Will Seattle Council Keep Tax Plan in Face of Amazon Threat?

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By Paul Shukovsky

Seattle City Council members are showing no signs of backing down from an Amazon threat to halt growth in the city if they pass an employee head tax.

The head tax would be imposed beginning Jan. 1, 2019, on businesses with annual incomes exceeding $20 million—levying a tax of 26 cents per hour for each employee. In the cross hairs are some 585 companies, about 3 percent of those doing business in Seattle, which is home to Amazon’s headquarters.

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

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. The council plans to hold a final vote on the proposal May 14.

The estimated $75 million in revenue that would come from the tax would go to help the homeless, whose burgeoning numbers have coincided with Seattle’s tech boom.

‘Holding the City Hostage’

Some $20 million to $30 million of that revenue would come from Amazon, and the company isn’t pleased. Amazon, which employs more than 45,000 people in Seattle, has drawn a line in the sand by shelving two big real-estate projects in the city that would house more than 7,000 employees.

“Pending the outcome of the head tax vote by City Council, Amazon has paused all construction planning on our Block 18 project in downtown Seattle and is evaluating options to sub-lease all space in our recently leased Rainier Square building,” Amazon Vice President Drew Herdener said May 2.

The council is apparently not intimidated, with at least five members of the nine-member body still in support of the measure, councilmembers Teresa Mosqueda and Kshama Sawant told Bloomberg Tax May 9 just before a public meeting on the measure. During the meeting, a few building-trades union members expressed fears the tax would cost jobs, though other union members and social-service workers spoke in favor of it.

One social-service worker from a downtown homeless shelter urged the council to resist Amazon “holding the city hostage.” And he held aloft a letter from a broad cross section of labor unions in support of the tax. The letter ends with: “We know that bending to threats one by one only serves to reinforce the prioritization of corporate profits over people in crisis and working families.”

After Amazon made its threat May 2, four councilmembers issued a statement saying: “Amazon made the conversation about them when they expressed their intentions to pause construction on their new office tower.”

‘Attempted Extortion’

“While Amazon didn’t single-handedly cause this problem, they have contributed to the income inequality, displacement and housing affordability issues facing our City,” the councilmembers’ statement said.

Amazon didn’t immediately respond to a May 9 request for comment.

The business community at large as represented by the Seattle Chamber of Commerce opposes the head tax as a threat to jobs and economic prosperity. And since the Amazon threat, the opposition has gained more allies.

Union iron workers from Local 86 showed up at a press conference held by Sawant in front of an Amazon building March 3 to chant and speak against the tax. Iron workers and more than 100 other building and construction trade members demonstrated in front of city hall during a break in the May 9 meeting holding signs reading “Don’t Vote our Jobs Away.”

Mosqueda, a former organized labor activist, told Bloomberg Tax the building-trades workers are “scared when Amazon comes out with the nuclear option and they use our members as pawns. I don’t take kindly to threats.”

Sawant, who supports the measure, called the company’s threat “attempted extortion by Amazon.”

The Seattle Times editorialized against the proposed council ordinance May 6, saying “that the community has lost patience with its ideological tax crusades.”

“If you create an environment that businesses perceive as adverse, businesses will vote with their feet,” Jon Magnusson, an engineer doing building design, told the council meeting May 9.

Herdener’s shot over Seattle’s bow came just a few days after Amazon announced it would be expanding its Vancouver tech hub by 3,000 employees and adding 2,000 more technology jobs in Boston, one of 20 finalists for Amazon’s second headquarters—which the company has said will be co-equal to Seattle. The winner of the HQ2 competition can look forward to about 50,000 new jobs and the construction of a $5 billion campus.

Proponents of the head tax muse that the HQ2 winner can also look forward to more traffic congestion, soaring housing prices, and increased homelessness.

A Tax on Employment’

“Growth and prosperity has directly contributed to the rapid increase in the number of individuals and families experiencing homelessness,” the legislative findings section of the proposed ordinance says. And it asserts a direct relationship between the rapid escalation in rent and the increase in homelessness that in 2017 meant that there were “no fewer than 8,522 individuals in the City who are experiencing homelessness on any given night.”

This affluent city has few options to capture a new source of revenue in a state that taxes neither income nor capital gains. “There are not a lot of tools in our tool belt,” Mosqueda told Bloomberg Tax before the meeting. “We have asked property owners to pay more, we have asked consumers to pay high sales tax already. We are trying to find a solution that doesn’t require our smallest businesses and working families to pay more.

Mosqueda portrayed the proposed tax as a response also to the state’s and the city’s deeply regressive tax system. “We’re trying to right side up our upside down tax system,” she said.Amazon pays its Seattle employees $25.7 billion and has a huge impact on the local economy. But the notion that it also has negative impacts is widely held.

“There is some case to be made that Amazon bears some responsibility for the problem,” University of Washington economist Jacob Vigdor told Bloomberg Tax March 7. “The challenge here is that the tax that the city council proposes to levy is not a tax on Amazon. It is a tax on employment.”

Vigdor, of UW’s Evans School of Public Policy & Governance, argued that passage of the tax means workers will end up with lower wages or having their jobs relocated.

‘Paid to Complain’

The proposed ordinance finds a more sympathetic hearing from tax attorney Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center in Washington, D.C. A former legislative counsel for Congress’ Joint Committee on Taxation, Rosenthal was staff director in 2013 for the Washington, D.C., Tax Revision Commission, which recommended the adoption of a head tax.

“This approach is very simple, administratively very easy, and has low compliance issues,” he told Bloomberg Tax May 8. “That’s because employers already count up their employees and payroll for purposes of the federal unemployment tax.”

And he contends that the levy by comparison to other payroll taxes such as social security, Medicare, and unemployment “is not that much.”

He dismissed business complaints about the tax, saying, “Chambers of Commerce, that’s what they do. They’re paid to complain about the government collecting taxes.” The chamber didn’t respond May 8 to a request for an interview.

Nevertheless, Rosenthal readily acknowledges that taxing any activity, including employee hours, “will always result in less of that activity. But if the city needs the money, they’ve got to take the least of the bad choices. No one wants to pay taxes. But the money doesn’t fall from heaven.”

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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