Report Prepared by: Venus Rodriguez, Finance Officer
Title
SUBJECT: Approval of Master Services Agreement with Hinderliter de Llamas and Associates for Consultation Services for Sales, Use and Transaction Tax
REPORT IN BRIEF
Considers approving the Master Services Agreement with Hinderliter de Llamas and Associates (HdL) for Consultation Services for Sales, Use and Transaction Tax.
RECOMMENDATION
City Council - Adopt a motion:
A. Approving Master Services Agreement with Hinderliter de Llamas and Associates for Consultation Services for Sales, Use, and Transaction Tax; and,
B. Authorizing the City Manager or designee to execute the necessary documents.
Body
ALTERNATIVES
1. Approve, as recommend by Staff; or,
2. Approve, subject to other than recommended by Staff; or,
3. Deny; or,
4. Refer to Staff for reconsideration of specific items; or,
5. Continue to a future meeting.
AUTHORITY
Merced Municipal Code Charter 3.04 relating to the purchase of materials, supplies, equipment, and contractual services of an estimated value greater than forty-one thousand dollars ($41,000).
CITY COUNCIL PRIORITIES
As provided for in the proposed 2026/2027 Budget.
DISCUSSION
The City of Merced has maintained a longstanding contractual relationship with Hinderliter, de Llamas & Associates (HdL) for tax consulting services. Over the past two decades, the City Council has approved multiple agreements and amendments with HdL, as well as resolutions designating HdL as an authorized examiner of confidential tax records held by the California Department of Tax and Fee Administration.
On July 15, 1996, the City Council approved a consultant agreement with HdL to perform sales tax reporting services and sales and use tax allocation audit to detect and correct misallocation of sales tax and information services.
In June 2009, the City Council approved the First Amendment to Agreement for Sales Tax Audit and Information Services. This agreement reduced the scope of the agreement by removing the consulting and reporting services. These services were terminated due to the downturn and reduction in the City’s budget. The Finance Department recommended reducing the scope of the agreement as a cost-saving measure. HdL continued the audit service that enables the City to capture misallocated sales, use and transaction tax revenues. The fee for the audit service is based on a percentage of revenue recovered by the audit.
The Second Amendment to the Agreement was approved by City Council on 08/05/2013. The amendment reinstated the consulting and reporting services for sales tax which included the 2006 approved Measure C transaction and use tax. The current cost of the service is $765.50 per month. The monthly fee increases annually by the Consumer Price Index (CPI).
Most recently on June 17, 2024, the City Council approved the Third Amendment to the Agreement as well as a resolution which was required by the California Department of Tax and Fee Administration (CDTFA) to allow HdL access to information for the new Measure C sales and use tax that began July 1, 2024. The CDTFA required the City amend the agreement with HdL to specify the inclusion of consultation services for Transaction Tax-Measure C which was approved by ballot measure on March 5,2024. The amendment made no other changes to any previous agreements with HdL including the fee structure.
HdL has requested that we execute a new Master Agreement. This will not change any of the services we currently utilize from HdL. It incorporates all of the services into one Master Agreement and does include a new fee structure.
Fees under our current agreement are $802 per month for quarterly reporting and recovery services are 15%. We average $1,500 per month in fees ($18,000 annually). Quarterly reporting fees do increase by CPI annually.
Under the new fee structure, we will initially pay $832.32 per month for quarterly reporting and recovery services will be 18% for Bradley Burns sales tax (General Fund) and 25% for Measure C sales and use tax. The average cost per month is estimated to be $1,664 per month ($19,968 annually) which is approximately 11% increase in the first year.
The second and third year have a specific increase for quarterly reporting, $884 and $968. Including recovery services that will not increase, this is a 20% increase over three years. After year three quarterly reporting fees will increase by a CPI annually.
HdL is one of the few companies providing this service in California and currently serves more than 700 entities. HdL has provided the City of Merced with consistent, responsive service for several years, including timely sales-tax analysis and ongoing support. The assigned Principals are retirees of local government agencies in the Central Valley. Their experience gives them a practical understanding of how sales-tax changes affect communities like ours and enables them to provide locally informed data.
These services are classified as professional and specialized services under Merced Municipal Code Section 3.04.110, which exempts such contracts from the competitive bidding requirements. This exemption applies to contracts involving professional or specialized services such as those rendered by consultants, attorneys, engineers, and similar professionals.
IMPACT ON CITY RESOURCES
No additional funding is needed for the Master Services Agreement. We have sufficient funding within the FY 26-27 Finance Dept. adopted budget. Future years will be included in the budget process.
ATTACHMENTS
1. Master Services Agreement
2. Resolution 2024-47 Examination of Confidential Records