HomeMy WebLinkAboutItem 06 - Transactional Tax AnalysisITEM N _(0��
MEMO TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: ROGER NELSON, CITY MANAGER
MEETING DATE: MARCH 23, 2004
SUBJECT: PROFESSIONAL SERVICES AGREEMENT
RECOMMENDATION:
City Council to consider authorizing the City Manager to execute an agreement with Kasner
& Associates, LLC, for a transactional tax analysis for the purpose of identifying,
quantifying and recovering misapplied City sales taxes.
FUNDING SOURCE:
Fees for this service will be paid from recovered sales taxes identified by the firm.
BACKGROUND:
The purpose of this contract is to hire Kasner & Associates to review the state sales and
use tax filings of all businesses located in Grapevine to determine if the amounts filed with
the State have been properly calculated and remitted. If amounts are due the City, the firm
will assist the City in obtaining recovery of underpayments. The firm will receive 33% of
any recoveries received.
Local sales and use taxes in Texas are sited depending upon the jurisdiction, the makeup
of the business sales force, delivery methods and warehousing practices. By extracting
and merging a variety of Grapevine, State and publicly maintained databases, the firm can
identify businesses that are incorrectly reporting local taxes. This analytical work will cover
current businesses and will go back four to five years into historical data to identify possible
recoveries for past transactional tax payment errors.
The City staff maintains a regular review of sales and use tax filings from local businesses.
Laws in Texas being what they are, however, the City does not have the staff to pursue the
businesses to determine if sales tax filings are correctly calculated for the proper City taxes
paid and remitted to the State of Texas. Furthermore, the staff does not have the expertise
to research historical data available on those filings as well as other data sources which
could be used to determine if there are businesses located in Grapevine that have not filed
sales tax at all.
March 17, 2004 (1:50PM)
In addition to the recovery study, Kasner & Associates will be performing, under a separate
agreement, a study to determine the potential impacts of proposed sales tax streamlining
legislation. Proposed State and Federal legislation would change the sale tax collection
situs from the point of sale (as it is currently) to the point of delivery of goods or services.
Preliminary estimates prepared by City staff indicates that the loss of sales tax revenues
to Grapevine under such a scenario would be substantial, as much as $1.7 million per
year. From the State's standpoint, the situs for the transaction has no negative impact, as
long as the delivery point is in Texas. To cities, the situs of the sale transaction can make
a large difference.
The intent of the impact study would be to obtain a detailed estimate of possible losses and
use that information to work with State legislators, to write the legislation such that the
negative impact to the City of Grapevine would be lessened. With Council approval of the
Sales Tax Recovery Study by Kasner, the streamlining impact study will cost $3,500.00.
Results of both studies will be shared with City Council when available. The streamlining
study is estimated to take four to eight weeks and the sales tax recovery study is estimated
to take four to six months, depending upon availability of databases.
A copy of the recovery study professional services agreement and supporting information
from Kasner & Associates is attached.
Staff recommends approval.
WAGlcjc
H:AGM ProfessionalSalesAg reement-3-23-04
March 17, 2004 (1:50PM)
Kasner & Associates LLC
Transactional Tax Analysis ("TTA") is designed to accomplish
two purposes:
- identify, quantify and secure Recoveries of misapplied city
transactional taxes, and
- develop corrective measure recommendations designed to
maximize future transaction tax opportunities.
Businesses are often challenged in determining proper city tax. Texas
local taxes are sited under a variety of methods depending upon the
jurisdiction, the make-up of the business sales force, delivery
methods, and warehousing practices.
TTA by extracting and merging a variety of Grapevine, State, and
public maintained data bases, can identify businesses that may be
incorrectly reporting local taxes. These suspect businesses are
further investigated to affirm proper remittance of local taxes by
Grapevine's businesses.
If research confirms misallocation of Grapevine taxes, a request is
made of the business directly or the State to reallocate the tax for the
open statute period to Grapevine.
TTA also reviews all sales/use tax collections, reporting, and payment
practices to identify possible Recoveries for past transactional tax
payments by Grapevine to vendors and/or the taxing authorities.
In addition to Recoveries, TTA also provides recommendations
addressing corrective measures designed to maximize sales/use
monies for Grapevine long after TTA has secured its immediate
Recoveries.
Reflecting a partnership with Grapevine, Recoveries are typically
shared between Kasner & Associates LLC ("KA") under either: 1) a
tiered approach with fees beginning at 50% of initial recoveries and
ending at 0% of any recoveries in excess of $5 million, or 2) 33% of any
recoveries, or 3) if Grapevine elects a fixed fee estimated at $20,000 to
$25,000 plus out of pocket expenses for the completion of Phase I -
Initial Scoping and Analysis, with a separate Service Agreement for
subsequent Phases based on the estimated processes and procedures
discussed within the Recovery Plan.
There are no additional fees for any for future increased business
remittances, nor for developing corrective measures
recommendations.
