FIN 2022-02-14 Item 1A - Discussion - Contingent-Based Sales Tax Audit

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City of Tukwila Allan Ekberg, Mayor INFORMATIONAL MEMORANDUM TO: Finance & Governance Committee FROM: Vicky Carlsen, Finance Director BY: Tony Cullerton, Deputy Finance Director CC: Mayor Ekberg DATE: February 14, 2022 SUBJECT: Contingent Based Sales Tax Audit ISSUE Staff would like to share with the Finance & Governance Committee our intent to enter into a contingent agreement with Azavar Government Solutions for the purpose of identifying and collecting misdirected sales tax revenues due to the City of Tukwila but being allocated to other neighboring jurisdictions. BACKGROUND The City of Tukwila receives sales tax revenues directly from the Department of Revenue (DOR), that has been collected by businesses and remitted to DOR. The City is interested in answering the question, is the City collecting all sales tax revenue that they are entitled to receive? Tukwila shares three zip codes with neighboring cities causing confusing of the correct jurisdiction to allocate tax revenues. Additionally, the City of Seattle's location code is 1726, Tukwila's location code is 1729. When businesses enter the City's location code, there have been instances of coding errors, resulting in Tukwila sales tax being diverted to the City of Seattle. These are examples of possible sales tax revenues due to Tukwila but are potentially being allocated to neighboring jurisdictions. DISCUSSION Azavar Government Solutions assists municipalities with identifying and recovering unremitted tax revenue. By utilizing address information provided by the City, and business and tax id information supplied by DOR, Azavar applies geo-coding technology to identify gaps and trends in remittance. Example would be identifying businesses that are being coded incorrectly to other municipalities. Anomalies can occur when USPS postal codes are used, or annexations are not kept current. Their geo-coding technology is used to identify the correct jurisdiction a business should be collecting tax revenue for. This service is provided on a contingent basis allowing for no out of pocket expense to the City. The recovered revenue is shared by the City and Azavar for thirty-six months, after which the City retains all of the ongoing sales tax revenue. Azavar Government Solutions has previously provided their services to local municipalities including College Place, Newcastle, Issaquah, and Brier. FINANCIAL IMPACT No out-of-pocket cost to the City. A specific percentage (40%) of new revenues discovered through Azavar audit procedures is shared for a period of thirty-six months.