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City of Alameda Discontinues Business Tax Audit With Contingency Fee Firm

The City of Alameda is discontinuing it's business tax audit with Municipal Auditing Services. (Alameda City Hall West. File photo.)

The City of Alameda is discontinuing it’s business tax audit with Municipal Auditing Services. (Alameda City Hall West. File photo.)

One day after neighboring San Leandro splashed the local media again with news of its 2014 business license tax holiday, previously announced last September, the City of Alameda announced that it was discontinuing a controversial business tax audit with Municipal Auditing Services.

According to the City of San Leandro’s website, “To accelerate the growth of San Leandro businesses, the business license is FREE for all new businesses that commence operations in San Leandro from the present through September 1, 2014. Virtually all businesses that are new to San Leandro, from tech start-ups to family restaurants as well as businesses re-locating from other areas, are exempt from the tax until 2015.”

Local media outlets carried the San Leandro tax holiday story on Sunday, February 23rd.

On Monday, February 24th, Liz Warmerdam, Assistant City Manager for the City of Alameda, released a letter to the editor to local Alameda media, writing, “City Management apologizes to the business community for the way in which the Business License Tax Audit was conducted. We heard from many of you and want you to know we listened. As a result of your feedback, we have decided to discontinue the business license audit program through Municipal Auditing Services (MAS).”

The City of Alameda had expected to recover $151,000 in back taxes against a general fund budget of roughly $75 million; Of the $151,000 Municipal Auditing Services would have kept $60,000 and the City of Alameda would have received $91,000.

However, there were warning signs of an impending controversy before the audit started.

In July of last year, Action Alameda News reported that such contingency audits – where the auditing firm gets paid based on how much back taxes they uncover, have fallen out of favor with the American Institute of CPAs and the National Conference of State Legislatures, bodies that are concerned that contract auditors artificially inflate taxpayer liability, to collect more revenue for themselves.

Also, at that time, Professor Annette Nellen, of the San Jose State University College of Business told Action Alameda news that third-party contingency fee companies are motivated only to find underpayments, which generate revenue for the firm. Government auditors tend to focus on ensuring that taxpayers pay the right amount of tax, including identifying and making adjustments for any overpayments.

In recent weeks, area businesses have written to local newspapers to publicize their complaints about Municipal Auditing Services. At the time the audit was approved by Alameda City Council, Action Alameda News reported that the firm was the subject of complaints in the past, both in Alameda, and in Southern California cities.

The City of Alameda has yet to say if they plan to renew the audit efforts with another firm, or by other means.

1 comment to City of Alameda Discontinues Business Tax Audit With Contingency Fee Firm

  • Rob Schnepp

    Thank you to the City of Alameda! This inept and poorly run company was rude, inaccurate and non-responsive. I was appalled by their attitude and approach. MAS is the poster child for bad business practices.