Displaying items by tag: Case Study
Determining which construction projects may qualify for a direct allocation of local 1% tax is complex. A temporary allocation of local use tax associated with construction projects can provide an agency with a much-needed boost in local tax revenue. If a contractor or subcontractor does not elect to obtain a jobsite sub-permit however, local tax will be allocated to the countywide pool based on the jobsite location, and the agency would only receive their proportional share of the countywide pool allocation for that project, a mere fraction of the 1% local tax.
Throughout the construction of the City of Inglewood's SoFi Stadium, HdL worked with the general contractor to determine qualified contracts and ensure proper registration and tracking of the local 1% sales tax revenue.
Ensure the City of Inglewood received the maximum amount of local sales and use tax revenue from the SoFi Stadium's construction materials and retail, food, and beverage sales.
Stan Kroenke, owner of the NFL's St. Louis Rams, planned to move the team back to Los Angeles (the team’s former home from 1946-1994). The City of Inglewood, with its rich history as a sports and entertainment mecca, was the logical choice for the next state-of-the-art venue.
In 2014, Kroenke purchased a 60-acre parcel of land adjacent to the old Hollywood Park Racetrack. The acreage, however, proved not large enough for a stadium and parking. In 2015, the Inglewood City Council scrapped plans to convert the old track into a large office/retail/residential project, and instead, approved a plan to incorporate the land into a 70,000-seat football stadium.
The SoFi Stadium would be unique in that it would be built using 100% private funds, requiring zero taxpayer dollars. It would guarantee countless jobs – both during construction and upon opening.
The City of Inglewood, already a HdL sales tax and property tax client, turned to HdL for additional support in capturing all local tax dollars associated with the project.
HdL met with project developers, contractors, and City staff to determine the best methods of tracking the new revenue stream and ensuring the City would receive the maximum amount of local tax revenue. Tax for construction contracts can be complex; oftentimes, contractors are both consumers and sellers of taxable goods for the same project.
When contractors are merely consumers of materials, they pay the sales tax to the supplier of the materials which is allocated to the jurisdiction where the supplier’s sales office is located. If, for whatever reason, the contractor has not paid sales tax on the materials or is both the seller and consumer of the material, they are required to consider the jobsite as the place of use. As the jobsite is not a permanent place of business, the tax revenue is allocated via the county pools.
A contractor who enters into a construction contract equal to or greater than $5,000,000 may elect to obtain a sub-permit for the jobsite of the qualifying contract enabling the contractor to make a direct allocation of tax to the local jurisdiction in which the jobsite is located rather than through the countywide pool. The qualifying contract price applies to each contract or subcontract for work performed at the jobsite, not the total value of the prime contract.
HdL is well-versed in maximizing local tax revenue for construction projects and always encourages contractors and subcontractors to participate in use tax programs. We worked closely with the stadium’s general contractor, Turner-AECOM Hunt, to create a system that…
- identified 50+ unique contractors or subcontractors,
- determined if each contract was eligible for direct allocation of local tax,
- and guided qualified contractors or subcontractors through proper registration and tracking of the local 1% sales tax revenue.
As with a project of this size, we were actively involved throughout the four-year construction timeline. We created specialized geographical area reports to capture all the local tax allocated to the project. We shared this data with Turner-AECOM Hunt quarterly (sometimes onsite donning hard hats!) to ensure nothing slipped through the cracks and with City staff to keep them apprised of the project’s progress, as well as current sales tax revenue to date.
“It has been a great privilege to work with HdL on the SoFi Stadium. They are very knowledgeable and answered all of our teams and subcontractors’ questions. We could not have done it without HdL’s support on this mega job!” said Juanita Diaz, Turner-AECOM Hunt representative.
HdL continues to provide geographical reports to track SoFi’s ongoing revenue and insight on sales tax projections. “HdL has been a vital strategic partner and instrumental in assisting the City with expert analysis and innovative data collection services. They assisted Inglewood in evaluating the effectiveness of various contractual agreements,” said Christopher Jackson, Sr., Director of Economic and Community Development for the City of Inglewood.
These agreements include the SoFi Stadium - home of the Los Angeles Chargers and 2022 Champion Los Angeles Rams - and the Intuit Dome - the soon-to-be home of the Los Angeles Clippers – which will open in 2024. HdL assisted the City in its effort to make prudent financial and fiscal decisions which ultimately helped maintain their title as the “City of Champions.”
As presented at the California Society of Municipal Finance Officers 2022 Annual Conference
From pandemic impacts to recent changes in the allocation of tax increment funds post-RDA, the City of Belmont CA was inundated with revenue challenges. This case study will illustrate the importance of utilizing a variety of revenue-raising tools, accurate long-term forecasting, and adaptability to the changing economy. For more information, contact Tracy Vesely, HdL Principal.
HdL Increases Municipal Revenue Through Business Tax Compliance, Avoiding Tax Increases
While cities and counties can execute significant economic development to build a strong business environment, the business registration and taxation process is one of the most important touchpoints in the private-public agency relationship. An effective, professional and thorough business tax execution process will gather important information about businesses, generate municipal revenue, and maintain positive relations with businesses. Properly balancing these priorities is a difficult task under the best of circumstances. Challenges with technology, specialized expertise, or staff bandwidth can cause cities and counties to miss the significant economic and information benefits the business taxation process should yield.
