UPDATE, Monday afternoon: Seattle passes smaller ‘head tax’ on big companies, but will compromise appease Amazon?
The full Seattle City Council is poised to vote on a controversial tax on the city’s top-grossing businesses Monday afternoon. The so-called “head tax,” known by some as the “Amazon tax,” has ignited a furious debate about the accountability of city government and the responsibility of the tech industry to help mitigate the consequences of Seattle’s growth.
Despite fierce opposition from Amazon and others in the tech industry, the Council appears to be moving ahead with the plan, which is estimated to raise $75 million a year to fight Seattle’s growing homelessness crisis.
The situation is dynamic and could still change before the vote. There are reports of a possible new compromise as of Monday morning.
Continue reading to get up to speed on the issue ahead of the City Council’s vote, and watch the meeting above starting at 2 p.m. Pacific.
How would the tax work?
Businesses that make more than $20 million in revenue within Seattle city limits would qualify for the tax. Those companies would have to pay 26 cents per employee, per hour worked, hence the name preferred by the City Council, “employee-hours tax.” It’s more colloquially known as a “head tax,” because it would be levied per head (or employee). That comes out to about $500 per year for full-time employees. Seattle would determine which companies qualify using the amount they pay for the city’s B&O tax, which is also based on revenue.
How much money would it raise?
The city estimates the tax would generate $75 million per year for the two years that the head tax is in place. In 2021, it would be replaced with a 0.7 percent payroll tax.
How would the funds be used?
The exact breakdown of spending will be determined by the annual budget but the majority of funds are intended to go toward building deeply affordable housing. The remaining will fund homeless services and administrative costs.
How much does Seattle spend on homeless services now?
Mayor Jenny Durkan said that Seattle spends about $70 million in annual direct investments to programs that fight homelessness in her first State of the City address. Other estimates put that number at about $54 million in 2017. The city says it has built about 12,000 deeply affordable units but needs funding for more to deal with the swelling crisis.
How much money does the city need to solve the homelessness crisis?
A new report out last week concluded that it would require about $400 million a year, conservatively, to solve the homelessness crisis in King County. The consulting firm McKinsey and Company originally launched the report in partnership with the Seattle Metropolitan Chamber of Commerce but the business group is no longer affiliated with it, Crosscut reports.
What does Amazon do on homeless issues now?
Through fees associated with its real estate development in Seattle, the company has contributed a cumulative total of $40 million to the city’s affordable housing fund. Separately, the company has committed more than $40 million to two groups: the Mary’s Place shelters for homeless families, including space in company buildings; and the FareStart non-profit organization for homeless and disadvantaged men, women, and kids, including space and equipment for FareStart restaurants.
Who would have to pay?
The city isn’t releasing the list of 585 businesses that would be subject to the tax. Amazon would certainly qualify, as would some out-of-town tech giants (see below). The e-commerce giant would be on the hook for about $20 million annually. That price tag led Amazon to pause construction on one of its Seattle office towers and reconsider moving into another, pending the City Council’s decision. The combined projects would house about 7,000 workers.
What if a company has a presence in Seattle but headquarters somewhere else?
More than 100 out-of-town tech companies — including Facebook, Google, Apple, and Uber — have set up engineering centers in Seattle and some of them would be taxed under the proposed legislation. That’s because the tax is based on revenue earned in Seattle, regardless of a company’s headquarters. See our in-depth explanation here.
How does the tech industry feel about the tax?
In addition to Amazon, more than 100 tech leaders, the Seattle Chamber, the Downtown Seattle Association, and the Washington Technology Industry Association have spoken out against the tax. Read some of their reactions to the proposal here. Of course, not everyone in the tech industry opposes the tax. The Seattle Tech 4 Housing advocacy group includes many supporters of the legislation.
How likely is it to pass?
Based on the Seattle City Council’s voting track record, the legislation is likely to pass by at least one vote. Councilmembers Mike O’Brien, Kshama Sawant, Lorena González, Lisa Herbold, and Teresa Mosqueda support the tax. The four remaining councilmembers unsuccessfully backed a last-minute compromise introduced by Durkan last week. If the proposal passes 5-4, it would still be vulnerable to a veto by Durkan, who has said she doesn’t support the tax in its current form. The Council would need six votes to overturn a mayoral veto.
Check back for coverage of the vote on GeekWire Monday afternoon.