Finance Committee Agenda and Packet 2013 10 15

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EXECUTIVE SUMMARY The City of Louisville, Colorado is seeking proposals to perform sales and use tax and franchise fee compliance audits (the "Audits ") to ensure compliance with existing franchise terms and conditions, including franchise fee payment review and the payment of all City sales and use tax as required per the Louisville Municipal Code. The City intends to engage a qualified firm or firms to assist in this process with the identification of specific sources of revenue subject to sales tax, use tax or franchise fees by examining relevant data of the Franchise Taxpayers. The engaged firm will evaluate allocation methodologies, search for unreported revenues and examine the Franchise Taxpayers books, records and other data to identify and correct any errors related to payments to the City. Since sales tax, use tax and franchise fee compliance and recovery services are highly specialized areas, working with industry experts who have a proven track record is essential to maximize the recovery of underpaid amounts and establish the framework for future payments. The Louisville Allixa Audit Team ( "Allixa ") provides experts that meet and exceed the requested qualifications. The franchise fee, sales tax and use tax payments due to the City are determined by a multi- step process based on the type of service provided. The customers pay monthly bills to the electric and gas and cable /video companies for use of their services. The franchisees have customers within the City's boundaries; provide services to and collect revenues from these customers. The franchisees are required to identify transactions and or revenues from customers within the corporate limits of the City, whether or not the billing location of the customer is within the City. The franchisee then pays, based on sales or facilities, a sales tax, use tax and /or franchise fee for use of the City's rights -of -way. The definition and determination of franchise fee payments are set forth in the applicable federal, state and local regulations and the franchise agreements provided in the RFP. Addressing the City's Key Challenges As part of the Audits, Allixa, on behalf of the City, will address the following challenges: • Identify the transactions occurring within the City, and the correct tax and fee base based on the type of service provided within the City's corporate limits. The tax and fee base is not constant because the franchisee may not recognize changes in corporate boundaries such as annexations or new developments. • Ensure that the Franchise Taxpayers have accurately included all sales and transactions in accordance with the applicable federal, state and local regulations and the franchise agreements. Sales tax, use tax and or franchise fee payments often include errors that may be due to software changes, clerical errors, or different interpretations of reporting requirements. How Allixa Would Approach the Work Our approach is to ensure that: • All goals and requirements of the City set forth in the RFP are met or exceeded; • All taxes and fees due to the City are identified with calculations of any additional amounts due in the form of underpayments and associated interest and penalties; and, • Non - compliance issues are identified and solutions proposed for future payments. 1 17