If City decides to abandon or indefinitely postpone the work or services contemplated by this Agreement, City may terminate this Agreement upon written notice to Contractor. Upon notification of termination, Contractor has five (5) business days to deliver any documents owned by City and all work in progress to City address contained in this Agreement. City will make a determination of fact based upon the work product delivered to City and of the percentage of work that Contractor has performed which is usable and of worth to City in having the Agreement completed. Based upon that finding City will determine the final payment of the Agreement. City may terminate this Agreement by tendering thirty (30) days written notice to Contractor. Contractor may terminate this Agreement by tendering ninety (90) days written notice to City. In the event of termination of this Agreement by either party and upon request of City, Contractor will assemble the work product and put it in order for proper filing and closing and deliver it to City. Contractor will be paid for work performed to the termination date; however, the total will not exceed the lump sum fee payable under this Agreement. City will make the final determination as to the portions of tasks completed and the compensation to be made. Docusign Envelope ID: EC5C9E2D-D5B3-469E-BC08-5D17D05EC2F4 Aug. 20, 2024 Item #2 Page 10 of 20 City Attorney Approved Version 12/22/2023 Page 7 23. COVENANTS AGAINST CONTINGENT FEES Contractor warrants that Contractor has not employed or retained any company or person, other than a bona fide employee working for Contractor, to solicit or secure this Agreement, and that Contractor has not paid or agreed to pay any company or person, other than a bona fide employee, any fee, commission, percentage, brokerage fee, gift, or any other consideration contingent upon, or resulting from, the award or making of this Agreement. For breach or violation of this warranty, City will have the right to annul this Agreement without liability, or, in its discretion, to deduct from the Agreement price or consideration, or otherwise recover, the full amount of the fee, commission, percentage, brokerage fees, gift, or contingent fee. 24. CLAIMS AND LAWSUITS By signing this Agreement, Contractor agrees that any Agreement claim submitted to City must be asserted as part of the Agreement process as set forth in this Agreement and not in anticipation of litigation or in conjunction with litigation. Contractor acknowledges that if a false claim is submitted to City, it may be considered fraud and Contractor may be subject to criminal prosecution. Contractor acknowledges that California Government Code sections 12650 et seq., the False Claims Act applies to this Agreement and, provides for civil penalties where a person knowingly submits a false claim to a public entity. These provisions include false claims made with deliberate ignorance of the false information or in reckless disregard of the truth or falsity of information. If City seeks to recover penalties pursuant to the False Claims Act, it is entitled to recover its litigation costs, including attorney's fees. Contractor acknowledges that the filing of a false claim may subject Contractor to an administrative debarment proceeding as the result of which Contractor may be prevented to act as a Contractor on any public work or improvement for a period of up to five (5) years. Contractor acknowledges debarment by another jurisdiction is grounds for City to terminate this Agreement. 25. JURISDICTION AND VENUE This Agreement will be governed by the laws of the State of California regardless of conflict of laws principles. Any action at law or in equity brought by either of the parties for the purpose of enforcing a right or rights provided for by this Agreement will be tried in a court of competent jurisdiction in the County of San Diego, State of California, and the parties waive all provisions of law providing for a change of venue in these proceedings to any other county. 26. SUCCESSORS AND ASSIGNS It is mutually understood and agreed that this Agreement will be binding upon City and Contractor and their respective successors. Neither this Agreement nor any part of it nor any monies due or to become due under it may be assigned by Contractor without the prior consent of City, which shall not be unreasonably withheld. 