Kasner & Associates LLC
To ensure that the project runs efficiently, it is segregated
into Phases. Below is an overview of the steps involved
in each Phase:
Phase I — Initial Scoping & Analysis
- Interview key personnel
- Gain an understanding of Systems
- Obtain past filings by Grapevine
- Obtain test data extracts from State & City Systems
- Merge test data sets into a common platform
- Test data extractions to affirm completeness and
accuracy
- Query test data for suspect businesses
- Test City transactional collection/reporting practices
- Establish an Initial Project Recovery Plan, based on
tested suspect businesses & City's tax reporting
practices
- Discuss/Obtain mutual agreement to proceed with
project & based upon Initial Project Recovery Plan
Phase 11— Identification/Quantification/Documentation
- Using Initial Project Plan expand the analysis
- Obtain/Compare complete data sets from Grapevine
and State
Research significant suspect businesses, including,
but not limited to:
business publications,
on-line research,
credit/business reports, and/or
direct communication with businesses
- Prepare Reallocation Request of business or State
with supporting documentation
- Expand testing of transactional tax collection,
reporting and payment to address any significant
refunds/credits
- Prepare refund claims for taxes colleted, reported
and/or paid directly by City that meet prevailing
exemptions
- City reviews and approves all flings
PE,
Kasner & Associates LLC
Phase III — Filings/Verifications
- File Reallocation Request and any Refund/Credit
claims with proper taxing authorities
- Represent City during verifications by tax
authorities, and/or vendors
- Provide periodic status reports of verification
progress
- Monitor account for reallocations, refunds, and
credits as they are approved and issued
Phase IV — Final Report
Issue report summarizing
- Procedures employed
- Systems addressed
- Tax types/issues examined
- Issues identified
- Recoveries pursued
- Recoveries recognized
- Issues not pursued & reasons why
- System enhancements
- Process considerations
- Training/self-audit programs
Assistance in implementing any recommendations or
corrective measures will be under separate proposal.
Professional Service Agreement
This Agreement is entered into by Kasner & Associates, a Texas LLC, (herein called
"Firm") and the City of Grapevine, Texas (herein called "Client").
In consideration of the mutual promises herein contained, Firm and Client agree that:
I. Scope of Services
The Firm shall to the best of its ability and skill, perform a review of the Client's
data concerning Client's businesses, transactional tax accounting systems, audits,
procedures, invoices, internal/external reports/filings, contracts, agreements, and
other supporting records to ensure proper application of local tax situs, state & local
tax exemptions, exclusions, and/or apportionment in order to identify, quantify, and
secure recoveries on behalf of the Client.
The first deliverable will be an Initial Recovery Plan that outlines opportunities, data
necessary to perfect any potential recoveries, processes and procedures that must be
implemented to actual secure Client's potential recoveries, and defines future
deliverables. Upon mutual acceptance of the Initial Recovery Plan, the Firm will
provide all process and procedures steps necessary to fully implement the Plan.
Upon project completion, a report summarizing recoveries identified and, review
procedures employed will be provided, to the extent significant recoveries are
secured on behalf of the Client. To the extent possible, such a report will offer
recommendations concerning measures that the Client may wish to employ to
increase the accuracy of its transactional tax reporting practices. Implementation of
any such recommendations is not included within the scope of this Agreement.
The periods included in this review are all periods open under state, federal and/or
other taxing jurisdictions' statute of limitations or four years, whichever is greater.
This review does not result in any opinion, attestation, or other form of assurance
with respect to the Client's transactional tax reporting or any other financial
reporting functions of the Client. The procedures employed by this review do not
constitute an examination or a review per General Accepted Auditing Standards.
Neither does this review constitute a review of internal controls over any Client
financial reporting function. The review is not limited nor directed towards the
discovery of fraud, illegal acts, or material exceptions. The firm is not a public
accounting firm.
II. Fees & Billings
Fees will be 33% of all Recoveries.
Recoveries include any and all transactional tax increases to Client's monthly State
sales/use tax allocations reflected in its Texas Comptroller Local Tax Account #
2220022, and any other Comptroller Accounts in which sales/use tax is remitted to
the Client for past taxes improperly reported by businesses and identified as a result
of the Firm's efforts, or any other transactional tax refunds or credits identified by
the Firm. Included in Recoveries is any tax, interest or penalty refunded or offset
against existing, past or future liabilities.
We reasonably expect and recommend that any Recoveries identified will undergo
substantive review and consideration by the taxing authorities. However, if Client
elects to forego such a review by taxing authorities an addendum to this Agreement
will be required specifying the amended terms.
Fees are due and payable at the earlier of:
• documented offset of the Recoveries to reduce any past, current or future
tax liability or vendor accounts payable balance; or
• receipt by the Client of Recoveries from the tax jurisdiction(s), including
the increased State city tax allocations, or refunds/credits received from
vendors.
