Seattle finance committee assesses potential head tax business impacts

The Seattle City Council’s Finance and Neighborhoods Committee is sorting out potential impacts an employee hours tax could have on local businesses.

While some say the city is moving too fast in developing new revenue streams to combat Seattle’s homeless state of emergency, said Councilmember Sally Bagshaw said during a March 28 finance committee meeting, she doesn’t feel work is going fast enough.

She said the 2017 Count Us In survey found 5,485 people living unsheltered across King County.

“Imagine filling all of Benaroya Hall and all of the Paramount Theatre, and we would still have people that would be standing in line wanting to get in,” Bagshaw said.

The City of Seattle did collect an EHT of $25 per employee from mid-2007 to until its repeal at the end of 2009. That had been used for funding transportation needs, and there have been subsequent EHT proposals made every year since 2014.

That includes the proposal for an EHT of 6.5 cents per employee per hour to generate $25 million annually for housing and homeless services that the city council didn’t pass last year.

The council instead approved a resolution in November to create the 17-member Progressive Revenue Task Force, which published its final report in mid-March that recommends an employee hours tax that generates $75 million annually.

The finance committee received a briefing on the task force’s recommendations on March 14, and asked Central Staff to return with answers to questions about potential business impacts.

Based on local business taxes, Seattle is the most expensive city in the region for large employers to operate in, with Bellevue coming in second, according to data provided by Central Staff, and Bothell having the least business-related taxes.

Seattle and Bellevue differ most when it comes to business services firms. Central Staff provided an example that considers 200 full-time equivalent employees and $100 million in taxable gross receipts, with tax impacts amounting to $429,000 and $189,651, respectively.

Councilmember Lorena González said it’s important to understand “gross receipts doesn’t equal profits” when assessing various categories of businesses.

Councilmember Lisa Herbold, who led the Progressive Revenue Task Force with González, said she wants to see Seattle compared with similarly sized cities, noting Amazon’s HQ2 search is focused on big cities, some of which have corporate taxes that Seattle doesn’t.

“I think taking a look at some like-sized cities around the country and doing a similar exercise to this would be really illustrative,” Herbold said.

Central Staff deputy director Dan Eder said the Finance and Administrative Services department could take up to six months to develop rules for an employee hours tax, allowing for it to take effect by Jan. 1, 2019.

“They would need longer if it wasn’t something that we had done before,” Eder said, adding a new EHT would be simpler because it wouldn’t include exemptions based on commute patterns.

The task force provided three options for an employee hours tax, with two options setting a gross revenue threshold for a business at $8 million, and another that goes to $10 million.

There are about 1,000 businesses with gross taxable receipts of $5-$10 million, 387 between $10-$15 million and 750 with receipts more than $15 million, according to 2015 business and occupation tax data provided by Central Staff.

The committee has favored making that $75 million target set by the task force, which would require raising $370 per full-time equivalent employee if businesses declaring less than $10 million in gross taxable receipts were exempt, according to Central Staff.

Before the March 28 finance committee, councilmembers sat down with the recently formed Small Business Advisory Council, which two weeks earlier had joined business owners in signing a letter opposing a flat tax rate of $395 recommended by the task force for businesses exempt from an employee hours tax.

Bagshaw said at the start of the committee meeting that she understands business owners don’t care for its being referred to as a “skin-in-the-game” tax, adding one of her friends says he’s felt “skinned alive.” The councilmember cited Seattle’s $15 minimum wage, secure scheduling and paid sick leave laws as some of the other impacts business owners are facing.

Another potential new revenue source discussed during the March 28 committee meeting was a payroll tax, which would take much longer to implement than an employee hours tax due to starting from scratch with rule-making and setting up a database for it.

There are also payroll tax options, like with the EHT, that include a flat rate, stepped rates and exemptions for smaller businesses.

According to Central Staff, a payroll tax with no exemptions, and that assumes a 2016 mean wage of $29.41 per employee for a full-time employee in Seattle, set at 0.3 percent would generate about $80 million. A 0.5 percent tax would generate about $135 million.

There are a number of meetings lined up from now through May 9, when the finance committee could have ordinances reviewed, amendments ready and possible votes, Bagshaw said.

The full council received an update on April 2, a business roundtable is set for 12:30 p.m. Tuesday, April 17, and then there will be a public hearing on April 22 where ordinances and legislation could be introduced. Two more finance committee meetings on April 25 and May 2 will follow that.

Herbold said within that timeline councilmembers will also be working on a spending plan, similar to what it does with the housing levy. Gonzalez said there are also meetings being planned with the Small Business Advisory Committee and neighborhood chambers of commerce.

Councilmember Mike O’Brien will host a town hall 6-8 p.m. Wednesday, May 2, at Trinity United Methodist in Ballard, 6512 23rd Ave. N.W.

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