Seattle Rule 5-007

Penalties.

Seattle Rule 5-007 Penalties.

(1) Penalties.

Various penalties apply as a result of the failure tocorrectly or accurately compute and report the proper tax liability, or totimely pay the tax.

More than one penalty may apply and some penalties may becumulative. Pursuant to RCW 35.102 the Director must impose the same penaltyprovisions as those contained in RCW 82.32.090. SMC 5.55.110 codifies thevarious penalty provisions contained in RCW 82.32.090 as listed in the tablebelow.

The penalty types and rates addressed in this subsection are:

Nonassessable and assessable penalties.

Nonassessable penalties are penalties that the lawimposes automatically when the facts giving rise to them occur. There is noright to contest the imposition of a nonassessable penalty. By contrast,assessable penalties must be assessed by the Director within the statute oflimitations for assessments and taxpayers have the right to contest theassessment in the same manner as any other assessment, such as taxes. Penaltiesin 1(a) through (d) are nonassessable penalties.

Penalties in 1(e) and (f) are assessable penalties.

(a) Late payment of a return. SMC 5.55.110 Aimposes a five percent penalty if the tax due on a taxpayer's return is notpaid by the due date. A fifteen percent penalty is imposed if the tax due isnot paid on or before the last day of the month following the due date, and atwenty-five percent penalty is imposed if the tax due is still not paid on orbefore the last day of the second month following the due date. The minimumpenalty for late payment is five dollars.

Various sets of circumstances can affect how the latepayment of a return penalty is applied. See (a)(i) and (ii) of this subsectionfor some of the most common circumstances.

(i) Will I avoid the penalty if I file my returnwithout the payment? The Director may refuse to accept any return which isnot accompanied by payment of the tax shown to be due on the return. If the returnis not accepted, the taxpayer is considered to have failed or refused to filethe return. Failure to file the return can result in the issuance of a noticeof underpayment (NOU) or an assessment for the actual, or an estimated, amountof unpaid tax. Any NOU or assessment issued will include a late payment penaltystarting at five percent, which will increase the longer tax remains unpaid. Ifthe tax return is accepted without payment and payment is not made by the duedate, the late payment of return penalty will apply.

(ii) I didn't register and receive a business licensetax certificate with the Director when I started it, and now I think I wassupposed to be paying taxes! What should I do? You should fill out and sendin a business license tax certificate application to get your business licensetax certificate. It is important for you to  apply for and receive business license taxcertificate before the department identifies you as an unregistered taxpayerwithout a business license tax certificate and contacts you about your businessactivities. Except as noted below, if a person engages in taxable activities withouta business license tax certificate, but then applies for and receives abusiness license tax certificate prior to being contacted by the department,the business license tax certificate registration is considered voluntary. Whena person voluntarily applies for and receives a business license taxcertificate, the late payment of return penalty does not apply to thosespecific tax-reporting periods representing the time during which the person didnot have a business license tax certificate.

(A) However, even if the person has voluntarily appliedfor and received a business license tax certificate as explained above, thelate payment of return penalty will apply if the person:

(1) Engaged in evasion or misrepresentation with respectto reporting tax liabilities or other tax requirements; or

(2) Engaged in taxable business activities during aperiod of time in which the person's previously open tax reporting account hadbeen closed.

(B) Even though circumstances, such as those listed in(5)(a)(iii)(A) above, may warrant retention of the late payment of returnpenalty, a person who has voluntarily applied for and received a businesslicense tax certificate will not be subject to the unregistered taxpayerpenalty (see subsection (b) below).

(b)Engaging in business without a business license taxcertificate. SMC 5.55.110 D imposes a five percent penalty on thetax due for any period of time where a person engages in a taxable activity anddoes not voluntarily apply for and receive a business license tax certificateprior to being contacted by the Director. "Voluntarily apply for andreceive a business license tax certificate" means to properly complete andsubmit a business license tax certificate application before any contact fromthe City of Seattle with respect to licensing or paying taxes.

(c) Substantially underpaid deficiency assessment.SMC 5.55.110(B) adds a five percent deficiency penalty to an assessment if theDirector determines that any tax has been "substantially underpaid,"as defined below.

