If you were to ensure that the City of Los Alamitos was getting $75,000 in Sales and Use Tax. And the City of Los Alamitos get’s 1% of the 8% Sales and Use Tax Collected. Then the total Sales and Use Tax that must be collected for the City of Los Alamitos to get $75,000 would be $600,000. So the Board of Equalization must collect $600,000 in order to pass the 1% to the City of Los Alamitos and ensure that the City of Los Alamitos got $75,000. Thus a company that paid $600,000 in Sales and Use Tax to the State of California through the only people allowed to collect the Sales and Use tax, the the City of Los Alamitos would get $75,000 for the treasury.
Thus, if a company were to write into a contract a section which guaranteed the City of Los Alamitos a yearly $75,000 in Sales & Use Tax; in order to meet that guarantee the company would have to pay the Board of Equalization $600,000 in Sales and Use Tax so that the $75,000 contractual guarantee was met. If they didn’t, then they would be in breach of contract.
What if they did actually pay the City of Los Alamitos $75,000 though? Well in that case the only people that got hurt was the County of Orange and the State of California, which didn’t get their pound of flesh. But can they actually do that? Can they legally rip off the State of California and the County of Orange for $525,000?
Let’s look at the facts.
This is from the contractual agreement between the City of Los Alamitos and Consolidated Disposal; commonly called The Solid Waste Franchise Agreement. And the image above is an item from page 74 of that agreement titled 8.05 Sales and Use Tax.
In it Consolidated Disposal states that they will (1) Open an office in the City of Los Alamitos (2) Make purchases with that office as the point of sale and (3) pay the Sales and Use Tax from those purchases.
But here is the kicker:
If the amount of sales and use tax received by City from the Board of Equalization as a result of Contractor’s purchases does not amount to at least seventy-five thousand dollars ($75,000) for the prior fiscal year, then Contractor shall pay the difference on or before January 31 to ensure that the City receives the minimum sales and use tax payment each year
Now that is a nice deal. Since the only group that is allowed to collect Sales and Use Tax is the Board of Equalization, we have a contract that assures that the “Contractor” will pay $600,000 in Sales and Use Tax to the Board of Equalization each and every year to ensure that the City has a income from Sales and Use of $75,000 from this business.
But what would happen if the Contractor did not set up a local office within the city boundaries? Well, that would be a major problem because then there would be no Sales and Use Tax from their purchases accruing to the City of Los Alamitos.
Yet, according to City of Los Alamitos records, the City of Los Alamitos has been collecting Sales and Use Tax directly from the Contractor of $75,000 each and every year. That leads to two questions. The first is how can it be Sales and Use Tax if it has not gone through the Board of Equalization, which is the only government agency that can collect Sales and Use Tax. And secondly, if the Contractor has no office in Los Alamitos, just how can we collect Sales and Use Tax when it didn’t accrue here? Wouldn’t that be tax fraud?
This whole thing begs a few additional questions. Does the Contractor have a physical office within the boundaries of the City of Los Alamitos? Does the Contractor make all their purchases as stipulated in the contract? How much revenue has been sent to the City from the Board of Equalization as the City portion of the Sales and Use Tax? This could be answered with a public records request…
While I am well aware that the City of Los Alamitos can NOT provide me specific financial figures relating to the collection of sales tax from the business in the City of Los Alamitos, I would feel that the following request would ensure that my questions are addressed and don’t violate the spirit and intent of the law.1) Could you please advise me if every one of the promised minimum payments of $75,000 in sales tax for all current and past years of the contract have been made to the City of Los Alamitos.2) For each of these years could you please tell me to the closest 10% how much of the $75,000 was received via the State of California Franchise Tax Board, and to the closest 10% how much was received directly from the contractor as per the agreement. Again, this is not a request for the actual figures, but a very rough estimation as to how much of the $75,000 was received from each source by percentages.3) Has the Contractor established and maintained a local office within city boundaries for the entire length of the contract4) Has the contractor made all relevant purchases as defined in the contract through the local office, as was defined in the contract, for purchases of trucks and equipment?
and the answer was:
The City is fully committed to making the requested information available to you. Accordingly, please find the information responsive to your request listed below.
- Consolidated has paid the City the $75,000 guaranteed for sales/use tax. They were recently invoiced for the $75,000 due for 2013.
- The payment is received directly from Consolidated.
It appears that the Contractor has not followed the key items from the directive of the Contract (they are in violation and breach of contract), yet they still have seemed to paid $75,000, none of it through the Board of Equalization, to the City of Los Alamitos. This required clarification.
Before I make a huge mistake can you please clarify the response to the answer to item 2. Your response seems to indicate that 100% of the sales and use tax paid to the City of Los Alamitos by the Contractor was paid directly to the City of Los Alamitos and that none of it was paid through the BOE [which appears to be supported by your statement "The payment is received directly from Consolidated"]. Can you please confirm, to the closest 10%, what percentage of the $75,000 in sales and use tax was paid through each of the two defined channels BOE .v. non-BOE/-Direct-to-the-City (preferably for each year of said contract that has been paid).
and that clarification was
To clarify 100% of Sales and Use Tax was paid to the City by Consolidated. And 0% was paid through the BOE.
