Seattle Rule 5-009

Limitations on tax assessments.

(1) Introduction. This rule explains the time period thatcan be covered during an audit or review by the Director of the taxpayersrecords to ascertain whether the taxpayer has been correctly reporting itsbusiness activities. It also explains the circumstances under which theDirector may request that a taxpayer complete a statute of limitations waiver.

(2) Assessment period. The Director shall not assess, orcorrect an assessment for, additional taxes, or penalties or interest due morethan four (4) years after the close of the calendar year in which they wereincurred, except under the following conditions:

(a) Against a taxpayer who is not currently registered orhas obtained a business license certificate or has not filed a tax return asrequired by SMC chapter 5.55;

(b) Against a person that has committed fraud ormisrepresented a material fact;

(c) Against a taxpayer that has executed a written waiverof such limitation, for taxes due within the period authorized by the waiver;or

(d) Against a taxpayer that has collected and notremitted admissions taxes imposed by SMC Chapter 5.40 or parking taxes imposedby SMC Chapter 5.35.

(3) Unlicensed taxpayer; persons engaging in businesswithout a business license tax certificate; Non-filers.

(a) Ten-year limitations period for unlicensed taxpayersthat did not obtain a business license tax certificate. Except in cases offraud or misrepresentation, if the Director discovers any unlicensed taxpayer withouta business license tax certificate engaged in business activities in this City,or that a taxpayer has not filed a tax return as required, the Director mayassess taxes, fees, interest, and penalties due for a period of ten (10) yearsplus the current year in which the person was contacted in writing by theDirector. For purposes of this subsection (3), contact occurs on the date thatthe Director mails correspondence to the taxpayer to notify the taxpayer of itsunlicensed and delinquent status with the Department.

(b) Voluntarily obtaining a business license taxcertificate or filing. If a taxpayer voluntarily obtains a business license taxcertificate and files delinquent tax returns prior to being contacted by theDirector, whether for a routine tax audit or otherwise, the Director will applythe general limitations period of four (4) years as described in SMC 5.55.095for the subsequent assessment against such taxpayer rather than the ten (10)year look-back period. This will only apply if the taxpayer has made a goodfaith attempt to voluntarily report correctly and there is no evidence offraud, misrepresentation, or intent to evade tax. It will be presumed that ataxpayer has voluntarily obtained a business license tax certificate or filedwith the Director if the taxpayer files a business license tax certificateapplication, remits the associated license fees and tax certificate fees, filesa tax return(s), and pays its tax liability in the amount of tax shown as dueon the return(s), prior to being contacted by the Director.

(4) Fraud or misrepresentation. The time in which theDirector may assess the tax is not limited if the taxpayer has committed fraudor misrepresented a material fact. One example of misrepresenting a materialfact is providing documents or schedules which are intended to mislead theDirector. Any assessment of interest, penalties and taxes will be limited tothe interest, penalties and taxes which were underpaid as a result of the fraudor misrepresentation.

(5) Statute of limitations waiver.

(a) The Director may request that a taxpayer sign awaiver of the statute of limitations to extend the time in which the Directormay assess tax, penalties, or interest in cases where the delay in timelycompleting an audit or issuing an assessment is the result of the action, orinaction, of the taxpayer. Where a taxpayer has extended the period in which toassess the tax, penalties, or interest, the Director may assess the tax,penalties, or interest within the period agreed to.

(b) A signed written waiver also extends the time inwhich a taxpayer may apply for, or the Director may make, a refund or credit ofany taxes, penalties, or interest paid during, or attributable to, the yearscovered by the waiver.

(6) Trust funds. Since the admissions tax and parking taxare paid by the consumer and not by the person required to collect and remitthe tax to the City, those taxes are deemed held in trust by the personrequired to collect them until the taxes are remitted to the Director. Theperson who collects these taxes has no legal right to retain them. Therefore,no statute of limitations applies and the Director may collect the tax at any time.

(7) Assessments following conditional refunds or credits.Taxpayers may petition for a credit or refund of overpaid taxes by followingthe procedures in Seattle Rule 5-012. The Director may grant such credits orrefunds without further immediate verification. If it is later determined thata refund was granted in error and that there was no fraud/evasion ormisrepresentation of a material fact, the Director may issue an assessment torecover the taxes and interest which were refunded in error, provided theassessment is issued within four (4) years from the close of the tax year inwhich the tax was incurred or within a period covered by a statute oflimitations waiver.

(8) Examples. The following examples identify a number offacts and then state a conclusion. These examples should be used only as ageneral guide. The tax status of each situation must be determined after areview of all of the facts and circumstances.

(a) The Director issued its assessment on December 20,2004, for taxes owed by ABC Company covering the period January 1, 2000,through September 30, 2004 (Audit Period). The taxpayer subsequently contactedthe Director in April 2006 and provided documentation to support its positionthat retailing tax had previously been paid for certain retail sales assessedin the tax years 2001 and 2002.

In the process of reviewing this documentation, theDirector discovered that the auditor inadvertently failed to assess wholesalingtax on some overlooked wholesale sales sold in the year 2001, which would haveresulted in a larger tax assessment for that year than originally assessed in2004.

The Director issued a revised assessment on June 15,2006, covering the Audit Period which adjusted the retailing tax assessed inerror for tax years 2001 and 2002. The revised assessment did not increase thetax assessment for wholesaling taxes owed in 2001 because the statute oflimitations had expired for this tax year. Any petition for refund must be madewithin four years of the close of the tax year in which the tax was paid.

(b) The Director contacted XYZ Distributing on September1, 2006, to schedule a routine audit of its records. The taxpayer requestedthat the Director delay the start of the audit until December 1, 2006, becauseits records are maintained on a fiscal year ending September 30 and the auditwould be extremely disruptive to its year end closing if begun immediately.This delay would not allow the Director sufficient time to complete the reviewof the records for 2002 and timely make an assessment for any taxes found to bedue. In this instance, the Director may request the taxpayer to complete astatute of limitations waiver for the year 2002 in exchange for delaying thestart of the audit. The completion of the waiver by the taxpayer will also holdopen the year 2002 for refund or credit of any taxes found to have beenoverpaid in this period until such time as an assessment is issued or thewaiver expires.

(c) The Director was auditing ABC Theaters for the periodJanuary 1, 2002, through September 30, 2006. During the process of examiningthe records, the Director discovered that ABC had collected admission tax onticket sales in 1998 which had never been remitted to the Director. There wasno fraud or misrepresentation involved in the taxpayer's failure to remit thetax. The Director appropriately expanded the period covered by the assessmentto include the un-remitted admission tax in the year 1998. Admission taxcollected by a seller is deemed to be held in trust until paid to the Directorand the statute of limitations does not apply.

(d) The Department audit staff was unable to find a business license tax certificateregistration for ARC Company. The audit staff contacted ARC by letter inquiringabout its business activities in Washington and asking ARC for its businesslicense tax certificate number. ARC had not obtained a business license taxcertificate with the City of Seattle to engage in business activity withinSeattle. Shortly after being contacted by the audit staff, ARC contacted aCustomer Service Representative within the Department and completed anapplication for a business license tax certificate without disclosing theearlier contact by the audit staff. ARC subsequently argued that the assessmentshould be restricted to four years plus the current year. The Directorappropriately made the assessment for ten years plus the current year becausethe taxpayer had not obtained a business license tax certificate at the time ofbeing first contacted by the City of Seattle.

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