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Law360 (June 11, 2020, 8:58 PM EDT) -- A proposed $500 million Seattle payroll tax is back on the City Council's agenda after being pulled last month for not complying with the governor's order suspending meetings not related to the novel coronavirus pandemic.
The Seattle City Council Select Budget Committee restarted discussions Wednesday on the corporate payroll tax proposal, introduced to the budget committee in early April by Council Members Kshama Sawant, a Socialist Alternative Party member, and Tammy Morales, a Democrat. The measure would impose a 1.3% excise tax on businesses with more than $7 million in payroll to raise an estimated $500 million annually.
"We have a shared interest in recognizing the urgency for progressive revenues," Sawant said. "It was urgent and continues to be urgent."
No action was taken on the tax measures, but council members are expected to deliberate on the measures further and possibly consider amendments when the budget committee meets again next Wednesday.
Last month, Democratic Seattle City Council President M. Lorena González said consideration of the corporate payroll tax proposal, a package of three bills, didn't comply with a February proclamation by Democratic Gov. Jay Inslee.
Inslee's order said agencies were prohibited from taking action on matters unless they were necessary, routine and meant to respond to the COVID-19 outbreak until regular participation under the state's open meetings law was possible. The interpretation of the order effectively shelved consideration of the tax proposal.
But on May 29, Inslee amended his proclamation, effectively allowing the Seattle council to consider the payroll tax measure again.
During Wednesday's hearing, staff members went over details of the measure and took questions from council members. Staff members said the tax would exempt nonprofits, educational employers, grocery stores, local government employers and entities the city already doesn't have the authority to tax, such as motor vehicle fuel and liquor businesses.
The proposal consists of one bill that imposes the tax, a spending plan and a measure that would allow borrowing cash from other city funds to immediately pay for emergency cash payments to the public in 2020. Four months of cash payments of $500 would be distributed to up to 100,000 low-income households, Sawant has said. Beginning in 2021, the tax revenue would help pay for affordable housing and other housing investments related to a local Green New Deal, according to a fiscal note.
When first introduced, the measure was intended to go into effect on June 1, 2020, and was estimated to raise $286.4 million in the first year, representing seven months of collection. But according to a budget committee memorandum, amendments to the bill are being considered that would change the effective date to July 1, reducing projected tax collections to $245.5 million.
An amendment is also being considered that would expand an exemption for grocery stores. Grocery store interests have argued the way the ordinance is written, many stores could still be taxed because the exemption would apply to stores in which 75% of gross income from business activity comes from food, but many grocery stores sell other items as well. A new proposed threshold hasn't yet been introduced.
A third amendment being considered would exempt home care agencies from the tax.
Since the measure's introduction, Teresa Mosqueda, the Select Budget Committee's chairwoman, has held several online public hearings that have attracted strong support from those who argue large businesses should pay more in taxes, especially when smaller businesses are suffering. But they've also attracted strong opposition from business interests and others who believe the measure would hurt the local economy, especially since businesses are already struggling because of COVID-19, the respiratory ailment caused by the coronavirus.
City Council staff members have said the tax would be immune to a public referendum if passed as an emergency ordinance, though the city charter requires emergency measures to have at least three-fourths of all council members and the mayor approve the measure. That means seven out of nine members would have to vote yes, and the council couldn't override a mayoral veto.
Mayor Jenny Durkan's office didn't immediately respond to requests for comment Thursday, but Durkan has previously said shelving the measure was in line with "several serious flaws." Those flaws include arguments that the tax wouldn't close the city's budget gap or provide any immediate relief to residents.
Council members either didn't respond to requests for comment or had no comment Thursday.
While Mosqueda didn't specifically endorse the tax measure, she said during the Wednesday meeting there was an urgent need for funds to help people during the COVID-19 crisis, calling it a "call to action."
"I have a strong interest in working with every one of you to make sure that we pass progressive, comprehensive revenue," Mosqueda said.
--Editing by Neil Cohen.
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