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HomeMy WebLinkAbout2017-10-24 - AGENDA REPORTS - TAX SHARING AGMT (2)Agenda Item: 10 CITY OF SANTA CLARITA Q:° AGENDA REPORT CONSENT CALENDAR 7, CITY MANAGER APPROVAL: 1 j4 _ " DATE: October 24, 2017 SUBJECT: PROPOSED USE TAX SHARING AGREEMENT WITH THE SANTA CLARITA COMMUNITY COLLEGE DISTRICT DEPARTMENT: Administrative Services PRESENTER: Cindy Valdivia RECOMMENDED ACTION City Council approve the proposed Use Tax Sharing Agreement with the Santa Clarita Community College District (District), and direct the City Manager to execute this Agreement, subject to City Attorney approval. BACKGROUND In August 2017, the District approached City of Santa Clarita (City) staff indicating the District's desire to partner with the City in the development of a program designed to increase Use Tax revenue as a means to help fund College of the Canyon's (COC) First Year Promise Program. This partnership represents an opportunity for the City to join with local private sector businesses to help COC fund their First Year Promise Program through the generation of new Use Tax revenue. The First Year Promise Program gives qualified incoming students the opportunity to attend COC tuition and fee -free for their first fall and spring semesters. The program is exclusively for first-time, full-time enrolled freshmen who have applied to and been accepted into the First Year Promise Program. The program includes all enrollment fees, student fees, parking permits, and bus passes, plus vouchers for supplies, instructional materials, and computer lab printing. Historically, tax collected by the retailer here in California is called sales tax, and the retailer is responsible for reporting and paying the tax to the state. When an out-of-state or online retailer does not collect the tax for an item delivered to California, the purchaser may owe "use tax," which is simply a tax on the use, storage, or consumption of personal property in California, and assessed at the same rate as sales tax. In 1997 Senate Bill (SB) 110, which amended California's Revenue and Taxation Code, was signed into law by the Governor redirected the way use tax revenue could be disbursed by the Page 1 PacketPg. 45 State Board of Equalization. Prior to S13110, use tax collected by the State Board of Equalization was exclusively placed in state and county revenue pools and distributed on a prorated percentage basis to all counties and cities. However, once these revenues are disbursed through the county pool, Santa Clarita receives an extremely small portion of this revenue, currently at 2.4 percent of the one percent use tax. SB110 allows vendors to self-report and redirect the entire use tax to the point of origin. The most significant benefit of S131 10 is that local agencies, such as Santa Clarita, have an opportunity to recover the full one percent of locally generated use tax revenue. For example, if a business within the City purchased capital equipment from an out of state vendor worth $1 million that was subject to state use tax, the one percent of local use tax generated by this transaction would equal $10,000. In this instance, through the various use tax pools, the City only recovers a small portion of the use tax equivalent to approximately 2.4 percent of the one percent of local use tax, or $240. In order for the City to receive the entire one percent of use tax, local businesses need to be issued a direct pay permit from the State Board of Equalization which allows the holder to purchase personal property for use without paying tax to the retailer from whom the purchase is made. In order to qualify for a direct pay permit, businesses must meet the minimum qualifying criteria of $500,000 in use tax eligible purchases made in the preceding 12 months. Additionally, if these local businesses do not enter into a separate use tax sharing agreement with the City, the City will continue to receive the current pool allocation of 2.4 percent, as well as one hundred percent of all new use tax revenues from local businesses who obtain a direct pay permit. These additional revenues would not have previously been directed to the City. In 2003, the City entered into a use tax sharing agreement with the District, similar to what is currently being proposed to help fund the construction of the University Center. Through the business outreach efforts of the District, several local businesses such as, Aerospace Dynamics International, Inc. (ADI) and Henry Mayo participated in the use tax sharing program generating a total of approximately $231,000 in new use tax revenue, evenly shared by the District and the City, over a four year term. Additionally, worth noting, the City continues to receive one hundred percent of all new use tax revenues from these local businesses that may not have previously been directed to the City, so long as the business is not in a separate use tax sharing agreement with the City. The currently proposed use tax revenue sharing agreement entails the following: 1) Five-year agreement whereby the City agrees to share fifty percent of the net new Use Tax Revenues generated and collected by this program with the District in support of their First Year Promise Program. 2) The City agrees to a maximum contribution to the District of $2 million in new Use Tax Revenue that the City does not currently receive. 