The Cities of West Covina and San Mateo recently faced these exact challenges. Like many public agencies, both cities faced staffing and software constraints, which prevented them from effectively managing business tax revenue and compliance. City leadership recognized the need to restructure their processes and engaged HdL’s Tax and Fee Administration team for assistance. In both cases, the cities saw dramatic improvements in revenues and compliance while decreasing overall operating costs.
The City of West Covina, a suburb of Los Angeles, increased business tax and fee revenue by 45% since entrusting the business tax discovery and compliance process to HdL in 2017. The City completely outsourced the taxation process to HdL’s team, made up of former city managers, directors, municipal revenue employees, and certified revenue officers with decades of experience.
Businesses sign up for and pay for their business license through HdL’s online portal or via phone through their support center. HdL offers guidance to the taxpayer through the process while educating them on the City’s various laws and policies. “HdL provided trained staff and the right tools, such as our data matching software that captures hundreds of sources and compiles data in order to efficiently identify and contact all non-compliant businesses,” commented Connor Duckworth, Client Advisor for HdL Companies.
For some agencies, the idea of having local businesses call someone other than city staff sounds odd, but West Covina City Manager David Carmany explained that the HdL team is knowledgeable and professional in their interactions with local businesses. “When businesses have questions, HdL has answers,” he said. “The HdL team helped provide collection law information to address business owners’ concerns.”
With HdL’s support, West Covina continues to achieve a 95% collection rate (taxes collected/taxes owed), offering a reliable, secure and maximized revenue stream. Over the past four years, HdL has collected $4,519,730 in business tax and fees for the City. In 2020, the City witnessed its highest collection year, generating $1,533,094. “With the additional revenue, the City has been able to invest in beautification projects to foment increased economic development,” added Carmany, an experienced city manager, noting the new revenue also allowed the City to reallocate staff efforts to other initiatives.
HdL’s support was especially important in 2020, as the pandemic closed City Hall and pushed business tax compliance online. HdL was ready with a full-service online tax portal and call center, which kept business tax operations and revenue uninterrupted while allowing city staff to fully focus on other pandemic-related priorities as City Hall shifted to virtual operations.
As the City looks ahead, Carmany expressed confidence in HdL’s ability to provide excellent outreach and assistance so businesses clearly understand the process, requirements and deadlines concerning business taxes and fees.
In 2019, the City of San Mateo, located in the Bay Area, also saw the need for business tax discovery, and compliance resources and expertise. Like West Covina, city leaders looked to HdL, an industry leader that was already active in the City providing other consulting services. In this case, the City’s needs were more specific: find non-compliant businesses and get them properly registered.
San Mateo recognized that not all businesses within the city were paying their appropriate business taxes. City staff also knew that the specialized knowledge of finding those businesses was more likely to reside with outside experts. “City staff have enough to keep up with and deliver without having to also become business license discovery experts. This is where having a partner with deep expertise that scales across hundreds of cities and strong software tools can add significant value for local governments,” said Duckworth. “Some businesses are unaware of their requirements while others are knowingly evading the City’s Municipal Code. In both instances, HdL’s job is to professionally educate them and get them registered to ensure that all businesses are on a level playing field and contributing to the costs of running the City.”
As of 2021, HdL used its expertise and tools to identify over 300 businesses – contributing to a nearly 1,300 license increase over three years – that needed to be brought into compliance with the City’s business tax code.
“In establishing our business tax database, HdL used their understanding of our Municipal Code to create a process that accurately issues business tax certificates and annual renewal forms for each unique business,” said San Mateo Finance Director Rich Lee.
According to Lee, HdL is sensitive and responsive to his City’s organizational values and processes. “HdL provided the City freedom to work with the business and property owners directly in resolving their questions or concerns,” he said, noting the City’s primary goal of creating equity amongst taxpayers. “These discovery services from HdL ensure that businesses pay their required tax and comply with the City’s business tax ordinance.”
The COVID-19 pandemic prompted the City to leverage HdL’s software platform by taking its previous paper-based manual process online through an HdL-powered payment portal. “This shift reduced the foot traffic to City Hall, and by extension, reduced staff exposure to COVID,” Lee added, noting the City has worked with several people at HdL on projects including lodging tax collection. “All HdL staff have been very supportive and have worked collaboratively to achieve a smooth process for both the City and our business community,” he said.
The pandemic also prompted the City to alleviate economic impacts on businesses by waiving penalties, interest and prior years’ taxes. Though the waiver impacted revenue in 2020, HdL has collected $409,000 in business tax and fees from discovery and compliance services as of 2021. The additional revenue funds core City services, such as public safety, parks and recreation, and library services.
Businesses operate best when the rules are consistent and applied universally without one business benefiting over another. Increasingly, cities and counties are finding HdL’s domain expertise and software to reliably create an equitable business environment, ensuring that all businesses are registered and paying the appropriate taxes or fees. Equally important, HdL provides additional revenue to municipalities through maximizing already existing revenue streams before cities consider expanding taxes. Duckworth concluded, “HdL frees up city and county staff to do what they do best when HdL does what we do best. The real winner is the communities HdL and our public agency clients serve.”
This case study is available in PDF format above to download and share within your agency.