HomeMy WebLinkAboutStaff Report 2410-3624CITY OF PALO ALTO
CITY COUNCIL
Special Meeting
Monday, March 24, 2025
Council Chambers & Hybrid
5:30 PM
Agenda Item
6.Adoption of a Resolution Authorizing MuniServices LLP, Hinderliter de Llamas &
Associates, and Appropriate City Staff to Examine Sales and Use Tax Records from the
California Department of Tax and Fee Administration (CDTFA); Adoption of an Ordinance
Amending the Municipal Code to Update References to CDTFA; CEQA Status – Not a
Project
City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Administrative Services
Meeting Date: March 24, 2025
Report #:2410-3624
TITLE
Adoption of a Resolution Authorizing MuniServices LLP, Hinderliter de Llamas & Associates, and
Appropriate City Staff to Examine Sales and Use Tax Records from the California Department of
Tax and Fee Administration (CDTFA); Adoption of an Ordinance Amending the Municipal Code
to Update References to CDTFA; CEQA Status – Not a Project
RECOMMENDATION
Staff recommends that the City Council:
1.Adopt a resolution authorizing MuniServices LLP, Hinderliter de Llamas & Associates,
and appropriate City staff to examine sales and use tax records from the California
Department of Tax and Fee Administration (Attachment A), and
2.Adopt an ordinance amending Municipal Code Chapters 2.32 (Sales and Use Tax) and
4.10 (Solicitors, Peddlers, Pawnbrokers, Secondhand Dealers, and Other Businesses
Regulated by Police) to delete references to the State Board of Equalization and replace
with the California Department of Tax and Fee Administration (Attachment B).
BACKGROUND
California Revenue and Taxation Code Section 7056 authorizes the examination of confidential
sales and use tax data by officers or employees of local jurisdictions who are designated by
resolution of the legislative body of the jurisdiction. The review of confidential information is
governed by state law, which sets certain requirements and conditions for the disclosure of
sales and use tax records. State law also establishes criminal penalties for the unlawful
disclosure of sales and use tax information.
After a Request for Proposals (RFP) process, the City contracted with Avenu Insights &
Analytics1 to perform a sales tax audit, analysis, and projections. Although Avenu is the official
1 City Council, June 19, 2023: https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=82399
name of the company, it still operates under MuniServices, LLC for sales tax examination
purposes. In August 2023, staff contracted with Hinderliter de Llamas & Associates (HdL) to
implement the City’s business tax. In February 2024, Council approved the contract with HdL to
administer, collect, and perform tax audits, including review of tax credits such as the sales tax
credit.2
Prior to the City Auditor function being contracted to Baker Tilly, the Office of the City Auditor
(OCA) shared the sales and use tax audit function with MuniServices. With the change in service
delivery of the City Auditor function, the sales and use tax audit function was fully transitioned
to MuniServices.
The Resolution authorizing appropriate personnel to examine sales and use tax data replaces a
prior Resolution adopted by the Council on April 4, 2005.3
In 2017, the State Legislature adopted the Taxpayer Transparency and Fairness Act4, which
reorganized tax collection and administration by transferring many duties previously performed
by the Board of Equalization (BOE) to the newly-created California Department of Tax and Fee
Administration (CDTFA). CDTFA is now responsible for administrating many of the taxes
formally handled by the BOE, including sales and use, fuel and cigarette taxes. CDTFA also
handles the auditing of taxpayers with regard to these taxes.
ANALYSIS
The attached resolution revises the list of positions in the City that have authority to examine
sales and use tax records for taxes collected for the City by CDTFA and allows the City Manager
make updates as needed in the future. The resolution also formalizes MuniServices’ and HdL’s
ability to work with the CDTFA on sales and use tax and business tax audit matters.
