Seattle passes big business tax on salaries of top earners after years of false starts

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Supporters of the head tax protest a vote to repeal the controversial legislation in 2018. Behind the banner, Councilmember Kshama Sawant calls for order. (GeekWire Photo / Monica Nickelsburg)

Seattle’s years-long effort to tax the wealth generated by tech and other lucrative industries crossed a new milestone Monday.

The Seattle City Council voted to approve a tax on the highest salaries at companies in the city with annual payroll expenses of $7 million or higher. The tax will initially fund coronavirus relief and eventually go toward affordable housing and homeless services.

Related: How Seattle’s new payroll tax on Amazon and other big businesses will work

Close followers of Seattle’s long tax battle with the tech industry view this legislation as stronger and more dynamic than previous attempts. It also comes at a time when Seattle’s largest private employer, Amazon, is dramatically increasing in value despite a national economic crisis. Amazon founder Jeff Bezos is richer than ever as customers around the world turn to online shopping. Meanwhile, the coronavirus crisis is exacerbating income inequality in Seattle and beyond. But despite the new environment, the legislation could still face old hurdles. It awaits the mayor’s approval and could be blocked by legal challenges.

The ordinance establishes a tiered system of taxation on companies with annual payroll expenses exceeding $7 million. Employers in the lowest bracket will be taxed:

  • 0.7% of annual salaries between $150,000-$399,999
  • 1.7% of annual salaries exceeding $400,000

There is a separate tier for companies with annual payroll expenses of more than $1 billion per year. Though the state keeps payroll data confidential, this bracket was likely designed with Amazon in mind. Employers in this tier will be taxed:

  • 1.4% of annual salaries between $150,000-$399,999
  • 2.4% of annual salaries exceeding $400,000

Stock grants are included in the salary thresholds but stock options are not, according to City Council staff.

Businesses with annual payroll lower than $7 million are not subject to the tax. Grocery businesses and independent contractors are also exempt. The tax will be collected quarterly.

The JumpStart Seattle proposal was introduced by City Council member Teresa Mosqueda as an alternative to a larger payroll tax backed by her colleagues Tammy Morales and Kshama Sawant. The Sawant/Morales plan drew a rebuke from the Seattle business and tech leaders, who sent letters to Seattle Mayor Jenny Durkan asking her to veto the legislation.

“In the midst of this crisis, large companies are continuing to do well,” Mosqueda said during Monday’s City Council meeting. “They’re still paying [six]-figure salaries in some cases, and in some cases, even as high as a half a million a year. We’re asking them, through this JumpStart proposal to contribute.”

Mosqueda’s approach has not drawn the same level of criticism from the tech industry. Expedia, in particular, appears open to the tax.

“While we are concerned about any new city tax in this period of economic uncertainty, this is a necessary conversation until progress can be made on state and regional solutions,” said Richard Lazaro, government affairs manager at Expedia Group, during a press conference last month.

But the Greater Seattle Chamber of Commerce is not behind either plan. The Chamber issued this statement in response to Mosqueda’s proposal:

“Our region is in severe economic shock. We need leaders to focus on an equitable and inclusive economic recovery that gets businesses back open and people back to work. It’s still not clear how long impacts like job losses are going to last, and many businesses in Seattle and throughout our region are not in the same place they were at the start of the year.”

The Downtown Seattle Association issued a similar statement Monday, calling the legislation “bad public policy.”

“Job taxes are counterproductive to job creation and have a history in Seattle of being enacted and then later repealed,” DSA said. “This tax should follow that fate.”

The last time the City Council attempted to implement a new tax on big business, it ended in disaster. The council unanimously passed a “head tax” on the top-grossing companies in the city only to repeal it weeks later in the face of a protracted political fight. The business community fought the legislation, branding it a “tax on jobs” and funding an opposition campaign.

The new payroll tax passed 7-2 Monday with two amendments. One exempts nonprofit hospitals from the tax and the other allows the legislation to sunset after 20 years.

The Seattle City Council estimates that the tax will generate more than $200 million dollars each year to fund relief for families negatively impacted by the pandemic and alleviate Seattle’s homelessness crisis. The city does not know how much additional revenue will come from taxes on companies with annual payrolls exceeding $1 billion annually because that data is confidential.

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