Amazon Not Happy with Seattle’s New Compromise Head Tax

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By Paul Shukovsky

Seattle’s City Council unanimously passed an employee head count tax it revised to placate the business community and hometown company Amazon.com Inc.

The retail giant had leveled a threat making its expansion in the city contingent upon the council vote.

The ordinance as amended imposes an employee hours tax beginning Jan. 1, 2019, on businesses with annual incomes exceeding $20 million—levying a tax of about $275 per year for each full-time employee based on a rate of $0.14323 per hour worked. It is expected to generate about $48 million in revenue from some 585 companies, about 3 percent of those doing business in the city.

The revenue will go toward affordable housing and wraparound services in an economically vibrant city where a tech boom has sparked a sharp spike in rents and homelessness.

The politically progressive council—which passed out of committee May 11 a proposed ordinance that would have taxed at a rate of $500 per employee—backed down in the face of a likely veto from Seattle Mayor Jenny Durkan (D), who proposed a rate of $250 per employee.

To get enough votes to override a possible veto, five council members who supported the original measure were forced to compromise May 14 with the other four members who were worried about the impact of a tax on jobs.

The original, $500 version of the ordinance would have produced $75 million in revenue, of which some $20 million to $30 million would have come from Amazon.

The company, which employs more than 45,000 people in Seattle, responded by saying it was shelving two big real-estate projects in the city that would hold more than 7,000 employees pending the outcome of the council vote.

The company made clear it was concerned about a provision in the original proposal that would transition the head tax to a 0.7 percent payroll tax that had no sunset. The adopted ordinance sunsets Dec. 31, 2023, and the payroll tax provision was excised from the final version.

‘Part of the Problem’

Amazon apparently isn’t mollified by the passage of the compromise measure.

“We are disappointed by today’s City Council decision to introduce a tax on jobs,” Amazon Vice President Drew Herdener told Bloomberg Tax in an email.

The company has resumed work on one of the real estate projects it paused, Herdener said, adding, “We remain very apprehensive about the future created by the council’s hostile approach and rhetoric toward larger businesses, which forces us to question our growth here.”

“City of Seattle revenues have grown dramatically from $2.8B in 2010 to $4.2B in 2017, and they will be even higher in 2018,” Herdener said. “This revenue increase far outpaces the Seattle population increase over the same time period. The city does not have a revenue problem—it has a spending efficiency problem. We are highly uncertain whether the city council’s anti-business positions or its spending inefficiency will change for the better.”

Second Headquarters Finalists

Amazon’s tactics and its reluctance to pay the tax have attracted the attention of local elected officials around the nation, including cities short-listed by the company as possible sites for its second, co-equal headquarters city, dubbed HQ2.

An open letter May 14 to the city of Seattle from about 55 elected leaders—some from cities on Amazon’s short list for HQ2—rebuked Amazon for its tactics and its opposition to the tax proposal.

“We urge you to remain steadfast in your commitment to this effort to reduce homelessness and the persistent inequities faced by all of our cities,” the leaders wrote to their Seattle colleagues.

“Amazon has highlighted its desire for strong public transit and affordable housing solutions in HQ2 shortlist cities,” the letter says. “That is why the biggest corporations must contribute, like everyone else, to our tax base to fund solutions to these problems. Unfortunately, when the city of Seattle proposed a modest, progressive tax on big corporations to fund housing affordability and homelessness initiatives, Amazon decided to be part of the problem and not the solution.”

The letter said that Amazon’s fight against the head tax is concerning, “given Amazon’s approach to the competition for HQ2, in which the company has promoted a bidding war of jurisdictions competing with each other to offer greater incentive packages.”

“If Amazon were serious about its support for strong affordable housing solutions, it would fully back this tax proposal and chip in to help address Seattle’s homelessness crisis,” the letter said. “By threatening Seattle over this tax, Amazon is sending a message to all of our cities: we play by our own rules.”

Amazon didn’t respond to an email query May 14 asking for a response to the letter.

Divide Among the Left

The contentious debate on the council reflects a larger division in the politics of the left. Organized labor was divided by the fight: the construction trades lined up against the tax, while a wide range of unions, such as the Service Employees International Union, Teamsters, United Food and Commercial Workers, and Unite Here!, favored it.

Assistant Majority Whip Sen. Mark Mullet (D), told Bloomberg Tax May 14 prior to the vote that if the measure passed, he would introduce a bill to nullify it.

“I have no qualms putting the Seattle City Council in a difficult box,” Mullet said. “I think the Seattle City Council is destroying the Democratic brand by not finding the right balance between supporting the business community and making the investments in affordable housing.”

Socialist Councilmember Kshama Sawant said May 14 of the tax: “I do think that this is is a massive victory, that in the face of Amazon and Jeff Bezos saying ‘no’ to any tax, any tax we pass today would be a massive victory.”

To contact the reporter on this story: Paul Shukovsky in Seattle at pshukovsky@bloomberglaw.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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