TO:
Honorable Mayor and Members of the City Council
THROUGH:
Talyn Mirzakhanian, City Manager
FROM:
Onyx Jones, Interim Finance Director
Libby Bretthauer, Financial Services Manager
Emy-Rose Hanna, Revenue Services Supervisor
SUBJECT:Title
Consideration of a Resolution Approving the Preparatory and Administrative Agreements with the California Department of Tax and Fee Administration (CDTFA) for Implementation of the City’s Local Transactions and Use Tax; Consideration of a Resolution Authorizing the Examination of Confidential Records; and Appropriation of Unbudgeted Funds from the Unreserved General Fund Balance (Interim Finance Director Jones).
A) ADOPT RESOLUTION NOS. 24-0141 AND 24-0142
B) APPROPRIATE FUNDS
Body
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Recommended Action
RECOMMENDATION:
Staff recommends that the City Council take the following actions:
a) Adopt Resolution No. 24-0141, approving the Preparatory and Administrative Agreements with the California Department of Tax and Fee Administration (CDTFA) for Implementation of the City’s Local Transactions and Use Tax; and
b) Adopt Resolution No. 24-0142, Authorizing the Examination of Confidential Records; and
c) Appropriate $175,000 from the unreserved General Fund balance.
FISCAL IMPLICATIONS:
The City of Manhattan Beach is required to enter into Preparatory and Administrative Agreements with the California Department of Tax and Fee Administration (CDTFA) for implementation of the City’s new Transactions and Use Tax (i.e. sales tax) measure approved by Manhattan Beach voters on November 5, 2024.
The Preparatory Agreement will incur a one-time cost up to $175,000 this fiscal year for CDTFA’s staff time, operating expenses, data processing time, printing and postage costs associated with taxpayer notification. An additional appropriation of $175,000 from the unreserved General Fund balance is required; however, the actual cost may be lower as CDTFA’s total preparatory costs will be shared with other agencies implementing new taxes at the same time.
The Administrative Agreement will incur an ongoing annual cost of $38,500, which will be budgeted in future years accordingly. Both agreements’ costs will be offset by revenues generated from Measure MMB.
The voter-approved sales tax measure will take effect on April 1, 2025. It is estimated to generate approximately $1.25 million in revenue for the remaining months of Fiscal Year 2024-2025 (April through June 2025) and approximately $5 million annually thereafter. These new sales tax revenues will be included in the upcoming mid-year and annual budget process.
BACKGROUND:
On August 6, 2024, the Manhattan Beach City Council approved a resolution to place a ballot measure to establish a one-half cent (0.50%) sales tax which would “provide funding for general city services in Manhattan Beach, including keeping local streets, sidewalks, infrastructure, and parks safe, clean, and well-maintained; repairing / upgrading aging community facilities; fixing potholes; and improving parking availability and traffic safety.”
On November 5, 2024, Manhattan Beach voters approved Measure MMB, which authorizes the 0.50% transactions and use tax to become effective April 1, 2024.
Throughout this process, staff has been in contact with the CDTFA and received direction to prepare the required documents needed to administer and implement the new transactions and use taxes, which include the Agreements and Resolutions attached in this agenda report.
DISCUSSION:
The California Department of Tax and Fee Administration (CDTFA) is the State agency responsible for overseeing the collection and reporting of all sales taxes throughout the State. In its role as administrator, CDTFA collects sales taxes from retailers throughout the State and remits these revenues to cities, counties, and special districts, as applicable. In order for the City of Manhattan Beach to begin receiving Measure MMB revenues in April 2025, it is necessary to approve the following documents required by the CDTFA:
a) Resolution No. 24-0141, Approving the Preparatory and Administrative Agreements with CDTFA.
1. Preparatory Agreement - This Agreement authorizes CDTFA to complete the one-time preparatory work including developing procedures, programming for data processing, developing and adopting appropriate regulations, designing and printing forms, developing instructions for the CDTFA staff and for taxpayers, and other necessary preparatory costs to administer a Transactions and Use Tax ordinance.
2. Administrative Agreement - This Agreement authorizes CDTFA to administer and implement the new tax on an ongoing basis each year. This includes administrative and operational functions, such as ensuring compliance with the City’s Transactions and Use Tax Ordinance, collecting funds from retailers, reviewing payment submissions and tax allocations for appropriateness, and remitting funds to the City.
b) Resolution No 24-0142, Authorizing Examination of Confidential Records - This Resolution authorizes certain City officials and the City’s sales tax consultant, Hinderliter, de Llamas & Associates, to access confidential sales tax data. This Resolution also requires the City have a contract with this consultant to examine those confidential sales tax records. The City currently has an existing contract with Hinderliter, de Llamas & Associates for the base sales tax (Local 1% Bradley-Burns sales tax), however, the City will need to enter into an amendment or new agreement to factor the new Measure MMB 0.50% transactions and use tax.
In addition to the list above, the CDTFA requires confirmation of the election results for Measure MMB through a certified copy of the Transactions and Use Tax Ordinance No. 24-0009, which is being certified by the City Clerk at the City Council meeting on December 17, 2024.
By approving the proposed Resolutions and Agreements noted above, and appropriating funds for the preparatory costs, the City can proceed with the next steps necessary in implementing and collecting revenues for the Measure MMB 0.50% transactions and use tax.
PUBLIC OUTREACH:
After a thorough analysis, staff determined that public outreach was not required for the approval of these Agreements. However, the Preparatory Agreement will enable CDTFA to provide the necessary outreach to all taxpayers and the business community affected by the new sales tax measure that will go into effect by April 1, 2025.
ENVIRONMENTAL REVIEW:
The City has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that there is no possibility that the activity may have a significant effect on the environment; therefore, pursuant to Section 15061(b)(3) of the State CEQA Guidelines the activity is not subject to CEQA. Thus, no environmental review is necessary.
LEGAL REVIEW:
The City Attorney has reviewed this report and determined that no additional legal analysis is necessary.
ATTACHMENTS:
1. Resolution No. 24-0141
2. Resolution No. 24-0142
3. Agreement - CDTFA (Exhibit A Preparatory)
4. Agreement - CDTFA (Exhibit B Administrative)
5. Ordinance No. 24-0009 (To Be Adopted December 17, 2024)