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HomeMy WebLinkAboutItem 8.1 Sales Tax ReimbG~~~ OF DU~~~ ~9'~~~~2 STAFF REPORT CITY C L E R K ~~ ~ ~ DUBLIN CITY COUNCIL File # ^~®©-®OO O~LIFOR~~ DATE: November 17, 2009 TO: Honorable Mayor and City Councilmembers FROM: Joni Pattillo, City Manager SUBJE Sales Tax Reimbursement Agreement with 6450 Motors LLC Prepared By: Linda Maurer, Assistant to the City Manager EXECUTIVE SUMMARY: In January 2009, City Council adopted the Sales Tax Reimbursement Program as one way to stimulate economic investment in Dublin. Representatives of 6450 Motors LLC, the operators of the new Hyundai dealership in the City of Dublin, requested participation in the Sales Tax Reimbursement Program in August 2009 to assist them with the substantial tenant improvements for 6015 Scarlett Court valued at $670,000. FINANCIAL IMPACT: The proposed agreement would be revenue positive to the City. RECOMMENDATION: That the City Council adopt the proposed Resolution Approving an Agreement for Reimbursement of Sales and Use Tax Revenue with 6450 Motors, LLC Relating to Improvements to be performed on a property located at 6015 Scarlett Court. ,il/ Submitted By view d By Assistant to the City Manager Assistant City Page 1 of 2 ITEM NO. V DESCRIPTION: At the January 6, 2009 City Council meeting, the City Council approved the Sales Tax Reimbursement Program as the first element of the Economic Incentive Program. For the past several months, Staff has been in contact with representatives of 6450 Motors, LLC regarding their participation in the Sales Tax Reimbursement Program for improvements at 6015 Scarlett Court, the site of a new Hyundai dealership in Dublin. The proposed Agreement, between the City of Dublin and 6450 Motors, LLC, relates to exterior and interior improvements to the two buildings located at 6015 Scarlett Court. The east building, currently open for business, provides the sales and showroom space and did not require substantial upgrades to bring the building into compliance. The west building, however, will require substantial improvements to the interior in order to accommodate additional sales and service operations space. Exterior improvements/modifications are also proposed for the site. The value of the improvements for both buildings is estimated to be $670,000. The proposed Agreement (Exhibit A to Attachment 1) would provide 6450 Motors, LLC with fifty (50) percent of the new sales taxes generated by the Hyundai dealership for a period of five (5) years. However, no payments will be made if Hyundai does not generate at least one hundred thousand dollars ($100,000) of new sales tax revenue each of those years. The Agreement, as proposed, meets the criteria established in the Sales Tax Reimbursement Program. The Sales Tax Reimbursement Program was designed to ensure that the sales tax reimbursement agreements will benefit the public. to addition to meeting the Program criteria of improving existing and vacant buildings in Dublin, there are other financial benefits to the City. First, the City will be receiving a new, ongoing source of sales tax revenue that is likely to persist beyond the time-frame of the proposed agreement. Additionally, the improvements to the property will result in a reassessment of the property's value, increasing the City's property tax revenue. In addition to the tax benefits to the City and its residents, this agreement will also result in improvements to the fagade of the property, thus enhancing the appearance and character of the neighborhood, to the benefit of City residents. Finally, the Hyundai dealership will generate new jobs in the City and the employees are likely to spend money at other business establishments in the City, thus generating additional sales tax revenue for the City. NOTICING REQUIREMENTS/PUBLIC OUTREACH: None ATTACHMENTS: 1. Resolution Approving The Sales and Use Tax Reimbursement Agreement (with Exhibit A) Page 2 of 2 ~~9 RESOLUTION NO. -09 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DUBLIN APPROVING AN AGREEMENT FOR REIMBURSEMENT OF SALES AND USE TAX REVENUE WITH 6450 MOTORS LLC RELATING TO IMPROVEMENTS TO BE PERFORMED ON A PROPERTY LOCATED AT 6015 SCARLETT COURT WHEREAS, the current worldwide economic slowdown has negatively impacted the City of Dublin's revenues; and WHEREAS, for decades, state and local governments have used economic development incentives to attract or retain jobs and/or improve the local tax base; and WHEREAS, on January 6, 2009, the City Council of the City of Dublin adopted Resolution No. 9-09, establishing a Sales Tax Reimbursement Program ("the Program") intended to attract new businesses to the City; and WHEREAS, the Program established certain conditions under which the City may agree to enter into an agreement to reimburse property owners and businesses for costs they incur in making certain internal and external building improvements, as well as site improvements provided that certain conditions are met; and