ORDINANCE _________________

AN ORDINANCE relating to taxation; adopting certain penalty and interest provisions of the Revised Code of Washington into the City's administrative provisions in accordance with state law; amending penalty, interest, and refund calculation provisions; and adding and amending sections in Chapters 5.30 and 5.55 of the Seattle Municipal Code.

WHEREAS, Chapter 35.102 RCW requires that beginning January 1, 2005, all Washington cities that impose a gross receipts business and occupation tax (B & O tax) impose penalties and interest in accordance with parallel provisions contained in Chapter 82.32 RCW for state taxes; and

WHEREAS, the City intends to be in compliance with Chapter 35.102 RCW in the imposition and administration of its gross receipts B & O taxes; and

WHEREAS, the Washington State Legislature passed Chapter 256, Session Laws of 2006, which amended the deficiency assessment penalty provisions contained in RCW 82.32.090 and the City is required to adopt such amendment; NOW, THEREFORE,

BE IT ORDAINED BY THE CITY OF SEATTLE AS FOLLOWS:

Section 1. A new section 5.30.065 is added to the Seattle Municipal Code as follows:

5.30.065 Definitions References to Chapter 82.32 RCW.

Where provisions of Chapter 82.32 RCW are incorporated in Chapter 5.55 of this Title, "Department" as used in the RCW shall refer to the "Director" as defined in SMC 5.30.025 and "warrant" as used in the RCW shall mean "citation or criminal complaint."

Section 2. Section 5.55.090 of the Seattle Municipal Code is hereby amended as follows:

5.55.090 Interest on underpayment of tax.

A. If, upon examination of any returns, or from other information obtained by the Director, it appears that a an amount of tax or penalty less than that properly due has been paid, the Director shall assess the additional amount found to be due and shall add interest thereto interest on the tax only as provided in subsection B of this section. Interest shall be added to delinquent tax only and shall not be calculated upon penalty or interest. The Director shall notify the person by mail of the additional amount, which shall become due and shall be paid within thirty (30) days from the date of the notice, or within such time as the Director may provide in writing.

B. After December 31, 2004 the Director shall compute interest in accordance with RCW 82.32.050 as it now exists or as it may be amended. If SMC 5.55.090 B is held to be invalid, then the provisions of RCW 82.32.050 existing at the effective date of this ordinance shall apply. Interest calculations on underpayments:

1. Interest on underpayments of taxes for periods prior to January 1, 2002 shall be computed from the date of underpayment until paid at a rate of ten (10) percent per year on the balance due.

2. Interest on underpayments of taxes for periods beginning on or after January 1, 2002 shall be computed from the last day of the month following the end of the reporting period and will continue to accrue until payment is made. In case of a deficiency assessment the interest shall be computed from the first day of the month following each calendar year or portion thereof included in the assessment. The rate of interest to be charged to the taxpayer shall be an average of the federal short-term rate as defined in 26 U.S.C. Sec. 1274(d) plus two (2) percentage points. The rate set for each new year shall be computed by taking an arithmetical average to the nearest percentage point of the federal short-term rate, compounded annually. That average shall be calculated using the rates from four (4) months: January, April, and July of the calendar year immediately preceding the new year, and October of the previous preceding year.

Section 3. Section 5.55.095 of the Seattle Municipal Code is hereby amended as follows:

5.55.095 Time in which assessment may be made.

A. The Director shall not assess, or correct an assessment of for, additional taxes, or assessable penalties, or interest due more than four (4) years after the close of the calendar year in which they were incurred with the following exceptions, except that the Director may issue an assessment:

1A. Against a person who is not currently registered or licensed or has not filed a tax return as required by this chapter , for taxes due within the period commencing ten (10) years prior to the close of the calendar year in which the person was contacted in writing by the Director;

2B. Against a person that has committed fraud or who misrepresented a material fact , for all taxes due; or

3C. Against a person that has executed a written waiver of such limitations , for taxes due within the period authorized by the waiver.

B. The Director shall notify the person by mail of the amount of the deficiency, which shall become due and shall be paid within thirty (30) days from the date of the notice, or within such additional time as the Director may provide in writing.

Section 4. Section 5.55.100 of the Seattle Municipal Code is hereby amended as follows:

5.55.100 Overpayment of tax, penalty, or interest -Credit or refund -Interest

rate -Statute of limitations.

A. If, upon receipt of an application for a refund, or during an audit or examination of the taxpayer's records and tax returns, the Director determines that the amount of tax, penalty, or interest paid is in excess of that properly due, the excess amount shall be credited to the taxpayer's account or shall be refunded to the taxpayer. Except as provided in subsection B of this section, no refund or credit shall be made for taxes, penalties, or interest accrued and paid more than four (4) years prior to the beginning of the calendar year in which the refund application is made or examination of records is completed.

