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RPVCCA_CC_SR_2012_03_20_E_State_Franchise_Tax_Board_Annual_Tax_Data_Exchange_With_CityCITY OF MEMORANDUM Rt\NCHO PALOS VERDES TO: FROM: DATE: SUBJECT: REVIEWED: Staff Coordinator: HONORABLE MAYOR &CITY COUNCIL MEMBERS ~ DENNIS McLEAN,DIRECTOR OF FINANCE &INFORMATION TECHNOLOGY MARCH 20,2012 AGREEMENT BETWEEN CITY OF RANCHO PALOS VERDES AND THE STATE OF CALIFORNIA FRANCHISE TAX BOARD TO EXCHANGE ANNUAL TAX DATA CAROLYN LEHR,CITY MANAGER~ Matt Waters,Senior Administrative Analyst RECOMMENDATION Adopt Resolution No.2012-,authorizing the City of Rancho Palos Verdes (City)to enter into a reciprocal agreement with the State of California Franchise Tax Board (FTB)to allow for the exchange of tax data to;a)assist the FTB in identifying individuals who are not filing required individual and business entity income tax returns with the State;and,b)potentially assist the City in identifying businesses that have not paid business license taxes. BACKGROUND AND DISCUSSION: California Government Code 19551.5 states that any city that assesses a business tax or requires a business license needs to submit the collected tax administration to the Franchise Tax Board at its request.This information includes business name,address,Federal Employee Identification Number (FEIN)or Social Security Number (SSN),ownership type and business start and end dates.Since January 2009,the FTB and participating California Cities have exchanged tax-related data through the FTB's City Business Tax Program.Data provided by participating cities helps the FTB identify self-employed individuals who have not filed required individual and business entity tax returns.Data provided by the FTB can potentially aid cities in identifying businesses that need to complete local business tax filing requirements (such as the City's business license tax filing and payment).The intent of the agreement is for both the State and participating cities to benefit by bringing in revenue that might not be collected without the mutual exchange and analysis of data. The Rancho Palos Verdes business license ordinance is non-regulatory and has been enacted solely to raise revenue for municipal purposes.The FTB provides the data to the E-1 AGREEMENT BETWEEN CITY AND FRANCHISE TAX BOARD March 20,2012 Page 2 City at no cost.While it may have the potential to generate additional revenue,based on previous experience analyzing FTB data submissions,Staff is cautious about the practical usability of the information.Staff intends to review and assess the information received by the FTB on an annual basis to ascertain the merits of pursuing possible non-filings of the City's business license applications and tax payments. Participating cities provide the FTB with the following information: ~Business and owner's name ~Business or residence address ~FEIN orSSN ~North American Industry Classification Code or Standard Industry Classification Code The FTB provides cities with the following information: ~Taxpayer name ~Taxpayer address ~Taxpayer FEIN or SSN ~Entity Type ~Principal Business Activity (PBA)Code from Form 540-California Resident Income Tax Return Due to its confidential nature,all data being sent to the FTB or received from the FTB is transmitted using an FTB-maintained Secure Web Internet File Transfer (SWIFT)account. Participating cities are required to complete a City Business Tax Safeguard Review Questionnaire.Only city employees who have signed a required confidentiality statement will have access to the data.The data will only be used for the administration of tax within the City and the destruction of the data is mandated after three years. Over one-hundred California Cities,including the cities of Los Angeles,Long Beach, Newport Beach,and Rancho Palos Verdes participate in the City Business Tax program as of June,2011.The proposed agreement between the FTB and the City has a term lasting from June 1,2012 through December 31,2014.The City agrees to provide the FTB with data annually in June for 2012,2013,and 2014.The FTB will provide the City with tax information in December 2012 for tax year 2011,December 2013 for tax year 2012,and December 2014 for tax year 2013. FISCAL IMPACT Neither the City nor the FTB pays any fee to enter into this agreement.The City is legally obligated to provide tax data to the FTB.It is unknown how much additional business