A group of small Seattle-area restaurant owners is defending a city tax on high-earning workers at big companies — and criticizing efforts by one of the city’s biggest business groups to overturn the tax.
In a sharply worded statement Monday, the group, Seattle Restaurants United, rebuked the Seattle Metropolitan Chamber of Commerce for a Dec. 8 lawsuit against the so-called JumpStart tax. The chamber has criticized the tax, which was enacted July 6 and goes into effect next year, as unconstitutional and says it will delay the city’s recovery from the pandemic.
But the restaurant group says the tax is one of the few sources of future city revenue that will be available to help small businesses and workers hurt by COVID-19. Seattle tapped emergency reserves this year to help cover some small-business grants, counting on proceeds from the tax to replenish the reserves in 2021.
The chamber’s lawsuit “is wrongheaded, harmful, and frankly infuriating to the small businesses which they claim to represent, but clearly do not care enough about to fight for,” notes the statement by the group, which represents 248 mostly Seattle-area restaurants.
Chamber officials on Monday defended the lawsuit, which was filed in King County Superior Court. “We filed this lawsuit because the Seattle City Council went beyond the City’s taxing authority when they rushed this tax through,” said chamber spokesperson Alicia Teel in a statement.
Since the pandemic began, more than 600 restaurants and bars in Seattle have permanently closed, according to city data. Many others have curtailed hours and staff. Statewide, the restaurant sector has seen some of the heaviest layoffs of any industry, and many insiders expect further closures and job losses due to a surge in COVID-19 cases as well as a renewed ban on indoor dining and other public health restrictions.
On Monday, the City Council approved a $5 million relief package for small businesses and workers in the hospitality sector. Half of the funds will be directed to restaurants and bars and half to hospitality workers.
Restaurant industry officials say a much larger federal relief package is needed, given how long the sector’s recovery is likely to take. But because Congress has yet to approve that relief, local businesses and workers remain reliant on local relief initiatives — and on the tax programs that fund them, said Jessica Tousignant, executive director of Seattle Restaurants United.
“The [relief] money has to come from somewhere,” Tousignant said Monday. “We have to have fiscal stimulus in place while we’re waiting from action from the government at the federal level.”
The tax, which was dubbed “JumpStart” by Councilmember Teresa Mosqueda, was billed as a way to help Seattle recover from COVID-19 and to build a fairer economy. It is expected to raise more than $200 million in 2021 and starting in 2022 is intended to fund affordable housing, community-led development, local business assistance and Green New Deal investments.
Under the tax, businesses with at least $7 million in annual payroll will be taxed at rates of between 0.7% to 2.4% on salaries and wages paid to Seattle employees who make at least $150,000 per year.
The top 2.4% rate, which was meant to apply to a company like Amazon, will be levied on salaries of at least $400,000 at companies with at least $1 billion in annual payroll.
The JumpStart measure won support from labor unions, community groups and some business owners. But it was opposed by some other businesses and by the chamber, which contended it would undermine the city’s economy and violate the state’s prohibition against income taxes. “This illegal tax puts Seattle’s economic recovery at risk, now and years in the future,” Teel said when the lawsuit was filed.
On Monday, Teel focused on the legal uncertainties around the tax. “The City Council knew that this tax could be vulnerable to a legal challenge,” she said. “We cannot build a recovery around an unstable source of revenue.”
Jeff Shulman, a professor of marketing at the University of Washington Foster School of Business who is studying how businesses and workers have adapted to the pandemic, said the dispute between the chamber and the restaurant group illustrates how COVID-19 has hit some parts of the business community harder than others.
Where some larger businesses have been able to survive and even thrive during the pandemic, Shulman said, many smaller businesses “are really getting crushed by it.”
Dan Nolte, a spokesperson for the City Attorney’s Office, said in an email Monday that it’s “likely” the city will file a response to the lawsuit “by the end of this month unless the City seeks an extension and the Court grants it.”
Seattle Times staff reporter Daniel Beekman contributed to this story.