Legislation that would impose a 1.3% excise tax on businesses with more than $7 million in annual payroll will be formally introduced on April 6, council member Kshama Sawant, a Socialist Alternative Party member, and council member Tammy Morales, a Democrat, said Wednesday. The officials had proposed the tax in March with a Jan. 1, 2021, start date, but the pandemic prompted them to seek a June 1 effective date to provide payments to low-income households affected by the virus, which causes the respiratory disease COVID-19.
"Now, more than ever, this city's politicians need to tax big business to address the unprecedented economic collapse working families are now facing," Sawant said in a statement.
The tax revenue would be used to provide $500 payments for four months to about 100,000 households this year, according to a summary of the bill.
The tax would be imposed on about 800 companies, roughly the top 2% of the city's business sector, Sawant said. Nonprofits, public employers and grocery stores would be exempt from the tax, she said. Sawant told Law360 she gave the ordinance the "Amazon tax" nickname to let the public know it will be imposed only on large businesses. Amazon is headquartered in Seattle.
The tax is projected to raise $500 million annually, according to a summary of the proposed legislation. The iteration of the ordinance that was first proposed called for a 0.7% tax rate, but Sawant told Law360 on Thursday the rate was increased after seeing more estimates about what the rate needed to be to hit an annual $500 million amount.
Although the tax would take effect June 1, it would not be collected until 2021 or 2022, so the immediate COVID-19-related relief would be funded by a $200 million loan that the city would pay back, according to the summary. Starting in 2021, the revenue would be used to fund social housing and environmental initiatives.
Sawant told Law360 that she doesn't expect the tax to have Mayor Jenny Durkan's support, at least initially. Instead, she said she will try to energize a groundswell of community support for the tax that she hopes will percolate up to the City Council, which consists of nine members plus Durkan.
Sawant said she employed the same strategy when the council unanimously passed a $275-per-employee tax on companies making more than $20 million in 2018. That measure was later repealed less than one month later amid backlash from business interests.
More than 6,000 city residents have signed a petition supporting the tax, and roughly 1,000 emails supporting the tax have been sent to council members since Wednesday, Sawant said.
"We need to pass it right now," Sawant said. "People are living paycheck to paycheck, but won't have a paycheck due to the virus."
A representative of Durkan's office told Law360 on Thursday that no council members have reached out to the mayor about the proposed tax. The representative said Durkan would sit on the sideline until she knows more details of the ordinance. However, the representative added that the city has never sought a stopgap loan as large as the one proposed to pay for COVID-19 relief this year, and that the city will likely face a downturn in tax collections due to the economic impacts of the virus.
"Ultimately, without further details about what specifically is being proposed, it is impossible to assess these risks and uncertainties," the representative said.
Scott M. Edwards of Lane Powell PC told Law360 that it's questionable whether Seattle has the authority to impose the tax because it could be construed as a local tax on income, and the city's ability to do so remains an open legal question.
Edwards noted that the state Court of Appeals last year struck down a law barring municipalities from levying a tax on net income while concurrently finding Seattle's wealth tax unconstitutional, but said the state Supreme Court is still weighing whether to hear the case.
Edwards, who represents one of the parties challenging the wealth tax, said until that case is ultimately resolved, he doesn't believe that Seattle's proposed tax would pass legal muster. Additionally, he said the proposal appears to be a carbon copy of legislation the state lawmakers didn't pass this year that would have permitted King County to impose an income tax. Seattle is in King County.
"They're recreating failed legislation and proposing to adopt it in the city of Seattle when the Legislature has not granted them the authority to do that," Edwards said.
A representative of Amazon did not respond to a request for comment Thursday.
--Editing by John Oudens.
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