Taxing in the Name Of: Seattle “Head Tax” Approved

Seattle City Council unanimously approved a measure to tax the largest companies in the city, ending weeks of debate and negotiations with Mayor Jenny Durkin. Dubbed the “Seattle head tax”, the measure was touted to raise funds, combat homelessness, and build affordable housing by instituting a per-employee tax on companies such as Starbucks and Amazon, among others. With no income tax available to the city, new revenue streams have been a hotly debated topic.

CNN Money:

The Seattle City Council passed it unanimously in a 9-0 vote.

The final package, however, is almost half the size of the original proposal, which never garnered a veto-proof majority on the council. It was publicly opposed by Amazon — the city’s largest private sector employer — and 131 other businesses.

The newly passed ordinance, which takes effect in January 2019, will impose a “head tax” on the city’s highest grossing businesses. The tax will amount to $275 a year per full-time employee in Seattle. It would raise an estimated $44.7 million a year and expire after five years, according to the Council.
That’s down from the $75 million a year the original proposal would have generated by imposing a $540 head tax per employee for the next few years, after which it would be converted to a 0.7% payroll tax.
Related: For Amazon HQ2 hopefuls, Seattle serves as a cautionary tale

The only companies affected by the new ordinance would be those generating $20 million or more of annual revenue in the city. That’s roughly 3% of businesses in Seattle, or 585 employers, according to the Council’s estimates.

Roughly 60% of the revenue raised would go to building affordable housing, and 40% will be put toward emergency services for the homeless, Councilmember Lorena González said in the Council’s public meeting Monday.

Seattle Mayor Jenny Durkan, who threatened to veto the original $540 head tax out of concern that it could cost the city good jobs, said Monday evening she would sign the new compromise deal into law.
“This legislation will help us address our homelessness crisis without jeopardizing critical jobs,” Durkan said in a statement.

Those largest companies, however, are not being quiet in their opposition to the measure.

HearldNet.com:

Amazon, Starbucks and business groups sharply criticized the council’s decision after Monday’s vote. They called it a tax on jobs and questioned whether city officials were spending current resources effectively. One state Republican leader said he would seek legislation next year to make clear that a city tax on employees, wages or hours is illegal.

Seattle-based Starbucks had harsh words for its hometown leaders. It accused the city of spending without accountability while ignoring that hundreds of children sleep outside.

“If they cannot provide a warm meal and safe bed to a 5-year-old child, no one believes they will be able to make housing affordable or address opiate addiction,” Starbucks’ John Kelly said in a statement.

Adding to the drama was the pausing of construction on a downtown facility by Amazon during the Seattle head tax debate which the retail giant now says will resume, but with a warning.
Fortune:

However, the version of the tax that the City Council agreed to on Monday will be far less onerous than the draft that led Amazon to suspend construction on a new office tower in a not-so-subtle threat over providing further employment in Seattle.

“We are disappointed by today’s City Council decision to introduce a tax on jobs,” Amazon said in a statement. “While we have resumed construction planning for Block 18, we remain very apprehensive about the future created by the council’s hostile approach and rhetoric toward larger businesses, which forces us to question our growth here.”

The big name companies get the spotlight, but the debate over growing mega-companies and their effect on housing in the areas they are based in is both old and growing. Supporters are not shy about their intentions for taxing large companies for social causes, such as to be found at Common Dreams:

Overcoming weeks of extortionist threats and other forms of “corporate bullying” from the world’s largest retailer, Seattle’s City Council on Monday unanimously approved a new tax on Amazon—which paid nothing in federal income taxes last year—and other major companies in an effort to provide essential services for the homeless and combat the local housing crisis.

“As long as big business controls the wealth in society, and controls what is built and where…they will create a race to the bottom around the world.”
—Kshama Sawant, Seattle City Councilmember

Noting that the so-called “head tax” is quite modest relative to Amazon’s annual revenue and the pay of its CEO Jeff Bezos—the world’s richest man—socialist Seattle City Council member Kshama Sawant argued on Monday that “even a smaller tax is a huge victory,” given the “Goliath-like clout of Amazon.” A far more progressive and bold approach is possible, Sawant urged, if politicians refuse to limit “themselves to what’s acceptable to big biz.”

In total, the tax is expected to raise around $47 million a year, $13 million of which would come from Amazon, the city’s largest employer. Warren Gunnels, policy director for Sen. Bernie Sanders (I-Vt.), called Monday’s vote a “huge victory” and noted that yearly revenue from the new tax on Amazon will be roughly equivalent to what Bezos makes in an hour.

Other companies that will be hit by the tax are Starbucks, Apple, Google, and Nordstrom.

Despite the fact that the measure passed by the Seattle city council on Monday is significantly smaller than the original $75 million a year tax proposal, Amazon continued its “howls of protest” in a statement on Monday, decrying the new tax as “disappointing” and “anti-business.”

Fortune:

Seattle has a serious homelessness problem that has been exacerbated by the growth in high-paying jobs there, thanks to big employers such as Amazon, Microsoft and Boeing.

So, at the end of April, the Seattle City Council released draft legislation that would force companies with revenues of over $20 million in the city to pay 26 cents for each hour worked by a Seattle-based employee, or roughly $540 per head per year. This “head tax” was to apply over 2019 and 2020, generating $86 million a year for social programs, before turning into a 0.7% payroll tax. (The annual proceeds of the tax were originally calculated at $75 million before the council revised its estimates.)

However, with Mayor Jenny Durkan threatening to veto the tax because she was concerned about its impact on employment, the measure had to be watered down to pass.