As used in this section, "substantially underpaid"means that the taxpayer has paid less than eighty percent of the amount of taxdetermined by the Director to be due for all taxes contained in SMC chapters5.35, 5.37, 5.40, 5.45, 5.48, and 5.52, included in, and for the entire periodof time covered by, the Director's examination, and the amount of underpaymentis at least one thousand dollars.

If payment of the tax amount due and the five percentdeficiency penalty due is not received by the due date specified in the notice,or any extension thereof, the deficiency penalty shall be increased to fifteenpercent of the amount of the tax owing; and if payment of the tax amount dueand the fifteen percent deficiency penalty due is not received on or before thethirtieth day following the due date specified in the notice of tax due, or anyextension thereof, the penalty shall be increased to twenty-five percent of theamount of the tax due. No penalty so added shall be less than five dollars.

(d) Issuance of a notice of violation orcriminal complaint. If the Director issues a notice of violation orcriminal complaint pursuant to SMC 5.55.110(C) for the collection of any fee,tax, increase, or penalty, an additional penalty will immediately be added inthe amount of ten percent of the amount of the tax due, but not less than tendollars.

(e) Disregard of specific written instructions.If the Director finds that all or any part of a deficiency resulted fromthe disregard of specific written instructions as to reporting of taxliabilities, an additional penalty of ten percent of the additional tax founddue will be imposed because of the failure to follow the instructions pursuantto SMC 5.55.110(E).

(i) A taxpayer is considered to have received specificwritten instructions when the Director has informed the taxpayer in writing ofits tax obligations and specifically advised the taxpayer that failure to actin accordance with those instructions may result in the imposition of thispenalty. The specific written instructions may be given as a part of a NOU, taxassessment, audit, determination, or closing agreement. The penalty applieswhen a taxpayer does not follow the specific written instructions, resulting inunderpayment of the tax due. The penalty may be applied only against thetaxpayer given the specific written instructions. However, the taxpayer willnot be considered to have disregarded the instructions if the taxpayer hasappealed the subject matter of the instructions and the Director has not issuedits final instructions or decision.

(ii) The penalty will not be applied if the taxpayer hasmade a good faith effort to comply with specific written instructions.

(f) Evasion. If the Director finds that all or anypart of the deficiency resulted from an intent to evade the tax due, a penaltyof fifty percent of the additional tax determined by the Director to be duewill be added. The evasion penalty is imposed when a taxpayer knows a tax liabilityis due but attempts to escape detection or payment of the tax liability throughdeceit, fraud, or other intentional wrongdoing. An intent to evade does notexist where a deficiency is the result of an honest mistake, miscommunication,or the lack of knowledge regarding proper accounting methods. The Director hasthe burden of showing the existence of an intent to evade a tax liabilitythrough clear, cogent and convincing evidence. The evasion penalty only appliesto the specific taxes that a taxpayer intended to evade. To the extent that theevasion involved only specific taxes, the evasion penalty will be added only tothose taxes. The evasion penalty will not be applied to those taxes which wereinadvertently underpaid.

(2) Statutory restrictions on imposing penalties.

Depending on the circumstances, the law may impose morethan one type of penalty on the same tax liability. However, those penaltiesare subject to the following restrictions:

(a) The penalties imposed for the late payment of areturn, unregistered taxpayer without a business license tax certificate,substantial underpayment assessment, and issuance of a notice of violation orcriminal complaint (see subsection (1)(a) through (d) of this rule) may beapplied against the same tax concurrently, each unaffected by the others, up totheir combined maximum rates. Application of one or any combination of thesepenalties does not prohibit or restrict full application of other penaltiesauthorized by law, even when they are applied against the same tax.

(b) The Director may impose either the evasion penalty(subsection (1)(f) of this rule) or the penalty for disregarding specificwritten instructions (subsection (1)(e) of this rule), but may not impose bothpenalties on the same tax.

(3) Waiver or cancellation of penalties.

SMC 5.55.120 authorizes the Director to waive or cancelpenalties under limited circumstances.

