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HomeMy WebLinkAboutMINUTES - 12031991 - FC.1 FC-1 TO BOARD OF SUPERVISORS �, FRCM; Finance Committee, `" ��..tra Nancy Fanden C,,"W a Tom Torlakson CountyDATE'. December 3 , 1991 SUBJECT: ALLOCATION OF SALES TAX TO CITIES AND THE COUNTY SPECIFIC REQUEST(S) OR RECOMMENDATION(S ) & BACKGROUND A.NU JUSTIFICATION RECOMMENDATIONS: 1. Accept the report from the County Administrator on the allocation of sales tax revenue to the City of Brentwood. 2. Develop and pursue legislation which will reform the sales tax allocation process. 3. Consult with the City of Brentwood regarding sponsorship of legislation and possible litigation if the legislative channel fails. 4. Pursue with the City-County Relations Committee an agreement for joint contracting of sales tax auditing services and other steps involving staff coordination which may reduce, errors. 5. Provide businesses within the unincorporated areas with appropriate sales tax forms and information through the Administration of the Business License Tax Program. 6. Provide the State Board of Equalization with the most recent County base maps from which to determine city and county boundaries. BACKGROUND: On July 23 , 1991, the Board referred to the Finance Committee, the task of reviewing the procedures for the allocation of sales taxes among cities and counties. The issue was brought to the Board by the City of Brentwood who had petitioned the County for a payment of $68,000 in 1989 sales tax revenues erroneously allocated to the County. CONTINUED ON ATTACHMENT: YES SIGNATURE; RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENOATION OF BOARD COMMITTEE T_ APPROVE _.__.— OTHER sIGNATUREIsf: -_, Nancy Fah n Tom Torlakson _._ ACTION OF BOARD ON De ember 3, 1991 n _.PROVED AS RECCP•cN;_NDF—D —X OTHER _- VOTE OF SUPERVISORS I F(EREEY CERTIFY THAT THIS is A TRUE X UNANIMOUS (ABSENT ^III_ ) ArM CORREC :" COPY OF' AN ACTION TAKEN NOE'S: _ AND ENTERED 014 THE M I PIUTES OF THE BOARD ABSENT: ABSTAIN: _ OF SUPERV1SGRS GN THE DATE SHOWN. County Administrator ATTESTED December 3, 1991 PHIL BATCHELOR. CLERK OF THE BOARD OF SUPERVISORS AND COUNTI' ADMINISTRATOR DEPUTY M382/7-83 _ - -2- In California, the State Board of Equalization distributes sales tax revenue on a situs or "point of sale" basis. In Contra Costa County, the cities provide 2. 5 cents of each sales tax dollar generated to the County. The problem of erroneous allocations of sales tax revenue was discussed by the Board in 1989. At that time, the City of Pittsburg was recipient of $884,667 in sales tax monies which should have been allocated to the County. The County petitioned the State Board of Equalization for recovery of the revenue and was able to collect $746 ,306. The limitation on full recovery of revenues as a result of an error is section 7209 of the Revenue and Taxation Code. That section authorizes the State Board to make corrections and redistributions for such amounts going back only two quarters prior to the quarter in which the error becomes known. The City of Brentwood detected an error by the State Board in May, 1991. They requested that all sales taxes be reallocated to the City. The State Board transferred $48,613 from County allocations to the City applying section 7209 above. However, revenues totalling $68,506 were not reallocated to the City because they were allocated to the County more than two quarters prior to the discovery of the error. The frequency of errors -was the prime reason the County entered into a contract with Hinderliter, De Llamas & Associates. Since May 1990 , this firm has provided sales tax audits in order to identify and correct sales tax distribution errors and thereby generate previously unrealized sales tax income. To date, the consultant has corrected 89 errors which can be projected to an annual sales tax amount of $625 ,320. These errors have been discovered in cities including Martinez, Concord, Walnut Creek, Richmond and Brentwood. The amount of unrecovered sales tax revenue is not known. The County has 3,600 active firms listed with the State Board of Equalization. Approximately 200 business changes occur each month of 2, 400 each year. These changes require State processing and provide the major opportunity for allocation errors. Business changes include ownership changes, location changes, establishment of new business and annexation of business location into a city. The types of common errors made with sales tax allocation include the following: 1. Transposition errors; 2. erroneous consolidation of multiple outlets; 3 . misreporting of "point of sale" from the wrong location; 4. delays in reporting new outlets; and 5. misidentifying transactions as a use tax rather than a sales tax. Based on the above review, the City of Brentwood' s experience is not unique. The County has suffered loss of revenues because of State errors in allocating sales tax revenues to the cities. The rules governing reallocation are long standing and extraordinary efforts to compensate Brentwood should not be unilateral. Moreover, the County cannot return the $68,506 to Brentwood because of the legal prohibition of gift of public funds. Lloyd De Llamas from Hinderliter, De Llamas & Associates attended the Finance Committee meeting and discussed these issues and provided insight into potential reforms of the sales tax allocation process. Possible areas for reform which were discussed included: 1. Legislative extension of the two quarter correction rule; 2. exploration of the state paying for errors that cannot be completely corrected; -3- 3 . exploration of an agreement with the cities in the County for joint contacting of sales tax auditing services; 4. exploration of enhanced coordination efforts between City and County staffs; 5. prevention of errors through providing businesses with forms and information through the Administration of the County Business License Tax; and 6. prevention of errors through providing of County base maps which delineate city-county boundaries, to the State Board of Equalization.