Amazon addressed such criticism in its own statement:

“We are disappointed by today’s City Council decision to introduce a tax on jobs. While we have resumed construction planning for Block 18, we remain very apprehensive about the future created by the council’s hostile approach and rhetoric toward larger businesses, which forces us to question our growth here. City of Seattle revenues have grown dramatically from $2.8 billion in 2010 to $4.2 billion in 2017, and they will be even higher in 2018. This revenue increase far outpaces the Seattle population increase over the same time period. The city does not have a revenue problem – it has a spending efficiency problem. We are highly uncertain whether the city council’s anti-business positions or its spending inefficiency will change for the better.”

Still others think the city might be overreaching here, and some have challenged the notion that only the big companies will be affected:

King5:

The debate has most often focused on Amazon, but there are roughly 600 businesses that will be affected, some more than others. One of those is the iconic Dick’s Drive-In.

“That’s what’s really frustrating, this isn’t about Amazon at all,” said Saul Spady, whose grandfather founded Dick’s back in 1954. “This is a tax on high-volume, low-margin businesses, like restaurants, and that’s where it’s going to put the most pain. And it’s making restaurants like Dick’s Drive-ins think really strongly about do we make our workforce more efficient, do we give less money to charity, or maybe we just don’t be a business in Seattle.”

For some, Dick’s Drive-In is as much Seattle as the Space Needle, or Starbucks. It’s been here longer than both but now must face the fact of doing business in a city that’s rapidly changing.

Meanwhile, restaurateur Ethan Stowell is primed to open his newest venture in fine dining, Cortina. It’s unclear whether the head tax will affect him directly, but he’ll be paying for it one way or another.

“There’s dozens of purveyors that we buy from that all have to pay it, and they have to raise their prices,” said Stowell. “If milk costs me x amount of dollars and now it goes up, my percentage is my percentage, I need to make sure I’m fiscally responsible with my business and they’re going to be reflected in the price.”

Like Dick’s, Stowell and other Seattle businesses have given back to their community but admits more could be done. The question is who spends that money the best.

“I’d be happy to write a check for homelessness. Am I happy to write a check to the city of Seattle for them to manage my money? Not super stoked about that,” Stowell said.

Activist might scoff at Amazon hinting at considering their future in Seattle, but in the background looms memories of a city and region that is still smarting from the loss of an iconic business not long ago.
ABC News from when it happened:

Boeing Co. stunned its hometown by announcing it is moving its headquarters out of Seattle, where the aircraft manufacturing giant was founded 85 years ago.

Chairman and Chief Executive Phil Condit said Wednesday Boeing is considering Chicago, Denver and Dallas-Fort Worth. It hopes to choose the site by early summer and have it running by fall.
Condit said the move is intended to save money and give the world’s No. 1 maker of passenger jets a headquarters central to its operations, now spread over 26 states.

The company’s huge jet manufacturing plants will remain in the Seattle area, as will much of its research and development work.

Condit said less than half the 1,000 employees working at its Seattle corporate center will be moved to the new headquarters. The others will be transferred to other departments or may be laid off, he said.
The announcement shocked community and labor leaders.
While the move might not have a major economic impact on Seattle, Mayor Paul Schell and Gov. Gary Locke publicly pleaded with Boeing to reconsider. “I will do all I can to help them change their minds,” Schell said.

“I am surprised and deeply sorry to see any part of the Boeing Co. leave Washington state,” Locke said. “While the bulk of the Boeing family remains with us, to lose the corporate leadership of this company leaves a void in our economic and cultural life.”

Is there a foreshadowing in Boeing’s move and the debate at hand with Amazon post Seattle head tax? Maybe, wrote Dominic Gates last year when Amazon HQ2 became an issue:

Some parallels to Amazon’s decision are clear, but there are important differences too.

For a start, the prize for the city that wins the Amazon contest will be much, much richer: It promises a $5 billion investment, as many as 50,000 high-paying jobs, an expectation of kindling more growth, and the immediate prestige of digital technology leadership.

In his 2001 announcement Condit named Chicago, Dallas and Denver as the leading contenders and invited proposals from each city. When Chicago came out on top a few months later, only a few hundred corporate jobs shifted from the Seattle area to a skyscraper in the Windy City. Boeing’s manufacturing sites were never part of the move.

At the time, Boeing employed 79,000 people in Washington state. By 2012, that figure had risen to 87,000.

The most significant difference in the two corporate maneuvers may be more psychological: Amazon is not “moving” its headquarters. It’s duplicating it.

That is significant because while Amazon hasn’t signaled dissatisfaction with Seattle, Boeing’s move betrayed a deep unease about the city.

***

There also was a suspicion that the corporate and political climate of Chicago — its more conservative, business-friendly bent; its expensive steakhouses where macho titans of industry could talk over cigars and scotch — would better suit the taste and personality of men like Boeing’s then-president, Harry Stonecipher.

From their airy perch in Chicago, Boeing’s leaders could — and did — make steely decisions about where to locate work or where to make layoffs at a safe remove from the people affected on the ground.

The impact of that detachment from Seattle is apparent today, when Boeing’s total employment in the state has sunk to 67,000.
The recent sharp decline is due partly to cyclical trends in the airplane industry but also to Boeing’s leadership moving work to other states to reduce costs.

Of course, if Amazon in 10 years has twin headquarters in Seattle and say, Boston, its leadership will have a similar psychological freedom. When deciding where to make their next big investment, they’ll be equally able to play one city off against the other in asking for incentives — and almost certainly will do so.

However the homeless, the hard-up for housing, and the Seattle head tax move forward one thing is for sure: life in the Pacific Northwest just got more expensive for big companies, both in taxes and in turmoil.

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