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| Information |
| TITLE: |
| Consideration and Adoption of Resolution No. 2024-04: A resolution of the Flagstaff City Council, approving an intergovernmental agreement between the City and the State of Arizona Department of Revenue for the administration, collection, audit, and licensing of transaction privilege taxes, use taxes, severance taxes, jet fuel excise and uses taxes and rental occupancy taxes imposed by the State, cities or towns |
| STAFF RECOMMENDED ACTION: |
1) Read Resolution No. 2024-04 by title only
2) City Clerk reads Resolution No. 2024-04 by title only (if approved above)
3) Adopt Resolution No. 2024-04
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| Executive Summary: |
The proposed intergovernmental agreement with the Arizona Department of Revenue (the 2023 IGA) requires ADOR to administer local tax administration for cities and towns and establishes the responsibilities of the parties. It also includes specific operational processes related to tax collection, protection of taxpayer confidentiality, and information security.
The 2023 IGA will replace the existing 2019 IGA and constitutes a complete rewrite of the prior agreement. |
| Financial Impact: |
| The IGA itself has no financial impact. However, the previous years the State has required the City local tax administration until FY 2020-21. Currently the City is funding a share of the ADOR Integrated Tax System Modernization Project. |
| Policy Impact: |
| None. |
| Connection to PBB Priorities/Objectives, Carbon Neutrality Plan & Regional Plan: |
| This is a State requirement and does not directly tie to Priority Based Budgeting, Carbon Neutrality Plan, Housing Plan or Regional Plan. |
| Has There Been Previous Council Decision on This: |
| The City Council previously approved an IGA with the ADOR dated June 4, 2019, City Contract #IGA-2019-279-AG4. |
| Options and Alternatives: |
1. Approve the IGA.
2. Do not approve the IGA. |
| Background and History: |
ADOR has managed the City of Flagstaff local tax administration since January 2017.
All Arizona cities and towns are expected to enter into this IGA, pursuant to Arizona Revised Statutes (ARS) Section 42-6001.A, which provides that: "The department [ADOR] shall collect and administer any transaction privilege and affiliated excise taxes, including use tax, severance tax, jet fuel excise and use tax, and rental occupancy tax, imposed by any city or town. The department and each city or town shall enter into an intergovernmental contract or agreement to provide a uniform method of administration, collection, audit and licensing of transaction privilege and affiliated excise taxes imposed by the state or cities or towns pursuant to title 11, chapter 7, article 3. The contract or agreement shall include criteria for the denial of a request from a city or town for an audit of a taxpayer that is engaged in business in more than one city or town."
City Responsibilities:
- Provide to ADOR:
- List of employees authorized to receive taxpayer information to ADOR and keep it updated,
- A primary point of contact to ADOR,
- Any employment or other contract for local tax audits (within 10 days from approval of this IGA & any new contract),
- A copy of any new ordinance affecting the tax code (within 10 days from approval of the ordinance - this means immediately after the second read),
- A copy of any new annexation ordinance (within 15 days from adoption),
- Any other relevant information requested by ADOR,
- Notice of any breach in security of tax information.
- Review the ADOR's website to confirm City's profile is current,
- Review ADOR's website to identify any changes to the Model City Tax Code, and then update the City tax code,
- Protect taxpayer confidentiality,
- Cooperate with ADOR in tax litigation.
ADOR responsibilities:
- Issue transaction privilege tax (TPT licenses and collect local license fee,
- Perform audits per the ADOR's "Standard Audit Life Cycle Process Map" (not part of the IGA),
- Perform local tax audits if requested by City, and ADOR agrees:
- The IGA lists numerous reasons why ADOR may refuse to conduct an audit, including but not limited to lack of funding or not wanting to spend ADOR resources on the audit. There is an appeal process for City to appeal ADOR's decision to not audit.
- Collect and remit local taxes,
- Provide training to all City supervisors, auditors, and desk reviewers (desk review is a lesser type of audit),
- Protect taxpayer confidentiality,
- Provide copies of administrative hearing level decisions as to taxpayer appeals, if City requests,
- Represent City in tax litigation.
Changes from 2019 IGA (summary provided by ADOR and the League of Arizona Cities and Towns):
The new IGA adds or clarifies the definitions of various terms including City Services, Collection, Development Fees, Options Chart, Primary Point of Contact (PPOC), Profile, Independent Contractor, State Tax, Tax Information, Authorized Access Lists, and Qualified Recipients of Information, and all defined terms are now capitalized throughout the Agreement for easy recognition.
Taxpayer confidentiality measures have been significantly strengthened, placing additional emphasis on the protection of Tax Information provided under Arizona statutes, and refining the details surrounding authorized access, disclosure restrictions, and remedies for improper disclosure such as the possible suspension of Tax Information sharing.
New procedures have been established for both the cities and the Department to regularly maintain the Authorized Access Lists that control who can see detailed taxpayer information, including clarifying confidentiality training requirements and adding that all responsibilities and restrictions apply to Independent Contractors in the same manner as they apply to regular employees.
The new IGA addresses the developing scope of city assistance offered to the Department with the addition of delinquent tax collection activities and new collections reports along with new language that covers cities assisting with reviews of selected refund claims. In addition to the services that have long been provided by city and town auditors, these new areas expand the ways that we can partner with the Department, leveraging our personnel to help the DOR achieve more efficient operations.
The 2023 IGA also provides new or improved coverage for several miscellaneous topics including the City's responsibility for reviewing its City Profile and the Model City Tax Code website; workers' compensation issues when sharing office space with other jurisdictions; the expiration, termination, or amendment of the Agreement; and the disclosure of aggregated financial information.
Finally, this version rewrote much of Appendix A regarding the handling and protection of confidential taxpayer information. Changes were made relative to identifying retention requirements and authorized disposal methods, critical information security protocols, and various software system requirements that cities and towns must follow to protect any confidential taxpayer data stored on their computer systems. |
| Key Considerations: |
| Approving the 2023 IGA benefits both the City and ADOR, as the new IGA improves the existing local tax administration system. |
| Community Involvement: |
| City taxpayers benefit from a uniform method of state and local tax collection. The 2023 IGA provides for this. The community as a whole benefits from local tax collection, as it funds governmental services. |
| Expanded Options and Alternatives: |
| City of Flagstaff was not actively involved with negotiation of the 2023 IGA. The 2023 IGA was negotiated by representatives from ADOR, the Attorney General’s office, the City Tax Administrators Council (CTAC) Rulings Group, which includes the League of Arizona Cities and Towns, several city attorneys, and "a multitude of tax and IT experts from many municipalities." |
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