license tax revenue would be generated as a result of this agreement. ATTACHMENTS: Resolution No.2012- State of California Agreement between Franchise Tax Board and City (C11 00230) E-2 RESOLUTION NO.2012- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF RANCHO PALOS VERDES,AUTHORIZING THE CITY OF RANCHO PALSO VERDES TO ENTER INTO AN AGREEMENT WITH THE STATE OF CALIFORNIA FRANCISE TAX BOARD AUTHORIZING THE RECIPROCAL AND CONFIDENTIAL EXCHANGE OF TAX DATA WHEREAS,businesses operating in the City of Rancho Palos Verdes are required to pay all legally mandated local business forms and taxes;and, WHEREAS,the City of Rancho Palos Verdes is required to report required tax information to the State of California Franchise Tax Board annually;and, WHEREAS,self-employed individuals in the State of California are required to file appropriate individual and business entity income tax returns;and, WHEREAS,entering into a reciprocal agreement with the State of California's Franchise Tax Board's City Business Tax program will provide reciprocal tax information that may identify businesses in the City of Rancho Palos Verdes that have local business tax obligations;and, WHEREAS,the term of the agreement between the City of Rancho Palos Verdes and the State of California's Franchise Tax Board's City Business Tax Program will be from June 1, 2012 to December 31,2014;and NOW THEREFORE,THE CITY COUNCIL OF THE CITY OF RANCHO PALOS VERDES DOES HEREBY FIND,DETERMINE AND RESOLVE AS FOLLOWS: Section 1:The City of Rancho Palos Verdes enters into a reciprocal agreement with the State of California's Franchise Tax Board,is approved and adopted by the City Council. Section2.This resolution shall take effect immediately. PASSED,APPROVED,AND ADOPTED THIS 20th DAY OF MARCH 2012. Mayor ATTEST: City Clerk State of California ) County of Los Angeles )ss City of Rancho Palos Verdes ) I,Carla Morreale,City Clerk of the City of Rancho Palos Verdes,hereby certify that the above Resolution No.2012-was duly and regularly passed and adopted by the said City Council at a regular meeting thereof held on March 20,2012. City Clerk E-3 STATE OF CALIFORNIA STANDARD AGREEMENT STD 213 (Rev 06/03) AGREEMENT NUMBER C1100230 REGISTRATION NUMBER 1.This Agreement is entered into between the State Agency and the Contractor named below: STATE AGENCY'S NAME Franchise Tax Board CONTRACTOR'S NAME City of Rancho Palos Verdes 2.The term of this Agreement is:June 1,2012 through December 31,2014 3.The maximum amount $0.00 of this Agreement is:NON-FINANCIAL AGREEMENT 4.The parties agree to comply with the terms and conditions of the following exhibits,which are by this reference made a part of the Ag'reement. Exhibit A -Scope of Work Exhibit C*-General Terms and Conditions Exhibit 0 -Special Terms and Conditions Exhibit E -City Record Layout Specifications Exhibit F -FTB Record Layout Specifications Exhibit G -Confidentiality Statement 3 pages GTC610 3 pages 2 pages 1 page 1 page Items shown with an Asterisk (*),are hereby incorporated by reference and made part of this agreement as if attached hereto. These documents can be viewed at www.ols.dgs.ca.gov/Standard+Language/default.htm IN WITNESS WHEREOF,this Agreement has been executed by the parties hereto. CONTRACTOR California Department of General Services Use Only CONTRACTOR'S NAME (if other than an individual,state whether a corporation,partnership,etc.) City of Rancho Palos Verdes BY (Authorized Signature)DATE SIGNED(Do not type), J6 PRINTED NAME AND TITLE OF PERSON SIGNING ADDRESS 30940 Hawthorne Blvd.,Rancho Palos Verdes,CA 90275 STATE OF CALIFORNIA AGENCY NAME Franchise Tax Board BY (Authorized Signature)DATE SIGNED(Do not type) iiK PRINTED NAME AND TITLE OF PERSON SIGNING IZI Exempt per:SCM 4.04.5.b. Lisa Garrison,Chief Financial Officer ADDRESS P.O.Box 2086,Rancho Cordova,CA 95741-2086 E-4 City of Rancho Palos Verdes SCOPE OF WORK EXHIBIT A Agreement #C1100230 This Agreement is entered into by and between the Franchise Tax Board,herein referred to as (FTB)and the City of Rancho Palos Verdes,herein after referred to as the City. Purpose: This Agreement allows FTB and the City to enter into a reciprocal agreement to exchange tax data specific to city business license information for tax administration and non-tax program purposes.By entering into a reciprocal agreement,each party agrees to bear its own costs of providing the data and the City