27. ENTIRE AGREEMENT This Agreement, together with any other written document referred to or contemplated by it, along with the purchase order for this Agreement and its provisions, embody the entire Agreement and understanding between the parties relating to the subject matter of it. In case of conflict, the terms of the Agreement supersede the purchase order. Neither this Agreement nor any of its provisions may be amended, modified, waived or discharged except in a writing signed by both parties. This Agreement may be executed in counterparts. Docusign Envelope ID: EC5C9E2D-D5B3-469E-BC08-5D17D05EC2F4 Aug. 20, 2024 Item #2 Page 11 of 20 Docus1gn Envelope ID: EC5C9E2D-D5B3-469E-BC08-5D17D05EC2F4 28. AUTHORITY The individuals executing this Agreement and the instruments referenced in it on behalf of Contractor each represent and warrant that they have the legal power, right and actual authority to bind Contractor to the terms and conditions of this Agreement. Executed by Contractor this '2-\ �:t day of b €; 1.A ST CONTRACTOR Hinderliter de Llamas and Associates, a California stock corporation By: (sign here) ROBERT GRAY, Vice President (print name/title) By: (sign here) RICHARD PARK, Chief Finance Officer (print name/title) CITY OF CARLSBAD, a municipal corporation of the State of lifornia By: KEITH BLACKBURN, Mayor ATTEST: SHERRY FREISINGER, City Clerk By: �Deputy City Clerk If required by City, proper notarial acknowledgment of execution by contractor must be attached. � corporation, Agreement must be signed by one corporate officer from each of the following two groups. Group.AChairman, President, or Vice-President Group BSecretary, Assistant Secretary, CFO or Assistant Treasurer Otherwise, the corporation must attach a resolution certified by the secretary or assistant secretary undercorporate seal empowering the officer(s) signing to bind the corporation. APPROVED AS TO FORM: CINDIE K. McMAHON, City Attorney BY: l�Ji� Deputy / Assistant City Attorney City Attorney Approved Version 12/22/2023 Page 8 Aug. 20, 2024 Item #2 Page 12 of 20 City Attorney Approved Version 12/22/2023 Page 9 EXHIBIT A SCOPE OF SERVICES AND FEE 1. Sales and Use Tax and Economic Analysis/Forecasting Services/Reports 1.1. Establish a special database identifying the name, address, and quarterly allocations of all sales tax producers within the City. This database will be utilized to generate special reports to City on major sales tax producers by rank and category, sales tax activity by categories, or business districts, identification of reporting aberrations, and per capita and outlet comparisons with regional and statewide sales. 1.2. Provide periodic updated reports to City identifying changes in sales by individual businesses, business groups and categories, and by geographic area. These reports may include, without limitation, quarterly aberrations due to State audits, fund transfers, and receivables, along with late or double payments, and quarterly reconciliation worksheets to assist with budget forecasting. Contractor shall meet quarterly by in person or virtually with City. 1.3. Shall additionally provide following each calendar quarter a summary analysis for City to share with Council Members, Chamber of Commerce, other economic development interest groups and the public that analyze City’s sales tax trends by major groups and geographic areas without disclosing confidential individual tax records. 1.4. Establish a special database with California Department of Tax and Fee Administration (“CDTFA”) registration data for businesses within applicable district boundaries holding seller’s permit accounts. 1.5. Periodically license for the limited, non-exclusive, non-transferable use by City’s staff certain of Contractor’s web-based sales, use and/or transactions tax program(s) containing sellers permit, registration, allocation and related information for business outlets within City’s jurisdiction registered with the CDTFA. 1.6. Provide periodic updated reports endeavoring to identify and assist with budget forecasting (i) changes in allocation totals by individual businesses, business groups and categories, and (ii) aberrations due to State audits, fund transfers, and receivables, along with late or double payments. 2. Sales and Use Tax Allocation and Audit Recovery Services 2.1. Conduct (when mutually agreed with City) initial and on-going sales and use tax audits of businesses to help identify and correct distribution and allocation errors, and to proactively affect favorable registration, reporting or formula changes thereby generating previously unrealized sales and use tax income for the City and/or recovering misallocated tax from registered taxpayers. Common errors that will be monitored and corrected include but are not limited to: transposition errors resulting in misallocations; erroneous consolidation of multiple outlets; formula errors; misreporting of “point of sale” to the wrong location; delays in reporting new outlets; misallocating use tax payments to the allocation pools or wrong jurisdiction; and erroneous fund transfers and adjustments. 2.2. Initiate contacts with the CDTFA and sales management and accounting officials in companies that have businesses where a probability of error exists to endeavor to help verify whether current tax receipts accurately reflect the local sales activity. Such contacts will be conducted in a professional and courteous manner. Docusign Envelope ID: EC5C9E2D-D5B3-469E-BC08-5D17D05EC2F4 Aug. 20, 2024 Item #2 Page 13 of 20 City Attorney Approved Version 12/22/2023 Page 10 2.3. Prepare and submit to the CDTFA information for the purpose of correcting any identified allocation errors, and follow-up with individual businesses and the CDTFA to promote recovery by the City of back or prospective quarterly payments that may be owing. 