Seattle City Council releases business tax proposal; hearing scheduled Monday. Senate minority leader favors preemption.

Today the Seattle City Council released its proposal to tax business to fund services to reduce homelessness. It’s not exactly a “long awaited” proposal; a lot of people, including business leaders, would prefer the idea remained shelved permanently. 

The plan, as described on the city’s website, is this:

The Progressive Tax on Business will:

  • Exempt Seattle’s small and medium-sized businesses, only applying to those with at least $20 million or more annually in taxable gross receipts as measured under the City’s existing Business & Occupation tax;
  • Applies only to the City’s approximately 500 largest businesses (or approximately 3% of Seattle’s business owners);
  • Large businesses included will pay just about a quarter ($0.26) per hour per employee working in Seattle;
  • All nonprofit businesses in Seattle are exempt;
  • The employee hours tax will be replaced by a business payroll tax on January 1, 2021;
  • For those same approximately 500 largest businesses, the replacement business payroll tax will be calculated as 0.7 percent of all payroll related to work done in Seattle.

The schedule for council consideration:

The Council is set to continue deliberation on the Council bill and resolution in the following manner:

  • Monday, April 23 Introduction of Legislation
  • Wednesday, April 25 Finance Committee Meeting 2:00 p.m.Discussion of Investments
  • Wednesday, May 2 Special Finance Committee Meeting 12:00 p.m.Issue Identification
  • Wednesday, May 9 Finance Committee Meeting 2:00 p.m.Discussion of Amendments, Possible VOTE

The Full Council vote is scheduled to occur on Monday, May 14 at 2:00 p.m.  The legislation will take effect in January 2019.

That last sentence reads like a tell: “legislation will take effect” next January.  The city’s site also describes how the money would be spent, contains endorsement quotes from council members who think the tax is a great idea, and links to a promotional infographic.

The Seattle Times reports,

The Seattle City Council has finally released draft legislation for a new tax on large employers that would raise $75 million next year to help address homelessness.

Four of the council’s nine members have put their names to the plan…

The tax initially would be based on employee hours rather than payroll because the city has collected an employee-hours tax before and has systems in place to collect one again.

Councilmembers M. Lorena González, Lisa Herbold, Teresa Mosqueda and Mike O’Brien are championing the plan. Councilmember Kshama Sawant also has been calling for a new tax.

According to a resolution accompanying the bill, the city would spend 75 percent of the tax revenue to help build low-income housing, 20 percent on homeless services and 5 percent on administrative costs.

State Sen. Mark Schoesler, R-Ritzville, thinks Seattle is overstepping its authority by levying the tax. In a Puget Sound Business Journal op-ed, Schoesler writes,

…the council doesn’t even have the explicit authority to impose all the taxes it wants.

That’s right — cities have no inherent authority to levy local taxes unless it’s expressly delegated by the Legislature or Washington’s Constitution. Also, the state’s authority over taxation includes the ability to restrict local taxing authority. An example is how state law prohibits local business taxes on the sale of motor vehicle fuel and insurance. 

Next year I will make sure legislation is introduced to explicitly prohibit local governments from taxing businesses on a per-employee basis. Clearly, local politicians need reminding that under the state constitution, taxing authority must be granted by the state to local government.

It appears that some cities currently levy some form of per-employee tax. For example, Redmond bases business license fees on employee hours worked in the city. 

The minimum fee for any license is $112.00, covering up to 1,920 hours worked in Redmond. In addition to the annual employee hours reported to Washington State Department of Labor and Industries (L&I), you must include employee hours for sole proprietors, owners, managers, partners, and any officers, agents, family members working at the business or personal representatives acting in a fiduciary capacity.

Regardless, the Legislature can act to preempt local ordinances, Schoesler told 770KTTH.

The state Legislature does have the ability to revoke local taxing authority, and they already prohibit city governments from taxing gasoline and insurance. Schoesler told Rantz he absolutely wants to put a stop to this tax, too, if he can.

“There’s a prohibition on local income tax,” Schoesler said. “I think it should be clarified that a regressive per-head tax on employers is prohibited unless authorized by the Legislature.”

There’s also the question of legality.

“We have concerns about whether it really is legal to have a head tax in the state of Washington,” Schoesler said. “Most local taxes are authorized in statute and added over the years. This one I think is a gray area.”

It should be an interesting couple of weeks ahead.