WHEREAS, 6450 Motors LLC ("the Tenant") leases certain real property located at 6015 Scarlett Court ("the Property"), located in the City for the establishment of a new Hyundai dealership; and WHEREAS, the Tenant wishes to perform certain interior and exterior improvements, and to avail itself of the benefits of the Program by entering into an agreement with the City to receive reimbursement from the City to be paid out of sales tax revenue generated; and WHEREAS, the City Council finds that it is in the public interest to enter into this agreement because the City and its residents will benefit from increased revenue received from both sales tax revenue that it may not otherwise receive, and from the increase in the property taxes owed by the Owner due to the increased value of the property from the improvements; and WHEREAS, the City Council finds that it is in the public interest to enter into this agreement because the City and its residents will benefit from the aesthetic improvements to the neighborhood that will occur due to the exterior improvements to be made to the structure; and WHEREAS, the City Council further finds that the City and its residents may also benefit from the creation of new jobs in the City by the Tenant. NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Dublin approves the Sales Tax Reimbursement Agreement (attached as Exhibit A and titled "Agreement I~enn~~~l tl~~~(D`i ATTACHMENT 1 d~~ For Reimbursement Of Sales And Use Tax Revenue Between The City Of Dublin and 6450 Motors, LLC. BE IT FURTHER RESOLVED that the City Manager is authorized to execute the agreement substantially in the form attached hereto and to undertake such further action as may be necessary and desirable to carry out the intent of this resolution. PASSED, APPROVED AND ADOPTED this _ day of , 2009. AYES: NOES: ABSENT: ABSTAIN: ATTEST: City Clerk 1320609.1 Mayor 2 3~~ AGREEMENT FOR REIMBURSEMENT OF SALES AND USE TAX REVENUE BETWEEN THE CITY OF DUBLIN AND 6450 MOTORS, LLC. THIS AGREEMENT is made and entered into this _ day of , 2009, by and between the City of Dublin ("City"), a municipal corporation, and 6450 Motors, LLC. ("Tenant"), collectively referred to as "the Parties." RECITALS WHEREAS, the City Council of the City of Dublin adopted Resolution No. 9-09 on January 6, 2009, which Resolution established a Sales Tax Reimbursement Program ("Program") for a period of two years; and WHEREAS, the Program authorizes the City of Dublin to enter into agreements with businesses in certain circumstances, wherein the City agrees to reimburse the business for the actual costs of certain pre- approved improvements to business properties, The reimbursement is made in annual payments over five years or until the business has recouped its actual expenses for the improvements, whichever comes first. The annual payment is capped at fifty percent (50%) of the sales and use tax revenue (hereafter "sales tax") generated by the business in the preceding year; and WHEREAS, provided certain circumstances are met, the Program allows Tenants to recover, over time, a portion of the costs of interior, exterior and site improvements made to their property through a partial reimbursement from the City of sales tax generated from the property; and WHEREAS, Tenant leases certain real property located at 6015 Scarlett Court (APNs: 941-0550-032- 02 and 941-0550-032-03), ("the Property"), located in the City; and WHEREAS, the space to be occupied by Tenant has a total area of seventy-five thousand (75,000) square feet or less, and Tenant has furnished the City with documentation establishing that Tenant is expected to have at least ten million dollars ($10,000,000) in annual retail sales transactions attributable to operations conducted at the Property, which would result in at least one hundred thousand dollars ($100,000) of sales tax for the City each year; and WHEREAS, Tenant intends to improve two buildings it will be using for its operations, These improvements include new electrical, ceiling and lighting, new bathrooms, a showroom area, a conference room, several offices, as well as exterior and facade improvements to both structures. The cost of improvements at 6015 Scarlett Court are estimated to be $670,000. AGREEMENT NOW, THEREFORE, for and in consideration of the mutual advantages to be derived therefrom, and in consideration of the mutual covenants herein contained, it is agreed by and between the Parties hereto as follows: 1. DEFINITIONS 1.1 "Exterior Improvements" means all improvements made to the exterior of the physical structure of the building identified in Exhibit A of this Agreement EXHIBIT A To RESOUu'Ttonl ~~q 1.2 "Improvements" means all Exterior Improvements and Interior Improvements identified in Exhibit A. 1.3 "Interior Improvements" means all improvements made to the interior space to be occupied by the Tenant and identified in Exhibit A of this Agreement. 2. TENANT'S DUTIES UNDER THIS AGREEMENT 2.1 Tenant wishes to perform certain Improvements substantially as described in Exhibit A of this Agreement . 