is precluded from obtaining reimbursement. Both parties will abide by the legal and confidentiality provisions of this Agreement.Exhibits A, C,D,E,F,'and G attached hereto and incorporated by reference herein,set forth additional terms to which the parties agree to be bound. This Agreement does not include Federal Tax Information (FTI). Legal Authority: California Revenue and Taxation Code (R&TC)Section 19551.1 authorizes a reciprocal agreement for the exchange of city business tax and income tax information between a city and FTB.R&TC Section 19551.5 mandates cities to provide city business tax data to FTB upon request. City Responsibilities: 1.The City agrees that the information provided by FTB will be used exclusively to administer the City's business tax program. 2.The City agrees to provide FTB with tax information pursuant to City Record Layout Specifications,Exhibit E. 3.The City agrees to extract and provide City data to FTB annually in June for each tax year that the Agreement is in place;June 2012,2013,and 2014.If the Agreement is executed after June 30,2012,the City has 30 days after execution to provide FTB with the first year's data. 4.The City agrees to submit the records to FTB using FTB's Secure Web Internet File Transfer (SWIFT). 5.The City agrees to submit the records to FTB in ASCII fixed length format,.txt,per the City Record Layout Specifications,Exhibit E. E-5 City of Rancho Palos Verdes SCOPE OF WORK (continued) EXHIBIT A Agreement #C1100230 6.The City agrees to resubmit data in the event data is initially submitted with errors.The resubmission of data must be within 30 days of notification.If data is not submitted accurately and timely,the City forfeits its rights to FTB data for that year. 7.The City agrees that each City employee having access to FTB data shall sign a Confidentiality Statement,Exhibit G.The signed statement is to be retained by the City and produced to FTB upon request. 8.The City agrees to submit to FTB a completed Safeguard Review Questionnaire prior to receiving FTB data.The Safeguard Review Questionnaire is valid for the duration of the Agreerrent. 9.The City agrees to provide a copy of the resolution,order,motion,or ordinance of the local governing body,authorizing the execution of the Agreement. FTB Responsibilities: 1.FTB agrees that information provided by the City will be used for tax administration and non- tax programs that FTB administers and may be shared with other state/federal agencies as authorized by law. 2.FTB agrees to provide the City data extracted from the Taxpayer Information (TI)and Business Entities Tax System (BETS).FTB will provide the City records for taxpayers within the city's jurisdiction who indicate business income or deductions on their personal or corporation income tax return pursuant to FTB Record Layout Specifications,Exhibit F. 3.FTB agrees to match the data provided by the City using the social security number or federal employer identification number against FTB's data with a yes or no indicator on the FTB Record Layout Specifications,Exhibit F.The first year's data match is at the discretion of FTB and will be based on when the data is received and processed. \ 4.FTB agrees to provide the City an annual extract file in December 2012 for tax year 2011, December 2013 for tax year 2012,and December 2014 for tax year 2013 via SWIFT. 5.FTB agrees to register the City for a SWIFT account,allowing for the secure electronic transmission of data. 6.FTB agrees to provide the City a unique City Business Tax Number to be used for reporting purposes only. 7.FTB agrees to allow the City to resubmit data within 30 days of notification,in the event data is initially submitted with errors. E-6 City of Rancho Palos Verdes EXHIBIT A SCOPE OF WORK (continued) Project Coordinators: The project coordinators during the term of this Agreement will be: Agreement #C11 00230 Franchise Tax Board Cathy McCollum Data Resources and Services Unit P.O.Box 1468,Mailstop A181 Sacramento,CA 95812-1468 Phone:(916)845-4431 Fax:(~16)843-5899 Return executed Agreement to: Franchise Tax Board Procurement &Asset Management Bureau Attention:Ta Nita Martinez P.O.Box 2086,Mailstop A-374 Rancho Cordova,CA 95741-2086 Phone:(916)845-7199 Fax:(916)845-3599 City of Rancho Palos Verdes Kathryn Downs Deputy Director of Finance 30940 Hawthorne Blvd. Rancho Palos Verdes,CA 90275 Phone:(310)544-5216 E-7 City