2.4. If, during the course of its audit, Contractor finds businesses located in the City’s jurisdiction that are properly reporting sales and use tax but have the potential for modifying their operation to provide an even greater share to City, Contractor may so advise City and collaborate with those businesses and City to encourage such changes. 3. Optional Consulting and Other Services Contractor may from time to time in its sole discretion, consult with City’s staff, including without limitation, regarding (i) technical questions and other issues related to sales and use tax, (ii) utilization of reports to enhance business license collection efforts; (iii) sales tax projections for proposed annexations, economic development projects and budget planning, (iv) negotiating/review of tax sharing agreements, (v) establishing purchasing corporations, (vi) meeting with taxpayers to encourage self-assessment of tax obligations, and (vii) other sales and use tax revenue-related matters. Any such optional consulting and other services shall be agreed to in writing in an amendment to this Agreement. FEES 4. Sales and Use Tax and Economic Analysis/Forecasting Services/Reports 4.1. Fees for performing the Sales and Use Tax and Economic Analysis/Forecasting Services/Reports shall initially be $500.00 per month, commencing with the month of the Effective Date (hereafter referred to as “monthly fee”). The monthly fee shall be invoiced quarterly in arrears and shall be paid by City no later than 30 days after the invoice date. 4.2. Contractor’s $500 monthly fee may be adjusted, at the beginning of each Agreement year commencing on the second Agreement year, based on the 12-month percent change in the most recently published annual Consumer Price Index – WestUrban (CPI-WU), as reported by the U.S. Bureau of Labor Statistics (the “CPI Change”) with the base month being that in which the Agreement is fully executed. 5. Sales and Use Tax Allocation and Audit Recovery Services 5.1. Fees for performing the Sales and Use Tax Allocation and Audit Recovery services shall be 15% of all recovered sales and use tax revenue received by the City as a result, in whole or in part, of the allocation audit and recovery services. The 15% fee shall be paid quarterly and only after the Contractor has submitted evidence of Contractor’s relevant allocation and audit recovery services in support thereof, including, without limitation, copies of relevant communications between Contractor and CDTFA and/or taxpayers; the City has received the revenue from the corrected sales and use tax revenue; and the quarterly distribution report has verified receipt of said revenue. 5.2. The fee shall be paid notwithstanding any related City assistance, work in parallel, and/or incurrence of attorneys’ fees or other costs or expenses in connection, with the relevant Services. 5.3. The fee described above includes State fund transfers received for back quarter reallocations for up to three quarters and monies received in the first eight (8) consecutive reporting quarters following completion of Consultant’s allocation audit and confirmation of the corrections by the CDTFA. 6. Optional Consulting and Other Services Docusign Envelope ID: EC5C9E2D-D5B3-469E-BC08-5D17D05EC2F4 Aug. 20, 2024 Item #2 Page 14 of 20 City Attorney Approved Version 12/22/2023 Page 11 6.1. Fees for performing the consulting and other optional Services described above shall be based on the following initial hourly rates: (i) Principal - $325; (ii) Programmer - $295; (iii) Senior Analyst - $245; and (iv) Analyst - $195. 6.2. Contractor may change the rates for its hourly Fees from time to time. A 30 days’ prior written notice to City will be given. 6.3. Any such optional consulting and other services shall be agreed to in writing in an amendment to this Agreement. 7. General Provisions Relating to Fees 7.1. Fees for travel and lodging expenses will be invoiced at cost and applied to all meetings (including implementation, training, operations, and support). Travel expenses only apply to out of scope travel and must therefore be pre-approved by City. 7.2. The Sales and Use Tax and Economic Analysis/Forecasting Services/Reports $500 fee (and applicable CPI adjustment) shall be invoiced quarterly in arrears and shall be paid by City no later than 30 days after the invoice date. The Sales and Use Tax Allocation and Audit Recovery Services fee of 15% shall also be invoiced quarterly in arrears and shall be paid no later than 30 days after complying with Section 5.1. OTHER TERMS INCORPORATED INTO THE AGREEMENT 8. Confidentiality Information Section 7056 of the State of California Revenue and Taxation Code (“R&T Code”) specifically limits the disclosure of confidential taxpayer information contained in the records of the CDTFA. Section 7056 specifies the conditions under which a city, county or district may authorize persons other than such city, county or district’s 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 R&T Code are hereby made part of this Agreement: 8.1. Consultant is authorized by this Agreement to examine sales, use or transactions and use tax records of the CDTFA provided to City pursuant to contract under the Bradley-Burns Uniform Local Sales and Use Tax Law R&T Code Section 7200 et.seq. 8.2. Consultant is required to disclose information contained in, or derived from, those sales or transactions and use tax records only to an officer or employee of City who is authorized by City resolution provided to the CDTFA to examine the information. 