3) The District will be solely responsible for identifying, recruiting and encouraging qualified potential local businesses to self -assess use taxes from their purchases and direct them to the City. Page 2 Packet Pg. 46 If approved by the City Council, the proposed Use Tax Sharing agreement is currently scheduled for review and approval by the Community College District Board on November 8, 2017. ALTERNATIVE ACTION 1. Do not approve the proposed Use Tax Sharing Agreement with the District. 2. Modify the terms of this proposed Agreement. 3. Other action as determined by the Council. FISCAL IMPACT Under the terms of this proposed Agreement, the City will share 50 percent of all future, new Use Tax Revenue generated as a result of this program with College of the Canyons. Shared Use Tax Revenues will go towards supporting the COC's ongoing efforts to fund their First Year Promise Program. The City's maximum contribution towards the First Year Promise Program during the duration of this agreement will not exceed $2 million. ATTACHMENTS Agreement between the City Of Santa Clarita and the Santa Clarita Community College District Page 3 Packet Pg. 47 10.a AGREEMENT BETWEEN THE CITY OF SANTA 0) CLARITA AND THE SANTA CLARITA COMMUNITY c R COLLEGE DISTRICT USE TAX SHARING PROGRAM FOR N THE FIRST YEAR PROMISE PROGRAM R w This Agreement (Agreement) is made and entered into by the City of Santa Clarita (City) and the Santa Clarita Community College District (District), on this day of 20 0 CL 0 RECITALS a. WHEREAS, the District approached the City and indicated their desire to partner with the City in the development of a program designed to increase use tax revenue for the City and also help fund the College of the Canyon's (COC) First Year Promise Program; and WHEREAS, the development of a potential Use Tax Equivalent Sharing Program represents an opportunity for the City to participate as a partner with the District in the First Year Promise Program through the generation of new use tax revenue the City does not currently receive; and WHEREAS, during the course of several months, representatives of the City and the District have worked towards the development of a conceptual Use Tax Equivalent Sharing Program; and WHEREAS, the City Council finds that contributions to the District created by the Use Tax Equivalent Sharing Program for the First Year Promise Program is in the best interest of the City and will be a benefit to the public welfare. NOW, THEREFORE, for and in consideration of the mutual promises, covenants, and conditions herein contained, the parties hereto agree as follows: 1. AGREEMENT. City agrees to contribute to the District an amount equivalent to fifty percent of the net new Use Tax revenue generated and distributed to the City by the California Department of Tax & Fee Administration (CDTFA), as defined in Section 3, Subsection "J", as a direct result of the District's efforts to secure the participation of local businesses through the District's fund raising to raise funds for the college's First Year Promise Program. The City and District further agree that the City's maximum contribution towards the First Year Promise Program during the period covered by this Agreement shall not exceed $2 million dollars. 2. LENGTH OF AGREEMENT. City and District agree that the length of this Agreement shall be for a period of five years, commencing on date signed by both the City and District. Notwithstanding the foregoing, either party may terminate this agreement at any time without cause upon 30 days written notice. Packet Pg. 48 10.a 3. TERMS OF AGREEMENT. Pursuant to this Agreement the City and District mutually agree to develop a Joint City/District Use Tax Equivalent Sharing Program (Program). The City and District agree to terms of this Program as outlined below: A. City agrees to contribute to District an amount equivalent to fifty percent of the net new use tax revenue generated and distributed to the City by the CDTFA as defined in Section 1 and in accordance with Section 3, Subsection "J" of this Agreement. B. City and District agree that the period of the District's First Year Promise Program to solicit the support and participation of local businesses, defined as private or public agencies located within the boundary lines of the City, in this Program will extend over the entire period of time covered by this Agreement. C. The net maximum amount of the City's use tax contribution to the District during the period covered by this Agreement, after application of calculations as defined in Section 3, Subsection "D," shall not exceed $2 million. City and District agree that the terms of this Agreement in no way obligates the City to specify or guarantee any minimum contribution during the period covered by this Agreement. D. City and District agree that the formula identified below will be utilized to determine the equivalent amount of net new use tax revenue that will be contributed by the City and to the District as a result of this Program. City and District agree that an amount equivalent to fifty percent of net new use tax revenues generated by local businesses participating in this Program (in accordance with Section 3, Subsection "J") will be contributed to District during the period covered by this Agreement. E. City and District agree that the City will remit any amounts to be contributed under Section 3, Subsection "D" to the District within 30 days following the end of the most recent quarter, of the City's receipt of the use tax received from the State Board of Equalization, directly attributable to this Program. If at any time during or after the