2.2 Prior to commencement of construction of the Improvements or any portion thereof, Tenant shall submit to City all plans, specifications and cost estimates for the Improvements for City review and approval. Nothing in this Agreement shall affect the need for Tenant to obtain any approvals from the City for the Improvements as required by any City rules, regulations, ordinances or resolutions, 2.3 Following City approval of the plans, specifications and cost estimates pursuant to Section 3.1, and in the event that Tenant desires to modify the specifications for any of the Improvements or if change orders are required, Tenant shall submit the modifications, change orders and any revisions to the originally approved cost estimates to City for approval. Failure to do so shall relieve the City of any obligation to pay for any Improvements not constructed as originally approved. 2.4 Tenant shall provide the City with all bills and evidence of payment for the Improvements, in a form acceptable to City within thirty (30) days of Tenant's final payment for the Improvements. A form acceptable to the City could include a summary of the original estimate and final amount paid to each vendor. This summary would also require copies of receipts and paid invoices as an attachment to the summary. 2.5 The actual cost of the Improvements, approved by City pursuant to Section 3.1 of this Agreement, shall constitute the Eligible Compensation Amount. 2.6 A representative of the City shall have the right, at the City's sole discretion, to inspect all Improvement work performed to ensure that said work was performed substantially as approved by the City pursuant to Section 3.1 of this Agreement. This right of inspection shall be in addition to any inspection performed by City staff as required or permitted by any other City rules, regulations, ordinances or resolutions. 2.7 Tenant shall file with the State Board of Equalization a separate sales tax return encompassing sales tax data relating to sales made at the Property only, regardless of any other sales activity conducted at other locations within the City. Beginning with the first full quarter in which Tenant pays sales taxes on its operations at the Property, and for every subsequent quarter, Tenant shall provide City with copies of all sales tax returns filed with the State Board of Equalization for a period of five (5) years. For example, if Tenant begins operations in February of a given year, the first sales tax return submitted to the 5 ~- ~ City shall be for the period from April through June of that year. Tenant shall provide City with quarterly returns within thirty (30) days of submitting each return to the Board of Equalization. Said submission of quarterly sales tax returns shall end when City has made its final payment to Tenant pursuant to this Agreement. 2.8 Tenant shall provide City with a total of twenty (20) consecutive quarterly returns, covering sales taxes paid over a total of five (5) consecutive twelve month periods. Each such twelvemonth period constitute a Reporting Year. Thus, if the first sales tax return submitted pursuant to Section 2.7 encompasses the period from April through June of a given year, the first Reporting Year shall run from April of that year through March of the following year, after which the second Reporting Year shall commence. 2.9 In the event that Tenant learns or is notified that the sales taxes it has paid were incorrectly allocated between City and any other taxing entity for any quarter for which Tenant has provided City with sales information pursuant to Section 2.7 of this Agreement, Tenant shall promptly notify City of the error within thirty (30) days of such notification. 2.10 In the event that City determines, pursuant to Section 3.9 of this Agreement, that it overpaid Tenant due to a miscalculation or misallocation of sales tax payments, and if City is not obligated to make any additional payments to Tenant pursuant to this Agreement, Tenant shall pay to City the amount City overpaid within thirty (30) days of notification by City of the overpayment. 2.11 Tenant hereby acknowledges and agrees that the City may, as required by law, disclose to third parties confidential information contained in or derived from the sales tax returns submitted to City pursuant to Section 2.7 of this Agreement. Such information includes, but is not limited to, the amount of any payments made to Tenant pursuant to Section 3.3 of this Agreement. 3. CITY'S DUTIES UNDER THIS AGREEMENT 3.1 Upon receipt of the plans, specifications and cost estimates, for the Improvements pursuant to Section 2.2 of this Agreement, or upon submission of revised specifications for any of the Improvements, change orders or any revisions. to the originally approved cost estimates pursuant to Section 2.3, City shall review said materials to determine the extent to which they represent work that is consistent with the intent of the Program. City shall inform Tenant in writing either that the Improvements have been approved, or that they have been approved with exceptions, which exceptions shall also be in writing. 