According to State law, the only organization that can collect Sales and Use Tax is the California State Board of Equalization. That agency, which is chartered to be the sole collector of Sales and Use Tax in California, collected none and the Contractor paid the City of Los Alamitos $75,000 that was not, by definition of who collected it, a Sales and Use Tax.
Then the following was provided by the City Manager
Our City Attorney states, that the $75k was not sales tax, and is not based on the amount of sales tax the parties expected Consolidated to pay each year. Rather, it was based on (approximately) 10% of the sales tax the parties expected Consolidated to pay if Consolidated had complied with the preference in the contract, established an office in the City, and purchased equipment from that address. It is basically an in lieu payment.
Now, go back up to the contract and see where it says “in lieu” of Sales and Use Tax or states that the City had a “preference” that the Contractor open an office in the City of Los Alamitos. There is nowhere that it states that the Contractor will pay the City of Los Alamitos “in lieu”. In fact it states very clearly “Contractor guarantees sales tax revenue to the City of a minimum of seventy-five thousand dollars ($75,000) annually”. It states that “Contractor will establish a local office within the city boundaries” and “will utilize that office as the purchasing center for trucks and equipment and take all steps necessary to ensure that the sales and tax revenues resulting from the purchase of those trucks and equipment accrues to the benefit of the city.” That’s not an option or a “preference”, it’s a contractual obligation.
So, what we have is:
- A contractual obligation to open a local office within the borders of the City of Los Alamitos
- A contractual obligation to make large use purchases (trucks and equipment) with the point of purchase being the local office within the borders of the City of Los Alamitos
- A contractual obligation to ensure that the City of Los Alamitos gets Sales and Use Tax at a minimum of $75,000 per year from 1, and 2.
Factually we also have a payment for multiple years of $75,000 directly to the City of Los Alamitos from the contractor that was not Sales and Use Tax as defined by the State of California since it was not collected by the Board of Equalization, the only entity permitted to collect Sales and Use Tax.
Unless, the City of Los Alamitos has created a new tax called Los Alamitos Sales and Use Tax Guarantee through this contract in direct violation of Proposition 218 which clearly states that only the citizens can create a new tax through their vote of electing to tax themselves, we have a interesting situation where the State of California and the County of Orange have been stiffed from Sales and Tax Revenue (their 7%) while the City of Los Alamitos has been made whole (the 1%).
This leads us back to the original question. Did Michelle Steel and the Board of Equalization give Consolidated Disposal a $525,000 per year gift of unpaid Sales and Use Tax? Or is the $75,000 collected by the City of Los Alamitos a Sales and Use Tax that should be turned over to the Board of Equalization, of which $9,375 should be returned to the City of Los Alamitos as our portion of the collected Sales and Use Tax? Or is this a brand new tax on the citizens of the City of Los Alamitos (Consolidated Disposal passes the tax along to us in our trash bill statement, but the tax is not actually called out on the bill) for which we did not vote?
One has to wonder just how this clause got placed in the contractual agreement. What drove the City of Los Alamitos to insist that Consolidated Disposal have a physical office within the City boundaries? What drove us to include a guaranteed minimum Sales and Use tax revenue from a business that sells almost nothing and is basically a service provider? Who was the real beneficiary from the ability to be assured that there was an additional $75,000 in revenue to the City of Los Alamitos? [this will be covered in a future article]
Going forward, what are the options? Well for Michelle Steel and the Board of Equalization…
- Michelle Steel and the Board of Equalization can ask the City of Los Alamitos to turn over the $75,000 collected each your to the BOE and then give us the 1%. After which The City of Los Alamitos could sue Consolidated Disposal for breach of the contract in order to get the balance of the $75,000 that they guaranteed as receivable as Sales and Use Tax to the City of Los Alamitos.
- Michelle Steel and the Board of Equalization can bill Consolidated Disposal for the missing $525,000 for each year.
In either case things can get messy. In the first case the City of Los Alamitos’ budget will be whacked by having to pay out the monies collected. We will have to dip into reserves in order to cover the money collected and already spent. Then we may have to litigate with the Contractor to obtain the monies that were promised. On the positive side, we do have the indemnity clause in the contract that says that Consolidated Disposal would have to pay all our attorney fees if we have to litigate the contract (so they would pay for the City of Los Alamitos’ attorney to litigate against their own attorney?).
But in all cases Consolidated Disposal can make a claim that they in fact owe no Sales and Use Tax as they didn’t have the facility and therefore had no Sales and Use. That forcing them to pay a Sales and Use Tax when they did not have the legal obligation to pay the tax from either Sales or Use is actually demanding that Consolidated participate in tax fraud (claim and pay a tax that they do not owe by following the tax laws). Of course, if it is held that the $75,000 already paid to the City of Los Alamitos is Sales and Use Tax, then they may have already paid a tax that they did not owe based on how Sales and Use Tax is calculated. And if the $75,000 is not Sales and Use Tax, then is it a violation of Prop 218?
It looks like our former City Attorney, Sandra Levin, has another fine mess that she has put the City of Los Alamitos into. I wonder how much of our tax dollars went to her and her firm to make this mess?