Term of this Agreement, the BOE determines all or any portion of the local use tax revenues received by the City were improperly allocated and/or paid to the City, and if the BOE requires repayment of, offsets again future use tax payments, or otherwise recaptures from the City those improperly allocated and/or paid use tax revenue, then company shall, within 30 calendar days after written notice from the City, repay all rebate payments (or applicable portions thereof) theretofore paid to Company which are attributable to such repaid, offset or recaptured local use tax revenue. If Company fails to make such repayment within 30 calendar days after the City's written notice, then Company shall be in breach of this Agreement and such obligation shall accrue interest from the date of the City's original notice at then -maximum legal rate imposed by the California Code of Civil Procedure on prejudgment monetary obligations, compounded monthly, until paid. This Packet Pg. 49 10.a section of the Agreement shall survive the expiration or termination of this Agreement. F. City and District agree that only new use tax revenues generated by qualified local businesses as a result of their desire to expressly direct their use tax obligation in support of the COC's efforts to help the First Year Promise Program, will be included in future use tax revenues to be used as a measure of the contributions by the City to the District as a result of this Program. G. City and District agree that the City shall retain one hundred percent of any use tax revenue remitted to the City through the Los Angeles County Use Tax Pool or by the direct self-assessment of any local business that is in place prior to the execution of this Agreement H. Any City generated use tax, whether through purchases or Capital Improvement -type projects, are not eligible to be used for this COC program. During the period covered by this agreement, the City agrees that it will contribute to the District after the City's collection of total revenue, an amount equivalent to one hundred percent of the net new use tax revenue derived from District -initiated projects that includes, but is not limited to, facilities constructed on property owned by the District such as the parking garage. J. District will be solely responsible for identifying, recruiting and encouraging qualified potential local businesses to self -assess use taxes from their purchases and direct them to the City. Additionally, the District agrees to memorialize the Public Private Partnership established with each participating local business and provide the City with such information in the form of a Memorandum of Understanding (MOU) prior to the disbursement of quarterly use tax. The City agrees to contribute amounts equivalent to fifty percent of the net new use tax generated by any local business participating in this Program as evidenced by an executed MOU between said business and the District. K. Copies of tax statements from local participating businesses and confirmation of receipts by the City's sales and use tax consultant must be made before distribution of funds can be made to the District L. The City's participation in this agreement does not limit, restrict, or cancel the City's current Use Tax Rebate program or participants that are currently in the existing program. 4. INDEMNIFICATION. District agrees to indemnify and defend City and its elected representatives, officials, employees, attorneys, contractors, consultants, agents and volunteers and their successors in interest (collectively City Indemnified Parties) against, and hold the City Indemnified Parties harmless from, all claims, demands, judgments, fines, encumbrances, liens, liabilities, losses, damages (including consequential damages, all damages for personal injury including death or disease, or damage or destruction to property Packet Pg. 50 of others or damage or destruction to natural resources, whether foreseeable or unforeseeable), costs and expenses (collectively City Claims) in any way arising from, relating to or in any way connected with: (a) District's activities under this Agreement or its performance under this Agreement or its failure to perform any of its obligations under this Agreement; (b) the inaccuracy of any report or information or data provided to City by District or District's contractors or consultants or anyone acting on behalf of District in connection with this Agreement; or (c) any claim of damage or loss by any person, owner of any property, subcontractor, supplier, or laborer against City Indemnified Parties arising out of any act or omission of District or any District contractor or consultant or anyone acting on behalf of District, except that the provisions of this Section do not apply to any City Claims occurring as a result of the sole negligence of or willful acts or omissions of City or City agents or consultants. 5. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement between City and District. There are no oral agreements or amendments between parties. This Agreement shall not be amended, except in writing, unless executed by both parties to this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date and year first written above. Date: Date: By: By: Dr. Dianne G. Van Hook Kenneth W. Striplin Chancellor City Manager Date: Date: By: By: Secretary to the Board of Trustees Mary Cusick, City Clerk Approved as to form Approved as to Form Date: Date: By: By: College Counselor City Attorney 4 10.a Packet Pg. 51