8.3. Consultant is prohibited from performing consulting services for a retailer (as defined in R&T Code Section 6015), during the term of this agreement. 8.4. Consultant is prohibited from retaining the information contained in or derived from those sales, use or transactions and use tax records after this agreement has expired. 8.5 Information obtained by examination of the CDTFA 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. Docusign Envelope ID: EC5C9E2D-D5B3-469E-BC08-5D17D05EC2F4 Aug. 20, 2024 Item #2 Page 15 of 20 City Attorney Approved Version 12/22/2023 Page 12 8.6 Contractor certifies that it will comply with the requirements set forth in Section 7056of the State of California Revenue and Taxation Code. 9. Software Use and Proprietary Information Software Use. Contractor hereby provides authorization to City to access Contractor’s Sales Tax website if City chooses to subscribe to the software and reports option. The website shall only be used by authorized City staff. No access will be granted to any third party without explicit written authorization by Contractor. City shall not sublet, duplicate, modify, decompile, reverse engineer, disassemble, or attempt to derive the source code of said software. The software use granted hereunder shall not imply ownership by City of said software, or any right of City to sell said software or the use of same, or any right to use said software for the benefit of others. This software use authorization is not transferable. Upon termination or expiration of the Agreement, the software use authorization shall expire, and all City staff website logins shall be de-activated. Proprietary Information. As used herein, the term “proprietary information” means all information or material that has or could have commercial value or other utility in Contractor’s business, including without limitation: Contractor’s (i) computer or data processing programs; (ii) data processing applications, routines, subroutines, techniques or systems; desktop or web-based software; (iii) business processes; (iv) marketing plans, analysis and strategies; and (v) materials and techniques used. Except as otherwise required by law, City shall hold in confidence and shall not use (except as expressly authorized by the Agreement) or disclose to any other party any proprietary information provided, learned of or obtained by City in connection with the Agreement. The obligations imposed by this Section shall survive any expiration or termination of the Agreement or otherwise. The terms of this section shall not apply to any information that is subject to the California Public Records Act (California Government Code § 6250 et seq.), California Civil Discovery Act (California Code of Civil Procedure § 2016.010 et seq.), and any other applicable law. 10. Data Protection City Data. Contractor shall ensure there is no inappropriate or unauthorized use of City Data, including confidential and sensitive information, at any time by Contractor, officers, employees, or subcontractors. To this end, Contractor shall safeguard the confidentiality, integrity, and availability of City Data within its control using security technologies and techniques in accordance with standard industry practices for such data. In no event may Contractor’s action or inaction result in any situation that is less secure than the security Contractor provides for its own systems and data. Data Breach Responsibilities. This section only applies when there is a breach of City Data within the possession or control of Contractor. Contractor shall: (1) promptly notify City within 24 hours or sooner by telephone, unless shorter time is required by applicable law, if it confirms that there is or reasonably believes that there has been a data breach; (2) cooperate with the City as reasonably requested by the City to investigate and resolve the data breach and provide daily updates; (3) quarantine the data breach and ensure secure access to City Data; (4) promptly implement necessary remedial measures; and (5) document responsive actions taken related to the data breach. Data Location and Ownership. To the extent applicable, the Contractor shall provide its services to the City and its end users solely from data centers in the continental United States. Storage of City Data at rest shall be located solely in data centers in the United States. Contractor will notify the City of any plans to relocate its hosted services to another data center. Contractor shall not allow personnel or subcontractors to store City Data on portable devices, including personal computers, except for devises Docusign Envelope