Once opportunities that may lead to Recoveries are identified, an Agreement to
Proceed will be issued. The Agreement to Proceed will outline the opportunities and
affirm that the Client will seek such recoveries to its fullest efforts.
If at any time after the Agreement to Proceed has been approved, Client elects to
forego any or all opportunities for recoveries to which it is entitled under tax
authority law, regulation, or published tax authority policy, interpretation, or ruling
court, Client agrees that fees as stated in Section II will be due and payable -
immediately as if Client has acknowledged the forgone opportunity as valid.
In the event the Client does not agree to proceed using the Firm's services with any
or all of the opportunities outlined in the Agreement to Proceed no fees will be due.
However, if the Client independent of the Firm pursues the identified opportunities,
or elects to prospectively implement corrective measures concerning the
opportunities, either with its own resources or those of another party, the Client
agrees that fees as stated in Section II will be due and payable immediately to the
Firm as if the Client has acknowledged the opportunity(ies) as valid.
Fees for optional services requested, beyond those described in Section I, will be
incurred only to the extent of the Client's request. We will submit a separate
Professional Services Agreement for the Client's approval prior to commencing any
work.
III. Responsibilities of the Firm
Firm services will be performed based upon the information provided by the Client
and tax authorities. In addition, services will be performed in consideration of
applicable tax laws, regulations and associated interpretations relative to the
appropriate jurisdiction as of the date the services are provided. Tax laws and
regulations are subject to change at any time, and such changes may be retroactive in
effect and may be applicable to advice given or other services rendered before their
effective dates. The Firm does not assume responsibility for such changes occurring
after the date we have completed our services.
With regards to the services provided under the terms of this agreement, the Firm
will discuss with the Client any positions that the Firm believes may subject the
Client to additional liabilities. The Firm is not held responsible for determining
these liabilities, nor is the Firm responsible for any liabilities assessed against the
Client as the result of the Client's failure to provide all relevant information relative
to the issue under consultation. As stated in Section II, any such liabilities are
disregarded for determining fees.
IV. Engagement Limitations/Termination
In the event the Firm discovers activities or practices of the Client that the Firm
deems inappropriate or that would prevent the project from being completed, or
should the Client fail to provide the Firm with adequate and accurate information or
the requisite assistance to allow for the proper completion of this project, the Firm
reserves the right to resign from the engagement prior to the completion of the work.
In such an event, the Client agrees to be responsible for all professional fees and
expenses incurred prior to the resignation.
At any point during the project, the Firm has the right to terminate the services
covered by this agreement by providing written notice to the Client of such
termination. If such an election is made at the Firm's sole discretion, and not as a
result of the Client activities stated above, the Firm's fees will be limited to its
percentage of only those Recoveries received by Client as a result of Firm actions
prior to its termination of the project.
The Firm is not restricted by anything in this agreement from providing services for
other clients.
The Client reserves the right to terminate the services covered by this agreement at
any time by providing the Firm written notice of such intentions subject to Section II
terms and conditions.
The Firm makes no other representation or warranty regarding either the services to
be provided or any deliverables; in particular, and without limitation of the
foregoing, any express or implied warranties of fitness for a particular purpose,
merchantability, warranties arising by custom or usage in the profession, and
warranties arising by operation of law are expressly disclaimed.
V. Non -Disclosure Requirements
In the performance of this Agreement, Client and Firm may not disclose technical,
financial, or other information, material or data either via oral, written, or any other
form, either electronic or otherwise, which is considered confidential and proprietary
(Confidential Information). Such Confidential Information does not include any
information known to the receiving party prior to the Agreement, is available to the
public under Texas' Open Records Act, or published and available to the general
public regardless of source. Unless otherwise agreed, the receiving party agrees not
to disclose Confidential Information; will use the same degree of care and diligence
to protect and secure Confidential Information as it uses for its own information; and
will not copy or reproduce the Confidential Information except in the performance of
the services described in this Agreement. The receiving party may disclose such
Confidential Information to its associates, affiliates, consultants, and agents
necessary to perform the Agreement's services.
In the event either Client or Firm is required by law, rule, regulation or lawful order
to disclose Confidential Information, the disclosing party agrees to notify the other
party immediately to allow the other party to take steps it deems necessary to protect
its Confidential Information.
Both Client and Firm acknowledge and agree that the disclosing party owns all
rights, interest, and title to the Confidential Information. Both Client and Firm agree
that the unauthorized disclosure of the Confidential Information will cause
irreparable harm to the other party. As a result of the unique nature of the
Confidential Information, in addition to all other available remedies, the disclosing
party shall be entitled to seek injunction and other extraordinary relief in a court of
competent jurisdiction in order to enforce the receiving party's obligations under this
Agreement.
The clauses regarding liability limitations and indemnification shall survive any termination
of this agreement. This agreement will be governed by the laws of the State of Texas.
Venue on any suit hereunder shall be in Tarrant County, Texas.
Accepted on
Authorized Signature
Roger Nelson, City Manager
2004;
Kyle Kasner, Managing Member