(a) Circumstances beyond the control of the taxpayer.The Director will waive or cancel any penalty imposed under SMC 5.55.110 if thefailure to pay the tax by the due date was the result of circumstances beyondthe control of the taxpayer.

A request for a waiver or cancellation of penaltiesshould contain all pertinent facts and be accompanied by such proof as may beavailable. The taxpayer bears the burden of establishing that the circumstanceswere beyond its control and directly caused the late payment. The requestshould be made in the form of a letter.

The circumstances beyond the control of the taxpayer mustactually cause the late payment. Circumstances beyond the control of thetaxpayer are generally those which are immediate, unexpected, or in the natureof an emergency. Such circumstances result in the taxpayer not havingreasonable time or opportunity to timely file and pay. Circumstances beyond thecontrol of the taxpayer include, but are not necessarily limited to, thefollowing.

(i) Erroneous written information given to the taxpayerby a department employee caused the delinquency. A penalty will not be waivedwhen it is claimed that erroneous oral information was given by a departmentemployee.

The reason for not cancelling the penalty in cases oforal information is because of the uncertainty of the facts presented, theuncertainty of the instructions or information imparted by the departmentemployee, and the uncertainty that the taxpayer fully understood theinformation given. Reliance by the taxpayer on incorrect advice received fromthe taxpayer's legal or accounting representative is not a basis forcancellation of a penalty.

(ii) The delinquency was directly caused by death orserious illness of the taxpayer, or a member of the taxpayer's immediatefamily. The same circumstances apply to the taxpayer's accountant or other taxpreparer, or their immediate family. This situation is not intended to have anindefinite application. A death or serious illness which denies a taxpayerreasonable time or opportunity to obtain an extension or to otherwise arrangetimely filing and payment is a circumstance eligible for penalty waiver.

(iii) The delinquency was caused by the destruction byfire or other casualty of the taxpayer's place of business or business records.

(iv) The delinquency was caused by an act of fraud,embezzlement, theft, or conversion on the part of the taxpayer's employee orother persons contracted with the taxpayer, which the taxpayer could notimmediately detect or prevent, provided that reasonable safeguards or internalcontrols were in place.

(b) Waiver of the late payment of return penalty.The late payment of return penalty (see subsection (1)(a) above) associatedwith the first thirty days after the due date may be waived either as a resultof circumstances beyond the control of the taxpayer or after a twenty-fourmonth review of the taxpayer's reporting history, as described below. Latepayment penalties due when the payment is more than 30 days late after the duedate will not be waived under the twenty-four month review.

(i) If the late payment of return penalty is assessed ona return but is not the result of circumstances beyond the control of thetaxpayer, the penalty will still be waived or canceled if the taxpayer hastimely filed and paid all tax returns and business license taxcertificate renewals (regardless of type of tax or license) due for a period oftwenty-four months immediately preceding the period covered by the return forwhich the waiver is being requested.

A taxpayer who applies for and receives a businesslicense tax certificate to engage in business with the department, and engagesin business activities for a period less than twenty-four months afterlicensing, is eligible for the waiver if the taxpayer had no delinquent taxreturns for any periods prior to the period covered by the return for which thewaiver is being requested. Therefore, the taxpayer's very first return due canqualify for a waiver under the twenty-four month review provision.

(ii) A return will be considered timely for purpose ofthe waiver if there is no tax liability for the period for which the return isfiled.

(iii) A twenty-four month review is only valid whenconsidering waiver of the late payment of return penalty described insubsection (1)(a) above, and for those payments made within the thirty dayperiod after the due date. The twenty-four month review process cannot be usedas justification for a waiver of interest, assessment penalty, or any penaltyother than the late payment of return penalty described above.

DIRECTOR'S CERTIFICATION

I, Glen M. Lee, Finance Director of the City ofSeattle, do hereby certify

under penalty of perjury of law, that the within andforegoing is a true and

correct copy as adopted by the City of Seattle, Departmentof Finance and

Administrative Services.

     DATED this ______ day of July 2016.

                              CITY OF SEATTLE,

                              a Washingtonmunicipality

                         By:     ____________________________________

                                Glen M. Lee,Finance Director

                                Department ofFinance and Administrative Services

Effectivedate: July 14, 2016