ID: EC5C9E2D-D5B3-469E-BC08-5D17D05EC2F4 Aug. 20, 2024 Item #2 Page 16 of 20 City Attorney Approved Version 12/22/2023 Page 13 that are used and kept only at its U.S. data centers. The City will own all right, title and interest in City Data that is related to the services provided by the Agreement. Docusign Envelope ID: EC5C9E2D-D5B3-469E-BC08-5D17D05EC2F4 Aug. 20, 2024 Item #2 Page 17 of 20 RESOLUTION NO. 2024-201 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, APPROVING HINDERLITER, DE LLAMAS & ASSOCIATES AS THE CONSULTANT AUTHORIZED TO EXAMINE SALES AND US.E TAX RECORDS OF THE CALIFORNIA DEPARTMENT OF TAX AND FEE ADMINISTRATION ON THE CITY'S BEHALF WHEREAS, the California Department of Tax and Fee Administration (CDTFA) administers and collects the California Sales and Use Taxes; and WHEREAS, pursuant to Ordinance No. 1160, the City of Carlsbad entered into a contract with the CDTFA to perform all functions incident to the administration and collection of sales and use taxes; and WHEREAS, pursuant to California Revenue and Taxation Code Section 7056, the City of Carlsbad, by resolution, may designate any officer, employee or any other person to examine all of the sales and use tax records of the CDTFA pertaining to sales and use taxes collected for the city; and WHEREAS, the City of Carlsbad's Finance Director and Finance Manager, or other officer or employee of the city designated in writing by the City Manager to the California Department of Tax and Fee Administration are hereby appointed to represent the city with authority to examine sales or transactions and use tax records of the California Department of Tax and Fee Administration pertaining to sales and use taxes collected for the city pursuant to the contract between the city and the California Department of Tax and Fee Administration; and WHEREAS, the City of Carlsbad has entered into an agreement for sales tax audit, analysis, and reporting services with Hinderliter, de Llamas & Associates, and therefore must designate Hinderliter, de Llamas & Associates as the authorized consultant to examine such sales tax records maintained by the California Department of Tax and Fee Administration on behalf of the city; and WHEREAS, California Revenue and Taxation Code Section 7056(6)(2) further provides that information obtained by examination of California Department of Tax and Fee Administration records may be used only for purposes related to the collection of the local or district tax pursuant to the contract, or for purposes related to other governmental functions of the city; and WHEREAS, California Revenue and Taxation Code Section 7056.5 establishes criminal penalties for the unlawful disclosure of information contained in, or derived from, the sales or transactions and use tax records of the California Department of Tax and Fee Administration. Aug. 20, 2024 Item #2 Page 18 of 20 Exhibit 2 NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, as follows: 1. That the above recitations are true and correct. 2. In all respects as set forth above, the City Council of the City of Carlsbad hereby certifies to the California Department of Tax and Fee Administration that Hinderliter, de Llamas & Associates is the designated representative of the City of Carlsbad to examine sales and use tax records of the California Department of Tax and Fee Administration pertaining to sales and use taxes collected on the city’s behalf; and 3. That the city has entered into an agreement with Hinderliter, de Llamas & Associates (Consultant) which meets all of the following conditions: a. Consultant has an existing contract with the city to examine sales and use tax records; b. Consultant is required by that contract to disclose information contained in, or derived from, those sales 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 by that contract from performing consulting services for a retailer during the term of the contract; and d. Consultant is prohibited by that contract from retaining the information contained in, or derived from, those sales or transactions and use tax records after the contract has expired. 4. That the City of Carlsbad’s Finance Director and Finance Manager, or other officer or employee of the city designated in writing by the City Manager to the California Department of Tax and Fee Administration are appointed to represent the city with authority to examine sales or transactions and use tax records of the California Department of Tax and Fee Administration pertaining to sales and use taxes collected for the city pursuant to the contract between the City of Carlsbad and the California Department of Tax and Fee Administration; and 5. That the city shall certify to the adoption of this Resolution. Aug. 20, 2024 Item #2 Page 19 of 20 PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City of Carlsbad on the 20th day of August, 2024, by the following vote, to wit: AYES: NAYS: ABSTAIN: ABSENT: BLACKBURN, BHAT-PATEL, ACOSTA, BURKHOLDER, LUNA. NONE. NONE. NONE. KEITH �1.ACKBURN, Mayor SHERRY FREISINGER, City Clerk (SEAL) ft Aug. 20, 2024 Item #2 Page 20 of 20 ~~~~