Amazon and other retail, transportation and warehousing companies could pay about a third of a proposed Seattle tax on big businesses, various white-collar companies could pay another third and the tax could be immune from referendum.
Those are some of the details emerging about the legislation introduced last week by City Councilmembers Kshama Sawant and Tammy Morales. They say the measure could immediately underwrite coronavirus relief payments, were Seattle to initially borrow money from existing sources. Critics say businesses need assistance, not a tax.
Councilmember Teresa Mosqueda, whose budget committee is considering the plan, released a schedule Wednesday that calls for three meetings and a possible committee vote May 13.
“The need for financial resources to address the COVID-19 crisis is overwhelming,” Mosqueda said in a statement, referring to the illness caused by the virus and calling the proposal “an important piece of legislation.”
In some ways, the new proposal is similar to the head tax the council passed and then repealed in 2018. Like the head tax, the Sawant-Morales tax would raise revenue from Seattle’s largest corporations and would later fund affordable housing.
There are differences, however. Sawant and Morales say their tax would raise as much as $500 million a year, rather than the $47 million the head tax would have. And Seattle is now grappling with a pandemic that has put huge numbers of people out of work, decimated many businesses and punched a hole in the city’s budget.
The crisis could boost support for the tax among those who want City Hall to do more to help people who are struggling with rent, mortgage payments and everyday expenses. Even before the pandemic hit, Seattle had a housing and homelessness emergency, and that’s now been compounded by lost jobs, Sawant has said.
“We need a different way to pay for things,” Morales said in an interview, arguing the city is too reliant on property and sales taxes that hit poor people hardest.
Foes will argue Sawant and Morales are taking advantage of the situation. The council members have written their legislation under the state of emergency Mayor Jenny Durkan declared in response to the coronavirus. As Seattle City Council Insight first reported, the City Charter says legislation approved under a state of emergency can’t be repealed by referendum. The Sawant-Morales tax would remain referendum-proof even after the state of emergency is terminated, said Kirstan Arestad, executive director of the council’s central staff.
That could matter, because pressure to repeal the head tax in 2018 came from a referendum campaign bankrolled by companies like Amazon and bolstered by volunteers. When council members voted to repeal it, some cited polling that indicated the tax was going to be voted down. This time, some may worry about the optics of enacting a tax voters couldn’t challenge.
The proposal’s support also could depend on what companies the tax would apply to. Whereas the head tax would have covered those grossing more than $20 million a year, the Sawant-Morales legislation would establish a 1.3% tax on compensation paid by companies with more than $7 million in annual payroll, benefits not included. For example, a company with $10 million in annual wages would pay $130,000.
That means the new tax could apply to about 800 businesses, according to Sawant and Morales, who are basing their assumptions on 2018 data, boosted for inflation and then reduced to account for the coronavirus crisis. The head tax would have covered an estimated 585 companies. The council members can’t name every business their new tax would cover, because the state discloses only aggregate payroll data. Seattle maintains information on gross receipts, but information for individual businesses is confidential.
Had the Sawant-Morales tax existed in 2018, it might have required 110 Seattle business establishments in the retail, transportation and warehousing sectors — including Amazon — to collectively pay about $170 million a year, according to Washington State Employment Security Department data. Those sectors had 73,000 employees and a $178,000 average wage. Amazon didn’t immediately comment Wednesday.
The tax would have required as many as 92 establishments in the information sector to collectively pay about $79 million, and more than 200 establishments in the professional, scientific and technical-services sectors to pay about $74 million. The average wage in the information sector, which includes companies such as Google and Facebook, was $216,000 in 2018. In the professional, scientific and technical-services sectors, it was $156,000.
There were 62 establishments in Seattle’s health and human services sectors with payrolls greater than $7 million in 2018. But the Sawant-Morales tax would exempt nonprofits (as well as grocery businesses, liquor businesses, government entities and insurance businesses), so many health and human services establishments wouldn’t pay.
Still unclear is how the tax might apply to chain companies with franchisees. Some businesses with multiple branches might report as a single establishment, while others might report as multiple establishments.
Sawant and Morales have said the new tax would exclude 98% of Seattle business entities. At the same time, the state data indicate more than half of Seattle employees worked at establishments with payrolls over $7 million in 2018, said Anneliese Vance-Sherman, an Employment Security Department economist.
Small, big businesses at odds
There are various ways to interpret the data. The tax would clearly apply to Amazon and other tech titans, Morales contended. “The point is not to be targeting small businesses and neighborhood shops,” Morales said.
Jacob Vigdor, a University of Washington economics professor, mostly agreed with that assessment. Boeing and some suppliers likely would be taxed, as would Nordstrom, Comcast, CenturyLink, Zillow and Airbnb, he said.
Because they pay high wages, even relatively small tech startups could be covered, Vigdor said. Any business with more than 200 employees would almost certainly be taxed, given that Seattle’s minimum wage is $16 an hour. Neighborhood shops and small eateries would be excluded, he said.
“Your average mom-and-pop restaurant probably comes nowhere close to employing 214 people,” Vigdor said.
Doug Dixon, general manager at the Pacific Fishermen Shipyard, said his company would squeak under the $7 million threshold. Larger shipyards and suppliers could be covered by the tax, Dixon said.
Vigdor wonders about a law firm with a dozen attorneys. “The intention is to make this a tax on big businesses, and there is no universally accepted definition,” he said.
Morales also would like a clearer picture. “This is part of the frustration for us,” she said. “The list exists, but we don’t have access.”
Seattle economist Dick Conway said the Sawant-Morales tax would be “a step in the right direction,” though an income tax would be ideal. The tech giants and their white-collar employees “are not paying their way” under the status quo, he said.
Not all large companies are as prosperous as Amazon, Vigdor noted, predicting more will seek exemptions. Brick-and-mortar retailers have long been in trouble, while restaurants have been rocked by the coronavirus crisis.
Ethan Stowell, who runs 17 local restaurants, said he assumes he would pay the tax. Stowell said it could discourage business owners like him from bringing employees back after the pandemic. “We’re already down, and it seems like we’re getting kicked,” he said. “I understand the city needs revenue, but I’m not sure about the timing of this.”
Greater Seattle Business Association President Louise Chernin echoed that point, calling the Sawant-Morales plan “a very serious distraction,” and arguing large companies would pass the costs on to small businesses.
“Businesses throughout our region are fighting every day to remain viable,” Markham McIntyre, executive vice president at the Seattle Metropolitan Chamber of Commerce, wrote to Chamber members last week, calling the Sawant-Morales plan “dangerous.”
Jesiah Wurtz, who owns Cafe Red in South Seattle, disagreed. The tech giants can afford to pay more, he said. Such companies describe themselves as job creators but “cut jobs in a second to save a dollar,” said Wurtz, whose tiny business wouldn’t be taxed.
“The city needs money now more than ever, and until we have a state income tax, that money has got to come from somewhere,” he said. “Big businesses are making the money. They should contribute.”
Conway also dismissed the timing concerns. “For the Chamber of Commerce, there’s never a good time to raise taxes,” he said.
The council’s taxing authority is tightly constrained. The state Supreme Court recently declined to review rulings that nixed a Seattle income tax on wealthy households. Durkan helped develop a state bill that would have allowed King County to tax compensation paid to high-earning employees, but that proposal died.
Editor’s note: While The Seattle Times as a corporation likely would be affected by the proposed tax, and its editorial board has commented on it, The Times’ news coverage remains independent.