Finance Committee Agenda and Packet 2010 10 18

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COUNCIL COMMUNICATION TO: MAYOR AND CITY COUNCIL FROM: MALCOLM FLEMING, CITY MANAGER DATE: OCTOBER 18, 2010 SUBJECT: EXPANDING SALES TAX AUDITS TO LARGE RETAILERS AND UTILITIES – DISCUSSION PURPOSES ONLY ORIGINATING DEPARTMENT: FINANCE SUMMARY: The Finance Department performs sales tax audits on small to medium-size retailers. The Finance Department does not currently audit large “big box” retailers or utilities. In the past, the Finance Committee has discussed implementing audits of large retailers on a contractual, contingency fee basis, but has not given formal authorization to proceed. Finance staff has been in contact with the sales tax audit staff for the City of Lone Tree. Lone Tree recently audited one of their large retailers by outsourcing the audit work on a contingency fee basis. Based upon results of this audit, they have decided to continue these large audits, but begin performing them with in-house staff. Lone Tree staff found that large retailers consider audits a part of doing business and have large audit teams to handle them as efficiently as possible. We also discussed designs of contingency fee contracts and requirements for retailers to pay for any required travel costs. Staff proposes to renew discussions with the Finance Committee pertaining to sales tax audits of large retailers. Staff would also like to broaden the discussion to the possibility of auditing utilities and combining sales tax audits with franchise fee audits. If the Finance Committee gives authorization to proceed, the Finance Department will: Assess the pros and cons of auditing large retailers on a contractual, contingency fee basis versus using in-house staff. A recommendation, and a request for proposals document, if appropriate, would be brought to the Committee for final consideration. Begin researching the costs, benefits, and processes for auditing utilities and possibly combining franchise fee audits with sales tax audits. Results of this research would be brought back to the Finance Committee for discussion. Draft an ordinance requiring audited retailers to reimburse the City for any required travel. This will incentivize retailers to provide information in digital format and reduce the City’s overall audit costs. SUBJECT AGENDA ITEM Expanding Sales Tax Audits to Large Retailers and Utilities