Seattle, we have a new head tax. Here’s what that means

Last Tuesday, we asked for your questions about Seattle’s controversial head tax, which is also called an employee hours tax. Yesterday, the Seattle City Council passed it — though in a smaller form than what was initially proposed. This happened after a weekend of negotiation between the council and Mayor Jenny Durkan, who’d threatened to veto the original $500-per-employee tax.

The head tax that passed — a $275-per-employee tax on Seattle companies that gross more than $20 million a year — is now the highest employee tax of any major city in the country.

And now that we know the version of the tax that passed, we can add more clarity to the thoughtful questions that more than 30 of you asked last week. Want a rundown of what the head tax means and what the reaction’s been? (Spoiler alert: it got tense.) Check out the stories from Crosscut, The Seattle Times, and GeekWire.

1. Is there a list of all the companies affected? Particularly the big ones?

We haven’t found a definitive list of all 585 companies that will be affected, but The Seattle Times has a handy breakdown of the industries they fall into. For what it’s worth, the ReferenceUSA database identified Nordstrom, Swedish Medical Center, Safeco, Weyerhaeuser, Windermere Real Estate, Holland America, K2 Sports, as Seattle-based companies with at least 5,000 employees and sales volumes of at least $20 million. (Note: This is not quite an apples to apples comparison. The head tax would apply to companies that have an annual gross revenue of at least $20 million.)

Several big players, like Zillow, Alaska Airlines and Expedia, recently spoke out against the tax. On Wednesday, a group of 130 other business owners published a letter of opposition to the idea, saying they’d like to work with the city council to find an alternative to the tax, which they say is “making businesses pay a price for creating jobs.”

“The framing of [the tax] was on Amazon, but it affects so many other companies,” Marilyn Strickland, president of the Seattle Metropolitan Chamber of Commerce, told us. Aside from local tech companies, she said the Chamber’s heard from Safeway, Uwajimaya, and even local pho restaurants who are concerned about how the tax could impact their small margins.

Here’s what a few longtime Seattle-based companies would be paying in taxes, as reported by The Puget Sound Business Journal:

  • Uwajimaya: about $260,000
  • Ivar’s: about $282,000
  • Starbucks: about $1.9 million

2. How will this affect companies like Microsoft and Boeing, which employ workers who live outside Seattle?

This one’s a bit tricky. When we asked the Seattle Chamber of Commerce, a representative told us that as of now, if a Microsoft employee works out of an office in Seattle, the company will have to pay 26 cents for each hour that employee works in the city. But Microsoft wouldn’t pay for the time that employee works at Microsoft’s Redmond headquarters or another of its offices around the world.

We’re checking with the city about this (we sent them what the Chamber said), and will update when we hear more.

3. Do other cities have a similar “head tax?”

Yep. Denver currently has one it calls an “Occupational Privilege Tax,” and it costs about $4 per employee every month. (Here’s the city’s FAQ on how it works). And other cities in Colorado, like Boulder, have considered one (though the one in Boulder ultimately did not happen). Chicago leaders repealed their city’s head tax in 2014 — but now they’re trying to bring it back. The mayor of Mountain View, California, which is home to Google, also proposed a head tax to build more affordable housing.

4. Seattle had a head tax until until 2009. Why was the original head tax repealed?

Our city first passed a head tax in 2006 to help pay for major transportation projects and maintain streets and sidewalks. But one council member says we got rid of it because it was too complex to implement.

“Under the old employee hours tax, all businesses were eligible to pay, but employers did not have to pay the tax for employees who commute by bus, carpool, bike or on foot,” said City Councilmember Lisa Herbold, who worked at City Hall at the time. “The complexity of administering this tax was one of the reasons given to support the repeal.”

5. How does the tax burden on Seattle businesses compare to the tax burden of businesses in other cities?

Puget Sound Business Journal reporter Ashley Stewart came up with a great comparison for this. A Seattle-based company employing at least 200 workers and earning at least $100 million would be taxed about $429,000 each year. In Bellevue, a similar company would pay about $190,000 annually; in Redmond, $22,400. Her full article is here (behind a paywall).

6. The city is hoping to use the tax money to help with housing and homeless services. What is the city’s plan for spending the money and how will it be allocated?

Here’s a breakdown of precisely how the city plans to spend the money it raises with the new head tax. The gist? About 61 percent will go toward building low-income housing; 34 percent will go toward emergency shelter and other needs for people experiencing homelessness in Seattle; and about 5 percent will go toward administrating the plan.

7. What oversight will be in place to make sure the city would spend this extra money right? How can Seattleites see what is being done with funds for housing and homelessness currently?

A lot of you asked a version of this question, and it’s a good one. We don’t have a very satisfying answer at the moment, but we can tell you about an audit that was recently done to check in on the impact of the city’s homelessness services. The verdict? Not great.

“Having many large organizations working independently also reduces the ability of the region to respond collectively to community needs, and creates roadblocks to change,” the audit reads.

King County Executive Dow Constantine and Mayor Jenny Durkan recently said they’d find a way to make our region more responsive to the homelessness crisis. And after the vote on Monday, Mayor Durkan said she planned to create an oversight committee to monitor how the money is spent.

8. What taxes does Amazon pay?

Some background: Currently, in Washington State, income tax is illegal and we don’t have a capital gains tax, which is a fee on selling investments, including stocks and real estate.

In 2017, Amazon paid $250 million in state and local taxes, The Seattle Times reports.

9. Does this new bill have an end date?

The head tax will “sunset” and be up for a vote again in 2023.

 


 

Thanks to Missy Nyham, Sarah Schacht, James Ferguson, Richard Fuhr, Drew Biehle, Vlasil Mlekarov, Rick Gregory, Kelly Knickerbocker, Bo Zhang, John L. and many more of you (who preferred to remain anonymous!) for sending in such great questions.