3.2 Upon receipt of evidence of payment for the Improvements pursuant to Section 2.4 of this Agreement, City shall provide Tenant with a written determination of the maximum amount that may be paid to Tenant under this Agreement. 3.3 City shall verify the accuracy of all sales tax returns submitted to City pursuant to Section 2.7 of this Agreement. Within one hundred twenty (120) days after receipt of the final sales tax return of each Reporting Year, as that term is defined in Section 2.8 of this '~ ~f ~ Agreement, the City shall pay Tenant an amount equal to fifty percent (50%) of the sales tax paid by Tenant in the preceding Reporting Year, subject to the provisions of Sections 3.4, 3.5, 3.6, 3.7 and 3.8 of this Agreement. 3.4 Should Tenant fail to timely submit its sales tax returns to City, City shall be under no obligation to make any payment to Tenant for that year. 3.5 In no event shall City make any payment to Tenant for any Reporting Year in which the total sales tax paid by Tenant relating to sales on the Property is less than one hundred thousand dollars ($100,000). 3.6 At no time shall the cumulative amount of City's payments be more than the maximum amount that may be paid to Tenant determined pursuant to Section 3.2 of this Agreement. 3.7 In no event shall City be obligated to pay Tenant based on sales tax generated more than five (5) years after the first quarter Tenant submits its sales tax return pursuant to Section 2.7 of this Agreement. 3.8 In the event that Tenant vacates the Property or ceases to conduct business at the Property before submitting sales tax returns encompassing five (5) consecutive years, City's obligation to pay Tenant shall be based only on the amount of sales tax generated by Tenant while occupying the Property. 3.9 If, pursuant to Section 2.9 of this Agreement, Tenant informs City that its sales tax payments were incorrectly allocated to the City, or if the City otherwise learns that Tenant's sales tax payments were incorrectly allocated to the City, and if the result of the incorrect allocation is that City paid Tenant more or less than it would have been required to pay pursuant to Section 3.3 of this Agreement, City shall determine the amount of overpayment or underpayment. If the City is obligated to make any subsequent annual payment to Tenant pursuant to this Agreement, City shall adjust the subsequent payment to reflect any overpayment or underpayment it may have made for the period in question. If City is not obligated to make any additional payments to Tenant pursuant to this Agreement, but has determined that it underpaid Tenant, City shall pay Tenant the amount it underpaid, provided that the sum total of payments to Tenant do not then exceed the Eligible Compensation Amount. This payment shall be made within thirty (30) of City's discovery of the amount of the underpayment. If City is not obligated to make any additional payments to Tenant pursuant to this Agreement, but has determined that it overpaid Tenant, Tenant shall pay City the amount City overpaid in compliance with Section 2.10 of this Agreement. ~ ~~ 4. Indemnification Tenant shall defend City, its officers, employees and officials, against any claims, or actions (including declaratory or injunctive relief) concerning Tenant's construction of the Improvements, including any Right-of-Way Improvements, and shall indemnify and hold City harmless from any damages, charges, fees or penalties that may be awarded or imposed against City and/or Tenant in connection with, or on account of, Tenant's construction of the Improvements, including any Right-of-Way Improvements, and/or City's failure to enforce or comply with any applicable laws. Amendments to Agreement No part of this Agreement shall be altered or amended without written agreement of the signatory Parties. 5. Assignment The rights and obligations of the Parties under this agreement are not assignable and shall not be delegated without the prior written approval of the other Party. 6. Exhibits. The following Exhibit is attached hereto and incorporated as if fully set forth herein: Exhibit A: Description of Improvements. IN WITNESS WHEREOF, the Parties execute this agreement hereto on the day and the year first written above. APPROVED AS TO FORM AND CONTENT: By: John D. Bakker, City Attorney, City of Dublin ADOPTED BY: CITY OF Dublin, a Municipal Corporation By: Date: Joni Pattillo, City Manager °f~ 6450 Motors, LLC., a California Corporation By: Date: Its: 1320607.1 ~~ ~ EXHIBITA Description of Improvements 6015 Scarlett Court -Tenant Improvement Valuation - $670,000 (per the City's Building Division) • Adding new restrooms • New wall finishes • New lighting • New ceiling • Expanding the showroom • Removal of walls • Exterior modifications, including paint EXHIBIT A -Tb AGREEMENT