REPORT TO COUNCIL
SUBJECT
Title
Adopt a Resolution Authorizing the Director of Finance to Renew a Business License Tax Data Exchange Agreement with the California Franchise Tax Board (FTB)
Report
BACKGROUND
Department of Finance staff regularly conduct audits to identify businesses operating in Sunnyvale without having paid the Business License Tax and obtaining a Business License Tax Certificate, in violation of Sunnyvale Municipal Code (SMC) Chapter 5.04. State law authorizes a city to enter into a reciprocal agreement with the California Franchise Tax Board (FTB) to exchange tax data. The data exchange enables both parties to identify any non-compliant businesses.
Since 2009, the City has exchanged tax data with the FTB. The current agreement expires on December 31, 2026, and the City needs to enter a new agreement before January 1, 2027, to continue the data exchange program through December 31, 2029.
EXISTING POLICY
Sunnyvale Municipal Code (SMC) Section 5.04.100 states: “No person shall transact, engage in, or carry on any business within the City without first having procured a license from the City to do so and having paid the tax.”
Council Policy 7.1.1., Section 7.1B.3.2, states: “An aggressive collection system for all accounts receivable, including utility receivables, will be utilized to assure that monies due to the City are received in a timely fashion.”
ENVIRONMENTAL REVIEW
This action is exempt from environmental review under the California Environmental Quality Act (CEQA) pursuant to CEQA Guideline Section 15378(b)(5) (government organizational and administrative activities that will not result in a direct or indirect physical change to the environment).
DISCUSSION
The City of Sunnyvale regularly audits business license tax data to ensure it assesses applicable taxes from businesses operating within city limits. Past audits compared property tax, sales tax, and phone book information to ensure the City receives the revenue it is legally entitled to collect.
The City’s business license software can facilitate some of these audit functions through exception reports to identify business records that do not match the business license information on file. In 2009, the software vendor created an exception report for FTB data. The software has been set up to use the exception report to identify unlicensed businesses using FTB data and export Sunnyvale data files to the FTB with minimal staff involvement. These exception reports have enabled the City to identify businesses operating in Sunnyvale that have not paid the Business License Tax.
Under the terms of the agreement with the FTB, Sunnyvale will continue to send data to the FTB annually each June. The required data includes the owner's name, address information, Employer ID number, and business start date. The FTB will send the City similar information from its database each year in December. The FTB will send information on taxpayers who file business-related income tax returns. If the agreement is approved, this data exchange will continue through December 2029. Neither the FTB nor the City of Sunnyvale will be reimbursed for the cost of providing data, and neither party will be charged for receiving data from the other agency. Should the City wish to discontinue participating in the data exchange program, the Agreement may be terminated with thirty (30) days’ written notice to the FTB.
FISCAL IMPACT
There is no cost associated with the agreement. The City may receive additional Business License Tax revenue based on discoveries made through the data share. Business License Tax is accounted for in the City’s General Fund. Currently, the City receives approximately $2 million annually in Business License Tax revenue.
PUBLIC CONTACT
Public contact was made by posting the Council meeting agenda on the City's official-notice bulletin board at City Hall, at the Sunnyvale Public Library and in the Department of Public Safety Lobby. In addition, the agenda and this report are available at the City Hall reception desk located on the first floor of City Hall at 456 W. Olive Avenue (during normal business hours), and on the City's website.
RECOMMENDATION
Recommendation
Find that the action is exempt from the California Environmental Quality Act (CEQA) pursuant to CEQA Guideline Section 15378(b)(5) and adopt a Resolution authorizing the Finance Director to execute a reciprocal agreement with the California Franchise Tax Board for the exchange of business license tax data through December 31, 2029.
Levine Act
LEVINE ACT
The Levine Act (Gov. Code Section 84308) prohibits city officials from participating in certain decisions regarding licenses, permits, and other entitlements for use if the official has received a campaign contribution of more than $500 from a party, participant, or agent of a party or participant in the previous 12 months. The Levine Act is intended to prevent financial influence on decisions that affect specific, identifiable persons or participants. For more information see the Fair Political Practices Commission website: www.fppc.ca.gov/learn/pay-to-play-limits-and-prohibitions.html
An “X” in the checklist below indicates that the action being considered falls under a Levine Act category or exemption:
SUBJECT TO THE LEVINE ACT
___ Land development entitlements
___ Other permit, license, or entitlement for use
___ Contract or franchise
EXEMPT FROM THE LEVINE ACT
___ Competitively bid contract*
___ Labor or personal employment contract
___ Contract under $50,000 or non-fiscal
_X_ Contract between public agencies
___ General policy and legislative actions
* "Competitively bid" means a contract that must be awarded to the lowest responsive and responsible bidder.
Staff
Prepared by: Stephen Napier, Utility Billing Manager
Reviewed by: Dennis Jaw, Assistant Director of Finance
Reviewed by: Matthew Paulin, Director of Finance
Reviewed by: Sarah Johnson-Rios, Assistant City Manager
Approved by: Tim Kirby, City Manager
ATTACHMENTS
1. State of California Franchise Tax Board Standard Agreement
2. Exhibits to Standard Agreement
3. Proposed Resolution Authorizing Agreement with the Franchise Tax Board