of Rancho Palos Verdes SPECIAL TERMS AND CONDITIONS EXHIBIT D Agreement #C11 00230 1.STATEMENT OF CONFIDENTIALITY:The Franchise Tax Board has tax return information and other confidential data in its custody.Unauthorized inspection or disclosure of state return information or other confidential data is a misdemeanor (Sections 19542 and 19542.1 Revenue and Taxation Code). The City and each of the City's employees who may have access to the confidential data of FTB will be required to sign a Confidentiality Statement,Exhibit G,attesting to the fact that he/she is aware of the confidential data and the penalties for unauthorized disclosure thereof.The signed statement shall be retained by the City and furnished to FTB upon request. 2.USE OF INFORMATIO~:The City and FTBagree that the information furnished or secured pursuant to this Agreement shall be used solely for the purposes described in the Scope of Work,Exhibit A.The information obtained by FTB shall be used for tax administration and nontax programs that FTB administers and may be shared with other state/federal agencies as authorized by law.The City and FTB further agree that information obtained under this Agreement will not be reproduced,published,sold,or released in original or in any other form for any purpose other than identified in this Agreement or as authorized by law. 3.DATA OWNERSHIP:The confidential tax information or sensitive information being provided to the City under this Agreement remains the exclusive property of FTB. Confidential tax and sensitive data/information are not open to the public and require special precautions to protect from loss and unauthorized use,disclosure modification,or destruction.The City shall have the right to use and process the disclosed information for the purposes stated in the Scope of Work,Exhibit A,of this Agreement,which right shall be revoked and terminated immediately upon completion of this Agreement. 4.EMPLOYEE ACCESS TO INFORMATION:Both FTB and the City agree that the information obtained will be kept in the strictest confidence and shall make information available to its own employees only on a "need to know"basis.The "need to know" standard is met by authorized employees who need information to perform their official duties in connection with the uses of the information authorized by this Agreement.Both parties recognize their responsibilities to protect the confidentiality of this information as provided by law and ensures such information is disclosed only to those individuals and of such purpose,as authorized by the respective laws. 5.PROTECTING CONFIDENTIAL INFORMATION:Both FTB and the City in recognizing the confidentiality of the information being exchanged,agree to take all appropriate precautions to protect the confidential information obtained pursuant to this Agreement from unauthorized disclosure.Both FTB and the City will conduct oversight of its users with access to the confidential information provided under this Agreement. E-8 City of Rancho Palos Verdes EXHIBIT D SPECIAL TERMS AND CONDITIONS (continued) Agreement #C11 00230 6.INFORMATION SECURITY:Information security is defined as the preservation of the confidentiality,integrity,availability,authenticity,and utility of information.A secure environment is required to protect the confidential information obtained from FTB pursuant to this Agreement.The City will store information so that it is physically secure from unauthorized access.The records received by the City will be securely maintained and accessible only by employees of the city business license program who are committed to protect the data from unauthorized access,use,and disclosure. 7.INCIDENT REPORTING:All unauthorized or suspected unauthorized access;use and/or disclosure (incidents)of FTB data shall be reported to FTB's City Business Tax Program Area,(916)845-6304 or by email:LocaIGovtLiaison@ftb.ca.gov ,immediately upon discovery of the incident.The incident report shall contain the following:date,time, employee name,description of the incident or circumstances,and means of discovery. Upon discovery of any such incident,FTB will make the appropriate notification to affected California resident(s)pursuant to the requirements of Civil Code Section 1798.29. 