In addition to the attached resolution, staff recommends updating the Palo Alto Municipal Code
(PAMC) to replace references to the State Board of Equalization (State BOE) with the California
Department of Tax and Fee Administration (CDTFA) (Attachment B). The City’s tax
administration was not affected by the outdated references because the Muni Code includes a
provision automatically incorporating changes to state law (PAMC 2.32.150). Updating the
references, however, will improve clarity and ease of use of the Code by referring to the
appropriate responsible state agency.
2 City Council, February 5, 2024: https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=82678
3 City of Palo Alto Resolution No. 8509, approved April 4, 2005:
https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/reso-8509.pdf
4 Taxpayer Transparency and Fairness Act of 2017:
https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180SB86
FISCAL/RESOURCE IMPACT
STAKEHOLDER ENGAGEMENT
ENVIRONMENTAL REVIEW
ATTACHMENTS
APPROVED BY:
NOT YET APPROVED
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Resolution No. ________
A Resolution of The City of Palo Alto Authorizing Examination of
Sales or Transactions and Use Tax Records
R E C I T A L S
A. Under Ordinance Number 2756, the City of Palo Alto (City) entered into a contract
with the California Department of Tax and Fee Administration (Department),
formerly the State Board of Equalization, to perform all functions incident to the
administration and collection of sales and use taxes.
B. Under Ordinance Number 2756 and California Revenue and Taxation Code section
7270, the City entered into a contract with the California Department of Tax and Fee
Administration (Department) to perform all functions incident to the administration
and collection of sales and use taxes.
C. The City Council of the City of Palo Alto deems it desirable and necessary for
authorized officers, employees and representatives of the City to examine
confidential sales and use tax records of the Department pertaining to sales and use
taxes collected by the Department for the City pursuant to that contract.
D. Section 7056 of the California Revenue and Taxation Code sets forth certain
requirements and conditions for the disclosure of Department records, and Section
7056.5 of the California Revenue and Taxation Code establishes criminal penalties
for the unlawful disclosure of information contained in, or derived from, the sales
and use tax records of the Department.
NOW, THEREFORE, the Council of the City of Palo Alto RESOLVES as follows:
SECTION 1. That the following listed employee titles are hereby appointed to represent
the City with authority to examine sales and use tax records of the Department pertaining to
sales and use taxes collected for the City by the Department pursuant to the contract between
the City and the Department:
• City Manager
• Assistant City Manager
• Deputy City Manager
• Assistant to the City Manager
• Administrative Services Director
• Assistant Director, Administrative Services Department
• Director, Office of Management and Budget
• Budget Manager
• Principal Management Analyst
• Treasury, Debt, and Investments Manager
• Senior Management Analyst, Administrative Services Department
• Management Analyst, Administrative Services Department
NOT YET APPROVED
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• Other officer or employee of the City designated in writing by the City Manager to the
California Department of Tax and Fee Administration
SECTION 2. The information obtained by examination of Department records shall be
used only for purposes related to the collection of City sales and use taxes by the Department
pursuant to the contract between the City and the Department, and for purposes related to the
following governmental functions of the City:
(a) Budget revenue forecasting;
(b) Administration of the City’s Business Tax; and
(c) Economic Development activities.
The information obtained by examination of Department records shall be used only for those
governmental functions of the City listed above.
SECTION 3. That Hinderliter de Llamas & Associates and MuniServices, LLC. are hereby
designated to examine the sales or transactions and use tax records of the Department
pertaining to sales and use taxes collected for the City by the Department. The persons or
entities designated by this section meet all of the following conditions, which are also included
in the contracts between the City and Hinderliter de Llamas & Associates and MuniServices,
LLC.:
(a) has an existing contract with the City to examine those sales and use tax records;
(b) is required by that contract to disclose information contained in, or derived from,
those sales and use tax records only to an officer or employee authorized under Section
1 of this resolution to examine the information;
(c) is prohibited by that contract from performing consulting services for a retailer
during the term of that contract; and
(d) is prohibited by that contract from retaining the information contained in, or derived
from those sales or transactions and use tax records, after that contract has expired.
