Seattle Rule 5-008
Recordkeeping requirements.
(1) Introduction. This rule defines the requirements forthe maintenance and retention of books, records, and other source
ofinformation. It also addresses these requirements where all or a part of thetaxpayers books and records are received, created, maintained, or generatedthrough various computer, electronic, and/or imaging processes and systems.
(2) Definitions. For purposes of this rule the followingdefinitions will apply:
(a) Database management system means a software systemthat controls, relates, retrieves, and provides accessibility to data
stored ina database.
(b) Electronic data interchange or EDI technology meansthe computer-to-computer exchange of business transactions in a
standardizedstructured electronic format.
(c) Hard copy means any documents, records, reports orother data printed on paper.
(d) Machine-sensible record means a collection of relatedinformation in any electronic format (e.g., database management
systems, EDItechnology, automated data process systems, etc.). Machine-sensible records donot include hard-copy records that are created or recorded on paper or storedin or by an imaging system such as microfilm, microfiche, or storage-onlyimaging
systems.
(e) Records means all books, data, documents, reports, orother information, including those received, created, maintained,
or generatedthrough various computer, electronic, and/or imaging processes and systems.
(f) Storage-only imaging system means a system ofcomputer hardware and software that provides for the storage, retention
andretrieval of documents originally created on paper. It does not include anysystem, or part of a system, that manipulates or processes any information ordata contained on the document in any manner other than to reproduce thedocument in hard copy or
as an optical image.
(3) Recordkeeping requirements-General.
(a) Every taxpayer liable for a tax or fee imposed underSeattle Municipal Code Title 5 must keep complete and adequate
records fromwhich the Director may determine any tax liability for such taxpayer.
(b) It is the duty of each taxpayer to prepare andpreserve all records in a systematic manner conforming to accepted
accountingmethods and procedures. Such records are to be kept, preserved, and presentedupon request of the Director, which demonstrate:
(i) The amounts of gross receipts and gross income fromall sources, however derived, including barter or exchange
transactions,whether or not such receipts or income are taxable. These amounts must besupported by original source documents or records including but not limited toall purchase invoices, sales invoices, contracts, and such other records as maybe
necessary to substantiate gross receipts and income; and
(ii) The amounts of all deductions, exemptions, orcredits claimed through supporting records or documentation required by
statuteor administrative rule, or other supporting records or documentation necessaryto substantiate the deduction, exemption, or credit.
(iii) The amounts of any refunds claimed. These amountsshall be supported by records as may be necessary to substantiate the
refundsclaimed. Refer to Seattle Rule 5-012 for information on the refund process.
(c) The records kept, preserved, and presented shallinclude the normal records maintained by an ordinary prudent business
person.Such records may include general ledgers, sales journals, cash receiptsjournals, bank statements, check registers, and purchase journals, together withall bills, invoices, cash register tapes, and other records or documents oforiginal entry
supporting the books of account entries. The records shallinclude all federal and state tax returns and reports and all schedules, workpapers, instructions, and other data used in the preparation of the tax reportsor returns. The records shall also
include financial statements and profit andloss statements.
(d) If a taxpayer retains records in bothmachine-sensible and hard- copy formats, the taxpayer must make the
recordsavailable to the Department in machine-sensible format upon request of theDepartment. However, the taxpayer is not prohibited from demonstrating taxcompliance with traditional hard-copy documents or reproductions thereof,although this does not
eliminate the requirement that they provide access tomachine- sensible records, if requested.
(e) Machine-sensible records used to establish taxcompliance must contain sufficient transaction-level detail information so
thatthe details underlying the machine-sensible records can be identified and madeavailable to the Department upon request.
(f) At the time of an examination, the retained recordsmust be capable of being retrieved and converted to a readable record
format,as required in section (7) below.
(g) Taxpayers are not required to constructmachine-sensible records other than those created in the ordinary course
ofbusiness. A taxpayer who does not create the electronic equivalent of atraditional paper document in the ordinary course of business is not requiredto construct such a record for tax purposes.
(4) Record retention period. SMC 5.55.060 requires thatall records must be open for inspection and examination at any time
by theDirector, upon reasonable notice, and must be kept and preserved for a periodof five (5) years. The statute of limitations on assessments of a personengaging in business without a business license tax certificate is ten (10)years plus the current
year. All taxpayers are responsible for keeping recordsfrom which the Director may ascertain the correct amount of tax. For personsengaging in business without a business license tax certificate, records willbe requested for ten (10) years preceding the
current year.
(5) Failure to maintain or disclose records. Any taxpayerwho fails to comply with the requirements of SMC 5.55.060 or this
rule isforever barred from questioning, in any court action or proceedings, thecorrectness of any assessment of taxes made by the Director based upon anyperiod for which such books, records, and invoices have not been so kept,preserved, or disclosed.
Where complete and adequate records are notmaintained, or when such records are not provided to the Director, the Directorshall make an estimated assessment based upon the best information available tothe Director.
(6) Where records must be produced. Records must beproduced in Seattle unless:
(a) The taxpayer does not maintain the required recordsin Seattle;
(b) Permits the examination of the records at the placewhere the records are kept; and
(c) The taxpayer pays in advance the cost of travel tothe location where such records are kept.
(7) Electronic records.
(a) Electronic Data Interchange Requirements.
(i) Where a taxpayer uses electronic data interchange(EDI) processes and technology, the level of record detail, in
combination withother records related to the transactions, must be equivalent to that containedin an acceptable paper record. For example, the retained records should containsuch information as vendor name, invoice date, product description,
quantitypurchased, price, amount of tax, indication of tax status, shipping detail,etc. Codes may be used to identify some or all of the data elements, providedthat the taxpayer provides a method which allows the Director to interpret thecoded
information.