B. The execution of a written waiver , pursuant to SMC 5.55.095,) shall extend the time for applying for, or making, a refund or credit of any taxes paid during, or attributable to, the years covered by the waiver if, prior to the expiration of the waiver period, an application for refund of such taxes is made by the taxpayer or the Director discovers that a refund or credit is due.

C. Refunds shall be made by means of vouchers approved by the Director and by the issuance of a City check, warrant or wire transfer drawn upon and payable from such funds as the City may provide.

D. Any final judgment for which a recovery is granted by any court of competent jurisdiction for tax, penalties, interest or costs paid by any person shall be paid in the same manner, as provided in subsection C of this section, upon the filing with the Director a certified copy of the order or judgment of the court.

E. Interest calculation on refunds or overpayments. After December 31, 2004 the Director shall compute interest on refunds or credits of amounts paid or other recovery allowed a taxpayer in accordance with RCW 82.32.060 as it now exists or as it may be amended. If SMC 5.55.100 E is held to be invalid, then the provisions of RCW 82.32.060 existing at the effective date of this ordinance shall apply.

1. Interest on overpayments of taxes for periods beginning on or after September 5, 1999, and ending prior to January 1, 2002, shall be computed at five (5) percent per annum.

2. Interest on overpayments of taxes for periods beginning on or after January 1, 2002, shall be the average federal short term interest rate, as defined under SMC 5.55.090 B(2), less two (2) percentage points.

3. Interest on overpayments of taxes for periods beginning on or after January 1, 2005, shall be the average federal short term interest rate as defined under SMC 5.55.090 B(2), plus two (2) percentage points.

Section 5. Section 5.55.110 of the Seattle Municipal Code is hereby amended as follows:

5.55.110 Late payment -Disregard of written instructions -Evasion -Penalties.

A. If the Director does not receive a return or payment of any tax due on a return to be filed by a taxpayer is not received by the Director shown as due on a return by the due date, the Director shall add a penalty in accordance with RCW 82.32.090(1), as it now exists or as it may be amended equal to five (5) percent of the amount of the tax; and if the return or the tax is not received on or before the last day of the month following the due date, the Director shall add a total penalty equal to fifteen (15) percent of the amount of the tax; and if the return or the tax is not received on or before the last day of the second month following the due date, the Director shall add a total penalty equal to twenty-five (25) percent of the amount of the tax. No penalty assessed herein shall be less than Five Dollars ($5.00).

B. If a tax deficiency is assessed by the Director determines that any tax has been substantially underpaid as defined in RCW 82.32.090(2), there shall be added a penalty in accordance with RCW 82.32.090(2), as it now exists or as it may be amended equal to five (5) percent of the amount of the deficiency. If payment of any tax deficiency assessed by the Director is not received by the due date specified in the notice, or any extension thereof, the Director shall assess a penalty equal to fifteen (15) percent of the amount of the additional tax found due. If payment of any tax deficiency assessed by the Director is not received on or before the thirtieth day following the due date specified in the notice, or any extension thereof, the Director shall assess a penalty equal to twenty-five (25) percent of the amount of additional tax found due. No penalty added shall be less than Five Dollars ($5.00).

C. If a citation or criminal complaint is issued by the Director for the collection of taxes, fees, assessments, interest or penalties, there shall be added thereto a penalty in accordance with RCW 82.32.090(3), as it now exists or as it may be amended of ten (10) percent of the amount due, but not less than Ten Dollars ($10).

D. If the Director finds that a person has engaged in any business or performed any act upon which a tax is imposed under this title and that person has not obtained from the Director a license as required by Section 5.55.030, the Director shall impose a penalty in accordance with RCW 82.32.090(4), as it now exists or as it may be amended of five (5) percent of the amount of tax due from that person for the period that the person was not licensed. No penalty shall be imposed under this subsection D if the person who has engaged in business without a license obtains a license prior to being notified by the Director of the need to be licensed.

E. If the Director determines that all or any part of a deficiency resulted from the taxpayer's failure to follow specific written tax reporting instructions, there shall be assessed a penalty in accordance with RCW 82.32.090(5), as it now exists or as it may be amended of ten (10) percent of the amount of the additional tax due.