//
//
//
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NOT YET APPROVED
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SECTION 4. That this resolution supercedes all prior resolutions of the City Council of
the City of Palo Alto adopted pursuant to subdivision (b) of Revenue and Taxation Code section
7056.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
__________________________ _____________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
__________________________ _____________________________
City Attorney City Manager
_____________________________
Director of Administrative Services
NOT YET APPROVED
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Ordinance No. ____
Ordinance of the Council of the City of Palo Alto Amending Chapter 2.32 (Sales
and Use Tax) and Chapter 4.10 (Solicitors, Peddlers, Pawnbrokers, Secondhand
Dealers, and Other Businesses Regulated by Police) of the Municipal Code to
Delete Obsolete References to the California Board of Equalization and Replace
Them with References to the California Department of Tax and Fee
Administration
The Council of the City of Palo Alto does ORDAIN as follows:
SECTION 1. Findings and Declarations. The City Council finds and declares as follows:
A. Historically, the California Board of Equalization (BOE) was the state agency responsible
for collecting sales and use tax and other taxes, auditing taxpayers, and hearing tax
appeals. In 2017, the Legislature adopted the Taxpayer Transparency and Fairness Act,
which created the California Department of Tax and Fee Administration (CDTFA) and
assigned most of BOE’s former responsibilities for tax collection and administration to
the new agency.
B. The Palo Alto Municipal Code includes local provisions implementing sales and use tax
responsibilities and recognizing state-issued sellers permits required by the Revenue
and Taxation Code. Effective July 1, 2017, these responsibilities were reassigned from
BOE to CDTFA. This ordinance amends the update the Municipal Code to show the
correct state agency.
SECTION 2. The following sections of Chapter 2.32 (Sales and Use Tax) of the Municipal
Code are amended to read as follows:
2.32.040 Purpose.
. . .
(c) To adopt a sales and use tax ordinance which imposes a tax and provides a measure
therefor that can be administered and collected by the State Board of Equalization California
Department of Tax and Fee Administration in a manner that adapts itself as fully as practicable
to, and requires the least possible deviation from, the existing statutory and administrative
procedures followed by the State Board of Equalization California Department of Tax and Fee
Administration in administering and collecting the California State Sales and Use Taxes; . . .
2.32.050 Contract with state.
Prior to the operative date the city shall contract with the State Board of Equalization
California Department of Tax and Fee Administration to perform all functions incident to the
administration and operation of this chapter, provided, that if the city shall not have contracted
with the State Board of Equalization California Department of Tax and Fee Administration prior
to the operative date, it shall nevertheless so contract and in such a case the operative date
NOT YET APPROVED
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shall be the first day of the first calendar quarter following the execution of such a contract
rather than the first day of the first calendar quarter following the adoption of this chapter.
2.32.070 Place of sale.
For the purposes of this chapter, all retail sales are consummated at the place of business of
the retailer unless the tangible personal property sold is delivered by the retailer or his agent to
an out-of-state destination or to a common carrier for delivery to an out-of-state destination.
The gross receipts from such sales shall include delivery charges, when such charges are subject
to the state sales and use tax, regardless of the place to which delivery is made. In the event a
retailer has no permanent place of business in the state or has more than one place of business,
the place or places at which the retail sales are consummated shall be determined under rules
and regulations to be prescribed and adopted by the State Board of Equalization California
Department of Tax and Fee Administration.
