Amazon Riled by Proposed Seattle Tax, Council Set to Vote

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By Paul Shukovsky

The Seattle City Council declined May 11 to amend a proposed tax designed to help homeless people get off the streets, but Amazon finds it so onerous that it threatened to halt growth in its home city if the measure passes.

The ordinance as it currently stands would impose the employee hours tax beginning Jan. 1, 2019, on businesses with annual incomes exceeding $20 million—levying a tax of 26 cents per hour for each employee and generating about $75 million annually for new low-income housing and homeless services. Some 585 companies would be affected, representing about 3 percent of those doing business in Seattle, which is home to Amazon.com Inc.’s headquarters. It would cost businesses about $500 per year per employee.

On Jan. 1, 2021, the head tax would transition to a 0.7 percent tax on each qualified business payroll, which would hit Amazon and other businesses harder.

Mayor Jenny Durkan (D) has said the proposed tax ordinance as it stands is unacceptable. An implicit veto threat looms over the proposal, scheduled for a full council vote May 14.

Seeking Compromise

Council President Bruce Harrell told Bloomberg Tax May 11 he was unable to convince his colleagues to support a compromise amendment matching the mayor’s criteria for passage. It would have implemented a head tax cutting the amount taxpayers pay to about $250 per employee per year. And instead of transitioning to a payroll tax that would hit a company like Amazon particularly hard because of its many highly paid employees, the head tax would remain intact and possibly sunset. It would have generated about $40 million per year.

Harrell said he assumes the mayor will veto the measure if the full council passes it without amendments May 14.

The head tax proposal has been deeply divisive in the progressive-leaning city where the pace of growth, driven by a tech explosion due in no small part to Amazon, is pricing the middle class out of Seattle and increasing homelessness.

Proponents of the tax, and even some council members who are opposed to the current bill, acknowledge the revenue it would raise may not be enough to make up for the deep shortage of affordable housing.

“It would cost between $360 million and $410 million a year to tackle current levels of homelessness” in the county encompassing Seattle, according to a study by McKinsey & Co., the global management consulting firm. The study also found a direct relation between homelessness and Seattle’s skyrocketing rents stoked by the tech boom.

Business Opposition Growing

The Amazon threat further galvanized a business community already opposed to the head tax with companies such as Starbucks, also headquartered in Seattle, making public its concerns about a tax based on employment levels. The local daily newspaper has editorialized against the tax and the politically progressive council is split 5-4 in favor of the more expensive proposal—not enough to survive a veto.

Four of the five council members who support the tax as currently constituted submitted an amendment May 11 to eliminate the payroll tax and transition Jan. 1, 2024, to an employee hours tax at a rate of $0.09375 per hour. That amendment also failed.

Council members are weighing the risk of losing thousands of new jobs against the need for new revenue to pay for homeless services and low-income housing. Even the middle class is being priced out of the city by new, highly paid tech workers who can afford inflated rents.

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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