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Seattle’s top grossing employers escape a head tax for now. (GeekWire Photo / Nat Levy)

A proposal that would have taxed Seattle businesses earning more than $10 million in gross annual receipts was narrowly voted down by the City Council Tuesday.

The HOMES tax was defeated 5-4, though several councilmembers said they want to bring the tax back for a vote early next year after more discussions with stakeholders. The employee-hours tax, commonly referred to as a “head tax” would have collected about $125 per employee, per year from the city’s top-grossing businesses. The Council said approximately 1,100 companies would have been subject to the tax.

“My concern about passing the head tax today is that we have not talked with the 1,100 businesses people so quickly dismiss and say that they can pay for it,” said Councilmember Sally Bagshaw, who voted against the tax.

Councilmembers Mike O’Brien and Kirsten Harris-Talley drafted the HOMES tax, with support from Lisa Herbold. They say it would have generated between $20-$25 million to fight Seattle’s homelessness crisis. O’Brien envisioned the majority of the funds would go toward building affordable housing and some would be reserved for homeless services.

Several members of the Council targeted the booming tech industry as a driving factor in Seattle’s growing homeless population. Seattle’s business community is experiencing rapid job growth, drawing record numbers of newcomers for high-paying jobs. That influx puts a squeeze on Seattle’s housing market, often driving out lower-income, long-term residents.

“Often we talk about growth not lifting all boats, growth not helping everybody but the proposition we are faced with — and the reason we’re proposing this revenue source — is because in many cases, growth has not only not helped everybody but growth has actually hurt people,” Herbold said during Tuesday’s budget hearing.

O’Brien asked that the Council still invest a few million dollars into setting up the infrastructure to collect a head tax so that it could be implemented on schedule if it is approved early next year. The move would hold his colleagues accountable for their pledges to support the tax after more discussion. With the same goal, Councilmember Kshama Sawant plans to introduce a resolution Monday that says the Council intends to pass an employee-hours tax in the future.

Some members the Seattle business community have pushed back on the employee-hours tax. The Seattle Metropolitan Chamber of Commerce mobilized its members to write letters to the Council questioning its methods for fighting homelessness. Ninety-one business leaders, organized by the Downtown Seattle Association, also sent a letter to the Council arguing that the HOMES tax is not an appropriate solution to the city’s homelessness crisis.

“Your recent actions have increased the cost of running businesses, increased costs for customers, and resulted in thinner profit margins across many industries,” the letter says. “These realities and your actions threaten the viability of many long-time Seattle businesses. The Council has taken many of these actions without input from employers in Seattle. This latest proposal to tax jobs follows this pattern.” The signatories did not include many of Seattle’s big tech companies.

Taxes have driven a wedge between some members of the business community and Seattle lawmakers. On Monday, the Council approved a new tax of $8-$14 per night on short-term rental operators. Over the summer, Seattle’s lawmakers unanimously approved an income tax on the city’s highest owners, which faces several legal challenges.

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