2.32.100 Limitations on adoption of state law.
In adopting the provisions of Part 1 of Division 2 of the Revenue and Taxation Code, wherever
the state of California is named or referred to as the taxing agency, the name of the city of Palo
Alto shall be substituted therefor. The substitution, however, shall not be made when the word
"state" is used as part of the title of the State Controller, the State Treasurer, the State Board of
Control, the State Board of Equalization California Department of Tax and Fee Administration,
the State Treasury, or the Constitution of the State of California; the substitution shall not be
made when the result of that substitution would require action to be taken by or against the
city of Palo Alto, or any agency thereof rather than by or against the State Board of Equalization
California Department of Tax and Fee Administration, in performing the functions incident to
the administration or operation of this chapter; the substitution shall not be made in those
sections, including, but not necessarily limited to, sections referring to the exterior boundaries
of the state of California, where the result of the substitution would be to provide an
exemption from this tax with respect to certain sales, storage, use or other consumption of
tangible personal property which would not otherwise be exempt from this tax while such
sales, storage, use or other consumption remain subject to tax by the state under the
provisions of Part 1 of Division 2 of the Revenue and Taxation Code, or to impose this tax with
respect to certain sales, storage, use or other consumption of tangible personal property which
would not be subject to tax by the state under the said provisions of that Code; the substitution
shall not be made in Sections 6701, 6702 (except in the last sentence thereof), 671 l, 6715,
6737, 6797 or 6828 of the Revenue and Taxation Code; and the substitution shall not be made
for the word "State" in the phrase "retailer engaged in business in this State" in Section 6203 or
in the definition of that phrase in Section 6203.
2.32.140 Application of provisions relating to exclusions and exemptions.
(a) Section 232.130 shall become operative on January 1st of the year following the year in
which the State Board of Equalization California Department of Tax and Fee Administration
adopts an assessment ratio for state-assessed property which is identical to the ratio which is
required for local assessments by Section 401 of the Revenue and Taxation Code, at which time
Section 2.32.120 shall become operative.
(b) In the event that Section 232.130 becomes inoperative and the State Board of
Equalization California Department of Tax and Fee Administration subsequently adopts an
assessment ratio for the state-assessed property which is higher than the ratio which is
NOT YET APPROVED
3
required for local assessments by Section 401 of the Revenue and Taxation Code,
Section 2.32.120 shall become operative on the first day of the month next following the month
in which such higher ratio is adopted, at which time Section 232.130 shall be inoperative until
the first day of the month following the month in which the board again adopts an assessment
ratio for state-assessed property which is identical to the ratio required for local assessments
by Section 401 of the Revenue and Taxation Code, at which time Section 232.130 shall again
become operative and Section 2.32.120 shall become inoperative.
SECTION 3. Section 4.10.280 of Chapter 4.10 (Solicitors, Peddlers, Pawnbrokers,
Secondhand Dealers, and Other Businesses Regulated by Police) of the Municipal Code is
amended to read as follows:
4.10.280 Exemptions.
(a) The provisions of this chapter shall not apply to secondhand goods, wares and
merchandise:
(1) Purchased at a public sale or auction;
(2) Purchased from any person holding a State Board of Equalization California
Department of Tax and Fee Administration permit number as a seller;
(3) Accepted in trade on the purchase of new merchandise;
(4) Received or purchased by any religious, charitable, civic or fraternal organization for
purposes of resale.
SECTION 4. Severability. If any provision, clause, sentence or paragraph of this
ordinance, or the application to any person or circumstances, shall be held invalid, such
invalidity shall not affect the other provisions of this Ordinance which can be given effect
without the invalid provision or application and, to this end, the provisions of this Ordinance
are hereby declared to be severable.
SECTION 5. Effective Date. This ordinance shall be effective on the thirty-first date after
the date of its adoption.
//
//
//
//
//
NOT YET APPROVED
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SECTION 6. CEQA. The City Council finds and determines that this Ordinance is not a
project within the meaning of section 15378 of the California Environmental Quality Act
(“CEQA”) because it has no potential for resulting in physical change in the environment, either
directly or ultimately. In the event that this Ordinance is found to be a project under CEQA, it is
subject to the CEQA exemption contained in CEQA Guidelines section 15061(b)(3) because it
can be seen with certainty to have no possibility of a significant effect on the environment in
that this Ordinance simply clarifies existing local regulations.
INTRODUCED:
PASSED:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
ATTEST:
APPROVED:
______________________________ ____________________________
City Clerk Mayor
APPROVED AS TO FORM: ____________________________
City Manager
______________________________
City Attorney ____________________________
Director of Administrative Services