1. A taxpayer fails to follow specific written tax reporting instructions when the Director has informed the taxpayer in writing of the taxpayer's tax obligations and the taxpayer fails to act in accordance with those instructions. The Director shall not assess the penalty under this subsection, SMC 5.55.110E, upon any taxpayer that has made a good faith effort to comply with the specific written instructions provided by the Director to that taxpayer.

2. Specific written instructions may be given as a part of a tax assessment, audit, determination or closing agreement, provided that such specific written instructions shall apply only to the taxpayer addressed or referenced on such documents.

3. Any specific written instructions by the Director shall be clearly identified as such and shall inform the taxpayer that failure to follow the instructions may subject the taxpayer to the penalties imposed by this subsection.

F. If the Director finds that all or any part of the deficiency resulted from an intent to evade the tax payable, the Director shall assess a penalty in accordance with RCW 82.32.090(6), as it now exists or as it may be amended of fifty (50) percent of the additional found to be due.

G. The penalties imposed under subsections A through E D of this section can each be imposed on the same tax found to be due. This subsection does not prohibit or restrict the application of other penalties authorized by law.

H. The penalties authorized by subsections E and F of this section shall be assessed in accordance with the provisions of this chapter governing assessment of tax deficiencies. The Director shall not impose both the evasion penalty and the penalty for disregarding specific written instructions on the same tax found to be due.

I. For the purposes of this section, "return" means any document a person is required by the City of Seattle to file to satisfy or establish a tax or fee obligation that is administered or collected by the City, and that has a statutorily defined due date.

J. If incorporation into the Seattle Municipal Code of future changes to RCW 82.32.090 is deemed invalid, then the provisions of RCW 82.32.090 existing at the time this ordinance is effective shall apply.

Section 6. Section 5.55.120 of the Seattle Municipal Code is hereby amended as follows:

5.55.120 Cancellation of penalties.

A. The Director may cancel any penalties imposed by SMC subsections 5.55.110 A and B if the taxpayer shows that its failure to timely file or pay the tax was due to reasonable cause and not willful neglect. Willful neglect is presumed unless the taxpayer shows that it exercised ordinary business care and prudence in making arrangements to file the return and pay the tax but was, nevertheless, due to circumstances beyond its control, unable to file or pay by the due date. The Director has no authority to cancel any other penalties or to cancel penalties for any other reason except as provided in subsection C of this section.

B. A request for cancellation of penalties must be received by the Director within thirty (30) days after the date the Director Department mails the notice that the penalties are due. The request must be in writing and contain competent proof of all pertinent facts supporting a reasonable cause determination. In all cases the burden of proving the facts rests upon the taxpayer.

C. The Director may cancel the penalties imposed by SMC subsections 5.55.110 A and B one time only if a person:

1. Is not currently licensed and filing returns;

2. Was unaware of its responsibility to file and pay tax;

3. Obtained business licenses and filed past due tax returns within thirty (30) days after being notified by the Department; and

4. Owes no tax for the delinquent tax periods.

D. The Director shall not cancel any interest charged upon amounts due.

ED. The Director of Finance shall adopt administrative rules for the cancellation of penalties imposed under this chapter.

Section 7. Interpretation. Sections 1 through 7 of this ordinance are intended to comply with and implement the mandates of Chapter 35.102 RCW, including but not limited to RCW 35.102.040, .080, .090, and .140.

Section 8. Severability. If any part, provision or section of this chapter is held to be void or unconstitutional as applied to any person or circumstance, then all other parts, provisions, and sections of this chapter not expressly so held to be void or unconstitutional shall continue in full force and effect with respect to all other persons and all other circumstances.

Section 9. Ratification of Prior Acts. Any acts by City of Seattle officials and employees that took place prior to the effective date of this ordinance and that fall within the scope of the authority granted herein are hereby ratified and confirmed.

Section 10. Instructions to the Code Reviser. To make a cross reference elsewhere in the SMC consistent with the amendment made to SMC 5.55.090 by the section 2 of this ordinance, the City's code reviser is instructed to update the cross reference in SMC 6.10.080 C from "SMC 5.55.090 B2" to "SMC 5.55.090 B."

Section 11. This ordinance shall take effect and be in force thirty (30) days from and after its approval by the Mayor, but if not approved and returned by the Mayor within ten (10) days after presentation, it shall take effect as provided by Municipal Code Section 1.04.020.

Passed by the City Council the ____ day of _________, 2006, and signed by me in open session in authentication of its passage this _____ day of __________, 2006.

_________________________________

President __________of the City Council

Approved by me this ____ day of _________, 2006.

_________________________________

Gregory J. Nickels, Mayor

Filed by me this ____ day of _________, 2006.

____________________________________

City Clerk

(Seal)

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