(ii) The taxpayer may capture the information at anylevel within the accounting system and need not retain the original
EDItransaction records provided the audit trail, authenticity, and integrity ofthe retained records can be established. For example, a taxpayer usingelectronic data interchange technology receives electronic invoices from itssuppliers. The taxpayer
decides to retain the invoice data from completed andverified EDI transactions in its accounts payable system rather than to retainthe EDI transactions themselves. Since neither the EDI transaction nor theaccounts payable system captures information
from the invoice pertaining toproduct description and vendor name (i.e., they contain only codes for thatinformation), the taxpayer must also retain other records, such as its vendormaster file and product code description lists and make them available
to theDirector. In this example, the taxpayer need not retain its EDI transaction fortax purposes if the vendor master file contains the required information.
(b) Electronic Data Processing Systems Requirements. Therequirements for an electronic data processing accounting system
should besimilar to that of a manual accounting system, in that an adequately designedaccounting system should incorporate methods and records that will satisfy therequirements of this section.
(c) Internal controls.
(i) Upon the request of the Director, the taxpayer mustprovide a description of the business process that created the
retainedrecords. Such description must include the relationship between the records andthe tax documents prepared by the taxpayer and the measures employed to ensurethe integrity of the records.
(ii) The taxpayer must be capable of demonstrating:
(A) The functions being performed as they relate to theflow of data through the system;
(B) The internal controls used to ensure accurate andreliable processing; and
(C) The internal controls used to prevent unauthorizedaddition, alteration, or deletion of retained records.
(iii) The following specific documentation is requiredfor machine-sensible records retained pursuant to this section:
(A) Record formats or layouts;
(B) Field definitions (including the meaning of all codesused to represent information);
(C) File descriptions (e.g., data set name); and
(D) Detailed charts of accounts and account descriptions.
(8) Access to machine-sensible records.
(a) The manner in which the Director is provided accessto machine- sensible records may be satisfied through a variety of
means thatshall take into account a taxpayers facts and circumstances throughconsultation with the taxpayer.
(b) Such access will be provided in one or more of thefollowing manners:
(i) The taxpayer may arrange to provide the Director withthe hardware, software, and personnel resources to access the
machine-sensiblerecords;
(ii) The taxpayer may arrange for a third party toprovide the hardware, software, and personnel resources necessary to
access themachine-sensible records;
(iii) The taxpayer may convert the machine-sensiblerecords to a standard record format specified by the Director, including
copiesof files, on a magnetic medium that is agreed to by the Director; and/or
(iv) The taxpayer and the Director may agree on othermeans of providing access to the machine-sensible records.
(9) Storage-only imaging systems.
(a) For purposes of storage and retention, taxpayers mayconvert hard-copy documents received or produced in the normal
course ofbusiness and required to be retained under this section to microfilm,microfiche or other storage-only imaging systems and may discard the originalhard-copy documents, provided the conditions of this section are met. Documentswhich may be stored
on these media include, but are not limited to, generalbooks of account, journals, voucher registers, general and subsidiary ledgers,and supporting records of details, such as sales invoices, purchase invoices,exemption certificates, and credit
memoranda.
(b) Microfilm, microfiche and other storage-only imagingsystems must meet the following requirements:
(i) Documentation establishing the procedures forconverting the hard-copy documents to microfilm, microfiche or other
storage-onlyimaging system must be maintained and made available upon request. Suchdocumentation must, at a minimum, contain a sufficient description to allow anoriginal document to be followed through the conversion system as well asinternal procedures
established for inspection and quality assurance;
(ii) Procedures must be established for the effectiveidentification, processing, storage, and preservation of the stored
documentsand for making them available for a period of five (5) years;
(iii) Upon request by the Director, a taxpayer mustprovide facilities and equipment for reading, locating, and reproducing
anydocuments maintained on microfilm, microfiche or other storage-only imagingsystem;
(iv) When displayed on such equipment or reproduced onpaper, the documents must exhibit a high degree of legibility and
readability.For this purpose, legibility is defined as the quality of a letter or numeralthat enables the observer to identify it positively and quickly to theexclusion of all other letters or numerals. Readability is defined as thequality of a group of
letters or numerals being recognizable as words orcomplete numbers;
(iv) All data stored on microfilm, microfiche or otherstorage- only imaging systems must be maintained and arranged in a
manner thatpermits the location of any particular record; and
(v) There must be no substantial evidence that themicrofilm, microfiche, or other storage-only imaging system lacks
authenticityor integrity.
(10) Effect on hard-copy recordkeeping requirements.
(a) The provisions of this rule do not relieve taxpayersof the responsibility to retain hard-copy records that are created
or receivedin the ordinary course of business as required by existing law and regulations,except as otherwise provided in this section. Hard-copy records may be retainedon a recordkeeping medium as provided in section (9) of this rule.
(b) If hard-copy records are not produced or received inthe ordinary course of transacting business (e.g., when the taxpayer
uses electronicdata interchange technology), such hard-copy records need not be created.
(c) Hard-copy records generated at the time of atransaction using a credit or debit card must be retained unless all
thedetails necessary to determine correct tax liability relating to thetransaction are subsequently received and retained by the taxpayer inaccordance with this section.
(d) Computer printouts that are created for validation,control, or other temporary purposes need not be retained.
(e) Nothing in this section prevents the Director fromrequesting hard- copy printouts in lieu of retained machine-sensible
records atthe time of examination.
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,Department of 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