8.DESTRUCTION OF RECORDS:All records received by the City from FTB and any database(s)created,copies made,or files attributed to the records received will be destroyed within three years of receipt.The records shall be destructed in a manner to be deemed unusable or unreadable and to the extent that an individual record can no longer be reasonably ascertained.FTB will destroy City data in accordance with the Department's data retention policies. 9.SAFEGUARD REVIEW QUESTIONNAIRE AND ON-SITE SAFEGUARD REVIEW:Prior to sending data to the City,FTB requires the City to submit a Safeguard Review Questionnaire certifying the protection and confidentiality of FTB data.The FTB retains the right to conduct an on-site safeguard review of the City.The City will be provided a minimum of seven (7)days'notice prior to an on-site safeguard review being conducted by the FTB Disclosure Office.The on-site safeguard review will examine the adequacy of information security controls established by the City in compliance with the confidentiality requirements pursuant to this Agreement.The City will take appropriate disciplinary actions against any user determined to have violated security or confidentiality requirements. 10.DISPUTE RESOLUTION:In the event of a dispute,the City shall file a "Notice of Dispute" with the Chief Financial Officer of the Franchise Tax Board within ten (10)days of discovery of the problem.Within ten (10)days,the Chief Financial Officer or his/her designee shall meet with the City and the FTB contact for purposes of resolving the dispute.The decision of the Chief Financial Officer shall be final. 11.INDEMNIFICATION:Both parties agree to indemnify,defend,and save harmless each other,its officers,agents,and employees from any and all claims and losses accruing or resulting from any breach of confidentiality by either party and/or its employees. E-9 City of Rancho Palos Verdes EXHIBIT D SPECIAL TERMS AND CONDITIONS (continued) Agreement #C11 00230 12.LIMITED WARRANTY:Either party does not warrant or represent the accuracy or content of the material available through this Agreement,and expressly disclaims any express or implied warranty,including any implied warranty of fitness for a specific purpose. 13.CANCELLATION:Either party may terminate this Agreement,in writing for any reason, upon thirty days'(30)prior written notice.This Agreement may be terminated by either party in the event of any breach of the terms of this Agreement.Both parties agree that in the event of a breach to the terms of this Agreement,it shall destroy all records and any databases created,copies made,or files attributed to the records received.The records shall be destructed in a manner to be deemed unusable or unreadable and to the extent that an individual record can no longer be reasonably ascertained,upon destruction. 14.NO THIRD PARTY LIABILITY:Nothing contained in this Agreement or otherwise shall create any contractual relation between either party and any other party,and no party shall relieve the City or FTB of its responsibilities and obligations hereunder.Both parties agree to be fully responsible for the acts and omissions of its third parties and of persons either directly or indirectly employed by any of them as it is for the acts and omissions of persons directly employed by the City or FTB.Both parties shall have no obligation to payor to see the payment of any monies to any party or persons either directly or indirectly employed by the City or FTB. 15.EARLY TERMINATION CLAUSE:In the event that Revenue &Taxation Code 19551.1 and 19551.5 are not amended before the sunset date of December 31,2013,this Agreement will be terminated effective that date. E-10 City of Rancho Palos Verdes Agreement #C1100230 EXHIBIT E CITY RECORD LAYOUT SPECIFICATIONS Data Element Name Start End Field Usage Description Pos. Pos.Size SOCIAL SECURITY NUMBER 1 9 9 AN Must be present unless FEIN is (SSN)provided.Fill unused field with blanks. FEDERAL EMPLOYER 10 18 9 AN Must be present unless SSN is 10 NUMBER (FEIN)provided.Fill unused field with blanks. OWNERSHIP TYPE 19 19 1 AN Must be present: S =Sole Proprietorship P =Partnership C =Corporation T =Trust L =Limited Liability Company OWNER'S LAST NAME 20 34 15 AN Must be present if Ownership Type in position 19 =S. OWNER'S FIRST NAME 35 45 11 AN Must be present if Ownership Type in position 19 =S. OWNER'S MIDDLE INITIAL 46 46 1 AN May be left blank. BUSINESS NAME 47 86 40 AN Enter if business is operating under a fictitious name (Doing Business As (DBA». BUSINESS ADDRESS 87 126 40 AN Address of the business location or NUMBER AND STREET the residence of the owner if sole proprietorship. CITY 127 166 40 A Must be present. STATE 167 168 2 A Enter standard state abbreviation. ZIP CODE 169 177 9 AN Enter the five-or nine-digit ZIP Code assigned by the U.S.Postal Service.If only the first five-digits are known,left-justify information and fill the unused fields with blanks. BUSINESS START DATE 178 185 8 N Enter the eight-digit date (MMDDYVYV).Zero fill if not known. BUSINESS CEASE DATE 186 193 8 N Enter the eight-digit date (MMDDYYYY)if out of business.Zero fill if not known or still in business. E-11 City of Rancho Palos Verdes Agreement #C1100230 Data Element Name Start End Field Usage Description Pas.Pas.Size CITY BUSINESS TAX 194 196 3 N Enter three-digit number assigned NUMBER by FTB. NORTH AMERICAN 197 202 6 N Enter the six-digit NAICS code.Fill INDUSTRY CLASSIFICATION unused fields with zeros. SYSTEM (NAICS) STANDARD INDUSTRIAL 203 206 4 N Enter the 2-4 digit SIC code.Left CLASSIFICATION (SIC)justify (example 99 will be 9900). Fill unused fields with zeros. TOTAL RECORD LENGTH 206 E-12 City of Rancho Palos Verdes EXHIBIT F Agreement #C1100230 FRANCHISE TAX BOARD RECORD LAYOUT SPECIFICATIONS Field Name Length Start Description Pos. ENTITY TYPE 1 1 "P"-personal income tax record; "B"-business entity tax record. SSN or FEIN 9 2 For "P"records,primary taxpayer's social security number;For "B"records,federal employer identification number. LAST NAME 40 11 For "P"records,the primary taxpayer's last name;For "B"records,business name. FIRST NAM.E 11 51 For "P"records ONLY. MIDDLE INITIAL 1 62 For "P"records ONLY. SPOUSE SSN 9 63 For "P"records filed with a joint return. SPOUSE LAST NAME 17 72 For "P"records filed with a joint return. SPOUSE FIRST NAME 11 89 For "P"records filed with a joint return. SPOUSE MIDDLE INITIAL 1 100 For "P"records filed with a joint return. PBACODE 6 101 Principal business activity code. ADDRESS NUMBER 10 107 PRE-DIRECTIONAL DIRECTOR 2 117 Postal Service term (Le.,N,S,E,W,NE, NW,SE,SW). STREET NAME 28 119 STREET SUFFIX 4 147 e.g.,ST,WAY,HWY,BLVD,etc. POST-DIRECTIONAL INDICATOR 2 151 Postal Service term (Le.,N,S,E,W,NE, NW,SE,SW). STREET SUFFIX 2 4 153 APARTMENT/SUITE NUMBER 10 157 e.g.,APT,UNIT,FL,etc. CITY 13 167 STATE 2 180 Standard state abbreviation. ZIP CODE 5 182 The five-digit ZIP Code assigned by the U.S. Postal Service. ZIP CODE SUFFIX 4 187 Provided if known. CBT MATCH 1 191 "N"-No match per CBT data."Y"-Yes: CBT matched to state tax return filed. E-13 City of Rancho Palos Verdes State of California EXHIBITG CONFIDENTIALITY STATEMENT Agreement #C1100230 Franchise Tax Board Confidential tax return information is protected from disclosure by law,regulation,and policy.Information security is strictly enforced.Violators may be subject to disciplinary, civil,and/or criminal action.Protecting confidential tax return information is in the public's interest,the state's interest,and the city's interest. A city employee is required to protect all information received from the Franchise Tax Board.. A city employee is required to protect confidential information by: •Accessing or modifying information only for the purpose of performing official duties. •Never accessing or inspecting information for curiosity or personal reasons. •Never showing or discussing confidential information to or with anyone who does not have the need to know. •Placing confidential information only in approved locations. •Never removing confidential information from your work site without authorization. Unauthorized inspection,access,use,or disclosure of confidential tax return information is a crime under state laws,including but not limited to Sections 19542 and 19552 ofthe California Revenue and Taxation Code and Section 502 of the Penal Code.Unauthorized access,inspection,use,or disclosure may result in either or both of the following: •State criminal action •State and/or taxpayer civil action You are reminded that these rules are designed to protect everyone's right to privacy,including your own. /certify that I have read the confidentiality statement printed above.I further certify and understand that unauthorized access,inspection,use,or disclosure of confidential information may be punishable as a crime and may result in disciplinary and/or civil action being taken against me. Name Signature Date E-14